ANNUAL REPORT 2010 - fsk-ees.ru 500-kV Krymskaya substation and the 500-kV ... the most modern...

ANNUAL REPORT 2010

FEDERAL GRID COMPANY OF UNIFIED ENERGY SYSTEM

CONTENTS

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ABOUT THE COMPANY1.1 Organizational Structure1.2 History1.3 Market Overview1.4 Geography1.5 International Operations1.6 Strategic Priorities

PRODUCTION OVERVIEW2.1 Electricity Transmission2.2 Technological Connection 2.3 Reliability Improvement 2.4 Improving Energy Effi ciency and Mitigating Losses2.5 Maintenance and Repairs2.6 IT Network Development2.7 Procurement

INVESTMENTS AND INNOVATIONS3.1 Investment Activities3.2 Key Investment Projects3.3 Innovative Development

ECONOMIC AND FINANCIAL PERFORMANCE4.1 Tariff Regulation4.2 Cost Optimization4.3 Loan Portfolio and Liquidity4.4 Credit Ratings

Operating and Financial Highlights• 2010 Key Events• Statement of the Chairman of the Board of Directors• Interview with the Chairman of the Management Board•

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CORPORATE GOVERNANCE5.1 Corporate Governance Principles5.2 Board of Directors5.3 Committees of the Board of Directors5.4 Management Board5.5 Remuneration to the Management Bodies5.6 Internal Control System5.7 Risk Management System5.8 Share Capital5.9 Stock Market5.10 Dividend Policy5.11 Investor Relations

SOCIAL RESPONSIBILITY6.1 Social Responsibility Principles6.2 HR Policy6.3 Environment6.4 Production Safety

ATTACHMENTS2010 RAS Financial Statements and Audit Report• 2009 RAS Financial Statements and Audit Report• 2010 Management Discussion and Analysis (MD&A)• Compliance with the Code of Corporate Governance• 2010 General Shareholders Meetings• Branches• Subsidiaries• 2010 Interested Party and Major Transactions• Implementation of the Assignments of the President • and Government of the Russian FederationAudit Commission Conclusions on the Veracity • of Information in the Annual Report2011 Investor Calendar• Glossary• Contacts•

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OPERATING AND FINANCIAL HIGHLIGHTS

* Including leased facilities

200820092010

Number of substations (units)*

805804800 2008

20092010

Transformer capacity (MVA)*

311,007.93306,422.35

294,126.84

200820092010

Total length of electric energy transmission lines (thousand km)*

121.7121.1121.5

200820092010

Electric energy output through the UNEG to distribution companies, direct consumers on the WECM and independentenergoes (mln kWh)

470,648.072452,662.172

471,958.118

200820092010

Electric energy output through the UNEG to neighboring countries (mln kWh)

15,716.3313,628.309

16,704.763

200820092010

Total real electric energy losses (mln kWh)

22,525.62122,120.61021,865.737

200820092010

Customer contract demand (MW)

90,05794,636

90,042

KEY OPERATING HIGHLIGHTS

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FEDERAL GRID COMPANY ANNUAL REPORT2010

*In order to calculate this fi gure, external factors are not taken into consideration in terms of the responsibilities of the Company’s management (revaluation of fi nancial investments, creation of provisions for doubtful debts).

200820092010

Revenue from operating activities

111,08585,078

68,485 200820092010

EBITDA*

40,379*32,718*

68,301*

200820092010

EBIT*

16,962*11,869*

35,619*

200820092010

Profit/ (loss) before taxation

-54,0496,177

68,319

200820092010

Net profit/ (loss)

-59,8664,465

58,088

200820092010

Net asset value

764,162579,746

666,471

200820092010

Debt and borrowing

13,00032,980

56,000

200820092010

Market capitalization

452,717367,971

141,882.2

KEY FINANCIAL HIGHLIGHTS

8

KEY EVENTS2010

JANUARY26.01.2010

Federal Grid Company made public its plans to con-struct seven objects in the Far East in 2010, including introducing 50 MVA of additional transformer capac-ity and 391 kilometers of electric energy transmission lines in the Far East.

The Federal Financial Markets Service (FFMS) regi-stered the Report on the results of the additional share issue of Federal Grid Company. In total, during the issue, 54.64% of additional share issue were placed and RUR40,177,924,543.62 were received as a payment for these shares.

FEBRUARY04.02.2010

Federal Grid Company put into operation the 500-kV Peresvet substation (the Khanty-Mansi Autonomous Region-Yugra), which entailed more than RUR6 billion in investments. As a result, the Company upgraded the reliability of the power supply to the Bistrinskoye, Surgutskoye, Fedorovskoye, Lyantorovskoye, Bitem-skoye, Nizhne-Sortimskoye and Ay-Pimskoye deposits of Surgutnest egaz, as well as the Priobskoye deposit of Rosnest Oil Company and for the Surgut Region in Yugra.

18.02.2010

Federal Grid Company received an award for con-tributing to the development of a social partnership from the All-Russian Industrial Union of Power Sector Employers.

27.02.2010

Management Board adopted an innovative deve-lopment and modernization policy for the Unifi ed National Electric Grid (UNEG), including develop-ment of the next generation electric grid in Russia – smart grid.

MARCH11.03.2010

Federal Grid Company completed construction of the 500-kV Krymskaya substation and the 500-kV Tikhoretsk – Krymskaya transmission line. In order to realize this project, the Company invested a total of RUR8.6 billion.

20.03.2010

Federal Grid Company and Transnest signed an agree-ment on cooperation for determining the interaction between parties during the construction of external power supply objects for the Eastern Siberia – Pacifi c Ocean pipeline transportation system (ESPO-1, 2).

APRIL06.04.2010

Federal Grid Company signed agreements on co-operation with leading producers and developers of electro-technical equipment in the Central Region of Russia with the goal of achieving eff ective and accident-free operation of local UNEG objects.

27.04.2010

Federal Grid Company and Rostelecom put into operation the fi ber optic telecommunication line Chelyabinsk – Khabarovsk. This is the largest Russian project in the fi eld of constructing principal telecom-munication lines during the last 10 years. The length of the new fi ber optic telecommunication line is ap-proximately 10 thousand kilometers. Investment in constructing this project exceeded RUR5 billion.

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ANNUAL REPORT2010

FEDERAL GRID COMPANY

MAY 19.05.2010

Federal Grid Company and Siemens AG Group con-cluded an agreement on strategic cooperation in implementing new technologies at Federal Grid Com-pany objects and developing the production of Sie-mens electro-technical equipment in Russia, as well as servicing and maintaining Siemens equipment installed at the Company’s power facilities.

JUNE02.06.2010

Federal Grid Company created the Innovation Com-mittee. The Committee’s main goal is to implement the project to develop a smart energy system with an active adaptive grid.

18.06.2010

Federal Grid Company and RUSAL signed an agree-ment on developing the production of new types of wires for transmission lines.

Federal Grid Company and European Bank for Re-construction and Development (EBRD) signed an agreement on mutual understanding stipulating the intention of parties to broaden cooperation in the fi eld of upgrading the energy eff ectiveness of the Russian economy by developing the UNEG.

21.06.2010

Federal Grid Company signed ten agreements with producers and developers of electro-technical equip-ment, as well as with numerous Russian and foreign partners. Agreements are aimed at the common development and application of new technologies and the most modern equipment in the electric grid.

28.06.2010

Board of Directors adopted a resolution to increase the Company’s charter capital by placing additional common shares in the amount of 28,288,776,589 with a nominal value of RUR0.50 per share resulting in an overall sum of RUR14,144,388,294.5. Funds received as a result of the issue will be directed at realizing the Company’s investment program.

29.06.2010

Annual General Shareholders Meeting took place. At this meeting a decision not to pay dividends for 2009 was adopted. The Company’s shareholders adopted the 2009 annual report and fi nancial reports, elected the Board of Directors and the Audit Commission and selected the Company’s Auditor. The new version of Articles of Association was adopted, as well as numerous internal documents.

JULY07.07.2010

Two Federal Grid Company projects – to create a superconducting cable line and a transformer-type controlled shunt reactor – were included in the 50 best innovative projects from leading Russian com-panies, as selected by Expert RA rating agency within the “Innovative Activity of Large Russian Businesses” study.

26.07.2010

Federal Grid Company and the State Electric Grid Cor-poration of China signed a framework agreement on cooperation aimed at upgrading the eff ectiveness, reli-ability and safety of operating the Companies’ electric grid infrastructure, as well as on implementing new technologies.

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recognition from an expert council in the special cate-gory “For Best Practices in Corporate Governance and Interactions with the Investment Community in 2010.” The contest was organized by the Administration of the Krasnodar Region with participation of Russian Institute of Directors and FFMS.

28.09.2010

Federal Grid Company completed the public place-ment of Series 6, 8 and 10 bonds for a total of RUR30 billion, which was the largest public placement of RUR-denominated corporate bonds in Russia.

OCTOBER06.10.2010

Federal Grid Company adopted the Program on im-plementing the Company’s 2011-2013 environmen-tal policy, providing for the fulfi llment of numerous measures aimed at decreasing risks and minimizing pollution of the surrounding environment, introducing an ecological management system, organizing eco-logical audits and developing normative and technical documentation in this sphere.

08.10.2010

Board of Directors adopted Regulations on the Credit Policy of Federal Grid Company. The need to adopt this document was connected with the Company’s plans to conduct an intensive credit policy taking into account RAB regulation parameters.

29.10.2010

Federal Grid Company placed series 7, 9 and 11 bonds for a total of RUR20 billion.

AUGUST12.08.2010

FFMS registered the resolution on the Company’s additional issue of common shares and the Securi-ties Prospectus.

17.08.2010

The Complex Program of MES South to prepare the Sochi Region for the 2014 Winter Olympics was adopted. Program realization will ensure the reliable functioning of 66 10-220-kV substa-tions, as well as 1,000 km of 10-220-kV electricity transmission lines.

27.08.2010

Federal Grid Company, RusHydro and Transnest signed an agreement on cooperation determining the interaction between parties during the realiza-tion of investment projects for the external power supply of the pipeline transportation system Eastern Siberia – Pacifi c Ocean (ESPO-2) and the Nizhny-Bureyskaya HPP.

SEPTEMBER03.09.2010

Federal Grid Company announced the placement of additional common shares. The cut-off date for the placement was 4 February, 2011. Funds received from the issue will be directed at implementing the Company’s investment program.

20.09.2010

Federal Grid Company won the fi rst place in a con-test for 2009 annual reports in the category “Sector Report: Infrastructure.” The Company also received

KEY EVENTS2010

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ANNUAL REPORT2010


15.12.2010

Board of Directors appointed STATUS as the Compa-ny’s registrar. At the same time, the Board of Direc-tors adopted a resolution on dissolving the contract for Central Moscow Depository to hold the contract, based on FFMS annulling the registry holding license (for Central Moscow Depository).

16.12.2010

Board of Directors adopted the Company’s 2010-2014 investment program. The program’s fi nancing volume is RUR952.4 billion. The program provides for the large scale construction and reconstruction of elec-tric grid objects, removing transmission constraints for connecting new users and supporting power output schemes from newly built power plants to the country’s Unifi ed Energy System.

16.12.2010

Board of Directors adopted amended Regulations on the Dividend Policy. The document provides for the minimal amount of dividends and is based on a transparent method for calculating dividend pay-ments, taking into account the Company’s fi nancial results.

22.12.2010

Federal Grid Company was named “Energy Company of the Year.” The Company received an award for its successful work in modernizing Russia’s main electric grid complex on an innovative basis, as well as on a tight schedule.

28.12.2010

Federal Grid Company summarized results of exer-cising the pre-emptive right to acquire additional shares. A total of 22,386,785,410 shares were placed at RUR0.50 per share, which represents 79.1% of the total number of shares, for the total sum of RUR11,193 million.

NOVEMBER10.11.2010

Federal Grid Company and Hyundai Heavy Industries concluded an agreement on scientifi c and techni-cal cooperation, the aim of which is to upgrade the eff ectiveness, reliability and safety of electric grid infrastructure, in particular, developing new technolo-gies in the electric grid complex and implementing in-novative equipment and ready solutions in the design, construction and operation of energy objects.

19.11.2010

Federal Grid Company received a passport of readi-ness for operating in the 2010-2011 autumn-winter period.

20.11.2010

The Company launched the fi rst innovative Grid Con-trol Center (GCC) in the MES Siberia branch. This Center was created on the basis of the Kuzbass Enterprise of main electric grids. Operative and technological management functions for 10 energy objects, including 110-220-kV transmission lines and power equipment for the 220-kV Severny Maganak substation, were transferred to the GCC.

DECEMBER14.12.2010

As a part of realization of the Program for develop-ing electric grids in the Sochi Region for 2010-2014, the Company put into operation cable and over-head transmission lines (110 kV), the fi rst order in the Kгasnopolyansky Settlement District, the Laura substation (110 kV, 2х40 MVA) and the Roza Khutor substation (110 kV, 2х40 MVA).

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KEY EVENTS2010

Federal Grid Company put into operation an experi-mental next generation digital substation. Its main purpose is to develop various innovative technologies prior to their introduction at UNEG energy objects.

30.12.2010

Federal Tariff Service (FTS) adopted Federal Grid Company’s RAB-based tariff s for 2011-2014. The es-tablished regulation parameters will allow to fi nance the 2010-2014 investment program, as well as to implement the innovative development and UNEG modernization program.

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ANNUAL REPORT2010KEY EVENTS AFTER

THE REPORTING DATE

JANUARY26.01.2011

Federal Grid Company started constructing the 220-kV Vladivostokskaya TPP-2 – Zeleny Ugol Volna transmission line with an overall length of 15.4 kilometers, which will allow encircle the power supply scheme of Vladivostok. This scheme will signifi cantly upgrade the reliability of the power supply for the city’s consumers and will also allow for the connection of APEC Summit objects to the Energy System of the Primorsk Region.

FEBRUARY01.02.2011

STATUS started servicing Federal Grid Company's register of shareholders.

04.02.2011

Federal Grid Company completed placing its additional share issue at a price of RUR0.50 per share. A total of 79.14% of shares from the additional issue – 22.39 billion shares – were placed for the sum of RUR11.193 billion. Funds received from the additional share issue will be directed at upgrading the reliability of the functioning of Sochi Region energy objects, due to preparing for the 2014 Olympics and at implementing the “Economic and social development of the Russian Far East and Trans-Baikal for the period to 2013” Federal Target Program.

MARCH23.03.2011

An Extraordinary General Shareholders Meeting took place, at which shareholders adopted the transaction between Federal Grid Company and INTER RAO UES to acquire additional shares of INTER RAO UES. According to the transaction, additional shares of INTER RAO UES were paid for by Federal Grid Company with shares of the following energy companies: WGC -1, RusHydro, OGK-2, WGC-3, OGK-4, OGK-6, TGC-1, TGC-2, Mosenergo, Quadra, TGC-6, Volga Territorial Generating Company (TGC-7), TGK-9, Fortum (TGC-10), TGC-11, Kuzbassenergo (TGC-12), TGK-11 Holding, Bashkirenergo, Yenisei TGC (TGC-13), TGK-14, Sangtudinskaya HPP-1 and GruzRosenergo UES.

28.03.2011

The trading of Federal Grid Company's depository receipts began on the Main Market of the London Stock Exchange under the “FEES” ticker symbol.

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STATEMENT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS

Federal Grid Company was created in 2002 as part of the reform of RAO UES of Russia. Since its cre-ation the Company has achieved a lot and today we are the foundation of Russia’s energy complex and one of the country’s most important infra-structure companies. During the reporting year, the Company recorded signifi cant production re-sults and strengthened its fi nancial position, which was possible due to eff ective work of our manage-ment team, intensive application of new equipment and technologies, and active cooperation between the Company and state offi cers.

Continuous improvement of national economy is directly connected to power industry development, which remains one of the most challenging branches in the Russian fuel and energy complex (particularly in terms of modernization). Energy companies are focused on removing outdated run-down equipment from operation and replacing it with new energy effi cient equipment. In connection with this, the Government intends to launch a state policy to stimu-late power industry innovation and undertake mea-sures to upgrade energy saving and effi ciency.

Another very important objective for development of the power industry today is increasing the sector’s attractiveness for investors. In the end of September 2010 the Russian Government allowed electric grid companies to use a fi ve-year regulation. As part of this transition, Federal Grid Company developed a 2010-2014 investment program with a total vol-ume of RUR952.4 billion. On 12 November, 2010, this investment program was adopted by Russia's Ministry of Energy. The program calls for large scale construction and electric grid network rehabilitation and the removal of connection limitations for new consumers, ensuring power output schemes from newly constructed power plants to Russia’s Unifi ed Energy System (UES).

It should be noted that our investment program will be primarily fi nanced with the Company’s own funds and borrowings and to a signifi cantly lesser degree with federal budget funds. This is the result of transition-ing to RAB regulation, which calls for tariff formation

based on the principle of returns on invested capital. The new tariff estimation methodology makes the Company’s business more understandable and at-tractive for investors. In autumn 2010 Federal Grid Company successfully placed bonds with a total value of RUR50 billion, which tells about the trust that Russian and foreign investors have in the Company and the Government’s policy of electric grid complex development.

Federal Grid Company’s investment program calls for supporting both existing assets and future corpo-rate development, including implementing nationally important large-scale investment projects. These projects include ensuring stable and reliable power supply for the Sochi Olympics, the APEC Summit in Vladivostok and the ESPO. The program also provides for carrying out modernization of the UNEG on an innovative technological basis.

Federal Grid Company faces tremendous challenges responding to which in many respects will determine the level and dynamics of Russian economic develop-ment. We truly believe that our Company will be able to successfully overcome all the diffi culties and will continue to work eff ectively for the benefi t of both Russia and our shareholders.

Dear shareholders!

Sergey Shmatko

Chairman of the Board of Directors, Federal Grid Company,Minister of Energy of the Russian Federation

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INTERVIEW WITH THE CHAIRMAN OF THE MANAGEMENT BOARD

“A crucial year in the development of the main grid complex”

We discuss 2010 results and the Company’s future development with Oleg Budargin, Chairman of the Management Board.

- What were the Company’s 2010 results?

- 2010 was a complex, but intense and productive year for both our Company and the Russian power sector in general. Taking into account the impact of post-crisis economic development, Federal Grid Company continued to adhere to reducing expenses, as well as on optimizing resources and decreas-ing production costs. Our priority, with regard to corporate activities, was to provide for the reliable operation of the backbone grid complex and the stable work of Russia's energy system, as well as steady and uninterrupted electricity supply to our customers. To achieve this, special attention was given to implementing investment, repair and target programs, upgrading the qualifi cations of operating personnel and providing for increased preparedness to prevent emergency situations. Measures taken by the Company allowed it to successfully cope with the 2010-2011 autumn-winter maximum load, to prevent emergency situations in electric power facilities even during unusual weather conditions, and to avoid mass limits on electricity supply to its consumers.

Moreover, 2010 was a year of modernization and construction of new facilities, as well as adopting fundamental tariff decisions. In fact, 2010 marked a transition to a new level of the Unifi ed National Elec-tric Grid (UNEG) development. This year will surely go down in the Company’s history as crucial for the development of main electric grid complex. For the fi rst time, the Company adopted a fi ve-year invest-ment program that called for constructing seventy-three 220-550-kV substations and more than one

hundred and twenty 220-750-kV transmission lines with a total length of 21 thousand kilometers. We also took numerous measures related to innovative projects, achieved agreements with leading interna-tional electrical equipment producers, with regard to constructing plants in Russia which will be manufac-turing the newest equipment for the UNEG. I would also like to point out one more very important event for the Company. The event occurred in 2011, but the foundation was primarily laid in 2010. In March 2011, the Company's Global Depository Receipts (GDRs) were listed on the London Stock Exchange; this will certainly improve the Company's investment attractiveness.

- What were the principal fi nancial and economic results during the reporting year? - During the reporting year, the Company imple-mented a broad range of measures to provide for the stable operation of the backbone grid complex and the UNEG development. In 2010 actual electric supply by Federal Grid Company grids exceeded the 2009 fi gure by 4% and in balanced terms totaled 470.65 billion kWh. In neighboring states’ grids the Company transmitted 15.72 billion kWh, which is 15% more than in 2009. The 2010 increase in electric supply was principally due to increased UNEG grid consumption by large consumers (including industrial enterprises).

During the reporting period, tasks aimed at decreas-ing the UNEG energy losses were fully accomplished. The total energy saving eff ect in 2010 from optimiz-

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ANNUAL REPORT2010


ing operating modes and managing electric grids, de-creasing electricity consumption for the substations’ own use, as well as measures aimed at developing electric grids and introducing energy-saving equip-ment, was 291,640 million kWh.

Net income growth in 2010 confi rmed the Company’s production success. This indicator stood at RUR58.1 billion, according to Russian Accounting Standards (RAS). Income growth is due to higher revenues from electricity transmission, as well as increased profi t from other activities as a result of the revaluation of fi nancial investments (based on current market value). The increase in earnings before interest, taxes, depreciation and amortization (EBITDA) was 69.1% year-on-year. The principal factors driving EBITDA growth were increased operational effi ciency for corporate activities due to transitioning to the new tariff regulation system, eff ective cost management activities and increased amortization payments, due to introducing new capacity as a result of implement-ing the corporate investment program, as well as the revaluation of fi xed assets.

As of the end of the year, the Company’s credit port-folio stood at RUR56 billion and consists of bond issues, most of which were successfully attracted in 2010 (RUR50 billion). These bond issues were aimed at fi nancing the investment program.

On the whole, the Company sees its fi nancial and economic results under the new tariff regulation system during the reporting period as positive. We maintained a high level of liquidity and fi nancial stability.

- What does modernization mean to Federal Grid Company? How does it shape corporate activities?

- Modernization can be very broadly interpreted and in each company or economic branch it can be understood and realized in a completely diff erent manner. Federal Grid Company defi nes modernization as a concrete set of measures to bring the main electric grid complex up to a new operating level in the medium-term, via the use of the latest scientifi c achievements and technologies. In other words, this is not a general call for renovation, but a transparent step-by-step program with certain objectives related to all directions of the Company's operations: technical policy, design, HR issues and cooperation with specialized higher educational institutions, etc.One of the Company’s long-term development priorities is to create smart grids, which will be the foundation of the future electric power industry. These grids will decrease electricity transmission losses and industry risks and prevent accidents in substations and overhead transmission lines. In 2010 the Company started practical work on creating a smart electric grid in Russia. We carried out work to create territorial smart grid clusters in the Amur, Primorsk and Khabarovsk Regions, as well as in Russia's North-Western Region.

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INTERVIEW WITH THE CHAIRMAN OF THE MANAGEMENT BOARD

- What are the basic directions of Federal Grid Company’s fi ve-year investment program, which was approved in 2010? How is construction of electric grid facilities at the most important construction sites moving forward, including at major governmental projects such as Sochi-2014, ESPO and others? - Core directions of Federal Grid Company's investment program include developing backbone electric grids in Russian regions, providing capacity at new power units of the generation facilities, upgrading the reliability of regions with the highest power consumption levels (Moscow, St. Petersburg and the Tyumen Region) and providing electricity supply to facilities within the framework of implementing priority State programs: the Sochi Winter Olympic Games-2014, the APEC Summit in Vladivostok (which will be held in 2012) and the Eastern Siberia – Pacific Ocean pipeline (ESPO).

In particular, during new construction, expansion and reconstruction of energy facilities, we completed and switched on production capacity at 33 substations and put more than 3,000 kilometers of transmission lines into operation. The largest completed projects included putting into operation new transmission lines for providing production capacity to the Volgodonskaya Nuclear Power Plant in the Rostov Region and completing 220-kV grids for providing production capacity to the Boguchanskaya Hydro-Power Plant (HPP).

During the reporting period our preparation for the Sochi Winter Olympics consisted of completing the first stage of constructing the 10-kV transformer and distribution substation in the Sochi Region, as well as constructing new cable transmission lines to supply Olympic objects and wrap up the first stage of constructing the Dagomys and Psou substations. In the Primorsk Region to supply the APEC Summit objects with electricity, the Company launched the Aeroport substation and started building substations and four transmission lines with a total length of more than 150 kilometers. The Company continued constructing and reconstructing principal energy objects for electric grid connections for objects of the Eastern Siberia – Pacific Ocean pipeline, concluding capital repairs of the 220/110/35/6-kV auto-connected transformer

with a capacity of 125 MVA at the reconstructed Shirokaya substation in the Primorsk Region and launching the second Neryungrinskaya GRES-Nizhny Kuranakh transmission line in Yakutia.

In 2011 we plan to fully complete work to prepare electric grid facilities for the APEC Summit – ensuring capacity output of the Kalininskaya NPP and implementing a significant portion of energy efficiency measures at the Skolkovo Innovation Center, the Sochi Olympics and the ESPO.

- What tasks will Federal Grid Company address in 2011?

- The Company’s main task was and will continue to be uninterrupted consumer power supply. In the years to come, in regard to the UNEG development, the Company faces the priority task of upgrading operating system reliability and its modernization and ensuring the economic and rational usage of fuel and energy resources by upgrading the energy efficiency of Federal Grid Company’s objects and equipment. In the sphere of technological connection services, the Company will significantly increase the volume of connected capacities. We will also continue to work on cutting electricity losses in the UNEG. Furthermore, based on results of the planned analysis of the main electric grid complex, we will develop numerous additional measures to improve the effectiveness and reliability of the UNEG.

As part of the corporate innovative development program, in 2011, the Company plans to continue creating smart grid and to increase the share of domestically produced equipment used by the Company.

Another important subject for the Company is in-vestment program fulfillment. This will allow the Company to increase the reliability of its services for existing consumers and to connect thousands of new consumers to the electric grid, as well as to create necessary economic development conditions in Russian regions, and the country as a whole, and to provide power supply to objects constructed under the auspices of important state projects. In total, in 2011 the Company plans to put into operation

19

ANNUAL REPORT2010


more than three thousand kilometers of electricity transmission lines and 26.6 thousand MVA of trans-former capacity. At the same time, the Company will carry out technical rehabilitation and recon-struction on one thousand five hundred energy ob-jects. To ensure stable financing of this large-scale investment, the Company will attract borrowed funds – taking into account adopted tariff decisions using a flexible and diversified approach to debt structure, which will depend on the market situation as well.

Another major direction is working with personnel. We fully understand that without highly qualified spe-cialists capable of working with modern equipment and technologies all corporate efforts in innovative development will be completely ineffective. We co-operate with a wide range of universities to prepare needed personnel. To enable a clear training system and permanent career enhancement for employees, last year we created a specialized personnel training center. We also declared 2011 the Year of the Young Specialist.

- And lastly, what would you like to say to the Company’s shareholders and investors?

- I would like to express gratitude to all of the Company’s shareholders and investors for investing in Federal Grid Company and their continuing support. We also definitely appreciate the significant attention and support we have received from our major shareholder – the Russian Federation.

Currently, Federal Grid Company is one of the most

progressive companies in the power industry. We care about adequately maintaining and developing our electric grid network, paying significant attention to renovating existing assets and implementing new technologies. We actively develop both material assets and new energy transmission technologies and consistently work to decrease costs and improve effectiveness. We continually upgrade corporate governance in line with international best practice, increasing share liquidity and attracting experienced governance managers. All of this is aimed at increasing the Company’s investor attractiveness and maximizing shareholder value.

ONE NATION

ABOUT THE COMPANY

ANNUAL REPORT2010

MOVING FORWARD WITH NEW ENERGY

ONE GRID –

22

Federal Grid Company is the largest publicly traded electricity transmission company in the world in terms of the length of transmission lines and transformer capacity. Its unique infrastructure is a backbone of the Russian economy.

Federal Grid Company is the largest energy company in Russia by market capitalization. Federal Grid’s shares are included on the MSCI Emerging Markets and MSCI Russia indices.

The largest part of our revenues is generated via ta-riffs for electricity transmission, approved by the Rus-sian Federal Tariff Services (FTS) based on the RAB tariff regulation. Our major consumers are regional distribution grid companies, retail electricity supply companies and large industrial enterprises.

The future of the Company’s significant growth is based on a large scale investment program, as well as on our management’s commitment to innovation and modernization.

121,700 KM

13.6 MLN SQ. KM

RUR1 BLN RUR952.4 BLN

311,000 MVA

98.58 %

22,000 EMPLOYEES

RUR453.9 BLN

of total transmission line length

of area covered by the Company

investment in 2010 R&D and pilot projects

2010-2014 investmentprogram

of transformer capacity

of revenues from electricitytransmission

market capitalization as of 30 December, 2010

FACTS AND FIGURES 2010

ABOUT THE COMPANY

PRODUCTION OVERVIEW

INVESTMENTS AND INNOVATIONS

ECONOMIC AND FINANCIAL PERFORMANCE

CORPORATE GOVERNANCE

SOCIAL RESPONSIBILITY

1.0

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ANNUAL REPORT2010


01

0204

05

Large scale operations and stable demand

Reliability and Control

Established development program

State support

As a natural monopoly, Federal Grid Company is a critical part of the Russian economic infrastructure and the backbone of the national electricity sector. Russian consumers’ stable demand for the Company’s services underpins its long-term prospects, whereas its role as the backbone of the country’s energy in-frastructure reinforces its exclusive status.

The UNEG reliability is maintained by the collective eff orts of our dedicated management team and per-sonnel. The Company's multi-level internal technical control system is aimed at maintaining an ample and continuous electricity supply using organizational, technical, informational, methodological, regulatoryand preventive measures.

The Company's 2010-2014 investment program was approved by the Russian Government on 12 No-vember, 2010. Federal Grid Company prioritizes the following program tasks: the UNEG development to enhance its reliability; the implementation of agree-ments with regional authorities to ensure stable electricity supply to consumers; the connection of power generating units to the UNEG; and the de-velopment and implementation of technologies and infrastructure to maintain and enhance a competitive electricity and capacity market. Under the investment program, the Company intends to invest more than RUR952 billion between 2010 and 2014. Implemen-ting this large-scale investment program is expected to stimulate a robust expansion in the Company's business and asset base.

Playing a fundamental role in the Russian electricity sector infrastructure, Federal Grid Company receives signifi cant support from the Russian Government. In 2010 RUR11 billion was allocated from the Rus-sian budget to improve the UNEG effi ciency, to in-crease the capacity and stability of energy facilities connected with the upcoming 2014 Olympic and Paralympic Games in Sochi, and to fi nance “Economic and Social Development of the Russian Far East and Trans-Baikal for the Period to 2013” Federal Target Program.

As the controlling shareholder of 79.48% of the Company’s shares, the Russian Government actively participates in our operations both through the Board of Directors, which is chaired by Sergei Shmatko, Russian Minister of Energy, and at the level of various departments and regulatory bodies that coordinate the deve-lopment programs and the electricity sector regulatory framework.

03Advanced Tariff Regulation SystemThe Company's electricity transmission tariff s are calculated based on the Regulatory Asset Base

(RAB). It allows the Company to improve operation-al effi ciency, increase fi nancial transparency and ensure fair and predictable returns on invested capital. The 2010 transition to RAB-based regulation provided a stable cash fl ow and guaran-teed fi nancing of the Company's investment program. In 2010 after switching to the RAB-based regulation method, Federal Grid Company's tariff s increased 51.1% compared with 2009.

WHY FEDERAL GRID COMPANY?

1.0

24

ABOUT THE COMPANY

PRODUCTION OVERVIEW





Strengths:

Favorable tariff regulation regime (RAB)• Natural monopoly status• High level of state support• Government plans to retain • minimum 75% stake in the CompanyStable fi nancial position• Market situation has little impact • on corporate cash fl ows; the majority of revenues does not depend on actual energy consumptionExperienced management team•

Weaknesses:

Need to invest in grid asset • renovation given current depreciation

Opportunities:

Asset growth through grid • construction to provide electric energy to developing regions and new infrastructure facilitiesConsiderable potential for upgrading • the business’ operating effi ciency via RAB regulationFocus on innovative development • and use of the newest technologies

Threats:

Absence of free cash fl ow due • to implementing a large scale investment programRegulatory risks connected with • changes in RAB regulation parameters

SWOT Analysis

Key Activities of Federal Grid Company:Managing the UNEG• Providing electricity transmission services • and connecting WECM participants to the electricity grid

Investment activities in UNEG development• Maintaining the electricity grid system• Engaging in the UNEG technical supervision • of the UNEG grid facilities

ANNUAL REPORT2010


25

Year 2007 2008 2009 2010

20,000

40,000

60,000

80,000

100,000

Revenue by Activity

RUR mln

Electricity transmission

Other operations98.58%

1.42%

Revenue Structure

% from 2010 revenues

From electricity transmission services

From other operations

61,38568,485

85,078

111,085

59,51366,129

80,173

109,5101,872

2,356

4,905

1,575

1.0

26

ABOUT THE COMPANY

PRODUCTION OVERVIEW





1.1 ORGANIZATIONAL STRUCTURE

Federal Grid Company’s Organizational Structure

The General Shareholders Meeting is the supreme management body of Federal Grid Company. The Board of Directors provides strategic direction and oversees Management Board functions. In turn, theManagement Board is entrusted to operate the Com-pany. As of 31 December, 2010, Federal Grid Company comprises 51 regional branches.

General Shareholders Meeting

Board of Directors

Federal Grid Company's Regional Branches – Backbone Electric Grids (MES)

Management Board

MES Center MES Volga MES South MES Urals MES West Siberia MES Siberia MES EastMES North-

West

Valdaiskoye

Vologodskoye

Moscow

Nizhegorodskoye

Prioksoye

ChernozemnoyeSpecial purpose

production centreBely Past

Bryanskoye Kaspiyskoye Permskoye Central AmurskoyeZabaikalskoyeLowerVolga

Upper Don Vyborgskoye Kubanskoye Sverdlovskoye Southern PrimorskoyeWestSiberiaMid-Volga

Volga-Don Karelskoye Rostovskoye South Urals Eastern KhabarovskoyeKrasnoyarskoyeSamarskoye

Volga-Okskoye Leningradskoye

Novgorodskoye

North

Stavropolskoye

Sochinskoye

MEC Urals Motor

Transport Enterprise

Orenburgskoye

Yamalo-Nenetskoye

Kuzbasskoye

Omskoye

Tomskoye

Khakasskoye

ANNUAL REPORT2010


27

Subsidiaries and branches performing various types of activities, including the operation of electric energy supply units of Federal Grid Company (share in the charter capital)

S&T Elektroenergetika (100%) Nurenergo (77%) IT Energy Service (39,99%)

Energy Forecasting Agency (APBE) (100%) MES Tomsk (52,025%) ENIN (38,24%)

UEUK (33,33%) UC Energetika (100%) GruzRosenergo (50%)

Voga Territorial GenerationCompany (TGC-7) (29,99%) Elektrosetservice UNEG (100%) GVC Energetiki (50%)

TGC-11 (27,45%)

TGC-6 (23,58%)

Bashkirenergo (21,27%)

MUS Energetika (100%)

Glavsetservice UNEG (100%)

ESSK UES (100%)

CIUS EES (100%)

Mobile GTES (100%)

CSRI NPKenergo (100%)

Volgaenergosnabkomplekt (100%)

Index of Energy-FGC UES (100%)

Chitatekhenergo (100%)

SMUEK (49%)

Severovostokokenergo (49%)

Energotechkomplekt (49%)

MES Kuban (48,99%)

Schekinskie PGU (45,21%)

WGC-1 (40,17%)

SubsidiariesIn addition, as of 31 December, 2009, the Company has 29 subsidiaries and dependent companies operating in various areas, including opera-ting electric energy supply units. Two of these subsidiaries are backbone grid companies: MES Tomsk and MES Kuban.

More information about the Company's participation in commercial and non-commercial organizations is available in the Attachment.

1.0

28

ABOUT THE COMPANY

PRODUCTION OVERVIEW





1.2 HISTORY

Federal Grid Company was founded as per Russian Government Resolution “On Restructuring the Elec-tric Power Industry of the Russian Federation” No. 526 dated 11 July, 2001. The reform was aimed at upgrading the economic effi ciency of the Russian energy system and creating conditions to attract-investments.

Federal Grid Company was formed as the organi-zation responsible for managing, maintaining and developing the UNEG.

Federal Grid Company was registered by the Russian Government on 25 June, 2002. RAO UES of Russia, as the sole founder of the Company, contributed the backbone electric grid complex (related to the UNEG) to the Company's charter capital.

Considering Federal Grid Company’s key position in the sector, the Russian Government’s participation in the corporate charter capital was legislatively set at a minimum of 75% plus one voting share.

The Russian Federation, represented by the Russian Federation Agency for State Property Management(Rosimushchestvo), became the Company's share-holder in 2007 as a result of the additional share issue. From 2007-2010 the Government's share in the Company's charter capital was continuously growing. As of 15 March, 2011, it stood at 79.48%.

While restructuring measures in the electric energy industry were being carried out, electric grid units in the UNEG under the management of Federal Grid Company were being consolidated. In 2001 on the basis of reorganized RAO UES of Russia subsidiaries,

56 regional electricity transmission grid companies (MSKs) were created. MSK shares owned by RAO UES of Russia were transferred to pay for the additional issue of Federal Grid’s shares.

RAO UES of Russia reorganization was completed 1 July, 2008, when RAO UES of Russia and the com-panies spun off from it (the State Holding Company and Federal Grid Company Minority Holding Com-pany, seven inter-regional backbone grid companies (MMSKs) and 54 MSKs) were integrated as part of Federal Grid Company. Two MSKs (MES Tomsk and MES Kuban) remained corporate subsidiaries. Shares of the re-organized companies were converted into shares of Federal Grid Company. The number of cor-porate shareholders exceeded 470,000.

In July 2008 Federal Grid’s shares were admitted for trading on the Russian stock market. To improve liquidity and protect the interests of former holders of RAO UES of Russia's depository receipts (DRs), in February 2008 the Company launched its own DR program. Deutsche Bank Trust Company of the Americas acts as the depository bank.

In November 2010 the Russian Government an-nounced that it had approved the 2011-2013 privati-zation program. As part of this privatization program, the Russian Government announced plans to sell 4.11% minus one share of Federal Grid Company.

Federal Grid Company was created in the course of restructuring Russia’s electric energy sector. The Company integrated under its management electric grid facilities that were part of the UNEG. The number of Federal Grid Company’s shareholders exceeded 470,000.

ANNUAL REPORT2010


29

1.3 MARKET OVERVIEWThe Russian electric power sector is among the world’s largest, ranking fourth globally in terms of both installed capacity and electricity generation.

Major Electric Energy Producing Countries Installed capacity, GWElectric energy production, Twh

Since 1998, electricity demand in Russia has grown. In 2010 it increased 4.3% to 1,009.2 billion kWh (according to data from System Operator of the UES). This is a record fi gure for the last ten years; this rapid growth was possible due to 2010 weather anomalies and the post-crisis economic recovery.In Russia electricity consumption is characterized by a relatively large share of demand coming from the market’s industry and transportation segments. According to Rosstat, in 2008 more than 50 % of elec-tricity consumed was delivered to industrial consu-mers; household consumption accounted for only 11.4% of total consumption.

Restructuring Russia’s Electric Power IndustryAs early as the 1980s, it was clear that the country’s electric power industry was stagnating. Production capacity was upgraded much more slowly than electric power demand increased. Moreover, while demand for electric power decreased substantially in the 1990s,

capacity upgrades ground to a virtual halt. According to technological indicators, Russian electric companies lagged behind their peers in developed countries, and there was a lack of incentives to improve operating effi ciency and follow an intelligent plan for produc-tion and electric energy usage. Blackouts became a regular occurrence in numerous regions, whereas the absence of payment discipline called the very possibility of electric companies being able to properly function into question. The sector was not transparent from a fi nancial or information point of view and entry was closed to new market players.

Consequently, it was paramount to electric power in-dustry restructuring. Sector restructuring provided an incentive to upgrade the effi ciency of electric companies and also created conditions for development. Industry structure has changed: natural monopoly functions, such as transmission and dispatching, were isolated from potentially competitive ones, such as produc-

0

1,250

2,500

3,750

5,000

USA

1,02

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4,15

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797

281

1,11

5

212

957

870

139

597

128

634

118

106

497

85

4565

42

156

3,72

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China Japan Russia India Germany Canada France Brazil UK

1.0

30

ABOUT THE COMPANY

PRODUCTION OVERVIEW





tion and sale of electricity. As a result, companies concentrating on individual types of operation were created to replace previously vertically integrated companies that had fulfi lled all these functions at the same time.

Thus, on the one hand, conditions to develop a competitive electric power market were formed, with prices based on supply and demand, while market participants were interested in improving effi ciency. On the other hand, prerequisites were also created in the natural monopoly sphere for infrastructure development and upgrades via effective government regulation and disclosure for outside investors.

Russian Electricity and Capacity MarketRussia currently has a two-tier electricity and capacity market (wholesale and retail).

Year

Sources: Rosstat, System Operator of the UES

WHOLESALE MARKET. Buyers and sellers in the wholesale electricity and capacity markets include generation companies, electricity exporters and im-porters, guaranteeing suppliers, electricity supply companies, grid companies (to cover electricity losses sustained in electricity transmission and distribution) and large industrial consumers.

The wholesale electricity and capacity market operates in the territory of regions which are unifi ed in pricing and non-pricing zones. The fi rst pricing zone includes the European part of Russia and the Urals, whereas, the second pricing zone includes Siberia. In the second pricing zone, the electric power price is lower than in the fi rst one, as Siberia has a higher share of hydro-generating capacity with lower production costs for electric energy.

In areas included in non-pricing zones (the Arkhangelsk and Kaliningrad Regions, the Komi Republic and regions of the Russian Far East), where electricity and capacity market functioning on competitive conditions is not yet possible, electricity sales are carried out under tariff s determined by the FTS and special rules set by the Russian Government.

Eff ective 1 January, 2011, electricity and capacity are supplied based on unregulated prices, excluding supplies to individual customers and other similar customer categories.

RETAIL MARKET. Retail market participants in-clude electric energy consumers, guaranteeing sup-pliers, retail suppliers, energy supply organizations, public utility companies, grid organizations and other owners of electric grid facilities, as well as produ-cers (suppliers) of electric energy which is not sold on thewholesale market.

The retail electric energy market functions, regard-less of the wholesale market, with electric energyconsumers. Retail market rules establish a price formation procedure on retail markets, a base for interactions between all market participants, as well as rules for receiving the status of guaranteeingelectricity suppliers, working with each consumer based on a public off er and their selection based oncompetitive bidding. Electricity supply to individual

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

(0.5)

3.0

4.0

1.3

0.3

2.9

2.3

1.8

4.5

2.3

1.9

(4.7)

4.3

Growth in electric power demand, %

ANNUAL REPORT2010


31

Generation Transmission Distribution Sales

Federal Grid

Company

consumers is conducted in full based on regulatedtariff s. As of 1 January, 2001, for all other consumer categories, electricity is supplied based on unregu-lated prices within the framework of the maximum level of regulated prices.

Competitive sphereGenerating companies: Energoatom Concern, • RusHydro, wholesale generation companies (WGCs) and territorial generation companies (TGCs);Electricity supply companies;• Guaranteeing suppliers;• Major consumers;• Exporters and importers of electric energy.•

WECM infrastructureNon-Commercial Partnership Market Council • for Organizing Effi cient System for Wholesale and Retail Trade in Electric Energy and Capacity (Market Council);

Administrator of Trading System for the Whole-• sale Power Market (ATS);Federal Grid Company of Unifi ed Energy System • (Federal Grid Company);System Operator of the Unifi ed Energy System • (SO UES);Center for Financial Settlements (CFS);•

Governmental Regulations of the Electric Energy SectorThe Russian Government exercises its powers in the sphere of state regulation and control over electric energy in accordance with Federal Law No.35-FZ «On the Electric Energy Industry,» dated 26 March, 2003. Federal executive bodies which have authority granted by the Russian Government in regard to the electric energy sector sector are:

The Russian Ministry of Energy which is entrusted with developing state policy

Who

lesa

le E

lect

rici

ty a

nd

Cap

acit

y M

arke

t Pa

rtic

ipan

ts

1.0

32

ABOUT THE COMPANY

PRODUCTION OVERVIEW





The Unifi ed National (All-Russian) Electric Grid (UNEG)

comprises a network of electricity grids and other electric-grid facilities ensuring the constant supply of electric energy to con-sumers, a functioning wholesale market, as well as the simultaneous operation of Rus-sia’s electric energy system and the electric energy systems of foreign countries.

The rated nominal voltage class, charac-teristics of transmission capacity, electric energy fl ow reversibility and other tech-nological characteristics of grids included in the UNEG are approved by the Russian Government.

Currently, criteria for assigning electric-ity facilities to the UNEG (approved by Russian Government Resolution No. 41, as of 26 January, 2006) are in eff ect.

and regulations in the fi eld of the fuel and energy complex, including electric energy issues;The Federal Tariff Service (FTS) which provides state regulation of prices (tariff s) for products and services, including establishing tariff s for electric energy transmission;

The Federal Antimonopoly Service (FAS)which provides antimonopoly regulation in the elec-tric energy industry;

The Federal Service for Environmental, Technological and Nuclear Supervision(Rostekhnadzor)which carries out technical control and surveillance in the electric energy sector, as well as licensing certain types of activities and verifying compliance with Russian legislative requirements in the electric energy industry.

The Russian energy sector is managed by two or-ganizations. On the one hand, the Russian Ministry of Energy acts on behalf of the state as the sector’s regulator and coordinator. On the other hand, the Market Council organizes trade in electric energy and capacity in the wholesale market in accordance with the Rules of the Wholesale Market, as approved by the Russian Government resolution, and uses market self-regulation mechanisms in fi elds estab-lished by the Rules of the Wholesale Market.

Federal Grid Company manages the UNEG. Federal Grid Company’s right to provide electricity trans-mission services is established by law. The rights of owners of electric energy facilities representing a part of the UNEG, in particular, the right to provide electricity transmission services, were delegated to the Company.

Federal Grid Company has the status of a natural monopoly. The Company does not have competitors in the market for electricity transmission via the UNEG. Federal Grid Company’s market share stands at 100%.

In compliance with the Federal Law “On the Proce-dure for Implementing Foreign Investments in Com-mercial Enterprises that Have Strategic Importance for Providing National Defense and State Security”. Federal Grid Company has a strategic role with re-gard to national defense and state security. Further-more, the Company is included in the Russian Government’s List of Strategic Organizations compiled by the Governmental Commission for In-creasing Russian Economic Stability in 2008 to na-tional defense and state security.

Information on implementation of the assignments of the President and Government of the Russian Federation you can fi nd at the Attachment.

ANNUAL REPORT2010


33

64

199

8

3 6

591

33

35 kV220 kV400 kV750 kV

110 kV330 kV500 kV1 150 kV

Number of substationsas of 31.12.2010

5000,4 6 10 35 150110 220 400 750 1 150330 800kV

km

20,000

0

40,000

60,000

80,000

Length of Federal Grid Company’s Overhead Trasmission Lines as of 31.12.2010

1.4

89

35.0

68

137.

740

60.

895

1,12

7.59

0

10,5

78.8

94

3,07

6.15

8

377.

885

94

8.8

00

71,5

82.4

01

0.9

06

126.

360

33,5

99.8

09

Substations’ Capacity as of 31.12.2010

141,

359.

92

30,3

87.4

6

4,77

2.2

6

19,3

45.2

4

1,0

66.9

3

113,

250.

28

792

.182

23.6

6

kV

MVA

37, 500

75, 000

112, 500

150, 000

220 330 400 750 1 15050011035

Federal Grid Company operates more than 121,000 kilometers of transmission lines and 805 substations with a total transformers capacity exceeding 311,000 MVA.

kV

300

600

900

1,200

Quantitative Structure of Federal Grid Company’s Overhead Transmission Lines based on Voltage Class as of 31.12.2010

0,4

1

6

4

10

14

35

7

110

67

220

1,194

330

137

400

3

1 150

3

500

206

750

14

800

1

150

1

FEDERAL GRID COMPANY’S ELECTRICAL GRID FACILITIES

1.0

34

ABOUT THE COMPANY

PRODUCTION OVERVIEW





1.4 GEOGRAPHY

The grid covers an area of approximately 3,000 ki-lometers from North to South and more than 9,000 kilometers from West to East.

The Company has 805 substations with a total in-stalled capacity of 311,000 MVA. The northernmost substation which is part of the Kolskaya Energy System is located in Murmansk; the southernmost substation is situated in Derbent, Dagestan. From west to east, the grid spans from the Primorye to Kaliningrad Regions.

The Chukotka, Kamchatka, Taimyr, Yakutia, Magadan and Sakhalin Territories are not included in the UNEG, as of yet. At the moment, economic conditions do not exist to construct the backbone electricity grids and large substations in these under-populated regions that lack major consumers. Autonomous electric grids work in these territories.

The UNEG is connected with 137 inter-state elec-tricity transmission lines with contiguous countries; electricity import and export is conducted via these lines.

Federal Grid Company's electric grid facilities are located in 73 Russian regions with a total area of more than 13.6 million square kilometers. The terri-tory in which the Company operates is divided into zones; one of the Company's branches - backbone grid companies (MES, PMES) – is responsible for the appropriate zone.

73RUSSIAN REGIONS WITH A TOTAL AREA OF MORE THAN 13.6 MILLION SQUARE KILOMETERS

Regions covered by Federal Grid Company

The scale of the UNEG corresponds to Russian territory. The total length of our electricity transmission lines is more than 121,000 kilometers.

ANNUAL REPORT2010


35

Federal Grid Company provides electricity trans-mission services up to the Russian customs bor-der in compliance with the agreements with INTER RAO UES via its electric grid facilities that are a part of the UNEG and are owned or lega l l y operated by Federal Grid Company.

Information about Inter-State Electricity Transmission Lines (IETL)In compliance with Russian Government Resolution No.41, dated 26 January, 2006, electricity transmis-sion lines that cross the Russian border correspond with Criteria for Assigning Electricity Facilities in the UNEG.

Federal Grid Company collects and processes infor-mation about electricity transmission via 137 inter-state electricity transmission lines (IETL).

To provide electric energy to Russian consumers in the Bryansk, Pskov and Kaliningrad Regions, Federal Grid Company has concluded agreements with ap-propriate organizations of Latvia, Lithuania, Estonia and Belarus for paying for electric energy transit via these states’ electricity grids.

In compliance with the agreement on measures pro-viding for the simultaneous operations of the UES of Russia and Kazakhstan concluded by the Russian Government and the Government of the Republic of Kazakhstan dated 20 November, 2009, an electric energy transit agreement was signed. Pursuant to the signed agreement, Federal Grid Company pays for

1.5 INTERNATIONAL OPERATIONS

electricity transit through the territory of Kazakhstan beginning in May 2010.

On 15 March, 2011, an agreement on measures pro-viding for the simultaneous operations of the UES of Russia and Belarus was signed by the Govern-ments of the Russian Federation and the Republic of Belarus.

In accordance with these agreements and an inter-governmental agreement on provision of access to natural monopoly services (including price formation and tariff policy basics) concluded by the Russian Federation, the Republic of Kazakhstan and the Re-public of Belarus, it has become possible to conduct the inter-state transmission of electricity between countries-members of the common economic area, including through grids of the Russian UES.

Simultaneously Operating the Russian UES and the UES of Foreign CountriesCurrently, fi ve agreements on simultaneous operat-ing of the UES of the Russian Federation and elec-tric energy systems of foreign countries have been concluded by Federal Grid Company and economic agents of the following countries: Georgia (an agree-ment on simultaneous operation of Russia’s and Georgia’s electric energy systems, dated 16 March, 2011), Mongolia, Kazakhstan, the Baltic States and the Republic of Belarus, as well as an inter-system agreement with Finland. Additionally, the Company signed technical support agreements on simultane-ous operations with the Ukraine, the Republic of Belarus and Azerbaijan.

In compliance with Federal Law No. 35-FZ “On the Electric Energy Industry,” dated 26 March, 2003, Federal Grid Company is an organi-zation that manages the UNEG. Starting 1 January, 2004, Federal Grid Company acts as a transmitter of electric energy through the Russian customs border.

1.0

36

ABOUT THE COMPANY

PRODUCTION OVERVIEW





Moreover, Federal Grid Company cooperates with the State Grid Corporation of China (SGC of China) to comply with the following documents that were signed in 2010:

On 26 July, 2010, Federal Grid Company and the • SGC of China signed a framework cooperation agreement aimed at jointly examining issues con-nected with the organization of the Unifi ed Energy Systems of Russia and China, cooperating in the electric energy sphere, exchanging information, experience and knowledge with the organization of consultations and meetings related to the issue of utilizing the newest technologies, engineering, research work, manufacturing and the operation of electric energy equipment.On 23 November, 2010, Federal Grid Company, • INTER RAO UES, MRSK Holding and the SGC of China concluded an agreement to fulfi ll the Memorandum of Understanding aimed at coop-eration in the sphere of electric grid sector devel-opment signed 27 September, 2010 by Russian Ministry of Energy and the State Energy Director-ate of China.

In accordance with this document, the parties intend to strengthen cooperation and experience exchange in the fi eld of modernizing electric grids, to upgrade grid reliability and safety and to take part in moder-nizing and reconstructing the parties’ electric grids.

Federal Grid Company, as the organization that man-ages the UNEG, including inter-state electricity trans-mission lines for all voltage classes, carries out the following activities:

Coordinating and off ering technical support for • INTER RAO UES’s commercial agreements to export and import electric energy;Organizing and implementing commercial account-• ing for electric energy transmitted via interstate electricity transmission lines;Establishing and carrying out customs clearance • for factual volumes of electric energy transmitted across the state border in compliance with agree-ments on organizing the accounting of electric energy and capacity transmission via inter-state electricity transmission lines, as concluded with foreign counterparties.

Within the framework of an agreement on measures providing for the simultaneous operation of the UES of Russia and Kazakhstan, which was concluded by the Governments of the Russian Federation and the Republic of Kazakhstan, an agreement providing for the fulfi llment of commercial agreements to settle devia-tions from the agreed planned transmission schedules based on hourly data for commercial accounting signed by Federal Grid Company and KEGOC is in eff ect.

Federal Grid Company works on developing and upgrad-ing relationships with foreign energy systems in regard to issues of harmonizing the countries’ legislation in the electric energy sphere, forming and synchroniz-ing electric energy and capacity markets within the framework of inter-governmental events (UES of the CIS countries and its commissions (including COTC), the Committee of Energy Systems of BRELL, the EURASEC Integration Committee, working groups in the Executive

Federal Grid Company provides electricity transmission services up to the Russian customs border in compliance with the agreements with INTER RAO UES via its electric grid facilities that are a part of the UNEG and are owned or legally operated by Federal Grid Company.

ANNUAL REPORT2010


37

20,000

40,000

60,000

80,000

100,000

120,000

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ELI

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Comparison of Federal Grid Company with Leading Foreign Grid Companies

Committee of the UES of CIS countries, with Fingrid (Finland), KEGOC (Kazakhstan), the State Energy Concern Belenergo (Belarus), within the framework of energy conversations between Russia and the European Union, as well as interactions with Asian countries (China and South Korea).

International PeersFederal Grid Company is the largest publicly traded electricity transmission company in the world in terms of length of transmission lines and transformer capacity.

1.0

38

ABOUT THE COMPANY

PRODUCTION OVERVIEW





1.6 STRATEGIC PRIORITIESFederal Grid Company is a reliable, effi cient and dynamically developing company. It strives to become an innovative leader in the Russian electric energy sector and is focused on increasing the well-being of its shareholders and investors. We stand by the following strategic priorities for activities and development:

Reliability Developmentand Innovations

OperatingEfficiency

Corporate Governance and Shareholder Value

Safety

Strategic Priorities

ANNUAL REPORT2010


39

Reliability High-voltage electricity transmission lines represent one of the key infrastructure elements of the Rus-sian economy. Federal Grid Company’s strategic role established our core priority: the reliable and stabletransmission of electric energy across the country. The Company’s upgraded technical policy is aimed at further increasing equipment reliability via renovat-ing existing facilities and implementing the newest technologies.

Development and InnovationsConsidering the Russian economy’s transition to an innovative development path, the Company is actively working on upgrading the technical characteristics of electricity grids and infrastructure facilities. Our fi ve-year investment program is focused on modern-izing existing facilities and upgrading the electricity transmission grid to satisfy modern energy sector requirements. The Company is constantly seeking an innovative approach and the newest technologi-cal solutions to be used in production management. Among our most important initiatives is the develop-ment and implementation of smart grids – effi cient and blackout-proof, protected against hazardous natural phenomena and economically sound to use. Implementing this project will enhance the UNEG reliability and effi ciency, resulting in an up to 3.6% reduction in electricity transmission losses.

SafetyThe life and health of the Company’s personnel, as well as the industrial and environmental safety of our facilities, are key priorities for Federal Grid Company. The Company is constantly upgrading the industrial and consumer safety level, introduc-ing new environmental protection technologies and carefully managing related risks. We closely collaborate with Russian regulatory authorities to meet and exceed applicable safety standards.

Operating Effi ciencyOur business’ immense size and the fact that the Company is a monopoly in the market give us con-siderable advantages, including: fi nancial stability, steady growth and the possibility to effi ciently manage risks. The Company uses its strengths to upgrade operating effi ciency. The transition to the advanced RAB-based regulation, stimulated re-duction in operating costs, the implementation of energysaving technologies, the optimization of operating and management regimes and the use of cost eff ective equipment to cut electricity trans-mission losses, as well as improvements in the inter-nal audit and IT systems contribute to the Company achieving its goals.

Corporate Governance and Shareholder ValueThe Company adheres to corporate governance principles based on the Russian Corporate Gover-nance Code adopted by Russia’s Federal Commission for Securities Market (FCSM), and corporate gover-nance requirements which are applicable to Russian public companies. The Company strives to comply with best international practices in this sphere. Strict conformity with corporate governance standards and investments in human capital development allow our shareholders to contribute to the Company’s overall success.

The strategy aimed at maximizing the Company’s shareholder value is based on our business’s immense size, which will expand due to the ambitious invest-ment program and stable demand. The RAB-based regulation is a signifi cant incentive that contributes to upgrading operating effi ciency and guaranteeing a return on investment. Optimizing the capital struc-ture and approving a new dividend policy that conforms to best corporate standards will also enable increases in shareholder value.

TO A CLEAR GOAL

PRODUCTION OVERVIEW

ANNUAL REPORT2010


ENERGY

OF INNOVATION

2.0

42

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2.1 ELECTRICITY TRANSMISSIONFederal Grid Company’s principal operating activity is transmitting electricity from large generators through backbone grid lines, which form the Unifi ed National Electric Grid (UNEG), to distribution grids (which supply power to end consumers).

In accordance with Russian legislation, this is a mo-nopoly activity and is subject to state regulation. Payments for electricity transmission services are the primary revenue source for the Company’s budget. In 2010 the share of revenue from the Company’s electricity transmission services accounted for more than 98% of the Company’s total revenues.

Federal Grid Company operates 1,652 electricity transmission lines with a total length of 121,700 km and 805 substations with a total transformer capac-ity of more than 311,000 MVA.

Currently, there are fi ve agreements on parallel opera-tions of the Russian UES with electric power systems of foreign states, with Federal Grid Company and business entities of Georgia, Mongolia, Kazakhstan, the Baltic States and the Republic of Belarus as par-ties of the agreements. There is also an Inter-System Agreement with Finland and Agreements on Techni-cal Support for Parallel Operations were signed with the Ukraine, the Republic of Belarus and Azerbaijan.

In 2010 consumers of Federal Grid Company’s elec-tricity transmission services included 150 organiza-tions connected to the UNEG.

