IMPORTANT NOTICE IMPORTANT: You Must Read the Following Before Continuing. the Following Applies to the Listing Particulars Foll

IMPORTANT NOTICE

IMPORTANT: You must read the following before continuing. The following applies to the listing particulars following this page and you are therefore advised to read this page carefully before reading, accessing or making any other use of the listing particulars. In accessing the listing particulars, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from the Issuer or any Joint Lead Manager (each as defined in the listing particulars) as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE NOTES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION, AND THE NOTES MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE ATTACHED LISTING PARTICULARS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THESE LISTING PARTICULARS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY NOTES.

Confirmation of your representation: In order to be eligible to view the attached listing particulars or make an investment decision with respect to the Notes, prospective investors must be located outside the United States and not U.S. persons, in accordance with Regulation S under the Securities Act. These listing particulars are being sent to you at your request, and by accessing these listing particulars you shall be deemed to have represented to the Issuer and the Joint Lead Managers that (1) you and any customers you represent are located outside the United States and are not a U.S. person or acting for the account or benefit of a U.S. person, and the electronic mail address that you have provided and to which this email has been delivered is not located in the United States, its territories and possessions, any state of the United States or the District of Columbia and (2) you consent to delivery of such listing particulars by electronic transmission. Under no circumstances shall these listing particulars constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities being offered, in any jurisdiction in which such offer, solicitation or sale would be unlawful. Recipients of these listing particulars who intend to subscribe for or purchase the Notes are reminded that any subscription or purchase may only be made on the basis of the information contained in these listing particulars.

These listing particulars may only be provided to persons in the United Kingdom in circumstances where section 21(1) of the Financial Services and Markets Act 2000 does not apply to the Issuer. This communication is directed solely at (i) persons outside the United Kingdom, (ii) persons with professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”), (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order and (iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000, as amended) in connection with the issue or sale of any securities of the Issuer or any member of its Group (as defined in the listing particulars) may otherwise lawfully be communicated or caused to be communicated (all such persons in (i)-(iv) above being “relevant persons”). Any investment activity to which this communication relates will only be available to and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this communication.

Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, “MiFID II”); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a “distributor”) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.

The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended, the “IMD”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPS Regulation.

These listing particulars or information contained therein is not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in the Russian Federation to or for the benefit of any Russian person or entity, and does not constitute an advertisement of offering of any securities in the Russian Federation within the meaning of Russian securities laws. Information contained in these listing particulars is not intended for any persons in the Russian Federation who are not “qualified investors” within the meaning of Article 51.2 of the Federal Law no. 39-FZ “On the securities market” dated 22 April 1996, as amended (“Russian QIs”) and must not be distributed or circulated into Russia or made available in Russia to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law.

You are reminded that these listing particulars have been delivered to you on the basis that you are a person into whose possession these listing particulars may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver these listing particulars to any other person. The materials relating to this offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licenced broker or dealer, and the Joint Lead Managers or any affiliate of the Joint Lead Managers is a licenced broker or dealer in the relevant jurisdiction, the offering shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Issuer in such jurisdiction. The attached listing particulars has been sent to you in electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Issuer, any Joint Lead Manager, any person who controls them or any director, officer, employee or agent of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the listing particulars distributed to you in electronic format and the hard copy version available to you on request from the Joint Lead Managers.

RUB 15,000,000,000 8.975 per cent. Loan Participation Notes due 2022 Issued by, but without recourse to RusHydro Capital Markets DAC (incorporated under the laws of Ireland) for the sole purpose of financing a loan to PJSC “RUSHYDRO” (a joint stock company incorporated under the laws of the Russian Federation) Issue Price: 100 per cent. RusHydro Capital Markets DAC (the “Issuer” or the “Lender”) is issuing RUB 15,000,000,000 in aggregate principal amount of 8.975 per cent. Loan Participation Notes due 2022 (the “Notes”). The Notes are limited recourse secured obligations of the Issuer, and are being offered for the sole purpose of funding a loan (the “Loan”) to PJSC “RusHydro” (“RusHydro” or the “Borrower”) pursuant to a loan agreement (the “Loan Agreement”) dated 23 November 2018 between the Lender and RusHydro. The Notes will be constituted by, be subject to, and have the benefit of, a trust deed to be dated 27 November 2018 (the “Trust Deed”) between the Issuer and BNY Mellon Corporate Trustee Services Limited, as trustee (the “Trustee”), for the holders of the Notes from time to time (the “Noteholders”). The Issuer will charge by way of first fixed charge as security for its payment obligations in respect of the Notes its right to principal, interest and other amounts as lender under the Loan Agreement and its rights, title and interest to certain sums of money held in an account in its name with The Bank of New York Mellon, London Branch, in each case other than the Reserved Rights (as defined in the Trust Deed) and certain amounts relating to the Reserved Rights, to the Trustee. The Issuer will also assign its administrative rights under the Loan Agreement to the Trustee. In each case where amounts of principal, interest and additional amounts (if any) are stated to be payable in arrear in respect of the Notes, the obligation of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders, on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to all principal, interest and additional amounts (if any) actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement, excluding, however, any amounts paid in relation to Reserved Rights. The Issuer will have no other financial obligations under the Notes. Noteholders will be deemed to have accepted and agreed that they will be relying solely and exclusively on the covenant to pay under the Loan Agreement and the credit and financial standing of RusHydro in respect of the financial servicing of the Notes. Subject to receipt by the Issuer of amounts pursuant to the Loan Agreement, interest on the Notes will be payable in arrear on 27 January and 27 July of each year as described under “Terms and Conditions of the Notes—Interest”. The Loan bears interest at the rate of 8.975 per cent. per annum. Unless previously redeemed or cancelled, the Notes will, subject to receipt by the Issuer of amounts pursuant to the Loan Agreement, be redeemed at their principal amount on 27 January 2022 (the “Maturity Date”). Payments of principal and interest in respect of each Note will be paid in Russian Roubles. However, each Noteholder has the option to make an irrevocable election, pursuant to Condition 7.1, to receive a forthcoming payment of principal or interest in U.S. Dollars. See “Overview of the Offering—Currency Exchange” and “Terms and Conditions of the Notes—Currency Exchange and Payments”. Except as set forth herein (see “Tax Considerations”), payments by the Issuer in respect of the Notes will be made without any deduction or withholding for or on account of taxes of Ireland, and payments by the Borrower under the Loan will be made without any deduction or withholding for or on account of taxes of Ireland or the Russian Federation as more fully set out, and subject to the conditions of, the Loan Agreement. The principal amount of the Loan may be prepaid, together with accrued interest, at the option of RusHydro upon RusHydro or the Issuer being required to deduct or withhold any Russian or Irish taxes from payments to be made by them in respect of the Notes or pursuant to the Loan Agreement, or following enforcement of the security created in the Trust Deed, upon the Trustee being required to deduct or withhold any taxes of the Russian Federation or the jurisdiction in which the Trustee is then resident. The Loan, and correspondingly the Notes, may be redeemed early at the option of RusHydro in certain circumstances and the Notes, and accordingly the Loan, must be repurchased and redeemed early at the option of the Noteholders, in certain other circumstances, all as more fully described in the Loan Agreement and Terms and Conditions of the Notes (the “Conditions”, and any one of them, a “Condition”). AN INVESTMENT IN THE NOTES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 12. THE NOTES AND THE LOAN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)). FOR A DESCRIPTION OF CERTAIN RESTRICTIONS ON OFFERS, SALES AND TRANSFERS OF THE NOTES AND THE DISTRIBUTION OF THESE LISTING PARTICULARS, SEE “SUBSCRIPTION AND SALE”. Application has been made to the Irish Stock Exchange plc trading as Euronext Dublin (“Euronext Dublin”) for the approval of this document as Listing Particulars. Application has been made to Euronext Dublin for the Notes to be admitted to the Official List (the “Official List”) and trading on the Global Exchange Market of Euronext Dublin (“GEM”). References in these Listing Particulars to the Notes being “listed” (and all related references) will mean that the Notes have been admitted to the Official List and have been admitted to trading on the GEM, which is the exchange regulated market of Euronext Dublin. The GEM is not a regulated market for the purpose of Directive 2014/65/EU. There is no assurance that such listing will be granted or maintained and that a trading market in the Notes will develop or be maintained. The Notes are expected to be rated “BBB-” by Fitch Ratings Limited (“Fitch”), “Ba1” by Moody’s Investor Services, Inc (“Moody’s”) and “BBB-” by Standard & Poor’s Credit Market Services Europe Limited (“Standard & Poor’s”). Each of Fitch, Moody’s and Standard and Poor’s is established in the EU and registered under Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Similar ratings on different types of notes do not necessarily mean the same thing. The ratings do not address the likelihood that the principal on the Notes will be prepaid or paid on a particular date before the Maturity Date. The ratings do not address the marketability of the Notes or any market price. Any change in the credit ratings of the Notes could adversely affect the price that a subsequent purchaser will be willing to pay for the Notes. The significance of each rating should be analysed independently from any other rating. See “Risk Factors – Negative changes to the Russian Federation’s or RusHydro’s credit rating could adversely affect the market price of the Notes”. The Notes will be offered and sold in the minimum denomination of RUB 10,000,000 and integral multiples of RUB 100,000 in excess thereof. The Notes will initially be represented by interests in a permanent global unrestricted Note in registered form (the “Global Certificate”), which will be

deposited with a common depositary for, and registered in the name of a nominee of a common depositary for, Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg”) on 27 November 2018 (the “Issue Date”). Interests in the Global Certificate will be shown on, and transfers thereof will be effected only through records maintained by, Euroclear or Clearstream, Luxembourg. See “Summary of Provisions Relating to the Notes in Global Form”. Individual definitive Notes in registered form will only be available in certain limited circumstances as described in the Global Certificate.

Joint Lead Managers

VTB Capital Gazprombank J.P. Morgan Sberbank CIB

Listing Particulars dated 23 November 2018

IMPORTANT INFORMATION ABOUT THESE LISTING PARTICULARS

These Listing Particulars comprise listing particulars for the purpose of giving information with regard to the Issuer, RusHydro and RusHydro and its subsidiaries taken as a whole (the “Group”) which, according to the particular nature of the Issuer, RusHydro, the Group, the Notes and the Loan, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Issuer and RusHydro. Each of the Issuer and RusHydro (whose registered office is set out on page 137 of the Listing Particulars) accepts responsibility for the information contained in these Listing Particulars. To the best of the knowledge of each of the Issuer and RusHydro (each of whom has taken all reasonable care to ensure that such is the case), the information contained in these Listing Particulars is in accordance with the facts and does not omit anything likely to affect the import of such information.

RusHydro, having made all reasonable enquiries, conﬁrms that (i) these Listing Particulars contains all information with respect to the Issuer, RusHydro, the Group, the Notes and the Loan that is material in the context of the issue and offering of the Notes; (ii) the statements contained in these Listing Particulars relating to the Issuer, the Group and RusHydro, are in every material respect true and accurate and are not misleading; (iii) the opinions, expectations and intentions expressed in these Listing Particulars with regard to RusHydro and the Group, are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions; (iv) there are no other facts with respect to the Issuer, RusHydro, the Group, the Notes or the Loan the omission of which would, in the context of the issue and offering of the Notes, make any statement in these Listing Particulars misleading in any material respect; and (v) all reasonable enquiries have been made by RusHydro to ascertain such facts and to verify the accuracy of all such information and statements. RusHydro accepts responsibility accordingly.

The Listing Particulars do not constitute an offer of, or an invitation by or on behalf of, the Issuer, RusHydro or the Joint Lead Managers to subscribe for, or purchase, any Notes. The distribution of these Listing Particulars and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession these Listing Particulars come are required by the Issuer, RusHydro, the Trustee and the Joint Lead Managers to inform themselves about and to observe any such restrictions.

These Listing Particulars or information contained therein are not an offer, or an invitation to make offers, sell, purchase, exchange or transfer any securities in the Russian Federation to or for the benefit of any Russian person or entity, and do not constitute an advertisement of offering of any securities in the Russian Federation within the meaning of Russian securities laws. Information contained in these Listing Particulars is not intended for any persons in the Russian Federation who are not “qualified investors” within the meaning of Article 51.2 of the Federal Law no. 39-FZ “On the securities market” dated 22 April 1996, as amended (“Russian QIs”) and must not be distributed or circulated into Russia or made available in Russia to any persons who are not Russian QIs, unless and to the extent they are otherwise permitted to access such information under Russian law. The Notes have not been and will not be registered in Russia and are not intended for “placement” and “circulation” in Russia (each as defined in Russian securities laws) unless and to the extent otherwise permitted under Russian law. No person should at any time carry out any activities in breach of the restrictions set out in “Subscription and Sale— Russian Federation”.

This document is only being distributed to and is only directed at (1) persons who are outside the United Kingdom or (2) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (3) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “Relevant Persons”). The Notes are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Notes will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its contents.

THE NOTES AND THE LOAN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. SUBJECT TO CERTAIN EXCEPTIONS, THE NOTES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT). For a description of these and certain further restrictions on offers, sales and transfers of the Notes and the distribution of these Listing Particulars, see “Subscription and Sale—United States”.

None of the Issuer, RusHydro, the Trustee or the Joint Lead Managers or their respective representatives or affiliates makes any representation regarding the legality of an investment by any offeree or purchaser under any legal, investment or similar laws. Prospective investors should consult their own advisers as to the legal, tax, business, financial and other aspects of any purchase of the Notes.

No person is authorised to provide any information or to make any representation not contained in these Listing Particulars and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer, RusHydro, the Trustee or the Joint Lead Managers. The delivery of these Listing Particulars at any time does not imply that the information contained in it is correct as at any time subsequent to its date.

Neither the delivery of these Listing Particulars nor the offer, sale or delivery of any Note shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer and RusHydro since the date of these Listing Particulars.

Any investment in Notes does not have the status of a bank deposit and is not within the scope of the deposit protection scheme operated by the Central Bank of Ireland (the “Central Bank”). The Issuer is not and will not be regulated by the Central Bank as a result of issuing the Notes. The Issuer does not intend to provide post-issuance reporting with respect to the Notes or the Loan.

In connection with the issue of the Notes, VTB Capital plc (the “Stabilising Manager”) (or any person acting on behalf of the Stabilising Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the Issue Date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment shall be conducted by the Stabilising Manager (or any person acting on behalf of the Stabilising Manager) in accordance with all applicable laws and rules.

The contents of any websites referred to in these Listing Particulars do not form part of these Listing Particulars.

The language of the Listing Particulars is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

NONE OF THE JOINT LEAD MANAGERS OR THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR ASSUMES ANY RESPONSIBILITY, AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION IN THESE LISTING PARTICULARS, AND NOTHING CONTAINED IN THESE LISTING PARTICULARS IS, OR SHALL BE RELIED UPON AS, A PROMISE OR REPRESENTATION BY THE JOINT LEAD MANAGERS, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES OR ANY PERSON ACTING ON THEIR BEHALF, WHETHER AS TO THE PAST OR THE FUTURE. EACH PERSON RECEIVING THESE LISTING PARTICULARS ACKNOWLEDGES THAT SUCH PERSON HAS NOT RELIED ON ANY JOINT LEAD MANAGER OR THE TRUSTEE OR ANY PERSON AFFILIATED WITH ANY JOINT LEAD MANAGER OR THE TRUSTEE OR ANY PERSON ACTING ON THEIR BEHALF, IN CONNECTION WITH ITS INVESTIGATION OF THE ACCURACY OF SUCH INFORMATION OR ITS INVESTMENT DECISION.

EACH PERSON CONTEMPLATING MAKING AN INVESTMENT IN THE NOTES MUST MAKE ITS OWN INVESTIGATION AND ANALYSIS OF THE CREDITWORTHINESS OF RUSHYDRO AND ITS OWN DETERMINATION OF THE SUITABILITY OF ANY SUCH INVESTMENT, WITH PARTICULAR REFERENCE TO ITS OWN INVESTMENT OBJECTIVES AND EXPERIENCE, AND ANY OTHER FACTORS THAT MAY BE RELEVANT TO IT IN CONNECTION WITH SUCH INVESTMENT. THESE LISTING PARTICULARS MAY ONLY BE USED FOR THE PURPOSE FOR WHICH IT HAS BEEN PUBLISHED.

iii

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial Information

These Listing Particulars include (i) audited consolidated financial statements of the Group as at and for the years ended 31 December 2017 and 2016 (the “Annual Financial Statements”) and (ii) unaudited condensed consolidated interim financial information of the Group as at and for the three and six months ended 30 June 2018 with comparative information as at and for the three and six months ended 30 June 2017 (the “Interim Financial Information” and, together with the Annual Financial Statements, the “Financial Statements”). The Annual Financial Statements included in these Listing Particulars have been audited by AO PricewaterhouseCoopers Audit (“PwC”), independent auditors, as stated in their independent auditor’s reports included in these Listing Particulars.

The Annual Financial Statements contained in these Listing Particulars have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) as amended from time to time. Interim Financial Information has been prepared in accordance with International Accounting Standard (IAS) 34 ‘‘Interim Financial Reporting’’ as issued by the International Accounting Standards Board (IASB).

With respect to the Interim Financial Information included in these Listing Particulars, PwC reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated 28 August 2018 included in these Listing Particulars states that they did not audit and they do not express an opinion on the unaudited condensed consolidated interim financial information of the Group as of and for the three and six months ended 30 June 2018. Accordingly, the degree of reliance on their report on such information should be restricted in the light of the limited nature of the review procedures applied.

PwC is a member of the self-regulated organisation of auditors “Russian Union of Auditors” (Association). The address of PwC is Butyrsky Val 10, 125047, Moscow, the Russian Federation. The Financial Statements are set out on pages F-1 to F-170 of these Listing Particulars.

The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers from 1 January 2018. See “Operating and Financial Review—Adoption of new IFRS standards and comparability of financial information between periods”.

Non-IFRS Data

In these Listing Particulars, the Group also presents “EBITDA” and other non-IFRS financial data, including LTM EBITDA, EBITDA margin, operating profit margin, net profit margin, net debt, total financial debt, net debt / EBITDA and net financial debt / EBITDA, which are not specifically defined under IFRS. These measures are presented by RusHydro as supplemental measures of the Group’s operating performance. These measures may not be comparable to other similarly titled measures of other companies and are not measures defined under IFRS or other generally accepted accounting principles, and they should not be considered as substitutes for the information in accordance with IFRS. For description of limitations of non-IFRS measures and reconsiliations see “Selected Financial and Other Information”.

See Glossary at the back of these Listing Particulars for the meaning of certain definitions used herein, unless otherwise provided elsewhere in these Listing Particulars.

Currency

In these Listing Particulars, the following currency terms are used:

“RUB”, “rouble”, “roubles”, “Russian Rouble” or “Russian Roubles” means the lawful currency of the Russian Federation;

“US$”, “USD”, “U.S. dollar” or “U.S. dollars” means the lawful currency of the United States; and

“EUR” or “euro” means the lawful currency of the member states of the European Union that adopted the single currency in accordance with the Treaty on the Functioning of the European Union, as amended from time to time.

Exchange Rates

The following tables show, for the periods indicated, certain information regarding the exchange rate between the rouble and the U.S. dollar, based on the official exchange rate quoted by the Central Bank of the Russian Federation (the “CBR”). These rates may differ from the actual rates used in the preparation of the Financial Statements and other financial information appearing in these Listing Particulars.

Roubles per U.S. dollar For each year from 2012 to 2017 High Low Average(1) Period end 2012 ...... 34.04 28.95 31.08 30.37 2013 ...... 33.47 29.93 31.91 32.73 2014 ...... 67.79 32.66 38.09 56.26 2015 ...... 72.88 49.18 60.96 72.88 2016 ...... 83.59 60.27 67.03 60.65 2017 ...... 60.75 55.84 58.33 57.60

(1) The average of the exchange rate for the relevant period, based on the rates in such period for each Russian business day (quoted by the CBR for that day) and each Russian non-business day (which is equal to the rate quoted by the CBR for the preceding Russian business day).

Roubles per U.S. dollar For each month from January to October 2018 High Low January ...... 57.05 55.83 February ...... 58.18 55.67 March ...... 57.76 56.37 April ...... 64.06 57.29 May ...... 63.49 61.26 June ...... 64.07 61.81 July ...... 63.49 62.10 August ...... 68.53 62.35 September ...... 69.97 65.59 October ...... 66.97 65.22

The exchange rate between the rouble and the U.S. dollar on 23 November 2018 as published by the CBR was RUB 65.61 per USD 1.00.

No representation is made that the rouble or U.S. dollar amounts in these Listing Particulars could have been converted into U.S. dollars or roubles, as the case may be, at any particular rate or at all. A market exists within the Russian Federation for the conversion of roubles into other currencies, but the limited availability of other currencies may tend to inflate their values relative to the rouble. Fluctuations in the exchange rate between the rouble and the U.S. dollar in the past are not necessarily indicative of fluctuations that may occur in the future.

Rounding

Some numerical figures included in these Listing Particulars have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that preceded them.

FORWARD-LOOKING STATEMENTS

These Listing Particulars contain forward-looking statements which relate to, without limitation, the Group’s plans, objectives, goals, strategies, future operations and performance, and anticipated developments in the power industry and the Russian and global economies. In addition, RusHydro may make forward-looking statements in future filings with the Irish or Russian or other securities authorities or in written materials, press releases and oral statements issued by or on behalf of them. These forward-looking statements are characterised by words such as “anticipate”, “estimate”, “expect”, “believe”, “intend”, “plan”, “predict”, “project”, “may”, “will”, “should” and similar expressions, but these expressions are not the exclusive means of identifying such statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause circumstances or the Group’s actual results, performance or achievements to be materially different from any future circumstances, results, performance or achievements expressed or implied by such statements. Such forward-looking statements are inherently based on numerous assumptions regarding, among other things:

• changes in the political, social, legal or economic conditions in the Russian Federation;

• the effects of, and changes in, the policies of the Government, changes in the President and his administration, the Prime Minister, the Government and the relevant ministries and state agencies;

• the effects of Russian and international political events;

• changes in the prices of electricity and capacity;

• changes in the operating costs of the Group, including the costs of labour;

• changes in the ability of the Group to fund its future operations and capital needs through borrowing or otherwise;

• changes in the ability of the Group to successfully implement any of its business or financing strategies;

• changes in the ability of the Group to integrate its businesses, including recently acquired businesses, and to realise anticipated cost savings and operational benefits from such integration;

• changes in the ability of the Group to form strategic alliances or to implement acquisition expansion or divestiture plans, including the ability to benefit from related cost savings synergies;

• the ability of the Group to obtain or extend the terms of the licences necessary for its business;

• the effects of regulatory and fiscal developments and legal proceedings;

• developments in, or changes to, the laws, regulations and Governmental policies affecting the Group’s businesses, including changes impacting environmental liabilities;

• inflation, interest rate and exchange rate fluctuations; and

• the success of the Group in identifying other risks to its businesses and managing the risks of the aforementioned factors.

This list of assumptions is not exhaustive. When relying on forward-looking statements, each investor should carefully consider the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal environment in which the Group operates. Such forward-looking statements speak only as at the date on which they are made. Accordingly, RusHydro does not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise, other than as required by applicable laws and regulations. RusHydro does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should not be viewed as the most likely or standard scenario.

CONTENTS

Page

IMPORTANT INFORMATION ABOUT THESE LISTING PARTICULARS ...... i

PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... iv

FORWARD-LOOKING STATEMENTS ...... vi

LIMITATION ON ENFORCEMENT OF CIVIL LIABILITIES ...... 2

OVERVIEW ...... 4

OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY ...... 6

OVERVIEW OF THE OFFERING ...... 8

RISK FACTORS ...... 12

USE OF PROCEEDS ...... 42

CAPITALISATION ...... 43

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION ...... 44

OPERATING AND FINANCIAL REVIEW ...... 47

BUSINESS ...... 66

MANAGEMENT AND CORPORATE GOVERNANCE ...... 89

PRINCIPAL SHAREHOLDERS ...... 110

RELATED PARTY TRANSACTIONS ...... 111

REGULATORY MATTERS ...... 113

INDUSTRY OVERVIEW ...... 133

THE ISSUER ...... 146

TERMS AND CONDITIONS OF THE NOTES ...... 148

THE LOAN AGREEMENT ...... 160

TAX CONSIDERATIONS ...... 185

SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM ...... 195

SUBSCRIPTION AND SALE ...... 197

GENERAL INFORMATION ...... 199

GLOSSARY ...... 201

FINANCIAL STATEMENTS OF RUSHYDRO GROUP ...... F-1

LIMITATION ON ENFORCEMENT OF CIVIL LIABILITIES

RusHydro is a public joint stock company incorporated under the laws of the Russian Federation. All RusHydro’s directors and executive officers named in these Listing Particulars reside in the Russian Federation. Moreover, the majority of the assets of RusHydro and substantially all of the assets of its directors and officers are located in the Russian Federation. As a result, it may not be possible for the Noteholders to:

• effect service of process within the United Kingdom upon any of RusHydro’s directors or executive officers named in these Listing Particulars; or

• enforce, in the English courts, judgments obtained outside England against the Borrower or any of its directors and executive officers named in these Listing Particulars in any action.

In addition, it may be difficult for the Noteholders to enforce, in original actions brought in courts in jurisdictions located outside the United Kingdom, liabilities predicated upon English laws. Courts in the Russian Federation will generally recognise judgments rendered by a court in any jurisdiction outside the Russian Federation if an international treaty providing for the recognition and enforcement of judgments in civil cases exists between the Russian Federation and the country where the judgment is rendered and/or a federal law is adopted in Russia that provides for the recognition and enforcement of foreign court awards. No such treaty for the reciprocal recognition and enforcement of foreign court judgments in civil and commercial matters exists between the Russian Federation and certain other jurisdictions (including the United Kingdom) and no relevant federal law on enforcement of foreign court judgments has been adopted in Russia, as a result of which new proceedings may have to be brought in the Russian Federation in respect of a judgment already obtained in any such jurisdiction against RusHydro or its officers or directors. However, RusHydro is also aware of some instances in which Russian courts have recognised and enforced foreign court judgments (including a judgment of an English court), on the basis of the principle of reciprocity and (in the case of enforcement of an English court judgment) the existence of a number of bilateral and multilateral treaties to which both the United Kingdom and the Russian Federation are parties. The courts determined that such treaties constituted grounds for the recognition and enforcement of the relevant English court judgment in Russia. In the absence of established court practice, however, it is difficult to predict whether a Russian court will be inclined in any particular instance to recognise and enforce an English court judgment on these grounds.

In addition, Russian courts have limited experience in the enforcement of foreign court judgments. The limitations described above, including the general procedural grounds set out in Russian legislation for the refusal to recognise and enforce foreign court judgments in the Russian Federation, may significantly delay the enforcement of such judgment or deprive the Issuer and/or the Noteholders of effective legal recourse for claims related to the investment in the Notes.

The Loan Agreement will be governed by English law and will provide for disputes, controversies and causes of action brought by any party thereto against RusHydro to be settled by arbitration in accordance with the rules of the LCIA (formerly the London Court of International Arbitration) (the “LCIA Rules”) and such arbitration also to be administered by the LCIA in accordance with the LCIA Rules. The place of such arbitration shall be London, England. The Russian Federation and the United Kingdom are parties to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Consequently, Russian courts should generally recognise and enforce in the Russian Federation an arbitral award from an arbitral tribunal in the United Kingdom on the basis of the rules of the New York Convention (subject to qualifications provided for in the New York Convention and compliance with Russian procedural regulations and other procedures and requirements established by Russian legislation).

The Arbitrazh Procedural Code of the Russian Federation (the “Arbitrazh Procedural Code”) sets out the procedure for the recognition and enforcement of foreign arbitral awards by Russian courts. The Arbitrazh Procedural Code also contains an exhaustive list of grounds for the refusal of recognition and enforcement of foreign arbitral awards by Russian courts, which grounds are broadly similar to those provided by the New York Convention.

The Arbitrazh Procedural Code and other Russian procedural legislation could change, and other grounds for Russian courts to refuse the recognition and enforcement of foreign courts’ judgments and foreign arbitral

awards could arise in the future. In practice, reliance upon international treaties may meet with resistance or a lack of understanding on the part of a Russian court or other officials, thereby introducing delay and unpredictability into the process of enforcing any foreign judgment or any foreign arbitral award in the Russian Federation. Furthermore, any arbitral award pursuant to arbitration proceedings in accordance with the LCIA Rules (and administered by the LCIA in accordance with the LCIA Rules) and the application of English law to the Loan Agreement may be limited by the mandatory provisions of Russian laws relating to the exclusive jurisdiction of Russian courts and the application of Russian laws with respect to bankruptcy, winding up or liquidation of Russian companies.

OVERVIEW

This overview may not contain all the information that may be important to prospective purchasers of the Notes and, therefore, should be read in conjunction with these entire Listing Particulars, including the more detailed information regarding the Group’s business and the financial statements and related notes included elsewhere in these Listing Particulars. Prospective purchasers of the Notes should also carefully consider the information set forth under the heading “Risk Factors”. Certain statements in these Listing Particulars include forward-looking statements that also involve risks and uncertainties as described under “Forward Looking Statements”.

Overview

RusHydro is one of the largest utility and infrastructure companies in Russia, and the leading hydropower generating company in Russia. It is the second largest power generation company in Russia and one of the largest listed hydropower generation companies in the world, in each case in terms of installed capacity. As at 30 June 2018, the aggregate installed electric capacity of the Group was 39,066 MW (including the entire installed capacity of the 2,997 MW Boguchanskaya HPP, which is a joint venture between RusHydro and UC RUSAL in which RusHydro has a 50 per cent. interest), which accounted for 16 per cent. of the total installed electricity generation capacity in Russia, according to Rosstat and the System Operator. As at 30 June 2018, the Group’s heat generation capacity was 18,500 GCal/h. The Group’s core businesses are the generation of electricity and the sale of electricity and capacity on the Russian wholesale and retail electricity markets, as well as the generation and sale of heat and hot water. Some of the markets in which the Group operates are subject to regulated pricing. The wholesale electricity and capacity markets are largely liberalised with the exception of the Far East region and certain other population areas and the majority of the Group’s sales are not subject to regulated prices. The retail market is still subject to significant price regulation and the majority of the Group’s sales of electricity on the retail market are subject to regulated margins. In the six months ended 30 June 2018, the Group generated 73.5 billion kWh of electric power (including 6.2 billion kWh of electric power generated by Boguchanskaya HPP) and 17.7 million GCal of heat and had revenues of RUB 200.9 billion (including Government grants and excluding revenues of Boguchanskaya HPP). In 2017 and 2016, the Group generated 140.2 billion kWh and 138.8 billion kWh of electric power (including 13.3 billion kWh and 13.9 billion kWh of electric power generated by Boguchanskaya HPP, respectively), 29.9 million GCal and 31.5 million GCal of heat and had revenues of RUB 380.9 billion and RUB 391.3 billion, respectively (including Government grants and excluding revenues of Boguchanskaya HPP).

The Group’s generation facilities are located in the integrated energy systems of Russia’s electricity sector (see “Industry Overview”), which span across the entire territory of the Russian Federation, as well as Armenia, where RusHydro owns and operates the 561 MW Sevan-Hrazdan cascade of seven hydropower plants. The Group has a diversified asset base with over 100 major power plants across all the major regions of Russia, including 72 HPPs (including two HPPs under operational lease, one HPP not currently operational and the Boguchanskaya HPP, a joint venture with UC RUSAL), 35 major thermal power plants and four other types of renewable energy sources.

The Group sells electricity and capacity on the wholesale electricity market and, through its electricity retail companies, on the retail electricity market of the Unified Energy System of Russia and in five isolated power systems of the Far East region. The Group’s operations in the Far East region are vertically integrated, making it the leading operator of electricity and heat power generation assets, electricity transmission and distribution networks, as well as heat transmission and distribution networks in the region. In addition, the Group's holdings include engineering and R&D assets. See “Industry Overview — Overview of the Electricity Market”. RusHydro’s headquarters are in Moscow, Russian Federation.

RusHydro is implementing an investment programme with the primary objectives of renovating and modernising the Group’s power generation facilities, refurbishing its electricity and heat transmission and distribution facilities, as well as developing greenfield and brownfield hydropower, fossil fuel and alternative renewables power generation facilities. It is currently intended that the principal sources of funding of the investment programme will be the Group’s own funds, proceeds from capital raising activities, borrowings and, for certain projects in the Far East region, Government funding. As a result of these projects and upgrades, RusHydro expects the installed electricity capacity of the Group to increase by approximately 1,500 MW by the end of 2022.

RusHydro now operates four electricity retail companies in different pricing zones, including PJSC Krasnoyarskenergosbyt, PJSC RESK (Ryazan Power Distributing Company), JSC Chuvashskaya Energy Retail Company and JSC ESС RusHydro. In the Far East of Russia, RusHydro has a 52.1 per cent. ownership stake in PJSC DEK, which acts as a single electricity retail operator in the non-pricing zone of the Far East.

The Group believes that it is of strategic importance to the Russian Government as a platform for the management of the country’s hydropower assets and as a supplier of electricity and an operator of extensive integrated infrastructure in the Far East region, where the Group owns and operates electricity and heating generating assets, more than 100,000 kilometres of electricity grids and approximately 4,000 kilometres of heat distribution networks.

OVERVIEW OF THE TRANSACTION STRUCTURE AND THE SECURITY

The following summary description should be read in conjunction with, and is qualified in its entirety by, “Terms and Conditions of the Notes” and “Loan Agreement” set out elsewhere in these Listing Particulars.

The transaction will be structured in the form of a loan (the “Loan”) by the Issuer to RusHydro. The Issuer will issue the Notes, which will be limited recourse secured loan participation notes of the Issuer issued for the sole purpose of funding the Loan. The Notes will be constituted by, be subject to, and have the benefit of, the Trust Deed. The obligations of the Issuer to make payments under the Notes are limited recourse obligations and shall constitute an obligation only to account to the Noteholders for an amount equal to the sums of principal, interest and/or additional amounts (if any), as the case may be, actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement (less any amounts in respect of the Reserved Rights) after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sums or in respect of the Notes and for which the Issuer has not received a corresponding payment in respect thereof.

As provided in the Trust Deed, the Issuer will charge by way of first fixed charge in favour of the Trustee for the benefit of the Noteholders as continuing security for its payment obligations in respect of the Notes (the “Charge”):

(a) all principal, interest and other amounts payable by RusHydro to the Issuer as lender under the Loan Agreement;

(b) the right to receive all sums that may be or become payable by RusHydro under any claim, award or judgment relating to the Loan Agreement; and

(c) all the rights, title and interest in and to all sums of money now or in the future deposited in accounts with The Bank of New York Mellon, London Branch in the name of the Issuer (the “Accounts”) specified in the Loan Agreement and the debts represented thereby (including interest from time to time earned on the Accounts, if any), provided that Reserved Rights and any amounts relating to Reserved Rights are excluded from the Charge.

In addition, the Issuer with full title guarantee will assign absolutely to the Trustee for the benefit of the Trustee and the Noteholders, all the rights, title, interest and benefits, both present and future, that have accrued or may accrue to the Issuer as lender under or pursuant to the Loan Agreement (including, without limitation, all monies payable to the Issuer and any claims, awards and judgments in favour of the Issuer in connection with the Loan Agreement and the right to declare the Loan immediately due and payable and to take proceedings to enforce 6

the obligations of RusHydro thereunder) other than any rights, title, interests and benefits which are subject to the Charge and other than the Reserved Rights and any amounts relating to the Reserved Rights. As a consequence of such assignment, the Trustee will assume the rights of the Issuer under the Loan Agreement as set out in the relevant provisions of the Trust Deed.

The Issuer will covenant not to agree to any amendments to or any modification or waiver of, or authorise any breach of, the terms of the Loan Agreement unless the Trustee has given its prior written consent. The Issuer will further agree to act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement (subject to being indemnified and/or secured and/or prefunded to its satisfaction by RusHydro), save as otherwise provided in the Trust Deed and except in relation to the Reserved Rights. Any amendments, modifications, waivers or authorisations made with the Trustee’s consent shall be notified to the Noteholders in accordance with Condition 14 of the Terms and Conditions relating to the Notes and shall be binding on the Noteholders.

The security under the Trust Deed will become enforceable upon the occurrence of a Relevant Event (as defined in the Trust Deed).

The Issuer will have no other financial obligations under the Notes and no other assets of the Issuer will be available to Noteholders. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received by or on behalf of the Issuer or the Trustee from the assets securing the Notes. Noteholders shall look solely to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer’s other assets in respect thereof. In the event that the amount due and payable by the Issuer under the Notes exceeds the sums so received, the right of any person to claim payment of any amount exceeding such sums shall be extinguished, and Noteholders may take no further action to recover such amounts.

The Loan, being the asset backing the Notes, has characteristics that demonstrate capacity to produce funds to service any payments due and payable on the Notes.

OVERVIEW OF THE OFFERING

Issuer RusHydro Capital Markets DAC. The Issuer is not a subsidiary of RusHydro.

RusHydro PJSC “RusHydro” incorporated under the laws of the Russian Federation as a public joint stock company with its registered office at 43 building 1, Dubrovinskogo Street, Krasnoyarsk, 660017, Russian Federation.

Notes Offered RUB 15,000,000,000 8.975 per cent. Loan Participation Notes due 2022.

Trustee BNY Mellon Corporate Trustee Services Limited

Principal Paying Agent The Bank of New York Mellon, London Branch

Registrar, Paying Agent and Transfer The Bank of New York Mellon SA/NV, Luxembourg Branch Agent

Issue Price of the Notes 100 per cent. of the principal amount of the Notes

Issue Date 27 November 2018

Maturity Date 27 January 2022

Interest 8.975 per cent. per annum

Transfer Agent The Bank of New York Mellon SA/NV, Luxembourg Branch

Interest On each Interest Payment Date, being 27 January and 27 July in each year commencing on 27 January 2019, the Issuer shall account to the Noteholders for an amount equivalent to amounts of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan is equal to 8.975 per cent. per annum (as set out in Clause 4 of the Loan Agreement).

Status The Notes are limited recourse secured obligations of the Issuer. The Notes will constitute the obligation of the Issuer to apply an amount equal to the proceeds from the issue of the Notes solely for the purpose of financing the Loan and to account to the Noteholders for amounts equivalent to sums of principal, interest and additional amounts (if any) actually received and retained (net of tax) by, or for the account of, the Issuer pursuant to the Loan Agreement, less any amount in respect of Reserved Rights, all as more fully described in “Terms and Conditions of the Notes – Status”.

Currency Exchange Payments of principal and interest in respect of each Note will be made in Russian Roubles. However, each Noteholder has the option to make an irrevocable election, pursuant to Condition 7.1, to receive a forthcoming payment of principal or interest in U.S. Dollars. In respect of any Notes for which a Noteholder has made such an irrevocable election to receive a payment in U.S. Dollars, the Principal Paying Agent will, pursuant to Condition 7.1, purchase the required U.S. Dollars, using the Russian Rouble amount received in accordance with the Loan Agreement, at a purchase price calculated on the basis of the Applicable Exchange Rate (as defined in “Terms and Conditions of the Notes”) and transfer the purchased amount in U.S. Dollars to the Noteholder’s U.S. Dollar account. If for any reason, the Principal Paying Agent cannot 8

purchase U.S. Dollars, the relevant payment of interest or principal will be made to the relevant Noteholder in Russian Roubles, as more fully described in “Terms and Conditions of the Notes— Currency Exchange and Payments”. The transaction for the purchase of U.S. Dollars with Russian Roubles executed by or on behalf of the Principal Paying Agent may include customary fees and/or spreads and/or commissions in relation to the execution of such trade. Investors shall have no recourse to the Issuer, RusHydro, the Principal Paying Agent or any other person in the event that the amount of U.S. Dollars that an investor receives in respect of a payment of principal or interest is lower than the amount of U.S. Dollars that such investor could have realised itself if it had exchange Russian Roubles in the foreign exchange market. The terms of appointment and the limitations of liability of the Principal Paying Agent with respect to the purchase and payment of the U.S. Dollars amount for Russian Roubles are set forth in Condition 7.1, and the Agency Agreement.

Security The Notes will be secured by a first fixed charge on:

• all principal, interest and other amounts payable by RusHydro to the Issuer as Lender under the Loan Agreement and the right to receive all sums payable by RusHydro under any claim, award or judgment relating to the Loan Agreement; and

• all of the Issuer’s rights, title and interest in and to all sums of money held from time to time in the accounts specified in the Loan Agreement, together with the debts represented thereby (including interest from time to time earned thereon, if any), pursuant to the Trust Deed, in each case, other than certain Reserved Rights and the Issuer’s right to any amounts in respect of such Reserved Rights.

Assignment The Issuer with full title guarantee will assign absolutely its rights under the Loan Agreement (save for those rights charged or excluded as described above) to the Trustee upon the closing of the offering of the Notes.

Form The Notes will be issued in fully registered form in the denominations of RUB 10,000,000 and higher integral multiples of RUB 100,000. The Notes will be represented by a Global Certificate registered in the name of a nominee, which will be exchangeable for Definitive Notes in the limited circumstances described under “Summary of Provisions Relating to the Notes in Global Form”.

Initial Delivery of Notes On or before the Issue Date, the Global Certificate will be registered in the name of a nominee for a common depositary, acting on behalf of Euroclear and Clearstream, Luxembourg.

Optional Redemption for Illegality or The Loan may be prepaid at RusHydro’s option in whole, but not in Increased Costs part, at the principal amount thereof, together with accrued and unpaid interest and additional amounts, if any, to the date of repayment, for certain tax reasons or by reason of certain increased costs or illegality.

If RusHydro prepays the Loan, whether for tax reasons or by reason of increased costs or illegality, all the Notes then remaining outstanding will thereupon become due and redeemable or

repayable at 100 per cent., of their principal amount together with the accrued and unpaid interest and additional amounts, if any.

RusHydro or any of its subsidiaries may also purchase Notes which may be held, reissued, resold in the open market, or, at the option of RusHydro or any of its subsidiaries, surrendered to the Issuer for cancellation. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by RusHydro in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest, if any.

Optional Redemption by the Upon the occurrence of a Change of Control (as defined in the Loan Noteholders upon a Change of Control Agreement), the Notes held by any Noteholder may be redeemed at the option of such Noteholder at their principal amount together with accrued and unpaid interest and additional amounts, if any. Upon exercise of any such option, a corresponding portion of the Loan must be prepaid in whole or in part by RusHydro at 100 per cent. of its principal amount, together with accrued and unpaid interest and additional amounts, if any, all as more fully described in Condition 6 of the Terms and Conditions of the Notes.

Optional Redemption by the Issuer At any time on or after the date three months prior to the Maturity under Par Call Option Date, RusHydro may prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the relevant repayment date.

In the case of a partial redemption, the Notes shall be selected for redemption either: (a) in accordance with the procedures of the relevant Clearing Systems; or (b) if the Notes are not held in a Clearing System or if the relevant Clearing Systems prescribe no method of selection, the Notes will be redeemed on a pro rata basis according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection so made.

Relevant Events In the case of certain events in relation to the Issuer (as defined in the Trust Deed), the Trustee may, subject as provided in the Trust Deed, enforce the security created in the Trust Deed in favour of the Noteholders.

Withholding Tax All payments in respect of the Notes by or on behalf of the Issuer will be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax, other than as required by law. In such a case, the corresponding amounts payable by RusHydro to the Issuer under the Loan will be required (subject to certain exceptions) to be increased to the extent necessary to ensure that the Noteholders receive the amounts which they would have received had no such deduction or withholding been required. The sole obligation of the Issuer in this respect will be to account to the Noteholders for sums equivalent to the sums received from RusHydro under the Loan Agreement.

If any payments to be made by RusHydro under the Loan Agreement become subject to any tax imposed by the Russian Federation or Ireland (or following the enforcement of the security

created by the Trust Deed, the then jurisdiction of the Trustee) or any taxing authority thereof, or certain other circumstances result in the Issuer incurring any increased costs associated with the Loan, RusHydro will be required to pay an additional amount necessary to compensate the Issuer for the tax withheld or the increased cost to the Issuer.

Negative Pledge and other Covenants The Issuer will have the benefit of a negative pledge and certain other covenants granted by RusHydro, as fully described in the Loan Agreement.

Events of Default In the case of an Event of Default that is continuing (as defined in the Loan Agreement), the Trustee may, subject as provided in the Trust Deed, declare all amounts payable under the Loan Agreement by RusHydro to be due and payable.

Ratings The Notes are expected to be rated “BBB-” by Fitch, “Ba1” by Moody’s and “BBB-” by Standard & Poor’s. Each of Fitch, Moody’s and Standard and Poor’s is established in the EU and registered under Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies.

Listing Application has been made to Euronext Dublin for the approval of this document as Listing Particulars. Application has been made to Euronext Dublin for the Notes to be admitted to the Official List and trading on the Global Exchange Market which is the exchange regulated market of Euronext Dublin. The Global Exchange Market is not a regulated market for the purposes of Directive 2014/65/EU.

Governing Law The Notes, the Loan and any non-contractual obligations arising out of or in connection with them shall be governed by and construed in accordance with English law.

Selling Restrictions The Notes are subject to selling restrictions in the United Kingdom, the United States, Ireland and the Russian Federation, and other jurisdictions where the Notes may be offered, sold or delivered or these Listing Particulars may be distributed. See “Subscription and Sale”.

Security Codes ISIN: XS1912654677

CFI: DYFXFR

FISN: RUSHYDRO CAPITA/ASST BKD 22001231 R

RISK FACTORS

An investment in the Notes involves a high degree of risk. Prospective investors should consider carefully, among other things, the risks set forth below and the other information contained in these Listing Particulars prior to making any investment decision with respect to the Notes. The risks highlighted below could have a material adverse effect on RusHydro’s business, financial condition, results of operations or prospects, which, in turn, could have a material adverse effect on its ability to service its payment obligations under the Loan Agreement and, as a result, the ability of the Issuer to make payments under the Notes. In addition, the value of the Notes could decline due to any of these risks and prospective investors may lose some or all of their investment. Prospective investors should note that the risks described below are not the only risks RusHydro or the Issuer faces. These are the risks RusHydro and the Issuer consider material. There may be additional risks that RusHydro and the Issuer currently consider immaterial or of which they are currently unaware and any such risks could have similar effects to those set out below. RISKS ASSOCIATED WITH THE GROUP AND ITS OPERATIONS

The Russian Federation controls the Group and has a substantial degree of influence over its operations through its regulatory, taxation and legislative powers and also controls some of the key players in the Russian power market, which may result in the Group operating its business in a manner that does not provide adequate economic returns to the Group

The Russian Federation, represented by the Federal Agency for the Management of the State Property (“Rusproperty”), currently holds 60.56 per cent. of the charter capital of RusHydro. In addition, based on the size of the Russian Government’s stake in RusHydro, it is able to elect the majority out of 13 members of RusHydro’s board of directors (the “Board of Directors”), and currently six members of the Board of Directors (including the chairman of the Board of Directors) are representatives of the Russian Federation, who are obliged to vote on the Board of Directors’ meetings in accordance with Directives issued by the Russian Government.

Given its majority stake in the charter capital of RusHydro, the Russian Federation has significant control through its voting power at the General Shareholders’ Meeting of RusHydro on such matters as dividend payments and appointment of management. In addition, the Russian Federation exercises significant influence over the Group’s strategy and business through its majority representation on the Board of Directors of RusHydro. The Russian Federation may take decisions in relation to the Group, including in connection with any potential further restructuring of the Russian electricity industry, that may not be driven by purely commercial considerations but rather motivated by political, economic or social goals of the Russian Federation. In addition, Russian social or infrastructure needs may dictate the construction of facilities in remote regions or in order to maintain emergency capacity. Therefore, the Russian Government may compel RusHydro to construct or acquire and manage certain power generation facilities (such as those in remote regions of Russia) which may not deliver adequate economic returns to the Group and may entail additional capital expenditures which the Russian Government may not fully fund.

RusHydro is also included in the list of special state-owned companies that Rusproperty is required to manage in cooperation with the Russian Government, so Rusproperty must agree in advance its voting instructions with the Russian Government. In some cases, this decision making process may delay decision-making at RusHydro and adversely affect its ability to timely meet challenges in the market.

The Russian Federation also exercises substantial influence over the Group’s operations through its regulatory, taxation and legislative powers. The Group’s investment programme is developed based on policies prescribed by the Russian Government and must be approved by the Russian Government. The Group operates in both the retail and wholesale markets and sells electricity and capacity in certain regions under contracts where the price is determined by the state authorities (“Regulated Contracts”), which comprised 41.6 per cent. and 41.9 per cent. of the sales volumes of electricity of the Group and 55.4 per cent. and 55.8 per cent. of the sales volumes of capacity of the Group in the years ended 31 December 2017 and 2016, respectively. Tariffs may be set at levels which do not meet the investment and maintenance costs, which would have a negative effect on the Group. Also, the Russian Government may make changes to the electricity and capacity trading rules that are not favourable to the Group.

Furthermore, the Russian Federation also controls, directly or indirectly, some of the key players in the Russian electricity market, such as Rosenergoatom, which operates all nuclear power plants in the Russian Federation, PJSC Inter RAO (“Inter RAO”), which imports and exports electricity and owns and manages certain generation assets in Russia and abroad, PJSC “Federal Grid Company of Unified Energy System” (“Federal Grid Company”), which is the sole operator of the unified electricity transmission grid system of the Russian Federation, PJSC “ROSSETI” (“Rosseti”), which operates interregional and regional electricity distribution facilities in the Russian Federation, as well as some large customers of the Group. The interests of these companies may conflict with those of the Group, and the Russian Federation may choose to favour the interests of these companies over the interests of the Group and cause the Group to conduct transactions with these companies that may not be in the Group’s best interests or consistent with its strategy. The Group has engaged and will continue to engage in transactions with related and other parties, including the Russian Federation and other companies controlled by the Russian Federation or in which the Russian Federation holds a significant interest, which may result in the Group entering into transactions that are inconsistent with its strategy or commercial or market rationales. For example, in 2010 RusHydro acquired five retail electricity companies together with the retail management company from Public Joint Stock Company “RAO Energy Systems of the East” (currently, Joint Stock Company “RAO Energy Systems of the East” – “RAO ES of the East”), which were subsequently exchanged for shares of Inter RAO in 2011; both RAO ES of the East and Inter RAO are controlled by the Russian Federation. RusHydro further acquired the Russian Federation’s majority share in RAO ES of the East, which is a vertically-integrated holding comprising power and heat generating plants, transmission and distribution assets in the Russian Far East region, and consolidated almost 100 per cent. of the shares in the charter capital RAO ES of the East in 2016. See “—The integration of RAO ES of the East poses certain risks to the Group”. See also “Related Party Transactions”.

Any or all of these risks, if they materialise, could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

A large portion of the Group’s plants and equipment have exceeded their useful life

As at 30 June 2018, 182 of the Group’s power units (constituting 41.3 per cent. of its total number of power units including power units of Boguchanskaya HPP), with an aggregate installed capacity of 10.767 MW (constituting 29.4 per cent. of the Group’s installed capacity including power units of Boguchanskaya HPP) had exceeded their useful life. These facilities generally have lower reliability and efficiency in comparison to newer facilities and require more costly ongoing maintenance and repair works. Moreover, when upgrading old facilities, the work is performed in several stages as parts of the facility are required to continue to operate, which increases the time and costs of the upgrade work. In addition, several hydro power facilities of the Group may no longer meet certain applicable safety requirements. As a result, the Group’s facilities may be particularly susceptible to technical failures and emergencies. The ageing condition of generation assets of the Group could result in failures to provide a steady supply of power, a deterioration in performance, an increased risk of industrial accidents and unfavourable environmental consequences such as oil discharge into rivers from hydro-generation equipment or land flooding. Interruptions, if they occur, could lead to fines and penalties being imposed on the Group and a deterioration in the Group’s operating performance, as well as incurrence of additional expenses in connection with repairs of assets damaged as a result of industrial accidents, which may not be covered by insurance. See “—Insurance carried by the Group may not protect it adequately against relevant risks” and “—Some of the Group’s operations are located in remote areas with harsh climates and in politically less stable regions of the Russian Federation”. In addition, according to the Group’s accounting policies, impairment reviews of property, plant and equipment are carried out when there is an indication that impairment may have occurred, or where it is otherwise required to ensure that property, plant and equipment are not carried above their estimated recoverable amounts. The impairment review process is complex, requires significant management judgments and is based on assumptions that are affected by projected future market and economic conditions, all of which are inherently uncertain. See note 7 to the Annual Financial Statements. Impairment reviews have in the past resulted in the Group recording impairments of property, plant and equipment. Any impairment charges in the future may have a significant negative impact on the Group’s financial condition, results of operations and prospects.

The Group requires significant capital to finance its investment programme

Reflecting the fact that a large portion of the Group’s power units have exceeded their useful life, the Group will need to undertake significant capital expenditure to maintain and modernise its existing facilities as well as to construct new facilities, including increasing its installed capacity as required by its investment programme. If the Group is unable to obtain adequate financing for such expenditure on acceptable terms, or at all, it may be required to delay or cancel all or parts of its investment programme, fall behind in its maintenance obligations or be unable to take advantage of opportunities. A failure to obtain adequate financing could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. 13

Without significant capital investment in its ageing facilities, it is possible that the Group will not be able to maintain the levels of overall productivity that are required for the Group to remain profitable. Even if the Group is able to attract the required financing to fund its investment programme, there is no assurance that it will be able to buy new equipment or modernise its existing facilities due to the demand for such equipment and services from other companies in the power industry, many of which are also undergoing modernisation programmes. If the Group is unable to modernise its plants and equipment, it may not be able to maintain its productivity, which could have a material adverse effect on its business, financial condition, results of operations and prospects.

The Group has limited experience in managing large-scale projects

The Group has limited experience in managing or implementing large-scale construction and modernisation projects, including some of those contemplated in its investment programme. The Group is reliant on the services of external contractors in order to implement most of the projects in its investment programme. The Group may not be able to monitor adequately whether its contractors are in full compliance with all applicable environmental, industrial, health and safety and licensing requirements, or obtain complete information about such contractors’ actual operations. If any of the Group’s key contractors terminates or is unable to perform its obligations, the Group may find it difficult or time-consuming to replace that contractor with an equally qualified contractor. Implementation of the Group’s projects may be also affected by increases in the cost of equipment and materials and the availability of supplies of equipment. As a result, the implementation of the Group’s investment programme may be materially adversely affected. In addition, due to the relatively limited number of companies that are able to handle such projects, including contractors and equipment manufacturers, and the lack of qualified personnel at such contractors, there is no assurance that the Group will be able to hire contractors for such projects within the planned timeframes or according to the planned budget. Any such failure could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group must observe certain financial and other restrictive covenants under the terms of its indebtedness

As at 30 June 2018, total financial debt of the Group amounted to RUB 185.3 billion. Under the terms of some of its loan agreements and other indebtedness, the Group is subject to financial and other restrictive covenants that limit its ability to, among other things, create liens or other encumbrances on its property, make acquisitions or investments, sell, transfer or otherwise dispose of assets or receivables, engage in mergers, acquisitions or consolidations, make changes to the nature of its business or pay dividends. The terms of the Group’s indebtedness also require it to maintain specified financial ratios. For example, the Group is required to maintain (i) a specified ratio of consolidated gross debt to consolidated EBITDA, and (ii) a specified ratio of consolidated EBITDA to interest payments. The Group’s ratio of net financial debt to EBITDA was 1.0 as at 30 June 2018. However, the Group’s ability to attract further financing may be adversely affected due to the Group’s financial and restrictive covenants. Moreover, these financial ratios and other restrictions could hinder the Group’s ability to carry out its business strategy. In addition, any breach of these covenants could result in an event of default under the terms of its indebtedness, causing some or a material part of the Group’s indebtedness, including the Notes, to become immediately due and payable. Any such action could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Russian power market continues to experience relative uncertainty as a result of the liberalisation of the Russian power sector, including as to the extent and continued availability of tariffs in some areas of operation

The Russian power industry has undergone substantial restructuring since 2001. See “Industry Overview — Sector Reform”. This restructuring aimed to achieve, among other things, changes in the regulatory framework of the power industry, the development of competitive electricity and capacity markets, and the gradual expansion of those competitive markets, with the goal of reducing the percentage of output subject to regulated prices (tariffs).

From 1 January 2011, the liberalisation of the Russian wholesale electricity and capacity markets, in which electricity and capacity prices are established on the basis of supply and demand, was deemed to have been completed. However, a substantial geographical part of the wholesale capacity market (the second pricing zone) remained subject to pricing regulation in respect of capacity sales by the Group’s HPPs until the introduction of full liberalisation of pricing starting from 1 May 2016. Furthermore, certain exceptions exist with respect to the Republic of Komi, Arkhangelsk and Kaliningrad Regions, regions of North Caucasus, the Republic of Tuva, Buryatia and the Far East, which remain subject to tariffs. Also, the process of liberalisation did not extend to household electricity prices, which remain subject to tariffs, nor is the creation of a free market for transmission, distribution and dispatch services currently contemplated.

The restructuring has also led to the break-up of Open Joint-Stock Company Unified Energy System of Russia (“RAO UESR”), previously the largest state-controlled power holding company, and certain other power companies into the following separate businesses: electricity generation; transmission and distribution; the sale of electricity to retail customers; and repairs and servicing. Generation, sales and repair companies now engage in competition with each other. As part of the restructuring process, the rules governing the Russian power market, including the rules related to market liberalisation, the determination of tariffs for electricity and capacity, the operation of the capacity market and the framework for relations between power generators and consumers have all undergone significant change.

In addition, capacity and electricity are treated as separate products and may be sold under unregulated contracts at unregulated prices and/or under Regulated Contracts.

According to the current rules, Regulated Contracts must be concluded for the sale of electricity and capacity to suppliers whose customers are individuals or entities that are treated as individuals. See “Industry Overview — Overview of the Electricity Market”. The Group is bound by these rules to enter into agreements for the sale of electricity and capacity at tariffs. Thus, part of the Group’s revenue is derived from tariffs which may not provide adequate economic returns to cover related expenses incurred by the Group. See also “—The Russian Federation controls the Group and has a substantial degree of influence over its operations through its regulatory, taxation and legislative powers and also controls some of the key players in the Russian power market, which may result in the Group operating its business in a manner that does not provide adequate economic returns to the Group”.

As a result of these significant changes and notwithstanding the substantial completion of the restructuring, the Russian power market continues to operate in conditions of relative uncertainty and price volatility, including as to the extent and impact of the continued operation in some areas of tariffs. The Group may, therefore, be subject to a large number of operational, business, technical, managerial, regulatory and other risks, which are currently difficult or impossible to predict and which are not within its control. The changes described above and the uncertainty associated with them may have a material adverse effect on the business, financial condition, results of operations and prospects of the Group.

In addition, several of the Group’s operating companies in certain territories, including the Far East, are entitled to Government subsidies or grants to support their operations, including, inter alia, for purchases of fuel. During the six months ended 30 June 2018, Government subsidies received by the Group increased by RUB 13,236 million to RUB 20,024 million, as compared to RUB 6,788 million for the six months ended 30 June 2017 as a result of RUB 13,196 million subsidy under the Resolution of the Russian Government No. 895 “On Achievement of Basic Rates (Tariffs) for Electric Power (Capacity) in the Territories of the Far East Federal Region” (“Resolution No. 895”) received in compensation for a decrease in tariffs in five regions of the Far East. During the year ended 31 December 2017, Government subsidies received by the Group increased by RUB 15,495 million, or 89.8 per cent., to RUB 32,745 million, as compared to RUB 17,250 million for the year ended 31 December 2016 as a result of a subsidy of RUB 17,254 million under the Resolution No. 895. During 2016 and 2017, the Group received Government subsidies in the following subsidised territories: Kamchatsky territory, the Sakha Republic (Yakutia), Magadan Region and other Far East regions. Tariff setting will continue to apply to certain markets and regions in which the Group operates and no assurance can be given that social and other factors will not cause such tariffs to be set at rates that are not sufficient to cover the fixed expenses of the Group or that the Group will be able to obtain Government subsidies to cover its losses or unreceived revenues, which could have a material adverse effect on the business, financial condition, results of operations and prospects of the Group.

The integration of RAO ES of the East poses certain risks to the Group

Between 2011 and 2013, the Russian Government transferred a 55.96 per cent. stake in RAO ES of the East, a Russian power generation, distribution and retail holding company, to RusHydro. During the acquisition of RAO ES of the East, the following companies became part of the Group: Public Joint-Stock Company “DEK”, Joint- Stock Company “DGK”, Joint-Stock Company “DRSK”, Public Joint-Stock Company “Yakutskenergo”, Public Joint-Stock Company “Kamchatskenergo”, Public Joint-Stock Company “Magadanenergo” and Public Joint-Stock Company “Sakhalinenergo”. In 2016, RusHydro consolidated 99.98 per cent. of the shares in the charter capital of RAO ES of the East.

RAO ES of the East is a vertically-integrated power holding in the Far East region of Russia, comprising power and heat generating plants, transmission and distribution assets. Unlike other Russian power sector companies, which were subject to the power sector reforms, which separated generation, transmission and distribution assets, RAO ES of the East was generally excluded from this restructuring due to the limited potential

for competition in the sparsely populated and industrialised Far East region of Russia. As such, RAO ES of the East has distribution and transmission businesses as well as thermal power plants.

Further integration of RAO ES of the East within the Group, as well as operations in the Far East region, poses certain risks.

The integration of RAO ES of the East’s assets and operations, including personnel, IT and accounting systems, will continue to require significant attention from the Group’s management and may be costly, due to the differing nature of RAO ES of the East’s vertically-integrated assets, its location in the Far East region of Russia and the rationalisation of RAO ES of the East’s assets that will be needed in due course. Historically, the Far East region of Russia has suffered from a shortage of qualified employees of working age, and the Group expects that this may also hinder its efforts to manage and integrate the assets and operations of RAO ES of the East.

At the time of the acquisition by the Group, RAO ES of the East was substantially leveraged with debt. In March 2017, the Group received financing from VTB, the proceeds of which were used to reduce the indebtedness of RAO ES of the East and improve the financial stability of the Group’s operations in the Far East region. No assurance can be given that the Group will not need to obtain further financing for its operations in the Far East region.

In addition, RAO ES of the East’s assets require significant investment to upgrade. Alternatively, the Group will consider rationalising RAO ES of the East’s assets and some older assets may be decommissioned. RAO ES of the East may experience difficulties in funding its investment programme, which has been historically financed by the Russian Government through equity investment (including the Government’s cash contribution to RusHydro of RUB 50 billion in 2012 which has been and is being utilised for the construction of Blagoveshenskaya CHP, Yakutskaya GRES-2, Sakhalinskaya GRES-2 and Sovetskaya Gavan’ CHP). The Far East region is subject to tariff regulation both in the wholesale and retail markets. See “Industry”. The tariffs are set at rates that are only sufficient to generally cover the expenses of the Group companies thus leaving deficit of funding for further development. The Group receives subsidies from regional budgets to compensate for reduced tariffs. As the Group has replaced the Russian Federation as the principal owner of RAO ES of the East, no assurances are made that the Russian Government will continue to extend state support to the Group in order to fund the investment programme and operations of RAO ES of the East or continue to provide such subsidies.

If any or all of the above risks materialise, the Group’s business, financial condition, results of operations and prospects may be materially adversely affected.

Increased competition may adversely affect the Group if it is unable to compete effectively in the future

Although the Group has operated in a competitive electricity and capacity market for a number of years, the scale of the competition has increased significantly in recent years as a result of the reduction in the volumes of electricity and capacity covered by Regulated Contracts in the course of the power sector reform (see “Industry”). In addition, new generation facilities will also be commissioned and many of the Group’s competitors have announced plans to implement investment programmes in order to modernise or expand their generation facilities. If the Group is unable to compete effectively with other suppliers of electricity and capacity in the future, its business, financial condition, results of operations and prospects may be materially adversely affected. See “Business — Principal Operations — Electricity Retail”.

Demand for electricity in the Russian Federation may not increase at the same rate or by the same volume as the Russian Government has assumed, which assumption was used by the Group for the purposes of the formulation of its capital expenditure plans, which may result in a lower load factor for the existing and newly commissioned capacity of the Group and other Russian power companies, leading to overcapacity in the market or lower sales prices

The Group’s current investment programme is generally based on the Russian Government’s forecasts of growth in electricity consumption in the Russian Federation, including the forecasts of the Ministry of Energy, which in turn impacts the Group’s programmes of commissioning of new facilities and decommissioning of obsolete ones. The formulation of this programme also involved the use of long-term forecasting models, which necessarily contain a number of assumptions, including assumptions relating to future electricity consumption patterns and prices. As a result of the high risk of inaccuracy that is inherent in these models, as well as the practical difficulties in attempting to revise the investment programme once significant progress has been made in implementing investment decisions, the Group may be unable to generate expected returns on its investments.

In particular, if the actual growth in demand for electricity in the Russian Federation is lower than has been forecast, the load factor (a measure of the output of a power plant compared to the maximum output it could produce) of the Group may not increase in line with current expectations. As a result, the Group may be unable to realise expected returns on its investments in facilities and infrastructure, which may materially adversely affect the Group’s business, financial condition, results of operations and prospects.

Customers may delay or fail to make payments to the Group for the electricity, capacity and heat supplied by it and, in the case of Regulated Contracts entered into by the Group, only limited sanctions apply to such customers

The Group sells a considerable part of its electricity and capacity on the wholesale market under Regulated Contracts. See “Industry Overview — Overview of the Electricity Market”. The customers under these Regulated Contracts are assigned by the operator of the wholesale market (the “Commercial Operator”) to certain generators on the basis of several factors, including forecasts of electricity generation and consumption. The Commercial Operator is entitled to terminate the electricity supply to a non-paying customer only if the Market Council holds that the customer has made certain repeated breaches of its supply contract. For example, the Commercial Operator may terminate supply if the customer has failed to pay or has delayed payment for electricity/capacity supplied within two settlement periods or fails to provide sufficient security for its obligations.

Many of these non-paying customers are regional electricity retail companies, which resell the electricity that they receive from an electricity generation company to end-consumers. As a result, regional electricity retail companies are highly vulnerable to the ability or willingness of their end-consumers to pay. Some of these end- consumers, including individuals or state and municipal enterprises and institutions, have in the past been late with payments, or have failed to pay at all, for the electricity supplied to them, in part due to their poor financial condition and also as a result of regulatory and technical constraints.

As at 30 June 2018, RusHydro, the Group’s largest participant of the wholesale electricity and capacity markets and the Group’s largest operating profit segment, had approximately RUB 2.9 billion in arrears under its Regulated Contracts for electricity and capacity on the wholesale market that had been supplied up to 30 June 2018, with the largest amount of unpaid payments attributable to guaranteeing suppliers located in the North Caucasus region and the Republic of Kalmykia. Of these arrears, approximately 17 per cent. arose in 2018, and the remaining approximately 83 per cent. relate to amounts that were owed in 2016-2017. The total arrears under both the Regulated Contracts and unregulated contracts on the wholesale electricity and capacity markets in the six months of 2018 amounted to 1.6 per cent. of the electricity and capacity sold in this period. Payment delays and failures at the end-consumer level or the regional retail company level could continue to increase in the future. If the Group is faced with any such payment delays or failures, and, in particular, if such payment delays or failures continue for a protracted period due to the inability of the Group to terminate or suspend its supply of electricity unilaterally, its business, financial condition, results of operations and prospects may be materially adversely affected.

The Group may be unable to generate electricity as required under its supply contracts and may therefore need to purchase additional volumes at higher prices on the spot market

The amount of electricity that the Group is required to supply under its supply contracts is based on its forecast annual output. RusHydro, however, cannot predict with accuracy the volume of electricity that it will generate in the medium- and long-term for a number of reasons. If, for any reason the Group is unable to generate electricity as required under its supply contracts, it will have to purchase additional volumes of electricity at market prices in other available markets and, if it is unable to do so, the Group may be liable under Russian law to pay damages to affected customers. If the cost of such purchases is higher than the cost at which the Group generates electricity, or if the Group is unable to obtain alternative supplies of electricity, its business, financial condition, results of operations and prospects may be materially adversely affected.

The Group is dependent upon services provided by, and the assets and infrastructure of, third parties

The Group is dependent upon services provided by third parties, including the System Operator, to which the functions and assets of regional dispatch administrations of energy networks have been transferred as a result of the electricity sector reforms, and the Commercial Operator, which manages the trading system within the electricity wholesale market. Many of these third parties are monopolies and alternative providers are not available. For a further description of the System Operator and the Commercial Operator, see “Industry Overview—Current Industry Structure”. A failure by the System Operator or the Commercial Operator to provide the relevant services to the Group for any reason, or if they provide delayed services, could result in a reduction in the amount of electricity generated or actually delivered, which could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. 17

In addition, the Group depends on the electricity transmission and distribution services provided by Federal Grid Company and regional distribution grid companies. The operation and maintenance of electricity transmission and distribution grids is very capital intensive and until recently the tariffs for the provision of electricity distribution and transmission services did not generate sufficient income to enable investment in the modernisation and development of the grids. This lack of investment, particularly when combined with the continuing increase in the electricity loads that the grids carry, may result in a decrease in the reliability of electricity supply and, in certain circumstances, in electricity outages. For example, in May 2005, there were electricity outages in several districts of the city of Moscow and in certain areas of Moscow, Tula, Kaluga and Ryazan regions. On 20 August 2010, as a result of a breakdown at the switching station “Vostochnaya” (owned by Federal Grid Company), electricity supply to customers in the central and north districts of Saint-Petersburg was interrupted. In December 2010, an intensive freezing rain damaged power supplies to several districts of the Moscow Region. In August 2017, an accident in the distribution grid in the Far East caused interruption of electricity supply in Primorsky Krai, Khabarovsky Krai, Amurskaya region and Jewish Autonomous Region and interruption of supply of electricity to China.

Any disruption to electricity distribution or transmission, including forced outages affecting any of the transmission or distribution grids that the Group relies upon, could result in decreased sales, and therefore decreased revenues of the Group.

The Group’s ability to expand its generation capacity and increase its electricity production depends in part on the carrying capacity of the transmission and distribution grids

The ability of the Group to maximise its generation capacity and increase its electricity production depends on the ability of the transmission and distribution grids to handle greater volumes of electricity. In the past, in certain regions of the Russian Federation, the electricity transmission and distribution grids’ carrying capacity proved to be insufficient, and there have been cases of delays and rejections of new requests made by customers for connection to the power supply system. If constraints on the ability of the transmission and distribution grids to handle greater volumes of electricity were to continue in the future, this would affect the generation levels of the Group, which in turn, could have a material adverse effect on its business, financial condition, results of operations and prospects.

The Group may experience serious accidents at its plants and/or incidents of terrorism

On 17 August 2009, a serious accident occurred at Sayano-Shushenskaya HPP, the largest HPP in the Russian Federation, resulting in 75 fatalities and a number of serious injuries. As a result of the accident, the main generator hall was flooded and a significant amount of plant and machinery was either damaged or destroyed. The total installed capacity of hydro-turbine generators that were rendered inoperable was 6,400 MW and the value of property, plant and equipment written off as a result of the accident was RUB 5,604 million. Following the accident, the HPP stopped generating electric power and RusHydro had to purchase the required electric power on alternative unregulated markets. Plant was fully restored by the end of 2014.

On 21 July 2010, the Group’s Baksanskaya HPP was attacked and various pieces of equipment were damaged. No interruption of electricity supply for consumers resulted from the incident. Full reconstruction of the Baksanskaya HPP was finalised in 2012.

On 7 September 2010, a fire occurred at the turbine hall of Irganayskaya HPP. As a result of the fire, the operations of both hydro power units were suspended. No interruption of electricity supply for consumers was reported. Restoration of both hydro power units was completed and the HPP was placed in full operation in July 2011.

On 17 September 2013, a technical accident occurred at the construction site of Zagorskaya PSHPP-2, resulting in flooding and related damage to a significant portion of the plant and machinery. As a result of the accident, the start of electricity generation at Zagorskaya PSHPP-2 has been postponed and temporary conservation measures are being implemented, and the Group may further decide to cancel the project in its entirety if it determines that continuing construction at the present location is unfeasible. Currently, the Group cannot reliably estimate the future expenses that would be necessary either for the cancellation of the project or for continuing construction. However, in both cases such expenses could be material for the Group. The carrying amount of the Zagorskaya PSHPP-2 property, plant and equipment was RUB 61,235 million as at 31 December 2017. The affected property and equipment was insured by Sogaz and the construction and installation risks by Ingosstrakh and Alfa- Insurance. The Group has been able to recover RUB 8.2 billion in insurance payments from its insurers in relation to the accident and no assurance could be given that it will be able to recover any additional sums. See also “— Insurance carried by the Group may not protect it adequately against relevant risks”. 18

Notwithstanding the above, no assurance can be given that other accidents or incidents of terrorism will not occur in the future and, if they are sufficiently severe, such accidents or incidents could lead, inter alia, to loss of revenues, increase of expenses or other consequences, which could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group is subject to significant health, safety and environmental regulation

The Group is involved in an industry that uses high-voltage equipment, which involves health and safety risks or could pollute or be hazardous to the environment. As a result, the activities of the Group are subject to various federal and local health, safety and environmental protection laws and regulations. These regulations generally relate, among other things, to working conditions, the use of water, waste disposal, atmospheric emissions, the protection of endangered species and noise regulation. It may not be feasible for the Group to accurately assess the pollution risks and associated liabilities for clean-up costs which it may be subject to, particularly in light of the uncertainties that exist in Russian environmental laws.

In recent years, new and stricter health, safety and environmental regulations have been introduced in the Russian Federation, and fines and other penalties for violations of these regulations have been significantly increased, although these regulations still generally remain weaker and less stringently enforced than in the European Union or the United States. In the future, federal, regional or local authorities may impose stricter health, safety and environmental standards than those currently in effect or enforce or interpret the existing environmental laws, regulations or licences in a different or more stringent manner than they are currently enforced or interpreted. In such circumstances, the Group may be required to undertake further expenditure to modify its operations, ensure better working conditions, install pollution control equipment, introduce measures to reduce the impact of the Group’s activities on the environment, curtail or cease certain of its operations, or to pay fees or fines for breaches of health, safety or environmental standards. There can be no assurance that the Group would be able to recover any such increased costs from its customers or that its business, financial condition, results of operations and prospects would not be materially adversely affected by health, safety and environmental laws and regulations.

Power plants and equipment that have exceeded their useful life have a greater environmental impact than newer power plants and equipment, and it may be more difficult to increase their environmental efficiency. See “— Risks associated with the Group and its operations—A large portion of the Group’s plants and equipment have exceeded their useful life”. The Group may face an increase in expenditure to install modern, more environmentally- efficient equipment and technology in order to conform to environmental regulations. Any such increase in expenditure or any failure to conform to environmental regulations could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group relies on market forecasts and estimates in making its business decisions, and these forecasts and estimates may prove to be inaccurate

The power market is dependent on various factors that may significantly influence levels of generation, consumption, supply and demand, tariffs, market prices and other power market dynamics. The Group is required to make short-term and long-term forecasts and estimates regarding these power market dynamics in order to formulate certain of its business decisions. Any inaccuracy in these forecasts or estimates could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. For example, the Group may be unable to sell some or all of the electricity that it generates within the electricity market or it may, alternatively, be unable to meet its electricity supply obligations to certain customers. As a result, the Group may be required to purchase electricity in the market at market prices and to resell it to customers at agreed prices and, if it is unable to do so, the Group may be liable under Russian law to pay damages to those customers.

Demand for electricity in Russia is subject to fluctuations, and the Group may be unable to obtain expected levels of revenue and/or address daily, seasonal or yearly fluctuations in demand for electricity and heat

The demand for electricity in the Russian Federation may vary significantly on a daily, seasonal and yearly basis due to weather conditions and other factors. Demand for electricity and heat is usually higher during the period from October to March due to longer nights and colder weather, and it is generally lower in the period from April to September due to longer days and warmer weather. In addition, demand for electricity is usually higher during normal business hours during the day and for a longer duration during the period from October to March due to fewer daylight hours. Demand may also fluctuate from year to year due to changes in weather patterns. Therefore, the generation capacities of the Group may be fully utilised during certain parts of the day or during certain months, and under-utilised during other parts of the day and year.

The Group’s ability to generate electricity is also affected by seasonal variations, see “—The electricity output of the Group’s hydro-generation business depends significantly on the water flow in the river systems where it operates as well as on the operating regimes of water reservoirs established by the Federal Agency on Water Resources and, moreover, any substantial increase in payments for water use could adversely affect the Group”.

If the Group fails to obtain its expected levels of revenue during the periods when its generation capacities are operating at their maximum loads, it may be unable to compensate for lost revenues during periods when the demand for electricity and heat is lower. If the Group is unable to address or forecast these daily, seasonal and yearly fluctuations in demand for electricity and heat, its business, financial condition, results of operations and prospects may be materially adversely affected, and its financial condition and results of operations may vary significantly from year to year.

Some of the Group’s operations are located in remote areas with harsh climates and in politically less stable regions of the Russian Federation

Some of the Group’s generation assets are located in remote areas with harsh climates, including the Magadan Region, Krasnoyarsk Region and Far East Regions. Although the Group currently employs technologies for accessing and operating in the harsh climate of these areas, there can be no assurance that the Group will be able to continue to overcome the technical challenges related to weather and climate in, and the accessibility of, these locations at a commercially reasonable cost, which could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. In addition, there is a risk that the Group may not have access to a large enough pool of skilled labour in these regions to carry on its business efficiently and this, too, could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Certain of the Group’s generation assets are also located in regions of the Russian Federation that are subject to political unrest and heightened risks of terrorism or other politically motivated damage. See “—The Group may experience serious accidents at its plants and/or incidents of terrorism”.

The electricity output of the Group’s hydro-generation business depends significantly on the water flow in the river systems where it operates as well as on the operating regimes of water reservoirs established by the Federal Agency on Water Resources and, moreover, any substantial increase in payments for water use could adversely affect the Group

The output of HPPs is dependent on weather conditions. Only certain regions of the Russian Federation experience enough precipitation to feed river systems that can provide sufficient water flow for HPPs throughout the whole year. Therefore, the volume of electricity that can be produced by the Group depends significantly on the available water flow in the river systems which supply its hydro-generation facilities. Adverse weather conditions that impede normal water flow in the river systems, such as freezing conditions, drought or insufficient precipitation, may force the Group to reduce its electricity output. For example, in 2008 the water flow at Novosibirskaya HPP, Sayano-Shushenskaya HPP and Bureyskaya HPP was only 69 per cent., 82 per cent. and 76 per cent., respectively, of the average historical level, which contributed to a reduction of electricity output by the Group compared to previous years. By contrast, the hot and dry summer experienced in European Russia in 2010 had only a limited effect on output since the Group was able to substantially compensate for lower output in the regions most affected through increased output elsewhere. See “Operating and Financial Review—Certain Factors Affecting the Group’s Results of Operations—Seasonality”. Should adverse weather conditions become protracted, the electricity output and revenues of the Group are likely to decline, which could have a material adverse effect on its business, financial condition, results of operations and prospects. In addition, fluctuations in weather conditions hinder the Group’s ability to accurately forecast its future output and, as a result, the Group may be unable to generate the electricity required under its mid-term or long-term electricity supply agreements.

In addition, the electricity output at HPPs varies significantly during the year. The Group’s output is usually higher in the period from spring to summer due to the higher water flows that pass through its HPPs and, conversely, output is lower in the period from autumn to winter due to reduced water flows. The Group may fail to obtain its expected levels of revenue during the periods when its generation capacities are able to operate at their maximum load and, due to low demand or for other reasons, it may be required to make idle discharges of water which could have otherwise been used for electricity generation. In such circumstances, the Group may be unable to compensate for lost revenues during periods when its electricity output is lower, which could have a material adverse effect on its business, financial condition, results of operations and prospects.

The Group must use the water reservoirs on which it relies in compliance with operating regimes that are established by the Federal Agency on Water Resources at least once per month. Operating regimes determine the 20

average daily volume of water that the Group may pass through its HPPs. As a result of the strict regulation of the operating regimes of water reservoirs, the Group has only a limited ability to respond to changes in water flow by increasing the volume of water that it takes from reservoirs in order to maintain or increase its output.

The Group has entered into a number of agreements relating to the use of water for electricity production. See “Regulatory Matters—Licensing of Operations—Use of Surface Waters”. The rates of payment for water use are established by the Russian Government. No material changes in payment for water are envisaged for 2018. Any substantial increase in payments for water use could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group may be unable to attract or retain key personnel

The success of the Group depends in part upon the efforts and abilities of key personnel, such as engineering, sales, programming, technical, financial and accounting, marketing and management staff, as well as upon the ability of the Group to continue to attract and retain such personnel. The competition in the Russian Federation for some of these personnel is intense due to the limited number of qualified individuals, particularly in some regions and in areas requiring specialised training, such as IFRS reporting and accounting. There can be no assurance that the Group will be successful in attracting and retaining qualified individuals in the future, and any failure to do so may have a material adverse effect on its business, financial condition, results of operations and prospects.

Most of the Group’s employees are represented by industry-wide collective agreements

As at 31 December 2017, approximately 90.2 per cent. of the Group’s employees were represented by industry-wide collective agreements and approximately 50 per cent. of the Group’s employees are represented by trade unions. The Group has not experienced any business interruption as a result of labour disputes at any of its businesses in the past, and the Group considers its relations with employees to be good. Nonetheless, employees’ representation subjects the Group’s businesses to the risk of interruptions through strikes, lockouts or delays in renegotiating labour contracts. The Group may not be able to renew existing arrangements with trade unions on favourable terms. If this were to occur, there could be a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Insurance carried by the Group may not protect it adequately against relevant risks

The insurance industry is not yet well developed in the Russian Federation and some forms of insurance protection common in more developed countries are not yet available in the Russian Federation on comparable terms, including coverage for business interruption. The Group carries limited insurance coverage for property damage, third party liability for injuries and losses, including environmental damage, caused by accidents at its industrial facilities and hydro-technical facilities, personnel insurance, and it does not currently carry business interruption insurance.

Following the accident at its Sayano-Shushenskaya HPP, the Group has received RUB 6.0 billion in insurance compensation whereas repairs and restoration costs amounted to approximately RUB 41 billion, although a significant portion of this cost represents new investment in upgrading and modernising the facilities at Sayano- Shushenskaya HPP. Although the Group has sought to increase its insurance coverage in recent years where possible (including against the risk of terrorist attack), the Group can provide no assurance that the Group’s insurance coverage will be adequate to cover all of the Group’s potential future losses or liabilities nor that the Group’s existing insurance coverage will continue to be available to us on commercially acceptable terms. Accordingly, the Group may be subject to claims not covered, or not sufficiently covered, by insurance, which could have a material adverse effect on its business, financial condition, results of operations and prospects.

RISKS RELATING TO THE RUSSIAN FEDERATION

Emerging markets such as Russia are subject to greater risks than more developed markets

Prospective investors should exercise particular care in evaluating the risks involved in investing in emerging market securities, such as the Notes, and must decide for themselves if, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is suitable only for sophisticated investors who are familiar with and fully appreciate the significance of the risks involved in investing in emerging markets. Investors should be aware that emerging markets such as Russia are subject to greater risk than more developed markets, including in some cases significant economic, political and social, and legal and legislative risks. Prospective investors should

also note that emerging economies are subject to rapid change and that the information set forth herein may become outdated relatively quickly. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Russia and adversely affect the Russian economy. Financial turmoil in another emerging or developing market could materially adversely affect the Group's business, financial position, results of operations, prospects and the trading price of the Notes.

POLITICAL RISKS IN THE RUSSIAN FEDERATION

The current political instability relating to Ukraine, the international reaction to Russia’s actions in connection with Crimea and other disputes between Russia and other countries and related sanctions imposed by the U.S. and the EU may have a material adverse effect on the Group

The U.S. government has imposed economic sanctions against a number of countries as well as “Specially Designated Nationals” (“SDNs”). The implementation and enforcement of these sanctions are administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) and consists of broad prohibitions and restrictions against transactions by U.S. persons with OFAC-designated countries and Specially Designated Nationals.

During the course of 2014, the U.S. and the EU (as well as other states, such as Canada, Switzerland, Australia and Japan) imposed sanctions on a number of Russian and Ukrainian persons and entities, including current and former officials and individuals, companies, banks and businessmen, with the consequence that entities and individuals in the U.S. and EU cannot do business with them or provide funds or economic resources to them, with assets in the relevant sanctioning jurisdictions subject to a freeze and the individuals to visa bans. Region- specific embargoes were introduced by both the U.S. and EU prohibiting a wide range of activities in the Crimea region by U.S. and EU persons. In addition, the U.S. and EU have applied “sectoral” sanctions. These sanctions have imposed restrictions on the ability of several Russian leading state-owned banks to access the capital markets or otherwise obtain funding from persons in the U.S. and EU. Similar sanctions have been imposed on major companies in the oil and gas and defence sectors of the Russian economy. Moreover, the EU and U.S. prohibited the provision, exportation, or re-exportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation and that involve certain companies in the Russian energy sector.

The current sanctions regime is a result of multiple extensions by the U.S. and EU in the term and scope of sanctions, the most recent of which were taken in September 2017 (in relation to the EU sanctions) and October 2017 (in relation to the U.S. sanctions). It is currently unclear how long these sanctions will remain in place and whether new sanctions may be imposed. In addition, on 2 August 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the Act) that includes additional sanctions against Russian entities. The Act, inter alia, a) codifies the existing sanctions against Russia established by former President Obama’s executive orders, b) reduces the permitted terms of financing under the existing sectoral sanctions and further restricts supplies of equipment to certain Russian energy companies, c) allows the U.S. President to extend sectoral sanctions to further sectors of the Russian economy (such as railways, mining and metals) and introduce additional sanctions against new persons, d) provides for imposing a set of “secondary sanctions”, which target activities of non-US persons, such that foreign persons who engage in certain activities in Russia (in relation to, inter alia, construction, modernisation and repair of energy export pipelines, intelligence and defence sectors, sanctions evasion, privatisations and activities that undermine the cybersecurity of any person or government) now face the prospect of adverse economic consequences from the United States in the form of a denial of US benefits. In addition, the CAATSA requires the U.S. administration to submit various reports to U.S. Congress. In late January 2018, several such reports were published, including a report under Section 241 of the CAATSA that identified certain Russian individuals and parastatal entities, as well as a report under Section 242 of the CAATSA on the effects of expanding sanctions to include sovereign debt and derivative products, as further described below.

More recently, the U.S. State Department imposed new sanctions on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBW Act”) on 27 August 2018. The initial set of sanctions under the CBW Act includes, among other things, termination of sales of any defence articles and services and prohibition on the export to Russia of certain national security-sensitive goods and technology. If within the three months after the initial determination made under the CBW Act (27 November 2018), the U.S. President determines that certain conditions set out in the CBW Act are not met, further sanctions, including, among other things, the prohibition on U.S. banks to provide financing to the Russian state, extensive bans on exports and imports involving Russia and the possible suspension of aviation rights into the United States, may be introduced. On 12 September 2018, the U.S. President has also signed an executive order that provides for the imposition of

sanctions on countries, organizations and persons that the U.S. government determines have interfered in the U.S. elections.

Several pieces of legislation directed at amplifying U.S. sanctions against the Russian Federation have been introduced in the U.S. Congress and are currently under consideration. The current initiatives, if enacted, could affect, among other things, Russian sovereign debt, Russian energy projects and, the Russian energy and financial sectors. It is currently unclear at which point, if at all, any of these bills could be signed into law and what would be the scope of any new sanctions that may be imposed pursuant to such law.

The sanctions package may have a material adverse effect on the Russian financial markets and investment climate and the Russian economy generally.

Some of the Group companies, as well as the Issuer, are EU persons and are therefore required to comply with the EU sanctions, including not conducting business with any sanctioned persons.

None of the proceeds of the issue of any Notes will be used to fund activities or persons that are subject to sanctions introduced by the U.S. and the EU. Other Group entities, including the Borrower, are neither U.S. persons nor EU persons, and therefore are restricted in dealings with sanctioned persons only to the extent those dealings are subject to U.S. and/or EU jurisdiction, such as through the involvement of U.S. and/or EU persons or entities, business conducted on the territory of the U.S. or EU, clearing in U.S. dollars, or some other nexus to the relevant jurisdiction.

On 6 April 2018, UNITED COMPANY RUSAL PLC and its main shareholder, Mr. Oleg Deripaska, were designated as SDNs by OFAC. Starting from 2006, RusHydro and the RUSAL Group have been jointly implementing the BEMA project based on an agreement for mutual financing, completion and subsequent operation of Boguchanskaya HPP (BoGES) and Boguchansky aluminium plant (BALP). Within the BEMA project, RusHydro and the RUSAL Group established two joint ventures BoGES Ltd (Cyprus) and BALP Ltd (Cyprus), in which each of RusHydro and RUSAL Group, hold 50%, as well as LLC Joint Holding Company BoGES, which is currently dormant. BoGES Ltd (Cyprus) has a controlling interest in PJSC Boguchanskaya HPP and BALP Ltd (Cyprus) has a controlling interest in CJSC Boguchansky Aluminium Plant. Due to the RUSAL Group’s 50% ownership BoGES Ltd (Cyprus), BALP Ltd (Cyprus), LLC Joint Holding Company BoGES, PJSC Boguchanskaya HPP and CJSC Boguchansky Aluminium Plant are currently also SDNs by operation of law. Since November 2012, Boguchanskaya HPP started operations and currently sells electricity and capacity to large consumers and utility companies. RusHydro does not consolidate BEMA project entities into its consolidated financial statements, the relevant share in this project is recognized as investment in joint ventures. As at 31 December 2017, carrying value of the joint ventures was RUB 8,990 million for BoGES Group (BoGES Ltd (Cyprus) and PJSC Boguchanskaya HPP) and 0 (nil) for BALP Group (BALP Ltd (Cyprus) and CJSC Boguchansky Aluminium Plant). RusHydro does not expect to have material capex in relation to BEMA project. For the six months ended 30 June 2018, total PJSC Boguchanskaya HPP revenue calculated under Russian accounting standards (“RAS”) was RUB 8,157 million, 50% of PJSC Boguchanskaya HPP revenue (representing RusHydro’s 50% share in the project, solely for comparison purposes) was equal to 2.25% of RusHydro Group revenue. For the six months ended 30 June 2018, total CJSC Boguchansky Aluminium Plant revenue calculated under RAS was RUB 7,996 million, 50% of CJSC Boguchansky Aluminium Plant revenue (representing RusHydro’s 50% share in the project, solely for comparison purposes) was equal to 2.21% of RusHydro Group revenue. Although designation of BoGES Ltd (Cyprus) and BALP Ltd (Cyprus) as SDNs has not had any implications for the Group, there can be no assurance that there will be no implications for the Group in the future.

On 30 August 2017 and on 3 April 2018, the Board of Directors approved a potential joint venture with UC RUSAL for the construction of an aluminium smelter project in Taishet (“TaAS”). Among other things, the Board of Directors approved a list of key terms and certain financial indicators, including a limit for sponsorship support for TaAS project financing. As at the date of these Listing Particulars, no joint venture entities have been established and no binding documentation has been executed. Given deterioration in the aluminium market and sanctions in respect of UC RUSAL the project is currently on hold and the Group is considering the possibility of its participation therein.

On 26 January 2018, PJSC Power Machines was included in the list of SDNs by OFAC. PJSC Power Machines provides EPC / turn-key construction services and equipment delivery for the modernisation of RusHydro’s Votkinskaya HPP, Volzhskaya HPP, Rybinskaya HPP and provides equipment (mainly, hydro- turbines), spare parts, as well as technical support and supervision services to certain other plants of the Group. As of the date of these Listing Particulars, the Group’s budgeted financial commitments for 2018 under existing

contracts with PJSC Power Machines amount to less than 2 per cent. of the Group’s consolidated budgeted operating and capital expenditures.

RusHydro and its subsidiaries hold the status of suppliers in the wholesale electricity market in Russia, and sell electricity and capacity in accordance with Russian wholesale electricity and capacity market rules. A significant portion of the Group’s revenues comes from the sale of electricity and capacity on the wholesale market. In April 2014, the administrator of the wholesale electricity market, appointed Bank Rossiya (an SDN entity) as the sole authorised bank for the Russian wholesale electricity market with effect from 1 July 2014. Under the wholesale electricity market rules and the agreement for accession to the electricity trading system, there may be only one such authorised bank within the electricity trading system, and all participants in the wholesale market, including the Group companies selling electricity and capacity on the wholesale market, are required to enter into a bank account agreement with the authorised bank. Trades in electricity and capacity on the wholesale market are settled through the authorised bank (with certain limited exceptions); buyers are not able to pay, and sellers are not able to receive payments for electricity and capacity if they fail to enter into an agreement with the authorised bank. Accordingly, in order to continue its participation in the wholesale electricity and capacity market in Russia, the Group and its counterparties on the wholesale electricity market are required to open and maintain accounts with, and to settle transactions through, Bank Rossiya. Companies of the Group engaged in wholesale electricity trading – RusHydro, Yakutskenergo, Far-Eastern Generating Company and Boguchanskaya HPP – entered into the relevant account bank agreements with Bank Rossiya in 2014 and 2015.

Under Section 228 of CAATSA, the U.S. will impose secondary sanctions on foreign persons that, among other things, facilitate a “significant” transaction for or on behalf of any person subject to sanctioned imposed by the U.S. with respect to the Russian Federation. This includes Russian entities blocked by operation of law by virtue of being owned by a Russian SDN. OFAC’s guidance on what constitutes a “significant” transaction is deliberately broad to give the administration maximum discretion in determining what transactions it will target.

In addition, the Group has experienced delays in construction of several thermal power plants in the Far East because the general contractors, which are connected to family members of Arkadiy Rotenberg, an individual who is subject to U.S. and EU sanctions, were not able to attract funds to perform the construction and/or provide the requisite guarantees for the Group to effect the pre-payment. Should the Group’s counterparties be further affected by any applicable sanctions regimes, further delays and interruptions could occur in relation to the Group’s construction plans and other business plans, which could, in turn, have a material adverse effect on the Group’s business, results of operations or prospects.

The sanctions imposed by the U.S. and the EU in connection with the Ukraine crisis so far have had an adverse effect on the Russian economy, to which the Group is exposed significantly, prompting downgrades of the credit ratings of the Russian Federation and a number of major Russian companies that are ultimately controlled by the Russian Federation, causing extensive capital outflows from Russia and impairing the ability of Russian issuers to access international capital markets. The governments of the U.S. and certain EU member states, as well as certain EU officials have indicated that they may consider additional sanctions should tensions in Ukraine continue. Tensions between Russia and EU and the U.S. have further increased recently as a result of the conflict in Syria, and there can be no assurance that the governments of the EU and U.S. or other countries will not impose further sanctions on Russia.

Further confrontation in Ukraine and any escalation of tensions between Russia and the U.S. and/or the EU related to the conflicts in Ukraine or Syria, the imposition of further sanctions, or continued uncertainty regarding the scope thereof, could have a prolonged adverse impact on the Russian economy. These impacts could be more severe than those experienced to date. In particular, should either the U.S. or the EU expand their respective sanctions to include existing or future clients, suppliers or other counterparties of the Group, a large sector of the Russian economy or otherwise, such an expansion could result in the Group's dealings with designated persons, if any, being materially adversely impacted, the suspension or potential curtailment of business operations between the Group and the designated persons could occur, and substantial legal and other compliance costs and risks on the Group's business operations could emerge. The occurrence of any of the above could have a material adverse impact on the Group's business, financial condition, results of operations or prospects.

No individual or entity currently within the Group has been specifically designated for sanctions under any competent sanctions authority, although companies of the BEMA project (BoGES Ltd (Cyprus), BALP Ltd (Cyprus), LLC Joint Holding Company BoGES, PJSC Boguchanskaya HPP and CJSC Boguchansky Aluminium Plant) are now SDNs by virtue of RUSAL Group’s ownership, as discussed above. However, on 30 January 2018, the U.S. Treasury Department has released the Report to Congress Pursuant to Section 241 of the Act Regarding Senior Foreign Political Figures and Oligarchs in the Russian Federation and Russian Parastatal Entities (the 24

“Report”), which includes, among other names, Yury Trutnev, Chairman of the Board of Directors of RusHydro, Nikolay Shulginov Member of the Board of Directors, Chairman of the Management Board – General Director of RusHydro and Andrey Shishkin, Member of the Board of Directors of RusHydro. Although the Report states that it is not a sanctions list, and the inclusion of individuals or entities in it, its appendices, or its annex does not and in no way should be interpreted to impose sanctions on those individuals or entities, and moreover, the inclusion of individuals or entities in the Report, its appendices, or its classified annexes does not, in and of itself, imply, give rise to, or create any other restrictions, prohibitions, or limitations on dealings with such persons by either U.S. or foreign persons, no assurance can be given that any Group company and/or any of the Group companies’ directors, officers, managers or employees will not be subject to any U.S. and/or EU or other sanctions in the future. In addition, Igor Sechin, who is subject to individual sanctions of the United States since 2014, was nominated to RusHydro’s Board of Directors in 2016. Although he was not elected to the Board of Directors, no assurance can be given that he or any other person subject to applicable sanctions will not be nominated and elected to RusHydro’s Board of Directors in the future. There can be no assurance that compliance issues under applicable U.S. and/or EU regulation, measures or similar laws and regulations will not arise with respect to the Group or its personnel. Non-compliance with applicable sanctions could result in, among other things, the inability of the relevant Group entities to contract with the U.S. and/or EU governments or their agencies, civil or criminal liability of such entities and/or their personnel under U.S. and/or EU law, the imposition of significant fines and negative publicity and reputational damage.

Although the Group has no reason to believe that it may be specifically targeted by U.S. or EU sanctions, there can be no assurance that this will not occur in the future. If U.S. or EU sanctions targeting the Russian electricity sector and/or the Group are imposed, such sanctions would be likely to have a material adverse impact on the Group in a number of ways. For example, the Group might be unable to deal with persons or entities bound by the relevant sanctions, including financial institutions and rating agencies, transact in U.S. dollars, raise funds from investors, or access the international capital markets generally, use international settlement, clearing and/or information exchange systems. This would have a material adverse effect on the ability of the Group to comply with its obligations under the Notes, which would have a corresponding impact on the market value and liquidity of the Notes.

A change in the political climate in the Russian Federation may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects

Since 1991, Russia has sought to transform itself from a one-party state with a centrally-planned economy to a market-oriented economy. Political conditions in the Russian Federation were highly volatile in the 1990s, as evidenced by the frequent conflicts among executive, legislative and judicial authorities, which negatively affected the Russian Federation’s business and investment climate.

Although the political situation in the Russian Federation has stabilised since 2000, future political instability could result in deterioration of economic conditions, including capital flight and a slowdown of investment and business activity. Following Russian parliamentary elections in December 2011, controversy concerning alleged voting fraud in favour of the ruling party, United Russia, led to organised protests in several Russian cities, including several sizeable protests in Moscow. Allegations of voting irregularities also appeared following the election of Vladimir Putin to the Russian presidency in March 2012, with a number of protests taking place throughout the country both before and after his May inauguration. However, the discontent generally declined in 2013 and 2014 resulting, among other things, in weakening of internal tensions and a positive shift in Vladimir Putin’s credibility rating. Future changes in governmental policy and regulation in the Russian Federation could also lead to political instability and disrupt or reverse political, economic and regulatory reforms, which could have a material adverse impact on the value of investments relating to the Russian Federation, and the Notes in particular, as well as on the Group’s business, its ability to obtain financing in the international markets and its financial condition, results of operations and prospects.

Domestic and regional political conflicts could create an uncertain operating environment that could adversely impact the Group’s business and hinder its long-term planning ability

The Russian Federation consists of 85 regions (“federal subjects”) of the federation, some of which exercise considerable autonomy in their internal affairs. In certain areas, the division of authority between federal and regional governmental authorities remains uncertain. The lack of consensus between local and regional authorities and the federal governmental authorities may result in political instability and may have a material adverse effect on the Group’s business, financial condition, prospects or ability to fulfil its financial obligations.

In addition, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, military conflict, both internally and with other countries. Russian military and paramilitary forces have been engaged in the Chechen Republic in the recent past and continue to maintain a visible presence there. Moreover, in August 2008, Russia and Georgia were involved in an armed conflict. The conflict ended with Russian recognition of the independence of South Ossetia and Abkhazia. Russian stock exchanges experienced heightened volatility, significant overall price declines and capital outflow following these events and the international capital markets temporarily closed to Russia. Furthermore, differing views on the Georgia conflict, as well as the recent armed conflict in Eastern Ukraine, have had an impact on the relationship between the Russian Federation, the EU, the United States and certain former Soviet Union countries and, if prolonged, could adversely affect business relationships among these countries and adversely affect the Russian economy. The risks associated with these events or potential future events could materially and adversely affect the investment environment and overall consumer confidence in the Russian Federation, which in turn could have a material adverse effect on the Group’s business, its ability to obtain financing in the international markets, and its financial condition, results of operations and prospects.

Political and economic instability, corruption, criminal investigations into alleged crimes by former executives of the Group, changes in government or in economic policy and arbitrary government actions and related negative publicity could adversely affect the Group’s business and its overall financial condition

The Russian and international press have reported high levels of corruption in Russia, including the bribing of officials for the purpose of initiating investigations by government agencies and facilitation payments. Furthermore, published reports indicate that a significant number of the Russian media regularly publishes biased articles in exchange for payment.

In addition, in 2016 a criminal investigation was opened and remains ongoing into allegations of embezzlement of the Group’s funds. The investigation relates to the former chief executive officer of RusHydro, Evgeniy Dod, who resigned in 2015, and the chief accountant of RusHydro at the time of the alleged crimes, Dmitry Finkel, who was suspended in 2016. In July 2017, a criminal investigation into allegations of abuse of authority was opened in relation to the first deputy director of RusHydro’s branch in the Republic of Kabardino-Balkaria, who was dismissed from his position by the court. In November 2018, a court in Vladivostok ordered to take into custody executive director of PJSC DEK, Victor Milush, for the period of criminal investigation in connection with alleged embezzlement.

While no similar allegations, to the knowledge of the Group, have been made against other employees of the Group, and the Group is cooperating with the authorities in the ongoing investigations, no assurance can be given as to the conclusion of these investigations. Criminal investigations against former and current members of the Group’s management team may have repercussions for the Group such as fines or further investigations into the Group’s activities, including criminal investigations into the conduct of other former or existing employees of the Group, and reputational risks. Furthermore, such criminal investigations, political or economic instability, changes in government or in economic policy, unlawful, arbitrary or selective government action or corruption may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The actions of the Russian legislative, executive and judicial authorities can affect the Russian securities market and consequently the Group’s business, financial condition, operating results and prospects

The actions of the Russian legislative, executive and judicial authorities can affect the Russian securities market as well as banks and other businesses operating in Russia. In particular, the events surrounding claims brought by the Russian authorities against several major Russian companies, led to questions being raised regarding the progress of market and political reforms in Russia and have resulted in significant fluctuations in the market price of Russian securities and a negative impact on foreign direct and portfolio investment in the Russian economy, over and above the general market turmoil recently. Any similar actions by the Russian authorities that result in a further negative effect on investor confidence in Russia’s business and legal environment could have a further material adverse effect on the Russian securities market and price of Russian securities, or securities issued or backed by Russian entities, including the Notes, as well as on the Group’s business, its ability to obtain financing in the international markets, and its financial condition, results of operations and prospects.

ECONOMIC RISKS RELATING TO THE RUSSIAN FEDERATION

Fluctuations in the global economy may have an adverse effect on emerging markets' ability to attract future capital, as well as on the Group's financial condition and prospects

The recent disruptions experienced in the international and domestic capital markets in 2008-09 have led to reduced liquidity and increased credit risk premiums for certain market participants and have resulted in a reduction of available financing. Companies located in emerging markets may be particularly susceptible to these disruptions and reductions in the availability of credit or increases in financing costs, which could result in them experiencing financial difficulty. Further, in periods of unstable economic and financial conditions, companies operating in emerging markets can face particularly severe liquidity constraints as investors move their money to more stable developed markets.

The availability of credit to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and thus, any factors that impact market confidence (for example, a decrease in credit ratings or state or central bank intervention in one market) could affect the price or availability of funding for entities within any of these markets.

These developments in the global economy and global markets could have a material adverse effect on the Group's financial condition, results of operations and prospects and the trading price of the Notes.

Risks of social and economic instability

Since the dissolution of the Soviet Union, the Russian Federation has experienced and/or is currently experiencing:

• significant declines in national GDP;

• high levels of inflation;

• an unstable currency;

• high levels of state or corporate debt, relative to GDP;

• crises in the banking sector limiting the ability of banks to provide liquidity to Russian corporate and individual borrowers;

• a large number of loss-making enterprises that continue to operate due to the lack of effective bankruptcy procedures;

• significant use of barter transactions and illiquid promissory notes to settle commercial transactions;

• widespread tax evasion;

• growth of the “black” and “grey” market economies;

• pervasive capital flight;

• high levels of corruption and extensive penetration of organised crime into the economy;

• dependence of the economy on exports of commodities;

• significant declines and volatility in the stock market;

• significant increases in unemployment and underemployment;

• the impoverishment of a large portion of the Russian population; and

• outdated and deteriorating physical infrastructure.

From 2000 until the first half of 2008, Russia experienced rapid growth in its gross domestic product, higher tax collections and increased stability of the rouble, providing some degree of economic soundness. However, the 27

Russian economy was adversely affected by the global economic crisis that began in the second half of 2008, which manifested itself through extreme volatility in debt and equity markets, reductions in foreign investment, sharp decreases in GDP and rise of unemployment around the world. While the situation globally has stabilised since to a certain extent, the Russian economy began to experience a new slowdown in 2013. Whilst the Russian economy experienced some stabilisation in 2016, any deterioration in the general economic conditions in Russia could adversely influence the level of demand for various products and services, including those provided by the Group, and therefore could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects, and on the value of the Notes.

In addition, social instability in the Russian Federation, coupled with difficult economic conditions and the failure of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in the past to labour and social unrest (principally in urban areas). Any future labour and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralised authority, increased nationalism, including restrictions on foreign involvement in the Russian economy and increased violence. This could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Downturns in the global economy have an immediate negative impact on the Russian economy and the Russian economy remains poorly diversified and largely dependent on the natural resources sector

The financial markets, both globally and in Russia, have faced significant volatility, dislocation and liquidity constraints during the most recent global economic crisis. Volatility and market disruption in the global banking sector and the financial markets continued through 2012 to 2015 for many reasons, including the European sovereign debt crisis, affecting, amongst others, Greece, Ireland, Portugal, Spain and Italy, and leading to concerns over the stability of the European monetary system, as well as the sovereign rating downgrades of, amongst others, the United States, the United Kingdom, France and Austria.

Disruption in the global financial markets has had a negative impact on investor confidence and has negatively affected the interbank markets and debt issuance in terms of volume, maturity and credit spreads. Although global financial markets generally showed recovery during 2013 and the first half of 2014, they were characterised by periods of instability and uncertainty in the second half of 2014 and 2015 resulting from various factors, including a renewed sovereign debt crisis in Greece and its potential exit from the EU as well as significant declines of Chinese stock markets in the summer of 2015. No assurance can be given that further economic downturns, financial crisis or widespread stock market crashes will not occur, or that measures to support global or local banking and financial systems, if taken to overcome any downturn or crisis, will be sufficient to restore stability in the banking sectors and financial markets in the short term or beyond. These and other events have resulted and could result in further economic uncertainty, decrease of foreign investment into and increased capital outflows from Russia and emerging markets generally as well as persistent volatility in global and regional financial markets.

The Russian Federation experienced significant declines in debt and equity securities prices because of the global economic crisis and deteriorating conditions of the Russian economy. There were periodic suspensions of Russian stock market trading, extreme volatility in the Russian equity markets and sharp declines in the share prices of Russian financial institutions and companies following the global economic crisis, as well as more recently throughout 2015 and 2016.

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the EU in a national referendum. In early February 2017, the parliament of the United Kingdom voted in favour of advancing legislation that would give the prime minister the authority to initiate the formal process of leaving the EU. The British Government triggered the exit process on 29 March 2017. It is expected that the United Kingdom will officially leave the EU on 29 March 2019. However, there remains significant uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict access to capital, which could have a material adverse effect on financial institutions worldwide.

Downturns in the global economy, any deterioration in the Russian economy or a decline in the value of the rouble could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects and the value of the Notes.

If Russia were to return to higher and sustained inflation, the Group’s results of operations could be adversely affected

The inflation rate (“CPI”) in the Russian Federation measured by Rosstat was approximately 9 per cent. in 2006, 12 per cent. in 2007 and 13 per cent. in 2008. As a result of the overall reduction of business activity, rising unemployment and a fall in consumption and investment during the global economic crisis, the inflation rate in both 2009 and 2010 was 8.8 per cent. According to Rosstat, inflation in the Russian Federation was relatively stable from 2011 to 2013, reaching 6.1 per cent. in 2011, 6.6 per cent. in 2012 and 6.5 per cent. in 2013. As a result of the deteriorating economic conditions, depreciating Rouble and restrictive measures on certain imports, inflation increased significantly and reached 11.4 per cent. in 2014 and 12.9 per cent. in 2015 and amounted to 5.4 per cent. in 2016, 2.5 per cent. in 2017 and 2.4 per cent. in the first six months of 2018.

Any return to high and sustained inflation could lead to market instability, new financial crises, reductions in consumer purchasing power and an erosion of consumer confidence. High rates of inflation in the Russian Federation could increase the costs and decrease the operating margins of the Group, which could have a material adverse effect on its business, financial condition, results of operations and prospects.

The Russian banking system remains underdeveloped and the banking crisis has placed liquidity constraints on the operations of the Group

Russia’s banking and other financial systems are not well developed or regulated. There are currently a limited number of creditworthy Russian banks, most of which are headquartered in Moscow. Although the CBR has the mandate and authority to suspend banking licences of insolvent banks, many insolvent banks still operate. In 2016, the CBR has revoked the banking licences of 97 Russian banks. Many Russian banks also do not meet international banking standards, and the transparency of the Russian banking sector still does not meet internationally accepted norms. The serious deficiencies in the Russian banking sector, combined with the deterioration in the credit portfolios of Russian banks, may result in the banking sector being more susceptible to the current worldwide credit market downturn and economic slowdown. For example, the revocation of Master Bank’s banking licence (Master Bank was a major Moscow-based bank and the 41st largest bank in Russia as of 1 October 2013 by deposits according to RIA Rating) and subsequent numerous revocations of licences of banks, including Bank Russian Credit in July 2015 and Vneshprombank in January 2016, raised some concerns about the stability of the Russian banking system and the ability of the State Deposit Insurance Agency to service any further pay-outs to insured depositors should any similar bank collapses occur in the near future. It also adversely affected liquidity on the domestic market.

On 21 October 2016, the CBR announced the temporary administration of JSC Peresvet Bank (“Peresvet Bank”) for a period of six months and a moratorium on the discharge of claims of its creditors for a period of three months, which was extended for another three months on 23 January 2017. As at 31 December 2016, the Group had cash and deposits placed with Peresvet Bank amounting to RUB 5,507 million. The temporary administrators of Peresvet Bank converted part of its monetary obligations into convertible bonds due in 2032. Under the proposed action plan, the Group’s cash and deposits were converted into subordinated bonds in the amount of RUB 4,681 million, or 85 per cent. of the total cash and deposits. See “Operating and Financial Review—Significant Accounting Policies—Credit Risk”.

Liquidity constraints which emerged in the Russian banking sector in 2013 continued in 2014 and the first half of 2015. Liquidity shortage was aggravated by the restricted access for many Russian banks to the EU and US capital markets as a result of sanctions imposed by the EU and US in relation to the events in Ukraine. The second half of 2014 was marked by the continuous depreciation of the rouble against foreign currencies, especially Euro and US Dollar, with the most acute stage of depreciation falling on December 2014. In order to strengthen the rouble, the CBR increased the key interest rate from 10.5 per cent. to 17.0 per cent. in December 2014, which resulted in substantial short-term volatility and liquidity shortages on domestic financial and interbank markets. Consequently, funding costs have increased throughout the entire Russian financial system and have put substantial strain on Russian banks’ ability to manage interest rate risks, raise financing and prudently allocate available liquidity. The resulting higher interest rates have also negatively affected the banking sector’s profitability, as well as led to a deterioration in the creditworthiness of Russian consumer and corporates. Although the CBR proceeded to gradually reduce its key interest rate to 11 per cent. throughout the first half of 2015 and further lowered the key interest rate to 10.5 per cent. in June 2016, to 10.0 per cent. in September 2016, to 9.75 per cent. in March 2017, to 29

9.25 per cent. in May 2017, to 9.00 per cent. in June 2017, to 8.25 per cent. in October 2017, to 7.75 per cent. in December 2017, to 7.50 per cent. in February 2018 and to 7.25 per cent. in March 2018, the CBR increased the key interest rate to 7.50 in September 2018 and there can be no assurance that further increases will not occur.

The Group generally conducts its banking relationships with, and maintains accounts in, a small number of large, reputable Russian banks. The Group’s business and financial position could be adversely affected by any further deterioration and increased instability of the Russian banking sector. The revocation of the licenses or insolvency of any major banks in which the Group maintains its accounts and uses for settlement operations could result in losses for the Group. Furthermore, any funding shortages or other banking disruptions experienced by the Group’s major bank partners could have a material adverse effect on its ability to execute planned developments or to obtain the financing required for the Group’s operations, which could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Exchange rate fluctuations and repatriation restrictions could adversely affect the value of investments in the Russian Federation

The rouble experienced significant depreciation against the US dollar in 2014 and 2015, due to a substantial decrease in oil prices, slowing growth and contraction of Russia’s GDP, the imposition of economic sanctions and capital outflows. The Rouble depreciated by 71.9 per cent. from RUB 32.73 per US$1.00 as of 31 December 2013 to RUB 56.26 per US$1.00 as of 31 December 2014. In 2015, the Rouble / US$ exchange rate has fluctuated significantly, ranging from RUB 49.18 per US$1.00 to RUB 72.88 per US$1.00. In 2017 and 2018, the Rouble / US$ exchange rate experienced some stabilisation but remained volatile at certain times, and amounted to RUB 65.61 per US$1.00 on 23 November 2018.

The Group’s operations have revenues denominated in roubles. Expenses are mostly in roubles and more than 95 per cent. of the Group’s borrowings are in roubles. Fluctuations in foreign currency exchange rates could have a material adverse effect on the Group’s business, financial condition, results of operations, future prospects.

The Russian Federation’s physical infrastructure has not been properly funded and maintained since Soviet times and may not be sufficient to efficiently support the present and future levels of commercial and industrial activity in the Russian Federation.

The Russian Federation’s physical infrastructure largely dates back to Soviet times, and it has not been adequately funded and maintained over the past two decades. The infrastructure that is particularly affected includes pipeline, rail and road networks, power generation and transmission systems and communication systems. With a view to increasing capital inflows and private investment into the Russian Federation’s physical infrastructure, the Russian Government has launched a number of infrastructure modernisation programmes. However, there is uncertainty in the current economic environment as to the extent to which such programmes will be realised. Such reforms, if realised, are likely to result in increased charges and tariffs, but may nevertheless fail to generate the anticipated capital investment needed to repair, maintain and improve these systems. The continued deterioration of the Russian Federation’s physical infrastructure may harm the national economy, disrupt the transportation of goods and supplies, add costs to doing business in the Russian Federation and may interrupt business operations, any of which could have a material adverse effect on the Group’s business, results of operations, financial condition or prospects.

LEGAL AND REGULATORY RISKS AND UNCERTAINTIES IN THE RUSSIAN FEDERATION

Risks related to the Russian legal system and legislative weaknesses

Russia continues to develop a legal framework adequate to facilitate the proper functioning of a market economy. In particular, amendments have recently been introduced to the Russian Civil Code and the corporate legislation, and further amendments to it are expected to be adopted in the near future that are set to amend or introduce certain new fundamental principles of Russian civil law. The recent nature of much of the Russian legislation and regulation and the rapid evolution of the Russian legal system place the enforceability of certain laws and regulations in doubt, resulting in ambiguities and inconsistencies in their application. The following aspects of Russia’s legal system, many of which do not exist in countries with more developed legal systems, create uncertainty with respect to many of the legal and business decisions that the Group makes:

• since 1991, Soviet law has been largely, but not entirely, replaced by a new legal regime as established by the 1993 Russian Federal Constitution, the Russian Civil Code and other federal laws and by

decrees, orders, regulations and resolutions issued by the President, the Russian Government and federal ministries, which are, in turn, complemented by regional and local rules and regulations. There have been, and continue to be, inconsistencies between such laws, presidential decrees, state resolutions and ministerial orders, and between local, regional and federal legislation and regulations;

• decrees, resolutions and regulations may be adopted by state authorities and agencies in the absence of a sufficiently clear constitutional or legislative basis and with a high degree of discretion. There is a risk that state authorities may arbitrarily nullify or terminate contracts, withdraw licences, conduct sudden and unexpected tax audits, initiate criminal prosecutions and civil actions and use common defects in accounting or share issues and registration as pretexts for court claims and other demands to liquidate companies or invalidate such issues and registrations and/or to void transactions;

• substantial gaps in the regulatory structure may be created by delay in or the absence of regulations implementing certain legislation;

• there is a lack of judicial and administrative guidance on interpreting applicable rules and judicial decisions have limited value as precedents;

• Russia has a judiciary with limited experience in interpreting and applying market-oriented legislation and that is vulnerable to economic and political influence; and

• Russia has weak enforcement procedures for court judgments and there is no guarantee that a foreign investor would be able to obtain effective redress in a Russian court.