Consumers of the Company’s services include fi ve types of organizations:

Distribution grid companies (DGCs)• Independent grid companies (GCs)• Energy sales companies (ESCs)•

Major power-consuming enterprises connected • directly to the UNEGElectricity exporters •

2007

464,046

471,958

452,662

470,648

2008 2009 2010

500,000

125,000

250,000

375,000

Power Output,mln kWh

43

ANNUAL REPORT2010


№

1

2

3

4

5

6

7

8

9

10

10.4

7.8

5.1

4.5

3.6

3.2

3.1

2.6

2.5

2.4

Share, %

105

121

150

2008 2009 2010

150

50

100

Increase in Number of Federal Grid Company’s Consumers of the UNEG-based Electricity Transmission Services

DGCsGCsESCs

Largeenterprises

Exporters

Consumers of FederalGrid Company’sServices

42%

21%

20%

16% 1%

Counterparty

Tyumenenergo

Moscow United Electric Grid Company (MOESK)

MRSK Urals – Sverdlovenergo

Lenenergo

MRSK Siberia – Kuzbassenergo

Far East Distribution Company

Kubanenergo

MRSK Urals – Chelyabenergo

MRSK South – Rostovenergo

MRSK Siberia – Krasnoyarskenergo

The Share of Federal Grid Company's Largest Consumers in 2010 Revenues from the UNEG-Based Electricity Transmission Services

2.0

44

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2.2 TECHNOLOGICAL CONNECTIONTechnological connection is one of the most important factors ensuring growth in the Russian industrial sector. Federal Grid Company makes every eff ort to provide new consumers with technological connection to the UNEG.

Technological connection is a set of measures aimed at connecting the power equipment of legal entities and individuals to Federal Grid Company’s grid facili-ties. Technological connection services are available to new consumers and to existing consumers who need increased consumption capacity.

Scope of Responsibility for Electric Grid Companies in Technological ConnectionFederal Grid Company provides consumers with tech-nological connection to electricity grids that accor-ding to approved criteria are part of the UNEG and are owned or used by the Company. The responsibility for technological connection to grids and control over the procedure falls under the scope of respon-sibility for either the executive offi ce of Federal Grid Company or its branches – Backbone Electric Grids (MES) – provided that a customer’s application meets the following criteria:

The scope of responsibility for Federal Grid Company’sexecutive offi ce also includes technological connec-tion related to increasing transmission capability, changing the connection schemes of existing trans-mission lines or constructing new ones including overhangs of 220 kV and above.

Technological connection voltage

below 110 kV inclusively

Branches of Federal GridCompany – MES

Executive offi ce of Federal GridCompany

220 kV and above

Technological Connection

Technological connection is a set of measures aimed at connecting the power equipment of legal entities and individuals to Federal Grid Company’s grid facilities.

45

ANNUAL REPORT2010


2.3 RELIABILITY IMPROVEMENT Technical PolicyFederal Grid Company's Technical Policy is a system of goals, methods and forms of infl uence aimed atachieving a set of new technical solutions that ensure upgraded effi ciency, reliability, technical development, industrial safety and the creation and development of new technologies and electricity transmission me-thods. The Technical Policy is laid out by a fundamen-tal document – Regulations on Federal Grid Com-pany's Technical Policy.

Regulations on Technical Policy were approved by Federal Grid Company's Board of Directors (MinutesNo. 123, as of 8 February, 2011).

Technical Upgrading and Reconstruction OutlookInsuffi cient fi nancing for Russian electric grid facili-ties, which began in the 1990s, has led to critical wear on fi xed assets. Analyzing the age structure of equip-ment installed at the Company’s facilities indicates that the normative service life (25 years) has expired for more than 54% of equipment. The above-level service life (35 years and more) has expired for more than 22% of Federal Grid Company’s equipment.

The share of equipment with above-level service life is also expected to demonstrate signifi cant growth during the next decade.

Number of agreements signed and maximum capacity under terminated agreements

№

1

2

3

4

5

6

7

8

9

110.38

64.065

24.51

6.4

99.623

129.62

85.554

59.3

589.15

1,168.6

Branch

MES Center

MES Siberia

MES East

MES Urals

MES South

MES Volga

MES North West

MES West Siberia

The executive offi ce

Total

61

14

27

19

14

12

33

21

67

268

0

6

0.2

0.2

0

36.225

0

0

169.15

211.78

49

44

36

11

18

13

78

35

57

341

32.87

28.112

29.9

77.16

16.175

76.661

43

606.4

699.9

1,610.2

107

75

43

22

48

22

47

67

36

467

Number ofagreements

Maximumcapacity, MW

2008

Number ofagreements

Maximumcapacity, MW

2009

Number ofagreements

Maximumcapacity, MW

2010

2.0

46

ABOUT THE COMPANY

PRODUCTION OVERVIEW





The physical and moral depreciation of equipment can lead to technological disruptions, accidents andincreased maintenance expenses. Worn-out struc-tural units for transmission lines can be damaged byexternal infl uences or cause increased electricity losses as a result of a larger load.

In 2010, Federal Grid Company drast ed an activity plan aimed at modernizing and retro-fi tting electricgrids with several unique focuses based on esti-mating the current technical state and productioncapabilities of the Russian industry and construction companies.

Fixed Asset Renewal ProgramThe Company has developed the 2011-2016 Program for Fixed Asset Renovation – a program which strives to ensure electric grid facility reliability and effi ciency. As estimated by the Company, with Renovation Pro-gram fi nancing of RUR60 billion per year, Federal Grid Company will be able to break the trend of higher equipment wear-and-tear.

The Renewal Program involves:The total launch of 69,147 MVA of capacity • (till 2016);Reconstruction of more than 3,860 km of transmis-• sion lines;

Installation of 1,416 groups of 110-750-kV disconnect-• ing switches, 4,245 circuit breakers of 110-750-kV and 1,712 groups of 11-750-kV current and voltage measuring transformers

Total fi nancing for the 2011-2016 Fixed Asset Reno-vation Program is RUR355,714 million. Out of this amount, approximately 55% will be spent on the comprehensive reconstruction of the Company’s 1,015 facilities, including 198 substations and 61 transmission lines.

In 2011 the Company plans to adjust the fi nancing plan for its Renovation Program and to modify the scope of work based on targets met in 2010. In 2011 the total capacity of facilities launched ast er compre-hensive reconstruction will exceed 8,901 MVA.

Reliability Improvement Programs at the UNEG FacilitiesThe decline in electricity consumption during the late 1980s and early 1990s and the resulting underuse of grid transfer capacity, which lasted until 2006-2008, coupled with the physical wear and tear of equip-

22.20%

7.50%4.50%

4.10%

9.70%

19.50%

17.90%

14.60%

0-5 years6-10 years11-15 years

16-20 years21-25 years26-30 years

0-24 years25 years(normative service life)35 years(above-levelservice life)

31-35 years

35 years

Age Structure of Federal GridCompany’s Equipment

Age Structure of Substation Equipment, %

Age Structure of Transmission Lines, %

18%

39%

43%

0-24 years25 years(normative service life)35 years(above-levelservice life)

17%

47%

36%

47

ANNUAL REPORT2010


Renovation programs

Comprehensive reconstruction

Non-comprehensive reconstruction

Program to replace 330-750-kV air circuit breakers (ACB)

Program to replace 110-220-kV oil circuit breakers (OCB),isolating switches and short circuiting switches (IS and SCS)

Lightning-surge protection improvement program under investment operations

Program to procure and construct pre-fabricated buildings for special machinery

Program to replace 110-750-kV current transformers (CT)at Federal Grid Company’s facilities

Program to replace 110-750-kV voltage transformers (CT) at Federal Grid Company’s facilities

Target program for investment operations

Program to develop the diagnostic system

Modernization and technical upgrading programfor electricity transmission lines

Auto-transformer replacement program

Fire safety improvement program at the Company’s units

Emergency reserve development, purchase of equipment,materials, special machinery and gear

Reserve program

TOTAL

196,941

46,805

12,055

25,220

7,219

1,748

4,091

2,613

800

402

48,398

2,581

1,141

4,800

900

355,714

2011-2016, RUR mln

ment, contributed to a reduction in the number of large systemic accidents that resulted in electricitysupply shortages to consumers. However, the UNEG

2011-2016 Renovation Program Financing

facilities will face an increasingly larger load as elec-tricity consumption grows and the share of electricity and capacity sales in the wholesale market increases.

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48

ABOUT THE COMPANY

PRODUCTION OVERVIEW





To upgrade the reliability of its current grid facilities, the Company has decided to develop and imple-ment the following Reliability Improvement Programs:

Program to replace 330-750-kV air and 1. oil circuit breakers (ACB) According to corporate data, 30% of the total number of technological violations at substa-tions is caused by circuit breaker breakdowns. Air and oil circuit breakers are also characte-rized by long idle periods caused by technicalmaintenance and repairs (TMR), which forces substations and grids to operate in the weakerrepair mode. Gas-insulated circuit breakers, hich the Company plans to install, require mainte-nance with disconnection only once every 12 years, which improves the reliability of substa-tions and grids, simplifi es the repair procedure, contributes to cost reduction and reduces ac-cident risk. Under the Program, the Compa-ny will replace 3,802 sets of circuit breakers. The total Program cost is RUR37.28 billion. OTL lightning-surge protection impro-2. vement program According to statistics, 30% of the total number of technological violations at overhead transmis-sion lines (OTL) is caused by lightning strikes. Lightning results in damages to isolators, towers and cables, causes ground faults, arc overvolt-age and automatic shutdowns. The OTL light-ning-surge protection improvement program involves modernizing approximately 2,500 kmof overhead lines, installing 18,500 surge pro-tection devices and creating the AIMSSLC (automated information and measurement sys-tem of sleet load control) at overhead lines of MES South. The Program will cost RUR7.219 billion.

Programs for replacing the 110-750-kV 3. current and voltage transformers Breakdowns of current (CT) and voltage-measur-ing transformers (VT) are the reason for more than 5% of the total number of technological dis-ruptions at substations. CTs and VTs, with a ser-vice life of 30 years and more, fail to ensure the accuracy grade needed for automated informa-

tion and measuring systems of electricity reve-nue metering and can also damage substation equipment and result in accidents. The Company plans to replace 2,534 CT sets and 1,867 VT sets. The cost of this Program will be RUR6.7 billion.

Modernization and technical upgrading 4. program for electricity transmission lines The share of electricity transmission lines with a service life exceeding 40 years is 29.2%, with the share of lines with a service life of more than 50 years accounting for 8.9% of the total length of Federal Grid Company’s electricity transmission lines. According to corporate data, the 2011-2016 renovation program, as applied to electric-ity transmission lines, will result in the natural ageing of equipment exceeding comprehen-sive reconstruction of electricity transmission lines under the renovation program (3.1% of the total length of electricity transmission lines). This highlights the serious need for an additional pro-gram to modernize electricity transmission lines. The cost of this program will be RUR48.4 billion.

Autotransformer replacement program5. The goal of this program is to upgrade trans-former equipment with a service life of 40 years and above, reduce the number of technological violations related to power transformers, upgrade the reliability of the UNEG equipment, slow down transformer ageing and increase their capacity. The total cost of the program is RUR2.6 billion.

Fire safety improvement program at 6. the Company’s units Its aim is to reconstruct and upgrade fi re safety tools at the Company’s units. The program will help reduce the number and scale of accidents at the Company’s units, while also reducing the possibility of industrial injury incidents. The total cost of the program is RUR1.14 billion.

Emergency reserve development and 7. the purchase of equipment, materials, special machinery and gear The program’s aim is to upgrade and increase the Company’s fl eet of special machinery, ma-

49

ANNUAL REPORT2010


terials and gear to upgrade the quality and speed of construction and repair work, sim-plify repair procedures and reduce costs. The total cost of the program is RUR4.8 billion.

Improved Electric Grid MaintenanceImproving electric grid maintenance will improve the UNEG reliability and lower current costs needed to keep principal UNEG elements operable. Measures taken by the Company to improve maintenance include:

Improving service maintenance for equip-1. ment, which involves comprehensive equipment diagnostics at the service centers of producers, technical maintenance and diagnostics by the Company’s personnel and emergency response activities by the Company’s personnel led by the chief engineers of plants that made the equipment;

Developing an intelligent troubleshooting 2. system that enables the Company to monitor equipment under operational voltage and intro-ducing a repair planning system based on inte-grated results of an intelligent diagnostic system;

Professional training for the Company’s 3. production personnel via the creation of Pro-duction Training Centers at the Company to train employees in accordance with unifi ed standards, methods and forms, using specialized training infrastructure, such as grid training grounds.

Technical Surveillance of the Company’s Electricity Grid FacilitiesFederal Grid Company has a multi-level internal moni-toring system (IMS) which oversees organizational, technical, informational, procedural, monitoring and preventative activities at corporate branches and the UNEG units to upgrade equipment’s operating effi ciency and personnel training and to reduce the number of emergency incidents and the probability of fi re and injury.

To improve IMS reliability, the Company carried out the following measures in 2010:

Revising existing normative documents and de-• veloping new ones that cover methodological, informational and administrative support for the IMS taking into account structural changes at Federal Grid Company and analyzing results for the IMS currently in place;Changing the approach to evaluating effi ciency • at the Company’s branches, subsidiaries and dependent companies, based on technical audit results.

In 2010 the Company’s Technical Monitoring and Audit Department ensured technical monitoring and audit inspections across all Federal Grid Company branches. The results formed the basis for planningand implementing measures to remedy drawbacks identifi ed by the inspections, in accordance with deviations from existing requirements.

Electric Grid Equipment TroubleshootingIn October 2009 Federal Grid Company established the Division for Monitoring the Grid Technical Status and Troubleshooting, which formed the foundation for a new working group in troubleshooting sys-tem development. The group includes experts in related areas, the heads of branch troubleshooting departments and representatives of the Company’s R&D unit.

Technical troubleshooting of electric grid equipment is regularly performed, as part of specifi c (targeted)troubleshooting or as automated (online) trouble-shooting.

Regular trouble shooting encompasses tests and measurements in accordance with current regula-tory documentation. Throughout 2010 the Company performed the following regular tests and measure-ments (TM) on its primary high-voltage equipment:

Power transformers and auto-transformers: • 12,068 TMs;Shunt reactors: 1,027 TMs;• High-voltage circuit breakers: 42,096 TMs;•

2.0

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





Current transformers: 9,021 TMs;• Voltage transformers: 4,190 TMs. •

Specifi c (targeted) troubleshooting assesses the technical condition of electric grid equipment not encompassed in regular troubleshooting and specifi es the level and nature of defects discovered during regular troubleshooting. It includes the fol-lowing programs:

An electric grid overhead transmission line • (OTL) special troubleshooting program based on express troubleshooting techniques.

Inspection results and recommendations help the Company make timely decisions on exact repairs tocarry out on tower parts or the comprehensive recon-struction of OTLs based on their actual condition.

In 2010 comprehensive inspections were carried out on 9,931 towers of OTLs. According to inspec-tions, 1,418 towers had defects that aff ected the reliability of OTL usage.

The top-priority special troubleshoot-• ing program for the UNEG OTL parts.

In 2010 9,784 towers for OTLs were inspected under auspices of this program. According to these inspections, 2,008 towers had defects that aff ected the reliability of OTL usage.

Comprehensive inspection program for • substation grounding

In 2010 comprehensive inspections were carried out at 271 substations.

Reconstruction of the substations’ grounding sys-tems, including repairs, replacement and post-repair measurements and tests, was planned for 2011-2012 based on reports on the technical condition of in-spected substations.

Special troubleshooting program for de-• teriorated equipment or units

In 2010 inspections, as part of the special trouble-

shooting program, were carried out at 6,482 mainequipment units and 113 towers of OTLs. Lightning-surge protection troubleshooting was carried out at97 spans of OTLs.

Special troubleshooting program for wa-• ter obstacle crossings

In 2010 63 crossing towers underwent a compre-hensive inspection to prevent operational disrup-tions.According to the inspection, 25 crossing towers had defects that aff ected the UNEG reliability.

To complete technical troubleshooting of electric units in a quicker and more up-to-date manner, theCompany uses automated troubleshooting systems (monitoring systems), fi rstly for capital-intensive power equipment: power (auto) transformers and shunt reactors. As of 31 December, 2010, the total amount of constantly monitored power equipment consists of 314 units with a total capacity of 43,936 MVA (220 units) and 7,234 MVAR (94 units).

In 2010 the Company carried out troubleshooting on electric grid equipment aff ected by extremely high air temperatures and wildfi res.

To ensure the UNEG’s reliable performance in areas aff ected by extremely high air temperatures and wildfi res in 2010 (MES Center, MES Volga and MES South), the Company carried out ad hoc trouble-shooting of its power, communication, measurement and protective equipment, including: comprehensive thermal imagery inspection of electric units at 257 substations; testing transformer oil for high volt-age equipment (using chromatographic analysis of oil-solved gases and physical and chemical test-ing) at 846 equipment units; testing excess voltage suppressors at 10 substations; testing 330-750-kV measuring transformers (271 phases); unscheduled inspections, probes and measurements of OTL units across 51 territories.

Comprehensive inspection of power equip-ment with manufacturer involvementTo enhance the readiness of capital-intensive power equipment to deal with maintenance loads in 2010 the Company completed comprehensive maintenance

51

ANNUAL REPORT2010


of power equipment with manufacturer involvement (Minutes of the Meeting of the Council of General and Chief Designers, Leading Scientists and Acade-micians of High-Tech Industries of the Russian Prime Minister No. 4 as of 7 December, 2009).

In 2010 Federal Grid Company upgraded and com-pleted equipment at its machinery and troubleshoot-ing complexes.

In 2010 to improve troubleshooting quality, Federal Grid Company provided the following machinery and troubleshooting supplies to production facilities at the Company’s branches – MES/PMES:

Equipment for fi xed-site laboratories – 380 units;• Movable electric power laboratories – 34 units • (for testing/measuring substation equipment), equipped with 330 units of machinery and trou-bleshooting complexes;Movable troubleshooting laboratories with •

a high-traction box truck – 18 units (for trouble-shooting measures at high-voltage electricity transmission lines), equipped with 260 units of machinery and troubleshooting complexes.

In 2011 Federal Grid Company plan to focus trouble-shooting eff orts in the following areas:

Developing a methodological and normative • database to apply and use results from trouble-shooting automated equipment;Creating and developing an automated sys-• tem to manage the Company’s troubleshooting activities (Diagnostic Automated Management System – AMS);Utilizing ongoing automated troubleshoot-• ing measures for the Company’s electric units capable of automatically transferring results to the Diagnostics AMS;Developing and using modern techniques and • tools for the non-destructive testing of the Company’s modern electric grid equipment;Developing a professional training (skills • improvement) system for personnel involved in troubleshooting;Organizing ongoing professional training for • personnel at service centers and production facilities for manufacturers of high-voltage equipment used at Federal Grid Company units. •

Effi cient Process ManagementThe principal goal of Federal Grid Company’s effi cient process management is to fulfi ll obligations to deliver electric energy to the market by adhering to deliver quality and reliability requirements, and to minimize losses when transmitting electric energy via the UNEG. The Company’s effi cient process management is built on a hierarchical approach, with a concise equipment allotment as per effi cient implementa-tion levels.

In 2010 the Company successfully achieved the above-mentioned goals and has demonstrated the following results:

There were 19 technological violations caused • by operational staff errors (compared with 32 violations in 2009 and 16 in 2008);

In October 2009 Federal Grid Company established the Di-vision for Monitoring the Grid Technical Status and Trouble-shooting, which formed the foundation for a new working group in troubleshooting sys-tem development.

2.0

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





Standard violations caused by higher than al-• lowed voltage levels in the UNEG did not exceed 3, as with 2009 (compared to 9 in 2008 and 71 in 2007);Federal Grid Company’s branch MES Volga deve-• loped and implemented a system for optimizing the grid mode by voltage and reactive power based on KOSMOS drive end (DE);the North-West Grid Control Center is running • a project to implement a modern PSI Control-based hardware and sost ware package to com-plete the entire range of tasks related to the grid’s effi cient process management;in accordance with the Effi cient Process Mana-• gement Concept approved in 2010, the Grid-Control Center of Kuzbasskoye PMES took over operational management functions;the Company and System Operator approved • a shared basis of managing switchovers at new generation substations.

With involvement of effi cient process management departments, Federal Grid Company designs and commissions new generation substations (at the end of 2010, they accounted for 8% of the Com-pany’s total number of substations), where modern automated systems of equipment control are being implemented. With these systems in place, opera-tional maintenance of substations can become a duty of grid control centers. The switchover to substations with operational staff on site permanently on duty will help reduce maintenance expenses, reduce the time needed to eliminate technological violations, andsimultaneously analyze the situation both on the site and in the grid linked to the substation.

Special Period Results As a rule, the autumn-winter period results in the maxi-mum capacity load for Russia’s electric energy system, and harsh weather conditions during the freshet period, fi re-hazard period and storm period increase the risk of damage to grid units. As a result, Federal Grid Company pays particular attention to electricity transmission dur-ing special periods.

In some Russian regions, the 2010 freshet period re-sulted in precipitation levels signifi cantly above normal and the danger of snow melt negatively impacted the UNEG grid units. During the 2010 spring freshet period, employees of the Company’s regional branches carried out all planned measures to ensure reliable perfor-mance. Substations’ equipment, overhead transmission lines, buildings and facilities were in good working condi-tion following the freshet. All measures to prepare the UNEG grid units for storm and fi re-hazard periods were carried out in full by the Company’s employees. No breakdowns in electricity transmission line elements or substation equipment were reported due to storm-related excess voltage. Compared to the previous year, there were 99 addi-tional cases of shutdowns due to storm-related excess voltage. The increase was reported across grid units of MES East, MES West Siberia, MES Center and MES North-West. Compared to the previous year, there was no increase in the number of emergency equipment shutdowns at the Company’s substations. To reduce the volume of storm-related shutdowns, the Company developed and approved a three-year lightning-surge protection improvement program for overhead trans-mission lines.

As a result of ongoing dry weather and extremely high air temperatures in numerous Russian regions during the summer of 2010, the Russian President signed off on a state of emergency decree for the Re-public of Mari El, the Republic of Mordovia and the Vladi-mir, Voronezh, Moscow, Nizhny Novgorod and Ryazan Regions. Federal Grid Company rolled out additional measures to upgrade fi re safety levels across territories where the state of emergency was announced – in particular, those within the scope of responsibility for MES Center and MES Volga.

During the period of extremely high air temperatures, the Company carried out signifi cant additional activities to ensure the UNEG reliability and to avoid major da-mage to overhead transmission lines. Tower parts, ca-bles, isolators and line accessories were in good working condition. However, despite measures taken, the impact of extremely high temperatures damaged equipment at several substations.

53

ANNUAL REPORT2010


Following forest fi res that aff ected overhead transmis-sion line routes, the Company’s employees removed burnt trees from the routes and checked the condition of transmission line elements. This minimized conse-quences of the wildfi res for substation and transmission line equipment.

Preparation of the Company’s branches for the 2010-2011 autumn-winter period involved preliminaryexaminations of the branches’ readiness and respective measures to eliminate identifi ed drawbacks. By November2010, all corporate branches received a passport of readiness for the 2010-2011 autumnwinter season.

On 16-19 November, 2010, a commission of the Russian Ministry of Energy, acting in conjunction with Federal Grid Company personnel and the Federal Service for Environmental, Technological, and Nuclear Oversight (Rostekhzadzor), inspected Federal Grid Company’s readiness for the 2010-2011 autumnwinter season. On 19 November, 2010, the inspection was deemed successful and Federal Grid Company received passport readiness no. 1 for the autumn-winter season.

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ABOUT THE COMPANY

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2.4 IMPROVING ENERGY EFFICIENCY AND MITIGATING LOSSES

The program to decrease 2010 electric energy losses in the UNEG is part of Federal Grid Company's 2010-2012 Energy Saving and Energy Effi ciency Improvement Program, which was approved by the Company’s Management Board 24 December, 2010.

In 2010 the Program to reduce the UNEG electric energy loss had three key components:

Optimizing the scheme and parameter modes for • electric grid maintenance and operating manage-ment;Lowering power consumption to meet the own • needs of the substations;Commissioning energy-saving equipment.•

As part of the eff orts to optimize operating condi-tions and manage the electric grids, optimum opera-tion for reactive power and voltage was maintained, electric grid equipment (transformers and OTLs) was shut off during light-load operation and the period for repair and technical maintenance of the main grid equipment was shortened. Reductions in auxiliary power requirement necessitate optimizing

the performance of cooling fans for transformers and auto-transformers and for heating and lighting resources at the buildings that manage substations. The Company also worked to optimize the load on electric grids by building new substations and lines.

In accordance with the Energy Saving and Energy Effi ciency Improvement Program, Federal Grid Com-pany plans to conduct an energy audit.

In the future the Company plans to conduct an equip-ment performance inspection to identify locations with the highest losses and to develop additional measures for the Company to reduce electricity losses in the UNEG and to amend current planned targets.

In 2010 the total actual loss of energy was 22,525.621 million kWh, based on power balances in the UNEG.

Dimension

million kWh

%

22,526

4.79%

2010

Annual Energy Losses in 2008-2010

22,121

4.89%

2009

21,866

4.63%

2008

Relative amount of energy losses is defi ned to the volume of the balanced energy output from the UNEG to Federal Grid’s consumers.

55

ANNUAL REPORT2010


Energy effi ciency measures implemented since 1 January, 2010

Optimization of the electric grid steady-state conditions (per reactive power, per voltage))

Switch-off of electric grid equipment during light-load periods

Reductions in the length of time for the repair and technical maintenance of the main grid equipment (lines and transformers), including hot-line work

Lowering power consumption for the substations own needs

Installing and commissioning power factor correction units in electric grids

Replacing overloaded power transformers and commissioning additional ones at operating substations

Replacing measuring current transformers

Optimizing the electric grid load by constructing new substations and lines

Total

40,645.1

75,794.3

26,852.0

67,050.8

2,880.0

2,181.0

71,522.4

4,714.4

291,640.0

Quantitative eff ect as of 31

December, 2010, MWh

Federal Grid Company obtains power independently on the wholesale market, to compensate for actual net output loss in the UNEG, minus losses taken into account and paid for by market participants at equilibrium prices. The cost of power and capa-city obtained by Federal Grid Company in 2010 to compensate for losses was RUR14,183,210,183.61, excluding VAT: RUR2,630,340,176.34, excluding VAT for power energy, and RUR11,552,870,007.27, exclu-ding VAT for capacity.

24%

2%2%1%

58%8%

5%

Loss on shunt reactors 2%Loss on compensating devices 1%Loss to corona discharge via overhead transmission lines 24%Other losses 2%Load loss 58%Loss on auxiliary power requirements 5%Off-load loss on transformers and autotransformers 8%

Breakdown of 2010 Energy Losses in the UNEG, %

2.0

56

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2.5 MAINTENANCE AND REPAIRSVia its maintenance and repair activities, Federal Grid Company has the following goals: to upgrade the reliability of the UNEG, to improve usage effi ciency for the Company’s equipment, and to eff ectively utilize resources to develop and maintain the UNEG.

Maintenance and repair activities are based on the following principles:

Complying with normative and technical docu-• ments;Minimizing increases in technological and eco-• nomic risks;Analyzing technological violations;• Overseeing the results of implementation from • previous periods;Adhering to legislative requirements and limits • established for applicable electric companies;Meeting key performance indicators;• Remaining within budget limits;• Complying with regulatory requirements. •

Starting in 2011, Federal Grid Company will base its maintenance and repair program on a rolling sched-ule with a planned fi ve-year horizon and one-year steps.

Principal types of maintenance and repair for Federal Grid Company include:

Grid line clearing;• Replacing insulators;• Repairing and strengthening the foundation • for overhead transmission line support;Replacing protective earth wires;• Replacing vent fi ngers;• Repairing and strengthening supports• for the overhead transmission lines;Repairing automatic transformers/transformers;• Repairing reactors;• Repairing bushings;•

Repairing disconnecting switches;• Repairing circuit breakers;• Replacing stick-pedestal insulators for circuit • breakers and bus structures;Repairing compressors;• Repairing storage batteries.•

As part of its 2010 repair campaign, the Company carried out the following activities at its units:

Clearing more than 29,000 ha of electricity • transmission line routes;Replacing 52,101 isolates and 172 km of protec-• tive earth wires;Repairing and strengthening 1,326 supports at • overhead transmission lines;Working on 302 phases of auto-transformers, 18 • phases of shunt reactors, 2,267 disconnecting switches, 7,332 circuit breaker phases and 235 compressors;Replacing 129 bushings.•

Principal priorities for the 2010 Target Programs include:

A porcelain insulation replacement program for • overhead transmission lines;A protective earth wires replacement program • for 220-500-kV overhead transmission lines;Grid-line clearing program;• Chemical cleaning program for grid lines;• High-voltage bushings replacement program;• Reliability improvement program for optical IC;• Program for restoring the reserve phase to nor-• mative conditions.

57

ANNUAL REPORT2010


As part of the Target Program, the Company car-ried out the following activities:

Clearing more than 24,370 ha of electricity • transmission line routes;Logging 1,730 trees that could potentially fall • on electricity transmission line cables;Replacing 713 high-voltage bushings, 30,367 • stick-pedestal insulators, 140,870 porcelain insulators and 2,002 km of protective earth wires.

In 2010 total fi nancing for the Company’s maintenance, repairs and target programs was RUR12,436 million. During the reporting period, the Company met 106% of its technical maintenance and repair plan, which rep-resents a 6.7% improvement compared with 2009. All necessary repairs and technical maintenance activities at the UNEG units during the review period were carried out in full and on schedule.

2.6 IT NETWORK DEVELOPMENTThe Unifi ed Electric Power Technological Network (UEPTN)Cutting-edge telecommunications systems and state-of-the-art IT solutions are integral to Federal Grid Company’s successful performance. The Com-pany realizes the importance of this factor and works to create and develop the Unifi ed Electrical Power Technological Network (UEPTN).

The UEPTN is based on the widespread use of up-to-date digital communication lines and is delivered bycreating fi ber optic communication networks, radio relay links (RRL), modernizing high-frequency com-munications, expanding the satellite communication system, digital mobile radio, wavelength-division multiplexing (WDM), synchronous digital hierarchy (SDH), time division multiplexing (TDM) and Internet protocol (IP) communications.

Strategic Telecommunications PlanningIn 2009, Federal Grid Company’s Management Board approved the 2009-2015 Telecommunications Management Strategy. In line with this strategy, the key goals for managing telecommunications in-clude: providing consumers with reliable telecom-munications services, switching the UEPTN to digital technologies and optimizing capital expenditures to develop the telecommunications network, in addition to operation and modernization expenses.The set-up and development of the UEPTN will take place in four stages, as per the applicable sched-

ule (General Schedule for the UEPTN Set-up and Development till 2015), which was approved by Fed-eral Grid Company’s Management Board and the Government Commission.

In 2010 total fi nancing for the Company’s maintenance, repairs and target programs was RUR12,436 million. During the reporting period, the Company met 106% of its technical maintenance and repair plan, which represents a 6.7% improvement compared with 2009. All necessary repairs and technical maintenance activities at the UNEG units during the review period were carried out in full and on schedule.

2.0

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ABOUT THE COMPANY

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The fi rst stage (2005-2008): setting up a digital backbone network for Federal Grid Company based on proprietary telecommunications platforms and establishing a unifi ed electrical power digital network (UEPDN) on leased circuits.

The second stage (2009-2010): completing development of the UEPDN, allowing all corporate branches to communicate and use digital communi-cation lines at substations (277 substations).

The third stage (2011-2013): creating a digital distribution network to fully switch the MES East electric grid units (69 substations) and the MES North-West electric grid units (103 substations) to a digital format. In addition, the Company plans to set up digital communication lines for electric grid units in other regions (184 substations).

The fourth stage (2014-2015): completing set-ting up principal telecommunications platforms for the electric energy industry, including digitalizing 86 electric grid units.

In 2010 Federal Grid Company’s Management Board decided to develop the UEPDN in conjunction with a leading telecommunications operator, due to Federal Grid Company’s switchover to telecommuni-cations services provided via the digital transporta-tion network, which is based on UEPDN resources and the operators’ telecommunications networks. As a result, in 2010 the Company outlined the main cooperation principles and set up a pilot zone at Federal Grid Company’s branches – MES Volga and Urals. To implement the telecommunications service provision model, Federal Grid Company decided to provide its 100%-owned subsidiary Moscow Commu-nication Center of the Electric Power Industry (MUS Energetiki) with the functions of the Trust Operator, with its principal duty being providing the Company with a modern high-quality range of telecommu-nications services, in addition to maintenance and technical services for telecommunications systems and means.

In 2010 24-hour shist s for the Center for Telecom-munications Network Control and Monitoring started operating on the basis of MUS Energetiki at Federal Grid Company’s branches.

Latest Changes in the UEPDN StructureFiber optic lines:As part of fi ber optic telecommunications network de-velopment, in 2010 the Company commissioned the 1st, 3rd and 5th launch sites for the Chelyabinsk – No-vosibirsk – Tayshet – Vladivostok fi ber optic line (with a total length of 5,285 km and 77 facilities).

By the end of 2010, the total length of the Company’s backbone and distribution fi ber optic telecommunica-tions networks stood at 26,564 km.

Radio relay networkThe radio relay network is used in the backbone and distribution networks of the UEPTN, either primarily in a situation in which it is not economically rational to install a fi ber optic line or when a telecommunica-tions network is required urgently.

In 2010 Federal Grid Company was allowed to use radio frequency or radio frequency channels on 9 radio relay telecommunications lines in coverage areas for the Bryansky, Stavropolsky, Yuzhno-Uralsky, Severny, Chernozemny and Verkhne-Donskoy PMES (MES subsidiaries). The Company also provided the State Unitary Enterprise “General Radio Frequency Center” with 28 radio frequency applica-tions with the source data to receive inspection re-sults on the possibility of using radio electronic means and their electromagnetic compatibility with radio electronic means currently in operation or intended for future use.

Satellite networkThe satellite network enabled Federal Grid Company to upgrade reliability and observability at its electric grid units.

In 2010 as part of the fi rst stage of Federal Grid Company’s Program for Reliability and Observability Improvement, the Company set up satellite channels for dispatching and technological management andthe transmission of telemechanics data from 20 substations in the coverage area of Federal Grid Com-pany’s MES North West branch and 16 substations in the coverage area of Federal Grid Company’s MES Center branch to respective Grid Control Centers of Federal Grid Company’s branches and dispatch cen-

59

ANNUAL REPORT2010


ters of SO UES. This involved installing 14 small ter-restrial satellite communication stations (STSCSs).

As part of rolling out the comprehensive automated system for security management (CASSM) at Federal Grid Company’s MES South branch, the Company installed 29 STSCSs at electric grid units of said branch. The newly installed STSCSs, including those installed in accordance with the AMIS EPFA UNEG program, will enable the Company to ensure the performance of the CASSM and to set up reserve channels for dispatch and technological management and transmission of telemechanics data to dispatchcenters.

Mobile radio networkThe mobile radio network is intended for operational service, emergency repair teams and alternate com-munication lines.

In 2009 Federal Grid Company continued construct-ing the TETRA-standard networks in the Moscow

and Nizhny Novgorod Regions, which are scheduled for completion in 2011. By this time, TETRA-standard networks will be commissioned in Moscow and the Moscow region, St. Petersburg, Nizhny Novgorod and the Nizhny Novgorod region, as well as in the Chuvash Republic.

Due to extremely high air temperatures, in August 2010, personnel from regular and emergency repairteams of the MES Center and MES Volga received additional mobile telecommunications means usingdiff erent technologies, including: 95 satellite termi-nals and 463 GSM terminals with SIM cards from alternative GSM operators.

Carrier communication system (CCS) along transmission linesIn 2010 in conjunction with Russian Ministry of En-ergy and the Ministry of Communications and MassMedia, Federal Grid Company worked to determine standard procedures for accounting, distributing and controlling radio frequency ranges used in carrier communication systems along transmission lines.

Chelyabinsk

Tyumen

Perm

YekaterinburgMoscow

Yaroslavl

Bryansk

Kursk

Kostroma

Smolensk

Pskov

Novgorod

Tver

Vologda

Kirow

Izhevsk

Ufa

Orenburg

Samara

Kezan

Ioshkar Ola

Saratov

Volgograd

AstrakhanElista

Nizhny Tagil

Vladimir

Ryazan

Tula

Kaluga

Ivanovo

Orel

Belgorod

Rostov-on-Don

LipetskTambov

Penza

Saransk

UlyanovskCheboksary

St.Petersburg

Sterlitamak

Kurgan

Makhachkala

Derbent

Yuzhno-Sukhumsk

Novorossyisk

Naberezhnye Chelny

Grozny

KrasnodarTikhoretsk

Cherkessk

Nazran

Sochi

Wladikawkas

Murmansk

Magnitogorsk

Cherepovets

Shakhty

Volgograd

Orsk

Surgut

Novosibirsk

Krasnoyarsk

Abakan

Nizhnevartovsk

Noyabrsk

Barnaul

Gorno-Altaisk

Kemerovo

Omsk

Tomsk

KyzylRubtsovsk

Novokuznetsk

Biysk

Tobolsk

Choya

Nizhny Novorod

Stavropol

Petrozavodsk

Karasuk

Arkhangelsk

Rybinsk

Vyazma

Rzhev

Arzamas

Votkinsk

Syzran

Beloretsk

Tatarskк

Taganrog

Galich

Pyatigorsk

Voronezh

Manturovo

Knyazhevo

Khanty-Mansiysk

Tarko-Sale

Kholmogory

Bologoye

Sosva

Boguchany Ust-IlimskPazdolinsk

Loukhi

Vyborg

Kingisepp

Barabinsk

Stary OskolFrolovo

Udomlya

Pechora

Syktyvkar

Nadym

SalekhardUrengoy

Yamburg

Sayanogorsk

ChitaUlan Ude

Blagoveshchensk

Vladivostok

Khabarovsk

Irkutsk

Bratsk

Zima

Tynda

Belogorsk

Nakhodka

Ussuriysk

Artem

Birobidzhan

Kholbon

Sovetskaya Gavan

Petrovsk-Zabaikalsky

Angarsk

Tayshet

Skovorodino

Mogocha

MagdagachiMysovaya

NizhneudinskTulun

Yakutsk

Neryungri

Severobaikalsk

Luchegorsk

Svobodny

BureyaGusinoozersk

Kuranakh

Severodvinsk

Minusinsk

Completed construction

To be put into operation in 2009-2010

To be ouy into operation in 2011-2015

Komsomolsk-on-Amur

Planned Scheme for Federal Grid Company’s

Fiber Optic Line till 2015

2.0

60

ABOUT THE COMPANY

PRODUCTION OVERVIEW





Telephone networkThe power sector telephone network provides reliable communication lines for the dispatcher and the administration of electric energy services. The network has been built on the hub principle and ensures communication between the System Operator and other electricity market subjects.

In 2010 Federal Grid Company launched more than 20 digital private automatic branch exchanges (PABXs) at its branches’ electric grid units – MES. The Company also introduced a registration scheme for operating personnel communications, wireless communication systems based on the DECT standard and public address and radio paging systems.

GLONASS-based systemsFederal Grid Company is actively involved in eff orts to adopt GLONASS technologies. In particular, in 2010the Stavropolsky PMES introduced a pilot zone for a system to monitor pedestrian staff and automobiles using the GLONASS/GPS technology produced by Russian Navigation Technologies.

As part of the program, 12 cars of the line service teams were equipped with personal trackers. Ten members of the line service teams received personal trackers. The Company also introduced fi ve mobile units ensuring rapid control over vehicles not equipped with fi xed vehicle tracking units.

In 2011 the Company plans to set up a pilot zone at the Lower Volga PMES. As part of the pilot zones and based on GLONASS technologies, the Company will roll out a control and monitoring system for PMES vehicles, creating a standard geo-locational system with navigational and informational support to line service and emergency repair teams and prompt control, as well as implementing a control and monitoring system for pedestrian staff at the Company’s branches. There will also be a system to monitor and forecast the condition of towers for overhead transmission lines crossing over water obstacles and mountainous areas. Performances at the pilot zones will enable the Company to identify a list of GLONASS-based services recommended to be introduced at Federal Grid Company’s branches.

Federal GridCompany's branch

Total number of CCSs installed in 2010

Total number of CCSs as of 1 January, 2010

Total number of CCSs commissionedin 2010

Total numberof CCSs as of 1 January,2011

MES Center 12 1,168 17 1,184

MES Volga - 359 - 333

MES South 16 424 11 572

MES Siberia 4 911 6 1,212

MES Urals - 980 - 1,305

MES West Siberia

17 299 15 335

MES North West 34 906 59 1,608

MES East - 302 - 806

Total 83 5,349 108 7,355

Data on CCSs commissioned in 2010 is provided in the table below:

61

ANNUAL REPORT2010


Enterprise Resource Planning System (ERPS)The ERPS is an automated business-process and technological management system. As of the end of 2010, Federal Grid Company has launched commercial operation of 20 automated business management system as part of the ERPS project.

Automated Technological Management System (ATMS)The ATMS is a single distribution hierarchical system that integrates the facilities and sub-systems of existing and independently evolving automatic and automated management systems. It is based on the UNEG center for information management (CIM) and the integrated information exchange model (IEM), which uses ATMS hardware and sost ware package (H&SP).

In 2010 Federal Grid Company began a pilot test of the H&SP (ADTMS) project at the Grid Control Center (GCC) of the Kuzbassky PMES, at the 2nd launch site of the GCC of North West (ADTMS), H&SP of SCADA for the first stage of MES Siberia and MES East. As part of the Program for Reliability and Observability Improvement (PROI), the Company introduced data acquisition systems at 26 substations, developed projects for tele-mechanics and upgraded the data transfer system at 152 substations, completed tenders and signed agreements to implement the telemechanics and data transfer system at 161 substations, and started developing projects at 172 substations.

Automated Measuring and Information System for Electric Energy Fiscal Accounting (AMIS EPFA)Federal Grid Company’s AMIS EPFA is a multi-level territorial distribution system for data and measurements with centralized management and a unifi ed center for collecting, processing, storing and transferring electricity measurements, as well as a distribution function for electricity measurements. The Company reacted and launched an automated information and measurement system for electric energy fi scal accounting that covers substations with voltage of 330 kV and above. Eff orts to create

an AMIS EPFA UNEG at substations with a voltage of 220 kV and below are in their fi nal stage.

IT Systems OutlookDeveloping IT systems, which enables Federal Grid Company to manage its business more eff ectively, is of particular importance to the Company. In 2011the Company plans to launch R&D eff orts to set up an electricity quality monitoring system in the UNEG. This will mark the fi rst stage of creating a unifi ed mul-tilevel information monitoring system to measure electricity quality compliance with existing norms, which will later ensure a transition to the electricity param-eter management system.

An equally important IT area is establishing a com-prehensive system for equipment management at Federal Grid Company. In 2011 the Company plans to consider principal approaches to building a comprehensive equipment management system.

2.0

62

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2.7 PROCUREMENTProcurement ManagementDuring the fi rst eight months of 2010 Federal Grid Company conducted all procurements in accordance with the Company’s Provision on the Regulated Procurement of Goods, Products and Services for Federal Grid Company Needs, as approved by the Company’s Board of Directors in July 2009. Since September 2010 all procurement activities have been carried out in accordance with the Provision approved by the Company’s Board of Directors in August 2010. The Provision sets out a uniform procedure for procuring goods, work and services based on modern competitive sourcing forms, predominantly in an open competitive format. The procedure complies with requirements specified in the Russian Government’s Regulations No. 1158 dated 13.10.1999 “On the Enforcement of Economically Sound Principles for Product (Services) Pricing by Natural Monopolies.”

The uniform procurement procedure helps ensure that funds are spent effi ciently as intended and to secure economically sound and competitive prices from suppliers. This procedure ensured the realization of the following basic procurement management principles:

Transparency. • Procurement procedure rules are set out on the corporate web site. Information about any procedural violations can be sent to the Company’s Central Tender Committee (CTC), which includes representatives from the Russian Ministry of Energy and the Federal Antimonopoly Service. The annual procurement program is pub-lished on the corporate web site and on the TZS-Elektra electronic trading site. A signifi cant share of contracts is awarded via open tenders and other open competition formats. Bids for these contracts are solicited via the corporate web site, the electronic trading site and via mass media.

Competition. • The procurement system is de-signed to give a preference to open bidding, en-suring that the best off er wins. Any competitive

process restrictions require serious substantia-tion and the approval of the Company’s regulatory bodies. Only the Company’s CTC can make deci-sions to use only one a single supplier for sourcing.

Substantiation.• The procurement procedure rules require every decision to be substantiated and delivered in writing, which makes the process more effi cient and prevents corruption.

Federal Grid Company’s Central Tender Commission approved TZS-Elektra, a system designed to set up and manage competitive and regulated non-competitive procurement based on Internet technolo-gies, as the electronic trading site (ETS) recommend-ed for use by Federal Grid Company and its SDCs (Minutes No. 2007/51/5 as of 2 March, 2007).

Import replacement

Import replacement is an economic strategy and state industrial policy aimed at replacing imports that are in high demand on the domestic market with domestically produced goods. The social and economic goal of this strategy is to create jobs and keep added value in Russia, as well as to foster innovation.

63

ANNUAL REPORT2010


The Annual Comprehensive Procurement Program (ACPP) is drast ed by various departments of the Com-pany’s administrative offi ce and its branches.

In 2010 competitive procurement carried out by the Company stood at RUR259,302.98 million, which represents 72.5% of the year’s total procurement.

The Company’s 2011 procurement tasks include:

Cost reduction by saving funds when sourcing • products (goods, work and services);Providing Federal Grid Company and other elec-• tric grid companies with products of the re-quired quality at the lowest price possible and on schedule;Optimizing the procurement management sys-• tem using best practices;Aligning the Company’s Regulations on Pro-• curement in accordance with the law “On the Procurement of Goods, Work and Services by State-Run Corporations (Companies), Natural Monopolies and Public Utilities Companies,” ast er it passes Russian State Duma.

Import Replacement PolicyImport replacement is an economic strategy and state industrial policy aimed at replacing imports that are in high demand on the domestic market with do-mestically produced goods. The social and economic goal of this strategy is to create jobs and keep added value in Russia, as well as to foster innovation.

The primary principles of Federal Grid Company’s import replacement policy include:

Upgrading existing electric grid production • assets;Instituting innovations in the UNEG;• Improving energy effi ciency (including reducing • electricity losses in the Russian UNEG (~5%) to the level of the UNEG losses typical in developed economies (~3.7%), which enables potential sav-ings of up to 3 billion kWh per year);Having strong industrial safety;• Developing production and scientifi c potential;• Engaging in technological improvement in pro-• duction;Improving the payment balance structure;• Optimizing internal demand;• Creating jobs.•

Federal Grid Company is developing an Import Re-placement Program that aims to boost Russia’s electric equipment industry and increase the share of Russian suppliers in the Company’s major invest-ment program. The Program is planned till 2020 and includes three sub-programs:

Short-term • (till 2014) will see an increase in the share of Russian-made equipment in the Company’s procurement to 40%. The sub-program also relies on making greater use of Russianmade equipment, which is already • mass-produced and has received industrial certification. Companies that produce equipment look to receive expanded services, including maintenance support for equipment;I Mid-term• (till 2015). In accordance with it the share of Russian-made equipment purchased by the Company is to reach 50%. This stage aims

Competitive procurement amount (RUR mln) % of total procurement

259,302.98

72.5

2010

Competitive Procurement

49,550.8

59.6

2009

234,475.3

90.3

2008

2.0

64

ABOUT THE COMPANY

PRODUCTION OVERVIEW





to upgrade equipment properties to world best levels. One way to achieve this aim is to create joint or licensed production facilities;Long-term• (till 2020) will see the share of Rus-sian-made equipment increase to at least 60%, driven by the development and launch of mass production for innovative equipment previously not made in Russia, and by exceeding best prac-tice standards.

In 2010 as part of the Import Replacement Program, the Com-pany signed agreements with 35 Russian power equipment producers. In value terms, the share of imported equipment purchased by the Company stood at 70%.

65

ANNUAL REPORT2010


20

0

40

Tran

sfor

mer

s

Rea

ctor

s, t

hyri

stor

con

trol

led

seri

es c

apac

itor

s (T

CS

C)

Rel

ay p

rote

ctio

n an

d au

tom

atic

equ

ipm

ent

(RPA

)

Em

erge

ncy

cont

rol

auto

mat

ics

(EC

A)

Aut

omat

ed s

yste

m o

f te

chno

logi

cal p

roce

ss

man

agem

ent

(AS

TPM

)

110

-50

0-k

V e

xces

svo

ltag

e su

ppre

ssor

s

110

-50

0-k

V g

as-i

nsul

ated

dist

ribu

tor

syst

ems

(GID

Ss)

Dis

conn

ecti

ng s

wit

cher

s

Cur

rent

tra

nsfo

rmer

s

Vol

tage

tra

nsfo

rmer

s

Pow

er c

able

s

Cir

cuit

bre

aker

s

TOTA

L

60

80

100

Primary equipment:

20

0

40

Tele

com

mun

icat

ions

AM

IS E

PFA

Ope

rati

ng D

C v

olta

ge s

yste

ms

SC

AD

A

TOTA

L

60

80

100

Secondary equipment:

Foreign equipment, %

Russian-made equipment, %

Foreign equipment, %

Russian-made equipment, %

ACT NOW


ANNUAL REPORT2010


THINK AHEAD –

3.0

68

ABOUT THE COMPANY

PRODUCTION OVERVIEW





3.1 INVESTMENT ACTIVITIES

Federal Grid Company’s investment activities are carried out in accordance with the investment program developed and adopted according to the requirements of the Russian Government's Resolution No. 977 “On Investment Programs for Power Sector Entities” (dated 1 December, 2009) for the fi ve-year period.

Key Objectives and Tasks of Investment Activities:

Ensuring power output for power generating • units of NPPs, HPPs and TPPs put into opera-tion;Ensuring the reliability of the UNEG operation;• Removing transmission constraints and creating • possibilities for connecting additional consumer loads;Maintaining the main electric grids in operating • condition;Realizing agreements concluded with regional • authorities;Creating technological infrastructure objects for • the competitive market functioning of electricity and capacity;Developing and introducing innovative tech-• nologies, materials, construction and power grid equipment, ensuring a higher quality of the UNEG operation;Developing a technological management and • communication system, IT technologies for up-grading the quality and operational effi ciency of managing operations and creating conditions for the gradual transition to the Smart Grid.

The UNEG DevelopmentThe UNEG development is one of Federal Grid Company’s priority tasks. Main directions of the UNEG development are determined by:

The general scheme of power industry object • allocation till 2020 with an outlook till 2030;

Scheme and development program for the UES • for the 2010-2016 period.

Electric grid development up to 2016 is aimed at ensuring the reliable and stable functioning of the UES of Russia and the competitive WECM , as well as a reliable power supply for consumers and ensuring capacity output for power plants.

The new technological platform for the UES of Rus-sia, which is currently being developed – the smart energy system with active adaptive grid (SES AAG) – will ensure the leading role of the electric grid in providing reliable connections for generation and consumers and increase the quality of services. Active adaptive grid realization will occur via:

Systematically installing active technical equip-• ment in the grid, providing an eff ect during the development of the energy system as a whole;Implementing new information technology sys-• tems;Using quick response programs to evaluate con-• dition and management in online and offl ine regimes, including with electricity consumption;Utilizing the adaptive system of centralized and • local management in normal and emergency modes.

The UNEG Development Trends:The development of 750-kV grids is foreseen in the • European part of the UES of Russia;

ANNUAL REPORT2010


69

500-kV electricity transmission lines will be de-• veloped for capacity output at large power plants, including nuclear ones and strengthening the main grid in energy zones of the Center, South and mid-Volga Regions, as well as in the Urals, Siberia and the East, as well as for the development of inter-system communication; 330-kV grid will continue to perform system-form-• ing functions and ensure capacity output at large stations in the Western part of the Center energy zone, as well as in energy zones of the North-West and the South;

The principal forecast indicators for commissioning electric grid facilities based on the Scheme and program for developing the UES of Russia for the 2010-2016 period, in the context of the Interconnected Energy Systems (IES) and the UES of Russia

Main trends in 220-kV grid development will include • strengthening distribution functions and ensuring power plants’ capacity output. 220-kV grids in the energy systems of Eastern Siberia, as well as in the energy systems of Arkhangelsk and Komi, will be system forming.

IES of the East

220 kV

500 kV

IES of Siberia

220 kV

500 kV

IES of the North-West

220 kV

330 kV

750 kV

IES of the mid-Volga

220 kV

500 kV

IES of the South

220 kV

330 kV

500 kV

IES of the Urals

220 kV

500 kV

IES of the Center

220 kV

330 kV

500 kV

750 kV

Total, including

220 kV

330 kV

500 kV

750 kV

km

7,747.1

1,097.3

2,626.5

2,401.9

1,576.8

2,367.2

558.0

1,394.5

1,945.6

1,090.2

939.0

2,480.6

5,264.0

1,522.0

1,660.9

—

896.8

285.0

35,883.4

21,360.0

3,306.2

10,344.2

873.0

MVAR

200

900

3,784

4,560

—

180

1,320

—

2,160

488

384

2,520

—

1,130

—

—

540

660

18,826

4,472

564

11,810

1,980

MVA

4,814

668

9,787

11,387

1,266

7,380

3,000

1,425

5,959

7,490

2,132

5,076

9,584

10,277

32,751

600

16,012

3,753

133,361

67,117

10,112

49,379

6,753

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





2010 InvestmentIn 2010 the actual volume of investment performed by the Company totaled RUR 167,031 million.

In 2010 the Company activated production capacities at 52 objects.

Key Objects Launched in 2010:

East Region:Within the Federal Target Program for Economic and Social Development of the Russian Far East and Trans-Baikal up to 2013 the following facilities were launched:

Neryungrinskaya GRES – Nizhniy Kuranakh • 220-kV high voltage line with a length of 275 km;Artemovskaya TPP – Vladivostok 220-kV high • voltage line with a length of 2х20 km;220-kV Aeroport substation with 220-kV high • voltage approach lines with a transformer capacity of 2х25 MVA, approach line length is 2х11 km;

Introducing these objects upgraded the reliability of power supply to consumers in the South Yakutia and Primorsk Regions, including Yakutia’s large gold mines and the oil pumping station of the ESPO pipeline system, as well as providing energy to APEC summit objects.

Siberia Region:Power supply reliability for industrial enterprises, including the Sayansky Aluminium Smelter and the Khakassky Aluminium Smelter, as well as for other electricity consumers in Sayanogorsk, the southern regions of Buryatia and North-West Mongolia, signifi -cantly increased ast er the following corporate objects were put into operation:

Installation of the capacitor bank at the 500-kV • Oznachennoye substation with introduced ca-pacity of 2x104 MVAR;Installation of the capacitor bank at the 500-kV• Aluminiyevaya substation with introduced capacity of 3х104 MVAR;The 220-kV Selenduma substation. Installed reactive • power compensation means (RPCM) 2х20 MVAR.

Urals Region:To ensure the capacity output schemes of the Chelyabinskaya TPP-3 and the Sredneuralskaya GRES, the Company put the following objects into operation:

Double circuit 220-kV TPP-3 – Novometallur-• gicheskaya high voltage line and reconstruc-tion of the 220-kV Novometallurgicheskaya – Kozyrevo high voltage line with launching under voltage of 6.4 kilometers;Reconstructed 220-kV Sredneuralskaya TPP – • Peschanaya 1 high voltage line and 220-kV Sredneuralskaya GRES – Peschanaya 1 high volt-age line and 220-kV Srendeuralskaya GRES – Kalininskaya high voltage line with launching under voltage of 20 kilometers.

Volga Region:Introducing the 500/220/35-kV Krasnoarmeyskaya substation with 500, 220-kV high voltage line ap-proaches ensured upgraded power supply reliability for consumers in the Samara Generation System, provided opportunities to connect new consumers in the Novokuibishevsky and Chapaevsky Districts of the Samara Region and lessened the load of the 500-kV Kuibishevskaya substation.

South Region:In 2010 the Company completed construction of the 110-kV Laura and Rosa Khutor substations, 110-kV

The 2008-2010 Volume of Planned and Actual Capital Investment Financing

2008 2009 2010

0

50,000

100,000

150,000

200,000

Actual, RUR mln

Planned, RUR mln

177,478

121,746124,000

106,044

170,505 167,031

ANNUAL REPORT2010


71

substations in the Krasnopoliansky Village District, 10-kV substations and distribution lines for the Rosa Khutor ski resort in the Sochi Region. New objects will supply power to numerous Olympic objects under construction in Krasnaya Polyana – the ski complex, freestyle center, mountain list s, the Psehako moun-tain tourism center and telecommunication and en-gineering infrastructure objects designed to service the 2014 Winter Olympics.

For the capacity output of the second power gen-eration unit of the Volgodonskaya NPP (launched 17 March, 2010) were built and put into operation the 500-kV Nevinnomyssk substation with a capacity of 1002 MVA and the 500-kV Volgodonskaya NPP – Nevinnomyssk transmission line with a length of 440 kilometers. New energy objects will allow for the distribution of new capacity of the Volgodonskaya NPP to the energy systems of Districts of the North Caucasus Federal Region.

North-West Region:In 2010 the Company put into operation the 220-kV Prospekt Ispytatelei substation, which will liquidate the acute energy defi cit in the Primorsky and Vyborgsky districts of St. Petersburg and will

decrease the load on the 220-kV Primorskaya and Po-luprovodniki substations. The Company also launched the new 330-kV Tsentralnaya substation in St. Peters-burg, which will become the main power feed center for new 110-kV energy objects. Commissioning this object successfully resolved the energy defi cit in the historic part of St. Petersburg – the Central and Admiralteisky Districts.

Central Region:The Company concluded reconstruction work at the 500-kV Lipetskaya substation with the goal of upgrading the reliability of power supply to Li-petsk Region consumers. In addition to this, within the broadening of the 500-kV Nizhegorodskaya substation, the Company put into operation asecond autoconnected transformer with a capacity of 501 MVA, which increased the substation capacity to 1,002 MVA, thus increasing power supply reliability for consumers in Nizhny Novgorod. This also allowed for the connection of new consumers in the region to electric grids.

Western Siberia Region:Within the framework of the agreement on the • technological connection of Rosnest Oil Company objects, the Company concluded construction and put under operating voltage lines of ap-proach for the 220-kV Magistralnaya – Yuzhno-Balykskaya GPKh high voltage line to the 220-kV Sredny Balyk substation located in the Tyumen Region;Within the framework of fulfi lling the program to • decrease electricity losses, the Company put into operation the operative 500-kV shunt reactor at the 500-kV Nelym substation. The reactor with a capacity of 180 MVAR regulates voltage levels of the 500-kV grid in the southern part of the Tyumen Energy System;In the Tyumen Region, the Company put into • operation the 220-kV Tobolskaya TPP – Irtysh transmission line to ensure capacity output of the Tobolskaya NPP in a volume of 110 mW into the Tyumen Energy System;As part of the construction of the 220-kV De-• myanskaya – Snezhnaya transmission line was put into operation an autoconnected transformer with a 125 MVA capacity at the 220-kV Snezh-naya substation.

In 2010 the actual volume of investment performed by the Company totaled RUR 167,031 million.

72

220-500 KV SUBSTATIONS WITH CAPACITY OF OVER 89,000 MVA

220-750 KV TRANSMISSION LINES, WITH LENGTH OF OVER 21,000 KM

1. MES SOUTH 2. MES CENTER 3. MES VOLGA 4. MES NORTH-WEST 5. MES URAL

VOLUMES OF NEW CAPACITY INTRODUCTION DURING 2010-2014

Substation 500 kV 6Substation 330 kV 5Substation 220 kV 8TL 500 kV 12 (2 396 km)TL 330 kV 5 (696 km)TL 220 kV 10 (699 km)

RUR70.5 bln

Substation 500 kV 1TL 500 kV 2 (546 km)TL 220 kV 1 (129 km)

RUR13.6 bln

Substation 330 kV 11Substation 220 kV 1TL 330 kV 8 (909 km)TL 220 kV 1 (253 km)

RUR42.8 bln

Substation 220 TL 500 kV 4 (1TL 220 kV 9 (6

RUR32.8 b

Substation 500 kV 2Substation 220 kV 2TL 750 kV 1 (285 km)TL 500 kV 7 (1 130 km)TL 220 kV 16 (609 km)

RUR70.4 bln

1

2

3

4

5

6

7

-

kk

73

ANNUAL REPORT2010


-WEST 5. MES URALS 6. MES WEST SIBERIA 7. MES SIBERIA 8. MES EAST

11 1km)km)

Substation 220 kV 1TL 500 kV 4 (1,021 km)TL 220 kV 9 (651 km)

RUR32.8 bln

Substation 220 kV 7TL 500 kV 2 (298 km)TL 220 kV 14 (1,881 km)

RUR36.4 bln

Substation 500 kV 3Substation 220 kV 8TL 500 kV 6 (1,726 km)TL 220 kV 8 (1,956 km)

RUR75.4 bln

Substation 500 kV 1Substation 220 kV 18TL 500 kV 2 (946 km)TL 220 kV 15 (3,446 km)

RUR93.1 bln

7

8

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





Federal Grid Company’s 2010-2014 Investment ProgramThe basic principles of investment planning activities are forming a fi ve-year development program for the Company, with subsequent annual corrections with a one-year shist in the planning horizon. Corrections are performed taking into account actual fi nancing and the utilization of capital investment for realized projects and adjusting the UNEG development scheme.

On 12 November, 2010, our investment program received a fi nal approval from the Russian Ministry of Energy. The Company transitioned from a three-year to fi ve-year investment program, which is the result of a fi ve-year tariff period for electricity transmission.

The Company’s investment program is aimed at developing the UNEG and ensuring its stable operation, as well as upgrading the quality of power supply to consumers.

For 2010-2014 fi nancing the investment program will total more than RUR952 billion. According to corporate estimates, as a result of this realization, the Company will construct 21,078 kilometers of electricity transmission lines and will put into operation 89,180 MVA of transformer capacity.

Indicator

Developing the electriccapacity market and ensuringcompetition

Providing technologicalconnection opportunities to consumers

Energy effi ciency

Reliability

Characteristics

Merger of free power transfer zones

Ensuring capacityoutput for power plants

Withdrawingtransmission constraints

Decreasing energy losses

Increasing thereliability of power supplyto consumers

Result

Withdrawing transmission constraints between 29 established free power ransfer zones (Construction of 25 electric grid objects)

Ensuring capacity output in the amount of 32 GW for generating capacities of 37 power plants (Construction of 5,440 kilometers of transmission lines and substations with a capacity of 9,936 MVA)

Two-fold decrease in “closedpower supply centers”(from 251 to 127)

A relative decrease in energy losses (from 4.89% as of the end of 2009 to 4.79% as of end of 2010)

The actual amount of consumer constraints relative to power supply from the grid in 2010 totaled 0.0013%

Investment Program Implementation

ANNUAL REPORT2010


75

Plan to Launch Electric Grid Capacities in 2010-2014

2010 2011 2012 2013 2014

0

10,000

20,000

Year

RUR bln

RUR, bln 2010-2014 investment program

Transmission capacity, MVA

Transmission lines, km

2,758

11,922

3,520

26,557

5,435

22,474

5,893

19,000

2,936

8,102

212.77 (22.3%)

90.37 (9.5%)

65.8 (6.9%)

58.71 (6.2%)

127.4 (13.4%)

137.93 (14.5%)

14.7 (1.5%)

216.262 (22.7%)

28.41 (3%)

Increase in reliability of powersupply of Moscow, St. Petersburg and Tyumen 980.1 km; 17,531 MVA

State programs (ESPO, Far East and Trans-Baikal, Sochi, APEC)4808.4 km; 4181.3 MVA

Capacity output of NPPs, HPPs, TPPs over 32 GW 5,180.4 km;10,936 MVA

Agreements with regional administrations(except Moscow, St. Petersburg and Tyumen) 3663.3 km; 5,199 MVA

Innovations, energy efficiency, development of technological management

Technological connection33 km 2577 MVA

Fixed asset renewal10,468 km; 37,866 MVA

Development of backbone grids, not included in agreements with regions 5,366.6 km; 10,890 MVA

Others

Investment Program Structure

952,4

30,000

952.4RUR bln

2010-2014 Investment program

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





Investment Volume and Directions:

2010 2011 2012 2013 2014

0

50

100

150

200

RUR bln

Support of assets, RUR bln

Development of assets, RUR bln

Technological connection, RUR bln

109.9

57.1

3.5

122.1

62.2

5.2

120.7

69.7

4.2

130.5

65.5

1.8

140.8

59.1

0

The investment program will be fi nanced out of the Company’s own funds, federal budget funds (including funds directed at the Federal Target Program for Economic and Social Development of the Russian Far East and Trans-Baikal up to 2013 and the Program for Electric Grid Development in the Sochi Region), as well as out of borrowed funds.

The Company plans to invest RUR624.1 billion or 65.5% of the total fi nancing sum in developing corporate assets; the Company intends to direct RUR313.6 billion or 32.9% of the total investment volume at maintaining assets; the volume of fi nancing for technological connections will be RUR14.7 billion or 1.6 of the total investment sum.

ANNUAL REPORT2010


77

2010 Investment Program Fulfi llment

22,20%

7,50%4,50%

4,10%

9,70%

19,50%

17,90%

14,60%

2010 Structure of Actual Investments Fulfillment

1% 1% 1%13%

14%4%

5%

21%

10%

30%

Capacity output objectsPrograms for Moscow, St. Petersburg and Western SiberiaObjects of agreements with administrationsGrid development (except agreements)Far East Federal Target ProgramSochi Federal Target ProgramFixed assets renewalAcquired facilitiesOtherTechnological connection

22,20%

7,50%4,50%

4,10%

9,70%

19,50%

17,90%

14,60%

Financing Sources for the 2010 Investment Program, RUR mln

27,3213,401

25,951

43,000 48,833

16,611

1,864

Payment for tehnological connecctionTariff sources total (amortization (32,268) + profit (16,615)VATFunds of RAO UES of RussiaAdditional share issueOpening balanceBorrowed funds

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





3.2 KEY INVESTMENT PROJECTS

1. Sochi 2014

Federal Grid Company participates in constructing, modernizing and reconstructing electric grid objects in the Krasnodar Region to ensure the reliable power supply of the Sochi 2014 Winter Olympics facilities.Till 2014 the Company within its own investment program and the Federal Target Program for Developing Sochi as a Mountain Climate Resort (2006-2014), adopted by the Russian Government, will construct, modernize and reconstruct 21 objects (with a total capacity of 1,774 MVA and line length of 200 km) of the backbone electric grid complex in the Sochi Region.

In 2010 the Company concluded the fi rst stage of constructing the 10-kV transformer and distributionsubstations in the Sochi Region. As part of work in the Rosa Khutor mountain cluster, the Company constructed 16 10-kV transformer substations and two 10-kV distribution substations representing closed objects, which fully excludes the impact of equipment on the unique nature of the Sochi National Park. The Company also constructed new 100-kV Laura – Rosa Khutor and Poselkovaya – Rosa Khutor cable transmission lines designed to supply power to the Olympic objects. The fi rst stage of reconstruction of the 220-kV Dagomys substation was wrapped up, as a result of which substation capacity increased by 70%. The Company also concluded the fi rst stage of reconstructing the 220-kV Psou substation and capacity increased from 125 MVA to 400 MVA.

Within the Company’s investment program, total fi nancing for Sochi Olympic objects will stand at RUR 20,777.6 million.

20,777.6RUR mln

2010-2014 Financing Volume for Sochi Olympic Facilities in Sochi, RUR mln

2011 20122010

12,138 (58%)

2,182.4 (11%)

6,457.2 (31%)

ANNUAL REPORT2010


79

201020112012

20132014

26,319.5 (37%)

15,150 (22%)

8,591.2 (12%)

12,140.6 (17%)

8,190.4 (12%)

2. APEC Summit

9,025.9 RUR mln

2010-2014 Financing for Federal Target Program Objects, RUR mln

As part of the Federal Target Program for Economic and Social Development of the Russian Far East and Trans-Baikal up to 2013 adopted by the Resolution of the Russian Government, Federal Grid Company constructs and reconstructs backbone energy objects in the Primorsk Region to insure the uninterrupted power supply for objects for the summit of Asian Pacifi c Economic Cooperation (APEC), which will take place in Vladivostok in 2012. To achieve these goals, during the 2010-2012 period, the Company will construct eight backbone electric grid objects:

220-kV Zeleny Ugol substation with 220-kV electric 1. transmission line approaches220-kV Vladivostok - Zeleny Ugol high voltage line 2. (220-kV section Artemovskaya TPP – Zeleny Ugol)220-kV Vladivostokskaya TPP-2 – Zeleny Ugol – 3. Volna transmission line220-kV Artemovskaya TPP – Vladivostok high 4. voltage line220-kV Russkaya (Pospelovo) substation5. 220-kV Zeleny Ugol – Russkaya (Pospelovo) 6. transmission line with a crossing over the East Bosporus Channel220-kV Patroclus substation with high voltage line 7. approaches220-kV Aeroport substation with 220-kV electric 8. transmission line approaches

For the 2010-2014 period the total volume of the Company investment program fi nancing for the Federal Target Program Objects will stand at RUR70,391.7 million, including RUR9,025.9 million for APEC Summit objects.

3.0

80

ABOUT THE COMPANY

PRODUCTION OVERVIEW





3. ESPO

The construction of the Eastern Siberia – Pacifi c Ocean (ESPO) oil transport pipeline is the largest project in the last several de-cades to be realized by Transnest Company for transporting Russian oil to promising Asian and Pacifi c markets.

Within the framework of technological connection agreements and its own investment program, Federal Grid Company constructs and reconstructs backbone energy objects for connection to the electric grids of ESPO pipeline objects on the territory of the Republic of Sakha (Yakutia), the Jewish Autonomous Region and the Amur, Khabarovsk and Primorsk Regions. In 2009-2012, for these purposes, Federal Grid Company will construct and reconstruct 24 backbone electric grid objects.

All aspects of constructing the ESPO energy object are under the special control of the Russian Ministry of Energy. When forming the 2011 federal budget and for the planned 2012-2013 period, the Russian Government will consider the opportunity of increasing fi nancing for the Federal Target Program for 2010-2014 Financing for Federal Target Program Objects, RUR mln Economic and Social Development of the Russian Far East and Trans-Baikal up to 2013 in the part of constructing the objects of ESPO-1 and expanding and constructing ESPO-2.

On 22 March, 2010, Federal Grid Company and Transneft Company concluded an agreement on coordinating the main principles and forms of mutual relationships between parties during the organization of fi nancing, projecting, constructing and reconstructing objects of the external power supply with the aim of ensuring the timely connection of grid infrastructure objects to power receiver devices of Transnest Company. This ensures their stable functioning.

On 27 August, 2010, Federal Grid Company, RusHydro and Transnest signed a cooperation agreement, according to which the Company will construct energy grid objects for the capacity output of the Niznhe-

Bureyskaya HPP and by the end of 2012, objects of the external power supply of ESPO-2 will be put into operation.

In 2010 the Company completed capital repair of the 220/110/35/6-kV auto-connected transformer with a capacity of 125 MVA at the reconstructed 220-kV Shirokaya substation in the Primorsk Region and put into operation the second 220-kV Neryungrinskaya GRES – Nizhniy Kuranakh transmission line in Yakutia. This increased the reliability of power supply for consumers in these regions and created conditions for connecting new consumers to the backbone grids, including objects of the ESPO oil pipeline system.

20102011

20122013

RUR mln

Financing for ESPO Power Supply Objects in Federal Grid Company's2010-2014 Investment Program

1,086.8

15,566

6,464.9

13,086.9

ANNUAL REPORT2010


81

4. Kalininskaya NPPThe Company actively takes part in resolving the energy defi cit problem in the North-West of Moscow Region by constructing a 750-kV electric transmission line for capacity output of the fourth power generation unit of the Kalininskaya NPP to the Moscow Energy System with the creation of next generation 750-kV Gribovo and 500-kV Dorokhovo substations. In 2010-2012, the Company will construct 742 kilometers of transmission lines and put into operation 6,658 MVA of transformer capacity. Total investment in this project will exceed RUR38.3 billion.

The realization of the Company’s investment project will create a reliable electrical energy base for economic development of the Moscow Region, will remove constraints on new user connections and will signifi cantly upgrade the reliability and stability of the Central Region’s Power Supply System.

5. Boguchanskaya HPPThe Boguchanskaya HPP is the largest ob-ject under construction in the Russian hydro-power sphere with a capacity of 3 thousand MW, and is part of the Angarsk Cascade of HPPs. Utilization of the fi rst hydropower units at the Boguchanskaya HPP is scheduled for April 2012.

Ensuring stable power supply for Siberian consumers during rehabilitation of the Sayano-Shushenskaya HPP is one of Federal Grid Company’s priority tasks. To achieve capacity output of the Boguchanskaya HPP, the Company conducts large scale work on constructing 220-kV facilities in the Krasnoyarsk Region and also acts as a technical agent during 500-kV facility construction.

Object

220-kV Boguchanskaya HPP – Priangarskaya substation high voltage line

220-kV Priangarskaya substation

220-kV Priangarskaya substation – Razdolinskaya substation high voltage line

220-kV Razdolinskaya substation

220-kV secondary distribution switchgear of the Boguchanskaya HPP

Reconstruction of the 220/110/10-kV main step-down substation (Kodinskaya GPP-220)

Construction of 500-kV Boguchanskaya HPP – Ozernaya high voltage line

Full object cost based on the 2010-2014investment plan, RUR mln

8,818.6

985.0

1,708.6

10,000.0

Objects constructed from the Company investment program funds

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82

ABOUT THE COMPANY

PRODUCTION OVERVIEW





In 2010, as part of its investment program, the Com-pany launched under voltage two circuit 220-kV high voltage line Priangarskaya substation – Razdolinskaya substation that crosses the Angara River, two circuit 220-kV Boguchanskaya HPP – Priangarskaya substa-tion high voltage line, put the 220-kV Priangarskaya substation into operation and expanded and recon-structed the 220-kV Razdolinskaya substation.

6. Skolkovo

Skolkovo Innovation Center is a large scale project to create the fi rst Russian ultra-modern scientifi c and technological complex focused on developing and commercializing new technologies.

In the 2011-2012 period, Federal Grid Company, in the process of fulfi lling the Russian government's resolution and within the framework of its own investment program, will reconstruct seven 110-500-kV transmission lines and will construct two 220-kV substations, Skolkovo and Smirnovo, with a total capacity of 252 MVA. These substations aimed at power supply for the innovation center will become the Company’s fi rst power facilities to be fully constructed underground. Within Federal Grid Company's 2010-2014 investment program, the total sum for fi nancing power facility objects constructed for the Skolkovo Innovation Center will stand at RUR17.7 billion.

7. Creating a Ringed Electric Grid Confi guration for Reliable Power Supply for St. Petersburg and the North-West Part of the Leningrad Region

Transitioning to 330 kV voltage for the Volkhov-Severnaya and Zavod Ilyich substations, with the newly constructed 330-kV Vostochnaya – Volkhov-Severnaya – Zavod Ilyich cable lines, as well as construction of the 330-kV Vasileostrovskaya substation with 330-kV Vasileostrovskaya – Severnaya and Vasileostrovskaya – Zavod Ilyich cable lines, form an electric energy ring for St. Petersburg. In addition to the above-mentioned substations, the reconstructed 330-kV Vostochnaya and Severnaya substations, as well as the new 330-kV Parnas

substation, will be included. Work on the project has been conducted since 2008 and is scheduled to be completed in 2012.

In addition, the Company plans to construct a 330-kV Leningrad NPP-2 – Vyborg overhead cable direct current line; commissioning this is scheduled for 2014. Transmitting direct current will ensure the capacityoutput of the Leningrad NPP-2 in the direction of the Vyborg District, lessening the load on the St. Petersburg electric grids, including the 330-kV Vostochnaya substation from the transit fl ow of capacity toward the Vyborg Region and decreasing electric grid losses. Taking into account the construction of an electric connection between the Leningrad NPP and the Leningrad NPP-2, the high voltage Leningrad NPP-2 – Vyborg cable line will close the Big Ring, which consists of electric transmission lines connecting the Leningrad NPP, the Leningrad NPP-2, the 750-kV Leningrad substation and the 330-kV Vostochnaya and Vyborg substations.

8. Novovoronezhskaya NPP-2

Further development of the Novovoronezhskaya NPP (NVNPP) is associated with the construction of two new power generation units and modern energy facilities, corresponding with international safety requirements. The Company plans to put into commercial operation power generation unit No.1 of the NVNPP-2 in 2013. Within its investment program, Federal Grid Company works to construct facilities of the capacity output scheme for the fi rst power generation unit of the NVNPP-2, including rearranging 220-500-kV transmission lines.

9. Line construction – Zeyskaya HPP – Russia-China border

In 2010 Federal Grid Company and the government of the Amur Region signed an agreement to cooperate on constructing the 500-kV Amurskaya – the State border trans-national line, which will be a key to implementing the project to export electricity from Russia to China. To increase the capacity output of the Zeyskaya HPP, Federal Grid Company will also construct a second 500-kV transmission line Zeyskaya HPP – Amurskaya. In addition to the possibility of

ANNUAL REPORT2010


83

expanding electricity exports to China, the high voltage line will ensure the capacity output of the Zeyskaya HPP and will increase the transfer capacity of the grid in the eastern direction – upgrading the reliability of the power supply to consumers in the Amur Energy System. The overall length of the 500-kV Zeyskaya HPP – Amurskaya – the State border high voltage line will be 510.6 kilometers.

10. Power supply for the Elginskoye Deposit

The Elginskoye Coal Deposit is Russia’s largest miner-al coal deposit. It is located in the south-eastern part of Yakutia (415 kilometers to the east of Neryungri and 300 km from the Baikal Amur mainline). Balance (proved) coal reserves stand at 2.7 billion tons.

In 2011, the Company will begin constructing electric grid objects for external power supply to the complex, which will be completed in two stages. Within the fi rst stage, by 2012 in the Amur Region, the

Company will reconstruct the 220-kV Prizeyskaya substation, will construct three new 220-kV substations and the 220-kV Prizeyskaya – Elgaugol transmission line with a length of 270 km, including a special crossing over the Zeyskoye Reservoir. In 2013, work will be completed on expanding the 220-kV distributing device at the Prizeyskaya substation. A second 220-kV Prizeyskaya – Elgaugol electric transmission line will be constructed, and a second auto-connected transformer with a capacity of 125 MVA will be installed at the 220-kV Elgaugol substation. An additional part of the project will be reconstructing the operating 220-kV Prizeyskaya substation. A number of the Company pilot projects will be implemented at new objects. As a result, the Company foresees the introduction and development of Digital Substation elements, including using the optical instrument transformer. The Company also plans to implement “smart sphere” technology, which will allow it to control the main parameters of electricity transit in real time.

A number of the Company pilot projects will be implemented at new objects. As a result, the Company foresees the introduction and development of Digital Substation elements, including using the optical instrument transformer.

3.0

84

ABOUT THE COMPANY

PRODUCTION OVERVIEW





3.3 INNOVATIVE DEVELOPMENTAs the infrastructural foundation of the Russian power sector, Federal Grid Company understands the importance of innovative development in the industry aimed at improving the manageability, reliability, effi ciency and safety of power industry object functioning. Aspiring to technological leadership in the industry, the Company utilizes the newest technologies, materials and equipment, incorporating advanced experience from international companies, enhancing control and monitoring systems, as well as increasing the educational level and qualifi cations of our specialists.

The Company’s Innovative Development and Modernization Policy In 2010 the Company developed its Innovative Devel-opment and Modernization Policy. The Policy adopted by the Company is aimed at ensuring reliability, ener-gy safety and stable increases in the eff ectiveness of using the Russian energy potential, as well as full-scale integration into the global energy market, strengthening corporate positions and obtaining the maximum benefi t for the Russian economy by creat-ing an active adaptive grid as the basis of Russia’s smart electric energy system.

The Company’s main directions of innovative development include:

Developing and utilizing new types of power • equipment;Introducing new means of relay protection and • emergency control automatics, equipment diag-nostics and energy resource accountability on a micro-processing basis;Introducing the newest monitoring systems, ma-• naging grid modes and equipment;Creating systems and equipment that protect •

the grids from the impact of external weather conditions;Introducing equipment and systems with high • power effi ciency characteristics;Consolidating the domestic scientifi c base by in-• tegrating educational, as well as scientifi c and research organizations, in the innovative process.

The Company’s innovative development policy is real-ized via a complex list of instruments:

Of a scientifi c nature (including the eff ective usage1. of the applicable scientifi c base, interacting with educational institutions, using research and funda-mental science, studying international experiences and organizing conferences, seminars and career enhancement courses that touch upon the Com-pany’s innovative activity);Normative and legal regulations on the state and 2. corporate levels (including laws, standards, instruc-tions, regulations, rules and technical policy), as well as with production and organizational methods.

Based on the Innovative Development and Moder-nization Policy, the Company developed the Concept

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(main provisions) for the innovative development program, which was adopted in 2010 by the Board of Directors. The documents evaluate the tech-nological level and development prospects of the power industry considering corporate scenarios of innovative development. On the basis of the Con-cept, the Company has formed an Innovative Deve-lopment Program with a planning horizon till 2020.

The principal goal of the Company’s Innovative Devel-opment Program is to upgrade the reliability, quality and effi ciency of consumer power supply by modern-izing the electric grids of the UES of Russia based on innovative technologies with their transformation into an active adaptive (smart) center of technological in-frastructure for the power industry. Priority tasks for the Innovative Development Program include form-ing a target vision for the smart energy system and preparing and realizing the complex pilot project of creating a smart grid – energy clusters in the IES of the North-West and the IES of the East.

In addition, one of the Program’s main directions will be the development, testing and introduction at theUNEG objects of “breakthrough” and “ameliorative” innovative technologies. These include technologiesfor accumulating electric energy, technologies for “high-temperature superconductivity” and technolo-gies for direct current electric transmission, among others.

An important part of the Program will be developing a system for Federal Grid Company’s innovative activity, in particular broadening the Company’s Russian sci-entifi c and engineering base, including via attracting foreign partners and cooperating with Russian higher educational institutions. The expected eff ects from realizing the Program will be a decrease in electricity transmission losses (with an accompanying ecological eff ect – a decrease in the volume of burnt fuel and СО2 atmospheric emissions), increasing the carrying capacity of overhead transmission lines (also resolv-ing the tasks of power plants’ capacity output and ensuring full scale electricity transmission), decreas-ing growth in the installed capacity of power plants (by cutting the needed capacity reserve), increasing the reliability of power supply to consumers, fl atten-ing the load curve through the usage of high capac-

ity electricity storage, based on various principles (superconductivity, inductive energy storage and high capacity electric batteries), decreasing the space oc-cupied by electric grid objects (the compact design of power plants and overhead transmission lines due to using new innovative materials and technologies). Federal Grid Company’s Innovative Development Program will increase the eff ectiveness of uti-lizing Russia’s energy potential, ensuring the full-fl edged integration of the UES of Russia into the world energy market, contributing to the development of innovative new technolo-gies, including mastering the mass production of new devices and materials, ensuring the de-velopment of the country’s industry, related branches and the introduction of new technical devices with qualitatively new characteristics, decreasing the share of imported equipment and creating conditions that will lead to the maximum benefi t for the Russian economy.

Coordinative Scientifi c and Technical BoardThe Company carefully studies innovative solutions, which can be introduced into the UNEG in the future. To govern the innovative, technical and exploitation policy, coordinate work on developing and organizing modern equipment and technology for new con-struction projects and to reconstruct and technically rehabilitate various corporate objects, the Company has a Coordinative Scientifi c and Technical Board (CSTB). The Board comprises the leading specialists from scientifi c research and project institutes of the Russian Academy of Sciences (RAS), directors of the executive bodies, branches and subsidiaries of the Company, representatives of the System Operator, MRSK Holding and domestic producers of electric energy equipment.

The Board’s main functions include considering and evaluating prospective directions and programs forcorporate innovation, progressive solutions for tech-nical rehabilitation, reconstruction and new con-struction of the UNEG objects, the effi ciency of con-ducted fundamental scientifi c research, exploratory and applied work, suggestions for using scientifi c and technical achievements, as well as advanced experience for foreign countries and suggestions

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to enhance resource provisions for the Company’s innovative activity.

To organize the eff ective usage of corporate re-sources for ensuring stable and intensive innovative development of the UNEG, to form the Program of scientifi c and technical, design and experimen-tal and technological work (R&D) and to eff ectively implement R&D results in the Company’s production activity, the Innovation Committee was created by an Order.

Primary Objectives for the Innovation Committee:

Considering and approving the Company’s • innovative development policy and program;Coordinating the main R&D directions for • the approval of the Company’s Scientifi c and Technical Coordination Council;Determining priority R&D projects;• Considering and adopting the R&D Program; • Elaborating on suggestions for competent contractors (organizations) to fulfi ll R&D work;Considering results on fulfi lled R&D work;• Elaborating on recommendations for the rational • usage and introduction of pilot projects for the UNEG and the UES objects;Assessing modern innovative technologies • to implement at the UNEG objects.

As of now, the fi nancing source for the Company’s innovative activity is the Company 2010-2014

investment program, with R&D financing in the amount of RUR 19,000 million. As of 1 January, 2011, there are no exterior fi nancing investments for R&D and the source of R&D fi nancing is centralized.

2009-2014 Financing of the Company’s R&D and Pilot Projects

2.5

5.0

2009 2010 2011 2012 2013 2014Year

RUR bln

0.388 1

3

5 5 5

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87

Within the framework of its modernization program, the Company introduces the following types of in-novative equipment at its objects:

Static VAR compensator (SVC) • is designed to compensate for reactive capacity, managing reactive capacity fl ow, stabilizing the voltage level in the grid and restraining the commutation of voltages and the compensation of asymmetric grid modes. The composition of the device in-cludes capacitor banks, thyristor reactor groups and fi lters. SVC increases the carrying capac-ity of electric transmission lines and decrease electricity losses in the grid. Compared with the previous generation of compensators (synchro-nous compensators), the SVC is more compact and has a greater response rate and an improved level of reliability, with reduced electricity losses in the devices compared with the synchronous compensator and has lower operation costs. Currently, SVCs are installed in the Trans-Baikal Transforming Complex at the 220-kV Mogocha substation, the 500-kV Novo-Anzherskaya substation, the 220-kV Kirillovskaya substation, the 220kV Aphipskaya substation, the 220-kV Krymskaya substation and the 220-kV Slavyan-skaya substation;

Controlled shunt reactor (CSR)• 35-500-kV –electro-magnetic reactors, the inductivity of which may be gradually regulated with the as-sistance of the automatic control system, which stabilizes the voltage of overhead lines with huge charge capacity. Combined with condenser batteries, connected in parallel, CSRs are analogs of SVCs, allowing grid voltage to be maintained under both light and heavy loads. The advan-tages of the CSR compared with ordinary shunt reactors are 50% decreases in seasonal and daily fl uctuations, a 5-15% drop in high voltage line capacity losses, an increase in the carrying capac-ity by 0.1-0.4 MW/MVAR of reactor capacity and upping the reliability of the load center. The CSR also takes away resource limitations of the

switch during the daily change in transferred capacity. The average annual losses in CSRs are 10% lower than for uncontrolled shunt reactors. CSRs are used at the 500-kV Nelym, the 220-kV Urengoy and the 220-kV Nadym substations;

High-voltage cable with cross-linked poly-• ethylene insulation is a hi-tech and ecologi-cally clean product for the power industry. Using cables instead of traditional electric transmission lines with uninsulated wires decreases losses to 0.01-0.05%, increases carrying capacity and cuts the size of safety exclusion areas during high voltage line construction under conditions of urban fabric;

Optical transformers• are used by the Com-pany to measure current and voltage in pilot projects and to upgrade the precision of measur-ing energy resources, as well as to increase the operating reliability of relay protection and emer-gency controls (RPEC). As a result, not only is the reliability of substation metering equipment improved, but also exploitation of the grid is up-graded. Compared with the previous generation of metering transformers, this equipment is ex-plosion proof, is protected from interference and has a high level of ecological safety. Currently, the optical metering transformers for current and voltage are used at the Digital Substation training ground, which was created at Scientifi c and Technical Center of the Power Industry.

During the fulfi llment of the modernization program, the Company broadens the use of three-phase two winding auto-connected transformers with a voltage of 330-500 kV with the goal of cutting capital expen-ses on transformer equipment to 30%, gas-insulated switchgears for secondary distribution systems and replaces oil switches and air switches with modern sulfur hexafl uoride switches, which upgrade the reli-ability of substations and the grid. At the Company’s objects, new excess-voltage suppressors, disconnec-ting devices and absorbing vent fi ngers are installed.

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Smart GridOwing to the transition to long-term tariff regula-tion and investment planning, Federal Grid Company was able to start realizing the long-term program of modernizing Russia’s backbone electric grids. A part of this program is creation of smart grid.Smart grid unites electric grids, consumers and elec-tric energy producers in a united automated system, which allows for the real time monitoring and con-trol of operating modes for all participants in the production, transmission and consumption process for electric energy. Smart grid automatically reacts to changes in various parameters of the energy sys-tem and allows for uninterrupted power supply with maximum economic effi ciency (while decreasing the impact of human factors).

Smart grids allows for:

Integrating all types of generation (including • small generators) and all types of consumers (from households to large industries) for the situational management of demand for their services and active participation in energy sys-tem operation;Changing real time parameters and grid topo-• logy, in accordance with current mode conditions, excluding the origination and development of emergencies;Ensuring the broadening of market opportunities • for the infrastructure through the mutual provi-sion of a broad range of services for market and infrastructure subjects;Minimizing losses, developing self-diagnosis and • self-recovery systems by observing reliability conditions and electric energy quality;Integrating the electric grid and information in-• frastructure to create an all-mode management system with full-scale information support.

By creating an active adaptive (smart) grid, the fol-lowing results will be achieved: regulating favorableloads for consumers and ensuring the adaptive reac-tion of generation and grids in real time to various deviations from constrained parameters, as well as forecasting and preventing the origination of dam-aged sections and critical situations.

To test smart grid technology, energy clusters (seg-ments of the energy system) were selected. Ast er acquiring experience, it will be possible to discuss expanding smart grid to a wider geographical area.The fi rst energy clusters are designated in the IES of the East (the Amur, Primorye and Khabarovsk Regions). The total economic eff ect from realizing the pilot project to create smart grid on the terri-tory of the IES of the East may be RUR10 billion per annum.

The Company is the initiator and main coordinator of the smart grid project. Partners and participants in the project will be the System Operator, RusHydro, RAO UES of the East, the Scientifi c and Technical Center of the Power Industry, Dalenergostroyproekt, Elektrozavod, ZETO (the electro-technical equipment plant), Hyundai, ENER1 and other large scientifi c and technical, as well as project organizations and power equipment producers.

Smart grid development is performed by scientists and specialists in many countries with a developed energy sector, including: the United States, China and India. European Union member states are jointly working on the European Electric Grid of the Future concept.

Creating smart grid calls for using various innovative technologies and equipment:

Static control devices with changeable charac-• teristics;Short circuit discharge devices (commutation, • super-conducting and semi-conducting);Electricity storage of various types and reasons • (high capacity accumulators, fl y-wheel devices, storage units and others);Devices based on high temperature supercon-• ductivity (generators, transformers, direct and alternate current cable lines, reactive power compensators, short-circuit discharge devices and others);Semi-conductor devices (high capacity transis-• tors, including silicon carbide transistors) and second generation high temperature supercon-ductors;Equipment self-diagnostics in an online mode; •

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STATCOM

In August 2010, the Company concluded testing a unique domestic solution – a new generation reactive power compensator of the STATCOM type, which was installed at the 400-kV Vyborg substation in December 2010. Unlike foreign analogues, it uses only transistor vents, which allows for more fl exible management and additional decreases in losses.

STATCOM is designed to support the required level and quality of voltage, the regulation of capacity fl ows in electric grids, the increase in transmission capacity for lines and a decrease in electric energy losses. Compared with SVCs with the same nominal capacity, STATCOM has a lower capacity for the capacitor bank, fi lters and reactors and has a higher response speed. The fi rst STATCOM, with a capacity of 50 MVAR, was put into operation at the 400-kV Vyborg substation, which increased the reliability of electricity exports to Finland, decreased electric energy losses and increased the capacity transmitted in maintenance mode.

GAS-INSULATED SWITCHGEAR (GIS)

Gas-insulated switchgears signifi cantly decrease the fl oor space for substations and make their work noiseless. The compact closed space, in which these devices are installed, minimizes the impact of equipment on the surrounding environment. Compared with the traditional fi tting of substations, the GIS has numerous advantages. It has small dimensions, a long working life (50 years) and strong protection from the impact of the external environment, as well as high reliability, environmental friendliness and safety. The GIS is already installed at several Company’s power facilities, including the 220-kV Volkhov-Severnaya, the 220-kV Zavod Ilyich and the110-kV Rosa Khutor substations.

GRID ENERGY STORAGE SYSTEMS (GESS)

One of the elements of smart grid is the system of grid energy storage. The GESS allow for the storing of surplus electric energy generated by power plants during minimum load hours and to later transmit it during peak grid hours. This indicates a more evenly distributed load for generating objects during the day and the opportunity to avoid putting part of power plants out of operation during the night. In addition, owing to grid energy storage systems, optimal usage conditions for the grid infrastructure are created: they ensure capacity reserve needed in the event of emergency situations in the energy system. These systems are widely used in the United States and in numerous European countries. The Company works on implementing GESS on the basis of the 220-kV Psou substation (Sochi) and the 330-kV Volkhov Severnaya substation (St. Petersburg).

DIRECT CURRENT TRANSMISSION LINES

Direct current transmission lines are another element of smart grid. Worldwide, there are already 60 suchlines and 40 that are in the design stage. It is planned that such a line will be introduced at the 220-kV Mogocha substation in the Trans-Baikal Territory. As a result, the energy systems of Siberia and the Far East will work in parallel, which, apart from the eff ect that power plants’ reserves will signifi cantly upgrade power supply reliability for the Trans-Siberian Railway.

Optical systems for electric parameter metering.• Sost ware complexes and information management • systems.

The Company has already introduced individual com-ponents of smart grid at its power facilities.STATCOMDIRECT CURRENT TRANSMISSION LINES

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Scientifi c and Research, Design and Experimental and Technological Work (R&D)The comprehensive renewal of the Company’s electric grid facilities is carried out in close cooperation with scientifi c specialists.

In 2010 the Company developed and adopted the 2010-2014 R&D Program.

The Company also prepared the Concept for the Russian Ministry of Economic Development to create the Russia’s Smart Energy System Technological Plat-form, in which the Company is both an initiator andparticipant. Within the framework of the technologi-cal platform, the Company will broaden cooperationwith leading research and development, as well as project, institutions for creating both separate ele-ments and complex projects for the smart grid.

DIGITAL SUBSTATION

Digital Substation is one of the elements of the active adaptive grid. The idea behind these substations is creating new generation, control, protection and management systems, in which all information is originated, processed and managed by equipment in digital format. Modern digital equipment functions to protect and control opportunities for rapid information exchange between devices, which ultimately provides opportunities for decreasing the number of copper wiring connections and decreasing the number of devices and locating them in a more compact manner. This makes digital technologies more economic at all implementation stages: their design, assembly, adjustment and operation.

Pilot projects to create smart electric energy systems with active adaptive grids, as realized by the Company, provide for the development and introduction of digital metering transformers and next generation digital equipment complexes at the substations.

AUTOMATED TECHNOLOGICAL MANAGEMENT SYSTEM (ATMS)

As one stage of constructing smart grid, the Company realizes the project for creating ATMS. This system is aimed at upgrading grid observability, preventing the origination of abnormal modes and creating a system of online monitoring and the smart diagnosis of equipment condition. On the whole, using this system will increase management eff ectiveness and the carrying capacity of grids, both in normal and emergency regimes (as well as in post-accident regimes). This will ensure the reliable reception and transportation of energy and will operatively provide WECM participants with high quality information about operating regimes and the UNEG condition. ATMS will be introduced in the MES North-West as a pilot project.

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Project

Developing the concept and theoretical basis for creating the smart energy system with the active adaptive grid (SES AAG)

New types of power equipment for substations and transmission lines for the SES AAG

New types of facilities for control, automatics, protection and metering systems for the SES AAG

Management system of the SES AAG

System of monitoring and protecting against the external impact on electric grids

Ensuring the safe and reliable functioning of the UNEG and the quality of provided electricity transmission services

Upgrade in the energy eff ectiveness of electric grids

TOTAL:

2010 fi nancing volume (RUR, VAT included)

114,044,876.00

231,173,938.15

5,900,000.00

187,230,600.00

435,394,800.00

16,000,000.00

10,000,000.00

999,744,214.15

2010 volume of R&D fi nancing broken down by directions:1. Upon investment activities

Project

Program for creating the fl exible alternate current transmission systems (FACTS)

Program for ensuring the explosion safety of the electric grid objects

Program for protecting high voltage lines and substation equipment against lightning

Development of multi-chamber insulator arrester(MCIA) for 220-kV high voltage lines

TOTAL:

2010 fi nancing volume (RUR, VAT included)

12,907,479,50

17,010,000,00

4,130,000,00

2,909,200,91

36,956,680,41

2. Upon core activity

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Within the Program “New Types of Power Equip-1. ment for Substations and Transmission Lines for the Smart Energy System with the Active Adaptive Grid (SES AAG):”Developed technical requirements for a 20-kV • high temperature super-conductive (HTS) direct current cable line with a current rate of 2,500 A and a length of 1,500 meters, with the goal of limiting short circuit currents and upgrading the reliability of electricity transmission in Moscow and St. Petersburg;Developed technical proposals for the short cir-• cuit current limiter based on the quick operat-ing circuit breaker of explosive type which will increase power supply reliability to urban areas and large load centers;Conducted work on enhancing design methodo-• logy for lightning protection for 110-750-kV high voltage lines and substations;Developed and tested mock-up models for digital • current transformers and voltage transformers for 220-kV secondary distribution switchgear of the digital substation;Analyzed the eff ectiveness of installing com-• pensating devices in the Kuban Energy System to create a central automatic voltage regulation system;Conducted bench tests of the high temperature • super-conductor high voltage cable line with a nominal voltage of 20 kV for the 110-kV Belorusskaya substation at the testing ground of Scientifi c and Technical center of the Power Industry;Developed a general scheme for the LNPP-2 – • Vyborg substation direct current transmission line taking into account reconstruction of the 330/400-kV Vyborg substation and the technical requirements for primary equipment;Developed the framework and technologi-• cal maps for the double circuit single-leggedmultisided end pylons for the 220-kV Zeleny Ugol Russkaya high voltage line crossing into

cable line and basements for them;Developed the framework and technological • maps for the single circuit double-column tran-sitory multi-sided pylons for the 500-kV Krasno-armeyskaya – Gazovaya high voltage line.

Within the Program “New Types of Facilities 2. for the Control, Automatics, Protection and Metering Systems for SES AAG,” the Company prepared the project of technical requirements and technical proposals to create the Phasor measurement units (PMU) during the introduc-tion of WACS/WAPS technologies in the SES AAG.

Within the Program “Management System of 3. the SES AAG”:Determined requirements and principles for cre-• ating the digital substation as an element of the SES AAG;Put into experimental industrial operation at • Scientifi c and Technical Center of the Power Industry the fi rst order of the Digital Substation training ground.

2010 ResultsAs a result of implementing 2010-2014 R&D pro-gram, the list of high priority R&D work for 2010 and priority innovative development projects in 2010, the Company achieved the following results:

In 2010 the Company actively participated in events dedicated to innovative development of the Russian economy, including the St. Petersburg International Economic Forum, the Innovation Forum, the 2010 International Exhibition and Conference on Innovative Projects in Network and Electricity Supply (IPNES), the International Forum “Energy of the Future” and the International Power Industry Conference “Technological Basis for Forming the New Russian Power Industry.”

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Within the Program “System of Monitoring and 4. Protecting against External Impact on the Elec-tric Grids:”Developed the multi-chamber insulator arrester (MCIA) • for lightning protection of the 220-kV high voltage lines;Developed the project for preparing the 220-kV • high voltage line CHPP – SH30 branch of Federal Grid Company – MES South to conduct experi-mental industrial exploitation of the MCIA-220 string with a system of complex monitoring;Developed technical requirements for line discharges • with the external spark gap for increasing the light-ning-surge-protection of the 220-330-kV high volt-age lines in regions with low-conductivity ground;Developed albums of regional maps for the climatic • zonation of Federal Grid Company branch – MES Center – by the Belgorod, Voronezh, Kursk, Orel and Tambov Regions with a maximum wind speed, ice wall thickness, wind load during glazing storms and the average annual length of storms in hours;Developed maps of contamination levels at the • locations of high voltage lines and open switch-gears of the Company branches – MES Center and MES North-West;Developed technical requirements for the • system of monitoring icing on over-head lines with the location method.

Within the Program “Ensuring the Safe and Reli-5. able Functioning of the UNEG and the Quality of Electricity Transmission Services Provided”:Developed suggestions for planned energy sys-• tem development, mechanisms for ensuring and managing the reliability of Russia’s UES and the UNEG under power sector reform conditions;РDeveloped the Concept of ensuring power sec-• tor reliability, determining the forms and condi-tions for all subjects participating in the power sector in ensuring its reliability at all develop-ment stages and functioning with the use of complex means and measures to guarantee the reliability and mechanisms for their realization.

Within the Program “Increasing Energy Saving 6. and Effi ciency in Electric Grids:”РDeveloped technical requirements for a proto-• type of the active harmonic fi lter for standard

high voltage converter installation at the 400-kV Vyborg substation;The Company developed and adopted the Pro-• gram for Increasing Energy Saving and Effi ciency for 2010-2012 period (Minutes No. 843 dated 03.06.2010);The Company’s 2010-2012 Energy Saving and • Effi ciency Program was adjusted in accordance with an Order by the Russian Federal Tariff Ser-vice and submitted for consideration by Federal Grid Company’s Management Board (Meeting date: 24.12.2010);Prepared proposals for the utilization of the • heat from auto-connected transformers (ATP) at the UNEG substations.

Within the Program “Developing the Concept and 7. Theoretical Basis for Creating Smart Russian Energy System with an Active Adaptive Grid:”Fulfi lled the fi rst stage of developing Russia’s • concept of a smart electric energy system with an active adaptive grid, which is aimed at con-sideration by interested electric energy organi-zations;Developed technical requirements and contractual • documentation. Signed 34 agreements to fulfi ll R&D work;Received 5 certifi cates of registration for computer • sost ware and 15 useful model patents.

Within the framework of the Company 2010-2014 8. investment program:Put under voltage SVCs with a capacity of 50 • MVAR at the 220-kV Aphipskaya, the 220-kV Krymskaya and the 220-kV Slavyanskaya sub-stations;Conducted tests for the controlled CSR (UN-• ShRTD - 180000/500) at the 500-kV Nelym substation;Put into experimental-industrial operation the • pilot model of the 50 MVAR STATCOM device at the 400-kV Vyborg substation;Put into operation new type CSR (UShRT • 110000/25000) at the 220-kV Kogalymskaya substation and the 220-kV Progress substation;Put into operation the CSR (UShR 110000/25000) • at the 220-kV Selenduma substation;

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Conducted preparatory work to put the switch-• disconnector cell into experimental-industrial operation at the 220-kV Dmitrov substation.

In 2010 the Company actively participated in events dedicated to innovative development of the Russianeconomy, including: the St. Petersburg International Economic Forum, the Innovation Forum, the 2010 International Exhibition and Conference on Inno-vative Projects in Network and Electricity Supply (IPNES), the International Forum “Energy of the Future” and the International Power Industry Con-ference “Technological Basis for Forming the New Russian Power Industry.” At the end of Novem-ber 2010 the Company organized and conducted a specialized international exhibition “Russian Electric Grids – 2010” and a scientifi c and techni-cal seminar on “Progress in Designing, Constructing and Exploiting Electric Grids.”

In 2010 Federal Grid Company concluded 44 agree-ments on R&D cooperation with project and educa-tional institutes, as well as with domestic producers and foreign companies. Partners included Research and Development Institute of Protective Devices and Insulators, Sevkabel, Positron, Energomechan-icheskiy Zavod, the Scientifi c-production Association “Streamer,” Elektroapparat, Elektronmash, Novaya Era, NIIEFA-ENERGO, Hyundai Heavy Industries and Alstom Grid.

Attestation of Equipment, Technologies and MaterialsWithin the framework of the testing system created by Federal Grid Company, an assessment is carried out regarding the possibility and expediency of using new types of equipment, technologies and mate-rials from diff erent producers at the Company’s facilities. The attestation procedure is performed based on verifying production conditions, their correspondence with standard requirements and industrial and corporate documentation that takes into account the experience of using such equip-ment. In addition, attention is paid to servicing the equipment (the availability of a “hot” reserve and dynamic responses from corporate specialists). This procedure allows the Company to avoid supplying

unsatisfactory or obsolete equipment to the UNEG objects.

The Company’s subsidiary Scientifi c and Technical Center of the Power Industry is the leading orga-nization that attests equipment for Federal Grid Company.

In 2010 the Company had the following results from testing out equipment, technologies and materials:

In 2010 the volume of accumulated applica-• tions decreased signifi cantly (from 500 applica-tions as of 01.01.2010 to 164 applications as of 01.01.2011);Improved total realization indicators based on • the volume of applications received in 2009 and 2010;Import substitution indicators were upgraded • and a competitive environment for selecting equipment when organizing tender procedures was created;the list of producers of standard gas-insulated • switchgears for secondary distribution systems with voltage class of 110-500 kV was broadened (recommended for usage with more than 20 build types);the list of auto-connected transformers with a • capacity of 167 MVA allowed for usage at the Company’s facilities was expanded;the nomenclature of attested 110-500-kV cable • production was broadened;the list of producers of overhead-line hardware • for high voltage lines increased;

For the fi rst time, the following items were tested out and recommended for usage:

Controlled shunt reactors of types: UShR-• 25000/110, UShR -180000/500, UShRT- 25000/110;An automated controlled ice melting system;• Domestically produced modern gas-insulated • tank circuit breakers for 110 and 220 kV;

Due to attestation, a broad range of equipment design was enhanced (power transformer, factoryassembled switchgears with a voltage class of 6-20 kV, supporting insulators with polymeric insulation with voltage class

ANNUAL REPORT2010


95

of 110-220 kV, UNShRTD-180000/500 type reactor, phase diff erential protection L60 and P547, telemetry complex SELTA STCE/RTU and others).

As a result of procedures conducted prior to 1 January, 2011, the number of applications transferred to 2011 dropped to 164, whereas the total number of applications considered for attestation and the prolongation of expired certifi cates for attestation commissions totaled 714 during the year.

In 2010 Federal Grid Company concluded 44 agreements on R&D cooperation with project and educational institutes, as well as with domestic producers and foreign companies.

IS A GUARANTEE

FOR GROWTH


ANNUAL REPORT2010


STABILITY

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Economic and Financial PerformanceThe main fi nancial management tool used by Federal Grid Company is a hierarchical budgeting structure.The Company’s fi nancial and economic planning cov-ers the following levels:

Long-term planning• involves a fi ve-year fi nan-cial plan broken down into one-year steps. This involves establishing guidelines to implement a government-mandated policy concerning the UNEG management, as well as the Company’s own strategic plans, subject to acceptable risk levels and focused on fi nancial sustainability;Mid-term planning• is built around a three-year business plan, which is also divided into one-year steps. The goal is to set mid-term fi nancial and production targets, to develop a production program and to identify necessary resources while balancing the economic interests of the Company, its investors, customers, shareholders and creditors;Short-term or current planning • focuses on the Company’s annual budget with quarterly interim steps. Budgeting helps the management team align day-to-day activities with mid-term targets outlined above.

• With the goal of building a fi nancial management system that meets modern corporate governance standards, Federal Grid Company has introduced the following measures:

To implement a process-based manage-• ment model, the Company has described and regulated business processes and singled outBusiness Planning and Budgeting processes. The processbased management model is currently being rolled out;To form a fi nancial structure, fi nancial responsibility • centers have been formed;

A cash fl ow control system has been established;• A management accounting system has been • developed and implemented;The budget management system was introduced • via eff orts of the Company and its branches todrast , review, approve and execute budgets, con-trol budget execution, maintain budget records,and complain, review and approve budget re-ports.

The performance analysis system is based on com-paring set targets with actual performance.

The Company’s cash fl ow management is grounded in a mechanism that utilizes the centralized accumu-lation of cash as proceeds from operations, fi nanc-ing and investing it so that it can be used later to fi nance operations and capital expenditures. Opera-tions are fi nanced by distributing funds to corporate branches. Throughout 2010 the Company’s fi nancial management bodies focused on ensuring fi nancial stability while working within the Company’s es-tablished leverage limits. One of the Company’s top priorities in fi nancial policy was to reduce operat-ing costs per unit of equipment without sacrifi cing grid servicing effi ciency or reliability.

During 2008-2010 there was an increase in corpo-rate revenues. In 2010 revenues from Federal Grid Company’s usual activities grew by RUR26,007 million, or 30.6% year-on-year, driven by higher revenues from electricity transmission services by RUR29,337 million, or 36.6%. Compared to 2009, the principal drivers of higher revenues from elec-tricity transmission services were expanded corpo-rate production capacities and a larger investment program approved by Order No. 547 of the Russian Ministry of Energy, as of 12 November, 2010.

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Indicator (RUR, mln)

Revenues

COGS

Sales profi t (loss)

Other incomes

Other expenses

Profi t (loss) before tax

Deferred tax assets

Deferred tax liabilities

Current income tax

Other similar compulsory payments

Net profi t (loss) for the reporting period

2010

111,085

75,518

29,357

148,393

109,431

68,319

-33

-1,181

-9,264

249

58,088

2008

68,485

58,977

5,156

38,377

37,356

6,177

7

-217

-3,225

1,724

4,465

2009

85,078

64,080

15,870

113,770

183,688

-54,049

-180

-722

-4,876

-39

-59,866

In 2010 the Company’s COGS (excluding administrative expenses) increased RUR11,438 million (17.8%) year-on-year, as a result of an increase in equipment units, the launch of new facilities, infl ation growth and greater depreciation charges resulting from PP&E revaluation.

In 2010 Federal Grid Company posted a net profi t of RUR58,088 million:

Additional profi t generated by mark-to-market • fi nancial investments;Re-stored and accrued bad loan provisions that • were reduced by an amount equal to the provi-sion for inventory depreciation;Profi t allocation to the Company’s investment • program.

Financial Performance

4.0

100

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2010 Key Asset, Equity and Liability Figures in Accordance with Corporate Accounting Reports, RUR mln

The above balance sheet data indicates no clear trend. There were declines in 2009, compared to 2008, and growth in 2010, compared with 2009.

In 2009 non-current assets declined in value. The principal reason was a revaluation of long-term fi -nancial investment, due to lower market value for securities in the Company’s portfolio and that a por-tion of the Company’s long-term investments were re-classifi ed as short-term ones.

In 2010 Federal Grid Company’s total assets grew, driven primarily by a higher non-current assets value. The following factors aff ected the 2010 increase in non-current assets:

Higher construction-in-progress value as the Com-• pany implemented its investment program;Increased long-term fi nancial investments primarily • due to mark-to-market fi nancial investments and the reclassifi cation of Energo-Finans promissory notes from long-term receivables to long-term fi nancial investments under novation contract;Increased PP&E, which was revalued 1 January, • 2010, with the revaluation netting a total of RUR 86 billion.

Revenue and Expense Performance

RevenueCOGSNet profi t (loss) for the reporting period

Indicator

Indicator

Non-current assets

Current assets

Total equity and liabilities

Equity

Long-term liabilities

Short-term liabilities

As of 31.12.2008

723,940

511,588

212,353

723,940

666,177

18,622

39,141

As of 31.12.2009

660,517

437,915

222,602

660,517

579,467

7,440

73,609

As of 31.12.2010

871,546

640,787

230,759

871,546

763,884

52,668

54,994

0

20,000

-20,000

40,000

-40,000

60,000

-60,000

80,000

100,000

120,000

2008 2009 2010

68,485

111,085

85,078

64,080

75,518

58,977 58,088

4,465

-59,886

ANNUAL REPORT2010


101

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2008 2009 2010

150,245

212,353

222,602

296,644

230,759

236,193

216,530

151,604150,374

Assets Structure Performance

PP&EConstruction in progressCurrent assets

The increase in Federal Grid Company’s current assets was driven by the following factors:

Increased inventories, including materials, due to • larger material procurement for repair activities using the Company’s own resources;Reduced long-term accounts receivable, partly as • a result of reclassifying Energo-Finans promis-sory notes from long-term receivables to long-term fi nancial investments under novation con-tract and redeeming promissory notes of Mobile GTES;Increased short-term accounts receivable as • advance payments required for the investment program grew and bad-loan provisions for the promissory notes of Energy Index – Federal Grid Company were re-created;Reduced short-term fi nancial investments driven • by a reduction in Federal Grid Company’s cash deposits at banks.

In 2010 the Company’s equity grew at a higher rate, driven by an increase in Federal Grid Company’s share capital following the registration of a RUR40,178 million equity issue in 2009, an increase in surplus capital driven by PP&E revaluation and a RUR58,088 million net profi t reported in 2010.

In 2010 the increase in the Company’s short-term receivables was driven by series 7, 8, 9, 10 and 11 bond issues aimed at fi nancing the corporate investment program. As with the previous year, during the 2010 report-ing period, the Company increased its share capital. This resulted in payables to participants in contribu-tions to share capital being reported as short-term liabilities. Following the FFMS registration of the Report on results of the additional share issue, this amount became part of share capital. In the 2010 reporting, this was equal to RUR11,194 million, where-as in the 2009 report, it totaled RUR40,178 million.

2010 liquidity ratios indicate that Federal Grid Company is capable of meeting its short-term obligations. The cash, current, and quick ratios are all high, which is considered a positive factor given that the current ratio is within the normal range of 1 and 2, whereas, the quick ratio is between 0.7 and 0.8. The reported values illustrate that the Company has reasonably high levels of both liquidity and solvency.

In 2010 the year-on-year decline in liquidity ratios was caused by a reduction in short-term fi nancial invest-ments following a decline in Federal Grid Company's deposited cash at banks, the redemption of promis-sory notes of VTB Bank and Glavsetservis UNEG and the purchase of short-term promissory notes from Alfa Bank and Bank Rossiya.

4.0

102

ABOUT THE COMPANY

PRODUCTION OVERVIEW





2008-2010 Corporate Financial Ratios

Indicator

Liquidity*

Cash ratio

Quick ratio

Current liquidity

Capital structure**

Equity to total assets

Leverage

Profi tability

EBITDA margin***, %

Operating margin***, %

Return on assets***, %

Assets turnover

31.12.2010

1.3

4.9

5.3

0.89

0.12

61.5

23.2

3.0

0.13

31.12.2008

1.41

5.01

5.43

0.92

0.09

47.8

6.5

0.62

0.09

31.12.2009

2.41

5.91

6.66

0.94

0.07

47.5

11.1

1.4

0.13

* For 2009-2010, payables were reduced by amounts owed to shareholders for shares contributions.

** For 2009-2010, charter capital was increased by amounts owed to shareholders for shares contributions.

*** For 2009-2010, the impact of factors outside Company management competencies was not taken into account when calculating EBITDA (net profi t).

The ratio of equity to total assets demonstrates the degree of fi nancial independence from creditors. In 2010 the change in this ratio was driven by an increase in total assets and is currently at a fairly high level, pointing to Federal Grid Company's strong fi nancial stability.Profi tability ratios continued to increase during the reporting period. The main growth factor is higher profi t before tax (without taking external factors into consideration).

Net Profi t Distribution

Federal Grid Company’s ast er-tax profi t (net profi t), as per accounting statements, is the source for accruals of the corporate reserve fund and for paying dividends. In FY 2010 Federal Grid Company reported a net profi t of RUR58,088 million.

ANNUAL REPORT2010


103

4,242

–

–

–

–

–

–

18,578

34,028

2,577.7

Development

Compensation for previous year losses, remuneration to members of the Company’s Board of Directors

Dividends

The profi t primarily consists of:

Positive fi nancial results from mark-to-market of • shares (not secured by monetary funds);Positive financial results from re-storing and • accruals of bad-debt provisions, reduced by an amount equal to the provision for inventory depre-ciation (not secured by monetary funds);Profi t from corporate operations.•

The Company plans to distribute posted net profi t in the following way:

In accordance with Article 35 of Russian Federal 1. Law No. 208-FZ dated 26 December, 1995 “On Joint Stock Companies,” the Company plans to allocate 5.0% of net profi t, or RUR2,904,419,000, to its reserve fund;The profi t of RUR18,578,192,000 will be allocated 2. to development, including RUR16,614,772,000 to be allocated to fi nance the Company’s approved 2010 Investment Program, RUR1,277,414,000 for fi nancing capitalized interests accrued on loans raised for the Company’s Investment Program and RUR686,006,000 for purchasing PP&E.

In accordance with Clause 4.3 of Federal Grid 3. Company’s Regulations on Dividend Policy, the Company plans to pay dividends based on net profi t secured by monetary funds and excluding fi nancial results from security revaluations and provision accruals. Dividends totaling 10% of net profi t are backed by monetary funds and equal RUR2,577,664,000.RUR34,028,113,000 of net profi t are allocated 4. to cover losses posted in 2009, as a result of losses from asset revaluation and the provi-sion accruals, and as remuneration to be paid to members of the Board of Directors in accordance with Clause 4.3 of the Federal Grid Company’s Regulations on Compensation and Remuneration to Members of Board of Directors, as approved by the Resolution of the General Shareholders Meeting dated 26 June, 2010 (Minutes No. 9 as of 2 July, 2010).

31.12.2008

4,465

–

223

31.12.2009

-59,866

–

–

31.12.2010

58,088

25,777

2,904

Retained profi t (loss) for the reporting period:

Net profi t, adjusted

Distribution:

Reserve fund

2008-2010 Net Profi t Allocation, RUR mln

4.0

104

ABOUT THE COMPANY

PRODUCTION OVERVIEW





4.1 TARIFF REGULATION

Electricity transmission via the UNEG is Federal Grid Company’s principal activity. These services are considered to be a natural monopoly in the electric energy sector, with prices (tariff s) subject to state regulation.

Prior to 2010 tariff s for Federal Grid Company's elec-tricity transmission services via the UNEG were based on the economically sound pricing method of regula-tion and were equal to:

Tariff for electricity transmission, RUR MW/month

58,159.01

Tariff for electricity transmission, RUR MW/month

87,868.77

Tariff growth, %

20.7

Tariff growth, %

51.1

Year

2009

Year

2010

Since 2010 the tariff regulation method transitioned to the return on invested capital (Regulatory Asset Base or RAB regulation).

Within the RAB method, the basis for tariff calculation is invested capital, which consists of:

Initially invested capital, which is valued by an • independent appraiser. This includes the cost of assets replacement by the Company needed to carry out operations subject to regulations and the physical, moral and external wear and tear of assets;

Newly invested capital, i.e. capital value • which is used to create new assets following implementation of the Company’s approved investment program.

Gross revenues needed for tariff calculations for each year of the reviewed regulatory period are the sumof recovery and the return on invested capital and expenses needed to carry out operations subject toregulation.

ANNUAL REPORT2010


105

The following main tariff regulation parameters for the Company have been outlined for 2010-2012:

Tariff regulation parameters meeting the Company’s long-term plans have been approved for 2013 and 2014:

Value of invested capital as of 01.01.2010, RUR bln

Return on existing capital as of 01.01.2010, %

Return on newly invested capital, %

Return period on invested capital, years

Return on existing capital as of 01.01.2013, %

Return on newly invested capital, %

Period of return on invested capital, years

2010

647.6

3.9

11

35

2013

7.8

10

35

2012

–

6.5

11

35

2011

–

5.2

11

35

2014

9.1

10

35

Throughout 2010 Federal Grid Company's eff orts were aimed at fostering sustainable development in investing. The Russian Ministry of Energy ap-proved the corporate investment program for a fi ve year period – from 2010 till 2014 – in the amount of

RUR952.4 billion. At the same time, conversations with the Russian Government resulted in a decision in 2H 2010 to extend the fi rst long-term regulatory period from three to fi ve years.

4.0

106

ABOUT THE COMPANY

PRODUCTION OVERVIEW





Tariff for electricitytransmission

Tariff s for 71 RussianFederal subjects

Diff erentiated tariff s for 7Russian Federal subjects*

2011

111,083.35

43,783.55

Growth, %

26.4

15.7

Growth, %

26.4

26.4

2012

140,416.32

55,345.15

* In accordance with Resolution No. 109 “On Pricing for Electric and Heat Energy” by the Government of the Russian Federation dated

26 February, 2004, the Stavropol Region, the Chechen Republic, the Republic of Ingushetia, the Republic of Dagestan, the Republic of

North Ossetia-Alania, the Kabardino- Balkarian Republic and the Karachayevo-Cherkessian Republic were classifi ed as Russian Federal

subjects with diff erentiated electricity transmission services tariff s via the UNEG.