The independence of the judicial system and its immunity from economic, political and other influences in Russia remains largely untested. The court system is, to a certain extent, understaffed and underfunded. Judges and courts in Russia are generally inexperienced and unsophisticated in business and corporate law. In addition, most court decisions are not readily available to the public. The enforcement of court judgments can, in practice, be very difficult in Russia.

All of these factors make judicial decisions in Russia difficult to predict and effective redress uncertain. In addition, court claims are often used to further political aims and court judgments are not always enforced or followed by law enforcement agencies.

These weaknesses of the Russian legal system create considerable uncertainty in the legal and operating environment for Russian companies, including the Group, as compared to companies and groups in developed countries. In such an environment, it is more difficult for the Group, as well as for the other Russian companies and groups, to comply with existing and future laws and regulations and the terms and conditions of its licences and permits, the violation of which may result in the imposition of fines or penalties or more severe sanctions. These weaknesses also affect the Group’s costs of compliance and the costs of doing business generally and create an unfavourable environment for quick and efficient resolution of disputes with other parties. If any of these events materialise in respect of the Group, this could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

The implementation of certain amendments to the Russian Civil Code may create an uncertain environment for business activities and investments

The Russian parliament has recently implemented widespread amendments to the Civil Code, many of which became effective in 2013 and 2014. The last set of amendments to the Civil Code was adopted on 26 July 2017 and became effective on 1 June 2018. The scope of these amendments modify existing laws governing, among other things, legal framework for finance transactions, including assignments, loans and credits, bank accounts and deposits, payment settlements (including with letters of credit), escrow and factoring. See “Regulatory Matters— Amendments to the Civil Code” for detailed information regarding the scope of amendments to the Civil Code. As of the date of these Listing Particulars, the potential interpretation of these amendments by state authorities (including the courts), along with their impact on the Group’s activities and corporate governance, are unknown.

Failure to comply with existing laws and regulations could result in substantial additional compliance costs or various sanctions

The Group’s operations and properties are subject to regulation by various governmental entities and agencies in connection with obtaining and renewing various licences, permits, approvals and authorisations, as well as with ongoing compliance with existing laws, regulations and standards. Regulatory authorities exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of licences, permits, approvals and authorisations and in monitoring licensees' compliance with the terms thereof. Russian regulatory authorities conduct frequent periodic inspections of industrial companies.

The Group’s failure to comply with existing laws and regulations or to obtain all approvals, authorisations and permits required for the Group’s operations or findings of governmental inspections may result in the imposition of fines or penalties or more severe sanctions including the suspension, amendment or termination of the Group’s licences, permits, approvals and authorisations or in requirements that the Group ceases certain of its business activities, or in criminal and administrative penalties applicable to its officers. Any such decisions, requirements or sanctions could increase the Group’s costs and could have a material adverse effect on the Group’s business, financial condition, results of operations and prospects and the value of the Notes.

Russia’s property law is subject to uncertainty and inconsistency

The legal framework relating to the ownership and use of land and other real property in Russia is not yet sufficiently developed to support private ownership of land and other real estate to the same extent as is common in some of the more developed market economies of North America and Europe. Land use and title systems rely on complex traditional ownership systems. As a result, the title of land that the Group owns and uses, or invests in, may be unclear or in doubt. Moreover, the validity of the Group’s right to title or use of its properties may be successfully challenged or invalidated due to technical violations or defects in title. Such instability creates uncertainties in the operating environment in the emerging market nations, which could hinder the Group’s long-term planning efforts and may prevent the Group from carrying out its business strategy effectively and efficiently. If the real property owned or leased by the Group is found not to be in compliance with all applicable approvals, consents, registrations or other regulations, the Group may lose the right to use such real property, which could have a material adverse effect on the Group’s business, financial condition, results of operations, future prospects and the value of the Notes.

Selective, unlawful or arbitrary government action could harm the Group’s business and result in a deterioration of the investment climate in Russia.

State authorities have a high degree of discretion in Russia and at times exercise such discretion arbitrarily, without conducting a hearing or giving prior notice, and sometimes they illegally go beyond the limits of their discretion. Moreover, the state also has the power, in certain circumstances, by regulation or act, to interfere with the performance of, or to nullify or terminate contracts. Unlawful or arbitrary state actions have included withdrawal of licences, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government agencies have also used common defects in matters surrounding documentation of financing activities as pretexts for court claims and other demands to invalidate such activities and/or to void transactions, often for political purposes. In addition, state authorities have, in the past, publicly announced interpretations and regulatory initiatives, which significantly influenced certain industries and companies. Unlawful or arbitrary state action or public announcement of any initiative or interpretation, if directed at the Group, its management or its principal shareholder or the Group’s partners or the Russian electricity industry in general, could have a material adverse effect on the Group’s business, results of operations, financial condition and prospects.

Shareholder liability under Russian legislation could cause the Group companies to become liable for the obligations of its subsidiaries

Under Russian law, a company may be primarily liable for the obligations of its Russian subsidiaries jointly and severally with such entities if: (i) the company has the ability to make decisions for such Russian subsidiaries as a result of its ownership interest, the terms of a binding contract or in any other way; and (ii) the relevant Russian subsidiary concluded the transaction giving rise to the obligations pursuant to the company's instructions or with the consent of the company, save for (a) voting of a parent company on approval of a transaction as shareholder or participant of the subsidiary in the general meeting or (b) approval of transaction to be entered by the subsidiary given by the parent’s corporate bodies under the charter of the parent and/or of the subsidiary. In addition, a company may have secondary liability for the obligations of its Russian subsidiaries if the subsidiary becomes insolvent or bankrupt as a result of the action of the company. Accordingly, the companies of the Group could be 32

liable in some cases for the debts of their subsidiaries, which could have a material adverse effect on the Group's business, results of operations, financial condition, its ability to service its payment obligations under the Loan and as a consequence the Issuer's ability to make payments under or the value of the Notes.

TAXATION RISKS

The discussion below provides general information regarding Russian taxes and is not intended to be inclusive of all issues. Investors should seek advice from their own tax advisers as to these tax matters before investing in the Notes. See also “Taxation — Russian Federation”.

The Russian taxation system is relatively underdeveloped

Generally, taxes payable by Russian companies are relatively substantial and include, inter alia, profit tax, value added tax (“VAT”), property taxes and other taxes. Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. The existing Russian tax legislation, including the Tax Code of Russia (the “Tax Code”), has been in force for a short period relative to tax laws in more developed market economies. Implementation of existing tax laws by the governmental authorities is often unclear or inconsistent. Accordingly, few precedents with regard to the interpretation of these laws have been established. In addition, in some past instances, although it may be viewed as contradictory to Russian constitutional law, Russian tax authorities have applied certain tax laws retroactively, issued tax claims for periods for which the statute of limitations had expired and reviewed the same tax period multiple times. In practice, the Russian tax authorities generally interpret the tax laws in ways that do not favour taxpayers, who often have to resort to court proceedings to defend their position against the tax authorities. Furthermore, in the absence of binding precedent, court rulings on tax or other related matters by different courts relating to the same or similar circumstances may also be inconsistent or contradictory.

On 12 October 2006, the Plenum of the Supreme Arbitration Court of the Russian Federation (the “Supreme Arbitration Court”) issued Resolution No. 53, formulating a concept of “unjustified tax benefit”, which is described in the Resolution by reference to circumstances, such as absence of business purpose or transactions where the form does not match the substance, and which could lead to the disallowance of tax benefits resulting from the transaction or the re-characterisation of the transaction for tax purposes. The tax authorities have been seeking to apply this concept when challenging tax positions taken by taxpayers in Russian courts. Partly this concept was introduced to the Russian Tax Code in July 2017 (effective from 19 August 2017).

The above conditions create tax risks in the Russian Federation that are more significant than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks may impose additional burdens and costs on the Group's operations, including management resources. Further, these risks and uncertainties complicate the Group's tax planning and related business decisions, potentially exposing the Group to significant fines, penalties and enforcement measures, and may have a material adverse effect on the Group’s business, financial condition and results of operations.

The Russian tax authorities are entitled to review the prices of the “controlled transactions” to check whether they differ from those which independent counterparties in similar conditions would have applied. The Russian tax authorities have conducted a number of transfer pricing audits and accrued additional taxes to the relevant taxpayers in case when prices were not arms-length.

Due to uncertainties in the interpretations of Russian transfer pricing legislation, no assurance can be given that the Russian tax authorities will not challenge the prices applied by the Group and make adjustments, which could affect the Group’s tax position. If the tax authorities were to impose significant additional tax liabilities as a result of the transfer pricing adjustments, it may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Russian Federation has joined the OECD Multilateral Agreement for amending double tax treaties, and automatic information exchange with foreign tax authorities. This new initiative may result in significant changes of tax treaties’ provisions and application practice that potentially may result in higher tax burden for the Group’s business. Due to the relative lack of court and administrative practice, no assurance can be currently given as to how these amendments will be applied in practice and their exact nature, their potential interpretation by the tax authorities and the possible impact on the taxpayers.

Moreover, on 3 August 2018 the President of Russia signed the Federal Law No. 303-FZ changing the standard Russian VAT rate from 18 per cent. to 20 per cent. The law will come into force from 1 January 2019. This increase may raise the cost of doing business in Russia and could have a material adverse effect on business, financial condition and results of operations of companies working in the industry, including the Group.

Despite the Russian Government’s taking steps towards reducing of the overall tax burden in recent years in line with its objectives, Russia's largely ineffective tax collection system and continuing budgetary funding requirements increase the likelihood that the Russian Government will impose arbitrary and/or onerous taxes and penalties in the future, which may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. Additionally, tax has been utilised as a tool for significant state intervention in certain key industries.

It is expected that Russian tax legislation will become more sophisticated, which may result in the introduction of additional revenue raising measures. Although it is unclear how any new measures would operate, the introduction of such measures may affect the Group's overall tax efficiency and may result in significant additional taxes becoming payable. Additional tax exposures may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

Risks associated with Russian anti-offshore measures can lead to additional tax liabilities

The Russian Federation, like a number of other countries in the world, actively takes part in discussion on measures against tax evasion through the use of low-tax jurisdictions as well as aggressive cross-border tax planning structures. Tax rules for “controlled foreign companies” (the “CFC Rules”), the concept of “beneficial ownership” for tax treaty purposes were introduced since 2015. Moreover, starting from 1 January 2017, obtaining a confirmation that the income recipient is its beneficial owner is mandatory for applying a reduced withholding tax rate.

Taking the above into account, it cannot be excluded that the Group might be subject to additional tax liabilities because of these changes being introduced and applied to transactions carried out by the Group which could have a material adverse effect on the Group’s business, financial condition and results of operations.

Russia joined the Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and OECD. Ratification of this Convention enables the Russian tax authorities to obtain certain information relating to tax matters from a number of countries, including certain offshore jurisdictions. The provisions of the Convention came into force for Russia starting from 1 July 2015. This Convention gives Russian tax authorities an effective mechanism of obtaining financial and tax information about foreign companies and there is a risk that certain information may potentially be interpreted in negative sense raising additional tax burden for the Group. On 12 May 2016, Russia signed the Multilateral Competent Authority Agreement on the exchange of financial account information, thereby joining the Standard for Automatic Exchange of Financial Account Information (Common Reporting Standard, (the “CRS”)). The procedures for exchange of information established by the CRS are to be used by the Russian tax authorities in addition to application of the procedures of the exchange of information established by the applicable double tax treaties.

At the moment it is unclear how the above measures will be applied in practice by the Russian tax authorities and the courts. The Group operates in various jurisdictions and includes companies incorporated outside of Russia. It is possible that with the introduction of these rules and changes in the interpretation and application of these rules and changes by the Russian tax authorities and/ or courts the Group might become subject to additional taxation in Russia in respect of its operations outside Russia.

RISKS RELATING TO THE NOTES AND THE TRADING MARKET

The expansion or extension of U.S. or EU sanctions to the Group could adversely impact the trading market for the Notes

If U.S. or EU sanctions are extended to the Group as described above under “—The current political instability relating to Ukraine, the international reaction to Russia’s actions in connection with Crimea and other disputes between Russia and other countries and related sanctions imposed by the U.S. and the EU may have a material adverse effect on the Group”, (i) at any time after the date hereof but prior to the Issue Date the Notes may not be issued and any trades with respect thereto may be unwound; and (ii) once the Notes are issued the trading market for the Notes and the rights of the Noteholders could be adversely affected. If U.S. or EU sanctions

programme are expanded to include additional existing or future clients, shareholders, suppliers or other counterparties of the Group, some Noteholders may sell their interests at a loss in any Notes due to internal compliance requirements or any laws or regulation applicable to such Noteholders.

The introduction of any large-scale sanctions on the Group may negatively impact its ability to make scheduled payments of principal and interest under the Loan Agreement, as any such payments could be frozen as a consequence of such sanctions before receipt by the Issuer. Any such freezing of payments would be beyond the Group’s control as it would result from the enforcement of sanctions by the relevant payment processing banks. Consequently, the Issuer’s and the Agents’, or the Trustee’s, as the case may be, ability to make scheduled payments of principal and interest under the Notes may be impaired. While the Group would consider and, to the extent possible, take available measures to discharge its obligations under the Loan Agreement, or facilitate the discharge of the Issuer’s obligations under the Notes, as the case may be, the imposition of sanctions against the Group could result in the Noteholders not receiving timely scheduled payments under the Notes or not receiving such payments at all and/or as a consequence an Event of Default may occur under the Loans. Moreover, should any member of the Group become subject to either U.S. or EU sanctions, the relevant clearing systems, brokers and other market participants as well as Euronext Dublin may refuse to permit trading in or otherwise facilitate transfers of the Notes and certain Noteholders may be unable to continue to hold the Notes as a result of applicable law or internal compliance requirements all of which could compound to significantly reduce the trading market for the Notes or may otherwise materially impact the value of the Notes.

Noteholders have limited recourse to the Issuer, as payments under the Notes are limited to the amount of certain payments received by the Issuer under the Loan Agreement

The Issuer has an obligation under the Conditions and the Trust Deed to pay such amounts of principal, interest and additional amounts (if any) as are due in respect of the Notes. However, the Issuer’s obligation to pay is limited to the amount of principal, interest and additional amounts (if any) actually received and retained (net of tax) from RusHydro by or for the account of the Issuer pursuant to the Loan Agreement. Consequently, if RusHydro fails to meet its payment obligations under the Loan Agreement in full, this will result in the Noteholders receiving less than the scheduled amount of principal, interest or other amounts, if any.

Noteholders have no direct recourse to RusHydro

Except as otherwise expressly provided in the Conditions and the Trust Deed, no proprietary or other direct interest in the Issuer’s rights under or in respect of the Loan Agreement exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder can enforce any provision of the Loan Agreement or have direct recourse to RusHydro as borrower except through an action by the Trustee pursuant to the rights granted to the Trustee in the Trust Deed. Under the Trust Deed and the Conditions, the Trustee shall not be required to take proceedings to enforce payment under the Loan Agreement unless it has been indemnified or secured by the Noteholders to its satisfaction. In addition, neither the Issuer nor the Trustee is required to monitor RusHydro’s financial performance. See “Terms and Conditions of the Notes”.

Payment in full of principal and interest by RusHydro pursuant to the Loan Agreement, to, or to the order of, the Trustee or the Principal Paying Agent will satisfy the Issuer’s obligations in respect of the Notes. Consequently, Noteholders will have no further recourse against the Issuer or RusHydro after such payment is made in full.

There are risks associated with the new debt instruments that are both denominated and settled in Roubles and the inexperience of both the Clearing Systems and the Russian and international banking systems in dealing with them

The Notes are denominated and settled in Russian Roubles, unless a Noteholder has made an irrevocable election, pursuant to Condition 7.1, to receive a forthcoming payment of principal or interest in U.S. Dollars. See “—There are risks associated with the option in the Terms and Conditions of the Notes for Noteholders to elect to receive a forthcoming payment of principal or interest on the Notes in U.S. Dollars”. Offerings of debt instruments that are both denominated and settled in Russian Roubles are a relatively new development in the international capital markets. This, coupled with the relative inexperience of both Euroclear and Clearstream, Luxembourg (the “Clearing Systems”) and the Russian and international banking systems in dealing with Russian Roubles payments and Russian Rouble accounts, could lead to unforeseen difficulties, which may have an adverse effect on the liquidity, marketability or trading price of the Notes.

In particular debt instruments that are both denominated and settled in Russian Roubles only became accepted by the Clearing Systems in early 2007. Due to the lack of experience of the Clearing Systems with settling, clearing and trading debt instruments that are both denominated and settled in Russian Roubles, there can be no guarantee that such clearing, settlement and trading procedures will progress smoothly or in a way which is comparable to procedures carried out with respect to instruments denominated in more conventionally settled currencies, such as U.S. Dollars or Euros.

Russian law previously prohibited or otherwise severely restricted the transfer and holding of Russian Roubles offshore and their repatriation onshore. Although these restrictions have now been lifted for non-residents (save for some restrictions which apply to the regime of residents’ accounts held outside of the Russian Federation), there is still no specific tested framework under Russian law for transferring or holding Russian Roubles in offshore Russian Rouble accounts. As with much recent Russian legislation, there is extremely limited or non-existent regulatory or court practice in interpreting these regulations. See “—Legal and regulatory risks and uncertainties in the Russian Federation”. If restrictions or prohibitions were placed on the transfer and holding of Russian Roubles offshore or if such legislation was reinterpreted by the Russian regulators or courts to the effect that restrictions were still deemed to apply to the transfer and holding of Russian Roubles offshore, this would severely hinder Noteholders’ ability to receive payments of principal or interest under the Notes or proceeds from the sale of the Notes.

Payments of principal and interest under the Notes and proceeds from the sale of the Notes will be made in Russian Roubles. All payments of Russian Roubles to, from, or between Russian Roubles accounts located outside the Russian Federation will be made via onshore correspondent accounts within the Russian banking system. The Russian banking system is less developed than many of its Western counterparts and at present has little experience in dealing with payments relating to Eurobonds or similar international debt instruments. Consequently, there is a risk that payments of both principal and interest under the Loan and the Notes and proceeds from the sale of the Notes, which need to pass through the Russian banking system, will be subject to delays and disruptions which may not exist in more mature banking markets.

In order for Noteholders to remove Russian Roubles received from payments of principal and interest on the Notes and proceeds from the sale of the Notes from the Clearing Systems, they will need to hold a bank account denominated in Russian Roubles. The administrative difficulties associated with opening Russian Roubles accounts outside the Russian Federation are significant. Noteholders that are not resident in the Russian Federation may also encounter considerable procedural difficulties with opening Russian Roubles accounts onshore in the Russian Federation. There can therefore be no guarantee that Noteholders will be able to successfully open a Russian Roubles bank account either offshore or in the Russian Federation or transfer Russian Roubles payments made under the Notes out of the Clearing Systems.

There are risks associated with the option in the Terms and Conditions of the Notes for Noteholders to elect to receive a forthcoming payment of principal or interest on the Notes in U.S. Dollars

Payments of principal and interest in respect of each Note will be paid in Russian Roubles. However, each Noteholder has the option to make an irrevocable election, pursuant to Condition 7.1, to receive a forthcoming payment of principal or interest in U.S. Dollars. In respect of any Notes for which a Noteholder has made such an irrevocable election to receive a payment in U.S. Dollars, the Principal Paying Agent will, pursuant to Condition 7.1, purchase the required U.S. Dollars, using the Russian Rouble amount received in accordance with the Loan Agreement, at a purchase price calculated on the basis of the Applicable Exchange Rate (as defined in “Terms and Conditions of the Notes”) and transfer the purchased amount in U.S. Dollars to the Noteholder’s U.S. Dollar account. If for any reason, the Principal Paying Agent cannot purchase U.S. Dollars, the relevant payment of interest or principal will be made to the relevant Noteholder in Russian Roubles, as more fully described in “Terms and Conditions of the Notes—Currency Exchange and Payments”.

The Applicable Exchange rate that the Principal Paying Agent has agreed to exchange Russian Roubles into U.S. Dollars shall be the internal foreign exchange conversion rate for settlement on the relevant Interest Payment Date which the Principal Paying Agent acting in a commercially reasonable manner uses to convert Russian Roubles into U.S. Dollars at the request of its other customers. The transaction for the purchase of U.S. Dollars with Russian Roubles executed by or on behalf of the Principal Paying Agent may include customary fees and/or commissions in relation to the execution of such trade.

No assurance can be given that the amount of U.S. Dollars received by an investor who elects to receive a payment of principal or interest in respect of the Notes in U.S. Dollars will be equal to the amount of U.S. Dollars that the investor could have realised in the foreign exchange market if the interest or principal payment made on the 36

investor’s Notes were instead paid directly to the investor in Russian Roubles and the investor had converted the Russian Roubles into U.S. Dollars. Investors shall have no recourse to the Issuer, RusHydro, the Principal Paying Agent or any other person in the event that the amount of U.S. Dollars that an investor receives in respect of a payment of principal or interest is lower than the amount of U.S. Dollars that such investor could have realised itself if it had exchange Russian Roubles in the foreign exchange market. In addition, even if Noteholders make an irrevocable election to receive a payment on the Notes in U.S. Dollars, if the Principal Paying Agent cannot, for any reason, purchase U.S. Dollars with the Russian Roubles that have been paid by RusHydro in accordance with the terms of the Loan Agreement in respect of any payment of principal or interest, Noteholders will receive Russian Roubles in respect of such payment of principal or interest.

Upon the occurrence of certain circumstances described in the Loan Agreement, RusHydro may prepay the Loan

Under the terms of the Loan Agreement, RusHydro may, subject to certain conditions, prepay the Loan if RusHydro is required to increase its payments for tax reasons regardless of whether the increased payment obligation results from any change in the applicable tax laws or treaties or from the change in application of existing tax laws or treaties or from enforcement of the security provided for in connection with the Notes. RusHydro may also prepay the Loan if RusHydro is required to indemnify the Issuer in respect of certain increased costs to the Issuer (as set out in the Loan Agreement). In the event that it becomes unlawful for the Issuer to allow the Loan to remain outstanding under the Loan Agreement, to maintain or give effect to any of its obligations under the Loan Agreement and/or to charge or receive or to be paid interest at the rate then applicable to the Loan, RusHydro may be required by the Issuer to repay the Loan in full. At any time on or after the date three months prior to the Maturity Date, RusHydro may prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the relevant repayment date. In case of any prepayment, all outstanding Notes would be redeemable at par with accrued interest or as otherwise specified in the Loan Agreement.

The lack of a public market for the Notes could reduce the value of your investment

There may not be an existing market for the Notes at the time they are issued. The Notes are expected to be listed on Euronext Dublin and traded on the Global Exchange Market. However, there can be no assurance that a liquid market will develop for the Notes, that holders of the Notes will be able to sell their Notes or that such holders will be able to sell their Notes for a price that reflects their value.

Negative changes to the Russian Federation’s or RusHydro’s credit rating could adversely affect the market price of the Notes

The Russian Federation has been assigned foreign currency sovereign credit ratings of Ba1 with positive outlook (Moody’s), BB+ with stable outlook (Standard & Poor’s) and BBB- with positive outlook (Fitch). A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. RusHydro has received a long-term rating of BBB- with stable outlook from Standard & Poor’s, BBB- with stable outlook from Fitch and Ba1 with positive outlook from Moody’s. Any change in the credit rating of RusHydro or the Russian Federation could adversely affect the trading price for the Notes.

Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to investment laws and regulations, or to the review by, or regulation of, certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent: (i) the Notes are legal investments for it; (ii) the Notes can be used as collateral for various types of borrowings; and (iii) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk based capital or similar rules.

The proposed financial transactions tax (“FTT”)

On 14 February 2013, the European Commission published a proposal (the “Commission’s Proposal”) for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate.

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in the Notes (including secondary market transactions) in certain circumstances.

Under the Commission’s Proposal the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate.

Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT.

EU Anti-Tax Avoidance Directive

As part of its anti-tax avoidance package, and to provide a framework for a harmonised implementation of a number of the Base Erosion and Profit Shifting (BEPS) conclusions across the EU, the EU Council adopted Council Directive (EU) 2016/1164 (the “Anti-Tax Avoidance Directive”) on 12 July 2016.

The EU Council adopted Council Directive (EU) 2017/952 (the “Anti-Tax Avoidance Directive 2”) on 29 May 2017, amending the Anti-Tax Avoidance Directive, to provide for minimum standards for counteracting hybrid mismatches involving EU member states and third countries.

EU member states must implement the Anti-Tax Avoidance Directive by 2019 (subject to derogations for EU member states which have equivalent measures in their domestic law) and have until 31 December 2019 to implement the Anti-Tax Avoidance Directive 2 (except for measures relating to reverse hybrid mismatches, which must be implemented by 31 December 2021).

The Directives contain various measures that could, depending on their implementation in Ireland, potentially result in certain payments made by the Issuer ceasing to be fully deductible. This could increase the Issuer's liability to tax and reduce the amounts available for payments on the Notes which, in certain circumstances, could lead to the early redemption of the Notes. See “Risk Factors—Risks Relating to the Notes and the Trading Market—Upon the occurrence of certain circumstances described in the Loan Agreement, RusHydro may prepay the Loan”.

Tax might be imposed on disposals of the Notes by Noteholders who are individuals in the Russian Federation, thereby reducing their value

Proceeds from the disposal of Notes received from a source within the Russian Federation by a Noteholder that is an individual not qualifying as a Russian tax resident for the purpose of Russian personal income tax would be subject to a personal Russian income tax at a rate of 30 per cent. (or such other tax rate as may be effective at the time of such sale or other disposal). The tax would apply to the gross proceeds from such disposal of the Notes less any available duly documented costs (including the acquisition cost of the Notes and other expenses relating to the acquisition holding and sale or other disposal of the Notes) provided that the duly executed supporting documentation is available to the person obliged to calculate and withhold Russian personal income tax in a timely manner. Furthermore, sales or other disposal proceeds attributable to accrued interest, if deemed to be received by such Noteholders from the Russian sources, can be subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as could be effective at the time of such sale or other disposal), even if the sale or other disposal results in a loss.

Russian personal income tax rate may technically be reduced or eliminated under provisions of an applicable double tax treaty concluded between Russia and the country of tax residency of a particular Noteholder, subject in practice to timely compliance by that Noteholder with the respective treaty clearance formalities.

In order to apply for tax exemption or payment of tax at a reduced tax rate under the respective double tax treaty a Non-Resident Noteholder – Individual which has the actual right to receive income should confirm his/ her tax residency status to the tax agent. For these purposes a Non-Resident Noteholder – Individual resident in a country that has a double tax treaty with Russia can provide to the tax agent a passport of a foreign citizen or other

document that is deemed to be an identification document under the federal law or an applicable international treaty. If this document is not sufficient to prove the residency status, the tax agent will request the Non-Resident Noteholder – Individual to provide a tax residency certificate issued by the competent authorities in his/ her country of residence for tax purposes.

The imposition or possibility of imposition of the withholding tax could adversely affect the value of the Notes. See “Tax Considerations—Russian Federation”.

Payments on the Loan may be subject to Russian withholding tax

In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity having no permanent establishment in Russia are subject to Russian withholding tax at a rate of 20 per cent. This tax rate can be reduced or eliminated under the terms of an applicable double tax treaty.

No Russian withholding tax obligations should arise for Russian companies in Eurobond structures, including the transaction described in these Listing Particulars, by virtue of the release from tax agent obligations envisaged by the Russian Tax Code which provides that Russian borrowers should be fully released from the obligation to withhold Russian income tax from interest payments made on debt obligations provided that the following conditions are all simultaneously met:

(a) interest is paid on debt obligations of Russian entities that arose in connection with the placement by foreign entities of “issued bonds”, defined as bonds or other debt obligations

(i) listed and/or admitted to trading on one of the specified foreign exchanges, and/or

(ii) that have been registered in the specified foreign depository/clearing organisations.

(b) the lists of qualifying foreign exchanges and foreign depositary/clearing organisations were approved by Order No. 4393-U of the Central Bank of the Russian Federation dated 30 May 2017 (the “List”). Euronext Dublin, Euroclear and Clearstream, Luxembourg are included in the List.

(c) there is a double tax treaty between Russia and the jurisdiction of tax residence of the recipient of interest of the loan (i.e., the Issuer) which can be confirmed by a tax residency certificate issued by the competent authorities of his/ her country of residence for tax purposes and effective as at the time of income payment.

Importantly, the Russian Tax Code does not provide an exemption to the foreign interest income recipients from Russian withholding tax, although currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay Russian tax. However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities will not attempt to collect the tax from foreign income recipients. See “Tax Considerations—Russian Federation”.

The Borrower, based on professional advice received, believes that it should be released from the obligation to withhold the Russian withholding tax from interest payments made to the Issuer under the Loan Agreement provided that the Issuer duly confirms its tax residence. However, as described above there is some uncertainty in this respect.

If the Notes are simultaneously (i) delisted from Euronext Dublin and (ii) exchanged for duly executed and authenticated registered Notes in definitive form in the limited circumstances specified in the Global Certificate, the above exemption related to “traded bonds” will not apply and the Borrower will be required to withhold Russian income tax on interest payments made by the Borrower to the Issuer. Besides that, if the Notes are delisted from Euronext Dublin and deposited with a common depository for, and registered in the name of a nominee of, Clearstream, Luxembourg only, the Notes may potentially not fall within the definition of “traded bonds” under the Russian Tax Code and, therefore, there is a residual risk that the Borrower may be required to withhold Russian tax from interest payments made by the Borrower to the Issuer.

If interest payments under the Loan are subject to Russian withholding tax (as a result of which the Issuer would reduce payments made under the corresponding Notes by the amount of the tax withheld), the Borrower will be obliged under the terms of the Loan Agreement to increase the amounts payable as may be necessary to ensure

that the Issuer receives a net amount equal to the amount it would have received in the absence of such withholding taxes.

It is currently unclear whether the provisions obliging the Borrower to gross-up payments will be enforceable in the Russian Federation. There is a risk that a gross up for withholding tax will not take place and that interest payments made by the Borrower under the Loan Agreement will be reduced by Russian tax withheld by the Borrower at the rate of 20 per cent., or, potentially, with respect to Non-Resident Noteholders – Individuals Russian personal income tax at a rate of 30 per cent. See “Tax Considerations—Russian Federation”.

RISKS RELATING TO THE ISSUER

The Issuer is subject to certain legal risks, including the location of its centre of main interest (“COMI”), the appointment of an examiner in the event the Issuer experiences financial difficulties, the claims of examiners, preferred creditors under Irish law and floating charges

COMI

The Issuer has its registered office in Ireland. Under Regulation (EU) No. 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (the “Recast EU Insolvency Regulation”), the Issuer’s centre of main interest is presumed to be the place of its registered office (i.e. Ireland) in the absence of proof to the contrary and provided that the Issuer did not move its registered office within the 3 months prior to a request to open insolvency proceedings.

As the Issuer’s COMI is presumed to be Ireland, any main insolvency proceedings in respect of the Issuer would fall within the jurisdiction of the courts of Ireland. As to what might constitute “proof to the contrary” regarding the location of a company’s COMI, the key decision is that in Re Eurofood IFSC Ltd ([2004] 4 IR 370 (Irish High Court); [2006] IESC 41 (Irish Supreme Court); [2006] Ch 508; ECJ Case C-341/04 (European Court of Justice)), given in respect of the equivalent provision in the previous EU Insolvency Regulation (Regulation (EC) No. 1346/2000). In that case, on a reference from the Irish Supreme Court, the European Court of Justice concluded that “factors which are both objective and ascertainable by third parties” would be needed to demonstrate that a company’s actual situation is different from that which the location of its registered office is deemed to reflect. For instance, if a company with its registered office in Ireland does not carry on any business in Ireland, that could rebut the presumption that the company’s COMI is in Ireland. However, if a company with its registered office in Ireland does carry on business in Ireland, the fact that its economic choices are controlled by a parent undertaking in another jurisdiction would not, of itself, be sufficient to rebut the presumption.

As the Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has retained an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut the presumption that its COMI is located in Ireland, although this would ultimately be a matter for the relevant court to decide based on the circumstances existing at the time when it was asked to make that decision. If the Issuer’s COMI was found to be in another EU jurisdiction and not in Ireland, main insolvency proceedings would be opened in that jurisdiction instead.

Examinership

Examinership is a court moratorium/protection procedure which is available under Irish company law to facilitate the survival of Irish companies in financial difficulties. Where a company, which has its COMI in Ireland is, or is likely to be, unable to pay its debts an examiner may be appointed on a petition to the relevant Irish court under Section 509 of the Companies Act 2014 (as amended) of Ireland (the “Companies Act 2014”).

The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to halt, prevent or rectify acts or omissions, by or on behalf of the company after his appointment and, in certain circumstances, negative pledges given by the company prior to his appointment will not be binding on the company. Furthermore, where proposals for a scheme of arrangement are to be formulated, the company may, subject to the approval of the court, affirm or repudiate any contract under which some element of performance other than the payment remains to be rendered both by the company and the other contracting party or parties.

During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist in the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the relevant Irish court when a minimum of one class of creditors, whose interests are impaired under the proposals, has voted in favour of the proposals and the relevant Irish court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement and the proposals are not unfairly prejudicial to any interested party.

The fact that the Issuer is a special purpose entity and that all its liabilities are of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer.

If, however, for any reason, an examiner was appointed while any amounts due by the Issuer under the Notes were unpaid, the primary risks to the holders of Notes would be as follows:

• the Trustee, acting on behalf of Noteholders, would not be able to enforce rights against the Issuer during the period of examinership; and

• a scheme of arrangement may be approved involving the writing down of the debt due by the Issuer to the Noteholders irrespective of the Noteholders’ views.

Preferred Creditors

If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to the Noteholders, the Noteholders may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular:

• under the terms of the Trust Deed, the Issuer will charge to the Trustee on behalf of Noteholders by way of first fixed charge (the “Charge”) as security for its payment obligations in respect of the Notes certain rights under the Loan Agreement and to the Accounts. Under Irish law, the claims of creditors holding fixed charges may rank behind other creditors (namely fees, costs and expenses of any examiner appointed and certain capital gains tax liabilities) and, in the case of fixed charges over book debts, may rank behind claims of the Irish Revenue Commissioners for PAYE, local property tax and VAT;

• under Irish law, for a charge to be characterised as a fixed charge, the charge holder is required to exercise the requisite level of control over the assets purported to be charged and the proceeds of such assets including any bank account into which such proceeds are paid. There is a risk therefore that even a charge which purports to be taken as a fixed charge may take effect as a floating charge if a court deems that the requisite level of control was not exercised; and

• in an insolvency of the Issuer, the claims of certain other creditors (including the Irish Revenue Commissioners for certain unpaid taxes), as well as those of creditors mentioned above, will rank in priority to claims of unsecured creditors and claims of creditors holding floating charges.

USE OF PROCEEDS

The proceeds of the Notes will be used by the Issuer for the sole purpose of financing the Loan to RusHydro. The proceeds of the Loan, less any commissions or expenses payable by RusHydro in connection with the Notes and the Loan, will be used by RusHydro for (i) refinancing its current loan portfolio, and (ii) general corporate purposes.

RusHydro will not directly or indirectly use the proceeds of the Loan, or lend, contribute or otherwise make available all or part of such proceeds to any subsidiary, affiliate, joint venture partner or other person or entity, (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or the target of Sanctions and would result in violation of Sanctions if such activity or business were conducted by a US or EU person, (ii) to fund or facilitate any activities of or business in any Sanctioned Territory or Activity subject to Sanctions, or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as Joint Lead Manager, advisor, investor or otherwise) of the Sanctions.

CAPITALISATION

The following table sets forth the Group’s consolidated capitalisation as at 30 June 2018, on a historical basis and derived from the Interim Financial Information of the Group included elsewhere in these Listing Particulars. The following table should be read in conjunction with “Selected Consolidated Financial and Other Information”, “Operating and Financial Review” and the Financial Statements, including the notes to the Financial Statements, included elsewhere in these Listing Particulars. As at 30 June 2018 (Amounts in RUB millions) Cash and cash equivalents ...... 72,401

Current debt and current portion of non-current debt ...... 49,430 Non-current debt ...... 117,079 Equity ...... 721,788 Share capital ...... 426,289 (426,288,813,551 issued and outstanding shares, each with a nominal value of 1 rouble) ...... Treasury shares ...... (4,613) Share premium ...... 39,202 Retained earnings and other reserves ...... 257,313 Equity attributable to shareholders of RusHydro ...... 718,191 Total capitalisation(1) ...... 884,700

(1) Total capitalisation is calculated as the sum of current debt and current portion of non-current debt, non- current debt and equity attributable to shareholders of RusHydro.

Save as disclosed above, there has been no material change in the Group’s capitalisation since 30 June 2018.

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The table below shows certain selected consolidated historical financial data of the Group as at and for the six months ended 30 June 2018 and 2017, and as at and for the years ended 31 December 2017 and 2016. This financial data has been derived from (i) the Annual Financial Statements and (ii) the Interim Financial Information, and should be read in conjunction with “Operating and Financial Review” and the Financial Statements included elsewhere in these Listing Particulars.

Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 (amounts in RUB millions) Consolidated income statement Revenue ...... 180,853 180,866 348,119 374,072 Government grants ...... 20,024 6,788 32,745 17,250 Other operating income ...... 4,896 - 690 12,422 Operating expenses ...... (154,075) (147,736) (303,805) (315,705) Impairment of property, plant and equipment ...... (1,144) (1,244) (24,000) (26,525) Impairment of accounts receivable, net ...... (2,404) (2,633) (5,957) (7,133) Impairment of financial assets ...... - - - (4,464) Impairment of loans issued ...... - - - (2,378) Operating profit ...... 48,150 36,041 47,792 47,539 Finance income ...... 2,763 5,196 8,443 9,943 Finance costs ...... (5,869) (10,497) (21,133) (9,041) Share of results of associates and joint ventures ...... 681 149 417 6,682 Profit before income tax ...... 45,725 30,889 35,519 55,123 Income tax expense ...... (9,037) (8,586) (13,068) (15,372) Profit for the period ...... 36,688 22,303 22,451 39,751 Attributable to: Shareholders of PJSC RusHydro ...... 35,660 22,052 24,013 40,205 Non-controlling interest ...... 1,028 251 (1,562) (454) Earnings per ordinary share for profit attributable to the shareholders of RusHydro - basic and diluted (in Russian roubles per share) ...... 0.0844 0.0576 0.0596 0.1095

Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 (amounts in RUB millions) Consolidated statement of cash flows Net cash generated by operating activities ...... 40,949 32,272 78,125 71,373 Net cash used in investing activities ...... (27,705) (21,678) (60,013) (24,918) Net cash (used in) / generated by financing activities ... (10,877) 7,396 (15,064) (26,837) Increase in cash and cash equivalents ...... 2,245 17,780 2,802 19,329

As at 30 June As at 31 December 2018 2017 2016 (amounts in RUB millions) Consolidated statement of financial position ASSETS Non-current assets Property, plant and equipment ...... 815,094 799,855 765,047 Investments in associates and joint ventures ...... 19,559 20,097 20,278 Available-for-sale financial assets ...... - 18,495 21,181 Deferred income tax assets ...... 8,553 9,354 6,640 Other non-current assets ...... 27,642 25,331 21,847

Total non-current assets ...... 870,848 873,132 834,993 Current assets Cash and cash equivalents ...... 72,401 70,156 67,354 Income tax receivable ...... 3,139 3,839 889 Accounts receivable and prepayments ...... 59,846 51,201 47,076 Inventories ...... 25,322 25,523 24,037 Other current assets ...... 8,568 4,400 9,097 Non-current assets classified as held for sale ...... 20,883 - - Total current assets ...... 190,159 155,119 148,453 TOTAL ASSETS ...... 1,061,007 1,028,251 983,446

EQUITY AND LIABILITIES Equity Share capital ...... 426,289 426,289 386,255 Treasury shares ...... (4,613) (4,613) (22,578) Share premium ...... 39,202 39,202 39,202 Retained earnings and other reserves ...... 257,313 231,967 243,790 Equity attributable to the shareholders of PJSC RusHydro ...... 718,191 692,845 646,669 Non-controlling interest ...... 3,597 2,719 4,263 TOTAL EQUITY ...... 721,788 695,564 650,932 Non-current liabilities Deferred income tax liabilities ...... 43,195 41,695 39,086 Non-current debt ...... 117,079 90,912 158,046 Non-deliverable forward contract for shares ...... 21,536 20,716 - Other non-current liabilities ...... 29,231 28,116 18,726 Total non-current liabilities ...... 211,041 181,439 215,858 Current liabilities Current debt and current portion of non-current debt ... 49,430 78,613 41,757 Accounts payable and accruals ...... 62,513 55,625 58,784 Current income tax payable ...... 415 976 858 Other taxes payable ...... 15,820 16,034 15,257 Total current liabilities ...... 128,178 151,248 116,656 TOTAL LIABILITIES ...... 339,219 332,687 332,514 TOTAL EQUITY AND LIABILITIES ...... 1,061,007 1,028,251 983,446

For the six months ended For the years ended 30 June 31 December 2018 2017 2017 2016 (amounts in RUB millions, except margins in % and ratios) Non-IFRS and other financial data unaudited EBITDA(1) ...... 59,949 51,547 104,038 100,341 EBITDA margin(2) ...... 29.8% 27.5% 27.3% 25.6% Operating profit margin(2) ...... 24.0% 19.2% 12.5% 12.1% Net profit margin(2) ...... 18.3% 11.9% 5.9% 10.2% As at 30 June As at 31 December 2018 2017 2017 2016 (amounts in RUB millions, except margins in % and ratios) Total debt as at end of period(3) ...... 166,509 163,006 169,525 199,803 Net debt(4)...... 94,108 77,872 99,369 132,449 Total financial debt(5) ...... 185,302 201,221 213,164 223,539 Net financial debt(5) ...... 112,901 116,087 143,008 156,185 Net debt / EBITDA(6) ...... 0.8 0.7 1.0 1.3 Net financial debt / EBITDA(7) ...... 1.0 1.1 1.4 1.6

(1) EBITDA, for any relevant period, is calculated as profit or loss for the period before depreciation of property, plant and equipment and amortisation of intangible assets, finance income and costs, income tax expense, share of results of associates and joint ventures, insurance indemnity and other non-monetary items of operating income and expenses. Some of these limitations are as follows: 45

• EBITDA does not reflect the impact of financing costs, which are significant and could further increase if the Group incurs more debt, on the Group’s operating performance. • EBITDA does not reflect the impact of income taxes on the Group’s operating performance. • EBITDA does not reflect the impact of depreciation and amortisation on the Group’s operating performance. The assets of the Group’s business which are being depreciated and/or amortised will have to be replaced in the future and such depreciation and amortisation expense may approximate the cost to replace these assets in the future. By excluding this expense from EBITDA, EBITDA does not reflect the Group’s future cash requirements for these replacements. • Other companies in the Group’s industry may calculate EBITDA differently or may use it for different purposes than RusHydro does, limiting its usefulness as a comparative measure. RusHydro compensates for these limitations by relying primarily on its IFRS operating results and using EBITDA only supplementally. See the Group’s consolidated income statements and consolidated statements of cash flows included elsewhere in these Listing Particulars. EBITDA is a measure of the Group’s operating performance that is not required by, or presented in accordance with, IFRS. EBITDA is not a measurement of the Group’s operating performance or liquidity under IFRS and should not be considered as an alternative to profit for the year, operating profit or any other performance measures derived in accordance with IFRS or as an alternative to cash flow from operating activities or as a measure of the Group’s liquidity. In particular, EBITDA should not be considered as a measure of discretionary cash available to the Group to invest in the growth of its business. The following table sets forth a reconciliation of EBITDA to profit or loss for the years indicated:

Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 (amounts in RUB millions) Profit for the period ...... 36,688 22,303 22,451 39,751 Adjustments for: Depreciation of property, plant and equipment and amortisation of intangible assets ...... 13,131 11,408 25,023 24,130 Other non-monetary items of operating income and expenses(8) ...... (1,332) 4,098 31,223 30,409 Finance (income) / costs, net ...... 3,106 5,301 12,690 (902) Total income tax expense ...... 9,037 8,586 13,068 15,372 Share of results of associates and joint ventures ...... (681) (149) (417) (6,682) Insurance indemnity ...... - - - (1,737) EBITDA ...... 59,949 51,547 104,038 100,341 LTM EBITDA(5) ...... 112,440 103,868 N/A N/A

(2) Margins are calculated as EBITDA (LTM EBITDA for interim periods), operating profit or net profit, respectively, as a percentage of total revenue (the sum of revenue and Government grants). (3) Total debt represents non-current and current debt and the current portion of non-current debt. (4) Net debt is calculated as total debt as at end of period less cash and cash equivalents. (5) LTM EBITDA for the six months ended 30 June 2018 comprises EBITDA for the previous twelve month period calculated as EBITDA for the six months ended 30 June 2018, plus EBITDA for the full year 2017, minus EBITDA for the six months ended 30 June 2017. LTM EBITDA for the six months ended 30 June 2017 comprises EBITDA for the previous twelve month period calculated as EBITDA for the six months ended 30 June 2017, plus EBITDA for the full year 2016, minus EBITDA for the six months ended 30 June 2016. (6) Net debt / EBITDA is the ratio of net debt to EBITDA (LTM EBITDA for interim periods). (7) Net financial debt / EBITDA is the ratio of net financial debt to EBITDA (LTM EBITDA for interim periods). (8) Other non-monetary items of operating income and expenses comprise gain arising on financial assets at fair value through profit or loss, impairment of property, plant and equipment, net impairment of accounts receivable, net loss / (profit) on disposal of property, plant and equipment and net profit on disposal of subsidiaries and joint ventures. (9) The table below sets out the calculations of total financial debt and net financial debt.

As at 30 June As at 31 December 2018 2017 2017 2016 (amounts in RUB millions) Total debt as at end of period ...... 166,509 163,006 169,525 199,803 Adjustments: Guarantees issued ...... - 26,335 25,935 26,780 Forward agreement with VTB ...... 21,536 14,665 20,716 - Less interest payable ...... (2,743) (2,785) (3,012) (3,044) Total financial debt ...... 185,302 201,221 213,164 223,539 Less cash and cash equivalents ...... (72,401) (85,134) (70,156) (67,354) Net financial debt ...... 112,901 116,087 143,008 156,185

OPERATING AND FINANCIAL REVIEW

The following review of the Group’s financial condition and results of operations includes forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of important factors that could cause the actual results to differ materially from the results described in the forward-looking statements contained in these Listing Particulars.

The following should be read in conjunction with the Financial Statements, including the related notes, included in these Listing Particulars. Investors should not solely rely on the information contained in this section. Selected consolidated financial information in this section has been derived from the Financial Statements without material adjustment, unless otherwise stated. The Financial Statements have been prepared in accordance with IFRS and under existing Group accounting policies.

Overview

The Group’s generation facilities are located in the integrated energy systems of Russia’s electricity sector (see “Industry Overview”), which span across the entire territory of the Russian Federation, as well as Armenia, where RusHydro owns and operates the 561 MW Sevan-Hrazdan cascade of seven hydropower plants. The Group has a diversified asset base with over 100 major power plants across all the major regions of Russia, including 72 HPPs (including two HPPs under operating leases, one HPP not currently operational and the Boguchanskaya HPP, a joint venture with UC RUSAL), 35 major thermal power plants and four other types of renewable energy sources.

The Group sells electricity and capacity on the wholesale electricity market and, through its electricity retail companies, on the retail electricity market of the Unified Energy System of Russia and in five isolated power systems of the Far East region. The Group’s operations in the Far East region are vertically integrated, making it the leading operator of electricity and heat power generation assets, electricity transmission and distribution networks, as well as heat transmission and distribution networks in the region. In addition, the Group's holdings include engineering and R&D assets. See “Industry Overview—Overview of the Electricity Market”. RusHydro’s headquarters are in Moscow, Russian Federation.

In addition to the generation and supply of electricity and capacity to wholesale customers, the Group is also engaged in the supply of electricity and capacity to retail customers through a number of electricity retail companies. Following the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016, RusHydro now operates four electricity retail companies in different pricing zones, including PJSC Krasnoyarskenergosbyt, PJSC RESK, JSC Chuvashskaya Energy Retail Company and JSC ESС RusHydro. In the Far East of Russia, RusHydro has a 52.1 per cent. ownership stake in PJSC DEK, which acts as a single electricity retail operator in the non-pricing zone of the Far East.

Certain Factors Affecting the Group’s Results of Operations

A number of external factors affect the results of operations of the Group, including electricity and capacity prices, seasonality and Russian macroeconomic trends. See “—Results of Operations for the Six Months ended 30 June 2018 and 2017” and “—Results of Operations for the Years ended 31 December 2017 and 2016” for a description of the extent to which those external factors have affected the Group’s results of operations. See also “Risk Factors”.

Electricity and capacity prices

The Russian electricity market consists of wholesale and retail markets. The wholesale electricity market consists of sales of capacity and electricity, which are treated as separate products. The capacity market represents the obligation and ability to keep sufficient generation capacity in reserve in order to satisfy a target level of potential demand, while the sale of electricity represents the actual delivery of electricity to the purchaser.

The price at which the Group sells electricity and capacity is critical to its results of operations. In the periods under discussion, the Group was required to sell a substantial but decreasing amount of its wholesale electricity and capacity at regulated tariffs. In the periods under review, unregulated prices realised by the Group were generally higher than the tariffs it was permitted to charge under Regulated Contracts.

FAS uses a cost indexation formula to calculate regulated electricity tariffs for Dalnevostochnaya Generating Company (DGK) on an annual basis based on, among other things, inflation forecasts and changes to the tax regime, calculated by reference to the Group’s historical costs. The Group is therefore incentivised to implement cost savings relative to its historical cost levels where tariffs apply, as such cost savings would be reflected in the Group’s operating margin.

As discussed under “Industry Overview—Sector Reform”, there has been a significant liberalisation of the pricing regime relating to most of the wholesale market since 2006. In particular, there have been changes in the way in which tariffs are calculated as well as a gradual increase in the volume of wholesale electricity and capacity that can be sold in markets in which tariffs are not regulated but are subject to competitive pricing pressures. Since 1 January 2011, the electricity prices in the first pricing zone and the second pricing zone have generally been unregulated, with the exception of certain population areas (the Republic of Komi, Arkhangelsk and Kaliningrad Regions, regions of North Caucasus, the Republic of Tuva and the Republic of Buryatia) where regulated pricing still exists. The Far East region also remains subject to regulated pricing. For the six months ended 30 June 2018, 38 per cent. of capacity and 22 per cent. of electricity supplied by PJSC RusHydro was subject to regulated prices. See “Industry Overview—Structure of the Energy Market—Wholesale Electricity and Capacity Markets”.

Margins on retail sales of electricity by “guaranteeing suppliers” in all of the Russian Federation are regulated. See “Industry Overview—Structure of the Energy Market—Retail Electricity Market”. Three out of four of the Group’s retail subsidiaries are classified as “guaranteeing suppliers” and are therefore subject to regulated margins. For the six months ended 30 June 2018, 92.4 per cent. of the Group’s retail sales volumes (see “Business— Principal Operations—Electricity generation—Electricity (retail)”) were subject to regulated margins.

In the wholesale market, electricity and capacity prices have remained stable in the first pricing zone in recent years. For the six months ended 30 June 2018, the average price per MWh amounted to RUB 1,189, as compared to RUB 1,204, RUB 1,202 and RUB 1,154 for the years ended 31 December 2017, 2016 and 2015,

respectively. In the second pricing zone, for the six months ended 30 June 2018 the average price per MWh amounted to RUB 884, as compared to RUB 865, RUB 866 and RUB 914 for the years ended 31 December 2017, 2016 and 2015, respectively. As a result of a competitive capacity auction, capacity prices in the first pricing zone declined from RUB 125,102 per MW per month in 2015 to RUB 112,624 per MW per month in 2016 and increased to RUB 118,178 per MW per month in 2017, whereas in the second pricing zone, capacity prices increased from RUB 179,000 per MW per month in 2015 to RUB 189,191 per MW per month in 2016 and RUB 189,740 per MW per month in 2017.

Between 2015 and 2018, electricity tariffs have typically increased at rates that are above levels of inflation in Russia. In the first pricing zone, the weighted average electricity tariff increased from RUB 13.7 per MWh in 2015 to RUB 15.5 per MWh in 2016, RUB 17.9 per MWh in 2017 and RUB 20.0 in the six months ended 30 June 2018. In the second pricing zone, the weighted average electricity tariff increased from RUB 16.0 per MWh in 2015 to RUB 18.5 per MWh in 2016, RUB 22.2 per MWh in 2017 and RUB 25.2 in the six month ended 30 June 2018. In the Far East region, between 1 January 2016 and 30 June 2018 electricity and heat tariffs that apply in respect of Dalnevostochnaya Generating Company (DGK), the Group’s largest producer of electricity and heat production in the Far East region, have increased at a compound annual growth rate of 6.4 per cent. and 8.2 per cent., respectively.

Capacity tariffs have not increased at the same rate as electricity tariffs. In the first pricing zone, the weighted average capacity tariff increased from RUB 116,400 per MW per month in 2015 to RUB 124,800 per MW per month in 2016, RUB 127,500 per MW per month in 2018 and RUB 130,400 for the six months ended 30 June 2018. In the second pricing zone, the weighted average capacity tariff increased from RUB 42,800 per MW per month in 2015, RUB 42,900 per MW per month in 2016, RUB 46,000 per MW per month in 2017 and RUB 47,500 per MW per month for the six months ended 30 June 2018.

There are currently no plans for the liberalisation of electricity and capacity prices in the Republic of Komi, Arkhangelsk and Kaliningrad Regions, regions of North Caucasus, the Republic of Tuva, the Republic of Buryatia and the Far East regions, where the Group has several generation facilities, including Bureyskaya HPP, Zeyskaya HPP, Kolymskaya HPP and Ust-Srednekanskaya HPP. It is likely that electricity and capacity prices in these regions will not be liberalised until the related grid infrastructure is sufficiently developed to create a competitive market. Until that time, the electricity and capacity produced by the Group in these regions will be subject to tariffs. In certain regions of the Far East, the Group’s revenues from the sale of electricity and capacity under Regulated Contracts are not sufficient to cover operating costs, which has a negative impact on the Group’s results of operations.

Seasonality

Hydro-generation, which is the Group’s principal source of electricity and capacity, is heavily influenced by weather conditions and only certain regions of the Russian Federation experience sufficient precipitation to feed the river systems that provide sufficient water flow for HPPs. Therefore, the electricity volume that can be produced by the Group depends significantly on the available water flow in the river systems which supply its generation facilities. For example, during the summer of 2016, increased water availability in Siberian rivers increased water flow into the dams of the Sayano-Shushenskaya and Krasnoyarskaya HPPs. By comparison, hot and dry conditions during the summer months of 2016 negatively impacted the water flow of the Volga and Kama rivers in European Russia and the water flow into the reservoirs of the Volga-Kama cascade, which led to decreased water availability for electricity generation. For the six months ended 30 June 2018, total production by HPPs increased by 5.5% as compared to the six months ended 30 June 2017.

In addition, electricity output at HPPs varies significantly during the year. The output is usually higher in spring-summer due to higher water flows through HPPs and is lower in autumn-winter. This factor is partially offset by a converse change in electricity spot market prices, which are usually lower in spring-summer, due to the higher share of electricity produced by HPPs in that period and reduced demand for electricity in the summer months, and higher in autumn-winter.

Demand for electricity in the Russian Federation may vary significantly on a daily, seasonal and yearly basis due to weather conditions and other factors. Demand for electricity is usually higher during the period from October to March due to longer nights and colder weather, and it is generally lower in the period from April to September due to longer days and warmer weather. In addition, demand for electricity is usually higher during normal business hours during the day and for a longer duration during the period from October to March due to fewer daylight hours. Demand may also fluctuate from year to year due to changes in weather patterns. Therefore, the generation capacities of the Group may be fully utilised during certain parts of the day or during certain months, and under- utilised during other parts of the day and year. See “Risk Factors—Risks associated with the Group and its 49

operations—Demand for electricity in Russia is subject to fluctuations, and the Group may be unable to obtain expected levels of revenue and/or address daily, seasonal or yearly fluctuations in demand for electricity and heat”.

Russian macroeconomic trends

Substantially all of the Group’s operations are based in the Russian Federation, and, in the periods under review, the Group derived substantially all of its revenues from sales to customers in the Russian Federation. As a result, Russian macroeconomic trends have a significant influence on the performance of the Group.

The table below summarises certain macroeconomic indicators relating to the Russian economy in the six months ended 30 June 2018 and 2017 and the years ended 31 December 2017 and 2016 and electricity consumption in the six months ended 30 June 2018 and 2017 and the years ended 31 December 2017 and 2016:

Six Months Ended 30 June Year ended 31 December 2018 2017 2017 2016 GDP growth (%)(1) ...... 1.7 1.6 1.5 (0.2) Consumer lifeprice index growth (%)(1) ...... 2.3 4.4 3.7 5.4 Unemployment rate (%)(1) ...... 4.7 5.1 5.1 5.5 Electricity consumption (billion kWh)(2) ...... 531.6 522.7 1,039.7 1,026.9

(1) Source: Rosstat (2) Source: The System Operator

Inflation in the Russian Federation was 2.3 per cent. in the six months ended 30 June 2018, 3.7 per cent. in the year ended 31 December 2017 and 5.4 per cent. in the year ended 31 December 2016. High levels of inflation tend to increase the Group’s expenses, such as salaries, that are linked to general price levels in Russia. In the periods under review, inflation has generally not had a material impact on the Group’s results of operations.

Segment Information

The Group generally analyses information by the groups of operations which are consolidated in the following separate reporting segments:

• PJSC RusHydro: This segment includes the parent company PJSC RusHydro including its branches.

• ESC RusHydro: This segment includes Group companies which sell electricity to end consumers in the retail electricity market.

• RAO ES of the East: This segment comprises JSC RAO ES of the East and its subsidiaries that generate, distribute and sell electricity and heat in the Far East region of Russia and render transportation, construction, repair and other services.

• Other segments: This comprises a number of minor segments which do not have similar economic characteristics.

Transactions between the business segments are on normal commercial terms and conditions. Internal charges between segments are reflected in the performance of each business segment.

Adoption of new IFRS standards and comparability of financial information between periods

The Group adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers from 1 January 2018.

IFRS 9 Financial Instruments

As a result of adoption of IFRS 9 there were changes in classification and measurement of financial assets of the Group. In accordance with the transitional provisions of IFRS 9, comparative figures were not restated. Investments in shares of listed companies were reclassified from available-for-sale financial assets included in non- current assets as at 31 December 2017 to financial assets at fair value through profit or loss in the amount of RUB 17,953 million. The gains from fair value revaluation of listed companies shares accumulated as at 1 January 2018 50

in revaluation reserve on available-for-sale financial assets in the amount of RR 13,894 million were transferred to retained earnings as at 1 January 2018. Subsequent revaluations of the fair value of these shares is reported in profit or loss as “Other operating income”. Prior to adoption of IFRS 9, these gains/losses were reported in other comprehensive income.

For further details of IFRS 9 adoption and impact please refer to note 2 to the Interim Financial Information.

IFRS 15 Revenue from Contracts with Customers

In accordance with the transition provisions in IFRS 15 the Group applied the simplified transition method with the effect of the transition recognised as at 1 January 2018.

From 1 January 2018 the Group recognised revenue from compensation of transmission losses and expenses on power distribution under contracts with grid companies on a net basis compared to revenues and expenses being recognised on a gross basis in prior periods. The compensation of transmission losses that entities of the Group received in the six months ended 30 June 2018 amounted RR 4,184 million (for the six months ended 30 June 2017: RR 3,760 million). Therefore revenue and operating expenses are not directly comparable between six months ended June 30, 2018 and June 30, 2017. Adoption of IFRS 15 resulted in lower revenues and lower operating expenses in six months ended June 30, 2018 compared to what would have been recorded under the old standard.

For further details of IFRS 15 adoption and impact please refer to note 2 to the Interim Financial Information.

Consolidated Financial Results Overview

The table below sets forth a summary of the Group’s consolidated financial results for the six months ended 30 June 2018 and 2017 and the years ended 31 December 2017 and 2016:

Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 (amounts in RUB millions) Revenue ...... 180,853 180,866 348,119 374,072 Government grants ...... 20,024 6,788 32,745 17,250 Other operating income ...... 4,896 - 690 12,422 Operating expenses ...... (154,075) (147,736) (303,805) (315,705) Operating profit excluding impairment losses ...... 51,698 39,918 77,749 88,039 Impairment of property, plant and equipment ...... (1,144) (1,244) (24,000) (26,525) Impairment of accounts receivable, net ...... (2,404) (2,633) (5,957) (7,133) Impairment of financial assets ...... - - - (4,464) Impairment of loans issued ...... - - - (2,378) Operating profit ...... 48,150 36,041 47,792 47,539 Finance income ...... 2,763 5,196 8,443 9,943 Finance costs ...... (5,869) (10,497) (21,133) (9,041) Share of results of associates and joint ventures ...... 681 149 417 6,682 Profit before income tax ...... 45,725 30,889 35,519 55,123 Income tax expense ...... (9,037) (8,586) (13,068) (15,372) Profit for the period ...... 36,688 22,303 22,451 39,751 Attributable to: Shareholders of RusHydro ...... 35,660 22,052 24,013 40,205 Non-controlling interest ...... 1,028 251 (1,562) (454) Earnings per ordinary share for profit attributable to the shareholders of RusHydro - basic and diluted (in Russian roubles per share) ...... 0.0844 0.0576 0.0596 0.1095 Weighted average number of shares outstanding - basic and diluted (millions of shares) ...... 422,437 382,546 402,655 367,138

Results of Operations for the Six Months Ended 30 June 2018 and 2017

Revenue

The Group derives its revenues primarily from the sale of electricity through the retail electricity market and the wholesale electricity market and from the sale of capacity on the wholesale market and the sale of heat and hot water. The Group also derives other revenue earned from rendering of construction, repair and other services.

The Group’s revenues including Government grants increased by RUB 13,223 million, or 7.0 per cent. to RUB 200,877 million for the six months ended 30 June 2018 from RUB 187,654 for the six months ended 30 June 2017 primarily due to an increase in production.

The table below shows a breakdown of the Group’s revenues between sales of electricity and capacity by segment and other revenue for the periods indicated.

Six Months Ended 30 June 2018 2017 Change (%) (amounts in RUB millions, unless otherwise stated) Sales of electricity(1) ...... 123,398 126,708 (2.6%) Sales of heat and hot water ...... 24,093 22,667 6.3% Sales of capacity(2) ...... 20,761 19,840 4.6% Other revenue ...... 12,601 11,651 8.2% Total revenue ...... 180,853 180,866 (0.01%) Government grants ...... 20,024 6,788 195% Total revenue and Government grants 200,877 187,654 7.0%

(1) Includes re-sales of purchased electricity. (2) Includes re-sales of purchased capacity.

Sales of electricity

The Group’s revenue in electricity sales decreased by RUB 3,310 million, or 2.6 per cent., to RUB 123,398 million for the six months ended 30 June 2018 from RUB 126,708 million for the six months ended 30 June 2017, primarily as a result of tariffs reduction under the Resolution No. 895, which was offset by an increase in production.

Sales of heat and hot water

The Group’s revenue in sales of heat and hot water increased by RUB 1,426 million, or 6.3 per cent., to RUB 24,093 million for the six months ended 30 June 2018 from RUB 22,667 million for the six months ended 30 June 2017, primarily as a result of an increase in the heat tariff and an increase in the volumes of heat and hot water supplied.

Sales of capacity

The Group’s revenue from selling capacity increased by RUB 921 million, or 4.6 per cent., to RUB 20,761 million for the six months ended 30 June 2018 from RUB 19,840 million for the six months ended 30 June 2017 as a result of an increase in the sales volumes.

Other revenue

Other revenue in the six months ended 30 June 2018 and 2017 consisted of revenue earned from transporting heat and electricity, connections to the electricity grid, construction repair and other services. Other revenue increased by RUB 950 million, or 8.2 per cent., to RUB 12,601 million for the six months ended 30 June 2018 from RUB 11,651 million for six months ended 30 June 2017.

Government grants (subsidies)

compensation for certain losses incurred as a result of U.S. dollar-linked purchase prices for natural gas. During the six months ended 30 June 2018, Government grants received by the Group increased by RUB 13,236 million, or 195 per cent., to RUB 20,024 million, as compared to RUB 6,788 million for the six months ended 30 June 2017 as a result of an additional subsidy provided under Resolution No. 895 for compensation of the tariffs reduction, see Industry Overview — Tariffs”.

Operating Expenses

The table below shows the Group’s operating expenses for the periods indicated:

Six Months Ended 30 June 2018 2017 Percentage Percentage of Total of Total Change

Amount Expenses Amount Expenses (%) (amounts in RUB millions, except percentages) Employee benefit expenses ...... 37,158 24.1% 36,377 24.6% 2.2% Fuel expenses ...... 34,260 22.2% 29,969 20.3% 14.3% Grid companies services on electricity distribution ...... 20,071 13.0% 21,241 14.4% (5.5%) Purchased electricity and capacity ...... 19,602 12.7% 19,906 13.5% (1.5%) Depreciation of property, plant and equipment ...... 13,131 8.6% 11,408 7.7% 15.1% Taxes other than on income ...... 6,077 3.9% 5,409 3.7% 12.4% Other materials ...... 4,008 2.6% 4,310 2.9% (7.0%) Third party services(1) ...... 15,722 10.2% 15,223 10.3% 3.3% Water usage expenses ...... 1,996 1.3% 1,678 1.1% 19.0% Social infrastructure costs ...... 506 0.4% 351 0.2% 44.2% Travel expenses ...... 425 0.3% 360 0.2% 18.1% Loss on disposal of property, plant and equipment ...... 21 0.0% 219 0.1% (90.4%) Other expenses ...... 1,098 0.7% 1,285 0.9% (14.6%) Total operating expenses ...... 154,075 100.0% 147,736 100.0% 4.3%

(1) See note 22 to the Interim Financial Information for more details. All of the expense line items which have been aggregated as “Third party services” herein are individually less than 3 per cent. of the total expenses for both periods.

Total operating expenses increased by RUB 6,339 million, or 4.3 per cent., to RUB 154,075 million for the six months ended 30 June 2018 from RUB 147,736 million for the six months ended 30 June 2017, primarily as a result of the increase in fuel prices and depreciation and amortisation expense.

Employee benefit expenses

Employee benefit expenses consist of salaries, payroll taxes and pension benefit expenses recorded in respect of the Group’s employees. The Group’s employee benefit expenses increased by RUB 781 million, or 2.1 per cent., to RUB 37,158 million for the six months ended 30 June 2018 from RUB 36,377 million for the six months ended 30 June 2017. The increase was attributable to increases in salary levels.

Fuel expenses

Fuel expenses consist of fuel used to generate electricity and heat in the Group’s fossil fuel power plants. Fuel expenses increased by RUB 4,291 million, or 14.3 per cent., to RUB 34,260 million for the six months ended 30 June 2018 from RUB 29,969 million for the six months ended 30 June 2017, primarily as a result of fuel price increases.

Grid companies services on electricity distribution

The Group pays for the distribution of electricity to its end consumers on the electricity retail market. The Group’s electricity distribution expenses decreased by RUB 1,170 million, or 5.5 per cent., to RUB 20,071 million for the six months ended 30 June 2018 from RUB 21,241 million for the six months ended 30 June 2017. The 53

decrease was mainly attributable to application of IFRS 15 starting from 1 January 2018. The impact of IFRS 15 was partially offset by an increase in tariffs and volumes when compensation of transmission losses and expenses on power distribution started to be recognised on a net basis.

Purchased electricity and capacity

The Group purchases electricity and capacity to resell in the retail and capacity markets, to meet its own obligations under regulated and unregulated bilateral contracts in the wholesale and capacity markets and to satisfy its own internal demands. The Group’s purchased electricity and capacity expenses decreased by RUB 304 million, or 1.5 per cent., to RUB 19,602 million for the six months ended 30 June 2018 from RUB 19,906 million for the six months ended 30 June 2017.

Depreciation of property, plant and equipment

The Group’s depreciation expenses increased by RUB 1,723 million, or 15.1 per cent., to RUB 13,131 million for the six months ended 30 June 2018 from RUB 11,408 million for the six months ended 30 June 2017. This increase in depreciation expenses was due to an increase in capital assets value as a result of new facilities coming into operation and a reassessment of capital assets in PJSC RusHydro following their modernisation.

Taxes other than on income

Taxes other than on income, which consist primarily of property and land taxes, increased by RUB 668 million, or 12.3 per cent., to RUB 6,077 million for the six months ended 30 June 2018 from RUB 5,409 million for the six months ended 30 June 2017. This increase was mainly attributable to decrease in tax privileges on movable property and increase in property tax as a result of new facilities coming into operation and a reassessment of capital assets in PJSC RusHydro following their modernisation.

Other materials

Other materials consist of all materials used by the Group in its operations with the exception of fuel and spare parts used for repairs. The Group’s expenses on other materials decreased by RUB 302 million, or 7.0 per cent., to RUB 4,008 million for the six months ended 30 June 2018 from RUB 4,310 million for the six months ended 30 June 2017.

Third party services

Third party services consist of services that the Group purchases from third parties, including purchases of heat and the transport of heat, security expenses, repairs and maintenance, consultancy, legal and information expenses, rent, insurance costs, subcontractor services, transportation expenses and provisions for the functioning of the electricity and capacity market. The Group’s third party services expenses increased by RUB 499 million, or 3.3 per cent., to RUB 15,722 million for the six months ended 30 June 2018 from RUB 15,223 million for the six months ended 30 June 2017 as a result of increase in contractors’ scope of work.

Water usage expenses

Water usage expenses consist of payments for the use of facilities located on water and water taxes. The Group’s water usage expenses increased by RUB 318 million, or 19.0 per cent., to RUB 1,996 million for the six months ended 30 June 2018 from RUB 1,678 million for the six months ended 30 June 2017, primarily as a result of an increase in electricity generation by the Group’s hydropower plants.

Other expenses

Other expenses include expenses such as penalties under contracts, membership fees, write-offs on research and development, costs for emergency situations and purchases of oil products for resale. Other expenses decreased by RUB 187 million, or 14.6 per cent., to RUB 1,098 million for the six months ended 30 June 2018 from RUB 1,285 million for the six months ended 30 June 2017.

Impairment of accounts receivable, net

Impairment of accounts receivable decreased by RUB 229 million, or 8.7 per cent., to RUB 2,404 million for the six months ended 30 June 2018 from RUB 2,633 million for the six months ended 30 June 2017.

Impairment of property, plant and equipment

Impairment of property, plant and equipment decreased by RUB 100 million, or 8.0 per cent., to RUB 1,144 million for the six months ended 30 June 2018 from RUB 1,244 million for the six months ended 30 June 2017. Impairment loss was recognised in respect of additions of property, plant and equipment related to cash generating units impaired in previous periods, there was no further significant impairment in addition to that recognised previously.

Operating profit

As a result of the foregoing factors, the Group made an operating profit for the six months ended 30 June 2018 of RUB 48,150 million, resulting in an operating profit margin of 24.0 per cent., as compared to an operating profit and operating profit margin for the six months ended 30 June 2017 of RUB 36,041 million and 19.2 per cent., respectively. One of the factors accounting for the higher operating margin is the implementation of cost optimisation measures by the Group.

Finance income

Finance income decreased by RUB 2,433 million, or 46.8 per cent., to RUB 2,763 million for the six months ended 30 June 2018 from RUB 5,196 million for the six months 30 June 2017. The decrease is mainly attributable to a decrease in interest income as a result of decrease in the bank deposits.

Finance costs

Finance costs decreased by RUB 4,628 million, or 44.1 per cent., to RUB 5,869 million for the six months ended 30 June 2018 from RUB 10,497 million for the six months ended 30 June 2017 primarily as a result of the change in the fair value of the Group’s non-deliverable forward contract for shares with VTB. See “— Liquidity and Capital Resources”.

Share of results of associates and joint ventures

The share of results of associates and joint ventures increased by RUB 532 million, or 357.0 per cent., to RUB 681 million for the six months ended 30 June 2018 from RUB 149 million for the six months ended 30 June 2017. The increase is attributable to BoGES Group financial results.

Income tax expense

The Group’s total income tax expense increased by RUB 451 million, or 5.3 per cent., to RUB 9,037 million for the six months ended 30 June 2018 from RUB 8,586 million for the six months ended 30 June 2017. Although the estimated average annual effective income tax rate used for the six months ended 30 June 2018 was 20 per cent., as compared to 28 per cent. for the six months ended 30 June 2017, the Group’s total income tax expense increased as a result of higher profit before tax for the six months ended 30 June 2018 compared to six months ended 30 June 2017.

Profit for the period

As a result of the factors discussed above, profit for the period increased by RUB 14,385 million, or 64.5 per cent., to RUB 36,688 million for the six months ended 30 June 2018 from RUB 22,303 million for the six months ended 30 June 2017.

Results of Operations for the Years Ended 31 December 2017 and 2016

Revenue

The Group’s revenue decreased by RUB 25,953 million, or 6.9 per cent., to RUB 348,119 million in the year ended 31 December 2017 from RUB 374,072 million in the year ended 31 December 2016.

The table below shows a breakdown of the Group’s revenues between sales of electricity, sales of heat and hot water, sales of capacity and other revenue for the periods indicated.

Year ended 31 December 2017 2016 Change (%) (amounts in RUB millions, unless otherwise stated) Sales of electricity(1) ...... 241,409 272,582 (11.4%) Sales of heat and hot water ...... 38,907 38,849 0.1% Sales of capacity(2) ...... 40,881 37,068 10.3% Other revenue ...... 26,922 25,573 5.3% Total revenue ...... 348,119 374,072 (6.9%) Government grants ...... 32,745 17,250 89.8% Total revenue and Government grants 380,864 391,322 (2.7%)

(1) Includes re-sales of purchased electricity. (2) Includes re-sales of purchased capacity.

Sales of electricity

The Group’s revenue from electricity sales decreased by RUB 31,173 million, or 11.4 per cent., to RUB 241,409 million for the year ended 31 December 2017 from RUB 272,582 million for the year ended 31 December 2016. The decrease was mainly driven by the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016.

Sales of heat and hot water

Sales of heat and hot water stayed relatively flat with a slight increase by RUB 58 million, or 0.1 per cent., to RUB 38,907 million for the year ended 31 December 2017 from RUB 38,849 million for the year ended 31 December 2016.

Sales of capacity

The Group’s revenue from selling capacity increased by RUB 3,813 million, or 10.3 per cent., to RUB 40,881 million for the year ended 31 December 2017 from RUB 37,068 million for the year ended 31 December 2016, due in part to the full liberalisation of capacity sales from HPPs located in Siberia as of 1 May 2016.

Other revenue

Other revenue in the years ended 31 December 2017 and 2016 consisted of revenue earned from transporting heat and electricity, connections to the electricity grid, construction repair and other services. Other revenue increased by RUB 1,349 million, or 5.3 per cent., to RUB 26,922 million for the year ended 31 December 2017 from RUB 25,573 million for the year ended 31 December 2016.

Government grants (subsidies)

Several of the Group’s operating companies in certain territories are entitled to Government subsidies in respect of the difference between economically viable electricity and heat tariffs and actual tariffs and for compensation for certain losses incurred as a result of U.S. dollar-linked purchase prices for natural gas. During the year ended 31 December 2017, Government grants received by the Group increased by RUB 15,495 million, or 89.8 per cent., to RUB 32,745 million, as compared to RUB 17,250 million for the year ended 31 December 2016 primarily as a result of an additional subsidy provided under Resolution No. 895 for compensation of the tariffs reduction, see “Industry Overview — Tariffs”. During 2016 and 2017, the Group received Government subsidies in

the following territories: Kamchatsky territory, the Sakha Republic (Yakutia), Magadan Region, Chukotka Region and other Far East regions.

Operating Expenses

The table below shows the Group’s operating expenses for the periods indicated:

Year ended 31 December 2017 2016 Percentage of Percentage of Total Total Amount Expenses Amount Expenses Change (%) (amounts in RUB millions, except percentages) Employee benefit expenses ...... 74,390 24.5% 71,768 22.7% 3.7% Purchased electricity and capacity ...... 40,747 13.4% 57,610 18.2% (29.3%) Fuel expenses ...... 58,098 19.1% 54,561 17.3% 6.5% Electricity distribution expenses ...... 43,482 14.3% 46,722 14.8% (6.9%) Depreciation of property, plant and equipment ...... 25,023 8.2% 24,130 7.6% 3.7% Other expenses(1) ...... 62,065 20.4% 60,914 19.3% 1.9% Total operating expenses ...... 303,805 100% 315,705 100% (3.8%)

(1) See note 25 to the Annual Financial Statements for more details. All of the expense line items which have been aggregated as “Other expenses” herein account individually for less than 4 per cent. of the total expenses for both periods.

Total operating expenses decreased by RUB 11,900 million, or 3.8 per cent., to RUB 303,805 million for the year ended 31 December 2017 from RUB 315,705 million for the year ended 31 December 2016, primarily as a result of the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016.

Employee benefit expenses

The Group’s employee benefit expenses (including payroll taxes and expenses relating to pensions) increased by RUB 2,622 million, or 3.7 per cent., to RUB 74,390 million for the year ended 31 December 2017 from RUB 71,768 million for the year ended 31 December 2016. The increase in employee benefit expenses (including payroll taxes and expenses relating to pensions) was mainly attributable to increases in salary levels.

Purchased electricity and capacity

The Group’s purchased electricity and capacity expenses decreased by RUB 16,863 million, or 29.3 per cent., to RUB 40,747 million for the year ended 31 December 2017 from RUB 57,610 million for the year ended 31 December 2016. This decrease was primarily attributable to the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016.

Fuel expenses

Fuel expenses increased by RUB 3,537 million, or 6.5 per cent., to RUB 58,098 million for the year ended 31 December 2017 from RUB 54,561 million for the year ended 31 December 2016 as a result of fuel prices increase.

Electricity distribution expenses

The Group’s electricity distribution expenses decreased by RUB 3,240 million, or 6.9 per cent., to RUB 43,482 million for the year ended 31 December 2017 from RUB 46,722 million for the year ended 31 December 2016. This decrease was primarily due to the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016.

Depreciation of property, plant and equipment

For the year ended 31 December 2017, depreciation for property, plant and equipment increased by RUB 893 million, or 3.7 per cent., to RUB 25,023 million from RUB 24,130 million in the year ended 31 December 2016. Depreciation expenses for the year ended 31 December 2017 were higher as compared to the year ended 31 December 2016 as a result of an increase in fixed assets and intangible assets following the commissioning of new fixed assets by the Group.

Other expenses

Other expenses consist of services that the Group purchases from third parties, including purchases of heat and the transport of heat, security expenses, repairs and maintenance, consultancy, legal and information expenses, rent, insurance costs, subcontractor services, transportation expenses and provisions for the functioning of the electricity and capacity market. The Group’s other expenses increased by RUB 1,151 million, or 1.9 per cent., to RUB 62,065 million for the year ended 31 December 2017 from RUB 60,914 million for the year ended 31 December 2016.

Impairment losses

According to the Group’s accounting policies, impairment reviews of the Group’s assets are carried out when there is an indication that impairment may have occurred, or where it is otherwise required to ensure that property, plant and equipment are not carried above their estimated recoverable amounts. See note 2 to the Annual Financial Statements. The Group’s management analysed the economic situation and indicators of property, plant and equipment as at 31 December 2017 and 2016 and estimated the necessity of calculation of the recoverable amount of assets. For the purposes of calculation of the recoverable amount of property, plant and equipment, value in use was determined based on present value of expected future cash flows. The key assumptions used when the cash flow testing was performed are described in detail in note 7 to the Annual Financial Statements.

Property, plant and equipment

Impairment of property, plant and equipment decreased by RUB 2,525 million, or 9.5 per cent., to RUB 24,000 million for the year ended 31 December 2017 from RUB 26,525 million for the year ended 31 December 2016 as a result of impairment of certain cash generating units of the Group.

Accounts receivable, net

Impairment of accounts receivable, net decreased by RUB 1,176 million, or 16.5 per cent., to RUB 5,957 million for the year ended 31 December 2017 from RUB 7,133 million for the year ended 31 December 2016 due to accruals of impairment for overdue accounts receivable (net).

Impairment of financial assets

Impairment of financial assets amounted to RUB 4,464 million for the year ended 31 December 2016 as a result of the conversion of the Group’s cash deposits held at Peresvet Bank into convertible bonds of Peresvet Bank. See “—Significant Accounting Policies—Credit Risk”.

Impairment of loans issued

The Group recognised an impairment of loans issued to ZAO Verkhne-Narynskie HPPs in the amount of RUB 2,378 million in the year ended 31 December 2016 due to the denouncement by the Kyrgyz parliament of agreements between the Russian Government and the Kyrgyz Republic on the construction of Upper Naryn cascade of hydropower plants.

Operating profit

Reflecting the factors discussed above, the Group made an operating profit for the year ended 31 December 2017 of RUB 47,792 million, resulting in an operating profit margin of 12.5 per cent., as compared to an operating profit for the year ended 31 December 2016 of RUB 47,539 million, resulting in an operating profit margin of 12.1 per cent. The increase in the operating margin was due to the decrease in impairment losses.

Finance income

Finance income decreased by RUB 1,500 million, or 15.1 per cent., to RUB 8,443 million for the year ended 31 December 2017 from RUB 9,943 million for the year ended 31 December 2016 due to a decrease in foreign exchange gain.

Finance costs

Finance costs increased by RUB 12,092 million, or 133.7 per cent., to RUB 21,133 million for the year ended 31 December 2017 from RUB 9,041 million for the year ended 31 December 2016 primarily due to a change in fair value of the forward contract with VTB that was entered into by the Group in the year ended 31 December 2017.

Share of results of associates and joint ventures

The Group’s share of results of associates and joint ventures was RUB 417 million for the year ended 31 December 2017, as compared to RUB 6,682 million in the year ended 31 December 2016. The higher amount in the year ended 31 December 2016 was primarily attributable to a reversal of property, plant and equipment impairment in the amount of RUB 25,390 million at the BoGES Group. The Group’s share of profit in the BoGES Group decreased by RUB 8,189 million to RUB 357 million for the year ended 31 December 2017 from RUB 8,546 million for the year ended 31 December 2016.

Income tax expense

In the year ended 31 December 2017, the Group’s income tax expense decreased by RUB 2,304 million, or 15.0 per cent., to RUB 13,068 million from RUB 15,372 million in the year ended 31 December 2016. The decrease was mainly attributable to the decrease in deferred tax expense. The income tax rate applicable to the majority of the Group’s entities in each of 2017 and 2016 was 20 per cent.

Profit for the period

For the reasons set forth above, the Group recorded a net profit of RUB 22,451 million for the year ended 31 December 2017, as compared to a net profit of RUB 39,751 million for the year ended 31 December 2016.

Liquidity and Capital Resources

The Group’s primary source of liquidity is cash flows generated by its operating activities. In the six months ended 30 June 2018 and the years ended 31 December 2017 and 2016, the Group generated net cash from operating activities of RUB 40,949 million, RUB 78,125 million and RUB 71,373 million, respectively.

In addition, the Group raises funds through debt financing and issuances of equity. In the six months ended 30 June 2018 and the years ended 31 December 2017 and 2016, the Group raised indebtedness of RUB 66,282 million, RUB 119,272 million and RUB 136,684 million, respectively. In the year ended 31 December 2017, the Group raised equity of RUB 40,033 million through the issuance of new shares. In the six months ended 30 June 2018, the Group adopted a resolution to make a placement of 14,013,888,828 ordinary shares at a par value of RUB 1.00 per share, which as of the date of these Listing Particulars were not placed. The decision on placement was made in connection with development of the Chaun-Bilibin generating system of the Chukotka Region, see “Business — Recent Developments”.

In March 2017, the Group entered into a five-year non-deliverable forward contract financing with VTB pursuant to which (i) VTB purchased 40 billion newly issued shares and 15 billion quasi-treasury shares of PJSC RusHydro (amounting to 12.9 per cent. of the share capital of PJSC RusHydro) in exchange for RUB 55,000 million in cash and (ii) the parties entered into a five-year non-deliverable contract in respect of the shares sold pursuant to which the Group will pay interest to VTB based on an agreed forward rate of the CBR’s key interest rate plus 150 basis points. Pursuant to the terms of the forward contract, dividends paid to VTB as a shareholder of PJSC RusHydro will be netted against interest payments, effectively reducing the forward rate. The payment due from PJSC RusHydro to VTB (or vice versa, as the case may be) upon the expiry of the forward contract will be calculated based on the difference between the forward price and the selling price of the stake to strategic or portfolio investors. This incentivises the Group to maximise the value of the Group’s equity. In the case of a sale to strategic investors, the sale price agreed would be subject to confirmation by an independent appraiser and the Government. As at its initial date, the forward contract was recorded at fair value on the balance sheet of PJSC

RusHydro as a financial liability. Subsequent changes in fair value of the forward contract as of each reporting date will be reflected in the Group’s consolidated income statement. The fair value of the forward contract capitalised at initial recognition is not subject to change, as subsequent changes in fair value do not result from interaction with shareholders See Note 16 to the Interim Financial Information for further information on the determination of the fair value of the forward contract. The proceeds of the forward contract financing were used to reduce the indebtedness of RAO ES of the East Subgroup and improve the financial stability of the Group’s operations in the Far East region.

The Group currently expects to finance its future business needs, including those to fund additional capital expenditures in accordance with its business strategy, from cash flows generated by the Group’s operating activities and external sources of financing. See “Risk Factors”.

Cash flows and working capital

Historically, the Group has relied on cash flows from its operating activities and external financings as its main sources of liquidity. The Group had cash and cash equivalents of RUB 72,401 million at 30 June 2018, RUB 70,156 million at 31 December 2017 and RUB 67,354 million at 31 December 2016. Substantially all of the Group’s cash is held in current accounts or on short-term deposits with several major Russian banks or invested in short-term promissory notes issued by banks. The Group’s cash is held primarily in roubles, although the Group also held cash in euro and in U.S. dollars.

The liquidity and working capital requirements of the Group are subject to fluctuations depending on the payment trends of the Group’s customers. In addition, electricity retail companies of the Group experience short- term financing requirements to cover cash gaps between their purchases on the wholesale electricity market and their sales on the retail electricity market.

Historical cash flows

The table below shows the Group’s net cash flows from operating, investing and financing activities for the periods indicated:

Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 (amounts in RUB millions) Net cash generated by operating activities ...... 40,949 32,272 78,125 71,373 Net cash used in investing activities ...... (27,705) (21,678) (60,013) (24,918) Net cash (used in) / generated by financing activities ...... (10,877) 7,396 (15,064) (26,837) Increase in cash and cash equivalents ...... 2,245 17,780 2,802 19,329

Cash flows from operating activities

In the six months ended 30 June 2018, the Group generated net cash of RUB 40,949 million from its operating activities, an increase of RUB 8,677 million, or 26.9 per cent. from RUB 32,272 million in the six months ended 30 June 2017. The increase was primarily the result of higher operating cash flows but was partially offset by an increase in accounts receivable and prepayments.

In the year ended 31 December 2017, the Group generated net cash of RUB 78,125 million from its operating activities, an increase of 9.5 per cent. from RUB 71,373 million in the year ended 31 December 2016. Although the Group generated higher operating cash flows before working capital changes, income tax paid and changes in other assets and liabilities in the year ended 31 December 2017, this was offset by an increase in accounts receivable and prepayments and an increase in income tax paid as compared to the year ended 31 December 2016.

Cash flows from investing activities

In the six months ended 30 June 2018, the Group’s net cash used in investing activities was RUB 27,705 million, an increase of RUB 6,027 million, or 27.8 per cent., from RUB 21,678 million in the six months ended 30 June 2017. The increase was primarily due to higher investments in bank deposits and higher capital expenditures in investment projects.

In the year ended 31 December 2017, the Group’s net cash used in investing activities was RUB 60,013 million, an increase of RUB 35,095 million, or 140.8 per cent., from RUB 24,918 million in the year ended 31 December 2016. The increase in 2017 as compared to 2016 was due to higher capital expenditures in investment projects. Cash payments for property, plant and equipment were RUB 71,693 million in the year ended 31 December 2017 as compared to RUB 60,957 million in the year ended 31 December 2016. There was also an increase in investment in bank deposits and purchases of other investments.

Cash flow from financing activities

In the six months ended 30 June 2018, the Group recorded a net cash outflow of RUB 10,877 million from its financing activities, as compared to RUB 7,396 million net cash generated by financing activities in the six months ended 30 June 2017, a decrease in the amount of RUB 18,273 million. The change was primarily due to the issue of additional shares by PJSC RusHydro in 2017.

In the year ended 31 December 2017, the Group recorded a net cash outflow of RUB 15,064 million in its financing activities, a decrease of RUB 11,773 million, or 43.9 per cent., from RUB 26,837 million in the year ended 31 December 2016 as a result of proceeds from share issue and sale of treasury shares.

Borrowings

As at 30 June 2018, the Group’s total debt was RUB 166,509 million. The Group’s total debt at 31 December 2017 was RUB 169,525 million as compared to RUB 199,803 million at 31 December 2016.

The table below sets out a breakdown by maturity of the Group’s current and non-current debt under loans and bonds (excluding finance lease liabilities) as at 30 June 2018, 31 December 2017 and 31 December 2016.

At 30 June At 31 December 2018 2017 2016 Due for repayment (amounts in RUB millions) Up to one year ...... 49,314 78,354 41,189 Between one and two years ...... 42,729 30,606 90,710 Between two and three years ...... 41,573 0,948 24,751 Between three and four years ...... 1,031 11,181 22,213 Between four and five years ...... 23,833 40,779 2,463 After five years ...... 7,285 6,071 16,504 Total ...... 165,765 167,939 197,830

As at 30 June 2018 over 94 per cent. of the Group’s total debt had fixed interest rates and was denominated in Roubles.

Non-current debt

As at 30 June 2018, the Group’s non-current debt comprised bonds, loans and finance leases in the total amount of RUB 117,079 million.

In April 2016, the Group issued non-convertible interest bearing market bonds due 2019 in principal amount of RUB 15,000 million with a coupon rate of 10.35 per cent. per annum. In June 2017, the Group issued non- convertible interest bearing bonds due 2020 in principal amount of RUB 10,000 million with a coupon rate of 8.2 per cent. per annum.

In September 2017, the Group’s special purpose company RusHydro Capital Markets DAC issued Loan Participation Notes due 2022 in the principal amount of RUB 20,000 million with a coupon rate of 8.125 per cent. per annum.

In February 2018, the Group’s special purpose company RusHydro Capital Markets DAC issued Loan Participation Notes due 2021 in the principal amount of RUB 20,000 million with a coupon rate of 7.40 per cent. per annum.

In March 2018, the Group entered into a fifteen year revolving facility agreement in the amount of RUB 30 billion with VTB Bank PJSC. In July 2018, the Group drew down RUB 20 billion under the agreement.

Current debt

As at 30 June 2018, the Group’s current debt (and current portion of non-current debt) was RUB 49,430 million, which consisted primarily of the current portion of non-current debt (RUB 38,848 million).

Compliance with covenants

The Group is subject to certain covenants related primarily to its debt. The Group monitors compliance with such covenants semi-annually and was in compliance with them as at and for the reporting periods ended 30 June 2018, 31 December 2017 and 31 December 2016.

Capital expenditure and requirements

The Group’s principal financing requirements have been, and RusHydro expects them to continue to be, related to its electricity generation operations, as well as its modernisation and new construction programmes. Historically, funding of the Group’s capital requirements has come from cash flows from its operating activities and external sources of financing. RusHydro intends to continue to fund its capital expenditures from these sources.

The electricity generation business is capital intensive and many of the Group’s facilities are old and necessarily require periodic upgrading and improvement. See “Risk Factors— Risks associated with the Group and its operations—The Group requires significant capital to finance its investment programme”. RusHydro expects the required investments will have a significant effect on its cash flows and future results of operations.

Cash used by the Group for purchase of property, plant and equipment in the six months ended 30 June 2018 and the year ended 31 December 2017 and 2016 was RUB 27,985 million, RUB 71,693 million and RUB 60,957 million, respectively. This capital expenditure was primarily used in each of those periods in the ongoing construction of new facilities and renovation and modernisation of existing facilities.

RusHydro currently expects that the Group will fund its proposed investments in repairs, maintenance and modernisation primarily from cash flows from operations. RusHydro currently intends to fund capital expenditure under its investment programme from both internally generated funds and external sources of financing, including share issuances and debt financing to the extent available. Failure to undertake planned capital expenditures for production facilities could adversely affect RusHydro’s ability to maintain or increase production. See “Risk Factors —Risks associated with the Group and its operation—The Group requires significant capital to finance its investment programme”.

Contractual Obligations and Capital Commitments

In addition to its financial liabilities, the Group has various contractual obligations and purchase commitments as summarised below.

Operating lease obligations

The Group leases a number of land areas owned by local governments and production buildings under non- cancellable operating lease agreements. Land lease payments are determined by lease agreements. The land areas leased by the Group are the territories where the Group’s hydro-power plants and other assets are located. According to the Land Code of the Russian Federation, such land areas are limited in their alienability and cannot become private property. The Group’s operating leases typically run for an initial period of five to 49 years with an option to renew the lease after that date.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

Year ended 31 December 2017 2016 (amounts in RUB millions) Less than one year ...... 2,115 2,175 Between one and five years ...... 7,774 7,404 After five years ...... 32,582 30,524 Total ...... 42,471 40,103

Capital commitments

Future capital expenditure in accordance with RusHydro’s investment programme approved in 2018 and separate investment programmes of subsidiaries amounted to RUB 362,240 million at 30 June 2018 for the period 2018 to 2022, as compared to RUB 391,711 million at 31 December 2017 for the period 2018 to 2022 and RUB 243,975 million at 31 December 2016 for the period 2017 to 2019.

Contingencies

Information on the principal contingencies faced by the Group is set out in note 26 to the Interim Financial Information appearing elsewhere in these Listing Particulars. In particular, in February 2018 the Group signed an agreement on termination of the guarantees issued in connection with obligations of Boguchanskaya HPP under the loan agreement with SC Vnesheconombank, which at 31 December 2017, amounted to RUB 25,935 million. The remaining contingencies relate to the social and political environment in which the Group operates, its exposure to uninsured risks, the risk of legal proceedings and tax risks resulting from uncertainty in inconsistently interpreted Russian tax legislation and potential exposure to environmental liability from its operating activities as a result of changes in applicable legislation or interpretation. See also “Risk Factors” for a discussion of these and other risks faced by the Group.

Social commitments

Group entities contribute to the maintenance and upkeep of local infrastructure and the welfare of its employees, including contributions towards the development and maintenance of housing, hospitals, transport services, recreation and other social needs in the geographical areas in which it operates.

Off-balance Sheet Arrangements

Apart from the commitments and contingencies referred to above, the Group had no other off-balance sheet arrangements as at 30 June 2018 and 31 December 2017 and 2016.

Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

• Impairment of non-financial assets;

• Recognition of deferred tax assets; and

• Useful life of property, plant and equipment.

Each of these estimates and assumptions is described in more detail in note 2 to the Annual Financial Statements and their effects are disclosed in other notes as described in note 2.

Significant Accounting Policies

The Group adopted IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” in its consolidated financial statements from 1 January 2018.

For detailed description of the impact of adoption of new standards and comparability of financial information between periods see “Operating and Financial Review—Adoption of new IFRS standards and comparability of financial information between periods”.

The Group is considering a change in its accounting policy for measurement of property, plant and equipment from using the revaluation model to historical cost less accumulated depreciation and impairment losses. The Group is currently assessing the effect of the transition on the Group’s financial position and performance, but no effect on EBITDA is expected.

The Group’s significant accounting policies are described in note 2 to the Financial Statements.

Market Risk

In the normal course of its business, the Group’s financial position is routinely subject to credit risk, liquidity risk, interest rate risk and, to a lesser extent, currency risk. A discussion of these risks and the Group’s capital risk management policies appears in notes 30 and 31 to the Annual Financial Statements and is summarised below. Certain of these risks are also discussed under “Risk Factors”.

The Group has occasionally entered into hedge transactions to manage some of these risks, but it does not enter into derivative transactions for trading purposes.

Credit risk

Credit risk is the risk of financial loss to the Group if one of its counterparties fails to perform its obligations to the Group. Exposure to credit risk arises through the sale of products on credit terms and other transactions giving rise to financial assets. The Group’s principal exposure in this respect is through its trade receivables, particularly to municipal and state-controlled electricity retail companies. The Group takes into account a customer’s financial position and its credit history in assessing its credit quality. The Group monitors its existing receivables and takes steps to improve collection. The Group’s maximum exposure to credit risk for financial guarantees was RUB 25,935 million as at 31 December 2017 and RUB 26,780 million as at 31 December 2016.

The Group also deposits cash from time to time with financial institutions in the Russian Federation. The Board of Directors approved the list of banks for deposits, as well as rules for the placement of deposits. Moreover, the Group constantly evaluates the financial condition of these financial institutions, including through a review of the ratings assigned to them by independent rating agencies. Notes 10, 11 and 14 to the Annual Financial Statements provide further information on the Group’s deposits.

On 21 October 2016, the CBR announced the temporary administration of Peresvet Bank for a period of six months and a moratorium on the discharge of claims of its creditors for a period of three months, which was extended for another three months on 23 January 2017. On 20 February 2017, the administration of Peresvet Bank was assigned to the State Corporation Deposit Insurance Agency. The temporary administrators of Peresvet Bank converted part of its monetary obligations into convertible bonds due in 2032. As at 31 December 2016, the Group had cash and deposits placed with Peresvet Bank amounting to RUB 5,507 million. Under the proposed action plan, the Group’s cash and deposits were converted into subordinated bonds in the amount of RUB 4,681 million, or 85 per cent. of the total cash and deposits. As at 31 December 2016, these assets were recorded within Other non- current assets at amortised value (see note 10 to the Annual Financial Statements). The remaining RUB 826 million of cash was recorded as at 31 December 2016 as restricted cash within ‘Other current assets’ because its receipt was expected within 12 months of the reporting date (see note 14 to the Annual Financial Statements). As at 31 December 2017, the other non-current assets included the amortised value of subordinated bonds of Peresvet Bank of RUB 254 million. The amortised value of these assets was determined using the discounted cash flows with recognition of income on discounting in the amount of RUB 37 million for the year ended 31 December 2017.

The Group also has off-balance sheet exposure to credit risk (see “—Off-balance Sheet Arrangements” above) which is managed using the same credit policies as for on-balance sheet exposures.

Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. The Group seeks to manage liquidity risk through the retention of sufficient cash and marketable securities and the availability of funding from an adequate amount of committed credit facilities. Temporarily free funds are placed into short-term financial instruments, mainly bank deposits and bills of exchange. Current liabilities are represented mainly by the account payable to suppliers and contractors. The Group has implemented a control system with its counterparties that includes a standardised payment structure, payment deadlines and a stated percentage ratio between advance and final settlement. Note 30 to the Annual Financial Statements provides further information on liquidity risk, including a maturity analysis of financial liabilities as at 31 December 2017.

Interest rate risk

Interest rate risk is the risk that the Group will suffer losses as a result of changes in interest rates. The Group believes that its operating profits and cash flows from operating activities are largely independent of changes in market interest rates. The Group’s borrowings include floating rate loans with interest rates based on the MOSPRIME and LIBOR rate, and the Group is therefore exposed to the risk of interest rate changes. See “Liquidity and Capital Resources—Borrowings”.

The Group also monitors interest rate risk for its financial instruments. To mitigate the interest rate risk, the Group monitors the credit market to identify favourable terms of financing and diversifies credit portfolio by raising fixed and floating rate loans. In the six months ended 30 June 2018 and in the year ended 31 December 2017, RusHydro did not withdraw funds under any credit facility agreements with floating interest rates (see “Liquidity and Capital Resources—Borrowings”).

Currency risk

Currency risk is the risk that the Group will suffer losses as a result of changes in foreign exchange rates. Management does not believe that the Group is currently exposed to material currency risk since all of its business activities are conducted in the Russian Federation, and, as a result, it receives all its revenues, and incurs all of its operating costs, in roubles. Moreover, substantially all of the Group’s current contractual obligations and borrowings are denominated in roubles.

Note 30 to the Annual Financial Statements provides further information on currency risk, including an analysis of its net balance sheet position in U.S. dollars, euro and other currencies at 31 December 2017 and 2016.

Capital risk

The Group is subject to a number of Russian legal requirements as regards its capital. See note 31 to the Annual Financial Statements. The Group’s objectives when managing its capital are to safeguard its ability to continue as a going concern and to reduce the cost of its capital. In accordance with industry practice in the Russian Federation, the Group monitors its capital using a gearing ratio which it seeks to maintain at not more than 1. This ratio is calculated as total debt divided by total capital. The Group’s gearing ratios were 0.24 at 31 December 2017 and 0.31 at 31 December 2016.

BUSINESS

Overview

The Group sells electricity and capacity on the wholesale electricity market and, through its electricity retail companies, on the retail electricity market of the Unified Energy System of Russia and in five isolated power systems of the Far East region. The Group’s operations in the Far East region are vertically integrated, making it the leading operator of electricity and heat power generation assets, electricity transmission and distribution networks, as well as heat transmission and distribution networks in the region. In addition, the Group's holdings include engineering and R&D assets. See “Industry Overview—Overview of the Electricity Market”. RusHydro’s headquarters are in Moscow, Russian Federation.

In addition to the generation and supply of electricity and capacity to wholesale customers, the Group is also engaged in the supply of electricity and capacity to retail customers through a number of electricity retail companies. Following the divestment of LLC ESC Bashkortostan to the Inter RAO Group in December 2016, RusHydro now operates four electricity retail companies in the pricing zones, including PJSC Krasnoyarskenergosbyt, PJSC RESK, JSC Chuvashskaya Energy Retail Company and JSC ESС RusHydro. In the Far East of Russia, RusHydro has a 52.1 per cent. ownership stake in PJSC DEK, which acts as a single electricity retail operator in the non-pricing zone of the Far East.

Competitive Strengths

RusHydro believes that the Group has a number of principal strengths which distinguish it from its competitors:

Lower carbon power generation

Hydropower resources, which constitute 78 per cent. of RusHydro’s installed capacity, are a renewable energy source and produce fewer carbon emissions than fossil fuel power generation units.

Significant market share in its core businesses

RusHydro’s position as one of Russia’s largest power generating companies in terms of installed capacity allows it to benefit from significant market share in the Russian power generation and capacity markets. The Group has steadily increased its market share in these areas over the last few years and in 2017 the Group’s share in the Russian power generation market amounted to approximately 13 per cent. and approximately 16 per cent. in the capacity market according to the Group’s estimates.

Energy efficient production

Since a significant majority of the electricity produced by the Group is generated from renewable energy sources, its costs are to a significant extent independent of changes in fuel prices, which provides a lower and more stable cost base as compared with other power generation companies that rely more heavily on fossil fuels for power generation. This enables the Group to benefit from significantly lower production costs per electricity output unit than many of its competitors. In addition, the Group’s introduction of innovative energy-saving technologies, water resource optimisation techniques and active reduction in power consumption enables it to more effectively manage energy usage.

System flexibility

The Group’s HPPs are capable of increasing their output of electricity within a very short timeframe. For example, it takes several minutes to start a hydropower generator compared to several hours for a fossil fuel power plant or even several days for a nuclear power plant. Accordingly, the Group has relatively greater flexibility to support peak loads and to benefit significantly from its operations on the balancing market.

In addition, the wide geographic dispersal of the Group’s HPPs across different regions of the Russian Federation helps to mitigate the effects of seasonality and water flow on the output of its HPPs in the following ways:

• the HPPs use different water sources (for example, snow melt water, mountain rivers and other rivers) which help to reduce the effect of seasonality as they reach peak levels at different times in different regions such as Siberia, the Far East and European Russia; and

• the Group uses differing regimes of filling and drawdown of its reservoirs (for example daily, weekly, seasonal, annual and multi-year regimes).

One of the major benefits of hydropower over other forms of power generation that also operate as price- takers on the one-day-ahead market is that low water conditions and low levels of hydropower supply on the one- day-ahead market typically result in upward pressure on unregulated spot prices, which offsets lower sales volumes. Conversely, in periods of high water inflows and high levels of hydropower supply on the market, the Group’s hydropower plants benefit from higher load and sales volumes, which offsets the resulting downward pressure on spot prices.

Government support

RusHydro believes that its management of Russia’s hydropower assets and the energy generation and infrastructure assets in the Far East region, where it is the sole supplier of energy, make it of strategic importance to the Russian Government. The Group continues to benefit from the Russian Government’s stable controlling shareholding in the Group, which according to a Presidential decree cannot be lower than 60.5 per cent. of RusHydro’s share capital. State support has been provided to the Group in the form of capital injections and 67

subsidies. Since 2012, the Group has received direct cash support from the Russian Government amounting to RUB 195 billion, including RUB 50 billion in 2012 for the construction of four power plants in the Far East region, RUB 90 billion in Government subsidies to compensate the Group for reduced electricity and heat tariffs and for losses on purchased fuel in the Far East region and a capital injection of RUB 55 billion from VTB in 2017 to reduce the indebtedness of RAO ES of the East. In addition, since 2017, the Group received Government subsidies in the amount of RUB 30.5 billion under Resolution No. 895. RusHydro is also considered to be a strategic entity under Russian law and, as such, is subject to a special insolvency and bankruptcy regime and the sale or dilution of the Russian Federation’s interest in the voting share capital of RusHydro (or its subsidiaries) is restricted. See “Regulatory Matters—Strategic Entities Regulation”.

Development and innovations

RusHydro drives renewable energy innovations within the Group with a priority focus on technical upgrades and research and development. The Group regularly implements new power generation technologies with respect to renewable energy sources.

RusHydro has adopted a long-term programme for developing in-house engineering expertise via the sharing of experience and the establishment of joint ventures with leading international engineering companies. For example, in December 2016, RusHydro entered into a technology sharing agreement with Mitsui pursuant to which Mitsui will share information on its technologies and the parties will jointly study the feasibility of renewable energy projects in Russia, including wind farms and geothermal power plants.

Strategy

RusHydro is the key agent of the Russian Government in building and operating hydropower facilities in the country, as well as electricity and heat generating facilities in the Far East region. RusHydro believes that the Group is one of the leading power groups in Russia, accounting for 16 per cent. of the total installed electricity generation capacity, according to Rosstat and the System Operator.

In June 2016, RusHydro adopted the Development Strategy of RusHydro Group through 2020 with an outlook for 2025 (the “Strategy”). The Strategy builds on the Group’s previous strategy for the period until 2015 with an outlook through to 2020. However, the new strategy goes further in outlining development goals and strategic directions for the Group as a whole, including RAO ES of the East, and is aimed at further developing the Group’s strategy and corporate and financial governance. The Strategy takes into account the latest trends in the global economy and the development of the energy sector, new decisions on schedules and the volume of investments by the Group, the updated regulatory environment as well as the economic situation and outlook in Russia.

According to the Strategy, the Group will seek to provide sustainable returns on investment for shareholders, as well as seeking to maximise free cash flow to ensure higher financial stability and to reduce dependence on external sources of funding, while maintaining safety standards and the uninterrupted operation of its facilities. Additionally, the Group is focusing on organisational and operational excellence and cost optimisation and to increase the market capitalisation of the Group with a view to a partial privatisation of the Group in the event that the Government chooses to pursue such an option.

The Strategy identifies and emphasises the following key growth drivers of value in the Group:

• increase the effectiveness of the Group’s renovation and modernisation programme;

• the development of economically efficient new capacities;

• de-leverage the Group’s subsidiaries operating in the Far East region;

• the optimisation of the Group’s financial investments portfolio; and

• increase the efficiency of the management of the Group’s assets in the Far East region and increase the operational efficiency of these assets.

Strategic goals

The Group’s key strategic goals are as follows:

• the reliable and safe operation of the Group’s facilities;

• the sustainable development of power generation;

• the development of the energy sector in the Far East region; and

• to provide growth of the Company’s value.

Strategic activities

The Group has identified the following actions to be undertaken by its management to achieve the above strategic goals.

Develop and improve the performance of existing generation assets

The Group intends to continue to implement its renovation and modernisation programmes in order to extend the lifespan of the Group’s existing power generation assets, to increase its installed capacity, to improve the flexibility and responsiveness of the Group’s plants and equipment, to further enhance automation and to implement new technologies. In addition, the Group intends to build an efficient operating management system that will enable it to optimise business processes such as planning, procurement, logistics, automated production-related data collection system and cost accounting systems.

Develop efficient new capacities and change approach to the investment programme

Achieving the Group’s strategic objectives will require changes in the Group’s approach to its investment programme. The first stage of the investment programme includes the completion of ongoing construction projects, as well as the renovation, modernisation and cost optimisation of existing assets. The second stage envisages a decrease in costs required to finance the renovation and modernisation programme and the increased efficiency of new facilities under the technical renovation and modernisation programme. The launch of any new projects will be subject to their cost-effectiveness.

Corporate restructuring and optimisation

The Group believes that in order to achieve its strategic goals, it will need to optimise further its corporate structures, with a primary focus on RAO ES of the East. This was partially effected by consolidating close to 100 per cent. of the ownership in RAO ES of the East with potential plans for consolidating the Group’s ownership in the subsidiaries of RAO ES of the East. In addition, the Group will seek to transfer the ownership and operations of priority fossil fuel power generation plants currently being built by PJSC RusHydro to JSC RAO ES of the East in compliance with a Presidential decree using a RUB 50 billion cash contribution from the Government that was provided to the Group in 2012. These facilities include a 120 MW/188 GCal-h coal-fired expansion unit at Blagoveshenskaya CHP, a 193.5 MW/470 GCal-h gas-fired Yakutskaya GRES-2, a 120 MW/18.2 GCal-h coal-fired Sakhalinskaya GRES-2 and 120 MW/200 GCal-h coal fired Sovetskaya Gavan’ CHP.

Improve the management and development of assets in the Far East

The Group believes that as part of its strategic goals it will need to improve the management and development of its assets in the Far East. In that regard, it intends to initiate new projects in the Far East only to replace existing capacity that is being retired and to develop new power generation facilities that satisfy that Group’s investment criteria. Projects that do not satisfy the Group’s investment criteria will be included in the Group’s investment programme only on the instructions of the Government and subject to direct budget support from the Government.

Upon the completion of the current construction projects in the Far East, the Group plans to allocate additional funds to finance refurbishment programmes in the Far East.

Certain regions in the Far East face power supply issues, stemming from the specifics of the energy systems in those regions. The Group is in continual interaction with regional authorities in order to solve issues related to power supply to consumers. As part of this interaction, the Group plans to prepare recommendations aimed at increasing the reliability of power generation in certain regions of the Far East. Furthermore, due to the region’s geography and climate, the key potential development areas of the Group in the Far East are related to the further development of the Group’s heat generation business and wider utilisation and development of renewable energy sources. The Group seeks to increase the efficiency of its facilities and the quality of its heat supply through the introduction of new technologies and equipment modernisation in order to decrease fuel costs, achieve a more efficient load in its power plants, reduce losses in heat transmission pipelines and prevent supply interruptions and accidents.

There is also significant potential for the development of renewable energy sources in the Far East. In isolated areas, the development of renewable energy sources in addition to existing generating facilities is one of the ways to reduce the cost of electricity. As a major energy supplier to prospective customers, the Group plays a key role in implementing Government policy, which aims to accelerate the economic development of the Far East.

Reform tariff regulation in the Far East

In many cases, the current tariffs applicable to the operating companies of RAO ES of the East result in a negative return on investment in the case of both modernisation and new construction projects. The Group will seek to reform existing tariff regulation in the following ways:

• to lobby for the continuation of the compensation of revenues not currently included in tariffs to RAO ES of the East. For a three year period from 1 July 2017, a mechanism of special add-ons to capacity prices for wholesale consumers in price zones of the Unified Energy System of Russia has been established (that does not exclude direct subsidies from the Federal budget in order to compensate the losses incurred on the territory of the regulated tariff zone in the Far East); and

• to prioritise work with the relevant authorities to introduce economically justified long-term tariff regulation in isolated and non-price areas.

Efficiency and reliability of fuel supplies

Reliable fuel supply is essential to the safe operation of the Group’s generating assets and energy systems in the Far East region. Fuel cost optimisation would significantly benefit the Group’s operations. In order to guarantee efficient and uninterrupted fuel supplies to its generating assets in the Far East, the Group intends to adopt certain measures, including the optimisation of fuel supplies by sea, including by wider use of the Northern Sea Route, promoting competition between fuel suppliers, using a wider range of coal type and increasing its fossil fuel reserves. For the years 2015 to 2017, the Group’s average fuel mix at its fossil fuel plants consisted of coal (56.0 per cent.), gas (42.0 per cent.) and other sources (2.0 per cent.).

Improve management of accounts receivable

One of the Group’s strategic goals is the improvement of the management of accounts receivable. In order to achieve this, the Group intends to implement certain measures to improve the payment discipline of its customers and reduce accounts receivable, including the monitoring of the solvency of its major customers, improving receivables collection and by submitting to the relevant public authorities proposed amendments to laws and regulations that would introduce stricter measures requiring customers to meet payment obligations, as well as simplifying electricity and heat supply restrictions to non-payers.

Innovation and energy efficiency

The Group aims to create an effective system for encouraging and managing innovation by creating a centre for innovation and developing a programme to encourage innovation, establishing a centre to focus on improving its construction technology, closely monitoring new technologies and innovations and enhancing its knowledge management system.

Development of international activities

As part of its international strategy, the Group focuses on providing technological solutions, developing international cooperation with a view to benefiting from exchanges of best practice and information about the latest technologies, discussing issues related to hydropower generation and other renewable energy sources, as well as attracting foreign investment in advanced and innovative technologies to support projects implemented by the Group.

History and Development

Incorporation and formation of the initial group

RusHydro was incorporated on 26 December 2004 as a wholly-owned subsidiary of RAO UESR, then the state controlled power holding company in the Russian Federation. As part of its incorporation, RAO UESR made contributions to RusHydro’s charter capital in the first quarter of 2005 in the form of (i) a cash contribution of approximately RUB 101.8 million, (ii) a non-controlling interest in OJSC Bureyskaya HPP, (iii) a stake of 100 per cent. minus one share in OJSC VoGEK MC (now called OJSC HydroOGK MC) and (iv) more than 50 per cent. of the voting shares in each of the following hydro-generation companies:

OJSC Volzhskaya HPP OJSC Kabbalk HPP

OJSC Votkinskaya HPP OJSC Kamskaya HPP

OJSC Boguchanskaya HPP OJSC Cascade of Verkhnevolzhskiye HPPs

OJSC Zhigulevskaya HPP OJSC Nizhegorodskaya HPP

OJSC Zaramagskiye HPPs OJSC Saratovskaya HPP

OJSC Zeyskaya HPP OJSC Sulakenergo

OJSC Zelenchukskiye HPPs OJSC Sayano-Shushenskaya HPP

In the third quarter of 2006, as consideration for additional ordinary shares issued by RusHydro to RAO UESR, RAO UESR contributed to RusHydro’s charter capital (i) a cash payment of approximately RUB 20 billion, (ii) more than 50 per cent. of the voting shares in each of four hydro-generation companies (OJSC Zagorskaya PSHPP, OJSC Cheboksarskaya HPP, OJSC Stavropol Electricity Generation Company, OJSC Dagestan Regional Generation Company) and two research institutes (OJSC NIIES and OJSC B. Ye. Vedeneyev VNIIG), and (iii) various other assets, including non-controlling interests in OJSC Zelenchukskiye HPPs and OJSC Zaramagskiye HPPs, which were already controlled by RusHydro at that time.

In October 2007, RusHydro issued additional ordinary shares to RAO UESR and the Russian Federation in exchange for (i) more than 40 per cent. in each of several hydro and geothermal generation companies (OJSC Zelenchukskiye HPPs, OJSC OP Verkhne-Mutnovskaya GeoPP, OJSC Geotherm, OJSC Northern Ossetia HGC), (ii) 49 per cent. in the research institute OJSC Energy Construction Complex of UES, (iii) non-controlling interests in a number of other hydro-generation companies, and (iii) cash contributions of approximately RUB 25.38 billion. RusHydro also issued additional shares to LLC ESOP, which was the operator of the RusHydro share option programme approved by the Board of Directors of RusHydro on 18 May 2007.

In March 2008, the Group acquired from RAO UESR all of the shares in OJSC Chuvashskaya Energy Retail Company and a stake of 49 per cent. in OJSC Ryazanskaya Energy Retail Company for cash consideration of RUB 650 million and RUB 630 million, respectively. In the second half of 2008, RusHydro subsequently acquired in a mandatory tender process a further stake of 41.52 per cent. in OJSC Ryazanskaya Energy Retail Company from non-controlling shareholders for cash consideration of RUB 541 million. The third electricity retail subsidiary of RusHydro, OJSC KrasnoyarskEnergoSbyt, was previously a subsidiary of OJSC Irganayskaya HPP. RusHydro obtained control over OJSC KrasnoyarskEnergoSbyt on 1 July 2008 through the merger of OJSC Irganayskaya HPP as described below under “– Consolidation of subsidiaries”.

Consolidation of subsidiaries

In connection with the formation of the Group, on 9 January 2008, 17 hydro power generation subsidiaries of RusHydro, together with OJSC Bureyskaya HPP, controlled by RAO UESR, and OJSC Kabardino-Balkarskaya HGC, controlled by OJSC Cascade of Nizhne-Cherekskiye HPPs, and CJSC EOZ were merged into RusHydro in order to streamline the operations of the Group. Upon the merger, these companies ceased to exist. To effect the merger, shares held by non-controlling shareholders in these companies were converted into shares in RusHydro at specified ratios reflecting the value of such companies’ shares compared to the shares in RusHydro.

In June 2008, RusHydro acquired a controlling stake in the hydro power company OJSC Cascade of Nizhne- Cherekskiye HPPs from OJSC KabbalkEnergo for approximately RUB 2.13 billion. OJSC Cascade of Nizhne- Cherekskiye HPPs was merged into RusHydro on 1 July 2008. On the same date, OJSC Irganayskaya HPP, a hydro power company controlled by RAO UESR, was also merged into RusHydro. Upon the merger of OJSC Irganayskaya HPP, RusHydro also obtained control over the following subsidiaries of OJSC Irganayskaya HPP: hydro-generation company OJSC Kolymaenergo, electricity retail company OJSC KrasnoyarskEnergoSbyt, construction company OJSC ChirkeyGESstroy and research institute OJSC Lengidroproekt.

Reorganisation of RAO UESR

Until 1 July 2008, RAO UESR was the principal shareholder of RusHydro, controlling approximately 77.93 per cent. of its shares. On 1 July 2008, RAO UESR was dissolved as a result of its merger with the Federal Grid Company. As part of the dissolution, the majority of RAO UESR’s shareholding in RusHydro was distributed to the Russian Federation as the principal shareholder of RAO UESR, and the Russian Federation subsequently increased its direct shareholding in RusHydro, through its participation in further offerings of shares, from 60.37 per cent. to 61.93 per cent. As a result of the RAO UESR dissolution, RusHydro received various assets and assumed various liabilities of RAO UESR, including a 21.71 per cent. stake in OGK-1. In March 2011, RusHydro sold its stake in OGK-1 together with its stake in five of its retail companies and the retail management company to Inter RAO in exchange for ordinary shares in Inter RAO.

Acquisition of RAO ES of the East

Between 2011 and 2013, the Russian Government transferred a 55.96 per cent. stake in RAO ES of the East to RusHydro. RAO ES of the East is a vertically-integrated power company in the Far East region of Russia, comprising power and heat generating plants, transmission and distribution assets. Unlike other Russian power sector companies, which were subject to the power sector reforms, which separated generation, transmission and distribution assets, RAO ES of the East was generally excluded from this restructuring due to the limited potential for competition in the sparsely populated and industrialised Far East region of Russia. As such, RAO ES of the East has distribution and transmission businesses as well as thermal power plants. As a result of the acquisition, the Group’s installed capacity increased from 26,100 MW to 35,200 MW.

During the acquisition of RAO ES of the East, the following companies, inter alia, became part of the Group: Public Joint-Stock Company “DEK” (Dalnevostochnaya Energy Company), Joint-Stock Company “DGK” (Dalnevostochnaya Generating Company), Joint-Stock Company “DRSK” (Dalnevostochnaya Distribution Network Company), Public Joint-Stock Company “Yakutskenergo”, Public Joint-Stock Company “Kamchatskenergo”, Public Joint-Stock Company “Magadanenergo” and Public Joint-Stock Company “Sakhalinenergo”.

In 2014, the Board of Directors approved a long-term development programme providing, inter alia, for RusHydro’s stake in RAO ES of the East to be increased up to 100 per cent. As at the date of these Listing Particulars, the Group has increased its stake in RAO ES of the East to 99.98 per cent., with the remaining shares having been excluded from the squeeze-out procedures due to the fact that these shares were subject to external disputes. Once these disputes are resolved, the Group expects to consolidate the remaining shares.

During 2016 and 2017, the executive apparatus of RusHydro and RAO ES of the East was integrated. The integration was implemented to enable both entities to have a common functional identity and to share common competencies. Part of this integration strategy involved the establishment of a separate business unit for the Far East to allow for competencies concerning the organisation and function of energy facilities in the Far East, fuel supply, tariff regulation and asset structuring, to be shared and allocated.

The integration of the executive apparatus of RusHydro and RAO ES of the East was designed to enhance synergies between the two entities by reducing the layers of management and integrating and centralising

management functions. The integration is also expected to generate substantial cost savings by optimising the number of management personnel. The financial situation of RAO ES of the East’s subsidiaries is also likely to benefit from the lower costs associated with the consolidation and integration of RAO ES of the East’s management services. See “Risk Factors—The integration of RAO ES of the East poses certain risks to the Group”.

Recent Developments

The Group is currently negotiating with potential purchasers the sale of Closed Joint-Stock Company “MEK”, the Group’s subsidiary that maintains the Sevan-Razdanskiy cascade of hydropower plants in Armenia. The Group is considering the potential sale of this subsidiary following the successful modernisation of the hydropower plant as part of the Group’s strategy to focus on the core businesses of the Group in Russia.

On 30 August 2017 and on 3 April 2018, the Board of Directors approved a potential joint venture with UC RUSAL for the construction of an aluminium smelter project in Taishet (“TaAS”). Among other things, the Board of Directors approved a list of key terms and certain financial indicators, including a limit for sponsorship support for TaAS project financing. Given deterioration in the aluminium market and sanctions in respect of UC RUSAL the project is currently on hold and the Group is considering the possibility of its participation therein. As at the date of these Listing Particulars, no joint venture entities have been established and no binding documentation has been executed.

The Russian Government approved the programme for the development and the substitution of the Chaun- Bilibin generating system of the Chukotka Region, which was agreed with the Ministry of Energy of the Russian Federation. The programme envisages, among other things, the construction of a diesel electricity plant and a diesel boiler station for the supply of energy to the Chaun-Bilibin generating system. In November 2017, the State Duma approved a draft law “On the Federal Budget for 2018 and for the Planned Period of 2019 – 2020”, further corrected by a draft law “On the Federal Budget for 2019 and for the Planned Period of 2020 – 2021”, which provides for an increase of RusHydro’s charter capital in the total amount of RUB 10 billion during 2019 – 2020 (RUB 4 billion in 2019 and RUB 6 billion in 2020). It is expected that additional RUB 3 billion to finance the programme will be provided under a separate resolution of the Government, and shall be used for the provision of capital contribution to Chukotenergo for construction of two overhead electricity transmission lines Pevek-Bilibino.

In July 2018, the Group sold its 4.915 per cent. stake in Inter RAO to Inter RAO Capital for a consideration in the amount of RUB 17.2 billion to be received in instalments.

In July 2018, the Group entered into a facility agreement with Alfa Bank in the amount of RUB 10 billion with five year maturity, no drawdowns were made under this agreement as of the date of these Listing Particulars.

On 3 October 2018, the Board of Directors approved a sale of 40 per cent. stake in LLC “VolgaHydro”, the producer of hydroturbine equipment, to an affiliate of Austrian Voith Hydro. The price of the stake has been valuated by an independent appraiser in the amount of RUB 450 million. The sale transaction is expected to be closed by the end of 2018.

In October 2018, Dalnevostochnaya Generating Company (DGK) completed tender process in respect of a revolving facility agreement in the amount of RUB 10 billion with seven year maturity, the winner of the tender is VTB Bank. No drawdowns were made under this agreement as of the date of these Listing Particulars.

In October 2018, the Board of Directors approved an amendment to the Group’s investment programme for 2018. Under the amendment the financing for 2018 is planned to amount to RUB 96.7 billion compared to previously planned RUB 124.5 billion, out of which RUB 86.4 billion is expected to be funded by the Group, compared to previously planned amount of RUB 97.3 billion.

On 22 October 2018, RusHydro published the Group’s operational results as at 30 September 2018:

Electricity generation

RUSHYDRO CENTRE REGION

Energy generation, GWh Nine month ended 30 RusHydro branch and power plants Russian Federation region and IES September 2018

Volzhskaya HPP ...... Volgograd Region, Middle Volga IES ...... 10,626 Votkinskaya HPP ...... Perm Region, Urals IES ...... 2,333 Zagorskaya PSHPP ...... Moscow Region, Central IES ...... 1,383 Zhigulevskaya HPP ...... Samara Region, Middle Volga IES ...... 10,139 Cascade of Verkhnevolzhskiye HPPs ...... Yaroslavl Region, Central IES ...... 1,312 Saratovskaya HPP ...... Saratov Region, Middle Volga IES ...... 5,021 Kamskaya HPP ...... Perm Region, Urals IES ...... 1,709 Nizhniy Novgorod Region, Middle Volga Nizhegorodskaya HPP ...... IES ...... 1,550 Cheboksarskaya HPP ...... Republic of Chuvashiya, Middle Volga IES 1,757 Subtotal RusHydro Centre Region ...... 35,828

RUSHYDRO SOUTH REGION

Energy generation, GWh Nine month Russian Federation region ended 30 RusHydro branch and power plants and IES September 2018

Dagestan ...... Dagestan Republic, South IES ...... 3,759 Kabardino-Balkarian ...... Kabardino-Balkariya Republic, South IES ... 434 North-Ossetian ...... North Ossetiya-Alania Republic, South IES 280 Cascade of Kubanskiye PPs ...... Stavropol Region, South IES ...... 1,218 Karachaevo-Cherkessian (incuding Karachaevo-Cherkessiya Republic, South IES Zelenchukskiye HPPs) ...... 411 Subtotal RusHydro South Region ...... 6,102

RUSHYDRO SIBERIA REGION

Energy generation, GWh Nine month ended Russian Federation region 30 September RusHydro branch and power plants and IES 2018

Novosibirskaya HPP ...... Novosibirsk Siberia IES ...... 1,751 Sayano-Shushenskaya HPC ...... Khakasia Republic Siberia IES ...... 20,488 Subtotal RusHydro Siberia Region ...... 22,239

RUSHYDRO FAR EAST REGION

Energy generation, GWh Nine month Russian Federation region ended 30 RusHydro branch and power plants and IES September 2018

Bureyskaya HPP ...... Amur Region, East IES ...... 4,918 Zeyskaya HPP ...... East IES ...... 3,549 Kolymskaya HPP ...... Magadan Region ...... 1,484 Geotherm ...... Kamchatka Region ...... 311 Ust-Srednekanskaya ...... Kamchatka Region ...... 270 Subtotal RusHydro Far East Region ...... 10,532

RAO ES OF THE EAST

Energy generation, GWh Nine month Russian Federation region ended 30 RusHydro subsidiaries and power plants and IES September 2018

Khabarovsk Region, Primorsk Region, Amur Dalnevostochnaya Generating Company ...... Region, Sakha Republic (Yakutia) ...... 18,448 Yakutskenergo ...... Sakha Republic (Yakutia) ...... 3,018 Sakhaenergo ...... Sakha Republic (Yakutia) ...... 198 Kamchatskenergo ...... Kamchatka Region ...... 759 Yuzhno-Kamchatskaya Grid Company ...... Kamchatka Region ...... 86 Magadanenergo ...... Magadan Region ...... 101 Chukotenergo ...... Chukotka Region ...... 187 Sakhalinenergo ...... Sakhalin Region ...... 1,608 Khanty-Mansiysk Autonomous District and Peredvizhnaya energetika ...... Yamal-Nenets Autonomous District ...... 145 Subtotal RAO ES of the East ...... 24,550 ______

RUSHYDRO ARMENIA

Energy generation, GWh Nine month ended 30 RusHydro branch and power plants Region September 2018

Sevan-Hrazdan HPPs ...... Armenia ...... 368 Subtotal RusHydro Armenia ...... 368 GROUP TOTAL ...... 99,618

Heat generation

RAO ES OF THE EAST

Heat generation, Gcal Nine month Russian Federation region ended 30 RusHydro subsidiaries and power plants and IES September 2018

Khabarovsk Region, Primorsk Region, Dalnevostochnaya Generating Company ...... Amur Region, Sakha Republic (Yakutia) 13,786 Yakutskenergo ...... Sakha Republic (Yakutia)...... 1,539 Sakhaenergo ...... Sakha Republic (Yakutia)...... 55 Teploenergoservice ...... Sakha Republic (Yakutia)...... 770 Kamchatskenergo ...... Kamchatka Region ...... 1,298 Yuzhno-Kamchatskaya Grid Company ...... Kamchatka Region ...... 50 Magadanenergo ...... Magadan Region ...... 814 Chukotenergo ...... Chukotka Region ...... 281 Sakhalinenergo ...... Sakhalin Region ...... 981 TOTAL ...... 19,574

The table below sets out the Group’s electricity generation by generation type:

Energy generation, GWh Nine month ended 30 September Type of power plant 2018 HPPs ...... 76,582 TPPs and other ...... 23,036 GROUP TOTAL ...... 99,618 Boguchanskaya HPP ...... 10,286

Electricity and capacity sales (wholesale)

Percentage of electricity and capacity sales by PJSC RusHydro For the nine month ended 30 September Type of Agreement 2018 Percentage of volume of supplied electricity: Regulated Contracts ...... 12.51% Four-party agreements in non-pricing zones ...... 9.98% One-day-ahead market ...... 70.84% Free electricity contracts ...... 1.70% Balancing Market ...... 4.94% Retail ...... 0.03% Total ...... 100% Percentage of volume of supplied capacity: Regulated Contracts ...... 22.29% Four-party agreements in non-pricing zones ...... 15.38% Free capacity contracts ...... 38.29% Mandatory capacity supply contracts (DPMs)...... 1.34% Competitive capacity auction (KOM) ...... 22.70% Total ...... 100%

PJSC RusHydro accounted for 77 per cent. of the Group’s total electricity sales volumes and 68.6 per cent. of the Group’s capacity sales volumes in the nine months ended 30 September 2018. The Group’s electricity output from hydro generation increased by 1 per cent. in the year ended 31 December 2017 and by 5.1 per cent. in the nine 76

months ended 30 September 2018 due to efficient utilisation of water resources and commissioning of new capacities. Increase in heat output by 4.6 per cent. in the nine months ended 30 September 2018 compared to nine months ended 30 September 2017 is primarily driven by average temperatures and the length of heating season. Electricity generation by fossil fuel capacities in the Far East increased by 6.2 per cent. in the nine months 2018 was supported by higher electricity consumption in the region and increased flows to China and Siberia.

Electricity (retail)

The table below shows sales of electricity by the Group’s electricity retail business for the periods indicated:

Electricity retail sales, million Electricity retail subsidiary Region kWh Nine month ended 30 September 2018 JSC Chuvashskaya Energy Retail Company ... Republic of Chuvashiya ...... 2,432 PJSC Ryazan Power Distributing Company .... Ryazan Region ...... 1,934 PJSC KrasnoyarskEnergoSbyt ...... Krasnoyarsk Region ...... 9,126 JSC ESC RusHydro ...... 1,214 Total ...... 14,706 ______The Group

RusHydro is the holding company and main operating company of the Group. RusHydro’s principal subsidiaries are listed in note 4 to the Annual Financial Statements included elsewhere in these Listing Particulars.

The ordinary shares of RusHydro are traded on Moscow Exchange. RusHydro’s Level 1 American Depositary Receipts (“ADRs”) are traded on both the regulated market of the London Stock Exchange and over-the- counter on the OTCQX market in the United States. Each ADR represents 100 ordinary shares of RusHydro.

Principal Operations

The Group’s core businesses are the generation of electricity and the sale of electricity and capacity on the Russian wholesale electricity and capacity market, on the retail electricity market, as well as the generation and sale of heat under regulated contracts. In the six months ended 30 June 2018, the Group generated 73.5 billion kWh of electric power (including 6.2 billion kWh of electric power generated by Boguchanskaya HPP) and 17.7 million GCal of heat and had revenues of RUB 200.9 billion (including Government grants and excluding revenues of Boguchanskaya HPP). In 2017 and 2016, the Group generated 140.2 billion kWh and 138.8 billion kWh of electric power (including 13.3 billion kWh and 13.9 billion kWh of electric power generated by Boguchanskaya HPP, respectively), 29.9 million GCal and 31.5 million GCal of heat and had revenues of RUB 380.9 billion and RUB 391.3 billion, respectively (including Government grants and excluding revenues of Boguchanskaya HPP).

The Group sells its electricity and capacity on the wholesale electricity market and through its electricity retail companies, on the retail electricity market of the Unified Energy System of Russia and in five isolated power systems of the Russian Far East. The Group sells electricity on the Russian wholesale electricity and capacity markets at competitive (unregulated) prices and under regulated contracts with predetermined volumes and tariffs approved by the FAS in certain regions, as well as electricity on the Russian retail electricity market under electricity supply contracts to end-consumers at current competitive (unregulated) prices, save for supplies to households in accordance with tariffs approved by the regional authorities.

The Group also sells electricity on the Armenian electricity market under electricity supply contracts in accordance with tariffs approved by the Armenian Public Service Regulatory Commission.

The Group produces electricity in hydropower and thermal power stations, part of which it sells to Inter RAO for export to China. The contract for the supply of electricity to China is between the State Grid Corporation of China and JSC “VEK” (part of the Inter RAO group) as exporter, meaning that the Group does not engage directly in any foreign trade activities. The prices that the Group receives from Inter RAO are higher than the usual established tariffs, which allows the Group to gain additional revenue. The aggregate revenue of the Group for supplies to Inter RAO amounted to RUB 741.7 million, RUB 1,319.7 million and RUB 419.1 million for the years ended 31 December 2017 and 2016 and the six months ended 30 June 2018, respectively.

Electricity generation

The following map shows the geographical location of the Group’s principal power generation facilities as at 30 June 2018:

Armenia

Hydropower 561 MW Hydropower u/construction Non-hydro renewables Fossil fuel plants

As at 30 June 2018, the aggregate total installed capacity of the Group was 39,066 MW (including the entire installed capacity of the 2,997 MW Boguchanskaya HPP, which is a 50/50 joint venture between RusHydro and UC RUSAL). The Group’s power plants in Russia are organised into several branches and subsidiaries on the basis of their geographical location. RusHydro divides its generation facilities in Russia into four large geographical regions: Centre, South, Siberia and the Far East. In addition, the Group owns and operates hydropower facilities in Armenia.

The table below sets out the Group’s electricity generation by generation type for the periods indicated:

Energy generation, GWh Type of power plant Year ended 31 December Six months ended 30 June 2016 2017 2017 2018 HPPs ...... 94,976 95,971 47,972 50,621 TPPs and other ...... 29,823 30,991 15,576 16,751 GROUP TOTAL ...... 124,799 126,961 63,549 67,372 Boguchanskaya HPP ...... 13,970 13,287 6,747 6,164

The tables below show, as at 30 June 2018 (unless otherwise specified), key indicators of the Group’s generation facilities by geographical region. Within the Russian Federation and Armenia, there are geographically separate energy systems known as integrated energy systems (“IES”). There are seven IESs in the Russian Federation: RusHydro’s generation facilities are located in six of these seven IESs.

Electricity generation

RUSHYDRO CENTRE REGION

Aggregate RusHydro branch and power Russian Federation region installed plants and IES capacity (MW) Energy generation, GWh Year ended 31 Six months ended 30 December June 2016 2017 2017 2018

Volgograd Region, Middle Volzhskaya HPP ...... Volga IES ...... 2,671 11,841 13,941 7,058 7,679 Votkinskaya HPP ...... Perm Region, Urals IES ...... 1,035 2,873 3,140 1,609 1,680 Moscow Region, Central Zagorskaya PSHPP ...... IES ...... 1,200 1,875 1,921 943 948 Samara Region, Middle Zhigulevskaya HPP ...... Volga IES ...... 2,467 10,671 11,815 5,845 7,364 Cascade of Verkhnevolzhskiye Yaroslavl Region, Central HPPs ...... IES ...... 487 1,191 1,955 998 993 Saratov Region, Middle Saratovskaya HPP ...... Volga IES ...... 1,403 5,512 6,855 3,452 3,575 Kamskaya HPP ...... Perm Region, Urals IES ...... 552 1,927 2,274 1,104 1,206 Nizhniy Novgorod Region, Nizhegorodskaya HPP ...... Middle Volga IES ...... 520 1,492 2,249 1,172 1,176 Republic of Chuvashiya, Cheboksarskaya HPP ...... Middle Volga IES ...... 1,370 1,989 2,833 1,625 1,366 Subtotal RusHydro Centre Region ...... 11,705 39,372 46,982 23,808 25,984

RUSHYDRO SOUTH REGION

Aggregate installed Russian Federation capacity RusHydro branch and power plants region and IES (MW) Energy generation, GWh Year ended 31 December Six months ended 30 June 2016 2017 2017 2018

Dagestan Republic, Dagestan ...... South IES ...... 1,886 6,108 4,184 2,285 2,327 Kabardino-Balkariya Kabardino-Balkarian ...... Republic, South IES .... 188 503 511 213 197 North Ossetiya- Alania Republic, North-Ossetian ...... South IES ...... 95 175 287 124 157 Stavropol Region, Cascade of Kubanskiye PPs ...... South IES ...... 477 1,363 1,433 637 703 Karachaevo- Karachaevo-Cherkessian (incuding Cherkessiya Zelenchukskiye HPPs) ...... Republic, South IES .... 300 90 410 195 225

Subtotal RusHydro South Region 2,945 8,239 6,826 3,455 3,609

RUSHYDRO SIBERIA REGION

RusHydro branch and power Russian Federation Aggregate installed plants region and IES capacity (MW) Energy generation, GWh Six months ended Year ended 31 December 30 June 2016 2017 2017 2018

Novosibirskaya HPP ...... Novosibirsk Siberia IES ... 480 2,250 2,141 1,057 1,067 Khakasia Republic Siberia Sayano-Shushenskaya HPC ...... IES...... 6,721 26,958 23,238 11,277 11,765 Subtotal RusHydro Siberia Region ...... 7,201 29,208 25,380 12,333 12,832

RUSHYDRO FAR EAST REGION

Aggregate Russian Federation region installed capacity RusHydro branch and power plants and IES (MW) Energy generation, GWh Year ended 31 Six months ended December 30 June 2016 2017 2017 2018

Bureyskaya HPP ...... Amur Region, East IES ...... 2,010 7,053 6,283 2,759 3,099 Zeyskaya HPP ...... East IES ...... 1,330 6,408 5,675 3,208 2,275 Kolymskaya HPP ...... Magadan Region, East IES ..... 900 1,663 1,748 890 1,028 Geotherm ...... Kamchatka Region, East IES . 74 443 436 229 224 Ust-Srednekanskaya ...... Kamchatka Region, East IES . 168 337 342 141 217 Subtotal RusHydro Far East Region .... 4,486 15,904 14,484 7,228 6,844

RAO ES OF THE EAST

Aggregate installed RusHydro subsidiaries and power Russian Federation region capacity plants(1) and IES (MW) Energy generation, GWh Six months ended 30 Year ended 31 December June 2016 2017 2017 2018

Khabarovsk Region, Primorsk Region, Amur Region, Sakha Republic Dalnevostochnaya Generating Company .... (Yakutia) 5,923 23,528 24,758 12,373 13,436 Yakutskenergo ...... Sakha Republic (Yakutia) 1,361 3,952 3,921 1,968 2,243 Sakhaenergo ...... Sakha Republic (Yakutia) 200 278 281 152 154 Kamchatskenergo ...... Kamchatka Region 376 978 981 498 533 Yuzhno-Kamchatskaya Grid Company ...... Kamchatka Region 62 122 117 60 59 Magadanenergo ...... Magadan Region 320 164 159 95 97 Chukotenergo ...... Chukotka Region 128 229 232 124 136 Sakhalinenergo ...... Sakhalin Region 545 2,171 2,163 1,117 1,150 Sakha Republic (Yakutia), Khanty-Mansiysk Autonomous District and Yamal-Nenets Autonomous Peredvizhnaya energetika ...... District 210 248 211 107 101 Subtotal RAO ES of the East ...... 9,124 31,672 32,824 16,493 17,908 ______(1) Excluding Teploenergoservice (22 MW) and certain other small generation facilities

RUSHYDRO ARMENIA

RusHydro branch and power Aggregate installed plants Region capacity (MW) Energy generation, GWh Year ended 31 Six months ended 30 December June 2016 2017 2017 2018

Sevan-Hrazdan HPPs ...... Armenia ...... 561 405 466 233 194 Subtotal RusHydro Armenia ...... 561 405 466 233 194 GROUP TOTAL ...... 36,022 124,799 126,961 63,549 67,372

Heat generation

RAO ES OF THE EAST Aggregate installed heat RusHydro subsidiaries and power Russian Federation region capacity plants and IES (Gcal/h) Heat generation, Gcal thousand Six months ended 30 Year ended 31 December June 2016 2017 2017 2018

Khabarovsk Region, Primorsk Region, Amur Region, Sakha Republic Dalnevostochnaya Generating Company .... (Yakutia) 12,813 22,144 21,029 11,657 12,413 Yakutskenergo ...... Sakha Republic (Yakutia) 1,619 2,497 2,487 1,311 1,377 Sakhaenergo ...... Sakha Republic (Yakutia) 85 88 81 49 52 Teploenergoservice ...... Sakha Republic (Yakutia) 762 1,334 1,237 698 711 Kamchatskenergo ...... Kamchatka Region 1,201 2,120 1,866 1,123 1,178 Yuzhno-Kamchatskaya Grid Company ...... Kamchatka Region 43 80 77 46 47 Magadanenergo ...... Magadan Region 773 1,232 1,213 695 716 Chukotenergo ...... Chukotka Region 400 442 428 260 240 Sakhalinenergo ...... Sakhalin Region 799 1,558 1,506 917 925 TOTAL ...... 18,495 31,494 29,924 16,756 17,657

Each geographical region has specific generation and consumption patterns.

The Centre group comprises generation facilities located in Central IES, Middle Volga IES and Urals IES, which are the regions with the highest energy consumption levels in Russia.

The South group comprises generation facilities located in the South IES, and is distinguished by a highly volatile pattern of generation and consumption due to an abnormally high level of household consumption, combined with limitations in the local grid.

The Siberia group comprises generation facilities in the Siberia IES. As a result of electricity grid limitations, the Siberia IES represents a separate pricing zone (referred to as the second pricing zone) of the Russian wholesale electricity market, which means that spot prices in the Siberia IES are determined independently of the first pricing zone, which comprises Central IES, North-West IES, Middle Volga IES, South IES and Urals IES. Compared to the first pricing zone, a larger share of electricity is generated in the Siberia IES by HPPs rather than thermal or nuclear power plants. For this reason, spot prices in the Siberia IES are usually lower than in the first pricing zone.

The Far East group is the most isolated IES of the Russian Federation. Generators in the Far East, including the Group’s facilities in the region, sell electricity (including on a wholesale basis) and capacity at regulated prices (tariffs). The Russian government does not have firm plans for the liberalisation of electricity and capacity prices in the Far East. The Far East is distinguished by a high level of household consumption, which results in volatile patterns of generation and consumption.

The Group’s facilities in Armenia comprise the largest cascade of HPPs in Armenia and generate 9 to 10 per cent. of total electricity generation capacity in the country. Electricity prices in Armenia are regulated. Electricity consumption in Armenia has been volatile and affected by a decline in industry demand, tariff increases and the expansion of the gas network. The Armenian power system has approximately 1,300 MW of power exchange capability with the neighbouring countries of Georgia and Turkey as well as with the Nagorno-Karabakh Republic.

The Group operates its electricity generation facilities on a unified basis and seeks, where possible, to allocate production levels between its facilities on the basis of available capacity and production efficiency. Trends in electricity and capacity production and revenues generated by an individual operating region of the Group are not therefore necessarily indicative of any particular factors affecting such operating region or trends in the Group’s business as a whole.

Electricity and capacity (wholesale)

The Group sells all of its capacity and substantially all of its electricity on the wholesale markets. For these purposes, the Group contracts with JSC Centre of Financial Settlements (“CFS”), which provides financial settlement services to the wholesale market participants, to sell electricity and capacity through commission

agreements. The Group uses various types of contractual arrangements on the electricity and capacity markets. See “Industry Overview—Structure of the Energy Market—Wholesale Electricity and Capacity Markets”.

The following table shows a breakdown of PJSC RusHydro’s wholesale electricity and capacity sales volumes by category in the six months ended 30 June 2018 and in each of the years ended 31 December 2017 and 2016.

Percentage of electricity and capacity sales by PJSC RusHydro

For the year ended For the year ended For six months ended 30 Type of Agreement 31 December 2016 31 December 2017 June 2018 Percentage of volume of supplied electricity: Regulated Contracts ...... 12.34% 13.47% 12.81% Four-party agreements in non-pricing zones ...... 11.49% 10.83% 9.38% One-day-ahead market ...... 68.16% 68.96% 71.10% Free electricity contracts ...... 2.13% 1.50% 1.81% Balancing Market ...... 5.86% 5.21% 4.88% Retail ...... 0.02% 0.03% 0.03% Total...... 100% 100% 100% Percentage of volume of supplied capacity: Regulated Contracts ...... 20.40% 22.24% 22.68% Four-party agreements in non-pricing zones...... 15.41% 15.31% 15.43% Free capacity contracts ...... 11.48% 37.93% 38.06% 1.29% 1.40% Mandatory capacity supply contracts (DPMs) 0.57% Competitive capacity auction (KOM) ...... 52.14% 23.22% 22.42% Total...... 100% 100% 100%

PJSC RusHydro accounted for 75.2 per cent. of the Group’s total electricity sales volumes and 68.3 per cent. of the Group’s capacity sales volumes in the six months ended 30 June 2018. The remainder of the Group’s electricity and capacity sales were conducted through RAO ES of the East under Regulated Contracts.

In Armenia, RusHydro sells electricity and capacity under regulated prices only. The tariffs are approved by the Public Service Regulatory Commission for both households and industrial consumers. Presently the tariffs are USD 0.09 per kWh at daytime and USD 0.07 per kWh at night time for households and USD 0.08-0.06 per kWh at daytime and night time for industrial consumers.

Electricity (retail)

The Group operates in the electricity retail business. Its retail companies acquire electricity on the wholesale market and resell it to end-consumers.

In 2008, the Group acquired three electricity retail companies, OJSC Chuvashskaya Energy Retail Company, OJSC Ryazanskaya Energy Retail Company and OJSC KrasnoyarskEnergoSbyt, which now represent a separate business segment of the Group. The electricity retail companies are participants in the wholesale markets where they buy electricity and capacity from electricity generators and resell the electricity to household and business retail consumers. Each of JSC Chuvashskaya Energy Retail Company, PJSC Ryazanskaya Energy Retail Company and PJSC KrasnoyarskEnergoSbyt is currently considered to be a “guaranteeing supplier” that is obliged to enter into an electricity supply agreement with any requesting end-consumer in its respective region.

In December 2016, the Group completed the sale of its shares in LLC ESC Bashkortostan, an energy retail company, to Inter RAO Group. See “—History and Development” for more details on acquisitions and disposals.

The table below shows sales of electricity by the Group’s electricity retail business for the periods indicated:

Electricity retail subsidiary Region Electricity retail sales, million kWh Six Months ended 30 June Year ended 31 December 2018 2017 2017 2016 JSC Chuvashskaya Energy Retail Company ...... Republic of Chuvashiya 1,709 1,681 3,317 3,274.0 PJSC Ryazan Power Distributing Company ...... Ryazan Region ...... 1,329 1,345 2,661 2,711.0 PJSC KrasnoyarskEnergoSbyt ...... Krasnoyarsk Region ... 6,676 6,370 12,557 13,580.2 Republic of LLC ESC Bashkortostan* ...... Bashkortostan ...... - - - 11,978.0 JSC ESC RusHydro ...... 802 1,154 2,181 2,362.0 Total ...... 10,516 10,550 20,717 33,905.2 ______* Data for 11 months due to divestment of LLC ESC Bashkortostan to INTER RAO Group in December 2016.

The total volume of electricity retail sales by the Group’s sales companies stayed relatively flat with a slight decrease of 34 million kWh, from 10,550 kWh in the six months ended 30 June 2017 to 10,516 million kWh the six months ended 30 June 2016. The decrease in the total volume of electricity retail sales by the Group’s sales companies in the year ended 31 December 2017 was mainly the result of the divestment of LLC ESC Bashkortostan to INTER RAO Group in December 2016. Sales of electric and heat power in the Far East region

Electricity

For the six months ended 30 June 2018, the Group sold 17,908 million kWh of electricity in the Far East region, which was 8.6 per cent. higher than in the six months ended 30 June 2017. This increase was primarily the result of increased water inflow and increase in export to China. The Group’s overall volume of retail electricity sales in the Far East region was 32,824 million kWh in 2017, a 3.6 per cent. increase as compared to 2016. The main reason for the increase was increase in production by Dalnevostochnaya Generating Company (DGK) and increase of electricity consumption. The principal consumers of electricity sold by the Group’s subsidiaries are KGUP Primteploenergo, JSC Amurmetall, LLC Kimkano-Sutarsky GOK, JSC Pokrovsky Mine, LLC Rusenergosbit, ALROSA Group and LLC Transneftenergo. Heat power

For the six months ended 30 June 2018, the overall volume of heat power sold by the Group in the Far East Region was 17,659 thousand Gcal, which represented a 5.4 per cent. increase as compared to the six months ended 30 June 2017. This increase was primarily the result of a decrease in the average daily temperature during the period. The overall volume of heat power sold by the Group on the retail market in the Far East Region was 29,924 thousand Gcal in 2017, which represented a decrease of 5 per cent. as compared to 2016. The main reason for this increase was higher average temperatures and reduction of the heating season in 2017 than in 2016. The principal consumers of heat power sold by the Group are individual households. A few major consumers that resell heat power produced by the Group are JSC Amurskie Kommunalnye Sistemy and JSC Sahalinskaya Kommunalnaya Kompaniya. Other Operations

In addition to its electricity generation and electricity retail businesses, the Group is also engaged in a number of other non-core businesses, including the design, engineering and construction of renewable energy facilities. Investment Programme of RusHydro

RusHydro is implementing an investment programme approved by its Board of Directors, the primary objectives of which include: • renovation and modernisation projects in respect of existing assets;

• new construction projects, including the construction of priority generation facilities in the Far East region and the construction of mini HPPs; • the continuous upgrading of power facilities and of their safety and technical reliability; and • constructing new electricity transmission infrastructure and heat distribution networks. There are currently no plans to commence any new large-scale hydropower projects. The table below shows the structure of expected expenditure according to the Group’s investment programme for 2018:

2018(1) (amounts in RUB billions) Priority thermal projects (Far East) ...... 22.6 New construction ...... 27.1 Renovation and modernisation ...... 30.0 Technological connection to the electricity grids ...... 10.4 Other ...... 5.8 Total ...... 96.0 (1) Expected cash expenditure for 2018 (including VAT 18 per cent. and intra-group flows) according to the consolidated investment programme without Boguchanskaya HPP capex.

RusHydro expects to launch approximately 1,500 MW of the installed electricity generation capacity through newly commissioned projects and 210 MW through the renovation and modernisation of existing facilities and 1,020 Gcal/h of heat generation capacity of the Group by the end of 2022. In addition, the Group expects to commission 7,297 kilometres of overhead electricity transmission lines and 174 kilometres of heat distribution networks. The investment programme will be financed using a combination of RusHydro’s own funds, proceeds from capital raising activities, other borrowings and direct or indirect investment by the Government. Innovative Development Programme

One of the most important national priorities for the Government and one of the strategic goals of the Group is the development of the Far East region. To achieve this goal, the Group will be required to carry out large-scale energy development activities, implement changes to the management of assets in the Far East region and use innovative solutions and technologies to maintain equipment and implement technological upgrades. As part of the implementation of the Group's programme, independent technological audits have been conducted in the areas of “hydropower” and “electricity / heat energy”, which are the basis for the innovative development programmes of the Group and RAO ES of the East. Facilities under construction

As at 30 June 2018, the Group had 20 projects under construction, consisting of 4 HPPs, 5 mini-HPPs, two heat generators and 9 infrastructure facilities. The following table sets out a description and status of each project:

Estimate of the full investment Design capacity / Expected project value in Stage of spread of network year of projected prices project (MW/Gcal- Project start commissioni (millions of RUB, Investment project realisation hr/km/МВА) date ng including VAT) 126 MW/ TPP in Sovetskaya Gavan City ...... Construction 200 Gcal-hr 2010 2019 33,536.03 120 MW Sakhalin regional TPP-2 ...... Construction 18.2 Gcal-hr 2011 2018 34,753.29 Ust-Srednekanskaya HPP (Kolyma river) ...... Construction 570 MW 1991 2018/2022(1) 85,780.82 Zaramagskiye HPP...... Construction 356 MW 1976 2019 49,213.59 Nizhne-Bureyskaya HPP ...... Construction 320 MW 2010 2019 53,820.00 Bekeshevskaya mini-HPP ...... Design 0.7 MW 2014 -(2) 137.25 Ust-Djegutinskaya mini-HPP Construction 5.6 MW 2012 2019 1,319.81

(Karachay-Cherkessia) ...... Barsuchkovskaya mini-HPP ...... Construction 5.25 MW 2012 2019 863.12 Verkhnebalkarskaya mini-HPP ...... Construction 10 MW 2011 2019 2,520.00 Krasnogorskaya mini-HPP-1 ...... Design 24.9 MW 2017 2021 5,417.00 Krasnogorskaya mini-HPP-2 ...... Design 24.9 MW 2017 2022 5,417.00 Construction of peak water boiler within the territory of Yakutskaya regional TPP Construction 300 Gcal-hr 2012 2019 2,270.96 Construction of main thermal power system in Sovetskaya Gavan City to 9.99 km of heat central consumer heat supply stations ..... Construction networks 2013 2019 3,945.45 Power output scheme at Sovetskaya 110kV – 105.86 km Gavan TPP ...... Construction 58 MW 2013 2019 2,817.49 35 kV – 9.3 km, 220 kV – 21.3 km, optical fiber Electricity capacity output scheme at transmission system Sakhalin regional TPP-2 ...... Construction – 17.6 km 2014 2018 2,428.61 108.8 ha 10 kV – 4.2 km optical fiber Removal of ash and slag at Sakhalin transmission system regional TPP-2 ...... Construction – 4.2 km 2014 2018 2,078.25 10.6 km 10 kV – 3.3 km optical fiber Construction of major manufacturing transmission system unit and water supply for regional TPP-2 Construction – 4 km 2014 2018 2,285.28

Construction of roads to Sakhalinskaya regional TPP-2 ...... Construction 2.71 km 2014 2018 488.93 Construction of railway to Sakhalinskaya regional TPP-2 ...... Construction 6.76 km 2014 2019 3,318.09 139.5 MW Construction of CHPP in Vladivostok ..... Construction 432 Gcal-hr 2011 2018(3) 15,912.65 ______(1) 310.5 MW out of 570 MW to be commissioned in 2018. Construction to full capacity by 2022. (2) Design stage was completed in 2017, no further works have been approved and commenced. (3) Comissioned in September 2018.

Renovation and modernisation

The Group is implementing a renovation and modernisation programme through 2020 with the aim of enhancing the efficiency of its operations in the long term. The goals of the programme are to:

• achieve greater reliability, safety and economy of the Group’s equipment through the replacement or refurbishment of equipment that has outlived its service life;

• improve the technical and economic specifications of the Group’s HPPs to enable them to meet the demands of the competitive electric power market; and

• reduce repair costs by:

- the adoption of an equipment repairs system based on the actual condition of equipment and its accrued operating time through the introduction of diagnostic systems for controlling main and auxiliary equipment;

- the replacement of old equipment with new equipment, with a longer repair cycle and requiring less periodic technical servicing, and the introduction of a servicing system for new and modernised equipment involving the use of manufacturers and service organisations; and

- the comprehensive automation of all technological processes with an integral HPP management system.

In the six months ended 30 June 2018 and in the years ended 31 December 2017 and 2016, the Group spent RUB 11.5 billion, RUB 33.5 billion and RUB 32.2 billion (in each case including VAT), respectively, on renovation and modernisation. In March 2011, RusHydro approved a renovation and modernisation programme for the period

until 2025, which forms part of RusHydro’s overall investment programme. According to the most recent adjustments to this programme, the Group estimates that it will require RUB 219.9 billion (including VAT) to fund its renovation and modernisation programme for the period 2017 to 2022. The Group currently expects that this programme will provide for the commissioning of an additional 281,6 MW of installed capacity in this period.

These significant expenditures reflect the fact that the majority of the Group’s generating units have exceeded their useful lives, see “Risk Factors—Risks associated with the Group and its operations—A large portion of the Group’s plants and equipment have exceeded their useful life”.

Significant Licences

Under Russian law, electricity generation and sale operations are not subject to a licensing requirement (except for the activities of guaranteeing suppliers, legislation in respect of which has been adopted, however implementing regulations are being developed) but certain other related activities may be performed only on the basis of a specific licence granted by the state authorities. The Group maintains a number of such licences that are necessary for conducting its business. These include licences for the use of explosives and incendiary materials, the storage, transportation, processing and disposal of dangerous wastes and licences for the installation and maintenance of fire safety equipment and the operation of fire suppression equipment.

RusHydro has not experienced and does not expect to experience any material difficulties in renewing any licences it holds as they expire. See “Regulatory Environment—Licensing of Operations” for additional details on licensing regulation.

Environmental Compliance

The Group is subject to various environmental laws and regulations in the course of its operations. See “Regulatory Matters—Environmental Regulation”. The Group believes that it is in material compliance with these environmental laws and regulations. In accordance with applicable requirements, the Group makes payments on a regular basis under the pay-to-pollute regime that operates in the Russian Federation. In 2016, the Group made these payments in the amount of approximately RUB 2.06 million (including Far-Eastern TPP companies). See “Regulatory Matters—Environmental Regulation—Pay-to-pollute”. The Group is a gold member of the International Hydropower Association.

Health and Safety

The promotion of industrial health and safety at the Group’s HPPs is the major goal of RusHydro’s research and development policy. See “—Research and Development”. The Group is also subject to a range of health and safety regulations. See “Regulatory Matter —Health and Safety”.

The Group experienced a serious accident on 17 August 2009 at its Sayano-Shushenskaya HPP. Whilst the Group takes all reasonable precautions to avoid significant industrial accidents, no assurance can be given that such accidents will not occur in the future. See “Risk Factors—Risks associated with the Group and its operations—The Group may experience serious accidents at its plants and/or incidents of terrorism”.

Research and Development

On 23 November 2016, the Board of Directors of RusHydro approved the Innovative Development Programme for the period 2016 to 2020 with a perspective for future development to 2025. The programme was prepared in accordance with guidelines on high technologies and innovations approved by the Russian government. The programme involves generating an information development management system, implementing separate elements in the knowledge management system and drafting regulations and work methods. In particular, RusHydro will develop a new structure for long-term financing of innovative projects. For the purposes of funding of the programme, RusHydro has established a special purpose R&D fund to which RusHydro contributes 0.25 per cent. of its annual revenues for the period 2016 to 2020.

The Group has specialised subsidiaries which engage in scientific research, development and design activities in the areas of electrical power engineering and hydro-technical construction.

These subsidiaries carry out research and development activities across the entire range of RusHydro’s operations, including:

• the execution of design work for each stage of the planning, construction and operation of HPPs;

• the development of the reliability and safety levels of the Group’s generation facilities, including the monitoring of compliance with applicable safety laws;

• the provision of scientific and technical support to new construction, repair and reconstruction work on the Group’s generation facilities; and

• the provision of scientific and technical support to particularly important or complex energy and industrial facilities of the Group.

The promotion of industrial health and safety at its HPPs is a major goal of RusHydro’s research and technology policy. In order to help achieve this goal, RusHydro is assisting in the development of an industry-wide system of control over the condition of hydro-technical facilities and measures for accident prevention.

Renewable energy resources

New Renewable Energy Development Programme

The Group believes that it has a leading position among producers of renewable energy in Russia. The Group has developed assets that generate energy using tidal, solar, wind and geothermal resources. In the remote regions of the Far East, the Group is developing alternative energy resources in order to reduce its reliance on fossil fuels.

The Group's Innovative Development Programme for 2016-2020 (with an outlook through to 2025) aims to increase the Group’s energy efficiency through the use of renewable energy resources. The Group is continuing its development of wind, solar and geothermal energy generation. Most of the projects are located in isolated regions, which are not included in the Unified Energy System of Russia.

In the last five years, the Group has commissioned 16 solar power plants with an installed capacity of 1.47 MW in Yakutia and three wind power plants with an installed capacity of 2.2 MW in Sakhalin Region and Kamchatka Region.

The table below shows the key Group’s renewable energy projects for 2016-2017:

Type of renewable energy Project resource Region Capacity Stage Solar power plant in Yakutia Republic Solar energy 50 kW Commissioned in 2017 Orto Balagan (Sakha) Solar power plant in Yakutia Republic Commissioned in 2017 Solar energy 50 kW Sebyan-Kyuyol (Sakha) Solar power plant in Yakutia Republic Commissioned in 2017 Solar energy 40 kW Kystatyam (Sakha) Solar power plant on Yakutia Republic Solar energy 36 kW Commissioned in 2016 Verkhnyaya Amga (Sakha) Solar power plant in Yakutia Republic Solar energy 80 kW Commissioned in 2016 Delgei (Sakha) Solar power plant in Yakutia Republic Solar energy 20 kW Commissioned in 2016 Innyakh (Sakha)

Each renewable energy project is unique due to the specifics of the regions in which they are located, for example, solar power plant in the village of Batagay is the most northern solar power plant in Russia.

Litigation

RusHydro has been and continues to be the subject of legal proceedings and adjudications from time to time, as well as regulatory and administrative investigations, inquiries and actions regarding tax, labour, environmental and other matters, which, in the past, have resulted in damage awards, settlements or administrative sanctions, including fines. 87

Neither RusHydro nor any of its subsidiaries has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which RusHydro is aware) during the 12 months preceding the date of these Listing Particulars which may have or have had in the recent past significant effects on the financial position or profitability of RusHydro or the Group.

Insurance

As a part of its insurance programme, the Group has entered into insurance contracts with various Russian insurance companies, including SOGAZ, VTB Insurance, Ingosstrakh, Alfa-Strakhovanie and VSK. Insurance obtained by the Group covers all of its property on “against all risks” terms, including the risk of terrorist attacks, subject to limitations commonly used on the Russian insurance market. The Group also maintains health insurance and accident insurance for the majority of its employees, some insurance against construction risks and, in accordance with the requirements of Russian law, insurance against third-party liability for injuries and losses, including environmental damage, caused by its hazardous industrial facilities and hydro-technical facilities. RusHydro also maintains D&O insurance.

The Group carries only limited insurance coverage for third party liability for injuries and losses, including environmental damage, caused by accidents at its industrial facilities and hydro-technical facilities. Although the Group carries out business interruption insurance in respect of hydrogenating equipments with installed capacity over 100 MW, insurance in respect of loss of production (including against the risk of terrorist attacks) is not currently available on the Russian market.

Employees

The average number of personnel employed by the Group totalled 69,395 in the six months ended 30 June 2018, 70,027 in 2017 and 73,782 in 2016.

The Group provides various benefits to its employees, including health insurance, accident insurance, a private pension plan, housing programme.

MANAGEMENT AND CORPORATE GOVERNANCE

Overview

Under the charter of RusHydro (the “Charter”), RusHydro’s management bodies are the general meeting of shareholders (the “General Meeting of Shareholders”), Board of Directors, the management board (the “Management Board”) and the Chairman of the Management Board – General Director. General Meeting of Shareholders

The General Meeting of Shareholders is RusHydro’s supreme governing body. The General Meeting of Shareholders is convened by the decision of the Board of Directors based on its own initiative, at the request of the Internal Audit Commission, Company’s Auditor and shareholders (a shareholder) holding not less than ten (10) per cent. of voting shares in RusHydro as of the date of such request. The Shareholders Meeting is convened at least once a year. Board of Directors

The Board of Directors is a management body that sets out the priorities of RusHydro’s activities, approves RusHydro’s development strategy, defines the basic principles and approached to the organisation in RusHydro of internal control system and risk management, controls the activity of RusHydro’s executive bodies, as well as perform other key functions. In its activity, the Board of Directors is guided by the legislation of the Russian Federation, the Charter and the Regulations on the Procedure for Convening and Holding Meetings of the Board of Directors of RusHydro. The Board of Directors currently consists of 13 members. The Charter provides for election of members of the Board of Directors at the annual General Meeting of Shareholders for a one-year term until the next annual General Meeting of Shareholders. All current members of the Board of Directors were elected at the annual General Meeting of Shareholders held on 27 June 2018. The table below shows the current members of the Board of Directors. The business address for each of the members of the Board of Directors is 7 Malaya Dmitrovka Street, Moscow, 127006, Russian Federation.

Name Year of Birth Position Artem Avetisyan 1976 Member of the Board of Directors Maxim Bystrov(1) 1964 Member of the Board of Directors Pavel Grachev(1) 1973 Member of the Board of Directors Sergey Ivanov(1) 1961 Member of the Board of Directors, Deputy Chairman of the Board of Directors Vyacheslav Kravchenko 1967 Member of the Board of Directors Pavel Livinsky 1980 Member of the Board of Directors Vyacheslav Pivovarov(1) 1972 Member of the Board of Directors Mihail Rasstrigin 1983 Member of the Board of Directors Nikolay Rogalev 1962 Member of the Board of Directors Sergey Shishin 1963 Member of the Board of Directors Andrey Shishkin 1959 Member of the Board of Directors Nikolay Shulginov 1951 Member of the Board of Directors, Chairman of the Management Board – General Director Yury Trutnev 1956 Member of the Board of Directors, Chairman of the Board of Directors ______(1) Independent directors in accordance with the UK Corporate Governance Code.

Artem Avetisyan

Artem Avetisyan has been a member of the Board of Directors since June 2015. Mr. Avetisyan graduated from the Finance Academy under the Government of the Russian Federation in 1998. He has also held, or continues to hold, as applicable, inter alia, the following posts:

From 2010 to 2015 – Chairman of the Board of Directors of OJSC Regional Credit Commercial Bank.

Since 2011 – Director of New Business at autonomous non-profit organisation Agency of Strategic Initiatives for Promotion of New Projects.

From 2012 to 2015 – Member of the Supervisory Board of OJSC “Russian Agricultural Bank”.

From 2012 to 2016 – Member of the Supervisory Board of JSC “MSP Bank”.

Since 2012 – Chairman at Non-Profit Partnership “Leaders Club for the promotion of business initiatives”.

From 2013 to 2014 – Member of the Board of Directors of JSC “Russian hippodromes”.

From 2013 to 2014 – Member of the Board of Directors of OJSC “RZD”.

From 2013 to 2015 – Member of the Board of Directors of OJSC “Rosagroleasing”.

From 2014 to 2016 – Vice-President at LLC NEO Centre.

From 2015 to 2017 – Member of the Board of Directors at LLC Commercial bank “Uniastrum”.

Since 2016 – Member of the Board of Directors of Orient Bank.

Since 2017 – Chairman of the Board of Directors of Orient Bank.

Since 2017 – Chairman of the Board of Directors of Modulbank CB JSC.

Maxim Bystrov

Maxim Bystrov has been a member of the Board of Directors since 2013. Mr. Bystrov graduated from the Moscow Civil Engineering Institute in 1986 and the Russian Academy for Foreign Trade in 1998. He has also held, or continues to hold, as applicable, the following posts:

From 2010 to 2013 – Deputy Authorised Representative of the President of the Russian Federation in the North Caucasus Federal District.

From 2012 to 2017 – Chairman of the Board of Directors of JSC “Management Company Airport Mineralnye Vody”.

From 2013 to 2017 – Member of the Board of Directors of JSC “Resorts of Northern Caucasus”.

Since 2013 – Chairman of the Management Board and Member of the Board of Directors of JSC ATS

Since 2013 – Chairman of the Management Board and member of the Supervisory Board of the Market Council.

From 2014 to 2016 – Member of the Board of Directors of “FGC UES”, PJSC.

Since 2014 – Chairman of the Board of Directors of “SO UES”, JSC.

Pavel Grachev

Pavel Grachev has been a member of the Board of Directors since 2016. Mr. Grachev graduated from the St. Petersburg State University in 1998 and the University of Trieste in 1997. He has also held, or continues to hold, as applicable, the following posts:

From 2011 to 2013 – Head of the representative office of Alpina Capital, ACL Limited.

From 2013 to 2014 – Member of the Board of Directors of “FGC UES”, PJSC.

From 2013 to 2014 – Interim Chief Executive Officer in Polyus Gold International Limited.

From 2013 to 2016 – Member of the Board of Directors of Polyus Gold International Limited.

In 2013 – Chief Executive Officer of JSC Far East and Baikal Region Development Fund.

In 2014 – Chairman of the Board of Managing Directors of the representative office of Nafta Moskva Limited.

Since 2014 – CEO of PJSC Polyus.

From 2014 to 2016 – President of PJSC Polyus Krasnoyarsk.

From 2014 to 2016 – CEO of Polyus International Limited.

Since 2015 – Member of the Board of Directors of PJSC Polyus.

Since 2015 – Member of the Board of Directors of “FGC UES”, PJSC.

Since 2016 – CEO of UK Polyus LLC.

Since 2017 – Chairman of the Board of Directors of LLC “SL Gold”.

Sergey Ivanov

Sergey Ivanov has been a member of the Board of Directors since 2013. Mr. Ivanov graduated from MEPhI in 1984. He has also held, or continues to hold, as applicable, the following posts:

From 2002 to 2015 – Member of the Board of Directors of CJSC INPK “RAT”.

From 2007 to 2013 – Member of the Board of Directors of OJSC “Malaya Energetika”.

From 2007 to 2014 – Chairman of Presidium in ANO “National Institute for Energy Security”.

From 2011 to 2016 – General Director of Russian Power Company.

From 2011 to 2016 – Member of the Board of Directors of Nechernozemagropromstroy OJSC.

From 2012 to 2013 – Member of the Board of Directors of OJSC “Exhibition Pavilion “Electrification”.

From 2012 to 2013 – Member of the Board of directors of CJSC “Sbercredbank”.

From 2012 to 2015 – General Director of Lensent LLC.

From 2014 to 2015 – Member of the Board of Directors of CJSC “NLHK”.

From 2015 to 2016 – Member of the Board of Directors of Russian Energetic Company OJSC.

From 2015 to 2016 – General Director of Nechernozemagropromstroy OJSC.

From 2016 to 2018 – General Director of RT-Capital LLC.

From 2016 to 2018 – Member of the Board of Directors of RT-Capital LLC.

From 2017 to 2018 – Member of the Board of Directors of RT-Stroytech JSC.

Vyacheslav Kravchenko

Vyacheslav Kravchenko has been a member of the Board of Directors since 2014. Mr. Kravchenko graduated from the Lomonosov Moscow State University in 1995. He has also held, or continues to hold, as applicable, the following posts:

From 2011 to 2015 – Chairman of the Board of Directors of CJSC “CFR”.

From 2011 to 2015 – Member of the Board of Directors of Rosseti.

Since 2011– Representative of the state in the Supervisory Board of the Market Council.

From 2012 to 2013 – Chairman of the Management Board of OJSC “ATS”.

From 2012 to 2013– Chairman of the Management Board of the Market Council.

From 2012 to 2014 – Member of the Board of Directors of OJSC “ATS”.

From 2012 to 2016 – Member of the Board of directors of “FGC UES”, PJSC.

From 2012 to 2013 – Chairman of the Management Board of NP Market Council.

Since 2012 – Member of the Board of Directors of “SO UES”, JSC.

From 2013 to 2014 – Member of the Supervisory Board of JSC Bank VBRR.

From 2013 to 2018 – Deputy Minister of Energy of the Russian Federation.

From 2014 to 2018 – Member of the Board of Directors of PJSC “MOESK”.

Since 2014 – Member of the Trustee Office at the National Research University MPEI.

From 2015 to 2017 – Member of the Board of Directors of PJSC “IDGC of Siberia”.

Since 2016 – Member of the Board of Directors of Rosseti PJSC.

Pavel Livinsky

Pavel Livinsky has been a member of the Board of Directors since 2018. Mr. Livinsky graduated from the Lomonosov Moscow State University in 2001. He has also held, or continues to hold, as applicable, the following posts:

From 2011 to 2013 – General Director of OEK OJSC.

From 2013 to 2017 – Department Head of Department of Fuel and Energy Economy of Moscow.

In 2013 – Member of the Board of Directors of MOEK OJSC.

From 2013 to 2014 – Member of the Board of Directors of MOSGAZ OJSC.

From 2013 to 2015 – Member of the Board of Directors of BESK OJSC.

From 2013 to 2016 – Member of the Board of Directors of Mosgorsvet OJSC.

From 2013 to 2017 – Chairman of the Board of Directors of OEK JSC.

From 2013 to 2018 – Member of the Board of Directors of Mosenergosbyt PJSC.

From 2013 to 2018 – Member of the Board of Directors of Mosenergo PJSC.

Since 2013 – Chairman of the Board of Directors of MOESK PJSC.

From 2014 to 2017 – Chairman of the Board of Directors of MOSGAZ OJSC.

Since 2014 – Member of the Board of Trustees of Moscow Power Engineering Institute National Research University Federal State Budgetary Educational Institution of Higher Education.

Since 2015 – President, member of the Presidium of the Sport Federation of Firefighters and Rescuers Regional Nongovernment Organization.

In 2017 – Member of the Board of Directors of Mosvodokanal JSC.

Since 2017 – Member of the Presidium of Russian National Committee of the World Energy Council Nonprofit Partnership.

Since 2017 – Member of the Board of Trustees of Cathedral of Christ the Savior Foundation.

Since 2017 – Department Head of Department of Housing, Utilities and Amenities of Moscow.

Since 2017 – General Director, Chairman of the Management Board of Rosseti PJSC.

Since 2018 – Member of the Management Board of Russian Union of Industrialists and Entrepreneurs All- Russia Association of Employers.

Since 2018 – Chairman of the Board of Directors of Lenenergo PJSC.

Since 2018 – Member of the Board of Directors of SO UES JSC.

Since 2018 – Member of the Board of Directors of Rosseti PJSC.

Since 2018 – Member of the Board of Directors of FGC UES PJSC.

Since 2018 – Member of the Supervisory Board of Scientific and Technical Council of the Unified Energy System Noncommercial Partnership.

Since 2018 – Member of the Presidium of Association Russian Committee of the International Counsel on Large Electric High Voltage Systems.

Since 2018 – Member of the Board of Trustees of LLC Russian modern pentathlon federation.

Vyacheslav Pivovarov

Vyacheslav Pivovarov has been a member of the Board of Directors since 2013. Mr. Pivovarov graduated from Sergo Ordzhonikidze State Academy of Management in 1995, American University of Paris in 1995 and Stanford University in 2002. He has also held, or continues to hold, as applicable, the following posts:

From 2011 to 2017 – Chief Executive Officer of Altera Capital LLC.

From 2012 to 2013 – Member of the Board of Directors of PJSC “Quadra”.

Since 2014 – Member of the Board of Directors of GeoProMining Investment, Ltd.

Since 2017– President of Altera Capital LLC.

Mihail Rasstrigin

Mihail Rasstrigin has been a member of the Board of Directors since 2018. Mr. Rasstrigin graduated from Lenin Ivanovo State Power University in 2005. He has also held, or continues to hold, as applicable, the following posts:

From 2011 to 2017 – Head of Electric Power Division of the Directorate of Natural Resources of the Analytics Department of VTB Capital JSC.

In 2017 – Assistant to the Minister of Ministry of Economic Development of the Russian Federation.

Since 2017 – Member of the Management Board of Federal Antimonopoly Service of Russia.

Since 2017 – Deputy Minister of Ministry of Economic Development of the Russian Federation.

Since 2017 – Member of the Management Board of FAS.

Since 2018 – Member of the Board of Directors of SO UES JSC.

Since 2018 – Member of the Board of Directors of OAK PJSC.

Since 2018 – Member of the Board of Directors of Rosgeo JSC.

Since 2018 – Member of the Board of Directors of Rosseti PJSC.

Since 2018 – Member of the Board of Directors of Russian Railways OJSC.

Since 2018 – Member of the Supervisory Board of NP Market Council Association.

Nikolay Rogalev

Nikolay Rogalev has been a member of the Board of Directors since 2016. Mr. Rogalev graduated from the Moscow Power Engineering Institute in 1985. He has also held, or continues to hold, as applicable, the following posts:

From 2001 to 2013 – Head of Department of Moscow Power Engineering Institute National Research University Federal State Budgetary Educational Institution of Higher Education.

In 2013 – Acting Rector of Moscow Power Engineering Institute National Research University Federal State Budgetary Educational Institution of Higher Education.

Since 2013 – Rector of Moscow Power Engineering Institute National Research University Federal State Budgetary Educational Institution of Higher Education.

From 2014 to 2015 – Member of the Board of Directors of LLC “Engineering Centre of Gas Turbine Technologies”.

Since 2015 – Head of Department, Professor of Moscow Power Engineering Institute National Research University Federal State Budgetary Educational Institution of Higher Education.

From 2015 to 2016 – Independent Director in PJSC “INTER RAO”.

Since 2015 – Member of the Trustee Office of Fund Energy without limits.

From 2015 to 2017 – Member of the Supervisory Board of Fund Energy without limits.

Since 2016 - President of Scientific and Technical Council of the Unified Energy System Noncommercial Partnership.

Since 2016 – President of NP NTS UES.

Since 2016 – Member of Board of Directors of Rosseti.

Sergey Shishin

Sergey Shishin has been a member of the Board of Directors since June 2011. Mr. Shishin graduated from the Higher boundary academy of the USSR Committee for State Security in 1984, the USSR University of the Committee for State Security in 1990 and the Russian Presidential Academy of National Economy and Public Administration in 1999.

He has also held, or continues to hold, as applicable, the following posts:

Since 2007 – Senior Vice-President of VTB Bank PJSC.

From 2011 to 2013 – Deputy Chairman of the Board of Directors of OJSC “NK “Rosneft”.

From 2011 to 2017 – Member of the Supervisory Board of the JSC Bank VBRR.

Andrey Shishkin

Andrey Shishkin has been a member of the Board of Directors since 2014. Mr. Shishkin graduated from I. M. Gubkin Moscow Institute of the Petrochemical and Gas Industry in 1985, the Finance Academy under the Government of the Russian Federation in 1996 and the MIRBIS Moscow International Higher Business School in 2002. He has also held, or continues to hold, as applicable, the following posts:

From 2006 to 2016 – Member of Board of Directors of OJSC “Tumen Energy Supply Company”.

From 2012 to 2015 – Member of Board of Directors of Rusenergo Fund.

Since 2012 – Vice President for Energy, Health, Safety and Environment (until 17 August 2014), Vice President for Energy and Localisation (from 18 August 2014), Vice-President for Energy, Localisation and Innovation (from 18 April 2016) at PJSC NK Rosneft.

From 2012 to 2017 – Member of the Board of Directors of RN-R&D Center LLC.

From 2013 to 2016 – Member of the Board of Directors of Rosseti.

From 2013 to 2017 – Member of the Board of Directors of JSC “OSK”.

From 2013 to 2016 – Member of the Supervisory Board of the Market Council.

From 2013 to 2017 – Member of the Presidium at NP RNK MIRES.

From 2013 to 2015 – Chairman of the Board of Directors of the Okha CHPP JSC.

From 2013 to 2017 – Member of the board of Directors of JSC OSK.

Since 2014 – Chairman of Board of Directors of RIG Research Pte. Ltd.

From 2014 to 2017 – Member of the Board of Directors of LLC National Oil Consortium.

From 2014 to 2016 – Member of the Board of Directors of LLC “RN CIR”.

Since 2015 – Chairman of the Board of Directors of OJSC “DCSS”.

Since 2015 – General Director of RN-Aktiv LLC.

Since 2015 – Member of the Board of Directors of JSC Okhinskaya TPP.

Since 2015 – Member of the Board of Directors of PJSC Rosneft Oil Company.

Since 2016 – Chairman of the Board of Directors of JSC Okhinskaya TPP.

Since 2016 – Chairman of Board of Directors of Open Joint-Stock Company “Lazurit”.

From 2016 to 2017 – Member of the Board of Directors of Saras S.p.A.

Since 2016 – Chairman of Board of Directors of JSC 82 “SRZ”.

Since 2016 – Member of the Board of Directors of LLC Star See Technologies.

Since 2016 – Member of the Board of Directors of Antares Singapore Pte. Lte.

From 2016 to 2018 – Chairman of the Board of Directors of LLC “Arctic Scientific Centre”.

From 2016 to 2018 – Member of the Board of Directors of OAO “VNIPIneft”.

From 2016 to 2018 – Member of the Board of Directors of PJSC Gyprotyumenneftegaz.

Since 2016 – President, Chairman of the Management Board and Member of the Board of Directors of PJSC Bashneft.

Since 2017 – Member of the Board of Directors of OJSC “TomskNIPIneft”.

Since 2017 – Member of the Board of Directors of LLC “SNGT”.

Since 2016 – Member of the Board of Directors of LLC Zvezda Sea Technologies.

Since 2016 – Chairman of the Board of Directors of JSC 82 SRZ.

Since 2017 – Member of the Board of Directors of LLC RN-Pererabotka.

Since 2017 – Member of the Board of Directors of LLC RN-Commertsia.

Since 2017 – Member of the Board of Directors of LLC RN-Razvedka and Pererabotka.

Since 2017 – Member of the Board of Directors of LLC NPO “Burovaya Tekhnika”.

Since 2017 – Chairman of the Board of Directors of LLC “Zvezda Huyndai”.

Since 2017 – Member of the Board of Directors of RN-Aktiv LLC.

Since 2018 - Member of the Supervisory Board of The National Association for Technology Transfer of Gubkin Russian State University of Oil and Gas.

Nikolay Shulginov

Nikolay Shulginov has been a member of the Board of Directors since 2016. Mr. Shulginov graduated from Sergo Ordzhonikidze Novocherkassky Polytechnic Institute of the Order of the Red Banner of Labour in 1973. He has also held, or continues to hold, as applicable, the following posts:

From 2004 to 2015 – Deputy Chairman of the Management Board and later First Deputy Chairman of the Management Board of JSC SO UES.

Since 2008 – Member of the Supervisory Board (Deputy Chairman of the Supervisory Board) of NP NTS EES.

From 2013 to 2016 Member of the Board of Directors of “FGC UES”, PJSC.

Since 2015 –Member of the Trustee Office at the National Research University MPEI.

Since 2015 – Chairman of the Management Board – General Director of RusHydro.

Since 2016 – Member of the Trustee Office at the Federal State independent educational institution of high education “Siberian Federal University”.

From 2016 to 2017 – Chairman of the Board of Directors of RAO ES EAST, PJSC.

Since 2016 – Member of the Board of Directors of Rosseti.

Since 2016 – Member of Supervisory Board (Chairman) of Association “Hydropower of Russia”.

Since 2016 – Member of Supervisory Board of the Market Council.

Since 2016 – Member of the Management Board of All-Russia association of employers “The Russian Union of Industrialists and Entrepreneurs”.

Since 2017 – Member of the Board of Directors of Global Sustainable Energy Partnership.

Since 2018 – Chairman of the Member of the Board of Directors of Hydroproject Institute JSC.

Yury Trutnev

Yury Trutnev has been a member of the Board of Directors since 2015. Mr. Trutnev graduated from the Perm Polytechnic Institute in 1978. He has also held, or continues to hold, as applicable, the following posts:

Since 2005 – Co-chairman of Russian Union of Martial Arts.

From 2012 to 2013 – Assistant to the President of the Russian Federation in the Administration of the President of the Russian Federation.

Since 2012 – Member of the Supervisory Board of State Corporation Rosatom.

Since 2013 – Deputy Chairman of the Government of the Russian Federation, Authorised Representative of the President of the Russian Federation in Far-Eastern Federal District.

Since 2015 – Member of the Supervisory Board of Federal State independent educational institution of high education “Far Eastern Federal University”.

Committees of the Board of Directors

The Charter of RusHydro provides for the creation of committees of the Board of Directors. The chairmen and members of committees are elected by the Board of Directors for a term until the next annual General Meeting of Shareholders. As at the date of these Listing Particulars, the Board of Directors has established a Far East Energy Development Committee, a Strategy Committee, an Audit Committee, a Human Resources and Remuneration Committee, an Investment Committee, and a Committee for Energy Efficiency, Reliability and Innovation, the details of each of which are shown below. Far East Energy Development Committee

The Far East Energy Development Committee is a consultative and advisory body to the Board of Directors. The objectives of the Far East Energy Development Committee are as follows: to develop the proposals for development of the Far Eastern Energy Service within the area of RusHydro and its subsidiaries’ responsibility, as well as to prepare and submit recommendations (conclusions) on the issues of development of the Far Eastern Energy Sector falling within the Board of Directors’ competence or examined by the Board of Directors while organizing the activities of RusHydro’s executive bodies. The members of the Far East Energy Development Committee, as approved by the resolution of the Board of Directors on 7 August 2018, are as follows:

Name Position

Yury Trutnev Chairman of the Board of Directors of RusHydro, Deputy Head of the Government of the Russian Federation – Russian Presidential Plenipotentiary Envoy to the Far Eastern Federal District, Chairman of the Committee

Igor Zadvornov Head of the Secretariat of Deputy Prime Minister of the Russian Federation – Presidential Envoy to the Far Eastern Federal District Yu. P. Trutnev

Alexei Chekunkov General Director, JSC Far East and Baikal Region Development Fund

Pavel Grachev Member of the Board of Directors of RusHydro, General Director of PJSC Polyus, Independent Director

Vyacheslav Kravchenko Member of the Board of Directors of RusHydro; Deputy Minister of Energy of the Russian Federation (until 14 November 2018)

Vladimir Tupikin Deputy Chairman of the Management Board, NP Market Council Association

Andrey Kazachenkov Member of Management Board, First Deputy General Director, RusHydro

Alexey Molsky Deputy Chairman of the Management Board, PJSC FGC UES

Sergey Vasilyev Deputy General Director – Director of the Far East Division, RusHydro

Denis Pileniyeks Deputy Director for Development Management of SO UES JSC

Aleksandr Pyatigor Acting Deputy General Director of Rosseti PJSC for Service Development and Implementation

Denis Konstantinov Acting Head of the Electrical Energy Industry and Energy Efficiency Development Office of the Department for the State Regulation of Tariffs, Infrastructure Reforms, and Energy Efficiency of the Ministry of Economic Development of the Russian Federation

Sergey Tyrtsev First Deputy Minister of Russian Far East Development

Strategy Committee

The Strategy Committee is a consultative and advisory body to the Board of Directors. The tasks of the Strategy Committee include the preparation and presentation of recommendations to the Board of Directors on issues concerning RusHydro’s strategic development. The members of the Strategy Committee, as approved by the resolutions of the Board of Directors on 7 August 2018, are as follows: Name Position

Igor Zadvornov Head of the Secretariat of Deputy Prime Minister of the Russian Federation – Presidential Envoy to the Far Eastern Federal District

Pavel Grachev Member of the Board of Directors of RusHydro, General Director of PJSC Polyus

Nikolay Rogalev Member of the Board of Directors of RusHydro, Chancellor of the Federal State Government-Funded Institution of Higher Education National Research University “Moscow Power Engineering Institute”

Sergey Shishin Member of the Board of Directors of RusHydro, Senior Vice-President of JSC VTB Bank

Dmitry Denisov Advisor to the Minister of Economic Development of the Russian Federation

Vyacheslav Pivovarov Member of the Board of Directors of RusHydro, President of Altera Capital LLC

Sergey Ivanov Member of the Board of Directors of RusHydro, Independent Director

Andrey Kazachenkov Member of the Management Board, First Deputy General Director, RusHydro

Yevgeny Olkhovich Deputy General Director for Strategic Development of Rosseti PJSC

Pavel Snikkars Director of the Electric Power Development Department of Ministry of Energy of the Russian Federation

Alexander Bogashov Head of the Department for Corporate Governance, Pricing Environment, and Audit in the Fuel and Energy Sector of the Ministry of Energy of the Russian Federation

Boris Livshits Deputy Head of the Office of Competitive Pricing Development of the Market Council

Vasiliy Nikonov Director of the Energy Department of PJSC Rosneft Oil Company

George Rizhinashvili Member of the Management Board, First Deputy General Director of RusHydro

Audit Committee

The Audit Committee is a consultative and advisory body to the Board of Directors established mainly for the purpose of supporting the Board of Directors in its supervision of RusHydro’s financial and economic operations. The tasks of the Audit Committee include the control over financials, internal control system, risk management, corporate governance, alerting system on unethical practices and ensuring independent and reliable internal and external audit. Members of the Audit Committee, as approved by the resolution of the Board of Directors on 7 August 2018, are as follows: Name Position

Maxim Bystrov Member of the Board of Directors of RusHydro Chairman of the Management Board of NP Market Council Association

Sergey Ivanov Chairman of the Audit Committee, Member of the Board of Directors of RusHydro

Vyacheslav Pivovarov Member of the Board of Directors of RusHydro, President of Altera Capital LLC

Human Resources and Remuneration Committee

The Human Resources and Remuneration Committee is a consultative and advisory body to the Board of Directors. The tasks of the Human Resources and Remuneration Committee include the development of principles and criteria for the determination of remuneration and incentive schemes for the members of the Board of Directors, the Chairman of the Management Board and the members of the Management Board. Members of the Human Resources and Remuneration Committee, as approved by the resolution of the Board of Directors on 7 August 2018, are as follows: Name Position

Maxim Bystrov Member of the Board of Directors of RusHydro, Chairman of the Management Board of NP Market Council Association

Sergey Ivanov Member of the Board of Directors of RusHydro

Vyacheslav Pivovarov Chairman of the Personnel and Remuneration Committee, Member of the Board of Directors of RusHydro

Investment Committee

The Investment Committee is a consultative and advisory body to the Board of Directors. The tasks of the Investment Committee include the analysis of new investment projects and investment programmes, and the formulation of measures to improve and develop the investment policies of RusHydro. Members of the Investment Committee, as approved by the resolution of the Board of Directors on 7 August 2018, are as follows: Name Position

Maxim Bystrov Member of the Board of Directors of RusHydro, Chairman of the Management Board, NP Market Council Association

Mikhail Bychko Director of the Capital Construction Department of Rosseti PJSC

Sergey Ivanov Member of the Board of Directors of RusHydro

Vyacheslav Pivovarov Member of the Board of Directors of RusHydro, President of Altera Capital LLC, President of Altera Capital LLC

Nikolay Rogalev Member of the Board of Directors of RusHydro, Chancellor of the National Research University Moscow Power Engineering Institute”

Andrey Gabov Acting Deputy Director of the Department of State Tariff Regulation, Infrastructure Reforms and Energy Efficiency of the Ministry of Economic Development of the Russian Federation

Sergey Zhuravlev Vice-president for the work with government bodies of MC Polyus LLC

Denis Milyutin Head of the Department for Costs Control of Energy Resources of the Energy Department of Rosneft

Pavel Snikkars Director of the Electric Power Development Department of Ministry of Energy of the Russian Federation

Andrey Kazachenkov Member of Management Board, First Deputy General Director of RusHydro

Sergey Kirov Member of Management Board, First Deputy General Director of RusHydro

Viktor Khmarin Deputy General Director for Resource Provision and Future Development, RusHydro

Committee for Energy Efficiency, Reliability and Innovation

The Committee for Energy Efficiency, Reliability and Innovation is a consultative and advisory body of the Board of Directors. The tasks of this committee principally include the development of a safety policy in relation to HPPs, the development of a regional innovation policy, the analysis of HPP accidents, the development of policies on power saving and energy efficiency, the preparation of long-term hydro power plans and the development of an environmental policy. The members of the Committee for Energy Efficiency, Reliability and Innovation, as approved by the Board of Directors on 7 August 2018, are: Name Position

Oleg Barkin Member of the Management Board – Deputy Chairman of the Management Board of NP Market Council Association

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Name Position

Nikolay Rogalev Member of the Board of Directors of RusHydro, Chancellor of the National Research University Moscow Power Engineering Institute

Vyacheslav Kravchenko Member of the Board of Directors of RusHydro; Deputy Minister of Energy of the Russian Federation (until 14 November 2018)

Yury Vishnevskiy Deputy Director for Regime Management of SO UES JSC

Viktor Gvozdev Deputy Chief Engineer of RusHydro

Boris Bogush Member of the Management Board, First Deputy General Director – Chief Engineer of RusHydro

Dmitry Gvozdev Chief Engineer of Rosseti PJSC

Sergey Zhuravlev Vice president for work with government bodies, MC Polyus LLC

George Rizhinashvili Member of the Management Board, First Deputy General Director of RusHydro

Kirill Frolov Deputy General Director for Research and Development at RusHydro

Mikhail Fedorov President of Peter the Great St. Petersburg Polytechnic University, Chairman of the Scientific and Technical Council Bureau of PJSC RusHydro

Compliance In addition to the Audit Committee, RusHydro exercises control over its financial and business activities with an Internal Audit Commission, Internal Audit Service and a Control and Risk Management Department. Internal Audit Commission

The Internal Audit Commission is an elective body of RusHydro, which conducts control over financial and operational activities, reports to RusHydro’s General Shareholders’ Meeting. The principal duties of the Internal Audit Commission are: • supervision of financial and business activities of RusHydro;

• control of compliance of RusHydro’s financial and business activities with the legislation of the Russian Federation and the Charter;

• independent evaluation of information on financial condition of RusHydro.

The shareholders elect the members of the Internal Audit Commission for a term until the next annual General Meeting of Shareholders. Members of the Board of Directors and other management bodies may not be appointed to the Internal Audit Commission. The members of the Internal Audit Commission, as elected by the General Meeting of Shareholders on 27 June 2018, are as follows: Name Positions

Natalya Annikova Director for Economics of LLC UK Ortus

Tatiana Zobkova Deputy Head, Ministry of Energy of the Russian Federation.

Igor Repin Deputy Executive Director, Association of Institutional Investors

Marina Kostina Deputy Department Director, Ministry of Economic Development of the Russian

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Federation

Dmitriy Simochkin Head of Management Department, Federal Agency for State Property Management

RusHydro remunerates the members of the Internal Audit Commission in accordance with the Regulations on payment of remuneration and compensation to members of the Internal Audit Commission approved by the General Meeting of Shareholders on 26 June 2017. Control and Risk Management Department

The Department has the following units: • Risk Management Department;

• Expert and Analytical Department of Internal Control System;

• Operational Control Department;

• The Siberia and the Far East Investment Activities Control Department;

• Investment Risks Department;

• Control Department.

The organisational structure and staff of the Control and Risk Management Department are approved by RusHydro’s Chairman of the Management Board. The Division is headed by the Director of Internal Control and Risk Management-Chief Auditor, who is appointed by RusHydro’s Chairman of the Management Board. The Control and Risk Management Department reports to the Chairman of the Management Board. The Control and Risk Management Department’s main objectives are as follows: • organisation of an effective corporate system of internal control and risk management;

• ensuring effective operational control in the RusHydro;

• interaction with external control bodies.

Priorities of the Control and Risk Management Department of RusHydro are determined in the Control Schedule adopted by the Chairman of the Management Board on the annual basis in accordance with objectives of RusHydro and its risk oriented approach to the planning of control activities and based on available resources. The members of the Control and Risk Management Department are as follows: Name Position

Schegoleva E. A. The Director of Internal Control and Risk Management-Chief Auditor

Markova A. V. Deputy Director for Operational and Investment Activities Control

Kislicin A. C. Deputy Director for Risk Management – Head of Expert and Analytical Department of Internal Control System

Anti-Corruption Department Novikova Y. V. Head of Department

Kim V. V. Leading Expert

Voropaeva I. G Leading Expert

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Name Position

Control Department Chevkina I. N. Head of Department

Control Department “Centre” Maslov V. G. Head of Department

Arsenteva S. G. Chief Expert

Basov A. B. Chief Expert

Milovantseva S. V. Leading Expert

Potapova Y. A. Leading Expert

Ustinov V. P. Chief Expert

The Far East Control Department Chernishev D. P. Chief Specialist

Sidorenko A. A. Chief Specialist

Department of Internal Control System and Risk Management Kabaeva O. V. Chief Expert

Uchaev D. I. Leading Expert

Risk Management Department

Mochakov M. A. Chief Expert

Vasileva Y. S. Chief Expert

Internal Audit Service

The Internal Audit Service is a separate structural unit of RusHydro, which is functionally subordinate to the Board of Directors in the person of the Audit Committee and is in administrative subordination to the Chairman of the Management Board – General Director. The organisational structure and staff of the Internal Audit Service are approved by RusHydro’s Chairman of the Management Board. The Service is headed by the Head of Service, who is approved by the decision of the Board of Directors. The Internal Audit Service reports to the Audit Committee under the Board of Directors and notifies it of any material violations. The main objective of the Internal Audit Service is to assist the Board of Directors and the executive bodies of the Group in improving the management of the Group and improving its operations, including through a systematic and consistent approach to the analysis and evaluation of the risk management system, internal control and corporate governance. The tasks and functions of the Internal Audit Service include: • organisation and holding of internal audits of business divisions, RusHydro branches and its subsidiaries;

• assessment of the effectiveness of the internal control system, risk management system, corporate governance of RusHydro and subsidiaries;

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• organisation of methodological support of internal audits within the Group and other activities of internal audit;

• organisation of activities of the Audit Committee of the Board of Directors and audit committees of the subsidiaries’ boards of directors;

• organisation of communication between RusHydro divisions and Internal Audit Commission;

• organisation of communication between RusHydro divisions and its subsidiaries with the Audit Chamber of the Russian Federation, Office of the Prosecutor General of the Russian Federation and the Ministry of Energy during their audits; and

• organisation of development and approval by the management of correcting measures plans following internal and external audits and monitoring execution thereof.

Organisation and conduction of internal audits of business divisions, RusHydro branches and its subsidiaries is done in accordance with Internal Audit Service’s schedule chart of the control measures, which is approved by the Audit Committee of the Board of Directors annually based on risk-oriented approach to audit planning and resources available. The members of the Internal Audit Service are as follows: Name Position

Azhimov A. E. Head of Internal Audit Service

Rohlina O. V. Deputy Head – Head of Audit Department “Centre”

Audit Department “Centre” Rasskazov Y. N. Chief Expert

Audit Department Far East Erakhtin E. L. Head of Department

Sharipova M. A. Leading Specialist

Analitical Centre Konchanov A.A. Head of Department

Abramova E. V. Chief Expert

Pyatova A. O. Chief Expert

Management Board

The Management Board is RusHydro’s collective executive body, headed by the Chairman of the Management Board – General Director and each member is appointed by the Board of Directors for an indefinite term. The Management Board together with the Chairman of the Management Board – General Director are principally responsible for the day-to-day management of RusHydro’s business. Members of the Management Board are collectively referred to in these Listing Particulars as “management”. The table below shows the current members of the Management Board. The business address for each member of the Management Board is 7 Malaya Dmitrovka Street, Moscow, 127006, Russian Federation.

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Name Positions within RusHydro

Nikolay Shulginov Chairman of the Management Board - General Director

Boris Bogush First Deputy Chairman of the Management Board, Chief Engineer

Andrey Kazachenkov First Deputy Chairman of the Management Board

Sergey Kirov First Deputy Chairman of the Management Board

Vladimir Markin First Deputy Chairman of the Management Board

George Rizhinashvili First Deputy Chairman of the Management Board

Nikolay Shulginov

See “—Board of Directors” for a brief biography of Nikolay Shulginov.

Boris Bogush

Boris Bogush has been Member of the Management Board – Chief Engineer since 2014. Mr. Bogush graduated from the Tolyatti Polytechnic Institute in 1975 and the Academy of National Economy in 2004. He has also held, or continues to hold, as applicable, the following posts:

Since 2009 – Managing director, Chief Manager of the Business unit “Production”, member of the Management Board of RusHydro.

From 2013 to 2016 – Member of the Board of Directors of LLC “VolgaHydro”.

Since 2013 - Member of the Trustee Office of NO Charity Foundation “Soprichastnost”.

Since 2014 – Member of the Supervisory Board of NP “Hydropower of Russia”.

Since 2018 – Member of the Board of Directors of JSC Institute Hydroproekt.

Mr. Bogush holds 0.003843 per cent. in the capital of RusHydro.

Andrey Kazachenkov

Andrey Kazachenkov has been the member of the Management Board and First Deputy Chairman of the Management Board since 2015. Mr. Kazachenkov graduated from the St. Petersburg State Engineering-Economical University and the University of Wisconsin, he also completed trainings in economics and finance in business schools IMD (Switzerland) and INSEAD (France). He has also held, or continues to hold, as applicable, the following posts:

From 2009 to 2015 – Member of the Management Board, Deputy Chairman of the Management Board, First Deputy Chairman of the Management Board of “FGC UES”, PJSC.

From 2012 to 2013 – Member of the Board of Directors of “IDGC of Centre”, PJSC.

From 2012 to 2013 –Chairman of the Board of Directors of Real Estate IC EES, PJSC.

From 2012 to 2014 – Member of the Board of Directors of PJSC “Lenenergo”.

From 2012 to 2015 – Member of the Fund Council at OJSC Non-state Pension Fund of Electricity Power.

From 2013 to 2014 – Member of the Board of Directors of PJSC “MOESK”.

From 2015 to 2016 – Member of the Supervisory Board of the Market Council.

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Since 2015 – Counsellor of the Chairman –General Director, First Deputy General Director, Member of the Management Board of RusHydro.

Since 2016 – Member of Board of Directors (Chairman) of RAO ES EAST, PJSC.

Since 2018 – Member of the Board of Directors of JSC Institute Hydroproekt.

Since 2018 – Member of the Board of Directors of JSC NPF Lukoil-Garant.

Since 2018 – Member of the Board of Directors of JSC DVEUK.

Sergey Kirov

Sergey Kirov has been the Member of the Management Board (the First Deputy Chairman) since 2015. Mr. Kirov graduated from the D.N. Pryanishnikov Perm State Academy of Agricultural Sciences in 1998 and the Regional Inter-industry retraining centre of Perm Technical University in 2004. He has also held, or continues to hold, as applicable, the following posts:

Since 2010 – Executive Director of Economy, Director of Economy, Executive Director of Economics, Investment and Procurement, member of the Management Board, First Deputy Chairman of the Management Board at RusHydro.

From 2010 to 2014 – Chief Executive Officer and member of the Board of Directors at LLC “RusHydro IT Service”.

From 2010 to 2015 – Member of the Board of Directors of JSC UK HydroOGK.

From 2011 to 2014 – Member of the Board of Directors of JSC Nizhne-Bureyskaya HPP.

From 2011 to 2015 – Member of the Board of Directors of JSC NIIES, PJSC Krasnoyarskenergosbyt, CJSC MEK, PJSC RESK, LLC ESKB.

From 2012 to 2014 – Member of the Board of Directors of JSC Ust-Srednekanskaya HPP and JSC RusHydro Bashkortostan Effectivnost.

From 2012 to 2015– Member of the Board of Directors of CJSC Verkhne-Narynskiye HPP and RAO ES EAST, PJSC.

From 2013 to 2014 – Member of the Board of Directors of CJSC Boguchansky aluminum smelter, LLC ENEKS, JSC Zagorskaya PSP-2 and LLC SNRG.

From 2013 to 2015 – Member of the Board of Directors of PJSC Kolymaenergo, OJSC CSO SGES, JSC VNIIG of B.E. Vedeneev, JSC Gidroremont-BKK and JSC Geoterm.

From 2014 to 2015 - Member of the Board of Directors of JSC Institute Hydroproekt.

From 2014 to 2015 – Member of the Board of Directors of JSC Mosoblgidroproekt, JSC Malaya Dmitrovka, JSC Chuvash Energy Supply Company.

In 2015 – Member of the Board of Directors of JSC ESKO EES and JSC “Zaramagskiye HPP”.

Since 2018 - Member of the Board of Directors of JSC Institute Hydroproekt.

Vladimir Markin

Vladimir Markin has been the Member of the Management Board (the First Deputy Chairman) since 2016. Mr. Markin graduated from Lomonosov Moscow State University in 1985 and Non-State Educational Institution of Higher Professional Education in 2009. He has also held, or continues to hold, as applicable, the following posts:

Since 2011 to 2016 – the Head of the Media Relations Administration of the Investigative Committee of the Russian Federation. 106

Since 2016 – Chairman of Safety Committee and communications with sports fans at Russian Football Union.

George Rizhinashvili

George Rizhinashvili has been the Member of the Management Board (the Deputy Chairman) since 2009. Mr. Rizhinashvili graduated from the Lomonosov Moscow State University in 2004. He has also held, or continues to hold, as applicable, the following posts:

From 2010 to 2014 – Member of the Supervisory Board of NP “KONC EES”.

Since 2013 – Member of the Trustee Office of NO Charity Foundation “Soprichastnost”.

Since 2016 – Chairman of the Management Board of the MSU Economics Faculty Development Assistance Fund.

Since 2017 – Member of the Board of Trustees of the MSU Economics Faculty Development Assistance Fund.

Since 2018 – Member of the Board of Directors of JSC Institute Hydroproekt.

Chairman of the Management Board

The Chairman of the Management Board – General Director manages the current activities of RusHydro, acts in accordance with the legislation of the Russian Federation, the Charter, the Regulations on the Management Board and other internal regulations of RusHydro and reports to the General meeting of Shareholders and the Board of Directors. Compensation

The aggregate amount of remuneration paid by RusHydro to the members of the Management Board for the six months ended 30 June 2018 was RUB 291 million. The legislation of the Russian Federation does not require disclosure of individual remuneration details of members of the Board of Directors and the Management Board, and this information is not otherwise publicly disclosed by RusHydro. RusHydro directors and senior management are subject to general pension programmes applicable to all employees of RusHydro. No director or senior management is a party to any service contract with RusHydro where such contract provides for benefits upon termination of employment. The amount and terms of compensation to the members of the Management Board in connection with early termination of contract are determined by a regulation approved by the Board of Directors on the payment of remuneration and compensation to the members of the Management Board. The maximum amount of compensation paid to a member of the Management Board in case of early termination is limited in accordance with the legislation of the Russian Federation by three average monthly salaries of a member of the Management Board. Conflicts of Interests

No conflicts of interests exist for members of the Board of Directors and the Management Board of RusHydro. Proceedings Against the Directors and Management

At the date of these Listing Particulars, no member of the Board of Directors or Management Board has for at least the previous five years • had any convictions in relation to fraudulent offences;

• held an executive function in the form of a senior manager or a member of the administrative, management or supervisory bodies, of any company at the time of or preceding any bankruptcy, receivership or liquidation; or

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• been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) nor has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company.

Corporate Governance

RusHydro believes that compliance with high corporate governance standards is one of the key factors in improving the efficiency of its operations and one of the main instruments for protecting the rights and observing the interests of its shareholders. RusHydro strives to continue to improve its corporate governance standards. The corporate governance of RusHydro is designed to establish a positive practice of interaction between RusHydro, its management bodies and shareholders, as well as to identify and minimise corporate governance risks. Corporate governance at RusHydro has historically been carried out in accordance with the Joint Stock Companies Law, other regulatory acts governing operations of joint stock companies in the Russian Federation, the Articles of Association and other internal documents. RusHydro complies with the corporate governance regime of the Russian Federation, including the recommendations of the Code of Corporate Governance of the CBR, although many concepts of corporate governance that are prevalent in western Europe and the United States are considerably less developed in the Russian Federation. RusHydro’s Code of Corporate Governance

The Board of Directors approved a new version of RusHydro’s Code of Corporate Governance (the Code) in June 2015 and amendments thereto in June 2016 and December 2017. The Code contains the following principles: • equal and fair treatment for all shareholders. RusHydro undertakes to protect rights of shareholders and ensure equal treatment of all shareholders, thus creating most favorable conditions for their participation in the management of RusHydro;

• professionalism, responsibility and accountability of the Board of Directors to shareholders of RusHydro. In the course of their activities, members of the Board of Directors of RusHydro shall act in the interests of RusHydro in good faith and reasonably; they shall have high professional qualities and impeccable business reputation;

• ensuring transparency and accessibility of information about RusHydro. RusHydro shall ensure timely disclosure of all necessary information to all interested parties (either provided or not provided for by laws and regulations (additional information));

• efficient risk management and internal control system. To implement this principle RusHydro has a specially created structural unit that is guided by state of the art standards in the scope of risk management and internal control.

• conscientious exercise by all shareholders, RusHydro, its management bodies, officers and other interested persons of their rights; prevention of the abuse of rights;

• inadmissibility of shareholders’ actions with the intention of causing harm to other shareholders or RusHydro;

• continuous improvement of corporate governance practices.

Independent Directors

RusHydro considers four of the current Directors, Maxim Bystrov, Pavel Grachev, Sergey Ivanov and Vyacheslav Pivovarov, to be independent Directors in accordance with the Code of Corporate Governance applicable under the CBR’s recommendations. Corporate Governance of the Group

RusHydro has approved a procedure for its interaction with other companies in which it has an ownership interest. The procedure regulates: • RusHydro’s exercise of its shareholder rights in respect of its subsidiaries to ensure effective activities of its representitives on their boards of directors and internal audit commissions of such companies; 108

• Exercise of shareholder rights by the subsidiaries in respect of its subsidiaries;

• RusHydro’s exercise of its participation rights with respect to non-commercial organisations in which RusHydro participates; and

• General conditions of corporate interaction between RusHydro and other companies in which it has an ownership interest.

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PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the ownership of RusHydro’s shares as at 5 June 2018:

Number of Percentage of Owner ordinary shares(1) ordinary shares(2)

The Russian Federation(3) ...... 258,161,535,606 60.6 VTB Bank (Public Joint-Stock Company) ...... 56,876,350,000 13.3 LLC Avitrans ...... 25,775,790,466 6.0 Other shareholders ...... 85,475,137,479 20.1 including: Shares in the form of ADRs and GDRs ...... 16,844,269 3.95 Treasury shares ...... 3,852,260,628 0.9 Total ...... 426,288,813,551(4) 100% (1) Number of ordinary shares indicated in accordance with the list of shareholders for the purposes of participation in the general meeting of shareholders as at the record date of 5 June 2018. (2) Number of ordinary shares as at 5 June 2018 divided by the number of outstanding shares in accordance with RusHydro charter as at the date of these Listing Particulars. (3) The shares held by the Russian Federation are managed on its behalf by Rusproperty. Rusproperty is the Federal Agency for the Management of State Property, whose functions include the management of shares owned by the Russian Federation. (4) Total number of shares includes the additional share issuance with the registration number 1-01-55038-E-042D, the report on issuance of which has been registered by the CBR on 5 June 2017, the relevant amendments to RusHydro’s charter have been registered on 4 August 2017.

Since 5 June 2018, RusHydro have not received any notifications from its shareholders on any change of ownership in RusHydro’s shares in accordance with article 30 of the Federal Law no. 39-FZ “On the securities market” dated 22 April 1996, as amended.

The Russian Federation is the direct controlling shareholder of RusHydro, see “Risk Factors — Risks associated with the Group and its operations—The Russian Federation controls the Group and has a substantial degree of influence over its operations through its regulatory, taxation and legislative powers and also controls some of the key players in the Russian power market, which may result in the Group operating its business in a manner that does not provide adequate economic returns to the Group”. In the year ended 31 December 2017, RusHydro received RUB 40,033,348,661 for additional shares issued via open subscription proceeds. These shares were issued in March 2017 pursuant to a five-year non-deliverable forward contract financing with VTB pursuant to which (i) VTB purchased 40 billion newly issued shares and 15 billion quasi-treasury shares of RusHydro (amounting to 12.9 per cent. of the share capital of RusHydro) in exchange for RUB 55,000 million in cash and (ii) the parties entered into a five-year non-deliverable contract in respect of the shares sold. See “Operating and Financial Review—Liquidity and Capital Resources”.

RusHydro is not aware of any arrangements in existence as at the date of these Listing Particulars which could reasonably be expected to result in a change of control of RusHydro.

None of RusHydro’s shareholders has voting rights different from any other holder of its shares.

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RELATED PARTY TRANSACTIONS

The following describes transactions that the Group has entered into with related parties as defined in IAS 24 “Related Party Disclosures”, affiliates and other entities and persons known to the Group, in which either the Group or its management, directors or major shareholders have a controlling interest or over which any of the foregoing have a significant influence, and which the Group believes are material to it or to the other party. For the description of certain other transactions with related parties, see note 6 to the Financial Statements. See also “Operating and Financial Review — Significant Accounting Policies”.

Transactions with Government-related entities

Electricity and capacity sales revenue

The Group sells electricity and capacity to government-related entities. Determination of prices for such electricity and capacity sales is based on electricity and capacity market rules. The Group’s sales to government- related entities comprised approximately 20 per cent., 30 per cent. and 30 per cent. of total sales for the six months ended 30 June 2018 and the years ended 31 December 2017 and 2016, respectively.

Purchased electricity and capacity

The Group’s purchases of electricity and capacity from government-related entities comprised approximately 30 per cent., 30 per cent. and 20 per cent. of total expenses on purchased electricity and capacity for the six months ended 30 June 2018 and the years ended 31 December 2017 and 2016, respectively.

Electricity distribution expenses

Electricity distribution services provided to the Group by government-related entities comprised approximately 80 per cent., 80 per cent. and 70 per cent. of total electricity distribution expenses for the six months ended 30 June 2018 and the years ended 31 December 2017 and 2016, respectively. The distribution of electricity is subject to tariff regulations.

Transactions with joint ventures

The Group had the following balances with its joint ventures:

As at 30 June As at 31 December 2018 2017 2016 Promissory notes ...... 7,205 6,880 6,269 Advances to suppliers ...... 169 172 800 Loans issues ...... 10 8 15 Loans received ...... - 750 750

The Group had the following transactions with its joint ventures:

Six months ended 30 June Year ended 31 December 2018 2017 2016 Sales of electricity and capacity ...... 167 337 931 Other revenue ...... 232 622 648 Purchased electricity and capacity ...... 272 2,835 2,811

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Transactions with associates

The Group had the following balances with its associates:

As at 30 June As at 31 December 2018 2017 2016 Trade and other receivables ...... 243 456 491 Accounts/trade payables ...... 1,525 1,277 781

The Group had the following transactions with its associates:

Six months ended 30 June Year ended 31 December 2018 2017 2016 Sales of electricity and capacity ...... 1,551 2,673 2,679 Other revenue ...... 57 153 137 Rent ...... 308 605 521 Purchased electricity and capacity ...... 10 15 17

General

Many of the transactions described above were subject to tariff regulation, particularly in relation to sales of electricity and capacity (see “Industry Overview—Overview of the Electricity Market”). To the extent that the pricing of such transactions was not regulated, RusHydro believes that such transactions were concluded on terms determined by reference to market prices and terms.

In addition to the transactions described above, RusHydro enters into transactions in the regular course of business with parties who may be considered “interested” parties for the purposes of the Joint Stock Companies Law, which RusHydro believes are not material to it or the other party.

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REGULATORY MATTERS

Below is a summary of Russian regulatory matters that are applicable to the Group’s operations in the Russian Federation.

Electricity Industry Regulation

The legal and regulatory framework of the Russian electricity and capacity markets has been subject to constant renewal and amendment in recent years. Generally, the applicable laws and regulations focus on three main areas: (i) the establishment of a legal framework for the electricity industry and market; (iii) the regulation of the electricity and electricity capacity wholesale markets; and (iii) tariffs regulation. See “Industry Overview”.

As at the date of these Listing Particulars, the main laws and regulations relevant to the Group and its business are:

• the Resolution of the Russian Government “On Restructuring of the Electricity Industry of the Russian Federation” No. 526 dated 11 July 2001, as amended (the “Resolution No. 526”);

• the Federal Law “On Specific Features of Functioning of Electricity Industry, and on Introduction of Amendments into Certain Laws of the Russian Federation and on Abolishing Certain Laws of the Russian Federation in Connection with the Adoption of the Federal Law “On the Electricity Industry” No. 36-FZ dated 26 March 2003, as amended (the “Transitional Period Law”);

• the Federal Law “On Electricity Industry” No. 35-FZ dated 26 March 2003, as amended (the “Electricity Industry Law”);

• the Federal Law “On Energy Saving” and Improvement of Energy Efficiency and on the Amendments to Certain Legislative Acts of the Russian Federation No. 261-FZ dated 23 November 2009, as amended;

• the Federal Law “On Safety of Hydrotechnical Facilities” No. 117-FZ dated 21 July 1997, as amended (the “Hydro-Technical Facilities Law”);

• the Federal Law “On Industrial Safety of Hazardous Industrial Facilities” No. 116-FZ dated 21 July 1997, as amended;

• the Federal Law “On Heat Supply” No. 190-FZ dated 27 July 2010, as amended;

• the Federal Law “On Compulsory Liability Insurance of the Hazardous Facility Owner Against the Damage resulting from and accident at the Hazardous Facility” No. 225-FZ dated 27 July 2010, as amended (the “Compulsory Insurance Law”);

• the Federal Law “On protection of Legal Entities and Individual Entrepreneurs Rights during the State and Municipal Control No. 294 dated 26 December 2008, as amended (“Law No. 294”);

• the Federal Law “On Technical Regulation” No. 184-FZ dated 27 December 2002, as amended (the “Technical Regulation Law”);

• the Federal Law “On Licensing of Certain Business Activities” No. 99-FZ dated 4 May 2011, as amended;

• the Resolution of the Russian Government “On the Operation of the Retail Electricity Markets, Full and (or) Partial Limitation of Electric Power Consumption Regime” No. 442 dated 4 May 2012, as amended;

• the Resolution of the Russian Government “On Approval of the Rules of the Electricity and Capacity Wholesale Market and on Amending Certain Acts of the Russian government Regarding Co-ordination of the Electricity and Capacity Wholesale Market Functioning” No. 1172 dated 27 December 2010, as amended (the “Wholesale Market Rules”);

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• the Resolution of the Russian Government “On Approval of the Rules of Non-Discriminatory Access to the Electricity Transmission Services and Provision of Such Services, on Approval of the Rules of Non- Discriminatory Access to the Operational Dispatch Management Services and Provision of Such Services, on Approval of Non-Discriminatory Access to the Services of the Wholesale Trade System Administrator and Provision of Such Services and on Approval of Rules of Technological Connection of the Consumers' Power Receivers, Electric Power Generation Facilities and Power Grid Facilities owned by Grid Operators and other Entities” No. 861 dated 27 December 2004;

• the Resolution of the Russian Government “On Approval of Rules of Operational Dispatch Management Services” No. 854 dated 27 December 2004;

• the Resolution of the Russian Government “On Improvement of the Functioning of the Wholesale Electric Energy Market” No. 529 dated 31 August 2006, as amended (the “Resolution No. 529”);

• the Russian Government Resolution “On Determination of Prices in Relation to Prices (Tariffs) on Electricity” No. 1178 dated 29 December 2011, as amended;

• the Russian Government Resolution “On Determination of Prices in Relation to Prices (Tariffs) on Heat Supply” No. 1075 dated 22 October 2012;

• the Resolution of FAS of Russian Federation “On Maximum and Minimum Cap Limits of Tariffs for Electricity Power for 2018” No. 1354/17 dated 13 October 2017;

• the Resolution of the Russian Government “On approval of Standards for Disclosure of Information by the Participants in the Electricity Wholesale and Retail Market” No. 24 dated 21 January 2004, as amended (the “Resolution No. 24”);

• the Resolution of the Russian Government “On Achievement of Basic Rates (Tariffs) for Electric Power (Capacity) in the Territories of the Far East Federal Region” No. 895 dated 28 July 2017 (“Resolution No. 895”);

• the Resolution of the Russian Government “On Base Level Prices for Electricity for 2018 for the subjects of the Russian Federation Composing Far Eastern Federal District” No. 2527-r dated 15 November 2017;

• the Resolution of the Russian Government “On Prices (Tariffs) on Electricity (Capacity) for the Subjects of the Russian Federation Composing Far Easters Federal District” No. 1615-r dated 28 July 2017; and

• other laws and regulations that have been promulgated in accordance with the above.

Below is a brief summary of the laws and regulations that are significant for the Group:

The Resolution No. 526 established the principles and objectives of the restructuring of the Russian electricity industry. According to the Resolution No. 526, the restructuring should result in the liberalisation of the existing federal wholesale electricity and electricity capacity markets. See “Industry Overview—Overview of the Electricity Market”.

The Transitional Period Law provides further details of some of the matters addressed by the Resolution No. 526. The territory of the Russian Federation is currently divided into two major parts: (i) territories comprising pricing zones of the wholesale market; and (ii) territories that are not designated as pricing zones of the wholesale market, i.e. non-pricing zones (Republic of Komi, Arkhangelsk region, Kaliningrad region, South-Yakutia region of the Republic of Sakha (Yakutia), Primorsky Krai, Khabarovsky Krai, Amurskaya region, Jewish Autonomous Region). Pursuant to the Transitional Period Law, the completion date for the transitional period of the sector reform was set as 1 July 2008, the same date that the dissolution of RAO UESR occurred. However, the Transitional Period Law provides that wholesale and retail sales of electricity and capacity in the pricing zones of the wholesale market should have been liberalised effective as of 1 January 2011, subject to certain exceptions contained in the legislation, whilst retail sales to individuals and equivalent end-consumers will remain subject to the tariffs established by the Russian Government. It should be noted that, notwithstanding the above, in April 2011, the Federal Tariff Service issued Regulation No. 83-e/3 (further replaced by the Regulation N. 353-e/2 dated 15

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December 2011) establishing indicative prices for certain kinds of electricity and capacity supplies in the wholesale market in the pricing zones, thus imposing restrictions on the liberalised market. Such restrictions are generally aimed at regulating prices for electricity supplied to individuals and equivalent end-consumers, as well as certain electricity (capacity) consumers in the wholesale market identified by the Russian Government. In addition, from 1 April 2006, the Transitional Period Law prohibits legal entities and individuals (and, from 1 July 2008, groups of persons and affiliates within one pricing zone of the wholesale market) from combining activities relating to the transmission and dispatching of electricity with activities relating to its generation and sale. As a result, from 1 April 2006 it has also been prohibited to own or otherwise legally possess simultaneously any property used for the transmission and dispatching of electricity and property used for its generation and sale, subject to a few exceptions. On 27 December 2010 the aforementioned legislation was supplemented by the Wholesale Market Rules, which came into force in April 2011 and replaced the previously effective Electricity and Capacity Wholesale Market Rules for the Transitional Period (approved by the Resolution of the Russian Government No. 643 dated 24 October 2003). This legislation regulates the fundamentals of the wholesale market and the specifics of trading of electricity and capacity thereon.

The Electricity Industry Law established the legal basis and the principles of economic relations within the electricity industry. In addition, the Electricity Industry Law provided specific details in relation to the trading of capacity as a separate product on the wholesale market, which was stated to be necessary for the efficient trading of electricity in both the short and long term.

The Electricity Industry Law establishes the competency of the relevant state authorities in the electricity industry and market. The Russian Government is the principal body charged with the regulation of the wholesale electricity market in the Russian Federation. Its authority includes, among other things, the following:

• the approval of the wholesale market rules and the retail market framework rules;

• the approval of the material terms of the agreement relating to the access by a legal entity to the trade system of the electricity and capacity wholesale market;

• the approval of rules governing non-discriminatory access to the electricity transmission, system dispatching and commercial infrastructure services;

• the approval of rules for control and antimonopoly regulation;

• the approval of rules for concluding and fulfilling public agreements in the wholesale and retail markets;

• the determination of the order for submitting wholesale market pricing bids by wholesale market participants, the order for selection thereof and for determining the equilibrium prices of the wholesale market; and

• the determination and modification of pricing and non-pricing zone borders within the wholesale market.

The Russian Government or the federal governmental bodies authorised by the Russian Government may, among other things, make decisions regarding the following:

• the establishment and maintenance of a system of long-term supply and demand forecasting within the wholesale and retail markets;

• control over the dispatching services system, including control over compliance with the wholesale market rules by the dispatching services market entities;

• the establishment of methods of determination (calculation) and application of the non-regulated prices for the electricity (capacity) charged by the suppliers of last resort;

• antimonopoly regulation;

• state ecological supervision in energy sphere;

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• the approval of standards of information disclosure; and

• the exercise of control over the activities of commercial infrastructure entities.

The regional authorities of the Russian Federation are generally in charge of the regional control over the electricity prices regulated at the higher administrative levels, as well as supervision of the reliability of the electricity sale to the population by guaranteeing suppliers.

Disclosure of Information in the Wholesale Electricity Market

The Resolution No. 24 sets out special rules for the disclosure of information by wholesale and retail electricity market participants and supplements the disclosure rules of Russian securities laws. Pursuant to the Resolution No. 24, participants in the electricity markets must disclose the following information:

• annual financial (accounting) statements prepared in accordance with RAS with an auditor's report as prescribed by the relevant Russian legislation;

• the structure and volume of expenses for the production and disposal of goods (works, services); and

• when the method of “return on capital invested” is used for the calculation of tariffs: (i) their controllable and non-controllable expenses included into the essential gross revenues, prescribed and actual levels of return on capital invested, as well as reasons for deviations from the established return levels; (ii) their asset flow reports, including the assets value as of the beginning and the end of the year, as well as information relating to the retirement of assets during the year; and (iii) reports on the commissioning of assets during the year (including as a result of revaluation, modernisation, (re)construction or purchase of new equipment).

In addition to the above information, generation companies must further disclose:

• information on electricity tariffs, the state authority's decisions adopting such tariffs and the official publication source of any such decisions;

• information on the discharge and emission of pollutants, and plans for the following year for reducing such discharges and emissions;

• information on the investment programmes of the electricity generation companies;

• information on the levels of the power consumption used by the generating equipment for auxiliary and service purposes in the course of electricity and heating energy generation (separately) specifying the station's name and type; and

• information on the fuel utilised at the power stations including details of suppliers and fuel characteristics.

Hydroelectric power stations must also disclose information on the mode of use and condition of the water resources.

The information listed in the items above must be disclosed by no later than 1 June of each year. The FAS and its regional divisions control compliance by retail electricity markets participants with the above listed disclosure rules.

Licensing of Operations

The Group is required to obtain various licences, authorisations and permits from governmental authorities for its operations, and it must comply with the terms and conditions of its licences to ensure that they remain in effect, in particular its licences for the collection, use, treatment, transportation and disposal of hazardous wastes and for the operation of explosive and incendiary production facilities.

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Licensing and Registration Requirements to Hazardous and Hydro-Technical Facilities

The Federal Service for the Supervision of Environment, Technology and Nuclear Management (the “Rostekhnadzor”) issues licences for the operation of explosive and chemically hazardous industrial facilities of I, II and III classed of danger, and also approves the declarations of safety of the hydro-technical facilities. See “— Health and Safety”. Some hazardous facilities that fall within the technical requirements of the Federal Law “On Industrial Safety of Hazardous Industrial Facilities” No. 116-FZ dated 21 July 1997, as amended, must be registered in the state register of hazardous industrial facilities. Hydro-technical facilities should be included into the State Register of Hydro-Technical Facilities under the Hydro-Technical Facilities Law.

Use of Surface Waters

The Water Code of the Russian Federation No. 74-FZ dated 3 June 2006 (the “Water Code”) no longer requires any licensing of surface water use. However, licences that were issued under the previous regime remain in force until their expiration. Under the Water Code, surface water use may be effected either on the basis of (i) a water use agreement concluded with the state or local authorities, (ii) a decision of the state or local authorities to grant rights to the use of surface water or (iii) without any such agreements or decisions, depending on the purpose of surface water use.

Water use agreements relate to both the removal of water resources from water bodies and the use of water bodies for the purpose of electricity production without the removal of water resources. These agreements may be concluded for a period of up to 20 years. Decisions on granting rights to the use of surface water and water bodies relate, among other things, to the discharge of waste or drain water or the construction of hydro-technical facilities.

Most of the water use agreements entered into by the Group relate to use of water bodies for electricity production purposes without the removal of water resources, while most of the decisions on granting to the Group rights to the use of surface water relate to discharge of waste and/or drain water.

Use of Water Reservoirs

The Water Code requires that a water user must use water reservoirs in accordance with the Rules for the Use of Water Resources (the “Rules”) approved by the Federal Agency for the Water Resources. In addition, a separate set of the Rules for each water reservoir with a volume in excess of 10 million cubic metres is determined individually, and a list of such reservoirs is approved by the Russian Government. Most of the water reservoirs used by the Group are included in this list.

In addition to the Rules, the Federal Agency on Water Resources establishes an “operating regime” for a given period for each water reservoir (or its cascade). This operating regime is mandatory and stipulates the required water level for a water reservoir and the average daily volume of water that can be passed through hydro power plants.

The Federal Agency on Water Resources usually sets the operating regimes of water reservoirs on a monthly basis, but in certain cases, including, for example, to allow the passage of river vessels or for the purposes of construction works, the operating regimes may be set on a weekly or even a daily basis.

Technical Regulation

The Technical Regulation Law introduces new rules relating to the development, enactment, application and enforcement of mandatory requirements concerning products, the manufacturing, storage, transportation, selling and utilisation of products and processes and the instruments regulating the quality of products and processes, such as technical regulations, standards and certification. Technical regulations set forth mandatory requirements for different products and processes. In addition, detailed characteristics of different products and processes are established according to national standards and the standards of certain organisations. Following their adoption, technical regulations and standards will replace the previously adopted state standards (the “GOSTs”). Since, however, many technical regulations have not yet been adopted, the existing federal laws and regulations, including GOSTs, establishing requirements for different products and processes remain mandatory to the extent they facilitate protection of heath, life, property and the environment and prevent actions which may mislead consumers. Moreover, the federal standardisation authority, Rosstandard, has declared GOSTs and interstate standards adopted before 1 July 2003 as national standards mandatory to the extent described above.

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Compliance with the requirements of technical regulations, standards and terms of contracts is confirmed by mandatory or voluntary certification. Mandatory certification is given through either the issuance of a compliance certificate or the certification by the respective authority of a compliance declaration. Mandatory certification confirms compliance only with the requirements of a technical regulation and only when such certification is prescribed by the respective technical regulation. Such technical regulations have not been adopted yet and currently the list of products subject to mandatory certification has been set out by the Resolution No. 982 of the Russian Government dated 1 December 2009, as amended. Electricity is currently included in this list.

In contrast, a voluntary certification is carried out at the request of a particular company and is done so in order to confirm the compliance of products and processes with the requirements of different standards, rules, voluntary certification systems and terms of contracts. Voluntary certification is carried out by an authorised certifying authority, which issues a compliance certificate and grants to an applicant the right to use a compliance mark. The certifying authority is entitled to suspend and terminate the compliance certificates issued by it.

Environmental Regulation

The Group is subject to laws, regulations and other legal requirements relating to the protection of the environment, including those governing the discharge of substances into the air and water, the management and disposal of hazardous substances and waste, the clean-up of contaminated sites, flora and fauna protection and wildlife protection.

The Federal Law “On Environmental Protection” No. 7-FZ dated 10 January 2002, as amended (the “Environmental Protection Law”) is the primary source of environmental protection and regulation in the Russian Federation, together with a number of other federal and local legal acts. The following bodies are responsible for monitoring, implementing and enforcing relevant environmental laws and regulations in the Russian Federation:

• the Russian Government;

• the Ministry of Natural Resources and Ecology of the Russian Federation;

• the Federal Service for Supervision of Use of Natural Resources;

• Rostekhnadzor;

• the Federal Service for Hydrometeorology and Environmental Monitoring;

• the Federal Agency on Subsoil Use;

• the Federal Agency on Forestry;

• the Federal Agency for Fisheries; and

• the Federal Agency on Water Resources, together with its regional branches,

as well as other state authorities and public and non-governmental organisations.

Pay-to-pollute

The Environmental Protection Law establishes a “pay-to-pollute” regime administered by federal and local authorities.

The Ministry of Natural Resources and Ecology, the Federal Service for the Supervision of the Use of Natural Resources, the Federal Agency on Water Resources and other government agencies have established standards relating to the permissible impact on the environment and, in particular, limits for emissions and disposal of substances, waste disposal and resource extraction. A company may obtain approval for exceeding these statutory limits from the federal or regional authorities, depending on the type and scale of environmental impact. As a condition to such approval, a plan for the reduction of the emissions or disposals must be developed by the company and cleared with the appropriate governmental authority.

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The mechanism for calculating and collecting payments for activities which have a negative impact on the environment was established by the Resolution of the Russian Government “On Calculation and Collection of Payments for Negative Impact on the Environment” No. 255 dated 3 March 2017 (“Resolution No. 255”). Resolution No. 255 provides that the amount payable shall be estimated by the respective entity by multiplying (i) the size of payment base (the “payment base”) with respect to each pollutant included in the list of pollutants established by the Order of the Government of the Russian Federation “On Approval of the List of Pollutants to Which the Measures of State Regulation in the Field of Environmental Protection Apply” No. 1316-р dated 8 July 2015 by (ii) the corresponding rates of payment established by the Resolution of the Russian Government “On Payment Rates for Negative Impact On the Environment and Additional Coefficients” No. 913 dated 13 September 2016, with further application of coefficients established by the legislation on environmental protection and additional coefficients provided by the Resolution No. 913 and the Resolution of the Russian Government “On features of calculation of payment for negative impact on the environment in case of emissions in atmospheric air of the pollutants which are formed when burning on torch installations and (or) dispersion of associated petroleum gas” No. 1148 dated 8 November 2012. The payment base is equal either to the amount of pollutants emitted in the accounting period.