Order No. 486-e/3 from the FTS, dated 28 December, 2010, for Federal Grid Company: Stipulated tariff s for electricity transmission services via the UNEG for the long-term regulation period

(2011-2014) based on the RAB regulation method. Tariff s were amended in line with Russian Govern-ment's Resolution No. 1172 dated 27 December, 2010:

Tariff for electricitytransmission

Tariff s for 71 RussianFederal subjects

Diff erentiated tariff s for 7Russian Federal subjects*

2013

177,310.69

69,887.09

Growth, %

26.3

26.3

Growth, %

26.3

26.3

2014

223,918.60

88,257.61

ANNUAL REPORT2010


107

In accordance with the tariff regulation based on long-term tariff s subject to the return on invested capital, Federal Grid Company is obliged to meet reli-ability and quality criteria for its services as outlined by the Russian Ministry of Energy.

Russian Ministry of Energy Order No. 296 dated 26 June, 2010 outlined Guidelines for Product and Service Reliability and Quality Criteria for the Com-pany Managing the UNEG and for Territorial Grid Enterprises.

Criteria include indicators of electricity transmission reliability, which help identify technological disrup-tions and consumer consequences and quality of consumer services, which for Federal Grid Company principally involve enabling consumers’ technological connection.

The FTS by its Order No. 254-e/1 dated 26 October, 2010 approved the Guidelines for the Calculation and Use of +/- Adjustments Ensuring That Tariff Levels for Companies Involved in Operations Subject to Regulation Meet Reliability and Quality Criteria for Goods And Services. In line with these guidelines, the Company’s revenues will be adjusted in the +/- 3% range.

The FTS decision on 2011-2014 tariff s stipulated target indicators for the reliability and quality of services provided by the Company managing the UNEG during the 2011-2014 period.

Federal Grid Company’s transition to RAB regula-tion ensured suffi cient fi nancial potential to tackle major investment tasks. Implementing the ap-proved investment program will help upgrade the reliability of electricity supplies to consumers, en-sure the provision of capacity to power stations, upgrade electric grids and implement numerous important government-mandated projects.

RAB regulation also involves a fundamentally new ap-proach to cost management and operational expense effi ciency: the new level is 2% per annum. The Com-pany faces the serious task of working out a balanced expense management policy that weighs reducing expenses with meeting existing reliability and quality criteria, which is heavily dependent on the level and effi ciency of repairs and maintenance.

Service reliability Service quality

2012

0.0483

1.2410

2013

0.0475

1.2224

2014

0.0468

1.2040

2011

0.0490

1.2599

Indicator Regulation period

4.0

108

ABOUT THE COMPANY

PRODUCTION OVERVIEW





4.2 COST OPTIMIZATIONThe Company has implemented the 2010 Cost Man-agement Program aimed at upgrading operational effi ciency, reducing operational and administrative overhead and implementing anti-crisis measures. Principal focuses of the 2010 Cost Management Program included:

Reducing the Company’s administrative and operational costs.Following the 2010 transition to tariff regulation based on the return on invested capital, effi ciency improvement is one of the Company’s top priorities.

Under the 2010 Cost Management Program, the Company experienced a cumulative eff ect from re-ductions in production costs and product (or service) sales worth a total of RUR2,613 million, which is in line with the target level.

In 2010 the Company fully implemented measures to reduce the UNEG grid losses. The cumulative energy saving eff ect from measures carried out in 2010 totaled 291.640 million kWh. In 2010 the economic eff ect from Federal Grid Company’s Energy Saving and Energy Effi ciency Improvement Program totaled RUR143.2 million in value.

Optimizing the procurement program.The Company implemented a procurement program to source products and services on a transparent competitive basis from suppliers that off er the best value for money.

All procurement procedures now involve compulsory activities aimed at reducing prices off ered by par-ticipants (re-auction). The resulting economic eff ect can be an additional 1-2% of the cost of purchased products and services.

The compulsory re-auction (voluntary increases in pricing off ers by auction participants) threshold was

also reduced from a total procurement amount of RUR100 million to RUR50 million.

Reducing the Company’s investment expenses.The Company is implementing steps to cut invest-ment project expenses with a focus on specifi cs in the service market and material resources in electric grid construction. These measures are carried out across all stages of the investment program and involve expense-cutting steps.

The Company’s investment program involves a series of procurement measures to save investment without compromising the number and quality of investment projects implemented by the Company.In 2010 the Company carried out nearly 2,500 procurement procedures worth approximately RUR400 billion. From this amount, RUR360 billion was investment-related procurement. Procurement procedures resulted in an economic eff ect of RUR41.6 billion from the initial ceiling price, with RUR37.3 billion of this amount saved on investment-related procurement.

Over the next several years, cost reduction is a cor-porate priority in line with its main strategic goal – ensuring the reliability and up-to-date expansion of the UNEG in line with economic growth and maxi-mizing cost containment. To improve effi ciency, reduce and optimize operational and administrative overheads and cut production costs, the Company developed a series of cost-cutting measures for the 2011-2014 period.

The Company plans that economic eff ects from the 2011-2014 cost reduction program will reach RUR4,600.2 million, driven by the improved effi -ciency of procurement procedures, reduced auxiliary power requirements and lower prices for repairs car-ried out by external contractors without sacrifi cing the actual amount of carried out work.

ANNUAL REPORT2010


109

4.3 CREDIT PORTFOLIO AND LIQUIDITYPrimary Principles of Temporarily Free Cash Allocation Cash position management aims to achieve the maximum return on investment, while maintaining a reasonable risk/return ratio.

The Company earned returns on fi nancial investments by depositing temporarily available cash with Russia’s largest and most reliable fi nancial and credit institutions which off er the highest interest rates possible.

Banks were selected based on the valuation of their fi nancial and operating performance and their reputation. Principal cash placement tools included placing cash in deposits, maintaining it in current accounts and keeping it in bank promissory notes, based on maturity.

A balanced approach to liquidity management, optimizing the placement structure in terms of returns and maturities, and risk minimization measures ensured signifi cant additional income for the Company.

Safeguarding the Company’s and its shareholders’ interests, as well as setting limits on counterparty banks, are carried out in accordance with Regulations on the Procedure for Placing Temporarily Available Cash, as approved by the Company’s Management Board on 28 April, 2008 (Minutes No. 528).

As of 31 December, 2010, the Company’s credit portfolio consists entirely of bonds and is worth RUR56 billion.

2008-2010 Credit Portfolio Performance, RUR mln

0

10,000

31.12.2008 31.12.2009 31.12.2010

20,000

30,000

40,000

50,000

60,000

Credits under Alfa Bank credit lineEBRD loanBond issues

17,980

5,000

13,000

56,000

10,000

4.0

110

ABOUT THE COMPANY

PRODUCTION OVERVIEW





Loans and Credits In 2010 the Company’s credit portfolio grew 4.3-fold, with the Company placing public bonds worth RUR50 billion. On 22 June the Company redeemed a Series 2 bond issue worth RUR7 billion.

2010 Bond IssuesThe FFMS registered Federal Grid Company’s bond issue with a total volume of RUR50 billion on 5 November, 2009. The decision to place the bonds was made by the Company’s Board of Directors on 21 September, 2009 (Minutes No. 89 dated 24 September, 2009).

On 28 September, 2010, the Company placed Series 06, 08 and 10 bonds worth a total of RUR30 billion.On 29 October it completed placing Series 07, 09 and 11 bonds worth a total of RUR20 billion.

The bonds were placed to an unlimited number of investors via open subscription on the MICEX Stock Exchange. Proceeds from the bond placement were used to fi nance the Company’s investment program.

In case of liquidity shortfalls, Federal Grid Company can also use, in addition to fi nancing sources mentioned above, borrowed funds provided via revolving lines of credit from Sberbank of Russia, Gazprombank and Alfa Bank – each worth RUR 15 billion.

Oversight of the Company’s debt position and valuation of its credit potential is based on a credit policy approved by the Company’s Board of Directors 29 September, 2010 (Minutes No. 116).

Bonds

Series

Issue amount,RUR bln

Coupon rate, %

Placement date

Put option date

Maturity period,years

Coupon period, days

Placement price,RUR

Placement method

Облигации

04

6

7.3

12.10.2006

06.10.2011

5

182

1,000

Opensubscription

08

10

7.15

28.09.2010

24.09.2013

10

182

1,000

Opensubscription

06

10

7.15

28.09.2010

24.09.2013

10

182

1,000

Opensubscription

09

5

7.99

29.10.2010

24.10.2017

10

182

1,000

Opensubscription

07

5

7.50

29.09.2010

24.09.2015

10

182

1,000

Opensubscription

10

10

7.75

28.09.2010

22.09.2015

10

182

1,000

Opensubscription

11

10

7.99

29.10.2010

24.10.2017

10

182

1,000

Opensubscription

Non-convertible interest-bearing documentary bonds with mandatory safekeeping at a centralized depository

Bonds issues, outstanding

ANNUAL REPORT2010


111

Rating

BBB/outlook stable

Baa2/outlook stable

4.4 CREDIT RATINGSFederal Grid Company’s solid creditworthiness and fi nancial stability have been confi rmed by credit ratings from leading international ratings agencies. The Company’s current credit ratings are all invest-ment-grade, indicating that its key performance indicators are at the level required to meet fi nancial obligations in full as they become due.

Credit ratings as of 31 December, 2010:

Ratings

agency

Standard & Poor's

Moody's

ruAAA

Aаа.ru

International scale

National scale

Credit Rating History During the Past 3 Years:

30 December, 2010Moody s confi rmed its rating as part of its annual rating revision.

18 June, 2010S&P confi rmed Federal Grid Company’s credit ratings.

30 December, 2009 Moody’s confi rmed its rating as part of its annual rating revision

22 December, 2009 S&P upgraded the outlook for Federal Grid Company from negative to stable. The long-term credit ratingwas confi rmed at BBB and the rating on the national scale at ruAAA.

14 April, 2009 S&P confi rmed its long-term credit rating at BBB and its rating on the national scale at ruAAA, outlook negative.

08 December, 2008 S&P downgraded its outlook for Federal Grid Compa-ny from stable to negative, to refl ect the sovereignrating outlook. The long-term credit rating was con-fi rmed at BBB.

28 October, 2008 S&P removed Federal Grid Company’s long-term ratings, for both foreign and national currency ob-ligations, from the CreditWatch list, with a positive outlook. At the same time, S&P confi rmed Federal Grid Company’s long-term ratings for its foreign and national currency obligations at ВВВ and at ruAAА on the national scale, with a stable outlook.

23 July, 2008 Moody’s confi rmed its credit rating at Baa2 (stable outlook), as well as at Aaa.ru on the national scale.

04 April, 2008 Federal Grid Company’s rating from S&P was upgrad-ed to BBB on the international scale, with a positive outlook, and it remained on the CreditWatch list. On the national scale, Federal Grid Company’s rating was upgraded to ruAAA as a result of a ratings revision.

THROUGH COOPERATION


ANNUAL REPORT2010


INCREASED EFFICIENCY

5.0

114

ABOUT THE COMPANY

PRODUCTION OVERVIEW





5.1 CORPORATE GOVERNANCE PRINCIPLESThe Company is committed to upgrading its corporate governance system, aiming to enhance our investment appeal and to reduce the risk of crisis situations. The integrated corporate governance system encompasses relationships with stakeholders and subsidiary and dependent companies (SDCs), internal control, risk management and internal audit.

The cornerstone of the Company’s corporate governance system is its corporate governance principles, which were outlined by the Corporate Governance Code of the Federal Commission for Securities Market, the Company's Code of Corpo-rate Governance, as well as acclaimed global best practices, such as the Principles of Corporate Gover-nance of the Organization for Economic Co-operation and Development (OECD).

Corporate Governance Principles

Transparency. The Company promptly discloses all signifi cant facts related to our operations, includ-ing our fi nancial standing, social and environmental performance, operational results, ownership structure and corporate management. The Company makes this information accessible to anyone who might beinterested.

Accountability. The Board of Directors is ac-countable to all shareholders for full compliance with all applicable legislation.

Fairness. The Company is committed to defending shareholders’ rights and to treating all sharehold-ers equally. The Board of Directors eff ectively de-fends all shareholders in case any of these rights are violated.

Responsibility. The Company recognizes the rights of all stakeholders, as provided for by applicable legislation, and aims to cooperate with them, help-ing to grow the Company and ensure its fi nancial sustainability.

The Company is liable for its obligations to the full extent of property it owns.

The Company and the Company’s registrar STATUS are jointly liable for losses incurred by shareholders as a result of a loss of shares or the inability to exercise rights documented by shares as a result of improper compliance with the Company’s share-holder registry maintenance and development procedures unless due compliance is deemed im-possible as a result of force majeure or actions (lack of actions) on the part of shareholder that re-quires compensation for losses, including as a result of the shareholder failing to take reasonable mea-sures to reduce such losses.

Responsibility

Transparency Fairness

Accountability

ANNUAL REPORT2010


115

Responsibilities of the Company’s management bodies:In exercising their rights and carrying out their duties, members of the Board of Directors, the Chairman of the Management Board and members of the Management Board act in the best interests of the Company, display integrity and wisdom in exercising their rights and performing their duties with respect to the Company and will be held liable to the Company if it incurs losses due to their wrongdoing (or inaction).

Members of the Board of Directors, the Chairman of the Management Board and members of the Management Board will be held liable to the Company and/or its shareholders for losses incurred by their wrongdoing (or inaction) which violate the Company’s share acquisition procedure. Mem-bers of the Company’s Board of Directors and the Management Board who voted against the deci-sion that incurred losses for the Company and/or its shareholders or who did not take part in the voting are not held liable.

The Company implements the above-mentioned principles by doing the following:

Generating profi t and increasing share value;• Complying with existing legislative norms and • meeting best international practices in corporate governance;Ensuring that shareholders and other stakeholders • have access to information about the Company’s outlook, the objectives it pursues, the timeline and its methods of achieving them and possible risks and infl uences from the outside environment;Maintaining a long-term focus in its operations;• Making major decisions about the Company’s • operations with the involvement of shareholders who vote at shareholders meetings;Providing shareholders with the opportunity • to vote at a meeting either in person or by proxy;Providing shareholders with the information • they need to exercise their voting right at the Company’s shareholders meetings;Off ering equal rights on the same type of shares;• Providing shareholders with the opportunity to • exercise their voting right at the Company’s shareholders meetings based on the “one share, one vote” principle;

Ensuring the Company’s transparency: functions and • competencies of each management body must be clearly defi ned and outlined in writing;Disclosing signifi cant information about its • operations;Providing precise, unbiased, timely and • accessible information that is suffi cient to make a balanced decision;Maintaining ongoing close relationships with • shareholders and providing them will all neces-sary information and documents;Carrying out audit inspections and examinations • by the Audit Commission;Stipulating that members of the Board of Directors • display integrity, wisdom, fairness and loyalty;Ensuring environmental protection, labor safety • and social guarantees for its employees.

Internal DocumentsCorporate governance structures, procedures and practices are regulated by the following internal documents:

Articles of Association;• Regulations on the Procedure for Preparing and • Holding the General Shareholders Meeting;Regulations on the Management Board;• Regulations on the Audit Commission;• Regulations on Compensation and Remuneration • to Members of the Audit Commission;Regulations on the Board of Directors;• Regulations on Compensation and Remuneration • to Members of the Board of Directors;Regulations on Remuneration to Members of • the Committees of Board of Directors;Code of Corporate Governance;• Regulations on the Information Policy;• Regulations on the Dividend Policy;• Regulations on the Insider Information;• Regulations on the Audit Committee of the Board • of Directors;Regulations on the HR and Remuneration Commit-• tee of the Board of Directors;Regulations on the Investment Committee;• Regulations on the Strategy Committee;•

To access the full texts of the above-mentioned documents, please visit our corporate web site: http://www.fsk-ees.ru/eng/investors/corporate_governance/corporate_documents/.

5.0

116

ABOUT THE COMPANY

PRODUCTION OVERVIEW





The new version of the Company’s Articles of Asso-ciation was approved in 2010, to align the text withchanges in legislative requirements, to adjust the competencies of the Company’s management bodies and to include corporate changes that had taken place earlier (for example, changes in the share capital and the Company’s placed and authorized shares).

Changes in legislative requirements were refl ected in the new Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting.

The supreme management authority of Federal Grid Company is the General Shareholders Meeting. The Board of Directors outlines the general focus for the Company’s development and supervises operations of the Company’s Management Board, which is re-sponsible for managing the Company on a day-to-day basis. The Management Board is elected by the

Company’s Board of Directors. The sole executive body is the Chairman of the Management Board, who is elected by the General Shareholders Meeting.

Managing SDCs is based on Regulations on Subsid-iary and Dependent Companies’ Management. TheRegulations outline the way that the Company im-plements the rights of shareholders (participants) to ensure the eff ective performance of corporate representatives at General Shareholders (partici-pants) Meetings, on the Board of Directors and the Audit Commissions of SDCs, and sets the general framework for corporate interaction between the Company and its SDCs related to corporate planning, organization and the control of corporate activities in the decision-making of SDCs bodies with respect to issues that under the Articles of Association require that Federal Grid Company state its position.

Organizational Structure of Management Bodies

Audit Commissionelection

election

reports

appointment

and control

recommendations


Independent External Auditor

Internal Audit

Management Board

Chairman

Board of Directors (11)

Branches (51)

Committees:Audit CommitteeHR and Remuneration CommitteeStrategy CommitteeInvestment Committee

electioncontrol

electioncontrol

reports

reports

recommendations

election

elec

tion

reportsrecommendations

preparation of materials

performancemonitoring

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5.2 BOARD OF DIRECTORSThe Board of Directors outlines the Company’s strategy and key development focuses and oversees the performance of executive bodies to ensure that the interests of the Company and its shareholders are served.

The Board of Directors acts in accordance with Russian Federal Law No. 208-FZ dated 26 December, 1995, Russian legislation and the Company’s inter-nal documents: Articles of Association, the Code of Corporate Governance and Regulations on the Board of Directors.

The Board of Directors is elected by cumulative voting at the General Shareholders Meeting for a oneyear period and consists of 11 members. In accordance with the Company’s Articles of Association, six direc-tors must represent the State. An obligatory require-ment of the Company’s Articles of Association is that the Board of Directors includes members represent-ing the Market Council – a not-for-profi t partnership

that unites companies in the power sector and large electricity and heat power consumers.

To ensure unbiased decision-making by the Board of Directors and balanced interests for diff erent shareholder groups, the Company strives to have at least three independent directors on its Board of Directors.

In 2010 Federal Grid Company had two diff erent compositions of its Board of Directors. Until 29 June, 2010, the Board of Directors was composed of members elected by the Company’s Annual General Shareholders Meeting (which was held 30 June, 2009).

№

1

2

3

4

5

6

7

8

9

10

11

member

member

member

member

Deputy Chairman

member

member

member

member

member

Chairman

PositionName

Boris Ayuyev

Evgeny Dod Mikhail Kurbatov

Alexey Makarov

Andrey Malyshev

Sergey Maslov

Dmitry Ponomarev

Vladimir Tatsiy

Ernesto Ferlenghi

Rashid Sharipov

Sergey Shmatko

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Composition of the Board of Directors, as of 29 June, 2010(The positions of the Board of Directors members are those that they held at the time they were elected to the Board)

Sergey ShmatkoChairmanBorn: 1966Education: From 1983-1990 he studied in the Po-litical Economics Department and the Mathematics and Mechanics Department of Ural State University (Sverdlovsk). From 1990-1992, he studied in the Eco-nomics Department of the University of Marburg (Germany). In 2004, he attended the Graduate School of the Military Academy of the General Staff of Russia’s Armed Forces and received a degree in Defense and Maintaining Russia’s National Security.Holds the following positions:

Minister of Energy of the Russian Federation;• Chairman of the Board of Directors of • Zarubezhnest ;Chairman of the Board of Directors of Federal • Hydro-Generating Company;Member of the Board of Directors of INTER RAO • UES;Member of the Board of Directors of Holding of • the Inter-Regional Distribution Grid Companies;Member of the Board of Directors of Gazprom;• Chairman of the Board of Directors of Transnest • Oil Transporting Company;Member of the Board of Directors of System • Operator of Unifi ed Energy System.

* Member of the Board of Directors since 2008.* Holds no shares in the Company.

Andrey MalyshevDeputy ChairmanBorn: 1958Education: He graduated from the Moscow Power Engineering University with a degree in Heat Power Automation, as a heat power engineer. He holds a PhD in Science, Sociology and Technical Sciences.Holds the following positions:

Deputy CEO, Member of the Management • Board of the Russian State Nanotechnologies Corporation.


Boris AyuyevBorn: 1957Education: He graduated from the Ural Polytechnic Institute with a degree in Electric Power Plants in 1979 and holds a PhD in Technical Sciences.Holds the following positions:

Chairman of the Management Board, Member • of the Board of Directors of System Operator – Central Dispatch Control of the Unifi ed Energy System;Member of the Board of Directors of Energy • Forecasting Agency;Member of the Board of Directors of Adminis-• trator of the Trading System of the Wholesale Electricity Market;Member of the Board of Directors of Financial • Payment Center;Chairman of the Not-for-Profi t Partnership Rus-• sian National Committee of the International Council on Large Electric Systems.

* Member of the Board of Directors since 2004.* Share of participation in the Company’s share capital: 0.0072209534%.* Share of the Company’s ordinary stock: 0.0072209534%.

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Oleg BudarginBorn: 1960Education: He graduated from the Lvov Polytechnic Institute in 1961 with a degree in Electrical Engineer-ing and has a PhD in Technical Sciences. He is also a professor, with a PhD in Economics and is an honored power industry worker of Russia.Holds the following positions:

Advisor on the Power Sector to the President of • United Metallurgical Company;Member of the Board of Directors of Energy • Forecasting Agency

* Member of the Board of Directors since 2010.* Share of participation in the Company’s share capital: 0.0000226124%.* Share of the Company’s ordinary stock: 0.0000226124%.

Georgy KutovoyBorn: 1937Education: He graduated from the Lvov Polytechnic Institute in 1961 with a degree in Electrical Engineer-ing and has a PhD in Technical Sciences. He is also a professor, with a PhD in Economics and is an hon-ored power industry worker of Russia.Holds the following positions:

Advisor on the Power Sector to the President • of United Metallurgical Company;Professor of the Department for State Regula-• tion of Natural Monopolies at the IPK Gossluzhbi State Educational Institution;Member of the Board of Directors of Holding • of Inter-Regional Distribution Grid Companies.


Alexey MakarovBorn: 1937Education: He graduated from the Leningrad Poly-technic Institute and holds a PhD in Economics (1970) and became a professor (1974); he is an expert on system research for the power industry, the develop-ment of power sector policy and forecasts in the fuel and power energy sector. He is also a member of the Russian Academy of Sciences (RAS).Holds the following positions:

Member of the RAS, Power Sector, Engineer-• ing, Mechanics and Management Processes Department;Director of the Energy Research Institute • of the RAS;Independent Director of the Energy Forecast-• ing Agency.


Dmitry PonomarevBorn: 1967Education: He graduated from the International Law Department of the Moscow State Institute of Foreign Affairs of the Ministry of Internal Aff airs and the Economic Department of the C.E.P. Paris Institute for Political Science.Holds the following posts:

Chairman of the Management Board of the • Non-Commercial Partnership "Market Council"Chairman of the Management Board of Admin-• istrator of the Trading System of the Wholesale Electricity Market;Member of the Board of Directors of System • Operator of the Unifi ed Energy System;Member of the Board of Directors of Energy • Forecasting Agency;Member of the Board of Directors of Lenenergo;• Member of the Board of Directors of Financial • Payment Center;Chairman of the Board of Directors of Energorynok.•


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Yuri Solovievindependent directorBorn: 1970Education: He graduated from the Plekhanov Russian Academy of Economics in 1994. In 2002, he received an MBA from the London Business School.Holds the following positions:

President of VTB Capital, Head of the Investment • Business of the VTB Group;Chairman of the Board of Directors of VTB Asset • Management;Member of the Board of Directors of RAO Energy • Systems of the East;Director General, Chairman of the Management • Board, Member of the Board of Directors of VTB Capital IB Holding;Director General, Chairman of the Management • Board, Member of the Board of Directors of VTB Capital Holding;Member of the Board of Directors of VTB Capital • Investment Management Holding AG.


Ernesto Ferlenghiindependent directorBorn: 1968Education: He graduated from the Tor Vergata Univer-sity of Rome (the Department of Mathematics, Phys-ics and Natural Sciences) with a degree in Physics.Holds the following positions:

Head of the Representative Offi ce of Eni Russia • and the CIS;Director General of Eni Energy, the Russian • Federation


Igor Khvalinindependent directorBorn: 1974Education: He graduated from the Moscow Aviation Institute (the State Technical University) and the Moscow State Pedagogical University, with PhD in Sciences and History.Holds the following positions:

General Director of Volga Engineering Group;• Member of the energy effi ciency working group • of the Commission for the Modernization and Technological Development of the Economy attached to the Russian President;Member of the Board of Directors of Holding • of Inter-Regional Distribution Grid Companies.


Rashid Sharipovindependent directorBorn: 1968Education: He graduated from the Moscow State University of Foreign Aff airs in 1991, with a degree in International Aff airs and International Law. He also holds an LL.M. degree from the California Western - School of Law (1993).Holds the following positions:

Deputy Director General of KFK-Consult;• Member of the Board of Directors of System • Operator of the Unifi ed Energy System;Member of the Supervisory Board of Russian • Regional Development Bank;Member of the Board of Directors of Center for • Engineering and Construction Management of the Unifi ed Energy System.


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Deals Involving the Company’s SharesDeals with the Company’s shares in 2010

Oleg Budargin• Deal date: 24 June, 2010 Shareholding in the Company’s share capital prior to the acquisition: 0% Shareholding in the Company’s share capital ast er the acquisition: 0.0000226124 %.

Board of Directors’ ActivitiesIn 2010 the Board of Directors held 27 meetings. Of this number, two were held in the presence of shareholders. The Board of Directors made a total of 182 decisions, including approving the Company’s long-term programs, such as energy savings and the energy effi ciency improvement program, the 2010-2014 investment program, the innovative de-velopment program, the insurance coverage program and decisions that outline the main areas of the Company’s operations:

On approving the list of measures necessary to • ensure the security of the Company’s sites in the North Caucasus Region;On acquiring a diesel power plant with equip-• ment in the Republic of Karelia, Sortavala, Valaam Island;On discontinuing the Company’s participation • in: Tsentr Energetiki, Sibenergoholding, Interge-neration, and SOVASATOM;On approving the new version of the Regulations • on the Procedure for the Regulated Procurement of Products, Work and Services for Federal Grid Company Needs;On approving Regulations on the Dividend Policy;• On approving the new version of the Regulations • on Remuneration for Members of the Commit-tees of Board of Directors.

The Company publishes decisions of the Board of Directors with Minutes' numbers and dates on its corporate web site: http://www.fsk-ees.ru/shareholders_and_investors/corporate_governance/decisions_of_the_board/.

Defining the are as in the Company’s operationsRelated party transactionsReports by the Management BoardHuman ResourcesСurrent operationsDefining roles and positions of the Company’s representative sin managing bodies of SDCs

Agenda Structure of 2010 Board of Directors Meetings

30/182 24/182

85/182

35/182

4/182

4/182

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First Deputy Chairman of the Management Board of SO UES

Deputy Chairman of the Company’s Management Board

First Deputy Chairman of the Company’s Management Board

President of the Not-for-Profi t Partnership Scientifi c and Technical Council of UES

Director General of APBE

Advisor to the President of Eurocement Group

Chairman of the Power Energy Committee of the State Duma of the Russian Federation

General Director of Institute Energosetproekt

Member of the Presidium of the RAS

Deputy Director of the Department of Electric Power IndustryDevelopment at the Russian Ministry of Energy

5.3 COMMITTEES OF THE BOARD OF DIRECTORSThe Committees aim to improve the effi ciency of the Board of Directors via preliminary discussions of the most important questions that fall within the competency of the Board of Directors, and by developing recommendations on these questions.

In 2010 there were four committees attached to the Board of Directors:

Strategy Committee;• Investment Committee;• Audit Committee;• HR and Remuneration Committee.•

Operations for all these committees are governed by respective Regulations on the Committees

outlining the composition, competencies, work procedure and rights and responsibilities of the Committees’ members.

Strategy CommitteeThe Committee’s functions include considering and developing recommendations for the Board of Directors on questions related to the development of the UES of Russia.

Alexey Makarov

Nikolay Shulginov

Roman Berdnikov

Alexander Bobrov

Anatoly Dyakov

Igor Kozhukhovsky

Victor Kudryavy

Yuri Lipatov

Valentin Mezhevich

Vladimir Sitnikov

Vladimir Fortov

Oleg Dunin

Chairman , Member of the Board of Directors of Federal GridCompany, Director of RAS’ Energy Research Institute

First Deputy Chairman of the Commission on Natural Monopolies for the Federation Council of the Russian Federal Duma

The Committee’s composition, as approved by a decision of the Company's Board of Directors, as of 22 September, 2010 (positions held at the time of election):

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The Committee’s 2010 operationsIn 2010 the Committee held fi ve meetings, of these three were conducted in the presence of sharehold-ers. The meetings approved the following recom-mendations of the Board of Directors:

On the creation of the Committee on Implement-• ing Current and Promising Innovative Projects, attached to the Chairman of the Management Board;On the implementation of the project entitled • The Development of Russia’s Smart Energy Sys-tem Based on Active Adaptive Network Prin-ciples, which involves IDGC HoldingOn the approval of the organizational structure • for the executive offi ce of the Company;On the approval of the Company Innovative De-• velopment Program.

Investment CommitteeThe Committee’s functions include considering and developing recommendations for the Board of Direc-tors on questions related to the corporate investment policy and informing the Board of Directors about risks associated with investment activities.

The Committee’s 2010 operationsIn 2010 the Committee held ten meetings, of this number four were held in the presence of sharehold-ers. The meetings approved the following recom-mendations for the Board of Directors:

On the approval of the Company 2010-2014 • Investment Program;On the approval of the Company 2010 business • plan;On the consideration of target figures for • 2011-2012 business plan;

Director of the UES Asset Management for SO UES

Deputy Chairman of the Company’s Management Board

First Deputy Chairman of the Company’s Management Board

General Director of ECMC UES

Deputy Department Head at the Russian Ministry of Economic Development

Director of the Department of Electric Power Industry Development for the Russian Ministry of Energy

Member of the Presidium of the Russian Academy of Sciences

Member of the Company’s Board of Directors, President of VTB Capital

Rector of the State Educational Institute of Higher Professional Education MPEI (TU)

Andrey Malyshev

Alexander Ilyenko

Roman Berdnikov Alexander Bobrov

Vladimir Mayorov

Victor Lebedev

Alexey Makarov

Vasily Nikonov

Vladimir Fortov

Yuri Soloviev

Igor Khvalin

Sergey Serebryannikov

Maria Tikhonova

Chairman, Member of the Company's Board of Directors, Deputy CEO of the Russian State Nanotechnologies Corporation

Member of the Company’s Board of Directors, Director of the Energy Research Institute of the RAS

Member of the Company’s Board of Directors, General Director of Volga Engineering Group

Director of the Department of Economic Regulation and PropertyRelations in the Fuel and Energy Complex of the Russian Ministry of Energy


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On the approval of the new version of Regulations • on the Dividend Policy;On the approval of the new version of Regulations • on the Dividend Policy;

Audit CommitteeThe Committee’s functions include developing recom-mendations for the Board of Directors on selecting

an independent audit company and on improving the Company’s reporting systems and internal control.

The Committee’s 2010 operationsIn 2010 the Committee held six meetings, of this number two were held in the presence of shareholders. Among other decisions, the meetings approved 2011 Insurance Coverage Program and the Regulations

on Liability Insurance for members of the Board of Directors, members of the Management Board, the Chief Accountant and offi cers.

HR and Remuneration CommitteeThe Committee’s functions include developing rec-ommendations for the Board of Directors on aspects of the remuneration system and cash incentives for top corporate executives and the Internal Audit

Commission, and defi ning candidate selection criteria for the Company’s management bodies.

The Committee’s 2010 operationsIn 2010 the HR and Remuneration Committee held four meetings, of this number three were held in the presence of shareholders and one was held in ab-sentia. The following decisions were made at these meetings:

To approve principles and criteria for remunera-• tion and cash rewards to members of the Com-pany’s Management Board and the Chairman of the Management Board;To approve the Methods of Calculating and • Evaluating Key Performance Indicators (KPIs) Achieved by the Company’s Managers;

To provide recommendations on upgrading • Regulations on the Stock Option, considering comments made during the Committee’s meeting.

Rashid Sharipov

Igor Khvalin

Ernesto Ferlenghi

Chairman, Member of the Company's Board of Directors, Deputy General Director of KFK-Consult

Member of the Company's Board of Directors, General Director of Volga Engineering Group

Member of the Company's Board of Directors, Head of the Representative Offi ce of Eni Russia and the CIS

Dmitry Ponomarev

Yuri Soloviev

Rashid Sharipov

Chairman, Member of the Company's Board of Directors,Chairman of the Management Board of the Market Council

Member of the Company's Board of Directors, President of VTB Capital

Member of the Company's Board of Directors, Deputy General Director of KFK-Consult



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125

Boris Ayuyev

Oleg Budargin

Evgeny Dod²

Mikhail Kurbatov²

Georgy Kutovoy

Alexey Makarov

Andrey Malyshev

Sergey Maslov²

Dmitry Ponomarev

Yuri Solovyev

Vladimir Tatsiy²

Rashid Sharipov

Sergey Shmatko

Igor Khvalin

Ernesto Ferlenghi

1 Was not a member of the Board of Directors prior to the AGM

2 Was a member of the Board of Directors only prior to the AGM

* It is advised that members of the Board of Directors meet the following requirements to be deemed independent:(1) During the last three years were not and are not offi cers (managers) or employees of the Company or offi cers or employees of the Company’s management organization;(2) Are not offi cers of another company in which any of the Company’s offi cers are a member of the HR and Remuneration Committee;(3) Are not affi liated persons to an offi cer (manager) of the Company (or an offi cer of the Company’s management organization);(4) Are not affi liated persons of the Company or affi liated persons of said affi liated persons;(5) Are not involved in obligations with the Company that enable them to acquire property (obtain monetary funds), the cost of which is equal to 10 and more percent of the total annual income of said persons, other than for director compensation;(6) Are not a large contractor for the Company (a contractor that has the total number of deals with the Company throughout the year exceeding 10 and more percent of the balance sheet value of the Company’s assets);(7) Are not representatives of the state.An independent director who has served on the Company’s Management Board for a period of seven years can no longer be viewed as independent (Russian FCSM's Resolution “On Recommendations on the Use of the Corporate Governance Code” No. 421/r dated 04.04.2002 (together with the Corporate Governance Code dated 05.04.2002)** The fi rst fi gure shows the number of meetings that the member of the Board of Directors participated in and the second one shows the number of meetings which he/she could potentially have participated in (likewise for Committees).

No

Yes

No

No

No

No

No

No

No

No

No

No

No

No

No

X

Х

Х

Х

Х

Х

27/27

13/13

10/14

5/14

9/13

20/27

26/27

14/14

25/27

13/13

14/14

20/27

27/27

13/13

25/27

-

-

-

-

-

-

-

-

-

0/2

3/6

6/6

-

1/1

4/6

2/5

-

-

-

-

5/5

1/5

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

4/4

2/2

2/2

4/4

-

-

-

5/5

-

-

-

-

4/5

10/10

5/5

2/5

4/5

5/5

-

-

4/5

-

Board of Directors Audit Commit-tee

StrategyCommit-tee

InvestmentCommit-tee

HR andRemune-rationCommit-tee

Executive Indepen-dent *

Participa-tion in meetings **

Name

CommitteesParticipation of Directors in 2010 Meetings of the Board of Directors and Its Committees

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MANAGEMENT BOARD

1 Oleg Budargin

Chairman of the Management Board, member of the Board of Directors

[ 1]

ANNUAL REPORT2010


127

2 Alexander Bobrov

First Deputy Chairman of the Management Board

7 Andrey Kazachenkov

Deputy Chairman of the Management Board

4 Valery Chistyakov


9 Dmitry Gurevich

Member of the Management Board, Telecommunications and IT Director

3 Dmitry Troshenkov


8 Yuri Mangarov


5 Roman Berdnikov


10 Evgeny Zhuikov

Member of the Management Board,General Director of MES Volga

6 Dmitry Gvozdev

Deputy Chairman of the Management Board, Chief Engineer

11 Pavel Romanov

Member of the Management Board

[2]

[7]

[3]

[8]

[4]

[9]

[5]

[10]

[6]

[11]

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5.4 MANAGEMENT BOARDManagement of Federal Grid Company’s day-to-day operations is performed by the Chairman of the Management Board and the Management Board, which are accountable to the General Shareholders Meeting and the Company’s Board of Directors.

The Management Board acts in accordance with the Russian Federal Law No. 208-FZ dated 26 December, 1995, Russian legislation and the Company’s internal documents: the Articles of Association, the Code of Corporate Governance and Regulations on the Man-agement Board.

The Chairman of the Management Board is the sole executive management body and is responsible for developing the Company’s strategies and targets in economic and fi nancial aspects, accounting and reporting, production and commercial operations, human resources, R&D and investment and corporate policy; to ensure security, legal and administrative support for operations.

In 2010 the following changes were made in the composition of the Management Board:

On 12 May, 2010, the Board of Directors made a • decision to terminate the powers of the follow-ing members of the Management Board: Alexey Maslov and Mikhail Tuzov, and elected Pavel Romanov and Dmitry Gvozdev to be members of the Board;Starting 4 April, 2010, the powers of Manage-• ment Board member Andrey Demin were ter-minated, due to the expiration of his fi xed-term employment agreement;Due to his death, a member of the Management • Board, Victor Vasilyev, was removed from the Board 7 March, 2010;The decision of the Board of Directors, dated • 7 September, 2010, terminated the powers of the following members of the Management Board: Sergey Ivanov and Misrikhan Misrikhanov;

The decision of the Board of Directors, dated • 7 September, 2010, appointed Andrey Kazachenkov, Yuri Mangarov, Alexander Bobrov and Evgeny Zhuykov members of the Company’s Management Board.

The Chairman of the Management Board is the sole executive management body and is responsible for developing the Company’s strategies and targets in economic and fi nancial aspects, accounting and reporting, production and commercial operations, human resources, R&D and investment and corporate policy; to ensure security, legal and administrative support for operations.

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129

Chairman of the Management Board

Oleg Budargin

Responsibilities:The Chairman of the Management Board is respon-sible for developing the Company’s strategies and targets in economic and fi nancial aspects, accounting and reporting, production and commercial opera-tions, human resources, R&D and investment and corporate policy; thus ensuring security, legal and administrative support for operations. Elected at the Company’s Extraordinary General Shareholders Meeting on 27 October, 2009.

Background:Mr. Budargin was born 16 November, 1960 and graduated from the Norilsk Industrial Institute (cum laude) in 1982 with a degree in Industrial and Civil Engineering. From 1984-1995 he worked at Norilskstroi PSMO (Production Construction and Assembly Association), in Promstroi Trust of the Norilsk Mining and Metallurgical Work (NGMK), in the Capital Construction Department of NGMK and served as Deputy CEO of NGMK. Mr. Budargin was Mayor of Norilsk from 2000–2002 and Governor of the Taimyr (Dolgano-Nenetsky) Autonomous Distr ict from 2003–2006. In 2007 he was appointed Assistant to the Plenipotentiary Representative of the Russian President in the Siberian Federal District. On 11 July, 2009, Federal Grid Company’s Board of Directors appointed Mr. Budargin Acting Chairman of the Management Board, and on 27 October, 2009, he was elected Chairman of Federal Grid Company’s Management Board by an Extraordinary General Shareholders Meeting.

Holds the following positions:

Chairman of the Management Board, Member • of the Board of Directors of Federal Grid Company;Member of the Board of Directors of Energy • Forecasting Agency.

* Share of participation in the Company’s share capital: 0.0000226124%.* Share of the Company’s ordinary stock: 0.0000226124%.

The Composition of the Management Board, valid since 7 September, 2010

Alexander Bobrov

Responsibilities: Managing Federal Grid Company’s investment ope-rations and property and providing logistics and pro-curement support for the Company.

Background:Mr. Bobrov was born 16 June, 1968. In 1998, he graduated from the North-West Public Service Academy with a degree in Public and Municipal Management. He holds a PhD in Economics. From 1997-2003, Mr. Bobrov was Head of the External Economic Relations and Investment Policy Department at Lentransgaz and Deputy General Director of Petersburgregiongaz. From 2003-2008 he served as the Chairman of the Saint-Petersburg Energy and Engineering Support Committee. He was Head of Inzhspetsstroy, a Noncommercial Partnership for Promoting Construction Work Quality and Safety, which unites major Saint Petersburg-based companies involved in infrastructural engineering and redevelopment. 2010, Mr. Bobrov was appointed Chief Advisor to the Chairman of the Company’s Management Board, and st 2010, he was appoint-ed First Deputy Chairman of the Management Board. In September 2010, Mr. Bobrov was elected a member of the Company’s Management Board.


First Deputy Chairman of the Management • Board, Member of the Management Board of Federal Grid Company;President of the Non-Commercial Partner-•

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ship for Quality and Safety Improvement in Construction “The Self-Regulation Organization Inzhspetsstroy-Elektroset.”

* Mr. Bobrov holds no shares in the Company.

Dmitry Troshenkov

Responsibilities:Managing the Company’s economic and fi nancial operation and fi nancial effi ciency measures, imple-menting the corporate policy and legal framework and human resources management.

Background:Mr. Troshenkov was born 7 January, 1966. He graduated from the Economics Department of the St. Petersburg State University with a degree in Financial Accounting and Auditing. He alsoholds a degree in bank financial accounting and auditing from the Saint Petersburg Banking Institute. From 2000–2001 he served as Deputy CEO (for economics and finance) at Petroelektrosbyt. From 2001–2005 he as Deputy CEO (for economics and finance) at Lenenergo and later was the Deputy CEO (for economics and finance) at WGC-1 (2005–2006). Between 2006 and September 2009 he was the Vice President for Finance at TNK-BP. In September 2009, he was appointed First Deputy Chairman of Federal Grid Company. Mr. Troshenkov has been a Member of the Company’s Management Board since October 2009.

Mr. Troshenkov holds the following positions:

First Deputy Chairman of the Management • Board, Member of the Management Board of Federal Grid Company;Member of the Board of Directors of First Power • Generating Company of the Wholesale Electric-ity Market;Member of the Board of Directors of Sixth Power • Generating Company of the Wholesale Electric-ity Market;

Member of the Board of Directors of the Bashkir • Joint Stock Company of the Power Industry and Electrifi cation Bashkirenergo;Member of the Board of Directors of Territorial • Generating Company No. 6 (TGC-6);Member of the Board of Directors of Territorial • Generating Company No. 11 (TGK-11);Member of the Board of Directors of Volga • Territorial Generating Company;Member of the Board of Directors of Index • of Energy – Federal Grid Company.

* Mr. Troshenkov holds no shares in the Company.

Valery Chistyakov

Responsibilities:Management of the Company’s R&D activities and technologies, customer development and relations, telecommunications and IT management, organization of technical maintenance and repairs for the Unifi ed Energy System.

Background:Mr. Chistyakov was born 18 May, 1955. In 1977 he graduated from the Vladimir Polytechnic Institute with a degree in Mechanical Engineering, and from the Financial Academy of the Russian Government in 1996 with an Economics degree. In 2003 he took an MBA course in Business Management at the State Management University. Mr. Chistyakov holds a PhD in Economics. From 1999–2009 he held various positions in the power sector, including Deputy CEO for Sales at Vladimirenergo, CEO of Udmurtenergo, Director of the Upper Volga Branch of IDGC Center and North Caucasus, CEO of Lenenergo and First Deputy CEO of UES Engineering Center. In Septem-ber 2009, he was appointed Deputy Chairman of the Company’s Management Board and was elected as a member of the Company’s Management Board in October 2009. Mr. Chistyakov has served as First Deputy Chairman of Management Board since November 2009.

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First Deputy Chairman of the Management • Board, Member of the Management Board of Federal Grid Company;Member of the Board of Directors of the Bashkir • Joint Stock Company of the Power Industry and Electrifi cation Bashkirenergo.

* Mr. Chistyakov holds no shares in the Company.

Roman Berdnikov

Responsibilities:Customer relations and development, R&D develop-ment and management of the Company’s technolo-gies and the corporate R&D policy.

Background:Mr. Berdnikov was born 14 August, 1973 and gradu-ated from the Moscow Power Engineering Institute (1998) with a degree in Electric Power Plants. From 1997 to 1998 he worked as the chief electrician at Mosenergo. From 1998 to 1999 he worked in the Tariff s and Technical and Economic Indicators Department of SO CDU UES of Russia. From 1999 to 2002 Mr. Berdnikov worked with RAO UES of Russia, where he began as a specialist in the Department of the SDC Federal National Wholesale Electric Power Market and was eventually promoted to the post of leading specialist in the Department of Electric Power Market Development. In October 2002, he joined the Company as the chief specialist in the Strategic Plan-ning Department. In 2003 he was appointed Deputy Head of the Strategic Planning Department; in 2005 he took over the position of Head of the Depart-ment of Service and Grid Reliability Improvement, which was later restructured as the Department of Customer and Market Relations. In 2009 he took up the post of Development and Customer Relations Director. Mr. Berdnikov was elected a Member of the Company’s Management Board in October 2009. Since February 2010 he has been Deputy Chairman of the Management Board.


Deputy Chairman of the Management Board, • Member of the Management Board of Federal Grid Company;Member of the Board of Directors of Unifi ed • Energy System GruzRosenergo;Member of the Board of Directors of Energy • Institute named ast er Krzhizhanovsky.

* Share of participation in the Company’s share-capital: 0.0000001975%.* Share of the Company’s ordinary stock: 0.0000001975%.

Dmitry Gvozdev

Responsibilities:Organizing maintenance and repair activities, imple-menting the Company’s technical policy, organizing site maintenance for the UNEG, organizing workplace safety management systems at the UNEG sites and managing labor safety eff orts.

Background:Mr. Gvozdev was born 13 August, 1974 and graduated from Kuzbass State Technical University with a cum laude degree in Electrical Engineering. In 2000 he received a Ph.D. in Technical Sciences from the same university. He started his career at Kemerovs-kaya GRES (State District Power Plant) – a branch of Kuzbassenergo. Upon completing his post-grad-uate studies, he worked with ODU of Siberia, a SO UES branch, where he was promoted from engineer to Deputy Chief Dispatcher. Following this, he was Director for Dispatch Control Technology Develop-ment at the SO UES branch – ODU of the Center. In March 2009, he was appointed the Company’s Asset Management Director. Since September 2009 he has been Chief Engineer for the Company and since May 2010 he has been a Member of the Manage-ment Board.

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Deputy Chairman of the Management Board – • Chief Engineer, Member of Federal Grid Company’s Management Board.

* Mr. Gvozdev holds no shares in the Company.

Andrey Kazachenkov

Responsibilities:Management of the Company’s financial and economic activities, organization of the Company’s economic, fi nancial and accounting processes.

Background:Mr. Kazachenkov was born 24 April, 1980. He grad-uated cum laude from the St Petersburg State En-gineering and Economic University with a degree in Engineering Plant Economics and Governance and in Management. He obtained an MBA from the University of Wisconsin (Madison, USA) and was trained at IMD (Switzerland) and INSEAD (France) Business Schools under the auspices of special programs in Economics and Finance. He started his career in 2004 with Lenenergo as an Advisor to the Finance Director, and was later appointed Dep-uty Finance Director. In 2005 Mr. Kazachenkov joined WGC-1 as Head of the Corporate Finance Depart-ment. Since October 2009 he has been an Advisor to the Chairman of the Company’s Management Board. Since November 2009 Mr. Kazachenkov has been Deputy Chairman of the Company’s Management Board. Mr. Kazachenkov was elected a Member ofManagement Board in September 2010.


Deputy Chairman of the Management Board, • Member of the Management Board of Federal Grid Company;Member of the Board of Directors of Volga • Territorial Generating Company;

Member of the Board of Directors of Index of • Energy – Federal Grid Company.


Yuri Mangarov

Responsibilities:Control and audit operations management, corpo-rate economic security, supervision over the Company and its SDCs’ fi nancial, production and administra-tive operations.

Background:Mr. Mangarov was born 6 November, 1956 and graduated from the Plekhanov Moscow Institute of the National Economy with a degree in Economic Cybernetics. For 23 ears, from 1980 to 2003, he worked in the mining and metals industry. He started his career as an engineer with the Norilsk Mining and Metallurgical Work and became Director of Norilsk IntegratedPlant. In 2003 Mr. Mangarov was appointed Deputy Human Resources and Social Policy Director with Mining and Metallurgical Company Norilsk Nickel; and later held the offices of Deputy Employee Relations and Salary Director and the Head of the Director Division. In August 2009, he joined the Company as the Deputy Head of the Financial Control and Internal Audit Division. In October 2009, Mr. Mangarov was appointed Director for Control and Audit Operations. Since March 2010 he has been Deputy Chairman of the Management Board. In September 2010, Mr. Mangarov was elected as a Member of the Management Board.

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Chairman of the Management Board, • Member of the Management Board of Federal Grid Company;Member of the Board of Directors of • Energostroysnabkomplekt of the UES;Member of the Board of Directors of Center • for Engineering and Construction Management of the Unifi ed Energy System.

* Mr. Mangarov holds no shares in the Company.

Dmitry Gurevich

Responsibilities:Telecommunications and IT, development and im-plementation of the UEP TN of the Electricity Grid and coordination of fi ber optic line construction.

Background:Mr. Gurevich was born 22 July, 1971 and graduated from the Leningrad Electro-Technical Institute named ast er Bonch-Bruyevitch in 1993 with a degree in Radio Engineering. In 1997 he obtained an MBA from the St Petersburg International Institute of Management (IMISP) and a Masters Certifi cate from D. Washington University in Project Management. Ast er graduating from the Institute, he jointed AT&T (Lucent Technologies). In 1997 Mr. Gurevich was appointed Project Director of Lucent Technologies. In 2003 he joined Rostelecom, where he became Project Management Director and Deputy General Director and a Member of the Management Board.In February 2008 , he was appointed Telecommunications Director of the Company; in October 2009, Mr. Gurevich was appointed

Telecommunications and IT Director. In October 2009, Mr. Gurevich was elected a Member of the Company’s Management Board.Holds the following positions:

Telecommunications and IT Director, Member • of the Management Board.

* Mr. Gurevich holds no shares in the Company.

Evgeny Zhuikov

Responsibilities:General Director of the Company MES of Volga branch.

Background:Mr. Zhuykov was born 13 May, 1961. In 1990 he graduated from the Sverdlovsk Institute of the National Economy as an economist, with a degree in Economics and Logistics Planning. He is a graduate of the Presidential Program for Executive Staff Training for National Economy Enterprises special-izing in Finance and Lending (2000). Mr. Zhuykov holds a PhD in Economics. For 13 years he worked for Western Electric Grids POEiE Sverdlo-venergo: from 1987 to 1990 he was Head of the Procurements Department and in 1990-2000 he served as the Deputy Director. From 2001-2002 he was Head of Logistics at Uralplastic (Yeka-terinburg). In 2002 he was appointed Deputy General Director for Economics and Finance and acting General Director of MES of Ural. In August 2010, Mr. Zhuykov was appointed General Direc-tor of MES of Volga. Since September 2010 he has served as a Member of the Company’s Management Board.

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General Director of MES of Volga branch, Mem-• ber of the Management Board of Federal Grid Company.


Pavel Romanov

Responsibilities:Managing the Company’s property, fi nancial risks, invested capital and procurement. Organizing the management process for subsidiary and dependent companies.

Background:Mr. Romanov was born 7 July, 1964 and graduated from the Moscow State University in 1986, with a cum laude degree in Economics. From 1986 to 1993 he worked at Moscow State University as the Secretary of the Komsomol Committee, as an assis-tant to the Chair of Production Management in the Economics Department at Moscow State University. From 1993 to 1994 Mr. Romanov was the Economic and Finance Director of Vityaz Precision Engineering Concern. From 1994 to 2002 he was General Director of FNDS, a professional stock market operator. From 2002 to 2007 he worked as Finance Director of the Rosenergoatom Corporation. From 2007 to 2008 he was First Deputy General Director of Atomener-goproekt. From 2008 to 2009 he was the General Director of Engineering Center ‘Russian Gas Centri-fuge’. Between December 2009 and January 2011 he served as the Deputy Chairman of the Company’s Management Board. Since May 2010 he has been a Member of the Company’s Management Board.


Member of the Management Board of Federal • Grid Company;Member of the Management Board of Volga • Territorial Generating Company;Member of the Board of Directors of the Unifi ed • Energy System GruzRosenergo.

* Mr. Romanov holds no shares in the Company.

Deals involving the Company’s sharesDeals with the Company’s shares in 2010:

A. Kazachenkov• Deal date: 20 September, 2010Shareholding in the Company’s share capital prior to the acquisition: 0%Shareholding in Company’s share capital ast er the acquisition: 0.0000191091%.

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5.5 REMUNERATION TO THE MANAGEMENT BODIESRemuneration to the Board of DirectorsRemuneration to members of the Board of Directors is based on the Regulations on Compensation and Re-muneration to Members of the Board of Directors.

Remuneration paid to each member of the Board of Directors is based on the total number of meetings of the Board of Directors during the past corpo-rate year, the number of meetings that the member of the Board of Directors participated in and the Company’s revenues for the fi nancial year. In addi-tion to remuneration, the Company has benefi ts in

place for serving as the Chairman and taking part in Committees of the Board of Directors. Total remu-neration, including benefi ts, cannot exceed RUR 900,000.

Remuneration is not paid to members of the Board of Directors who are subject to any legislative limita-tions or prohibitions on receiving any payments from commercial organizations, or to members of the Board of Directors who at the same time serve as either the Chairman or members of the Company’s Management Board.

Sergey Shmatko

Mikhail Kurbatov

Oleg Budargin

Georgy Kutovoy

Yuri Soloviev

Igor Khvalin

Andrey Malyshev

Alexey Makarov

Sergey Maslov

Ernesto Ferlenghi

Vladimir Tatsiy

Rashid Sharipov

Boris Ayuyev

Evgeny Dod

Dmitry Ponomarev

Total

0

38,822.72

0

0

0

0

165,687.00

141,369.00

177,288.00

153,342.00

105,450.00

154,086.00

177,288.00

129,768.00

165,315.00

1,408.415.72

0

0

0

0

0

0

123,215.93

123,215.93

123,215.93

123,215.93

101,863.43

123,215.93

123,215.93

162,038.65

123,215.93

1,126,413.59

0

38,822.72

0

0

0

0

288,902.93

264,584.93

300,503.93

276,557.93

300,503.93

277,301.83

300,503.93

291,806.65

288,530.93

2,628,019.71

Name Remuneration for participating in a Board of Directors’ meeting, RUR

Other personal compensation, insu-rance premium under the VPLI *, RUR

Total, RUR

*Voluntary personal individual liability

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Remuneration to the Management BoardFederal Grid Company has a unifi ed well-balanced employee remuneration and motivation system which diff erentiates between employee position categories and the performance of the Company, its structuraldepartments and employees. The motivation system directly depends on the performance achieved by the Company and its employees (in accordance with key performance indicators (KPIs)) and is based on the Company’s long-term objectives.

Remuneration paid to the Chairman and members of the Management Board are based on the Companyachieving key performance indicators. Respective key performance indicators, their calculation meth-ods and target levels are approved by the Board of Directors.

In 2010 the following KPIs for top executives were used:

Half-year indicators:

Relative share of restrictions and limitations on • electricity transmission services, %;No workplace incidents with fatalities and no • incidents that injured several people, with at least one of them gravely injured;Meeting the target current liquidity limit.•

Annual indicators:

EBITDA;• No major accidents;• Losses in electricity transmission in the grid used • by Federal Grid Company for providing electricity transmission services, %;Ratio of new production capacity launch, %;• Ratio of capital investment utilization, %.•

The Company met approved KPIs for 1H, 2H and FY 2010.

Information on Remuneration, Benefi ts and Expenses Paid to Members of Federal Grid Company’s Manage-ment Board:

Information on remuneration paid to members of the Company’s Board of Directors and the Management Board, as of the end of the fi nancial reporting year, is disclosed in the Company's 1Q report. The Company’s quarterly reports are also disclosed on the offi cial web site of Federal Grid Company.

including:

Salary (RUR)

Bonuses (RUR)

Commission (RUR)

Benefi ts (RUR)

109,375.902

63,797.110

none

none

2,583.529

2010 total compensation paid to members of the Management Board (RUR)

175 756.541

Other personal compensation (RUR)(Voluntary personal liability insurance)

including:

Salary (RUR)

Bonuses (RUR)

Commission (RUR)

Benefi ts (RUR)

11,083.467

7,781.653

none

none

569.450

2010 total compensation paid to members of the Management Board (RUR)

19,434.570

Other personal compensation (RUR)(Voluntary personal liability insurance)

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5.6 INTERNAL CONTROL SYSTEMThe Company’s existing internal control system over its fi nancial and administrative activities is aimed at ensuring investors trust in the Company and its management bodies.

The internal control system is based on the Regulations on the Internal Control System of Federal Grid Company, approved by a decision of the Board of Directors, which was made 28 February, 2008 (Minutes No. 55).

Objective: to identify and reduce the risk of situations that negatively impact the Company’s ability to achieve its aims and results in losses, to ensure protection for the Company’s assets, to eff ectively utilize available resources and to ensure compliance with Russian legislation and decisions made by management bodies and the Company’s internal documents.

The Audit CommissionThe Audit Commission is elected annually by the General Shareholders Meeting and consists of fi ve members. Its scope of responsibility includes:

Ensuring the reliability of data contained in the • Company’s annual report, accounting balance sheet and profi t and loss statement;Analyzing the Company’s fi nancial state, iden-• tifying opportunities for fi nancial upgrades and developing recommendations for management bodies;Organizing and conducting probes (audits) •

for the Company’s fi nancial and administrative-activities.

The Audit Commission acts in accordance with the Federal Law “On Joint Stock Companies,” Russian legislation and the Company’s inter-nal documents: the Articles of Association, Code of Corporate Governance and Regulations on the Audit Commission.In 2010 the Company had two diff erent convoca-tions of the Audit Commissions (one in 2009 and one in 2010).

Audit Commission Board of Directors

Audit Committee ofthe Board of Directors

Chairman of theManagement Board

The Company’sinternal subdivisions

The Control and Audit Department;The Technical Oversight and Audit Department;The Internal ControlDivision

Participants in the Internal Control System

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Name Primary position held

Tatiana Zlydareva Consultant, Federal Agency for State PropertyManagement

Victor Lebedev Head of the State Tariff Regulation and InfrastructureReform Department of the Ministry of EconomicDevelopment

Dmitry Kozlov Deputy Department Head, Ministry of Energy

Evgeny Krylov Head of the Management Department, Federal Agencyfor State Property Management

Maria Tikhonova Chief of the Department of Economic Regulation andProperty Relations in the Fuel and Energy Complex ofthe Russian Ministry of Energy

Vladimir Raspopov ChairmanHead of IT, Department for Financial andmLogistical Support and Government Contracts at the Federal Agency for State Property Management

Anna Drokova SecretaryChief Specialist, Expert on Fuel, Power Energy andCoal Industry in the Department for InfrastructuralIndustries and Military Industry of the FederalAgency for State Property Management

Maria Tikhonova Director of the Department of Economic Regulationand Property Relations in the Fuel and EnergyComplex of the Russian Ministry of Energy

Dmitry Gorevoy Leading Specialist, Expert in the Department for Electricity Sector Development of the Ministry of Economic Development

Andrey Kolyada Head Specialist, Expert of the Management Department, Federal Agency for State Property Management

The Audit Commission elected by the Annual General Shareholders Meeting on 30 June, 2009, was dissolved 29 June, 2010.