Companies must make advance payments on a quarterly basis, and any failure to make such payments when due may lead to an application of the overdue interest in amount of 1/300 of the key rate established by the Central Bank of the Russian Federation, but in any case no more than 0.2 per cent. for each day of delay.

The Group makes the relevant payments for the use of water objects in accordance with the Water Code. In addition, the Group pays for the negative impact on the environment, including payments for the discharge of waste and/or drain waters.

In addition, payments of such fees do not relieve a company from its responsibility to take environmental protection measures and undertake restoration and clean-up activities.

Ecological approval

Certain activities that may affect the environment are subject to state ecological examination and approval by the Russian federal authorities or authorities of the constituent members of the Russian Federation in accordance with Federal Law No 174-FZ “On Ecological Expert Examination” dated 23 November 1995, as amended. Conducting operations that may cause damage to the environment without state ecological approval may result in the negative consequences described under “— Environmental liability”.

Environmental Protection Programme

RusHydro approved a Programme of measures supporting its Ecological policy. Key measures of the Programme include reconstruction and technical re-equipment of current plants.

The Programme includes the following activities for 2018:

• reconstruction and repair of hydro-technical facilities in order to maintain water protection zones in proper conditions and to carry out bank protection works;

• replacement of oil-based electrical engineering equipment by oil-free equipment (vacuum, electronegative gas systems) or equipment with less volume of oils;

• reconstruction of existing and furnishing of new water cleaning facilities in the course of complex reconstruction of existing generating plants;

• reconstruction, modernisation and repair of hydro turbine equipment by using environmentally friendly facilities in order to eliminate leakage of oil products into water objects.

Enforcement authorities

The Federal Service for the Supervision of the Use of Natural Resources, the Federal Service for Environmental, Technological and Nuclear Supervision, the Federal Service for Hydrometeorology and Environmental Monitoring, the Federal Agency on Forestry and the Federal Agency on Water Resources (along with their regional branches) are involved in environmental control, implementation and enforcement of relevant

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laws and regulations. The federal government and mainly the Ministry of Natural Resources and Ecology is responsible for coordinating the activities of the regulatory authorities in this area.

Environmental Liability

If the operations of a company breach environmental requirements or cause harm to the environment or any individual or legal entity, the relevant competent authority, the injured party or the public prosecutor may bring a court action to limit or prohibit those operations and require the company to remedy the effects of the breach and/or compensate for the damage caused by the breach. The statute of limitations for actions relating to compensation of damage to the environment is 20 years. Any company that fails to comply with environmental regulations may be subject to administrative or civil liability, including fines and orders to remedy the violations. In addition, a company's employees may be similarly liable and individuals may also incur criminal liability for failures to comply with environmental regulations. The limitation period for administrative actions concerned with breaches of environmental legislation is one year. The limitations do not apply to the actions relating to compensation of damage to the human health and life.

Regulation of Real Estate

Set out below is the legal framework relating to land and other real estate in Russia.

State Bodies

In addition to state bodies and their subdivisions which have authority over general matters, a number of state bodies specifically regulate the transfer and construction of real estate in Russia, including:

• The Federal Service for State Registration, Cadastre and Cartography, which maintains the Unified State Real Estate Register (“Real Estate Register”) including, inter alia, the state register of rights to real property and transactions therewith and a state register (cadastre) of real estate.

• The Ministry of Construction, Housing and Utilities of the Russian Federation, which is authorised to review and comment on construction documentation.

• The Federal Agency for Technical Regulation and Metrology, which supervises compliance with quality standards.

• Local authorities, which are authorised to issue construction, reconstruction, re-planning and operation permits.

Applicable Legislation

Russian legislation regulating the ownership and leasehold rights to real estate and real estate construction includes the following:

• the Russian Civil Code;

• Russian Land Code No. 136-FZ dated 25 October 2001, as amended (the “Land Code”);

• Russian Town Planning Code No. 190-FZ dated 29 December 2004, as amended;

• Federal Law No. 122-FZ “On State Registration of Rights to Immovable Property and Transactions Therewith” dated 21 July 1997, as amended (the “Law on State Registration 1”);

• Federal Law No. 218-FZ “On State Registration of Real Estate” dated 13 July 2015, as amended (the “Law on State Registration 2”, the Law on State Registration 1 and the Law on State Registration 2 together the “Laws on State Registration”);

• Federal Law No. 221-FZ “On State Cadastre of Real Estate” dated 24 July 2007, as amended; and

• certain other federal and regional laws and regulations.

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General Provisions

Most land in Russia is currently owned by the state (administered by federal, regional or local authorities). The share of privately owned buildings and similar real estate is increasing due to a less restrictive regulatory regime with respect to these assets as compared to land.

From 1 January 2017, the Real Estate Register has included a cadastre, in which the details of real estate, such as measurements, boundaries and other detailed characteristics, are recorded, and a register for the registration of title to real estate and transactions in relation to registered real estate. As a general rule, only land plots with a state cadastre number may be the subject of real estate transactions.

All land is categorised as having a stated purpose, for example, agricultural land, land for use by industrial enterprises, power companies and communication companies, land for military purposes, forestry land and reserved land (i.e. land which is owned by the state or municipalities and, as a general rule, may be used by the third parties only upon being transferred to other categories). In addition, land plots have a type of permitted use established in accordance with the local city-planning regulations. If there are no local city-planning regulations, types of permitted use are established by a resolution of government authorities, a lease agreement and a development plan for a land plot. Land must be used in accordance with its categorised purpose and type of permitted use. Under the Land Code, land plots owned by the state or the municipalities generally may be sold or leased to Russian and foreign persons or legal entities. However, certain land plots owned by the state may not be sold or leased to the private sector and are referred to as “withdrawn from commerce” (for example, national parks and reserves and land used for military purposes are typically withdrawn from commerce). Foreign nationals may not own land plots (i) in border areas specified by the Presidential decree; and (ii) located within the borders of sea ports and other areas specified by federal law. Also, neither foreign nationals nor Russian companies having a foreign shareholding exceeding 50 per cent. may own agricultural lands, although they are permitted to lease such lands.

Under Russian law, a land plot and any buildings constructed upon it may be owned by different persons, in which case the owner of the building(s) has a right to use the land underneath the building.

In addition, Russian law provides that real estate may be expropriated for “state or municipal needs”. From 1 April 2015 a new law providing for the amendments to the Russian Land Code which simplify the procedure of expropriation came into force. The law sets forth a detailed outline of the expropriation procedure and provides, in particular, that the real estate rights holders (which includes land owners, users and tenants) are entitled to receive a copy of a decision on expropriation within ten days after its adoption by the respective authority and full compensation upon execution of the agreement on expropriation of real estate. Such compensation for the expropriated real estate shall comprise the market value of the real estate or rights in relation to real estate, and any damages caused by expropriation, including the loss of profit. Registration of transfer of the ownership title to real estate is permitted only after full payment of the said compensation.

State Registration of Rights and Transactions Involving Real Estate

All rights to real estate (including land plots and buildings) and certain transactions involving real estate must be registered in the Real Estate Register.

Information from the Real Estate Register is publicly available and contains material information about the registered property, including, inter alia, any registered encumbrances (limitations) on the property. Since 1 March 2013, a previous owner of property is entitled to register an objection to the registration of ownership rights in the Real Estate Register. If the person who registered the objection has not pursued his challenge in court within three months, the objection is annulled (and further objection by the same person is not permitted).

Under the Laws on State Registration, registration with the Real Estate Register is required for, inter alia: (i) rights to, and encumbrances on, buildings, facilities, land plots and other real estate; and (ii) transactions involving registered real estate such as a creation of a mortgage or an entry into a lease for a term of not less than one year. Real estate and transactions involving registered real estate are registered with the Real Estate Register.

In general, rights to real estate only arise upon state registration. The failure to register a title to real estate generally results in invalidity or non-existence of the title. Where the parties fail to register a transaction that has to be registered, such transaction may either be not recognised by the court or declared null and void or, in case of lease agreements, unenforceable against third parties as discussed below.

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Regulation of Real Estate Construction

The main stages of the building construction process typically include the following:

• obtaining land rights;

• preparation of design documentation and obtaining infrastructure/utilities documentation;

• obtaining a construction permit from state or local authorities;

• performing construction works;

• obtaining an operation permit upon completion of construction works in compliance with the relevant technical / construction requirements; and

• registration of title to the new building.

Regulation of Real Estate Sales and Leases

Under the Russian Civil Code, agreements with respect to the sale or leasing of real estate must expressly set out the details of the real estate sold/leased and the price of the sale or rent under the lease.

The transfer of ownership under a real estate sale agreement is subject to state registration, whereas the sale agreement itself is not subject to state registration.

Lease agreements are subject to state registration, except for short-term lease agreements (i.e. leases which are for a term of less than one year) and preliminary lease agreements. Russian statutory provisions are not entirely clear as to the status of unregistered long-term lease agreements and may be interpreted to the effect that such non- registered lease agreements create no legal effect in respect to third parties. Pursuant to Russian court practice, such lease agreements are binding on the parties (provided that the lessor and the tenant agreed on all material terms of the lease and started performing the lease agreement), but cannot be enforced against any third parties. In particular, the tenant will not have a pre-emptive right to enter into a lease agreement for a new term. Moreover, in case the lessor transfers the title to the leased property, the tenant may not be able to enforce the lease agreement against the new owner of the property, i.e. the new owner may disregard the previous owner's agreement with the tenant and evict the tenant if the tenant fails to negotiate a lease agreement with the new owner. Accordingly, the tenant may have to find alternative premises or enter into a lease agreement on terms less favourable than the terms of the agreement with the previous owner of the leased property.

Obligations of Land Plot Owners and Leaseholders

Owners and leaseholders of land plots and buildings are required to comply with federal, regional and municipal laws and regulations. For example, they are required to use the land plot in accordance with its designated purpose and not to cause harm to the environment. Regional and municipal laws and regulations and agreements entered into with local and municipal authorities may provide for additional financial and other obligations, such as financing of local transportation and social infrastructure. The owner of a building will usually bear all liabilities that may arise in connection with the building, including ongoing maintenance and major repairs.

Land and Real Property Taxation

Property Tax

The property tax rate is established by the regional authorities of the Russian Federation but may not exceed 2.2 per cent. of the average annual net book value of the relevant property (excluding certain real estate property, i.e. particular types of commercial or business centres or non-residential premises that can be used as such - the tax base on these types of real estate property is determined based on their cadastral value; immovable property of foreign legal entities which do not operate through a permanent establishment in Russia, or if such immovable property is not involved in activities of a permanent establishment of foreign legal entity in Russia; residential property that is not treated as a fixed asset in the balance sheet) calculated under RAS. Currently, the regional authorities of the most developed Russian regions have set the tax rate at the highest possible rate. Property tax is payable on a quarterly basis.

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Land Tax

The land tax rates are determined by the municipal authorities but may not exceed limits specified in the Tax Code: (i) 0.3 per cent. of the register (cadastre) value for the agricultural and housing land; and (ii) 1.5 per cent. of the register (cadastre) value for all other land.

Water Resource Land

Pursuant to the Land Code, water resource lands include lands that are (a) covered by the surface waters of water bodies; or (b) used by hydro-technical facilities located on water bodies. The regime of use and protection of water resource land is established by the Land Code and the water legislation.

Health and Safety

The Group's operations are subject to various Russian health and safety regulations.

Operation of Hydro-technical Facilities

Companies that operate hydro-technical facilities have a wide range of obligations under the Hydro- Technical Facilities Law. Such companies must hold permits to operate hydro-technical facilities. Permits are issued by Rostekhnadzor on the basis of safety declarations with respect to hydro-technical facilities, which should be prepared and submitted by a company for Rostekhnadzor's approval. This safety declaration summarises both the risks associated with operating a particular hydro-technical facility and the measures that a company is implementing in order to mitigate such risks and to ensure compliance with the applicable safety requirements. Once Rostekhnadzor has approved a safety declaration, it issues a permit for the operation of the hydro-technical facility and registers the hydro-technical facility in the State Register of Hydro-technical Facilities maintained by the Rostekhnadzor.

A company operating hydro-technical facilities must also maintain third party liability insurance against injuries and losses caused by accidents at its hydro-technical facilities.

State Control over Safety of Hydro-technical Facilities

Rostekhnadzor has broad powers to monitor compliance with safety requirements. In particular, further supervision over the safety of the hydrotechnical facilities is also conducted through planned (in respect of class I - III hazardous facilities) and unplanned (in respect of class I-IV hazardous facilities) inspections by Rostekhnadzor. Rostekhnadzor officials have the right to access hydro-technical facilities and may inspect documents to ensure a company's compliance with safety rules. The class I hazardous facilities are subject to the constant state supervision in accordance with Law No. 294. In the event of non-compliance, Rostekhnadzor may issue binding orders to remedy the violations, and may suspend operations or impose administrative liability.

Compulsory Liability Insurance

The owners and/or the operating companies are obliged to enter into compulsory liability insurance contracts in accordance with the Compulsory Insurance Law. The maximum amount which shall be covered by the insurance police could reach RUB 6.5 billion in case the number of injured parties as a result of an incident at the hydrotechnical facility may potentially exceed 3,000 persons.

Strategic Entities Regulation

According to Presidential Decree No. 688 dated 21 May 2012 “On introduction of changes to the list of strategic entities and strategic joint stock companies approved by the Presedential Decree No. 1009 dated 4 August 2004”, RusHydro was included into the list of Russia’s “strategic” entities.

Applicable Legislation

Russian legislation regulating strategic entities includes the following:

• Federal Law “On Privatisation of State and Municipal Property” No. 178-FZ dated 21 December 2001, as amended (the “Privatisation Law”) and Presidential Decree “On Approval of the List of Strategic Entities and Strategic Joint Stock Companies” No. 1009 dated 4 August 2004, as amended: 123

The Privatisation Law states forth the governmental approvals required before a stake in a strategic state-owned entity such as RusHydro may be sold. The decree establishes the list of such strategic entities.

• Federal Law “On the procedure for Making Foreign Investments in Companies of Strategic Importance for National Defence and State Security” No. 57-FZ dated 29 April 2008, as amended (the “Foreign Strategic Investments Law”):

The Foreign Strategic Investments Law sets out limitations for foreign investors and their groups in respect of their ability to invest in charter (share) capital of Russian companies which are of strategic importance for state defence and national security or to enter into transactions, as a result of which they get control over such entities. The same law establishes lower thresholds for investments in strategic entities by investors owned or controlled by foreign states or international organisations. RusHydro is a strategic entity for the purposes of the Foreign Strategic Investments Law.

• Federal Law “On Insolvency (Bankruptcy)” No. 127-FZ dated 26 October 2002, as amended:

There are special rules related to the bankruptcy of strategic entities permitting the Government to, among other things, take measures to prevent their bankruptcy and to participate in negotiations with the creditors of such entities in order to reach an agreement on the restructuring of their debt (including by provided state guarantees).

Russian Antimonopoly Regulation

Federal Law “On Protection of Competition” No. 135-FZ dated 26 July 2006, as amended (the “Competition Law”) provides for a mandatory pre-approval by the FAS of the following actions:

• other than in respect to financial organisations, such as banks, an acquisition by a person (or its group) of more than 25 per cent. of the voting shares of a Russian joint-stock company (or one-third of the interests in a Russian limited liability company), except upon incorporation, and the subsequent increase of these stakes to more than 50 per cent. of the total number of the voting shares and more than 75 per cent. of the voting shares (one-half and two-thirds of the interests in a Russian limited liability company), or acquisition by a person (or its group) of ownership or rights of use with respect to an entity’s core production assets and/or intangible assets which are located in Russia if the balance sheet value of such assets exceeds 20 per cent. of the total balance sheet value of the core production and intangible assets of such entity, or obtaining rights to determine the conditions of business activity of a Russian entity or to exercise the powers of its executive body by a person (or its group), or an acquisition by a person (or its group) of more than 50 per cent. of the voting shares (interests) of a foreign entity, which has supplied goods, works and/or services to Russia in an amount exceeding RUB 1 billion in the preceding year, or other rights to determine the conditions of business activity of such entity or to exercise the powers of its executive body, if, in any of the above cases, the aggregate asset value of an acquirer and its group together with a target and its group (excluding the asset value of the seller and its group, if as a result of the acquisition the seller and its group cease to determine the conditions of business activity of the target) exceeds RUB 7 billion and at the same time the total asset value of the target and its group exceeds RUB 400 million, or the total annual revenues of such acquirer and its group, and the target and its group for the preceding calendar year exceed RUB 10 billion and at the same time the total asset value of the target and its group exceeds RUB 400 million;

• mergers and consolidations of entities, other than financial organisations, if their aggregate asset value (the aggregate asset value of the groups of persons to which they belong) exceeds RUB 7 billion, or total annual revenues of such entities (or groups of persons to which they belong) for the preceding calendar year exceed RUB 10 billion; and

• the founding of a business entity, if its charter capital is paid by the shares (or limited liability company interests) and/or the assets of another business entity (other than financial organisation) or the newly founded business entity acquires shares (or limited liability company interests) and/or the assets of another business entity based on a transfer act or a separation balance sheet and rights in respect of such shares (or limited liability company interests) and/or assets as specified above, at the same time provided that the aggregate asset value of the founders (or group of persons to which they belong) and the business entities (or groups of persons to which they belong) which shares (or limited liability company interests) and/or assets are contributed to the charter capital of the newly founded business 124

entity exceeds RUB 7 billion, or total annual revenues of the founders (or group of persons to which they belong) and the business entities (or groups of persons to which they belong) which shares (or limited liability company interests) and/or assets are contributed to the charter capital of the newly founded business entity for the preceding calendar year exceed RUB 10 billion.

The above requirements for a mandatory pre-approval by the FAS will not apply if the transactions are performed by members of the same group, if the information about such a group of persons was disclosed to the antimonopoly authority and there were no changes within one month prior to the date of the transaction within that group of persons. In such cases, the FAS must be notified of the transactions subsequently in accordance with Russian anti-monopoly legislation. Furthermore, the requirement for a mandatory approval of transactions described in the first bullet point above will not apply if the transactions are performed by members of the same group where a company and individual or an entity, if such an individual or an entity holds (either due to its participation in this company or based on the authorities received from other persons) more than 50 per cent. of the total amount of votes in the equity (share) capital of this company.

A transaction entered into in violation of the above requirements may be invalidated by a court decision pursuant to a claim brought by the FAS if the FAS proves to the court that the transaction leads or could lead to the limitation of competition in the relevant Russian market. The FAS may also issue binding orders to companies that have violated the applicable antimonopoly requirements and bring court claims seeking liquidation, split-up or spin- off of business entities if a violation of antimonopoly laws was committed by such business entities. In addition, a company may be subject to the administrative fine of an amount from RUB 150,000 to 250,000 for the failure to file a FAS post-transactional notification and from RUB 300,000 to 500,000 for the failure to file an application for FAS pre-approval of the transaction.

Under the Competition Law, a company with a dominant position in the relevant market is prohibited from abusing its dominant position. Specifically, such a company is prohibited from:

• establishing and maintaining monopolistically high or monopolistically low prices of goods;

• withdrawing goods from circulation, if the result of such withdrawal is an increase in the price of the goods;

• imposing contractual terms upon a counterparty which are unprofitable for the counterparty or not related to with the subject matter of agreement (i.e. terms that are economically or technologically unjustified);

• reducing or terminating, without economical or technological justification, production of goods if there is demand for the goods or orders for their delivery have been placed and it is possible to produce them profitably;

• refusing or evading, without economical or technological justification, to enter into a contract with customers in cases when the production or delivery of the relevant goods is possible;

• establishing different prices for the same goods without economical, technological or other justification;

• establishing unjustifiably high or unjustifiably low price of a financial service by a financial organisation;

• creating discriminatory conditions;

• creating barriers to entry into the market for the relevant goods or forcing other companies to leave the market;

• violating pricing procedures established by law; and

• manipulating prices in the wholesale and/or retail electricity (capacity) markets.

In the event of breach of any terms of business conduct required by applicable law, the FAS may initiate proceedings to investigate a breach of antimonopoly laws. If a breach of antimonopoly laws is identified, the FAS may initiate administrative proceedings which may result in the imposition of a fine calculated on the basis of the

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annual revenues received by the company in the market where such breach was committed. Such fines may include an administrative fine of an amount from RUB 300,000 to RUB 1 million or, if such violation has led or may lead to the prevention, limitation or elimination of competition, an administrative fine of up to 15 per cent. of the proceeds of sales of all goods, works and services in the market where such violation was committed, but not more than 2 per cent. of gross proceeds of sale of all goods, works and services for the year preceding the year of the violation. Russian legislation also provides for criminal liability of company managers for violations of certain provisions of antimonopoly legislation. Furthermore, for systematic violations, a court may order, pursuant to a suit filed by the FAS, a compulsory split-up or spin-off of the violating company, and no affiliation can be preserved between the new entities established as result of such a mandatory reorganisation.

Limitations on Concerted Actions

According to the Competition Law, concerted actions are actions taken in the absence of any agreement between market participants and meet the following criteria: (a) the result of such actions is in the interest of each concerting market participant; (b) such actions were known in advance to each of the market participants due to public announcement made by one of them regarding commitment of such actions; and (c) such actions are not caused by market circumstances equally affecting all economic entities in the respective market. Concerted actions are prohibited if they result, or may result, inter alia, in (i) price fixing, discounts, extra charges or margins; (ii) coordination of auctions and tenders; (iii) allocation of a market by territory, volume of sales or purchases, types of goods, customers or suppliers; (iv) reduction or termination of goods production; or (v) refusal to enter into contracts with certain buyers (customers). In addition, concerted actions are prohibited if they result or may result in restriction of competition by way of, among others, (a) imposing unfavourable contractual terms, (b) fixing disparate prices for the same goods, for unjustified reasons other than economic or technological reasons or (c) creating barriers to entering or exiting a market.

Federal Antimonopoly Service

The FAS is the state body principally authorised to police violations of the Competition Law, such as the operation of cartels and concerted actions and coordination of business activities, anti-competitive economic concentration, unfair competition and unfair, inaccurate or misleading advertising. Russian legislation vests significant powers in the FAS, permitting it to take necessary actions, including to (i) initiate proceedings regarding violation of anti-monopoly legislation; (ii) issue orders or impose fines; (iii) bring judicial actions to enforce antimonopoly laws against companies and their officers, including, inter alia, through invalidating in full or in part any agreements that violate anti-monopoly law.

Antimonopoly Regulation of the Electricity Industry

Additional antimonopoly rules regulating the activity of participants in the wholesale and retail electricity markets are established by the “Rules of Antimonopoly Regulation and Control in the Electricity Industry” approved by the Resolution of the Russian Government No. 1164 dated 17 December 2013. In relation to the electricity industry the FAS is responsible for control over: (i) prices; (ii) levels of economic concentration; (iii) the reallocation of shares in wholesale market participants and reallocation of assets owned by the wholesale market participants; (iv) concerted actions; (iv) the operations of the wholesale and retail market participants who have dominant market positions, (v) actions of the Market Council and organisations of commercial and technological infrastructure.

Currency Restrictions

The Group's operations are subject to certain currency control restrictions, which are set forth in the Federal Law “On Currency Regulation and Currency Control” No. 173-FZ dated 3 July 2003, as amended, (the “Currency Law”) and respective regulations of the CBR. Pursuant to the Currency Law, residents and non-residents may settle transactions either in roubles or in foreign currency. Under the Currency Law, residents conducting foreign trade must, subject to certain exemptions stipulated by the Currency Law, repatriate all roubles and foreign currency payable to them under foreign trade contracts to accounts in authorised Russian banks. In addition, such residents must procure the repatriation of funds paid to non-residents for goods, works, services, intellectual property and information that were not supplied into, or performed in, the Russian Federation.

Regulation of Employment and Labour

Employment and labour matters in Russia are regulated by the Labour Code, and certain other federal and regional laws and regulations as well as local acts. 126

Employment Contracts

As a general rule, employment contracts in Russia are entered into for an indefinite term. Russian labour legislation restricts entrance into term employment contracts with certain exceptions, such as senior management positions.

An employer may terminate an employment contract only on the basis of specific grounds listed in the Labour Code, including:

• liquidation of an enterprise or downsizing of staff;

• failure of the employee to comply with the position's requirements due to lack of professional qualification as evidenced by the results of an evaluation;

• systematic failure of the employee to fulfil his or her duties;

• any single gross violation by the employee of his or her duties;

• provision by the employee of false documents prior to entry into the employment contract; and

• other grounds as stated in the Labour Code or other federal laws.

An employee dismissed due to downsizing or liquidation is entitled to receive compensation (including a severance payment) and, depending on the circumstances, average monthly salary payments for a certain period of time.

The Labour Code also provides protections for certain categories of employees. For example, except in cases of liquidation of an enterprise, an employer cannot dismiss pregnant women.

Termination of employment contracts with mothers having a child under the age of three, single mothers having a child under the age of 14 or a disabled child under the age of 18 or other persons taking care of a child under the age of 14 or caring for a disabled child under the age of 18 without a mother is also not permitted except in certain cases provided for in the Labour Code. The Labour Code also sets forth some restrictions with respect to the termination of employment contracts with minors.

Any termination by an employer of an employment contract that is inconsistent with the Labour Code may be invalidated by a court, and the employee may be reinstated. Lawsuits resulting in the reinstatement of illegally- dismissed employees and the payment of damages for wrongful dismissal are increasingly frequent, and Russian courts tend to support employees' rights in most cases. Where an employee is reinstated by a court, the employer must compensate the employee for unpaid salary for the period between the illegal termination and reinstatement as well as for claimed moral damages.

Work Time

The Labour Code sets the regular working week at 40 hours for most occupations. Any time worked beyond 40 hours per week as well as work on public holidays and weekends must be paid for at a higher rate. Annual paid vacation leave under the law is generally 28 calendar days. The retirement age in the Russian Federation is currently 60 years for men and 55 years for women, however starting from 1 January 2019 retirement age will be gradually increased to 65 years for men and 60 years for women.

Salaries

The minimum monthly wage in Russia, as established by the applicable federal law, is 11,163 roubles from 1 May 2018.

Strikes

The Labour Code defines a strike as the temporary and voluntary refusal of workers to fulfil their work duties with the intention of settling a collective labour dispute. Russian legislation contains several requirements relating to legal strikes. Participation in a legal strike may not be grounds for terminating an employment contract, although

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employers are generally not required to pay salaries to striking employees for the duration of the strike. Participation in an illegal strike may be adequate grounds for termination of an employment contract.

Trade Unions

RusHydro believes that trade unions in the Russian Federation have influence over employees and may affect the operations of large industrial companies in the Russian Federation. The activities of trade unions in the Russian Federation are primarily governed by the Labour Code and the Federal Law “On Trade Unions, Their Rights and Guaranties of Their Activity” No. 10-FZ dated 12 January 1996, as amended (the “Trade Union Law”).

The Trade Union Law defines a trade union as a voluntary union of individuals with common industrial and professional interests that is incorporated for the purposes of representing and protecting the social and labour rights and interests of its members.

As part of their activities, trade unions may:

• represent their members and guarantee their individual rights;

• represent and guarantee the collective rights of employees;

• negotiate and conclude collective contracts and agreements on behalf of employees;

• participate in the settlement of individual and collective labour disputes;

• request information relating to social and labour issues from employers, their unions and state and municipal authorities;

• monitor compliance by employers and offices with labour legislation;

• participate in the formation of state programmes for employee rights and environmental protection;

• organise and participate in legal strikes; and

• monitor redundancies of employees and seek action by municipal authorities to delay or suspend mass layoffs.

Russian law requires that companies co-operate with trade unions and do not interfere with their activities. Trade unions and their officers enjoy certain guarantees. If a trade union discovers a breach of labour laws, it may notify the employer with a request that the employer remedy the breach and, if there is an immediate threat to the health of employees, request that the employer remedy the breach and simultaneously report it to the supervising authorities. If the employer fails to cure the breach, the trade union is entitled to demand suspension of the employees' working activities by the employer in cases of immediate threat to the life and health of employees. Trade unions may apply to state authorities and labour inspectors and prosecutors to ensure that an employer does not violate Russian labour laws. Trade unions may also initiate collective labour disputes, which may lead to strikes.

To initiate a collective labour dispute, trade unions must present their demands to the employer. The Labour Code then obliges the employer to consider the demands and to notify the trade union of its decision in response. If the dispute remains unresolved, a reconciliation commission (consisting of the representatives of the employer and employees) attempts to end the dispute. If this proves unsuccessful, the employer and the trade union will usually refer the collective labour dispute to mediation or labour arbitration.

Other

On 1 January 2016, a new Federal Law No. 116-FZ came into force which provided for amendments into Russian legislation, including Russian Labour Code (“Law No. 116”). The changes introduced by Law No. 116 established prohibition on the use of labour of outside employees (i.e. the seconded labour). The seconded labour is defined as a work fulfilled by an employee pursuant to his or her employer's order in favour, and under direction and control, of an individual of legal entity, other than his or her employer. Exceptions apply to the temporary provision of employees by one employer to another under a labour (personnel) provision agreement from an accredited private employment agency, between affiliated parties or where there is a shareholder agreement. Private employment

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agencies may second employees to legal entities for the purposes of performing work related to a temporary (up to nine months) increase in production or operations.

Due to changes in legislation on seconded labour, most companies which provide temporary personnel have replaced secondment agreements with agreements for the provision of services to formally comply with the law. However, there remains a risk that a services agreement will be considered invalid because its form does not correspond to its substance. Moreover, relations with temporary staff may be requalified as employment relations, and as a result the employer and its officials may incur administrative penalties under Article 5.27 of the Administrative Code for evading legal requirements for the signing of employment contracts with employees. The employer, agencies and their officials may incur penalties for breaches of labour legislation where they provide staff not on the basis of a personnel outsourcing agreement, but rather on the basis of a services agreement.

Taking into account changes in labour legislation, the tax authorities may challenge existing service agreements of taxpayers (as being personnel provision agreements by nature) because their form does not correspond to their substance or challenge the existing personnel outsourcing agreements as incompliant with the law. As a result, the tax authorities may disallow deduction for profit tax purposes of the expenses related to personnel outsourcing agreements and may disallow offset of the respective input VAT.

Amendments to the Civil Code

On 30 December 2012, Russian President Vladimir Putin signed the first set of amendments to the Russian Civil Code, which form part of a major reform to Russian civil legislation. The majority of these amendments, which became effective on 1 March 2013, relate primarily to certain basic principles of civil law, limits on the exercise of civil rights, changes to rules on state registration of rights to certain types of property, as well as recognising the principle of compensation for losses incurred as a result of unlawful acts of the state authorities. Since 2012 there have been approximately eight sets of further material amendments to the Russian Civil Code.

The second set of amendments to the Russian Civil Code was signed on 7 May 2013. These amendments affect, inter alia, the general rules on transactions, the grounds on which a transaction may be challenged and the rules governing representation and powers of attorney. The amendments became effective on 1 September 2013. The most significant ones provide for the following:

• a general presumption that a transaction violating applicable law is voidable (rather than void ab initio);

• a requirement that a person challenging a transaction be either a party to the transaction or another person specified by law. Furthermore, in order to prevent counterparties from challenging transactions in bad faith on formal or technical grounds, the amendments provide that a claim to have a transaction declared invalid will not be upheld if the party making the claim acted in a way that allowed other parties to treat the transaction as valid;

• general rules for adopting and challenging decisions taken at meetings (such as creditors' meetings and other meetings which have legal consequences) were introduced. Such general rules should not apply to shareholders' meetings in a joint stock company or participants' meetings in a limited liability company or any other meetings to the extent they are otherwise regulated by separate laws;

• a number of requirements regulating the matters of representation and powers of attorney were amended and updated. Among other things, the amendments provide that the authority may be delegated not only under a power of attorney as a separate document. The amendments also lift the restriction on the maximum term of powers of attorney (previously, three years) thus allowing a power of attorney to be issued for a longer term and introduced a new type of a power of attorney (an irrevocable power of attorney), which requires notarisation. Additional measures protecting the counterparty's rights under transactions entered into with unauthorised person were introduced. The amendments also provide for a new procedure of notification of third parties of revocation of a power of attorney by means of publication of the relevant termination notice;

• general rules for legal notices and notifications were introduced; and

• and a final ten-year term for enforcing one's rights through the court was introduced in addition to the existing general three-year limitation period. In addition, pursuant to the amendments, the limitation period starts running from the day the respective person learned or should have learned (i) about the

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violation of his right and (ii) who is the competent defendant in respect of the claim for protection of the relevant right.

The third set of amendments was signed on 2 July 2013, which primarily affects provisions of the Russian Civil Code dealing with securities. These amendments took effect on 1 October 2013. The most significant of these amendments provide for the following:

• differentiation of the regimes applicable to certificated and uncertificated securities: under the new classification certificated securities are treated as tangible property, while uncertificated securities are treated as “other property”. Under the general rule, provisions governing registered certificated securities, records of which are maintained by a registrar or custodian, also apply to uncertificated securities. At the same time, a new section dedicated exclusively to uncertificated securities and dealing with specific aspects of their regulation was added to the Russian Civil Code. In particular, rules were introduced protecting holders of uncertificated securities in cases where the securities have been unlawfully debited from their accounts;

• a new concept of an “integrated immovable property complex”, defined as a set of physically or technologically interconnected immovable property objects having the same designated use and treated as a single item of real property, was added to the Russian Civil Code; and

• a general rule that any benefit, output or proceeds resulting from the use of an asset belongs to the owner rather than its user.

The fourth set of amendments to the Russian Civil Code was signed on 30 September 2013. These amendments became effective on 1 November 2013. The most significant of which provide for the following:

• a court may impose the duty of providing information on the content of foreign law rules only on the parties to the proceedings (before the introduction of the relevant amendment a court could vest the burden of proof of the content of foreign law rules in the parties);

• an exception from the general rule on personal law of legal entities was introduced providing that at the choice of the creditors either the Russian law or the personal law may apply to liability claims to a foreign legal entity's founders (participants) and other persons entitled to give instructions to be followed by a foreign legal entity predominantly carrying out its business activities within the territory of the Russian Federation; and

• parties to foundation agreements and participants agreements of a legal entity are now free to choose the governing law applicable to such agreements, as long as that choice does not affect the operation of the imperative requirements of the personal law of the respective legal entity.

The fifth set of amendments to the Russian Civil Code, which was signed into law on 21 December 2013, primarily deals with rules related to pledges and mortgages. These amendments took effect on 1 July 2014. The most significant of these amendments provide for the following:

• a special regulation of pledges of liability rights, rights under bank account agreement and pledge of rights of the legal entity's shareholders and participants;

• rules on pledge management were introduced;

• beginning 1 July 2014, state registration of mortgage agreements is no longer required;

• beginning 1 January 2015, permitting the definition of the pledged assets in a pledge agreement to refer to the actual pledged property as at the date of its foreclosure including, inter alia, by means of referring to a pledge of all of the pledgor’s property or any part thereof, as well as a pledge of the pledgor’s property of any type or kind;

• the cancellation of a pledge with respect to a property acquired in good faith;

• regulations on subsequent pledges were specified; and

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• special regulations on assignments of future rights of demand.

The sixth set of amendments to the Russian Civil Code was also signed on 21 December 2013 and introduced “nominee account agreements” and “escrow agreements” as contracts. These amendments became effective on 1 July 2014.

The seventh set of amendments to the Russian Civil Code was signed on 12 March 2014, primarily deals with rules related to legal protection of intellectual activity and means of individualisation. The majority of these amendments took effect on 1 October 2014. The most significant of these amendments provide for the following:

• rules regulating pledge of exclusive rights were introduced;

• the prohibition for a right holder to use a result of intellectual activity for which it granted an exclusive licence;

• decrease up to five years of the effective term of an exclusive right to utility models;

• the imperative rule under which proceeds from joint disposal of an exclusive right should be distributed equally among the right holders.

The eighth set of amendments was signed on 5 May 2014 and covers a wide range of corporate issues. These amendments took effect on 1 September 2014 and the most significant of them provide for the following:

• a new division of legal entities into corporations and unitary legal entities;

• replacement of open and closed joint stock companies by public and non-public entities;

• new opportunities for corporate structures;

• general principles of “corporate contracts” (shareholders agreements and participants agreements);

• the scope of liability of the management bodies and persons who may determine a business entity's conduct;

• new types of reorganisation;

• grounds for invalidating reorganisation coupled with the relevant aftermath;

• the priority of creditors in terms of liquidation.

The ninth set of amendments was signed into law on 8 March 2015 and covers primarily the law of obligations and contracts. These amendments took effect on 1 June 2015 and the most significant of them provide for the following:

• the concepts of representations and indemnities;

• conditional obligations;

• waivers;

• options to enter into agreement, optional agreements and framework agreement;

• intercreditor agreements;

• pre-contractual negotiations;

• independent guarantees and security payments.

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A new set of amendments to the Civil Code was signed into law on 26 July 2017 and came into effect on 1 June 2018. These amendments introduced new regulation of financial transactions in Russia, including, inter alia:

• loan agreements, now may be deemed concluded at the time of the agreement’s execution (the so-called consensual agreement) or, at the moment when the actual transfer of money or objects under the loan agreement takes place (depending on how the parties drafted the agreement). Previously only the latter option was available for loans;

• the concept of so-called “usurious interest rate”, which will indicate an interest rate exceeding the usually applicable rates twice or more (this applies only to loans and credits provided to individuals either by entities not engaged in consumer lending or by other individuals). Courts will be able to lower “usurious interest rates” in line with the rates ordinarily applicable in similar circumstances if such interest rate is considered exceedingly onerous for the borrower;

• various ways of determining the applicable interest rate in a loan or credit agreement, including fixed rate, floating rate (LIBOR, EURIBOR or else) and any other means of determination;

• new types of bank deposits and bank accounts;

• use of electronic means of payment, which will become expressly allowed by the legislation;

• the right of individuals to carry out payments intended for a recipient having an account in the bank of payment or another bank without opening a bank account in the payer’s name; and

• revocation of a payment order by the payer until such order becomes irrevocable under the law.

As of the date of these Listing Particulars, the potential interpretation by state authorities (including the courts), along with the impact of the above amendments on the Group's activities and corporate governance, are unknown.

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INDUSTRY OVERVIEW

Overview of the Electricity Market

The Russian electricity sector is among the largest in the world, ranking fourth globally in terms of both installed capacity and electricity generation.

Installed electrical Electricity generation(2) Country capacity(1), (GW) Country 2017, (mm MWh) 1. China ...... 1,770 1. China ...... 6,495 2. United States ...... 1,084 2. US ...... 4,282 3. India ...... 334 3. India ...... 1,497 4. Russia (UES) ...... 243 4. Russia (UES) ...... 1,054 5. Japan ...... 231 5. Japan ...... 1,020 6. Germany ...... 207 6. Canada ...... 693 7. Brazil ...... 155 7. Germany ...... 654 8. Canada ...... 135 8. Brazil ...... 591 9. France ...... 131 9. South Korea ...... 572 10. Italy ...... 120 10.France ...... 554 ______Sources: (1) National Bureau of Statistics of China, EIA, Central Electricity Authority of India, System Operator, BMWi, Ministerio de Minas e Energia, Statistics Canada, RTE France, Terna. Data for Italy and Japan as of 2016; data for Brazil, Canada, China, India and France as of 2017; data for Germany as of 1 October 2018; data for Russia as of 1 July 2018 (2) BP Statistical Review of World Energy dated June 2018, System Operator

The Russian power sector comprises the producers and consumers of electric power, guaranteeing suppliers, energy retail companies, export-import operators, power transmission and distribution grids and related facilities, as well as technological and commercial infrastructure. The Unified Energy System of Russia (UES) covers most of the Russian Federation and is supplemented by isolated power systems in the northerly and far eastern parts of the Russian Federation. The UES consists of seven integrated energy systems (IESs): the North-West, Central, South, Urals, Volga, Siberia and Far East.

Electricity generation

As at 1 July 2018, UES’ total installed electricity capacity amounted to 242.9 GW. Thermal power generation, including natural gas, coal, oil and other types of fossil fuels, accounted for approximately 67.3 per cent. of the total electricity capacity as at 1 July 2018. The table below shows the installed electricity capacity of Russian thermal, hydro, nuclear and renewable power plants within UES at 1 July 2018:

As at 1 July 2018 Installed electricity capacity GW Share (%) Thermal power plants ...... 163.5 67.3% HPPs ...... 48.5 20.0% Nuclear power plants ...... 30.2 12.4% Renewables (solar, wind) ...... 0.7 0.3% Total (UES) ...... 242.9 100.0%

Source: System Operator of the United Power System

Following the collapse of the Soviet Union, the Russian power sector suffered a decline in electricity production from 1,068 million MWh in 1991 to 826.1 million MWh in 1998, according to the BP Statistical Review of World Energy – underpinning data 1965-2016. In the years following 1998, electricity output in the Russian Federation grew at an average annual rate of approximately 2.3 per cent.(in 1998-2008), with the peak rate of increase of 4.0 per cent.in 2006 according to the BP Statistical Review of World Energy – underpinning data 1965- 2016.

According to System Operator, from 2009 to 2017 UES electricity output grew at annual rate of approximate 1.2 per cent., reaching its maximum level in 2017 amounting to 1,054 million MWh up from the previous year level of 1,049 million MWh respectively (an increase of 0.5 per cent. year-on-year). For the six months ended 30 June 2018 the total electricity generation in the UES was 536 million MW. Of this amount, thermal power plants

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accounted for 345 million MWh, hydro power generation for 91 million MWh, and nuclear generation for 100 million MWh.

The table below shows total electricity generation in the UES for the periods indicated:

As at 1 July As at 31 December Electricity generation (million MWh) 2018 2017 2016 Thermal power plants ...... 345 671 674 HPPs ...... 91 179 178 Nuclear power plants ...... 100 203 196 Renewables (solar, wind) ...... 0.5 0.7 0.1 Total (UES) ...... 536 1,054 1,049

Source: System Operator

The Russian power industry was established in the 1920s and 1930s with Russia's electrification plan, which envisioned construction of large-scale thermal and HPPs and electricity grid infrastructure in the European part of the country. In the 1950s, advancements in nuclear technology led to the development and construction of nuclear power plants. Over subsequent years, the extensive development of hydro energy was also launched in Siberia.

The current distribution of generating capacity by type results from the history of the country’s power industry development. The European part of the country is characterised by the balanced distribution of the three main types of generation (thermal, hydro and nuclear) while the generating capacity in Siberia consists of coal thermal power plants (51.2 per cent.) and HPPs (48.7 per cent.). The isolated Far East is dominated by thermal generation.

Currently, a significant part of the electricity demand in Russia is satisfied by power plants using natural gas and coal as their primary fuel source. Most thermal power plants also use fuel oil as a backup fuel source in cases of delivery disruptions of their primary fuel source supply.

Fossil fuel-fired plants are expected to continue to maintain their role as the primary source for electricity generation. The Russian Federation’s current energy strategy promotes the construction of new energy infrastructure to support the development of East Siberia and the Far East and decrease of infrastructural differences of particular regions of the Russian Federation.

Electricity Consumption

Until the onset of the global economic crisis, the Russian Federation had experienced significant economic growth since the end of the 1990s. Between 1999 and 2008, the Russian Federation's GDP grew at a compounded annual growth rate of 7.0 per cent., making the Russian Federation one of the fastest growing economies in the world. The Russian economy has experienced significantly fluctuating growth rates over the last two decades, including significant recent declines. According to Rosstat, in 2014 Russia’s GDP growth rate slowed to 0.7 per cent., declined by 2.8 per cent. in 2015 and by 0.2 per cent. in 2016 and showed recovery in 2017 of 1.5 per cent.

Electricity demand is characterised by relatively high elasticity to GDP growth rate, as shown in the table below:

Electricity GDP growth rate consumption(1) Electricity demand Electricity consumption Year (% per year) (mm MWh) growth rate (%) elasticity to GDP growth(2) 2005 ...... 6.4 908 1.8 0.3 2006 ...... 8.2 949 4.5 0.6 2007 ...... 8.5 971 2.3 0.3 2008 ...... 5.2 990 2.0 0.4 2009 ...... (7.8) 943 (4.7) 0.6 2010 ...... 4.5 989 4.9 1.1 2011 ...... 4.3 1,000 1.1 0.3 2012 ...... 3.7 1,017 1.6 0.4 2013 ...... 1.8 1,010 (0.7) (0.4)

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Electricity GDP growth rate consumption(1) Electricity demand Electricity consumption Year (% per year) (mm MWh) growth rate (%) elasticity to GDP growth(2) 2014 ...... 0.7 1,014 0.4 0.5 2015 ...... (2.8) 1,008 (0.6) 0.2 2016 ...... (0.2) 1,027 1.8 (9.2) 2017 ...... 1.5 1,040 1.3 0.8 ______Sources: System Operator, Rosstat (1) Demand within UES (2) Calculated by dividing electricity consumption growth rate by GDP growth rate

The elasticity of electricity demand to GDP growth depends, to a large extent, on the composition of the electricity consumption market. Electricity consumption in Russia is characterised by a relatively large share of demand coming from the industry and transportation sectors of the market. According to Rosstat, in 2017 nearly 53 per cent. of electricity consumed was delivered to industrial consumers. Household consumption amounted to only 14 per cent. of the total consumption in 2017 whereas household consumption in developed countries generally constitutes a significantly larger share of the total electricity consumption.

The table below sets out a breakdown of electricity consumption by type of consumer for 2017.

As at 31 December 2017 Volume Share (mm MWh) (%) Industrial and similar ...... 580 53.3% Households ...... 156 14.3% Transportation and telecommunications ...... 93 8.5% Wholesale and retail trade ...... 33 3.0% Agriculture ...... 18 1.7% Construction ...... 13 1.2% Other ...... 91 8.4% Electricity losses ...... 105 9.7% Total (Russia) ...... 1,089 100%%

Source: Rosstat

The table below shows a geographical breakdown of electricity consumption within UES, by volume and share of total consumption and by IES for the periods indicated:

For the six months ending 30 June As at 31 December 2018 2017 2016 Volume Share Volume Share Volume Share (billion kWh; share in %) North West IES ...... 48 9.1% 93 9.0% 93 9.0% Central IES ...... 122 22.9% 239 22.9% 237 23.1% South IES ...... 51 9.5% 99 9.5% 91 8.8% Middle Volga IES ...... 55 10.4% 108 10.4% 106 10.3% Urals IES ...... 131 24.7% 261 25.1% 259 25.3% Siberia IES ...... 107 20.1% 206 19.8% 207 20.2% Far East IES ...... 18 3.3% 33 3.2% 33 3.2% Total (UES) ...... 532 100% 1,040 100% 1,027 100.0%

Source: System Operator

The demand for electricity can vary depending on weather conditions (especially between different seasons) and the time of day. These fluctuations in the seasonal and daily consumption influence electricity prices on the free market.

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Electricity Demand and Supply

The fluctuating nature of electricity demand, which varies widely season by season and within any given day, makes it essential that the Russian Federation’s energy system be able to cover peak moments of demand in every region to avoid blackouts. The recent slow-down of the economy growth in Russia in combination with the new construction during the period of 2008–2018 made the Russian energy system generally more reliable, and currently, there is no deficit in generation capacity in Russia.

The table below shows maximum loads in each IES for the periods indicated.

As at six months ending As at the year ending 31 December 30 June 2018 2017 2016 Load Load Max. Load Max. Load factor(1) Max. Load factor(1) Load factor(1) (Maximum load in GW; load factor in %) North West IES ...... 14.4 57.3% 14.1 59.1% 15.0 63.5 % Central IES ...... 37.2 70.0% 37.9 71.4% 37.1 70.2 % South IES ...... 15.9 69.7% 16.2 75.4% 15.0 72.7% Middle Volga IES ...... 16.3 59.9% 16.9 62.0% 17.0 62.9 % Urals IES ...... 36.1 67.8% 36.6 69.5% 37.6 73.5 % Siberia IES ...... 31.2 60.1% 29.6 57.0% 30.7 59.1 % Far East IES ...... 5.6 59.2% 5.5 57.9% 5.4 58.7 % Total (UES) ...... 151.6 62.4% 151.2 63.0% 151.1 63.9 %

Source: System Operator. Data excluding isolated zones. (1) Estimated as maximum load divided by installed generation capacity at the end of the period. Regional data is calculated as at the end of the period.

The UES peak load for the year ended 31 December 2017 accounted for 63 per cent. of the UES total installed capacity. Nonetheless, electricity capacity deficit may be caused by various drawbacks of the current Russian electricity grid, including:

• transmission constraints between the UES transmission facilities that limit potential electricity interflows from producers to consumers, leading to requirements to maintain minimum electricity reserves at each UES transmission facility to cover the electricity losses;

• transmission constraints within each UES transmission facility that limit the full utilisation of installed capacity of power plants, causing the available capacity to be significantly lower than installed capacity;

• the poor state of some parts of the electricity grid infrastructure increases the risk of disruption to supply; and

• significant aging of the existing generation capacities and the need to retire obsolete power plants.

Energy Industry and Infrastructure Development

The power sector in the Russian Federation, as a whole, is in need of investments to retain supply stability and to cope with demand. See “Risk Factors – Economic risks relating to the Russian Federation – The Russian Federation’s physical infrastructure has not been properly funded and maintained since Soviet times and may not be sufficient to efficiently support the present and future levels of commercial and industrial activity in the Russian Federation”.

As reported by the Ministry of Energy of the Russian Federation, the overall amount of investment by Russian energy utilities in 2017 was RUB 515.4 billion. According to financial statements the largest investments were made by RusHydro in the amount of RUB 71.7 billion; the electricity grid companies (including Rosseti and Federal Grid Company) account for approximately RUB 216.7, and Rosenergoatom Concern accounts for approximately RUB 129.6 billion (under RAS).

In order to reduce the risk of an electricity supply deficit, the Russian government issued the General Scheme for Allocation of Electricity Facilities until 2020 which was further replaced by the General Scheme for Allocation

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of Electricity Facilities until 2035 (the “General Scheme”) which is regarded as a guideline for the purposes of creation of development programmes, house construction and investment decisions making.

The General Scheme is reviewed and revised on a regular basis as new data becomes available (such as consequences of the economic crisis and updated investment programmes).

Due to the large land mass of the Russian Federation and the poor state of the transmission and distribution grids, the UES has a number of bottlenecks. In particular, there is insufficient connection grid infrastructure within regulated pricing zones and between regulated and unregulated pricing zones, limiting the volumes of electricity that can be transferred between them. The investment programme of Federal Grid Company is targeted at resolving this issue and increasing transmission capacity between these pricing zones.

The table below sets out the anticipated installed capacity in Russia in accordance with the General Scheme (base case scenario):

(2020) (2025) (2030) (2035) (in GW) Thermal power plants ...... 167.4 160.3 166.3 171.7 HPPs ...... 52.7 53.2 54.3 54.3 Nuclear power plants (NPP) ...... 29.5 29.8 30.7 35.3 Renewables (solar, wind) ...... 2.4 2.4 2.4 2.8 Total installed capacity ...... 252.0 245.7 253.7 264.1 ______Source: Decree of the Russian Government “On Approval of the General Scheme for Allocation of Electricity Facilities until 2035” No. 1209-r dated 9 June 2017.

Sector Reform

In recent years, the Russian electricity industry has undergone a major restructuring as mandated by the Resolution No. 526, which aimed to (a) reform the market structure, (b) implement the liberalisation of the competitive segments of the power sector, including generation, sales, and repairs and servicing, and (c) improve regulatory pricing for the non-competitive segments of the power sector.

The Resolution No. 526 completely transformed the overall structure of the power industry through the break-up of almost all of the vertically-integrated power companies controlled by RAO UESR (AO-Energos) and the formation of mono-profile companies with the following activity types: generation, transmission, distribution, retail sales and repairs and servicing operations. The restructuring process was completed on 1 July 2008 when RAO UESR demerged into more than 20 independent companies each engaged in either the competitive sector (power generation) or the non-competitive sector (transmission and distribution).

In parallel with the power sector restructuring, RAO UESR attracted private investments in the thermal generation companies (OGKs and TGKs) by way of public offerings or private sales, so as to fund large investment programmes of these companies. Large investors who participated in this process were given opportunities to buy additional shares from RAO UESR and obtain control of individual OGKs or TGKs in order to encourage competition among the generation companies. See “—Current Industry Structure”.

With effect from 1 January 2011, 100 per cent. of the wholesale electricity and capacity should have been sold at unregulated prices in the Russian Federation. However, the second pricing zone of wholesale capacity remained subject to pricing regulation in respect of capacity sales from HPPs until the Resolution of the Russian Government No. 379 dated 30 April 2016, which introduced full liberalisation of HPP capacity pricing starting from 1 May 2016. Furthermore, certain exceptions exist with respect to the Republic of Komi, Arkhangelsk and Kaliningrad Regions, regions of North Caucasus, the Republic of Tuva, the Far East and Buryatia which remain subject to tariffs. Also, the current process of liberalisation does not extend to household electricity prices, which remain subject to tariffs, nor does it contemplate the creation of a free market for transmission, distribution and dispatch services.

Current Industry Structure

The electricity generation sector is currently principally comprised of the following types of power plants:

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Thermal power plants. This type of generator includes fossil-fuel-powered plants using natural gas, coal and/or fuel oil, producing either electricity or both electricity and heat. The thermal power plants are owned by Gazprom Energoholding subsidiaries (Mosenergo, TGK-1, OGK-2), as well as by Inter RAO, Enel Russia, Unipro, Fortum and other energy companies, including JSC Tatenergo JSC Irkutskenergo and Far-Eastern Generating Company (RusHydro Group);

HPPs. These plants are owned by RusHydro, which owns more than 50 per cent. of the installed capacity of Russian HPPs, Eurosibenergo, TGK-1 and others;

Nuclear generation complexes. Russian nuclear generators are owned and operated by Rosenergoatom Concern.

Generation Companies

In the course of the power sector reform, state controlled holding RAO UES Russia and its subsidiaries were split in order to separate the electricity generation, transmission, distribution and electricity supply businesses. During the reform of the sector a number of private new investors obtained control in the generation and supply companies, among them E.ON, Enel, Fortum, Renova, Onexim. Some of the generation companies such as Inter RAO, Mosenergo, TGK-1, OGK-2, TGK-14 remain indirectly controlled by the State through State-controlled enterprises. The State also remains a controlling shareholder in RusHydro. The reform did not impact the nuclear energy generation, with the State remaining the 100 per cent. owner of Rosenergoatom.

The table below shows Russia’s largest generation companies by installed capacity as of 1 January 2018:

Installed power capacity Per cent. of Russia’s total Company (GW) installed capacity Gazprom ...... 40 16.3% RusHydro(1) ...... 39 15.8% Inter RAO ...... 33 13.3% Rosenergoatom ...... 28 11.3% Eurosibenergo ...... 20 7.9% T Plus ...... 16 6.4% Russia's total installed capacity(2) ...... 247 100%

Source: Data from the Companies’ websites (1) including 2,997 MW of Boguchanskaya HPP, a 50/50 JV between RusHydro and RUSAL (2) UES plus isolated energy systems, as of 1 January 2018

RusHydro

The installed capacity of power plants owned by RusHydro was 39,066 GW as at 30 June 2018. The electricity output of RusHydro amounted to 73.5 million MWh in the six months ended 30 June 2018 and 140.3 million MWh in 2017 (including full output of Boguchanskaya HPP, which is a joint venture between RusHydro and UC RUSAL in which RusHydro has a 50 per cent. interest).

Rosenergoatom Concern

Rosenergoatom Concern is the sole authorised owner and operator of nuclear power plants in the Russian Federation. Rosenergoatom Concern was initially established in 1992 and until 2008 was known as the Federal State Unitary Enterprise “Russian State Concern for Generation of Electricity and Heat Power at Nuclear Power Plants (Rosenergoatom)”. All of the share capital of Rosenergoatom Concern is indirectly owned by the Russian Federation. Rosenergoatom Concern currently operates 10 nuclear plants with a total installed electricity capacity of approximately 27.9 GW. For the period from 1 January 2017 to 26 June 2017 and for the year ended 31 December 2016, Rosenergoatom Concern produced approximately 100 million MWh and 196 million MWh of electricity, respectively.

Transmission and Distribution

High voltage power lines in the Russian Federation are primarily operated by Federal Grid Company, which is owned by Rosseti, a company created as a result of the restructuring of RAO UESR and controlled by the Russian Federation. 138

The vast majority of medium- and low-voltage distribution networks are currently consolidated into 14 Inter- Regional Distribution Companies (MRSKs), all of which are controlled by Rosseti.

Energy Retail Companies

Russian retail customers currently purchase electricity from guaranteeing suppliers, most of which have been spun off from the AO-Energos and sold by RAO UESR in public auctions, as well as from electricity retail companies, which sell electricity to large industrial consumers. See “—Structure of the Energy Market—Retail Electricity Market”.

Service Providers in the Electricity and Capacity Markets

The System Operator

In 2004, all dispatching functions of the Russian electricity sector, previously performed by the regional dispatch administrations, were transferred from the AO-Energos to the System Operator. The System Operator is a specialised company which provides management services to all market participants in relation to the production and dispatch of electricity and provides forecasts regarding the generation and consumption of electricity. The Russian Federation holds 100 per cent. of the shares in the System Operator.

In particular, the System Operator establishes a dispatch priority classification system to enable it to fulfil its responsibility for the maintenance of the sufficiency, stability and flexibility of the electricity supply and the minimisation of the cost of electricity supply. In formulating this classification system, the System Operator ranks all generators in a so-called merit order, which prescribes the order in which these stations receive load, assuming there is sufficient demand. The principal dispatch priority categories are as follows:

Base load generation. This category of generator encompasses facilities that are allocated the highest loads, either due to extraordinarily high efficiency, system safety standards (for example, technological minimum load requirements) or lack of flexibility (for example, if a particular generator cannot quickly change load on demand and is therefore incapable of adjusting effectively to cover peak loads). Base load generation facilities include nuclear capacity, hydro capacity in the post-winter thaw season, TGK stations only when they operate in “combined cycle” (joint generation of electricity and heat) and certain coal-fuelled stations. Base load generation traditionally enjoys high load factors throughout the year, but this category is generally insufficient to cover total electricity demand.

Mid-load generation. Mid-load generators are those generators that are typically dispatched if their variable costs lie below those of the least efficient generators needed to satisfy electricity demand (taking into account grid constraints). This category effectively encompasses all thermal generation facilities of the OGKs. The main competition in the wholesale electricity and capacity markets occurs in this dispatch priority category. Depending on their placing within the merit order and the prevailing price on the spot market, a mid-load generator could enjoy varying levels of load through the year, with the most efficient generators benefiting from a preferred position in the market.

Peak generation. Peak-load generators are those generators which are called upon only at times of peak electricity demand to cover whatever deficit still exists after base load generation and mid-load generators have already been dispatched. This category generally includes the most inefficient thermal electricity capacity, including TGK stations operating in electricity-only condensation mode, certain categories of hydroelectricity capacity (for example, hydro accumulating power plants) and those power plants which have the ability to vary their load significantly in order to sell at times of peak prices.

As a result, the electricity capacity utilisation rate and competitive position of a power plant in the wholesale market are significantly influenced by its ranking in the dispatch priority classification system.

Market Council

The Market Council is a non-profit partnership whose members are participants in the electricity and capacity wholesale markets and is a self-regulated organisation which maintains the Register of the Wholesale Market Participants, organises pre-trial dispute resolutions in the wholesale market, participates in the preparation of the rules of the wholesale market and monitors compliance with the rules. The Supervisory Board of the Market Council approves the standard form contract on adhesion to the trade system of wholesale market as well as regulations of the wholesale market, which are the base documents for the regulation of the wholesale electricity and capacity markets. 139

Commercial Operator

The Commercial Operator manages organisations of the trading system of the wholesale electricity and capacity markets. Currently, the functions of the Commercial Operator are performed by the Trade System Administrator, which is 100 per cent. owned by the Market Council.

Structure of the Energy Market

The Russian electricity market consists of wholesale and retail markets and capacity and electricity, while interrelated, are treated as separate economic products. The capacity market represents the obligation and ability to keep sufficient generation capability in reserve in order to satisfy a target level of potential demand, while the sale of electricity represents the actual delivery of electricity to the purchaser.

Wholesale Electricity and Capacity Markets

The wholesale electricity and capacity markets operate in two pricing zones and non-pricing zones. The first pricing zone includes the territory of the European part of Russia and the Urals while the second pricing zone includes Siberia. The key driver behind the different pricing levels and pricing dynamics in each zone is the structure of installed capacity in each zone, the level of interconnectivity with another pricing zone and the mix of generation plants in each pricing zone. In particular, the first pricing zone has a high share of nuclear and gas-fired generation capacity and the second pricing zone has a high share of hydro generation capacity. In the areas not included in any of the pricing zones (the Arkhangelsk and Kaliningrad regions, the Komi Republic and various other northern regions of Russia and the Far East), where the electricity and capacity markets are not yet possible, the sale of electricity is carried out under special rules and tariffs as determined by the FAS.

The wholesale electricity and capacity are generally sold at unregulated prices in the Russian Federation. However, certain exceptions exist with respect to the Republic of Komi, Arkhangelsk and Kaliningrad Regions, regions of North Caucasus, the Republic of Tuva, the Far East and Buryatia which remain subject to tariffs. Also, the current process of liberalisation does not extend to household electricity prices, which remain subject to tariffs, nor does it currently contemplate the creation of a free market for transmission, distribution and dispatch services.

Wholesale market participants mainly include:

• sellers of electricity and capacity, including generation companies (the current and former OGKs, RusHydro, TGKs and various other generators); and

• purchasers of electricity and capacity, including major power consumers, electricity retail companies (energy traders) and generation companies, which, at certain points in time, may purchase electricity in the market, rather than generate such electricity, to fulfil their supply obligations under existing contracts.

Electricity Market

The period from 1 September 2006 to 31 December 2010 was a transitional period until the liberalisation of the wholesale electricity and capacity markets was fully completed. At the beginning of the transitional period regulated contracts covered almost all volume of electricity and capacity produced and sold. Thereafter, in accordance with the Resolution No. 529, the share of sales under regulated contracts was constantly declining.

The Resolution No. 529 was amended by the Wholesale Market Rules, which came into force on 1 January 2011.

According to the amendments introduced by the Wholesale Market Rules, electricity is traded based on the following trading mechanisms:

• Regulated Contracts. From 1 January 2011 the target model of a competitive wholesale electricity and capacity markets was completely formed: within pricing areas regulated contracts are traded only for volumes of electricity and capacity designated for delivery to the population, groups of customers equivalent to the population and participants of the wholesale market which purchase electricity (capacity) within certain territories where the Russian Government established particular performance features for wholesale and retail markets. The parties to Regulated Contracts are determined by, and contracts are registered with, the Commercial Operator. 140

The sellers under the Regulated Contracts are required to cover the volumes prescribed in the Regulated Contracts either through their own generation or through their purchase of electricity on the “one-day- ahead” or balancing markets at prevailing market prices. If a buyer requires additional electricity, it can buy it on the “one-day-ahead” or balancing market at current market prices. The Regulated contracts also incorporate the “take-or-pay” principle under which the buyer who cannot consume the full volume of electricity as stipulated by its Regulated Contract, must still pay in full and seek to recover its costs through the sale of its excess contracted volumes on the balancing market.

• One-day-ahead market (spot market). The Wholesale Market Rules introduced a spot market for those suppliers and consumers who wish to buy or sell volumes of electricity on a free market basis outside the scope of Regulated Contracts or unregulated bilateral contracts. Electricity trades are conducted on an hourly basis on the spot market at unregulated prices. The participants may submit bids for buying or selling electricity for a certain volume and price for each hour of the next day. The Commercial Operator selects the winning bids on the basis of an equilibrium price (i.e., the price which balances supply and demand) for each hour of the following day.

After the equilibrium prices and volumes are determined, the participants may submit price- confirmation bids, confirming their intention to sell or buy electricity at the determined volumes and equilibrium prices. Price-confirmation bids are rejected if it is not technically feasible to supply the volumes specified in the price-confirmation bids or where there is an imbalance between the total volumes specified by purchasers and the total volumes specified by suppliers.

• Balancing market. The balancing market is a real time market for electricity based on competitive bids submitted by suppliers and market participants, which is intended to cover any discrepancy between planned power volumes on the spot market and the actual volumes generated or consumed.

• Free bilateral contracts. Participants in the wholesale market may sell electricity under unregulated contracts at unregulated prices. Electricity prices and volumes sold under free bilateral contracts are negotiated between the supplier and the purchaser. Free bilateral contracts and any amendments thereto are required to be registered with the Commercial Operator.

• Non-pricing zones of the Far East. The Unified Energy System of the East operate the model of wholesale market with a sole purchaser. Energy and capacity suppliers provide the electricity and capacity to the sole purchaser under the established tariffs in accordance with four-party sale and purchase agreements among the following parties: the relevant generating company, the sole purchaser, the Trade System Administrator and JSC CFR. The sole purchaser, in turn, provides electricity and capacity to the wholesale market purchasers under the prices calculated by the Trade System Administrator on the basis of indicative prices established by FAS, in accordance with four-party sale and purchase among the following parties: the sole purchaser, the relevant electricity or capacity purchaser, the Trade System Administrator and JSC CFR.

In accordance with the Resolution of the Russian Government No. 1172 dated 27 December 2010, the functions of the sole purchaser are conducted by the energy supply company, established upon the reorganisation of the joint-stock companies which were operating within the relevant territory, provided that such energy supply company provides to the retail market more than 50 per cent. of electricity consumed within the Far East Region. Currently it is PJSC DEK, guaranteeing supplier for Amur Region, Jewish Autonomous Region, Khabarovsk Region and Primorsk Region. The aggregate volume of JSC DEK supplies to the retail market comprises more than 90 per cent. of the electricity consumption of the Unified Energy System of the East.

The tables below show electricity spot market overview for the European part of Russia and Urals and Siberia pricing zones on quarterly basis:

European part of Russia and Urals (First pricing zone), RUB/MWh:

2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1002 1043 1254 1136 1116 1203 1233 1120 1122 1132 1184 1178 1147 1166 1298 1204 1180 1148 1269 1221 1187 1191 Note: day ahead selling prices data from the Administrator of the trading system (ATS).

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Siberia (Second pricing zone), RUB/MWh

2013 2014 2015 2016 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 777 764 639 677 723 662 762 983 1026 829 854 922 994 801 714 913 928 800 828 888 928 840 Note: day ahead selling prices data from the Administrator of the trading system (ATS).

The table below shows electricity spot market overview for the European part of Russia and Urals and Siberia pricing zones on annual basis:

Pricing zone 2013 2014 2015 2016 2017 2018* European part of Russia and Urals (First pricing zone), RUB/MWh ...... 1104 1163 1153 1202 1204 1189 Siberia (Second pricing zone), RUB/MWh ...... 718 789 914 866 865 887 *For the six months ended 30 June 2018.

Capacity Market

The wholesale capacity market operates in parallel with the wholesale electricity market. The primary goal of the wholesale capacity market is to cover fixed costs and to ensure timely commissioning of new generation capacities. When selling capacity, generation companies are required to maintain their equipment in proper condition in order to be able to produce electricity in the required volumes and with the required specifications at any time.

The wholesale capacity is traded based on the following trading mechanisms:

• Competitive capacity auction (KOM). Capacity is sold upon the results of a competitive capacity auction (the KOM) for a four-year period. Under the KOM procedure, the price and volume of capacity is defined by the system operator after the selection of price bids which meet the criteria of the minimum electricity and capacity price.

• Free bilateral contracts (CDM). Capacity, which is not covered by Regulated Agreements, may be sold under unregulated free bilateral contracts provided that such capacity is selected under the KOM procedure.

• Regulated Contracts (RD). Regulated Contracts for the purchase of capacity are concluded between the suppliers and purchasers on the basis of the prices established under FAS tariffs (indicative prices). This mechanism applies only to the contracts relating to capacity designated for delivery to household and equivalent consumers.

• Capacity supply agreements (DPM). Capacity of generating companies which are subject to DPM is sold on a long-term basis, provided that (i) such capacity meets certain requirements and (ii) the payment under such DPM is guaranteed.

• Forced generators capacity. Capacity of the generators which were not selected under the results of KOM is not paid for, but such forced generators must continue operating due to some technological and other reasons (e.g. threats of heat and electricity deficit).

• Non-pricing zones of the Far East. The Unified Energy System of the East operate the model of wholesale market with a sole purchaser. Energy and capacity suppliers provide the electricity and capacity to the sole purchaser under the established tariffs in accordance with four-party sale and purchase agreements among the following parties: the relevant generating company, PJSC DEK, the Trade System Administrator and JSC CFR. PJSC DEK, in turn, provides electricity and capacity to the wholesale market purchasers under the prices calculated by the Trade System Administrator on the basis of indicative prices established by FAS, in accordance with four-party sale and purchase among the following parties: PJSC DEK, the relevant electricity or capacity purchaser, the Trade System Administrator and JSC CFR.

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The table below shows RusHydro weighted average capacity prices in first and second pricing zones:

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 thousands RUB/MW/month KOM – European part of Russia(1) ...... 119 118 124 132 125 113 118 120 123 127 150 KOM – Siberia(1) ...... 82 82 59 98 179 189 190 200 212 210 252 DPM – Europe ...... 2,247 2,313 2,076 2,066 2,304 2,104 1,877 1,874(2) - - -

(1) according to the results of the competitive capacity selection, KOM forecasted prices for 2019-2021 are indicated taking into account indexation under applicable regulations (CPI of the preceding year minus 0.1 percentage point) and with CPI set according to the Forecast of the Social and Economic Development of the Russian Federation published at the Ministry’s of Economic Development website on 1 October 2018 (2) actual price for the six months ended 30 June 2018

DPM

KOM rules prescribe an individual procedure for pricing capacity constructed under DPMs depending on the type of construction, capacity, fuel inputs, pricing zone and other specific features of each project. DPMs, signed by generating companies, establish specific capacity volume per each project constructed under these contracts. Generation companies can rely on guaranteed payments for capacity for the entire contract term.

The mechanism provides for a guaranteed return on investments in the construction of generating assets included into the list approved by the Government. Ten year and 20 year contracts are provided for TPP and NPP/ HPPs construction projects, respectively.

For RusHydro’s DPM objects, the capacity price is calculated by FAS in accordance with the procedure determined by the Order of FTS of Russia No. 486-э dated 13 October 2010, as amended.

WACC is adjusted every year based on the annual yield of the Russian government bonds.

Retail Electricity Market

The retail electricity market includes the following participants: power generators and consumers, guaranteeing suppliers, independent power supply companies and grid operators. Consumers can purchase electricity either from guaranteeing suppliers and independent power supply companies or directly from the retail market participants (i.e. plants with capacity of up to 25 MW). Consumers have an obligation to pay for the relevant transmission services, which is done either directly or via guaranteeing suppliers and/or independent power supply companies.

The guaranteeing suppliers and/or independent power supply companies purchase the required volumes of electricity on the wholesale market. The sales premiums gained by the guaranteeing suppliers are regulated by the regional authorities, while the independent power supply companies are allowed to determine such sales premiums on a competitive basis.

Within the pricing zones of the retail electricity markets, the power generators may sale electricity to the consumers either directly (under the contracts) or through guaranteeing suppliers subject that the price of electricity provided through the guaranteeing suppliers shall not exceed the price applied by such guaranteeing suppliers in the wholesale market.

Grid distribution companies shall pay for energy losses arising in the retail electricity markets and, in turn, are paid for the electricity transmission services. Their activity is subject to tariffs.

Tariffs

Wholesale electricity and capacity market

The volumes of electricity and capacity to be provided under Regulated Contracts are established for each respective power generator in accordance with the consolidated forecast balance of electricity production and supply prepared by the FAS. Such volumes to be supplied under Regulated Contracts shall not exceed 35 per cent. of the total volume of electricity (capacity) which shall be supplied by such power generator in the wholesale market 143

according to the balance resolution for such power generator. For the HPPs located in the second pricing zone and for which in respect of delivery point clusters of such HPPs as of 1 January 2012 there were no electricity and capacity sales (Boguchanskaya HPP, in case of the Group), the total volume of electricity (capacity) which shall be supplied by such HPPs in the wholesale market according to the balance resolution for such HPP shall not exceed 5 per cent.

The volumes of electricity which are not covered by Regulated Contracts are purchased under free bilateral contracts on the “one-day-ahead” or balancing market.

Tariffs for the electricity and capacity for 2008-2017 for RusHydro have been calculated by the federal authority in the area of the state regulation of tariffs (FST until 2015, FAS – further on) by way of indexation of the base tariffs in accordance with the indexation formulae established by FST (Orders No. 268-э/1 dated 30 October 2009 and No. 210-э dated 28 August 2014). Base tariffs – tariffs for the electricity and capacity for RusHydro for 2007 – have been initially calculated by FTS in accordance with the method of economically feasible expenses pursuant to methodological instructive regulations established by the Order of FST of Russia No. 199-e/6 dated 15 September 2006 “On approval of Methodological instructive regulations on calculation of tariffs for electricity and capacity under the sale and purchase agreements entered into under the regulated tariffs (prices) established on the wholesale market”, which provided for calculation of expenses on “item-by-item” basis.

In calculation of tariffs in accordance with the projected economic development of the Russian Federation for the relevant year and period approved by the Russian Government, the federal authority in the area of the state regulation of tariffs may apply CPI as well as the index of the change of prices of industrial products manufacturers. For 2017 tariffs, the index of the change of prices of industrial products manufacturers (excluding fuel and energy products) has been applied.

The tables below show RusHydro’s weighted average electricity and capacity tariffs in the first and second pricing zones:

Capacity tariffs:

2013 2014 2015 2016 2017 2018(1) thousands RUB/MW/month European part of Russia ...... 112.5 114.4 116.4 124.8 127.5 128.3 Siberia ...... 66.1 42.4 42.8 42.9 46.1 46.5

(1) actual data for the six months ended 30 June 2018

Electricity tariffs:

2013 2014 2015 2016 2017 2018(1) thousands RUB/MW European part of Russia ...... 13.4 13.5 13.7 15.5 17.8 18.8 Siberia ...... 15.8 15.9 16.0 18.5 22.2 23.5

(1) actual data for the six months ended 30 June 2018

Retail electricity market

Retail market rules establish a pricing system for the retail electricity market. Sales margins for guaranteeing suppliers and tariffs for consumers in isolated regions are established by the relevant regional tariff agencies based on the minimum and maximum levels determined by the FAS. Guaranteeing suppliers and suppliers of electricity to residential consumers must supply a set portion of the electricity at regulated prices, while the remaining portion may be supplied at market prices. Retail electricity prices are calculated based on formulas provided in the Resolution of the Russian Government No. 1179 dated 29 December 2011 (as amended).

Retail electricity market in the Far East

Certain subsidiaries of RusHydro operate within the isolated zones of retail electricity market. They are subject to 100 per cent. pricing regulation due to the absence of free electricity and capacity markets.

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Tariffs applying to the plants located in the isolated zones of the retail electricity market are established by the authority of the relevant federal subject in the sphere of state regulation of tariffs in accordance with procedures established by the FAS.

The regulated company may indicate the preferable method of regulation however the final decision is always taken by the regulator.

The table below shows changes in the heat and electricity weighted average tariffs of RAO ES of the East:

Electricity tariffs Heat tariffs

2016/2015 2017/2016 2018/2017 2016/2015 2017/2016 2018/2017 DGK ...... 9.4% 5.6% 0.8% 7.6% 3.8% 4.4% DEK ...... 7.3% 7.4% 5.9% - - - Kamchatskenergo ...... 8.9% 12.1% 11.5% 14.1% 8.6% 4.2% YuESK ...... 6.4% -0.8% 6.1% 9.5% 4.3% -8.2% Magadanenergo ...... 19.5% 14.4% 12.6% 9.1% 4.3% 6.3% Chukotenergo ...... 8.1% 11.4% 88.1% 5.7% 6.2% 11.4% Sakhalinenergo ...... 4.8% 1.2% 10.2% 7.7% -2.5% 0.0% Yakutskenergo ...... 5.9% 10.8% 9.0% 9.6% 11.6% 9.9% Sakhaenergo ...... 10.0% 8.9% 9.5% 8.9% 11.4% 8.4% Peredvizhnaya energetika ...... 5.2% 22.2% 4.5% - - -

In July 2017, the Resolution No. 895 became effective. This Resolution stipulates the application of a premium to the price of capacity provided by the Group in the pricing zones of the wholesale electricity and capacity markets with subsequent transfer of the amounts collected to the constituent budgets of the Far East Federal region in the form of free-of-charge targeted contributions. Constituent regions are obliged to use these contributions to compensate the guaranteeing suppliers of the Far East Federal region for the reduction in tariffs which were made consistent with the basic level. According to the Resolution No. 895, tariffs were reduced retrospectively starting from 1 January 2017. The base level of end-user tariff for the year ended 31 December 2017 and 2018 was set at RUB 4/kWh and RUB 4.3/kWh, respectively.

For the six months ended 30 June 2018, the companies of the Group, which are “guaranteeing suppliers”, received RUB 13,196 million of Government grants (subsidies) in accordance with the mechanism established by the Resolution No. 895.

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THE ISSUER

The Issuer was incorporated in Ireland as a designated activity company on 18 July 2017, registered number 608179, under the Companies Act 2014. The registered office of the Issuer is 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland and phone number +353 1 614 6240.

The authorised share capital of the Issuer is EUR 100 divided into 100 ordinary shares of par value EUR 1 each (the “Shares”). The Issuer has issued one Share, which is fully paid and is held on trust by TMF Management (Ireland) Limited (the “Share Trustee”) under the terms of a declaration of trust dated 14 August 2017, under which the Share Trustee holds the Shares on trust for charity. The Share Trustee has no beneficial interest in and derives no benefit (other than any fees for acting as Share Trustee) from its holding of the Shares. The Share Trustee will apply any income derived from the Issuer solely for the above purposes.

TMF Administration Services Limited (the “Corporate Services Provider”), an Irish company, acts as the corporate services provider for the Issuer. The office of the Corporate Services Provider serves as the general business office of the Issuer. Through the office and pursuant to the terms of the corporate services agreement entered into on 26 September 2017 between the Issuer and the Corporate Services Provider (the “Corporate Services Agreement”), the Corporate Services Provider performs various management functions on behalf of the Issuer, including the provision of certain clerical, reporting, accounting, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Services Provider receives various fees and other charges payable by the Issuer at rates agreed upon from time to time plus expenses. The terms of the Corporate Services Agreement provide that either party may terminate the Corporate Services Agreement upon the occurrence of certain stated events, including any material breach by the other party of its obligations under the Corporate Services Agreement which is either incapable of remedy or which is not cured within 30 days from the date on which it was notified of such breach. In addition, either party may terminate the Corporate Services Agreement at any time by giving at least 90 days written notice to the other party.

The Corporate Services Provider’s principal office is 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland.

Business

The principal objects of the Issuer are set forth in clause 3 of its Constitution (as currently in effect) and permit the Issuer, inter alia, to lend money and give credit, secured or unsecured, to issue debentures, loan participation notes, enter into derivatives and otherwise to borrow or raise money and to grant security over its property for the performance of its obligations or the payment of money. The Issuer is organised as a special purpose company. The Issuer was established to raise capital by the issue of debt securities and to use an amount equal to the proceeds of each such issuance to advance a loan to the Borrower.

Since its incorporation the Issuer has not engaged in material activities other than those incidental to its registration as a designated activity company under the Companies, the issue of outstanding loan participation notes and the on-lending of the proceeds of such notes to the Borrower, and the issue of the Notes. The Issuer has no employees.

Directors and Company Secretary

The Issuer’s Constitution provide that the Board of Directors of the Issuer will consist of at least two Directors.

The Directors of the Issuer and their business addresses are as follows:

Kevin Butler 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland

Grainne Kirwan 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland

The Company Secretary is TMF Administration Services Limited of 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland.

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Financial Statements

Since its date of incorporation, no financial statements of the Issuer have been prepared as at the date of this Listing Particulars. The Issuer intends to publish its first financial statements in respect of the period ending on 31 December 2018. The Issuer will not prepare interim financial statements. The financial year of the Issuer ends on 31 December in each year.

The Issuer’s profit and loss account and balance sheet can be obtained free of charge from the registered office of the Issuer. The Issuer must hold its first annual general meeting within 18 months of the date of its incorporation (and no more than 9 months after the financial year-end) and thereafter the gap between its annual general meetings must not exceed 15 months. One annual general meeting must be held in each calendar year.

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TERMS AND CONDITIONS OF THE NOTES

The RUB15,000,000,000 8.975 per cent. Loan Participation Notes due 2022 (the “Notes”, which expression includes any further Notes issued pursuant to Condition 15 and forming a single series herewith), without coupons, of RusHydro Capital Markets DAC (the “Issuer”) are constituted by, are subject to, and have the benefit of a trust deed (the “Trust Deed”, which expression includes such trust deed as from time to time modified in accordance with the provisions therein contained and any deed or other document expressed to be supplemental thereto, as from time to time so modified) dated 27 November 2018 and made between the Issuer and BNY Mellon Corporate Trustee Services Limited (the “Trustee”, which expression shall include any successors) as trustee for the holders of the Notes (the “Noteholders”).

The Issuer has authorised the creation, issue and sale of the Notes for the sole purpose of financing a RUB15,000,000,000 loan (the “Loan”) to PJSC "RusHydro" (“RusHydro”). The terms of the Loan are recorded in a loan agreement (the “Loan Agreement”) dated 23 November 2018 between the Issuer and RusHydro.

In each case where amounts of principal, interest and additional amounts (if any) are stated herein or in the Trust Deed to be payable in respect of the Notes, the obligations of the Issuer to make any such payment shall constitute an obligation only to account to the Noteholders on each date upon which such amounts of principal, interest and additional amounts (if any) are due in respect of the Notes, for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amounts in respect of the Reserved Rights (as defined in the Trust Deed) (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of such sum to the extent that the Issuer has not received a corresponding payment in respect thereof). Noteholders must therefore rely solely and exclusively on the covenant to pay under the Loan Agreement and the credit and financial standing of RusHydro. Noteholders shall have no recourse (direct or indirect) to any other asset of the Issuer.

The Issuer has charged, by way of first fixed charge in favour of the Trustee for the benefit of itself and the Noteholders, certain of its rights and interests as lender under the Loan Agreement and under the Accounts (as defined in the Trust Deed) as security for its payment obligations in respect of the Notes and under the Trust Deed (the “Charge”) and has assigned absolutely certain other rights under the Loan Agreement to the Trustee together with the Charge, the “Security Interests”), in each case excluding the Reserved Rights and any amounts relating to the Reserved Rights. In certain circumstances, the Trustee can (subject to its being indemnified and/or secured and/or prefunded to its satisfaction) be required by Noteholders holding at least one-quarter of the principal amount of the Notes outstanding or by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders to exercise certain of its powers under the Trust Deed (including those arising under the Security Interests).

Payments in respect of the Notes will be made (subject to the receipt of the relevant funds from RusHydro) pursuant to a paying agency agreement (the “Paying Agency Agreement”) dated 23 November 2018 and made between the Issuer, RusHydro, The Bank of New York Mellon, London Branch, as the principal paying agent (the “Principal Paying Agent”, which expressions shall include any successors), The Bank of New York Mellon SA/NV, Luxembourg Branch, as the registrar (the “Registrar”, which expression shall include any successors) and the transfer agent and the paying agent (the “Transfer Agent” and “Paying Agent” respectively, which expressions shall include any successors) and the Trustee. References herein to the “Agents” are to the Registrar, the Principal Paying Agent, the Transfer Agents and the Paying Agents and any reference to an “Agent” is to any one of them.

Copies of the Trust Deed, the Loan Agreement and the Paying Agency Agreement are available for inspection during normal business hours at the principal office of the Trustee being, at the date hereof, at One Canada Square, London E14 5AL, United Kingdom, at the registered office of the Principal Paying Agent and at the registered office of the Issuer, the initial specified offices of which are set out below.

Certain provisions of these terms and conditions (the “Conditions”) are summaries or restatements of, and are subject to, the detailed provisions of the Trust Deed, the Loan Agreement (the form of which is scheduled to and incorporated in the Trust Deed) and the Paying Agency Agreement. Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions thereof.

Terms not defined herein shall have the same meanings given to them in the Trust Deed.

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1 Status

The Notes are limited recourse secured obligations of the Issuer.

The sole purpose of the issue of the Notes is to provide the funds for the Issuer to finance the Loan. The Notes constitute the obligation of the Issuer to apply the proceeds from the issue of the Notes solely for financing the Loan and to account to the Noteholders for an amount equivalent to sums of principal, interest and additional amounts (if any) actually received by or for the account of the Issuer pursuant to the Loan Agreement, less any amounts in respect of the Reserved Rights.

The Trust Deed provides that payments in respect of the Notes equal to the sums actually received by or for the account of the Issuer by way of principal, interest or additional amounts (if any) pursuant to the Loan Agreement, less any amount in respect of the Reserved Rights (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum to the extent that the Issuer has not received a corresponding payment in respect thereof) will be made pro rata among all Noteholders, on the date of and subject to the conditions attaching to, the equivalent payment pursuant to the Loan Agreement and the Conditions. The Issuer shall not be liable to make any payment in respect of the Notes other than as expressly provided herein and in the Trust Deed. As provided therein, the Issuer shall be under no obligation to exercise in favour of the Noteholders any rights of set-off or to combine accounts or counterclaim that may arise out of other transactions between the Issuer and RusHydro.

Noteholders are deemed to have notice of, and have accepted, these Conditions and the contents of the Trust Deed, the Paying Agency Agreement and the Loan Agreement. It is hereby expressly provided that, and Noteholders are deemed to have accepted that:

1.1 neither the Issuer nor the Trustee makes any representation or warranty in respect of, or shall at any time have any responsibility for, or, save as otherwise expressly provided in the Trust Deed or in the Loan Agreement (in the case of the Issuer), liability or obligation in respect of the performance and observance by RusHydro of its obligations under the Loan Agreement or the recoverability of any sum of principal or interest (or any additional amounts) due or to become due from RusHydro under the Loan Agreement;

1.2 neither the Issuer nor the Trustee shall at any time have any responsibility for, or obligation or liability in respect of, the condition (financial or otherwise), creditworthiness, affairs, status, nature or prospects of RusHydro;

1.3 neither the Issuer nor the Trustee shall at any time be liable for any representation or warranty or any act, default or omission of RusHydro under or in respect of the Loan Agreement;

1.4 the Trustee shall not, save as set out in the Trust Deed, at any time have any responsibility for, or liability or obligation in respect of, the performance and observance by the Agents of their respective obligations under the Paying Agency Agreement;

1.5 the payment of principal, interest and other amounts, if any, and performance of the terms of the Notes depend solely and exclusively upon performance by RusHydro of its obligations under the Loan Agreement and its covenants to make payments under the Loan Agreement and its credit and financial standing. RusHydro has represented and warranted to the Issuer that the Loan Agreement constitutes a legal, valid and binding obligation of RusHydro;

1.6 the Issuer and the Trustee shall be entitled to rely on delivery to them of Officers’ Certificates (as defined in the Loan Agreement) and/or other certificates (whether or not addressed to or obtained by the Issuer or the Trustee) from RusHydro or procured by RusHydro as to whether or not an Event of Default or Potential Event of Default or Change of Control (all terms, as defined in the Loan Agreement) has occurred, that RusHydro is complying with its obligations under the Loan Agreement or as to the identity of its Subsidiaries and its Material Subsidiaries (all terms, as defined in the Loan Agreement) and shall not be responsible for investigating any aspect of RusHydro’s performance in relation thereto and, subject as further provided in the Trust Deed, neither the Issuer as lender under the Loan Agreement nor the Trustee will be liable for any failure to make the usual or any investigations which might be made by a lender or a security holder (as applicable) in relation to the property which is subject to the Security Interests and held by way of security for the Notes, and shall not be bound to enquire into or be liable for any defect or failure in the right or title of the Issuer to the property which is subject to the Security Interests, whether such defect or failure was known to the Trustee or might have been discovered upon examination or enquiry or whether capable of 149

remedy or not, nor will the Trustee have any liability for the enforceability of the security created by the Security Interests, whether as a result of any failure, omission or defect in registering or filing or otherwise protecting or perfecting such security; the Trustee has no responsibility for the value, validity or adequacy of such security.

Neither the Trustee nor the Issuer shall at any time be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its obligations or duties or the exercise of any right, power, authority or discretion pursuant to these Conditions until the Issuer, or the Trustee, as the case may be, has received indemnity and/or security to its satisfaction and/or the funds that are necessary to cover the costs and expenses in connection with such performance or exercise, or has been (in its sole discretion) sufficiently assured that it will receive such funds;

1.7 the Issuer will not be liable for any withholding or deduction or for any payment on account of taxes (not being a tax imposed on the Issuer’s net income) required to be made by the Issuer on or in relation to any sum received by it under the Loan Agreement, which will or may affect payments made or to be made by RusHydro under the Loan Agreement, save to the extent that it has actually received additional amounts or tax indemnity amounts under the Loan Agreement in respect of such withholding or deduction or payment; the Issuer shall, furthermore, not be obliged to take any actions or measures as regards such deduction or withholding or payment other than those set out in this context in the Loan Agreement;

1.8 under the Trust Deed, the obligations of the Issuer in respect of the Notes rank pari passu and rateably without any preference among themselves; and

1.9 in the event that the payments under the Loan Agreement are made by RusHydro to, or to the order of, the Trustee or (subject to the provisions of the Trust Deed) the Principal Paying Agent, such amount will pro tanto, to the extent of such payment, satisfy the obligations of the Issuer in respect of the Notes, except to the extent there is a failure in its subsequent payment to the relevant Noteholders.

Save as otherwise expressly provided herein and in the Trust Deed, no proprietary or other direct interest in the Issuer’s rights under or in respect of the Loan Agreement, the Loan, the Accounts or the Charged Property (as defined in the Trust Deed) exists for the benefit of the Noteholders. Subject to the terms of the Trust Deed, no Noteholder will have any entitlement to enforce the Loan Agreement or have direct recourse to RusHydro except through action by the Trustee pursuant to the relevant Security Interests granted to the Trustee in the Trust Deed. Neither the Issuer nor, following the enforcement of the Security Interests created in the Trust Deed, the Trustee shall be required to take any steps, actions or proceedings to enforce payment under the Loan Agreement unless it has been indemnified and/or secured and/or prefunded to its satisfaction. As provided in the Trust Deed, and notwithstanding any other provision hereof, the obligations of the Issuer are solely to make payments of amounts in aggregate equal to each sum actually received by or for the account of the Issuer pursuant to the Loan Agreement from RusHydro in respect of principal, interest, additional amounts (if any), as the case may be (less any amount in respect of the Reserved Rights) (after deduction or withholding of such taxes or duties as may be required to be made by the Issuer by law in respect of each such sum to the extent that the Issuer has not received a corresponding payment in respect thereof), the right to which is being charged and assigned by way of security to the Trustee as aforesaid. Accordingly, all payments to be made by the Issuer under the Notes will be made only from and to the extent of such sums received or recovered by or on behalf of the Issuer or the Trustee (following a Relevant Event (as defined in the Trust Deed) or (if applicable) an Event of Default). Noteholders shall look solely to such sums for payments to be made by the Issuer under the Notes, the obligation of the Issuer to make payments in respect of the Notes will be limited to such sums and Noteholders will have no further recourse to the Issuer or any of the Issuer’s other assets in respect thereof. Noteholders must therefore rely upon the covenant to pay under the Loan Agreement and the credit and financial standing of RusHydro and no other assets of the Issuer will be available to the Noteholders.

Notwithstanding any other provisions of these Conditions and the provisions in the Trust Deed, the Trustee and the Noteholders shall have recourse only to the Security Interests in accordance with Clause 4 of the Trust Deed. After realisation of the security which has become enforceable and distribution of the proceeds in accordance with Clause 8 of the Trust Deed, the obligations of the Issuer with respect to the Trustee and the Noteholders in respect of the Notes shall be satisfied and none of the foregoing parties may take any further steps against the Issuer to recover any further sums in respect thereof and the right to receive any such sums shall be extinguished. In particular, none of the Noteholders, the Trustee, nor any other person acting on behalf of any of them shall be entitled at any time to institute against the Issuer, or join in any institution against the Issuer of, any bankruptcy, administration, moratorium, reorganisation, controlled management,

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arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Issuer relating to the Notes or otherwise owed to the creditors or the Trustee, save for lodging a claim in the liquidation of the Issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Issuer in respect of the Notes.

No Noteholder or the Trustee shall have any recourse against any director, shareholder or officer of the Issuer in respect of any obligations, covenants or agreement entered into or made by the Issuer in respect of the Notes except to the extent that any such person acts in bad faith or is negligent or is in default in the context of its obligations in respect of the Notes.

2 Form, Denomination

The Notes are issued in fully registered form, in the denomination of RUB10,000,000 and integral multiples of RUB100,000 in excess thereof (each an “Authorised Denomination”), without interest coupons. Notes are represented by registered certificates (“Certificates”) and each Certificate shall represent the entire holding of Notes by the same holder.

3 Register, Title and Transfers

3.1 The Registrar will maintain a register (the “Register”) in respect of the Notes in accordance with the provisions of the Paying Agency Agreement. In these Conditions, the “holder” of a Note means the person in whose name such Note is for the time being registered in the Register (or, in the case of a joint holding, the first named thereof) and “Noteholder” shall be construed accordingly. A Certificate will be issued to each Noteholder in respect of its entire registered holding.

3.2 Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined above) of any Note shall be deemed to be and may be treated as its absolute owner for all purposes, whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on it (or on the Certificate representing it) or its theft or loss (or that of the related Certificate) and no person shall be liable for so treating the holder.

3.3 Subject to Condition 3.6, Notes may be transferred upon surrender of the relevant Certificate representing such Notes to be transferred, with the endorsed form of transfer endorsed on such Certificate (or another form of transfer substantially in the same form and containing the same representations and certifications (if any)), unless otherwise agreed by the Issuer, at the specified office of the Registrar or at the specified office of the Transfer Agent, together with such evidence as the Registrar or the Transfer Agent, as relevant, may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer, provided, however, that a Note may not be transferred unless the principal amount of Notes transferred and (where not all of the Notes held by a holder are being transferred) the principal amount of the balance of Notes not transferred are not less than the Authorised Denomination. Where not all the Notes represented by the surrendered Note are the subject of the transfer, a new Note in respect of the balance of the Notes not transferred will be issued to the transferor. All transfers of Notes and entries on the Register will be made in accordance with the detailed regulations concerning transfers of Notes scheduled to the Paying Agency Agreement. The regulations may be changed by the Issuer, with the prior written approval of the Registrar and the Trustee. A copy of the current regulations will be made available by the Registrar to any Noteholder upon request.

3.4 Subject to Condition 3.6, within five business days of the surrender of a Certificate in accordance with Condition 3.3 above, the Registrar will register the transfer in question and deliver a new Certificate to each relevant holder at its specified office or (at the request and risk of such relevant holder) by uninsured first class mail (airmail, if overseas) to the address specified for the purpose by such relevant holder. In this Condition 3.4, “business day” means a day on which commercial banks are open for business (including dealings in foreign currencies) in the city where the Registrar has its specified office. In the case of the transfer of only a part of the Notes represented by one Certificate, a new Certificate in respect of the balance of the Notes not transferred will be so delivered or (at the risk and, if mailed at the request of the transferor otherwise than by ordinary uninsured mail, at the expense of the transferor) sent by mail to the transferor.

3.5 The transfer of a Certificate will be effected without charge but against such indemnity as the Registrar or the relevant Transfer Agent may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such transfer. 151

3.6 Noteholders may not require transfers to be registered during the period of 15 days ending on (and including) (i) the due date for any payment of principal or interest in respect of the Notes and (ii) after any such Note has been called for redemption.

4 Restrictive Covenant

4.1 As provided in the Trust Deed, so long as any of the Notes remain outstanding (as defined in the Trust Deed), the Issuer will not, without the prior written consent of the Trustee or an Extraordinary Resolution, agree to any amendment to or any modification, recession, cancellation, termination or waiver of, or authorise any breach or proposed breach by any counterparty of, the terms of the Loan Agreement and will act at all times in accordance with any instructions of the Trustee from time to time with respect to the Loan Agreement (other than in the case of an amendment, modification, waiver, recession, cancellation, termination or authorisation with respect to the Reserved Rights), except as otherwise expressly provided in the Loan Agreement. Any such amendment, modification, waiver or authorisation made with the consent of the Trustee shall be binding on the Noteholders and, unless the Trustee agrees otherwise, any such amendment or modification shall be notified by the Issuer to the Noteholders in accordance with Condition 14.

4.2 Save as provided above, so long as any Note remains outstanding, the Issuer, without the prior written consent of the Trustee, shall not, inter alia, incur any other indebtedness for borrowed moneys other than the issue of notes on a limited recourse basis for the sole purpose of making loans to RusHydro, engage in any other business (other than acquiring and holding any Security Interest in respect of the Notes or any other security interest in relation to any other issue of notes for the purposes of making loans to RusHydro, making the Loan to RusHydro pursuant to the Loan Agreement or any future loans to RusHydro and performing any act incidental to or necessary in connection with the foregoing) or any other issue of notes as aforesaid (including derivative transactions on a limited recourse basis), declare any dividends, have any subsidiaries or employees, purchase, own or lease or otherwise acquire any real property (including office premises or like facilities), consolidate or merge with any other person (otherwise than as contemplated by these Conditions, the Trust Deed and the Loan Agreement), issue any further shares (other than those required to be issued to convert to a public limited company), give any guarantee or assume any other liability, or, subject to the laws of Ireland, petition for any winding-up or bankruptcy.

5 Interest

5.1 On each Interest Payment Date (or such later date as amounts equivalent to amounts of interest are received by or for the account of the Issuer), the Issuer shall account to the Noteholders for an amount equal to the amount of interest actually received by or for the account of the Issuer pursuant to the Loan Agreement, which interest under the Loan is equal to 8.975 per cent. per annum payable semi-annually in arrear on 27 January and 27 July of each year as set out in Clause 4 of the Loan Agreement. For the avoidance of doubt, interest under the Loan shall be calculated by reference to the nominal amount of the Loan outstanding.

5.2 Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall accrue (before as well as after judgment) at the rate of interest set out in Clause 4 of the Loan Agreement until the overdue principal is repaid.

In these Conditions, “Interest Payment Date” means 27 January and 27 July of each year commencing on 27 January 2019.

6 Redemption and Purchase

6.1 Unless previously prepaid or repaid pursuant to the Loan Agreement, RusHydro will be required to repay the Loan on 27 January 2022 and, subject to such repayment, as set forth in the Loan Agreement, all the Notes then remaining outstanding will on 27 January 2022 be redeemed or repaid by the Issuer at 100 per cent. of the principal amount thereof.

6.2 If the Loan should become repayable or prepayable pursuant to the Loan Agreement prior to the Repayment Date (as defined in the Loan Agreement) (other than in the circumstances described in Conditions 6.3 or 6.5 below), as set forth in the Loan Agreement, all Notes then remaining outstanding will thereupon become due and redeemable or repayable at 100 per cent. of the principal amount together with accrued interest and (subject to the Loan being repaid or prepaid together with accrued interest) shall be redeemed or repaid by

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the Issuer and the Issuer shall give not less than fifteen days’ notice thereof to the Trustee and the Noteholders in accordance with Condition 14.

To the extent that the Issuer receives amounts of principal, interest or other amounts (other than amounts in respect of the Reserved Rights) following acceleration and/or enforcement of the Loan (as the case may be), the Issuer shall pay an amount equal to and in the same currency as such amounts on the Business Day (as defined in the Loan Agreement) following receipt of such amounts, subject to and as provided in Condition 7.

6.3 If a Change of Control Put Event (as defined below) shall have occurred, the holder of a Note will have the option (the “Change of Control Put Option”) to require the Issuer to redeem such Note on the Change of Control Put Settlement Date (as defined below) at 100 per cent. of its principal amount together with accrued interest (if any) to but excluding the Change of Control Put Settlement Date.

Promptly upon the Issuer becoming aware (either by receiving written notice from RusHydro or otherwise) that a Change of Control Put Event has occurred, the Issuer shall give notice (a “Change of Control Put Event Notice”) to the Noteholders and the Trustee in accordance with Condition 14, specifying the details relating to the occurrence of the Change of Control Put Event and the procedure for exercising the Change of Control Put Option.

6.4 In order to exercise the Change of Control Put Option, the holder of a Note must deliver, no later than 30 days after the Change of Control Put Event Notice is given (the “Change of Control Put Period”), to the specified office of the Registrar or any of the Transfer Agents, the Certificate representing such Notes (together with such evidence as the Registrar or the relevant Transfer Agent may require to prove the holder’s entitlement to such Note) and a duly completed change of control put option notice (a “Change of Control Put Option Notice”) specifying the principal amount of the Notes in respect of which the Change of Control Put Option is exercised, in the form obtainable from any Paying Agent, the Registrar or any Transfer Agent (as applicable). A Change of Control Put Option Notice, once given in accordance with this Condition 6.4, shall be irrevocable and may not be withdrawn. The Principal Paying Agent or Paying Agent will provide such Noteholder with a non-transferable receipt. On the Business Day following the end of the Change of Control Put Period, the relevant Paying Agent shall notify in writing the Issuer and RusHydro of the exercise of the Change of Control Put Option specifying the aggregate principal amount of the Notes to be redeemed in accordance with the Change of Control Put Option. Provided that Certificates representing the Notes that are the subject of any such Change of Control Put Option Notice have been delivered to the Registrar or Transfer Agent (as applicable) prior to the expiry of the Change of Control Put Period, the Issuer shall (subject to the receipt of sufficient funds to do so from RusHydro pursuant to the Loan Agreement and provided that the Issuer has not given notice of redemption pursuant to Condition 6.2) redeem all such Notes represented by such Certificates on the date falling five Business Days after the expiration of the Change of Control Put Period (the “Change of Control Put Settlement Date”), whereupon the Issuer will, pursuant to the Paying Agency Agreement, deliver the Certificates representing such Notes to the Registrar and instruct the Registrar to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by RusHydro in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon.

“Change of Control Put Event” means the occurrence of a Change of Control (as defined in the Loan Agreement).

6.5 At any time on or after the date three months prior to the Repayment Date, RusHydro may, on giving not less than 30 nor more than 60 days’ notice to the Issuer (which notice shall be irrevocable and shall specify the date fixed for prepayment (the “Par Optional Prepayment Date”)), prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the Par Optional Prepayment Date (the “Par Call Option”).

Immediately on receipt of such notice, the Issuer shall deliver and publish it to the Noteholders (in accordance with Condition 14), the Trustee and the Principal Paying Agent. If, as a result of the Par Call Option, the Loan is repaid by RusHydro as set forth in the Loan Agreement prior to the Repayment Date, the Notes will thereupon become due and repayable and the Issuer shall, subject to receipt of the relevant amounts from RusHydro under the Loan, redeem the Notes on the Par Optional Prepayment Date.

according to the holding of each Noteholder; subject, in each case, to compliance with any applicable laws and stock exchange or other relevant regulatory requirements. Neither the Trustee nor any Agent shall have any liability for any selection made pursuant to this Condition 6.5.

The Issuer’s obligations in respect of this Condition 6.5 to redeem and make payment for the Notes shall constitute an obligation only to account to Noteholders on the Par Optional Prepayment Date for an amount equivalent to the sums received by or for the account of the Issuer pursuant to the Loan Agreement.

6.6 The Loan Agreement provides that RusHydro or any Subsidiary of RusHydro may, among other things, purchase Notes from time to time, in the open market or by tender or by a private agreement at any price. Such Notes may be held, reissued, resold or, at the option of RusHydro or any such Subsidiary, delivered to the Issuer together with a request for the Issuer to redeem and thereafter cancel a specified aggregate principal amount of such Notes (being at least RUB250,000,000), whereupon the Issuer shall, pursuant to the Paying Agency Agreement, deliver the Certificates representing such Notes to the Registrar and instruct the Registrar to cancel such Notes. Upon the cancellation of such Notes, the Loan shall be treated as prepaid by RusHydro in an amount corresponding to the aggregate principal amount of the Notes surrendered for cancellation, together with accrued interest (if any) thereon.

7 Currency Exchange and Payments

7.1 If the Notes are represented by Certificates, Noteholders may, no later than the fifth Business Day before the due date for any payment of interest or principal, give an irrevocable election (a “U.S. Dollar Noteholder Election”) to the Registrar to receive such payment of interest or principal, as the case may be, in U.S. Dollars. Upon any such election in accordance with the foregoing, such interest or principal will be converted into U.S. Dollars by the Principal Paying Agent pursuant to this Condition 7.1.

The Principal Paying Agent shall, on or before 10.30 a.m. (New York time) on the Business Day prior to each Interest Payment Date or Repayment Date (each, an "Exchange Date"), purchase U.S. dollars (the “U.S. Dollar Amount”) with the Exchange Amount (as defined below) at a purchase price calculated on the basis of Applicable Exchange Rate (as defined below) for settlement on the relevant Interest Payment Date or Repayment Date. If the Notes are represented by Certificates and for any reason on the Exchange Date it is not possible for the Principal Paying Agent to purchase the U.S. Dollar Amount with the Exchange Amount at the Applicable Exchange Rate, the Principal Paying Agent shall notify the Issuer and the Principal Paying Agent shall make payments on the Notes in roubles into a roubles account maintained by the payee with a bank in London.

If the Notes are represented by Certificates and for any reason on the Exchange Date it is not possible for the Principal Paying Agent to purchase the U.S. Dollar Amount with the Exchange Amount at the Applicable Exchange Rate, the Issuer shall notify the Noteholders in accordance with Condition 14 and the Principal Paying Agent shall make payments on the Notes in roubles into a roubles account maintained by the payee with a bank in London.

As used in this Condition 7.1:

“Applicable Exchange Rate” means the internal foreign exchange conversion rate for settlement on the relevant Interest Payment Date which the Principal Paying Agent acting in a commercially reasonable manner uses to convert roubles into U.S. Dollars; and

“Exchange Amount” means, in respect of each Interest Payment Date, the amount in roubles in aggregate equivalent to the portion of such interest and/or principal in respect of the Notes due on the relevant Interest Payment Date which is payable to the Noteholders (if any) which have given an irrevocable election pursuant to this Condition 7.1 to receive payment of such interest and/or principal in U.S. Dollars.

On each Interest Payment Date, the Issuer shall give due notice to the Noteholders in accordance with Condition 14 of (a) the Exchange Amount and the U.S. Dollar Amount applicable to such Interest Payment Date, (b) the Applicable Exchange Rate at which such U.S. Dollar Amount was purchased by the Principal Paying Agent and (c) if applicable, whether such U.S. Dollars were purchased from either the Principal Paying Agent or from another leading foreign exchange bank in London or New York City.

In accordance with the Agency Agreement, any calculation or determination performed or made by the Principal Paying Agent for the purposes of these Conditions shall be final and binding on the Issuer, 154

RusHydro, the Trustee, the Noteholders and the other Agents. In making any determination, the Principal Paying Agent is acting exclusively as an agent of the Issuer and in accordance with the Conditions. Neither the Trustee nor the Principal Paying Agent nor the other Agents shall be responsible or liable to any person in relation to the timing, determination, calculation or application of any the Applicable Exchange Amount or the U.S. Dollar Amount. The Principal Paying Agent shall not be liable to any Noteholder, the Issuer, RusHydro or any other person for any losses whatsoever resulting from determination, calculation, timing or application by the Principal Paying Agent of the Applicable Exchange Rate or the US Dollar Amount. The Principal Paying Agent may rely conclusively on the basis on which its internal foreign exchange conversion rate (including, for avoidance of doubt, any third party indexes forming the basis for such conversation rates) for settlement has been determined and shall not be liable for losses associated with the basis for determination of such rate.

The Principal Paying Agent is entitled to rely on, and will not be liable for any losses resulting from acting in accordance with, any notifications, instructions or U.S. Dollar Noteholder Election even if, following its acting on it, it may be found that such notification, instruction or U.S. Dollar Noteholder Election was not authentic or was defective.

The Principal Paying Agent may retain for its own account any spread on foreign exchange transactions, customarily charged by it in connection with such conversion.

7.2 Payments of principal shall be made in roubles or, in the case of Notes in respect of which a U.S. Dollar Noteholder Election has been made pursuant to Condition 7.1, U.S. Dollar, cheque drawn on, or, upon application by a holder of a Note to the specified office of the Principal Paying Agent not later than the 15th day before the due date for any such payment, by transfer to a roubles account or, in the case of Notes in respect of which U.S. Dollar Noteholder Election has been made pursuant to Condition 7.1, a U.S. Dollar account maintained by the payee with a bank in London upon surrender of the relevant Notes at the specified office of the Principal Paying Agent or the specified office of the Transfer Agent.

7.3 Payments of interest shall be made in roubles or, in the case of Notes in respect of which a U.S. Dollar Noteholder Election has been made pursuant to Condition 7.1, a U.S. Dollar, cheque drawn on, or, upon application by a holder of a Note to the specified office of the Principal Paying Agent not later than the 15th day before the due date for any such payment, by transfer to a roubles account or, in the case of Notes in respect of which a U.S. Dollar Noteholder Election has been made pursuant to Condition 7.1, U.S. Dollar account maintained by the payee with a bank in London, and (in the case of interest payable on redemption) upon surrender (or, in the case either of an interest payment prior to redemption or of part payment only, endorsement) of the relevant Notes at the specified office of any Paying Agent.

7.4 All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 8.

7.5 A Note may only be presented for payment on a day which is a business day in the place of presentation. If the due date for payment of interest or principal is not a business day, the holder of a Note shall not be entitled to payment of the amount due until the next following business day and shall not be entitled to any further interest or other payment in respect of any such delay. In this Condition 7.7, “business day” means a day on which, if on that day a payment is to be made hereunder, commercial banks generally are open for business in Moscow, London, New York and in the city where the specified office of the Principal Paying Agent is located.

7.6 The name of the initial Paying Agents and their initial specified offices are set out below. The Paying Agency Agreement provides that the Issuer may at any time, with the prior written approval of the Trustee, vary or terminate the appointment of any of the Paying Agents, and appoint additional or other paying agents, provided that the Issuer will ensure that it maintains for so long as the Notes are listed and/or admitted to trading on any stock exchange, (i) a Paying Agent or Transfer Agent with a specified office in such place as may be required by the rules and regulations of such stock exchange; and (ii) a Registrar having a specified office outside the United Kingdom. Any such variation, termination or appointment shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not more than 45 days’ and not less than 30 days’ notice thereof shall have been given to the Noteholders in accordance with Condition 14.

7.7 In acting under the Paying Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and do not assume any obligations towards or relationship of agency or trust for or with 155

any of the Noteholders. The Paying Agency Agreement provides that at any time after a Relevant Event has occurred each Agent shall, if so required by notice in writing given by the Trustee to the Issuer and the Agents (or such of them as are specified by the Trustee), act thereafter, until otherwise instructed by the Trustee, as the agent of the Trustee as further described in the Paying Agency Agreement.

7.8 In addition, if the due date for redemption or repayment of a Note is not an Interest Payment Date, interest accrued from the preceding Interest Payment Date or, as the case may be, from the date of issuance of the Notes, shall be payable only as and when actually received by or for the account of the Issuer pursuant to the Loan Agreement.

7.9 Save as directed by the Trustee at any time after the security created in the Trust Deed becomes enforceable, the Issuer will require RusHydro to make all payments of principal, interest and any additional amounts to be made pursuant to the Loan Agreement to the Principal Paying Agent to an account or accounts in the name of the Issuer with the Principal Paying Agent. Pursuant to the Charge, the Issuer will charge, by way of first fixed charge, all its rights, title and interest in and to all sums of money (with the exception of sums relating to the Reserved Rights) then or in the future so deposited in such accounts and the debts represented thereby to the Trustee for the benefit of the Noteholders.

7.10 In respect of the Issuer’s obligations under Conditions 5, 6 and 8, and subject to the following sentence, if the Issuer receives any amount under the Loan Agreement in a currency other than roubles, the Issuer’s obligation under the relevant Condition shall be fully satisfied by paying such sum (after deducting any costs of exchange) as the Issuer receives upon conversion of such sum into roubles in accordance with customary banking practice in the spot market on the Business Day immediately following the day on which such sum is received by the Issuer. If the Issuer receives any payment from RusHydro pursuant to sub-Clause 12.6 of the Loan Agreement with respect to amounts due under the Notes, the Issuer shall pay such sum to the Noteholders in accordance with this Condition 7.

8 Taxation

8.1 All payments in respect of the Notes by or on behalf of the Issuer shall be made free and clear of and without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax, unless the deduction or withholding of such taxes or duties is required by law.

8.2 In such event, the Issuer shall make such additional payments as shall result in the receipt by the Noteholders of such amount as would have been received by them if no such withholding or deduction had been required. However, the Issuer shall only make such additional payments to the extent and at such time as it shall receive equivalent sums from RusHydro under the Loan Agreement. To the extent that the Issuer does not receive any such equivalent sum, the Issuer shall account to the relevant Noteholder for an additional amount equivalent to a pro rata proportion of such additional amount (if any) as is actually received by, or for the account of, the Issuer pursuant to the provisions of the Loan Agreement on the date of, in the currency of, and subject to any conditions attaching to the payment of such additional amount to the Issuer, provided that no such additional amount will be payable:

8.2.1 to a Noteholder who is liable for such taxes or duties by reason of his having some connection with Ireland other than the mere holding of such Notes or the receipt of payments in respect thereof;

8.2.2 in respect of a Note presented for payment of principal more than 30 days after the Relevant Date except to the extent that such additional payment would have been payable if such Note had been presented for payment on such thirtieth day; or

8.2.3 in respect of a Note held by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying Agent in a Member State of the European Union; or

8.2.4 to a Noteholder who is able to avoid such deduction or withholding by satisfying any statutory requirements or by making a declaration of non-residence or other claim for exemption to the relevant tax authority.

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8.3 As used herein, “Relevant Date” means (i) the date on which the equivalent payment under the Loan Agreement first becomes due, but (ii) if the full amount payable by RusHydro has not been received by, or for the account of, the Issuer pursuant to the Loan Agreement on or prior to such date, it means the date on which such full amount shall have been so received and notice to that effect shall have been duly given to the Noteholders by or on behalf of the Issuer in accordance with Condition 14.

8.4 Any reference herein or in the Trust Deed to payments in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable in accordance with the Trust Deed and this Condition 8 or any undertaking given in addition thereto or in substitution therefor pursuant to the Trust Deed.

9 Enforcement

9.1 The Trust Deed provides that only the Trustee (subject to Condition 1) may pursue the remedies under the general law, the Trust Deed or the Notes to enforce the rights of the Noteholders and no Noteholder will be entitled to pursue such remedies unless the Trustee (having become bound to do so in accordance with the terms of the Trust Deed) fails to do so within a reasonable period and such failure is continuing.

9.2 The Trust Deed also provides that, in the case of an Event of Default, or of a Relevant Event which is continuing, the Trustee may, and shall, if requested to do so by Noteholders holding one-quarter of principal amount of the Notes outstanding, or if directed to do so by an Extraordinary Resolution and, in each case, subject to its being indemnified and/or secured and/or prefunded to its satisfaction, institute such steps, actions or proceedings as it may think fit to enforce the rights of the Noteholders and the provisions of the Trust Deed, including declaring all amounts payable under the Loan Agreement by RusHydro to be due and payable or procure that such a declaration is made (in the case of an Event of Default), or exercise any rights under the Security Interests created in the Trust Deed in favour of the Trustee (in the case of a Relevant Event). Upon repayment of the Loan following an Event of Default and a declaration as provided herein, the Notes will be redeemed or repaid and thereupon shall cease to be outstanding.

10 Meetings of Noteholders; Modification of Notes, Trust Deed and Loan Agreement; Waiver; Substitution of the Issuer

10.1 The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including any modification of, or any arrangement in respect of, the Notes, the Loan Agreement or the Trust Deed. Noteholders will be entitled to one vote per RUB100,000 in principal amount of Notes held by them. The Trust Deed provides that special quorum provisions apply for meetings of Noteholders convened for the purpose of amending certain terms concerning, inter alia, the amount payable on, and the currency of payment in respect of, the Notes and the amounts payable and currency of payment under the Loan Agreement. Under the terms of the Trust Deed, an Extraordinary Resolution means a resolution passed at a meeting of the Noteholders duly convened and held in accordance with the provisions contained therein by a majority of at least 75 per cent. of the votes cast. Any resolution duly passed at a meeting of Noteholders will be binding on all the Noteholders, whether present or not.

The Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 75 per cent. in principal amount of the Notes outstanding shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

10.2 The Trustee may agree, without the consent or sanction of the Noteholders, to any modification of the Notes, the Paying Agency Agreement and the Trust Deed or, following the creation of the Security Interests, the Loan Agreement (all except as mentioned in the Trust Deed), which, in the opinion of the Trustee, is of a formal, minor or technical nature, is made to correct a manifest error or (except as mentioned in the Trust Deed) in the opinion of the Trustee is not materially prejudicial to the interests of the Noteholders.

10.3 The Trustee may also without the consent or sanction of the Noteholders waive or authorise or agree to the waiving or authorising of any breach or proposed breach by the Issuer of the Conditions or the Trust Deed or, following the creation of the Security Interests, by RusHydro of the terms of the Loan Agreement (in each case other than any such breach or proposed breach in respect of the Reserved Rights) or determine that any event which could or might otherwise give rise to a right of acceleration under the Loan Agreement shall not be treated as such if, in the opinion of the Trustee, to do so would not be materially prejudicial to the interests

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of the Noteholders. Any such waiver or authorisation shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be promptly notified to the Noteholders in accordance with Condition 14.

10.4 The Trust Deed contains provisions to the effect that there may, provided certain conditions have been met (as further set out in the Trust Deed), and subject to compliance with the requirements set out in the Trust Deed and such requirements as the Trustee may direct in the interests of Noteholders (without the consent of the Noteholders), be substituted any entity in place of the Issuer as creditor under the Loan Agreement, as issuer and principal obligor in respect of the Notes and as obligor under the Trust Deed, subject to the substitute’s rights under the Loan Agreement being charged and assigned to the Trustee as security for the payment obligations of the substitute obligor under the Trust Deed and the Notes. Not later than 14 days after compliance with the aforementioned requirements, notice thereof shall be given by the Issuer to the Noteholders in accordance with Condition 14.

10.5 In connection with the exercise of any of its powers, trusts, authorities or discretions, the Trustee shall have regard to the interests of the Noteholders as a class and, in particular, shall not have regard to the consequences of such exercise for individual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. No Noteholder is entitled to claim from the Issuer or the Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders.

11 Prescription

Notes will become void unless presented for payment within 10 years (in the case of principal) or five years (in the case of interest) from the due date for payment in respect thereof.

12 Indemnification of Trustee

12.1 The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking steps, actions or proceedings to enforce payment unless indemnified and/or secured and/or prefunded to its satisfaction, and to be paid its fees, costs and expenses in priority to any claims of Noteholders. In addition, the Trustee is entitled to enter into business transactions with the Issuer or RusHydro and any entity relating to the Issuer or RusHydro without accounting for any profit.

12.2 The Trustee’s responsibilities are solely those of trustee for the Noteholders on the terms of the Trust Deed. Accordingly, the Trustee makes no representations and assumes no responsibility for the validity or enforceability of the Loan Agreement or the security created in respect thereof or for the performance by the Issuer of its obligations under or in respect of the Notes and the Trust Deed or by RusHydro in respect of the Loan Agreement. The Trustee is entitled to assume that RusHydro is performing all of its obligations pursuant to the Loan Agreement (and shall have no liability for doing so).

12.3 The Trustee shall have no liability to Noteholders for any shortfall they may suffer if it is liable for tax in respect of any payments received by it or as a result of the Security Interests being held or enforced by it.

13 Replacement of Notes

If a Note shall become mutilated, defaced, lost, stolen or destroyed it may, subject to all applicable laws and regulations and requirements of the Stock Exchange (as defined in the Trust Deed), be replaced at the specified offices of the Transfer Agents on payment of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, security and indemnity and otherwise as may reasonably be required by or on behalf of the Issuer and/or the Transfer Agents. Mutilated or defaced Notes must be surrendered before replacements will be issued.

14 Notices

Notices to the Noteholders will be valid if sent to them by first class mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses on the Register. Any such notice shall be deemed to have been given on the fourth day after the date of mailing. The Issuer will also ensure that notices are duly given or published in a manner which complies with the rules of the Stock Exchange or any other stock exchange or other relevant authority on which the Notes are for the time being listed. Any such notice shall

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be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which such publication is made.

In case by reason of any other cause it shall be impracticable to publish any notice to the Noteholders as provided above, then any such notification to such Noteholders as shall be given with the approval of the Trustee in accordance with the rules of the Stock Exchange shall constitute sufficient notice to such Noteholders for every purpose hereunder.

15 Further Issues

The Issuer may from time to time, without notice to or the consent of the Noteholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on the further notes) so as to be consolidated with and form a single series with the Notes. In relation to any further issue which is to form a single series with the Notes, (i) the Issuer will enter into a loan agreement with RusHydro on substantially the same terms as the Loan Agreement (or on the same terms except for the first payment of interest) subject to any modifications which, in the sole opinion of the Trustee only relate to Reserved Rights and would not materially prejudice the interests of Noteholders and (ii) the Security Interests granted in respect of the Notes will be amended or supplemented so as to secure amounts due in respect of the Notes and such further Notes also and/or new security will be granted over any further loan agreement or the Loan Agreement as so amended or supplemented to secure amounts due on the Notes and such further Notes. Such further Notes forming a single series with the outstanding Notes shall be constituted by a deed supplemental to the Trust Deed between the Issuer and the Trustee. The Trust Deed contains provisions for convening a single meeting of Noteholders and the holders of notes of other series in certain circumstances where the Trustee so decides.

16 Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

17 Governing Law and Jurisdiction

The Notes, these Conditions, the Trust Deed and any non-contractual obligations arising out of or in connection therewith shall be governed by, and construed in accordance with, English law.

The Issuer has submitted in the Trust Deed to the jurisdiction of the courts of England and has appointed an agent for the service of process in England. The Issuer and RusHydro have in the Loan Agreement agreed that any dispute arising out of or in connection with the Loan Agreement shall be resolved by arbitration in London, England conducted in the English language by three arbitrators pursuant to the LCIA rules and such arbitration also to be administered by the LCIA in accordance with the LCIA rules. Under the Loan Agreement, the Issuer and RusHydro have appointed agents for the service of process in England.

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THE LOAN AGREEMENT

The following is substantially all of the text of the Loan Agreement entered into among RusHydro and the Issuer.

This Loan Agreement is made on 23 November 2018 between:

(1) PUBLIC JOINT-STOCK COMPANY FEDERAL HYDRO-GENERATING COMPANY - RUSHYDRO a public joint stock company registered in the Russian Federation under the main state registration number 1042401810494, whose registered office is at Dubrovinskogo street, 43, bld.1, Krasnoyarsk, Krasnoyarsk Krai, 660017, Russian Federation, as borrower (“RusHydro”); and

(2) RUSHYDRO CAPITAL MARKETS DAC, a designated activity company established under the laws of Ireland with registered number 608179, whose registered office is at 3rd Floor, Kilmore House, Park Lane, Spencer Dock, Dublin 1, Ireland (the “Lender”).

Whereas: RusHydro proposes to borrow RUB 15,000,000,000 and the Lender wishes to make such Loan on the terms and subject to the conditions of this Loan Agreement. Payments of interest and principal by RusHydro under this Loan Agreement will be applied by the Lender solely to make payments of interest and principal to Noteholders under the Notes.

Now it is hereby agreed as follows:

1 Definitions and Interpretation

1.1 Definitions

In this Agreement (including the recitals), the following terms shall have the meanings indicated:

“Accounts” means the Rouble Account and the U.S. Dollar Account.

“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purpose of this definition, “control”, when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agency” means any agency, authority, central bank, department, committee, government, legislature, minister, ministry, official or public or statutory Person (whether autonomous or not).

“Agreement” means this Agreement as originally executed or as it may be amended from time to time.

“Applicable Currency” means RUB or U.S. dollars, as the case may be.

“Asset Acquisition” means (i) an investment by RusHydro or any Subsidiary of RusHydro in any other Person pursuant to which such Person shall become a Subsidiary of RusHydro, or shall be consolidated or merged with RusHydro or any Subsidiary of RusHydro or (ii) the acquisition by RusHydro or any Subsidiary of RusHydro of assets of any Person which constitute all or substantially all of the assets of such Person or which comprise the whole of a division or line of business of such Person.

“Asset Disposal” means any direct or indirect lease, sale, transfer, issuance or other disposal either in one transaction or in a series of related transactions, including any disposal by means of a merger, consolidation or similar transaction (together, a “disposal”), of:

(a) any Capital Stock of a Subsidiary of RusHydro (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than RusHydro or any Subsidiary of RusHydro); or

(b) any of the assets of, or any division or line of business of, RusHydro or any Subsidiary of RusHydro; or

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“Board of Directors” means, as to any Person, the board of directors, management board or equivalent competent governing body of such Person, or any duly authorised committee thereof.

“Business Day” means a day on which, if on that day a payment is to be made hereunder, commercial banks are generally open for business in Moscow, London, New York, Dublin and in the city where the specified office of the Principal Paying Agent is located.

“Capital Stock” of any Person means any and all shares, interests (including partnership interests), rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, but excluding any debt securities convertible into or exchangeable for such equity.

“Change of Control” means a change of control that shall occur at any time such that the Permitted Holders (i) cease to be the beneficial owners, directly or indirectly, of more than 50 per cent plus one share of the issued and outstanding voting share capital of RusHydro or (ii) cease to be able to appoint, directly or indirectly, the majority of the Board of Directors of RusHydro.

“Change of Control Put Option” means the change of control put option granted to Noteholders pursuant to the Conditions.

“Closing Date” means 27 November 2018.

“Conditions” has the meaning specified in the Trust Deed.

“Consolidated EBITDA” means in relation to any date, the earnings of the Group on a consolidated basis before deduction of interest expense and financing items, extraordinary items such as, but not limited to, non- cash impairment and disposal charges which would otherwise reduce consolidated EBITDA, income taxes, depreciation and amortisation for the immediately preceding Measurement Period as shown in the most recent audited or reviewed consolidated financial statements of RusHydro prepared in accordance with IFRS consistently applied.

“Currency Agreement” means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement.

“Definitive Note” means the registered certificates in definitive form representing one or more Notes comprising the entire holding by a Noteholder being substantially in the form set out in Schedule 2 to the Trust Deed.

“Dispute” has the meaning assigned to such term in sub-Clause 12.11.

“EBITDA” means in relation to any date, the earnings of the Subsidiary before deduction of interest expense and financing items, extraordinary items such as, but not limited to, non-cash impairment and disposal charges which would otherwise reduce consolidated EBITDA, income taxes, depreciation and amortisation for the immediately preceding Measurement Period, in each case, as calculated for the preparation of the most recent audited or reviewed consolidated financial statements of RusHydro prepared in accordance with IFRS consistently applied.

“Encumbrance” means any mortgage, pledge, encumbrance, lien, charge or other security interest of any kind or other arrangements having a similar effect (including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction and any conditional sale or other title retention or lease agreement having a similar effect).

“Environmental Approval” means any authorisation and the filing of any notification, report or assessment required under any Environmental Law for the operation of the business of RusHydro or any Subsidiary of RusHydro, as applicable, conducted on or from properties owned or used by RusHydro or any of its Subsidiaries, as applicable.

“Environmental Law” means any applicable Russian law or regulation or, in respect of assets held outside the Russian Federation, any applicable law or regulation which relates to:

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(i) the pollution or protection of the environment;

(ii) the harm to or the protection of human health; or

(iii) any emission or substance capable of causing harm to any living organism or the environment.

“Event of Default” has the meaning assigned to such term in sub-Clause 10.1.

“Facility Fee” has the meaning assigned to such term in sub-Clause 2.3.

“Fee Side Letter” means the side letter of even date herewith between RusHydro, the Trustee, the agents named therein and the Lender.

“Financial Indebtedness” means any indebtedness for or in respect of:

(a) moneys borrowed;

(b) any acceptance credit (including any dematerialised equivalent);

(d) any redeemable preference share;

(e) any agreement treated as a finance or capital lease in accordance with IFRS;

(f) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);

(g) the acquisition cost of any asset or service to the extent payable after its acquisition or possession by the party liable where the advance or deferred payment:

(i) is arranged primarily as a method of raising finance or financing the acquisition of that asset or the construction of that asset; or

(ii) involves a period of more than six months before or after the date of acquisition or supply;

(h) any derivative transaction protecting against or benefiting from fluctuations in any rate or price (and, except for non-payment of an amount, the then mark-to-market value of the derivative transaction will be used to calculate its amount);

(i) any other transaction (including any forward sale or purchase agreement) which has the commercial effect of a borrowing;

(j) any counter-indemnity obligation in respect of any Guarantee, indemnity, bond, letter of credit or any other instrument issued by a bank or financial institution; or

(k) any Guarantee, indemnity or similar assurance against financial loss of any Person in respect of any item referred to in the above paragraphs, but without double counting in respect of any Guarantee, indemnity or similar assurance relating to Financial Indebtedness already included pursuant to paragraphs (a) to (i) above,

in all cases, but only where the same would be capable of appearing as a liability in an audited or reviewed consolidated financial statements of RusHydro prepared in accordance with IFRS.

“Global Certificate” means the single, permanent global note in fully registered form, without interest coupons, substantially in the form set out in Schedule 1 to the Trust Deed representing the Notes and registered in the name of a nominee for Euroclear and Clearstream, Luxembourg.

“Group” means RusHydro and its Subsidiaries taken as a whole.

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“Guarantee” means, in relation to any Financial Indebtedness of any Person, any obligation of another Person to pay such Financial Indebtedness, including (without limitation):

(i) any obligation to purchase such Financial Indebtedness;

(ii) any obligation to lend money, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Financial Indebtedness;

(iii) any indemnity against the consequences of a default in the payment of such Financial Indebtedness; and

(iv) any other agreement entered into for the purpose of being responsible for such Financial Indebtedness.

“Hedging Obligations” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement.

“IFRS” means the International Financial Reporting Standards, including International Accounting Standards issued by the International Accounting Standards Board (as amended, supplemented or re-issued from time to time).

“Incur” means to issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Financial Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary of RusHydro (whether by merger, acquisition or otherwise) or is merged into a Subsidiary of RusHydro will be deemed to be incurred or issued by such Subsidiary at the time it becomes or is so merged into a Subsidiary of RusHydro. “Incurred” and “Incurrence” shall have correlative meanings.

“Interest Payment Date” means 27 January and 27 July of each year, commencing on 27 January 2019.

“Interest Period” has the meaning assigned to such term in sub-Clause 4.2.

“Interest Rate Agreement” means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement.

“Loan” means, at any time, the loan in an aggregate principal amount equal to the Loan Amount to be made by the Lender to RusHydro under Clause 3, as may be reduced from time to time by any prepayment.

“Loan Amount” has the meaning assigned to such term in sub-Clause 2.1.

“Loss” has the meaning assigned to such term in sub-Clause 11.1.

“Material Adverse Effect” means a material adverse effect on:

(i) the financial condition, business prospects or results of operations of RusHydro or the Group taken as a whole;

(ii) RusHydro’s ability to perform or comply with any of its obligations under this Agreement; or

(iii) the validity, legality or enforceability of this Agreement or the rights or remedies of the Lender hereunder.

“Material Subsidiary” means at any time a Subsidiary of RusHydro (a) whose EBITDA or total assets (to the extent included in the latest audited or reviewed consolidated accounts of RusHydro and excluding transactions and balances within the Group) represent in each case not less than 10 per cent. of the Consolidated EBITDA, or, as the case may be, consolidated total assets, of RusHydro, all as calculated respectively by reference to the then latest audited or reviewed consolidated accounts of RusHydro and the most recent stand along reporting forms of the relevant Subsidiary which were used for the purposes of preparing the Group’s consolidated financial statements; or (b) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary which immediately prior to such transfer is a Material Subsidiary, provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a Material Subsidiary and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this sub-paragraph (b) on the date on which the consolidated accounts of RusHydro for the financial period 163

current at the date of such transfer have been prepared and audited or reviewed as aforesaid but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited or reviewed as aforesaid by virtue of the provisions of sub-paragraph (a) above or, prior to or after such date, by virtue of any other applicable provision of this definition. An Officers’ Certificate provided in accordance with Clause 9.8.2 to the effect that a Subsidiary is or is not or was or was not at any particular time or throughout any specified period a Material Subsidiary, shall, in the absence of manifest error, be conclusive and binding on all parties including the Trustee and the Noteholders.

“Measurement Period” means a period of six months ending on 30 June or 31 December for which consolidated financial statements of the Group (or the other relevant person in respect of which the particular calculation is to be made, as the case may be) prepared in accordance with IFRS consistently applied. For the avoidance of doubt, any non-balance sheet financial information for a Measurement Period ending on 31 December of any year shall be calculated by subtracting (a) the relevant information for the Measurement Period ending on 30 June of that year from (b) the equivalent information for that year.

“Noteholder” means, in relation to a Note, the Person in whose name such Note is for the time being registered in the register of Noteholders (or, in the case of a joint holding, the first named holder thereof).

“Notes” means the RUB 15,000,000,000 8.975 per cent. loan participation notes due 2022 proposed to be issued by the Lender pursuant to the Trust Deed for the purpose of funding the Loan.

“Officers’ Certificate” means a certificate signed by two officers of RusHydro who shall be any of the principal executive officer, a member of the executive board, principal accounting officer, principal financial officer or other duly authorised officers of RusHydro, such certificate being substantially in the form set out in the Schedule hereto.

“Opinion of Counsel” means a written opinion from legal counsel (including any duly qualified lawyer or law firm) who is acceptable to the Lender and the Trustee, who may be a legally qualified employee of or counsel to RusHydro.

“Par Optional Prepayment Date” has the meaning assigned to such term in sub-Clause 5.5 hereof;

“Paying Agency Agreement” means the paying agency agreement relating to the Notes dated the date hereof, as may be amended, varied or supplemented from time to time.

“Paying Agent” shall have the meaning attributed to it in the Paying Agency Agreement.

“Permitted Encumbrance” means:

(i) any Encumbrance existing on the date of this Agreement;

(ii) any Encumbrance existing on any property, income or assets of any Person at the time such Person is acquired, merged or consolidated with or into RusHydro or any Subsidiary of RusHydro and not created in contemplation of such event;

(iii) any Encumbrance existing on any property, income or assets prior to the acquisition thereof by RusHydro or any Subsidiary of RusHydro and not created in contemplation of such acquisition;

(iv) any Encumbrance on property acquired (or deemed to be acquired) under a financial lease, or claims arising from the use or loss of or damage to such property, provided that any such Encumbrance secures Financial Indebtedness only under such lease and the principal amount of Financial Indebtedness secured by such Encumbrance shall not exceed the value of such lease;

(v) any Encumbrance on any property or assets securing Financial Indebtedness of RusHydro or any Subsidiary of RusHydro Incurred or assumed for the purpose of financing all or part of the cost of acquiring, purchasing, constructing or developing such property or assets, provided that no such Encumbrance shall extend to any other property or assets of the Group, the principal amount of the Financial Indebtedness secured by such Encumbrance shall not exceed the cost of acquiring,

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purchasing, constructing or developing such property or assets (including without limitation customs duties, transport, insurance, construction and installation costs and other incidental costs and expenses of purchase and any VAT or similar taxes thereon), and such Encumbrance attaches to such property or assets concurrently with or within 90 calendar days after the acquisition or purchase, or the commencement of the construction or development, thereof, as the case may be;

(vi) any Encumbrance on any property or assets of the Group securing Financial Indebtedness of RusHydro or any Subsidiary of RusHydro Incurred or assumed for the purpose of financing all or part of the cost of repairing, maintaining or refurbishing such property or assets, provided that no such Encumbrance shall extend to any other property or assets of the Group, the principal amount of the Financial Indebtedness secured by such Encumbrance shall not exceed the anticipated cost of such repairs, maintenance or refurbishments (including without limitation customs duties, transport, insurance, construction and installation costs and other incidental costs and expenses of purchase and any VAT or similar taxes thereon), and such Encumbrance attaches to such property or assets concurrently with or within 90 calendar days after the commencement of such repairs, maintenance or refurbishments, as the case may be;

(vii) any Encumbrance on the property, income or assets of RusHydro or any Subsidiary of RusHydro securing Financial Indebtedness owing to RusHydro or another Subsidiary of RusHydro;

(viii) any Encumbrance securing Financial Indebtedness Incurred in connection with a Project Financing if the Encumbrance is solely on the property, income, assets or revenues of the project for which the financing was incurred;

(ix) any Encumbrance securing Financial Indebtedness Incurred in connection with a Securitisation;

(x) any Encumbrance arising out of the refinancing, extension, renewal or refunding of any Financial Indebtedness of RusHydro or any Subsidiary of RusHydro secured by any Permitted Encumbrance, provided that such Financial Indebtedness is not increased and, if the property, income or assets securing any such Financial Indebtedness are changed in connection with any such refinancing, extension, renewal or refunding, the value of the property, income or assets securing such Financial Indebtedness is not increased;

(xi) any Encumbrance created to secure liabilities under letters of credit issued in connection with the acquisition and disposal of inventory, stock in trade, goods, services and other current assets (and, in each case, the proceeds thereof), in the ordinary course of business;

(xii) any Encumbrance securing Hedging Obligations so long as any such Hedging Obligation is not speculative;

(xiii) a right of set-off, right to combine accounts or any analogous right which any bank or other financial institution may have relating to any credit balance of any member of the Group;

(xiv) an Encumbrance arising solely by operation of law; and

(xv) any Encumbrance securing Financial Indebtedness not exceeding 15 per cent. of the consolidated total assets (“Total Assets”) of the Group as shown in the most recent audited or reviewed balance sheet of RusHydro prepared in accordance with IFRS, consistently applied. For the avoidance of doubt, this paragraph (xv) does not include any Encumbrance created in accordance with paragraphs (i) to (xiv) hereof.

“Permitted Holders” means the Russian Federation or any Agency of the Russian Federation or any entity wholly owned by the Russian Federation or any Agency of the Russian Federation.

“Permitted Merger” means:

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(a) any amalgamation or merger between RusHydro and any of its Subsidiaries or between Subsidiaries of RusHydro, provided that, as a result of, and following completion of, any such amalgamation or merger (i) RusHydro (where RusHydro is party to such amalgamation or merger) is the surviving entity; and (ii) such amalgamation or merger would not have, individually or in the aggregate, a Material Adverse Effect;

(b) any demerger or reconstruction to which RusHydro or any Subsidiary is a party, provided that such demerger or reconstruction would not have, individually or in the aggregate, a Material Adverse Effect; or

(c) any reorganisation or other type of corporate restructuring which is mandatory for RusHydro or any of its Material Subsidiaries by virtue of applicable Russian law or any direct, written instruction of the Russian Government made in respect of the restructuring of the Russian electricity industry, provided that the surviving entity will either be RusHydro or will accede to and fully assume the obligations of RusHydro under this Agreement and all other related documents.

“Permitted Reorganisation” means any event listed in sub-Clause 10.1.6 and affecting a Subsidiary of RusHydro where the Subsidiary is solvent at the relevant time and/or where all the assets and liabilities of the Subsidiary are transferred to RusHydro or one or more other Subsidiaries of RusHydro and/or which has been approved in writing by the Lender.

“Person” means any individual, company, corporation, firm, partnership, joint venture, association, joint stock company, trust, unincorporated organisation, government or any agency or political subdivision thereof or any other entity.

“Potential Event of Default” means any event or circumstances which would, with the giving of notice or the lapse of time or the making of any determination or the fulfilment of any other requirement, or any combination of the foregoing, become an Event of Default.

“Principal Paying Agent” means The Bank of New York Mellon, London Branch and any successor thereto.

“Project Financing” means any financing of all or part of the costs of the acquisition, construction or development of a project if the Person or Persons providing such financing expressly agree to look to the project financed and the revenues derived from such project (together with any credit support provided by third parties without recourse to RusHydro or any of its Subsidiaries) as the sole source of repayment for the monies advanced.

“Rate of Interest” has the meaning assigned to such term in sub-Clause 4.1.

“Repayment Date” means 27 January 2022.

“Registrar” means The Bank of New York Mellon SA/NV, Luxembourg Branch.

“Reserved Rights” has the meaning specified in the Trust Deed.

“roubles” and “RUB” mean the lawful currency of the Russian Federation.

“Rouble Account” means a rouble denominated account (Cash correspondent name: PJSC ROSBANK; Cash correspondent BIC: RSBNRUMM; PJSC ROSBANK cash account at the Central Bank of Russia: 30101810000000000256; PJSC ROSBANK BIK: 044525256; Cash account name at PJSC ROSBANK: The Bank of New York Mellon SA/NV; Cash account number: 30111810700000020021; For Further Credit to: SEC RUSHYDRO CAP MKT ACC RUB CSH - Acc. No. 2852580020) in the name of the Lender with the Account Bank at its specified office, or such other account substituted as the Rouble Account by written agreement between the Lender and the Trustee.

“Same-Day Funds” means funds for payment in the Applicable Currency as the Lender may at any time determine to be customary for the settlement of international transactions in the principal financial centre of the country of the Applicable Currency.

“Securitisation” means any securitisation of existing or future assets and/or revenues, provided that (i) any Encumbrance given by RusHydro or any Subsidiary of RusHydro in connection therewith is limited solely to 166

the assets and/or revenues which are the subject of the securitisation; (ii) each Person participating in such securitisation expressly agrees to limit its recourse to the assets and/or revenues so securitised as the principal source of repayment for the money advanced or payment of any other liability; and (iii) there is no other recourse to RusHydro or any Subsidiary of RusHydro in respect of any default by any Person under the securitisation.

“Specified Currency” has the meaning assigned to such term in sub-Clause 12.6.

“Subscription Agreement” means the subscription agreement dated the date hereof between the Lender, the Borrower and the Joint Lead Managers providing for the issuance of the Notes.

“Subsidiary” means, in respect of any Person (the “first person”) at any particular time, any other Person (the “second person”):

(a) Control: whose affairs and policies the first person controls or has the power to control (directly or indirectly), whether by contract, the power to appoint or remove more than half of the members of the governing body of the second person or otherwise;

(b) Ownership: of whose share capital the first person directly or indirectly owns more than half; or

For the avoidance of doubt, an entity which is equally owned by RusHydro and another entity and requires the approval of both investors to take any material decisions is not a Subsidiary for these purposes.

“Taxes” means any taxes (including interest or penalties thereon) which are now or at any time hereafter imposed, assessed, charged, levied, collected, demanded, withheld or claimed by the Russian Federation or Ireland, provided, however, that, for the purposes of this definition, the references to Ireland shall, upon the occurrence of a Relevant Event (as this term is defined in the Trust Deed), be deemed to be references to the jurisdiction in which the Trustee is domiciled for tax purposes; and the term “Taxation” shall be construed accordingly.

“Tax Credit” has the meaning assigned to such term in sub-Clause 6.4.

“Tax Treaty” means the Agreement for the avoidance of double taxation with respect to taxes on income between Ireland and the Russian Federation signed on 29 April 1994 as amended, varied, supplemented or replaced from time to time.

“Trust Deed” means the trust deed to constitute the Notes for the equal and rateable benefit of the Noteholders to be dated the Closing Date between the Lender and the Trustee as amended, varied or supplemented from time to time.

“Trustee” means BNY Mellon Corporate Trustee Services Limited as trustee under the Trust Deed and any successor thereto as provided thereunder.

“Trustee and Agents Fee Side Letter” means the side letter dated 23 November 2018 between the Lender, RusHydro, the Trustee and various agents of the Lender.

“U.S. Dollar Account” means a U.S. dollars denominated account (Pay to: The Bank of New York Mellon, New York; S.W.I.F.T. BIC: IRVTUS3N; Account Name: The Bank of New York Mellon; S.W.I.F.T. BIC: IRVTBEBB; Account Number: 8900285451; For further credit to: 2852588400; Account name: SEC RUSHYDRO CAP MKT ACC USD CSH) in the name of the Lender with the Account Bank at its specified office, or such other account substituted as the U.S. Dollar Account by written agreement between the Lender and the Trustee.

“U.S. dollars” denote the lawful currency for the time being of the United States of America.

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1.2 Other Definitions

Unless the context otherwise requires, terms used in this Agreement which are not defined in this Agreement but which are defined in the Trust Deed, the Notes, the Paying Agency Agreement or the Subscription Agreement shall have the meanings assigned to such terms therein.

1.3 Interpretation

Unless the context or the express provisions of this Agreement otherwise require, the following shall govern the interpretation of this Agreement:

1.3.1 all references to “Clause” or “sub-Clause” are references to a Clause or sub-Clause of this Agreement;

1.3.2 the terms “hereof”, “herein” and “hereunder” and other words of similar import shall mean this Agreement as a whole and not any particular part hereof;

1.3.3 words importing the singular number include the plural and vice versa;

1.3.4 all references to “taxes” include all present or future taxes, levies, imposts and duties of any nature and the terms “tax” and “taxation” shall be construed accordingly; and

1.3.5 the table of contents and the headings are for convenience only and shall not affect the construction hereof.

2 The Loan

2.1 The Loan

On the terms and subject to the conditions set forth herein, the Lender hereby agrees to lend RusHydro, and RusHydro hereby agrees to borrow from the Lender, RUB 15,000,000,000 (the “Loan Amount”).

2.2 Purpose

The proceeds of the Loan will be used for general corporate purposes, but the Lender shall not be concerned with the application thereof.

2.3 Facility Fee

In consideration of the Lender making the Loan to RusHydro, RusHydro shall pay a fee to the Lender (the “Facility Fee”) in accordance with the terms of the Fee Side Letter.

3 Drawdown

3.1 Drawdown

On the terms and subject to the conditions set forth herein, on the Closing Date, the Lender shall make the Loan to RusHydro and RusHydro shall make a single drawing in the full amount of the Loan.

3.2 Payment of the Facility Fee

RusHydro agrees to pay the Facility Fee to the Lender in Same-Day Funds before 4:30 p.m. (Moscow time) no later than the day falling two Business Days after the Closing Date to the account of the Lender with the Principal Paying Agent:

Pay to: The Bank of New York Mellon, New York S.W.I.F.T. BIC: IRVTUS3N Account Name: The Bank of New York Mellon S.W.I.F.T. BIC: IRVTBEBB

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Account Number: 8900285451 For further credit to: 9882958400 Account name: UNSEC RUSHYDRO CAP MKT ACC USD CSH 3.3 Disbursement

Subject to the Conditions set forth herein, on the Closing Date the Lender shall transfer in Same-Day Funds the amount of the Loan to the account in the name of RusHydro with VTB Bank (PJSC), Moscow, Russia:

Account of: PJSC “RusHydro” Correspondent Bank: VTB Bank (PJSC), Moscow, Russia SWIFT: VTBRRUMM Account number: 40702810700030003502 Correspondent Account: 30101810700000000187 BIK: 044525187

INN Number 2460066195

VO сode: 41030

VO сode payment description: loan provided to PJSC “RusHydro” according to the Loan Agreement dated 23 November 2018.

3.4 Maintenance Fee

In consideration of the Lender making the Loan, RusHydro shall, from time to time, within 30 days of a request of the Lender, pay to the Lender an additional facility fee in an amount which is sufficient to allow the Lender to discharge for all properly documented costs, fees, charges, liabilities, Taxes and expenses properly Incurred by the Lender (including, but not limited to, any Taxes, corporate service provider fees, stock exchange fees, audit fees, listing fees, legal fees and any anticipated winding-up expenses payable by the Lender as set out in the Trustee and Agents Fee Side Letter).

4 Interest

4.1 Rate of Interest

RusHydro will pay interest in roubles to the Lender on the outstanding principal amount of the Loan from time to time hereunder at the rate of 8.975 per cent per annum (the “Rate of Interest”).

4.2 Payment

Interest at the Rate of Interest shall accrue from day to day, starting from (and including) the Closing Date, and shall be paid in arrear not later than 4:30 p.m. (Moscow time) two Business Days prior to each Interest Payment Date. Interest on the Loan will cease to accrue from the due date for repayment thereof unless payment of principal is improperly withheld or refused, in which event interest will continue to accrue (before or after any judgment) at the Rate of Interest to, but excluding, the date on which payment in full of the principal thereof is made.

The amount of interest payable in respect of the Loan for any Interest Period other than the First Interest Period shall be calculated by applying the Rate of Interest to the Loan, dividing the product by two and rounding down the resulting figure to the nearest rouble. Interest for (i) the First Interest Period or (ii) any period other than an Interest Period, it will be calculated on the basis of a year of 365 days.

“Interest Period” means each period beginning on (and including) any Interest Payment Date and ending on (but excluding) the next Interest Payment Date.

“First Interest Period” means the period beginning on (and including) the Closing Date and ending on (but excluding) the Interest Payment Date on 27 January 2019. 169

5 Repayment and Prepayment

5.1 Repayment

Except as otherwise provided herein, RusHydro shall repay the Loan not later than 4:30 p.m. (Moscow time) two Business Days prior to the Repayment Date.

5.2 Special Prepayment

If, (i) (a) as a result of the application of any amendments to or change in the Tax Treaty or the laws or regulations of the Russian Federation or Ireland or of any political sub-division thereof or any authority having power to tax therein (including as a result of a judgment of a court of competent jurisdiction) or a change in the application or official interpretation of such laws or regulations which change or amendment becomes effective on or after the date of this Agreement, or (b) as a result of the enforcement of the security provided for in the Trust Deed, RusHydro would thereby be required to make or increase any payment due hereunder as provided in sub-Clause 6.2 or 6.3, or (ii) (for whatever reason) RusHydro would have to or has been required to pay additional amounts pursuant to Clause 8, then RusHydro may (without premium or penalty), upon not less than 15 calendar days’ notice to the Lender and the Trustee (which notice shall be irrevocable), prepay the Loan in whole (but not in part).

5.3 Illegality

If, at any time, by reason of the introduction of any change after the date of this Agreement in any applicable law, regulation, regulatory requirement or directive of any Agency of any state, the Lender reasonably determines that it is or would be unlawful or contrary to such applicable law, regulation, regulatory requirement or directive for the Lender to allow all or part of the Loan or the Notes to remain outstanding or for the Lender to maintain or give effect to any of its obligations in connection with this Agreement or the Notes and/or to charge or receive or to be paid interest at the rate then applicable to the Loan or the Notes, then the Lender shall notify RusHydro of this fact setting out in reasonable detail the nature and extent of the relevant circumstances. Following receipt of such notification, RusHydro may (but shall not be obliged to) obtain at its own cost an Opinion of Counsel and such opinion shall be determinative of the question as to whether or not an illegality of the type described above has occurred. If it is so determined that an illegality, of the type described above, has occurred or if RusHydro chooses not to obtain an Opinion of Counsel, then RusHydro and the Lender shall consult in good faith as to a basis which eliminates the application of such circumstances; provided, however, that the Lender shall be under no obligation to continue such consultation if a basis has not been determined within 30 calendar days of the date on which it so notified RusHydro. If such a basis has not been determined within the 30 calendar days described above, then, upon notice by the Lender to RusHydro in writing, RusHydro shall prepay the Loan in whole (but not in part), without any premium or penalty, on such date as the Lender shall certify being not earlier than 30 calendar days after the date on which the notice requiring prepayment is given.

5.4 Prepayment following a Change of Control

5.4.1 As soon as practicable, and in any event, within 10 calendar days after the date of any Change of Control, RusHydro shall deliver to the Lender and the Trustee a written notice in the form of an Officers’ Certificate, which notice shall be irrevocable, stating (i) that a Change of Control has occurred and (ii) stating the circumstances and relevant facts giving rise to such Change of Control; and

5.4.2 If, following a Change of Control, a Noteholder exercises a Change of Control Put Option, RusHydro shall, on the second Business Day before the Change of Control Put Settlement Date (as defined in the Conditions), prepay the Loan in an amount that is equal to the principal amount of Notes specified in the Change of Control Put Option Notice (as defined in the Conditions).

5.5 Optional Prepayment at Par

RusHydro may, at any time on or after the date three months prior to the Repayment Date, on giving not less than 30 nor more than 60 days’ notice to the Lender (which notice shall be irrevocable and shall specify the date fixed for prepayment (the “Par Optional Prepayment Date”)), prepay in whole or in part the Loan at its principal amount plus accrued and unpaid interest on the Loan so prepaid to but excluding the Par Optional Prepayment Date. 170

5.6 Prepayment of Loan Upon Redemption and Cancellation of Notes

RusHydro or any Subsidiary of RusHydro may from time to time, in accordance with the Conditions, purchase Notes in the open market or by tender or by a private agreement at any price. RusHydro or any such Subsidiary may from time to time deliver to the Lender Definitive Notes, having an aggregate principal value of at least RUB 250,000,000 together with a request (a “Request”) for the Lender to present such Definitive Notes to the Registrar for early redemption and cancellation or from time to time procure the delivery to the Registrar of instructions (“Instructions”) to redeem and thereafter cancel a specified aggregate principal amount of Notes (being at least RUB 250,000,000) represented by a Global Certificate in each case upon not less than 30 calendar days’ notice. Any Instructions shall be accompanied by evidence satisfactory to the Registrar that RusHydro or any such Subsidiary is entitled to give such Instructions (which, for the avoidance of doubt, will be satisfied by the provision of copies of account entries in the records of a clearing system and associated nominees (if relevant) reflecting RusHydro’s or such Subsidiary’s beneficial interest in such part of the Global Certificate being delivered representing the Notes). Upon receipt of Instructions, the Lender shall request and RusHydro shall procure that the relevant clearing system requests the Registrar to redeem and cancel such Notes on the date specified in the Instructions and RusHydro shall promptly procure that the account entries in the records of the relevant clearing system reflecting RusHydro’s or such Subsidiary’s beneficial interest in such part of the Global Certificate being delivered are updated to reflect such cancellation. RusHydro shall, on the date specified in any Request or, as the case may be, Instructions, be deemed to have repaid such amount of the Loan as corresponds to the aggregate principal amount of Notes presented with a Request or specified in Instructions and no further amounts shall be payable with respect thereto. Interest shall cease to accrue on the repaid amount of the Loan from and including the Interest Payment Date immediately preceding the date on which the repayment becomes effective.

5.7 Payment of Other Amounts

If the Loan is to be prepaid by RusHydro pursuant to any of the provisions of sub-Clause 5.2, 5.3 or 5.4, RusHydro shall, simultaneously with such prepayment or reduction, pay to the Lender accrued interest thereon to the date of such prepayment and all other sums then due and payable by RusHydro pursuant to this Agreement in relation to the prepaid amount.

5.8 Provisions Exclusive

RusHydro may not voluntarily prepay the Loan except in accordance with the express terms of this Agreement. Any amount prepaid may not be reborrowed.

6 Payments

6.1 Making of Payments

All payments of principal and interest and other amounts payable under sub-Clause 6.2 (other than those in respect of Reserved Rights) to be made by RusHydro under this Agreement shall be made unconditionally by credit transfer to the Accounts of the Lender not later than 4:30 p.m. (Moscow time) two Business Days prior to each Interest Payment Date or the Repayment Date (as the case may be) in Same-Day Funds to the Accounts or as the Trustee may otherwise direct following the occurrence of a Relevant Event (as defined in the Trust Deed). The Lender agrees with RusHydro that the Lender will not deposit any other moneys into the Accounts and that no withdrawals shall be made from the Accounts other than for payments to be made in accordance with the Trust Deed and Paying Agency Agreement.

6.2 No Set-Off, Counterclaim or Withholding; Gross-Up

All payments to be made by RusHydro under this Agreement shall be made in full without set-off or counterclaim and (except to the extent required by law) free and clear of and without deduction for or on account of any Taxes. If RusHydro shall be required by applicable law to make any deduction or withholding from any payment under this Agreement for or on account of any such Taxes, it shall, on the due date of such payment, increase any payment due hereunder to such amount as may be necessary to ensure that the Lender receives a net amount in roubles equal to the full amount which it would have received had payment not been made subject to such Taxes, shall account to the relevant authorities for the relevant amount of such Taxes so withheld or deducted within the time allowed for such payment under the applicable law and shall deliver to the Lender without undue delay evidence of such deduction or withholding and of the accounting therefor to the relevant tax authority. 171

6.3 Withholding on the Notes

If the Lender notifies RusHydro (setting out in reasonable detail the nature and extent of the obligation with such evidence that RusHydro may reasonably require) that it has become obliged to make any withholding or deduction for or on account of any present or future taxes, assessments or governmental charges of whatever nature, imposed or levied, collected, withheld or assessed by or on behalf of Ireland or any political subdivision or any authority thereof or therein having the power to tax from any payment which it is obliged to make, or would otherwise be obliged to make but for the imposition of such withholding or deduction for or on the account of such taxes, under or in respect of the Notes, RusHydro agrees to pay into the Accounts for the benefit of the Lender, not later than 4:30 p.m. (Moscow time) two Business Days prior to the date on which payment is due to the Noteholders in Same-Day Funds, such additional amounts as are equal (on an after tax basis, taking into account any relief available to the Lender, which relief can be used at no cost to the Lender to reduce or offset against any tax which the Lender may suffer) to the said additional amounts which the Lender would be required to pay in order that the net amounts received by the Noteholders after such withholding or deduction will equal the respective amounts which would have been received by the Noteholders in the absence of such withholding or deduction; provided, however, that the Lender shall immediately upon receipt from any Paying Agent of the reimbursement of any sums paid pursuant to this provision, to the extent that the Noteholders are not entitled to such additional amounts pursuant to the Conditions, pay such additional amounts to RusHydro (it being understood that, without prejudice to their obligation to act in good faith, neither the Lender, nor the Principal Paying Agent nor any Paying Agent shall have any obligation to determine whether any Noteholder is entitled to such additional amounts).

6.4 Reimbursement

To the extent that the Lender subsequently obtains or uses any tax credit or allowance or other reimbursements or reliefs relating to a deduction or withholding with respect to which RusHydro has made a payment pursuant to this Clause 6 (the “Tax Credit”), the Lender shall promptly pay to RusHydro so much of the Tax Credit it received as will leave the Lender in substantially the same position as it would have been had no additional amount been required to be paid by RusHydro pursuant to this Clause 6; provided, however, that the question of whether any such benefit has been received, and accordingly, whether any payment should be made to RusHydro, the amount of any such payment and the timing of any such payment, shall be determined reasonably by the Lender. The Lender shall, subject to being fully indemnified by RusHydro for all reasonable costs it Incurs in so doing, use its reasonable endeavours to obtain any credits or refunds available to it and the Lender shall disclose to RusHydro any information regarding its tax affairs or computations reasonably requested by RusHydro and notify RusHydro of any Tax Credit it receives.

If as a result of a failure to obtain relief from deduction or withholding of any Taxes referred to in sub-Clause 6.2: (a) such Taxes are deducted or withheld and, pursuant to sub-Clause 6.2, an increased amount is paid by RusHydro to the Lender in respect of such deduction or withholding, and (b) following the deduction or withholding of Taxes as referred to above, RusHydro applies on behalf of the Lender to the competent tax authority for a withholding tax refund (RusHydro having notified the Lender of such application) and such withholding tax is refunded or repaid by the relevant taxing authority to the Lender, the Lender shall as soon as reasonably practicable notify RusHydro of the receipt of such withholding tax refund and promptly transfer the actually received amount of the withholding tax refund in the currency actually received, less any applicable costs to a bank account of RusHydro specified for that purpose by RusHydro.

6.5 Mitigation

If at any time either party hereto becomes aware of circumstances which would or might, then or thereafter, give rise to an obligation on the part of RusHydro to make any deduction, withholding or payment as described in sub-Clause 6.2 or 6.3, then, without in any way limiting, reducing or otherwise qualifying the Lender’s rights, or RusHydro’s rights and obligations, under such sub-Clauses, such party shall as soon as reasonably practicable upon becoming aware of such circumstances notify the other party, and, thereupon the parties shall consider and consult with each other in good faith with a view to finding, agreeing upon and implementing a method or methods by which any such obligation may be avoided or mitigated and, to the extent that both parties can do so without taking any action which in the reasonable opinion of each party is prejudicial to its own position, take such reasonable steps as may be available to it to avoid such obligation or mitigate the effect of such circumstances. RusHydro agrees to reimburse the Lender for all costs and expenses (including, but not limited to, legal fees) Incurred by the Lender in connection with this sub-Clause 6.5.

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6.6 Tax Treaty Relief

6.6.1 The Lender shall (i) prior to the first Interest Payment Date and (ii) thereafter once in each calendar year, provide RusHydro no later than five Business Days prior to the first Interest Payment Date in that calendar year with a tax residency certificate issued by the competent authority of Ireland confirming that the Lender is resident for tax purposes in Ireland in the calendar year of such Interest Payment Date. At the cost of RusHydro, the tax residency certificate shall be apostilled at the Irish Department of Foreign Affairs and RusHydro shall arrange for such certificate to be translated into Russian and for that translation to be notarised under Russian law. The Lender shall not be responsible for any failure to provide, or any delays in providing, such tax residency certificate as a result of any action or inaction of any authority of Ireland, but shall notify RusHydro as soon as practicable about any such failure or delay with an indication of the actions taken by the Lender to obtain such tax residency certificate; and

6.6.2 If Russian legislation regulating the procedures for obtaining an exemption from Russian withholding tax on income changes, the Lender shall (subject to being informed of any changes by RusHydro) use its reasonable and timely efforts to assist RusHydro to obtain relief from such Tax pursuant to the Tax Treaty. In all other cases, the Lender shall, subject to being fully indemnified by RusHydro for all costs it Incurs in so doing, co-operate with RusHydro in completing any procedural formalities necessary for RusHydro to obtain authorisation to make any payment without any deduction or withholding on account of any Taxes.

6.7 Withholding Tax Exemption

RusHydro shall give to the Lender all the assistance it reasonably requires to ensure that the Lender can comply with sub-Clause 6.6.

7 Conditions Precedent

The obligation of the Lender to make the Loan to RusHydro shall be subject to the further conditions precedent that, as at the Closing Date, (a) the representations and warranties made and given by RusHydro in the Subscription Agreement shall be true and accurate as if made and given on the Closing Date with respect to the facts and circumstances then existing, (b) no Event of Default shall have occurred and be continuing, (c) RusHydro shall not be in breach of any of the terms, conditions and provisions of this Agreement, (d) each of the Subscription Agreement, the Trust Deed and the Paying Agency Agreement shall have been executed and delivered by each of the parties thereto and (e) the Lender shall have received the full amount of the proceeds of the issue of the Notes pursuant to the terms of the Subscription Agreement.

8 Change in Law; Increase in Cost

8.1 Compensation

In the event that after the date of this Agreement there is any change in or introduction of any tax, law, regulation, regulatory requirement or official directive (whether or not having the force of law but, if not having the force of law, the observance of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) or in the interpretation or application thereof by any Person charged with the administration thereof and/or any compliance by the Lender in respect of the Loan with any request, policy or guideline (whether or not having the force of law but, if not having the force of law, the observances of which is in accordance with the generally accepted financial practice of financial institutions in the country concerned) from or of any central or other fiscal, monetary or other authority, Agency or any official of any such authority, which:

8.1.1 subjects or will subject the Lender to any Taxes with respect to payments of principal of or interest on the Loan or any other amount payable under this Agreement (other than any Taxes payable by the Lender on its overall net income (except to the extent that the Lender is unable to obtain a deduction for tax purposes on payments to the Noteholders which offsets any tax liability on equivalent amounts received under this Agreement) or any Taxes referred to in sub-Clause 6.2 or 6.3); or

8.1.2 increases or will increase the Taxation of or changes or will change the basis of Taxation of payments to the Lender of principal of or interest on the Loan or any other amount payable under this Agreement (other than any such increase or change which arises solely by reason of any increase in 173

the rate of tax payable by the Lender on its overall net income (except to the extent that the Lender is unable to obtain a deduction for tax purposes on payments to the Noteholders which offsets any tax liability on equivalent amounts received under this Agreement) or as a result of any Taxes referred to in sub-Clause 6.2 or 6.3); or

8.1.3 imposes or will impose on the Lender any other condition affecting this Agreement or the Loan, and if, as a result of any of the foregoing:

(i) the cost to the Lender of making, funding or maintaining the Loan is increased; or

(ii) the amount of principal, interest or other amount payable to or received by the Lender hereunder is reduced; or

(iii) the Lender makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of any sum receivable by it from RusHydro hereunder or makes any payment or foregoes any interest or other return on or calculated by reference to the gross amount of the Loan,

then, subject to the following, and in each such case:

(a) the Lender shall, as soon as practicable after becoming aware of such increased cost, reduced amount or payment made or foregone, give written notice to RusHydro, together with a certificate signed by the Lender describing in reasonable detail the introduction or change or request which has occurred and the country or jurisdiction concerned and the nature and date thereof and demonstrating the connection between such introduction, change or request and such increased cost, reduced amount or payment made or foregone, and setting out in reasonable detail the basis on which such amount has been calculated, and all relevant supporting documents evidencing the matters set out in such certificates; and

(b) RusHydro, in the case of paragraphs (i) and (iii) above, shall, on demand by the Lender, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such increased cost, and, in the case of paragraph (ii) above, at the time the amount so reduced would otherwise have been payable, pay to the Lender such additional amount as shall be necessary to compensate the Lender for such reduction, payment or foregone interest or other return; provided, however, the amount of such increased cost, reduced amount or payment made or foregone shall be deemed not to exceed an amount equal to the proportion thereof which is directly attributable to this Agreement and provided that the Lender shall not be entitled to such additional amount where such increased cost arises as a result of the negligence or wilful default of the Lender,

provided that this sub-Clause 8.1 will not apply in respect of any matter for which the Lender has already been compensated under sub-Clause 6.2 or 6.3.

8.2 Mitigation

In the event that the Lender becomes entitled to make a claim pursuant to sub-Clause 8.1, the Lender shall consult in good faith with RusHydro and shall use reasonable efforts (based on the Lender’s reasonable interpretation of any relevant tax, law, regulation, requirement, official directive, request, policy or guideline) to reduce, in whole or in part, RusHydro’s obligations to pay any additional amount pursuant to sub-Clause 8.1, except that nothing in this sub-Clause 8.2 shall obligate the Lender to Incur any costs or expenses in taking any action which, in the reasonable opinion of the Lender, is prejudicial to its interests.

9 Covenants

So long as any amount remains outstanding under this Agreement:

9.1 Negative Pledge

RusHydro shall not, and RusHydro shall procure that no Material Subsidiary will, directly or indirectly, create, Incur or permit or suffer to exist any Encumbrance (other than a Permitted Encumbrance) upon or in

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respect of any of its undertakings, property, income, assets or revenues, present or future, to secure any Financial Indebtedness, unless, at the same time or prior thereto, RusHydro’s obligations under the Loan:

9.1.1 are secured equally and rateably with such other Financial Indebtedness (or, in the event that such Financial Indebtedness is subordinated in right of payment to the Notes, in priority to such Financial Indebtedness) with an Encumbrance on the same properties and assets securing such Financial Indebtedness for so long as such Financial Indebtedness is secured by such Encumbrance; or

9.1.2 have the benefit of such other security or other arrangement as the Lender in its absolute discretion shall deem to be not materially less beneficial to the Noteholders or as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed).

9.2 Mergers

RusHydro shall not, and shall procure that none of its Material Subsidiaries shall, enter into any amalgamation, demerger, merger or reconstruction, except in all cases for a Permitted Merger.

9.3 Disposals

RusHydro shall not, and shall procure that none of its Material Subsidiaries shall, directly or indirectly, conclude any Asset Disposal which would have, individually or in the aggregate, a Material Adverse Effect.

9.4 Environmental Laws

RusHydro shall, and shall procure that each of its Subsidiaries shall, comply in all respects with all Environmental Law and Environmental Approvals applicable to it, save where failure to do so would not, individually or in the aggregate, have a Material Adverse Effect.

9.5 Maintenance of Property

RusHydro shall, and shall procure that each of its Subsidiaries shall, cause all property used in the carrying on by it of its business for the time being to be kept in good repair and working order as may be reasonably necessary so that the business may be carried on, save where failure to do so would not, individually or in the aggregate, have a Material Adverse Effect.

9.6 Ranking of Claims

RusHydro will ensure that at all times the claims of the Lender against it under this Agreement rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, save those whose claims are preferred by any bankruptcy, insolvency, liquidation or similar laws of general application or other obligations mandatorily preferred by law.

9.7 Maintenance of Authorisations

RusHydro shall,

9.7.1 and shall procure that each of its Subsidiaries shall, take all necessary action to obtain and do or cause to be done all things reasonably necessary, in the opinion of RusHydro, to ensure the continuance of its corporate existence, its business and any intellectual property relating to its business save where failure to do so would not have, individually or in the aggregate, a Material Adverse Effect; and

9.7.2 take all necessary action to obtain, and do or cause to be done all things reasonably necessary to ensure the continuance of, all consents, licences, approvals and authorisations, and make or cause to be made all registrations, recordings and filings, which may at any time be required to be obtained or made in the Russian Federation for the execution, delivery or performance of this Agreement or for the validity or enforceability thereof, provided that, in any case, if RusHydro, can and does remedy any failure to comply with this sub-Clause 9.7.2 within 30 days of such failure or of the occurrence of such event, then this covenant shall be deemed not to have been breached.

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9.8 Financial and other Information

RusHydro will furnish to the Lender and the Trustee:

9.8.1 in each case, in the English language, (i) a copy of RusHydro’s audited consolidated financial statements for each financial year prepared in accordance with IFRS consistently applied, including a report thereon by RusHydro’s certified independent accountants, as soon as such are completed and available, but in any event not later than 120 days after the end of each financial year of RusHydro; and (ii) a copy of each of the unaudited financial statements of RusHydro for the first half of each of its financial years prepared in accordance with IFRS consistently applied as soon as the same are completed and available, but in any event where the same are completed and available, not later than 120 days after the end of the first half of each financial year of RusHydro;

9.8.2 an Officers’ Certificate delivered together with each copy of its financial statements referred to in sub- Clauses 9.8.1 (i) and (ii) above, and otherwise promptly upon request by the Lender (and in any event within 14 days of such request): (i) listing its Subsidiaries and Material Subsidiaries as at such date; and (ii) stating whether since the date of the last Officer’s Certificate or (if none) the date of this Agreement, any Potential Event of Default or Event of Default or Change of Control has occurred, and if any such event shall have occurred, what action RusHydro is taking or proposes to take with respect thereto. RusHydro will on request of the Lender promptly provide the Lender with such further information (and in such form as requested by the Lender or the Trustee), other than information which RusHydro determines in good faith to be confidential, about the business and financial condition of RusHydro and its Subsidiaries as the Lender or the Trustee may reasonably require; and

9.8.3 at any time after RusHydro or any Subsidiary of RusHydro shall have purchased any Notes and retained such Notes for its own account, RusHydro will notify the Lender to that effect and thereafter deliver to the Lender and the Trustee as soon as practicable after being so requested in writing by the Lender an Officers’ Certificate setting out the total number of Notes which, at the date of such Officers’ Certificate, are held by RusHydro or any Subsidiary of RusHydro for its own account.

10 Events of Default

10.1 Events of Default

If one or more of the following events of default (each an “Event of Default”) shall occur, the Lender shall be entitled to the remedies set forth in sub-Clause 10.3:

10.1.1 RusHydro fails to pay any amount payable hereunder as and when such amount becomes due and payable in the currency and in the manner specified herein, provided such failure to pay continues for more than five Business Days;

10.1.2 RusHydro fails to perform or observe any of its other obligations under this Agreement and (except where in any such case that failure is not capable of remedy when no such notices as is hereinafter mentioned will be required) that failure continues for the period of 30 calendar days following the submission by the Lender to RusHydro of notice in writing requesting the same to be remedied;

10.1.3 Any other present or future Financial Indebtedness of RusHydro or any of its Subsidiaries becomes, or becomes capable of being declared, due and payable prior to its stated maturity by reason of any actual or potential default, event of default or the like (howsoever described), or any such Financial Indebtedness is not paid when due or, as the case may be, within any originally applicable grace period, provided that the amount of Financial Indebtedness referred to in sub-paragraph (i) and/or sub-paragraph (ii), individually or in the aggregate, exceeds U.S.$50,000,000 (or its equivalent in any other currency or currencies);

10.1.4 there are final judgments, decrees or orders of courts of competent jurisdiction or other appropriate and competent law enforcement bodies for the payment of money against RusHydro and its Subsidiaries in each case which have not been satisfied during the period for satisfaction designated by law or the relevant judgment, decree or order and where the aggregate amount claimed under all such proceedings exceeds U.S.$50,000,000 (or its equivalent in any other currency or currencies)

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and there is a period of 90 calendar days following the entry thereof during which the relevant judgment, decree or order is not appealed, discharged, waived or the execution thereof stayed;

10.1.5 any expropriation, attachment, sequestration, execution or distress is levied against, or an encumbrancer takes possession of, all or substantially all of the assets of RusHydro or any Material Subsidiary of RusHydro;

10.1.6 save in all cases in connection with a Permitted Reorganisation, the occurrence of any of the following events: (i) any of RusHydro or any Material Subsidiary of RusHydro seeking or consenting to the introduction of proceedings for its liquidation or the appointment of a liquidation commission (likvidatsionnaya komissiya) or a similar officer of any of RusHydro or any such Material Subsidiary, as the case may be; (ii) the presentation or filing of a petition in respect of any of RusHydro or any Material Subsidiary in any court of competent jurisdiction, arbitration court or before any competent agency alleging, or for, the bankruptcy, insolvency, dissolution, administration, reorganisation or liquidation of any of RusHydro or any Material Subsidiary, including in the case of any entity in the Russian Federation the institution of supervision (nablyudeniye), financial rehabilitation (finansovoye ozdorovlenie), external management (vneshneye upravleniye) or bankruptcy management (konkursnoye proizvodstvo) (as such terms are defined in the Federal Law of Russia No. 127-FZ “On Insolvency (Bankruptcy)” dated 26 October 2002 (as amended or replaced from time to time) (the “Insolvency Law”)) of any such entity (ignoring any petition that is not accepted by such court or competent agency for review on its merits) and otherwise than for the purposes of or pursuant to an amalgamation, transformation, reorganisation or restructuring whilst solvent, and where such petition or filing is presented or filed by a Person that is not a member of the Group, either (a) such petition remains undisharged for at least 60 calendar days or (b) if earlier, such petition is accepted by the competent court or agency and bankruptcy, insolvency, dissolution or liquidation proceedings are initiated by such competent court or agency including in the case of any entity in the Russian Federation the institution of supervision (nablyudeniye), financial rehabilitation (finansovoye ozdorovlenie), external management (vneshneye upravleniye) or bankruptcy management (konkursnoye proizvodstvo); (iii) the entry by RusHydro or any such Material Subsidiary into, or the agreeing by RusHydro or any such Material Subsidiary to enter into, amicable settlement (mirovoe soglashenie) with its creditors, as such terms are defined in the Insolvency Law and/or (v) any judicial liquidation in respect of RusHydro or any Material Subsidiary;

10.1.7 RusHydro or any of its Material Subsidiaries generally suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its Financial Indebtedness with a value in excess of U.S.$50,000,000; and/or a moratorium is declared in respect of any Financial Indebtedness with a value in excess of U.S.$50,000,000 of any of RusHydro or its Material Subsidiaries;

10.1.8 at any time it is or becomes unlawful for RusHydro to perform or comply with any or all of its obligations under this Agreement or any such obligations are not, or cease to be, legal, valid, binding and enforceable and the same remains unremedied for more than 30 calendar days;

10.1.9 all, or substantially all of, the undertakings, assets and revenues of RusHydro or any Material Subsidiary of RusHydro is condemned, seized or otherwise expropriated by any Person acting under the authority of any national, regional or local government;

10.1.10 the Group suspends or declares its intention to cease carrying on its core business of electricity generation and sale; and

10.1.11 any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events described above.

10.2 Notice of Default

RusHydro shall deliver to the Lender and the Trustee, promptly upon becoming aware of the occurrence thereof or from the moment RusHydro should reasonably have become aware of the occurrence thereof, written notice of any event which is an Event of Default, or a Potential Event of Default, its status and what action RusHydro is taking or proposes to take with respect thereto.

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10.3 Default Remedies

If any Event of Default shall occur, the Lender may, by notice in writing to RusHydro, (a) declare the obligations of the Lender hereunder to be immediately terminated, whereupon such obligations shall terminate, and (b) declare the Loan to be immediately due and payable, whereupon the Loan shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are expressly waived by RusHydro; provided, however, that, if any event of any kind referred to in sub-Clause 10.1.6 or 10.1.7 occurs with respect to RusHydro, the obligations of the Lender hereunder shall immediately terminate, and the Loan shall become immediately due and payable, all without diligence, presentment, demand of payment, protest or notice of any kind, which are especially waived by RusHydro.

10.4 Rights Not Exclusive

The rights provided for herein are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law.

11 Indemnity

11.1 Indemnification

RusHydro undertakes to the Lender that, if the Lender or any director, attorney, officer, employee, agent or representative of the Lender and each Person controlling the Lender (each an “indemnified party”) Incurs any loss, liability, claim, demand or damage, charge, fee or expense (including, without limitation, taxes and legal fees, costs and expenses, in each case properly Incurred) (a “Loss”) as a result of or in connection with the Loan, this Agreement (or enforcement thereof), and/or the issue, constitution, sale, listing and/or enforcement of the Notes and/or the Notes being outstanding (excluding a Loss that is the subject of the undertaking in sub-Clauses 6.2, 6.3, 8, 12.2, 12.6 and 12.8 (it being understood that, in any event, the Lender may not recover twice in respect of the same Loss)), RusHydro shall pay to the Lender following demand an amount equal to such Loss and all costs, fees, charges and expenses which it or any indemnified party may pay or Incur in connection with investigating, disputing or defending any such action or claim as such costs, charges, fees and expenses are Incurred. The Lender shall not have any duty or obligation, whether as fiduciary or trustee for any indemnified party or otherwise, to recover any such payment or to account to any other Person for any amounts paid to it under this sub-Clause 11.1.

11.2 Independent Obligation

Sub-Clause 11.1 constitutes a separate and independent obligation of RusHydro from its other obligations under or in connection with this Agreement and shall not affect, or be construed to affect, any other provision of this Agreement.

11.3 Evidence of Loss

A certificate of the Lender setting forth the amount of Loss described in sub-Clause 11.1 and specifying in full detail the basis therefor shall, in the absence of manifest error, be conclusive prima facie evidence of the amount of such Losses.

11.4 Survival

The obligations of RusHydro pursuant to sub-Clauses 6.2, 6.3, 8, 11.1, 12.2, 12.6, 12.7, 12.8 and 12.17 shall survive the execution and delivery of this Agreement, the drawdown of the Loan and the repayment of the Loan, in each case by RusHydro.

12 General

12.1 Evidence of Debt

The entries made in the Accounts shall, in the absence of manifest error, constitute prima facie evidence of the existence and amounts of RusHydro’s obligations recorded therein.

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12.2 Stamp Duties

12.2.1 RusHydro shall pay all stamp, registration and documentary taxes or similar charges (if any) imposed on RusHydro by any Person in the United Kingdom, the Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement or admissibility into evidence of this Agreement and shall indemnify the Lender against any and all costs and expenses which may be Incurred or suffered by the Lender with respect to, or resulting from, delay or failure by RusHydro to pay such taxes or similar charges.

12.2.2 RusHydro agrees that, if the Lender Incurs a liability to pay any stamp, registration and documentary taxes or similar charges (if any) imposed by any Person in the United Kingdom, the Russian Federation or Ireland which may be payable or determined to be payable in connection with the execution, delivery, performance, enforcement or admissibility into evidence of this Agreement, RusHydro shall reimburse the Lender following demand an amount equal to such taxes or similar charges and shall indemnify the Lender against any and all costs and expenses which may be Incurred or suffered by the Lender with respect to, or resulting from, delay or failure by RusHydro to procure the payment of such taxes or similar charges.

12.3 Waivers and Amendments

12.3.1 No failure to exercise and no delay in exercising, on the part of the Lender or RusHydro, any right, power or privilege hereunder and no course of dealing between RusHydro and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by applicable law.

12.3.2 RusHydro agrees and acknowledges that the Lender will not, without the prior written consent of the Trustee, agree to any amendment to or any modification, recession, cancellation, termination or waiver of, or authorise any breach or proposed breach by RusHydro of, the terms of this Agreement other than in the case of an amendment, modification, waiver, recession, cancellation, termination or authorisation with respect to the Reserved Rights.

12.4 Notices

12.4.1 All communications shall be in writing and in English delivered by fax, by hand or by electronic communication:

(i) if to RusHydro:

Public Joint-Stock Company Federal Hydro-Generating Company - RusHydro 7, Malaya Dmitrovka Street Moscow, 127006 Russian Federation

E-mail: [email protected] Attention: Evgeniya Kozlova

E-mail: [email protected] Attention: Victoria Zudina

Attention: Olga Kolba E-mail: [email protected]

(ii) if to the Lender:

RusHydro Capital Markets DAC

3rd Floor, Kilmore House, Park Lane, Spencer Dock,

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Dublin 1 Ireland

E-mail: [email protected] Attention: The Directors

or to such other address as any party may hereafter specify in writing to the other.

12.4.2 A communication shall be deemed received (if in writing) when delivered, (if by electronic communication) when the relevant receipt of such communication being read is given or where no read receipt is requested by the sender, at the time of sending, provided that no delivery failure notification is received by the sender within 24 hours of sending such communication, in each case in the manner required by this Clause 12; provided that any communication which is received (or deemed to take effect in accordance with the foregoing) after 5 pm on a business day or on a non- business day in the place of receipt shall be deemed received at the opening of business on the next following business day in such place. Any communication to be delivered to any party under this Agreement which is to be sent by electronic communication will be accepted as written legal evidence.

12.5 Assignment

12.5.1 This Agreement shall inure to the benefit of and be binding upon the parties, their respective successors and any permitted assignee or transferee of some or all of a party’s rights under this Agreement. Any reference in this Agreement to any party shall be construed accordingly and, in particular, references to the exercise of rights and discretions or the making of any determination by the Lender shall include references to the exercise of such rights or discretions by or the making of such determination by the Trustee (as trustee). Notwithstanding the foregoing, the Trustee shall not be entitled to participate in any determinations by the Lender or any discussions between the Lender and RusHydro or any agreements of the Lender or RusHydro pursuant to sub-Clause 6.4 or 6.5, or Clause 8.

12.5.2 RusHydro shall not assign or transfer all or any part of its rights or obligations hereunder to any other party.

12.5.3 Subject to the provisions of clause 17 of the Trust Deed, the Lender may not assign or transfer, in whole or in part, any of its rights and benefits under this Agreement other than the Reserved Rights except that the Lender may charge in favour of the Trustee (as trustee) certain of the Lender’s rights and benefits under this Agreement and assign absolutely to the Trustee certain rights, interests and benefits under this Agreement, in each case, as set out in clause 4 of the Trust Deed.

12.6 Currency Indemnity

To the fullest extent permitted by law, the obligations of RusHydro and the Lender in respect of any amount due in roubles or any other relevant currency (the “Specified Currency”) pursuant to this Agreement shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the Specified Currency that the Lender may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Business Day immediately following the day on which the Lender receives such payment. If the amount in the Specified Currency that may be so purchased for any reason falls short of the amount originally due, RusHydro hereby agrees to pay to the Lender any deficiency in the Specified Currency. Any obligation of the Lender not discharged hereunder by payment in the Specified Currency shall, to the fullest extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided in this Agreement, shall continue in full force and effect.

12.7 Payment Gross-Up

Where any payment is made under this Agreement to the Lender pursuant to an indemnity, compensation or reimbursement provision, the sum payable shall take into account (i) any charge to Taxation in the hands of the Lender in respect of such payment and (ii) any tax relief available to the Lender in respect of the matter giving rise to the payment and which may be offset against the charge to Taxation, such that the Lender shall

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be left with a sum equal to the sum that it would have retained in the absence of such a charge to Taxation and such tax relief.

12.8 VAT

Where a sum is payable under this Agreement to the Lender, RusHydro will, in addition, pay in respect of value added tax (“VAT ”):

12.8.1 where the payment (or any part of it) constitutes the consideration (or any part thereof) for any supply of services made to RusHydro, such amounts as equal any VAT properly chargeable thereon on receipt of a valid VAT invoice or equivalent evidence of such payment being made;

12.8.2 where the payment is to reimburse or indemnify the Lender for any cost, charge or expense Incurred by it (except where the payment falls within sub-Clause 12.8.3 below), such amount as equals any VAT, which the Lender represents in good faith is not recoverable by it or by the representative member of any VAT group of which it is a member, charged to or Incurred by the Lender in respect of any cost, charge or expense which gives rise to or is reflected in the payment on production of relevant invoices or equivalent evidence of such payment having been made; and

12.8.3 where the payment is in respect of costs or expenses Incurred by the Lender as agent for RusHydro and except where section 47(3) of the United Kingdom Value Added Tax Act 1994 (or any equivalent legislation in a jurisdiction outside the United Kingdom) applies, such amount as equals the amount included in the costs or expenses in respect of VAT which VAT the Lender is not entitled to recover from a tax authority and in such case the Lender shall use reasonable efforts to procure that the actual supplier of goods or services which the Lender received as agent issues a valid VAT invoice directly to RusHydro in respect of the relevant supply.

12.9 Contracts (Rights of Third Parties) Act 1999

A Person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, except that the Trustee may enforce and rely on any provision as if it were a party hereto.

12.10 Governing law

This Agreement and any non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with English law.

12.11 Dispute Resolution

12.11.1 Any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement or this Clause 12.11 or any non-contractual obligation arising out of or in connection with this Agreement) (a “Dispute”) shall be resolved by arbitration in London, England conducted in the English language by three arbitrators pursuant to the LCIA rules and such arbitration also to be administered by the LCIA in accordance with the LCIA rules. The claimant(s) will jointly nominate one arbitrator, and the respondent(s) will jointly nominate one arbitrator, and the third arbitrator, who shall act as presiding arbitrator of the tribunal, shall be nominated by the two arbitrators nominated by or on behalf of the parties. If not so nominated within 30 days of the date of nomination of the later of the two party-nominated arbitrators to be nominated, the third arbitrator shall be chosen by the LCIA. In the event that the claimant(s) or the respondent(s) fail to nominate an arbitrator in accordance with the Rules, such arbitrator shall be nominated by the LCIA as soon as possible, preferably within 15 days of such failure. In the event that the respondent(s) or both the claimant(s) and the respondent(s) fail to nominate an arbitrator in accordance with the Rules, all 3 arbitrators shall be nominated and appointed by the LCIA as soon as possible, preferably within 15 days of such failure, and such arbitrators shall then designate one amongst them as Chairman.

12.11.2 Where Disputes arise out of or in connection with this Agreement and out of or in connection with any other agreements which, in the absolute discretion of the first arbitral tribunal to be appointed in any of the Disputes, are so closely connected that it is expedient for them to be resolved in the same proceedings, that arbitral tribunal shall have the power to order that the proceedings to resolve that 181

Dispute shall be consolidated with those to resolve any of the other Disputes (whether or not proceedings to resolve those other Disputes have yet been instituted), provided that no date for the final hearing of the first arbitration has been fixed. If that arbitral tribunal so orders, the parties to each Dispute which is a subject of its order shall be treated as having consented to that Dispute being finally decided:

(i) by the arbitral tribunal that ordered the consolidation unless the LCIA decides that that arbitral tribunal would not be suitable or impartial; and

(ii) in accordance with the procedure, at the seat and in the language specified in the relevant Agreement under which the arbitral tribunal that ordered the consolidation was appointed, save as otherwise agreed by all parties to the consolidated proceedings or, in the absence of any such agreement, ordered by the arbitral tribunal in the consolidated proceedings.

12.11.3 Sub-Clause 12.11.2 above shall apply even where powers to consolidate proceedings exist under any applicable arbitration rules (including those of an arbitral institution) and, in such circumstances, the provisions of sub-Clause 12.11.2 above shall apply in addition to those powers.

12.11.4 The parties exclude the jurisdiction of the courts under Sections 45 and 69 of the Arbitration Act 1996.

12.11.5 Lender’s process agent: The Lender has irrevocably appointed Law Debenture Corporate Services Limited (the “Lender’s Agent”), now of Fifth Floor, 100 Wood Street, London EC2V 7EX, as its agent to accept service of process in England in any Dispute (whether that Dispute is to be resolved by arbitration or litigation), provided that:

(i) service upon the Lender’s Agent shall be deemed valid service upon the Lender whether or not the process is forwarded to or received by the Lender;

(ii) the Lender shall inform all other parties to this Agreement, in writing, of any change in the address of the Lender’s Agent within 28 days of such change;

(iii) if the Lender’s Agent ceases to act as a process agent or to have an address in England, the Lender irrevocably agrees to appoint a new process agent in England acceptable to the other parties to this Agreement and to deliver to the other parties to this Agreement within 14 days a copy of a written acceptance of appointment by the new process agent; and

(iv) nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

12.11.6 RusHydro’s process agent: RusHydro hereby covenants that it will irrevocably appoint a process agent within 6 weeks after the Closing Date (“RusHydro’s Agent”) and will notify the Lender and the Trustee thereof forthwith upon such appointment including the legal name and address of the appointee. RusHydro’s Agent will act as its agent to accept service of process in England in any Dispute (whether that Dispute is to be resolved by arbitration or litigation), provided that:

(i) service upon RusHydro’s Agent shall be deemed valid service upon RusHydro whether or not the process is forwarded to or received by RusHydro;

(ii) RusHydro shall inform all other parties to this Agreement, in writing, of any change in the address of RusHydro’s Agent within 28 days of such change;

(iii) if RusHydro’s Agent ceases to act as a process agent or to have an address in England, RusHydro irrevocably agrees to appoint a new process agent in England acceptable to the other parties to this Agreement and to deliver to the other parties to this Agreement within 14 days a copy of a written acceptance of appointment by the new process agent; and

(iv) nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

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12.11.7 Waiver of immunity: To the extent that the Lender or RusHydro may, in relation to any Dispute, claim in any jurisdiction, for itself or its assets or revenues, immunity from the jurisdiction of any court or tribunal, service of process, injunctive or other interim relief, or any process for execution of any award or judgment against its property, each of the Lender and/or RusHydro irrevocably waives such immunity.

12.12 Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. Any party may enter into this Agreement by signing any such counterpart.

12.13 Language

The language which governs the interpretation of this Agreement is the English language.

12.14 Amendments

Except as otherwise provided by its terms, this Agreement may not be varied except by an agreement in writing signed by the parties.

12.15 Partial Invalidity

The illegality, invalidity or unenforceability to any extent of any provision of this Agreement under the law of any jurisdiction shall affect its legality, validity or enforceability in such jurisdiction to such extent only and shall not affect its legality, validity or enforceability under the law of any other jurisdiction, nor the legality, validity or enforceability of any other provision.

12.16 Prescription

In the event that the Notes become void pursuant to Condition 11 of the Notes, the Lender shall forthwith repay to RusHydro the principal amount of such Notes subject to the Lender having previously received from RusHydro, and being in possession of, a corresponding amount in respect of principal pursuant to this Agreement.

12.17 Limited Recourse and Non-Petition

RusHydro hereby agrees that, notwithstanding any other provisions hereof, it shall have recourse in respect of any claim against the Lender only to sums in respect of principal, interest or other amounts (if any), as the case may be, received by or for the account of the Lender pursuant to this Agreement (after deduction or withholding of such taxes as may be required to be made by the Lender by law in respect of each such sum or in respect of the Notes and for which the Lender has not received a corresponding payment in respect thereof) (the “Lender Assets”), subject always to (i) the Security Interests (as defined in the Trust Deed) and (ii) to the fact that any claims of the Agents shall rank in priority to any claims of RusHydro hereunder and that any such claim by any and all such Agents and/or RusHydro shall be reduced pro rata so that the total of all such claims does not exceed the aggregate value of the Lender Assets after meeting claims secured on them.

Neither RusHydro nor any Person acting on behalf of it shall be entitled to take any further steps against the Lender to recover any further sums and no debt shall be owed by the Lender to RusHydro in respect of any such further sum. In particular, neither RusHydro nor any other Person acting on behalf of it shall be entitled at any time to institute against the Lender, or join in any institution against the Lender of any bankruptcy, administration, moratorium, reorganisation, controlled management, arrangement, insolvency, examinership, winding-up or liquidation proceedings or similar insolvency proceedings under any applicable bankruptcy or similar law in connection with any obligation of the Lender relating to the Notes or otherwise owed to the creditors, save for lodging a claim in the liquidation of the Lender which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the Lender.

No party to this Agreement shall have any recourse against any director, shareholder or officer of the Lender in respect of any obligations, covenants or agreement entered into or made by the Lender in respect of this

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Agreement, except to the extent that any such Person acts in bad faith or is negligent or is wilfully in default in the context of its obligations.

The provisions of this sub-Clause 12.17 shall survive the termination of this Agreement.

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TAX CONSIDERATIONS

The following summary describes certain Russian and Irish tax consequences for holders of the Notes. This discussion is not intended as tax advice to any particular investor. It is also not a complete analysis or listing of all potential Russian and Irish tax consequences related to your investment in the Notes. We urge you to consult your own tax adviser regarding the specific Russian, Irish and other tax consequences of an investment in the Notes in your own particular factual circumstances.

RUSSIAN FEDERATION

Taxation of the Notes

General

The following is an overview of certain Russian tax considerations relevant to the purchase, ownership and disposal of the Notes as well as the taxation of interest income on the Loan. The overview does not seek to address the applicability of, or procedures in relation to, taxes levied by regions, municipalities or other non-federal level authorities of the Russian Federation, nor does it seek to address the availability of double tax treaty relief in respect of income payable on the Notes, or practical difficulties connected with claiming such double tax treaty relief.

Prospective investors should consult their own tax advisers regarding the tax consequences of investing in the Notes that may arise in their own particular circumstances. No representation with respect to the Russian tax consequences pertinent to any particular Noteholder is made hereby.

Many aspects of the Russian tax laws are subject to significant uncertainty and lack of interpretive guidance, resulting in inconsistent interpretations and application thereof. Further, provisions of the Russian Tax Code applicable to financial instruments and the interpretation and application of those provisions by the Russian tax authorities may be subject to more rapid and unpredictable changes (possibly with retroactive effect) and inconsistent interpretation than in jurisdictions with more developed capital markets or more developed taxation systems. In particular, the interpretation and application of such provisions will in practice rest substantially with local tax inspectorates and relevant interpretations may constantly change. In practice, interpretation by different tax inspectorates may be inconsistent or contradictory, and may result in the imposition of conditions, requirements or restrictions that are not explicitly stated in the Russian Tax Code. Similarly, in the absence of binding precedents, court rulings on tax or other related matters taken by different Russian courts relating to the same or similar facts and circumstances may also be inconsistent or contradictory.

For the purposes of this overview, the term “Resident Noteholder” means:

• a Noteholder which is a legal entity or an organisation and is:

− a Russian legal entity;

− a foreign legal entity or organisation recognised as a Russian tax resident based on the provisions of an applicable double tax treaty (for the purposes of application of such double tax treaty);

− a foreign legal entity or organisation recognised as a Russian tax resident based on Russian domestic law (in case the Russian Federation is recognised as the place of effective management of such legal entity or organisation as determined in the Russian Tax Code unless otherwise envisaged by an applicable double tax treaty);

− a foreign legal entity or organisation which holds and/ or disposes of the Notes through its permanent establishment in the Russian Federation (as defined by Russian tax law),

(the "Resident Noteholder – Legal Entity"), and

• a Noteholder who is an individual and is actually present in Russia for an aggregate period of 183 calendar days or more in any period comprised of 12 consecutive months (the "Resident Noteholder – Individual"). Presence in the Russian Federation is not considered interrupted if an individual departs for short periods (less than six months) from Russia for medical treatment or education purposes as well as for the employment or other duties related to the performance of works (services) on offshore hydrocarbons fields.

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The interpretation of this definition by the Ministry of Finance of the Russian Federation states that, for tax withholding purposes, an individual's tax residence status should be determined on the date of the income payment (based on the number of days in Russia in the 12-month period preceding the date of the payment). An individual's final tax liability in the Russian Federation for any reporting calendar year should be determined based on the number of days spent in Russia in such calendar year.

For the purposes of this overview, the term “Non-Resident Noteholder” means any Noteholder (including any individual (the “Non-Resident Noteholder – Individual”) and any legal entity or an organisation (the “Non- Resident Noteholder – Legal Entity”)) that does not qualify as a Resident Noteholder.

Noteholders should seek professional advice on their tax status in Russia.

Non-Resident Noteholders

Legal entities and organisations Acquisition of the Notes The acquisition of the Notes by a Non-Resident Noteholder – Legal Entity (whether upon issuance or in the secondary market) should not trigger any Russian tax implications for the Non-Resident Noteholder– Legal Entity.

Interest on the Notes and repayment of principal on the Notes Non-Resident Noteholders – Legal Entities generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer subject to the conditions and requirements described in “Taxation of Interest Income on the Loan”.

Sale and/or other Disposal of the Notes Interest on debt obligations of foreign companies (including any portion of the sales or disposal proceeds derived in connection with the disposal of the debt obligations of such non-Russian entities (such as the Notes)), even if payable from Russian sources, should not be subject to Russian withholding tax.

There is some uncertainty regarding the tax treatment of the portion of the sales or disposal proceeds, if any, attributable to accrued interest (coupon) on the bonds (i.e. debt obligations) where proceeds from sale or other disposition of the Notes are received from a source within Russia by a Non-Resident Noteholder – Legal Entity, which is caused by isolated precedents in which the Russian tax authorities challenged the non-application of the Russian tax to the amount of accrued interest (coupon) embedded into the sale price of the Notes. Although the Ministry of Finance of the Russian Federation in its most recent clarification letters opined that the amount of sale or other disposal proceeds attributable to the accrued interest paid to a non-Russian organisation should not be regarded as Russian source income and on this basis should not be subject to taxation in Russia, there remains a possibility that a Russian entity or a foreign entity having a registered tax presence in Russia which purchases the Notes or acts as an intermediary may seek to assess Russian withholding tax at the rate of 20 per cent. (or such other rate as could be effective at the time of such sale or other disposal) on the accrued interest portion of the disposal proceeds.

Non-Resident Noteholders – Legal Entities should consult their own tax advisers with respect to the tax consequences of the sale or other disposal of the Notes.

Individuals

Acquisition of the Notes

Under Russian tax legislation, the taxation of the income of Non-Resident Noteholders – Individuals will depend on whether the income qualifies as received from a Russian or non-Russian source. In case the income is not qualified as received from Russian sources no tax consequences should arise. However, according to provisions of the Russian Tax Code relating to the material benefit (deemed income) received by individuals as a result of the acquisition of securities, the acquisition of the Notes by Non-Resident Noteholders - Individuals (either at original issuance if the Notes are not issued at par or in the secondary market) may constitute a taxable event for Russian personal income tax purposes. In particular, if Non-Resident Noteholders - Individuals acquire the Notes in Russia and the acquisition price of the Notes is below fair market value (calculated under a specific procedure for the determination of market prices of securities for Russian personal income tax purposes), the difference may become subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of the acquisition) provided such material benefit is viewed as income from Russian sources.

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Although the Russian Tax Code does not contain any provisions as to how the source of the related material benefit should be determined, in practice the Russian tax authorities may infer that such income should be considered Russian source income if the Notes are purchased “in Russia”. In the absence of any additional guidance as to what should be considered as a purchase of securities in Russia, the Russian tax authorities may apply various criteria to determine the source of the related material benefit, including looking at the place of conclusion of the acquisition transaction, the location of the Issuer, or other similar criteria.

There is no assurance therefore that as a result any material benefit received by the Non-Resident Noteholders - Individuals in connection with the acquisition of the Notes will not become taxable in Russia. However, when the Notes are initially issued at par, the above provisions are likely to be relevant for the acquisition of the Notes in the secondary market only.

The tax may be withheld at source of payment or, if the tax is not withheld, the Non-Resident Noteholder - Individual may be required to declare its income in Russia by filing a tax return and paying the tax.

Interest on the Notes and repayment of principal on the Notes

Non-Resident Noteholders - Individuals generally should not be subject to any Russian taxes in respect of interest payments and repayments of principal on the Notes received from the Issuer.

Taxation of interest payable on the Notes may be affected however by the tax treatment of interest payable on the Loans (see “—Sale or other Disposal of the Notes” and “—Taxation of Interest Income on the Loan” below).

Sale or other Disposal of the Notes

Non-resident Noteholder–Individuals should not be subject to any Russian taxes in respect of gains or other income realised on a redemption, sale or other disposal of the Notes outside of Russia, provided that the proceeds of such sale, redemption, or disposal are not received from a source within Russia.

If proceeds from the sale, redemption or other disposal of the Notes, including any portion of such proceeds attributable to accrued interest income under the Notes, are received from a Russian source, a Non-Resident Noteholder - Individual will generally be subject to Russian personal income tax at a rate of 30 per cent. (or such other tax rate as may be effective at the time of disposal) subject to any available double tax treaty relief as discussed below in “Double Tax Treaty Relief”, in respect of the gross proceeds from such sale, redemption or other disposal less any available cost deduction (which includes the purchase price of the Notes).

Under Russian tax legislation, income received from a sale, redemption or disposal of securities should be treated as having been received from a Russian source if such sale, redemption or disposal occurs in Russia. In absence of any guidance as to what should be considered as a sale or other disposal of securities “in Russia”, the Russian tax authorities may apply various criteria in order to determine the source of the sale or other disposal, including looking at the place of conclusion of the transaction, the location of the Issuer, or other similar criteria. There is no assurance, therefore, that proceeds received by Non-Resident Noteholders – Individuals from a sale, redemption or disposal of the Notes will not become subject to tax in Russia.

In case the sales or other disposal proceeds are considered as derived from Russian sources, Russian personal income tax will apply to the gross amount of proceeds decreased by the amount of any available cost deductions (including the original acquisition costs of the Notes and expenses relating to the acquisition, holding and sale or other disposal) provided that duly executed supporting documentation is provided to the person obliged to calculate and withhold Russian personal income tax in relation to this income in a timely manner. There is a risk that, if the documentation supporting the cost deductions is deemed insufficient by the Russian tax authorities or by the person remitting the proceeds to a Non-Resident Noteholder - Individual (where such person is considered the tax agent, obliged to calculate and withhold Russian personal income tax and remit it to the Russian budget), the cost deductions may be disallowed and the tax will apply to the gross amount of the sales, redemption or disposal proceeds.

Furthermore, there is also some uncertainty regarding tax treatment of the portion of the sales or disposal proceeds derived by a Non-Resident Noteholder Individual from Russian sources in connection with the sale or disposal of the Notes, that is attributable to accrued interest on the Notes, if any. The Russian tax authorities could argue that such portion should be subject to Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of payment), even if the sale or other disposal of the Notes results in a loss.

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In certain circumstances, if the sales and/or disposal proceeds (including accrued interest on the Notes) are paid to a Non-Resident Noteholder - Individual by a licensed broker, an asset manager, a securities registrar or a depositary organisation who carries out operations in Russia under an asset management agreement, a brokerage service agreement, an agency agreement, a commission agreement, a commercial mandate agreement or a depository agreement for the benefit of a Non-Resident Noteholder - Individual, the applicable Russian personal income tax at the rate of 30 per cent. (or such other tax rate as may be effective at the time of payment) should be withheld at source by such person who will be considered the tax agent. In this case the amount of the withholding tax should be applied to the difference between the proceeds paid to the Non-Resident Noteholder - Individual and the amount of duly documented deductions relating to the original purchase cost and related expenses on the purchase, holding and sale of the Notes to the extent that such deductions and expenses can be determined by the entity making the payment. The entity making the payment would be required to report to the Russian tax authorities the income received by the Non-Resident Noteholder - Individual and tax withheld upon the sale of the Notes not later than April 1 of the year following the reporting year.

In the context of deducting duly documented acquisition costs, if the costs were borne in connection with the acquisition of the Notes within the relationship with the party other than tax agent which is obliged to calculate and withhold Russian personal income tax under the respective agreement, upon the sale or other disposal of the Notes it may be taken into account by the tax agent upon written application of the Noteholders and presentation of the documents confirming the costs.

If Russian personal income tax obligation arises as a result of the sale, redemption or other disposal of the Notes but the tax has not been withheld, a Non-Resident Noteholder - Individual is required to file a personal income tax return in Russia to report the amount of income received to the Russian tax authorities and apply for a deduction in the amount of the acquisition cost and other expenses related to the acquisition, holding, sale or other disposal of the Notes, based on the provision of supporting documentation. The applicable personal income tax will then have to be paid by the individual on the basis of the filed personal income tax return.

Under certain circumstances, gains received and losses incurred by a Non-Resident Noteholder - Individual as a result of the sale, redemption or other disposal of the Notes and other securities of the same category (i.e., securities qualified as traded or non-traded for Russian personal income tax purposes) occurring within the same tax year may be aggregated for Russian personal income tax purposes, which would affect the total amount of personal income of a Non-Resident Noteholder - Individual subject to taxation in Russia.

Since the sales, redemption or other disposal proceeds and deductible expenses for Russian tax purposes are calculated in roubles, there is a risk that the taxable base may be affected by fluctuations in the exchange rates between the currency in which the Notes were acquired, the currency in which the Notes were sold and roubles, i.e. there could be a loss or no gain in the currency of the Notes but a gain in roubles which could be potentially subject to taxation.

Non-resident Noteholders - Individuals should consult their own tax advisers with respect to the tax consequences of the acquisition and disposal of the Notes and the tax consequences of the receipt of proceeds from a source within Russia in respect of a sale, redemption or other disposal of the Notes.

Resident Noteholders

A Resident Noteholder will generally be subject to all applicable Russian taxes and responsible for complying with any documentation requirements that may be established by law or practice in respect of gain from the sale, redemption or other disposal of the Notes and interest income received on the Notes. Resident Noteholders should consult their own tax advisors with respect to the effect that the acquisition, holding and disposal of the Notes may have on their tax position.

Legal entities and organisations

A Resident Noteholder - Legal entity should, prima facie, be subject to Russian profits tax at the rate of up to 20 per cent. on interest (coupon) income on the Notes as well as on the capital gain from the sale, redemption or other disposal of the Notes. Generally, Resident Noteholders - Legal Entities are required to submit Russian profits tax returns, and assess and pay tax on capital gains and interest (coupon) income.

Individuals

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A Resident Noteholder - Individual should generally be subject to personal income tax at a rate of 13 per cent. on (i) deemed income resulting from the acquisition of the Notes at a price below fair market value, (ii) on interest (coupon) income on the Notes and (iii) income received from the sale, redemption or other disposal of the Notes. If such income is paid to a Resident Noteholder - Individual by a tax agent, the applicable Russian personal income tax of 13 per cent. (or such other tax rate as may be effective at the time of payment) should be withheld at source by such person. For the purposes of interest (coupon) income and income received from sale, redemption and/or other disposal of the Notes, a tax agent is a licensed broker, an asset manager, a securities registrar or a depositary organisation who carries out operations under an asset management agreement, a brokerage service agreement, an agency agreement, a commission agreement, a commercial mandate agreement or a depository agreement for the benefit of a Resident Noteholder - Individual in respect of relevant income. In case the Russian personal income tax has not been withheld Resident Noteholders - Individuals are required to submit annual personal income tax returns, assess and pay the tax.

Resident Noteholders should consult their own tax advisers with respect to their tax position regarding the Notes.

Double Tax Treaty Relief

The Russian Federation has concluded double tax treaties with a number of countries and honours some double tax treaties concluded by the former Union of Soviet Socialist Republics. These double tax treaties may contain provisions that allow for the reduction or elimination of Russian withholding taxes with respect to income received by Non-Resident Noteholders from Russian sources, including income from the sale, redemption or other disposal of the Notes. To the extent double tax treaty relief is available, a Non-Resident Noteholder must comply with the certification, information, documentation and reporting requirements which are in force in the Russian Federation in order to obtain such relief.

In order to benefit from the double tax treaty, a Non-Resident Noteholder - Legal Entity should have the beneficial ownership right to receive income (i.e. to be a person qualified as a “beneficial owner of income” - the concept of beneficial ownership for Russian tax purposes is discussed in “Risks relating to taxation” section) and provide the tax agent with a certificate of tax residence issued by the competent authority of his/ her country of residence for tax purposes before the date of each income payment. This certificate should confirm that the respective Non-Resident Noteholder - Legal Entity is a tax resident of the relevant double tax treaty country for the purposes of the relevant treaty in the particular calendar year during which the income is paid. This certificate should be apostilled or legalised and needs to be renewed on an annual basis. A notarised Russian translation of the certificate may be required. Also a Non-Resident Noteholder – Legal Entity should confirm that it has the beneficial ownership right to the income in question. However, the tax agent in practice may request additional documents confirming the eligibility of the Non-Resident Noteholder – Legal Entity for the benefits of the double tax treaty. The tax agent that pays Russian source income from 1 January 2017 has an obligation to request confirmation that a Non-Resident Noteholder–Legal Entity has an actual right to receive the income in question. There can be no assurance, however, that the advance double tax treaty relief will be available in practice.

In order to obtain the double tax treaty relief at source, a Non-Resident Noteholder - Individual should confirm to a tax agent that he or she is tax resident in a relevant foreign jurisdiction having a double tax treaty with Russia by providing the tax agent with (i) a passport of a foreign resident, or (ii) another document envisaged by an applicable federal law or recognised as a personal identity document of a foreign resident in accordance with the double tax treaty, and (iii) upon request of the tax agent, a tax residency certificate issued by the competent authorities of his or her country of residence for tax purposes. A notarised Russian translation of the certificate is required. The above provisions are intended to provide a tax agent with the opportunity of applying reduced (or zero) withholding tax rates under an applicable double tax treaty at source.

The procedure of elimination of double taxation of Non-Resident Noteholders–Individuals in case of absence of a tax agent is not explicitly indicated in the Russian Tax Code.

Non-Resident Noteholders should consult their own tax advisers with respect to the applicability of any double tax treaty relief and the relevant procedures required in Russia.

Refund of Tax Withheld

If (i) Russian withholding tax on income derived from Russian sources by a Non-Resident Noteholder has been withheld at source or (ii) tax on such income has been paid by a Non-Resident Noteholder on the basis of a tax return, and such Non-Resident Noteholder is entitled to relief from tax on such income under an applicable double 189

tax treaty allowing it not to pay the tax or to pay the tax at a reduced rate, a claim for a refund of such tax that was excessively withheld at source or paid by the Non-Resident Noteholder can be filed with the Russian tax authorities within three years from the end of the tax period in which the tax was withheld for Non-Resident Noteholders (subject to limitations described below).

In order to obtain a refund, the Non-Resident Noteholder would need to file with the Russian tax authorities a duly notarised, apostilled and translated certificate of tax residence issued by the competent tax authority of the relevant double tax treaty country. In addition, a Non-Resident Noteholder - Individual would need to provide appropriate documentary proof of tax payments made outside of Russia on income with respect to which such tax refund is claimed. The supporting documents must be provided within one year following the year in which the tax was withheld.

The Russian tax authorities may, in practice, require a wide variety of documentation confirming a Noteholder’s right to benefits under a double tax treaty. Such documentation, in practice, may not be explicitly required by the Russian Tax Code or the relevant double tax treaty and may to a large extent depend on the position of the local tax inspectors.

If a Non-Resident Noteholder—Individual wishes to obtain a refund, he/she should provide a claim for a refund of the tax withheld and documents confirming the right for a refund under the Russian Tax Code to the tax agent. Since then a claim for a refund and documents confirming the right for a refund under the Russian Tax Code can be filed within three years following the tax period in which the tax was withheld. In case there is no tax agent on the date of receipt by the individual of confirmation of its tax residence status in a relevant foreign jurisdiction having an applicable double tax treaty with Russia, the individual can file a claim for a refund and documents confirming the right for a refund directly with the Russian tax authorities.

Obtaining a refund of Russian taxes withheld may be a time-consuming process and can involve considerable practical difficulties, including the possibility that a tax refund may be denied for various reasons. Non-Resident Noteholders should consult their own tax advisors regarding the procedures required to be fulfilled in order to obtain a refund of Russian income tax which was excessively withheld at source.

Taxation of Interest Income on the Loan

In general, interest payments on borrowed funds made by a Russian legal entity to a non-resident legal entity or organisation having no permanent establishment in Russia are subject to Russian withholding income tax at a rate of 20 per cent., subject to reduction or elimination pursuant to the terms of an applicable double tax treaty.

No withholding tax should be withheld from interest on the loans payable under the Eurobond structure by virtue of the exemption, which stipulates that Russian borrowers should be fully released from the obligation to withhold Russian withholding tax from interest payable to foreign legal entities provided that the following conditions are all simultaneously met:

(a) interest is paid on debt obligations of Russian entities that arose in connection with the placement by foreign entities of “issued bonds”, defined as bonds or other debt obligations

(i) listed and/or admitted to trading on one of the specified foreign exchanges, and/or

(ii) that have been registered in the specified foreign depository/clearing organisations.

(b) The lists of qualifying foreign exchanges and foreign depositary/clearing organisations were approved by Order No. 4393-U of the Central Bank of the Russian Federation dated 30 May 2017 (the “List”). Euronext Dublin, Euroclear and Clearstream, Luxembourg are included in the above-mentioned lists.

(c) there is a double tax treaty between Russia and the jurisdiction of tax residence of the recipient of interest of the loan (i.e., the Issuer) which can be confirmed by a tax residency certificate issued by the competent authority of his/ her country of residence for tax purposes and effective as of the moment of income payment.

The Company, based on professional advice received, believes that it should be released from the obligation to withhold the Russian withholding tax from interest payments made to the Issuer under the Loan Agreement

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provided that the Issuer duly confirms its tax residence, since the Notes should be considered as “traded bonds” as described above and the Loan is financed from the funds received from the issue of the Notes.

Release from the tax agent duty effectively means that, in practice, income tax on interest payments should not arise in Russia, because currently there is no mechanism or requirement for foreign income recipients that are legal entities to self-assess and pay the tax. However, there can be no assurance that such mechanism will not be introduced in the future or that the Russian tax authorities would not seek to collect the tax from foreign income recipients.

If the payments under the Loan are subject to Russian withholding tax for any reason (as a result of which the Issuer would reduce payments made under the Notes by the amount of such withholding taxes), the Company is required (subject to certain conditions) to increase payments under the Loan Agreement as may be necessary so that the Issuer and the Noteholders receive a net amount equal to the full amount they would have received in the absence of such withholding.

It should be noted, however, that it is currently unclear whether the provisions obliging the Company to gross up interest payments under the Loan will be enforceable in the Russian Federation. There is a risk that a gross up for withholding tax will not take place and that the interest payments made by the Company under the Loan Agreement will be reduced by the amount of the Russian income tax withheld by the Company at the rate of 20 per cent. (or such other rate as may be in force at the time of payment) or, potentially, with respect to Non-Resident Noteholders – Individuals Russian personal income tax at a rate of 30 per cent. (or such other rate as may be in force at the time of payment). If the Company is obliged to increase payments under the Loan Agreement, it may (without premium or penalty), subject to certain conditions, prepay the Loan in full. In such case, all outstanding Notes would be redeemable at par together with accrued and unpaid interest and additional amounts, if any, to the date of the redemption.

No VAT will be payable in the Russian Federation in respect of interest and principal payments under the Loan.

IRELAND

The following is a summary of the principal Irish tax consequences for individuals and companies of ownership of the Notes based on the laws and practice of the Irish Revenue Commissioners currently in force in Ireland and may be subject to change. It deals with Noteholders who beneficially own their Notes as an investment. Particular rules not discussed below may apply to certain classes of taxpayers holding Notes, such as dealers in securities, trusts, etc. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Notes should consult their professional advisers on the tax implications of the purchase, holding, redemption or sale of the Notes and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile.

Taxation of Noteholders

Withholding tax

In general, tax at the standard rate of income tax (currently 20 per cent.) is required to be withheld from payments of Irish source interest which should include interest payable on the Notes. The Issuer will not be obliged to make a withholding or deduction for or on account of Irish income tax from a payment of interest on a Note where:

(a) the Notes are Quoted Eurobonds, i.e. securities which are issued by a company (such as the Issuer), which are listed on a recognised stock exchange (such as Euronext Dublin) and which carry a right to interest; and

(b) the person by or through whom the payment is made is not in Ireland, or if such person is in Ireland, either:

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(i) the Notes are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised); or

(ii) the person who is the beneficial owner of the Notes is not resident in Ireland and has made a declaration to a relevant person (such as a paying agent located in Ireland) in the prescribed form; and

(i) the Noteholder is resident for tax purposes in Ireland or, if not so resident, is otherwise within the charge to corporation tax in Ireland in respect of the interest; or

(ii) the interest is subject, under the laws of a relevant territory, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which corresponds to income tax or corporation tax in Ireland and which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory; or

(iii) the Noteholder is not a company which, directly or indirectly, controls the Issuer, is controlled by the Issuer, or is controlled by a third company which also directly or indirectly controls the Issuer, and neither the Noteholder, nor any person connected with the Noteholder, is a person or persons:

(1) from whom the Issuer has acquired assets;

(2) to whom the Issuer has made loans or advances; or

(3) with whom the Issuer has entered into a Swap Agreement,

where the aggregate value of such assets, loans, advances or Swap Agreements represents not less than 75 per cent. of the aggregate value of the assets of the Issuer, or

(iv) the Issuer is not aware at the time of the issue of any Notes that any Noteholder of those Notes is (i) a person of the type described in (c)(iii) above AND (ii) is not subject, without any reduction computed by reference to the amount of such interest or other distribution, to a tax in a Relevant Territory which generally applies to profits, income or gains received in that territory, by persons, from sources outside that territory,

where for these purposes, the term

“Relevant Territory” means a member state of the European Union (other than Ireland) or a country with which Ireland has signed a double tax treaty; and

“Swap Agreement” means any agreement, arrangement or understanding that –

(1) provides for the exchange, on a fixed or contingent basis, of one or more payments based on the value, rate or amount of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and

(2) transfers to a person who is a party to the agreement, arrangement or undertaking, or to a person connected with that person, in whole or in part, the financial risk associated with a future change in any such value, rate or amount without also conveying a current or future direct or indirect ownership interest in the asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred.

Thus, so long as the Notes continue to be quoted on Euronext Dublin are held in a clearing system recognised by the Irish Revenue Commissioners; (DTC, Euroclear and Clearstream, Luxembourg are, amongst others, so recognised), and one of the conditions set out in paragraph (c) above is satisfied, interest on the Notes can be paid by any Paying Agent acting on behalf of the Issuer free of any withholding or deduction for or on account of Irish 192

income tax. If the Notes continue to be quoted but cease to be held in a recognised clearing system, interest on the Notes may be paid without any withholding or deduction for or on account of Irish income tax provided such payment is made through a Paying Agent outside Ireland, and one of the conditions set out in paragraph (c) above is satisfied.

Encashment Tax

Irish tax will be required to be withheld at the standard rate of income tax (currently 20 per cent.) from interest on any Note, where such interest is collected or realised by a bank or encashment agent in Ireland on behalf of any Noteholder. There is an exemption from encashment tax where the beneficial owner of the interest is not resident in Ireland and has made a declaration to this effect in the prescribed form to the encashment agent or bank.

Income Tax, PRSI and Universal Social Charge

Notwithstanding that a Noteholder may receive interest on the Notes free of withholding tax, the Noteholder may still be liable to pay Irish income tax with respect to such interest. Noteholders resident or ordinarily resident in Ireland who are individuals may be liable to pay Irish income tax, pay related social insurance (PRSI) contributions and the universal social charge in respect of interest they receive on the Notes.

Interest paid on the Notes may have an Irish source and therefore may be within the charge to Irish income tax, notwithstanding that the Noteholder is not resident in Ireland. In the case of Noteholders who are non-resident individuals such Noteholders may also be liable to pay the universal social charge in respect of interest they receive on the Notes.

Ireland operates a self-assessment system in respect of tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope.

There are a number of exemptions from Irish income tax available to certain non-residents. Firstly, interest payments made by the Issuer are exempt from income tax so long as the Issuer is a qualifying company for the purposes of Section 110 of the Taxes Consolidation Act 1997 (TCA), the recipient is not resident in Ireland and is resident in a Relevant Territory and, the interest is paid out of the assets of the Issuer. Secondly, interest payments made by the Issuer in the ordinary course of its trade or business to a company are exempt from income tax provided the recipient company is not resident in Ireland and is a company which is either resident for tax purposes in a Relevant Territory which imposes a tax that generally applies to interest receivable in that Relevant Territory by companies from sources outside that Relevant Territory and which tax corresponds to income tax or corporation tax in Ireland or, in respect of the interest is exempted from the charge to Irish income tax under the terms of a double tax agreement which is either in force or which is not yet in force but which will come into force once all ratification procedures have been completed. Thirdly, interest paid by the Issuer free of withholding tax under the quoted Eurobond exemption is exempt from income tax, where the recipient is a person not resident in Ireland and resident in a Relevant Territory or is a company not resident in Ireland which is under the control, whether directly or indirectly, of person(s) who by virtue of the law of a Relevant Territory are resident for the purpose of tax in a Relevant Territory and are not under the control of person(s) who are not so resident or is a company not resident in Ireland where the principal class of shares of the company or its 75 per cent. parent is substantially and regularly traded on a recognised stock exchange. For the purposes of these exemptions and where not specified otherwise, residence is determined under the terms of the relevant double taxation agreement or in any other case, the law of the country in which the recipient claims to be resident. Interest falling within the above exemptions is also exempt from the universal social charge.

Notwithstanding these exemptions from income tax, a corporate recipient that carries on a trade in Ireland through a branch or agency in respect of which the Notes are held or attributed, may have a liability to Irish corporation tax on the interest.

Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient.

Interest on the Notes which does not fall within the above exemptions is within the charge to income tax and, in the case of Noteholders who are individuals, is subject to the universal social charge. In the past the Irish Revenue Commissioners have not pursued liability to income tax in respect of persons who are not regarded as being resident in Ireland except where such persons have a taxable presence of some sort in Ireland or seek to claim any relief or repayment in respect of Irish tax. However, there can be no assurance that the Irish Revenue Commissioners will apply this treatment in the case of any Noteholder. 193

Capital Gains Tax

A Noteholder will not be subject to Irish tax on capital gains on a disposal of Notes unless (i) such holder is either resident or ordinarily resident in Ireland or (ii) such holder carries on a trade in Ireland through a branch or agency in respect of which the Notes were used or held or (iii) the Notes cease to be listed on a stock exchange in circumstances where the Notes derive their value or more than 50 per cent. of their value from Irish real estate, mineral rights or exploration rights.

Capital Acquisitions Tax

A gift or inheritance of Notes will be within the charge to capital acquisitions tax (which subject to available exemptions and reliefs, will be levied at 33 per cent.) if either (i) the disponer or the donee/successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/successor) on the relevant date or (ii) if the Notes are regarded as property situate in Ireland (i.e. if the Notes are physically located in Ireland or if the register of the Notes is maintained in Ireland).

Stamp Duty

No stamp duty or similar tax is imposed in Ireland on the issue, transfer or redemption of the Notes provided the Issuer is a qualifying company for the purposes of Section 110 of the TCA and the proceeds of the Notes are used in the course of the Issuer’s business.

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SUMMARY OF PROVISIONS RELATING TO THE NOTES IN GLOBAL FORM

The following is a summary of the provisions to be contained in the Trust Deed to constitute the Notes and in the Global Certificate, which will apply to, and in some cases modify, the Terms and Conditions of the Notes while the Notes are represented by the Global Certificate.

The Notes will be represented by a Global Certificate which will be registered in the name of The Bank of New York Depositary (Nominees) Limited as nominee for, and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg.

Subject to receipt of funds from RusHydro, the Global Certificate will become exchangeable in whole but not in part (free of charge to the holder), for Definitive Notes if (a) the Global Certificate is held by or on behalf of a clearing system and such clearing system is closed for business for a continuous period of 14 days (other than by reasons of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so and, in each case, no successor or alternative clearing system satisfactory to the Trustee is available, by the holder giving notice to the Registrar or the Transfer Agent, or (b) if the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 8.1 which would not be suffered were the Notes in the form of Definitive Notes and a certification to such effect signed by the requisite number of authorised signatories of the Issuer is delivered to the Trustee, by the Issuer giving notice to the Registrar or the Transfer Agent and the Noteholders, of its intention to exchange the Global Certificate on a date specified in the notice.

Whenever the Global Certificate is to be exchanged for Definitive Notes, such Definitive Notes will be issued in an aggregate principal amount equal to the principal amount of the Global Certificate following delivery, by or on behalf of the registered holder of the Global Certificate, Euroclear and/or Clearstream, Luxembourg, to the Registrar of such information as required to complete and deliver such Definitive Notes (including, but without limitation to, the names and addresses of the persons in whose names the Definitive Notes are to be registered and the principal amount of each such person’s holding) against the surrender of the Global Certificate at the Specified Office (as defined in the Paying Agency Agreement) of the Registrar or the Transfer Agent. Such exchange will be effected in accordance with the provisions of the Paying Agency Agreement, the Trust Deed and the Global Certificate.

In addition, the Global Certificate will contain provisions which modify the Terms and Conditions of the Notes as they apply to the Notes evidenced by the Global Certificate. The following is a summary of these provisions:

Notices

Notwithstanding Condition 14, so long as the Global Certificate is held by or on behalf of a common depositary for Euroclear, Clearstream, Luxembourg or any other clearing system (an Alternative Clearing System), notices to Noteholders represented by the Global Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System, and shall be deemed to be given to holders of interests in the Global Certificate with the same effect as if they had been given to such Noteholder in accordance with Condition 14. In addition, all notices to Noteholders shall be deemed to be duly given if they are filed with the Companies Announcement Office of the London Stock Exchange.

Payment

All payments in respect of Notes represented by a Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where Clearing System Business Day means Monday to Friday inclusive except 25 December and 1 January.

Issuer’s Option

Any option of the Issuer provided for in the Conditions of any Notes while such Notes are represented by a permanent Global Certificate shall be exercised by the Issuer giving notice to the Noteholders within the time limits set out in and containing the information required by the Conditions, except that the notice shall not be required to contain the serial numbers of Notes drawn in the case of a partial exercise of an option and accordingly no drawing of Notes shall be required. In the event that any option of the Issuer is exercised in respect of some but not all of the

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Notes, the rights of accountholders with a clearing system in respect of the Notes will be governed by the standard procedures of Euroclear, Clearstream, Luxembourg or any other clearing system (as the case may be).

Record Date

All payments in respect of Notes represented by the Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where “Clearing System Business Day” means a day when Euroclear or Clearstream, Luxembourg is open for business.

Meetings

The holder of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and in any such meeting as having one vote in respect of each Note for which the Global Certificate may be exchangeable.

Trustee’s Powers

In considering the interests of Noteholders whilst the Global Certificate is held on behalf of a clearing system, the Trustee, to the extent it considers it appropriate to do so in the circumstances, may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to the Global Certificate and may consider such interests as if such accountholders were the holders of the Global Certificate.

Cancellation

Cancellation of any Note required by the Terms and Conditions of the Notes to be cancelled will be effected by reduction in the principal amount of the Global Certificate by a record made in the Register.

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SUBSCRIPTION AND SALE

The Joint Lead Managers have, in a subscription agreement dated 23 November 2018 (the “Subscription Agreement”) and made between the Issuer, RusHydro and the Joint Lead Managers, upon the terms and subject to the conditions contained therein, jointly and severally agreed to subscribe and pay for the Notes at their issue price of 100 per cent. of their principal amount.

The Joint Lead Managers are entitled to commissions and reimbursement of expenses pursuant to the Subscription Agreement and a mandate letter between RusHydro and the Joint Lead Managers. The Subscription Agreement provides that the obligation of the Joint Lead Managers to purchase the Notes is subject to the satisfaction of certain conditions, including, among other things, the delivery of legal opinions by legal counsel and tax opinions by tax advisers. The Joint Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Agreement prior to the closing of the issue of the Notes.

The Joint Lead Managers or their respective affiliates from time to time have provided in the past and may provide in the future investment banking, commercial lending, consulting, financial advisory and commercial banking services to RusHydro and other members of the Group and their respective affiliates in the ordinary course of business for which they have received or may receive customary advisory and transaction fees and commissions and expense reimbursement.

Selling Restrictions

United States

The Notes and the Loan have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, US persons except in transactions exempt from the registration requirements of the Securities Act. Each of the Joint Lead Managers has severally, but not jointly, agreed that, except as permitted by the Subscription Agreement, it will not offer or sell the Notes and the Loan, (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering or the closing date, within the United States or to, or for the account or benefit of, US persons, and it will have sent to each dealer to which it sells the Notes and the Loan during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes and the Loan in the United States or to, or for the account or benefit of, US persons. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

The Notes and the Loan are being offered and sold outside of the United States in reliance on Regulation S. In addition, until 40 days after the commencement of the offering of the Notes and the Loan, an offer or sale of the Notes or the Loan within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

These Listing Particulars have been prepared by the Issuer for use in connection with the offer and sale of the Notes and the Loan outside the United States. The Issuer and the Joint Lead Managers reserve the right to reject any offer to purchase the Notes, in whole or in part, for any reason. These Listing Particulars do not constitute an offer to any person in the United States. Distribution of these Listing Particulars by any non-U.S. person outside the United States to any U.S. person or to any other person within the United States, is unauthorised and any disclosure without the prior written consent of the Issuer of any of its contents to any such U.S. person or other person within the United States is prohibited.

United Kingdom

Each Joint Lead Manager has severally represented, warranted and agreed that:

(a) It has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

(b) It has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

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Russian Federation

Each Joint Lead Manager has severally agreed that the Notes will not be offered, transferred or sold as part of their initial distribution or at any time thereafter to or for the benefit of any persons (including legal entities) resident, incorporated, established or having their usual residence in the Russian Federation or to any person located within the territory of the Russian Federation unless and to the extent otherwise permitted under Russian law.

Ireland

Each Joint Lead Manager has severally agreed that:

(a) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the European Union (Markets in Financial Instruments) Regulations 2017 (as amended, the “MiFID II Regulations”), including, without limitation, Regulation 5 (Requirement for authorisation (and certain provisions concerning MTFs and OTFs) thereof or any rules or codes of conduct made under the MiFID II Regulations, and the provisions of the Investor Compensation Act 1998 (as amended);

(b) it will not underwrite the issue of, or place, the Notes otherwise than in conformity with the provisions of the Companies Act 2014, the Central Bank Acts 1942-2015 (as amended) and any codes of practice made under Section 117(1) of the Central Bank Act 1989 (as amended);

(c) it will not underwrite the issue of, or place, or do anything in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Prospectus (Directive 2003/71/EC) Regulations 2005 (as amended) and any rules issued by the Central Bank under Section 1363 of the Companies Act; and

(d) it will not underwrite the issue of, place or otherwise act in Ireland in respect of, the Notes otherwise than in conformity with the provisions of the Market Abuse Regulation (EU 596/2014) (as amended) and any rules and guidance issued by the Central Bank under Section 1370 of the Companies Act.

The European Economic Area

Each of the Joint Lead Managers has severally and not jointly represented and undertaken with the Issuer, the Guarantors and each other Joint Lead Manager that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any retail investor in the European Economic Area. For the purposes of this provision, the expression “retail investor” means a person who is one (or more) of the following:

• a retail client as defined in point (11) of Article 4(1) of MiFID II; or

• a customer within the meaning of the IMD, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

General

No representation is made by the Issuer, RusHydro or any Joint Lead Manager that any action has been or will be taken in any jurisdiction by the Issuer, RusHydro or any Joint Lead Manager that would permit a public offering of the Notes, or possession or distribution of these Listing Particulars in any country or jurisdiction where action for that purpose is required. Each Joint Lead Manager will comply to the best of its knowledge and belief in all material respects with all applicable securities laws and regulations in each jurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession or distributes these Listing Particulars.

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GENERAL INFORMATION

1. RusHydro was incorporated in the Russian Federation on 26 December 2004, as a joint stock company for an unlimited duration, and it operates under the laws of the Russian Federation. RusHydro has its registered office at 43 building 1, Dubrovinskogo Street, Krasnoyarsk 660017, Russian Federation, with state registration number 1042401810494, and its telephone number is +7 (495) 225 32 32.

2. The issue of the Notes was duly authorised by a resolution of the board of directors of the Issuer on 16 November 2018 and the entry into the Loan Agreement and the other transaction documents was approved by the Management Board of RusHydro on 26 October 2018.

3. RusHydro and the Issuer will obtain all necessary consents, approvals and authorisations in the Russian Federation and Ireland, respectively, in connection with the Loan and the issue and performance of the obligations under the Notes.

4. Application has been made to Euronext Dublin for the Notes to be admitted to the Official List and to trading on the Global Exchange Market of Euronext Dublin, through the Listing Agent, Arthur Cox Listing Services Limited (“ACLSL”). ACLSL is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission to the Official List of Euronext Dublin or to trading on the Global Exchange Market of Euronext Dublin. It is expected that the admission of the Notes to the Official List and to trading on the Global Exchange Market of Euronext Dublin will take place on or about 27 November 2018. Transactions will normally be effected for delivery on the third working day after the day of the transaction, subject to the issuance of the Global Certificate.

5. The Notes have been accepted for clearance through Euroclear and Clearstream. The CFI and the International Securities Identification Number (“ISIN”) for the Notes are DYFXFR and XS1912654677, respectively.

6. For so long as the Notes are listed on Euronext Dublin, copies and, where appropriate, English translations of the following documents in physical form may be inspected during normal business hours at the specified offices of the Principal Paying Agent:

• the Constitution of the Issuer and the charter of RusHydro;

• the Trust Deed (which includes the form of the Global Certificate and the Definitive Notes);

• the Agency Agreement;

• the Loan Agreement;

• the Financial Statements, in each case together with the audit reports thereon; and

• these Listing Particulars.

7. There has been no significant change in the financial or trading position of RusHydro or the Group since 30 June 2018 and no material adverse change in the prospects of RusHydro or the Group since 30 June 2018.

8. There has been no significant change in the financial or trading position of the Issuer since the date of its incorporation and no material adverse change in the prospects of the Issuer since the date of its incorporation.

9. Neither RusHydro nor any of its subsidiaries has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which RusHydro is aware) during the 12 months preceding the date of these Listing Particulars which may have or have had in the recent past significant effects on the financial position or profitability of RusHydro or the Group.

10. The Issuer has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) since the date of its incorporation which may have or have had in the recent past significant effects on the financial position or profitability of the Issuer.