On 29 June, 2010, the Annual General Shareholders Meeting elected new members of the Company’s

Audit Commission, including (positions held at the time of election):

Name Primary position held

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139

Members of the Audit Commission hold no shares in the Company.

Internal Control Sub-DivisionsRemuneration to members of the Audit Commission is paid based on the Regulations on Compensation and Remuneration to Members of the Audit Commis-sion, as approved by Federal Grid Company’s General Shareholders Meeting (dated 30 June, 2008). In 2010 no remuneration was paid to members of the Audit Commission due to the fact that all members of the Audit Commission are public servants.

Board of DirectorsThe Board of Director’s areas of competency within the internal control system involve:

Initiating audits into the Company’s performance • via the Chairman of the Company’s Management Board;Considering and making decisions on internal • control procedure reports submitted by the Chairman of the Company’s Management Board or the Audit Committee;Considering conclusions made by the Audit • Commission;Effi ciently evaluating the internal control system.•

Audit Committee of the Board of DirectorsThe Audit Committee’s areas of competency within the internal control system involve:

Overseeing the internal control system with • respect to accounting and fi nances;Overseeing preparation of the Company’s Re-• ports by its executive bodies and ensuring that the Reports are unbiased.

Chairman of the Management BoardThe Chairman of the Management Board ensures the enforcement of internal control procedures through internal control departments within the Company and makes decisions based on internal investigations.

The Company’s internal control depart-ments:

Control and Audit Department

Key responsibilities:

Organizing control procedures over the Com-• pany’s fi nancial, production and administrative activities, as well as for its subsidiary and de-pendent companies (SDCs), aimed at preventing, revealing and eliminating violations in monetary resources and funds management and at reme-dying consequences of said violations; organizing investigations into cases of abuse (fraud);Interacting with external control bodies;• Administratively supporting the Company’s Audit • Commission and controlling the enforcement of its recommendations and decisions.

Technical Oversight and Audit Department:


Engaging in selective effi ciency control of the • production and technical performance of struc-tural departments of the Company’s executive bodies, branches and SDCs, including the in-ternal technical control system, and evaluating their compliance with existing requirements;Identifying problem areas, analyzing and fore-• casting existing and potential risks, reasons and possible consequences of negative trends, and developing remedy measures related to the Com-pany’s production and technical performance;The establishment and technical oversight over • existing power facilities and quality control over technical maintenance and repairs;Selective technical oversight at facilities under-• going reconstruction, technical upgrades or new construction (including new-generation facili-ties), aimed at checking their compliance with existing requirements;Controlling and evaluating production safety • compliance with existing requirements.

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Internal Control Division


Developing and upgrading the methodology, or-• ganization and performance principles of Fed-eral Grid Company’s internal control system, effi ciently analyzing the internal control system across all areas of operations and developing recommendations on effi ciently improving the internal control system;Establishing ongoing internal control procedures • for Federal Grid Company’s accounting, regular internal inspections for accounting and opera-tional information, establishing prompt control procedures for information about the planned and actual performance fi gures for Federal Grid Company’s departments and SDCs;Identifying and analyzing Federal Grid Com-• pany’s risks, developing and updating the Risk Matrix and developing recommendations to re-duce and prevent risks;

Promptly controlling and effi ciently analyzing the • accounting processes for Federal Grid Company and its SDCs;Effi ciently analyzing a system for authority dis-• tribution across management levels of Federal Grid Company;Developing and updating the Authority Delega-• tion Matrix and overseeing authority distribution principles.

In 2010 as part of internal control procedures, the internal control departments of Federal Grid Com-pany carried out probes in accordance with approved annual targets in respective responsibility areas.

2011 plans include developing and approving the Financial Control Policy and the Authority Delegation Policy. In 2011 Federal Grid Company will also update egulations on the Internal Control System.

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5.7 RISK MANAGEMENT SYSTEM

Federal Grid Company has a risk management system that is regulated by organizational and administrative documents on two levels:

Risk management policy • (outlines require-ments, principles and approaches to the risk management system);Usage procedure for the risk management • policy (stipulates procedures on risk manage-ment system functioning, risk identifi cation and evaluation methods, risk reporting and risk re-sponse procedures).

The aim of the risk management system: to ensure the Company’s sustainable undisrupted performance and growth through early identifi ca-tion, evaluation and eff ective management of risks that can compromise the effi ciency of the Company’s business operations and reputation, employee health, the environment and the property interests of share-holders and investors.

Participants of the risk management system:

Management Board• Deputy Chairmen of the Management Board• Heads of structural sub-divisions• Branch heads• Internal Control Division•

The risk management system involves the following procedures:

Risk identifi cation methods 1. Risk identification involves methods based on the ISO/IES 31010 and COSO stan-dards (analysis, evaluation of threats, ex-pert evaluation and an event tree).

Risk evaluation criteria 2. Risk evaluation criteria include: the possibility of the risk being realized; the risk’s fi nancial impact; risk manageability. Risk possibility and fi nancial impact defi ne its importance. The risk importance estimate can be increased if the Company is intolerant to the risk or if a number of departments of the Company’s Executive Bod-ies, branches or SDCs are subject to this risk.

Risk response methods 3. Risk response methods are carried out as one of the following strategies: risk acceptance; minimization of consequences; risk assign-ment to a third party; risk avoidance; com-bined measures. The strategy selection is discussed with the Internal Control Division and is approved by the Management Board.

Risk reporting procedures and timeframes 4. Risk owners submit their risk reports to the In-ternal Control Division on a quarterly basis. If necessary, the Internal Control Division amends the reports and approves changes with the risk owners. The amended submitted reports are used as the basis for the Risk Matrix and the Set of Risk Minimization Measures, which are submitted to Federal Grid Company’s Manage-ment Board for approval.

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Main Risks and Measures Aimed at Minimizing Them

Global (Strategic) RisksConsidering the special importance of undisrupt-ed performance and the UNEG development, risks deemed to be global (strategic) are the risk of ac-cidents and performance disruptions for the UNEG, which involves the risk of incorrect performances of RPA and ECA and poorer quality and/or disruptions in electricity supplies. Detailed information on these risks is available in the Production Risks section.

Country-Specifi c RisksFederal Grid Company does not view country-specifi c and regional risks as important in its operations.

Industry-Specifi c RisksConsidering the specifi cs of Federal Grid Company as a natural monopoly, the main industry-specifi c risks are tariff risks, for example, risks that aff ect the cost of services provided. Tariff risks include, above all, the risk related to the state regulation of tariff s, the risk of the non-implementation of the investment program fi nancing plan and the risk of the non-implementation of plans for an increased number of assets.

Risks Associated with the State Regulation of Tariff sAs a result of the growth containment policy for tar-iff s on products and services of natural monopolies, which is currently being implemented by the Russian Government, there are risks that regulatory bodies will introduce tariff s far below economically-jus-tifi ed levels.

Risk Owners (Heads of Divisions,

Directors)

Internal Control Division

Structural Departments of the EO (Executive Office)

Management Board

1

2

5

3

1a 2a 5

6

4

Risk identifi cation and evaluation, reporting on risks and providing information about realized risksAnalysis of risk reports, amendments to risk reports, the discussion and approval of changes with risk ownersDiscussion and approval of reports with corresponding heads of the EO Departments and directorsAmendments to reports following discussion and approval with Heads of the EO Departments and directorsPreparation of the Risk Matrix and the Set of Risks and Minimization Measures, their submission for Management Board approval, including control over the implementation of already approved risk-infl uencing measures and risk evaluation of performance analysis Approval of the Risk Matrix and the Set of Risks and Minimization MeasuresDistribution of approved risk minimization measuresImplementation of approved risk minimization measures

11а22a3

456

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143

On 28 December, 2010, Resolution No. 486-e/3 of the FTS approved tariff s for the UNEG electric-ity transmission services provided by Federal Grid Company for 2010-2014. Under the resolution, the increase in the average tariff for the UNEG electric-ity transmission services provided by Federal Grid Company (over the long-term regulatory period) will be 32.8% in 2011, 27.0% in 2012, 21.1% in 2013 and 15.2% in 2014. Tariff growth rates for 2011 will re-main unchanged. Previously, the Russian Ministry of Economic Development had said that tariff growth rates already approved for 2011 can be revised down-wards. This was due to the Government’s decision to limit the growth in electricity tariff s for consumers in 2011 to 15% and below. In particular, the tariff for Federal Grid Company was planned to be reduced by smoothing the tariff in the transition to the fi ve-year regulatory period.

Managing risks associated with tariff regulation in-volves eff ective interaction between Federal Grid Company and power industry regulatory bodies to develop economically-grounded tariff s, and for in-teractions with electricity market players within the membership of the Market Council.

Non-Implementation of Investment Program Financing PlansThe risk of the non-implementation of the investment program fi nancing plan is caused by the possibility of service tariff s being set (or amended for future periods) at a level that is insuffi cient to cover the Company’s actual expenses.

These risks may be realized if the investment pro-gram is not implemented, as a result of not meet-ing planned timeframes for providing fi nancing to facilities additionally included in the investment pro-gram and facilities previously not planned for in the investment program, and also if the actual cost of investment program facilities exceeds the target level when raising funds in the amount needed to imple-ment Federal Grid Company’s investment program is impossible.

Considering that the investment program fi nancing amount is used in calculations of Federal Grid Com-pany’s electricity transmission tariff , non-implemen-

tation of the investment program, for any reason, can result in a commensurate reduction in the tariff in later periods.

To ensure fi nancing for the investment program by improving operational effi ciency, the Company ap-proved the Comprehensive Cost-Cutting Program with the following principal aims:

Reducing informational service costs;• Optimizing site maintenance expenses, including • utility expenses;Reducing offi ce rent expenses;• Cutting business trip expenses;• Decreasing insurance expenses by tender • procedures;Reducing production program costs by using inter-• nal resources for part of the work targets, reducing the price of work and material acquired by the Company, without reducing actual work amounts, and by partially dropping target repair programs.

To reduce the risks of higher actual project costs, compared to those planned for and included in the tariff , the Company developed a system to discuss, approve and control changes in agreements with suppliers and contractors and introduced regular reporting on results of the capital expenditure fi -nancing plan and the planned work schedules. The risk of the inability to raise monetary funding in the amount needed to fi nance the investment program is minimized by diversifying fi nancing sources: the Company signed agreements with several lending organizations to open up credit lines and successfully completed a bond issue.

Non-implementation of the Plan for an Increased Number of AssetsA factor that contributes to the non-implementation of the plan for an increased number of assets is the late inclusion of facilities in the investment program (due to incorrectly identifying facilities that limit the grid’s output amid a strong increase in electricity consumption). Consequences of realizing this risk is a possible reduction in the tariff for later periods in accordance with amounts not used as a result of late facility commissioning. There is also the possibility of damages represented by lost profi ts due to the

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ABOUT THE COMPANY

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inability to provide electricity transmission services and a reputation loss due to the non-implementation of important projects.

To minimize the risk realization possibility Federal Grid Company works to include new facilities in the investment program (on schedule) and to amend the investment program when possible.

Legal RisksFederal Grid Company believes that there is a signifi -cant risk of lawsuits and claims fi led by third parties over disputable situations, as well as for lawsuits and claims fi led by Federal Grid Company against third parties.

To minimize the consequences of legal risks the Com-pany uses diff erent mechanisms aimed at reach-ing agreement with contractors and defending its views (through pre-court settlement procedures and amicable agreements during court litigation) and at defending the Company’s interests in court actions.

Information about ongoing lawsuits in 2010:

The Company faced court claims worth a total of • RUR10,540 – in debt claims;The Company faced court claims worth • a total of RUR3,303,822,347.24 (includ-ing RUR3,132,956,842.24 in debt claims and RUR170,865,505.50 in sanctions).

Production RisksRisk of Accidents and Disruptions in the UNEGFederal Grid Company believes that the most impor-tant production risk is the risk of the UNEG accidents and disruptions. The risk is aff ected by numerous factors, including all errors (failure to act) of the operational staff , the incorrect performance of relay protection and automatic equipment and emergency control automatics (hereinast er, the RPA and ECA) and poorer quality of and disruptions in electricity supplies.

Corporate eff orts to reduce the possibility and con-sequences of the risk of accidents and disruptions in the UNEG are aimed at fi ghting risk factors.

Incorrect RPA and ECA PerformanceTo reduce this risk Federal Grid Company upgrades algorithms for its ECA hardware and sost ware com-plexes and replaces morally outdated and depreci-ated RPA sets. Additionally, the Company works to upgrade its employees’ skills, monitors RPA and ECA performance and regularly analyzes technological violations to identify reasons and develop measures to eliminate them.

Poorer Electricity QualityTo reduce the risk implementation possibility the Company develops respective regulations on quality control, adjusts and expands agreements on electric-ity transmission services and implements technical measures aimed at electricity quality control.

Disruptions in Electricity SuppliesDisruptions in electricity supplies, which are caused by outdated equipment, can be minimized by imple-menting the Company’s investment program and meeting technical maintenance targets. To minimize natural factors the most eff ective measure is to ap-ply the approved Procedure for Normative Mainte-nance of Overhead Transmission Line Routes, which, among other things, stipulates the procedure for removing trees and bushes from routes. Special at-tention is paid to enhanced control over sub-con-tractors.

Risks Related to Innovative Development and Improving Energy Effi ciencyFederal Grid Company views implementing innovative development and energy effi ciency improvement pro-grams as highly important. Implementation violations may be the result of changes in requirements set by regulatory bodies and by the insuffi cient effi ciency of third parties involved in program implementation. Realization of these risks can lead to penalties be-ing imposed on Federal Grid Company and negative reputational consequences, which in turn can lead to higher funding costs.

To reduce the possibility or consequences of risks related to upgrading energy effi ciency Federal Grid Company has developed and introduced regulations on interactions between structural departments about program implementation and has also intro-

ANNUAL REPORT2010


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duced a data retrieval and analysis system to char-acterize program implementation.

The Innovative Development Program was discussed by the Company’s Board of Directors and the Strategy Committee of the Board of Directors. There are plans to complete a technical and technological audit of program results, which will later be considered by the Russian Ministry of Energy.

The funding needed to implement the programs in a timely manner has been included in the budget of Federal Grid Company.

Environmental RisksEnvironmental safety and the rational use of natural resources are prominent on the agenda of Federal Grid Company. For legislative violations the Company can face high fi nes (based on Russian legislation). The possibility of these risks is evaluated as insig-nifi cant with insignifi cant consequences for Federal Grid Company’s operations.

Of special importance are risks related to Federal Grid Company’s equipment that contains trichlorodi-phenyl. A contributor to realizing this risk is strong equipment wear and tear.

Consequences of this risk include potential environ-mental pollution and trichlorodiphenyl -poisoning for the Company’s personnel and/or general population. Additionally, if there are violations in maintaining, storing or utilizing procedures for trichlorodiphenyl-containing equipment, Federal Grid Company can face sanctions from state regulatory bodies.

The tool to reduce environmental risks is the Com-pany’s Environmental Policy (as approved by the Com-pany's Board of Directors). The Company implements it E in accordance with the Environmental Doctrine of the Russian Federation, its own Environmental Policy and the opinions of leading environmental protection groups. When new facilities are de-signed, the environmental aspect is developed as a stand-alone part of the project and takes into account all requirements of Russian environmen-tal legislation. All construction and reconstruction projects of the electric grid facilities are subject to state environmental examination.

In 2H 2010 the Company approved the 2011-2013 Environmental Policy Implementation Program, which outlines numerous organizational and technical mea-sures aimed at risk reduction, minimization of envi-ronmental pollution, introduction of an environmental management system, environmental auditing and development of normative and technical documents related to the environment.

In order to reduce the risk of damages from using and storing potentially hazardous equipment, the Company developed and approved the target pro-gram for decommissioning equipment that contains trichlorodiphenyl, introduced eff orts to collect and update information about equipment that contains trichlorodiphenyl and exerts ongoing control over decommissioned equipment.

Financial RisksCurrency RisksFederal Grid Company’s revenues from electricity transmission services are calculated in the Russian national currency – the Russian rubles (RUR). The Company’s current loan and debt obligations are also ruble-denominated. Thus, risks are negligibly low. In terms of exchange rate fl uctuations for for-eign currencies, these fl uctuations aff ect the Russian economy as a whole and can therefore indirectly infl uence corporate operations.

Liquidity RisksConsidering the current liquidity level, the Company runs a negligibly low risk of failing to fulfi ll its obliga-tions in full within the set timeframe. The Company services its previously raised loans in strict accor-dance with approved schedules.

In order to reduce potential consequences of this risk, the Company controls its debt burden and creditwor-thiness. The Company’s creditworthiness criteria and their target levels are stipulated by Regulations on the Credit Policy and are approved by the Board of Direc-tors (Minutes No. 116, as of 29 September, 2010).

Interest Rate RiskThe risk of higher interest rates on loans can prove to be signifi cant for the Company if its debt burden shows strong growth. As a result, the risk of higher

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interest rates can aff ect the Company’s expenses on debt re-payment. To ensure borrowed fi nancing and minimize the risk of changes in interest rates theCompany aims to diversify its borrowing portfolio tools.

Infl ation RisksThe current infl ation rate has no signifi cant eff ect on the Company’s fi nancial standing. A critical infl a-tion rate is a level exceeding 30%.

Risks Related to a Possible Increase in Accounts ReceivableFederal Grid Company’s economic risk factor is the increase in accounts receivable, which can be trig-gered by the poorer performance of the Company's contractors and their inability to pay for the Com-pany’s services within a set timeframe. The possibility of these risks arising can be linked to a downturn in Russia’s economic situation as a whole.The impact of these factors is minimized by intro-ducing a program to optimize expenses, monitor the market and enact tougher payment discipline for consumers, among other measures.

Risks Related to the Company’s Investment, Which Has an Anticipated Yield of More than 10 Percent Per AnnumВIn 2010 as a result of the completed restructuring of promissory note debt of FC Otkrytie and Otkrytie-Finans (which began in 2009 due to the companies’ inability to fulfi ll their obligations), the Company’s bal-ance sheet received six promissory notes of ENERGO-Finans worth a total of RUR12 billion, with a yield of 13% per annum. The restructuring was in line with the Russian Ministry of Energy’s instructions.

In order to upgrade the liquidity of securities and minimize the risk of non-redemption, promissory notes were secured by a guarantee of a bill by the Rusenergo Limited Fund.

The Company made no other investment with a yield of more than 10% in 2010.

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5.8 SHARE CAPITALIn accordance with the Articles of Association, as of 31 December, 2010, the share capital of Federal Grid Company stood at RUR 616,780,666,776, divided into 1,233,561,333,552 ordinary registered non-documentary shares with a nominal value of RUR 0.50 per share.

The number of authorized shares is 113,244,490,279 ordinary registered shares with a nominal valueof RUR0.50 per share worth a total of RUR56,622,245,139.50 (nominal value). Authorized shares have the same rights as issued ordinary shares.

No preferred shares were placed.

On 4 February the Company completed placing an additional issue of ordinary shares with a price of RUR0.5 per share. A total of 22,386,794,841 shares were placed via the additional issue, representing 79.14% of available shares. The placement generated RUR11.193 billion for the Company.

The main participant in the additional share issue was the Russian Federation, which acquired shares worth RUR11.189 billion. The remaining part of placed shares, worth RUR4.147 billion, was purchased by minority shareholders.

Proceeds from the additional share issue will be used to upgrade the reliability of power sector facilities in the Sochi Region ahead of 2014 Olympic Games preparation and to implement “Economic and social development of the Russian Far East and Trans-Baikal for the period to 2013” Federal Target Program.

Russian minority shareholdersRussian minority shareholdersRussian Federation Agencyfor State Property Management

5.78%

14.74%

79.48%

On 25 March, 2011, the Company registered amend-ments to its Articles of Association under which share capital totals RUR627,974,064,196.50 (six hundred twenty-seven billion nine hundred seventy-four mil-lion sixty-four thousand one hundred and ninety-six) and 50 kopecks.

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Stateregistrationnumber forthe issue

Stateregistrationdate andissue

Placementprice

Placementmethod

Number ofissued shares

Total number ofshares (followingthe additional share issue)

Registrationdate forreporting onthe issueresults

1-01-65018-D 10.09.2002 RUR0.5 Distributionamong companyfounders

243,214,483,559 243,214,483,559 10.09.2002

1-01-65018-D-001D 21.03.2006 RUR0.5 Closedsubscriptionplacement toRAO UES ofRussia

118,167,724,361 361,382,207,920 15.05.2007

1-01-65018-D-002D 23.08.2007 RUR0.59 Closedsubscriptionplacement toRAO UES ofRussia andFederal Agency for State PropertyManagement

114,965,254,235 476,347,462,155 18.04.2008

1-01-65097-D-097D 03.06.2008 – Conversionupon merger

737,588,491,911 1,153,514,196,362 12.08.2008

1-01-65098-D-098D 03.06.2008 – Conversionupon merger

34,154,626,385 1,153,514,196,362* 12.08.2008

1-01-65018-D-101D 25.12.2008 RUR0.51for open subscription

Opensubscription

80,047,137,190 1,233,561,333,552 26.01.2010

RUR0.5 forentities withpre-emptive rights

1-01-65018-D-102D 12.08.2010 RUR0.5 for opensubscription

Opensubscription

22,386,794,841 1,255,948,128,393 01.03.2011

RUR0.5 for entities with pre-emptiverights

* 94,576,384,089 shares were redeemed (annulled)

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149

Number ofholders

Number ofshares

% of the totalnumber of shares

Number of individuals registered in the shareholder register 412,775 10,549,483,174 0.8400

Number of legal entities registered in the shareholder register (including nominee holders, trust managers and the Issuer’s issuer account)

1,458 1,251,239,357,525 99.6251

nominee holders 65 246,236,484,889 19.6056

trust managers 6 5,101,036 0.0004

Issuer’s issuer account 1 5,901,991,179 0.4699

Number of separate accounts for accounting forsecurities in joint shared ownership

1 711 61,265,519 0.0049

Number of separate accounts for accounting for securities of undisclosed entities 1 3,922 0

Total number of entities registered in the shareholder register 415 945 1,261,850,110,141 100

№ Registered entity type Name Number of shares Share of sharecapital, %

1 Owner The Russian Federation, represented by the Russian Federation Agency for State Property Management

998,216,115,886 79.48

2 Nominee holder Depository Clearing Company 79,451,549,039 6.33

3 Nominee holder Depository and Corporate Technologies 67,916,184,242 5.41

4 Nominee holder Non-banking Credit Organization “National Settlement Depository”

59,513,606,178 4.74

5 Nominee holder ING BANK (EURASIA) 27,076,780,253 2.16

Number of the Company’s Shareholders as of 31 December, 2010

List of Registered Entities That Hold More Than 2% of Accountable Shares in Their Individual Accounts as of 31 December, 2010

Information about the RegistrarВ In December 2010, due to a decision by the Russian Federal Financial Markets Service to cancel the register-maintaining license of Central Moscow Depository, the Company decided to cancel its agreement with Central Moscow Depository (CMD) on keeping and storing the Register of Owners of Nominal Securities. Since February 2011 the Company’s Registrar has been STATUS Registrar Company, which was selected via an open tender.

Location: 32 Novorogozhskaya Street, bld 1, Moscow, Russia, 109544Mailing address: 32 Novorogozhskaya Street, Bld 1, Moscow, Russia, 109544Telephone: +7 495 974 8350Fax: +7 495 678 7110Email: [email protected] No.: 10-000-1-00304Issue date: 12.03.2004Valid through: UnlimitedIssuing authority: The Federal Financial Markets Service (FFMS)

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USAUKSwedenGermany

NorwayNetherlandsOther

6%

47%

18%

11%

8%

8%

2%

Growth, Core Growth, GARPIndex

Core ValueEquity Hedge

26.7%

28.8%

44.0%

0.33%

Most of the foreign buy-side investors continue to view the Company’s shares as promising, with the growth rates for the Company’s profi t and/or share value exceeding average levels for other companies in the same industry. One-third of the investment is so-called “index investors” (29%), another 27% comes from investors who believe the Company’s shares are currently heavily undervalued. Hedge funds account for only 0.33%, ast er seeing a marked decline (16.87%), which is generally seen as a positive.

Source: ThomsonOne Source: ThomsonOne, shareholder register data

Geographical breakdown of foreign investors Foreign investors by investing style

The share of foreign investors in Federal Grid Company’s share capital stood at 5.78% as of 31 December, 2010.

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5.9 STOCK MARKETThe Company’s shares trade on the B quotation list for MICEX and RTS and on the Main Market of the London Stock Exchange.

The fundamental appeal of the Company’s stock is evidenced by its inclusion in Russian and foreign indices. As of 30 December, 2010, the Company’s weighted share in the MICEX Power Index stood at 14.33%, making it one of the largest participants among power sector companies included in the in-dex. In the RTS Power Index Federal Grid Company traditionally trails only RusHydro.

Global Depository Receipt (GDR) ProgramOn 30 June, 2008, the Company launched a Global Depository Receipts (GDR) Program, which was not listed in accordance with Regulation S and Rule 144A. One depository receipt represents 500 shares. The Program’s depository bank is Deutsche Bank.

As of 31 December, 2010, the Program was equal to 0.133% of the Company’s share capital.

In March 2011, the Company successfully completed the technical listing procedure for depository receipts on the London Stock Exchange. On 28 March the

Index 2009 2010

MSCI Russia 1.43 1.48

MSCI Emerging Markets (as of the inclusion date)

0.045 0.045

ММВБ 1.69 1.51

Micex PWR 13.94 14.33

Micex LC 2.01 1.97

RTSI 1.67 1.66

RTSeu 22.06 18.99

RTS STD 2.01 2.11

Regulation S Rule 144A

Ratio 1 GDR: 500 shares 1 GDR: 500 shares

International code ISIN: US3133542015Common Code: 036273577

ISIN: US3133541025Common Code: 0362733372

Market price as of 31.12.2010

USD 6.10 USD 6.10

Amount of GDRs as of 31.12.2010

3,203,411 78,518

Federal Grid Company’s Share Weighting in Key Stock Indices, % (Data as of the end of the year)

Company’s depository receipts started trading on the Main Market of the London Stock Exchange under the FEES ticker symbol.

Additional information about our GDR program is available on the corporate web site at http://www.fskees.ru/eng/investors/share_information/gdr_program/.

GDR Program Highlights

Share category ordinary registered non-documentary shares

Nominal value RUR0.5 per share

MICEX ticker symbol FEES

RTS ticker symbol FEESFEESSG

ISIN RU000A0JPNN9

Bloomberg code FEES RMFEES RXFEESS RUFEESG RU

Thomson Reuters code FEES-MZFEESS.RTSFEES.RTSFEESG.RTS

Company’s Shares Highlights

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Stock Price Performance and Trading Volume on MICEX

Date Notes

1 04.02.10 Release of the 1H 2009 IFRS statements

2 24.03.10 Meeting between the Company’s managers and analysts

3 20.04.10 Meeting with analysts to discuss 2009 results and 2010-2012 plans

4 12.05.10 0.08% increase in the Company’s share in the MSCI Russia index to 1.75%

5 17.05.10 Release of 1Q 2010 RAS statements

6 04.06.10 The Ministry of Economic Development’s proposal to limit the Company’s tariff to 15% in 2011

7 17.06.10 Announcement of fi ve-year investment program highlights

8 29.06.10 AGM

9 21.07.10 Release of the 2009 IFRS statements, meeting with analysts


11 10.08.10 Meeting with analysts to discuss 1H 2010 results

12 25.08.10 Release of the Federal Tariff Service’s drast Resolution on the rates of return for investedcapital within the RAB framework

13 29.09.10 Completion of the Company’s Series 6, 8 and 10 bond issues placement worth RUR30 billion

14 04.10.10 The Federal Tariff Service’s approval of corporate rates of return

15 21.10.10 The Russian Government’s announcement of plans to privatize Russia’s largest companieswith State participation, Federal Grid Company is one of these companies


17 11.11.10 Release of 1H 2010 IFRS statements

18 16.11.10 Meeting with analysts following the release of 3Q 2010 RAS statements and the 1H 2010IFRS statements

19 07.12.10 The Ministry of Economic Development’s proposal to limit the Company’s tariff to 25% in 2011

20 20.12.10 Approval of investment program and dividend policy

21 28.12.10 The Federal Tariff Service’s approval of the RAB tariff for a fi ve-year period for the Company

ANNUAL REPORT2010


153

0.2

0.24

0.28

0.32

0.36

0.4

0.44

0.48

0.00

2,000.00

4,000.00

6,000.00

8,000.00

11.0

1.10

25.0

1.10

08.0

2.10

24.0

2.10

10.0

3.10

24.0

3.10

07.0

4.10

21.0

4.10

06.0

5.10

21.0

5.10

04.0

6.10

21.0

6.10

05.0

7.10

19.0

7.10

02.0

8.10

16.0

8.10

30.0

8.10

13.0

9.10

27.0

9.10

11.1

0.10

25.1

0.10

10.1

1.10

23.1

1.10

07.1

2.10

21.1

2.10

30.1

2.10

Trading volume, mln items RUR

51

2

3

4

6

721

20

19

17

1615

14

131211109

8

18

2009 2010

Volume units 452,899,905,600 307,017,566,700

RUR 114,494,378,142.9 105,717,431,921

Number of deals

units 1,171,618 1,137,379

2009 2010

Low RUR 0.074 0.282

High RUR 0.409 0.389

Period-end RUR 0.320 0.369

Number of shares mln shares 1,153,514 1,233,561

Capitalization at year end

RUR, mln. 367,971.04 452,717.01

Summary of Federal Grid Company’s share performance on MICEX

Key parameters of MICEX trading

Source: MICEX web site

Additional trading information is available in the respective section of our corporate web site at http://www.fskees.ru/investors_tools_graph.html.

2010 Share Prices In 2010 Federal Grid Company’s share price on MICEX grew 15.3% and reached RUR0.369 on 30 December, 2010, which is 13% below the consensus forecast from analysts and indicates further upside potential in the Company’s stock price.

MICEX is the main trading platform for the Company’s shares and accounts for more than 90% of market deal volume.

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on ordinary shares for 2009.

2010 For FY 2010 the Company posted a net profi t of RUR58,088,388,000.

The net profi t for dividend calculations, excluding fi nancial results from securities revaluation and thecreation of provisions not backed by monetary funds, was RUR25,776,639,000.

The decision on 2010 dividend payments will be made by the Company’s Annual General Shareholders Meeting in 2011.

Dividends, RUR thousand 2,577,664

Number of shares, units 1,255,948,128,393

Dividend per share, RUR 0.0020523650155

Federal Grid Company’s dividend policy is based on Regulations on the Dividend Policy approved by the Board of Directors on 16 December, 2010. According to this document, the minimum dividend payout is 10% of RAS net profi t ast er mandatory contributions to the reserve fund adjusted (reduced) for paper prof-its from assets revaluation, the reserve for recovering bad debts and non-recurring income from the sale of securities and other property planned to fi nance the Company’s investment program.

The General Shareholders Meeting makes dividend payout decisions in accordance with the dividend size recommended by the Board of Directors, based on the Company’s posted fi nancial results, while balancing the interests of the Company and its shareholders.

2008 To maintain the Company’s fi nancial stability amidst the ongoing fi nancial crisis, the Board of Directors recommended that the General Shareholders Meeting channel the Company's 2008 net profi t to corporate development. The resolution of the General Shareholders Meeting (30.06.2009) approved the allocation of RUR4,242,201,000 (95% of 2008 net profi t) to development and RUR223,201,000 (5% of 2008 net profi t) to the corporate reserve fund. The money allocated to corporate development was used to fi nance specifi c projects to the extent determined by a separate Board of Directors’ resolution as part of the Company’s priority activities.

2009 For FY 2009 the Company posted a loss of RUR59.866 million. The principal reason for the 2009 operating loss was the eff ect of the global fi nancial crisis. The loss resulted from writing off negative diff erences from the market-price-based revaluation of assets on the Company’s balance sheet. The source for reserve fund allocations and dividend payments is the Company’s net profi t ast er tax (net profi t), based on accounting reports. In 2009 the Company had no base (source) to pay dividends. The Annual General Meeting of Shareholders decided not to pay dividends

Total dividend accruals, RUR

thousand.

Per ordinary share, RUR

2006 587,847.4 0.001626664

2007 380,000 0.0007977370096

2008 0 0

2009 0 0

Dividend History

5.10 DIVIDEND POLICY

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155

5.11 INVESTOR RELATIONSIn 2010 the Company continued developing its investor relations and enhancing information transparency to position Federal Grid Company as one of the leading power sector companies.

The Company aims to provide full and reliable information about its operations by holding personal meetings with analysts and investors, participating in conferences and regularly updating its corporate web site.

For the second consecutive year the Company has won an award in the category “For the Best Corporate Governance Practices and Investor Relations” at the contest organized by the Administration of the Krasnoyarsk Region with the participation of the Russian Institute of Directors and the Federal Service for Financial Markets.

Last year S&P recognized Federal Grid Company as one of the companies that has demonstrated the greatest progress in information disclosure.

In 2010 the number of banks that provide analytical coverage for the Company increased from 15 to 20,including UBS, Unicredit and the Otkrytie Financial Corporation.

The Company’s latest fi nancial news, reports and presentations are available on the corporate web site http://www.fskees.ru/eng/investors/company_overview/.

Additionally, the Company’s investor relations specialists are available at any time at +7 495 710 9064 or by email [email protected].

Liquidity

Capital Markets

Company Value

IRFinancial

Communications

Marketing

Disclosure and Information

Transparency

IS TO BE BENEFICIAL

TO YOUR COUNTRY


ANNUAL REPORT2010


TO BE SUCCESSFUL

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6.1 SOCIAL RESPONSIBILITY PRINCIPLESFederal Grid Company’s corporate social responsibility (CSR) represents the Company’s complex responsibilities toward interested parties in the sphere of managing the Company’s impact on the surrounding environment, society and economy. The Company voluntarily undertakes these responsibilities and fulfi lls them publicly when interacting with interested parties. These principles are oriented on ensuring sustainable development and implementation of the Company’s strategy.

Our responsibility toward the state and con-sumers consists of ensuring the reliable and uninter-rupted power supply of the UNEG objects, modern-izing all objects in the UNEG power supply network in a timely manner; developing and introducing innova-tive technologies, contributing to an increase in the energy eff ectiveness of the UNEG, preventing and promptly fi xing technological breakdowns; utilizing funds invested in the Company by the Government in a transparent and eff ective manner.

Other important aspects of the Company’s CSR include:

Responsibility toward environment • – for minimizing negative environmental impact;Responsibility toward suppliers and con-• tractors – creating a transparent competi-tive environment and market mechanism for pricing,Responsibility toward personnel• – for cre-ating appropriate labor conditions and oppor-tunities for professional and personal growth.

Strengthening Corporate CultureFederal Grid Company’s corporate culture, including values as well as standards of behavior and work, forms the corporate perception for its employees, stimulates feelings of responsibility, prompts the realization of succession and helps build correct reac-tions to events taking place in the Company. It also creates a feeling of safety. We consistently work

to develop corporate culture and our eff ort is also aimed at creating a feeling of affi nity with our team of employees and the acceptance of our development philosophy, methods of work, form and subject matter of relationships inside the Company.

In 2010, Federal Grid Company actively worked to develop a new Corporate Ethics Code. Signifi -cant changes in the Russian power sector and in the Company itself, as well as the Company’s goal to conform with global best corporate governance prac-tices, made replacing the previous document neces-sary. The new Code project contains an ideological (mission, goals and values) and normative (ge-neral rules of conduct; prohibited conduct; chapters, descriptions of separate risks) parts. It is expected that the new Corporate Ethics Code will be adopted by the Company’s Board of Directors in 2011.

To preserve professional traditions educate the youth and recognize longstanding conscientious labor in the beginning of 2010 the Company launched the Dynasty of Federal Grid Company program. During the year, contests for the title of best dynasty were held in the branches of Federal Grid Company – MES. The contest counted not only production indicators of dynasty members, but also their overall length of corporate service.

In terms of organizing corporate events, the most popular and accessible events are traditionally sports competitions. In 2010 the Third Summer Olympics

159

ANNUAL REPORT2010


of Federal Grid Company was held. Preliminary rounds were organized at the corporate branch level and fi nal contests took place in Moscow from 28 to 30 June. More than 2,500 Company’s employees participated in the Olympics.

Cooperation with universities training special-ists in the power industry continued. In 2010, the Company cooperated with 45 profi led educational institutions. Days of Federal Grid Company were held for students, during which corporate managers spoke about primary development directions for the UNEG, promising the implementation of innovative corporate projects and the Company’s need for highly qualifi ed specialists. In summer 2010 the Company re-launched organizing work for summer student groups. At sites of Federal Grid Company’s MES Center branch, 50 students from the Moscow Power Engineering Institute working line bri-gades carried out swath clearing and assembled metal

Federal Grid Company’s corporate culture, including values as well as standards of behavior and work, forms the corporate perception for its employees, stimulates feelings of responsibility, prompts the realization of succession and helps build correct reactions to events taking place in the Company. It also creates a feeling of safety.

constructions for power line columns in the Ivanovo, Vladimir and Moscow Regions.

Social Responsibility and Corporate Sustain-ability ReportsSince 2008 the Company has published an annual Social Responsibility and Corporate Sustainability Report; these Reports present separate corporate mechanisms, ensuring the quality of corporate work and the absence of economic, environmental and social impact in the regions in which the Company is present. Reports are prepared in accordance with GRI sustainability reporting framework guidelines (version G3). Interactions with interested parties during prepa-ration of the Reports are based on the principles of the Stakeholder Engagement Standard AA 1000 SES. As part of the process of preparing the Annual Report, the Company conducts conversations with interested parties, during which key issues of the Report are dis-cussed and disclosure requests are gathered. Prior to publication, the prepared text of the Report undergoes public discussion in one or another form (in person or in absentia publicly held hearings).

Federal Grid Company reports are included in the National Registry of Corporate Non-Financial Re-ports, which was formed by the Russian Union of Industrialists and Entrepreneurs (RUIE).

The full text of Federal Grid Company’s social responsibility and corporate sustainability reports can be found on our web site http://www.fsk-ees.ru/about/corporate_social_responsibility/.

Interactions with StakeholdersCSR implementation is performed through regular interactions and dialogues with external interested parties (stakeholders).

List of key stakeholders:Government;• minority shareholders;• consumers;• local state authorities in Russian • Federation subjects;environmental community;• contractors and suppliers;• corporate employees;• other energy companies (generation companies, • System Operator, IDGCs).

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As part of 2010 CSR management, the Company carried out the following interactions:

with shareholders and investors (annual ge-• neral meetings of shareholders; meetings of the Company’s managers with investment bank and investment fund analysts; consultative meetings with minority shareholders – physical persons; online seminars for investors; the participation of top management in conferences organized by investment banks);with local authorities of Russian Federation • subjects and energy companies (concluding cooperation agreements in the fi eld of UNEG development and the coordination of develop-ment plans);with personnel (implementation of the Dynasty • Program, the Open Doors Day, conducting the Third Summer Olympics, organizing summer student groups, etc.);with suppliers and contractors (Concluding • agreements on cooperation with companies in-cluding Alstom Grid, Siemens AG, Elektrozavod, Ener 1 and others).

In 2010 the Company participated in the St. Pe-tersburg International Economic Forum and the Sochi-2010 International Investment Forum, at which they signed more than 10 agreements with Russian and foreign producers and developers of electro-technical equipment.

One of the most important tasks in interacting with external interested parties is participation by the Company’s employees in rule-making activity. In 2010, our experts participated in forming more than 10 ministerial decrees and/or governmental regula-tions, related to the order of land utilization, utilization and protection of forests, ensuring a reliable and high quality power supply, organizing the power supply for the XXII Olympics in Sochi and other issues.

Key 2010 Measures Important for Sustainable Development and Social Responsibility

Elaboration on and adoption of a Policy for the • innovative development and modernization of the UNEG, including creating a new generation electric grid in Russia – smart grid;Adoption of the Program on implementing the • Company’s 2011-2013 environmental policy; Development of Federal Grid Company’s Import • Replacement Program aimed at use of locally produced equipment, technologies, materials and systems;Extension of the period for long term RAB-based • tariff regulation on the provision of services for Federal Grid Company to 5 years;Adoption of the program to create training cen-• ters for Federal Grid Company’s production per-sonnel, with realization from 2010 till 2012;Adoption of the Program to address corruption • and settle confl icts of interests in the Company for 2010-2011;Development of the Long-term Program for Cor-• porate Assistance to Improve Housing Conditions for Federal Grid Company’s Employees (sub-mitted for adoption to Federal Grid Company’s Management Board).Development of a new Corporate Ethics • Code (submitted for adoption to Federal Grid Company’s Management Board);Conducting dialogues with external interest-• ed parties “Information disclosure on Feder-al Grid Company’s activities in the sphere of ensuring and managing operational safety of the UNEG.”

Charitable AidFederal Grid Company is a socially-oriented Company that off ers a program of charitable aid to physical persons. In addition, in 2010, the Company spon-sored numerous sports, cultural, scientifi c and chari-table organizations in the amount of approximately RUR83 million.

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6.2 HR POLICY

HR policy is aimed at balancing the economic and social eff ectiveness of personnel usage, obtaining qualifi ed personnel in a timely manner for the Company’s divi-sions, creating conditions for eff ectively developing and utilizing human resources, satisfying social and economic expectations and meeting the needs and addressing the interests of employees.

Primary principles of the Company’s HR policy:

Ensuring eff ective organizational design and plan-• ning personnel requirements. Managing personnel taking into account external and internal factors;Selecting optimal methods for working with per-• sonnel, driven by the Company’s current devel-opment stage based on forecasts and strategic production goal accountability, social and demo-graphic, political, economic, legal and other external environmental changes, as well as the impact that they have on the Company’s personnel;Improving the eff ectiveness of personnel utilization. • Engaging in qualitative and quantitative analysis of expenses versus results, including employees’ training and career enhancement;Observing current Russian legislative require-• ments;Creating and operating a human resources man-• agement system that ensures eff ective and fl exible management of corporate human resources;

Federal Grid Company’s HR policy is an integrated system of interacting with personnel to achieve corporate strategic goals, developing and sustaining the technical condition of the electric grids and substations, upgrading the functional reliability of the UNEG objects and realizing the Company’s investment program.

Ensuring that employees across all levels observe • (obligatory) human resources policy principles, as well as human resources management system as stipulated by internal normative documents; Designating long-term key corporate principles of • human resources management, adhering to these principles occurs under dynamic organizational and economic changes, as well as changes in external conditions;Continually enhancing human resources man • gement methods based on modern concepts, taking into account the Company’s characteris-tics and standards.

Key elements of the Company’s HR policy:

Upgrading the organizational and managerial • structure and personnel planning;Training and developing personnel;• Motivating and remunerating the corporate • workforce;Providing social assistance;• Managing activity performance;• Engaging in labor relations;• Providing administrative support;• Developing corporate culture and internal • communications.

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Policy elements may be changed and obtain new signifi cance under the infl uence of corporate devel-opment dynamics or changes in external conditions without interfering with the principle of policy suc-cession.

Headcount and Qualitative Personnel CompositionFederal Grid Company’s total number of personnel stood at 22,623, as of 31 December, 2010.

A signifi cant (89.6%) increase in corporate person-nel in 2010 year-on-year is due to transferring the functions for technical servicing and maintenance of electro-technical equipment from Glavsetservis UNEG to Federal Grid Company and the fact that most employees of Glavsetservis UNEG joined Fed-eral Grid Company branches. In 2009, Federal Grid Company personnel increased 6.7% compared with the previous year due to the fulfi llment of a program of measures to commission and launch new UNEG objects and staff electro-technical objects received from inter-regional distribution grid companies.

Employees Educational and Age StructureAs a high-technology economic branch, the power sector places high demands on the knowledge and qualifi cation of employees. The Company’s personnel are characterized by a high level of employee educa-tion. As of 31 December, 2010, more than 53% of our employees have completed higher education, in addition 23% have a vocational higher education.

The largest percentage of personnel are employees of the most active productive age – up to 40 years old (approximately 54% of personnel). In recent years there has been a trend toward a decline in employees’ age. As of 31 December, 2010, the average age was 39.8 years. Therefore, the Company’s HR structure is characterized by an optimal combination of young employees with initiative and skilled highly profes-sional employees actively sharing their knowledge and skills with the younger generation.

To actively attract younger specialists, the Company conducts a separate program. Within the framework

of this program, it actively works with senior high school students and students from profi led universi-ties and founds additional scholarship programs in specialist fi elds, which are the most highly sought ast er by the Company, including to attract employ-ees in geographically remote regions. The Company organizes internships and Open Door Days in Federal Grid Company branches, with the aim of ensuring that specialists quickly adapt to the Company’s conditions and work specifi cs.

More than half of our employees have higher educa-tion. The average employee age is 40 years. The Company’s HR composition is characterized by an optimal combination of young employees with skilled professionals.

Personnel MovementThe Company places signifi cant weight on retaining the most skilled and highly professional employees. Within this framework the Company evaluates the employee satisfaction level with labor conditions and analyzes the dynamics and structure of staff turnover.

In 2010, the Company organized a sociological sur-vey of employees, during which personnel loyalty was evaluated and professional and social factors, which were the most important for employees, were outlined. Based on the results of the survey, the Company’s branches developed measures to upgrade employee loyalty.

During recent years, staff turnover indicators have declined steadily, which demonstrates the eff ective-ness of the implemented HR policy.

Material Incentives for PersonnelAn important element of the Company’s HR policy is the system of material incentives for personnel, which ensures that the Company achieves its strategic goals based on establishing connections between the results of corporate operations and the individual input of each employee.

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ANNUAL REPORT2010


Personnel category Reporting period

2008 2009 2010

Total 11,181 11,933 22,623

Including

Administrative and managerial personnel 3,815 4,640 5,359

Operating personnel 10,613 11,418 15,602

Including production and industrial personnel 6,242 6,900 9,312

Maintenance personnel 44 2 7,021

Mechanization and transportation employees 524 513 0

2,000

1,000

3,000

5,000

4,000

6,000

Headcount Dynamics, persons

0

Exe

cuti

ve a

ppar

atus

MES

Cen

ter

MES

Nor

th-W

est

MES

Vol

ga

MES

Sou

th

MES

Ura

ls

MES

Sib

eria

MES

Wes

tern

Sib

eria

MES

Eas

t

as of 31.12.2009as of 31.12.2010

as of 31.12.2008

Qualitative composition of the Company’s personnel, persons

Personnel breakdown by activity type, persons

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In respect to motivation and remuneration, the Com-pany’s main principles are:

Ensuring a unifi ed approach toward remunera-• tion for all corporate employees;Motivating employees to achieve corporate goals •

and aims by improving the eff ectiveness of indi-vidual activities, as well as activities of structural divisions and the Company as a whole;Putting in place competitive compensation pack-• ages in the labor market taking into account regional peculiarities and specifi cs of the busi-ness spheres;Considering in an obligatory manner material • and non-material needs and interests of the em-ployees when elaborating the labor remuneration and compensation system;Strengthening the Company’s image as a re-• sponsible and reliable employer.

The Company utilizes approaches that are unifi ed across all branches for labor remuneration and com-pensation. Compensation is determined based on evaluating the position of the complexity of activities, qualifi cations and the impact on the fundamental results of the Company’s operation. A correlation be-tween the fi xed and variable portion of compensation is estimated depending on the character of activities and the degree of impact on the result.

More than half of our employees have higher education. The average employee age is 40 years. The Company’s HR composition is characterized by an optimal combination of young employees with skilled professionals.

Staff Turnover

8

6

4

2

2008 2009 2010

%

Year

7.5

4.4

3.4

Sustaining the deserved level of material well-being for the Company’s personnel contributes to attracting and retaining particularly valuable and highly profes-sional employees, thus forming a solid basis for the Company’s economic eff ectiveness as a whole. Awards PolicyWith the goal of off ering moral and material incentives for employees to achieve strong labor results, Federal Grid Company has implemented a Program to encourage employees with state, departmental, industry and corporate awards.

The awards system in eff ect decorates employees with State awards, awards from the Russian Govern-ment, awards from the Russian Ministry of Energy, from the Industrial Union of Power Industry Employers, as well as with corporate awards – the title of the

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ANNUAL REPORT2010


Honorary Employee of Federal Grid Company of the fi rst and second degree, the award “For Professional Skill,” the award “For the Construction and Recon-struction of Electric Grid Objects,” the Honors Board, the Honorary Certifi cate and Honorable Mention. Employees from the branches of Federal Grid Com-pany, which demonstrated the greatest equipment reliability, achieved better production indicators and the strongest results in implementing and introducing new equipment and technology as of end of the year receive the title of the Best Branch of Federal Grid Company – MES and the Best Enterprise of Federal Grid Company – PMES.

In 2010 for services to the State, Vladimir Taskin, • Director of Federal Grid Company’s Khakassia PMES branch received the title “Honorary power engineer of the Russian Federation.”25 Federal Grid Company employees received • awards from the Russian Government;For services to the power industry 331 employ-• ees received awards from the Russian Ministry of Energy;52 individuals received awards from the All-• Russian Industrial Union of Power Industry Em-ployers;In 2010 for merit and input into the development • of Federal Grid Company 12 collectives of con-tracting organizations received corporate awards from Federal Grid Company;1,148 employees received corporate awards;• For professionalism demonstrated when address-• ing the accident at the Sayano-Shushenskaya HPP, 16 employees received commendations from RusHydro.

Personnel Training and DevelopmentEach of the Company’s employees is involved in the corporate training system with the aim of upgrading the level of professionalism and the development of employees’ internal potential.

Types of training in 2010:

Mandatory training, which is conducted once ev-• ery three years and provides for employee train-ing in the fi eld of labor protection and industrial safety, as well as other training for production

personnel in accordance with requirements and work conditions;Career enhancement, including intensive man-• agement training in accordance with innovative programs, conducted based on specialized edu-cational centers;Foreign placement.•

During 2010 new training programs were devel-oped and introduced for the following personnel categories:

Training of industrial and production personnel 1. accounts for the largest portion of implemented programs, has a mandatory character and is regulated by the Guidance on working with per-sonnel in power sector organizations. In 2010 8,277 diff erent categories of production per-sonnel from MES branches underwent training, of this number, 1,898 represent dispatch per-sonnel and 3,702 maintenance personnel;

Training under the auspices of the program 2. “Ensuring Environmental Safety by Managers and Specialists of General Economic Manage-ment Systems.” The program was implemented in the shortest time possible due to a new train-ing format – the video-conference seminar, which allowed the Company to reach the most distant MES branches. 325 persons participated in video-conference seminars;Foreign placement in England, Spain, Germany, 3. Denmark and Norway with the goal of fa-miliarizing employees with experience from the operation of power industry complex;

Young Engineer School, a program of educational 4. and practical seminars organized by MES Center together with lecturers of the Moscow Power Engineering Institute, for fi nal-year students of the Moscow Power Engineering Institute and the Ivanovo State Energy Institute;

In 2010 10,511 persons were involved in various types of training, which is 47.85% of the overall average head count of the Company’s personnel.

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Training substation directors in accordance with the unifi ed system of personnel training and development;

Intensive management training in accordance 5. with innovative programs in 2010 included train-ing all categories of the Company’s executive personnel. The course for junior management, in which 112 employees took part, was aimed at developing basic managerial competencies and skills. Training the Company’s mid-level man-agers was aimed at upgrading the knowledge level in the subject of “Economy and manage-ment of the energy company.” As part of train-ing measures for top executive managers, 89 corporate managers received training in the fol-lowing areas: Strategic Leadership: Managing Personnel and Teams, Strategic Changes Based on the Skolkovo Moscow Management School;

Creation of a distance educational system for 6. production and managerial personnel organized as part of the implementation of a program of training and career enhancement in a rapidly changing business environment for a geographi-cally spread out company. Distance educational courses were developed in the following areas:.

Training users in the corporate information • management system: working in an auto-mated system of managerial document fl ow;

Liquidating technological breaches at Federal • Grid Company’s objects.

Project to create training centers for production 7. personnel in MES branches.

In 2010 in all corporate branches the Company started creating training centers. Federal Grid Com-pany developed its own system of training special-ists including training classes and training simulator classes. The Company also conducts seminars and lectures, which are led either by invited specialists or the Company’s in-house experts.

Non-Governmental Pension ProvisionWith the aim of ensuring an appropriate standard of living for the Company’s employees at pension age, as well as to increase employees’ motivation to work eff ectively and to attract and retain highly qualifi ed personnel, Federal Grid Company has ad-opted a Program for the non-governmental pension provision to employees. Its main principles include a unifi ed approach to setting the amount of the non-governmental pension and stimulating employees for the merits of the Company and the power industry, as well as for longstanding and conscientious work.

During the period of activity, the Program of non-governmental pension was granted to 2,760 employees from Federal Grid Company funds. On the whole, in accordance with the norms of the Regulation on non-governmental pension provi-sion to Federal Grid Company employees in 2010, RUR261,626,611 was transferred to the non-govern-mental pension fund of the power industry.

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ANNUAL REPORT2010


6.3 ENVIRONMENT

Electricity transmission – the main type of our activ-ity – has a signifi cantly smaller environmental impact compared with other power industry branches. Elec-trical grid specifi cs in respect to impact on the sur-rounding environment is that emissions, discharges and waste products are not the result of techno-logical processes, but appear as a result of economic activity and are characterized by very low level values relative to maximum permissible values. Thus, at-mospheric emissions for all types of contaminating materials are 2-3 times lower than the maximum al-lowable contamination level, and discharges are only rainfl ow overfl ow. Contamination volume is also very insignifi cant. Thus, in 2010 the released volume for all substations totaled 75.5 tons and the volume of waste products for I-V classes of hazardous material is less than 10 thousand tons.

Despite these low indicators for negative environ-mental impact Federal Grid Company pays signifi cant attention to environmental issues. While designing new objects, the Company elaborates on special envi-ronmental protection sections taking into account all requirements of Russian environmental regulations. Construction and re-construction projects for electric grid objects undergo state expert review and public consultations are held to evaluate environmental impact. Particular attention is paid by the Company to informing the public on ensuring the environmen-tal safety of socially important projects, such as the construction of electric grid objects as part of the preparation for the 2014 Sochi Winter Olympics and the 2012 APEC Summit in Vladivostok.

The Company acts in accordance with the Environ-mental Policy adopted by the Board of Directors

Environmental safety holds an important place in Federal Grid Company’s activity. The Company implements its environmental strategy based on the environmental doctrine of the Russian Federation, Federal Grid Company's environmental policy and taking into account opinions of the leading environmental protection organizations.

in 2008. It aims to improve environmental safety, en-suring the reliable and ecologically safe transmission and distribution of energy. Within this program, the Company undertakes technical and organizational measures to minimize the negative impact of produc-tion on the surrounding environment.

Technical measures include replacing equipment containing hazardous and toxic substances, repairing systems and oil container devices, organizing tempo-rary landfi ll sites and constructing and reconstructing of canalization and disposal facilities, as well as other measures.

The Company pays particular attention to manag-ing especially hazardous waste. The Company has a license to collect, use, deactivate, transport and emplace hazardous waste.

In 2008 the Company began to implement a tar-get program on replacing and utilizing equipment

Trichlorodiphenyl

In the previous century, trichlorodiphenyl was widely used as a liquid dielectric during the production of power transformers and condensers due to its exceptional thermo-physical and dielectric characteristics, fi re-resistance and explosion safety. At the same time, trichlorodiphenyl is a persistent organic pollutant and belongs to the fi rst class of hazards.

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ABOUT THE COMPANY

PRODUCTION OVERVIEW





containing trichlorodiphenyl. In the previous century, trichlorodiphenyl was widely used as a liquid dielectric during the production of power transformers and condensers due to its exceptional thermo-physical and dielectric characteristics, fi re-resistance and explosion safety. At the same time, trichlorodiphenyl is a persistent organic pollutant and belongs to the fi rst class of hazards.. The program to realize Federal Grid Company’s environmental policy calls for replacing and utilizing equipment containing trichlorodiphenyl. In the process of the reconstruction and technical rehabilitation of objects of the UNEG, this equipment is replaced on a mandatory basis. One-fourth of equipment containing trichlorodiphenyl has been already dismantled and utilized.

Within the framework of the Technical policy, we replace condensers containing trichlorodiphenyl with condensers permeated with environmentally safe dielectric liquid. The dismantled condensers are transferred for utilization to specialized organizations.

In 2010 Federal Grid Company utilized 4,036 static condenser jars with a total weight of 167 tons. For 2011 the Company plans to utilize approximately 10,000 static condenser units.

Organizational measures include implementing an environmental management system that corresponds with requirements of international standard ISO 14001, introducing a system of environmental production control and conducting environmental audits and environmental training of personnel, as well as upgrading documentary support of environmental protection activities.

In 2010 all corporate branches conducted internal environmental audits. The audit controlled: the observance of environmental protection legislation, the completeness and condition of environmental documentation and the technical condition of environmental facilities. The Company analyzed problems arising in the process of the branches’ environmental protection activities. Based on audit results, the Company developed a programs of measures to upgrade the effi ciency of the Company and its branches’ environmental protection activities.

In 2010, the Company conducted environmental training of its personnel:

Appropriate handling of I-IV class hazardous • waste (134 corporate employees participated in training);Environmental protection and safety training • for executives and specialists (128 corporate employees participated in training).In 2010 Federal Grid Company developed and • adopted the Instruction on the Procedure of Inventory of Production and Consumption Waste in Federal Grid Company’s MES and PMES Branches, setting a unifi ed order for inventory-ing production and consumption waste and fi ling documents on inventory results for all corporate branches. Also, the Company developed and in-troduced new annual forms for environmental protection measures and quarterly reports on quantitative and qualitative indicators for nega-tive environmental impact.

In 2002 the Russian Government rati-fi ed the Stockholm Convention. So it must fully cease using equipment con-taining trichlorodiphenyl on its territory by 2025. In accordance with obligations undertaken by the country, the Company plans to fully withdraw equipment con-taining trichlorodiphenyl from operation by 2025.

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ANNUAL REPORT2010


Electricity transmission – the main type of our activity – has a significantly smaller environmental impact compared with other power industry branches.

Since 2008 the Company has conducted envi-• ronmental monitoring in the zone of passing of the 500 kV high voltage line on the territory of Smolny National Park (the Republic of Mordovia), which is located in the zone of activity of the Nizhegorodsky PMES. The goal of monitoring is to evaluate the degree of impact of the 500 kV high voltage line on animals and to develop recommendations to prevent their deaths, as well as rehabilitation and long-term development of ornithological complexes in the zone of high voltage lines. Based on data gathered in 2010, the monitoring program will be updated.

In 2011 the principal objectives of Federal Grid Company in the environmental protec-tion sphere include:

Fulfi lling technical measures in a timely and quali-• tative manner to minimize negative environmental impact;Implementing Federal Grid Company’s envi-• ronmental management system in accordance with the ISO 14001 standard;Conducting internal environmental audits in the • Company’s branches;Developing quantitative target values in environ-• mental protection and enacting measures for their achievement.

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ABOUT THE COMPANY

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The Company conducted semi-monthly labor protection events prior to the start of the 2010 maintenance campaign, during which Federal Grid Company performed demonstrative admissions of brigades to work at power facilities, conducted a unifi ed labor protection day with the subject “Risk management and injury prevention during the organization of work at high voltage lines” and introduced a system to prevent the breach of labor safety rules during power facility work.

Industrial SafetyIn 2010 Federal Grid Company had 297 hazardous industrial facilities (HIFs) in operation. To secure the industrial safety of these objects, the Company undertook measures aimed at preventing HIF accidents and ensuring the readiness for localizing and liquidating the consequences of these indicated accidents, including:

Insuring Federal Grid Company’s liability for caus-• ing harm to life, health and/or property of other parties and the surrounding environment in the case of an HIF accident;Receiving a positive appraisal from the industrial • safety commission of experts on objects’ compli-ance with industrial safety requirements of the Federal Environmental Industrial and Nuclear Supervision Service of Russia;

6.4 PRODUCTION SAFETY

Labor ProtectionWe aim to provide safe working conditions for our employees. The Company’s goals in this sphere in-clude nullifying production accidents and professional illnesses, ensuring accident-free operation via the introduction of highly eff ective technologies and modern equipment, upgrading the quality of labor conditions at work sites and ensuring a high produc-tion culture.