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11. The Group’s consolidated financial statements as of and for the years ended 31 December 2017 and 2016 included in these Listing Particulars have been audited by PwC, independent auditors, as stated in their audit reports included in these Listing Particulars. PwC has its registered office at Butyrsky Val 10, 125047 Moscow, Russian Federation is a member of Self-regulated organisation of auditors “Russian Union of Auditors” (Association).

12. With respect to the unaudited condensed consolidated interim financial information of the Group as of and for the six months ended 30 June 2018 included in these Listing Particulars, PwC reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated 28 August 2018 included in these Listing Particulars states that they did not audit and they do not express an opinion on the unaudited condensed consolidated interim financial information of the Group as of and for the six months ended 30 June 2018. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied.

13. The Trust Deed provides that the Noteholders shall together have the power, exercisable by Extraordinary Resolution, to remove the Trustee (or any successor trustee or additional trustees) provided that the removal of the Trustee or any other trustee shall not become effective unless there remains a trustee in office after such removal. Furthermore, the Trust Deed provides, inter alia, that the Trustee may act and/or rely on the opinion or advice of or a certificate or any information obtained from any lawyer, banker, valuer, surveyor, broker, auctioneer, accountant, auditor or other expert (whether or not addressed to the Trustee), notwithstanding that such opinion, advice, certificate or information contains a monetary or other limit on the liability of any of the above mentioned persons in respect thereof.

14. The Issuer does not intend to provide any post-issuance transaction information regarding the Notes or the Loan.

15. Where information in these Listing Particulars has been sourced from third parties, this information has been accurately reproduced and, as far as the Issuer and RusHydro are aware and are able to ascertain from the information published by such third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of third party information is identified where used.

16. The language of the Listing Particulars is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

17. The Joint Lead Managers and their affiliates have performed certain investment banking and advisory and general financing and banking services for members of the Group from time to time for which they have received customary fees and expenses. The Joint Lead Managers and their affiliates may, from time to time, engage in future transactions with and perform services for members of the Group in the ordinary course of their business.

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GLOSSARY

The following words and expressions shall, unless the context requires otherwise, have the following meanings when used in these Listing Particulars:

Activity subject to Sanctions activity specified in the United States Ukraine Freedom Support Act of 2014, as amended, supplemented or supplanted (the “UFSA”), or the United States Countering America’s Adversaries Through Sanctions Act of 2017, as amended, supplemented or supplanted (the “CAATS”), as a basis for the imposition of sanctions or penalties on any person pursuant to the UFSA and/or CAATS as a result of such person engaging in such activity

CBR Central Bank of the Russian Federation

Civil Code Civil Code of the Russian Federation

Commercial Operator the operator of the wholesale electricity market

Competition Law Federal Law "On the Protection of Competition" No. 135-FZ dated 26 July 2006, as amended

Currency Law Federal Law No. 173-FZ "On Currency Regulation and Currency Control" dated 10 December 2003, as amended

Electricity Industry Law Federal Law "On the Electricity Industry" No. 35-FZ dated 26 March 2003, as amended

Environmental Protection Law Federal Law "On Environmental Protection" No. 7-FZ dated 10 January 2002, as amended first pricing zone the territory integrating European and Ural IESs

GEM Global Exchange Market of Euronext Dublin

GeoPP geothermal power plant

Group RusHydro and its subsidiaries

HPP hydro-electric power plant

IES Integrated energy systems, which are a geographically separate Russian energy systems

Joint Stock Companies Law Federal Law "On Joint Stock Companies" No. 208-FZ dated 26 December 1995, as amended kWh kilowatt hour

Labour Code Labour Code of the Russian Federation

Land Code Land Code of the Russian Federation

MED The Ministry for Economic Development of the Russian Federation

MICEX Moscow Interbank Currency Exchange

MW mega watts

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MWh megawatt hour

Retail Market Rules the retail market rules introduced by the Resolution of the Russian Government “On the Operation of the Retail Electricity Markets, Full and (or) Partial Limitation of Electric Power Consumption Regime” No. 442 dated 4 May 2012, as amended

Wholesale Market Rules the rules for the wholesale electricity market of the Russian Federation introduced by Resolution of the Russian Government “On Approval of the Rules of the Electricity and Capacity Wholesale Market and on Amending Certain Acts of the Russian government Regarding Co-ordination of the Electricity and Capacity Wholesale Market Functioning” No. 1172 dated 27 December 2010, as amended

OGK “wholesale generation companies” created during the restructuring of RAO UESR

PSHPP pumped storage hydro-electric power plant

RAO UESR Open Joint-Stock Company Unified Energy System of Russia, formerly the largest state power holding which ceased to exist on 1 July 2008

RAS Russian generally accepted accounting principles

Regulated Contract a regulated contract under which electricity output and capacity are sold at fixed tariffs

Regulated Market a regulated market for the purposes of the Markets in Financial Instruments Directive 2014/65/EU

Rosstat Federal Service for State Statistics of the Russian Federation

RTS the Russian Trading System

RusHydro PJSC RusHydro

Sanctions any sanctions administered or enforced by the United States of America, the United Nations, the European Union, the United Kingdom or any governmental or regulatory authority, institution or agency of any of the foregoing including, without limitation, the U.S. Department of Treasury’s Office of Foreign Assets Control, the United States Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury

Sanctioned Territory a country or territory that is the subject of country-wide or territory- wide Sanctions including, without limitation, Cuba, Crimea and Sevastopol, Iran, North Korea and Syria second pricing zone the territory integrating the Siberian IES

System Operator JSC System Operator of the Unified Energy System tariffs prices regulated and set by federal or regional authorities

Tax Code the Tax Code of the Russian Federation No. 146-FZ dated 31 July 1998, as amended

TGK the “territorial generation companies” created during the

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restructuring of RAO UESR

TPP tidal power plant

Trade Union Law Federal Law “On Trade Unions, Their Rights and Guaranties of Their Activity” No. 10-FZ dated 12 January 1996, as amended

Transitional Period Law Federal Law “On Specific Features of Functioning of Electricity Industry during the Transitional Period, and on Introduction of Amendments into Certain Laws of the Russian Federation and on Abolishing Certain Laws of the Russian Federation in Connection with the Adoption of the Federal Law “On the Electricity Industry” No. 36-FZ dated 26 March 2003, as amended

WPP wind power plant

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FINANCIAL STATEMENTS OF RUSHYDRO GROUP

Condensed Consolidated Interim Financial Information (Unaudited) as at and for the three and six months ended 30 June 2018 ...... F-2

Report on Review of Interim Financial Information ...... F-4

Condensed Consolidated Interim Statement of Financial Position ...... F-5

Condensed Consolidated Interim Income Statement ...... F-6

Condensed Consolidated Interim Statement of Comprehensive Income ...... F-7

Condensed Consolidated Interim Statement of Cash Flows ...... F-8

Condensed Consolidated Interim Statement of Changes in Equity ...... F-9

Consolidated Financial Statements as at and for the year ended 31 December 2017 ...... F-35

Independent auditor’s report ...... F-37

Consolidated Statement of Financial Position ...... F-47

Consolidated Income Statement ...... F-48

Consolidated Statement of Comprehensive Income ...... F-49

Consolidated Statement of Cash Flows ...... F-50

Consolidated Statement of Changes in Equity ...... F-52

Consolidated Financial Statements as at and for the year ended 31 December 2016 ...... F-105

Independent auditor’s report ...... F-107

Consolidated Statement of Financial Position ...... F-117

Consolidated Income Statement ...... F-118

Consolidated Statement of Comprehensive Income ...... F-119

Consolidated Statement of Cash Flows ...... F-120

Consolidated Statement of Changes in Equity ...... F-122

F-1

RUSHYDRO GROUP

Condensed Consolidated Interim Financial Information (Unaudited) prepared in accordance with IAS 34

As at and for the three and six months ended 30 June 2018

F-2 CONTENTS

REPORT ON REVIEW Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (Unaudited)

Condensed Consolidated Interim Statement of Financial Position ...... 1 Condensed Consolidated Interim Income Statement ...... 2 Condensed Consolidated Interim Statement of Comprehensive Income ...... 3 Condensed Consolidated Interim Statement of Cash Flows ...... 4 Condensed Consolidated Interim Statement of Changes in Equity ...... 5

Notes to the Condensed Consolidated Interim Financial Information Note 1. The Group and its operations ...... 6 Note 2. Summary of financial reporting framework and new accounting pronouncements ...... 6 Note 3. Principal subsidiaries...... 10 Note 4. Segment information ...... 11 Note 5. Related party transactions ...... 16 Note 6. Property, plant and equipment ...... 18 Note 7. Financial asset at fair value through profit or loss ...... 18 Note 8. Other non-current assets ...... 19 Note 9. Cash and cash equivalents ...... 19 Note 10. Accounts receivable and prepayments ...... 19 Note 11. Inventories ...... 20 Note 12. Other current assets ...... 20 Note 13. Equity ...... 20 Note 14. Income tax ...... 21 Note 15. Current and non-current debt ...... 22 Note 16. Non-deliverable forward contract for shares ...... 23 Note 17. Other non-current liabilities ...... 23 Note 18. Accounts payable and accruals...... 23 Note 19. Other taxes payable ...... 24 Note 20. Revenue ...... 24 Note 21. Government grants ...... 24 Note 22. Operating expenses (excluding impairment losses) ...... 25 Note 23. Finance income, costs ...... 25 Note 24. Earnings per share ...... 26 Note 25. Capital commitments ...... 26 Note 26. Contingencies ...... 26 Note 27. Financial instruments and financial risk management ...... 27 Note 28. Fair value of assets and liabilities ...... 29 Note 29. Subsequent events ...... 30

F-3

F-4

F-5 RusHydro Group Condensed Consolidated Interim Income Statement (unaudited) (in millions of Russian Rubles unless noted otherwise)

Six months ended Three months ended Note 30 June 30 June 2018 2017 2018 2017 Revenue 20 180,853 180,866 82,593 82,087 Government grants 21 20,024 6,788 9,626 2,208 Other operating income 7 4,896 - 2,270 - Operating expenses (excluding impairment losses) 22 (154,075) (147,736) (70,434) (68,867) Operating profit excluding impairment losses 51,698 39,918 24,055 15,428 Impairment of accounts receivable, net (2,404) (2,633) (921) (1,658) Impairment of property, plant and equipment 6 (1,144) (1,244) (664) (373) Operating profit 48,150 36,041 22,470 13,397 Finance income 23 2,763 5,196 1,206 2,343 Finance costs 23 (5,869) (10,497) (5,572) (8,762) Share of results of associates and joint ventures 681 149 335 (26) Profit before income tax 45,725 30,889 18,439 6,952 Income tax expense 14 (9,037) (8,586) (4,702) (3,455) Profit for the period 36,688 22,303 13,737 3,497

Attributable to: Shareholders of PJSC RusHydro 35,660 22,052 14,457 4,870 Non-controlling interest 1,028 251 (720) (1,373) Earnings per ordinary share for profit attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 24 0,0844 0.0576 0,0342 0.0124 Weighted average number of shares outstanding – basic and diluted (millions of shares) 24 422,437 382,546 422,437 393,401

The accompanying notes are an integral part of this Condensed Consolidated Interim Financial Information Page 2

F-6 RusHydro Group Condensed Consolidated Interim Statement of Comprehensive Income (unaudited) (in millions of Russian Rubles unless noted otherwise)

Six months ended Three months ended Note 30 June 30 June 2018 2017 2018 2017 Profit for the period 36,688 22,303 13,737 3,497

Other comprehensive income, net of tax: Items that will not be reclassified to profit or loss Remeasurement of pension benefit obligations 197 (234) 197 (234) Gain / (loss) arising on financial assets at fair value through other comprehensive income 7 - (5) - Total items that will not be reclassified to profit or loss 204 (234) 192 (234) Items that may be reclassified subsequently to profit or loss Gain / (loss) arising on available-for-sale financial assets - 9 - (391) Reclassification of accumulated loss on available-for-sale financial assets to profit or loss - 28 - 28 Other comprehensive (loss) / income (6) 12 (4) (3) Total items that may be reclassified subsequently to profit or loss (6) 49 (4) (366) Other comprehensive income / (loss) for the period 198 (185) 188 (600) Total comprehensive income for the period 36,886 22,118 13,925 2,897

Attributable to: Shareholders of PJSC RusHydro 35,827 21,980 14,614 4,367 Non-controlling interest 1,059 138 (689) (1,470)

The accompanying notes are an integral part of this Condensed Consolidated Interim Financial Information Page 3

F-7 RusHydro Group Condensed Consolidated Interim Statement of Cash Flows (unaudited) (in millions of Russian Rubles unless noted otherwise)

Six months ended Note 30 June 2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES: Profit before income tax 45,725 30,889 Depreciation of property, plant and equipment and amortisation of intangible assets 6, 22 13,131 11,408 Loss on disposal of property, plant and equipment, net 22 21 219 Share of results of associates and joint ventures (681) (149) Other operating income 7 (4,896) - Finance income 23 (2,763) (5,196) Finance costs 23 5,869 10,497 Impairment of property, plant and equipment 6 1,144 1,244 Impairment of accounts receivable, net 2,404 2,633 Other loss / (income) 4 (85) Operating cash flows before working capital changes, income tax paid and changes in other assets and liabilities 59,958 51,460 Working capital changes: Increase in accounts receivable and prepayments (10,358) (5,255) Decrease in inventories 361 546 (Increase) / decrease in other current assets (270) 1,529 Decrease in accounts payable and accruals, excluding dividends payable (1,740) (6,910) Decrease in other taxes payable (291) (1,260) (Increase) / decrease in other non-current assets (484) 536 Increase in other non-current liabilities 406 285 Income tax paid (6,633) (8,659) Net cash generated by operating activities 40,949 32,272

CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (27,985) (26,416) Proceeds from sale of property, plant and equipment 154 76 Investment in bank deposits and purchase of other investments (14,410) (10,859) Redemption of bank deposits and proceeds from sale of other investments 10,707 11,459 Proceeds from sale of investment in joint venture 871 - Interest received 2,958 4,062 Net cash used in investing activities (27,705) (21,678)

CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from share issue 13 - 40,000 Proceeds from sale of treasury shares - 15,000 Prepayment for non-deliverable forward for shares 16 (1,613) (1,799) Proceeds from current debt 15 23,809 26,344 Proceeds from non-current debt 15 42,473 23,864 Repayment of debt 15 (68,574) (87,505) Interest paid (6,851) (8,100) Finance lease payments (94) (235) Dividends paid (27) (173) Net cash (used) / generated by financing activities (10,877) 7,396 Effect of foreign exchange differences on cash and cash equivalents balances (122) (210) Increase in cash and cash equivalents 2,245 17,780 Cash and cash equivalents at the beginning of the period 70,156 67,354 Cash and cash equivalents at the end of the period 9 72,401 85,134

The accompanying notes are an integral part of this Condensed Consolidated Interim Financial Information Page 4

F-8 RusHydro Group Condensed Consolidated Interim Statement of Changes in Equity (unaudited) (in millions of Russian Rubles unless noted otherwise)

Revaluation Reserve for Revaluation reserve on remeasu- Foreign reserve on available- rement of Equity currency property, for-sale pension attributable to Non- Share Treasury Share Merger translation plant and financial benefit Retained shareholders of controlling Total Note capital shares premium reserve reserve equipment assets obligation earnings PJSC RusHydro interest equity As at 1 January 2017 386,255 (22,578) 39,202 (135,075) (538) 182,968 16,909 459 179,067 646,669 4,263 650,932 Profit for the period ------22,052 22,052 251 22,303 Remeasurement of pension benefit obligations ------(138) - (138) (96) (234) Gain arising on available-for-sale financial assets 28 ------30 - - 30 (21) 9 Reclassification of accumulated loss on available-for-sale financial assets to profit or loss ------28 - - 28 - 28 Other comprehensive income - - - - 3 5 - - - 8 4 12 Total other comprehensive loss - - - - 3 5 58 (138) - (72) (113) (185) Total comprehensive income - - - - 3 5 58 (138) 22,052 21,980 138 22,118 Share issue 13 40,034 ------40,034 - 40,034 Sale of treasury shares 13 - 17,965 ------(2,965) 15,000 - 15,000 Dividends 13 ------(19,696) (19,696) (127) (19,823) Non-deliverable forward contract for shares 16 ------(10,013) (10,013) - (10,013) Transfer of revaluation reserve to retained earnings - - - - - (379) - - 379 - - - Other movements ------21 21 - 21 As at 30 June 2017 426,289 (4,613) 39,202 (135,075) (535) 182,594 16,967 321 168,845 693,995 4,274 698,269

As at 1 January 2018 426,289 (4,613) 39,202 (135,075) (547) 181,163 14,356 647 171,423 692,845 2,719 695,564 Аpplication of IFRS 9 2,13 ------(13,894) - 14,542 648 38 686 As at 1 January 2018 (restated) 426,289 (4,613) 39,202 (135,075) (547) 181,163 462 647 185,965 693,493 2,757 696,250 Profit for the period ------35,660 35,660 1,028 36,688 Remeasurement of pension benefit obligations ------166 - 166 31 197 Gain arising on financial assets at fair value through other comprehensive income ------7 - - 7 - 7 Other comprehensive loss - - - - (7) - - - 1 (6) - (6) Total other comprehensive income - - - - (7) - 7 166 1 167 31 198 Total comprehensive income - - - - (7) - 7 166 35,661 35,827 1,059 36,886 Dividends 13 ------(11,129) (11,129) (219) (11,348) Transfer of revaluation reserve to retained earnings - - - - - (186) - - 186 - - - As at 30 June 2018 426,289 (4,613) 39,202 (135,075) (554) 180,977 469 813 210,683 718,191 3,597 721,788

The accompanying notes are an integral part of this Condensed Consolidated Interim Financial Information Page 5

F-9 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 1. The Group and its operations PJSC RusHydro (hereinafter referred to as “the Company”) was incorporated and is domiciled in the Russian Federation. The Company is a joint stock company limited by value of shares and was set up in accordance with Russian regulations. The primary activities of the Company and its subsidiaries (hereinafter together referred to as “the Group”) are generation and sale of electricity and capacity on the Russian wholesale and retail markets, as well as generation and sale of heat energy. Economic environment in the Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The tax, currency and customs legislation continue to develop and are subject to frequent changes and varying interpretations. In 2018 the Russian economy continues to show signs of recovery after the economic downturn of 2015 and 2016. The economy is negatively impacted by ongoing political tension in the region and continuing international sanctions against certain Russian companies and individuals. The financial markets continue to be volatile. This economic environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results. During the six months ended 30 June 2018 no substantial changes to the rules of Russian wholesale and retail electricity and capacity markets, their functioning and price setting mechanisms have been made. Relations with the Government and current regulation. As at 30 June 2018 the Russian Federation owned 60.56 percent of the total ordinary shares of the Company (31 December 2017: 60.56 percent). As at 30 June 2018 PJSC Bank VTB that is controlled by the Russian Federation owned 13.34 percent of the Company’s shares (31 December 2017: 13.34 percent). The Group’s major customer base includes a large number of entities controlled by, or related to the Government. Furthermore, the Government controls contractors and suppliers, which provide the Group with electricity dispatch, transmission and distribution services, and a number of the Group’s fuel and other suppliers (Note 5). In addition, the Government affects the Group’s operations through:  participation of its representatives in the Company’s Board of Directors;  regulation of tariffs for electricity, capacity and heat;  approval of the Group’s investment programme, volume and sources of financing, and control over its implementation. Economic, social and other policies of the Russian Government could have a material effect on operations of the Group. Seasonality of business. The demand for the Group’s heat and electricity generation and supply depends on weather conditions and the season. In addition to weather conditions, the electricity production by hydro generation plants depends on water flow in the river systems. In spring and in summer (flood period) electricity production by hydro generation plants is significantly higher than in autumn and in winter. Heat and electricity production by the heat generation assets, to the contrary, is significantly higher in autumn and in winter than in spring and in summer. The seasonal nature of heat and electricity generation has a significant influence on the volumes of fuel consumed by heat generation assets and electricity purchased by the Group. Note 2. Summary of financial reporting framework and new accounting pronouncements Basis of preparation. This Condensed Consolidated Interim Financial Information has been prepared in accordance with IAS 34, Interim Financial Reporting and should be read in conjunction with the annual Consolidated Financial Statements as at and for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS). This Condensed Consolidated Interim Financial Information is unaudited. Certain disclosures duplicating information included in the annual Consolidated Financial Statements as at and for the year ended 31 December 2017 have been omitted or condensed.

F-10 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Significant accounting policies. The accounting policies followed in the preparation of this Condensed Consolidated Interim Financial Information are consistent with those applied in the annual Consolidated Financial Statements as at and for the year ended 31 December 2017 except for income tax which is accrued in the interim periods using the best estimate of the weighted average annual income tax rate that would be applicable to expected total annual profit or loss and for the new standards and interpretations that are effective from 1 January 2018. Certain reclassifications have been made to prior period data to conform to the current period presentation. These reclassifications are not material. Changes in accounting policies. The Group has changed its accounting policies from 1 January 2018 due to the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. IFRS 9, Financial Instruments – accounting policies and the impact of the adoption. The Group applies new accounting policies due to adoption of IFRS 9 Financial Instruments. Classification From 1 January 2018, the Group classifies its financial assets in the following measurement categories:  those to be measured subsequently at fair value (either through OCI, or through profit or loss), and  those to be measured at amortised cost. The classification depends on the company’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI (in case the management makes such a decision). For investments in equity instruments that are not held for trading, this will depend on whether the group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI). The group reclassifies debt investments when and only when its business model for managing those assets changes. Measurement At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss. Debt instruments. Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and on the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:  Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest, are measured at amortised cost.  FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI.  FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. All the Group’s debt instruments are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss. Impairment losses are presented as separate line item in the statement of profit or loss. Equity instruments. The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of such investments. Dividends from such investments continue to be recognised in profit or loss as other operating income when the Group’s right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised as other operating income or expense. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. Impairment From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

F-11 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated. The total impact of the change of classification and measurement on the Group’s retained earnings as at 1 January 2018 Retained earnings as at 31 December 2017 171,423 Non-controlling interest as at 31 December 2017 2,719 Reclassification of accumulated gains on available-for-sale financial assets to retained earnings 13,894 Reversal of impairment of financial assets measured at amortised cost in accounts receivable 749 Change in deferred taxes relating to impairment provisions of financial assets measured at amortised cost in accounts receivable (63) Total change in retained earnings 14,542 Total change in non-controlling interest 38 Retained earnings as at 1 January 2018 185,965 Non-controlling interest as at 1 January 2018 2,757 Reclassification of financial assets. On 1 January 2018 (the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. Available-for-sale Financial assets / financial assets / measured at fair measured at fair value value through PL through OCI (FVOCI) (FVPL) Total As at 31 December 2017 - IAS 39 18,495 - 18,495 Reclassification of available-for-sale financial assets to FVPL (17,953) 17,953 - As at 1 January 2018 - IFRS 9 542 17,953 18,495 Investments in shares of listed companies are reclassified from available-for-sale financial assets which were included in non-current assets as at 31 December 2017 to financial assets at fair value through profit or loss. The gains from revaluation at fair value of the shares of listed companies accumulated as at 1 January 2018 in revaluation reserve on available-for-sale financial assets in the amount of RR 13,894 million were transferred to retained earnings as at 1 January 2018. Subsequent revaluations of the fair value of these shares after reclassification are reported in profit or loss as “Other operating income”. Other investments in shares of unquoted companies are reclassified to financial assets at fair value through other comprehensive income due to the fact that management of the Group treats them as long-term strategic investments and does not expect to sell them in the short to medium term. The accumulated gain from their revaluation in the amount of RR 462 million as at 1 January 2018 is recognized in the revaluation reserve for financial assets. Trade receivables. IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables for the same types of contracts. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. For each company of the Group, the trade receivables were grouped on the above principles and for each group of counterparties, the shares of expected losses were determined in accordance with the credit risk for each duration of the delay in payment. As a result, the provision for impairment of accounts receivable as at 1 January 2018 reduced by RR 749 million (before income tax) and, accordingly, accounts receivable increased by the same amount. IFRS 15, Revenue from Contracts with Customers. IFRS 15 introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. In accordance with the transition provisions in IFRS 15 the Group applies the simplified transition method with the effect of the transition to be recognised as at 1 January 2018. The Group applies the practical expedient available for the simplified transition method. IFRS 15 applies retrospectively only to contracts that are outstanding at the date of initial recognition (1 January 2018). The Group analyzed the effect of the retrospective application of the standard in relation to such contracts and concluded that it was immaterial, and therefore no retrospective recalculation was carried out.

F-12 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

In accordance with IFRS 15, revenue is recognised in an amount that reflects the consideration to which the Group is expected to be entitled in exchange for the transfer of goods or services promised to the customer. Contract liabilities are represented by advances received included in other non-current liabilities and accounts payable and accruals. Received compensation of losses in grids. From 1 January 2018 the Group recognises revenue from compensation of transmission losses and expenses on power distribution under contracts with grid companies on a net basis. Compensation of transmission losses that the Group receives from grid companies is not treated as a separate performance obligation in accordance with IFRS 15. Therefore, this compensation cannot be recognised within revenues as the contract on compensation of losses is not a contract with customers in the context of IFRS 15 and is beyond the scope of IFRS 15. The compensation of transmission losses that entities of the Group received in three and the six months ended 30 June 2018 amounted to RR 1,202 million and RR 4,184 million respectively (for the three and the six months ended 30 June 2017: RR 1,311 million and RR 3,760 million respectively). Purchase of electricity for own needs. The cost of electricity that the Group buys at WEM to support the work process and for own needs, in accordance with IFRS 15 represents compensation to be paid to the customer. From 1 January 2018 this compensation is recognised as a reduction of the transaction price and, therefore, of revenue, unless the payment to the customer is in exchange for distinct goods or services that the customer transfers to the entity. The cost of electricity purchased to support the work process and for other own needs for the three and six months ended 30 June 2018 totalled RR 142 million and RR 299 million respectively (for the three and six months ended 30 June 2017: RR 129 million and RR 284 million respectively). Critical accounting estimates and judgements. The preparation of Condensed Consolidated Interim Financial Information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing this Condensed Consolidated Interim Financial Information, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2017 with the exception of changes in estimates that are required in determining the estimate weighted average annual income tax rate (Note 14), judgements in respect of the non-deliverable forward contract for the shares (Note 16) and discount rate used in determining pension benefit obligations which increased from 7.50 percent as at 31 December 2017 to 7.60 percent as at 30 June 2018. New standards and interpretations The Group has adopted all new standards and interpretations that were effective from 1 January 2018. Apart from IFRS 9 Financial instruments and IFRS 15 Revenue from Contracts with Customers, the impact of which is described above, the impact of the adoption of other new standards and interpretations has not been significant with respect to this Condensed Consolidated Interim Financial Information. IFRS 16, Leases. IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The standard will affect primarily the accounting for the Group’s operating leases. However, the Group has not yet determined to what extent commitments under non-cancellable operating lease agreements will result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit and classification of cash flows. The standard is mandatory for first interim periods within annual reporting periods beginning on or after 1 January 2019. The Group does not intend to adopt the standard before its effective date. Apart from new standards and interpretations becoming effective from 1 January 2019 and after that date applicable to the Group as disclosed in the consolidated financial statements as at and for the year ended 31 December 2017, the following interpretations and amendments were issued which are apllicable to the Group:  Plan Amendment, Curtailment or Settlement - Amendments to IAS 19 (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019).  Amendments to the Conceptual Framework for Financial Reporting (issued on 29 March 2018 and effective for annual periods beginning on or after 1 January 2020). The revised Conceptual Framework includes a new chapter on measurement; guidance on reporting financial performance;

F-13 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

improved definitions and guidance - in particular the definition of a liability; and clarifications in important areas, such as the roles of stewardship, prudence and measurement uncertainty in financial reporting. These interpretations are not expected to affect significantly the Group’s consolidated financial statements. Note 3. Principal subsidiaries All principal subsidiaries are incorporated and operate in the Russian Federation. Differences between the ownership interest and voting interest held by some subsidiaries represent the effect of preference shares and / or effects of indirect ownership, or non-corporate partnership (LLC). The Group operates in the three main reportable segments one of which is presented by the Group’s parent company – PJSC RusHydro (Note 4). The principal subsidiaries are presented below according to their allocation to the reportable segments as at 30 June 2018 and 31 December 2017. ESС RusHydro subgroup segment ESС RusHydro subgroup segment includes the Group’s subsidiaries which sell electricity to final customers. All the entities included in this segment with the exception of JSC ESC RusHydro have the guaranteeing supplier status and are obliged to sign contracts on supplies with all final consumers of their region upon their request. 30 June 2018 31 December 2017 % of % of % of % of ownership voting ownership voting JSC ESС RusHydro 100.00% 100.00% 100.00% 100.00% PJSC Krasnoyarskenergosbyt 65.81% 69.40% 65.81% 69.40% PJSC Ryazanenergosbyt 90.52% 90.52% 90.52% 90.52% JSC Chuvashskaya Electricity Sales Company 100.00% 100.00% 100.00% 100.00% RAO ES East subgroup segment RAO ES East subgroup segment consists of JSC RAO ES East and its subsidiaries that generate, distribute and sell electricity and heat in the Far East region of the Russian Federation and render transportation, construction, repair and other services. Principal subsidiaries of this segment are presented below: 30 June 2018 31 December 2017 % of % of % of % of ownership voting ownership voting JSC RAO ES East 99.98% 99.98% 99.98% 99.98% PJSC DEK 52.11% 52.17% 52.11% 52.17% JSC DGK 52.11% 100.00% 52.11% 100.00% JSC DRSK 52.11% 100.00% 52.11% 100.00% PJSC Kamchatskenergo 98.72% 98.74% 98.72% 98.74% PJSC Magadanenergo* 48.99% 49.00% 48.99% 49.00% PJSC Sakhalinenergo 57.80% 57.82% 57.80% 57.82% PJSC Yakutskenergo 79.15% 79.16% 79.15% 79.16% * Control over PJSC Magadanenergo is achieved by the majority of votes at shareholders’ meetings because the remaining part of the shares not owned by the Group are distributed among a large number of shareholders whose individual stakes are insignificant. Other segments Other segments include:  the Group’s subsidiaries engaged in production and sale of electricity and capacity;  the Group’s subsidiaries engaged in research and development related to the utilities industry and construction of hydropower facilities;  the Group’s subsidiaries engaged primarily in repair, upgrade and reconstruction of equipment and hydropower facilities;  the Group’s subsidiaries engaged in hydropower plants construction;  minor segments which do not have similar economic characteristics.

F-14 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Principal subsidiaries included in other segments are presented below: 30 June 2018 31 December 2017 % of % of % of % of ownership voting ownership voting JSC Blagovesсhensk TРP 100.00% 100.00% 100.00% 100.00% JSC VNIIG named after B. E. Vedeneev 100.00% 100.00% 100.00% 100.00% JSC Geotherm 99.74% 99.74% 99.65% 99.65% JSC Gidroremont-VKK 100.00% 100.00% 100.00% 100.00% JSC Zagorskaya GAES-2 100.00% 100.00% 100.00% 100.00% JSC Zaramag HS 99.75% 99.75% 99.75% 99.75% JSC Institute Hydroproject 100.00% 100.00% 100.00% 100.00% PJSC Kolimaenergo 98.76% 98.76% 98.76% 98.76% JSC Lenhydroproject 100.00% 100.00% 100.00% 100.00% JSC NIIES 100.00% 100.00% 100.00% 100.00% JSC Nizhne-Bureiskaya HPP 100.00% 100.00% 100.00% 100.00% JSC Sakhalin GRES-2 100.00% 100.00% 100.00% 100.00% JSC Sulak GidroKaskad 100.00% 100.00% 100.00% 100.00% JSС TPP in Sovetskaya Gavan 100.00% 100.00% 100.00% 100.00% JSC Ust’-Srednekangesstroy 98.76% 100.00% 98.76% 100.00% JSC Ust’-Srednekanskaya HPP named after A. F. Dyakov 99.63% 100.00% 99.63% 100.00% JSC Chirkeigesstroy 100.00% 100.00% 100.00% 100.00% JSC Yakutskaya GRES-2 100.00% 100.00% 100.00% 100.00%

Note 4. Segment information Operating segments are components of the Group engaged in operations from which they may earn revenue and incur expenses, including revenue and expenses relating to transactions with other components of the Group. The individual financial information of the operating segments, which based on the same principles as the present consolidated financial statements, is available and is regularly reviewed by the chief operating decision maker (CODM) to make operating decisions about resources to be allocated to the segments and the performance of the segments’ operating activities. The CODM analyses the information concerning the Group by the groups of operations which are aggregated in operating segments presented by the following separate reportable segments: PJSC RusHydro (the Group’s parent company), ESС RusHydro subgroup, RAO ES East subgroup and other segments (Note 3). Transactions of other segments are not disclosed as reportable segments based on quantitative indicators for the periods presented. Management of operating activities of segments is performed with direct participation of individual segment managers accountable to the CODM. Segment managers on a regular basis submit for approval to the CODM results of operating activities and financial performance of segments. The CODM approves the annual business plan at the level of reportable segments as well as analyses actual financial performance of segments. Management bears responsibility for execution of approved plan and management of operating activities at the level of segments. The segments’ operational results are assessed on the basis of EBITDA, which is calculated as operating profit / loss excluding depreciation of property, plant and equipment and amortisation of intangible assets, gain arising on financial assets at fair value through profit or loss, impairment of property, plant and equipment, impairment of accounts receivable, profit / loss on disposal of property, plant and equipment, profit / loss on disposal of subsidiaries and associates and other non-monetary items of operating expenses. This method of definition of EBITDA may differ from the methods applied by other companies. CODM believes that EBITDA represents the most useful means of assessing the performance of ongoing operating activities of the Company and the Group’s subsidiaries, as it reflects the earnings trends without showing the impact of the above charges. Segment information also contains capital expenditures and the amounts of borrowings as these indicators are analysed by the CODM. Intersegment borrowings balances are excluded. Other information provided to the CODM complies with the information presented in the consolidated financial statements as at and for the year ended 31 December 2017. Intersegment sales are carried out at market prices. Segment information for the three and six months ended 30 June 2018 and 30 June 2017 and as at 30 June 2018 and 31 December 2017 is presented below.

F-15 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Six months ended 30 June 2018 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 63,044 29,729 90,787 16,422 199,982 (19,129) 180,853 including: from external companies 57,445 29,702 90,610 3,096 180,853 - 180,853 sales of electricity 41,017 29,103 52,887 391 123,398 - 123,398 sales of heat and hot water 94 - 23,998 1 24,093 - 24,093 sales of capacity 16,249 - 4,263 249 20,761 - 20,761 other revenue 85 599 9,462 2,455 12,601 - 12,601 from intercompany operations 5,599 27 177 13,326 19,129 (19,129) - Government grants - - 19,909 115 20,024 - 20,024 Operating expenses (excluding depreciation and other non-monetary items) (20,242) (28,979) (96,321) (14,737) (160,279) 19,351 (140,928) EBITDA 42,802 750 14,375 1,800 59,727 222 59,949 Other operating income 295 - 32 896 1,223 - 1,223 Depreciation of property, plant and equipment and amortization of intangible assets (7,341) (88) (4,252) (1,548) (13,229) 98 (13,131) Other non-monetary items of operating income and expenses (455) (272) (1,319) 2,129 83 26 109 including: gain arising on financial assets at fair value through profit or loss 1,449 - 43 2,181 3,673 - 3,673 impairment of property, plant and equipment (720) - (424) - (1,144) - (1,144) impairment of accounts receivable, net (1,111) (233) (1,035) (25) (2,404) - (2,404) (loss) / profit on disposal of property, plant and equipment, net (76) (8) 64 (27) (47) 26 (21) profit / (loss) on disposal of subsidiaries and joint venture, net 3 (31) 33 - 5 - 5 Operating profit 35,301 390 8,836 3,277 47,804 346 48,150 Finance income 2,763 Finance costs (5,869) Share of results of associates and joint ventures 681 Profit before income tax 45,725 Total income tax expense (9,037) Profit for the period 36,688

Capital expenditure 8,290 8 9,374 12,587 30,259 - 30,259 30 June 2018 Non-current and current debt 112,157 2,104 47,043 5,205 166,509 - 166,509

F-16 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Six months ended 30 June 2017 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 58,219 30,439 93,852 11,220 193,730 (12,864) 180,866 including: from external companies 53,884 30,431 93,674 2,877 180,866 - 180,866 sales of electricity 36,975 29,895 59,399 439 126,708 - 126,708 sales of heat and hot water 83 - 22,584 - 22,667 - 22,667 sales of capacity 16,757 - 2,931 152 19,840 - 19,840 other revenue 69 536 8,760 2,286 11,651 - 11,651 from intercompany operations 4,335 8 178 8,343 12,864 (12,864) - Government grants - - 6,757 31 6,788 - 6,788 Operating expenses (excluding depreciation and other non-monetary items) (19,711) (29,562) (89,330) (10,467) (149,070) 12,963 (136,107) EBITDA 38,508 877 11,279 784 51,448 99 51,547 Depreciation of property, plant and equipment and amortization of intangible assets (6,564) (71) (3,957) (925) (11,517) 109 (11,408) Other non-monetary items of operating income and expenses (1,968) (20) (1,889) (219) (4,096) (2) (4,098) including: impairment of property, plant and equipment (843) - (298) (103) (1,244) - (1,244) impairment of accounts receivable, net (982) (9) (1,542) (100) (2,633) - (2,633) loss on disposal of property, plant and equipment, net (143) (9) (49) (16) (217) (2) (219) loss on disposal of subsidiaries, net - (2) - - (2) - (2) Operating profit / (loss) 29,976 786 5,433 (360) 35,835 206 36,041 Finance income 5,196 Finance costs (10,497) Share of results of associates and joint ventures 149 Profit before income tax 30,889 Total income tax expense (8,586) Profit for the period 22,303

Capital expenditure 9,489 25 8,135 16,980 34,629 - 34,629 31 December 2017

Non-current and current debt 120,070 1,268 43,348 4,839 169,525 - 169,525

F-17 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Three months ended 30 June 2018 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 32,921 13,106 37,539 9,464 93,030 (10,437) 82,593 including: from external companies 30,409 13,093 37,447 1,644 82,593 - 82,593 sales of electricity 22,693 12,826 23,125 159 58,803 - 58,803 sales of heat and hot water 25 - 7,398 - 7,423 - 7,423 sales of capacity 7,647 - 2,159 156 9,962 - 9,962 other revenue 44 267 4,765 1,329 6,405 - 6,405 from intercompany operations 2,512 13 92 7,820 10,437 (10,437) - Government grants - - 9,577 49 9,626 - 9,626 Operating expenses (excluding depreciation and other non-monetary items) (10,054) (12,879) (43,253) (8,205) (74,391) 10,384 (64,007) EBITDA 22,867 227 3,863 1,308 28,265 (53) 28,212 Other operating income 295 - 32 611 938 - 938 Depreciation of property, plant and equipment and amortization of intangible assets (3,684) (42) (2,015) (823) (6,564) 57 (6,507) Other non-monetary items of operating income and expenses (263) (161) (566) 813 (177) 4 (173) including: gain arising on financial assets at fair value through profit or loss 525 - 12 795 1,332 - 1,332 impairment of property, plant and equipment (462) - (202) - (664) - (664) (impairment) / reversal of accounts receivable, net (316) (125) (499) 19 (921) - (921) (loss) / profit on disposal of property, plant and equipment, net (13) (5) 90 (1) 71 4 75 profit / (loss) on disposal of subsidiaries and joint venture, net 3 (31) 33 - 5 - 5 Operating profit 19,215 24 1,314 1,909 22,462 8 22,470 Finance income 1,206 Finance costs (5,572) Share of results of associates and joint ventures 335 Profit before income tax 18,439 Total income tax expense (4,702) Profit for the period 13,737

Capital expenditure 5,246 8 5,917 7,623 18,794 - 18,794

F-18 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Three months ended 30 June 2017 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 30,542 13,140 39,003 6,545 89,230 (7,143) 82,087 including: from external companies 28,551 13,137 38,925 1,474 82,087 - 82,087 sales of electricity 20,820 12,879 26,134 276 60,109 - 60,109 sales of heat and hot water 22 - 6,977 - 6,999 - 6,999 sales of capacity 7,670 - 1,497 85 9,252 - 9,252 other revenue 39 258 4,317 1,113 5,727 - 5,727 from intercompany operations 1,991 3 78 5,071 7,143 (7,143) - Government grants - - 2,194 14 2,208 - 2,208 Operating expenses (excluding depreciation and other non-monetary items) (10,732) (12,828) (40,715) (6,093) (70,368) 7,386 (62,982) EBITDA 19,810 312 482 466 21,070 243 21,313 Depreciation of property, plant and equipment and amortization of intangible assets (3,329) (36) (1,957) (468) (5,790) 65 (5,725) Other non-monetary items of operating income and expenses (831) 106 (1,405) (59) (2,189) (2) (2,191) including: impairment of property, plant and equipment (124) - (201) (48) (373) - (373) (impairment) / reversal of accounts receivable, net (567) 117 (1,193) (15) (1,658) - (1,658) (loss) / profit on disposal of property, plant and equipment, net (140) (9) (11) 4 (156) (2) (158) loss on disposal of subsidiaries, net - (2) - - (2) - (2) Operating profit / (loss) 15,650 382 (2,880) (61) 13,091 306 13,397 Finance income 2,343 Finance costs (8,762) Share of results of associates and joint ventures (26) Profit before income tax 6,952 Total income tax expense (3,455) Profit for the period 3,497

Capital expenditure 5,482 24 5,335 10,287 21,128 - 21,128

F-19 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 5. Related party transactions Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Transactions with the Group’s related parties for the six months ended 30 June 2018 and 30 June 2017 and as at 30 June 2018 and 31 December 2017 mainly included transactions with associates and joint ventures of the Group, as well as with government-related entities. Joint ventures The Group had the following balances with its joint ventures: 30 June 2018 31 December 2017 Promissory notes 7,205 6,880 Advances to suppliers 169 172 Loans issued 10 8 Loans received - 750

The Group had the following transactions with its joint ventures: Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Sales of electricity and capacity 167 171 90 85 Other revenue 232 290 81 142 Purchased electricity and capacity 272 1,440 111 596

The Group also issued a guarantee for liabilities of its joint venture as at 31 December 2017 (Note 26). Associates The Group had the following balances with its associates: 30 June 2018 31 December 2017 Trade and other receivables 243 456 Trade payables 1,525 1,277

The Group had the following transactions with its associates: Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Sales of electricity and capacity 1,551 1,543 590 586 Other revenue 57 67 30 33 Rent 308 298 154 149 Purchased electricity and capacity 10 10 3 4 Government-related entities In the normal course of business the Group enters into transactions with the entities controlled by the Government. The Group had transactions during the three and six months ended 30 June 2018 and 30 June 2017 and balances outstanding as at 30 June 2018 and 31 December 2017 with a number of government-related banks. All transactions with the banks are carried out on market terms. The Company entered into a non- deliverable forward transaction for own shares with PJSC Bank VTB (Note 16). The Group’s sales of electricity, capacity and heat to government-related entities comprised approximately 20 percent of the total sales of electricity, capacity and heat for the three and six months ended 30 June 2018 (for the three and six months ended 30 June 2017: approximately 20 percent). Sales of electricity and capacity under the regulated contracts are made directly to the consumers, within the day-ahead market (DAM) – through commission agreements with JSC Centre of Financial Settlements (hereinafter referred to as “CFS”). Electricity and capacity supply tariffs under the regulated contracts and electricity and heat supply

F-20 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise) tariffs in the non-pricing zone of the Far East are approved by FTS and by regional regulatory authorities of the Russian Federation. At the DAM, the price is determined by balancing the demand and supply and such price is applied to all market participants. During the six months ended 30 June 2018, the Group received government subsidies of RR 20,024 million (for the six months ended 30 June 2017: RR 6,788 million). During the three months ended 30 June 2018, the Group received government subsidies of RR 9,626 million (for the three months ended 30 June 2017: RR 2,208 million) (Note 21). Government subsidies receivable comprised RR 5,596 million as at 30 June 2018 (31 December 2017: RR 3,401 million) (Note 10). Accounts payable on free-of-charge targeted contributions of the Group comprised RR 3,185 million as at 30 June 2018 (31 December 2017: no accounts payable on free-of-charge targeted contributions) (Note 18). The Group’s purchases of electricity, capacity and fuel from government-related entities comprised approximately 30 percent of the total expenses on purchased electricity, capacity and fuel for the three and six months ended 30 June 2018 (for the three and six months ended 30 June 2017: approximately 30 percent). Grid companies services on electricity distribution provided to the Group by government-related entities comprised approximately 80 percent of the total electricity distribution expenses for the three and six months ended 30 June 2018 (for the three and six months ended 30 June 2017: approximately 70 percent). The distribution of electricity is subject to tariff regulations. Key management of the Group. Key management of the Group includes members of the Board of Directors of the Company, members of the Management Board of the Company, heads of the business subdivisions of the Company and their deputies, key management of subsidiaries of RAO ES East subgroup segment. Remuneration to the members of the Board of Directors of the Company for their services in this capacity and for attending Board meetings is paid depending on the results for the year and is calculated based on the remuneration policy approved by the Annual General Shareholders Meeting of the Company. Remuneration to the members of the Management Board and to other key management of the Group is paid for their services in full time management positions and is made up of a contractual salary and performance bonuses depending on the results of the work for the period based on key performance indicators approved by the Board of Directors of the Company. The compensation for key management is mostly short-term except for the accruals for future payments under pension plans with defined benefits. Pension benefits for key management of the Group are provided on the same terms as for the rest of employees. Short-term remuneration paid to the key management of the Group for the six months ended 30 June 2018 comprised RR 487 million (for the six months ended 30 June 2017: RR 758 million). Short-term remuneration paid to the key management of the Group for the three months ended 30 June 2018 comprised RR 301 million (for the three months ended 30 June 2017: RR 541 million).

F-21 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 6. Property, plant and equipment Plant and Assets under Revalued amount / cost Buildings Facilities equipment construction Other Total Balance as at 31 December 2017 101,476 432,524 353,294 296,562 14,477 1,198,333 Reclassification 117 (428) 209 - 102 - Additions 8 120 782 28,786 563 30,259 Transfers 977 2,590 11,782 (15,376) 27 - Disposals and write-offs (232) (115) (544) (724) (200) (1,815) Balance as at 30 June 2018 102,346 434,691 365,523 309,248 14,969 1,226,777 Accumulated depreciation (including impairment) Balance as at 31 December 2017 (41,595) (162,870) (153,722) (31,556) (8,735) (398,478) Reclassification (10) 37 42 - (69) - Impairment charge - (76) (121) (936) (11) (1,144) Charge for the period (1,065) (4,599) (7,104) - (581) (13,349) Transfers (29) (215) (238) 492 (10) - Disposals and write-offs 140 64 464 535 85 1,288 Balance as at 30 June 2018 (42,559) (167,659) (160,679) (31,465) (9,321) (411,683) Net book value as at 30 June 2018 59,787 267,032 204,844 277,783 5,648 815,094 Net book value as at 31 December 2017 59,881 269,654 199,572 265,006 5,742 799,855

As at 30 June 2018, the net book value of the property, plant and equipment includes office buildings and plots of land owned by the Group in the amount of RR 7,417 million (31 December 2017: RR 7,486 million) which are stated at cost. Assets under construction represent the expenditures for property, plant and equipment that are being constructed, including power plants under construction, as well as advances to construction companies and suppliers of property, plant and equipment. As at 30 June 2018, such advances amounted to RR 34,269 million (31 December 2017: RR 36,577 million). Additions to assets under construction include capitalised borrowing costs in the amount of RR 4,181 million, the capitalisation rate was 8.62 percent (for the six months ended 30 June 2017: RR 6,017 million, the capitalisation rate was 9.68 percent). Additions to assets under construction include capitalised depreciation in the amount of RR 222 million (for the six months ended 30 June 2017: RR 111 million). Impairment. Management of the Group considered the market and economic environment in which the Group operates to assess whether any indicators of property, plant and equipment being impaired existed, or that an impairment loss recognised in prior periods may no longer exist or may have decreased. At the reporting date no indicators of significant changes of management’s assumptions used to determine the recoverable amounts of cash-generating units as at 31 December 2017 were identified as a result of this analysis. Based on the same assumptions, the Group recognised an impairment loss in the amount of RR 1,144 million for the six months ended 30 June 2018 in respect of additions of property, plant and equipment related to cash-generating units impaired in previous periods (for the six months ended 30 June 2017: RR 1,244 million). For the three months ended 30 June 2018, the impairment loss was RR 664 million (for the three months ended 30 June 2017: RR 373 million). Note 7. Financial assets at fair value through profit or loss

As at 1 January 2018 (Note 2) 17,953 Gain arising on financial assets at fair value through profit or loss within other operating income 3,673 Reclassification to non-current assets classified as held for sale (20,883) As at 30 June 2018 743

Gain arising on financial assets at fair value through profit or loss for the six months ended 30 June 2018 totaled RR 3,673 million, including change in fair value of PJSC Inter RAO`s shares – RR 3,664 million and was recorded within other operating income (for the three months ended 30 June 2018: RR 1,327 million).

F-22 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

As of 30 June 2018 the shares of PJSC Inter RAO were reclassified to non-current assets classified as held for sale in the amount of RR 20,883 million due to the decision adopted on 27 June 2018 by the Board of Directors of the Company on termination of the Group participation in the capital of PJSC Inter RAO through the sale of shares owned by the Group (Note 29). Note 8. Other non-current assets 30 June 2018 31 December 2017 Long-term promissory notes 40,067 39,549 Discount (15,268) (15,662) Impairment provision (14,025) (14,025) Long-term promissory notes, net 10,774 9,862 Long-term advances to suppliers 5,053 5,024 VAT recoverable 3,396 2,957 Goodwill 481 481 Other non-current assets 6,656 7,007 Total other non-current assets 26,360 25,331

Note 9. Cash and cash equivalents

30 June 2018 31 December 2017 Cash equivalents 57,663 59,029 Cash at bank 14,710 11,106 Cash in hand 28 21 Total cash and cash equivalents 72,401 70,156 Cash equivalents held as at 30 June 2018 and 31 December 2017 comprised short-term bank deposits with original contractual maturities of three months or less. Note 10. Accounts receivable and prepayments

30 June 2018 31 December 2017 Trade receivables 64,471 61,279 Provision for impairment of trade receivables (27,624) (26,571) Trade receivables, net 36,847 34,708 VAT recoverable 6,978 7,841 Advances to suppliers and other prepayments 7,703 2,944 Provision for impairment of advances to suppliers and other prepayments (670) (837) Advances to suppliers and other prepayments, net 7,033 2,107 Other receivables 8,302 7,959 Provision for impairment of other receivables (4,910) (4,815) Other receivables, net 3,392 3,144 Government grants receivables 5,596 3,401 Total accounts receivable and prepayments 59,846 51,201 As at 1 January 2018 the trade receivables were restated in accordance with IFRS 9 (Note 2). The Group does not hold any accounts receivable pledged as collateral.

F-23 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 11. Inventories 30 June 2018 31 December 2017 Fuel 13,897 16,162 Materials and supplies 8,491 6,782 Spare parts 2,603 2,466 Other materials 594 386 Total inventories before provision for impairment 25,585 25,796 Provision for impairment of inventories (263) (273) Total inventories 25,322 25,523

There are no inventories pledged as collateral for borrowings as at 30 June 2018 and as at 31 December 2017. Note 12. Other current assets 30 June 2018 31 December 2017 Special funds 3,919 3,429 Deposits 4,499 790 Loans issued 2,723 2,472 Provision for loans issued (2,698) (2,447) Loans issued, net 25 25 Other short-term investments 125 156 Total other current assets 8,568 4,400 As at 30 June 2018 the balance of special funds in the amount of RR 3,919 million received by the Group to fund construction of generating facilities, is placed to the special accounts of the Federal Treasury of Russia (as at 31 December 2017: RR 3,429 million). These special funds may be used by the Group only upon approval by the Federal Treasury of Russia according to the procedure prescribed by the Order of the Ministry of Finance of the Russian Federation No. 213n dated 25 December 2015. Note 13. Equity Number of issued ordinary shares (Par value of RR 1.00) As at 30 June 2018 426,288,813,551 As at 31 December 2017 426,288,813,551 Changes in the equity as at 1 January 2018 due to changes in accounting policies. The Group recalculated capital as at 1 January 2018 due to adoption of IFRS 9 (Note 2). The revaluation reserve on available-for-sale financial assets for those financial assets reclassified to fair value through profit or loss in the amount of RR 13,894 million as at 1 January 2018 was transferred to retained earnings. As a result of the recalculation of the provision for impairment of trade receivables, retained earnings as at 1 January 2018 increased by RR 648 million and non-controlling interest by RR 38 million. Additional share issue 2018. On 21 June 2018, the Board of Directors of the Company adopted a resolution to make a placement of 14,013,888,828 ordinary shares by open subscription. The placement price of the additional shares was determined at RR 1.00 per share. On 27 August 2018, the share issue was registered with the Bank of Russia. Additional share issue 2016–2017. On 22 November 2016, the Board of Directors of the Company adopted a resolution to make a placement of 40,429,000,000 ordinary shares by open subscription. The placement price of the additional shares was determined at RR 1.00 per share. On 7 December 2016, the share issue was registered with the Bank of Russia. In January 2017, as a result of certain shareholders exercising their pre-emptive right, the Company placed 33,348,661 additional shares, which were paid in December 2016. In March 2017, PJSC Bank VTB purchased 40,000,000,000 additional shares under the agreement related to the purchase of 55 billion ordinary shares of the Company for a total amount of RR 55 billion (Note 2). The other 15 billion shares of quasy-treasury stock were sold to the bank by the Group`s subsidiaries. The full amount of cash received by the Group was used to repay the debts of RAO ES East subgroup.

F-24 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

On 11 May 2017, the placement of ordinary shares of the Company under the additional share issue 2016– 2017 was completed. On 5 June 2017, the results of the additional share issue were registered. 40,033,348,661 shares were placed as a result of the additional issue, which represents 99.02 percent of the additional issue's total number of shares registered. The shares issued were fully paid for in cash. Treasury shares. Аs at 30 June 2018, treasury shares were represented by 3,852,260,628 ordinary shares in the amount of RR 4,613 million (31 December 2017: 3,852,267,925 ordinary shares in the amount of RR 4,613 million). In March 2017, 15 billion treasury shares were sold to PJSC Bank VTB at the price of RR 1,00 per share in accordance with the agreement described above. Weighted average cost of these treasury shares was RR 17,965 million; the loss on disposal of RR 2,965 million was accounted for within equity. Dividends. On 27 June 2018, the Company declared dividends for the year ended 31 December 2017 of RR 0.0263 per share in the total amount of RR 11,226 million (RR 11,129 million excluding dividends to subsidiaries). On 26 June 2017, the Company declared dividends for the year ended 31 December 2016 of RR 0.0466 per share in the total amount of RR 19,876 million (RR 19,696 million excluding dividends to subsidiaries). Declared dividends of the Group’s subsidiaries in favour of non-controlling interest holders amounted to RR 219 million for the six months ended 30 June 2018 (for the six months ended 30 June 2017: RR 127 million). Note 14. Income tax Income tax expense is recognised based on the management’s best estimate as of the reporting date of the weighted average annual income tax rate expected for the full financial year. The tax effect of the exceptional, one-off items has not been included in the estimation of the weighted average annual income tax rate. The estimated average annual effective income tax rate used for the six months ended 30 June 2018, was 20 percent (for the six months ended 30 June 2017: 28 percent). Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Current income tax expense 6,849 6,343 2,964 2,430 Deferred income tax expense 2,188 2,243 1,738 1,025 Total income tax expense 9,037 8,586 4,702 3,455

F-25 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 15. Current and non-current debt Non-current debt Due date 30 June 2018 31 December 2017 PJSC Sberbank 2018–2020 47,862 54,790 Eurobonds (RusHydro Capital Markets DAC), issued in February 2018 2021 20,399 - Eurobonds (RusHydro Capital Markets DAC), issued in September 2017 2022 20,248 20,235 Russian bonds (PJSC RusHydro) issued in July 2015 2018 15,867 15,868 Russian bonds (PJSC RusHydro) issued in April 2016 2019 15,177 15,357 Russian bonds (PJSC RusHydro) issued in June 2017 2020 10,196 10,016 PJSC ROSBANK 2018–2020 6,253 4,520 UniCredit Bank Austria AG 2018–2026 5,130 5,113 Russian bonds (PJSC RusHydro) issued in February 2013 2023* 2,182 20,650 PJSC Bank VTB 2018–2020 2,097 5,046 Bank GPB (JSC) 2018–2027 1,934 1,794 Far East and Baikal Region Development Fund 2026 1,643 - Municipal authority of Kamchatka region 2018–2034 1,626 1,560 EBRD 2018–2027 1,421 1,350 ASIAN Development bank 2018–2027 1,378 1,310 Russian bonds (PJSC RusHydro) issued in April 2015 2025 768 767 Russian bonds (PJSC RusHydro) issued in April 2011 2021 255 255 Other long-term debt - 863 831 Finance lease liabilities - 744 1,586 Total 156,043 161,048 Less current portion of non-current debt (38,848) (69,877) Less current portion of finance lease liabilities (116) (259) Total non-current debt 117,079 90,912 * In February 2018 holders of the bonds issued in February 2013 partly redeemed the bonds under the put option. The rest of the bonds with nominal amount of RR 2,196 million will mature in 2023 year. Eurobond issue. In February 2018 the Group placed Eurobonds, issued by the special purpose company RusHydro Capital Markets DAC. The volume of the issue was RR 20,000 million. The term of the bonds is 3 years, the coupon rate is 7.4 percent per annum. VTB Capital, JP Morgan, Gazprombank and Sberbank CIB acted as joint lead managers of the issue. The placement and listing of the Eurobonds took place on the Irish Stock Exchange under Reg S rule. Eurobonds could have been partly purchased by government-related entities. Current debt 30 June 2018 31 December 2017 PJSC ROSBANK 5,517 930 PJSC Sberbank 2,496 5,428 BANK ROSSIYA 1,465 1,000 JSC Raiffeisenbank 639 - Bank GPB (JSC) 312 334 LLC AlstomRusHydroEnergy - 750 Current portion of non-current debt 38,848 69,877 Current portion of finance lease liabilities 116 259 Other current debt 37 35 Total current debt and current portion of non-current debt 49,430 78,613 Reference: Interest payable 2,743 3,012 Compliance with covenants. The Group is subject to certain covenants related to its debt. As at 30 June 2018 and 31 December 2017 and during the reporting period the Group met all covenant clauses of the debt agreements.

F-26 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 16. Non-deliverable forward contract for shares

The fair value of the forward contract As at 31 December 2017 20,716 Change in the fair value of the non-deliverable forward contract (Note 23) 2,433 Interim payments (1,613) As at 30 June 2018 21,536 The table below includes key assumptions made to determine the forward contract’s fair value using the Monte-Carlo model: Key assumptions made to assess the forward contract’s fair value As at 30 June 2018 As at 31 December 2017 Expected term of the forward 3.68 years 4.17 years transaction Market value of the share RR 0.6821 RR 0.7264 CB RF key refinancing rate 7.25 percent 7.75 percent Volatility of shares 34.15 percent 34.85 percent Risk-free rate 7.15 percent 7.01 percent Discount rate 7.77 percent 7.84 percent Expected dividend yield 5.10 percent 5.10 percent The sensitivity analysis of the fair value of the forward contract to the key assumptions is presented in Note 28. Note 17. Other non-current liabilities 30 June 2018 31 December 2017 Non-current advances received 11,915 10,766 Pension benefit obligations 8,407 8,634 Other non-current liabilities 8,909 8,716 Total other non-current liabilities 29,231 28,116

Note 18. Accounts payable and accruals

30 June 2018 31 December 2017 Trade payables 26,900 30,949 Dividends payable 11,480 159 Advances received 9,288 11,664 Settlements with personnel 7,672 8,880 Accounts payable on free-of-charge targeted contributions 3,185 - Accounts payable under factoring agreements 235 258 Other accounts payable 3,753 3,715 Total accounts payable and accruals 62,513 55,625 All accounts payable and accruals are denominated in Russian Rubles. Accounts payable on free-of-charge targeted contributions as of 30 June 2018 is the debts to the constituent budgets of the Far East Federal region according to Russian Government Resolution No. 895 “On achievement of basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region”, which stipulates the application of a premium to the price of capacity provided by the Company in the price zones of the wholesale electricity and capacity market with subsequent transfer of the amounts collected to the constituent budgets of the Far East Federal region in the form of free-of-charge targeted contributions.

F-27 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 19. Other taxes payable 30 June 2018 31 December 2017 VAT 9,397 10,236 Insurance contributions 3,138 3,160 Property tax 2,695 2,038 Other taxes 590 600 Total other taxes payable 15,820 16,034

Note 20. Revenue Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Sales of electricity 123,398 126,708 58,803 60,108 Sales of heat and hot water 24,093 22,667 7,423 6,999 Sales of capacity 20,761 19,840 9,962 9,252 Other revenue 12,601 11,651 6,405 5,728 Total revenue 180,853 180,866 82,593 82,087 Other revenue includes revenue earned from transportation of electricity and heat, connections to the grid, rendering of construction, repair and other services. Note 21. Government grants In accordance with legislation of the Russian Federation, several companies of the Group are entitled to government subsidies for compensation of the difference between approved economically viable electricity and heat tariffs and actual reduced tariffs and for compensation of losses on purchased fuel, purchased electricity and capacity. During the six months ended 30 June 2018, the Group received government subsidies of RR 20,024 million (for the six months ended 30 June 2017: RR 6,788 million). During the three months ended 30 June 2018, the Group received government subsidies of RR 9,626 million (for the three months ended 30 June 2017: RR 2,208 million). The subsidies were received in the following territories: Kamchatsky territory, Sakha Republic (Yakutia), Magadan Region, Chukotka Autonomous Area and other Far East regions. Incuded in the total amount of government grants are government grants received by the Group’s companies – guaranteeing suppliers, under the Resolution of the Russian Government No. 895 “On achievement of basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region”, effective from July 2017. For the the six months ended 30 June 2018 these subsidies amounted to RR 13,196 million and for the three months ended 30 June 2018 they amounted to RR 6,600 million.

F-28 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 22. Operating expenses (excluding impairment losses) Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Employee benefit expenses (including payroll taxes and pension benefit expenses) 37,158 36,377 18,152 17,715 Fuel expenses 34,260 29,969 13,021 12,069 Grid companies services on electricity distribution 20,071 21,241 9,217 9,439 Purchased electricity and capacity 19,602 19,906 8,201 8,284 Depreciation of property, plant and equipment and amortisation of intangible assets 13,131 11,408 6,507 5,725 Taxes other than on income 6,077 5,409 3,031 2,729 Other materials 4,008 4,310 2,509 2,498 Third parties services, including: Purchase and transportation of heat power 1,933 1,914 826 816 Provision of functioning of electricity and capacity market 1,827 1,818 930 909 Repairs and maintenance 1,786 1,524 1,230 963 Security expenses 1,670 1,691 830 856 Insurance cost 1,091 990 502 445 Rent 969 1,034 517 509 Services of subcontracting companies 843 648 467 413 Consulting, legal and information expenses 806 1,153 344 729 Transportation expenses 473 634 310 452 Other third parties services 4,324 3,817 2,052 1,922 Water usage expenses 1,996 1,678 1,093 881 Social charges 506 351 301 213 Travel expenses 425 360 233 203 Loss / (profit) on disposal of property, plant and equipment, net 21 219 (75) 158 Other expenses 1,098 1,285 236 939 Total operating expenses (excluding impairment losses) 154,075 147,736 70,434 68,867

Note 23. Finance income, costs Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Finance income Interest income 2,376 4,056 1,135 1,930 Income on discounting 119 245 - 137 Foreign exchange gains 60 590 50 - Other income 208 305 21 276 Total finance income 2,763 5,196 1,206 2,343

Finance costs Change of fair value of non-deliverable forward contract for shares (Note 16) (2,433) (6,451) (3,889) (6,855) Interest expense (2,525) (2,201) (1,274) (681) Foreign exchange losses (305) (1,049) (136) (902) Expense on discounting (152) (178) (51) (19) Finance lease expense (49) (116) (25) (61) Other costs (405) (502) (197) (244) Total finance costs (5,869) (10,497) (5,572) (8,762)

F-29 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 24. Earnings per share Six months ended Three months ended 30 June 30 June 2018 2017 2018 2017 Weighted average number of ordinary shares issued (millions of shares) 422,437 382,546 422,437 393,401 Profit for the period attributable to the shareholders of PJSC RusHydro 35,660 22,052 14,457 4,870 Earnings per share attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 0.0844 0.0576 0.0342 0.0124

Note 25. Capital commitments In accordance with consolidated investment programme approved under the consolidated business plan of the Group, as of 30 June 2018 the Group has to invest RR 362,240 million for the period 2018–2022 for reconstruction of the existing and construction of new power plants and grids, including capital commitments for 2018 year in the amount of RR 93,466 million, for 2019 year – RR 93,359 million, for 2020 year – RR 72,098 million, for 2021 year – RR 55,506 million, for 2022 year – RR 47,811 million (31 December 2017: RR 391,711 million for the period 2018–2022). Note 26. Contingencies Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of its employees, including contributions toward the development and maintenance of housing, hospitals, transport services and other social needs in the geographical areas in which it operates. Management believes that there are no material liabilities that should have been recognized at the reporting date. Insurance. The Group holds limited insurance policies in relation to its assets, operations, public liability or other insurable risks. Accordingly, the Group is exposed for those risks for which it does not have insurance. Legal proceedings. The Group’s subsidiaries are parties to certain legal proceedings arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which, upon final disposition, will have a material adverse effect on the financial position and results of the Group. Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management may be challenged by tax authorities, in particular, the way of accounting for tax purposes of some income and expenses of the Group as well as deductibility of input VAT from suppliers and contractors. The impact of this course of events cannot be assessed with sufficient reliability, but it can be significant in terms of the financial situation and / or the business of the Group. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decisions about the review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD), although it has specific features. This legislation provides for the possibility of additional tax assessments for controlled transactions (transactions with related parties and certain transactions between unrelated parties) if such transactions are not on an arm's length basis. During the six months ended 30 June 2018, the Group’s subsidiaries had controlled transactions and transactions which highly probably will be considered by tax authorities to be controlled based on the results of the period. Management has implemented internal controls to be in compliance with this transfer pricing legislation. In case of receipt of a request from tax authorities, the management of the Group will provide documentation meeting the requirements of Art. 105.15 of the Tax Code. Tax liabilities arising from controlled transactions are determined based on their actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could

F-30 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise) be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group. New provisions aimed at deoffshorisation of Russian economy have been added to the Russian tax legislation and are effective from 1 January 2015. Specifically, they introduce new rules for controlled foreign companies, a concept of beneficiary owner of income for the purposes of application of preferential provisions of taxation treaties of the Russian Federation, a concept of tax residency for foreign persons and taxation of indirect sale of Russian real estate assets. The Group is currently assessing the effects of new tax rules on the Group’s operations and takes necessary steps to comply with the new requirements of the Russian tax legislation. Following the performed analysis, management of the Group concluded that the Group is in compliance with the tax legislation requirements aimed at deoffshorisation of Russian economy: there are no risks associated with taxation of CFC profits; foreign entities of the Group are not tax residents of the Russian Federation; when proceeds are paid to foreign entities the Group entities undertake reasonable actions to prove beneficiary ownership of these proceeds by foreign entities. However, in view of the recent introduction of the above provisions and insufficient related administrative and court practice, at present the probability of claims from Russian tax authorities and probability of favourable outcome of tax disputes (if they arise) cannot be reliably estimated. Tax disputes (if any) may have an impact on the Group's financial position and results. Management believes that as at 30 June 2018, its interpretation of the relevant legislation was appropriate and the Group’s tax positions would be sustained. Environmental matters. The Group’s subsidiaries and their predecessor entities have operated in the utilities industry of the Russian Federation for many years. The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is periodically being reconsidered. The Group’s subsidiaries regularly evaluate their obligations under environmental regulations. Group accrued assets retirement obligation for ash dumps used by the Group which is included in other non-current liabilities and other accounts payable and comprised RR 1,397 million as at 30 June 2018 (31 December 2017: RR 1,348 million). Potential liabilities might arise as a result of changes in legislation and regulation or civil litigation. The impact of these potential changes cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage. Guarantees. In February 2018 the Group signed an agreement on the termination of the surety agreement with SC Vnesheconombank with regard to performance by PJSC Boguchanskaya HPP of its obligations under the loan agreement, which did not have a significant impact on the Condensed Consolidated Interim Financial Information of the Group. The nominal value of of the guarantees issued is shown in the table below:

Counterparty 30 June 2018 31 December 2017 for PJSC Boguchanskaya HPP: State Corporation Vnesheconombank - 25,935 Total guarantees issued - 25,935

Note 27. Financial instruments and financial risk management Financial risks. The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk), credit risk and liquidity risk. This Condensed Consolidated Interim Financial Information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group’s consolidated financial statements for the year ended 31 December 2017. There have been no changes in the Group’s risk management policies during the six months ended 30 June 2018.

F-31 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Presentation of financial instruments by measurement category. The following table provides a reconciliation of classes of financial assets with the measurement categories of IFRS 9 Financial instruments and information about the rest of special funds on the accounts of the Federal Treasury as at 30 June 2018 and 31 December 2017. Reclassifications of financial assets by measurement categories as at 1 January 2018 are presented in Note 2. Financial assets Financial assets at fair value at fair value through other Financial assets through comprehensive As at 30 June 2018 at amortised cost profit or loss income Total Assets Other non-current assets (Note 8) 11,261 - - 11,261 Promissory notes 10,774 - - 10,774 Long-term loans issued 487 - - 487 Financial assets at fair value through profit or loss (Note 7) - 743 - 743 Financial assets at fair value through other comprehensive income - - 539 539 Trade and other receivables (Note 10) 39,878 - - 39,878 Trade receivables 36,847 - - 36,847 Other financial receivables 3,031 - - 3,031 Other current assets (Note 12) 8,443 - - 8,443 Special funds 3,919 - - 3,919 Deposits and promissory notes 4,499 - - 4,499 Short-term loans issued 25 - - 25 Cash and cash equivalents (Note 9) 72,401 - - 72,401 Total financial assets 131,983 743 539 133,265 Non-financial assets 906,859 Non-current assets classified as held for sale - 20,883 - 20,883 Total assets 1,061,007

Loans and Available-for-sale As at 31 December 2017 receivables financial assets Total Assets Other non-current assets (Note 8) 10,394 - 10,394 Promissory notes 9,862 - 9,862 Long-term loans issued 532 - 532 Available-for-sale financial assets - 18,495 18,495 Trade and other receivables (Note 10) 37,370 - 37,370 Trade receivables 34,708 - 34,708 Other financial receivables 2,662 - 2,662 Other current assets (Note 12) 4,244 - 4,244 Special funds 3,429 - 3,429 Deposits and promissory notes 790 - 790 Short-term loans issued 25 - 25 Cash and cash equivalents (Note 9) 70,156 - 70,156 Total financial assets 122,164 18,495 140,659 Non-financial assets 887,592 Total assets 1,028,251 As at 30 June 2018 financial liabilities of the Group valued at fair value are represented by the non- deliverable forward contract for shares in the amount of RR 21,536 million (Note 16) (31 December 2017: RR 20,716 million). All other financial liabilities of the Group are carried at amortised cost and are represented mainly by the current and non-current debt (Note 15), trade payables, accounts payable under factoring agreements and other accounts payable (Note 18).

F-32 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise)

Note 28. Fair value of assets and liabilities a) Recurring fair value measurements Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the end of each reporting period. The levels in the fair value hierarchy into which the recurring fair value measurements are categorized, are as follows: 30 June 2018 Level 1 Level 2 Level 3 Total Financial assets Non-current assets classified as held for sale 20,883 - - 20,883 Financial assets at fair value through profit or loss 743 - - 743 Financial assets at fair value through other comprehensive income - - 539 539 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 529,894 529,894 Total assets recurring fair value measurements 21,626 - 530,433 552,059 Financial liabilities Non-deliverable forward contract for shares - - 21,536 21,536 Total liabilities recurring fair value measurements - - 21,536 21,536

31 December 2017 Level 1 Level 2 Level 3 Total Financial assets Available-for-sale financial assets 18,022 - 473 18,495 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 527,363 527,363 Total assets recurring fair value measurements 18,022 - 527,836 545,858 Financial liabilities Non-deliverable forward contract for shares - - 20,716 20,716 Total liabilities recurring fair value measurements - - 20,716 20,716 There were no changes in the valuation techniques, inputs and assumptions for recurring fair value measurements during the six months ended 30 June 2018. As at 30 June 2018 and 31 December 2017 the fair value of the forward contract in line “Non-deliverable forward contract for shares” is determined based on the Monte-Carlo model, taking into account adjustments and using unobservable inputs, and included in Level 3 of fair value hierarchy (Note 16). The valuation of the Level 3 financial liability and the related sensitivity to reasonably possible changes in unobservable and observable inputs are as follows at 30 June 2018:

F-33 RusHydro Group Notes to the Condensed Consolidated Interim Financial Information as at and for the three and six months ended 30 June 2018 (unaudited) (in millions of Russian Rubles unless noted otherwise) b) Assets and liabilities not measured at fair value but for which fair value is disclosed Financial assets carried at amortised cost. The Group considers that the fair value of cash, cash equivalents and short-term deposits (Level 2 of the fair value hierarchy), short-term accounts receivable (Level 3 of the fair value hierarchy) approximates their carrying value. The fair value of long-term accounts receivable, other non-current and current assets is estimated based on future cash flows expected to be received including expected losses (Level 3 of the fair value hierarchy); the fair value of these assets approximates their carrying value. Liabilities carried at amortised cost. The fair value of floating rate liabilities approximates their carrying value. The fair value of bonds is based on quoted market prices (Level 1 of the fair value hierarchy). Fair value of the fixed rate liabilities is estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity (Level 3 of the fair value hierarchy). The fair value of current liabilities carried at amortised cost approximates their carrying value. As at 30 June 2018, the fair value of bonds exceeded their carrying value by RR 659 million (31 December 2017: by RR 1,073 million). As at 30 June 2018 the carrying value of non-current fixed rate debt was RR 44,050 million and exceeded their fair value by RR 441 million. As at 31 December 2017 the carrying value of non-current fixed rate debt was RR 39,396 million and exceeded their fair value by RR 925 million. Note 29. Subsequent events Sale of shares of PJSC Inter RAO. On 5 July 2018 the Group completed the transaction to sell 5,131,669,622 shares of PJSC Inter RAO owned by the Group (4.915 percent of share capital) to JSC Inter RAO Capital (Note 7). The result of the transaction will be recorded within equity. The selling price of one share is RR 3.3463. The total consideration for all PJSC Inter RAO shares sold is RR 17,172 million. Under the contracts the consideration receivable will be settled by instalments.

F-34 RUSHYDRO GROUP

Consolidated Financial Statements prepared in accordance with IFRS with independent auditor’s report

As at and for the year ended 31 December 2017

F-35 CONTENTS

INDEPENDENT AUDITOR’S REPORT Consolidated Financial Statements Consolidated Statement of Financial Position ...... 1 Consolidated Income Statement ...... 2 Consolidated Statement of Comprehensive Income ...... 3 Consolidated Statement of Cash Flows ...... 4 Consolidated Statement of Changes in Equity ...... 6

Notes to the Consolidated Financial Statements Note 1. The Group and its operations ...... 8 Note 2. Summary of significant accounting policies ...... 9 Note 3. New accounting pronouncements ...... 19 Note 4. Principal subsidiaries...... 23 Note 5. Segment information ...... 25 Note 6. Related party transactions ...... 29 Note 7. Property, plant and equipment ...... 31 Note 8. Investments in associates and joint ventures ...... 35 Note 9. Available-for-sale financial assets ...... 38 Note 10. Other non-current assets ...... 38 Note 11. Cash and cash equivalents ...... 39 Note 12. Accounts receivable and prepayments ...... 40 Note 13. Inventories ...... 41 Note 14. Other current assets ...... 41 Note 15. Equity ...... 41 Note 16. Income tax ...... 43 Note 17. Pension benefit obligations ...... 44 Note 18. Current and non-current debt ...... 46 Note 19. Non-deliverable forward contract for shares ...... 48 Note 20. Other non-current liabilities ...... 49 Note 21. Accounts payable and accruals...... 49 Note 22. Other taxes payable ...... 49 Note 23. Revenue ...... 49 Note 24. Government grants ...... 49 Note 25. Operating expenses (excluding impairment losses) ...... 50 Note 26. Finance income, costs ...... 50 Note 27. Earnings per share ...... 51 Note 28. Capital commitments ...... 51 Note 29. Contingencies ...... 51 Note 30. Financial risk management ...... 52 Note 31. Management of capital ...... 55 Note 32. Fair value of assets and liabilities ...... 55 Note 33. Presentation of financial instruments by measurement category ...... 57 Note 34. Subsequent events ...... 58

F-36 Independent Auditor’s Report

To the Shareholders and Board of Directors of Public Joint Stock Company Federal Hydro-Generating Company – RusHydro:

Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of PJSC RusHydro and its subsidiaries (together – the “Group”) as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited The Group’s consolidated financial statements comprise: • the consolidated statement of financial position as at 31 December 2017; • the consolidated income statement for the year then ended; • the consolidated statement of comprehensive income for the year then ended; • the consolidated statement of cash flows for the year then ended; • the consolidated statement of changes in equity for the year then ended; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements of the Auditor’s Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the consolidated financial statements in the Russian Federation. We have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.

F-37 Our audit approach Overview PJSC RusHydro’s shares are listed on the Moscow Exchange. The Group’s principal business operations are generation and sales of electricity, capacity and heat energy in the Russian wholesale and retail markets. The Group companies are also involved in other operations, including electricity transmission and distribution, construction, repairs and provision of other services.

• Overall group materiality: Russian Roubles (“RUB”) 3,800 million, which represents 1% of total revenues and government grants.

• We conducted audit procedures in respect of those companies of the Group that were considered significant components based on their individual share in the Group’s revenue, which exceeds 15%: PJSC RusHydro, PJSC DEK, JSC DGK. • Our audit scope covered inter alia 74% of the Group’s revenues and 81% of the Group’s total carrying value of property, plant and equipment.

Key audit matters • Assessment of impairment of property, plant and equipment • Assessment of impairment of accounts receivable • Recognition of the non-deliverable forward contract for shares

We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Materiality The scope of our audit was influenced by our application of the concept of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, if any, both individually and in aggregate on the consolidated financial statements as a whole.

F-38 Overall group materiality RUB 3,800 million

How we determined it 1% of total revenues and government grants

Rationale for the We chose total revenues and government grants as the materiality benchmark benchmark because, in our view, it is the benchmark which applied best represents the Group’s performance. We chose 1% as the materiality level, which falls within the range of quantitative materiality thresholds used for companies in this sector.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the accompanying consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the Key audit matter

Assessment of impairment of property, plant and equipment For matters requiring disclosure and related We obtained and examined the financial models significant accounting policies, judgements that management used for assessing impairment and accounting estimates see Notes 2, 7 and of property, plant and equipment. We engaged 32 to the consolidated financial statements. our valuation experts to form our conclusion on At 31 December 2017, the Group’s aggregate the assumptions and methodology that were carrying amount of property, plant and used in the impairment assessment. equipment was RUB 799,855 million. This is Our audit procedures related to the the most significant asset on the Group’s management’s assessment of impairment of balance sheet, accounting for 78% of the total property, plant and equipment, included the assets. following: The Group management performed an analysis of the business performance, industry outlook • assessment of the methodology used by the and operational plans and then assessed the Group management for the impairment test; recoverable value of property, plant and • examination, on a test basis, of key equipment by cash generating unit for the assumptions used in financial models and purpose of impairment testing. Impairment whether they are in line with the approved arises when the recoverable amount, which is budgets and business plans, available determined as the higher of the fair value less reliable external sources (including costs of disposal and its value in use, is below macroeconomic forecasts, information on the carrying amount of the analysed assets. regulated and market electricity and capacity prices, etc.) and our industry-specific Management’s testing identified impairment of expertise; a number of cash generating units, and the • assessment of competence, skills, experience Group accrued an impairment loss of and objectivity of the management’s experts; RUB 24,000 million in the consolidated • income statement for the year ended examination, on a test basis, of accuracy and 31 December 2017. relevance of inputs that management incorporated in the financial models for

F-39 Key audit matter How our audit addressed the Key audit matter The recognition of additional loss also led to a assessing the impairment of property, plant decrease of RUB 1,043 million (net of tax) in and equipment; the property, plant and equipment revaluation • examination, on a test basis, of mathematical reserve in the consolidated statement of accuracy of financial models used by comprehensive income. There was no basis for management to assess the impairment of accrual of impairment loss for those cash property, plant and equipment ; generating units for which management • consideration of potential impact of concluded, based on its assessment, that their reasonably possible changes in key recoverable amount is higher than or equals assumptions; their carrying amount. • obtaining and reviewing management’s We focused on the property, plant and written representations related to their equipment impairment assessment as this property, plant and equipment impairment process is complicated, requires significant test. management’s judgements and is based on As a result of the above procedures, we believe assumptions that are affected by the projected that the key assumptions used by the future market and economic conditions that management are acceptable for the purposes of are inherently uncertain. preparing the accompanying consolidated The impairment test is sensitive to reasonably financial statements. possible changes in assumptions. The most Acceptability of management’s current estimates significant judgements are related to the regarding the property, plant and equipment applied discount rate together with the impairment for the purpose of preparing the assumptions supporting the relevant forecast financial statements for the year ended cash flows, in particular those concerning the 31 December 2017 does not guarantee that electricity and capacity tariff rates and volumes future events that are inherently uncertain of investments. would not lead to a significant change in these estimates. We note that the management’s financial models are to a significant extent sensitive to the changes in key assumptions. It could reasonably be expected, that if actual results differ from assumptions made, accordingly, there could arise either additional losses from impairment in the future or gains from the release of previously recognised impairment charges. We also assessed the compliance of disclosures in Notes 2, 7 and 32 to the consolidated financial statements with the disclosure requirements of IAS 36 ‘Impairment of Assets’. As a result of our procedures, we have not identified any evidence that would require significant adjustments to the recorded amount of impairment of property, plant and equipment or to the respective disclosures in the consolidated financial statements.

F-40 Key audit matter How our audit addressed the Key audit matter

Assessment of impairment of accounts receivable For matters requiring disclosure, and related Our audit procedures related to management’s significant accounting policies, judgements assessment of trade receivables impairment and accounting estimates see Notes 2, 12 and included: 32 to the consolidated financial statements. • review of management’s collectability At 31 December 2017, the carrying amount of analysis taking into account counterparty the Group’s trade receivables was RUB 34,708 solvency analysis and its deterioration as of million (RUB 61,279 million less an the reporting date, intention, if any, to allow impairment provision of RUB 26,571 million). payment by instalments, subsequent Thus, the receivables that are assessed by the payments after the end of the reporting Group management as doubtful, account for a period, existence of security and its quality, significant portion within the structure of trade as well as other factors considered by receivables (at 31 December 2017, the Group management; accrued an impairment provision amounting • analysis of the receivables turnover the to 43% of the total trade receivables). results of which were used inter alia to The Group management establishes a examine the management’s collectability provision for doubtful debts based on the analysis; assessment of deterioration of the specific • sample testing of past due but not impaired customer’s solvency position, their individual trade receivables for assessing the specifics, payment dynamics, subsequent management’s conclusion that there is no payments after the end of the reporting period impairment considering the prospects and as well as future cash inflow forecast analysis timing of collection of such receivables; by reference to the conditions existing at the reporting date. The degree of accuracy of the • sample testing of underlying documents for management’s estimate will be confirmed or management’s assessment of the probability rebutted depending on the future of collection of receivables, such as payment developments that are inherently uncertain. orders supporting payments received in 2018; We focused on receivables impairment assessment as this process is complicated and • review of external information from the requires significant management’s judgements, regulators of the wholesale electricity and the amount of impairment is significant. (capacity) market, including the Supervisory Board of NP Market Council, which regularly takes decisions on excluding companies from the register of participants in the wholesale electricity (capacity) market; among those there are the Group’s customers of its electricity (capacity) , with deteriorated solvency as expected; • obtaining and reviewing management’s written representations related to receivables impairment test.

F-41 Key audit matter How our audit addressed the Key audit matter We also assessed the compliance of disclosures in Notes 2, 12 and 32 to the consolidated financial statements with the disclosure requirements of IFRS 7 ‘Financial Instruments: Disclosures’. Acceptability of management’s current estimates regarding the receivables impairment for the purpose of preparing the consolidated financial statements for the year ended 31 December 2017 does not guarantee that future events that are inherently uncertain would not lead to significant changes in these estimates. As a result of our procedures, we have not identified any evidence that would require significant adjustments to the amount of impairment of accounts receivable or to the respective disclosures in the accompanying consolidated financial statements. Recognition of the non-deliverable forward contract for shares For matters requiring disclosure, and related We obtained and reviewed the models that were significant accounting policies, judgements used to measure the fair value of the non- and accounting estimates see Notes 2, 19 and deliverable forward contract at its initial 32 to the consolidated financial statements. recognition date and at 31 December 2017. We In March 2017, PAO RusHydro simultaneously engaged valuation experts in order to form our signed a contract with Bank VTB (PAO) under conclusion on the assumptions and the which the Bank acquired 55 billion ordinary methodology used in the fair value assessment. shares of PAO RusHydro, and a non- Our audit procedures in respect of the deliverable forward contract for these shares recognition of the non-deliverable forward for a five-year period. contract for shares included: Following the analysis performed, the Group • assessing reasonableness of the assumptions management decided to treat the above that the Group management applied to transactions separately and to recognise the determine the treatment of the non- sale of shares in equity and a derivative deliverable forward contract in the financial instrument. consolidated financial statements; As at 31 December 2017, the liability under the • assessing validity and appropriateness of the forward contract of RUB 20,716 million is methodology used by the Group recorded as a long-term derivative financial management to develop fair value models for instrument at fair value through profit or loss. the non-deliverable forward contract; At the initial recognition date (3 March 2017) • testing accuracy and relevance of the key the fair value of this non-deliverable forward assumptions and source data used in the contract amounted to RUB 10,013 million and models, and their consistency with other was recorded within equity as it arose on the information obtained during the audit, with transaction with shareholders.

F-42 Key audit matter How our audit addressed the Key audit matter We focused on the treatment of this non- available reliable external information and deliverable forward contract in the our expert knowledge of industry specifics; consolidated financial statements of the Group • assessing competence, skills, experience and due to the complexity of its accounting objectivity of the management’s experts; treatment and of the assessment of the • instrument’s fair value, which requires testing the mathematical accuracy of management to exercise professional financial instrument’s fair value calculation; judgement, and because the liability • considering and assessing potential impact of recognised under the forward contract and the reasonably possible changes in key corresponding effects on the consolidated assumptions; statement of profits and losses and on equity • obtaining and analysing management’s are material. written representations related to the treatment of the non-deliverable forward contract. Following the results of our procedures, we believe that the estimates and judgements made by management with regard to the recognition of the non-deliverable forward contract are appropriate for the purposes of preparation of the accompanying consolidated financial statements. In addition we assessed compliance of the disclosures in Notes 2, 19 and 32 to the consolidated financial statements with the presentation and disclosure requirements of IAS 39 ‘Financial Instruments: Recognition and Measurements’, IFRS 7 ‘Financial Instruments: Disclosures’ and IFRS 13 ‘Fair Value Measurement”. As a result of our procedures, we have not identified any evidence that would require significant adjustments in respect of recognition of the non-deliverable forward contract or the respective disclosures in the accompanying consolidated financial statements.

How we tailored our Group audit scope

F-43 The Group’s consolidated financial statements are prepared based on the financial information of its components, i.e. individual companies of the Group. If we considered a component to be significant, we audited its financial information based on the materiality level established for each such component.

Similar to the determination of the overall materiality, significance of components was assessed based on the component’s individual share in the Group’s revenue. We determined the following significant components, which individually account for more than 15% of the Group’s total revenue: PJSC RusHydro, PJSC DEK, JSC DGK.

If we did not consider that the procedures performed at the level of significant components provided adequate audit evidence for expressing our opinion on the consolidated financial statements as a whole, we performed analytical procedures at the Group level and audit procedures in respect of individual balances and types of operations for other components of the Group.

We chose other components of the Group for audit procedures in respect of individual balances and types of operations separately for each financial statement line item included in the scope of our audit, and our choice depended inter alia on the following factors: level of audit evidence obtained from the audit of significant components and level of concentration of balances and types of operations in the Group’s structure. We also change our selection of a number of other components on a rotation basis.

On the whole, our audit procedures that were performed at the level of significant and other components of the Group and included, in particular, detailed testing and testing of controls on a sample basis, in our opinion, provided adequate coverage of individual line items in the consolidated financial statements. Thus, for example, our procedures covered 74% of the Group’s revenue and 81% of the total carrying value of the Group’s property, plant and equipment.

When performing the audit procedures the audit team engaged specialists in taxation, IFRS methodology, as well as experts in valuation of property, plant and equipment and pension liabilities.

We believe that the results of procedures performed on a sample basis at the level of the Group’s components, analytical procedures at the Group’s level and procedures over the consolidated financial reporting have provided sufficient and appropriate audit evidence for expressing our opinion on the Group’s consolidated financial statements as a whole.

Other information Management is responsible for the other information. Other information includes PJSC RusHydro’s Annual Report for 2017 and Issuer’s Report of PJSC RusHydro for Q1 2018, but does not include the consolidated financial statements and our auditor’s report thereon. PJSC RusHydro’s Annual Report for 2017 and Issuer’s Report of PJSC RusHydro for Q1 2018 are expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above, when it is made available to us, and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

F-44 Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

F-45

F-46

F-47 RusHydro Group Consolidated Income Statement (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2017 31 December 2016

Revenue 23 348,119 374,072 Government grants 24 32,745 17,250 Other operating income 4, 7, 9, 10 690 12,422 Operating expenses (excluding impairment losses) 25 (303,805) (315,705) Operating profit excluding impairment losses 77,749 88,039 Impairment of property, plant and equipment 7 (24,000) (26,525) Impairment of accounts receivable, net (5,957) (7,133) Impairment of financial assets 10 - (4,464) Impairment of loans issued 14 - (2,378) Operating profit 47,792 47,539 Finance income 26 8,443 9,943 Finance costs 26 (21,133) (9,041) Share of results of associates and joint ventures 8 417 6,682 Profit before income tax 35,519 55,123

Income tax expense 16 (13,068) (15,372) Profit for the year 22,451 39,751

Attributable to: Shareholders of PJSC RusHydro 24,013 40,205 Non-controlling interest (1,562) (454) Earnings per ordinary share for profit attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 27 0.0596 0.1095 Weighted average number of shares outstanding – basic and diluted (thousands of shares) 27 402,655,108 367,138,482

The accompanying notes are an integral part of these Consolidated Financial Statements 2

F-48 RusHydro Group Consolidated Statement of Comprehensive Income (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2017 31 December 2016

Profit for the year 22,451 39,751

Other comprehensive income, net of tax: Items that will not be reclassified to profit or loss Impairment of revalued property, plant and equipment 7 (1,043) (4,920) Remeasurement of pension benefit obligations 17 344 (274) Total items that will not be reclassified to profit or loss (699) (5,194) Items that may be reclassified subsequently to profit or loss (Loss) / profit arising on available-for-sale financial assets 9 (2,561) 15,050 Reclassification of accumulated loss on available-for-sale financial assets to profit or loss 9 (19) - Other comprehensive (loss) / income (8) 5 Total items that may be reclassified subsequently to profit or loss (2,588) 15,055 Other comprehensive (loss) / income (3,287) 9,861 Total comprehensive income for the year 19,164 49,612

Attributable to: Shareholders of PJSC RusHydro 20,809 50,082 Non-controlling interest (1,645) (470)

The accompanying notes are an integral part of these Consolidated Financial Statements 3

F-49 RusHydro Group Consolidated Statement of Cash Flows (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2017 31 December 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Рrofit before income tax 35,519 55,123 Depreciation of property, plant and equipment and amortisation of intangible assets 7, 25 25,023 24,130 Loss on disposal of property, plant and equipment, net 25 1,006 555 Share of results of associates and joint ventures 8 (417) (6,682) Other operating income 4, 7, 9, 10 (690) (12,422) Finance income 26 (8,443) (9,943) Finance costs 26 21,133 9,041 Impairment of property, plant and equipment 7 24,000 26,525 Impairment of accounts receivable, net 5,957 7,133 Impairment of financial assets - 4,464 Impairment of loans issued - 2,378 Other loss / (income) 468 (758) Operating cash flows before working capital changes, income tax paid and changes in other assets and liabilities 103,556 99,544 Working capital changes: Increase in accounts receivable and prepayments (13,483) (9,243) Decrease / (increase) in other current assets 859 (3,403) Increase in inventories (1,604) (28) (Decrease) / increase in accounts payable and accruals (2,236) 1,013 Increase / (decrease) in other taxes payable 891 (199) Increase in other non-current assets (1,592) (7,083) Increase in other non-current liabilities 7,674 3,549 Income tax paid (15,940) (12,777) Net cash generated by operating activities 78,125 71,373

CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (71,693) (60,957) Proceeds from sale of property, plant and equipment 213 266 Investment in bank deposits and purchase of other investments (19,837) (9,993) Redemption of bank deposits and proceeds from sale of other investments 23,428 25,477 Proceeds from sale of subsidiaries, net of disposed cash 28 3,559 Proceeds from sale of dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs - 10,950 Placement of special funds on special accounts - (6,998) Return of special funds from special accounts - 6,098 Purchase of shares of subsidiary - (414) Interest and dividends received 7,848 7,094 Net cash used in investing activities (60,013) (24,918)

The accompanying notes are an integral part of these Consolidated Financial Statements 4

F-50 RusHydro Group Consolidated Statement of Cash Flows (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended

Note 31 December 2017 31 December 2016 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from share issue 15 40,000 33 Proceeds from sale of treasury shares 15 15,000 - Payments for non-deliverable forward for shares 19 (3,243) - Proceeds from current debt 18 55,773 64,855 Proceeds from non-current debt 18 63,499 71,829 Repayment of debt 18 (149,976) (128,291) Interest paid (15,794) (20,271) Dividends paid to the shareholders of PJSC RusHydro (19,673) (14,228) Dividends paid by subsidiaries to non-controlling interest holders (127) (234) Finance lease payments (523) (530) Net cash used in financing activities (15,064) (26,837) Effect of foreign exchange differences on cash and cash equivalents balances (246) (289) Increase in cash and cash equivalents 2,802 19,329 Cash and cash equivalents at the beginning of the year 67,354 48,025 Cash and cash equivalents at the end of the year 11 70,156 67,354

The accompanying notes are an integral part of these Consolidated Financial Statements 5

F-51 RusHydro Group Consolidated Statement of Changes in Equity (in millions of Russian Rubles unless noted otherwise)

Revaluation Reserve for Revaluation reserve on remeasu- Foreign reserve on available- rement of Equity currency property, for-sale pension attributable to Non- Share Treasury Share Merger translation plant and financial benefit Retained shareholders of controlling Total Note capital shares premium reserve reserve equipment assets obligation earnings PJSC RusHydro interest equity As at 1 January 2016 386,255 (26,092) 39,202 (135,075) (474) 188,552 1,952 689 147,470 602,479 11,440 613,919 Profit for the year ------40,205 40,205 (454) 39,751 Profit arising on available-for-sale financial assets 9 ------14,957 - - 14,957 93 15,050 Remeasurement of pension benefit obligations 17 ------(230) - (230) (44) (274) Impairment of revalued property, plant and equipment 7 - - - - - (4,822) - - - (4,822) (98) (4,920) Other comprehensive income - - - - (64) 34 - - 2 (28) 33 5 Total other comprehensive income - - - - (64) (4,788) 14,957 (230) 2 9,877 (16) 9,861 Total comprehensive income - - - - (64) (4,788) 14,957 (230) 40,207 50,082 (470) 49,612 Dividends 15 ------(14,278) (14,278) (234) (14,512) Offer for shares of JSC RAO ES East 15 - 3,514 ------4,872 8,386 (6,694) 1,692 Transfer of revaluation reserve to retained earnings - - - - - (796) - - 796 - - - Effect of changes in non- controlling interest 15 ------213 213 Other movements ------8 8 As at 31 December 2016 386,255 (22,578) 39,202 (135,075) (538) 182,968 16,909 459 179,067 646,669 4,263 650,932

The accompanying notes are an integral part of these Consolidated Financial Statements 6

F-52 RusHydro Group Consolidated Statement of Changes in Equity (in millions of Russian Rubles unless noted otherwise) Revaluation Reserve for Revaluation reserve on remeasu- Foreign reserve on available- rement of Equity currency property, for-sale pension attributable to Non- Share Treasury Share Merger translation plant and financial benefit Retained shareholders of controlling Total Note capital shares premium reserve reserve equipment assets obligation earnings PJSC RusHydro interest equity As at 1 January 2017 386,255 (22,578) 39,202 (135,075) (538) 182,968 16,909 459 179,067 646,669 4,263 650,932 Profit for the year ------24,013 24,013 (1,562) 22,451 Loss arising on available-for-sale financial assets 9 ------(2,534) - - (2,534) (27) (2,561) Accumulated loss on available for- sale financial assets recycled to the Income Statement 9 ------(19) - - (19) - (19) Remeasurement of pension benefit obligations 17 ------188 - 188 156 344 Impairment of revalued property, plant and equipment - - - - - (831) - - - (831) (212) (1,043) Other comprehensive loss - - - - (9) - - - 1 (8) - (8) Total other comprehensive loss - - - - (9) (831) (2,553) 188 1 (3,204) (83) (3,287) Total comprehensive income - - - - (9) (831) (2,553) 188 24,014 20,809 (1,645) 19,164 Share issue 15 40,034 ------40,034 - 40,034 Sale of treasury shares 15 - 17,965 ------(2,965) 15,000 - 15,000 Dividends 15 ------(19,696) (19,696) (127) (19,823) Non-deliverable forward contract for shares 19 ------(10,013) (10,013) - (10,013) Transfer of revaluation reserve to retained earnings - - - - - (974) - - 974 - - - Effect of changes in non- controlling interest 15 ------228 228 Other movements ------42 42 - 42 As at 31 December 2017 426,289 (4,613) 39,202 (135,075) (547) 181,163 14,356 647 171,423 692,845 2,719 695,564

The accompanying notes are an integral part of these Consolidated Financial Statements 7

F-53 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 1. The Group and its operations PJSC RusHydro (hereinafter referred to as “the Company”) was incorporated and is domiciled in the Russian Federation. The Company is a joint stock company limited by value of shares and was set up in accordance with Russian regulations. The primary activities of the Company and its subsidiaries (hereinafter together referred to as “the Group”) are generation and sale of electricity and capacity on the Russian wholesale and retail markets, as well as generation and sale of heat energy. Economic environment in the Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The tax, currency and customs legislation continue to develop and are subject to frequent changes and varying interpretations. The Russian economy showed signs of recovery in 2017, after the economic downturn of 2015 and 2016. The economy is negatively impacted by low oil prices, ongoing political tension in the region and continuing international sanctions against certain Russian companies and individuals. The financial markets continue to be volatile. This economic environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results. Relations with the Government and current regulation. As at 31 December 2017 the Russian Federation owned 60.56 percent of the total voting ordinary shares of the Company (31 December 2016: 66.84 percent). The Russian Federation’s participatory interest in the Company’s equity decreased following the additional issue of shares in favour of PJSC Bank VTB that is also controlled by the Russian Federation (Note 15). As at 31 December 2017, PJSC Bank VTB owned 13.34 percent of the Company’s shares. The Group’s major customer base includes a large number of entities controlled by, or related to the Government. Furthermore, the Government controls contractors and suppliers, which provide the Group with electricity dispatch, transmission and distribution services, and a number of the Group’s fuel and other suppliers (Note 6). In addition, the Government influences the Group’s operations through:  participation of its representatives in the Company’s Board of Directors;  regulation of tariffs for electricity, capacity and heating;  approval and monitoring of the Group’s investment programme, including volume and sources of financing. Economic, social and other policies of the Russian Government could have a material effect on operations of the Group. Overview of the electricity and capacity market. In 2017 the following significant changes were made to the rules of electricity and capacity wholesale and retail markets, their operation procedures and pricing mechanisms:  Russian Government Resolution No. 895 “On achievement of basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region” provides for a premium to the price of capacity sold by the Company in the price zones for the wholesale electricity and capacity market, with subsequent transfer of the amounts collected to the constituent budgets of the Far East Federal region in the form of free-of-charge targeted contributions (Note 2).  Federal Law No.451-FZ of 29 December 2017 establishes the obligation to carry out electricity sales activity only on the basis of relevant licenses, and the administrative responsibility for violating license terms or performing electricity sales without a license.  Russian Government Resolution No. 624 of 24 May 2017 introduced changes to the Rules for full and (or) partial limitation of electricity consumption that make implementation of power supply limitation much easier and provide an option of imposing a full limitation of power consumption on so called ‘non- disconnectable’ consumers.  Russian Government Resolution No. 863 of 21 July 2017 establishes the regulator’s duty to set up sales mark-ups for guaranteeing suppliers using a method of compared analogues (the method of standard costs). The Guidelines for Calculating Guaranteeing Suppliers' Sales Markup were approved by FAS Order No.1554/17 of 21 November 2017.

F-54 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

 Under Russian Government Resolution No.1365 of 11 November 2017, a guaranteeing supplier can be deprived of this status because of its debts to grid companies.  Federal Law No. 279-FZ of 29 July 2017 introduces changes to the Federal Law “On Heat Supply”. These changes allow to include cities and districts into heat supply price zones in which prices for heat (capacity) provided to consumers by a single heat supplier are capped by the maximum level of heat (capacity) prices for consumers (the Law “On Alternative Boiler Plant“). In the maximum price level framework, a single heat supplier provides heat energy (capacity) to its consumers at prices agreed by the parties.  The Rules of establishing maximum price levels for heat (capacity) in these price zones were approved on 15 December 2017 under Russian Government Resolution No.1562.

Note 2. Summary of significant accounting policies Basis of preparation. These consolidated financial statements have been prepared in accordance with IFRS under the historical cost convention, as modified by the financial instruments initially recognised at fair value, revaluation of property, plant and equipment and available-for-sale financial assets. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Each company of the Group individually maintains its own books of accounts and prepares its statutory financial statements in accordance with Russian standards of accounting (hereinafter referred to as “RSA”). These consolidated financial statements are based on the statutory records with adjustments and reclassifications made for the purpose of fair presentation in accordance with IFRS. Functional and presentation currency. The functional currency of the Company and its subsidiaries, and the presentation currency for these consolidated financial statements is the national currency of the Russian Federation, the Russian Ruble. Foreign currency translation. Monetary assets and liabilities, which are held by the Group’s entities and denominated in foreign currencies at the end of the reporting period, are translated into Russian Rubles at the exchange rates prevailing at that date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Gains and losses resulting from the settlement of such transactions and translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. As at 31 December 2017, the official rate of exchange, as determined by the Central Bank of the Russian Federation, between Russian Ruble and US Dollar (hereinafter referred to as “USD”) was RR 57.60: USD 1.00 (31 December 2016: RR 60.66: USD 1.00), between Russian Ruble and Euro was RR 68.87: EUR 1.00 (31 December 2016: RR 63.81: EUR 1.00). Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree.

F-55 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill” or a “bargain purchase”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all the liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed. Intercompany transactions, balances and unrealised gains on transactions between the Group’s entities are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity. Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interest, that do not result in a loss of control. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital transaction in the statement of changes in equity. Acquisition of subsidiaries from parties under common control. Acquisitions of subsidiaries from parties under common control are accounted for using the predecessor values method. Under this method the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of the earliest period presented or the date when the combining entities were first brought under common control if later. The assets and liabilities of the subsidiary transferred under common control are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Related goodwill inherent in the predecessor entity’s original acquisitions is also recorded in these consolidated financial statements. Any difference between the carrying amount of net assets, including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted for in these consolidated financial statements as an adjustment to merger reserve within equity. Under this method the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of the earliest period presented, i.e. retrospectively except for acquisition of subsidiaries acquired exclusively with a view for resale which are accounted for using predecessor values method prospectively from the acquisition date. Investments in associates and joint ventures. Investments in associates and joint ventures are accounted for using the equity method of accounting, based upon the percentage of ownership held by the Group. Associates are entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates is recorded in the consolidated profit or loss for the year as profit or loss in respect of associates and joint ventures, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, and (iii) all other changes in the Group’s share of the carrying value of net assets of associates are recognised in profit or loss within the profit or loss in respect of associates and joint ventures. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

F-56 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is defined by the making of decisions about the relevant activities requiring the unanimous consent of the parties sharing control. The Group discontinues the use of the equity method from the date on which it ceases to have joint control over, or have significant influence on joint ventures and associates. Unrealised gains on transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity, unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. Property, plant and equipment. Property, plant and equipment in the statement of financial position includes assets under construction for future use as property, plant and equipment. Property, plant and equipment except for office buildings, land and assets under construction are stated at revalued amounts less accumulated depreciation and provision for impairment (where required). Office buildings owned by the Group are stated at historical cost less accumulated depreciation and accumulated impairment; land and assets under construction are stated at historical cost less accumulated impairment. Property, plant and equipment except for office buildings, land and assets under construction are subject to revaluation with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising on revaluation are credited to other comprehensive income and increase the revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and decrease the previously recognised revaluation surplus in equity; all other decreases are charged to profit or loss for the year. Any accumulated depreciation at the date of revaluation is eliminated against the gross amount of the asset. The revaluation surplus included in equity is transferred directly to retained earnings when the revaluation surplus is realised on disposal of the asset. The Group charges deferred tax liabilities in respect of revaluation of property, plant and equipment directly to other comprehensive income. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is highly probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Costs of minor repairs and day-to-day maintenance are expensed when incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalised and the replaced part is retired. Social assets are not capitalised if they are not expected to result in future economic benefits to the Group. Costs associated with fulfilling the Group’s social responsibilities are expensed as incurred. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss for the year. Depreciation. Depreciation on items of property, plant and equipment (except for land and assets under construction) is calculated using the straight-line method over their estimated useful lives. The useful lives of property, plant and equipment are subject to annual assessment by management and if expectations differ from previous estimates, the changes of useful lives are accounted for as a change in an accounting estimate prospectively.

F-57 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The average useful lives of property, plant and equipment by type of facility, in years, were as follows: Type of facility Average useful lives Production buildings 25–80 Facilities 10–100 Plant and equipment 5–40 Other 3–30 Depreciation is charged once an asset is available for use. Land and assets under construction are not depreciated. Impairment of property, plant and equipment. Impairment reviews for property, plant and equipment are carried out when there is an indication that impairment may have occurred, or where it is otherwise required to ensure that property, plant and equipment are not carried above their estimated recoverable amounts (Note 7). If such indication exists, management estimates the recoverable amount which is determined as the higher of an asset’s fair value less costs of disposal and its value in use. Fair value less costs of disposal represents the amount that can be generated through the sale of assets. Value in use represents the present value of expected future cash flows discounted on a pre-tax basis, using the estimated cost of capital of the cash-generating unit. The carrying amount of the asset is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year to the extent it exceeds the previous revaluation surplus in equity. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been a positive change in the estimates used to determine the asset’s value in use or fair value less costs of disposal. Intangible assets and goodwill. The Group’s intangible assets other than goodwill have definite useful lives and primarily include capitalised computer software. Intangible assets are amortised using the straight-line method over their useful lives. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs of disposal. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and the portion of the cash- generating unit which is retained. Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. The Group uses such valuation techniques of fair value which are the most acceptable in the circumstances and as much as possible use the observable basic data. Fair value measurements are analysed by level in the fair value hierarchy as follows:  level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities;  level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);  level 3 measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). For disclosure of information on fair value the Group classified assets and liabilities on the basis of an appropriate level of hierarchy of fair value as it is stated above (Note 32).

F-58 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Classification of financial assets. Financial assets have the following categories: (i) loans and receivables; (ii) available-for-sale financial assets; (iii) financial assets held to maturity and (iv) financial assets at fair value through profit or loss. The description of categories of financial assets of the Group is given below. Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments. Financial assets at fair value through profit or loss. This category is presented by derivative financial instruments which are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting. All other financial assets are included in the available-for-sale category, which includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Classification of financial liabilities. Financial liabilities have the following measurement categories: (i) financial liabilities at fair value through profit or loss and (ii) other financial liabilities. All financial liabilities of the Group including loans are categorised as other and carried at amortized cost. Initial recognition of financial instruments. Trading investments, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Available-for-sale financial assets. Available-for-sale financial assets are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss for the year as finance income. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year as finance income when the Group’s right to receive payment is

F-59 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise) established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance income in profit or loss for the year. Impairment losses on available-for-sale investments are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale financial assets. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss. Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method. Trade and other receivables. Trade and other receivables are carried at amortised cost using the effective interest method. Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: (i) any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; (ii) the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains; (iii) the counterparty considers bankruptcy or a financial reorganisation; (iv) there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty; or (v) the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the impairment loss account within the profit or loss for the year. Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the

F-60 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Group has obtained control of the asset and it is highly probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year. Inventories. Inventories are recorded at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses. Cost of inventory that is expensed is determined on the weighted average basis. Income taxes. Income taxes have been provided for in the financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within operating expenses. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantially enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is highly probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual companies of the Group. The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future. Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period. Adjustments for uncertain income tax positions are recorded within the income tax charge. Debt. Debt is recognised initially at its fair value, less transaction costs. Fair value is determined using the prevailing market rate of interest for a similar instrument, if significantly different from the transaction price. In subsequent periods, debt is stated at amortised cost using the effective interest method; any difference between the fair value of the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated income statement as an interest expense over the period of the debt obligation. Capitalisation of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets, if the commencement date for capitalisation is on or after 1 January 2009.

F-61 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The commencement date for capitalisation is when (i) the Group incurs expenditures for the qualifying asset; (ii) it incurs borrowing costs; and (iii) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised. Interest payments capitalised as part of the cost of an assets are classified as cash outflows from financing activities in Consolidated Statement of Cash Flows. Employee benefits. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health services) are accrued in the year in which the associated services are rendered by the employees of the Group. Defined benefit plans. The Group operates defined benefit plans that cover the majority of its employees. Defined benefit plans define the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service, minimum tariff rate of remuneration and others. The net liability recognised in the statement of financial position in respect of defined benefit pension plans operated by the Group is the present value of the defined benefit obligation at the end of the reporting period less fair value of plan assets. The defined benefit obligations are calculated by independent actuary using the projected unit credit method. The present value of the defined benefit obligations are determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid associated with the operation of the plans, and that have terms to maturity approximating the terms of the related pension liabilities. Actuarial gains and losses arising from remeasurement of pension benefit obligations are recognised in other comprehensive income. Past service cost is immediately recognised in profit or loss within operating expenses. Defined contribution plans. For defined contribution plans, the Group pays contributions and has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. In the normal course of business the Group contributes to the Russian Federation defined contribution state pension scheme on behalf of its employees. Mandatory contributions to the governmental pension scheme are expensed when incurred and included in employee benefit expenses and payroll taxes in the consolidated income statement. Other post-employment benefit obligations. The Group pays a one-off financial aid on occasion of an employee's jubilee. The amount of the benefit depends on one or more factors, such as the age, length of service in the company, salary and others. For the purpose of calculating benefit obligations of these types, actuarial gains and losses arising as a result of adjustments or changes in actuarial assumptions are recognised within profit or loss in the consolidated statement of income in the period when they arise. All other aspects of accounting for these obligations are similar to those of accounting for defined benefit obligations. Finance lease liabilities. Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in property, plant and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of future finance charges, are included in borrowings. The interest cost is charged to profit or loss over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term.

F-62 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. When assets are leased out under an operating lease, the lease payments receivable are recognised as rental income on a straight-line basis over the lease term. Environmental liabilities. Liabilities for environmental remediation are recorded where there is a present obligation, the payment is highly probable and reliable estimates exist. Revenue recognition. Revenue is recognised on the delivery of electricity and heat, provision of capacity, supply of services and on the dispatch of goods during the period. Revenue from retail operations is recognised on delivery of electricity and heat to the customer. Revenue amounts are presented exclusive of value added tax. Revenue transactions under free bilateral contracts are shown net of related purchases of equivalent electricity volumes which the market participant is obliged to make in accordance with the industry regulations. For the year ended 31 December 2017 additional resale turnover in the amount of RR 244 million was shown net for presentation purposes to reflect the economic substance of transactions. For the year ended 31 December 2016 there was no additional turnover. Government grants. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight line basis over the expected lives of the related assets. Government grants are included in cash flows from operating activities. Earnings per share. The earnings per share are determined by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period, excluding the average number of treasury shares held by the Group. Share capital. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the placement value over the par value of shares issued is recorded as share premium in equity. Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the Company’s owners until the equity instruments are reissued, disposed of or cancelled. In case the consideration paid is non-cash asset, the treasury shares received are recognised at the fair value of this asset. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s owners. Dividends. Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting period and before the financial statements are authorised for issue are disclosed in the subsequent events note. Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing of amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as an interest expense. Levies and charges, such as taxes other than income tax or regulatory fees based on information related to a period before the obligation to pay arises, are recognised as liabilities when the obligating event that gives rise to pay a levy occurs, as identified by the legislation that triggers the obligation to pay the levy. If a levy is paid before the obligating event, it is recognised as a prepayment. Social expenditure. To the extent that the Group’s contributions to social programmes benefit the community at large without creating constructive obligations to provide such benefits in the future and are not restricted to the Group’s employees, they are recognised in the income statement as incurred.

F-63 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Financial guarantees. Financial guarantees are irrevocable contracts that require the Group to make specified payments to reimburse the holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight-line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition, and (ii) the best estimate of expenditure required to settle the obligation at the end of the reporting period. Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Critical accounting estimates and judgments in applying accounting policies The Group makes estimates and assumptions that affect the amounts recognised in the Consolidated Financial Statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognised in the Consolidated Financial Statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: Sale of shares subject to entering into a non-deliverable forward contract for the shares. The management treats the transaction on acquisition by PJSC Bank VTB (the “Bank”) of 55 billion of the Company’s ordinary shares – 40 billion of additionally issued shares and 15 billion of treasury shares carried on the Group subsidiaries’ balance sheet (Note 15) and entering into a non-deliverable forward contract for these shares (Note 19) in March 2017 as two separate transactions. The sale of shares is recorded in equity and a derivative financial instrument is recognised. The terms and conditions of the share sale imply transfer of risks and rewards in connection with these shares, such as dividend payments received by the Bank and participation in the Company’s management. No obligations for their repurchase and conversion into a different financial instrument, guarantees or binding agreements arise for the Company. Given the above and the fact that the international financial reporting standards do not prescribe accounting treatment for the risks and rewards transfer procedure for treasury shares, the Group management concluded that the transaction should be presented on the basis that the Bank is the beneficial owner of the Company’s shares. In the Group management’s opinion, the decrease in the prepaid forward value by the amounts equivalent to dividends received by the Bank does not directly represent return of dividends, and, therefore, does not limit the Bank in terms of obtaining rewards from share ownership. According to the forward contract, there will be significant delays in the offset of cash flows (for a period exceeding three months from the date when dividends are received by the Bank), and the Bank will be able to place the received dividends not only in cash and cash equivalents but other instruments for the period exceeding three months as well, and it will be able to receive income and subsequently reinvest it multiple times. As the issue of shares is recorded in equity and also as both the issue of shares and the conclusion of the non-deliverable forward contract are carried out by decision and in the interests of the state as the ultimate controlling party, the initial recognition of the non-deliverable forward contract for these shares is also recorded in equity as a shareholder transaction. Recognition of a premium to the price of capacity with subsequent transfer of the collected amounts to the budgets of the respective regions. In July 2017 the Resolution of the Russian Government No. 895 “On achievement of basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region” became effective. This Resolution stipulates the application of a premium to the price of capacity provided by the Company in the price zones of the wholesale electricity and capacity market with subsequent transfer of the amounts collected to the constituent budgets of the Far East Federal region in the form of free-of-charge targeted contributions. Constituent regions are obliged to use these contributions to compensate the guaranteeing suppliers of the Far East Federal region for the reduction in tariffs which were made consistent with the basic level. According to the Resolution tariffs were reduced retrospectively starting from 1 January 2017.

F-64 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The amount of the premium that should be transferred to the budgets of the Far East Federal region in the form of free-of-charge targeted contributions is stipulated by the Resolution of the Russian Government and for the year ended 31 December 2017 was RR 23 995 million. Taking into account that the Group collects the premium and subsequently transfers it to the respective budgets on behalf of the Russian Government, the management of the Group concluded that revenue from the sales of capacity in the amount of the premium should be presented in the consolidated income statement net of related free-of-charge targeted contributions. Government subsidies receivable by the Group’s companies – guaranteeing suppliers under the rules of the Resolution of the Russian Government No. 895 are recognised in government grants (Note 24). Government grants are recognised when there is a reasonable assurance that the grant will be received and the Group will be able to comply with all attached conditions (Note 12). Impairment of non-financial assets. Accounting for impairment of non-financial assets includes impairment of property, plant and equipment and impairment of investments in associates. The effect of these critical accounting estimates and assumptions is disclosed in Notes 7 and 8. Recognition of deferred tax assets. At each reporting date management assesses recoverability of deferred tax assets arising from operating losses and asset impairments in the context of the current economic environment, particularly when current and expected future profits have been adversely affected by market conditions. Management considers first the future reversal of existing deferred tax liabilities and then considers future taxable profits when evaluating deferred tax assets. The assessment is made on a taxpayer basis. The future taxable profits and the amount of tax benefits that are probable in the future are based on the medium term business plans of the Group companies prepared by management and extrapolated results thereafter. Management considered the recoverability of recognised deferred tax assets, including those on tax losses carried forward, as probable due to existence of taxable temporary differences which recoverability is expected in future and of high probability of deferred tax assets being recoverable by the future taxable profits (Note 16). Useful life of property, plant and equipment. The estimation of the useful life of an item of property, plant and equipment is a matter of management judgment based upon experience with similar assets and other factors. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, physical wear and tear, warranty terms as well as the environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates which can affect the reported income. Reclassifications. Certain reclassifications have been made to prior year data to conform to the current year presentation. These reclassifications are not material. Adoption of New or Revised Standards and Interpretations The following new standards and interpretations became effective from 1 January 2017 but did not have any material impact on the Group’s consolidated financial statements:  Disclosure Initiative – Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017). The new disclosures are included in Note 18.  Recognition of Deferred Tax Assets for Unrealised Losses – Amendment to IAS 12 (issued on 19 January 2016 and effective for annual periods beginning on or after 1 January 2017).  Amendments to IFRS 12 included in Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2017).

Note 3. New accounting pronouncements Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2018 or later, and which the Group has not early adopted. These standards and interpretations have been approved for adoption in the Russian Federation unless noted otherwise. IFRS 9, Financial Instruments: Classification and Measurement (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:  Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).

F-65 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

 Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.  Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.  Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.  IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ”three stage” approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.  Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. Based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2017 and on the basis of the facts and circumstances that exist at that date, the management of the Group expects the adoption of the new standard will not have a significant impact on the consolidated financial statements from the adoption of the new standard on 1 January 2018 and will result in the following changes in the consolidated financial statements for the year ending 31 December 2018:.  As a result of the recalculation of the provision for impairment of the Group’s accounts receivable in accordance with the expected credit losses (ECL) model, the provision for impairment of accounts receivable as at January 1, 2018 will be reduced by RR 705 million according to preliminary estimates and, accordingly, accounts receivable will increase by the same amount.  No significant changes are expected for financial liabilities, other than changes in the fair value of financial liabilities designated at FVTPL in the consolidated financial statements for the year ending 31 December 2018 that are attributable to changes in the instrument’s credit risk, which will be presented in other comprehensive income. IFRS 15, Revenue from Contracts with Customers (amended in April 2016 and effective for the periods beginning on or after 1 January 2018). The new standard replaces all existing IFRS requirements for revenue recognition. IFRS 15 introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. In accordance with the transition provisions in IFRS 15 the Group management intends to apply the simplified transition method with the effect of the transition to be recognised as at 1 January 2018 in the consolidated financial statements for the year ending 31 December 2018 which will be the first year when the Group will apply IFRS 15. The Group plans to apply the practical expedient available for the simplified transition method. IFRS 15 will be applied retrospectively only to contracts that are outstanding at the date of initial recognition (1 January 2018).

F-66 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

In accordance with the current accounting policies, the Group recognises revenue upon delivery of electricity, heat and provision of capacity and upon sale of other goods and provision of services during the period. Revenue is recognised at the fair value of the consideration receivable. A provision for impairment of accounts receivable is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. In accordance with IFRS 15, revenue is recognised in an amount that reflects the consideration to which the Group is expected to be entitled in exchange for the transfer of goods or services promised to the customer. Based on the analysis of the Group’s recurrent inflows for the year ended 31 December 2017, terms of individual contracts, and facts and circumstances that exist at that date, the Group expects that adoption of IFRS 15 will not have a significant impact on its consolidated financial statements as at 1 January 2018 and will result in the following changes in the accounting policies and the following adjustments in the consolidated financial statements for the year ending 31 December 2018: Received compensation of losses in grids. The Group currently recognises revenue from compensation of transmission losses and expenses on power distribution under contracts with grid companies on a gross basis. Compensation of transmission losses that the Group receives from grid companies are not treated as separate performance obligations in accordance with IFRS 15. Therefore, this compensation cannot be recognised within revenues as the contract on compensation of losses is not a contract with customers in the context of IFRS 15 and is beyond the scope of IFRS 15. The compensation of transmission losses that entities of the Group received in the year ended 31 December 2017 amounted to RR 4,237 million. Expenses on power distribution under contracts with grid companies totalled RR 47,719 million for the year ended 31 December 2017. Purchase of electricity for own needs. The wholesale electricity and capacity market (WEM) has a number of sectors varying in their contractual terms and conditions and delivery timeframes: sector of regulated contracts, day-ahead market, sector of unregulated bilateral contracts and the balancing market. Under the WEM rules, the Group does not have direct contracts with final customers in the day-ahead and balancing markets and sells electricity under contracts with JSC Centre of Financial Settlements (CFS), who further sells it to final customers. At the same time, the Group has contracts with CFS for the purchase of electricity based on the results of the competitive selection of price bids on the day-ahead market and for the purposes of balancing the system. The Group treats electricity supply contracts with CFS as contracts with a customer (represented by the whole market) covered by IFRS 15. Therefore, an electricity supply contract with CFS and an electricity purchase contract with CFS are treated as contracts signed with one customer - the wholesale electricity and capacity market. The Group is unable to function normally without ensuring power supply to its production facilities. This indicates direct interrelation between the purchased volume of electricity and its generation and delivery to WEM. The fact that the Group buys electricity at WEM does not mean that the Group is a customer in the context of IFRS 15. Consequently, the cost of electricity that the Group buys at WEM to support the work process and for own needs, in accordance with IFRS 15 represents compensation to be paid to the customer. This compensation should be recognised as a reduction of the transaction price and, therefore, of revenue, unless the payment to the customer is in exchange for distinct goods or services that the customer transfers to the entity. The cost of electricity purchased to support the work process and for other own needs totalled RR 583 million for the year ended 31 December 2017. Given that management of the Group has not finalised its analysis of the impact of the adoption of IFRS 15, the above disclosure is preliminary and it is possible that the impact on the consolidated financial statements may differ from the above. The Group expects to finalise the IFRS 15 adoption by the date of issue of the condensed consolidated interim financial information for the three months ended 31 March 2018. IFRS 16, Leases (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16

F-67 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise) substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is currently assessing the impact of the new standard on its consolidated financial statements. IFRS 17, Insurance Contracts (issued in May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17 replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17 is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset) (ii) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss immediately. The Group is currently assessing the impact of the new standard on its consolidated financial statements. IFRIC 22, Foreign currency transactions and advance consideration (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018). The Interpretation addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) on derecognition of a non-monetary asset or non-monetary liability arising from an advance consideration in foreign currency. Under IAS 21, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part thereof) is the date on which an entity initially recognises the non- monetary asset or non-monetary liability arising from advance consideration in foreign currency. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. IFRIC 22 only applies in circumstances where an entity recognises the non-monetary asset or non-monetary liability arising from an advance consideration in foreign currency. IFRIC 22 does not contain any practical guidance on identifying an accounting item as monetary or non-monetary. Generally, a payment or receipt of consideration made as advance payment would result in recognition of a non-monetary asset or non-monetary liability. However, they can also give rise to a monetary asset or liability. An entity may require professional judgement to determine if a specific accounting item is monetary or non-monetary. The Group is currently assessing the impact of the Interpretation on its consolidated financial statements. IFRIC 23, Uncertainty over Income Tax Treatments (issued in June 2017 and effective for annual periods beginning on or after 1 January 2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority’s right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation. The Group is currently assessing the impact of the interpretation on its consolidated financial statements.

F-68 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The following other new pronouncements are not expected to have any material impact on the Group when adopted:

 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).

 Amendments to IFRS 2, Share-based Payment (issued on 20 June 2016 and effective for annual periods beginning on or after 1 January 2018).

 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts – Amendments to IFRS 4 (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach).

 Transfers of Investment Property – Amendments to IAS 40 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018).

 Annual Improvements to IFRSs 2014-2016 cycle ‒ Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and effective for annual periods beginning on or after 1 January 2018).

 Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019).

 Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on 12 October 2017 and effective for annual periods beginning on or after 1 January 2019.  Annual Improvements to IFRSs 2015-2017 cycle - Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and effective for annual periods beginning on or after 1 January 2019).  Plan Amendment, Curtailment or Settlement - Amendments to IAS 19 (issued on 7 February 2018 and effective for annual periods beginning on or after 1 January 2019). Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

Note 4. Principal subsidiaries All principal subsidiaries are incorporated and operate in the Russian Federation. Differences between the ownership interest and voting interest held by some subsidiaries represent the effect of preference shares and / or effects of indirect ownership, or shares of limited liability companies (LLC). The Group operates in the three main reportable segments one of which is represented by the Group’s parent company – PJSC RusHydro (Note 5). The principal subsidiaries are presented below according to their allocation to the reportable segments as at 31 December 2017 and 31 December 2016. ESС RusHydro subgroup segment ESС RusHydro subgroup segment includes the Group’s subsidiaries which sell electricity to final customers. All the entities included in this segment with the exception of JSC ESC RusHydro have the guaranteeing supplier status and are obliged to sign contracts on supplies with all final consumers of their region upon their request. 31 December 2017 31 December 2016 % of % of % of % of ownership voting ownership voting JSC ESС RusHydro 100.00% 100.00% 100.00% 100.00% PJSC Krasnoyarskenergosbyt 65.81% 69.40% 65.81% 69.40% PJSC Ryazanenergosbyt 90.52% 90.52% 90.52% 90.52% JSC Chuvashskaya Electricity Sales Company 100.00% 100.00% 100.00% 100.00% In December 2016 the Group completed the sale transaction of 100 percent shares of LLC ESC Bashkortostan (electricity sales company, guaranteeing supplier of electricity in the Republic of Bashkortostan) to Inter RAO Group. Profit from the sale of LLC ESC Bashkortostan in the amount of RR 3,048 million is included in other operating income for the year ended 31 December 2016.

F-69 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

RAO ES East subgroup segment RAO ES East subgroup segment consists of JSC RAO ES East and its subsidiaries that generate distribute and sell electricity and heat in the Far East region of the Russian Federation and render transportation, construction, repair and other services. Principal subsidiaries of this segment are presented below: 31 December 2017 31 December 2016 % of % of % of % of ownership voting ownership voting JSC RAO ES East* 99.98% 99.98% 99.98% 99.98% PJSC DEK 52.11% 52.17% 52.11% 52.17% JSC DGK 52.11% 100.00% 52.11% 100.00% JSC DRSK 52.11% 100.00% 52.11% 100.00% PJSC Kamchatskenergo 98.72% 98.74% 98.72% 98.74% PJSC Magadanenergo** 48.99% 49.00% 48.99% 49.00% PJSC Sakhalinenergo 57.80% 57.82% 57.80% 57.82% PJSC Yakutskenergo 79.15% 79.16% 79.15% 79.16% * In October 2017 shares of RAO Energy Systems of the East were de-listed on the Moscow Exchange. In December 2017 changes to the Charter were registered that eliminated indication of the company’s public status in the company’s name. Voting and ownership percent interests in JSC RAO ES East as at 31 December 2016 include 15.59 percent interest held by the Group’s subsidiary LLC Vostok-Finance. ** Control over PJSC Magadanenergo is achieved by the majority of votes on the shareholders meeting because the remaining part of the shares not owned by the Group are distributed among a large number of shareholders the individual stakes of which are insignificant. Other segments Other segments include:  the Group’s subsidiaries engaged in production and sale of electricity and capacity;  the Group’s subsidiaries primarily engaged in research and development related to the utilities industry and construction of hydropower facilities;  the Group’s subsidiaries engaged in repair, upgrade and reconstruction of equipment and hydropower facilities;  the Group’s subsidiaries engaged primarily in hydropower plants construction;  minor segments which do not have similar economic characteristics. Principal subsidiaries included in other segments are presented below: 31 December 2017 31 December 2016 % of % of % of % of ownership voting ownership voting JSC Blagovesсhensk TРP 100.00% 100.00% 100.00% 100.00% JSC VNIIG named after B. E. Vedeneev 100.00% 100.00% 100.00% 100.00% JSC Geotherm 99.65% 99.65% 99.65% 99.65% JSC Gidroremont-VKK 100.00% 100.00% 100.00% 100.00% JSC Zagorskaya GAES-2 100.00% 100.00% 100.00% 100.00% JSC Zaramag HS 99.75% 99.75% 99.75% 99.75% JSC Institute Hydroproject 100.00% 100.00% 100.00% 100.00% PJSC Kolimaenergo 98.76% 98.76% 98.76% 98.76% JSC Lenhydroproject 100.00% 100.00% 100.00% 100.00% JSC NIIES 100.00% 100.00% 100.00% 100.00% JSC Nizhne-Bureiskaya HPP 100.00% 100.00% 100.00% 100.00% JSC Sakhalin GRES-2 100.00% 100.00% 100.00% 100.00% JSC Sulak GidroKaskad 100.00% 100.00% 100.00% 100.00% JSС TPP in Sovetskaya Gavan 100.00% 100.00% 100.00% 100.00% JSC Ust’-Srednekangesstroy 98.76% 100.00% 98.76% 100.00% JSC Ust’-Srednekanskaya HPP named after A. F. Dyakov 99.63% 100.00% 99.63% 100.00% JSC Chirkeigesstroy 100.00% 100.00% 100.00% 100.00% JSC Yakutskaya GRES-2 100.00% 100.00% 100.00% 100.00%

F-70 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Non-controlling interest Summarised financial information related to subsidiaries with significant amount of non-controlling interest before elimination of operations between the Group’s subsidiaries is presented below: RAO ES East subgroup including DEK subgroup 31 December 31 December 31 December 31 December Financial position 2017 2016 2017 2016 Share of non-controlling interest 0.02% 0.02% 47.89% 47.89% Share of voting rights, attributable to non-controlling interest 0.02% 0.02% 47.83% 47.83% Non-current assets 121,463 114,628 69,998 65,407 Current assets 64,971 57,587 28,470 25,645 Non-current liabilities (89,872) (87,668) (63,069) (61,392) Current liabilities (89,500) (74,421) (40,998) (33,433) Net assets / (liabilities) 7,062 10,126 (5,599) (3,773) Carrying value of non-controlling interest 5,778 3,014 1,686 (421)

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December Financial results 2017 2016 2017 2016 Revenue 168,714 175,545 123,406 119,179 (Loss) / profit for the year (13,403) (6,184) (7,491) 1,573 Total comprehensive (loss) / income for the year (14,149) (6,397) (7,297) 1,744 (Loss)/ profit for the year, attributable to non-controlling interest (1,690) (221) (1,576) 1,641 Changes in other comprehensive income / (loss), attributable to non-controlling interest 56 (110) 3,459 114 Cash flows Cash generated by operating activities 13,815 12,982 6,844 11,397 Cash used in investing activities (18,904) (17,632) (8,077) (6,093) Cash generated by / (used in) financing activities 7,922 (355) 2,579 (4,980) Increase / (decrease) in cash and cash equivalents 2,833 (5,005) 1,346 324 The rights of the non-controlling shareholders of the presented subgroups are determined by the Federal Law “On Joint Stock Companies” and the charter documents of JSC RAO ES East and PJSC DEK.

Note 5. Segment information Operating segments are components of the Group engaged in operations from which they may earn revenue and incur expenses, including revenue and expenses relating to transactions with other components of the Group. The individual financial information of the operating segments, which based on the same principles as the present consolidated financial statements, is available and is regularly reviewed by the chief operating decision maker (CODM) to make operating decisions about resources to be allocated to the segments and the performance of the segments’ operating activities. The CODM analyses the information concerning the Group by the groups of operations which are aggregated in operating segments presented by the following separate reportable segments: PJSC RusHydro (the Group’s parent company), ESС RusHydro subgroup, RAO ES East subgroup and other segments (Note 4). Transactions of other segments are not disclosed as reportable segments based on quantitative indicators for the periods presented. Management of operating activities of segments is performed with direct participation of individual segment managers accountable to the CODM. Segment managers on a regular basis submit for approval to the CODM results of operating activities and financial performance of segments. The CODM approves the annual business plan at the level of reportable segments as well as analyses actual financial performance of segments. Management bears responsibility for execution of approved plan and management of operating activities at the level of segments.

F-71 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The segments’ operational results are assessed on the basis of EBITDA, which is calculated as operating profit / loss excluding insurance compensation, depreciation of property, plant and equipment and amortisation of intangible assets, impairment of property, plant and equipment, impairment of financial assets, impairment of loans issued and accounts receivable, gain / loss on disposal of property, plant and equipment, gain / loss on disposal of subsidiaries and associates, profit on disposal of other non-current assets and other non-monetary items of operating expenses. This method of definition of EBITDA may differ from the methods applied by other companies. CODM believes that EBITDA represents the most useful means of assessing the performance of ongoing operating activities of the Company and the Group’s subsidiaries, as it reflects the earnings trends without showing the impact of the above charges. Segment information also contains capital expenditures and the amount of debt as these indicators are analysed by the CODM. Intersegment debt’s balances are excluded. Other information provided to the CODM complies with the information presented in the consolidated financial statements. Intersegment sales are carried out at market prices. Segment information for the years ended 31 December 2017 and 31 December 2016 and as at 31 December 2017 and 31 December 2016 is presented below:

F-72 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Year ended 31 December 2017 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 120,493 61,817 168,714 29,039 380,063 (31,944) 348,119 including: from external companies 111,091 61,799 168,398 6,831 348,119 - 348,119 sales of electricity 77,059 60,657 102,867 826 241,409 - 241,409 sales of heat and hot water sales 158 - 38,747 2 38,907 - 38,907 sales of capacity 33,723 - 6,856 302 40,881 - 40,881 other revenue 151 1,142 19,928 5,701 26,922 - 26,922 from intercompany operations 9,402 18 316 22,208 31,944 (31,944) - Government grants - - 32,567 178 32,745 - 32,745 Other operating income (excluding non-monetary items) 259 - - 431 690 - 690 Operating expenses (excluding depreciation and other non-monetary items) (44,026) (60,239) (177,959) (27,174) (309,398) 31,882 (277,516) EBITDA 76,726 1,578 23,322 2,474 104,100 (62) 104,038 Depreciation of property, plant and equipment and amortisation of intangible assets (14,656) (221) (7,964) (2,393) (25,234) 211 (25,023) Other non-monetary items of operating income and expenses (3,946) (1,017) (13,293) (12,961) (31,217) (6) (31,223) including: impairment of property, plant and equipment (2,394) - (8,950) (12,656) (24,000) - (24,000) impairment of accounts receivable, net (1,324) (1,011) (3,385) (237) (5,957) - (5,957) loss on disposal of property, plant and equipment, net (268) (6) (647) (79) (1,000) (6) (1,006) gain / (loss) on disposal of subsidiaries and associates 40 - (311) 11 (260) - (260) Operating profit / (loss) 58,124 340 2,065 (12,880) 47,649 143 47,792 Finance income 8,443 Finance costs (21,133) Share of results of associates and joint ventures 417 Profit before income tax 35,519 Income tax expense (13,068) Profit for the year 22,451

Capital expenditure 25,661 156 23,133 38,492 87,442 (175) 87,267 31 December 2017 Non-current and current debt 120,070 1,268 43,348 4,839 169,525 - 169,525

F-73 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Year ended 31 December 2016 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 115,037 88,748 175,545 29,502 408,832 (34,760) 374,072 including: from external companies 104,441 88,715 174,716 6,200 374,072 - 374,072 sales of electricity 74,802 87,595 109,586 599 272,582 - 272,582 sales of heat and hot water sales 168 - 38,681 - 38,849 - 38,849 sales of capacity 28,881 - 7,795 392 37,068 - 37,068 other revenue 590 1,120 18,654 5,209 25,573 - 25,573 from intercompany operations 10,596 33 829 23,302 34,760 (34,760) - Government grants - - 17,184 66 17,250 - 17,250 Other operating income (excluding non-monetary items) 29 1 82 340 452 (17) 435 Operating expenses (excluding depreciation and other non-monetary items) (41,857) (85,869) (168,917) (29,788) (326,431) 35,015 (291,416) EBITDA 73,209 2,880 23,894 120 100,103 238 100,341 Insurance indemnity - - - 1,737 1,737 - 1,737 Depreciation of property, plant and equipment and amortisation of intangible assets (13,641) (752) (7,747) (2,247) (24,387) 257 (24,130) Other non-monetary items of operating income and expenses (3,078) 881 (12,501) (15,711) (30,409) - (30,409) including: impairment of property, plant and equipment (6,743) - (5,581) (14,201) (26,525) - (26,525) profit on disposal of other non-current assets 7,202 - - - 7,202 - 7,202 impairment of financial assets - (243) (3,120) (1,101) (4,464) - (4,464) impairment of loans issued (2,378) - - - (2,378) - (2,378) impairment of accounts receivable, net (1,014) (1,911) (3,968) (240) (7,133) - (7,133) loss on disposal of property, plant and equipment, net (145) (13) (228) (169) (555) - (555) gain on disposal of subsidiaries and associates - 3,048 396 - 3,444 - 3,444 Operating profit / (loss) 56,490 3,009 3,646 (16,101) 47,044 495 47,539 Finance income 9,943 Finance costs (9,041) Share of results of associates and joint ventures 6,682 Profit before income tax 55,123 Income tax expense (15,372) Profit for the year 39,751

Capital expenditure 29,987 210 20,809 30,132 81,138 (73) 81,065 31 December 2016 Non-current and current debt 107,274 550 86,912 5,067 199,803 - 199,803

F-74 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 6. Related party transactions Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group’s principal related parties for the years ended 31 December 2017 and 31 December 2016 were joint ventures, associates of the Group (Note 8) and government-related entities. Joint ventures The Group had the following balances with its joint ventures: Note 31 December 2017 31 December 2016 Promissory notes 10 6,880 6,269 Advances to suppliers 172 800 Loans issued 8 15 Loans received 750 750

The Group had the following transactions with its joint ventures: Year ended Year ended 31 December 2017 31 December 2016 Sales of electricity and capacity 337 931 Other revenue 622 648 Purchased electricity and capacity 2,835 2,811 Associates The Group had the following balances with its associates:

31 December 2017 31 December 2016 Trade and other receivables 456 491 Accounts payable 1,277 781

The Group had the following transactions with its associates: Year ended Year ended 31 December 2017 31 December 2016 Sales of electricity and capacity 2,673 2,679 Other revenue 153 137 Rent 605 521 Purchased electricity and capacity 15 17 Government-related entities In the normal course of business the Group enters into transactions with the entities related to the Government. The Group had transactions during the years ended 31 December 2017 and 31 December 2016 and balances outstanding as at 31 December 2017 and 31 December 2016 with the following government- related banks: SC Vnesheconombank, PJSC Sberbank, JSC Rosselkhozbank, Bank GPB (JSC), PJSC VTB Bank, PJSC VTB24 (Notes 10, 11, 14, 18). All transactions are carried out at market rates. The Company had an additional issue of shares and sold treasury shares of its subsidiaries (Note 15). The Company also entered into a non-deliverable forward transaction of its treasury shares with PJSC VTB Bank (Note 19). The Group’s sales of electricity, capacity and heat to government-related entities comprised approximately 30 percent of total sales of electricity, capacity and heat for the year ended 31 December 2017 (for the year ended 31 December 2016: approximately 30 percent). Sales of electricity and capacity under the regulated contracts are conducted directly to the consumers, within the day-ahead market (DAM) – through commission agreements with JSC Centre of Financial Settlements (CFS). Electricity and capacity supply tariffs under the regulated contracts and electricity and heating supply tariffs in non-pricing zone of the Far East are approved by FTS and by regional regulatory authorities of the Russian Federation. On DAM the price is determined by balancing the demand and supply and such price is applied to all market participants.

F-75 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

During the period the Group received government subsidies in amount of RR 32,745 million (in 2016 in the amount of RR 17,250 million) (Note 24). Government subsidies receivable comprised RR 3,401 million as at 31 December 2017 (31 December 2016: RR 2,108 million) (Note 12). There were no accounts payable on free-of-charge targeted contributions of the Group as at 31 December 2017 and 31 December 2016. The Group’s purchases of electricity, capacity and fuel from government-related entities comprised approximately 30 percent of total expenses on purchased electricity, capacity and fuel for the year ended 31 December 2017 (for the year ended 31 December 2016: approximately 20 percent). Electricity distribution services provided to the Group by government-related entities comprised approximately 80 percent of total electricity distribution expenses for the year ended 31 December 2017 (for the year ended 31 December 2016: approximately 70 percent). The distribution of electricity is subject to tariff regulations. Key management of the Group. Key management of the Group includes members of the Board of Directors of the Company, members of the Management Board of the Company, heads of the business subdivisions of the Company and their deputies, key management of subsidiaries of RAO ES East subgroup segment. Remuneration to the members of the Board of Directors of the Company for their services in their capacity and for attending Board meetings is paid depending on the results for the year and is calculated based on specific remuneration policy approved by the Annual General Shareholders Meeting of the Company. Remuneration to the members of the Management Board and to other key management of the Group is paid for their services in full time management positions and is made up of a contractual salary and performance bonuses depending on the results of the work for the period based on key performance indicators approved by the Board of Directors of the Company. Main compensation for Key management of the Group generally is short-term excluding future payments under pension plans with defined benefits. Pension benefits for key management of the Group are provided on the same terms as for the rest of employees. Short-term remuneration paid to the key management of the Group for the year ended 31 December 2017 comprised RR 1,877 million including an accrual for bonuses in the amount of RR 400 million (for the year ended 31 December 2016: RR 1,419 million including accrual for bonuses in the amount of RR 165 million). The accrual for bonuses for the year ended 31 December 2017 includes remuneration under the Company’s key management long-term motivation Program as expected based on the 2017 results.

F-76 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 7. Property, plant and equipment Assets Plant and under Revalued amount / cost Buildings Facilities equipment construction Other Total Balance as at 31 December 2016 91,324 407,267 311,929 292,889 14,286 1,117,695 Impairment of revalued property, plant and equipment (136) (1,034) (137) - - (1,307) Reclassification 539 4,782 (5,458) 245 (108) - Additions 112 17 1,326 84,849 963 87,267 Transfers 10,221 23,011 47,445 (80,755) 78 - Disposals of subsidiaries (272) (87) (176) (27) (127) (689) Disposals and write-offs (312) (1,432) (1,635) (639) (615) (4,633) Balance as at 31 December 2017 101,476 432,524 353,294 296,562 14,477 1,198,333 Accumulated depreciation (including impairment) Balance as at 31 December 2016 (35,459) (143,461) (133,736) (32,224) (7,768) (352,648) Impairment charge (4,068) (7,877) (8,699) (3,830) (109) (24,583) Reversal of impairment - - - 597 - 597 Depreciation charge (2,041) (8,770) (13,393) - (1,148) (25,352) Transfers (430) (3,524) 673 3,416 (135) - Disposals of subsidiaries 267 86 167 6 85 611 Disposals and write-offs 136 676 1,266 479 340 2,897 Balance as at 31 December 2017 (41,595) (162,870) (153,722) (31,556) (8,735) (398,478) Net book value as at 31 December 2017 59,881 269,654 199,572 265,006 5,742 799,855 Net book value as at 31 December 2016 55,865 263,806 178,193 260,665 6,518 765,047

Plant and Assets under Revalued amount / cost Buildings Facilities equipment construction Other Total Balance as at 31 December 2015 83,887 398,693 268,513 285,292 13,646 1,050,031 Impairment of revalued property, plant and equipment (262) (4,941) (943) - (4) (6,150) Reclassification (105) (313) (2,240) 2,790 (132) - Additions 71 1,307 1,591 76,876 1,220 81,065 Transfers 8,247 13,218 49,052 (70,675) 158 - Disposals of subsidiaries (352) (129) (452) (34) (125) (1,092) Disposals and write-offs (162) (568) (3,592) (1,360) (477) (6,159) Balance as at 31 December 2016 91,324 407,267 311,929 292,889 14,286 1,117,695 Accumulated depreciation (including impairment) Balance as at 31 December 2015 (31,803) (131,656) (105,881) (29,192) (6,914) (305,446) Impairment charge (1,729) (6,227) (13,317) (11,692) (134) (33,099) Reversal of impairment 786 3,284 2,433 70 9 6,582 Depreciation charge (2,018) (8,294) (12,621) - (1,191) (24,124) Transfers (794) (719) (6,554) 8,065 2 - Disposals of subsidiaries 47 53 343 28 95 566 Disposals and write-offs 52 98 1,861 497 365 2,873 Balance as at 31 December 2016 (35,459) (143,461) (133,736) (32,224) (7,768) (352,648) Net book value as at 31 December 2016 55,865 263,806 178,193 260,665 6,518 765,047 Net book value as at 31 December 2015 52,084 267,037 162,632 256,100 6,732 744,585 As at 31 December 2017, included in the net book value of the property, plant and equipment are office buildings and plots of land owned by the Group in the amount of RR 7,486 million (31 December 2016: RR 7,745 million) which are stated at cost. Assets under construction represent the expenditures for property, plant and equipment that are being constructed, including hydropower plants under construction, and advances to construction companies and suppliers of property, plant and equipment. As at 31 December 2017 such advances amounted to RR 36,577 million (31 December 2016: RR 47,105 million).

F-77 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Additions to assets under construction included capitalised borrowing costs in the amount of RR 11,584 million, the capitalisation rate was 9.50 percent (for the year ended 31 December 2016: RR 14,276 million, the capitalisation rate was 10.55 percent). Additions to assets under construction included capitalised depreciation in the amount of RR 732 million (for the year ended 31 December 2016: RR 1,042 million). Other property, plant and equipment include motor vehicles, land, office fixtures and other equipment. Management of the Group considers that the carrying amount of property, plant and equipment as at 31 December 2017 and 31 December 2016 does not differ materially from their fair value at the end of the reporting period. Assessment of fair value of property, plant and equipment Management of the Group determines the fair value of property, plant and equipment as follows. The Group's property, plant and equipment are mainly represented by specialised property: the Group's key assets are represented by unique hydro engineering structures and power equipment manufactured under certain technical specifications for each power plant; such equipment is rarely sold in the market. The Group management determines the value of the specialised property on a regular basis, using the cost approach. The cost approach is based on the economic concept which implies that a buyer will pay no more for an asset than it would cost to develop or obtain another asset with the same functionality. The total costs of replacement or reproduction of the analysed asset resulting from such measurement are decreased by the amount of physical, functional and economic depreciation. The replacement costs are determined based on specialised reference books, regulatory documents, construction rates, manufacturer’s prices in effect as of the valuation date; physical and functional depreciation is measured based on the age of the assets, their actual condition and operating mode, etc. To determine the economic depreciation of specialised assets, the Group management calculates the recoverable amount using the income approach. It is based on discounted cash flow method, and the Group uses certain assumptions when building the cash flow forecast. In particular, these assumptions are used to determine the expected cash flows, capital expenditures and discount rates for each cash generating unit. The Group management determines the forecast horizon, and net cash inflows from the asset's operation are calculated for each period of this horizon. The recoverable amount of the cash generating unit is determined by recalculating the discounted net cash flows. The Group management believes that the Group subsidiaries and Company's branches are separate cash generating units. If the recoverable amount of the cash generating unit is higher than the replacement cost less physical and functional depreciation of property, plant and equipment included in this cash generating unit, it is concluded that there is no economic depreciation. If this is not the case and if the recoverable amount is less than the carrying amount of cash generating unit, the economic impairment is determined as the difference between the recoverable amount and the carrying amount.

F-78 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Impairment of property, plant and equipment as at 31 December 2017 and 31 December 2016 The following key assumptions were used in the impairment testing for the years ended 31 December 2017 and 31 December 2016:

Key assumptions used in the Year ended Year ended impairment testing 31 December 2017 31 December 2016 Information used Actual operating results for 2017 and Actual operating results for 2016 and business plans for 2018–2023 business plans for 2017–2022 Forecast period* For existing plants 10 years (2017– For existing plants 10 years (2018–2027) 2026) For plants under construction - 20 years For plants under construction - 20 after commissioning and before the years after commissioning and before completion of capacity sale contracts the completion of capacity sale (2018–2041) contracts (2017–2040) For cash-generating units of the Far East - For cash-generating units of the Far 11-25 years (2018–2042) East - 11-25 years (2017–2041) Forecasted growth rates in terminal 4.22 percent 3.83 percent period Discount rate before tax (based on 12.7–15.4 percent (RR) 14.45–17.4 percent (RR) weighted average cost of capital) Forecast of electricity and capacity tariffs in the isolated energy systems Based on methodology of tariffs calculation adopted by regulatory authority and in non-pricing zone of the Far East Forecast of electricity and capacity Based on the forecast of JSC TSA and forecast rates on energy prices growth prices in competitive market prepared by the Ministry of Economic Development of RF

Forecast of capacity prices related to For 2018–2021 – based on the results of For 2017–2020 – based on the results of competitive capacity selection competitive capacity selection, except for competitive capacity selection, except for stations, where regulated tariffs are used stations, where regulated tariffs are used For 2022 and after – adjusted on consumer For 2021 and after – adjusted on index price and forecasts of JSC TSA consumer index price and forecasts of JSC TSA Forecast of electricity and capacity Based on the Company’s management assessment of future trends in the business volumes Forecast of capital expenditures Based on the management valuation of capital expenditures on modernisation and reconstruction programme * Management considers that a forecast period greater than five years is appropriate as the wholesale electricity and capacity market is expected to change significantly over the forecast period and cash flow projections will not be stabilised within five years. However a forecast period of cash flows was mainly defined by remaining useful life of assets tested. For hydroelectric power plants this period may amount up to 100 years due to the fact that key asset is a dam. In this regard the recoverable amount of assets was defined based on cash flows during the forecast period and terminal values. The values assigned to the key assumptions represent management’s assessment of future trends in the business and are based on both external and internal sources. Management of the Group analysed the current economic situation, in which the Group operates, in order to detect the indicators of impairment of property, plant and equipment or indicators that an impairment loss recognised in prior periods no longer exists or decreased. As a result of the impairment analysis of property, plant and equipment of the Group as at 31 December 2017 their carrying amount decreased by RR 25,890 million. As a result an impairment loss in the amount of RR 24,583 million was recognised in the Consolidated Income Statement and decrease of previously recognised revaluation reserve in the amount of RR 1,307 million (before income tax of RR 261 million) – in other comprehensive loss, the effects relate mainly to the following cash-generating units:  Yakutskaya GRES-2 – impairment loss in the amount of RR 13,057 million;  Yakutskenergo – impairment loss in the amount of RR 7,888 million and decrease of previous revaluation reserve in the amount of RR 1,277 million. The sensitivity analysis of the recoverable amounts of cash-generating units for the key assumptions is presented in Note 32.

F-79 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

As a result of the impairment analysis of property, plant and equipment as at 31 December 2016 their carrying amount decreased by RR 32,667 million. As a result, impairment loss in the amount of RR 26,517 million was recognised in the Consolidated Income Statement and a decrease of previous revaluation reserve in the amount of RR 6,150 million (before income tax of RR 1,230 million) – in other comprehensive loss. The carrying amount of each class of property, plant and equipment that would have been recognised had the assets been carried under the cost model is as follows:

Production Plant and Assets under buildings Facilities equipment construction Other Total Net book value as at 31 December 2017 38,900 120,494 191,705 268,986 2,150 622,235 Net book value as at 31 December 2016 34,278 111,189 169,428 264,645 2,134 581,674 Events at Zagorskaya GAES-2. On 17 September 2013 there was a partial flooding at Zagorskaya GAES-2 which is under construction in the Moscow Region. The flooding originated from the lower reservoir via functional joints of the station block and a newly formed cavity in the right junction of the GAES-2 building foundation. Construction and assembly works as well as property, including equipment, were insured by PIJSC Ingosstrakh, JSC AlfaStrakhovanie and JSC SOGAZ. As at 31 December 2016 all insurance companies had made all payments on the insured event. Other operating income for the year ended 31 December 2016 include insurance indemnity received from JSC SOGAZ and JSC AlfaStrakhovanie in the amount of RR 1,737 million. For the year ended 31 December 2017 a loss on disposal of damaged equipment and assets under construction which are not recoverable and, as well as expenses on recovery works, were recognised in Operating expenses in the amount of RR 902 million (for the year ended 31 December 2016: RR 1,600 million). At the consolidated financial statements signing date management of the Group cannot reliably estimate future expenses that may be necessary to eliminate consequences of the technical incident. However, these expenses may be material for the Group. Management of the Group believes that property, plant and equipment at Zagorskaya GAES-2 is not impaired as at 31 December 2017 as there were capacity supply contracts concluded in respect of new power generation facilities of Zagorskaya GAES-2, that guarantee the payback period of 20 years for the total cost of construction for the period. The carrying amount of Zagorskaya GAES-2 property, plant and equipment is RR 61,235 million. Leased equipment. As at 31 December 2017 the net book value of assets held under finance lease and included in property, plant and equipment was RR 1,372 million (31 December 2016: RR 1,964 million). Assets held under finance lease were mainly represented by plant and equipment. Operating lease. The Group leases a number of land areas owned by local governments and production buildings under non-cancellable operating lease agreements. Land lease payments are determined by lease agreements. The land areas leased by the Group are the territories on which the Group’s hydropower plants and other assets are located. According to the Land Code of the Russian Federation such land areas are limited in their alienability and cannot become private property. The Group’s operating leases typically run for an initial period of 5–49 years with an option to renew the lease after that date. Lease payments are reviewed regularly. The future payments under non-cancellable operating leases in accordance with rates as at the reporting period end are as follows: 31 December 2017 31 December 2016 Less than one year 2,115 2,175 Between one and five years 7,774 7,404 After five years 32,582 30,524 Total operating lease 42,471 40,103 Pledged assets. As at 31 December 2017 RR and 31 December 2016 no property, plant and equipment have been pledged as collateral for borrowings.

F-80 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 8. Investments in associates and joint ventures The Group’s interests in associates and joint ventures and its carrying value were as follows: Place of % held Carrying value business 31 December 2017 31 December 2016 31 December 2017 31 December 2016 Associates OJSC Irkutsk Electronetwork Company (OJSC IENC) Russia 42.75% 42.75% 7,656 7,528 OJSC Sakhalin Energy Company (OJSC SEC) Russia 34.62% 36.09% 1,928 1,982 Other 145 193 Total associates 9,729 9,703 Joint ventures BoGES Group Russia 50.00% 50.00% 8,990 9,230 BALP Group Russia 50.00% 50.00% - - Other 1,378 1,345 Total joint ventures 10,368 10,575 Total investments in associates and joint ventures 20,097 20,278 The amounts in respect of associates and joint ventures recognised in the Income Statement are as follows: Year ended Year ended 31 December 2017 31 December 2016 Associates OJSC IENC 129 (249) OJSC SEC (53) (1,447) Other (50) 24 Total associates 26 (1,672) Joint ventures BoGES Group 357 8,546 BALP Group - - Other 34 (192) Total joint ventures 391 8,354 Share of results of associates and joint ventures 417 6,682 Associates OJSC Irkutsk Electronetwork Company (OJSC IENC) OJSC IENC maintains electric power transmission grids with voltage of 220-500 kV and distribution grids with voltage of 0.4-110 kV in the Irkutsk region. The total length of overhead and cable power lines is over 40,000 km. OJSC IENC also maintains and ensures operation of over 10,000 transforming substations of 6- 500 kV in voltage and over 28,000 MVA in total capacity. The core activities of OJSC IENC include provision of services in the area of electric power transmission and distribution, technological connection of consumers to power grids and maintenance of power grids’ operating capacity. OJSC IENC’s controlling shareholder is EN+ Group. The Group’s investment in OJSC IENC is non-core and considered for sale. OJSC Sakhalin Energy Company (OJSC SEC) OJSC SEC is a special project developer company involved in construction of a number of new power sector assets in the Sakhalin region to be financed from the federal and regional budgets. OJSC SEC's major project was construction of Power Generating Unit No. 4 (with total capacity of 139 MWt) at Yuzhno- Sakhalinsk Thermal Power Plant-1 (that was put into operation in the fourth quarter of 2013). OJSC SEC also built a number of power supply network facilities. The above units of generation and power supply network are operated by PJSC Sakhalinenergo, the Group’s subsidiary, under a lease agreement. Other OJSC SEC’s shareholders, in addition to the Group, are the Russian Government represented by the Federal Agency for State Property Management, and the Sakhalin region represented by the Ministry of Land and Property Affairs of the Sakhalin region. As at 31 December 2017 the Group’s participatory interest in the equity of OJSC SEC is 34.62 percent (31 December 2016: 36.09 percent).

F-81 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The Group’s investments in OJSC SEC are of strategic nature and are considered to be used in the project aimed at consolidating key energy assets of the Sakhalin region on the basis of the core vertically integrated entity PJSC Sakhalinenergo. Summarised financial information for significant associates for the years ended 31 December 2017 and 31 December 2016 and as at 31 December 2017 and 31 December 2016:

OJSC SEC OJSC IENC As at 31 December 2017 2016 2017 2016 Non-current assets 7,058 7,407 22,960 24,169 Current assets 1,540 1,066 1,151 1,151 Non-current liabilities - - (2,580) (1,814) Current liabilities (59) (543) (5,835) (8,111) Net assets 8,539 7,930 15,696 15,395 For the year ended 31 December 2017 2016 2017 2016 Revenue 605 535 20,632 18,809 Impairment of property, plant and equipment - (4,921) - - Profit / (loss) for the year 79 (4,007) 301 (583) Total comprehensive income / (loss) for the year 79 (4,007) 301 (583) Reconciliation of the summarised financial information presented to the carrying value of interest in associates: OJSC SEC OJSC IENC Others Total Net assets as at 31 December 2015 11,937 15,978 611 28,526 (Loss) / profit for the year (4,007) (583) 90 (4,500) Net assets as at 31 December 2016 7,930 15,395 701 24,026 Interest in associates 2,861 6,582 193 9,636 Goodwill - 946 - 946 Additional share issues (879) - - (879) Carrying value as at 31 December 2016 1,982 7,528 193 9,703

Net assets as at 31 December 2016 7,930 15,395 701 24,026 Profit / (loss) for the year 79 301 (202) 178 Additional share issues 530 - - 530 Net assets as at 31 December 2017 8,539 15,696 499 24,734 Interest in associates 2,956 6,710 145 9,811 Goodwill - 946 - 946 Additional share issues (1,028) - - (1,028) Carrying value as at 31 December 2017 1,928 7,656 145 9,729

Joint ventures BoGES Group and BALP Group Starting from 2006 the Company and RUSAL Group have been jointly implementing the BEMA project based on an agreement for mutual financing, completion and subsequent operation of Boguchanskaya HPP and Boguchansky aluminium plant. Within the BEMA project on parity basis joint ventures BoGES Ltd (Cyprus) and BALP Ltd (Cyprus) were formed, which have controlling interests in PJSC Boguchanskaya HPP and CJSC Boguchansky Aluminium Plant. BoGES Ltd and PJSC Boguchanskaya HPP together form BoGES Group. BALP Ltd and CJSC Boguchansky Aluminium Plant together form BALP Group. BoGES Ltd and BALP Ltd provide corporate governance of Boguchanskaya HPP and Boguchansky Aluminium Plant in line with the parity of interests of the investors and are not engaged in other operations. Starting from November 2012 Boguchanskaya HPP sells electricity and capacity to large consumers and utilities companies. An installed capacity of Boguchanskaya HPP is 2,997 MW, long-term average project production – 17 600 million kWh. Project capacity of Boguchansky Aluminium Plant is almost 600 thousand tonnes of aluminium per annum. Manufacturing plant complex consists of two series with a capacity of 296 thousand tonnes each. The

F-82 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise) construction of 1-st series of Boguchansky Aluminium Plant is ongoing. The decision about construction of 2- nd series of the plant is not made by Investors. Boguchansky Aluminium Plant will become the key consumer of energy generated by Boguchanskaya HPP. Summarised financial information for significant joint ventures for the years ended 31 December 2017 and 31 December 2016 and as at 31 December 2017 and 31 December 2016: BoGES Group BALP Group As at 31 December 2017 2016 2017 2016 Non-current assets 65,961 66,472 34,411 27,476 Current assets including: 3,393 3,140 7,796 6,208 Cash and cash equivalents 815 898 1,260 1,141 Non-current liabilities including: (43,932) (43,932) (103,832) (93,907) Non-current financial liabilities (excluding trade payables) (38,147) (38,021) (103,827) (93,907) Current liabilities including: (7,459) (7,236) (2,258) (2,172) Current financial liabilities (excluding trade payables) (1,110) (835) (17) (16) Net assets 17,963 18,444 (63,883) (62,395) For the year ended 31 December 2017 2016 2017 2016 Revenue 15,724 16,141 17,081 23,155 Depreciation of property, plant and equipment (1,855) (1,192) (1,191) (1,717) Impairment on financing of CJSC Boguchansky Aluminium Plant (5,180) (11,000) - - Interest income 134 877 19 - Interest expense (2,893) (3,412) (6,230) (7,901) Foreign exchange differences (4) (2) 3,951 14,713 Reversal of property, plant and equipment - 25,390 - 23,402 (Loss) / profit before income tax (400) 19,484 (1,489) 30,564 Income tax expense (81) (3,467) - - (Loss) / profit for the year (481) 16,017 (1,489) 30,564 Total comprehensive (loss) / income for the year (481) 16,017 (1,489) 30,564 Reconciliation of the summarised financial information presented to the carrying value of interest in joint ventures: BoGES Group BALP Group Others Total Net assets as at 31 December 2015 2,427 (92,959) 2,485 (88,047) Profit for the year 16,017 30,564 44 46,625 Net assets as at 31 December 2016 18,444 (62,395) 2,529 (41,422) Interest in joint ventures 9,222 (31,198) 1,146 (20,830) Non-controlling interest 8 - - 8 Accumulated losses - 31,198 199 31,397 Carrying value as at 31 December 2016 9,230 - 1,345 10,575

Net assets as at 31 December 2016 18,444 (62,395) 2,529 (41,422) (Loss) / profit for the year (481) (1,489) 102 (1,868) Net assets as at 31 December 2017 17,963 (63,884) 2,631 (43,290) Interest in joint ventures 8,982 (31,942) 1,173 (21,787) Non-controlling interest 8 - - 8 Accumulated losses - 31,942 205 32,147 Carrying value as at 31 December 2017 8,990 - 1,378 10,368

The Group has issued guarantees for PJSC Boguchanskaya HPP for the loan facility in favour of the State Corporation Vnesheconombank (Note 29, 34).

F-83 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 9. Available-for-sale financial assets 31 December 2017 31 December 2016 % of ownership Fair value % of ownership Fair value PJSC Inter RAO 4.92% 17,219 4.92% 19,495 PJSC Russian Grids 0.23% 462 0.23% 638 PJSC Boguchanskaya HPP 2.89% 461 2.89% 505 PJSC FGC UES 0.13% 269 0.13% 338 Other - 84 - 205 Total available-for-sale financial assets 18,495 21,181 The fair values of available-for-sale financial assets were calculated based on quoted market prices; for those which are not publicly traded, fair values were estimated by reference to the discounted cash flows of the investees (Note 32). Loss arising on available-for-sale financial assets for the year ended 31 December 2017 totalled RR 2,580 million (net of tax), including revaluation of PJSC Inter RAO – RR 2,276 million, was recorded within other comprehensive income (for the year ended 31 December 2016 profit arising on available-for-sale financial assets totaled RR 15,050 million). For the year ended 31 December 2017, the Group received dividends from PJSC Inter RAO and PJSC Russian Grids in the amount of RR 690 million and recognised them as other operating income (for the year ended 31 December 2016: RR 95 million).

Note 10. Other non-current assets 31 December 2017 31 December 2016 Long-term promissory notes 39,549 38,931 Discount (15,662) (16,415) Impairment provision (14,025) (14,025) Long-term promissory notes, net 9,862 8,491 Long-term advances to suppliers 5,024 3,173 VAT recoverable 2,957 2,036 Goodwill 481 481 Other non-current assets 7,007 7,666 Total other non-current assets 25,331 21,847

Other non-current assets in the amount of RR 7,007 million (31 December 2016: RR 7,666 million) mainly include intangible assets, research and development costs and long-term accounts receivable.

Effective 31 December 31 December Rating Rating agency interest rate Maturity date 2017 2016 Interest-free long-term promissory notes PJSC Boguchanskaya HPP - - 9.75% 2029 6,880 6,269 PJSC Bank VTB Вa1 Moody’s 9.74–11.82% 2019–2021 1,044 511 PJSC ROSBANK Вa1 Moody’s 10.90–14.58% 2020–2022 1,005 888 JSC Alfa Bank ВВ+ Fitch Ratings 11.90–16.35% 2020–2022 860 761 Other 73 62 Total long-term promissory notes 9,862 8,491 Promissory notes of PJSC Boguchanskaya HPP. As at 31 December 2017 the amortised cost of interest- free long-term promissory notes of PJSC Boguchanskaya HPP (payable not earlier than 31 December 2029 with total nominal value of RR 21,027 million) pledged as collateral to the SC Vnesheconombank amounted to RR 6,880 million (31 December 2016: RR 6,269 million) (Note 8).

F-84 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Goodwill of JSC Institute Hydroproject. As at 31 December 2017 and 31 December 2016, the Group tested goodwill related to JSC Institute Hydroproject for its potential impairment. As a result the recoverable amount of JSC Institute Hydroproject as a cash generating asset was higher than the carrying amount - there is no economic impairment. Dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs. In November 2016 the Group completed the transaction to sell dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs to EuroSibEnergo Group. These dams are part of technological complex of EuroSibEnergo’s cascade of hydropower plants located on the Angara river.). Profit from the dams’ sale in the amount of RR 7 202 million is included in other operating income for the year ended 31 December 2016. Peresvet Bank. As at 31 December 2017 the other non-current assets included the amortised value of subordinated bonds of Peresvet Bank of RR 254 million. As at 31 December 2016 the other non-current assets included the amortised value of cash and deposits placed with Peresvet Bank of RR 217 million The amortised value of these assets was determined using the discounted cash flows with recognition of income on discounting in the amount of RR 37 million for the year ended 31 December 2017 and impairment of financial assets in the amount of RR 4,464 million for the year ended 31 December 2016.

Note 11. Cash and cash equivalents 31 December 2017 31 December 2016 Cash equivalents (contractual interest rate: 4.75-8.37%) 59,029 52,594 Cash at bank 11,106 14,738 Cash in hand 21 22 Total cash and cash equivalents 70,156 67,354 Cash equivalents held as at 31 December 2017 and 31 December 2016 comprised short-term bank deposits with original maturities of three months or less. Cash and cash equivalents balances denominated in US Dollars as at 31 December 2017 were RR 576 million (31 December 2016: RR 736 million). Cash and cash equivalents balances denominated in Euros as at 31 December 2017 were RR 63 million (31 December 2016: RR 67 million). Cash and cash equivalents are deposited in several institutions as follows: 31 December 31 December Rating Rating agency 2017 2016 Cash at banks PJSC Sberbank Ba1 Moody’s 4,372 4,281 Bank GPB (JSC) BB+ Fitch Ratings 3,347 7,255 BANK ROSSIYA ruAA Эксперт РА 1,888 17 PJSC ROSBANK Ba1 Moody’s 1,011 387 PJSC Bank VTB Ba1 Moody’s 190 2,047 PJSC VTB24 Ba1 Moody’s 160 67 CJSC ARDSHINBANK B+ Fitch Ratings 15 157 PJSC Bank FK Otkritie - - - 169 Other - - 123 358 Total cash at banks 11,106 14,738 Bank deposits PJSC Bank VTB Ba1 Moody’s 35,394 23,152 Bank GPB (JSC) BB+ Fitch Ratings 16,720 13,922 PJSC Sberbank Ba1 Moody’s 6,025 13,283 JSC Rosselkhozbank BB+ Fitch Ratings 760 838 PJSC VTB24 Ba1 Moody’s 127 322 PJSC Promsvyazbank - - - 536 PJSC Bank FK Otkritie - - - 525 Other - - 3 16 Total cash equivalents 59,029 52,594

F-85 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 12. Accounts receivable and prepayments

31 December 2017 31 December 2016 Trade receivables 61,279 56,647 Provision for impairment of trade receivables (26,571) (23,900) Trade receivables, net 34,708 32,747 VAT recoverable 7,841 7,329 Advances to suppliers and other prepayments 2,944 2,617 Provision for impairment of advances to suppliers and other prepayments (837) (629) Advances to suppliers and other prepayments, net 2,107 1,988 Other receivables 7,959 6,666 Provision for impairment of other receivables (4,815) (3,762) Other receivables, net 3,144 2,904 Government grants receivables 3,401 2,108 Total accounts receivable and prepayments 51,201 47,076 Included in accounts receivable are government subsidies receivable from the constituent budgets of the Far East Federal region including those for compensation of the tariffs reduction under Resolution of the Russian Government No. 895 as at 31 December 2017 (Note 2). The provision for impairment of accounts receivable has been determined based on specific customer identification, customer payment trends, subsequent receipts and settlements and the analysis of expected future cash flows (Note 2). Management believes that the Group’s subsidiaries will be able to realise the net receivable amount through direct collections and other non-cash settlements, and the carrying value approximates their fair value. Movements in the impairment provision for trade and other accounts receivables are as follows: Year ended Year ended 31 December 2017 31 December 2016 As at 1 January 27,662 23,352 Charge for the year 7,261 8,541 Reversal of impairment (1,626) (1,304) Trade receivables written-off as uncollectible (1,902) (1,678) Disposal of impairment provision due to disposal of subsidiaries (9) (1,249) As at 31 December 31,386 27,662 The ageing analysis of trade and other finance accounts receivable is as follows: Provision as at Provision as at 31 December 2017 31 December 2017 31 December 2016 31 December 2016 Not past due 26,802 (1,215) 27,557 (1,652) Past due for less than 3 months 8,410 (2,112) 5,980 (1,378) Past due for 3 months to 1 year 10,326 (5,271) 9,343 (5,228) Past due for more than 1 year 23,213 (22,788) 20,052 (19,404) Total 68,751 (31,386) 62,932 (27,662) The majority of trade debtors which are neither past due nor impaired could be aggregated in several groups based on similarities in their credit quality: large industrial consumers – participants of the wholesale and retail electricity and capacity market as well as public sector entities and population. The Group does not hold any accounts receivable pledged as collateral.

F-86 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 13. Inventories 31 December 2017 31 December 2016 Fuel 16,162 14,825 Materials and supplies 6,782 6,402 Spare parts 2,466 2,539 Other materials 386 565 Total inventories before provision for impairment 25,796 24,331 Provision for impairment of inventories (273) (294) Total inventories 25,523 24,037 There are no inventories pledged as collateral for borrowings as at 31 December 2017 and as at 31 December 2016.

Note 14. Other current assets 31 December 2017 31 December 2016 Special funds 3,429 3,507 Deposits 790 4,292 Restricted cash - 826 Loans issued 2,472 2,808 Provision for loans issued (2,447) (2,498) Loans issued, net 25 310 Other short-term investments 156 162 Total other current assets 4,400 9,097 As at 31 December 2017 the balance of special funds in the amount of RR 3,429 million received by the Group to fund construction of generating facilities, is placed to the special accounts of the Federal Treasury of Russia (as at 31 December 2016: RR 3,507 million). These special funds may be used by the Group only upon approval by the Federal Treasury of Russia according to the procedure prescribed by the Order of the Ministry of Finance of the Russian Federation No. 213n dated 25 December 2015. Provision for loans issued includes provision on loans issued to ZAO Verkhne-Narynskye HPPs in the amount of RR 2,328 million as at 31 December 2017 (as at 31 December 2016: RR 2,378 million) due to denouncement of agreements between Russian Government and Kyrgyzstan Republic on construction of upper Naryn cascade of hydropower plants. Effective Rating Rating agency interest rate 31 December 2017 31 December 2016 Deposits PJSC Sberbank Ba1 Moody’s 4.94–8.78% 642 4,140 Other - - - 148 152 Total deposits 790 4,292

Note 15. Equity Number of issued and fully paid ordinary shares (Par value of RR 1.00) As at 31 December 2017 426,288,813,551 As at 31 December 2016 386,255,464,890 As at 31 December 2015 386,255,464,890 Additional share issue 2016–2017. On 22 November 2016 the Board of Directors of the Company adopted a resolution to make a placement of 40,429,000,000 ordinary shares by open subscription. The placement price of the additional shares was determined at RR 1.00 per share. On 7 December 2016 the share issue was registered with the Bank of Russia. In January 2017, as a result of certain shareholders exercising their pre-emptive right, the Company placed 33,348,661 additional shares, which were paid in December 2016.

F-87 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

In March 2017 PJSC Bank VTB purchased 40 billion additional shares under the agreement related to the purchase of 55 billion ordinary shares of the Company for a total amount of RR 55 billion (Note 2). The other 15 billion shares of quasy-treasury stock were sold to the bank by the Group`s subsidiaries. The full amount of cash received by the Group was used to repay the debts of RAO ES East subgroup. On 11 May 2017 the placement of ordinary shares of the Company under the additional share issue 2016– 2017 was completed. On 5 June 2017 the results of the additional share issue were registered. 40,033,348,661 shares were placed as a result of the additional issue which represents 99.02 percent of the additional issue's total number of shares registered. The shares issued were fully paid for in cash. Treasury shares. Аs at 31 December 2017 treasury shares were represented by 3,852,267,925 ordinary shares in the amount of RR 4,613 million (31 December 2016: 18,852,353,167 ordinary shares in the amount of RR 22,578 million). In March 2017, 15 billion treasury shares were sold to PJSC Bank VTB at the price of RR 1,00 per share in accordance with the agreement described above. Weighted average cost of these treasury shares was RR 17,965 million; the loss on disposal of RR 2,965 million was accounted for within equity. Voluntary and obligatory offers to purchase shares of JSC RAO ES East. During 2016 the shareholders of JSC RAO ES East that accepted the terms of the voluntary offer, transferred 4,715,738,904 ordinary shares and 346,195,762 preference shares of JSC RAO ES East to LLC Vostok-Finance for a cash consideration of RR 34 million and in exchange for 2,934,258,766 shares of the Company in the amount of RR 3,514 million. Under the obligatory offer to purchase shares, LLC Vostok-Finance repurchased 887,217,472 ordinary shares and 312,687,580 preference shares of JSC RAO ES East for a cash consideration of RR 380 million. Effect of changes in non-controlling interest of subsidiaries. During 2016 as a result of the voluntary and obligatory offers to purchase shares of JSC RAO ES East as described above, non-controlling interest decreased by RR 6,694 million and retained earnings of the Group increased by RR 4,872 million as a result of the treasury shares disposal, decrease in non-controlling interest and derecognition of the remaining obligation to purchase shares after they were partly purchased for cash. In October 2017 the Group’s share in subsidiaries JSC SK Agroenergo was sold, as a result non-controlling interest increased by RR 228 million.. During 2016 Group’s subsidiaries LLC Dom-21 century and JSC HRSK went bankrupt, also in December 2016 JSC SO UPS was liquidated. As a result non-controlling interest increased by RR 213 million due to decrease of share in losses of these subsidiaries previously absorbed by shareholders of the Group. Dividends. On 26 June 2017 the Company declared dividends for the year ended 31 December 2016 of RR 0.0466 per share in the total amount of RR 19,876 million (RR 19,696 million excluding dividends to subsidiaries). On 27 June 2016 the Company declared dividends for the year ended 31 December 2015 of RR 0.0389 per share in the total amount of RR 15,011 million (RR 14,278 million excluding dividends to subsidiaries). Declared dividends of the Group’s subsidiaries in favour of non-controlling interest holders amounted to RR 127 million for the year ended 31 December 2017 (for the year ended 31 December 2016: RR 234 million).

F-88 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 16. Income tax Income tax expense is as follows: Year ended Year ended 31 December 2017 31 December 2016 Current income tax expense 12,985 13,258 Deferred income tax expense 83 2,114 Total income tax expense 13,068 15,372 The income tax rate applicable to the majority of the Group’s entities for the year ended 31 December 2017 is 20 percent (for the year ended 31 December 2016: 20 percent). A reconciliation between the expected and actual income tax expense is provided below: Year ended Year ended 31 December 2017 31 December 2016 Profit before income tax 35,519 55,123 Theoretical tax expense at a statutory rate of 20 percent (7,104) (11,025) Tax effect of items which are not deductible or assessable for taxation purposes (2,344) (1,827) Increase in other unrecognised deferred tax assets (3,227) (4,003) Change in unrecognised deferred tax assets in respect of associates and joint ventures 83 1,336 Tax effects of previous periods (737) - Other 261 147 Total income tax expense (13,068) (15,372) The total amount of deductible temporary differences for which deferred income tax assets have not been recognised by the Group as at 31 December 2017 was RR 97,127 million (31 December 2016: RR 80,055 million). These temporary differences mainly relate to accumulated impairment of property, plant and equipment, assets under construction, changes in the fair value of the non-deliverable forward contract for shares and pension liabilities of several Group’s subsidiaries. Deferred income tax. Differences between IFRS and statutory taxation regulations in the Russian Federation give rise to temporary differences between the carrying amount of certain assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 20 percent (for the year ended 31 December 2016: 20 percent). Charged directly to other comprehensive 31 December 2016 Income tax charge income 31 December 2017 Deferred income tax assets 6,640 2,761 (47) 9,354 Property, plant and equipment 4,697 1,882 - 6,579 Accounts receivable 6,444 (85) - 6,359 Losses carried forward 980 44 - 1,024 Other 3,177 464 (47) 3,594 Deferred tax offset (8,658) 456 - (8,202) Deferred income tax liabilities (39,086) (2,844) 235 (41,695) Property, plant and equipment (47,210) (2,306) 261 (49,255) Accounts receivable (57) (58) - (115) Loans and borrowings (351) 26 - (325) Other (126) (50) (26) (202) Deferred tax offset 8,658 (456) - 8,202

F-89 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Charged Reclassification of directly to discontinued other operations and 31 December Income tax comprehensive disposal of 31 December 2015 charge income subsidiaries 2016 Deferred income tax assets 5,486 1,144 53 (43) 6,640 Property, plant and equipment 3,516 1,181 - - 4,697 Accounts receivable 6,509 (57) - (8) 6,444 Losses carried forward 1,350 (370) - - 980 Other 3,795 (636) 53 (35) 3,177 Deferred tax offset (9,684) 1,026 - - (8,658) Deferred income tax liabilities (37,034) (3,258) 1,189 17 (39,086) Property, plant and equipment (46,041) (2,398) 1,212 17 (47,210) Accounts receivable (59) 2 - - (57) Loans and borrowings (378) 27 - - (351) Other (240) 137 (23) - (126) Deferred tax offset 9,684 (1,026) - - 8,658 Under the existing Group structure tax losses and current income tax assets of different Group entities may not be offset against current income tax liabilities and taxable profits of other Group entities and, accordingly, taxes may be accrued even where there is a consolidated tax loss. Therefore, deferred income tax assets and liabilities are offset only when they relate to the same taxable entity and the entity has legal rights to offset it.

Note 17. Pension benefit obligations The tables below provide information about the benefit obligations and actuarial assumptions used for the years ended 31 December 2017 and 31 December 2016. Amounts recognised in the Group’s Consolidated Statement of Financial Position among other non-current liabilities (Note 20): 31 December 2017 31 December 2016 Fair value of plan assets (1,111) (1,090) Present value of defined benefit obligations 9,745 9,894 Net liability 8,634 8,804 The movements in the defined benefit liability for the years ended 31 December 2017 and 31 December 2016 are presented in the tables below: Present value of defined benefit Fair value of plan obligations assets Total At 1 January 2017 9,894 (1,090) 8,804 Current service cost 428 - 428 Interest expense / (income) 788 (89) 699 Past service cost (167) - (167) Remeasurement effects (for other long-term benefits): Actuarial loss - changes in actuarial assumptions 18 - 18 Actuarial loss - experience adjustment 1 - 1 Recognised in profit or loss for the year ended 31 December 2017 1,068 (89) 979 Remeasurements (for post-employment benefits): Actuarial gain - change in demographic assumptions (36) - (36) Actuarial gain - change in financial assumptions (289) - (289) Actuarial (gain) / loss - experience adjustments (124) 19 (105) Recognised other comprehensive income for the year ended 31 December 2017 before income tax charge of RR 86 million (449) 19 (430) Employer contributions for funded pension plan - (233) (233) Benefit payments (Funding NSPF pensions) (489) 282 (207) Benefit payments (Non-funded pension plan) (279) - (279) At 31 December 2017 9,745 (1,111) 8,634

F-90 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Present value of defined benefit Fair value of plan obligations assets Total At 1 January 2016 9,470 (1,084) 8,386 Decrease in liabilities related to LLC ESC Bashkortostan sale (Note 4) (181) 10 (171) Change in liabilities as a result of changes in the scope of valuation 17 - 17 Current service cost 403 - 403 Interest expense / (income) 875 (106) 769 Past service cost (143) - (143) Decrease in liabilities as a result of curtailments (101) - (101) Remeasurement effects (for other long-term benefits): Actuarial gain - changes in actuarial assumptions (4) - (4) Actuarial gain - experience adjustment (29) - (29) Recognised in profit or loss for the year ended 31 December 2016 1,001 (106) 895 Remeasurements (for post-employment benefits): Actuarial loss - change in demographic assumptions 18 - 18 Actuarial loss - change in financial assumptions 459 - 459 Actuarial (gain) / loss - experience adjustments (196) 62 (134) Recognised other comprehensive income for the year ended 31 December 2016 before income tax charge of RR 69 million 281 62 343 Employer contributions for funded pension plan - (236) (236) Benefit payments (Funding NSPF pensions) (439) 264 (175) Benefit payments (Non-funded pension plan) (255) - (255) At 31 December 2016 9,894 (1,090) 8,804 Principal actuarial assumptions for the Group are as follows: 31 December 2017 31 December 2016 Nominal discount rate 7.50% 8.20% Inflation rate 4.00% 5.00% Wage growth rate 5.50% 6.50% Depending on length of service based on Staff turnover statistical data Mortality table Russia-2014* Russia-2014* * Taking into account the pull down adjustment calculated based on statistical data of mortality for employees of the Group of age till 60 years old for years 2012–2017 (31 December 2016: 2012–2016) The sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions as at 31 December 2016 is presented below: Change in assumption Effect on net liability Effect on net liability, % + 1% (781) -8% Nominal discount rate - 1% 921 9% + 1% 491 5% Inflation rate - 1% (429) -4% + 1% 461 5% Wage growth rate - 1% (389) -4% + 3% (960) -10% Staff turnover - 3% 1,418 15% + 10% (142) -1% Mortality Rates - 10% 154 2% The Group expects to contribute RR 637 million to the defined benefit plans in 2018. The weighted average duration of the defined benefit obligation of the Group is 9 years.

F-91 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Retirement benefit plan parameters and related risks. The Group has liabilities under retirement benefit plans in Russia. The retirement benefit plan includes benefits of the following types: lump sum payment upon retirement, jubilee benefits paid at certain age or upon completion of a certain number of years of service, financial aid and compensation to cover funeral expenses in the event of an employee’s or pensioner's death, financial aid provided to pensioners, pension benefits paid to former employees through the non-state pension fund (hereinafter referred to as the “NPF”). The amount of benefits depends on the period of the employees' service (years of service), salary level over the recent years preceding retirement, predetermined fixed amount or minimum tariff rate of remuneration or salary or a combination of these factors. As a rule, the above benefits are indexed according to the inflation rate and salary growth for benefits that depend on the salary level, excluding the retirement benefits paid through NPF, which are not indexed for the inflation rate at the time the payment is made (following the retirement of employees, all risks are borne by NPF). In addition to the inflation risk, all retirement benefit plans of the Group are exposed to mortality and survival risks. Plan assets held on NPF's accounts are governed in accordance with the local legislation and regulatory practices. The Group and NPF are severally liable for plans management, including investments decisions and the contribution schedule. NPF invests the Group's funds in a diversified portfolio. When investing pension savings and placing the pension reserves, NPF is guided by the Russian legislation that provides a strict regulation with respect to the possible list of financial instruments and restricts their utilisation, which also leads to diversification and reduces investment risks. The Group transfers the obligation to pay lifelong non-state pension benefits to the Group's former employees to NPF and funds these obligations when awarding the pension. Therefore, the Group insures the risks related to payment of non-state pensions (investment risks and survival risks). Note 18. Current and non-current debt Non-current debt Effective 31 December 31 December interest rate Due date 2017 2016 PJSC Sberbank 7.99–10.75% 2018–2028 54,790 56,491 Russian bonds (PJSC RusHydro) issued in February 2013 8.50% 2018* 20,650 20,645 Eurobonds (RusHydro Capital Markets DAC), issued in September 2017 8.13% 2022 20,235 - Russian bonds (PJSC RusHydro) issued in July 2015 11.85% 2018 15,868 15,857 Russian bonds (PJSC RusHydro) issued in April 2016 10.35% 2019 15,357 15,347 Russian bonds (PJSC RusHydro) issued in June 2017 8.20% 2020 10,016 - UniCredit Bank Austria AG 3.35% 2018–2026 5,113 5,242 PJSC Bank VTB 8.39–9.77% 2018–2019 5,046 29,516 PJSC ROSBANK 8.24–9.72% 2018–2019 4,520 8,136 Bank GPB (JSC) 8.50–9.50% 2018–2027 1,794 6,171 Municipal authority of Kamchatka region 8.57% 2018–2034 1,560 1,561 EBRD LIBOR 6M+3.45% 2018–2027 1,350 4,791 ASIAN Development bank LIBOR 6M+3.45% 2018–2026 1,310 1,474 Russian bonds (PJSC RusHydro) issued in April 2015 7.50% 2025** 767 10,222 Russian bonds (PJSC RusHydro) issued in April 2011 9.50% 2021 250 250 Crédit Agricole Corporate and Investment Bank Deutschland - - - 4,920 Other long-term debt - - 836 1,776 Finance lease liabilities - - 1,586 1,973 Total 161,048 184,372 Less current portion of non-current (69,877) (25,758) Less current portion of finance lease liabilities (259) (568) Total non-current debt 90,912 158,046 * The bonds mature in 10 years with a put option to redeem them in 2018. ** In October 2017 holders of the bonds issued in April 2015 partly redeemed the bonds under the put option. The rest of the bonds with nominal amount of RR 767 million will mature in 2025 year.

F-92 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Bonds issue. In June 2017 the Group placed non-convertible interest bearing market bonds of series BO-P05 with a nominal amount of RR 10,000 million. The term of the bonds is 3 years, the coupon rate is 8.2 percent per annum. Eurobond issue. In September 2017 the Group placed Eurobonds, issued by the special purpose company RusHydro Capital Markets DAC. The volume of the issue was RR 20,000 million. The term of the bonds is 5 years, the coupon rate is 8.125 percent per annum. VTB Capital, JP Morgan, Gazprombank and Sberbank CIB acted as joint lead managers of the issue. The placement and listing of the Eurobonds took place on the Irish Stock Exchange under Reg S rule. Eurobonds could have been partly purchased by government- related entities. Current debt Effective interest rate 31 December 2017 31 December 2016 PJSC Sberbank 7.75–10% 5,428 5,854 PJSC ROSBANK 8.21–8.51% 930 4,755 LLC AlstomRusHydroEnergy -* 750 750 Bank GPB (JSC) 8.50–10.19% 334 3,031 Current portion of non-current debt - 69,877 25,758 Current portion of finance lease liabilities - 259 568 Other current debt - 1,035 1,041 Total current debt and current portion of non-current debt 78,613 41,757 Reference: Interest payable 3,012 3,044 * The loan received from a related party, the joint venture of the Group (Note 6), the interest rate on this loan - 0.00 percent per annum. Compliance with covenants. The Group is subject to certain covenants related primarily to its debt. As at 31 December 2017 and 31 December 2016 and during the reporting period the Group met all required covenant clauses of the credit agreements. Finance lease liabilities. Minimum lease payments under finance leases and their present values are as follows: Due between Due after Due in 1 year 1 and 5 years 5 years Total Minimum lease payments as at 31 December 2017 275 797 4,154 5,226 Less future finance charges (16) (316) (3,308) (3,640) Present value of minimum lease payments as at 31 December 2017 259 481 846 1,586 Minimum lease payments as at 31 December 2016 601 855 4,287 5,743 Less future finance charges (33) (373) (3,364) (3,770) Present value of minimum lease payments as at 31 December 2016 568 482 923 1,973

Reconciliation of liabilities from financing activities. The table below sets out an analysis of movements in the Group’s liabilities from financing activities for the year ended 31 December 2017:

Current and Non-deliverable Finance lease non-current forward contract Total liabilities debt for shares Liabilities from financing activities as at 31 December 2016 197,830 - 1,973 199,803 Cash flows (46,498) (3,243) (523) (50,264) Interest accrued 15,405 - 221 15,626 Recognition and change in fair value of non- deliverable forward contract for shares - 23,959 - 23,959 Other changes 1,202 - (85) 1,117 Liabilities from financing activities as at 31 December 2017 167,939 20,716 1,586 190,241

F-93 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 19. Non-deliverable forward contract for shares In March 2017 the Company entered into a non-deliverable forward transaction for 55 billion shares with PJSC Bank VTB for 5 years. According to the forward contract, the forward value is determined as the purchase consideration paid by the Bank for the shares plus the amount of quarterly payments made by the Company to the Bank. The amounts of these interim payments are determined using a certain formula that inter alia reduces the payments by the amounts equivalent to the dividends received by the Bank over the period of the forward contract. The Bank is assumed to sell the Company’s shares at the time of final settlement under the forward contract. The difference between the proceeds that the Bank will receive from the sale of these shares, and their forward value is subject to cash settlement between the Company and the Bank. Thus, if the forward value is higher than the consideration received for the shares by the Bank, the Company will reimburse the difference to the Bank and, vice versa, if the proceeds from the sale of shares exceed the forward value, the difference will be paid by the Bank to the Company. If, for any reason, the shares will not be sold by the Bank, they will continue to be held by the Bank. If this is the case, the amount of additional payment to be made when closing the forward transaction is calculated based on the quoted market price of the Company's shares. Thus, the payments will be made upon expiry of the forward contract or earlier, if the Bank sells the shares held. The payment can be made both by the Company to the Bank or by the Bank to the Company, depending on the level of the market value of the Company’s shares at the time of sale / expiry of the transaction term and their forward value. Note 2 describes the key estimates and judgements made by the Group management in respect of recognition and recording of this derivative financial instrument. At 31 December 2017, the liability under the forward contract is recorded as a long-term derivative financial instrument at fair value through profit or loss in the amount of RR 20,716 million. The fair value of the forward contract at the initial recognition of the instrument was RR 10,013 million and it was recorded within equity as the result of a shareholder transaction. Deferred tax asset was not recognised based on management’s probability estimate of its recoverability. Subsequent changes in the fair value of the non-deliverable forward contract is recorded within profit or loss. A reconciliation of movements in the fair value of forward contract for the year ended 31 December 2017 is as follows:

The fair value of the forward contract As at the initial recognition date (as at 03 March 2017) 10,013 Increase in the fair value of the non-deliverable forward contract (Note 26) 13,946 Interim payments (3,243) As at 31 December 2017 20,716 The table below includes key assumptions made to determine the forward contract’s fair value using the Monte-Carlo model: Key assumptions made At the instrument’s to assess the forward contract’s initial recognition date fair value As at 31 December 2017 (as at 03 March 2017) Expected term of the forward 4.17 years 5 years transaction Market value of the share RR 0.7264 RR 0.9752 CB RF key refinancing rate 7.75 percent 10.00 percent Volatility of shares 34.85 percent 35.25 percent Risk-free rate 7.01 percent 8.39 percent Discount rate 7.84 percent 12.11 percent Expected dividend yield 5.10 percent 5.10 percent The sensitivity analysis of the fair value of the forward contract to the key assumptions is presented in Note 32.

F-94 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 20. Other non-current liabilities 31 December 2017 31 December 2016 Non-current advances received 10,766 4,176 Other non-current liabilities 8,716 5,746 Pension benefit obligations (Note 17) 8,634 8,804 Total other non-current liabilities 28,116 18,726

Note 21. Accounts payable and accruals

31 December 2017 31 December 2016 Trade payables 30,949 31,451 Advances received 11,664 9,712 Settlements with personnel 8,880 8,245 Accounts payable under factoring agreements 258 2,957 Dividends payable 159 136 Other accounts payable 3,714 6,283 Total accounts payable and accruals 55,624 58,784 All accounts payable and accruals are denominated in Russian Rubles.

Note 22. Other taxes payable 31 December 2017 31 December 2016 VAT 10,236 9,833 Insurance contributions 3,160 2,925 Property tax 2,038 1,941 Other taxes 600 558 Total other taxes payable 16,034 15,257

Note 23. Revenue

Year ended Year ended 31 December 2017 31 December 2016 Sales of electricity 241,409 272,582 Sales of capacity 40,881 37,068 Sales of heat and hot water 38,907 38,849 Other revenue 26,922 25,573 Total revenue 348,119 374,072 Other revenue includes revenue earned from transportation of electricity and heat, connections to the grid, rendering of construction, repairs and other services.

Note 24. Government grants In accordance with legislation of the Russian Federation, several companies of the Group are entitled to government subsidies for compensation of the difference between approved economically viable electricity and heat tariffs and actual reduced tariffs and for compensation of losses on purchased fuel, purchased electricity and capacity. During the year ended 31 December 2017, the Group received government subsidies of RR 32,745 million (for the year ended 31 December 2016: RR 17,250 million). The subsidies were received in the following territories: Kamchatsky territory, Sakha Republic (Yakutia), Magadan Region, Chukotka Autonomous Area and other Far East regions. The total amount of government grants received by the Group’s companies – guaranteeing suppliers, under the Resolution of the Russian Government No. 895 “On achievement of basic rates (tariffs) for electric power (capacity) in the territories of the Far East Federal region” (Note 2), for the year ended 31 December 2017 amounted to RR 17,254 million.

F-95 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 25. Operating expenses (excluding impairment losses) Year ended Year ended 31 December 2017 31 December 2016 Employee benefit expenses (including payroll taxes 74,390 71,768 and pension benefit expenses) Fuel expenses 58,098 54,561 Electricity distribution expenses 43,482 46,722 Purchased electricity and capacity 40,747 57,610 Depreciation of property, plant and equipment and amortisation of intangible 25,023 24,130 assets Taxes other than on income 10,681 10,233 Other materials 10,170 9,115 Third parties services, including: Repairs and maintenance 4,634 4,507 Provision of functioning of electricity and capacity market 3,639 3,642 Purchase and transportation of heat power 3,513 3,442 Security expenses 3,391 3,369 Consulting, legal and information expenses 2,222 1,911 Rent 2,081 2,155 Services of subcontracting companies 1,982 2,465 Insurance cost 1,940 1,983 Transportation expenses 1,185 1,213 Other third parties services 8,051 8,052 Water usage expenses 3,370 3,202 Social charges 1,098 1,319 Travel expenses 843 804 Purchase of oil products for sale 642 1,065 Loss on disposal of property, plant and equipment, net 1,006 555 Other expenses 1,617 1,882 Total operating expenses (excluding impairment losses) 303,805 315,705

Note 26. Finance income, costs Year ended Year ended 31 December 2017 31 December 2016 Finance income Interest income 7,150 6,779 Foreign exchange gain 599 2,782 Income on discounting 389 118 Other income 305 264 Total finance income 8,443 9,943

Finance costs Change of fair value of non-deliverable forward contract for shares (Note 19) (13,946) - Interest expense (4,019) (6,813) Foreign exchange loss (1,218) (454) Expense on discounting (363) (407) Finance lease expense (221) (295) Other costs (1,366) (1,072) Total finance costs (21,133) (9,041)

F-96 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Note 27. Earnings per share

Year ended Year ended 31 December 2017 31 December 2016 Weighted average number of ordinary shares issued (thousands of shares) 402,655,108 367,138,482 Profit for the period attributable to the shareholders of PJSC RusHydro 24,013 40,205 Earnings per share attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 0.0596 0.1095

Note 28. Capital commitments In accordance with investment programme of the Company and separate investment programmes of the subsidiaries, the Group has to invest RR 209,820 million in the period 2018-2020 for reconstruction of the existing and construction of new power plants, including RR 106,676 million for 2018, RR 60,059 million for 2019, RR 43,085 for 2020 (31 December 2016: RR 243,975 million for the period 2017-2019). Future capital expenditures are mainly related to reconstruction of equipment of power plants: Volzhskaya HPP in the amount of RR 9,965 million, Saratovskaya HPP in the amount of RR 8,681 million, Votkinskaya HPP in the amount of RR 8,643 million; and to construction of power plants: Zaramagskie HPP in the amount of RR 17,223 million, Sakhalin GRES-2 in the amount of RR 13,824 million, Ust’-Srednekanskaya HPP in the amount of RR 6,954 million, Nizhne-Bureiskaya HPP in the amount of RR 6,642 million.

Note 29. Contingencies Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of its employees, including contributions toward the development and maintenance of housing, hospitals, transport services and other social needs in the geographical areas in which it operates. Insurance. The Group holds limited insurance policies in relation to its assets, operations, public liability or other insurable risks. Accordingly, the Group is exposed to those risks for which it does not have insurance. Legal proceedings. The Group’s subsidiaries are parties to certain legal proceedings arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which, upon final disposition, will have a material adverse effect on the financial position and results of the Group. Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management may be challenged by tax authorities, in particular, the way of accounting for tax purposes of some income and expenses of the Group as well as deductibility of input VAT from suppliers and contractors. The impact of this course of events cannot be assessed with sufficient reliability, but it can be significant in terms of the financial situation and / or the business of the Group. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decisions about the review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is generally aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD), although it has specific features. This legislation provides for the possibility of additional tax assessments for controlled transactions (transactions with related parties and certain transactions between unrelated parties) if such transactions are not on an arm's length basis. During the year ended 31 December 2017, the Group’s subsidiaries had controlled transactions and transactions which highly probably will be considered by tax authorities to be controlled based on the results of the period. Management has implemented internal controls to be in compliance with this transfer pricing legislation. In case of receipt of a request from tax authorities, the management of the Group will provide documentation meeting the requirements of Art. 105.15 of the Tax Code. Tax liabilities arising from controlled transactions are determined based on their actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

F-97 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

New provisions aimed at deoffshorisation of Russian economy have been added to the Russian tax legislation and are effective from 1 January 2015. Specifically, they introduce new rules for controlled foreign companies, a concept of beneficiary owner of income for the purposes of application of preferential provisions of taxation treaties of the Russian Federation, a concept of tax residency for foreign persons and taxation of indirect sale of Russian real estate assets. The Group is currently assessing the effects of new tax rules on the Group’s operations and takes necessary steps to comply with the new requirements of the Russian tax legislation. However, in view of the recent introduction of the above provisions and insufficient related administrative and court practice, at present the probability of claims from Russian tax authorities and probability of favourable outcome of tax disputes (if they arise) cannot be reliably estimated. Tax disputes (if any) may have an impact on the Group's financial position and results. Management believes that as at 31 December 2017, its interpretation of the relevant legislation was appropriate and the Group’s tax positions would be sustained. Environmental matters. The Group’s subsidiaries and their predecessor entities have operated in the utilities industry in the Russian Federation for many years. The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group’s subsidiaries periodically evaluate their obligations under environmental regulations. Group accrued assets retirement obligation for ash damps used by the Group which is included in other non-current liabilities and other accounts payable and comprised RR 1 348 million as at 31 December 2017 (31 December 2016: RR 1 048 million). Potential liabilities might arise as a result of changes in legislation and regulation or civil litigation. The impact of these potential changes cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage. Guarantees. The Group has issued guarantees for CJSC Boguchansky Aluminium Plant in favour of its suppliers for future equipment deliveries and for PJSC Boguchanskaya HPP in favour of the State Corporation Vnesheconombank for the loan facility:

Counterparty 31 December 2017 31 December 2016 for PJSC Boguchanskaya HPP: State Corporation Vnesheconombank 25,935 26,749 for CJSC Boguchansky Aluminium Plant: ALSTOM Grid SAS - 31 Total guarantees issued 25,935 26,780

On February 2018 the guarantee was terminated (Note 34).

Note 30. Financial risk management The risk management function within the Group is carried out in respect of financial and operational risks. Financial risk comprise market risk (including currency risk, interest rate risk), credit risk and liquidity risk. The primary objectives of the financial risk management function are to provide reasonable assurance for achievement of the Group’s objectives by establishing Group’s overall framework, identifying, analyzing and evaluating risks, establishing risk limits, and then ensuring that exposure to risks stays within these limits and in case of exceeding these limits to impact on the risks. In order to optimise the Group’s exposure to risks, the Company constantly works on their identification, assessment and monitoring, as well as the development and implementation of activities which impact on the risks, business continuity management and insurance, seeks to comply with international and national standards of advanced risk management (COSO ERM 2004, ISO 31000 and others), increases the culture of risk management and continuously improves risk management. Credit risk. Credit risk is the risk of financial loss for the Group in the case of non-fulfillment by the Contractor of the obligations on the financial instrument under the proper contract. Exposure to credit risk arises as a result of the Group’s sales of products on credit terms and other transactions with counterparties giving rise to financial assets. The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in the Note 32.

F-98 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the provision for impairment of receivables already recorded. There is no independent rating for the Group’s customers and therefore the Group considers the credit quality of customers at the contract execution stage. The Group considers their financial position and credit history. The Group monitors the existing receivables on a continuous basis and takes actions regularly to ensure collection or to minimise losses. To reduce the credit risk in the wholesale electricity and capacity markets the Group has introduced marketing policy and procedure to calculate internal ratings of counterparties in the unregulated market, based on the frequency of default, and to establish limits based on the rating of the customers’ portfolio. The Group management reviews ageing analysis of outstanding trade receivables and follows up on past due balances. Management therefore considers it appropriate to provide past due accounts receivable and other information about credit risk as disclosed in Note 12. Cash has been deposited in the financial institutions with no more than minimal exposure to the default risk at the time of account opening. Management of the Group approved the list of banks for deposits, as well as rules for their placement. Moreover, management constantly evaluates the financial condition, ratings assigned by independent agencies, background and other factors of such banks. The tables in Notes 10, 11 and 14 show deposits with banks and other financial institutions and their ratings at the end of the reporting period. Credit risk for financial guarantees is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Group uses the same credit policies in assuming conditional obligations as it does for other financial instruments, through established credit approvals, risk control limits and monitoring procedures. The Group’s maximum exposure to credit risk for financial guarantees was RR 25,935 million as at 31 December 2017 (31 December 2016: RR 26,780 million) (Note 29). Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (i) foreign currencies, (ii) interest bearing assets and liabilities, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a regular basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Sensitivities to market risks included below are based on a change in a factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated. Currency risk. Electricity and capacity produced by the Group is sold on the domestic market of the Russian Federation at the prices fixed in Russian Rubles. Hence, the Group does not have significant foreign currency exchange risk. The financial condition of the Group, its liquidity, financing sources and the results of operations do not considerably depend on currency rates as the Group operations are planned to be performed in such a way that its assets and liabilities are to be denominated in the national currency. The table below summarises the Group’s monetary financial assets and liabilities exposed to foreign currency exchange rate risk: 31 December 2017 31 December 2016 Monetary Monetary Monetary financial Net balance Monetary financial Net balance financial assets liabilities sheet position financial assets liabilities sheet position USD 663 (2,748) (2,085) 840 (3,088) (2,248) EUR 63 (5,482) (5,419) 67 (10,477) (10,410) Other 8 - 8 31 - 31 Total 734 (8,230) (7,496) 938 (13,565) (12,627) The above analysis includes only monetary assets and liabilities. Equity investments and non-monetary assets are not considered to give rise to any material currency risk. There is no significant effect of the changes of foreign currency rates on the Group’s financial position. Interest rate risk. The Group’s operating profits and cash flows from operating activities are not dependent largely on the changes in the market interest rates. Borrowings issued at variable rates (Note 18) slightly expose the Group to cash flow interest rate risk.

F-99 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

As at 31 December 2017 the Group has debt financing with floating rates, which are established on the basis of the Libor rates (31 December 2017: debt financing with floating rates, which are established on the basis of the Libor, Euribor, MOSPRIME rates). If as at 31 December 2017 and 31 December 2016 had interest rates at that date been 2 percent higher with all other variables held constant profit for the year ended 31 December 2017 and the amount of capital that the Group managed as at 31 December 2017 would have been RR 58 million (31 December 2016: RR 327 million) lower mainly as a result of higher interest expense. The Group monitors interest rates for its financial instruments. Effective interest rates are disclosed in Note 18. For the purpose of interest risk reduction the Group makes the following arrangements:  credit market monitoring to identify favourable credit conditions,  diversification of credit portfolio by raising of borrowings with fixed rates and, if necessary, floating rates. Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Prudent liquidity risk management includes maintaining sufficient cash and marketable securities and the availability of funding from an adequate amount of committed credit facilities. The Group adheres to the balanced model of financing of working capital – both at the expense of short-term sources and long-term sources. Temporarily free funds are placed into short-term financial instruments, mainly bank deposits and short-term bank promissory notes. Current liabilities are represented mainly by the accounts payable to suppliers and contractors. The Group has implemented a control system under its contract conclusion process by introducing and applying typical financial arrangements which include standardised payment structure, payment deadlines, percentage ratio between advance and final settlement, etc. In such a manner the Group controls capital maturity. The table below shows liabilities as at 31 December 2017 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges). Such undiscounted cash flows differ from the amount included in the Consolidated Statement of Financial Position because this amount is based on the discounted cash flows. The maturity analysis of financial liabilities as at 31 December 2017 is as follows: Starting from year 2018 year 2019 year 2020 year 2021 year 2022 year 2023 Liabilities Current and non-current debt 85,762 36,103 34,882 3,234 22,555 9,407 Trade payables (Note 21) 30,949 - - - - - Accounts payable under factoring agreements (Note 21) 258 - - - - - Financial guarantees (Note 29) 747 977 1,230 1,489 1,737 19,755 Obligation to JSC RAO ES East shares purchase 3 - - - - - Dividends payable (Note 21) 159 - - - - - Non-deliverable forward contract for shares 2,874 2,795 2,362 1,615 10,516 - Finance lease liabilities (Note 18) 275 199 199 199 199 4,154 Total future payments, including principal and interest payments 121,027 40,074 38,673 6,537 35,008 33,316 During 2018 the maturity date for loans and borrowings totaling RR 85,762 million (Note 18). The Group's management plans to repay these borrowings both from the Group's own funds and through new financing. The group has a positive credit history, works with large credit institutions, including those controlled by the state, and also has access to public borrowings in the capital market

F-100 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

The maturity analysis of financial liabilities as at 31 December 2016 is as follows: Starting from year 2017 year 2018 year 2019 year 2020 year 2021 year 2022 Liabilities Current and non-current debt 55,373 102,732 28,490 24,992 3,600 20,210 Trade payables (Note 21) 31,451 - - - - - Accounts payable under factoring agreements (Note 21) 2,957 - - - - - Obligation to JSC RAO ES East shares purchase 3 - - - - - Financial guarantees (Note 29) 800 1,008 1,269 1,536 1,791 20,376 Dividends payable (Note 21) 136 - - - - - Finance lease liabilities (Note 18) 601 267 196 196 196 4,287 Net settled derivatives 9 8 5 2 - - Total future payments, including principal and interest payments 91,330 104,015 29,960 26,726 5,587 44,873

Note 31. Management of capital Compliance with Russian legislation requirements and capital cost reduction are key objectives of the Group’s capital risk management. As at 31 December 2017 and 31 December 2016 the Company was in compliance with the share capital requirements as established under legislation. The Group’s objectives in respect of capital management are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The amount of capital that the Group managed as at 31 December 2017 was RR 695,564 million (31 December 2016: RR 650,932million). Consistent with others in the energy industry, the Group monitors the gearing ratio, that is calculated as the total debt divided by the total capital. Debt is calculated as a sum of non-current and current debt, as shown in the Consolidated Statement of Financial Position. Total capital is equal to the total equity, as shown in the Consolidated Statement of Financial Position. The gearing ratio was 0.24 as at 31 December 2017 (31 December 2016: 0.31).

Note 32. Fair value of assets and liabilities Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) Level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) Level 3 measurements are valuations not based on observable market data (that is, unobservable inputs). a) Recurring fair value measurements Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the end of each reporting period. The level in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows: 31 December 2017 Level 1 Level 2 Level 3 Total Financial assets Available-for-sale financial assets 18,022 - 473 18,495 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 527,363 527,363 Total assets recurring fair value measurements 18,022 - 527,836 545,858 Financial liabilities Non-deliverable forward contract for shares - - 20,716 20,716 Total liabilities recurring fair value measurements - - 20,716 20,716

F-101 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

31 December 2016 Level 1 Level 2 Level 3 Total Financial assets Available-for-sale financial assets 20,619 - 562 21,181 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 496,637 496,637 Total assets recurring fair value measurements 20,619 - 497,199 517,818 There were no changes in the valuation techniques, inputs and assumptions for recurring fair value measurements during the year ended 31 December 2017. Fair value of available-for-sale financial assets mainly consists of the market value of PJSC Inter RAO shares. Profit or loss arising on available-for-sale financial assets recorded within other comprehensive income was mainly affected by the change in market quotes of this company’s shares (Note 9). At 31 December 2017 the fair value of the forward contract in line “Non-deliverable forward contract for shares” is determined based on the Monte-Carlo model, taking into account adjustments and using unobservable inputs, and included in Level 3 of fair value hierarchy (Note 19). The valuation of the Level 3 financial liability and the related sensitivity to reasonably possible changes in unobservable inputs are as follows at 31 December 2017: Fair Valuation Significant Reasonable Sensitivity of fair value technique unobservable inputs change value measurement Non-financial assets Electricity and -10% (30,405) Property, plant and equipment capacity prices (except for construction in Discounted 527,363 progress, office buildings and cash flows Discount rate +1% (21,734) land) Capital expenditures +10% (15,549) The above tables discloses sensitivity to valuation inputs for property, plant and equipment as changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly. The valuation of the Level 3 financial liability and the related sensitivity to reasonably possible changes in unobservable inputs are as follows at 31 December 2017:

Valuati Significant on unobservable Reasonable Sensitivity of techniq /observable possible Reasonable fair value Fair value ue inputs change possible values measurement Financial liability -2% 3.10 percent (472) Non-deliverable Monte- Dividend yield +2% 7.10 percent 618 forward contract for 20,716 Carlo shares model Market value of the -20% RR 0.5811 7,502 share +20% RR 0.8717 (7,504) Based on management's estimate, the possible changes of unobservable inputs do not have a significant impact on the fair value of the non-deliverable forward contract. The fair value estimate of the non-deliverable forward contract is significantly influenced by observable inputs, in particular, by the market value of the shares which was RR 0.7264 as at 31 December 2017 (Note 19). (b) Assets and liabilities not measured at fair value but for which fair value is disclosed Financial assets carried at amortised cost. The Group considers that the fair value of cash (Level 1 of the fair value hierarchy), cash equivalents and short-term deposits (Level 2 of the fair value hierarchy), short- term accounts receivable (Level 3 of the fair value hierarchy) approximates their carrying value. The fair value of long-term accounts receivable, other non-current and current assets is estimated based on future cash flows expected to be received including expected losses (Level 3 of the fair value hierarchy); the fair value of these assets approximates their carrying value.

F-102 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

Liabilities carried at amortised cost. The fair value of floating rate liabilities approximates their carrying value. The fair value of bonds is based on quoted market prices (Level 1 of the fair value hierarchy). Fair value of the fixed rate liabilities is estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity (Level 3 of the fair value hierarchy). The fair value of current liabilities carried at amortised cost approximates their carrying value. As at 31 December 2017 fair value of bonds exceeded their carrying value by RR 1,073 million. As at 31 December 2016 fair value of bonds exceeded their carrying value by RR 92 million. As at 31 December 2017 the carrying value of non-current fixed rate debt was RR 39,396 million and exceeded their fair value by RR 925 million. As at 31 December 2016 the carrying value of non-current fixed rate debt was RR 103,817 million and exceeded their fair value by RR 4,705 million. Note 33. Presentation of financial instruments by measurement category The following table provides a reconciliation of classes of financial assets with the measurement categories of IAS 39 Financial instruments: Recognition and Measurement and information about the rest of special funds on the accounts of the Federal Treasury as at 31 December 2017 and 31 December 2016: Loans and Available-for-sale As at 31 December 2017 receivables financial assets Total Assets Other non-current assets (Note 10) 10,392 - 10,392 Promissory notes 9,860 - 9,860 Long-term loans issued 532 - 532 Available-for-sale financial assets - 18,495 18,495 Trade and other receivables (Note 12) 37,369 - 37,369 Trade receivables 34,707 - 34,707 Other financial receivables 2,662 - 2,662 Other current assets (Note 14) 4,244 - 4,244 Special funds 3,429 - 3,429 Deposits 790 - 790 Short-term loans issued 25 - 25 Cash and cash equivalents (Note 11) 70,156 - 70,156 Total financial assets 122,161 18,495 140,656 Non-financial assets - - 887,595 Total assets - - 1,028,251

Loans and Available-for-sale As at 31 December 2016 receivables financial assets Total Assets Other non-current assets (Note 10) 8,838 - 8,838 Promissory notes 8,491 - 8,491 Long-term loans issued 332 - 332 Net settled derivatives 15 - 15 Available-for-sale financial assets - 21,181 21,181 Trade and other receivables (Note 12) 35,268 - 35,268 Trade receivables 32,747 - 37,747 Other financial receivables 2,521 - 2,521 Other current assets (Note 14) 8,118 - 8,118 Special funds 3,507 - 3,507 Deposits and promissory notes 4,292 - 4,292 Short-term loans issued 310 - 310 Net settled derivatives 9 - 9 Cash and cash equivalents (Note 11) 67,354 - 67,354 Total financial assets 119,578 21,181 140,759 Non-financial assets - - 842,687 Total assets - - 983,446

F-103 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2017 (in millions of Russian Rubles unless noted otherwise)

As at 31 December 2017 financial liabilities of the Group valued at fair value are represented by the non- deliverable forward contract for shares in the amount of RR 20,716 million (Note 19) (31 December 2016: there were no liabilities represented by a non-deliverable forward). All other financial liabilities of the Group are carried at amortised cost and are represented mainly by the current and non-current debt (Note 18), trade payables, accounts payable under factoring agreements and other accounts payable (Note 21).

Note 34. Subsequent events Eurobond issue. In February 2018 the Group placed Eurobonds, issued by the special purpose company RusHydro Capital Markets DAC. The volume of the issue was RR 20,000 million. The term of the bonds is 3 years, the coupon rate is 7.4 percent per annum. VTB Capital, JP Morgan, Gazprombank and Sberbank CIB acted as joint lead managers of the issue. The placement and listing of the Eurobonds took place on the Irish Stock Exchange under Reg S rule. Eurobonds could have been partly purchased by government- related entities. Termination of guarantees. In February 2018 the Group signed an agreement on the termination of the surety agreement with SC Vnesheconombank with regard to performance by PJSC Boguchanskaya HPP of its obligations under the loan agreement (Note 29).

F-104

RUSHYDRO GROUP

Consolidated Financial Statements prepared in accordance with IFRS with independent auditor’s report

As at and for the year ended 31 December 2016

F-105 CONTENTS

Notes to the Consolidated Financial Statements Note 1. The Group and its operations ...... 8 Note 2. Summary of significant accounting policies ...... 12 Note 3. New accounting pronouncements ...... 22 Note 4. Principal subsidiaries...... 24 Note 5. Segment information ...... 26 Note 6. Related party transactions ...... 30 Note 7. Property, plant and equipment ...... 32 Note 8. Investments in associates and joint ventures ...... 36 Note 9. Available-for-sale financial assets ...... 40 Note 10. Other non-current assets ...... 40 Note 11. Cash and cash equivalents ...... 41 Note 12. Accounts receivable and prepayments ...... 43 Note 13. Inventories ...... 43 Note 14. Other current assets ...... 44 Note 15. Equity ...... 44 Note 16. Income tax ...... 45 Note 17. Pension benefit obligations ...... 47 Note 18. Current and non-current debt ...... 49 Note 19. Other non-current liabilities ...... 50 Note 20. Accounts payable and accruals...... 50 Note 21. Other taxes payable ...... 51 Note 22. Revenue ...... 51 Note 23. Government grants ...... 51 Note 24. Other operating income...... 51 Note 25. Operating expenses (excluding impairment losses) ...... 52 Note 26. Finance income, costs ...... 52 Note 27. Earnings per share ...... 53 Note 28. Capital commitments ...... 53 Note 29. Contingencies ...... 53 Note 30. Financial risk management ...... 54 Note 31. Management of capital ...... 57 Note 32. Fair value of assets and liabilities ...... 57 Note 33. Presentation of financial instruments by measurement category ...... 59 Note 34. Subsequent events ...... 59

F-106 Independent Auditor’s Report

To the Shareholders and Board of Directors of Public Joint Stock Company Federal Hydro-Generating Company – RusHydro (PJSC RusHydro):

Our opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of PJSC RusHydro and its subsidiaries (together – the “Group”) as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

What we have audited The Group’s consolidated financial statements comprise:  the consolidated statement of financial position as at 31 December 2016;  the consolidated statement of profit and loss for the year then ended;  the consolidated statement of comprehensive income for the year then ended;  the consolidated statement of changes in equity for the year then ended; and  the consolidated statement of cash flows for the year then ended;  the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

F-107 Our audit approach Overview PJSC RusHydro’s shares are listed on the Moscow Exchange. The Group’s principal business operations are generation and sales of electricity, capacity and heat energy in the Russian wholesale and retail markets. The Group companies are also involved in other operations, including electricity transmission and distribution, construction, repairs and provision of other services.

 Overall group materiality: Russian Roubles (“RUB”) 3,600 million, which represents 1% of total revenues and government grants.

 We conducted audit work at those companies of the Group that were considered significant components based on their individual share in the Group’s revenue, which exceeds 15%: PJSC RusHydro, PJSC DEK, JSC DGK, PJSC Yakutskenergo.  Our audit scope covered inter alia 67% of the Group’s revenues and 83% of the Group’s total carrying value of property, plant and equipment.

Key audit matters  Assessment of impairment of property, plant and equipment  Assessment of impairment of accounts receivable

 Contingent tax liabilities

Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

F-108 Overall group materiality RUB 3,600 million

How we determined it 1% of total revenues and government grants

Rationale for the We chose total revenues and government grants as the materiality benchmark benchmark because, in our view, it is the benchmark against applied which the Group’s performance is represented to the fullest extent possible. We chose 1% which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the reporting period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the Key audit matter

Assessment of impairment of property, plant and equipment For matters requiring disclosures and related We obtained and reviewed financial models that significant accounting policies, judgements the management used for assessing the PP&E and accounting estimates see Notes 2, 7 and impairment. We engaged our valuation experts 32 to the consolidated financial statements. to form our conclusion on the assumptions and At 31 December 2016, the Group’s aggregate methodology that were used in the impairment carrying amount of property, plant and assessment. equipment was RUB 765,047 million. This is Our audit procedures related to the the most significant asset on the Group’s management’s assessment of PP&E impairment balance sheet, it accounts for 78% of the total included: value of assets. The Group’s management performed analysis  review of the methodology used by the of the business performance, industry outlook Group’s management for the impairment test and operational plans and then assessed the purposes; recoverable value of property, plant and  examination, on a test basis, of key equipment by cash generating units for the assumptions used in financial models and purpose of impairment testing. Impairment whether they are in line with the approved arises when the recoverable amount, which is budgets and business plans, external determined as the higher of the asset’s fair available and reliable sources (including value less costs to sell and its value in use, is macroeconomic forecasts, information on below the carrying amount of the analysed regulated and market electricity and capacity assets. prices, etc.) and our industry-specific expertise; The management’s testing identified  assessment of competence, skills, experience impairment of a number of cash generating and objectivity of the management’s experts; units, and the Company accrued impairment loss of RUB 26,525 million in the statement of  examination, on a test basis, of accuracy and income for the year ended 31 December 2016. relevance of inputs that the management

F-109 Key audit matter How our audit addressed the Key audit matter The recognition of additional loss also led to a incorporated in the financial models for decrease of RUB 4,920 million in the property, assessing the impairment of property, plant plant and equipment revaluation reserve in the and equipment; consolidated statement of comprehensive  examination, on a test basis, of mathematical income. There was no basis for accrual of or accuracy of financial models used by the release of earlier accrued impairment loss for management to assess the impairment of those cash generating units for which the property, plant and equipment ; results of the management’s assessment led  consideration of potential impact of the management to conclude that their reasonably possible changes in key recoverable amount is either higher than their assumptions; carrying amount or equal to it.  obtaining management’s written We focused on the property, plant and representations related to their property, equipment impairment assessment as this plant and equipment impairment test. process is complicated, requires significant As a result of the above procedures, we believe management’s judgements and is based on that the key assumptions used by the assumptions that are affected by the projected management are acceptable for the purposes of future market and economic terms that are preparing the accompanying consolidated inherently uncertain. financial statements. The impairment test is sensitive to reasonably Acceptability of management’s current estimates possible changes in assumptions. The most regarding the property, plant and equipment significant judgements are related to the impairment for the purpose of preparing the applied discount rate together with the financial statements for the year ended assumptions supporting the relevant forecast 31 December 2016 does not guarantee that cash flows, in particular those concerning the future events that are inherently uncertain electricity and capacity tariff rates, electricity would not lead to a significant change in these generation output and capital investments. estimates. We note that the management’s financial models are to a significant extent sensitive to the changes in key assumptions. It could reasonably be expected, that if actual results differ from assumptions made, accordingly, there could arise either additional losses from impairment in the future or gains from the release of previously recognised impairment charge. We also assessed adequacy of disclosures in Notes 2, 7 and 32 to the consolidated financial statements and assessed their compliance with the disclosure requirements of IAS 36 ‘Impairment of Assets’. Our procedures have not identified any findings that would require significant adjustments to the impairment amount recorded in the consolidated financial statements.

F-110 Key audit matter How our audit addressed the Key audit matter

Assessment of impairment of accounts receivable For matters requiring disclosure, and related Our audit procedures related to the significant accounting policies, judgements management’s assessment of trade receivables and accounting estimates see Notes 2, 12 and impairment included: 32 to the consolidated financial statements.  review of the management’s collectability At 31 December 2016, the carrying amount of analysis taking into account counterparty the Group’s trade receivables was RUB 33,036 solvency analysis and its deterioration as of million (RUB 56,936 million less an the reporting date, presence of intention to impairment provision of RUB 23,900 million). allow payment by instalments, subsequent Thus, the receivables that are assessed by the payments after the end of the reporting Group’s management as doubtful, account for period, availability of payment security and a significant portion within the structure of its quality as well as other factors considered trade receivables (at 31 December 2016, the by the management; Group accrued an impairment provision  review of the receivables turnover analysis amounting to 42% of the total trade that was used, in particular, for supporting receivables). the Group management’s collectability The Group’s management establishes a analysis; provision for doubtful debts based on the  sample testing of past due but not impaired assessment of deterioration of the specific trade receivables for assessing the customer’s solvency position, their individual management’s conclusion that there is no specifics, payment dynamics, subsequent impairment considering the prospects and payments after the end of the reporting period timing of collection of such receivables; as well as future cash inflow forecast analysis by reference to the conditions existing at the  sample testing of underlying documents for reporting date. The degree of accuracy of the management’s assessment of the debt management’s estimate will be confirmed or repayment probability, such as payment rebutted depending on the future orders supporting payments received in developments that are inherently uncertain. 2017; We focused on receivables impairment  review of external information from the assessment as this process is complicated and regulators of the wholesale electricity requires significant management’s judgements, (capacity) market, including the Supervisory and the amount of impairment is significant. Board of NP Market Council, which regularly takes the decisions on excluding the companies from the registry of participants in the wholesale electricity (capacity) market; there are the Group’s buyers of its electricity (capacity) among those excluded companies, with deteriorated solvency as expected;  obtaining management’s written representations related to their performed receivables impairment test.

F-111 Key audit matter How our audit addressed the Key audit matter We also assessed adequacy of disclosures in Notes 2, 12 and 32 to the consolidated financial statements and assessed their compliance with the disclosure requirements of IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 7 ‘Financial Instruments: Disclosures’. Acceptability of current estimates of the Group’s management regarding the receivables impairment for the purpose of preparing the financial statements for the year ended 31 December 2016 does not guarantee that future events that are inherently uncertain would not lead to significant changes in these estimates. Our procedures have not identified any findings that evidence that there is a need for significant adjustments to be made to the consolidated financial statements. Contingent tax liabilities For matters requiring disclosure and related judgements and accounting estimates see Our audit procedures aimed at assessing the Note 29 to the consolidated financial probability that tax liabilities will arise, and their statements. amount included: We consider this audit issue as a key audit matter  sample testing of accuracy of calculations and because the Russian tax legislation (including recognition of short-term tax liabilities in the transfer pricing legislation and rules for consolidated financial statements; deductibility of certain expenses for income tax  sample testing of correctness of tax incentives purposes), which was enacted or substantively application and calculation; enacted at the end of the reporting period, is subject to varying interpretations when being  assessing the reasonableness of the applied to the transactions and activities of the management’s position on recording significant Group. Consequently, tax positions taken by the tax liabilities arising in the course of the Group’s Group’s management and the formal operations where the Group’s tax positions may documentation supporting these tax positions be challenged by tax authorities in their audits may be challenged by tax authorities. While and in application of tax incentives; preparing the consolidated financial statements  reviewing the tax authorities’ acts and decisions the Group’s management assesses the probability based on the results of their audits; that tax liabilities will arise and their amounts,  reviewing court decisions made with respect to taking into account actual or potential tax claims tax disputes where Group companies are and existing tax law application practice. involved; When the Group management assesses potential  analysing court practice in the area of tax tax liability, it takes into account that fiscal periods disputes related to operations where the Group’s remain open to review by the authorities in respect tax positions may be challenged by tax of taxes for three calendar years preceding the authorities during their audit; year when decision about the review was made.

F-112 Key audit matter How our audit addressed the Key audit matter

 sample testing of adequacy of provisions for tax If the probability of incurring potential tax liabilities recorded in the consolidated financial liabilities is assessed as high (exceeding 50%), the statements, where the management assessed accrued provision is included within short-term their probability as high; liabilities. At 31 December 2016, the accrued provision is insignificant. Other identified  obtaining management’s written potential tax liabilities are disclosed in Note 29 to representations related to their assessment the consolidated financial statements. of the amount of potential tax liabilities. While it is not possible to make a sufficiently When performing the above procedures we engaged reliable estimate of the probability of the our tax specialists. unfavourable developments for the Group, the We also assessed adequacy of disclosures on impact of such developments may be significant to contingent tax liabilities in Note 29 to the the overall financial position and financial consolidated financial statements with reference to performance of the Group. the disclosure requirements of IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. Acceptability of current estimates regarding the contingent tax liabilities made by the Group management in preparing the financial statements for the year ended 31 December 2016 does not guarantee that future events that are inherently uncertain would not lead to a significant change in these estimates. Our procedures have not identified any findings that evidence that there is a need for significant additional disclosures to be made in these consolidated financial statements.

How we tailored our Group audit scope

We tailored the scope of our audit in order to perform sufficient work to be able to give an opinion on the consolidated financial statements as a whole, taking into account the geographic and management structure of the Group, the accounting processes and controls as well as the specific nature of the industry in which the Group operates. The Group’s consolidated financial statements are prepared based on the financial information of its components, i.e. individual companies of the Group. If we considered a component to be significant, we audited its financial information based on the materiality level established for each such component.

Similar to the determination of the overall materiality, significance of components was assessed based on the component’s individual share in the Group’s revenue. We determined the following significant components, which individually account for more than 15% of the Group's total revenue: PJSC RusHydro, PJSC DEK, JSC DGK, PJSC Yakutskenergo.

If we did not consider that the procedures performed at the level of significant components provided adequate audit evidence for expressing our opinion on the consolidated financial statements as a whole, we performed analytical procedures at the Group level and audit of individual balances and types of operations for other components of the Group.

F-113 We chose other components of the Group for auditing individual balances and types of operations separately for each financial statement line item included in the scope of our audit, and our choice depended inter alia on the following factors: level of audit evidence obtained from the audit of significant components and level of concentration of balances and types of operations in the Group’s structure. We also change our selection of a number of other components on a rotation basis.

On the whole, our audit procedures that were performed at the level of significant and other components of the Group and included, in particular, detailed testing and testing of controls on a sample basis, in our opinion, provided adequate coverage of individual line items in the consolidated financial statements. Thus, for example, our procedures covered 67% of the Group's revenue and 83% of the total carrying value of the Group’s property, plant and equipment.

When performing the audit procedures the audit team engaged specialists in taxation, IFRS methodology, as well as experts in valuation of property, plant and equipment and pension liabilities.