In 2010 work in the labor protection sphere was conducted in accordance with a series of tasks, deter-mined by resolutions of the Labor Protection Council, as well as the Company’s organizational and manage-ment documents.

The Company developed and introduced the order of organizing heightened danger work and a risk ma-nagement system in the labor protection sphere to prevent and avoid injuries and professional illnesses at production, to create favorable working conditions and to ensure the high reliability and eff ectiveness of personnel’s work.

The Company continued work to conduct psycho-physiological testing to select operative and technical personnel, as well as to create psychological release rooms for substation employees.

The Company created a Pilot Project to conduct pre-shist medical examinations using remote equipment to detect employees’ health issues and to adopt mea-sures to decrease the impact of the human factor on the reliability of electric grid operation.

The Company held a review contest for the best organization of labor protection work among corporate branches.

As a result of injury prevention work carried out by the Company in 2010, the number of accidents during work at high voltage lines decreased 67% year-on-year. The number of injuries for contractor organization specialists working at the UNEG objects dropped 62%.

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ANNUAL REPORT2010


Receiving license No.VP-00-012123(K), dated 11 • November, 2010, on activities to exploit explo-sion-hazardous production facilities;Organizing production control of the observance • of industrial safety requirements at the Com-pany’s HIFs;Conducting training and the certifi cation of per-• sonnel in the industrial safety fi eld;

Fire SafetyDuring 2010 at Federal Grid Company facilities there were 12 technological breaches accompanied with fi re in substation equipment.

On a semi-annual basis, Federal Grid Company person-nel participated in fi re-fi ghting training and exercises conducted by the Company together with divisions of fi re protection services of the Russian Civil Defense Ministry. Company employees learn fi re safety basics in a timely manner and undergo fi re protection instruction and complete fi re safety knowledge tests.

In 2010 the Company received license from the Russian Civil Defense Ministry on activities for installing, repair-ing and servicing fi re safety means for buildings and constructions No.8-2/02172 dated 15 October, 2010.

In 2010 no accidents and incidents were registered at the Company’s HIFs. There was no damage from accidents and incidents at the Company’s HIFs.

ATTACHMENTS

2010 RAS FINANCIAL STATEMENTS AND AUDIT REPORT

ANNUAL REPORT2010


Federal Grid Company of the Unified Energy System (FGC UES)

Audit Report for 2010

174

AUDIT REPORTFOR 2010

Audit ReportTo shareholders of Federal Grid Company of the Unified Energy System (FGC UES)

Information about the Audited Entity

Name: Open Joint Stock Company “Federal Grid Company”

State Registration: State registration certificate No. 21081 series LO-002 issued by the Leningrad Region Registration Chamber on 25 June, 2002, registered and included into a register under No. 00/03124.Certificate of inclusion in the Unified State Register of Legal Entities, regarding the legal entity registered prior to 1 July, 2002 under basic State registration No. 1024701893336, as issued by the Inspectorate of the Russian Ministry of Taxes and Duties of the Tosnensky District of the Leningrad Region on 20 August, 2002.

Registered Office: 5а Akademika Tchelomeya Street, Moscow, Russia, 117630

Information about the Audit Company

Name: Closed Joint Stock Company “PricewaterhouseCoopers Audit“ (ZAO “PwC Audit”)

Registered Office: 10 Butyrsky Val Street, Moscow, Russia, 125407

State Registration: State registration certificate No. 008.890 issued by Moscow Registration Bureau on 28 February, 1992. Certificate of inclusion in the Unified State Register of Legal Entities, regarding the legal entity registered prior to 1 July, 2002 No. 1027700148431, as issued by the Inter-regional Inspectorate of the Russian Ministry of Taxes and Duties No. 39 for Moscow City on 22 August, 2002.

Information on the auditor’s membership in self-regulated organizations: Member of the Not-for-Profit Partnership Audit Chamber of Russia (ACR), a self-regulated association of auditors, registration No. 870 in the ACR Register of members. Basic registration No. 10201003683 in the State Register of Auditors and Audit Organizations.

2 /4Closed Joint Stock Company “PricewaterhouseCoopers Audit“ (ZAO “PwC Audit”) 10 Butyrsky Val Street, Moscow, Russia, 125407Tel: +7 (495) 967-6000, Fax:+7 (495) 967-6001, www.pwc.ru

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ANNUAL REPORT2010


Audit ReportTo shareholders of Federal Grid Company of the Unified Energy System (FGC UES):

We have audited the attached financial (accounting) reports of Open Joint Stock Company “Federal Grid Company of the Unified Energy System” (hereinafter referred to as “the Company”) consisting of the Accounting Balance Sheet as of 31 December, 2010, Profit and Loss Statement, Statement of Changes in Stockholder’s Equity, Cash Flow Statement, Notes to the Accounting Balance and Explanatory Notes (hereinafter, all the reports together are called “Financial (accounting) reports”).

The Company's responsibility for Financial (accounting) reports

The Company’s executive body is responsible for the preparation and accuracy of the Financial (accounting) reports in compliance with accounting procedures established in the Russian Federation, accounting requirements and the internal control system necessary for the preparation of the Financial (accounting) reports free of material misstatements resulting from malpractice or errors.

Audit Company responsibility

Our responsibility is to express an opinion on the fairness of the financial statements on the basis of our audit. We conducted our audit in accordance with the Federal Standards on Auditing and International Auditing Standards. These standards require complying with applicable ethical norms, as well as planning and conducting the audit in a manner that allows us to obtain reasonable assurance about whether the Financial (accounting) reports are free of material misstatements.

The audit includes conducting audit procedures aimed at receiving audit evidence supporting the amounts and disclosures in the Financial (accounting) reports. The selection of audit procedures is a subject of our assessment based on the estimated risk of material misstatements resulting from malpractice or errors. During the process of this risk assessment, we considered the internal control system providing preparation and accuracy of the Financial (accounting) reports for the purpose of selecting the appropriate audit procedures, but not for expressing an opinion on the efficiency of the internal control system. The audit also includes an assessment of compliance with accounting principles, an evaluation of significant estimates made by the management of the Company and the overall Financial (accounting) reports presentation. We believe that our audit provides a reasonable basis for our opinion on the fairness of the Financial (accounting) reports.

3 /4Closed Joint Stock Company “PricewaterhouseCoopers Audit“ (ZAO “PwC Audit”) 10 Butyrsky Val Street, Moscow, Russia, 125407Tel: +7 (495) 967-6000, Fax:+7 (495) 967-6001, www.pwc.ru

176

Opinion

In our opinion, the financial (accounting) reports of the Company attached to this report have been properly prepared to present, in all material respects, the financial position of the Company as of 31 December, 2010, its financial and operating results and cash flow in accordance with Russian Accounting Standards.

Director, PricewaterhouseCoopers Audit Vyacheslav Sokolov29 March, 2011

4/4Closed Joint Stock Company “PricewaterhouseCoopers Audit“ (ZAO “PwC Audit”) 10 Butyrsky Val Street, Moscow, Russia, 125407Tel: +7 (495) 967-6000, Fax:+7 (495) 967-6001, www.pwc.ru

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ANNUAL REPORT2010


178

to the Order of Ministry of Finance of the Russian Federationdated 22.07.2003 No. 67

CODES 0710001

2010 12 31 Organization

BALANCE SHEET as of December 31 2010

Form No. 1 according to the All-Russian Classifier of Management Documentation

Date (year, month, day) Open Joint Stock Company

Federal Grid Company of Unified Energy System according to the All-Russian National Classifier

of Businesses and Organizations

56947007

4716016979 Taxpayer identification number TIN Type of activity Power transmission according to the All-Russian Classifier of Types of Economic Activity 40.10.2 Form of incorporation / Form of ownership Open Joint Stock Company / mixed ownership with federal state share

according to All-Russian Classifier of Forms of Ownership /Russian Classifier of Forms of Incorporation

47 41

Measurement unit ths. rub. according to the All Russian Classifier of Measurement Units 384/38

Location (address) 5A, Akademika Chelomeya st., Moscow, 117630

Date of approval Send/acceptance date 21.03.2011

ASSET Index Code

As of the beginning of reporting period

As of the end of reporting period

1 2 3 4 I. FIXED ASSETS Intangible asset including: 110 1 396 257 917 625

rights to patents, programs, logotypes and other similar 111 977 021 696 044other kinds of intangible assets 112 419 236 221 581

Capital assets including: 120 237 753 751 236 193 167

Land plots and nature management facilities 121 156 495 827 221Buildings, machine and equipment, structures 122 235 778 695 232 958 699Other types of capital assets 123 1 818 561 2 407 247

Construction in progress (uncompleted construction) including: 130 216 529 585 298 644 138

Equipment to be installed 131 18 484 815 17 905 969Investments in fixed assets 132 198 044 770 280 738 169

Income-bearing investments in material valuables 135 – –Long-term financial investments 140 66 970 387 104 137 547Deferred tax assets 145 – –Other fixed assets 150 1 415 088 894 579

TOTAL for Section I 190 524 065 068 640 787 056II. CURRENT ASSETS

Inventory including: 210 2 427 514 4 632 226raw stocks, materials and other similar values 211 2 262 155 4 407 467investments in production in process (uncompleted) 213 – –finished goods and goods for resale 214 29 993 30 011deferred expenses 216 135 366 194 748other inventories and investments 217 – –

Value-added tax for acquired values 220 2 070 794 2 295 467Accounts receivable (payments expected in more than 12 months period from the reporting date)

including: 230 20 492 819 8 696 249

buyers and customers 231 185 910 68 106Advance payments paid 234 36 –other debtors 235 20 306 873 8 628 143Accounts receivable (payments expected within 12 months period from the reporting date) including: 240 117 170 891 157 647 614

buyers and customers 241 8 949 413 8 669 641Contributions to the authorized capital unpaid by participants (incorporators) 242 – –Advance payments paid 243 67 036 337 97 636 854other debtors 244 41 185 141 51 341 119

Short-term financial investments 250 69 120 125 46 244 024Cash in banks and on hand 260 11 312 141

11 243 302cash on hand 261 2 439 3 664Bank accounts 262 11 305 731 11 233 055Foreign currency accounts 263 – –Monetary instruments: 264 1Other cash 265 3 962 6 582

Other current assets 270 TOTAL for Section II 290 222 601 884 230 758 882

BALANCE 300 746 666 952 871 545 938

All-

BALANCE SHEETFOR 2010

179

ANNUAL REPORT2010


Form 0710001 p. 2 LIABILITIES Index

Code As of the beginning

of reporting year As of the end

of reporting period 1 2 3 4

III. CAPITAL AND RESERVES Registered capital 410 576 757 098 616 780 667 Own shares acquired from shareholders 411 – – Added capital 420 147 596 367 147 465 640 Reserve capital 430 10 134 044 10 134 044 Previous years' uncovered loss 460 (68 870 025) (68 584 944) Unappropriated profit of previous years 465 – – Unappropriated profit of reporting year 470 – 58 088 388 Unappropriated losses of reporting year 475 – –

TOTAL for Section III 490 665 617 484 763 883 795 IV. LONG-TERM LIABILITIES

Borrowings and credits 510 6 000 000 50 000 000 Deferred tax liabilities 515 1 435 064 2 649 711 Other long-term liabilities 520 5 098 18 179

TOTAL for Section IV 590 7 440 162 52 667 890 V. SHORT-TERM LIABILITIES

Borrowings and credits 610 7 481 469 6 941 422 Accounts payable including: 620 65 802 620 47 727 617

suppliers and contractors 621 11 018 708 14 017 237 organization personnel liabilities 622 134 473 193 318 state non-budgetary funds liabilities 623 18 906 36 486 taxes payable 624 653 884 865 113 Advance payments received 627 7 114 653 11 476 694 other creditors 625 46 861 996 21 138 769

Income payments payable to members (incorporators) 630 46 898 46 898 Deferred revenue 640 278 319 278 316 Reserves for costs to be incurred 650 – – Other short-term liabilities 660 – –

TOTAL for Section V 690 73 609 306 54 994 253 BALANCE 700 746 666 952 871 545 938

REFERENCE to the values, registered in off balance sheet accounts Leased fixed assets 910 6 189 371 13 693 765

Including those under lease 911 – – Material assets accepted for safe custody 920 633 348 638 163 Consigned goods 930 – – Written off debts of insolvent debtors 940 414 819 557 510 Received liabilities and payments securities 950 70 943 984 115 203 743 Given liabilities and payments securities 960 30 815 30 815 Housing funds depreciation 970 – 63 Depreciation of external public facilities and other similar facilities 980 – – Intangible assets received 990 – – Work clothes 991 – – Registered high-security forms 1000 11 19

Managing Director D.A. Troshenkov Chief accountant V.V. Schukin

signature signature (name)

21st of March 2011

Auditor _____

180

PROFIT AND LOSS STATEMENTFOR 2010

PROFIT AND LOSS STATEMENT

For 2010

Appendix to the Order of Ministry of Finance of the Russian Federation dated 22.07.2003 No. 67

CODES Form No. 2 according to All-Russian Classifier

of Management Documentation 0710002

Date (year, month, day) 2010 12 31 Open Joint Stock Company

Organization Federal Grid Company of Unified Energy System according to the All-Russian National Classifier of Businesses and Organizations

56947007

Taxpayer identification number TIN 4716016979 Type of activity Power transmission according to the All-Russian Classifier of Types of Economic Activity

40.10.2

Form of incorporation / Form of ownership

Open Joint Stock Company / mixed ownership with federal state share according to All-Russian Classifier of Forms of Ownership /

All-Russian Classifier of Forms of Incorporation

47 41

Measurement unit: ths. rub according to the All Russian Classifier of Measurement Units 384/385

Item description Code

For reporting period For the same period of the preceding year

1 2 3 4 Income and expenditures as per common activities Sales (net) revenues as per goods, production, works, services (ex VAT, excise taxes and similar compulsory payments) including

010 111 084 675 85 077 809

Power transmission services 011 109 510 275 80 173 317other activity 012 1 574 400 4 904 492

Cost value of sold goods, production, works and services including: 020 (75 518 397) (64 079 927)

Power transmission services 021 (74 694 570) (62 732 093)other activity 022 (823 827) (1 347 834)

Gross margin (010 + 020) 029 35 566 278 20 997 882Business expenses 030 – –Administrative expenses 040 (6 209 146) (5 128 305)Sales profit (losses) (029 + 030 + 040) 050 29 357 132 15 869 577Other income and expenditures Interest to receive 060 5 436 238 7 291952

Interest to pay 070 (273 751) (1 717 506)Income from shareholding in other organizations 080 422 310 717 256Other revenues 090 142 534 195 105 760 531Other expenditures 100 (109 157 601) (181 970 591)Profit (losses) prior to taxation (050 + 060 + 070 + 080 + 090 + 100) 140 68 318 523 (54 048 781)

Conventional cost of profit tax (140 × 20 %) 143 (13 663 705) 10 809 756Constant tax liabilities 200 3 184 752 (16 588 331)Deferred tax assets 141 (33 442) (180 217)Deferred tax liabilities 142 (1 181 205) (722 009)Current profit tax (143+200-141-142) 150 (9 264 306) (4 876 349)Other similar mandatory payments 151 43 226 (4 642)Adjustment of profit tax in previous tax periods 152 205 592 (33 996)Net profit (losses) for the reporting period (140 + 143 + 200 + 151 + 152) or (140 + 141 + 142 + 150 + 151 + 152)

190 58 088 388 (69 865 994)

FOR REFERENCE ONLY: Basic earnings (losses) per share 201 4 760 –5 190Diluted earnings (losses) per 100 000 000 shares 202 –

181

ANNUAL REPORT2010


INTERPRETATION OF CERTAIN PROFITS AND LOSSES

Index For reporting period For the same period of the preceding year

Description Code profit loss profit loss 1 2 3 4 5 6

230 495 902 31 922 397 323 40 390

Confirmed fines, penalties and forfeits, and those upon which a decision of (arbitration) court has been taken to be collected Previous years' profit (loss) 240 320 195 229 331 412 431 521 681

250 – – – –

Indemnity for losses caused by non-fulfillment or inadequate fulfillment of obligations

260 10 970 10 017 26 455 15 949Exchange difference with foreign currency operations

Allocations to assessed reserves

270 × 18 611 054 × 9 404 732

280 185 142 486 6 556 9 122

Receivables and payables writing off for which the period of limitation has expired

Managing Director D.A. Troshenkov Chief accountant V.V. Schukin

signature signature (name)

21st of March 2011

Stamp: Annex to the audit review executed by ZAO PricewaterhouseCoopers Audit 21st of March 2011 Auditor__________________

182

STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITYFOR 2010

Supplement to Order of the Ministry of Finance of the Russian Federation dated 22.07.2003 No. 67n

1. Changes in Capital Index

Description Code Registered

capital Added capital Reserve

capital Unappropriated

balance (uncovered

losses)

Total

1 2 3 4 5 6 7 Balance as of December 31 of the year preceding the previous one 010 576 757 098 52 597 360 9 910 770 26 912 201 166 177 429

2009 (previous year)

changes in accounting policy

011 X X X (33 836 387) (33 836 387)

Result from reassessment of fixed asset items 012 X 6 905 053 X (20 914) 6 925 967

Changes in accounting rules 013 X X 103 572 103 572 Balance as of January 1 of the preceding year 020 576 757 098 59 502 413 9 910 770 (6 841 528) 639 328 753

Result from recalculation of foreign currencies 023 X X X

Net profit 025 X X X (59 865 994) (59 865 994) Dividends 026 X X X Allocations to reserve fund 030 X X 223 274 (223 274) Increase of capital amount due to: 040 0 0 4 644 4 644

additional emission of shares 041 X X X increase of nominal share value 042 X X X

reorganization of legal entity 043 miscellaneous 044 4 644 4 644

Reduction of capital amount due to: 050 (115 761) 115 761 decrease of nominal share value 051 X X X decrease of shares quantity 052 X X X reorganization of legal entity 053 X X miscellaneous 054 (115 761) 115 761 own shares acquired from shareholders 055

Balance as of December 31 of the preceding year 060 576 757 098 59 386 652 10 134 044 (66 810 391) 579 467 403

2010 (reporting year)

Changes in accounting policy 061 X X X

Result from reassessment of fixed asset items 062 X 88 209 715 X (2 059 634) 86 150 081

Changes in accounting rules 063 X X Demand balance as of January 1 of the reporting year 100 576 757 098 147 596 367 10 134 044 68 870 025 665 617 484

Result from recalculation of foreign currencies 103 X X X

Net profit 105 X X X 58 088 388 58 088 388 Dividends 106 X X X

“Federal Grid Company of Unified Energy System”,

JOINT-STOCK COMPANY

Power transmission

Open Joint Stock Company/mixed ownership with federal state share

ths. rub.

CODES

Form No. 3 according to the All-Russian Classifier of Management

Documentation 0710003

Date (year, month, day) 2010 12 31 according to the All-Russian National

Classifier of Businesses and Organizations

56947007

TIN 4716016979 All-Russian Classifier of Types of

Economic Activity 40.10.2 according to All-Russian Classifier of

Forms of Ownership/All-Russian Classifier of Forms of Incorporation

47 41

384/385

STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY

183

ANNUAL REPORT2010


Form 0710003 p. 2 1 2 3 4 5 6 7

Allocations to reserve fund 110 X X Increase of capital amount due to: 120 40 023 569 154 354 X 40 177 923 additional emission of shares 121 40 023 569 X X X 40 023 569 Increase of nominal share value 122 X X X

reorganization of legal entity 123 X X X miscellaneous 124 154 354 154 354 own shares acquired from shareholders 125

Reduction of capital amount due to: 130 (285 081) X 285 081 decrease of nominal share value 131 X X X decrease of share quantity 132 X X X reorganization of legal entity 133 X X miscellaneous 134 (285 081) 285 081

Balance as of December 31 of the reporting year

140 616 780 667 147 465 640 10 134 044 (10 496 556) 763 883 795

II. Reserves

Index Description Code

Balance Received Allocated Balance

1 2 3 4 5 6 Reserves accumulated in accordance with

the legislation: 150 9 910 770 223 274 10 134 044

Data on the reporting year 151 10 134 044 10 134 044 stock, accumulated in accordance with the constitutive documents 152

Data on the reporting year 153 Assessed reserves:

Reserve for doubtful debts

(reserve description) 160 35 422 113 5 902 136 (20 017 408) 21 306 841 Data on the reporting year 161 21 306 841 14 036 443 (20 897 766) 14 445 518 Reserve for devaluation of financial investments

(reserve description) 162 5 164 814 3 502 596 (75) 8 667 335 Data on the reporting year 163 8 667 335 3 913 434 (499) 12 580 270 Reserve for decline in material values

(reserve description) 164 Data on the reporting year 165 (661 177) 661 177

References Index

Description Code Balance as of the

beginning of reporting year

Balance as of the end of reporting year

1 2 3 4 1) Net assets 200 665 895 803 764 162 111 From budget From non-budget funds For the reporting

year For the

preceding year For

the reporting year

For the preceding year

3 4 5 6 2) Received for: common activity costs – total 210 90 119

including: payments to Chernobyl liquidators 211

capital investments in non-current assets 220 miscellaneous 230 90 119

"29" _______ March,_____ 20

11

184

CASH FLOW STATEMENT FOR 2010


CASH FLOW STATEMENT

CODESfor 2010

Form No. 4 according to the All-0710003 Russian Classifier of Management

Index

Description Code For the reporting

period

For the same period of the preceding

year 1 2 3 4

Cash funds balance as of the beginning of reporting year 010 11 312 132 5 640 051 Cash flow as per current activity Cash receipts from buyers and/or customers 020 133 188 863 94 010 235 Receipts of acquired foreign currency 030 649 385 290 642 Receipts from insured accidents 040 – – Other revenues 05\0 12 347 308 13 414 676 Cash paid for:

purchased goods, works, services, raw stock and other current assets

150 (38 168 553) (43 950 985)

labor compensation 160 (11 749 439) (5 589 044) for payment of dividends, interest 170 (724 760) (2 122 038) taxes and receipts payments 180 (13 727 359) (6 142 236) for insured accidents 181 – – for other expenses 190 (5 907 128) (2 185 427)

Net cash generated from current activity 200 75 908 317 47 725 823 Cash flow as per investment activity Sales revenue as per items of fixed assets and other capital assets 210 1 111 437 307 731 Sales revenues as per securities and other financial assets 220 179 538 445 276 911 503 Dividends received 230 528 599 860 603 Interest received 240 1 796 274 3 118 353 Revenues from repayment of loans, made to other organizations

250 – –

Other revenues 260 492 432 – Cash paid for:

acquisition of associated companies 280 (8 499 011) acquisition of fixed assets items, income-bearing placements in material values and intangible assets

290 (167 831 053) (99 466 324)

acquisition of securities and other financial assets 300 (145 192 282) (235 405 935 loans, made to other organizations 310 (6 653) for other expenses 320 (59 804) (7 611)

Net cash per investment activity 340 (129 615 952) (62 187 3441

“Federal Grid Company Documentation of Unified Energy System”, Date (year, month, day)

JOINT-STOCK COMPANY

Organization Taxpayer identification number Type of activity Form of incorporation/Form of ownership

Unit of measurement

Power transmission


ths. rub.

2010 12 31 according to the All-Russian National

56947007 Classifier of Businesses and Organizations

TIN 4716016979 All-Russian Classifier of Types of

40.10.2 Economic Activity

according to All-Russian Classifier of 47 41 Forms of Ownership/All-Russian

Classifier of Forms of Incorporation 384/385

185

ANNUAL REPORT2010


1 2 3 4 Cash flow as per financial activity Revenues from emission of shares and other equity securities 350 11 193 854 40 180 434 Revenues from loans and borrowings, made by other organizations

360 49 990 500 4 000 000

Revenues from target financing 370 100 – Other revenues 380 2 – Cash paid for:

repayment of loans and borrowings (ex interest) 390 (7 366 440) (23 980 000) for other expenses 405 (179 212) (66 832)

Net cash as per financial activity 410 53 638 804 20 133 602 Net increase (decrease) of cash funds and their equivalents 420 (68 831) 5 672 081 Demand balance as of the end of the reporting period 430 and 243 301 11 312 132 Effect of currency rate fluctuation in relation to ruble 440 – –

"29" _______ March _____ 2011

186

NOTES TO THE BALANCE SHEETFOR 2010


Intangible assets

Index

Description Code

Availability as of the beginningof reporting year

Received Withdrawn Availability as of

the end of reporting period

1 2 3 4 5 6 Intellectual properties (exclusive rights for the results of intellectual property)

010 1 288 243 46 046 1 334 289

including: patent holder for invention, industrial prototype, useful model

011 9 715 30 775 40 490

right holder for PC software, data bases 012 1 278 282 15 271 1 293 553

right holder for lay-out of integrated circuits 013

owner of trade mark and service mark, place description of goods origin

014 246 246

patent holder for selection achievements 015

Organizational costs 020 Business reputation 030 Other 040 1 054 619 21 407 1 076 026 Total 045 2 342 862 67 453 2 410 315

Index

Description Code As of the beginning

of reporting year As of the end of reporting period

1 2 3 4 Depreciation of intangible assets total 050 946 605 1 492 690

including: Item of intellectual property 310 648 636 258

“Federal Grid Company of Unified Energy System”,

JOINT-STOCK COMPANY Power transmission

Organization


ths. rub.

Taxpayer identification number Type of activity Form of incorporation/Form of ownership

NOTES TO THE BALANCE SHEET MF FTX RF KN No. 4 RECEIVED

March 30 2011 for 2010 CODES

Form No. 5 according to the All-0710005 Russian Classifier of Management

Documentation Date (year, month, day) 2010 12 31

according to the All-Russian National 56947007 Classifier of Businesses and

Organizations TIN 4716016979

All-Russian Classifier of Types of 40.10.2 Economic Activity according to All-Russian Classifier of

47 41 Forms of Ownership/All-Russian Classifier of Forms of Incorporation

384/385

187

ANNUAL REPORT2010


Form 0710005 p. 2

Fixed Capital Assets Index

Description Code

Availability as of the beginning of reporting year

Received Withdrawn Availability as of the end of reporting

period 1 2 3 4 5 6

Buildings 110 15 741 565 2 468 613 (366 067) 17 844 111 Structures and transfer gears 111 296 796 975 7 354 863 (372 626) 303 779 212 Machines and equipment 112 92 238 177 19 634 426 (1 052 239) 110 820 364 Transport vehicles 113 2 065 864 967 877 (112 132) 2 921 609 Production and auxiliary equipment

114 1 133 307 222 246 (27 252) 1 328 301

Draught livestock 115 Productive livestock 116 Perennial plantings 117 – Other types of fixed assets 118 291 813 107 252 (54 153) 344 912 Land plots and nature management facilities

119 156 495 676 567 5 841 827 221

Capital investment in land reclamation

120

Total 130 408 424 196 31 431 844 (1 990 310) 437 865 730


As of the beginning of reporting year


1 2 3 4 Deprecation of fixed assets – total 140 170 670 445 201 672 563

including: buildings and structures

141 135 451 256 156 804 949

machines, equipment, transport means 142 34 379 931 43 797 564 others 143 839 258 1 070 050

Leased out fixed asset items – total 150 6 197 246 5 594 610 including:

buildings and structures

151 5 472 116 4 966 807

machines, equipment, transport means 152 703 610 573 827 others 153 21 520 53 976

Preserved fixed asset items 155 8 354 62 Rented fixed asset items – total 160 6 189 371 13 693 765

including: buildings and structures

161 2 437 885 2 582 992

machines, equipment, transport means 162 1 521 222 1 818 263 others 163 2 230 264 9 292 510

Immovable property items put into operation which documents were not handed over to the state

165 5 241 196 9 306 220

Code As of the beginning

of reporting year

As of the beginning of preceding

year For reference: 2 3 4 Result from reevaluation of fixed asset items: 170 86 150 081 6 884 139

initial (replacement) cost 171 135 092 840 10 350 330 depreciation 172 48 942 759 3 466 191

Code As of the beginning of reporting year

As of the end of reporting year

2 3 4 Change in the cost of fixed asset items due to completion, further fitting-out, reconstruction, partial liquidation

180 1 303 037 4 798 581

188

ATTACHMENTS

Form 0710005 p. 3

Income-bearing investments into material valuables Index

Description Code


Received Withdrawn Availability as of

the end of reporting period

1 2 3 4 5 6 Property to be leased out 210 Property received under lease agreement

220

Other 230 Total 240 Code As of the



1 2 3 4 Depreciation of income-bearing investments into material values

250

Costs for research and scientific as well as for design and development works

Type of work

Description Code


Received Written off Availability as of the end of reporting period

1 2 3 4 5 6 Total 310 751 001 1619 420 (1 158 460) 1 211 961

including: 311 Works on creation of power for distribution networks based on high temperature superconducting technologies

312 133 208 (5 791) 127417

miscellaneous 313 617 793 1 619 420 (1152 669) 1 084 544 Code As of the


As of the end of reporting year

2 3 4

For reference : Total cost of uncompleted research and research and scientific as well as for design and development works

320 677 196 956 714 Code For the

reporting period

For the same period of the preceding

year 2 3 4

The sum of costs for research and scientific as well as for design and development and technologic works that did not bring in positive results and are referred to extraordinary charges

330 – –

Costs for natural resources development Index

Description Code

Balance as of the beginning of reporting period

Received Written off Balance as of the end of reporting year

1 2 3 4 5 6 Cost for natural resources development total

410

including: 411 412 413

Code As of the beginning of reporting year


2 3 4

For reference: The sum of costs for subsurface portions, uncompleted exploration, surveys and (or) hydrogeological surveys and other similar works

420 The sum of costs for resource development in the reporting period allocated to extraordinary charges as ineffective

430

189

ANNUAL REPORT2010


Form 0710005 p. 4 Financial investments

Long-term Short-term Index

Description Code





1 2 3 4 5 6 Investments in registered and reserve capitals of other organizations total

510 66 194 804 94 896 533

including those of associated and dependent economic organizations

511 58 903 317 85 835 487

State and municipal securities 515

Securities of other organizations-total 520 469 301 8 935 682 44 190 554 42 356 353

including debt securities (debentures, promissory notes)

521 469 301 8 935 682 44 190 554 42 356 353

Made loans 525 303 113 302 163 887 671 887 671 Deposits 530 24 049 500 3 000 000 Other 535 3 169 3 169 Total 540 66 970 387 104 137 547 69 127 725 46 244 024 Financial investments from the total sum having current market value: Investments in registered (reserve) capitals of other organizations total

550 47 075 372 67 368 001

Including those of daughter and dependent economic organizations

551 40 338 195 21 851 019

State and municipal securities 555

Securities of other organizations total 560

Including debt securities (debentures, promissory notes)

561

Other 565 Total 570 47 075 372 67 368 001 For reference: Change in value due to correction of evaluation for financial investments having current market

580 (79 905 889) 29 915 526

For debt securities the difference between initial values and nominal value is allocated to the financial result of reporting period

590

190

ATTACHMENTS

Form 0710005 p. 5

Accounts payable and receivable Index

Description Code

Balance as of the beginning of

reporting year


reporting year 1 2 3 4

Accounts payable: Short term total 610 117 170 891 157 647 614

including: transactions with buyers and customers 611 8 949 413 8 669 641

advance payments paid 612 67 036 337 97 636 854 other 613 41 185 141 51 341 119

Long term total 620 20 492 819 8 696 249 including: transactions with buyers and customers 621 185 910 68 106

advance payments paid 622 36 other 623 20 306 873 8 628 143

Total 630 137 663 710 166 343 863 Accounts receivable: Short term total 640 73 284 089 54 669 039

including: transactions with suppliers and subcontractors 641 11 018 708 14 017 237

advance payments received 642 7 114 653 11 476 694 tax and levy payments 643 672 790 901 599 credits 644 – loans 645 7 481 469 6 941 422 other 646 46 996 469 21 332 087

Long term -total 650 6 005 098 50 018 179 including: credits 651 –

loans 652 6 000 000 50 000 000 other 653 5 098 18 179

Total 660 79 289 187 104 687 218

Costs for common activities (by cost categories) Index

Description Code For the reporting period

For the preceding year

1 2 3 4 Materials costs 710 24 309 909 30 035 110 Labor costs 720 13 331 116 6 758 157 Social cost allocations 730 2 249 899 1 084 984 Depreciation 740 32 681 907 23 417 508 Other costs 750 9 154 712 7 912 473 Total by cost category 760 81 727 543 69 208 232 Change in balances (increase [+], decrease [ ]): Uncompleted production

765 – –

unexpired costs 766 18 608 (1 656 251) reserves for costs to be incurred 767 – –

191

ANNUAL REPORT2010


Form 0710005 p. 6 Received liabilities

Index

Description Code


reporting year

Balance as of the end of

reporting year 1 2 3 4

Received total 810 70 943 984 115 203 743 including: promissory notes

811 1 231 579

Property being in pawn 820 – – from it: fixed asset items

821 – –

securities and other financial investments 822 – – miscellaneous 823 – –

Given – total 830 30 815 30 815 including: promissory notes

831 –

Property in prawn 840 – – from it: fixed asset items

841 – –

securities and other financial investments 842 – – miscellaneous 843 – –

State support


Reporting period For the same period of the preceding

year 1 2 3 4

Budget funds received in the reporting period – total 910 including: 911 – – miscellaneous 912 – –

As of the beginning

of reporting

year

Received for the

reporting period

Returned for the

reporting period

As of the end of

reporting period

Budget credits – total 920 – – – – including: 921 miscellaneous 922 – – – –

"29 " ______ March,_____ 2011

ATTACHMENTS

2009 RAS FINANCIAL STATEMENTS AND AUDIT REPORT

ANNUAL REPORT2010


194

AUDITOR REPORT ON STATUTORY FINANCIAL

(ACCOUNTING) STATEMENTS 2009

[Translation from the original Russian]

To the shareholders of Federal Grid Company:

Auditor

PricewaterhouseCoopers Audit

State registration certificate No. 008.890, issued by Moscow Registration Bureau

on 28.02.1992.

Certificate of inclusion in the Unified State Register of Legal Entities regarding

a legal entity registered before 01.07.2002, No. 1027700148431, issued by the

Interregional Inspectorate of the Russian Ministry of Taxes and Levies, No. 39 for

the Moscow City, on 22.08.2002.

Member of non-profit partnership Audit Chamber of Russia (NP ACR) being a self-

regulatory organisation of auditors, registration number 870, in the register of NP

ACR members.

Major registration record number (ORNZ) in the register of auditors and audit

organisations: 10201003683

Client

Federal Grid Company

5a Akademika Chelomeya Street, Moscow, 117630

State registration certificate No. 21081, series LO-002, issued by Leningrad Region

Registration Bureau on 25.06.2002, number in the Unified State Register of Legal

Entities No. 00/03124.

Certificate of inclusion in the Unified State Register of Legal Entities regarding a legal

entity registered prior to 01.07.2002, No. 1024701893336, issued by the Inspectorate

of the Russian Ministry of Taxes and Levies for the Tosno District of Leningrad Region

on 20.08.2002.


White Square Office Center10 Butyrsky Val,Moscow, Russia, 125047Telephone: +7 (495) 967-6000Fax: +7 (495) 967-6001www.pwc.ru

AUDIT REPORTFOR 2009

195

ANNUAL REPORT2010




AUDITOR’S REPORT

on Statutory Financial (Accounting)

Statements of Federal Grid Company

To the Shareholders of Federal Grid Company:

1 We have audited the attached Statutory Financial (Accounting) Statements

of Federal Grid Company (hereinafter – the Company) for the period from

01.01.2009 up to 31.12.2009, inclusive. Statutory Financial (Accounting)

Statements of the Company consist of the Balance Sheet, Profit and Loss

Account, Statement of Changes in Equity, Cash Flow Statement, Supplement

to the Balance Sheet, Explanatory Notes (hereinafter, the statements as a

whole are called Statutory Financial (Accounting) Statements). The Statutory

Financial (Accounting) Statements were prepared by the management

of the Company in accordance with the legislation of Russian Federation

applicable to Statutory accounting reports. The Statutory Financial

(Accounting) Statements differ to a significant degree from those prepared

in accordance with International Financial Reporting Standards (IFRS).

2 Preparation of the Statutory Financial (Accounting) Statements is the

responsibility of management of the Company. Our responsibility as auditors

is to express our opinion on the fair presentation, in all material respects, of

the Statutory Financial (Accounting) Statements based on our audit.

3 We conducted our audit in accordance with The Federal Law titled On

Auditing Activity, Federal Auditing Standards, and International Standards

on Auditing and Company internal standards.

Our audit was planned and performed to obtain reasonable assurance

about whether the Statutory Financial (Accounting) Statements are free

of material misstatement. The audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the Statutory Financial

(Accounting) Statements, assessing compliance with accounting principles,

techniques and rules of the Statutory Financial (Accounting) Statements

preparation, evaluating significant estimates made by the management of

the Company and the overall Statutory Financial (Accounting) Statements

presentation. We believe that our audit provides a reasonable basis

for our opinion on the Statutory Financial (Accounting) Statements.

196



AUDITOR’S REPORT

4 In our opinion, the Statutory Financial (Accounting) Statements of the

Company attached to this report have been properly prepared to present

fairly, in all material respects, the financial position of the Company as at

31.12.2009 and financial results of its operations for the period from 1

January up to 31.12.2009 in accordance with the legislation of Russian

Federation applicable for Statutory Financial (Accounting) Statements

preparation.

01.04.2010

ATTACHMENTS

197

ANNUAL REPORT2010


198

BALANCE SHEET CodesForm N1 on OKUD 710001

as at 31 December 2009 Date (year, month, day) 2009/12/31Company Company Open Joint-Stock Company 'Federal Grid Company of Unified Energy System' OKPO 56947007Taxpayer identification number INN 4716016979Field of activity Electric power transmission OKVED 40.10.2

Legal form/property formOpen Joint-Stock Company/ Russian mixed ownership with state share OKOPF/OKFS Unit of measurement: thousands of RR OKEI 384/385

Address 117630, Moscow, Ak. Chelomeya st., 5A

Date of approval Date of dispatch (acceptance) 30.03.2010

AssetsLinecode

At beginning of reporting year

At end of reporting period

1 2 3 4

I. NON-CURRENT ASSETSIntangible assets ....................................................................................................................... 110 1 535 909 1 396 257 including: patent rights, software, trademarks and other similar assets ............................................. 111 899 364 977 021 other intangible assets ..................................................................................................... 112 636 545 419 236 Fixed assets ............................................................................................................................. 120 157 129 616 151 603 670 including: plots of land and natural resources .................................................................................. 121 39 273 156 495 buildings, machinery and equipment, constructions ......................................................... 122 155 676 946 149 628 614 other fixed assets ............................................................................................................ 123 1 413 397 1 818 561 Construction in progress .......................................................................................................... 130 150 373 965 216 529 585 including: equipment for installation ................................................................................................ 131 13 418 743 18 484 815 investments in fixed assets .............................................................................................. 132 136 955 222 198 044 770 Income-bearing investments in tangible assets .......................................................................... 135 - -

Long-term financial investments ............................................................................................... 140 207 778 567 66 970 387 Deferred tax asset .................................................................................................................... 145 - -Other non-current assets .......................................................................................................... 150 1 653 608 1 415 088 T o t a l Section I .................................................................................................... 190 518 471 665 437 914 987

II. CURRENT ASSETSInventories ............................................................................................................................... 210 3 305 661 2 427 514 including: Raw, materials and other inventories ............................................................................... 211 1 728 321 2 262 155 Work in progress ............................................................................................................ 213 - - Finished goods and goods for resale ................................................................................ 214 84 863 29 993 Expenses related to future periods ................................................................................... 216 1 492 477 135 366 Other inventories and expenses ....................................................................................... 217 - -Value Added Tax on goods purchased ..................................................................................... 220 1 961 283 2 070 794 Accounts receivable (payment expected beyond12 months of the reporting date) ............................................................................................... 230 10 871 826 20 492 819 including: buyers and customers ...................................................................................................... 231 - 185 910 advances issued .............................................................................................................. 234 14 413 36 other debtors ................................................................................................................... 235 10 857 413 20 306 873 Accounts receivable (payment expected within12 months of the reporting date) ............................................................................................... 240 107 347 626 117 170 891 including: buyers and customers ..................................................................................................... 241 5 053 894 8 949 413 shareholders indebtness to Charter Capital ..................................................................... 242 - - advances issued .............................................................................................................. 243 68 970 457 67 036 337 other debtors ................................................................................................................... 244 33 323 275 41 185 141 Short-term investments ............................................................................................................ 250 49 390 019 69 127 725 Cash ........................................................................................................................................ 260 5 640 064 11 312 141 including: cash on hand ................................................................................................................... 261 2 617 2 439 cash at bank .................................................................................................................... 262 5 635 181 11 305 731 foreign currency accounts ............................................................................................... 263 - - financial documents ........................................................................................................ 264 13 9 other cash ....................................................................................................................... 265 2 253 3 962 Other current assets ................................................................................................................. 270 - - T o t a l Section II ................................................................................................... 290 178 516 479 222 601 884 TOTAL SECTIONS I and II .................................................................................... 300 696 988 144 660 516 871

Equity and liabilitiesLinecode


At end of reporting year

1 2 3 4III. EQUITY AND RESERVES

Charter capital ......................................................................................................................... 410 576 757 098 576 757 098 Own shares buy-back .............................................................................................................. 411 - -Additional capital ..................................................................................................................... 420 59 502 413 59 386 652 Legal reserve ........................................................................................................................... 430 9 910 770 10 134 044 Retained earnings (loss) ........................................................................................................... 460 (6 841 528) (6 944 397) Current year loss ...................................................................................................................... 475 - (59 865 994)

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1

BALANCE SHEETFOR 2009

199

ANNUAL REPORT2010


T o t a l Section III .................................................................................................. 490 639 328 753 579 467 403 IV. NON-CURRENT LIABILITIES

Borrowings and bank loans ...................................................................................................... 510 18 000 000 6 000 000 Deferred tax liabilities .............................................................................................................. 515 517 859 1 435 064 Other non-current liabilities ...................................................................................................... 520 130 5 098 T o t a l Section IV ................................................................................................. 590 18 517 989 7 440 162

V. CURRENT LIABILITIESBorrowings and bank loans ...................................................................................................... 610 16 161 487 7 481 469 Accounts payable ..................................................................................................................... 620 22 601 947 65 802 620 including: Payable to suppliers and contractors ........................................................................... 621 10 175 866 11 018 708 Payable to staff ........................................................................................................... 622 76 713 134 473 Payable to state non-budget funds ............................................................................... 623 15 102 18 906 Taxes payable ............................................................................................................. 624 295 113 653 884 Advances received ...................................................................................................... 627 7 096 192 7 114 653 Other creditors ............................................................................................................ 625 4 942 961 46 861 996 Payable to participants (shareholders) ...................................................................................... 630 84 474 46 898 Income of future periods .......................................................................................................... 640 293 494 278 319 Reserves for future expenses and payments .............................................................................. 650 - -Other current liabilities ............................................................................................................. 660 - - T o t a l Section V ................................................................................................... 690 39 141 402 73 609 306 TOTAL SECTIONS III, IV, V ................................................................................. 700 696 988 144 660 516 871

REFERENCE ON ITEMS ACCOUNTED ON OFF-BALANCE SHEET ACCOUNTS

NarrativeLine code



1 2 3 4

Rented fixed assets .................................................................................................................. 910 3 272 196 6 189 371

thereof by leasing ................................................................................................................. 911 - -Working and fixed assets received for storing .......................................................................... 920 812 468 633 348 Goods on commission .............................................................................................................. 930 - -Bad debts of insolvent debtors written off to losses .................................................................. 940 - 414 819 Securities of liabilities and payments received .......................................................................... 950 58 437 451 70 943 984 Securities of liabilities and payments issued ............................................................................. 960 1 175 189 30 815 Housing stock depreciation ...................................................................................................... 970 - -Depreciation of auxiliary engineering facilities and other similar items ..................................... 980 - -Intangible assets obtained for usage ......................................................................................... 990 - -Registered high-security forms ................................................................................................. 1000 7 11

2

200

PROFIT AND LOSS ACCOUNT CodesForm N2 on OKUD 710002

for 2009 Date (year, month, day) 2009/12/31Company Company Open Joint-Stock Company 'Federal Grid Company of Unified Energy System' OKPO 56947007Taxpayer identification number INN 4716016979Field of activity Electric power transmission OKVED 40.10.2Legal form/property form Open Joint-Stock Company/ Russian mixed ownership with state share OKOPF/OKFS Unit of measurement: thousands of RR OKEI 384/385

Narrative For reporting For the same periodperiod of the previous year

1 2 3 4Income from and expenses on ordinary activities

Sales of goods, products, work, services (less VAT, excise dutyand other similar compulsory payments) .................................................................................... 010 85 077 809 68 485 030 including: electric power transmission services ................................................................................ 011 80 173 317 66 128 765 other sales ........................................................................................................................ 012 4 904 492 2 356 265 Cost of goods, products, work, services sold .............................................................................. 020 (64 079 927) (58 977 340) including: electric power transmission services ................................................................................ 021 (62 732 093) (57 107 753) other sales ........................................................................................................................ 022 (1 347 834) (1 869 587) Total revenue (loss) ................................................................................................................... 029 20 997 882 9 507 690 Sales expenses ........................................................................................................................... 030 - -General business expenses ......................................................................................................... 040 (5 128 305) (4 351 940) Gross profit (loss) from sales ..................................................................................................... 050 15 869 577 5 155 750

Other income and expensesInterest receivable ...................................................................................................................... 060 7 291 952 6 806 385 Interest payable .......................................................................................................................... 070 (1 717 506) (2 385 645) Participation in other companies ................................................................................................ 080 717 256 223 272 Other income ............................................................................................................................. 090 105 760 531 31 347 105 Other expenses .......................................................................................................................... 100 (181 970 591) (34 970 048) Income (loss) from operations .................................................................................................... 140 (54 048 781) 6 176 819 Teoretical income tax gain/(charge) (140 24% 2008, 20% 2009) ......................................... 143 10 809 756 (1 482 437) Permanent tax liabilities (assets) ................................................................................................ 200 (16 588 331) (1 952 589) Deferred tax assets ..................................................................................................................... 141 (180 217) 6 767 Deferred tax liabilities ............................................................................................................... 142 (722 009) (216 856) Current income tax .................................................................................................................... 150 (4 876 349) (3 224 937) Other similar compulsory payments ........................................................................................... 151 (4 642) 461 546 Income tax adjustment for previous periods ............................................................................... 152 (33 996) 1 262 136 Net profit (loss) for the reporting year ....................................................................................... 190 (59 865 994) 4 465 475 REFERENCEBasic earnings (loss) per share ................................................................................................... 201 (5 190) 575 Diluted earnings (loss) per share ................................................................................................ 202 - -

BREAKDOWN OF SPECIFIC INCOMES AND EXPENSES

Line For reporting period

code income expense income expense1 2 3 4 5 6

Fines and penalties recognized by court or those on which there arejudgments of a court (or arbitrage court) on their recovery ......................................................... 230 397 323 40 390 152 738 1 861 Profit (loss) of previous years .................................................................................................... 240 412 431 521 681 115 403 288 008 Compensation for damages caused by default on obligations or by improper fulfillment of obligations ....................................................................................... 250 - - - -Exchange rate differences .......................................................................................................... 260 26 455 15 949 8 065 15 619 Revaluation reserve ................................................................................................................... 270 9 404 732 5 028 828 Write-off of debtor and creditor indebtednesson which the period of limitation has expired ............................................................................ 280 6 556 9 122 25 169 17 230

- - - -

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For the similar period of the previous year

Line code

Narrative

1

PROFIT AND LOSS STATEMENTFOR 2009

201

ANNUAL REPORT2010STATEMENT OF CHANGES

IN STOCKHOLDER’S EQUITYFOR 2009

FLOW OF EQUITY AND FUNDS Codes

Form N3 on OKUD 710003Date (year, month, day) 2009/12/31

Company Company Open Joint-Stock Company 'Federal Grid Company of Unified Energy System' OKPO 56947007Taxpayer identification number INN 4716016979Field of activity Electric power transmission OKVED 40.10.2Legal form/property formOpen Joint-Stock Company/ Russian mixed ownership with state share OKOPF/OKFS Unit of measurement: thousands of RR OKEI 384/385

I. Changes in equityNarrative Charter Additional Reserve Accumulated Total

capital capital capital profit/loss1 2 3 4 5 6 7

Balance as of 31 Decemberof the year antecedent to the previous year ............................. 010 180 691 104 16 994 046 4 657 605 2 442 736 204 785 491

2008previous year

Changes in accounting policy ...................................................... 011 x x x - -Revaluation of fixed assets .......................................................... 012 x 4 099 955 x 1 601 4 101 556 Changes in accounting rules ........................................................ 013 x - x - -Balance as of 1 January of the previous year .......................... 020 180 691 104 21 094 001 4 657 605 2 444 337 208 887 047 Exchange rate difference ............................................................. 023 x - x x -Net profit (loss) ............................................................................ 025 x x x 4 465 475 4 465 475 Dividends .................................................................................... 026 x x x 380 000 (380 000) Allocations to reserves ................................................................. 030 x x 1 916 167 (1 916 167) -Increase of capital due to 040 396 065 994 31 663 260 3 336 998 22 138 655 453 204 907 additional shares issue ............................................................ 041 57 482 627 x x x 57 482 627 increase of share par value ...................................................... 042 - x x x - reorganization of legal entity ................................................... 043 338 583 367 21 316 409 3 336 998 22 138 655 385 375 429 other ....................................................................................... 044 - 10 346 851 - - 10 346 851 Decrease of capital due to 050 - (159 901) - 159 901 - decrease in value of shares ..................................................... 051 - x x x - reduction in number of shares ................................................ 052 - x x x - reorganization of legal entity 053 - x x - - other ....................................................................................... 054 - (159 901) - 159 901 -Balance as of 31 December of the previous year .................... 060 576 757 098 52 597 360 9 910 770 26 912 201 666 177 429

2009current year

Changes in accounting policy ...................................................... 061 x x x (33 836 387) (33 836 387) Results of property evaluation ..................................................... 062 x 6 905 053 x (20 914) 6 884 139 Changes in accounting rules ........................................................ 063 x - x 103 572 103 572 Balance as of 1 January of the current year ............................ 100 576 757 098 59 502 413 9 910 770 (6 841 528) 639 328 753 Exchange rate differences ............................................................ 103 x - x x -Net profit ..................................................................................... 105 x x x (59 865 994) (59 865 994) Dividends .................................................................................... 106 x x x - -Contributions to legal reserves ..................................................... 110 x x 223 274 (223 274) -Increase of capital due to ............................................................. 120 - - x 4 644 4 644 additional shares issue ............................................................ 121 - x x x - increase of share par value ...................................................... 122 - x x x - reorganization of legal entity ................................................... 123 - x x x - other ....................................................................................... 124 - - - 4 644 4 644 Decrease of capital due to ........................................................... 130 - (115 761) x 115 761 - decrease in value of shares ..................................................... 131 - x x x - reduction in number of shares ................................................ 132 - x x x - reorganization of legal entity ................................................... 133 - x x - - other ....................................................................................... 134 - (115 761) - 115 761 -Balance as of 31 December of the current year ...................... 140 576 757 098 59 386 652 10 134 044 (66 810 391) 579 467 403

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Linecode

for 2009

1

202

II. ReservesNarrative

1 2 3 4 5 6

Legal reservesformed in accordance with legislation

reserve

previous year ............................................................................ 150 4 657 605 5 253 165 - 9 910 770 current year ............................................................................... 151 9 910 770 223 274 - 10 134 044

Legal reserves formed in accordancewith foundation documents

reserve

previous year ............................................................................ 152 - - - - current year ................................................................................ 153 - - - -

ProvisionsDoubtful debt provision previous year ............................................................................. 160 883 464 2 424 875 (1 722 613) 1 585 726 changes in accounting policy ..................................................... 160a 1 585 726 33 836 387 - 35 422 113 current year ................................................................................ 161 35 422 113 5 902 136 (20 017 408) 21 306 841 Provision for impairment of financial investments previous year ............................................................................. 162 2 474 081 2 690 733 - 5 164 814 current year ................................................................................ 163 5 164 814 3 502 596 (75) 8 667 335

REFERENCESNarrative

1 21) Net assets ................................................................................ 200

Line code

For reporting year

For previous year For reporting year For previous year

2 3 4 5 62) Received for: ordinary activity expenses - total ............................................ 210 - 322 119 144 capital investments ................................................................. 220 - - - - other ....................................................................................... 230 - 322 119 144

Line code

Line code

At beginning At the end

Additions Disposals Balance

From budget From non-budget funds

of reporting year of reporting period3 4

639 622 247 579 745 722

Balance b/f

2

ATTACHMENTS

203

ANNUAL REPORT2010

CASH FLOW STATEMENT Codes

Form N4 on OKUD 710004for 2009 Date (year, month, day) 2009/12/31

Company Company Open Joint-Stock Company 'Federal Grid Company of Unified Energy OKPO 56947007Taxpayer identification number INN 4716016979Field of activity Electric power transmission OKVED 40.10.2Legal form/property form Open Joint-Stock Company/ Russian mixed ownership with state share OKOPF/OKFS Unit of measurement: thousands of RR OKEI 384/385

Narrative For the current year For the same period of the previous year

1 2 3 4

Cash at the beginning of the reporting year ......................................................... 010 5 640 051 12 991 358 Cash movement - operating activity

Total cash received from customers and clients ........................................................ 020 94 010 235 80 973 311 Foreign currnecy purchase ........................................................................................ 030 290 642 200 661 Insurance compensation ............................................................................................ 040 - -Other income ............................................................................................................. 050 13 414 676 59 958 954 Total cash used for: payments for purchased goods, work, services, materials and other current assets ..................................................................................... 150 (43 950 985) (62 654 338) wages and salaries payments ............................................................................. 160 (5 589 044) (5 857 276) dividend paid, interest paid ............................................................................... 170 (2 122 038) (2 427 161) settlements of taxes and duties .......................................................................... 180 (6 142 236) (26 927 880) insurance payments ........................................................................................... 181 - - other payments .................................................................................................. 190 (2 185 427) (4 756 891) Net cash from operating activity ............................................................................... 200 47 725 823 38 509 380

Cash movement - investing activitySales of fixed assetsand other non-current assets ...................................................................................... 210 307 731 500 929 Sales of securities and other financial investments ................................................... 220 276 911 503 15 019 375 Dividend received ..................................................................................................... 230 860 603 489 968 Interest received ........................................................................................................ 240 3 118 353 3 805 783 Redemption of loans provided to other entities ........................................................ 250 - -Other income 260 - -Cash assets used for: subsidiaries acquisition ........................................................................................ 280 (8 499 011) (2 195 420) acquisition of fixed assets, income-bearing investments ..................................... and intangible assets ............................................................................................ 290 (99 466 324) (116 779 671) acquisition of securities and other financial investments ..................................... 300 (235 405 935) (15 783 362) loans granted to entities ........................................................................................ 310 (6 653) (780) other expense ....................................................................................................... 320 (7 611) (56 126) Net cash from investing activity ............................................................................... 340 (62 187 344) (114 999 304)

Cash movement - financing activityProceeds from issue of shares and other equity instruments ..................................... 350 40 180 434 20 424 586 Loans and credits received ..................................................................................................................... 360 4 000 000 56 107 063 Other income 380 - -Cash assets used for: repayment of loans and credits (without interest) ................................................ 390 (23 980 000) (7 331 770) other expense ....................................................................................................... 405 (66 832) (61 262) Net cash from financing activity ............................................................................... 410 20 133 602 69 138 617 Net increase (decrease) in cash and cash equivalents ............................................... 420 5 672 081 (7 351 307) Cash at the end of the reporting year .................................................................... 430 11 312 132 5 640 051 Ruble exchangerate difference ........................................................................................................... 440 - -

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Line code

1

CASH FLOW STATEMENT FOR 2009

204

SUPPLEMENT TO THE BALANCE SHEET Codes

Form N 5 on OKUD 710005for 2009 Date (year, month, day) 2009/12/31

Company Company Open Joint-Stock Company 'Federal Grid Company of Unified Energy System' OKPO 56947007Taxpayer identification number INN 4716016979Field of activity Electric power transmission OKVED 40.10.2Legal form/property formOpen Joint-Stock Company/ Russian mixed ownership with state share OKOPF/OKFS Unit of measurement: thousands of RR OKEI 384/385

INTANGIBLE ASSETSNarrative

1 2 3 4 5 6Intellectual property (exclusive rights to intellectual property) ..................................................... 010 924 746 363 497 - 1 288 243 including the rights: of the patent holder on invention industrial design, utility model ................................................................... 011 - 9 715 - 9 715 of software, database owner ....................................................................... 012 924 500 353 782 - 1 278 282 of the integrated circuit layout owner ........................................................ 013 - - - - of the trademark, servicemark owner, names of origin of goods owner ................................................................. 014 246 - - 246 of plant patent holder .................................................................................. 015 - - - -Administration expenses ............................................................................... 020 - - - -Goodwill ........................................................................................................ 030 - - - -Other 040 1 054 619 - - 1 054 619 Total .............................................................................................................. 045 1 979 365 363 497 - 2 342 862

Narrative

1 2 3 4Amortization of intangible assets - total ....................................................... 050 443 456 946 605

including:intellectual property 051 24 946 310 648

FIXED ASSETSNarrative

1 2 3 4 5 6

Buildings ....................................................................................................... 110 14 958 688 1 642 214 (57 588) 16 543 314 Constructions and transfer mechanisms ........................................................ 111 164 374 412 1 944 212 (409 707) 165 908 917 Machinery and equipment ............................................................................. 112 74 852 470 13 469 164 (1 089 988) 87 231 646 Means of transportation ................................................................................. 113 1 453 723 664 044 (51 903) 2 065 864 Production and work appliances ................................................................... 114 974 537 194 973 (36 203) 1 133 307 Working livestock ......................................................................................... 115 - - - -Productive livestock ...................................................................................... 116 - - - -Perennial plants .............................................................................................. 117 - - - -Other types of fixed assets ............................................................................ 118 223 570 87 172 (18 929) 291 813 Plots of land and natural resources ............................................................... 119 39 273 117 222 - 156 495 Investments in reclamation ............................................................................ 120 - - - -Total .............................................................................................................. 130 256 876 673 18 119 001 (1 664 318) 273 331 356

Narrative

1 2 3 4Depreciation of fixed assets - total .............................................................. 140 99 747 057 121 727 686

including: buildings and constructions ................................................................... 141 74 208 142 88 232 724 machinery, equipment, means of transportation ................................... 142 24 918 279 32 655 704 other ...................................................................................................... 143 620 636 839 258 Fixed assets leased out - total ........................................................................ 150 8 581 605 4 896 221 including: buildings and constructions ................................................................... 151 6 103 352 4 069 233 machinery, equipment, means of transportation ................................... 152 2 301 452 797 993 other ...................................................................................................... 153 176 801 28 995 Fixed assets transferred to conservation ........................................................ 155 2 237 8 354 Fixed assets leased in - total .......................................................................... 160 3 272 196 6 189 371 including: buildings and constructions ................................................................... 161 2 026 725 2 437 885 machinery, equipment, means of transportation ................................... 162 1 229 600 1 521 222 other ...................................................................................................... 163 15 871 2 230 264 Fixed assets receivedand being in the process of state registration ................................................ 165 2 674 939 5 241 196

REFERENCE. 2 3 4Result of fixed assets revaluation: 170 6 884 139 4 101 556

historical (recovered) value ...................................................................... 171 10 350 330 6 363 381 depreciation ............................................................................................... 172 3 466 191 2 261 825

Line At beginning of At end of reporting2 3 4

Changes in fixed assets value as a result of

fitting-out, rigging up, reconstruction, partial liquidation ........................................................................................... 180

INCOME-BEARING PROPERTYNarrative

1 2 3 4 5 6

Property for lease-out .................................................................................... 210 - - - -Property for hiring ......................................................................................... 220 - - - -Other .............................................................................................................. 230 - - - -Total .............................................................................................................. 240 - - - -

Linecode

Linecode

Linecode

Linecode

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Linecode

DisposalsAt end of reporting

periodAdditions

1 873 833


1 465 469

47/41

DisposalsAdditionsAt beginning of reporting year


At beginning of previous year

Disposals






Additions



1

NOTES TO THE BALANCE SHEETFOR 2009

205

ANNUAL REPORT2010


2 3 4Depreciation of income-bearing property ...................................................... 250 - -

RESEARCH AND DEVELOPMENT COSTSNarrative

1 2 3 4 5 6

Total Research and Development costs ........................................................ 310 499 747 357 354 (106 100) 751 001 including:

311 - - - -research of FACTS systems 312 4 000 - (2 000) 2 000 other 313 495 747 357 354 (104 100) 749 001

REFERENCE. 2 3 4Costs related to Research and Developmentin progress ..................................................................................................... 320 486 564 677 196

2 3 4Costs related to Research and Developmentwithout positive outcome which were charged tonon-operating expenses ................................................................................. 330 - -

NATURAL RESOURCES DEVELOPMENT COSTSNarrative

1 2 3 4 5 6

Total natural resources development costs .................................................... 410 - - - - including:

411 - - - -412 - - - -413 - - - -

REFERENCE 2 3 4Expenses attributable to those areas of subsoil where prospecting and evaluation of deposits, exploration and/or hydrological surveyand other similar works have not been finalized ........................................... 420 - -

REFERENCE 2 3 4Expenses attributable to natural resources developmentwithout positive outcome, which were charged to

non-operating expenses of the current period ............................................... 430 - -

FINANCIAL INVESTMENTSNarrative Long-term Short-term

Line at beginning of at end of reporting at beginning of at end of reporting 1 2 3 4 5 6

Investments in share capital

of other entities - total .................................................................................... 510 150 897 718 66 194 804 - -

including subsidiaries ............................................................................. 511 120 868 894 58 903 317 - -State and municipal securities ....................................................................... 515 - - - -Securities of other entities ............................................................................. 520 56 574 551 469 301 48 482 663 44 190 554 including debt securities (debentures, promissory notes) ...................... 521 56 574 551 469 301 48 482 663 44 190 554 Loans granted ................................................................................................ 525 296 461 303 113 887 671 887 671 Deposits ......................................................................................................... 530 - - - 24 049 500 Other .............................................................................................................. 535 9 837 3 169 19 685 - Total ......................................................................................................... 540 207 778 567 66 970 387 49 390 019 69 127 725 Financial investments at current market value from totalInvestments in share capitalof other entities - total ................................................................................... 550 136 404 713 47 075 372 - -

including subsidiaries .............................................................................. 551 109 406 501 40 338 195 - -

State and municipal securities ....................................................................... 555 - - - -Securities of other entities ............................................................................. 560 - - - - including debt securities (debentures, promissory notes) ...................... 561 - - - -Other .............................................................................................................. 565 - - - - Total ......................................................................................................... 570 136 404 713 47 075 372 - -REFERENCE Line For reporting period For the same period For reporting period For the same period

2 3 4 5 6

Change in value due to measurement adjustments of financial

investments at current market value .............................................................. 580 - (79 905 889) - -

Difference between acquisition cost and par value of debt securities is charged to financial resultsof the current period ...................................................................................... 590 - - - -

ACCOUNT RECEIVABLE AND ACCOUNTS PAYABLENarrative

1 2 3 4

Accounts receivable: Short-Term ............................................................................................ 610 107 347 626 117 170 891

including: receivables from customers and clients .................................................. 611 5 053 894 8 949 413 advances given ........................................................................................ 612 68 970 457 67 036 337 other ........................................................................................................ 613 33 323 275 41 185 141 Long-Term ............................................................................................ 620 10 871 826 20 492 819 including: receivables from customers and clients .................................................. 621 - 185 910 advances given ........................................................................................ 622 14 413 36

Linecode

Linecode

Linecode

Linecode

Linecode

Linecode

Linecode

Linecode

For reporting periodFor the same period of the previous year



For reporting periodFor the same period of the previous year

Balance at end of reporting period



Balance at beginning of reporting year

Additions Disposals





Additions DisposalsAt end of reporting

period


2

206

other ........................................................................................................ 623 10 857 413 20 306 873 Total .............................................................................................................. 630 118 219 452 137 663 710 Accounts payable Short-Term ............................................................................................ 640 38 763 434 73 284 089 including: payables to suppliers and contractors ...................................................... 641 10 175 866 11 018 708 advances received .................................................................................... 642 7 096 192 7 114 653 tax and duties payments .......................................................................... 643 295 113 653 884 credits ...................................................................................................... 644 10 156 891 - loans ........................................................................................................ 645 6 004 596 7 481 469 other ........................................................................................................ 646 5 034 776 47 015 375 Long-Term ............................................................................................ 650 18 000 130 6 005 098 including: credits ...................................................................................................... 651 5 000 000 - loans ........................................................................................................ 652 13 000 000 6 000 000 other 653 130 5 098 Total .............................................................................................................. 660 56 763 564 79 289 187

EXPENSES INCURRED IN ORDINARY Narrative

1 2 3 4

Materials .........................................................................................................710 30 035 110 24 481 538

Wages and salaries expenses ........................................................................ 720 6 758 157 6 723 873 Obligatory social payments ........................................................................... 730 1 084 984 1 216 059 Fixed assets depreciation .............................................................................. 740 23 417 508 20 849 262 Other expenses ............................................................................................... 750 7 912 473 10 058 548 Total by expense type .................................................................................... 760 69 208 232 63 329 280 Changes in the balance (increase [+], decrease,[-]): Work in progress ........................................................................................ 765 - - Expenses of future periods ......................................................................... 766 (1 656 251) 1 358 444 Reserves of future expenses ....................................................................... 767 - -

COLLATERALNarrative

1 2 3 4

Received ........................................................................................................ 810 58 437 451 70 943 984 including: promissory notes ..................................................................................... 811 - 1 231 579 Property in pledge .......................................................................................... 820 - - including: fixed assets ............................................................................................... 821 - - securities and other financial investments ................................................ 822 - - other ......................................................................................................... 823 - -Issued ............................................................................................................ 830 1 175 189 30 815 including:promissory notes ........................................................................................... 831 1 144 374 -Property given for pledge .............................................................................. 840 - - including: fixed assets ............................................................................................... 841 - - securities and other financial investments ................................................ 842 - - other ......................................................................................................... 843 - -

- -

GOVERNMENT GRANTSNarrative

1 2

Budgeting funds received - total ................................................................... 910 including: 911other 912

2 3 4 5 6

Credits from budget - total ............................................................................ 920 - - - - including:

921 - - - -Other 922 - - - -

Line code

Line code

Line code

--

Returned in reporting period


- -At beginning of reporting year

Received in reporting period

3223

-

- 322

-

-

For previous year



For reporting year

For reporting period For the same period of the previous year

--

4

Line code

3

ATTACHMENTS

207

ANNUAL REPORT2010


ATTACHMENTS

2010 MANAGEMENT DISCUSSION AND ANALYSIS MD&A

COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE

2010 GENERAL SHAREHOLDERS MEETINGS

BRANCHES

SUBSIDIARIES

2010 INTERESTED PARTY AND MAJOR TRANSACTIONS

IMPLEMENTATION OF THE ASSIGNMENTS OF THE PRESIDENT AND GOVERNMENT OF THE RUSSIAN FEDERATION

AUDIT COMMISSION CONCLUSIONS ON THE VERACITY OF INFORMATION IN THE ANNUAL REPORT

2011 INVESTOR CALENDAR

GLOSSARY

CONTACTS

ANNUAL REPORT2010


210

ATTACHMENTS

MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)

OVERVIEW OF FEDERAL GRID COMPANY'S FINANCIAL PERFORMANCE AS OF 31 DECEMBER, 2010 AND 2010 OPERATING RESULTS

The Report represents a review of the fi nancial position and performance of Federal Grid Company (hereinast er referred to as the Company) and should be regarded together with the Company’s 2010 accounting reports, as prepared in accordance with Russian Accounting Standards (RAS), including an explanatory note hereto.

Overview of Corporate ActivitiesThe Company’s main activity is providing electric power transmission services to consumers via the Unifi ed National (All-Russian) Electrical Grid (UNEG). In accordance with Russian Federation laws, electricity transmission services via the UNEG are the prerogative of Federal Grid Company, constitute monopolistic activities and are regulated by the State. The cost of the Company’s electricity transmission services are determined by tariff s established by the Federal Tariff Service (FTS).

As of 31 December, 2010, the Company has 51 branches and is headquartered in Moscow. In 2010, the Company’s average head count was 21,965 people (in 2009 – 11,303 people). The signifi cant (94.3%) growth in 2010, compared with the previous period, is associated with transferring electrical equipment maintenance and repair functions from Glavsetservis UNEG to Federal Grid Company and relocating most of the employees of Glavsetservis UNEG to the Company’s branches.

The Company's shares are traded on the Russian Trading System (RTS) and have been listed on the Moscow Interbank Currency Exchange (MICEX) since July 2008. On 28 March, 2011, the Company’s depository receipts (DRs) began trading on the Main Market of the London Stock Exchange (LSE).

Each year, the number of consumers of the Company’s electricity transmission services grows, including

via active work to technologically connect new consumers to the UNEG. During 2010, corporate consumers numbered about 150 companies that were technologically connected to the UNEG, including distribution grid companies (DGCs); independent grid companies (GCs); energy sales companies (ESCs); and major electricity-consuming companies.

The Company makes substantial investments in fi xed assets for the development and reliable operation of the UNEG. In 2010, the volume of construction, renovation and modernization of fixed assets amounted to RUR167,031 mln (compared with RUR106,044 mln in 2009).

In 2010, the Company financed investment activities via:

Funds provided for by the tariff for electricity • transmission - 29%;Funds received from placing the Company • shares - 18%;Raised funds - 26%;• RAO UES of Russia funds from selling assets • as a result of reorganization - 16%;Other sources – 11%.•

Together with electricity transmission services, the Company renders services for the technological connection of new consumers to the UNEG. In 2010, the Company’s revenues from providing said services amounted to RUR609 mln (2009: RUR3,053 mln).

Major Factors That Impacted Federal Grid Company’s ResultsMajor factors that impacted the Company’s 2010

The revaluation of investments received by the • Company as the result of the reorganization of RAO UES of Russia;Positive fi nancial results from reversal and ac-• crual of bad debt provision;Increased equipment being serviced as a result • of the Company’s investment program;Increase in the Company's investment pro-• gram.

State RelationsAs of 31.12.2010, 79.48% of the Company’s ordinary

211

ANNUAL REPORT2010


voting shares were owned by the State (as of 31.12.2009 – 79.11%), represented by the Federal Agency for State Property Management. The Russian Federation has a direct impact on the Company’s activities by regulating its tariffs through the Federal Tariff Service (FTS). Federal Grid Company's investment program is subject to approval by the Russian Government.

Regulating and Reorganizing the Electric Power IndustryAs a result of RAO UES of Russia reorganization in July 2008, assets, including cash, promissory notes, as well as non-core assets, including shares in power generating companies, were transferred to Federal Grid Company ownership. A part of received assets were planned for sale. The Company plans to use funds received from the sale of the above-mentioned assets as a fi nancing source for its investment program.

Within the framework of the project to consolidate electric power assets on the foundation of Inter RAO UES (the Russian President’s Order No. 1190 as of 30.09.1910), the following shares were transferred to the trust management of Inter RAO UES, in addition to an equity stake in WGC-1 (Trust Management Contract No. 82531 as of 11.03.2009): Bashkirenergo, Volga TGC, TGC-11, TGC-6, Mosenergo, TGK-14, Quadra, TGC-2, TGK-9, RusHydro, TGK-3, Fortum, TGC-1, OGK-2, OGK-4, OGK-6, Yenisei TGK, Kuzbassenergo, TGC-11 Holding and WGC-3, owned by the Company.

The above-mentioned investments are booked on the Company's balance at market value as of 31.12.2010. In 2010, the profi t from changes in the current market value stood at RUR29,915,526 thousand.

Events ast er the reporting date: On 23 March, 2011, there was an Extraordinary General Shareholders Meeting of Federal Grid Company, at which the deal between Federal Grid Company and Inter RAO UESto purchase additional shares of Inter RAO UES placed via closed subscription was approved. To pay for the above-mentioned shares, the shares of gen-erating companies owned by Federal Grid Company were transferred.

212

ATTACHMENTS

2009-2010 analyzed period illustrated revenue growth from providing transmission services. 2010 revenues increased by RUR29,337 million (36.6%) year-to-year. In 2010, key drivers of revenue

The Company’s Financial Results

growth from electricity transmission services regarding the maintenance of electric facilities were an increase in the volume of grids being served and implementation of the corporate investment program.

Revenues from Electricity Transmission Services

tФилиал

Revenues from transmission services, including:Payment for maintaining electric facilities included in the UNEGPayment for standard process electricity losses in the UNEG

109,510.3

94,949.414,560.8

80,173.3

66,682.113,491.2

2010 2009

Income and expenses from ordinary activities

Revenues from operating activities including:

Power transmission servicesOther activities

Operating expensesincluding:

Power transmission servicesOther activities

Administrative expenses

Operating profi t

Other income and expenses

Interest received

Interest paid

Proceeds from investments in associated companies

Other income

Other expenses

Profi t/(loss) before profi t tax

Deferred profi t tax assets

Deferred profi t tax liabilities

Current profi t tax

Other similar mandatory payments

Adj. profi t tax for past periods

Net profi t/(loss) for the period

111,084.67

109,510.281,574.40

-75,518.40

-74,694.57-823.83

-6,209.15

29,357.13

5,436.24

-273.75

422.31

142,534.20

-109,157.60

68,318.52

-33.44

-1181.21

-9264.31

43.226

205.592

58,088.38

85,077.80

80,173.304,904.50

-64,079,90

-62,732.10-1 347.80

-5,128.30

15,869.60

7,292.00

-1,717.50

717.3

105,760.50

-181,970.60

-54,048.80

-1802

-722

-4,876.30

-4.6

-34

-59,866.00

26,006.87

29,336.98-3,330.10

11,438.50

11,962.47-523.97

1,080.85

13,487.53

-1,855.76

-1,443.75

-294.99

36,773.70

-72,813.00

122,367.32

146.758

-459.205

4,388.01

47.826

239.59

117,954.38

30.57%

36.59%-67.90%

17.85%

19.07%-38.88%

21.08%

84.99%

-25.45%

-84.06%

-41.13%

34.77%

-40.01%

2,2-fold increase

81.44%

-63.60%

89.99%

10-fold increase

7-fold increase

2-fold increase

2010 2009 Diff erence,RUR mln

Change, %

213

ANNUAL REPORT2010


Based on 2010 results, revenues from services related to the principal regulated activities

PPE DepreciationIncreased 2010 PPE depreciation is caused by depre-ciation of new facilities commissioned in late 2009 and 2010 and PPE revaluation.

Employee Benefi t Expenses and Payroll TaxesIncreased employee benefi t expenses and payroll taxes are due to technical factors. In 2010, person-nel from the Company’s service subsidiary, Glav-setservis which performs equipment maintenance and repair, were employed, which increased said expenses by 98.2% and a corresponding reduction in costs for repairs that are carried out and con-tracted.

Electricity and Capacity PurchasedIn 2010, expenses for electricity and capacity pur-chases rose 5.6% year-on-year. This growth is due to an 2010 increase in the liberalized share of the WECM (in 1H 2010, it reached 60%, in 2H 2010 – 80%) and tariff growth for electricity and capacity purchased on the WECM.

Repair and MaintenanceMaintenance and repair expenses performed by contractors declined 57.6% in 2010 y-o-y due to employing personnel from the service subsidiary, Glavsetservis, carrying out equipment maintenance and repair and the relevant redistribution of repair costs to other items (labor remuneration, insurance premiums, travel expenses, raw materials and other materials).

Rental ExpensesThese expenses include the cost of renting produc-tion property (UNEG facilities), as well as land lease costs. Rental expenses have increased more than 20% in 2010 compared with 2009 due to higher land lease rates in certain regions.

Raw Materials ExpensesExpenses for raw materials and fuel have increased due to employing personnel from the service subsid-iary, Glavsetservis, and carrying out maintenance and equipment repair in a non-contracted method.

(excluding revenues from technological connections) accounts for 98.58 % of total revenues.

Operating Expenses

Components

Depreciation of property, plant and equipment (PPE)

Electricity and capacity purchased

Employee benefi t expenses and payroll taxes

Repair and maintenance

Raw materials, work clothing and fuel

Property insurance expenses

Rental expenses

Property security expenses

Other expenses

Total operating expenses

31,727

14,183

13,926

5,984

2,207

1,304

929

1,105

4,154

75,518

42%

19%

18%

8%

3%

2%

1%

1%

6%

100%

22,562

13,433

7,028

14,127

410

1,094

772

766

3,888

64,080

35%

21%

11%

22%

1%

2%

1%

1%

6%

100%

40.6%

5.6%

98.2%

-57.6%

438.3%

19.2%

20.3%

44.3%

6.8%

17.8%

2010 %, from total 2009 %, from total Change, %

214

ATTACHMENTS

Property Security ExpensesIn 2010, the 44.3% growth in security expenses was associated with increased physical protection of facilities, an increase in the number of facilities to be protected and implementation of a counter-terrorism security program at UNEG facilities.

Other ExpensesIncreased spending on other items is due to chnical factors, for example, redistributing costs from the ex-pense item repair by a contracted method to expense items transportation costs and travel expenses for production personnel due to transferring to the service subsidiary, Glavsetservis, and performing maintenance and equipment repair in a non-contracted method.

Depreciation of PPE and IAThe main reason for 2010 depreciation growth was the commissioning of sost ware products and the re-valuation of PPE, which resulted in an 11.7% increase compared with 2009.

Employee Benefi t Expenses and Payroll TaxesIn 2010, the growth in said expenses was 67.5% compared to 2009 due to structural changes and the relocation of subsidiary service personnel.

Material ExpensesThe growth in expenses in this category is due to infl ation growth.

Rental ExpensesRental expenses include costs for renting offi ce build-ings and communication systems. In 2010 rental costs decreased 15.5% compared with 2009 due to the Costs Reduction Program implemented by the Company during the reporting period.

Administrative Expenses

Components

Employee benefi t expenses and payroll taxes

Information services and sost ware expenses

Depreciation of PPE and intangible assets (IA)

Production services

Material expenses

Rental expenses

Property insurance expenses

Property security expenses

Communication services

Advisory services

R&D expenses

Other expenses

Total expenses

1,656.9

1,026.4

955.3

455.8

491.6

350.9

6.9

25.4

259.6

186.1

171.9

622.3

6,209.1

27%

17%

15%

7%

8%

6%

0%

0%

4%

3%

3%

10%

100%

989.1

937.6

855.1

561.9

469.4

415.4

5.8

30.4

201.1

163.1

27.4

472

5,128.3

19%

18%

17%

11%

9%

8%

0%

1%

4%

3%

1%

9%

100%

67.5%

9.5%

11.7%

-18.9%

4.7%

-15.5%

19.0%

-16.4%

29.1%

14.1%

527.4%

31.8%

21.1%

2010 % from total 2009 % from total Change, %

215

ANNUAL REPORT2010


Interest received in 2010 decreased 25.4% compared with 2009, as a result of reducing residual free cash funds due to actively implementing the investment program and its related fi nancing.

Due to changes in the Company’s accounting policies since 2010, interest costs are capitalized and included in the cost of construction. In this regard, accounts refl ect the 2010 decrease in interest expense by 84.1% compared with 2009.

In 2010 the Company increased total debt from RUR13,000 million as of 1 January, 2010 to RUR56,000 million as of 31 December, 2010. This change was due to issuing Series 6, 7, 8, 9, 10 and 11 bonds totaling RUR50,000 million to fi nance the Company’s investment program. In addition, in 2010 the Company redeemed a Series 2 bond issue worth RUR7,000 million. The Series 4 bond issue matures in November 2011. In corporate accounts, it is booked as short-term borrowings.

In accordance with changes in accounting policies, the interest on promissory notes and bonds shall beapportioned to the value of the investment assets. In 2010 the sum of all accrued interest is included in the cost of construction-in-progress and totals RUR1,277 million. In 2009 the total amount of accrued interest was RUR1,939 million. Of this, RUR1,714 million was included in other expenses, whereas RUR221,957 mil-lion was included in the price of investment assets.

Advisory and Legal ServicesThe 14% increase in consulting services is due to an increase in consulting services for accounting and reporting, as well as for forming the system of quality and reliability indicators.

Other Production ServicesThe reduction in costs for this item is due to the Com-pany’s production needs and accounts for one-timework performed in 2009 within the framework of tar-geted programs to assess property, work out UNEGdevelopment schemes and form budgeted electric energy and capacity balance sheets. In 2010, ex-penditures for these programs decreased due to the lack of need.

Operating Profi tIn 2010 operating profi t increased 85% compared with 2009 due to revenue growth exceeding ex-penses increases, as the Company's revenue grew by 30.57%, whereas cost grew by only 17.85%.

Signifi cant impact on this growth has increased the investment program and, accordingly, formed a base for fi nancing the Company’s investment program.

Interest Received/PaidInterest received represents revenues from debt fi -nancial investments and income from placing free funds in bank accounts and deposits. A signifi cant portion of profi table investments were received by the Company as a result of RAO UES of Russia re-structuring on 1 July, 2008.

216

ATTACHMENTS

Income/Expenses from Disposal of InvestmentsIn 2010, the Company received a profi t of RUR1,346.2 million (2009: RUR1,786.7 million) from redemption of third-party promissory notes.

In 2010, the Company received a profi t of RUR856.2 million from disposal of the Company’s other invest-ments, mainly from selling TGC-7 shares (2009: a loss of RUR7,064 million, including a loss from selling TGK-12 shares in the amount of RUR7,017 million).

Revaluation of InvestmentsAs of 31 December, 2010, the Company recorded a gain on the revaluation of shares based on market value amounting to RUR30,025 million. Profi t from changes in the current market value of shares in 2010 amounted to RUR29,916 million and was recorded as other income. Furthermore, in 2010, a provision for investment impairment, for which current market value cannot be determined, was created which totals RUR3,913 million.

Other Incomes, RUR mln

Other Expenses, RUR mln

Description

Description

Redemption of promissory notes

Income from revaluing shares at fair market value

Incomes from provision reversal for bad debt

Income from disposal of investments

Extraordinary gains on insured events

Other incomes

Total other incomes

Redemption of promissory notes

Provision for bad debt

Provision for investment impairment

Loss from disposal of investments

Book value of written-off PPE and construction-in-progress and writing off expenses

Provision for the impairment of material assets

Property tax

Loss from revaluing shares at fair market value

Others

Total other expenses

87,286.8

30,024.9

20,897.8

1,841.2

731.7

1,751.8

142,534.2

85,940.592

14,036.443

3,913.434

985

654

661

611

109

2.247

109,157.6

81,068.35

0

20,017.4

2,729.3

456.7

1,488.8

105,760.5

79,281.635

5,902.136

3,502.596

9,793.452

635

0

605

79,905.889

2.345

181,970.6

2010

2010

2009

2009

217

ANNUAL REPORT2010


Current Profi t TaxIn 2010 current profi t tax increased 90% compared with 2009 and stood at RUR9,264 million. The saidchange in profi t tax is due to an increase in profi t be-fore profi t tax. According to tax accounting records,2010 taxable profi t amounted to RUR46,321 million (2009: RUR24,382 million).

Net Profi t (Loss) for the Reporting YearIn 2010, the Company's net profi t equaled RUR58,088 million (2009: a loss of RUR59,866 million). As noted above, the main reasons for increased profi t y-o-y were profi ts on other activities, as a result of the re-valuation of investments, taking into account current market value, as well as revenue growth from electric power transmission. The main reason for 2009 losses was that the Company’s losses refl ected changes in the current market value of investments in shares that have market prices.

In 2009, the Company recorded a negative diff erence on the revaluation of shares at market value totaling RUR79,906 million in other expenses and in 2009 also created a provision for the impairment of invest-ments, for which the current market value cannot be determined, amounting to RUR3,502 million.

Provision for Bad Debts (for Impairment of Accounts Receivable and Prepayments)In 2010 as a result of the evaluation of accounts receivable and prospects for their return, the Company accrued a provision for bad debts amounting to RUR14,036 million, and also made a provision reversal of RUR20,898 million created in 2009. Gain on reversal and accrual provisions for bad debts totaled RUR6,862 million.

In 2009 as a result of the evaluation of accounts receivable and prospects for their return, the Company accrued a provision on bad debts amounting to RUR5,902 million, and made a provision of RUR2,734 million for prepayments issued due to changes in the accounting policy for accruing provisions, as well asprovision reversal of RUR20,017 million for bad debts.

In 2010 the value of the Company’s net assets increased RUR184,416.4 million, according to accountingstatements, compared with the same period in 2009, and by RUR155,434.3 million based on evaluation,taking into account assumptions.

The Company’s Net Assets, RUR mln

Indicator

Net assets value 579,745.7 619,923.6 764,162.1 775,357.9

2009 *** 2010

Nominal* Nominal**Incl. contributionsto charter capital*

Incl. contributionsto chartercapital**

* In 2009 a procedure was carried out to increase Federal Grid Company's charter capital by issuing additional shares. As a result, in the 2009 fi nancial statements, accounts payable (other current liabilities) refl ect a current debt to shareholders related to charter capital contributions in the amount of RUR40.2 billion. In Q1 2010, ast er the Federal Service for Financial Markets registered a Report on the additional share issue, this debt was converted into Federal Grid Company's charter capital.

** In 2010 a procedure was carried out to increase Federal Grid Company's charter capital by issuing additional shares. As a result, in the 2010 fi nancial statements, accounts payable (other current liabilities) refl ect a current debt to shareholders related to charter capital contributions in the amount of RUR11.2 billion. In 2011 ast er registering a Report on the additional share issue with the Russian Federal Service for Financial Markets, this debt will be converted into the Company’s charter capital.

*** Taking into account fi xed asset revaluation as of 01.01.2010, the (nominal) value of net assets was RUR665,895.8, considering contributions to charter capital – 706,073.6

218

ATTACHMENTS

The Company’s Investment PerformanceDuring 2010 the Company commissioned the following PPE facilities:

Name of the PPE facility commissioned in 2010*

Complete technical modernization and reconstruction of the 500-kV Chagino substation (1st stage of the 1st start-up complex)

Double circuit 220-kV Nizhegorodskaya – Borskaya overhead transmission line with one circuit connected to the 220-kV Nagornaya substation. Contract No.339/TP, as of 07.02.2008, with MRSK of the Center and Volga Regions

Expansion of the 500-kV Nizhegorodskaya substation (installation of the second auto-transformer)

500-kV Lipetskaya substation (modernization of the auto-transformer)

Construction of the 330-kV Tsentralnaya St. Petersburg substation

The 220-kV Prospect Ispytateley substation with line entries

330-kV Yugo-Zapadnaya – Novgorodskaya OTL entry (due to unavailable 330-kV OS at Novgorodskaya TPP, the overhead transmission line was placed under security voltage)

The 220-kV Primorskaya substation

The 400/330-kV Vyborg substation (STATCOM)

The 330-kV Tikhvin – Liteynaya substation (replacement of AT-1 125 MVA)

500-kV Volgodonskaya NPP – Nevinnomyssk OTL with the 500-kV Nevinnomyssk substation with 500-kV Nevinnomysskaya GRES – VladikavkazOTL entry and 330-kV Stavropol – HPP-4 OTL entry

The 220-kV Cheryomushki substation with 220-kV OTL entries

Cable and overhead transmission lines (110 kV), 1st stage, Krasnopolyansky Village Districts (design and survey work, construction)

The Laura substation (110 kV) with power transmission lines entries (design and survey work, construction)

The substation (10 kV) and power distribution networks of the Roza Khutor ski resort (design and survey work, construction)

500 МVА

30 km

501 МVА

1503 МVА

25 km, 400 МVА

160 МVА

14 km

80 МVА

50 МVАR

125 МVА

440 km,1002 МVА,360 МVАR

34 km, 250 МVА

13,4 km

80 МVА

16 km, 22 МVА

35

45

35

35

35

45

45

35

35

35

45

35

45

35

45

9,947.8

935.5

644.4

1,779.9

5,266.9

1,233.1

317.7

1,277.4

250

76.3

11,712.5

866.4

866.1

538.6

2,126.1

Power input Useful life (years)

Value (RUR mln)excluding VAT

The Roza Khutor substation (110 kV) with power transmission line entries (design and survey work, construction)

Replacement of SC with SVС at the 220-kV Afi pskaya substation (equipping 220-kV substations of the Kuban Power Grid with the Reactive Power Source)

The 500-kV Tikhoretsk substation. Replacement of AT-1 (125 MVA) (power three-phase three-winding auto-transformer)-125000/220/110/6, anufactured in 1964, with a new AT

Replacement of SC with SVC at the 220-kV Sla-vyanskaya substation (equipping 220-kV substa-tions of the MES Kuban with Reactive Power Source)

The 220-kV Vitaminkombinat substation

The 220-kV Vostochnaya substation (installation of AT-2)

500-kV Tikhoretskaya – Krymskaya OTL with the 500-kV Krymskaya substation

80 МVА

100 МVАR

125 МVА

50 МVАR

400 МVА

125 МVА

297 km, 501 МVА, 180 МVАR

35

35

35

35

35

35

45

502.9

519.4

121.2

259.7

2,312.6

211.9

7,348.3

219

ANNUAL REPORT2010


Name of the PPE facility commissioned in 2010*

Power input Useful life (years)

Value (RUR mln)excluding VAT

220-kV Slavyansk – Krymskaya-II OTL

220-kV Krymskaya – Vyshesteblievskaya OTL

220-kV Slavyansk – Vyshesteblievskaya OTL with the 220-kV Vyshesteblievskaya substation

The Psou substation (220 kV) (design and survey work, reconstruction) (complete) reconstruction)

Reconstruction of the 220-kV Dagomys substation

The 330-kV Chir-Yurt substation (replacement of AT-2 125 MVA with 200 MVA) ПС 500 кВ

The 500-kV Krasnoarmeyskaya substation with 500, 220-kV OTL entries

Reconstruction of 220-kV Sredneuralskaya GRES – Peschanaya 1 OTL and 220-kV Sredneuralskaya GRES - Kalininskaya OTL

Double circuit 220-kV Chelyabinskaya TPP-3 – Novometallurgicheskaya OTL and reconstruction of 220-kV Novometallurgicheskaya – Kozyrevo OTL

220-kV Novometallurgicheskaya substation

220-kV Demyanskaya – Snezhnaya OTL with installation of AT 125 MVA at the 220-kV Snezhnaya substation220-kV

Magistralnaya – YUBGPZ OTL entries at the Sredny Balyk substation of Tyumenenergo (113/TP-M8 dated 24.09.07)

Double circuit 220-kV Tobolskaya TPP – Irtysh OTL, the reconstruction of 220-kV switchgear at the 500-kV Irtysh substation with installation of 3 new switches

500-kV Kholmogorskya – Muravlenkovskoye – Tarko-Sale OTL with 500-kV Muravlenkovskaya substation

Expansion of the 500-kV Nelym substation (installation of the 500-kV controlled shunt reactor)

Expansion of the 500-kV Lugovaya substation (installation of the second autotransformer group)

Complete reconstruction of the 220-kV Surgut substation

Constructing two circuits of the 220-kV OTL Boguchanskaya HPP – Razdolinskaya substation with the 220-kV Priangarskaya substation and expansion and renovation of the 220/110/6-kV substation (due to the nonavailability of Boguchanskaya HPP, the overhead transmission line was placed under security voltage)

Installation of the capacitor bank at the 500-kV Alyuminievaya substation

Installation of the capacitor bank at the 500-kV Oznachennoye substation

220-kV Selenduma substation. Installation of the Static Reactive Power Compensator for 35 kV. 2x20 M VAR

220-kV Chesnokovskaya substation

220-kV Artemovskaya TPP – Vladivostok OTL

220-kV Neryungrinskaya GRES – Nizhniy Kuranakh OTL

220-kV Airport substation with 220-kV power transmission line entries

40 km

120 km

110 km, 250 МVА

200 МVА

400 МVА

200 МVА

1 km, 1,068 МVА

20 km

6,4 km

400 МVА

125 МVА

48 km

20 km

668 МVА,180 МVАR

180 МVАR

501 МVА

11,4 km

604 km, 500 МVА

312 МVАR

208 МVАR

40 МVАR

200 МVА

40 km

275 km

22 km, 50 МVА

45

45

45

35

35

35

35

45

45

35

35

45

45

35

35

35

45

45

35

35

35

35

45

45

35

627.4

1,594.2

3,115.5

1,847.5

2,122.1

186.4

3,637.4

483.1

295.9

1,796.7

1,398.3

353.8

622

6,225.2

434.9

646

1,089.1

7,473.4

336.9

352.7

186.4

1,494.8

423.7

7,627.1

805.1

*These facilities are in the process of acceptance and state registration; ast er this, they will be included in PPE for accounting purposes.

220

ATTACHMENTS

Investments in Subsidiaries:

Company name Company name

S&T Elektroenergetika

R&D

Volgaenergosnabkomplekt

Glavsetservis UNPG

Mobile GTES

MUS Energetiki

UC Energetika

CIUS EES

CSRI NPKenergo

Eleкtrosetservis UNEG

ESSK UES

Index of Energy-FGC UES

Chitatekhenergo

R&D

System-wide forecastingand analytical work in the electric energy industry

Delivery of materials and equipment

Services for themaintenance and repair of power grid facilities

Electricity production

Communication services Distribution of encryption(cryptographic) means(cryptographic protectiondevices)

Customer-development in the fi eld of capitalconstruction, renovationand modernization ofelectricity supply facilities

Management companyservices

Services for maintainingand repairing power grid facilities

Procurement agent

Securities sales

Communication services,reconstructing UNEGfacilities, designing and operating communication lines

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

100.00

3,895.8

3.5

0.0

1.0

10,594.3

20.0

55.1

833.0

0.0

95.38

133.9

0.0

4.1

683.9

355.4

– (1)

218.8

1,806.8

1,392.2

3.8

2,432.3

– (1)

3,822.2

258.1

42.6

298.5

1,187.4

173.2

– (1)

-541.7

9,819.2

167.9

40.5

956.6

– (1)

1,090.3

193.6

-2,435.4

31.4

31 december 2010

Share incharter

capital, %

Book value(includingreserves)

2010revenue

Net assetsunder RAS

as of 31December,

2010

Power Generation Center

Nurenergo

MES Tomsk

GVC Energetiki

SMUEK

DESP

Operating andmaintaining buildings,structures and premises

Transmission, distributionand sale of electricity

Electric energydistribution andtransmission services

Leaseholder

Energy companymanagement

Concurrent engineering in the power industry

– (2)

77.00

520.25

50% plus1 share

– (3)

1 share (4)

– (2)

0,0

866.4

0.2

– (3)

0.0

– (2)

2,122.5

114.3

37.4

– (3)

– (2)

-3,684.0

1,194.6

310.0

– (3)

Total investments in subsidiaries 17,361.0

1) Does not conduct business activity.2) Shares were sold on 22 November, 2010.3) The Company was liquidated 15 February, 2010.4) Remaining corporate shares are owned by S&T Elektroenergetika, a 100%-owned subsidiary of Federal Grid Company.

Index of Energy – FGC UES owns a minority stake in electricity companies.

221

ANNUAL REPORT2010


Investments in Dependent Companies:

Company name Sphere of activity

GruzRosenergo IPS

MES Kuban

Severovostokenergo

Energotekhkomplekt

Schekinskie PGU

WGC-1

IT Energy Service

ENIN

UEUK

TGC-7

TGC-11

TGC-6

Bashkirenergo

Electricity transmissionservices

Electric energytransmission anddistribution services

Production and sale of electric and heat energy

Intermediary services toenterprises andorganizations involvedin operating andconstructing facilities inthe Russian power industry

Services for the construction and technical reconstructionof power industry facilities

Production of electricand heat energy

Information technologyservices

R&D

Electrical supplycompany management




Production, transmission and sale of electric and heat energy

50.00

48.99

49.00

49.00

45.21

40.17

39.99

38.24

33.33

29.99

27.45

23.58

21.27

763.2

134.1

9.8

0.1

0.0

21,851.2

19.84

1.0

0.1

20,066.6

2,702.9

7,291.2

15,456.2

254.1 (1)

102.6

– (2)

3.5

– (3)

56,466.8

170.1

240.5

0

– (2)

– (2)

– (2)

– (2)

7,130.3 (1)

391.3

– (2)

0.4

– (3)

32,828.1

223.5

93.9

115.0

– (2)

– (2)

– (2)

– (2)

31 December, 2010

Share inchaarter

capital, %

Book value(incl.

reserves)

2010 revenue

Net assetsunder RAS

as of 31December,

2010

Total investments in associates 68,474.5

1) At the exchange rate RUR100 = 5.81 lari.2) As of the summary date, the Company’s statements have not been presented.3) Does not conduct business activity.

222

ATTACHMENTS

Investments in the Shares of Other Companies

Company name

Sangtudinskaya HPP-1

OGK-6

Energorynok

Trest SVES

SOVASATOM

Mosenergo

Natsnenergo

Stand

Sibenergoholding

TGC-11 Holding

Tsentrenergoholding

OGK -4

OGK-2

RusHydro

TGC-1

Fortum

Kuzbassenergo

TGK-13

WGC-3 Quadrа

TGC-2

ТGК-9

ТGК-14

ТGК-14

14.48

9.60

8.50

– (1)

3.38

3.37

– (1) 1.90

0.83

– (2)

0.0043

0.0013

0.0009

0.0009

0.0008

0.0006

0.0006

0.0006

0.0006

0.0005

0.0005

0.0005

0.0004

0.0004

0.0004

316.475

4,422.283

0.001

– (1)

0.001

4,311.255

– (1)

3.000

– (2)

0.054

0.006

1.736

0.514

3.859

0.47

0.238

0.16

0.129

0.402

0.147

0.063

0.186

0.022

0.006

31 December, 2010

Share in CharterCapital, %

Book value(incl. reserves)

Total investments in other company’s shares 9,061.007

1) The Company has been liquidated.2) The block of shares has been sold.

The principal part of investments in shares of the companies listed in the table above was obtained by the Companydue to RAO UES of Russia reorganization. In the long-term, the Company is considering selling these investments.

223

ANNUAL REPORT2010


As of 31.12.2010 and 01.01.2010, promissory notes of the following entities are included in debt securities, RUR thousand:

Debt Securities

Loans and Other Long-Term Financial InvestmentsAs of 31.12.2010 and 01.01.2010, loans granted included a loan given to Dagenergo in the amount of RUR296,461 thousand, and a loan to corporate employee in the amount of RUR5,702 thousand as of 31.12.2010 (RUR6,652 thousand as of 01.01.2010). The Company intends to hold all long-term debt invest-ments to their maturity date..

Short-Term Investments

Short-Term Promissory Notes

Short-term investments included the following assets, RUR thousand:

As of 31.12.2010 and 01.01.2010, short-term promissory notes include notes from the following companies, RUR thousand:

Issuer’s name

Assets

Issuer name

SO-CDA UES

Energofi nans (*)

Total debt securities

Short-term promissory notes

Loans granted

Other short-term investments

Total short-term investments

BANK VTB

Alfa-Bank

AB Rossiya

Promsvyazbank

Bank International Finance Club

Glavsetservis UNEG

Kaustik

GVTs Energetiki (*)

Total short-term notes

469,300

8,466,381

8,935,681

42,356,353

887,671

3,000,000

46,244,024

19,232,142

14,122,562

4,000,000

3,001,649

2,000,00

–

–

–

42,356,353

469,300

–

469,300

44,190,554

887,671

24,049,500

69,127,725

December 2012

December 2014

43,925,294

–

–

–

–

150,000

55,260

60,000

44,190,554

7%

Discountedand interest-bearing

Discounted

Discounted

7%

Discounted

6.25%

14%

15%

17%

31.12.2010

31.12.2010

31.12.2010

01.01.2010

01.01.2010

Maturity date

01.01.2010

Annual interest rate,%

Annual interest rate, %

(*) Novation of non-interest bearing promissory notes. Previously, the amount was included in receivables. In 2010, a provision totaling RUR3,618,652 thousand was accrued.

(*) In 2010, a provision totaling RUR60,000 thousand was accrued.

224

ATTACHMENTS

Loans Granted and Other Long-Term Financial Investments As of 31.12.2010 and 01.01.2010, loans granted included a loan given to Kuban Backbone Network in the amount of RUR887,671 thousand, as well as a loan issued to Nurenergo in the amount of RUR501,300 thousand.

The loan granted to Nurenergo is overdue as of the reporting date. The Company has no agreements to prolong this contract . The impairment provision created in 2006, as of 31.12.2010, totals RUR501,300.

Other investments as of 31.12.2010 included a bank deposit in Nomos-Bank, with a maturity of 16.05.2011 in the amount of RUR3,000,000 thousand. As of 01.01.2010, bank deposits in Gazprombank in the amount of RUR24,049,500 thousand are included. In 2010, the evaluation of fi nancial investments at their disposal was made at the initial cost of each investment.

The Company intends to hold all short-term debt investments to their maturity date.

Cash FlowsAs of 31 December, 2010, the Company’s cash equaled RUR11,243 million (as of 31 December, 2009: RUR11,312 million).

The below cash infl ow and disbursement analysis is made based on the management reporting of the Company’s cash fl ows subject to exceptions for mutually exclusive deposit turnover.

2010 cash infl ow was RUR303,785 million, which is RUR76,800 million higher the 2009 level. Actual disbursements increased RUR108,186 million year-on-year and stood at RUR303,854 million.

In 2010, the Company fi nanced investing activities primarily through cash received from operating activi-ties, repaying bills and selling investments resulting from the re-organization of RAO UES of Russia, as well as placing additional shares and raising debt capital (bond issues).

The Table below provides information on corporate cash fl ows from operating, investing and fi nancing activities during the respective periods.

Indicators

Revenues

Payments

Balance

303,785

303,854

-69

226,985

195,668

31,317

147,228

68,805

78,423

116,471

60,675

55,796

72,131

228,049

-155,918

66,343

111,013

-44,670

84,426

7,000

77,426

44,171

23,980

20,191

Total

InvestingOperating Financing

Types of activity

2010 2009 2010 2009 2010 2009 2010 2009

225

ANNUAL REPORT2010


Net Cash Generated from Operating ActivitiesDuring full year 2010, net cash generated from operating activities increased RUR30,757 million (26%) compared with the previous year. This growth is due to increased earnings from operating activi-ties, including from corporate consumers as a result of factors addressed in the section “Revenue from Electricity Transmission Services.” In this case, in 2010, money used for operating activity costs in-creased by RUR8,130 million (13%) compared with the previous year due to an increase in profi t tax payment. Without taking into account this factor, payments from operating activities increased 4%, which corresponds increased costs due to the im-pact of factors discussed in the section "Cost."

Net Cash Used in Investing ActivitiesIn 2010, cash used in investing activities increased RUR117,036 million compared to the previous year,including RUR60,987 million for investment rogram fi nancing. In 2010, net cash outfl ows used in the Company’s investing activities increased compared with 2009, as a result of a more than 1.5 times increase in the investment program and recording transactions for the purchase and sales of securities to fi nance the investment program in the future.

Net Cash Generated from Financing ActivitiesIn 2010, cash from fi nancing activities increased more than 1.9 times and totaled RUR84,426 million, including cash fl ow for placing temporarily free funds (RUR23,240 million), revenues from the Company’s additional share issue amounted to RUR11,194 (2009: RUR40,171 million) and placement of the bond issues in the amount of RUR50,000 million to fi nance the investment program. In 2010, the Com-pany redeemed the Series 2 bond issue amounting to RUR7,000 million.

226

ATTACHMENTS

COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE

№

1

2

3

4

5

6

7

Notifying shareholders about the General Shareholders Meeting at least 30 days prior to the meeting date irrespective of items included on the agenda, unless a longer notice is stipulated by legislation.

Shareholders' opportunity to examine the list of persons authorized to participate in the General Shareholders Meeting, starting from the notifi cation date for the General Shareholders Meeting through to closing the internal GeneralShareholders Meeting, and in case of a meeting held in absentia till the date for receiving voting ballots expires.

Shareholders' opportunityto examine information (materials) which are to be submitted during preparation for the General ShareholdersMeeting, via electronic communication, including the Internet.

Shareholders’ opportunity to submit an item for the agenda of the General ShareholdersMeeting or to demand calling a General Shareholders Meeting without giving an extract from the register of shareholders if their rights to shares are registered in the register of shareholders, and the suffi ciency of an extract from the deposit account forexecuting the abovementioned rights if their rightsto shares are registered on the deposit account.

Provision in the Charter or internal documents of the joint stock company to require theobligatory presence of the General Director, members of the Management Board,members of the Board of Directors, members of theAudit Commission and the auditor of the joint stockcompany at the GeneralShareholders Meeting.The obligatory presence of candidates during theconsideration of items related to electing members of the Company’s Board of Directors, the GeneralDirector, members of the Management Board,members of the Audit Commission, as well as theitem on approving the auditor of the joint stock company at the General Shareholders Meeting.

A registration procedure for participants in the General Shareholders Meeting in theinternal documents of the joint stock company.

Provision in the Charter of the joint stock company for the Board of Directors’ authority to approve on an annual basis the fi nancial and economic plan of the joint stock company.

Compliant

Compliant

Compliant

Partiallycompliant

Partiallycompliant

Non-compliant

Compliant

Item 11.4 of Article 11 of the Articles of Association

Any person holding at least 1 percent of votes is entitled to this. Document data and postal addresses for individuals included on this list are provided only at the consent of these individuals.

Conforms with Article 52 of the Federal Law “On Joint Stock Companies,” Federal Grid Company's shareholders are entitled to within 20 days prior to the General Meeting, and within 30 days prior to the General Meeting in casethe General Shareholders Meeting includes an agenda item on reorganizing the Company, to examine materials for the General Shareholders Meeting on the Internet. The information is published on the Company’s web site at http://www.fsk-ees.ru/eng/ , in the Shareholders and Investors section.

In accordance with Item 4.7 of the Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting, when an item is submitted to the agenda or when an Extraordinary General ShareholdersMeeting is called, a shareholder’s possession of shares, the rights to which are considered according to the deposit account in the depository, is confi rmed by providing an extract from the deposit account.

Item 7.2 of the Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting requires that the Chairman of the Board of Directors or members of the Board of Directors be present.

This requirement is not provided for by any corporate internal documents

Item 5.1 of the Article of the Regulations on the Procedure for Preparing and Holding the General Shareholders Meeting

CGC Article Compliant/ Non-compliant

Note


227

ANNUAL REPORT2010


№

8

9

10

11

12

13

14

15

16

A risk management procedure for the joint stock company approved by the Board of Directors

Provision in the Charter of the joint stock company regarding the right of the Board of Directors to make a decision on suspending the authority of the General Director appointed by the General Shareholders Meeting

Provision in the Charter of the joint stock company of the right of the Board of Directors to establish requirements for professional skills and remuneration for the General Director, members of the Management Board and heads of the primary structural divisions of the joint stock company

Provision in the Charter of the joint stock company of the right of the Board of Directorsto approve contract terms with the General Director and members of the Management Board

Provision in the Charter or internal documents of the joint stock company for the requirement stating that votes of members of the Board of Directors who are either the General Director or members of the Management

Board are not taken into account when voting to approve contract terms with General Director (a management organization or the managing director) and members of the Management Board

Presence on the Board of Directors of the joint stock company of at least three independent directors that meet requirements of theCorporate Conduct Code

Absence in the composition of the Board of Directors of the joint stock company of persons who were found guilty of committing crimes in the sphere of economic activities or crimes against the government, interests of public service and service to local government institutions or who had administrativepunishments applied to them for violations of the law in the area of entrepreneurial activityor in the area of fi nance, tax and tax collection and securities market

Absence in the composition of the Board of Directors of the joint stock company of persons who are participants, the General Director (managing director), member

Compliant

Non-compliant

Non-compliant

Partiallycompliant

Compliant

Non-compliant

Compliant

Compliant

Compliant

In accordance with Item 33 Item 15.1 of Article 15 of the Company’s Articles of Association, the areas of competency for the Board of Directors includes approving the business plan and targets for the Company’s key performance indicators.

This procedure, or any other regulatory document, was not approved by the Company’s Board of Directors as separate documents.

Functions of the Company’s sole executive body are performed by the Chairman of the Company’s Management Board. In accordance with Sub-item 10 of Item 10.1 of Article 10 of the Company’s Articles of Association, theChairman’s election and early termination is an area that falls under the competency of the Company’s General Shareholders Meeting.

In accordance with Sub-items 10 and 37 of Item 15.1 of Article 15 of the Company’s Articles of Association, areas of competency that fall under the Company’s Board of Directors include establishing remuneration and compensation for members of the Company’s Management Board and prematurely terminating their authority, including decisions on the early termination of their employment contracts.

Sub-item 37 of Item 15.1 of Article 15 of the Company’s Articles of Association.

This requirement is not provided for by the Company’s Articles of Association or any other documents.

In accordance with a decision of Federal Grid Company's Annual General Shareholders Meeting on 29 June, 2010, the following directors meeting independence requirements were included on the Company’s Board of Directors: Rashid Sharipov, Igor Khvalin, Ernesto Ferlenghi, and Yuri Soloviev.

There are no such persons in the composition of the Company’s Boards of Directors valid throughout 2010.

There are no such persons in the composition of the Company’s Boards of Directors valid throughout 2010.

CGC Article Compliant/ Non-compliant

Note

Board of Directors

228

ATTACHMENTS

17

18

19

20

21

22

23

24

25

of a regulatory body or employee of a legal entity that competes with the joint stock company

Requirement in the Charter of the joint stock company to elect the Board of Directorsvia cumulative voting

Provision in the internal documents of the joint stock company of the obligation of members of the Board of Directors to withdraw fromactions that lead or potentially lead to a confl ict between their interests and the interests of the joint stock company; obligation to disclose information on this confl ict to the Board of Directors in case it occurs

Provision in the internal documents of the joint stock company of members of the Board of Directors duty to notify the Board of Directors in writing of their intention to make transactions with securities of the joint stock company, if they are members of the Board of Directors of this joint stock company or its subsidiaries or dependent companies, as well as to disclose information about the transactions with suchsecurities made by them Provision in the internal documents of the joint stock company of the requirement to hold at least one meeting of the Board of Directors every six weeks

Meetings of the Board of Directorsof the joint stock company during the yearwhich is the subject of the annual report of the joint stock company are carried outregularly, at least one meeting every six weeks

Provision in the internal documents of the joint stock company of a procedure for holding meetings of the Board of Directors

Provision in the internal documents of the joint stock company of regulations on the necessity of the Company’s Board of Directors approving transactions in an amount of 10 percent and more of the cost of the Company’s assets, except for transactions made as part of the Company’s dayto- day economic activity

Provision in the internal documents of the joint stock company of the right of members of the Board of Directors to receive information required to perform their functions from executive bodies and heads of the Company’s main structural divisions, as well as responsibility for the failure to provide such information

The existence of a Strategic Planning Committee of the Board of Directors or another committee assigned with said functions (except for the Audit Committee and the Human Resources and Remuneration Committee)

Compliant

Compliant

Compliant

Non-compliant

Compliant

Compliant

Partiallycompliant

Compliant

Compliant

Sub-item 10.9 of Article 10 of the Company’s Articles of Association.

Sub-item 4.1.6 of Item 4.1 of Section 4 of the Company’s Code of Corporate Governance.

Item 16.9 of Article 16 of the Company’s Articles of Association;

Section 3 of the Regulations on the Board of Directors;

Item 4 of the Regulations on the Insider Information, SubitemThis requirement is not provided for by the Company’s Articles of Association or by any other documents.

On average in 2010, meetings of the Company’s Board of Directors were held at least once per month or more.

The Regulations on the Board of Directors.

Sub-item 27 (a) of Item 15.1 of Article 15 of the Company’s Articles of Association stipulates that the Board of Director grants preliminary approval for corporate transactions thathave the non-current assets worth more than 10 percent of the balance sheet value as the object of the transactions.

In accordance with Section 3 of the Regulations on the Board of Directors, members of the Company’s Board of Directors are entitled to receive information about the Company’s operations, including commercial secrets, and access all constituent, normative, reporting, accounting, contractual and other corporate documents.

Establishing the Strategy Committee was approved by a decision of the Company’s Board of Directors as of 15 May, 2008 (Minutes No. 62).Operation procedures are laid out by the Regulations on the Strategy Committee of Federal Grid Company.

Establishing the Audit Committee was approved by a decision of the Company’s Board of Directors as of 15 February, 2008 (Minutes No. 54).

№ CGC Article Compliant/ Non-compliant

Note

229

ANNUAL REPORT2010


26

27

28

29

30

31

32

33

34

35

36

37

38

The existence of a committee of the Board of Directors (the Audit Committee) whichrecommends the auditor for the joint stock company to the Board of Directors and cooperates with the auditor and the Audit Commission of the joint stock company.

Presence of only independent and non-executive directors on the Audit Committee

The Audit Committee is managed by an independent director

Provision in internal documents of the joint stock company of the right of all members of the Audit Committee to access any documents and information of the joint stock company provided that they do not disclose confi dential information

Establishing a committee of the Board of Directors (the Human Resources andRemuneration Committee) with the function of defi ning recruitment criteria for candidates applying for positions of members of theBoard of Directors and developing the joint stock company’s remuneration policy

The Human Resources and Remuneration Committee is managed by an independentdirector

The absence of offi cials of the joint stock company on the Human Resources and Remuneration Committee

Establishing the Risk Committee under the Board of Directors or assigning thesefunctions to another committee (except for the Audit Committee and the Human Resources and Remuneration Committee)

Establishing the Corporate Confl icts SettlementCommittee of the Board of Directors or assigning these functions to another committee (except for the Audit Committee and the Human Resources and Remuneration Committee)

The absence of joint stock company offi cials on the Corporate Confl icts Settlement Committee

The Corporate Confl icts Settlement Committee is managed by an independent director

Provisions in internal documents of the joint stock company of procedures for establishing and operating Board of Directors’ Committees, approved by the Board of Directors

Provision in the Charter of the joint stock company on the process for defi ning the quorum for the Board of Directors, allowed to providefor the obligatory participation of independent directors in Board of Directors’ meetings

Compliant

Compliant

Compliant

Compliant

Compliant

Compliant

Compliant

Non-compliant

Non-compliant

Non-compliant

Non-compliant

Compliant

Non-compliant

Operation procedures are laid out by the Regulations on the Audit Committee of the Board of Directors of Federal Grid Company.

The Audit Committee consists only of independent and nonexecutive directors.

The Audit Committee of the Company’s Board of Directors is managed by independent director Rashid Sharipov.

Section 3 and 4 of the Regulations on the Audit Committee of the Board of Directors of Federal Grid Company.

The HR and Remuneration Committee was established by a decision of the Company’s Board of Directors as of 15 February, 2008 (Minutes No. 54).

The procedure for the Committee’s operations is laid out by the Regulations on the HR and Remuneration Committee of the Board of Directors of Federal Grid Company.

Item 5.2 of the Regulations on the HR and Remuneration Committee of the Board of Directors of Federal Grid Company.

Item 5.2 of the Regulations on the HR and Remuneration Committee of the Board of Directors of Federal Grid Company.

The Committee was not established.




Regulations: On the Audit Committee, On the HR and Remuneration Committee, On the Reliability Committee of the Board of Directors, On the Strategy Committee, On the Investment Committee.

This requirement is not provided for by the Company’sArticles of Association.


Note

230

ATTACHMENTS

39

40

41

42

43

44

45

Provision of the collegial executive body (Management Board) of the joint stock company

Provision in the Charter or internal documents of the joint stock company on regulationson the necessity of the Management Board’sapproval of transactions with real estate and loans taken out by the joint stock company provided that said transactions are not deemed major transactions and are not part of day-to-day economic activities of the joint stock company

Provision in the internal documents of the joint stock company of the procedure forapproving operations beyond the fi nancial and economic plan of the joint stock company

Absence in the composition of executive bodies of persons who are either participants,the General Director (managing director), members of the management body oremployees of a legal entity that competes with the joint stock company

Absence in the structure of the executive bodies of the joint stock company of persons who were found guilty of committing crimes in the area of economic activities or crimes against thegovernment, interests of public service and service in local government institutions, or of persons whoexperienced administrative punishments for violations in the area of business activity or in the area of fi nance, taxes, fi scal charges and thesecurities market. If functions of the sole executive body are carried out by a management organization or a managing director, the General Directorand members of the Management Board of themanagement organization or the managing director must meet the requirements of theу General Director and members of the ManagementBoard of the joint stock company

Provision in the Charter or internal documents of the joint stock company to prohibit themanagement organization (managing director) from carrying out similar functions in a competing company, as well as to be in any other material relationship with the joint stock company, besides rendering services of the management organization (managing director)

Provision in internal documents of the joint stockcompany of the duties of executive bodies to withdraw from actions leading or potentially leading to a confl ict of interest and the interests of the joint stock company, and duties to inform the Board of Directors if such a confl ict occurs

Compliant

Partiallycompliant

Partiallycompliant

Compliant

Compliant

Non-compliant

Compliant

The Company’s Management Board was formed in accordance with Article 21 of the Articles of Association.

This requirement is not provided for by the Company’sArticles of Association. In accordance with the Company’s Articles of Association, it is an area of competency under the Board of Directors. At the same time, however, in accordance with Item 6.1 of the Regulations on the Preparation of Materials for the anagement Board’s Meetings, all questions submitted for consideration to the Company’s Board of Directors are subject to mandatory preliminary considerations by the Company’s Management Board.

This requirement is not provided for by the Company’s Articles of Association or any other documents.

In part, these questions are outlined by the Regulations on the Procedure for Placing Temporarily Disposable Free Funds of Federal Grid Company (approved by the Management Board of Federal Grid Company, Minutes No. 528 as of 24 April, 2008) and by the Regulations on Debt Management Procedure (approved by the Company’s Board of Directors, Minutes No. 44 as of 29 May, 2007).

There are no such persons in the executive body.

There are no such persons in the executive body.

This prohibition is not provided for by the Company’s the Articles of Association or by any other documents.

Item 4.1.6 of the Company’s Code of CorporateGovernance.


Note

231

ANNUAL REPORT2010


46

47

48

49

50

51

52

53

54

55

Provision in the Charter or internal documents of the joint stock company of criteria forelecting the management organization (managing director)

The joint stock company’s executive bodies present monthly performance reportsto the Board of Directors

Liability for infringing on provisions for usingconfi dential and proprietary information stated in contracts concluded by the joint stockcompany with the General Director (managementorganization, managing director) and members of the Management Board

Presence in the joint stock company of a special offi cial (the Company Secretary) whose task is to ensure the compliance of bodies and offi cials of the joint stock company with procedural requirements guaranteeingthe execution of rights and legitimate interests of the Company’s shareholders

The process of appointing (electing) the Company Secretary and his/her duties are stipulated by the Charter or internal documents of the joint stock company

Provision in the Charter of the joint stock company for requirements for candidates for the Company Secretary position

Requirement in the Charter or internal documents of the joint stock company to approve a major transaction prior to its fulfi llment

Obligatory involvement of an independent appraiser in evaluating the market valueof property which is the subject of a major transaction

Presence in the Charter of the joint stock company a prohibition to undertake any action when acquiring (taking over) a large stake of shares of the joint stock company (takeover) aimed at protecting the interests of executive bodies (members of these bodies) and members of the Board of Directors of the joint stock company, as well as actions worsening the shareholders’ position compared to their existing position (in particular, a prohibition against the Board of Directors on making decisions on the issue of additional shares, the issue of securities that are convertible into shares or securities enabling a person to purchase shares of the Company before the termination of the Prospectus even if the right to make these decisions is granted by the Charter) Requirement in the Charter of the joint stock company of the obligatory involvement of an independent appraiser to estimate the current market share price and possible changes in the share price as the result of a takeover

Non-compliant

Non-compliant

Compliant

Compliant

Compliant

Non-compliantCompliant

Compliant

Non-compliant

Non-compliant

Compliant

The Company’s the Articles of Association or any other documents do not lay out any selection criteria for management organizations.

Reports by the executive body are provided on a quarterly basis (Sub-item 14 of Item 22.1 of Article 22 of the Company's Articles of Association).

Contracts signed by the Company with the Chairman of the Management Board and members of the Management Board outline the liability for violations of provisions on theuse of confi dential and proprietary information.

The function is performed by the Secretary of theCompany’s Board of Directors.

Article 4 of the Regulations on the Board of Directors

There are no such requirements.

Sub-item 16 of Item 10.2 of Article 10 and Sub-item 20 of Item 15.1 of Article 15 of the Company's Articles of Association.

Said deals involve the services of an independent appraiser.

This prohibition is not provided for by the Company's Articles of Association.

This requirement is not provided for by the Company's Articles of Association.

Executive Bodies

Company Secretary


Note

232

ATTACHMENTS

56

57

58

59

60

61

62

63

64

Absence in the Charter of the joint stock company of the release of a purchaser from their duty to make an off er to shareholders to sell theirordinary shares (securities issue that is convertible into ordinary shares) during a takeover

Presence in the Charter or internal documents of the joint stock company of the requirement for the obligatory involvement of anindependent appraiser in defi ning the share conversion ratio during reorganization

An internal document approved by the Board of Directors that outlines rules and approaches of the joint stock company to informationdisclosure (Regulations on the Information Policy)

Existence of internal documents of the joint stockcompany that require the disclosure of informationabout the purpose of the share issue, about personsintending to purchase shares to be issued, including a large shareholding and about whether executives of the joint stock company participate in purchases of the Company’s shares to be issued

Existence of a list of information, documents and data in internal documents of the joint stock company which should be given to shareholders for making decisions on items submittedto the General Shareholders Meeting

A web site of the joint stock company on the Internet that regularly discloses information on the joint stock company (on the web site)

Presence in internal documents of the joint stockcompany of the requirement to disclose information about transactions of the joint stock company made with persons who according to the Charterare among executives of the joint stock company, as well as about transactions of the joint stock company made with organizations in whichexecutives of the joint stock company hold, directly or indirectly, 20 percent of the authorized capital of the joint stock company and above or which can be essentially infl uenced by said persons

Presence in internal documents of the joint stockcompany the requirement to disclose information about all transactions which can infl uence the market price of the Company’s shares

An internal document approved by the Board of Directors on using essential information on the operations of the joint stock company,shares and other corporate securities and transactions with them which are not publicand the disclosure of which could materially infl uence the market price of shares andother securities of the joint stock company

Non-compliant

Compliant

Non-compliant

Compliant

Compliant

Compliant

Compliant

Compliant

This norm is not provided for by the Company's Articles of Association.

This requirement is not provided for by the Company's Articles of Association or any other documents.

The Regulations on the Information Policy was approved by the Company’s Board of Directors on 28 February, 2008 (Minutes No. 55).

This requirement is not provided for by the Company's Articles of Association or any other documents.

Article 11 and Article 12 of the Company's Articles of Association;Section 7 of the Regulations on the Information Policy.

http://www.fsk-ees.ru/

In accordance with Sub-item 5.2.8 of the Company’s Regulations on the Information Policy.

In accordance with Items 5.1 and 5.2.10 of the Company’s Regulations on the Information Policy.

In 2010, the Regulations on the Insider Information which was approved by the Company’s Board of Directors on 28 February, 2008 (Minutes No. 55), was in eff ect.

The new Regulations on the Insider Information was approved by a decision of the Company’s Board of Directors dated 15 March, 2011 (Minutes No. 125).

Material Corporate Actions


Note

233

ANNUAL REPORT2010


65

66

Internal control procedures over the fi nancial and economic activity of the jointstock company are approved by the Company’s Board of Directors]

A special division of the joint stock company which enforces the execution of internal control procedures (supervision and auditing service)

Compliant

Compliant

Control norms are laid out by the Company's Regulations approved by the Board of Directors: Regulations on the Audit Commission and Regulations on the Internal Control System. Control and Audit Department – responsible for:

Organizing control procedures for the fi nancial, • production and economic activities of Federal Grid Company and its subsidiaries or dependent companies, aimed at preventing, revealing, terminating and eliminating consequences of violations in managing monetary and material resources;Organizing selective control procedures to • check the compliance of fi nancial and economic transactions carried out by structural divisions of the executive bodies and branches of the Company with Russian legislation;Investigating abuse (fraud) incidents;• Interacting with external control bodies;• Providing informational support to the Audit • Commission of Federal Grid Company and ensuring the enforcement of its guidelines and decisions.

Internal Control Department – responsible for:Developing and upgrading the methodology • and organizational principles of the internal control system of Federal Grid Company, effi ciently analyzing the internal control system across all operational areas, developing guidelines aimed at improving the effi ciency of the internal control system;Organizing current internal control procedures • for accounting at Federal Grid Company, organizing current internal inspections for accounting and operating information, organizing operating control procedures for information about planned and actual performance results for Federal Grid Company branches, its subsidiaries and dependent companies;Identifying and analyzing risks for Federal • Grid Company, developing and updating the Risk Matrix, developing recommendations aimed at risk reduction and prevention;Analyzing operating control and effi ciency for• accounting processes at Federal Grid • company and its subsidiaries and dependent companies;Conducting an effi ciency analysis for the • authority allocation system and limits of fi nancial responsibility across management levels at Federal Grid Company;ФDeveloping and upgrading the Delegation • of Authority Matrix, controlling compliance with principles of authority allocation and fi nancial responsibility limits.

Technical Surveillance and Auditing Department –responsible for:

Carrying out audit inspections of production • and technical operations at the Company’s subsidiaries and branches in accordance with plans (and on an unscheduled basis if requested by corporate management) and with technical audit programs;

Information Disclosure


Note

234

ATTACHMENTS

67

68

69

The presence in internal documents of a requirement by the Board of Directors of the joint stock company about defi ning the structure and composition of the supervisory and auditing services of the joint stock company

Absence in the supervisory and auditing services of persons who were found guilty of committing crimes in the area of economic activities or crimes against the government, interests of public service and service of local government institutions, or persons who had administrative punishments applied to them for violations in the area of business activity or in the areas of fi nance, taxes, fi scal charges and the securities market

Absence in the composition of the supervisory and auditing services of persons who are members of any executive body of the joint stock company, and persons who are participants, the General Director (managing director), members of management bodies or employees of a legal entity that competes with the joint stock company.

Compliant

Compliant

Compliant

Conducting inspections and effi ciency • evaluations of the existing internal technical control system at the Company’s branches (structures of technical inspection, internal technical and production control and self-control), analyzing the performance of these structures as compared to risks emerging during production operations;Engaging in sample estimates of the • completeness and reliability of regular technical reports on production processes, achieving target fi gures across key effi ciency indicators;When requested by the Company’s • management, organizing and participating in investigating accidents and socially important technological violations in electric grid performance;Forecasting (based on the integrated analysis • of investigation results and accident data, production injuries and fi re incidents) possible consequences of negative trends and risks of reduced systemic reliability and equipment safety and personnel performance;Preparing and enforcing control over the • implementation of managerial decisions aimed at upgrading the correctness and completeness of the use of technical standards and corporate regulations based on analyzing investigations of production and technical operations;Developing and presenting recommendations • and proposals on improving and optimizing production business processes at the Company’s branches based on technical audit results;Preparing conclusions and materials for • meetings of the Company’s Management Board, the Board of Directors and General Meetings of Shareholders following the technical audit;Developing proposals aimed at improving • the Company’s operations in identifying and managing environmental risks.

The Company's Regulations on the Internal Control System outlines participants in the internal control system, structural divisions of the Company responsible for controlling and auditing the Company’s fi nancial, economic and investment activities.

There are no such persons in the Company’s supervision and auditing services.

There are no such persons in the Company’s supervisory and auditing services.


Note

235

ANNUAL REPORT2010


70

71

72

73

74

75

76

77

78

Presence in internal documents of the joint stock company of a timeframe for presenting documents and data to the supervisory and auditing services for estimating the fi nancial and economic operations carried out, and the responsibility of offi cials and employeesof the joint stock company for their failure to present documents and data within the specifi ed timeframe

Presence in the internal documents of the joint stock company of the supervisory and auditing services’ duty to inform the Audit Committeeabout revealed infringements, and in case of the latter’s absence, presence of a dutyto inform the Board of Directors of the joint stock company of said infringements

Presence in the Charter of the joint stock company of the requirement for a preliminary estimation by the supervisory and auditing services of the feasibility of operations not included in the fi nancial and economic plan of the joint stock company (non-standardoperations)

Presence in the internal documents of the joint stock company a coordinatedprocedure for non-standard operations with the Board of Directors

An internal document approved by the Board of Directors that defi nes the Audit Commission ’sinspection procedure for the joint stock company’s fi nancial and economic activity

The Audit Committee’s evaluation of the Auditor’s Report prior to its presentation to shareholders at the General Shareholders Meeting

An internal document approved by the Board of Directors and used by the Board of Directors as guidelines for approving recommendations on dividend amount (Dividend Policy Regulations)

Presence in the Dividend Policy Regulations on rules defi ning the minimum share of the joint stock company’s net profi t allocated to dividendpayments, and conditions for the non-payment or partial payment of dividends on preferred shares, which have dividend size outlined in the Charter of the joint stock company.

Publication on information about the joint stock company’s dividend policy and amendments to it in the periodic publication outlined by the Charter of the joint stock company for publishing information about the GeneralShareholders Meeting, and publication of said data on the joint stock company’s web siteon the Internet.

Compliant

Compliant

Non-compliant

Non-compliant

Compliant

Compliant

Compliant

Compliant

Compliant

Item 7 of the Regulations on the Audit Commission.

Item 4 of the Regulations on the Audit Commission.

This requirement is not provided for by the Company's Articles of Association.

This procedure is not laid out by internal documents.

The Regulations on the Audit Commission and the Regulations on the Internal Control.

Item 2.1.4 of Section 2 of the Regulations on the Audit Committee of the Board of Directors of Federal Grid Company.

The Company’s Regulations on the Dividend Policy approved by a decision of Federal Grid Company's Board of Directors as of 16 December, 2010 (Minutes No. 120).

Item 4.3 in the Regulations on the Dividend Policy.

The Company’s Regulations on the Dividend Policy is published on the Company’s offi cial web site at: http://www.fskees.ru/eng/investors/corporate_governance/corporate_docu ments/media/File/Internal%20documents/Regulations_Divid end_Policy.pdf

Control over Financial and Economic Activity


Note

236

ATTACHMENTS

2010 GENERAL SHAREHOLDERS MEETINGS

The General Shareholders Meeting held 29 June, 2010:

The following agenda for the General Shareholders Meeting was approved by a resolution of Federal Grid Company’s Board of Directors (14 May, 2010):

Approving the Company’s Annual Report;1. Approving the Company Annual Financial State-2. ments, including the profi t and loss statement (profi t and loss accounts);Approving the Company’s 2009 earnings dis-3. tribution;Determining dividends, dates and the form of 4. 2009 dividend payments;Paying remuneration to non-state members 5. of the Company’s Board of Directors (the Supervisory Board) for work as Directors in an amount determined by the Company’s internal documents;

Electing members of the Company’s Board 6. of Directors (the Supervisory Board);Electing members of the Company’s Audit Com-7. mission (the examiner);Approving the Company’s Auditor;8. Approving the new version of the Company’s 9. Articles of Association;Approving the new versions of the Company’s 10. internal documents.

The Annual General Shareholders Meeting held 29 June, 2010 (Minutes No.9 as of 29.06.2010), carriedout the following resolutions:

Approved the Company’s 2009 Annual Report;1. Approved the Company’s Annual Financial State-2. ments, including the profi t and loss statements (profi t and loss accounts);Approve the Company’s 2009 profi ts and losses 3. to be distributed as follows:

Undistributed profi t (loss) for the reporting period:

To be distributed to the Reserve Fund

Development

Dividends

-59,865.994

(RUR thousand)

Decided not to pay dividends on ordinary shares in 2009;4. Approved the new version of the Regulations on Compensation and Remuneration to Members 5. of the Board of Directors;Elected the Board of Directors made up of the following members:6. No Full Name Position7. Approved PricewaterhouseCoopers Audit as the Company’s Auditor;8. Approved a new version of the Company’s Articles of Association;9. Approved a new version of the Regulations on the Procedure for Preparing and Holding the General10. Shareholders Meeting.

Full Name

Boris Ayuyev

Oleg Budargin

Georgy Kutovoy

Alexey Makarov

1

2

3

4

Chairman of the Management Board of SO UES

Chairman of the Management Board of Federal Grid Company

Director of the Energy Research Institute of the Russian Academy of Sciences

Deputy Director General of Rosnanotech State Corporation

№ Position

237

ANNUAL REPORT2010


Full Name

Full Name

Andrei Malyshev

Dmitry Ponomarev

Yuri Soloviev

Ernesto Ferlenghi

Igor Khvalin

Rashid Sharipov

Sergei Shmatko

Dmitry Gorevoi

Anna Drokova

Andrei Kolyada

Vladimir Raspopov

Maria Tikhonova

5

6

7

8

9

10

11

1

2

3

4

5

Deputy Director General of Rosnanotech State Corporation

Chairman of the Management Board of Non-Commercial Partnership "Market Council" (the Market Council)

President of VTB Capital

Head of the Representative Offi ce of Eni Russia and the CIS

General Director of Volga Engineering Group

Deputy General Director of KFK-Consult

Sergei Shmatko

Leading expert in a Department of the RussianMinistry for Economic Development

Leading expert in a Department of the Federal Agency for State Property Management of the Russian Federation

Leading expert in a Department of the Federal Agency for State Property Management of the Russian Federation

Head of a Department of the Federal Agency for State Property Management of the Russian Federation

Director of a Department of the Russian Ministry of Energy

№

№

Full Name

Position

238

ATTACHMENTS

Information on Federal Grid Company's branches

MES Center

MES North-West

MES Volga

MES South

MES Urals

MES Siberia

MES East

Nizhegorodskoe PMES

Chernozemnoe PMES

Volga-Okskoe PMES

Volga-Don PMES

Vologodskoe PMES

Priokskoe PMES

Moscow PMES

Upper Don PMES

Valdaiskoe PMES

Amurskoe PMES

Khabarovskoe PMES

Primorskoe PMES

Krasnoyarskoe PMES

Zabaikalskoe PMES

Kuzbasskoe PMES

Omskoe PMES

West-Siberia PMES

Khakassia PMES

Sverdlovskoe PMES

South Urals PMES

Permskoe PMES

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1 Tkatskaya Street, Moscow, Russia,105318

1 Kurchatov Street, Saint Petersburg, Russia, 194223

226 Molodogvardeiskaya Street, Samara, Russia, 443100

2 Darnitsky LA, Inozemtsevo Settlement,Zheleznovodsk, Russia

10 Tolmachov Street, Yekaterinburg, Russia, 620219

117 Ada Lebedeva Street, Krasnoyarsk, Russia, 660099

47 Dzerzhinsky Street, Khabarovsk, Russia,630030630030, г. Хабаровск, ул. Дзержинского, 47

29 Schlisselburgskaya Street, NizhnyNovgorod, Russia, 603600

Sh-5 Passage, Building 1, the Stroitelnaya Site, the Kotel Station Industrial Zone, StaryOskol, the Belgorod Region, Russia, 309540

31 Energetikov Street, the EnergetikSettlement, Vladimir, Russia, 600902

221a Lenin Ave., Volgograd, Russia, 400006

18 Planernaya Street, Vologda, Russia, 160023

101A Timiryazev Street, Tula, Russia, 300012

The 750-kV substation, the Bely Rast Production Facility, the Dmitrovsky District, the Moscow Region, Russia, 141870

Komsomolets Settlement, the Tambov Region, Russia, 392543

Tver, 55 Kalinin Ave., Tver, Russia, 170001

101 Shatkovskogo Street, Svobodny, the Amur Region, Russia, 676400

3 Tselinnaya Street, Khabarovsk, the Khabarovsk Region, Russia, 680032

3 Mordovtsev Street, Vladivostok, the Primorsk Region, Russia, 690000

3A Vesny Street, Krasnoyarsk, the Krasnoyarsk Region, Russia, 660135

35B Botanicheskaya Street, Ulan-Ude, the Republic of Buryatia, Russia, 670045

25a Kirchanov Street, Kemerovo, Russia, 650004

4 Gubkin Ave., Omsk, Russia, 644035

17 Kalinin Ave., Barnaul, Russia, 656002

39 Industrialnaya Street, Sayanogorsk, the Republic of Khakassia, Russia, 662793

3 Malakhitovy Lane, Yekaterinburg, the Sverdlovsk Region, Russia, 620085

6a 2nd Zapadny Proezd Street, Chelyabinsk, Russia, 454008

34 Visherskaya Street, Perm, the Perm Region, Russia, 614058

BRANCHES

239

ANNUAL REPORT2010


Information on Federal Grid Company's branches

Mid-Volga PMES

Lower Volga PMES

Stavropolskoe PMES

Kuban PMES

Rostovskoe PMES

Bryanskoe PMES

Vyborgskoe PMES

Novgorodskoe PMES

Karelskoe PMES

Bely Rast Specialized Production Base PMES

West Siberia PMES

Leningradskoe PMES

Tomsk PMES

Kaspiyskoe PMES

Auto-transport PMES of Urals

North PMES

Orenburgskoye PMES

Sochinskoye PMES

Samarskoye PMES

Central PMES

Southern PMES

Eastern PMES

Yamalo-Nenetskoye PMES

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

83 Federatsii Street, Ulyanovsk, Russia, 432071

40 Sokolovaya Gora, Saratov, Russia, 410038

The Industrial Zone for Food Facilities,Zheleznovodsk, the Stavropol Region, 357400

5 Tramvainaya Street, Krasnodar, Russia, 350021

54/1 Dnepropetrovskaya Street, the Pervomaisky District, Rostov-on-Don, Russia, 344093

The Vygonichy settlement, the Bryansk Region, Russia, 243360

The Perovo settlement, the Vyborg District,the Leningrad Region, Russia, 188932

10 Velikaya Street, Veliky Novgorod, Russia, 173001

11 Veterinarny Lane, Petrozavodsk, the Republic of Karelia, Russia, 185013

The 750-kV substation, the Bely Rast Production Facility, the Dmitrovsky District, the Moscow Region, Russia, 141870

14 Geologicheskaya Street, the Khanty-Mansiysk Autonomous Region, the Tyumen Region, Russia, 628405

1 Kurchatov Street, Saint Petersburg, Russia, 194223

1 Energeticheskaya Street, Tomsk, Russia, 634062

73a Dakhadaeva Street, Makhachkala, the Republic of Dagestan, Russia, 367012

5 Tolmachova Street, Yekaterinburg, Russia, 620041 The 220kV Syktyvkar substation, 1121st

Promyshlennaya Street, the Chovsk Industrial Zone, Syktyvkar, the Republic of Komi, Russia, 167000

15 Automatiky Passage, Orenburg, the Orenburg Region, Russia, 460048

93 Armavirskaya Street, the Dagomys settlement, the Lazorevsky District, the Krasnodar Region, Russia, 354207

130 Zubchaninovskoye Shausse, Samara, Russia, 443109

The Administrative Building of the Engineering Consolidation Base, Passage 1 PR, the Vostochny Industrial Zone, Surgut, the Khanty-Mansi Autonomous District, the Tyumen Region, Russia, 628400

The 500kV Tyumen substation, the 5th kilometer of the Velizhan Highway, the Central District, the Tyumen Region, Russia, 625000

20 Industrialnaya Street, Panel 20, the Zapadny Industrial Zone, Yugra Nizhnevartovsk, the Khanty-Mansiysk Autonomous Region, the Tyumen Region, Russia, 628600

10 Entuziastov Street, Noyabrsk, the Yamalo-Nenets Autonomous District, the Tyumen Region, Russia, 629806

240

SUBSIDIARIES

Details on Federal Grid Company's Participation in Subsidiary, Dependent and Other Companies

Federal Grid Company's share in the charter capital

of Company

Book value of shares and interest in the Company, RUR

thousand

Financial performance in 2010

01.01.2010 01.01.2011 01.01.2010 01.01.2011 Revenue, Net profit, Net assets, 1 S&T Elektroenergetika 100,00% 100.00% 3,895,820 100.00% 100.00% 3,895,820 3,895,820 1,187,357

2 Mobile GTES 100.00% 100.00% 10,594,255 2,018,405 - 1,806,807 -334 9,819,217

3 Elektrosetservice UNEG 100.00% 100.00% 954 954 70 3,822,204 34 1,090,256

4 CIUS EES 100.00% 100.00% 833 833 93 562 2 432 282 113 635 956 588

5 ESSK UES 100.00% 100.00% 134 - 258 056 75 513 193 585

6 MUS Energetika 100,00% 100,00% 19 997 19 997 9 436 1 392 239 57 536 167 860

7 Verificatory Center of Electronic Digital Signatures for Energy

100,00% 100,00% 55 071 55 071 - 3 808 -7 274 40 522

8 Index of Energy-FGC UES 100,00% 100,00% 0 0 - 42 553 8 602 275 -2 435 381

9 Chitatekhenergo 100,00% 100,00% 4 092 4 092 1 259 298 484 6 473 31 404

10 Energy Forecasting Agency (ABPE) 100,00% 100,00% 3 500 3 500 - 355 360 791 173 179

11 Glavsetservice UNEG 100,00% 100,00% 1 000 1 000 - 218 790 -198 404 -541 718

12 CSRI NPKenergo 100,00% 100,00% 1 1 -

13 Volgaenergosnabkomplekt 100,00% 100,00% 0 0 -

14 Nurenergo 77,00% 77,00% 0 0 - 2,122,500 -2 -4

15 MES Tomsk 52,025% 52,025% 866 424 866 424 - 114 307 -30 358 1 194 572

16 GVC Energetiki 50% plus 1 share

50% plus 1 share

163 163 - 37 430 -9 082 310 049

17 GruzRosenergo IPS 50,00% 50,00% 763 227 763 227 - 254 076 23 251 7 130 284

18 MES Kuban 48,99% 48,99% 134 139 134 139 - 102 612 -67 929 391 284

The decision on liquidation has been made

No business operations

Item

Dividend amount, RUR

thousand*

Abbreviated company name

241

ANNUAL REPORT2010


R&D The purchase of Company's shares is approved by the decision of the Board of Directors of Federal Grid

Company of 29 June, 2007 (Minutes No. 46) Electric energy generation Shares are received in accordance with the spin-off

balance sheet of RAO UES Russia in merging RAO UES with Federal Grid Company during Companies'

reorganization on 1 July, 2008 Technical maintenance and repairs of

electric grid facilitiesThe Company's establishment was approved by the decision of the Board of Directors of Federal Grid Company of 13 November, 2007 (Minutes No. 50)

Operating as construction manager of capital construction projects, renovation and technical re-equipment of electric

grid facilities

The Company's establishment was approved by the decision of the Board of Directors of Federal Grid Company of 13 November, 2007 (Minutes No. 50)

Agency purchase operations The shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with

Federal Grid Company during Companies' reorganization on 1 July, 2008

Communication services The controlling stake was transferred to Federal Grid Company under the decision of the Board of Directors of 15 April, 2005 (Minutes No. 183 of 24 December, 2004).

The agreement to purchase and sell shares was approved by the Board of Directors of Federal Grid

Company (Minutes No. 22 of 22 March, 2005)

Distribution of encryption (cryptographic) tools (cryptographic

protection of information)

The shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with


Securities trading The shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with


Communication services, UNEG projects renovation, design and

operation of communication lines

Reorganization of Chita Backbone Grids, the owner of 100% of shares in the Company, by merger with

Federal Grid Company on 1 July, 2008General system forecast and analysis

in electric power sectorThe shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with

Federal Grid Company during Companies' reorganization on 30 June, 2006

Maintenance and repairs of electric grid facilities

The Company's establishment was approved by the decision of the Board of Directors of Federal Grid Company of 13 November, 2007 (Minutes No. 50)

Management company services Reorganization of Chita Transmission Networks, the owner of 100% of shares in the Company, by merger

with Federal Grid Company on 1 July, 2008Supply of materials and equipment Reorganization of Chita Transmission Networks, the

owner of 100% of shares in the Company, by merger with Federal Grid Company on July 1, 2008

Transfer, distribution and sale of energy The additional issue shares are received for the repayment of loans granted to the Company earlier. The

decision of the Board of Directors of Federal Grid Company of 20 May, 2004 (Minutes No. 15)

Services to transmit and distribute electric energy

Subject to the consolidation plan of UNEG -Energo facilities approved by the Board of Directors of RAO UES Russia (Minutes No. 188 of 25 February, 2005),

shares of RAO UES Russia are deposited for payment of the additional issue of Federal Grid Company

ordinary shares. Leasing own real estate The shares were received under the spin-off balance

sheet RAO UES Russia in merging RAO UES with Federal Grid Company during Companies'

reorganization on 1 July, 2008Power transmission services The Company's shares acquisition was approved by the

decision of the Board of Directors of Federal Grid Company of 29 June, 2007 (No. 46)

Electric power transmission and distribution services

Subject to the consolidation plan of UNEG Energo facilities approved by the Board of Directors of RAO UES Russia (Minutes No. 188 of 25 February, 2005),

shares of RAO UES Russia are deposited for payment of the additional issue of Federal Grid Company

ordinary shares.

Information on modified interest in the Company in 2010 or any concluded agreements to buy and

sell shares or interest

Purpose of participationType of business under the Charter

242


of Company


thousand


01.01.2010 01.01.2011 01.01.2010 01.01.2011 Revenue, Net profit, Net assets,

Item


thousand*


19 Energotechkomplekt 49,00% 49,00% 101 101 - 3 517 25 440

20 Severovostokenergo 49,00% 49,00% 9 800 9 800 -

21 Schekinskie PGU 45,21% 45,21% 0 0 -

22 WGC-1 40,17% 40,17% 13 164 371 21,851,019 - 56,466,806 2,757,135 32,828,139

23 IT Energy Service 39,99% 39,99% 198 360 198 360 - 170 134 27 652 223 50724 ENIN 38,24% 38,24% 1 023 1 023 - 240 504 4 299 93 93425 UEUK 33,33% 33,33% 50 50 - 0 -49 441 11526 Volga Territorial Generating Company

(TGC-7)32,14% 29,99% 13 262 806 20,066,560 -

27 TGC-11 27,45% 27,45% 2 463 551 2,702,921 -

28 TGC-6 23,58% 23,58% 4 304 329 7,291,153 -

29 Bashkirenergo 21,27% 21,27% 7 143 138 15,456,189 232 446

30 Sangtudinskaya HPP-1 14,48% 14,48% 551 256 316 -

31 OGK-6 9,60% 9,60% 2 317 319 4 422 283 -

32 Energorynok 8,50% 8,50% 1 1 -

33 SOVASATOM 3,38% 3,38% 1 1 -

34 Mosenergo 3,37% 3,37% 4 419 858 4 311 255 15 625

35 Stand 0,83% 0,83% 3 000 3 000 -

36 Centerenergoholding 0,0013% 0,0013% 6 6 -

37 OGK-4 - 0,0009% - 1 736 -

38 OGK-2 - 0,0009% - 514 -

39 RusHydro - 0,0008% - 3 859 -

40 TGC-1 - 0,0006% - 470 -

41 Fortum - 0,0006% - 238 -

42 Kuzbassenergo - 0,0006% - 160 -

43 TGK-13 - 0,0006% - 129 -

44 WGC-3 - 0,0005% - 402 -

45 Quadra - 0,0005% - 147 -

46 TGC-2 - 0,0005% - 63 -

47 TGK-9 - 0,0004% - 186 -

48 TGK-14 - 0,0004% - 22 -

49 Intergeneratsiya - 0,0004% - 6 -

No business operations

ATTACHMENTS

243

ANNUAL REPORT2010





Agency services to companies and organizations involved in the

construction and operation of Russia's power facilities



Generation and sales of electric and thermal energy

"

Services related to construction and renovation of electric power facilities

"

Generation of electric and thermal power

"

IT services "R&D "

Energy companies management "Generation of electric and thermal

power"


"

Generation on electric and thermal power

"

Generation, transmission and sale of electric and thermal power

"

Generation, transmission and sale of electric and thermal power

Subject to the Treaty between the Russian Federation Government and Tajikistan Government on a joint decision to issue shares of the Company dated 6

December, 2005 Generation, transmission and sale of

electric and thermal powerThe shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with


Publishing and printing services Shares are purchased in accordance with the decision of the Federal Grid Company Board of Directors of 28

December, 2004 (Minutes No. 20)Construction and commissioning works

related to energy facilitiesThe shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with


The agreement for purchase and sale of 700 ordinary registered uncertified shares of C SOVASATOM was concluded by Federal Grid Company (Seller) and

AVAN (Buyer) to perform the decision of the Board of Directors of Federal Grid Company (Minutes No. 121

of 29 December, 2010). The price of Agreement is RUR21,000. The shares are transferred on 2

February, 2011 (Custody Transaction Report No. 001288-001 of February 2, 2011.)

Generation, transmission and sale of electric power



Installation and commissioning of GTE-110 gas turbine engines and their

models and generation and sales of electric energy

Property trust management and agency operations













Asset management

244

ATTACHMENTS


of Company


thousand


01.01.2010 01.01.2011 01.01.2010 01.01.2011 Revenue, Net profit, Net assets,

Item


thousand*


50 Dalenergosetproyekt 1 share ** 1 share ** 0 0 1 1 131 317 72 495 212 198

51 Tsentr Energetiki 98,56% - 97 423 - -

52 SMUEK 50,00% - 0 - -

53 Trest SVES 6,14% - 0 - -

54 Natsenergo 1,90% - 39 - -

55 Sibenergoholding 0,0014% - 6 - -

Total: 50 751 876 0 352 399

* - received in 2010 following the 2009 results minus dividend tax** - other shares are owned by S&T Elektroenergetika, a 100% subsidiary of Federal Grid Company

245

ANNUAL REPORT2010





Integrated design in energy sector Company's shares purchase and sale agreement was approved by the Board of Directors of Federal Grid

Company on 25 May, 2008 (Minutes No. 63)Technical and operational maintenance of buildings, structures and premises



The agreement to purchase and sell 5,628 ordinary registered shares of Energy Industry Sector was

concluded by Federal Grid Company (Seller) and Oil House (Buyer) to perform the decision of the Board of

Directors of Federal Grid Company. Price of Agreement is RUR1,940,000. On 22 November,

2010, the shares were credited to Buyer's current account (Custody Transaction Report No. 011363-

001 of November 22, 2010).)

Energy companies management The shares were received under the spin-off balance sheet RAO UES Russia in merging RAO UES with


Liquidated (Certificate of Entry into the Unified State Register of Legal Entities of 15 February, 2010)

Design and construction of industrial and technical projects



Liquidated (Certificate of Entry into the Unified State Register of Legal Entities of 29 September, 2009)

Energy equipment supply Liquidated (extract from the Unified State Register of Legal Entities No. 4035412 of December 17, 2010)

Property trust management and agency operations

Federal Grid Company and SUEK-Krasnoyarsk have concluded the purchase and sale agreement on

300,000 ordinary shares and 300,000 preferred shares of Sibenergoholding. Price of Agreement is

RUR45,409.01

246

ATTACHMENTS

2010 Interested Party and Major Transactions

Below is information on interested party trans-actions carried out by Federal Grid Company in 2010, which comply with Russian laws and re-quire the approval of the Company’s authorized management body:

An agreement to purchase movable property 1. concluded between Federal Grid Company and Energy Forecasting Agency. The total value of property in question stands at RUR495,348 (four hundred and ninety-fi ve thousand three hundred and forty-eight) and 65 kopecks, includ-ing VAT in the amount of RUR89,162 (eighty-nine thousand one hundred and sixty-two) and 76 kopecks (Minutes No. 95 as of 18.01.2010);

Additional agreement No. 5 to the agree-2. ment No. C/01 for performing functions of the owner/developer, concluded on 01.04.2008 between Federal Grid Company and CIUS UES. The value of the additional agreement is RUR398,668,000 (three hundred and nine-ty-eight million, six hundred and sixty-eight thousand), including Russian VAT (18%) in the amount of RUR71,760,240 (seventy-one million, seven hundred and sixty thousand two hundred and forty) (Minutes No. 95 as of 18.01.2010);

Additional agreement No. 6 to the agree-3. ment No. C/01 for performing functions of the owner/developer, concluded on 01.04.2008 between Federal Grid Company and CIUS UES. The value of the additional agreement is RUR1,695,350,000 (one billion, six hundred and ninety-fi ve million three hundred and fi st y thousand), including Russian VAT (18%) in the amount of RUR305,163,000 (three hundred and fi ve million one hundred and sixty-three thousand) (Minutes No. 95 as of 18.01.2010);

A service agreement for the safekeeping of 4. state secrets concluded between Federal Grid Company and MOESK. The value of the Ser-vice agreement is RUR450,000 (four hundred and fifty thousand), including Russian VAT (18%) in the amount of RUR68,644 (sixty-

eight thousand, six hundred and forty-four) and 7 kopecks (Minutes No. 98 as of 10.03.2010);

An agreement for the use of electrical grid 5. facilities concluded between Federal Grid Company and MRSK North-West. The value of the agreement is RUR4,071,130 (four mil-lion, seventy-one thousand one hundred and thirty), including Russian VAT in the amount of RUR732,803 (seven hundred and thirty-two thousand eight hundred and three) and 40 kopecks (Minutes No. 98 as of 10.03.2010);

An agreement for the repair and operation of the 6. 500-kV outdoor switch-gear of the Iriklinskaya HPP, a branch of WGC-1, concluded between Federal Grid Company and WGC-1. The value of the agreement is RUR9,675,530 (nine mil-lion, six hundred and seventy-fi ve thousand fi ve hundred and thirty) and 36 kopecks, including Russian VAT in the amount of RUR1,475,928 (one million, four hundred and seventy-fi ve thou-sand nine hundred and twenty-eight) and 36 kopecks (Minutes No. 100 as of 28.04.2010);

Additional agreement No. 5 to the agreement 7. No. 209 as of 01.03.2009 for servicing the dis-patch and engineering control and the auto-mated control equipment of UNEG facilities, con-cluded between Federal Grid Company and MUS Energetiki (Minutes No. 100 as of 28.04.2010);

An agreement on training services concluded 8. between Federal Grid Company and MRSK Ural. The value of the agreement is RUR2,699,073 (two million, six hundred ninety-nine thousand and seventythree) and 20 kopecks, including Russian VAT (18%) in the amount of RUR411,723 (four hundred and eleven thousand, seven hun-dred and twenty-three) and 3 kopecks for 177 employees (Minutes No. 101 as of 12.05.2010). The trust agreement concluded between Federal Grid Company and INTER RAO UES (Minutes No. 103 as of 15.06.2010);

Additional agreement No. 7 to the agree-9. ment No. C/01 for the performance of owner/developer functions concluded on 01.04.2008

247

ANNUAL REPORT2010


between Federal Grid Company and CIUS UES. The value of the Additional agreement is RUR1,986,582,000 (one billion, nine hun-dred and eighty-six million, fi ve hundred and eighty-two thousand), including Russian VAT (18%) in the amount of RUR357,584,760 (three hundred and fi st y-seven million, fi ve hundred and eighty-four thousand and seven hundred and sixty) (Minutes No. 104 as of 16.06.2010);

An agreement for the performance of a special ex-10. pert assessment concluded between Federal Grid Company and SO UES. The price of the agreement is RUR100,000 (one hundred thousand), including Russian VAT (18%) in the amount of RUR15,254 (fi st een thousand two hundred and fi st yfour) and 24 kopecks (Minutes No. 107 as of 22.06.2010);

An agreement for the repair and maintenance of 11. power grid facilities concluded between Federal Grid Company and MRSK Volga. The value of the agreement is RUR12,937,000 (twelve mil-lion, nine hundred and thirty-seven thousand) and 21 kopecks, including Russian VAT in the amount of RUR1,973,440 (one million, nine hun-dred and seventy-three thousand four hundred and forty) and 71 kopecks (Minutes No. 107 as of 22.06.2010);

Additional agreement No1 to the General Con-12. tractor agreement No822 for the construc-tion of communication facilities for the mobile radio communication network, concluded on 21.01.2009 between Federal Grid Company and MUS Energetiki. The value of the agreement is RUR375,564,621 (three hundred and seventy-fi ve million fi ve hundred and sixty-four thousand six hundred and twenty-one) and 21 kopecks, including VAT (Minutes No. 107 as of 22.06.2010);

Additional agreement No. 2 to the Investment 13. agreement No. 771 as of 08.08.2008 for the construction of line and cable installations for the fi ber-optic communications line along the route which includes the 500-kV Zarya substa-tion, the 500-kV Riga substation, the 500-kV Novo-Anzherskaya substation and the 1,150-kV Itatskaya substation. The agreement was con-

cluded between Federal Grid Company and MUS Energetiki (Minutes No. 107 as of 22.06.2010);

An Agency agreement concluded between 14. Federal Grid Company and INTER RAO UES. The value of the agreement is 2% of the price of work or RUR61,650 (sixty-one thousand, six hundred and fi st y) and 60 kopecks, including VAT (18%) in the amount of RUR9,404 (nine thousand four hundred and four) and 32 kopecks (MinutesNo. 107 as of 22.06.2010);

An agreement for the performance of tests of 15. transformer fl uid for substation equipment oper-ated by the PMES Caspian, concluded between Federal Grid Company and MRSK North Cauca-sus. The value of the agreement is RUR413,847 (four hundred and thirteen thousand, eight hun-dred and fortyseven) and 48 kopecks, including Russian VAT (Minutes No. 111 as of 09.08.2010);

An Agency agreement concluded between 16. Federal Grid Company and the Index of Energy Federal Grid Company. Compensation for the Agent is RUR42,000 (forty-two thousand), in-cluding Russian VAT in the amount of RUR7,560 (seven thousand fi ve hundred and sixty). Apart from compensation, the Principal shall reimburse the Agent for the cost of work performed. Total costs borne by the Agent are RUR6,051,000 (six million and fi st y-one thousand) rubles, including Russian VAT in an amount of up to RUR923,034 (nine hundred and twenty-three thousand and thirty-four) (Minutes No. 114 as of 14.09.2010);

An assessment agreement concluded between 17. Federal Grid Company, INTER RAO UES and RusHydro, on the one hand, and The Institute for Problems of Enterprise Ltd, Deloitte and Touché CIS and Nexia Pacholi Consulting, co-contractors (the Consortium), on the other hand. The price of services is distributed among co-customers as follows: Customer 1 (INTER RAO UES) – up to RUR29,618,000 (twenty-nine million, six hundred and eighteen thousand), including Russian VAT (18%), Customer 2 (Federal Grid Company) – up to RUR29,618,000 (twenty-nine million, six hun-dred and eighteen thousand), including Russian

248

ATTACHMENTS

VAT (18%) and Customer 3 (RusHydro) – up to RUR29,618,000 (twenty-nine million, six hun-dred and eighteen thousand), including Russian VAT (18%) (Minutes No. 114 as of 14.09.2010);

An agreement on the termination of agreement 18. No. U/2007-69 concluded between Federal Grid Company and INTER RAO UES on 27.08.2007. The value of the agreement is RUR82,600 (eightytwo thousand and six hundred) per month, including Russian VAT (18%) in the amount of RUR12,600 (twelve thousand and six hundred) (Minutes No. 114 as of 14.09.2010);

An agreement for the services of the listing 19. agent’s investment bank concluded between Federal Grid Company and VTB Capital. The value of the agreement (remuneration due to the bank) is RUR7,788,000.00 (seven million, seven hundred and eighty-eight thousand) rubles, including the bank’s overhead costs, and VAT (Minutes No. 120 as of 16.12.2010);

An agreement with the members of the Board 20. of Directors. The value of the agreement is determined by the General Shareholders Meeting (Minutes No. 120 as of 16.12.2010);

An agreement concluded between Federal Grid 21. Company and SO UES with the purpose of re-structuring liabilities of SO UES. The value of the agreement is RUR1,113,718,755 (one billion, one hundred and thirteen million, seven hundred and eighteen thousand, seven hundred and fi st y-fi ve) and 64 kopecks (Minutes No. 121 as of 29.12.2010);

Service agreement for the development and 22. continuous updating of the tariff and balance model of the electrical energy industry for the purpose of developing the 2010 sliding forecast and the mediumterm forecast for the 2011-2013 period, and suggestions on tariff s for products and services in the electrical energy industry. The agreement is concluded between Federal Grid Company and APBE. The value of the agreement is RUR11,800,000 (eleven million, eight hundred thousand) (Minutes No. 121 as of 29.12.2010);

Service agreement for the periodic provision of 23. forecast data on electric power consumption in Russian Federation subjects in the medium-term (seven years) and long-term (fi st een years) for the purpose of the development and adjustment of the UNEG Development Scheme. The agreement was concluded by Federal Grid Company and APBE. The value of the agreement is RUR28,674,000 (twenty-eight million six hundred and seventy-four thousand) (Minutes No. 121 as of 29.12.2010);

Service agreement for the periodic acquisition, 24. processing and analysis of reporting information on the condition and functioning of the UNEG, supplied by electric energy companies. The agree-ment is concluded between Federal Grid Com-pany and APBE. The value of the agreement is RUR17,700,000 (seventeen million, seven hundred thousand) (Minutes No. 121 as of 29.12.2010);

Service agreement on the performance of a spe-25. cial assessment, concluded between Federal Grid Company and INTER RAO UES. The value of the agreement is RUR50,000 (fi st y thousand), includ-ing VAT (18%) in the amount of RUR7,627 (seven thousand, six hundred and twenty-seven) and 12 kopecks (Minutes No. 121 as of 29.12.2010);

Service agreement on the formation of guide-26. lines for the development, agreement and monitoring of Investment Program implemen-tation. The agreement is concluded between Federal Grid Company and APBE. The value of the agreement is RUR28,320,000 (twenty-eight million, three hundred and twenty thou-sand) (Minutes No. 121 as of 29.12.2010);

Service agreement for the development of 27. the system of monitoring and forecasting volumes, prices and production costs, and electrical energy distribution. The agreement is concluded between Federal Grid Company and APBE. The value of the agreement is RUR8,850,000 (eight million, eight hundred and fi st y thousand) (Minutes No. 121 as of 29.12.2010);

249

ANNUAL REPORT2010


Service agreement for the development 28. of information and analytical materials on the functioning and development of Russia’s electrical energy industry based on 2009 data (express report) and 2010 data (monthly and quarterly reports). Theagreement is concluded between Federal Grid Company and APBE. The value of the agreement is RUR17,700,000 (seventeen million, seven hundred and seventy thou-sand) (Minutes No. 121 as of 29.12.2010);

Service agreement on drawing the fore-29. cast balance of the electrical energy industry for the period from 2020 till 2030 (monitor-ing the general layout of electrical energy facilities). The agreement was concluded be-tween Federal Grid Company and APBE. The value of the agreement is RUR18,880,000 (eighteen million, eight hundred and eighty-thousand) (Minutes No. 121 as of 29.12.2010);

Agreement No. 1 on the reimbursement of 30. the cost of permanent improvements per Property Lease agreement No. SSH-349-2009 concluded between Federal Grid Com-pany and RusHydro on 09.10.2009. The value of the agreement is RUR18,186,255 (eighteen million, one hundred and eighty-six thousand, two hundred and fi st y-fi ve) and 33 kopecks, including VAT (18%) in the amount of RUR3,273,525 (thee million, two hundred and seventy-three thousand, fi ve hundred and twen-tyfi ve) and 97 kopecks (Minutes No. 121 as of 29.12.2010).

During 2010, the Company carried out no transactions (related party transactions), the value of which stands at 5% or more of the book value of the Company’s assets, as determined by the Company’s fi nancial statements as dated on the last reporting date before the transaction is performed.

During 2010, the Company and its dependent companies carried out no transactions with shareholders who owned at least 5% of the voting shares.

250

ATTACHMENTS

IMPLEMENTATION OF THE ASSIGNMENTS OF THE PRESIDENT AND GOVERNMENT OF THE RUSSIAN FEDERATION

Registration Details

Igor Sechin, Russian Government

Igor Shuvalov, Russian Government


Dmitry Kozak, Russian Government


Vladimir Putin, Russian Government

5-732 as of 26 January, 2010

5-1474 as of 12 February, 2010




5-4006 as of 12 April, 2010

Joint project with Power Machines and Federal Grid Company to manufacture high voltage electric power installations

Engineering utilities connection to the cement production line under construction at the Verkhneabakansky Cement Plant (Elena Baturina)

Providing information on the implementation of investment programs by companies operating in the Russian Federation (including government-sponsored enterprises) and their plans to commission production facilities in 2009-2010

Selecting sites to locate the Veseloye and Vremennaya (Reserve) substations (Oleg Budargin)

Coordinating the design and construction of industrial and social infrastructure facilities under the project to develop the Gremyachinsky potash salt deposit

Instruction by Russian Prime Minister Vladimir Putin following the the State Atomic Energy Corporation ROSATOM report on nuclear power industry performance in 2009 and NPP construction using Russian technologies in Russia and abroad

Performed. Andrey Kazachenkov and Andrey Sveshnikov were responsible for maintaining cooperation with Power Machines. Necessary materials have been prepared. The meeting with Power Machines representatives was held on 8 February, 2010. Reply letter No. TD-549 as of 4 February, 2010 was forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. BR-1155 as of 5 March, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. TD-950 as of 26 February, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. The meeting to addresubstation the location of the Veseloye substation was held in Sochi on 4 March, 2010. The meeting with the Krasnodarsky Regional Administration was held 11 March, 2010

Performed. Reply letter No. RP-1492 as of 18 March, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. BR-2233 as of 16 April, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

8 February, 2010

4 March, 2010

10 March, 2010

4 March, 2010

24 March, 2010

27 April, 2010

Assignment Issued By

Assignment Summary Performance Status Performance Date

251

ANNUAL REPORT2010


Performed. The following reply letters are forwarded to the Ministry of Energy: No. DG-6856 as of 21 October, 2010; No. ON-3273 as of 8 June, 2010; No. AL-4469 as of 28 July, 2010; No. BR-4895 as of 11 August, 2010; No. RP-6012 as of 21 September, 2010; and No. DG-6075 as of 23 September, 2010. All items of the Minutes referring to the competency of FGC have been performed

Performed. Reply letter No. TD-3076 as of 28 May, 2010 is forwarded to Maria Tikhonova, Russian Ministry of Energy

Performed. Reply letter No. TD-5180 as of 19 August, 2010 is forwarded to Stanislav Svetlitsky, Russian Ministry of Energy

Performed. Reply letter No. MU-5191 as of 19 August, 2010 to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. MU-5869 as of 15 September, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. 126/242 as of 13 September, 2010 is forwarded to Mikhail Pleshkin at the Russian Ministry of Energy

Performed. Reply letter No. BA-6326 as of 1 October, 2010 is forwarded to Vladimir Ampilogov, Director of the Industry and Infrastructure Department of the Russian Government

Performed, Reply letter No. BA-6211 as of 28 September, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. DG-6390 as of 5 October, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

29 April, 2010

28 May, 2010

20 August, 2010

19 August, 2010

15 September, 2010

13 September, 2010

30 September, 2010

24 September, 2010

4 October, 2010

5-4255 as of 16 April, 2010

5-5362 as of 17 May, 2010

5-8947 as of 13 August, 2010

5-9112 as of 18 August, 2010

5-9470 as of 27 August, 2010

5-9521 as of 30 August, 2010

5-9715 as of 2 September, 2010



Vladimir Putin, Russian Government






Vladimir Ampilogov, Industry and Infrastructure Department of the Russian Government


Dmitry Kozak, Russian Government

Giving the list of Mandates of RF President No. Pr-839 as of 29 March, 2010, following the meeting of the Presidential Commission for the Modernization and Technical Development of the Russian Economy, as of March 23rd, 2010

Submitting materials on the dividend policy and proposals on upgrading the fi nancial and economic performance of Federal Grid Company for review at the Russian Government meeting

Making a decision on replacing the registrar of state-sponsored enterprises whose shares are pledged with state-owned credit organizations

Submitting drast legal regulations on anti-terrorism security at fuel and energy sector facilities

Follow-up revisions of legal regulations and submitting the fi nal approved version prior to 20 September, 2010

Carrying out agreements reached at the 14th Meeting of the Russian-Mongolian Inter-governmental Commission for Trade, Economic, Scientifi c and Technical Cooperation held 20 July, 2010 in Ulan-Bator (Mongolia)

Including eff orts to develop electric grids for power supply to new production lines for the Unifi ed Metallurgical Company in Federal Grid Company's investment program

Addressing the issue of giving pre-qualifi cation assistance to GlobalElectroService for the tender and providing information to the Russian Government

Carrying out the Russian Federation Government Mandate No. DK-P9-4292 as of 25 June, 2010

Registration Details Assignment Issued By


252

ATTACHMENTS

Registration Details Assignment Issued By


Performed. Reply letter No. BO-7698 as of 19 November, 2010 is forwarded to Valentin Letunovsky, Deputy Chief of the Control Directorate in the Administration of the President of the Russian Federation

Performed. Letter No. BO-6872 as of 21 October, 2010 is forwarded to Sergei Darkin, Primorsky Krai Governor ; and reply letter No. BA-7263 as of 3 November, 2010 to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Federal Grid Company issued Order No. 856 as of 8 November, 2010; and forwarded reply letter No. TD-7514 as of 12 November, 2010 to Stanislav Voskresensky, Russian Deputy Minister of Economic Development; letter No. TD-7515 to Elena Pomchalova, Deputy Head of the Federal Tariff Service; letter No. TD-7516 to Andrey Shishkin, Russian Deputy Minister of Energy; and letter No. TD-569 as of 31 January, 2011 to Stanislav Voskresensky, Russian Deputy Minister of Economic Development

Pending. Quarterly reports are submitted to the Russian Ministry of Regional Development, letter No. BR-36 as of 12 January, 2011

Performed. Reply letter No. TD-8756 as of 22 December, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Performed. Reply letter No. SS-8960 as of 29 December, 2010 is forwarded to Andrey Shishkin, Russian Deputy Minister of Energy

Providing information on the development and approval of innovative development programs for government-sponsored enterprises

Submitting the List of Instructions given by Igor Shuvalov, First Deputy Prime Minister of Russia, during his business trip to Vladivostok on 8 October, 2010

Improving the effi ciency of electric and heat power engineering management and implementation of pilot projects to raise investments in the infrastructure sector

Results of the 10th Meeting of the Russian-Korean Joint Commission for Economic, Scientifi c and Technical Cooperation

Submitting for revision the drast Order of the Russian Government on approving the rules of agreement on transferring power grid facilities included in the Unifi ed National Electric Grid (UNEG) for lease

Submitting report on investment program performance

Valentin Letunovsky, Control Directorate in the Administration of the President of the Russian Federation






15 November, 2010

16 November, 2010

28 October, 2010

12 April, 2011

17 December, 2010

17 December, 2010

3-11613 as of 19 October, 2010

5-11616 as of 19 October, 2010

5-11845 as of 22 October, 2010

5-12490 as of 8 November, 2010

5-14385 as of 14 December, 2010

5-14872 as of 23 December, 2010

253

ANNUAL REPORT2010


11 May, 2011

In compliance with Federal Law No.208-FZ (dated 24 November, 2011) entitled "On Joint Stock Companies," the Articles of Association of Federal Grid Company, and the Plan of Work for the Audit Commission of Federal Grid Company (Minutes of Meet-ing No.1 dated 20 October, 2010 and Minutes of Meeting No.2 dated 27 December, 2010), an audit has been conducted of the 2010 annual reporting by the Company.

Based on this audit, and taking into account the findings of the audit of Federal Grid Company’s financial (bookkeeping) accounts by PricewaterhouseCoopers Audit (unnumbered, dated 23 March, 2011) for 2010, the following conclusions were reached:

Based on selective checks of documents submitted to the Audit Commission, the information contained in the Federal Grid Company's Annual Report and annual financial accounts for 2010 can be considered accurate in every significant respect;No evidence has been found of any violations of accounting procedures or finan-cial reporting regulations, as stipulated by Russian laws.

The Annual Report of Federal Grid Company, submitted for approval to the Annual General Shareholders Meeting, contains information specified in Paragraph 3.6 of the Provision on Additional Requirements on the procedure for preparing, convening and holding the Annual General Shareholders Meeting, as approved by Resolution No.17/ps (as of 31 May, 2002) of the Russian Federal Comission for the Securities Market (FCSM) updated in FCSM Resolution No.03-6 p/s (as of 7 February, 2003).

Considering the above, the Audit Commission of Federal Grid Company has suf-ficient grounds to confirm the veracity, in every significant respect, of data contained in the Annual Report of Federal Grid Company and the Company's 2010 annual significant accounts.

Chariman of the Audit Commission of Federal Grid Company Secretary of the Audit Commission of Federal Grid Company Members of the Audit Commission

V. Raspopov

A. Drokova

A. Colyada D. Gorevoy

Audit Commission Conclusions on the Veracity of Information in the Annual ReportFederal Grid Company Audit Commission's Repo

Moscow

AUDIT COMMISSION CONCLUSIONS ON THE VERACITY OF INFORMATION IN THE ANNUAL REPORT

254

ATTACHMENTS

2011 INVESTOR CALENDARDates are subject to change

Date

January 13-14

February 2-4

March 28

March 29

March 31

April 11-14

May 3

May 11

May 12

May 16

June 29

August

November

Event

6th CIB Global Utilities Conference Societe Generale (Paris)

Forum Russia 2011, Troika Dialog (Moscow)

Listing on the London Stock Exchange

Extraordinary General Meeting

2010 Annual Results (RAS)

Morgan Stanley EMEA Conference (London, New York)

2010 Annual Financial Report (IFRS)

Capital Markets Day

Interim Report IQ 2011 (RAS)

Record Date (AGM)

Annual General Shareholders Meeting

Interim Report 2Q 2011 (RAS)

Interim report 3Q 2011 (RAS)

255

ANNUAL REPORT2010


GLOSSARYDiff erent names for Federal Grid Company and its branches

Abbreviations


The Company

Branches

Executive body (EB)

СобытиеOpen Joint Stock Company “Federal Grid Company of the Unifi ed EnergySystem” (Federal Grid Company)


The branches of Federal Grid Company – Backbone Electric Grid (MES),Enterprise of Backbone Electric Grid (PMES)

The executive body of Federal Grid Company

Abbreviation

ACB

ACPP

AGM

AIMS CMEE

AMIS EPFA

AMS

ASTPM

AT

ATMS

CCS

CEO

CIM

COGS

CSR

CSR

CSTB

CT

CTC

DR

EBIT

EBITDA

ECA

ERPS

ESPO

ETS

FACTS

FAS

FFMS

Full name

Air Circuit Breaker

Annual Comprehensive Procurement Program

Annual General Shareholders Meeting

Automated Information and Measurement System for the Commercial Metering of Electrical Energy

Automated Measuring and Information System for Electric Energy Fiscal Accounting

Automated Management System

Automated System of Technological Process Management

Automatic Transformer

Automated Technological Management System

Carrier Communication System

Chief Executive Offi cer

Center for Information Management

Cost of Goods Sold

Controlled Shunt Reactor

Corporate Social Responsibility

Coordinative Scientifi c and Technical Board

Current Transformers

Central Tender Committee

Depository Receipt

Earnings Before Interest and Taxes

Earnings Before Interest, Taxes, Depreciation and Amortization

Emergency Control Automatics

Enterprise Resource Planning System

Eastern Siberia-Pacifi c Ocean Pipeline

Electronic Trading Site

Flexible Alternate Current Transmission Systems

The Federal Antimonopoly Service

The Federal Financial Markets Service

256

ATTACHMENTS

Abbreviation

FTS

GCC

GDR

GESS

GIDS

GIS

GPP

GRES

H&SP

HPP

HR

IA

IEM

IES

IETL

IP

KPI

KPI

LNPP

LSE

MCIA

MICEX

MMSK

NPP

NVNPP

OECD

OS

OTL

PPE

PROI

R&D

RAB

RAS

RAS

RPA

RRL

RTS

RUIE

RUR

S&P

Full name

The Federal Tariff Service

Grid Control Center

Global Depository Receipt

Grid Energy Storage Systems

Gas-Insulated Distributor System

Gas-Insulated Switchgear

Gas Processing Plant

State District Power Plant

Hardware and Sost ware Package

Hydro Power Plant

Human Resources

Intangible Assets

Information Exchange Model

Interconnected Energy System

Inter-State Electricity Transmission Line

Internet Protocol

Key Performance Indicator

Key Performance Indicator

Leningrad Nuclear Power Plant

London Stock Exchange

Multi-Chamber Insulator Arrester

Moscow Interbank Currency Exchange

Inter-Regional Backbone Grid Company

Nuclear Power Plant

Novovoronezhskaya NPP

Organization for Economic Co-operation and Development

Outdoor Switchgear

Overhead Transmission Line

Property, Plant and Equipment

Program for Reliability and Observability Improvement

Research and Development

Regulatory Asset Base

Russian Academy of Sciences

Russian Accounting Standards

Relay Protection and Automatics

Radio Relay Links

Russian Trading System

Russian Union of Industrialists and Entrepreneurs

Russian rubles

Standard & Poor's

257

ANNUAL REPORT2010


Abbreviation

SC

SDCs

SDH

SES AAG

STSCS

SVC

TCSC

TDM

TM

TPP

UEPTN

UES

UES of Russia

UNEG

VT

WDM

WECM

Full name

Synchronous Compensator

Subsidiaries and Dependent Companies

Synchronous Digital Hierarchy

Smart Energy System with Active Adaptive Grid

Small Terrestrial Satellite Communication Station

Static VAR Compensator

Thyristor Controlled Series Capacitor

Time Division Multiplexing

Tests and Measurements

Thermal Power Plant

The Unifi ed Electrical Power Technological Network

Unifi ed Energy System

Unifi ed Electrical System of Russia

Unifi ed National (All-Russian) Electrical Grid

Voltage-Measuring Transformer

Wavelength-Division Multiplexing

Wholesale Electricity and Capacity Market

258

ATTACHMENTS

CONTACTS

Information on the Auditor(s)Closed Joint Stock Company PricewaterhouseCoopers Audit (PwC Audit)

Location: 10 Butyrsky Val Street, Moscow, Russia, 125407INN: 7705051192OGRN: 1027700148431Telephone: +7 (495) 967-6000Fax: +7 (495) 967-6001E-mail: [email protected]

License number: Е000376Date of issue: 20.05.2007Expiration date: 20.05.2012Issuing authority: Russian Ministry of Finance

Information on the auditor’s membership in self-regulated organizations:Organization’s full name: Not-for-Profi t Partnership Audit Chamber of RussiaLocation; Building 9, Block 2 3rd Syromyatnichesky Lane, Moscow, Russia, 105120

Information on the RegistrarClosed Joint Stock Company STATUS Registrar Company (STATUS)

Location: 32, Block 1 Novorogozhskaya Street, Moscow, Russia, 109544Postal address: 32, Block 1 Novorogozhskaya Street, Moscow, Russia, 109544Telephone: +7 (495) 974-8350Fax: +7 (495) 678-7110E-mail: [email protected].

License number: 10-000-1-00304Date of issue: 12.03.2004License term: indefi niteIssuing authority: Russian Federal Financial Markets Service

Information on the DepositoryNational Settlement Depository non-banking credit organization (NSD)

Location: 1/13, bld 4 Sredny Kislovsky Lane, Moscow, Russia

License number: 177-12042-000100Date of issue: 19.02.2009Expiration date: unlimitedIssuing authority: Russian Federal Financial Markets Service

Information on the CustodianLimited Liability Company Deutsche BankLocation: 2 bld.82, Sadovnicheskaya Street, Moscow, Russia, 115035 Telephone : +7 (495) 797-52-09Fax: +7 (495) 797-50-99

General License number: 3328Date of issue: 9.10.2003

259

ANNUAL REPORT2010


Federal Grid Company of Unifi ed Energy SystemActual and postal address: 5A Akademika Chelomeya Street, Moscow, Russia, 117630Telephone: +7 (495) 710-9000Fax: +7 (495) 710-9655E-mail: [email protected] address: http://fsk-ees.ru/

Contact information for institutional investors and analysts:Shareholders, Investors and Liquidity SupportInvestor Relations DepartmentTelephone: +7 (495) 710-9064e-mail: [email protected]

Telephone line for shareholders: +7-800-200-1881

WE INVITE YOU TO ENTER INTO A DIALOG WITH US

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