Other information Management is responsible for the other information. Other information includes PJSC RusHydro’s Annual Report for 2016 and Issuer’s Report of PJSC RusHydro for Q1 2017, but does not include the consolidated financial statements and our auditor’s report thereon. PJSC RusHydro’s Annual Report for 2016 and Issuer’s Report of PJSC RusHydro for Q1 2017 are expected to be made available to us after the date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

F-114 Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

F-115

F-116

F-117 RusHydro Group Consolidated Income Statement (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2016 31 December 2015

Revenue 22 374,072 347,512 Government grants 23 17,250 14,314 Other operating income 24 12,422 8,230 Operating expenses (excluding impairment losses) 25 (315,705) (315,103) Operating profit excluding impairment losses 88,039 54,953 Impairment of property, plant and equipment 7 (26,525) (12,593) Impairment of accounts receivable, net (7,133) (4,011) Impairment of financial assets 10 (4,464) - Impairment of loans issued 14 (2,378) - Impairment of other non-current assets 10 - (3,220) Impairment of goodwill of subsidiary 10 - (448) Operating profit 47,539 34,681 Finance income 26 9,943 12,313 Finance costs 26 (9,041) (9,744) Share of results of associates and joint ventures 8 6,682 428 Profit before income tax 55,123 37,678

Income tax expense 16 (15,372) (10,519) Profit for the year 39,751 27,159

Attributable to: Shareholders of PJSC RusHydro 40,205 31,539 Non-controlling interest (454) (4,380) Earnings per ordinary share for profit attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 27 0.1095 0.0865 Weighted average number of shares outstanding – basic and diluted (thousands of shares) 27 367,138,482 364,468,853

The accompanying notes are an integral part of these Consolidated Financial Statements 2

F-118 RusHydro Group Consolidated Statement of Comprehensive Income (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2016 31 December 2015

Profit for the year 39,751 27,159

Other comprehensive income / (loss), net of tax: Items that will not be reclassified to profit or loss Impairment of revalued property, plant and equipment 7 (4,920) (994) Remeasurement of pension benefit obligations 17 (274) (1,495) Total items that will not be reclassified to profit or loss (5,194) (2,489) Items that may be reclassified subsequently to profit or loss Profit arising on available-for-sale financial assets 9 15,050 1,962 Other comprehensive income / (loss) 5 (85) Total items that may be reclassified subsequently to profit or loss 15,055 1,877 Other comprehensive income / (loss) 9,861 (612) Total comprehensive income for the year 49,612 26,547

Attributable to: Shareholders of PJSC RusHydro 50,082 31,364 Non-controlling interest (470) (4,817)

The accompanying notes are an integral part of these Consolidated Financial Statements 3

F-119 RusHydro Group Consolidated Statement of Cash Flows (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended Note 31 December 2016 31 December 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Рrofit before income tax 55,123 37,678 Depreciation of property, plant and equipment and amortisation of intangible assets 7, 25 24,130 22,477 Loss on disposal of property, plant and equipment, net 25 555 3,366 Share of results of associates and joint ventures 8 (6,682) (428) Other operating income 24 (12,422) (8,230) Finance income 26 (9,943) (12,313) Finance costs 26 9,041 9,744 Impairment of property, plant and equipment 7 26,525 12,593 Impairment of accounts receivable, net 7,133 4,011 Impairment of financial assets 10 4,464 - Impairment of loans issued 14 2,378 - Impairment of other non-current assets 10 - 3,220 Impairment of goodwill of subsidiary 10 - 448 Curtailment in pension payment and pension plan 17, 25 - (717) Pension expenses 128 84 Other income (886) (298) Operating cash flows before working capital changes, income tax paid and changes in other assets and liabilities 99,544 71,635 Working capital changes: (Increase) / decrease in accounts receivable and prepayments (9,243) 1,992 Increase in other current assets (3,403) - Increase in inventories (28) (2,047) Increase in accounts payable and accruals 1,013 1,450 (Decrease) / increase in other taxes payable (199) 2,122 (Increase) / decrease in other non-current assets (7,083) 967 Increase in other non-current liabilities 3,549 1,630 Income tax paid (12,777) (7,949) Net cash generated by operating activities 71,373 69,800

CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (60,957) (79,238) Proceeds from sale of property, plant and equipment 266 3,386 Proceeds from sale of dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs 10 10,950 - Investment in bank deposits and purchase of other investments (9,993) (56,789) Redemption of bank deposits and proceeds from sale of other investments 25,477 75,817 Placement of special funds on special accounts (6,998) - Return of special funds from special accounts 6,098 - Proceeds from sale of subsidiaries, net of disposed cash 4 3,559 60 Purchase of shares of subsidiary 15 (414) - Purchase of subsidiaries from third parties, net of cash acquired - (651) Proceeds from sale of investments in associates - 81 Interest received 7,094 8,953 Net cash used in investing activities (24,918) (48,381)

The accompanying notes are an integral part of these Consolidated Financial Statements 4

F-120 RusHydro Group Consolidated Statement of Cash Flows (in millions of Russian Rubles unless noted otherwise)

Year ended Year ended

Note 31 December 2016 31 December 2015 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from current debt 18 64,855 83,896 Proceeds from non-current debt 18 71,829 36,487 Repayment of debt 18 (128,291) (102,851) Interest paid (20,271) (19,498) Dividends paid to the shareholders of PJSC RusHydro (14,228) (5,712) Dividends paid by subsidiaries to non-controlling interest holders (234) (102) Proceeds from share issue 15 33 - Finance lease payments (530) (804) Net cash used in by financing activities (26,837) (8,584) Foreign exchange difference on cash balances (289) 796 Increase in cash and cash equivalents 19,329 13,631 Cash and cash equivalents at the beginning of the year 48,025 34,394 Cash and cash equivalents at the end of the year 11 67,354 48,025

The accompanying notes are an integral part of these Consolidated Financial Statements 5

F-121 RusHydro Group Consolidated Statement of Changes in Equity (in millions of Russian Rubles unless noted otherwise)

Reserve Revaluation for Revaluation reserve on remeasu- Foreign reserve on available- rement of Equity currency property, for-sale pension attributable to Non- Share Treasury Share Merger translation plant and financial benefit Retained shareholders of controlling Total Note capital shares premium reserve reserve equipment assets obligation earnings PJSC RusHydro interest equity As at 1 January 2015 386,255 (26,092) 39,202 (135,075) (362) 190,476 - 1,721 122,796 578,921 16,230 595,151 Profit for the year ------31,539 31,539 (4,380) 27,159 Profit arising on available-for- sale financial assets 9 ------1,952 - - 1,952 10 1,962 Remeasurement of pension benefit obligations 17 ------(1,032) - (1,032) (463) (1,495) Impairment of revalued property, plant and equipment 7 - - - - - (994) - - - (994) - (994) Other comprehensive loss - - - - (112) 18 - - (7) (101) 16 (85) Total other comprehensive loss - - - - (112) (976) 1,952 (1,032) (7) (175) (437) (612) Total comprehensive income - - - - (112) (976) 1,952 (1,032) 31,532 31,364 (4,817) 26,547 Dividends 15 ------(5,710) (5,710) (102) (5,812) Offer for shares of PJSC RAO ES East 15 ------(2,108) (2,108) - (2,108) Transfer of revaluation reserve to retained earnings - - - - - (948) - - 948 - - - Effect of changes in non- controlling interest 15 ------12 12 129 141 As at 31 December 2015 386,255 (26,092) 39,202 (135,075) (474) 188,552 1,952 689 147,470 602,479 11,440 613,919

The accompanying notes are an integral part of these Consolidated Financial Statements 6

F-122 RusHydro Group Consolidated Statement of Changes in Equity (in millions of Russian Rubles unless noted otherwise) Reserve Revaluation for Revaluation reserve on remeasu- Foreign reserve on available- rement of Equity currency property, for-sale pension attributable to Non- Share Treasury Share Merger translation plant and financial benefit Retained shareholders of controlling Total Note capital shares premium reserve reserve equipment assets obligation earnings PJSC RusHydro interest equity As at 1 January 2016 386,255 (26,092) 39,202 (135,075) (474) 188,552 1,952 689 147,470 602,479 11,440 613,919 Profit for the year ------40,205 40,205 (454) 39,751 Profit arising on available-for- sale financial assets 9 ------14,957 - - 14,957 93 15,050 Remeasurement of pension benefit obligations 17 ------(230) - (230) (44) (274) Impairment of revalued property, plant and equipment 7 - - - - - (4,822) - - - (4,822) (98) (4,920) Other comprehensive income - - - - (64) 34 - - 2 (28) 33 5 Total other comprehensive income - - - - (64) (4,788) 14,957 (230) 2 9,877 (16) 9,861 Total comprehensive income - - - - (64) (4,788) 14,957 (230) 40,207 50,082 (470) 49,612 Dividends 15 ------(14,278) (14,278) (234) (14,512) Offer for shares of PJSC RAO ES East 15 - 3,514 ------4,872 8,386 (6,694) 1,692 Transfer of revaluation reserve to retained earnings - - - - - (796) - - 796 - - - Effect of changes in non- controlling interest 15 ------213 213 Other movements ------8 8 As at 31 December 2016 386,255 (22,578) 39,202 (135,075) (538) 182,968 16,909 459 179,067 646,669 4,263 650,932

The accompanying notes are an integral part of these Consolidated Financial Statements 7

F-123 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 1. The Group and its operations These Сonsolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) for the year ended 31 December 2016 for PJSC RusHydro (hereinafter referred to as “the Company”) and its subsidiaries (hereinafter referred to as the “Group”). The Company was incorporated and is domiciled in the Russian Federation. The Company is a joint stock company limited by shares and was set up in accordance with Russian regulations. The Group’s primary activities are generation and sale of electricity and capacity on the Russian wholesale and retail markets, as well as generation and sale of heat energy. Economic environment in the Russian Federation. The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations (Note 29). During 2016 the Russian economy was negatively impacted by low oil prices, ongoing political tension in the region and continuing international sanctions against certain Russian companies and individuals, all of which contributed to the country’s economic recession characterised by a decline in gross domestic product. The financial markets continue to be volatile and are characterised by frequent significant price movements and increased trading spreads. Russia's credit rating is still below investment grade. This operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict and management’s current expectations and estimates could differ from actual results. Relations with the Government and current regulation. As at 31 December 2016 the Russian Federation owned 66.84 percent of the total voting ordinary shares of the Company (31 December 2015: 66.84 percent). The Group’s major customer base includes a large number of entities controlled by, or related to the Government. Furthermore, the Government controls contractors and suppliers, which provide the Group with electricity dispatch, transmission and distribution services, and a number of the Group’s fuel and other suppliers (Note 6). In addition, the Government affects the Group’s operations through:  participation of its representatives in the Company’s Board of Directors;  regulation of tariffs for electricity, capacity and heating;  approval and monitoring of the Group’s investment programme, including volume and sources of financing. Economic, social and other policies of the Russian Government could have a material effect on operations of the Group. Overview of the electricity and capacity market. Capacity and electricity, while interrelated, are treated as separate economic products. The capacity market represents the obligation and ability to keep sufficient generation capability in reserve in order to satisfy a target level of potential demand, while the sale of electricity represents the actual delivery of electricity to the purchaser. The Russian electricity and capacity market consists of wholesale and retail markets. Participants of the wholesale market include: generating companies, electricity sales companies (including guaranteeing suppliers), electricity export / import operator, Federal Grid Company (in terms of electricity purchases to cover transmission losses), large electricity consumers. Participants of the wholesale market can act as electricity and capacity sellers and buyers. Participants of the retail markets include: consumers, providers of public utilities, guaranteeing suppliers, electricity sales (supply) companies, electricity generators of retail markets, grid companies, participants of electricity dispatch. Wholesale electricity and capacity market. The wholesale electricity and capacity market operates in accordance with the Resolution of the Russian Government No. 1172 dated 27 December 2010. A wholesale market for electricity and capacity functions on the territory of the regions, which are integrated in pricing areas. European Russia and Urals are included in the first pricing area, Siberia is included in the second pricing area. In non-pricing areas (Arkhangelsk and Kaliningrad regions, Komi Republic, regions of the Far East), where the competitive market relationships are not possible due to technological reasons, sales of electricity and capacity are carried out based on special rules.

F-124 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

In the isolated energy systems which are not technically integrated into the country's unified energy system, there is no electricity and capacity wholesale market and electricity is supplied through the regulated markets. Wholesale electricity market The wholesale electricity market has a number of sectors varying in contractual terms, conditions and delivery timeframes: sector of regulated contracts, day-ahead market, sector of unregulated bilateral contracts and the balancing market. During 2016 the electricity traded in pricing zones of wholesale market was sold at unregulated prices excluding volumes designated for delivery to population, groups of customers equivalent to population and customers located in North Caucasus and Republic of Tyva. Electricity and capacity supply tariffs for the Russian Federation are calculated using the price indexing formulas determined by the Federal Tariff Service (hereinafter referred to as “the FTS”). Electricity and capacity supply volumes are determined based on the estimated consolidated balance of electricity production and supply prepared by the FTS, so that for each electricity and capacity supplier, supply under regulated contracts does not exceed 35 percent of the total electricity and capacity supply to the wholesale market determined by the decision on balance for such supplier. Electricity volumes that are not covered by the regulated contracts are sold at unregulated prices on the day- ahead market (DAM) and balancing market (BM). DAM is a competitive selection of seller and buyer price bids on the day ahead of planned electricity supply, including prices and volumes for each of the following 24 hours. The selection is managed by the Commercial Operator of the wholesale market (JSC TSA). At the DAM, the price is determined by balancing the demand and supply, and such price is applied to all market participants. To mitigate the price manipulation risk, the DAM introduced a system encouraging the participants to submit competitive price bids – in accordance with the trading rules, the lowest price bids for electricity supply are satisfied first. Price indices and trade volumes for the DAM are published daily on the web-site of JSC TSA. Electricity volumes sold under bilateral contracts and at the DAM constitute scheduled electricity consumption. However, actual consumption is inevitably different from the planned one. Deviations from scheduled production / consumption are traded on a real-time basis on BM, and the System Operator of the wholesale market (OJSC SO UES) holds additional tenders to select bids every three hours. Under unregulated bilateral contracts, the market participants independently determine supply counter parties, prices, timing and volumes. Wholesale capacity market Capacity is traded based on the following trading mechanisms:  purchase / sale of capacity under capacity sales contracts, concluded as a result of capacity competitive selection of bids;  purchase / sale of capacity under unregulated contracts;  purchase / sale of capacity under contracts to provide capacity and under sale contracts of new nuclear power plants and hydroelectric power plants, similar to capacity sale contracts;  purchase / sale of capacity produced by forced generators;  purchase / sale of capacity under regulated contracts (within the volumes for delivery to population and groups of customers equivalent to population);  purchase / sale of capacity produced by qualified renewable energy projects under contracts to provide capacity concluded on the results of the tender for the construction of renewable energy projects. Competitive capacity selection (CCS) held by OJSC SO UES is the basis of the capacity market and determines which capacity will be paid the wholesale market. The Resolution of the Russian Government No. 893 dated 27 August 2015 approved new rules for CCS and improved capacity trading principles on the wholesale market. Starting from 2016, capacity under the CCS will be annually selected for the year which is in three calendar years’ time from the year of the respective CCS. The CCS procedures are performed for the pricing zones not separated into free power transfer zones. Indexation is performed if CCS is conducted for more than one year ahead. The CCS price is indexed for CPI decreased by 1 percent for the period from 1 January of the year following the year when the CCS was conducted to 1 January of the year of supply.

F-125 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The CCS price represents the maximum of prices in the selected bids and the price at which the demand function takes a value equal to the cumulative volume of the capacity selected (including the capacity to be paid irrespective of the CCS results). The CCS price for each pricing zone is the same for all selected generating facilities. Non-selected capacity that failed to pass through the competitive selection is not paid for. If the actual demand for capacity exceeds the volume of generating capacity selected, an adjusting CCS procedure can be conducted. Capacity commissioned under capacity supply contracts (CSC) entered into with heating generation sites and contracts with nuclear power plants and hydropower plants similar to CSC and that of generating sites that are required to maintain the technological operating modes of the energy system or supply heat (“forced” generators) is paid for irrespective of the CCS results. During 2016, similar to trading operations with electricity, capacity is supplied under regulated contracts only in the volumes required for supply to the population, equivalent consumer categories and consumers operating in some parts of the wholesale market pricing zones, comprising Russian constituent territories as determined by the Russian Government (North Caucasus and Republic of Tyva). According to the Resolution of the Russian Government No. 374 dated 28 April 2015 approving changes to the regulations of the wholesale electricity and capacity market, all capacity of hydropower plants located in the second pricing area (Siberia) is supplied at the price of CCS from 1 May 2016. Non-pricing zone of the Far East Territories of the Amur Region, Primorsky Region, Khabarovsk Region, Jewish Autonomous Region and the Southern District of the Sakha Republic (Yakutia) are integrated into a single non-pricing zone of the wholesale electricity and capacity market of the Far East. There are specific features of managing electricity and capacity trading operations due to limitations in the competition among electricity suppliers and grid- imposed limitations for electricity flow. Tariffs for electricity supplied by the Far East energy companies to the consumer (end-consumer tariffs) are approved by regional regulatory authorities based on the threshold tariff levels approved by the FTS for the regulated period. The threshold tariff levels for electricity supplied to population or equivalent consumer categories and other consumers in the Russian constituent territories are determined by the FTS in accordance with the forecast of social and economic development in the Russian Federation for the regulated period. The single buyer wholesale market model is implemented in the Far East non-pricing zone. Suppliers of the wholesale market supply electricity and capacity to the wholesale market using the tariffs established for them by the FTS. The single buyer purchases electricity and capacity on the wholesale market at indicative prices calculated by JSC TSA based on the tariffs for suppliers of wholesale market approved by the FTS. JSC TSA ensures settlements between the electricity suppliers and buyers. Functions of the single buyer are assigned to PJSC DEK, subsidiary of the Group, on the territory of Amur Region, Jewish Autonomous Region, Khabarovsk Region, Primorsky Region and the Southern District of the Sakha Republic (Yakutia). However there are regions with only retail market operations – they are isolated energy systems of Kamchatsky Region, Magadan Region, Chukotsk Autonomous Region, Western and Central Regions of Sakha Republic (Yakutia) and Sakhalin Region where systems are not technically integrated into the unified energy system of the country. Federal Law No. 508-FZ dated 28 December 2016 “On Amendments to the Federal Law“ On Electric Power Industry“ introduces a premium to the price for capacity in the first and second price zones, due to which tariffs in the Far East will be reduced to the average Russian level. This law is the law of indirect action. In early 2017, it is expected that the necessary subordinate legislation will be adopted to implement this support mechanism. Retail electricity markets. In the retail electricity markets the sales of electricity purchased on the wholesale electricity and capacity market and electricity of generating companies which are not participants of the wholesale market are carried out. The retail market rules were approved by Resolution of the Government No. 442 dated 4 May 2012 “On functioning of retail electricity markets, complete and (or) partial constraint of electricity consumption” (hereinafter referred to as “the retail market rules”).

F-126 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

In the territories of the constituent regions of the Russian Federation integrated into pricing zones of the wholesale market electricity is sold at unregulated prices except for electricity sales to population and equivalent consumer categories. Electricity is supplied to population and groups of customers equivalent to population at regulated prices (tariffs) approved by executive authorities of the constituent regions of the Russian Federation in terms of state tariff regulation. Regulated prices are established based on forecast of social and economic development of Russian Federation for the next year approved by the Government. The FTS determines the threshold levels for regulated tariffs for electricity supplied to population and equivalent consumer categories. The guaranteeing suppliers sell electricity at unregulated prices within the threshold limits of unregulated prices determined and applied according to the retail market rules. Electricity sales (supply) companies sell electricity at unregulated prices. Electricity generators in the retail markets sell electricity at unregulated prices. In the territories of the constituent regions of the Russian Federation integrated into non-pricing zones of the wholesale market for determination of prices for electricity supplied to final customers in the retail markets principles of prices translation of wholesale market are applied. Translation of prices of wholesale market is performed for all final customers except for population and equivalent consumer categories. Translation prices calculated by electricity sales companies according to the Rules of application of the prices (tariffs) are determined based on regulated tariffs set up for the respective group of customers and cost of purchase of electricity and capacity by guaranteeing supplier (electricity sales company) in the wholesale market. Population and equivalent consumer categories pay for electricity under the tariffs set up by executive authorities of the constituent regions of the Russian Federation. In the territories of isolated energy systems – sales of electricity to all consumer categories are carried out at regulated prices approved by the FTS and executive authorities of the constituent regions of the Russian Federation in terms of state tariff regulation in the territories where such energy systems are located. Heating market. Operations of the heating market are regulated by Federal Law No.190-FZ “On Heating” dated 27 July 2010 and Resolution of the Government No. 1075 dated 22 October 2012 “On pricing of heating supply”. The Group’s entities that are included into the segment RAO ES East Group are participants on the retail heating markets in the territories of their presence. Heat energy is supplied on the centralised basis from the heat power plants and boiling houses operated by the energy systems. And a number of energy systems are involved in supplies of heat, generating and distributing heat energy, while others – just generate heat energy. Heating market provides for:  supply of heat and heat transfer public utilities relating to hot water and heating supply needs;  supply of heat for the entities’ technological needs. According to the Russian legislation, sales of heat energy are fully regulated. Prices (tariffs) for heat supplied by utilities for all consumer groups are approved by executive authorities in the Russian constituent regions responsible for state regulation of prices (tariffs) within the threshold limits of tariffs approved by the FTS. Starting from 2016, tariffs for heat energy supplied by heat suppliers to other customers are not limited to the maximum level of tariff growth, but the growth of tariffs for heat energy for the population and equivalent consumer categories is limited by the index of changes in the amount of utility payments paid by citizens for the subjects of the Russian Federation established by the Government of the Russian Federation on annual basis. Tariffs for heat energy produced in the mode of combined generation of electric and heat energy by heat energy sources with the installed generating capacity of electric power production of 25 MW or more are approved by the executive authorities of the subjects of the Russian Federation in the field of state regulation of prices (tariffs) within the limits of tariff levels approved by FTS. Service fee for maintenance of spare heat capacity when there is no heat consumption and fee for connection to the system of heating supply are also regulated by executive authorities in the Russian constituent regions responsible for state regulation of prices.

F-127 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 2. Summary of significant accounting policies Basis of preparation. These consolidated financial statements have been prepared in accordance with IFRS under the historical cost convention, as modified by the financial instruments initially recognised at fair value, revaluation of property, plant and equipment and available-for-sale financial assets. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. Each company of the Group individually maintains its own books of accounts and prepares its statutory financial statements in accordance with Russian standards of accounting (hereinafter referred to as “RSA”). These consolidated financial statements are based on the statutory records with adjustments and reclassifications made for the purpose of fair presentation in accordance with IFRS. Functional and presentation currency. The functional currency of the Company and its subsidiaries, and the Group’s presentation currency, is the national currency of the Russian Federation, the Russian Ruble. Foreign currency translation. Monetary assets and liabilities, which are held by the Group’s entities and denominated in foreign currencies at the end of the reporting period, are translated into Russian Rubles at the exchange rates prevailing at that date. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Gains and losses resulting from the settlement of such transactions and translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement. As at 31 December 2016, the official rate of exchange, as determined by the Central Bank of the Russian Federation, between Russian Ruble and US Dollar (hereinafter referred to as “USD”) was RR 60.66: USD 1.00 (31 December 2015: RR 72.88: USD 1.00), between Russian Ruble and Euro was RR 63.81: EUR 1.00 (31 December 2015: RR 79.70: EUR 1.00). Consolidated financial statements. Subsidiaries are those investees, including structured entities, that the Group controls because the Group (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee. Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee. Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for the acquisition of subsidiaries other than those acquired from parties under common control. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The Group measures non-controlling interest that represents present ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: (a) fair value, or (b) the non-controlling interest's proportionate share of net assets of the acquiree. Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred for the acquiree, the amount of non-controlling interest in the acquiree and the fair value of an interest in the acquiree held immediately before the acquisition date. Any negative amount (“negative goodwill” or a “bargain purchase”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all the liabilities and contingent liabilities assumed and reviews the appropriateness of their measurement. The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.

F-128 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Intercompany transactions, balances and unrealised gains on transactions between the Group’s entities are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered. The Company and all of its subsidiaries use uniform accounting policies consistent with the Group’s policies. Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity. Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions with owners of non-controlling interest in transactions that do not result in a loss of control. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and the carrying amount of non-controlling interest sold as a capital transaction in the statement of changes in equity. Acquisition of subsidiaries from parties under common control. Acquisitions of subsidiaries from parties under common control are accounted for using the predecessor values method. Under this method the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of the earliest period presented or the date when the combining entities were first brought under common control if later. The assets and liabilities of the subsidiary transferred under common control are at the predecessor entity’s carrying amounts. The predecessor entity is considered to be the highest reporting entity in which the subsidiary’s IFRS financial information was consolidated. Related goodwill inherent in the predecessor entity’s original acquisitions is also recorded in these consolidated financial statements. Any difference between the carrying amount of net assets, including the predecessor entity’s goodwill, and the consideration for the acquisition is accounted for in these consolidated financial statements as an adjustment to merger reserve within equity. Under this method the consolidated financial statements of the combined entity are presented as if the businesses had been combined from the beginning of the earliest period presented, i.e. retrospectively except for acquisition of subsidiaries acquired exclusively with a view for resale which are accounted for using predecessor values method prospectively from the acquisition date. Investments in associates and joint ventures. Investments in associates and joint ventures are accounted for using the equity method of accounting, based upon the percentage of ownership held by the Group. Associates are entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates is recorded in the consolidated profit or loss for the year as profit or loss in respect of associates and joint ventures, (ii) the Group’s share of other comprehensive income is recognised in other comprehensive income and presented separately, and (iii) all other changes in the Group’s share of the carrying value of net assets of associates are recognised in profit or loss within the profit or loss in respect of associates and joint ventures. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is defined by making of decisions about the relevant activities required the unanimous consent of the parties sharing control. The Group discontinues the use of the equity method from the date on which it ceases to have joint control over, or have significant influence on joint ventures and associates. Unrealised gains on transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity, unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.

F-129 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. Property, plant and equipment. Property, plant and equipment in the statement of financial position includes assets under construction for future use as property, plant and equipment. Property, plant and equipment except for office buildings, land and assets under construction are stated at revalued amounts less accumulated depreciation and provision for impairment (where required). Office buildings owned by the Group are stated at historical cost less accumulated depreciation and accumulated impairment; land and assets under construction are stated at historical cost less accumulated impairment. Property, plant and equipment except for office buildings, land and assets under construction are subject to revaluation with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Increases in the carrying amount arising on revaluation are credited to other comprehensive income and increase the revaluation surplus in equity. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and decrease the previously recognised revaluation surplus in equity; all other decreases are charged to profit or loss for the year. Any accumulated depreciation at the date of revaluation is eliminated against the gross amount of the asset. The revaluation surplus included in equity is transferred directly to retained earnings when the revaluation surplus is realised on disposal of the asset. The Group charges deferred tax liabilities directly to other comprehensive income in respect of revaluation of property, plant and equipment that are recorded directly in other comprehensive income. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is highly probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Costs of minor repairs and day-to-day maintenance are expensed when incurred. Cost of replacing major parts or components of property, plant and equipment items are capitalised and the replaced part is retired. Social assets are not capitalised if they are not expected to result in future economic benefits to the Group. Costs associated with fulfilling the Group’s social responsibilities are expensed as incurred. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss for the year. Depreciation. Depreciation on items of property, plant and equipment (except for land and assets under construction) is calculated using the straight-line method over their estimated useful lives. The useful lives of property, plant and equipment are subject to annual assessment by management and if expectations differ from previous estimates, the changes of useful lives are accounted for as a change in an accounting estimate prospectively. The average useful lives of property, plant and equipment by type of facility, in years, were as follows: Type of facility Average useful lives Production buildings 25–80 Facilities 10–100 Plant and equipment 5–40 Other 3–30 Depreciation is charged once an asset is available for service. Land and assets under construction are not depreciated. Impairment of property, plant and equipment. Impairment reviews for property, plant and equipment are carried out when there is an indication that impairment may have occurred, or where it is otherwise required to ensure that property, plant and equipment are not carried above their estimated recoverable amounts (Note 7). If such indication exists, management estimates the recoverable amount which is determined as the higher of an asset’s fair value less costs of disposal and its value in use. Fair value less costs of disposal represents the amount that can be generated through the sale of assets. Value in use represents the present value of expected future cash flows discounted on a pre-tax basis, using the estimated cost of capital of the cash-generating unit.

F-130 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The carrying amount of the asset is reduced to the recoverable amount and the impairment loss is recognised in profit or loss for the year to the extent it exceeds the previous revaluation surplus in equity. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs of disposal. Investment property. Investment property is property held by the Group to earn rental income which is not occupied by the Group (Note 10). Investment properties are stated at cost. If any indication exists that investment properties may be impaired, the Group estimates the recoverable amount as the higher of value in use and fair value less costs of disposal. The carrying amount of an investment property is written down to its recoverable amount through a charge to profit or loss for the year. An impairment loss recognised in prior years is reversed if there has been a subsequent change in the estimates used to determine the asset’s recoverable amount. Intangible assets and goodwill. The Group’s intangible assets other than goodwill have definite useful lives and primarily include customer base acquired in business combination (Note 10), which is amortised over 5 years, and capitalised computer software. Intangible assets are amortised using the straight-line method over their useful lives. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs of disposal. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash- generating units, that are expected to benefit from the synergies of the business combination. Such units or groups of units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the operation disposed of, generally measured on the basis of the relative values of the operation disposed of and the portion of the cash- generating unit which is retained. Financial instruments – key measurement terms. Depending on their classification financial instruments are carried at fair value or amortised cost as described below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. The Group uses such valuation techniques of fair value which are the most acceptable in the circumstances and as much as possible use the observable basic data. Fair value measurements are analysed by level in the fair value hierarchy as follows:  level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities;  level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);  level 3 measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs). For disclosure of information on fair value the Group classified assets and liabilities on the basis of an appropriate level of hierarchy of fair value as it is stated above (Note 32). Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium

F-131 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

(including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the statement of financial position. The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. Classification of financial assets. Financial assets have the following categories: (i) loans and receivables; (ii) available-for-sale financial assets; (iii) financial assets held to maturity and (iv) financial assets at fair value through profit or loss. The description of categories of financial assets of the Group is given below. Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments. Financial assets at fair value through profit or loss. This category is presented by derivative financial instruments which are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year. The Group does not apply hedge accounting. All other financial assets are included in the available-for-sale category, which includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Classification of financial liabilities. Financial liabilities have the following measurement categories: (i) financial liabilities at fair value through profit or loss and (ii) other financial liabilities. All financial liabilities of the Group including loans are categorised as other and carried at amortized cost. Initial recognition of financial instruments. Trading investments, derivatives and other financial instruments at fair value through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. Derecognition of financial assets. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale. Available-for-sale financial assets. Available-for-sale financial assets are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss for the year as finance income. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year as finance income when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance income in profit or loss for the year. Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale financial assets. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss – is reclassified from other comprehensive income to finance costs in profit or loss for the year. Impairment

F-132 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise) losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss. Cash and cash equivalents. Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method. Trade and other receivables. Trade and other receivables are carried at amortised cost using the effective interest method. Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If the Group determines that no objective evidence exists that impairment was incurred for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any. The following other principal criteria are also used to determine whether there is objective evidence that an impairment loss has occurred: (i) any portion or instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems; (ii) the counterparty experiences a significant financial difficulty as evidenced by its financial information that the Group obtains; (iii) the counterparty considers bankruptcy or a financial reorganisation; (iv) there is adverse change in the payment status of the counterparty as a result of changes in the national or local economic conditions that impact the counterparty; or (v) the value of collateral, if any, significantly decreases as a result of deteriorating market conditions. If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows. Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year. Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to the impairment loss account within the profit or loss for the year. Prepayments. Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is highly probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the goods or services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year. Inventories. Inventories are recorded at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses. Cost of inventory that is expensed is determined on the weighted average basis. Non-current assets classified as held for sale. Non-current assets and disposal groups (which may include both non-current and current assets) are classified in the consolidated statement of financial position as “non-current assets classified as held for sale” if their carrying amount will be recovered principally

F-133 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise) through a sale transaction (including loss of control of a subsidiary holding the assets) within 12 months after the reporting period. Assets are reclassified when all of the following conditions are met: (i) the assets are available for immediate sale in their present condition; (ii) the Group’s management approved and initiated an active programme to locate a buyer; (iii) the assets are actively marketed for a sale at a reasonable price; (iv) the sale is expected within one year; and (v) it is unlikely that significant changes to the plan to sell will be made or that the plan will be withdrawn. Non-current assets or disposal groups classified as held for sale in the current period’s consolidated statement of financial position are not reclassified or re-presented in the comparative consolidated statement of financial position to reflect the classification at the end of the current period. A disposal group is a group of assets (current and / or non-current) to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. Goodwill is included if the disposal group includes an operation within a cash- generating unit to which goodwill has been allocated on acquisition. If reclassification is required, both the current and non-current portions of an asset are reclassified. Held for sale disposal groups as a whole are measured at the lower of their carrying amount and fair value less costs of disposal. Held for sale property, plant and equipment, investment property and intangible assets are not depreciated or amortised. Reclassified non-current financial instruments and deferred taxes are not subject to the write down to the lower of their carrying amount and fair value less costs of disposal. Liabilities directly associated with the disposal group that will be transferred in the disposal transaction are reclassified and presented separately in the consolidated statement of financial position. Disposal groups or non-current assets that ceases to be classified as held for sale are measured at the lower of (i) its carrying amount before the asset or disposal group was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset or disposal group not been classified as held for sale, and (ii) its recoverable amount at the date of the subsequent decision not to sell. Income taxes. Income taxes have been provided for in the financial statements in accordance with legislation enacted or substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred tax and is recognised in profit or loss for the year except if it is recognised in other comprehensive income or directly in equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes other than on income are recorded within operating expenses. Taxable profits or losses are based on estimates if financial statements are authorised prior to filing relevant tax returns. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill and subsequently for goodwill which is not deductible for tax purposes. Deferred tax balances are measured at tax rates enacted or substantially enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilised. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is highly probable that the temporary difference will reverse in the future and there is sufficient future taxable profit available against which the deductions can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual companies of the Group. The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that management expects the temporary differences to reverse in the foreseeable future.

F-134 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Uncertain tax positions. The Group's uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than on income are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period. Adjustments for uncertain income tax positions are recorded within the income tax charge. Debt. Debt is recognised initially at its fair value, less transaction costs. Fair value is determined using the prevailing market rate of interest for a similar instrument, if significantly different from the transaction price. In subsequent periods, debt is stated at amortised cost using the effective interest method; any difference between the fair value of the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated income statement as an interest expense over the period of the debt obligation. Capitalisation of borrowing costs. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets, if the commencement date for capitalisation is on or after 1 January 2009. The commencement date for capitalisation is when (i) the Group incurs expenditures for the qualifying asset; (ii) it incurs borrowing costs; and (iii) it undertakes activities that are necessary to prepare the asset for its intended use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs capitalised are calculated at the group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised. Interest payments capitalised as part of the cost of an assets are classified as cash outflows from financing activities in Consolidated Statement of Cash Flows. Employee benefits. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health services) are accrued in the year in which the associated services are rendered by the employees of the Group. Defined benefit plans. The Group operates defined benefit plans that cover the majority of its employees. Defined benefit plans define the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service, minimum tariff rate of remuneration and others. The net liability recognised in the statement of financial position in respect of defined benefit pension plans operated by the Group is the present value of the defined benefit obligation at the end of the reporting period less fair value of plan assets. The defined benefit obligations are calculated by independent actuary using the projected unit credit method. The present value of the defined benefit obligations are determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid associated with the operation of the plans, and that have terms to maturity approximating the terms of the related pension liabilities. Actuarial gains and losses arising from remeasurement of pension benefit obligations are recognised in other comprehensive income. Past service cost is immediately recognised in profit or loss within operating expenses. Defined contribution plans. For defined contribution plans, the Group pays contributions and has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. In the normal course of business the Group contributes to the Russian Federation defined contribution state pension scheme on behalf of its employees. Mandatory contributions to the governmental pension scheme are expensed when incurred and included in employee benefit expenses and payroll taxes in the consolidated income statement.

F-135 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Other post-employment benefit obligations. The Group pays a one-off financial aid on occasion of an employee's jubilee. The amount of the benefit depends on one or more factors, such as the age, length of service in the company, salary and others. For the purpose of calculating benefit obligations of these types, actuarial gains and losses arising as a result of adjustments or changes in actuarial assumptions are recognised within profit or loss in the consolidated statement of income in the period when they arise. All other aspects of accounting for these obligations are similar to those of accounting for defined benefit obligations. Finance lease liabilities. Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in property, plant and equipment at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of future finance charges, are included in borrowings. The interest cost is charged to profit or loss over the lease period using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term if the Group is not reasonably certain that it will obtain ownership by the end of the lease term. Operating leases. Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option. When assets are leased out under an operating lease, the lease payments receivable are recognised as rental income on a straight-line basis over the lease term. Environmental liabilities. Liabilities for environmental remediation are recorded where there is a present obligation, the payment is highly probable and reliable estimates exist. Revenue recognition. Revenue is recognised on the delivery of electricity and heat, provisioning for capacity, supply of non-utility services and on the dispatch of goods during the period. Revenue from retail operations is recognised on delivery of electricity and heat to the customer. Revenue amounts are presented exclusive of value added tax. Revenue transactions under free bilateral contracts are shown net of related purchases of equivalent electricity volumes which the market participant is obliged to make in accordance with the industry regulations. For the year ended 31 December 2016 there was no additional turnover. For the year ended 31 December 2015 additional turnover in the amount of RR 6,288 million was shown net for presentation purposes to reflect the economic substance of transactions. Government grants. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight line basis over the expected lives of the related assets. Government grants are included in cash flows from operating activities. Earnings per share. The earnings per share are determined by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period, excluding the average number of treasury shares held by the Group. Share capital. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the placement value over the par value of shares issued is recorded as share premium in equity. Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the Company’s owners until the equity instruments are reissued, disposed of or cancelled. In case the consideration paid is non-cash asset, the treasury shares received are recognised at the fair value of this asset. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s owners. Dividends. Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after the reporting period and before the financial statements are authorised for issue are disclosed in the subsequent events note.

F-136 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Provisions for liabilities and charges. Provisions for liabilities and charges are non-financial liabilities of uncertain timing of amount. They are accrued when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as an interest expense. Levies and charges, such as taxes other than income tax or regulatory fees based on information related to a period before the obligation to pay arises, are recognised as liabilities when the obligating event that gives rise to pay a levy occurs, as identified by the legislation that triggers the obligation to pay the levy. If a levy is paid before the obligating event, it is recognised as a prepayment. Social expenditure. To the extent that the Group’s contributions to social programmes benefit the community at large without creating constructive obligations to provide such benefits in the future and are not restricted to the Group’s employees, they are recognised in the income statement as incurred. Financial guarantees. Financial guarantees are irrevocable contracts that require the Group to make specified payments to reimburse the holder of the guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees are initially recognised at their fair value, which is normally evidenced by the amount of fees received. This amount is amortised on a straight-line basis over the life of the guarantee. At the end of each reporting period, the guarantees are measured at the higher of (i) the remaining unamortised balance of the amount at initial recognition, and (ii) the best estimate of expenditure required to settle the obligation at the end of the reporting period. Segment reporting. Segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments are reported separately. Critical accounting estimates and judgments in applying accounting policies The Group makes estimates and assumptions that affect the amounts recognised in the Consolidated Financial Statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognised in the Consolidated Financial Statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include: Impairment of non-financial assets. Accounting for impairment of non-financial assets includes impairment of property, plant and equipment and impairment of investments in associates. The effect of these critical accounting estimates and assumptions is disclosed in Notes 7 and 8. Recognition of deferred tax assets. At each reporting date management assesses recoverability of deferred tax assets arising from operating losses and asset impairments in the context of the current economic environment, particularly when current and expected future profits have been adversely affected by market conditions. Management considers first the future reversal of existing deferred tax liabilities and then considers future taxable profits when evaluating deferred tax assets. The assessment is made on a tax payer basis. The future taxable profits and the amount of tax benefits that are probable in the future are based on the medium term business plans of the Group companies prepared by management and extrapolated results thereafter. Management considered the recoverability of recognised deferred tax assets, including those on tax losses carried forward, as probable due to existence of taxable temporary differences which recoverability is expected in future and of high probability of deferred tax assets being recoverable by the future taxable profits (Note 16). Useful life of property, plant and equipment. The estimation of the useful life of an item of property, plant and equipment is a matter of management judgment based upon experience with similar assets and other factors. In determining the useful life of an asset, management considers the expected usage, estimated technical obsolescence, physical wear and tear, warranty terms as well as the environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments for future depreciation rates which can affect the reported income.

F-137 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Reclassifications Certain reclassifications have been made to prior year data to conform to the current year presentation. These reclassifications are not material. Adoption of New or Revised Standards and Interpretations The following new standards and interpretations became effective from 1 January 2016 but did not have any material impact on the Group’s consolidated financial statements:  Amendments Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1 January 2016).  Accounting for Acquisitions of Interests in Joint Operations – Amendments to IFRS 11 (issued in May 2014 and effective for the periods beginning on or after 1 January 2016).  Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual periods beginning on or after 1 January 2016).  Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual periods on or after 1 January 2016).

Note 3. New accounting pronouncements Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2017 or later, and which the Group has not early adopted. These standards and interpretations have been approved for adoption in the Russian Federation unless noted otherwise. IFRS 9, Financial Instruments: Classification and Measurement (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:  Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL).  Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition.  Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss.  Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.  IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ”three stage” approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables.  Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging. The Group is currently assessing the impact of the new standard on its consolidated financial statements.

F-138 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

IFRS 15, Revenue from Contracts with Customers (issued in May 2014 and effective for the periods beginning on or after 1 January 2018). The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The Group is currently assessing the impact of the new standard on its financial statements. Amendments to IFRS 15, Revenue from Contracts with Customers (issued on 12 April 2016 and effective for annual periods beginning on or after 1 January 2018). The amendments do not change the underlying principles of the Standard but clarify how those principles should be applied. The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; how to determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and how to determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. The Group is currently assessing the impact of the new standard on its financial statements. IFRS 16, Leases (issued in January 2016 and effective for annual periods beginning on or after 1 January 2019). The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is currently assessing the impact of the new standard on its consolidated financial statements. Disclosure Initiative - Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017). The amended IAS 7 will require disclosure of a reconciliation of movements in liabilities arising from financing activities. The Group will present this disclosure in its 2017 financial statements. The following other new pronouncements are not expected to have any material impact on the Group when adopted:  Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual periods beginning on or after a date to be determined by the IASB).  Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (issued on 19 January 2016 and effective for annual periods beginning on or after 1 January 2017).  Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4 (issued on 12 September 2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the overlay approach). Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

F-139 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 4. Principal subsidiaries All principal subsidiaries are incorporated and operate in the Russian Federation. Differences between the ownership interest and voting interest held by some subsidiaries represent the effect of preference shares and / or effects of indirect ownership, or shares of limited liability companies (LLC). The Group operates in the three main reportable segments one of which is represented by the Group’s parent company – PJSC RusHydro (Note 5). The principal subsidiaries are presented below according to their allocation to the reportable segments as at 31 December 2016 and 31 December 2015. ESС RusHydro subgroup segment ESС RusHydro subgroup segment includes the Group’s subsidiaries which sell electricity to final customers. All the entities included in this segment with the exception of JSC ESC RusHydro have the guaranteeing supplier status and are obliged to sign contracts on supplies with all final consumers of their region upon their request. 31 December 2016 31 December 2015 % of % of % of % of ownership voting ownership voting JSC ESС RusHydro 100.00% 100.00% 100.00% 100.00% PJSC Krasnoyarskenergosbyt 65.81% 69.40% 65.81% 69.40% PJSC Ryazan Power Distributing Company 90.52% 90.52% 90.52% 90.52% JSC Chuvashskaya energy retail company 100.00% 100.00% 100.00% 100.00% LLC ESC Bashkortostan - - 100.00% - In December 2016 the Group completed the sale transaction of 100 percent shares of LLC ESC Bashkortostan (electricity sales company, guaranteeing supplier of electricity in the Republic of Bashkortostan) to Inter RAO Group. The total consideration amounted to RR 4,100 million including RR 3,600 million received in cash as at 31 December 2016 and deferred consideration of RR 500 million, that was received by the Group in February, 2017. Net assets of LLC ESC Bashkortostan at the date of disposal are represented below:

Non-current assets 567 Cash and cash equivalents 41 Accounts receivable and prepayments 6,018 Other current assets 11 Total assets of LLC ESC Bashkortostan 6,637

Non-current liabilities 197 Current debt and current portion of non-current debt 2,220 Accounts payable and accruals 3,053 Taxes payable 115 Total liabilities of LLC ESC Bashkortostan 5,585 Net assets of LLC ESC Bashkortostan 1,052 Profit from the sale of LLC ESC Bashkortostan in the amount of RR 3,048 million is included in Other operating income. Date of disposal Net assets of LLC ESC Bashkortostan (1,052) Fair value of consideration 4,100 Profit from the sale of LLC ESC Bashkortostan 3,048

F-140 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

RAO ES East subgroup segment RAO ES East subgroup segment consists of PJSC RAO ES East and its subsidiaries that generate distribute and sell electricity and heat in the Far East region of the Russian Federation and render transportation, construction, repair and other services. Principal subsidiaries of this segment are presented below: 31 December 2016 31 December 2015 % of % of % of % of ownership voting ownership voting PJSC RAO ES East* 99.98% 99.98% 85.92% 86.20% PJSC DEK 52.11% 52.17% 44.92% 52.17% JSC DGK 52.11% 100.00% 44.92% 100.00% JSC DRSK 52.11% 100.00% 44.92% 100.00% PJSC Kamchatskenergo 98.72% 98.74% 84.83% 98.74% PJSC Magadanenergo** 48.99% 49.00% 42.10% 49.00% PJSC Sakhalinenergo 57.80% 57.82% 49.67% 57.82% PJSC Yakutskenergo 79.15% 79.16% 72.21% 79.16% * Voting and ownership percent interests in PJSC RAO ES East as at 31 December 2016 include 15.59 percent interest held by the Group’s subsidiary LLC Vostok-Finance (31 December 2015: 1.81 percent). ** Control over PJSC Magadanenergo is achieved by the majority of votes on the shareholders meeting because the remaining part of the shares not owned by the Group are distributed among a large number of shareholders the individual stakes of which are insignificant. The Group’s share in PJSC RAO ES East and its subsidiaries increased as a result of voluntary and obligatory offers to purchase shares of PJSC RAO ES East (Note 15). Other segments Other segments include:  the Group’s subsidiaries with production and sale of electricity and capacity;  the Group’s subsidiaries primarily engaged in research and development related to the utilities industry and construction of hydropower facilities;  the Group’s subsidiaries engaged in repair, upgrade and reconstruction of equipment and hydropower facilities;  the Group’s subsidiaries engaged primarily in hydropower plants construction;  minor segments which do not have similar economic characteristics. Principal subsidiaries included in other segments are presented below: 31 December 2016 31 December 2015 % of % of % of % of ownership voting ownership voting JSC Blagovesсhensk HРP 100.00% 100.00% 100.00% 100.00% JSC VNIIG 100.00% 100.00% 100.00% 100.00% JSC Geotherm 99.65% 99.65% 99.65% 99.65% JSC Gidroremont-VKK 100.00% 100.00% 100.00% 100.00% JSC Zagorskaya GAES-2 100.00% 100.00% 100.00% 100.00% JSC Zaramag HS 99.75% 99.75% 99.75% 99.75% JSC Institute Hydroproject 100.00% 100.00% 100.00% 100.00% PJSC Kolimaenergo 98.76% 98.76% 98.76% 98.76% JSC Lenhydroproject 100.00% 100.00% 100.00% 100.00% JSC NIIES 100.00% 100.00% 100.00% 100.00% JSC Nizhne-Bureiskaya HPP 100.00% 100.00% 100.00% 100.00% JSC Sahalin GRES-2 100.00% 100.00% 100.00% 100.00% JSC Sulak GidroKaskad 100.00% 100.00% 100.00% 100.00% JSС HPP in Sovetskaya Gavan 100.00% 100.00% 100.00% 100.00% JSC Ust’-Srednekangesstroy 98.76% 100.00% 98.76% 100.00% JSC Ust’-Srednekanskaya HPP 99.63% 100.00% 99.63% 100.00% JSC Chirkeigesstroy 100.00% 100.00% 100.00% 100.00% JSC ESCO UES 100.00% 100.00% 100.00% 100.00% JSC Yakutskaya GRES-2 100.00% 100.00% 100.00% 100.00%

F-141 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Non-controlling interest Summarised financial information related to subsidiaries with significant amount of non-controlling interest before elimination of operations between the Group’s subsidiaries is presented below: RAO ES East subgroup including DEK subgroup 31 December 31 December 31 December 31 December Financial position 2016 2015 2016 2015 Share of non-controlling interest 0.02% 14.08% 47.89% 55.08% Share of voting rights, attributable to non-controlling interest 0.02% 13.80% 47.83% 47.83% Non-current assets 114,628 104,873 65,407 57,183 Current assets 57,587 57,638 25,645 23,993 Non-current liabilities (87,668) (57,768) (61,392) (35,095) Current liabilities (74,421) (88,518) (33,433) (54,549) Net assets / (liabilities) 10,126 16,225 (3,773) (8,468) Carrying value of non-controlling interest 3,014 9,732 (421) (2,656)

Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December Financial results 2016 2015 2016 2015 Revenue 175,545 162,713 119,179 109,327 (Loss) / profit for the year (6,184) (7,518) 1,573 (8,756) Total comprehensive (loss) / income for the year (6,397) (8,410) 1,744 (9,402) (Loss)/ profit for the year, attributable to non-controlling interest (221) (4,621) 1,641 (4,522) Changes in other comprehensive (loss) / income, attributable to non-controlling interest (110) (446) 114 (59) Cash flows Cash generated by operating activities 12,982 10,919 11,397 5,592 Cash used in investing activities (17,632) (14,854) (6,093) (6,406) Cash (used in) / generated by financing activities (355) 1,786 (4,980) (191) (Decrease) / increase in cash and cash equivalents (5,005) (2,149) 324 (1,005) The rights of the non-controlling shareholders of the presented subgroups are determined by the Federal Law “On Joint Stock Companies” and the charter documents of PJSC RAO ES East and PJSC DEK.

F-142 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The segments’ operational results are estimated on the basis of EBITDA, which is calculated as operating profit / loss excluding insurance indemnity, depreciation of property, plant and equipment and amortisation of intangible assets, impairment of property, plant and equipment, impairment of other non-current assets, impairment of financial assets, impairment of goodwill, impairment of available-for-sale financial assets, of accounts receivable, of long-term promissory notes, loss on disposal of property, plant and equipment, gain on disposal of subsidiaries and associates, profit on disposal of other non-current assets, curtailment in pension payment and pension plan and other non-monetary items of operating expenses. This method of definition of EBITDA may differ from the methods applied by other companies. CODM believes that EBITDA represents the most useful means of assessing the performance of ongoing operating activities of the Company and the Group’s subsidiaries, as it reflects the earnings trends without showing the impact of certain charges. Segment information also contains capital expenditures and the amount of debt as these indicators are analysed by the CODM. Intersegment debt’s balances are excluded. Other information provided to the CODM complies with the information presented in the consolidated financial statements. Intersegment sales are carried out at market prices. Segment information for the years ended 31 December 2016 and 31 December 2015 and as at 31 December 2016 and 31 December 2015 is presented below:

F-143 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Year ended 31 December 2016 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 115,037 88,748 175,545 29,502 408,832 (34,760) 374,072 including: from external companies 104,441 88,715 174,716 6,200 374,072 - 374,072 sales of electricity 74,802 87,595 109,586 599 272,582 - 272,582 sales of heat and hot water sales 168 - 38,681 - 38,849 - 38,849 sales of capacity 28,881 - 7,795 392 37,068 - 37,068 other revenue 590 1,120 18,654 5,209 25,573 - 25,573 from intercompany operations 10,596 33 829 23,302 34,760 (34,760) - Government grants - - 17,184 66 17,250 - 17,250 Other operating income (excluding non-monetary items) 29 1 82 340 452 (17) 435 Operating expenses (excluding depreciation and other non-monetary items) (39,707) (85,869) (168,917) (29,788) (324,281) 32,865 (291,416) EBITDA 75,359 2,880 23,894 120 102,253 (1,912) 100,341 Insurance indemnity - - - 1,737 1,737 - 1,737 Depreciation of property, plant and equipment and amortisation of intangible assets (13,641) (752) (7,747) (2,247) (24,387) 257 (24,130) Other non-monetary items of operating income and expenses (3,078) 881 (12,501) (15,711) (30,409) - (30,409) including: impairment of property, plant and equipment (6,743) - (5,581) (14,201) (26,525) - (26,525) profit on disposal of other non-current assets 7,202 - - - 7,202 - 7,202 impairment of financial assets - (243) (3,120) (1,101) (4,464) - (4,464) impairment of loans issued (2,378) - - - (2,378) - (2,378) impairment of accounts receivable, net (1,014) (1,911) (3,968) (240) (7,133) - (7,133) loss on disposal of property, plant and equipment, net (145) (13) (228) (169) (555) - (555) gain on disposal of subsidiaries and associates - 3,048 396 - 3,444 - 3,444 Operating profit / (loss) 58,640 3,009 3,646 (16,101) 49,194 (1,655) 47,539 Finance income 9,943 Finance costs (9,041) Share of results of associates and joint ventures 6,682 Profit before income tax 55,123 Total income tax expense (15,372) Profit for the year 39,751

Capital expenditure 29,987 204 20,809 27,366 78,366 2,699 81,065 31 December 2016 Non-current and current debt 107,274 550 86,912 5,067 199,803 - 199,803

F-144 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Unallocated adjustments and ESС RusHydro RAO ES East Other Total intercompany Year ended 31 December 2015 PJSC RusHydro subgroup subgroup segments segments operations TOTAL Revenue 100,826 86,955 162,713 28,113 378,607 (31,095) 347,512 including: from external companies 90,960 86,925 162,441 7,186 347,512 - 347,512 sales of electricity 64,198 85,850 104,021 449 254,518 - 254,518 sales of heat and hot water sales 154 - 35,227 - 35,381 - 35,381 sales of capacity 25,611 - 7,047 380 33,038 - 33,038 other revenue 997 1,075 16,146 6,357 24,575 - 24,575 from intercompany operations 9,866 30 272 20,927 31,095 (31,095) - Government grants - - 14,268 46 14,314 - 14,314 Other operating income (excluding non-monetary items) - - 498 800 1,298 (4) 1,294 Operating expenses (excluding depreciation and other non-monetary items) (41,387) (84,075) (164,682) (29,206) (319,350) 29,613 (289,737) EBITDA 59,439 2,880 12,797 (247) 74,869 (1,486) 73,383 Insurance indemnity - - - 6,471 6,471 - 6,471 Depreciation of property, plant and equipment and amortisation of intangible assets (12,523) (826) (7,624) (1,769) (22,742) 265 (22,477) Other non-monetary items of operating income and expenses (12,586) (1,387) (3,547) (5,014) (22,534) (162) (22,696) including: impairment of property, plant and equipment (9,747) - (1,953) (893) (12,593) - (12,593) impairment of other non-current assets (3,220) - - - (3,220) - (3,220) impairment of goodwill of subsidiary - - - (448) (448) - (448) reversal / (impairment) of accounts receivable, net 1,078 (1,345) (3,021) (723) (4,011) - (4,011) (loss) / profit on disposal of property, plant and equipment, net (537) (42) 59 (2,950) (3,470) 104 (3,366) curtailment in pension payment and pension plan - - 717 - 717 - 717 (loss) / gain on disposal of subsidiaries and associates (160) - 651 - 491 (266) 225 Operating profit / (loss) 34,330 667 1,626 (559) 36,064 (1,383) 34,681 Finance income 12,313 Finance costs (9,744) Share of results of associates and joint ventures 428 Profit before income tax 37,678 Total income tax expense (10,519) Profit for the year 27,159

Capital expenditure 35,206 223 19,554 41,956 96,939 4,896 101,835 31 December 2015 Non-current and current debt 121,861 1,847 68,019 5,666 197,393 - 197,393

F-145 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 6. Related party transactions Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. The Group’s principal related parties for the years ended 31 December 2015 and 31 December 2015 were joint ventures, associates of the Group (Note 8) and government-related entities. Joint ventures The Group had the following balances with its joint ventures: Note 31 December 2015 31 December 2015 Promissory notes 10 6,269 5,711 Advances to suppliers 800 - Loans issued 15 2,725 Loans received 750 750

The Group had the following transactions with its joint ventures: Year ended Year ended 31 December 2016 31 December 2015 Sales of electricity and capacity 931 851 Other revenue 648 778 Purchased electricity and capacity 2,811 2,149 Associates The Group had the following balances with its associates: Year ended Year ended 31 December 2016 31 December 2015 Trade and other receivables 491 440 Accounts payable 781 481

The Group had the following transactions with its associates: Year ended Year ended 31 December 2016 31 December 2015 Sales of electricity and capacity 2,679 2,351 Other revenue 137 258 Rent 521 447 Purchased electricity and capacity 17 19 Government-related entities In the normal course of business the Group enters into transactions with the entities related to the Government. The Group had transactions during the years ended 31 December 2016 and 31 December 2015 and balances outstanding as at 31 December 2016 and 31 December 2015 with the following government- related banks: SC Vnesheconombank, PJSC Sberbank, JSC Rosselkhozbank, Bank GPB (JSC), PJSC VTB Bank, OJSC Bank of Moscow, PJSC VTB24 (Notes 10, 11, 14, 18). All transactions are carried out on market rates. The Group’s sales of electricity, capacity and heat to government-related entities comprised approximately 30 percent of total sales of electricity, capacity and heat for the year ended 31 December 2016 (for the year ended 31 December 2015: approximately 30 percent). Sales of electricity and capacity under the regulated contracts are conducted directly to the consumers, within the day-ahead market (DAM) – through commission agreements with JSC Centre of Financial Settlements (CFS). Electricity and capacity supply tariffs under the regulated contracts and electricity and heating supply tariffs in non-pricing zone of the Far East are approved by FTS and by regional regulatory authorities of the Russian Federation. On DAM the price is determined by balancing the demand and supply and such price is applied to all market participants. During the period the Group received government subsidies in amount of RR 17,250 million (in 2015 in the amount of RR 14,314 million) (Note 23).

F-146 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The Group’s purchases of electricity, capacity and fuel from government-related entities comprised approximately 20 percent of total expenses on purchased electricity, capacity and fuel for the year ended 31 December 2016 (for the year ended 31 December 2015: approximately 20 percent). Electricity distribution services provided to the Group by government-related entities comprised approximately 60 percent of total electricity distribution expenses for the year ended 31 December 2016 (for the year ended 31 December 2015: approximately 50 percent). The distribution of electricity is subject to tariff regulations. Key management of the Group. Key management of the Group includes members of the Board of Directors of the Company, members of the Management Board of the Company, heads of the business subdivisions of the Company and their deputies, key management of subsidiaries of RAO ES East subgroup segment. Remuneration to the members of the Board of Directors of the Company for their services in their capacity and for attending Board meetings is paid depending on the results for the year and is calculated based on specific remuneration policy approved by the Annual General Shareholders Meeting of the Company. Remuneration to the members of the Management Board and to other key management of the Group is paid for their services in full time management positions and is made up of a contractual salary and performance bonuses depending on the results of the work for the period based on key performance indicators approved by the Board of Directors of the Company. Main compensation for Key management of the Group generally is short-term excluding future payments under pension plans with defined benefits. Pension benefits for key management of the Group are provided on the same terms as for the rest of employees. Short-term remuneration paid to the key management of the Group for the year ended 31 December 2016 comprised RR 1,419 million including accrual for bonuses in the amount of RR 165 million (for the year ended 31 December 2015: RR 2,174 million).

F-147 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 7. Property, plant and equipment Assets Plant and under Revalued amount / cost Buildings Facilities equipment construction Other Total Balance as at 31 December 2015 83,887 398,693 268,513 285,292 13,646 1,050,031 Impairment of revalued property, plant and equipment (262) (4,941) (943) - (4) (6,150) Reclassification (105) (313) (2,240) 2,790 (132) - Additions 71 1,307 1,591 76,876 1,220 81,065 Transfers 8,247 13,218 49,052 (70,675) 158 - Disposals of subsidiaries (352) (129) (452) (34) (125) (1,092) Disposals and write-offs (162) (568) (3,592) (1,360) (477) (6,159) Balance as at 31 December 2016 91,324 407,267 311,929 292,889 14,286 1,117,695 Accumulated depreciation (including impairment) Balance as at 31 December 2015 (31,803) (131,656) (105,881) (29,192) (6,914) (305,446) Impairment charge (1,729) (6,227) (13,317) (11,692) (134) (33,099) Reversal of impairment 786 3,284 2,433 70 9 6,582 Depreciation charge (2,018) (8,294) (12,621) - (1,191) (24,124) Transfers (794) (719) (6,554) 8,065 2 - Disposals of subsidiaries 47 53 343 28 95 566 Disposals and write-offs 52 98 1,861 497 365 2,873 Balance as at 31 December 2016 (35,459) (143,461) (133,736) (32,224) (7,768) (352,648) Net book value as at 31 December 2016 55,865 263,806 178,193 260,665 6,518 765,047 Net book value as at 31 December 2015 52,084 267,037 162,632 256,100 6,732 744,585

Plant and Assets under Revalued amount / cost Buildings Facilities equipment construction Other Total Balance as at 31 December 2014 81,110 378,702 226,137 256,121 14,925 956,995 Impairment of revalued property, plant and equipment (26) (1,160) (56) - - (1,242) Reclassification (55) 89 (1,806) 2,597 (825) - Additions 979 808 1,611 97,417 1,020 101,835 Reclassification to non-current assets and assets of disposal group classified as held for sale (880) - - - - (880) Transfers 2,925 20,357 43,503 (67,292) 507 - Disposals and write-offs (166) (103) (876) (3,551) (1,981) (6,677) Balance as at 31 December 2015 83,887 398,693 268,513 285,292 13,646 1,050,031 Accumulated depreciation (including impairment) Balance as at 31 December 2014 (29,504) (116,411) (89,161) (29,062) (6,667) (270,805) Impairment charge (644) (4,318) (2,180) (6,143) (55) (13,340) Reversal of impairment 346 94 299 8 - 747 Depreciation charge (2,152) (8,302) (11,782) - (1,439) (23,675) Reclassification to non-current assets and assets of disposal group classified as held for sale 92 - - - - 92 Transfers 12 (2,741) (3,607) 5,819 517 - Disposals and write-offs 47 22 550 186 730 1,535 Balance as at 31 December 2015 (31,803) (131,656) (105,881) (29,192) (6,914) (305,446) Net book value as at 31 December 2015 52,084 267,037 162,632 256,100 6,732 744,585 Net book value as at 31 December 2014 51,606 262,291 136,976 227,059 8,258 686,190 As at 31 December 2016 included in the net book value of the property, plant and equipment are office buildings and plots of land owned by the Group in the amount of RR 7,745 million (31 December 2015: RR 7,793 million) which are stated at cost. Assets under construction represent the expenditures for property, plant and equipment that are being constructed, including hydropower plants under construction, and advances to construction companies and

F-148 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise) suppliers of property, plant and equipment. As at 31 December 2016 such advances amounted to RR 47,105 million (31 December 2015: RR 59,531 million). Additions to assets under construction included capitalised borrowing costs in the amount of RR 14,276 million, the capitalisation rate was 10.55 percent (for the year ended 31 December 2015: RR 14,706 million, the capitalisation rate was 11.28 percent). Additions to assets under construction included capitalised depreciation in the amount of RR 1,042 million (for the year ended 31 December 2015: RR 1,088 million). Other property, plant and equipment include motor vehicles, land, office fixtures and other equipment. Management of the Group considers that the carrying amount of property, plant and equipment as at 31 December 2016 and 31 December 2015 does not differ materially from their fair value at the end of the reporting period. Process of fair value of property, plant and equipment assessment Management of the Group determines the fair value of property, plant and equipment according to the following procedures. The Group's property, plant and equipment are mainly represented by specialised property: the Group's key assets are represented by unique hydro engineering structures and power equipment manufactured under certain technical specifications for each power plant; such equipment is rarely sold in the market. The Group's management determines the value of the specialised property on a regular basis, using the cost approach. The cost approach is based on the economic concept which implies that a buyer will pay no more for an asset than it would cost to develop or obtain another asset with the same functionality. The total costs of replacement or reproduction of the analysed asset resulting from such measurement are decreased by the amount of physical, functional and economic depreciation. The replacement costs are determined based on specialised reference books, regulatory documents, construction rates, manufacturer’s prices in effect as of the valuation date; physical and functional depreciation is measured based on the age of the assets, their actual condition and operating mode, etc. To determine the economic depreciation of specialised assets, the Group's management calculates the recoverable amount using the income approach. It is based on discounted cash flow method, and the Group uses certain assumptions when building the cash flow forecast. In particular, these assumptions are used to determine the expected cash flows, capital expenditures and discount rates for each cash generating unit. The Group's management determines the forecast horizon, and net cash inflows from the asset's operation are calculated for each period of this horizon. The recoverable amount of the cash generating unit is determined by recalculating the discounted net cash flows. The Group's management believes that the Group subsidiaries and Company's branches are separate cash generating units. If the recoverable amount of the cash generating unit is higher than the replacement cost less physical and functional depreciation of property, plant and equipment included in this cash generating unit, it is concluded that there is no economic depreciation. If this is not the case and if the recoverable amount is less than the carrying amount of cash generating unit, the economic impairment is determined as the difference between the recoverable amount and the carrying amount.

F-149 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Impairment of property, plant and equipment as at 31 December 2016 and 31 December 2015 The following key assumptions were used when the cash flow testing was performed for the years ended 31 December 2016 and 31 December 2015:

Key assumptions used in the cash Year ended Year ended flow testing 31 December 2016 31 December 2015 Information used Actual operating results for 2016 and Actual operating results for 2015 and business plans for 2017–2022 business plans for 2016–2021 Forecast period* For existing plants 10 years For existing plants 10 years (2017–2026) (2016–2025) For plants under construction - 20 years after commissioning and before the For plants under construction - 20 completion of capacity sale contracts years after commissioning and before (2017–2040) the completion of capacity sale contracts (2016–2039) For cash-generating units of the Far East - 11-25 years (2017–2041) For cash-generating units of the Far East - 11-25 years (2016–2040) Forecasted growth rates in terminal 3.83 percent 4.0 percent period Discount rate before tax (based on 14.45–17.4 percent (RR) 14.97–16.8 percent (RR) weighted average cost of capital) Forecast of electricity and capacity tariffs in the isolated energy systems Based on methodology of tariffs calculation adopted by regulatory authority and in non-pricing zone of the Far East Forecast of electricity and capacity Based on the forecast of JSC TSA and forecast rates on energy prices growth prices in competitive market prepared by the Ministry of Economic Development of RF

Forecast of capacity prices related to For 2017–2020 – based on the results of For 2016–2019 – based on the results of competitive capacity selection competitive capacity selection, except for competitive capacity selection, except for stations, where regulated tariffs are used stations, where regulated tariffs are used For 2021 and after – adjusted on consumer For 2020 and after – adjusted on index price and forecasts of JSC TSA consumer index price and forecasts of JSC TSA Forecast of electricity and capacity Based on the Company’s management assessment of future trends in the business volumes Forecast of capital expenditures Based on the management valuation of capital expenditures on modernisation and reconstruction programme * Management considers that a forecast period greater than five years is appropriate as the wholesale electricity and capacity market is expected to change significantly over the forecast period and cash flow projections will not be stabilised within five years. However a forecast period of cash flows was mainly defined by remaining useful life of assets tested. For hydroelectric power plants this period may amount up to 100 years due to the fact that key asset is a dam. In this regard the recoverable amount of assets was defined based on cash flows during the forecast period and terminal values. The values assigned to the key assumptions represent management’s assessment of future trends in the business and are based on both external and internal sources. Management of the Group analyzed the current economic situation, in which the Group operates, in order to detect the indicators of impairment of property, plant and equipment or indicators that an impairment loss recognized in prior periods no longer exists or decreased. As a result of analysis of property, plant and equipment of the Group on impairment as at 31 December 2016 an impairment loss in the amount of RR 33,099 million was recognised in the Consolidated Income Statement and decrease of previously recognised revaluation reserve in the amount of RR 6,150 million (before income tax of RR 1,230 million) – in other comprehensive loss, the effects relate mainly to the following cash-generating units:  Saratovskaya HPP – impairment loss in the amount of RR 3,368 million and decrease of previous revaluation reserve in the amount of RR 2,585 million;  Blagoveschenskaya TPP – impairment loss in the amount of RR 4,731 million;  Leningradskaya PSHPP – impairment loss in the amount of RR 4,337 million;

F-150 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

 Votkinskaya HPP – impairment loss in the amount of RR 1,901 million and decrease of previous revaluation reserve in the amount of RR 2,418 million;  Sakhalinenergo – impairment loss in the amount of RR 3,101 million and decrease of previous revaluation reserve in the amount of RR 76 million;  Magadanenergo – impairment loss in the amount of RR 2,525 million and decrease of previous revaluation reserve in the amount of RR 9 million;  Kabardino-Balkarian branch – impairment loss in the amount of RR 1,606 million and decrease of previous revaluation reserve in the amount of RR 301 million;  Yakutskenergo – impairment loss in the amount of RR 1,261 million and decrease of previous revaluation reserve in the amount of RR 407 million;  Sakhaenergo – impairment loss in the amount of RR 1,165 million;  Kamchatskenergo – impairment loss in the amount of RR 1,093 million;  Cascade Verkhnevolszhskih HPP – impairment loss in the amount of RR 725 million and decrease of previous revaluation reserve in the amount of RR 345 million. At the same time, a reversal of impairment in the amount of RR 6,582 million was recognised in the Consolidated Income Statement in respect of respect of the following cash-generating units impaired in previous periods:  Khabarovskaya Generation – in the amount of RR 3,680 million;  Sayno-Shushenskaya HPP – in the amount of RR 2,137 million;  Primorskaya Generation – in the amount of RR 765 million. The sensitivity analysis of the recoverable amounts of cash-generating units for the key assumptions is presented in Note 32. As a result of property, plant and equipment impairment as at 31 December 2015 its net book value decreased by the total amount of RR 13,835 million. As a result, impairment loss in the amount of RR 12,593 million was recognised in Consolidated Income Statement and decrease of previous revaluation reserve in the amount of RR 1,242 million (before income tax of RR 248 million) – in other comprehensive loss. The carrying amount of each class of property, plant and equipment that would have been recognised had the assets been carried under the cost model is as follows:

Production Plant and Assets under buildings Facilities equipment construction Other Total Net book value as at 31 December 2016 34,278 111,189 169,428 264,645 2,134 581,674 Net book value as at 31 December 2015 29,793 111,249 152,336 260,080 1,492 554,950

Events at Zagorskaya GAES-2. On 17 September 2013 there was a partial flooding at Zagorskaya GAES-2 which is under construction in the Moscow Region. The flooding of the GAES building originated from the lower reservoir via functional joints of the station block and a newly formed cavity in the right junction of the GAES-2 building foundation. Construction and assembly works as well as property, including equipment, were insured by PIJSC Ingosstrakh, JSC AlfaStrakhovanie and JSC SOGAZ. As at 31 December 2016 all insurance companies have finished all payments on the insured event. Other operating income for the year ended 31 December 2016 include insurance indemnity received from JSC SOGAZ in the amount of RR 1,384 million (for the year ended 31 December 2015: RR 868 million) and from JSC AlfaStrakhovanie in the amount of RR 353 million (for the year ended 31 December 2015: RR 847 million). For the year ended 31 December 2015 insurance indemnity from PIJSC Ingosstrakh in the amount of RR 4,756 million was also recognised.

F-151 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

For the year ended 31 December 2016 a loss on disposal of damaged equipment and assets under construction which are not recoverable was recognised in Operating expenses in the amount of RR 15 million. Also for the year ended 31 December 2016 the Group has carried expenses on recovery works in the total amount of RR 1 585 million which are recognized in the following items of Operating expenses: other third parties services, other materials, employee benefit expenses, rent expenses. At the consolidated financial statements signing date management of the Group cannot reliably estimate future expenses that may be necessary to eliminate consequences of the technical incident. However, these expenses may be material for the Group. Management of the Group believes that property, plant and equipment at Zagorskaya GAES-2 is not impaired as at 31 December 2016 as there were capacity supply contracts concluded in respect of new power generation facilities of Zagorskaya GAES-2, that guarantee the payback period of 20 years for the total cost of construction for the period. The carrying amount of Zagorskaya GAES-2 property, plant and equipment is RR 61,142 million. Leased equipment. As at 31 December 2016 the net book value of assets held under finance lease and included in property, plant and equipment was RR 1,964 million (31 December 2015: RR 3,107 million). Assets held under finance lease were mainly represented by plant and equipment. Operating lease. The Group leases a number of land areas owned by local governments and production buildings under non-cancellable operating lease agreements. Land lease payments are determined by lease agreements. The land areas leased by the Group are the territories on which the Group’s hydropower plants and other assets are located. According to the Land Code of the Russian Federation such land areas are limited in their alienability and cannot become private property. The Group’s operating leases typically run for an initial period of 5–49 years with an option to renew the lease after that date. Lease payments are reviewed regularly. The future payments under non-cancellable operating leases in accordance with rates as at the reporting period end are as follows: 31 December 2016 31 December 2015 Less than one year 2,175 2,309 Between one and five years 7,404 3,826 After five years 30,524 38,852 Total 40,103 44,987 Pledged assets. As at 31 December 2016 RR and 31 December 201 5no property, plant and equipment have been pledged as collateral for borrowings.

F-152 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The amounts in respect of associates and joint ventures recognised in the Income Statement are as follows: Year ended Year ended 31 December 2016 31 December 2015 Associates OJSC IENC (249) (283) OJSC SEC (1,447) (12) Other 24 (19) Total associates (1,672) (314) Joint ventures BoGES Group 8,546 684 BALP Group - - Other (192) 58 Total joint ventures 8,354 742 Share of results of associates and joint ventures 6,682 428 Associates OJSC Irkutsk Electronetwork Company (OJSC IENC) OJSC IENC maintains electric power transmission grids with voltage of 220-500 kV and distribution grids with voltage of 0.4-110 kV in the Irkutsk region. The total length of overhead and cable power lines is over 40,000 km. OJSC IENC also maintains and ensures operation of over 10,000 transforming substations of 6-500 kV in voltage and over 28,000 MVA in total capacity. The core activities of OJSC IENC include provision of services in the area of electric power transmission and distribution, technological connection of consumers to power grids and maintenance of power grids’ operating capacity. OJSC IENC’s controlling shareholder is EN+ Group. The Group’s investment in OJSC IENC is non-core and considered for sale. OJSC Sakhalin Energy Company (OJSC SEC) OJSC SEC is a special project developer company involved in construction of a number of new power sector assets in the Sakhalin region to be financed from the federal and regional budgets. OJSC SEC's major project was construction of Power Generating Unit No. 4 (with total capacity of 139 MWt) at Yuzhno- Sakhalinsk Thermal Power Plant-1 (that was put into operation in the fourth quarter of 2013). OJSC SEC also built a number of power supply network facilities. The above units of generation and power supply network are operated by PJSC Sakhalinenergo, the Group’s subsidiary, under a lease agreement. Other OJSC SEC’s shareholders, in addition to the Group, are the Russian Government represented by the Federal Agency for State Property Management, and the Sakhalin region represented by the Ministry of Land and Property Affairs of the Sakhalin region. The Group’s investments in OJSC SEC are of strategic nature and are considered to be used in the project aimed at consolidating key energy assets of the Sakhalin region on the basis of the core vertically integrated entity PJSC Sakhalinenergo.

Summarised financial information for significant associates for the years ended 31 December 2016 and 31 December 2015 and as at 31 December 2016 and 31 December 2015:

OJSC SEC OJSC IENC As at 31 December 2016 2015 2016 2015 Non-current asssets 7,407 11,242 24,169 24,862 Current assets 1,066 761 1,151 1,037 Non-current liabilities - (12) (1,814) (1,571) Current liabilities (543) (54) (8,111) (8,350) Net assets 7,930 11,937 15,395 15,978 For the year ended 31 December 2016 2015 2016 2015 Revenue 535 449 18,809 16,995 Impairment of property, plant and equipment (4,921) - - - Loss for the year (4,007) (35) (583) (661) Total comprehensive loss for the year (4,007) (35) (583) (661)

F-153 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Reconciliation of the summarised financial information presented to the carrying value of interest in associates: OJSC SEC OJSC IENC Others Total Net assets as at 31 December 2014 10,972 16,639 1,026 28,637 Loss for the year (35) (661) (32) (728) Additional share issue 1,000 - - 1,000 Disposal - - (402) (402) Reclassification to available-for-sale financial assets - - 19 19 Net assets as at 31 December 2015 11,937 15,978 611 28,526 Interest in associates 4,308 6,831 172 11,311 Goodwill - 946 - 946 Additional share issues (879) - - (879) Carrying value as at 31 December 2015 3,429 7,777 172 11,378

Net assets as at 31 December 2015 11,937 15,978 611 28,526 Loss for the year (4,007) (583) 90 (4,500) Net assets as at 31 December 2016 7,930 15,395 701 24,026 Interest in associates 2,861 6,582 193 9,636 Goodwill - 946 - 946 Other movement (879) - - (879) Carrying value as at 31 December 2016 1,982 7,528 193 9,703

F-154 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Summarised financial information for significant joint ventures for the years ended 31 December 2016 and 31 December 2015 and as at 31 December 2016 and 31 December 2015: BoGES Group BALP Group As at 31 December 2016 2015 2016 2015 Non-current assets 66,472 45,007 27,476 1,475 Current assets including: 3,140 3,681 6,208 6,315 Cash and cash equivalents 898 442 1,141 498 Non-current liabilities including: (43,932) (44,343) (93,907) (96,872) Non-current financial liabilities (excluding trade payables) (38,021) (37,715) (93,907) (96,872) Current liabilities including: (7,236) (1,918) (2,172) (3,877) Current financial liabilities (excluding trade payables) (835) (678) (16) (3) Net assets 18,444 2,427 (62,395) (92,959) For the year ended 31 December 2016 2015 2016 2015 Revenue 16,141 14,632 23,155 11,558 Depreciation of property, plant and equipment (1,192) (1,191) (1,717) (111) Impairment of promissory notes (6,000) (5,780) - - Interest income 877 489 - 7 Interest expense (3,412) (2,849) (7,901) (6,460) Foreign exchange differences (2) (10) 14,713 (19,118) Reversal / (impairment) of property, plant and equipment 25,390 - 23,402 (3,869) Profit / (loss) before income tax 19,484 (125) 30,564 (30,123) Income tax (expense) / benefit (3,467) 500 - (13,201) Profit / (loss) for the year 16,017 375 30,564 (43,324) Total comprehensive income / (loss) for the year 16,017 375 30,564 (43,324) Reconciliation of the summarised financial information presented to the carrying value of interest in joint ventures: BoGES Group BALP Group Others Total Net assets as at 31 December 2014 2,052 (49,635) 2,105 (45,478) Net assets at the date of the purchase - - 1,003 1,003 Profit / (loss) for the year 375 (43,324) (623) (43,572) Net assets as at 31 December 2015 2,427 (92,959) 2,485 (88,047) Interest in joint ventures 1,214 (46,480) 1,129 (44,137) Non-controlling interest 15 - - 15 Accumulated losses - 46,480 406 46,886 Carrying value as at 31 December 2015 1,229 - 1,535 2,764

Net assets as at 31 December 2015 2,427 (92,959) 2,485 (88,047) Profit for the year 16,017 30,564 44 47,569 Net assets as at 31 December 2016 18,444 (62,395) 2,529 (41,422) Interest in joint ventures 9,222 (31,198) 1,146 (20,830) Non-controlling interest 8 - - 8 Accumulated losses - 31,198 199 31,397 Carrying value as at 31 December 2016 9,230 - 1,345 10,575 The Group has issued guarantees for PJSC Boguchanskaya HPP for the loan facility in favour of the State Corporation Vnesheconombank (Note 29).

F-155 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 9. Available-for-sale financial assets 31 December 2016 31 December 2015 % of ownership Fair value % of ownership Fair value PJSC Inter RAO 4.92% 19,495 4.92% 5,606 PJSC Russian Grids 0.23% 638 0.28% 228 PJSC Boguchanskaya HPP 2.89% 505 2.89% - PJSC FGC UES 0.13% 338 0.13% 99 Other - 205 - 161 Total available-for-sale financial assets 21,181 6,094 The fair values of available-for-sale financial assets were calculated based on quoted market prices; for those which are not publicly traded, fair values were estimated by reference to the discounted cash flows of the investees (Note 32). Profit arising on available-for-sale financial assets for the year ended 31 December 2016 totaled RR 15,050 million (net of tax), including revaluation of PJSC Inter RAO – RR 13,889 million, was recorded within other comprehensive income (for the year ended 31 December 2015 loss totaled RR 1,962 million).

Note 10. Other non-current assets 31 December 2016 31 December 2015 Long-term promissory notes 38,931 38,189 Discount (16,415) (16,946) Impairment provision (14,025) (14,025) Long-term promissory notes, net 8,491 7,218 Long-term advances to suppliers 3,173 60 VAT recoverable 2,036 2,546 Goodwill 481 481 Dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs - 2,164 Customer base of LLC ESC Bashkortostan - 553 Other non-current assets 7,666 8,380 Total other non-current assets 21,847 21,402

Other non-current assets in the amount of RR 7,666 million (31 December 2015: RR 8,380 million) mainly include intangible assets, research and development costs and long-term accounts receivable. Also included in other non-current assets is the amortised value of cash and deposits placed with Peresvet Bank of RR 217 million. The amortised value of these assets was determined using the discounted cash flows expected from the conversion of the balance of RR 4,681 million into convertible bonds of Peresvet Bank (Note 11) with recognition of impairment of financial assets in the amount of RR 4,464 million.

Effective 31 December 31 December Rating Rating agency interest rate Maturity date 2016 2015 Long-term promissory notes PJSC Boguchanskaya HPP - - 9.75% 2029 6,269 5,711 PJSC ROSBANK Вa1 Moody’s 10.90–14.58% 2020–2022 888 784 JSC Alfa Bank ВВ+ Fitch Ratings 11.39–16.35% 2020–2022 761 673 Standard & PJSC Bank VTB ВВ+ Poor’s 11.82–13.67% 2018–2021 511 - Other 62 50 Total long-term promissory notes 8,491 7,218 Promissory notes of PJSC Boguchanskaya HPP. As at 31 December 2016 the amortised cost of interest- free long-term promissory notes of PJSC Boguchanskaya HPP (payable not earlier than 31 December 2029 with total nominal value of RR 21,027 million) pledged as collateral to the State Corporation Vnesheconombank amounted to RR 6,269 million (31 December 2015: RR 5,711 million) (Note 8).

F-156 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs. In November 2016 the Group completed the transaction to sell dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs to EuroSibEnergo Group. These dams are part of technological complex of EuroSibEnergo’s cascade of hydropower plants located on the Angara river. The dams were received by the Company in 2011 in course of additional share issue and were leased by EuroSibEnergo Group before the sale. The transaction amount is RR 10,950 million (including VAT). Profit from the dams’ sale is included in Other operating income (Note 24). Goodwill. Presented below is the carrying value of goodwill: Year ended Year ended 31 December 2016 31 December 2015 Carrying amount as of 1 January 481 929 Impairment loss - (448) Carrying amount as of 31 December 481 481 Goodwill of JSC Institute Hydroproject. Goodwill of RR 929 million was recognised at the date of the acquisition of JSC Institute Hydroproject in October 2010 as the Group was able to receive economic benefits from the expected synergy from the high qualification of engineering specialists and long-term relationships between JSC Institute Hydroproject and customers, including the Group entities. As at 31 December 2016 and 31 December 2015, the Group tested goodwill related to JSC Institute Hydroproject for its potential impairment. For the testing purposes, JSC Institute Hydroproject was considered as a single cash generating asset. Presented below are key assumptions used for the impairment testing purposes for the years ended 31 December 2016 and 31 December 2015: Key assumptions used For the year ended For the year ended for the impairment testing purposes 31 December 2016 31 December 2015 Information used Actual performance for 2016 and results Actual performance for 2015 and results of business plans for 2017-2021 of business plans for 2016-2020 Forecast period 5 years 5 years Growth interest rate after the forecast 4.0 percent 4.0 percent period Discount rate 15.6 percent 15.6 percent Net cash inflow after the forecast Minimum expectation: Minimum expectation: period RR 57 million in 2017, RR 148 million in 2016, RR 148 million in 2018, RR 67 million in 2017, RR 186 million in 2019, RR 94 million in 2018, RR 217 million in 2020, RR 110 million in 2019, RR 236 million in 2021 RR 122 million in 2020 Net cash inflow after the forecast Minimum expectation: Minimum expectation: period RR 255 million per year RR 114 million per year Based on the above assumptions, as at 31 December 2016 the recoverable amount of JSC Institute Hydroproject as a cash generating asset was higher than the carrying amount - there is no economic impairment. As at 31 December 2015 recoverable amount of JSC Institute Hydroproject as a cash generating asset was less than the carrying amount and the Group recognised impairment if goodwill in the amount of RR 448 million.

Note 11. Cash and cash equivalents 31 December 2016 31 December 2015 Cash equivalents (contractual interest rate: 6.72-10.94%) 52,594 36,137 Cash at bank 14,738 11,857 Cash in hand 22 31 Total cash and cash equivalents 67,354 48,025 Cash equivalents held as at 31 December 2016 and 31 December 2015 comprised short-term bank deposits with original maturities of three months or less. Cash and cash equivalents balances denominated in US Dollars as at 31 December 2016 were RR 736 million (31 December 2015: RR 2,801 million). Cash and cash equivalents balances denominated in Euros as at 31 December 2016 were RR 67 million (31 December 2015: RR 61 million).

F-157 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Cash and cash equivalents are deposited in several institutions as follows: 31 December 31 December Rating Rating agency 2016 2015 Cash at banks Bank GPB (JSC) BB+ Fitch Ratings 7,255 3,573 PJSC Sberbank BBB- Fitch Ratings 4,281 4,630 PJSC Bank VTB BB+ Standard & Poor’s 2,047 719 PJSC ROSBANK BBB- Fitch Ratings 387 124 PJSC Bank FK Otkritie BB- Standard & Poor’s 169 63 CJSC ARDSHINBANK B+ Fitch Ratings 157 170 PJSC VTB24 Ba1 Moody's 67 230 JSC Alfa-Bank BB+ Fitch Ratings 12 364 Peresvet Bank - - - 1,405 Other - - 363 579 Total cash at banks 14,738 11,857 Bank deposits PJSC Bank VTB BB+ Standard & Poor’s 23,152 4,832 Bank GPB (JSC) BB+ Fitch Ratings 13,922 2,084 PJSC Sberbank BBB- Fitch Ratings 13,283 8,992 JSC Rosselkhozbank BB+ Fitch Ratings 838 519 PJSC Promsvyazbank BB- Standard & Poor’s 536 - PJSC Bank FK Otkritie BB- Standard & Poor’s 525 7,753 PJSC VTB24 Ba1 Moody's 322 6 Peresvet Bank - - - 6,280 Sviaz-Bank - - - 2,724 JSC Bank Severny Morskoy Put - - - 1,875 GLOBEXBANK - - - 1,000 Other - - 16 72 Total cash equivalents 52,594 36,137

Group’s Cash and Deposits with Peresvet Bank On 21 October 2016 the Russian Central Bank introduced the temporary administration in Peresvet Bank for a period of six months due to Peresvet Bank’s failure to discharge its creditors' claims on monetary liabilities within the established period and in order to determine the financial position and future perspectives of the credit institution. At the same time, in accordance with the Russian law ‘On Insolvency’ a moratorium on discharge of Peresvet Bank creditors’ claims for a period of three months was imposed, which was extended for another three month on 23 January 2017. On 20 February 2017 functions of temporary administration of Peresvet Bank were assigned to the State Corporation Deposit Insurance Agency. The temporary administration of Peresvet Bank has proposed to convert part of Peresvet Bank’s monetary obligations into the bank’s convertible bonds due in 15 years. This will allow the bank to partially settle its obligations. As at 31 December 2016 cash and deposits placed with Peresvet Bank together with interest accrued on deposits totalled RUB 5,507 million. Under the proposed action plan which the Group’s management considers most likely based on the information available as of the date of the issue of these consolidated financial statements, the Group’s cash and deposits are to be converted to subordinated bonds of Peresvet Bank in the amount of RUB 4,681 million or 85% of the total cash and deposits. These assets are recorded within Other non-current assets at amortised value (Note 10). The remaining RUB 826 million of cash is recorded as restricted cash within Other current assets because its receipt is expected within 12 months of the reporting date (Note 14).

F-158 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 12. Accounts receivable and prepayments

31 December 2016 31 December 2015 Trade receivables 56,936 55,075 Provision for impairment of trade receivables (23,900) (20,158) Trade receivables, net 33,036 34,917 VAT recoverable 7,329 8,156 Advances to suppliers and other prepayments 2,617 3,540 Provision for impairment of advances to suppliers and other prepayments (629) (1,021) Advances to suppliers and other prepayments, net 1,988 2,519 Other receivables 8,485 7,248 Provision for impairment of other receivables (3,762) (3,194) Other receivables, net 4,723 4,054 Total accounts receivable and prepayments 47,076 49,646

The provision for impairment of accounts receivable has been determined based on specific customer identification, customer payment trends, subsequent receipts and settlements and the analysis of expected future cash flows (Note 2). The Group believes that the Group’s subsidiaries will be able to realise the net receivable amount through direct collections and other non-cash settlements, and the carrying value approximates their fair value. Movements in the impairment provision for trade and other accounts receivables are as follows: Year ended Year ended 31 December 2016 31 December 2015 As at 1 January 23,352 21,526 Charge for the year 8,541 6,650 Reversal of impairment (1,304) (3,808) Trade receivables written-off as uncollectible (1,678) (1,016) Disposal of impairment provision due to disposal of subsidiaries (1,249) - As at 31 December 27,662 23,352 The ageing analysis of trade and other finance accounts receivable is as follows: Provision as at Provision as at 31 December 2016 31 December 2016 31 December 2015 31 December 2015 Not past due 29,547 (1,652) 29,622 (2,426) Past due for less than 3 months 6,098 (1,378) 6,655 (1,260) Past due for 3 months to 1 year 9,343 (5,228) 7,499 (2,834) Past due for more than 1 year 20,052 (19,404) 17,959 (16,832) Total 65,040 (27,662) 61,735 (23,352) The majority of trade debtors which are neither past due nor impaired could be aggregated in several groups based on similarities in their credit quality: large industrial consumers – participants of the wholesale and retail electricity and capacity market as well as public sector entities and population. The Group does not hold any accounts receivable pledged as collateral.

Note 13. Inventories 31 December 2016 31 December 2015 Fuel 14,825 14,291 Materials and supplies 6,402 6,555 Spare parts 2,539 2,782 Other materials 565 606 Total inventories before provision for impairment 24,331 24,234 Provision for impairment of inventories (294) (235) Total inventories 24,037 23,999 There are no inventories pledged as collateral for borrowings as at 31 December 2016 and as at 31 December 2015.

F-159 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 14. Other current assets 31 December 2016 31 December 2015 Special funds 3,507 - Deposits and promissory notes 4,292 19,532 Restricted cash (Note 11) 826 - Loans issued 2,808 2,837 Provision for loans issued (2,498) (109) Loans issued, net 310 2,728 Other short-term investments 162 314 Total other current assets 9,097 22,574 As at 31 December 2016 the rest of special funds in the amount of RR 3,507 million received by the Group to fund construction of generating facilities are located on special accounts of the Federal Treasury of Russia. These special funds may be used by the Group only after the due procedure of expenditure approval performed by the Federal Treasury of Russia according to the Order of Ministry of Finance of the Russian Federation No. 213n dated 25 December 2015. As at 31 December 2016 the Group impaired loans issued to ZAO Verkhne-Narynskye HPPs in the amount of RR 2,378 million due to denouncement of agreements between Russian Government and Kyrgyzstan Republic on construction of upper Naryn cascade of hydropower plants. Effective Rating Rating agency interest rate 31 December 2016 31 December 2015 Deposits PJSC Sberbank BBB- Fitch Ratings 7.25–10.85% 4,140 18,322 Other deposits - - - 150 1,168 Promissory notes JSC Alfa-Bank - - - - 35 Other promissory notes - - - 2 7 Total deposits and promissory notes 4,292 19,532

Note 15. Equity Number of issued and fully paid ordinary shares (Par value of RR 1.00) As at 31 December 2016 386,255,464,890 As at 31 December 2015 386,255,464,890 As at 31 December 2014 386,255,464,890 Treasury shares. Аs at 31 December 2016 treasury shares were represented by 18,852,353,167 ordinary shares in the amount of RR 22,578 million (31 December 2015: 21,786,611,933 ordinary shares in the amount of RR 26,092 million). During the year ended 31 December 2016, 2,934,258,766 treasury shares were transferred to non- controlling interest shareholders of PJSC RAO ES East in exchange for purchased shares of the subsidiary under voluntary and obligatory offers to purchase shares of PJSC RAO ES East as described below. Voluntary and obligatory offers to purchase shares of PJSC RAO ES East. On 3 November 2015 in accordance with decision of the Board of Directors of the Company LLC Vostok-Finance, a subsidiary of the Group, declared a voluntary offer to purchase shares of PJSC RAO ES East. Under the voluntary offer, shareholders of PJSC RAO ES East could choose to sell their ordinary and preferred shares of PJSC RAO ES East for а cash consideration or exchange them for ordinary shares of the Company. During 2016, PJSC RAO ES East non-controlling interest shareholders that accepted terms of the voluntary offer transferred 4,715,738,904 ordinary shares and 346,195,762 preference shares of PJSC RAO ES East to LLC Vostok-Finance for a cash consideration of RR 34 million and in exchange for 2,934,258,766 shares of the Company in the amount of RR 3,514 million. According to current Russian legislation repurchase of more than 10 percent and consolidation of more than 95 percent of PJSC RAO ES East shares allowed the Group to make an obligatory offer to the remaining shareholders to sell their shares.

F-160 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Under the obligatory offer to purchase shares LLC Vostok-Finance has purchased 887,217,472 ordinary shares and 312,687,580 preference shares of PJSC RAO ES East for a cash consideration of RR 380 million. As a result of voluntary and obligatory purchase of PJSC RAO ES East’s shares as at 31 December 2016 the share of the Group in share capital of the PJSC RAO ES East increased up to 99.98 percent (Note 4). Effect of changes in non-controlling interest of subsidiaries. As a result of the voluntary and obligatory offers to purchase shares of PJSC RAO ES East as described above non-controlling interest decreased by RR 6,694 million. Retained earnings of the Group increased by RR 4,872 million as a result of treasury shares disposal, decrease in non-controlling interest and derecognition of the remaining obligation to purchase shares after they were partly purchased for cash. During 2016 Group’s subsidiaries LLC Dom-21 century and JSC HRSK went bankrupt, also in December 2016 JSC «SO UPS» was liquidated. As a result non-controlling interest increased by RR 213 million due to decrease of share in losses of these subsidiaries previously absorbed by shareholders of the Group. In March 2015 the Group’s share in subsidiaries OJSC Daltehenergo and OJSC Guberovskiy machinery and repair plant was sold. In October 2015 share in JSC Kamchatskenergoremont was sold. During the year ended 31 December 2015 LLC Energokomfort Amur electricity wholesale company and JSC Amyrskaya Zhemchuzhina went bankrupt, also in June 2015 OJSC Kamchatskenergoremservis was liquidated. As a result non-controlling interest increased by RR 141 million due to decrease of share in losses of these subsidiaries previously absorbed by shareholders of the Group. Additional share issue. On 22 November 2016 the Board of Directors adopted a resolution to make a placement of 40,429,000,000 ordinary shares with a par value of RR 1.00 per share by open subscription. The placement price of additional issue shares is determined at RR 1.00 per share. On 7 December 2016 the share issue of 40,429,000,000 ordinary shares was registered with the Bank of Russia (Note 34). Dividends. On 27 June 2016 the Company declared dividends for the year ended 31 December 2015 of RR 0.0389 per share in the total amount of RR 15,011 million (RR 14,278 million excluding dividends to subsidiaries). On 26 June 2015 the Company declared dividends for the year ended 31 December 2014 of RR 0.0156 per share in the total amount of RR 6,033 million (RR 5,710 million excluding dividends to subsidiaries). Declared dividends of the Group’s subsidiaries in favour of non-controlling interest holders amounted to RR 234 million for the year ended 31 December 2016 (for the year ended 31 December 2015: RR 102 million).

Note 16. Income tax Income tax expense is as follows: Year ended Year ended 31 December 2016 31 December 2015 Current income tax expense 13,258 8,881 Deferred income tax expense 2,114 1,638 Total income tax expense 15,372 10,519 The income tax rate applicable to the majority of the Group’s entities for the year ended 31 December 2016 is 20 percent (for the year ended 31 December 2015: 20 percent). A reconciliation between the expected and actual income tax expense is provided below: Year ended Year ended 31 December 2016 31 December 2015 Profit before income tax 55,123 37,678 Theoretical tax expense at a statutory rate of 20 percent (11,025) (7,536) Tax effect of items which are not deductible or assessable for taxation purposes (1,827) (1,230) Increase in other unrecognised deferred tax assets (4,003) (2,465) Change in unrecognised deferred tax assets in respect of associates and joint ventures 1,336 86 Other 147 626 Total income tax expense (15,372) (10,519)

F-161 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The total amount of deductible temporary differences for which deferred income tax assets have not been recognised by the Group as at 31 December 2016 comprised RR 80,055 million (31 December 2015: RR 64,285 million). These temporary differences mainly relate to accumulated impairment of property, plant and equipment, assets under construction and pension liabilities of several Group’s subsidiaries. Deferred income tax. Differences between IFRS and statutory taxation regulations in the Russian Federation give rise to temporary differences between the carrying amount of certain assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary differences is detailed below and is recorded at the rate of 20 percent (for the year ended 31 December 2015: 20 percent). 31 December Income tax Charged directly to other 31 December 2015 charge comprehensive income Other movement 2016 Deferred income tax assets 5,486 1,144 53 (43) 6,640 Property, plant and equipment 3,516 1,181 - - 4,697 Accounts receivable 6,509 (57) - (8) 6,444 Losses carried forward 1,350 (370) - - 980 Other 3,795 (636) 53 (35) 3,177 Deferred tax offset (9,684) 1,026 - - (8,658) Deferred income tax liabilities (37,034) (3,258) 1,189 17 (39,086) Property, plant and equipment (46,041) (2,398) 1,212 17 (47,210) Accounts receivable (59) 2 - - (57) Loans and borrowings (378) 27 - - (351) Other (240) 137 (23) - (126) Deferred tax offset 9,684 (1,026) - - 8,658 Reclassification of discontinued operations and 31 December Income tax Charged directly to other disposal of 31 December 2014 charge comprehensive income subsidiaries 2015 Deferred income tax assets 5,355 (142) 259 14 5,486 Property, plant and equipment 3,425 76 - 15 3,516 Accounts receivable 5,799 704 - 6 6,509 Losses carried forward 1,574 (217) - (7) 1,350 Other 2,622 914 259 - 3,795 Deferred tax offset (8,065) (1,619) - - (9,684) Deferred income tax liabilities (35,891) (1,496) 353 - (37,034) Property, plant and equipment (43,303) (2,977) 239 - (46,041) Accounts receivable (122) 63 - - (59) Loans and borrowings (115) (263) - - (378) Other (416) 62 114 - (240) Deferred tax offset 8,065 1,619 - - 9,684 Under existing Group’ structure tax losses and current income tax assets of different Group’s entities may not be offset against current income tax liabilities and taxable profits of other Group’s entities and, accordingly, taxes may be accrued even where there is a consolidated tax loss. Therefore, deferred income tax assets and liabilities are offset only when they relate to the same taxable entity and the entity has legal rights to offset it.

F-162 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 17. Pension benefit obligations The tables below provide information about the benefit obligations and actuarial assumptions used for the years ended 31 December 2016 and 31 December 2015. Amounts recognised in the Group’s Consolidated Statement of Financial Position among other non-current liabilities (Note 19): 31 December 2016 31 December 2015 Fair value of plan assets (1,090) (1,084) Present value of defined benefit obligations 9,894 9,470 Net liability 8,804 8,386 The movements in the defined benefit liability for the years ended 31 December 2016 and 31 December 2015 are presented in the tables below: Present value of defined benefit Fair value of plan obligations assets Total At 1 January 2016 9,470 (1,084) 8,386 Decrease in liabilities related to LLC ESC Bashkortostan sale (Note 4) (181) 10 (171) Change in liabilities as a result of changes in the scope of valuation 17 - 17 Current service cost 403 - 403 Interest expense / (income) 875 (106) 769 Past service cost (143) - (143) Decrease in liabilities as a result of curtailments (101) - (101) Remeasurement effects (for other long-term benefits): Actuarial gain - changes in actuarial assumptions (4) - (4) Actuarial gain - experience adjustment (29) - (29) Recognised in profit or loss for the year ended 31 December 2016 1,001 (106) 895 Remeasurements (for post-employment benefits): Actuarial loss - change in demographic assumptions 18 - 18 Actuarial loss - change in financial assumptions 459 - 459 Actuarial (gain) / loss - experience adjustments (196) 62 (134) Recognised other comprehensive income for the year ended 31 December 2016 before income tax charge of RR 69 million 281 62 343 Employer contributions for funded pension plan - (236) (236) Benefit payments (Funding NSPF pensions) (439) 264 (175) Benefit payments (Non-funded pension plan) (255) - (255) At 31 December 2016 9,894 (1,090) 8,804

F-163 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Present value of defined benefit Fair value of plan obligations assets Total At 1 January 2015 7,874 (986) 6,888 Current service cost 338 - 338 Interest expense / (income) 968 (128) 840 Past service cost (58) - (58) Curtailment in pension payment (717) - (717) Decrease in liabilities as a result of curtailments (83) - (83) Remeasurement effects (for other long-term benefits): Actuarial loss - changes in actuarial assumptions 86 - 86 Actuarial gain - experience adjustment (1) - (1) Recognised in profit or loss for the year ended 31 December 2015 533 (128) 405 Remeasurements (for post-employment benefits): Actuarial loss - change in demographic assumptions 112 - 112 Actuarial loss - change in financial assumptions 1,435 - 1,435 Actuarial loss - experience adjustments 249 72 321 Recognised other comprehensive income for the year ended 31 December 2015 before income tax charge of RR 374 million 1,796 72 1,868 Employer contributions for funded pension plan - (297) (297) Benefit payments (Funding NSPF pensions) (438) 255 (183) Benefit payments (Non-funded pension plan) (295) - (295) At 31 December 2015 9,470 (1,084) 8,386 In December 2015 JSC DGK decided to partially reduce payments to the unemployed pensioners. Also in accordance with the new collective agreement some conditions and the amount of benefits to employees have changed. As a result the Group recognized RR 717 million gain for the year ended 31 December 2015 (Note 25). Principal actuarial assumptions for the Group are as follows: 31 December 2016 31 December 2015 Nominal discount rate 8.20% 9.80% Inflation rate 5.00% 6.00% Wage growth rate 6.50% 7.50% Staff turnover depending on age based on Staff turnover statistics for three years Mortality table Russia-2014* Russia-2013* * Taking into account the pull down adjustment calculated based on statistical data of mortality for employees of the Group of age till 60 years old for years 2012–2016 (31 December 2015: 2012–2015) The sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions as at 31 December 2016 is presented below: Change in assumption Effect on net liability Effect on net liability, % + 1% (821) -8% Nominal discount rate - 1% 930 9% + 1% 613 6% Inflation rate - 1% (556) -6% + 1% 325 3% Wage growth rate - 1% (319) -3% + 3% (1,035) -10% Staff turnover - 3% 1,483 15% + 10% (169) -2% Mortality Rates - 10% 142 1% The Group expects to contribute RR 642 million to the defined benefit plans in 2017. The weighted average duration of the defined benefit obligation of the Group is 9 years.

F-164 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Retirement benefit plan parameters and related risks. The Group has liabilities under retirement benefit plans in Russia. The retirement benefit plan includes benefits of the following types: lump sum payment upon retirement, jubilee benefits paid at certain age or upon completion of a certain number of years of service, financial aid and compensation to cover funeral expenses in the event of an employee’s or pensioner's death, financial aid provided to pensioners, pension benefits paid to former employees through the non-state pension fund (hereinafter referred to as the “NPF”). The amount of benefits depends on the period of the employees' service (years of service), salary level over the recent years preceding retirement, predetermined fixed amount or minimum tariff rate of remuneration or salary or a combination of these factors. As a rule, the above benefits are indexed according to the inflation rate and salary growth for benefits that depend on the salary level, excluding the retirement benefits paid through NPF, which are not indexed for the inflation rate at the time the payment is made (following the retirement of employees, all risks are borne by NPF). In addition to the inflation risk, all retirement benefit plans of the Group are exposed to mortality and survival risks. Plan assets held on NPF's accounts are governed in accordance with the local legislation and regulatory practices. The Group and NPF are severally liable for plans management, including investments decisions and the contribution schedule. NPF invests the Group's funds in a diversified portfolio. When investing pension savings and placing the pension reserves, NPF is guided by the Russian legislation that provides a strict regulation with respect to the possible list of financial instruments and restricts their utilisation, which also leads to diversification and reduces investment risks. The Group transfers the obligation to pay lifelong non-state pension benefits to the Group's former employees to NPF and funds these obligations when awarding the pension. Therefore, the Group insures the risks related to payment of non-state pensions (investment risks and survival risks). Note 18. Current and non-current debt Non-current debt Effective 31 December 31 December interest rate Due date 2016 2015 7.99–13.20% / PJSC Sberbank MosPrime 3M+2.10% 2017–2028 56,491 47,865 PJSC Bank VTB 8.39–11.50% 2017–2027 29,516 4,522 Russian bonds (PJSC RusHydro) issued in February 2013 8.50% 2018* 20,645 20,635 Russian bonds (PJSC RusHydro) issued in July 2015 11.85% 2018 15,857 15,840 Russian bonds (PJSC RusHydro) issued in April 2016 10.35% 2019 15,347 - Russian bonds (PJSC RusHydro) issued in April 2015 12.75% 2017* 10,222 10,214 PJSC ROSBANK 9.72–10.36% 2017–2018 8,136 4,909 Bank GPB (JSC) 9.75–11.09% 2017–2023 6,171 469 UniCredit Bank Austria AG 3.35%** 2017–2026 5,242 6,585 Crédit Agricole Corporate and Investment Bank Deutschland Euribor 6M+0.625% 2018–2029 4,920 6,252 MosPrime 3M+1.50–3.45% / EBRD LIBOR 6M+3.45% 2017–2027 4,791 20,280 Municipal authority of Kamchatka region 8.57% 2017–2034 1,561 1,535 ASIAN Development bank LIBOR 6M+3.45% 2017–2026 1,474 1,787 Russian bonds (PJSC RusHydro) issued in April 2011 9.50% 2021*** 250 15,240 Bayerische Landesbank - - - 1,212 Other long-term debt - - 1,776 1,404 Finance lease liabilities - - 1,973 2,262 Total 184,372 161,011 Less current portion of non-current (25,758) (25,159) Less current portion of finance lease liabilities (568) (673) Total non-current debt 158,046 135,179 * The bonds mature in 10 years with a put option to redeem them in 2018, 2016 and 2017 respectively. ** Fixed interest rate applied to 90 percent of the credit facility, to the rest 10 percent of the facility the quarterly variable export finance rate published by OeKB (Oesterreichische Kontrollbank AG) less 0.25 percent is applied. *** In April 2016 holders of the bonds issued in April 2011 partly redeemed the bonds under the put option. The rest of the bonds with nominal amount of RR 250 million will mature in 2021 year.

F-165 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Bonds issue. In April 2016 the Group placed non-convertible interest bearing market bonds of series BO- P04 with a nominal amount of RR 15,000 million. The term of the offer is 3 years, coupon rate is 10.35 percent per annum. Current debt Effective interest rate 31 December 2016 31 December 2015 PJSC Sberbank 10.44–12.00% 5,854 19,668 PJSC ROSBANK 9.90–12.39% 4,755 6,776 Bank GPB (JSC) 9.75–11.50% 3,031 7,038 LLC AlstomRusHydroEnergy -* 750 750 Bank «RRDB» (JSC) 11.63% 150 966 JSC Alfa-Bank - - 501 Current portion of non-current debt - 25,758 25,159 Current portion of finance lease liabilities - 568 673 Other current debt - 891 683 Total current debt and current portion of non-current debt 41,757 62,214 Reference: Interest payable 3,044 2,942 * The loan received from a related party, the joint venture of the Group (Note 6), the interest rate on this loan - 0.00 percent per annum. Compliance with covenants. The Group is subject to certain covenants related primarily to its debt. As at 31 December 2016 and 31 December 2015 and during the reporting period the Group met all required covenant clauses of the credit agreements. Finance lease liabilities. Minimum lease payments under finance leases and their present values are as follows: Due between Due after Due in 1 year 1 and 5 years 5 years Total Minimum lease payments as at 31 December 2016 601 855 4,287 5,743 Less future finance charges (33) (373) (3,364) (3,770) Present value of minimum lease payments as at 31 December 2016 568 482 923 1,973 Minimum lease payments as at 31 December 2015 706 1,116 4,546 6,368 Less future finance charges (33) (475) (3,598) (4,106) Present value of minimum lease payments as at 31 December 2015 673 641 948 2,262

Note 19. Other non-current liabilities 31 December 2016 31 December 2015 Pension benefit obligations (Note 17) 8,804 8,386 Other non-current liabilities 9,922 6,165 Total other non-current liabilities 18,726 14,551

Note 20. Accounts payable and accruals

31 December 2016 31 December 2015 Trade payables 31,451 33,475 Advances received 9,712 9,849 Settlements with personnel 8,245 8,410 Accounts payable under factoring agreements 2,957 4,071 Dividends payable 136 86 Obligation to PJSC RAO ES East shares purchase (Note 15) 3 2,108 Other accounts payable 6,280 2,308 Total accounts payable and accruals 58,784 60,307 All accounts payable and accruals are denominated in Russian Rubles.

F-166 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 21. Other taxes payable 31 December 2016 31 December 2015 VAT 9,833 8,085 Insurance contributions 2,925 2,864 Property tax 1,941 2,159 Other taxes 558 927 Total other taxes payable 15,257 14,035

Note 22. Revenue

Year ended Year ended 31 December 2016 31 December 2015 Sales of electricity 272,582 254,518 Sales of heat and hot water 38,849 35,381 Sales of capacity 37,068 33,038 Other revenue 25,573 24,575 Total revenue 374,072 347,512 Other revenue includes revenue earned from transportation of electricity and heat, connections to the grid, rendering of construction, repairs and other services.

Note 23. Government grants In accordance with legislation of the Russian Federation several companies of the Group are entitled to government subsidies for compensation of the difference between approved economically viable electricity and heat tariffs and actual reduced tariffs and for compensation of losses on purchased fuel. During the year ended 31 December 2016 the Group received government subsidies in the amount of RR 17,250 million (for the year ended 31 December 2015: RR 14,314 million) in the following subsidised territories: Kamchatsky territory, the Sakha Republic (Yakutia), Magadan Region and other Far East regions.

Note 24. Other operating income

Year ended Year ended 31 December 2016 31 December 2015 Gain on sales of other non-current assets (Note 10) and non-current assets classified as held for sale 7,443 743 Gain on sales of subsidiaries (Notes 4, 15) 3,048 709 Insurance indemnity 1,931 6,778 Total other operating income 12,422 8,230 Gain on sales of other non-current assets and non-current assets classified as held for sale includes the gain on the sale of the dams of Bratskaya, Ust’-Ilimskaya and Irkutskaya HPPs in the amount of RR 7,202 million (Note 10).

F-167 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 25. Operating expenses (excluding impairment losses) Year ended Year ended 31 December 2016 31 December 2015 Employee benefit expenses (including payroll taxes 71,768 72,871 and pension benefit expenses) Purchased electricity and capacity 57,610 60,805 Fuel expenses 54,561 54,087 Electricity distribution expenses 46,722 42,663 Depreciation of property, plant and equipment and amortisation of intangible 24,130 22,477 assets Taxes other than on income 10,233 9,792 Other materials 9,115 9,202 Third parties services, including: Repairs and maintenance 4,507 5,055 Provision of functioning of electricity and capacity market 3,642 3,737 Purchase and transportation of heat power 3,442 3,102 Security expenses 3,369 3,279 Services of subcontracting companies 2,465 4,249 Rent 2,155 2,111 Insurance cost 1,983 1,572 Consulting, legal and information expenses 1,911 2,340 Transportation expenses 1,213 1,108 Other third parties services 8,052 6,376 Water usage expenses 3,202 2,844 Social charges 1,319 1,445 Purchase of oil products for sale 1,065 673 Travel expenses 804 1,798 Loss on disposal of property, plant and equipment, net 555 3,366 Curtailment in pension payment and pension plan - (717) Other expenses 1,882 868 Total operating expenses (excluding impairment losses) 315,705 315,103

Note 26. Finance income, costs Year ended Year ended 31 December 2016 31 December 2015 Finance income Interest income 6,779 9,620 Foreign exchange gain 2,782 2,316 Income on discounting 118 132 Other income 264 245 Total finance income 9,943 12,313

Finance costs Interest expense (6,813) (5,762) Foreign exchange loss (454) (1,744) Expense on discounting (407) (885) Finance lease expense (295) (241) Other costs (1,072) (1,112) Total finance costs (9,041) (9,744)

F-168 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 27. Earnings per share

Year ended Year ended 31 December 2016 31 December 2015 Weighted average number of ordinary shares issued (thousands of shares) 367,138,482 364,468,853 Profit for the period attributable to the shareholders of PJSC RusHydro 40,205 31,539 Earnings per share attributable to the shareholders of PJSC RusHydro – basic and diluted (in Russian Rubles per share) 0.1095 0.0865

Note 28. Capital commitments In accordance with investment programme of the Company and separate investment programmes of the subsidiaries, the Group has to invest RR 243,975 million for the period 2017-2019 for reconstruction of the existing and construction of new power plants (31 December 2015: RR 327,128 million for the period 2016- 2018). Capital commitments of the Group as at 31 December 2016 are as follows: 2017 – RR 115,791 million, 2018 – RR 77,133 million, 2019 – RR 51,051 million. Future capital expenditures are mainly related to reconstruction of equipment of power plants: Zhigulevskaya HPP in the amount of RR 8,902 million, Votkinskaya HPP in the amount of RR 8,629 million, Volzhskaya HPP in the amount of RR 8,373 million; and to construction of power plants: Zaramagskie HPP in the amount of RR 23,298 million, Sakhalin GRES-2 in the amount of RR 20,882 million, Nizhne-Bureiskaya HPP in the amount of RR 13,328 million, Ust’-Srednekanskaya HPP in the amount of RR 10,367 million.

Note 29. Contingencies Social commitments. The Group contributes to the maintenance and upkeep of the local infrastructure and the welfare of its employees, including contributions toward the development and maintenance of housing, hospitals, transport services, recreation and other social needs in the geographical areas in which it operates. In the opinion of management there are no significant liabilities that should have been recognised at the reporting date. Insurance. The Group holds limited insurance policies in relation to its assets, operations, public liability or other insurable risks. Accordingly, the Group is exposed to those risks for which it does not have insurance. Legal proceedings. The Group’s subsidiaries are parties to certain legal proceedings arising in the ordinary course of business. In the opinion of management, there are no current legal proceedings or other claims outstanding, which, upon final disposition, will have a material adverse effect on the position of the Group. Tax contingencies. Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management may be challenged by tax authorities, in particular, the way of accounting for tax purposes of some income and expenses of the Group as well as deductibility of input VAT from suppliers and contractors. Russian tax administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year when decisions about the review was made. Under certain circumstances reviews may cover longer periods. The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not arm's length. During 2016 the Group’s subsidiaries had controlled transactions and transactions which highly probably will be considered by tax authorities to be controlled based on the results of the year 2016. Management implemented internal controls to be in compliance with the new transfer pricing legislation. Tax liabilities arising from transactions between companies are determined using actual transaction prices. It is possible, with the evolution of the interpretation of the transfer pricing rules, that such transfer prices could be challenged. The impact of any such challenge cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the Group.

F-169 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Management believes that as at 31 December 2016 its interpretation of the relevant legislation was appropriate and the Group’s tax position would be sustained. New provisions aimed at deoffshorisation of Russian economy have been added to the Russian tax legislation and are effective from 1 January 2015. Specifically, they introduce new rules for controlled foreign companies, a concept of beneficiary owner of income for the purposes of application of preferential provisions of taxation treaties of the Russian Federation, a concept of tax residency for foreign persons and taxation of indirect sale of Russian real estate assets. The Group is currently assessing the effects of new tax rules on the Group's operations and takes necessary steps to comply with the new requirements of the Russian tax legislation. However, in view of the recent introduction of the above provisions and insufficient related administrative and court practice, at present the probability of claims from Russian tax authorities and probability of favourable outcome of tax disputes (if they arise) cannot be reliably estimated. Tax disputes (if any) may have an impact on the Group's financial position and results. Environmental matters. The Group’s subsidiaries and their predecessor entities have operated in the utilities industry in the Russian Federation for many years. The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group’s subsidiaries periodically evaluate their obligations under environmental regulations. Group accrued assets retirement obligation for ash damps used by the Group which is included in other non-current liabilities and other accounts payable and comprised RR 1 048 million as at 31 December 2016 (31 December 2015: RR 683 million). Potential liabilities might arise as a result of changes in legislation and regulation or civil litigation. The impact of these potential changes cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage. Guarantees. The Group has issued guarantees for CJSC Boguchansky Aluminium Plant in favour of its suppliers for future equipment deliveries and for PJSC Boguchanskaya HPP in favour of the State Corporation Vnesheconombank for the loan facility:

Counterparty 31 December 2016 31 December 2015 for PJSC Boguchanskaya HPP: State Corporation Vnesheconombank 26,749 27,398 for CJSC Boguchansky Aluminium Plant: ALSTOM Grid SAS 31 77 Total guarantees issued 26,780 27,475

Based on the information available to the Group, PJSC Boguchanskaya HPP currently meets and will be able to meet its obligations under the loan facility with the State Corporation Vnesheconombank in the foreseeable future. The probability that the Group becomes liable in respect of these guarantees is low.

F-170 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The Group’s maximum exposure to credit risk by class of assets is reflected in the carrying amounts of financial assets in the Note 33. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the provision for impairment of receivables already recorded. There is no independent rating for the Group’s customers and therefore the Group considers the credit quality of customers at the contract execution stage. The Group considers their financial position and credit history. The Group monitors the existing receivables on a continuous basis and takes actions regularly to ensure collection or to minimise losses. To reduce the credit risk in the wholesale electricity and capacity markets the Group has introduced marketing policy and procedure to calculate internal ratings of counterparties in the unregulated market, based on the frequency of default, and to establish limits based on the rating of the customers’ portfolio. The Group’s management reviews ageing analysis of outstanding trade receivables and follows up on past due balances. Management therefore considers it appropriate to provide past due accounts receivable and other information about credit risk as disclosed in Note 12. Cash has been deposited in the financial institutions with no more than minimal exposure to the default risk at the time of account opening. Management of the Group approved the list of banks for deposits, as well as rules for their placement. Moreover, management constantly evaluates the financial condition, ratings assigned by independent agencies, background and other factors of such banks. The tables in Notes 10, 11 and 14 show deposits with banks and other financial institutions and their ratings at the end of the reporting period. Credit risk for financial guarantees is defined as the possibility of sustaining a loss as a result of another party to a financial instrument failing to perform in accordance with the terms of the contract. The Group uses the same credit policies in assuming conditional obligations as it does for other financial instruments, through established credit approvals, risk control limits and monitoring procedures. The Group’s maximum exposure to credit risk for financial guarantees was RR 26,780 million as at 31 December 2016 (31 December 2015: RR 27,475 million) (Note 29). Market risk. The Group takes on exposure to market risks. Market risks arise from open positions in (i) foreign currencies, (ii) interest bearing assets and liabilities, all of which are exposed to general and specific market movements. Management sets limits on the value of risk that may be accepted, which is monitored on a regular basis. However, the use of this approach does not prevent losses outside of these limits in the event of more significant market movements. Sensitivities to market risks included below are based on a change in a factor while holding all other factors constant. In practice this is unlikely to occur and changes in some of the factors may be correlated. Currency risk. Electricity and capacity produced by the Group is sold on the domestic market of the Russian Federation at the prices fixed in Russian Rubles. Hence, the Group does not have significant foreign currency exchange risk. The financial condition of the Group, its liquidity, financing sources and the results of operations do not considerably depend on currency rates as the Group operations are planned to be performed in such a way that its assets and liabilities are to be denominated in the national currency. The table below summarises the Group’s monetary financial assets and liabilities exposed to foreign currency exchange rate risk: 31 December 2016 31 December 2015 Monetary Monetary Monetary financial Net balance Monetary financial Net balance financial assets liabilities sheet position financial assets liabilities sheet position USD 840 (3,088) (2,248) 6,409 (3,735) 2,674 EUR 67 (10,477) (10,410) 61 (14,335) (14,274) Other 31 - 31 102 - 102 Total 938 (13,565) (12,627) 6,572 (18,070) (11,498) The above analysis includes only monetary assets and liabilities. Equity investments and non-monetary assets are not considered to give rise to any material currency risk. There is no significant effect of the changes of foreign currency rates on the Group’s financial position.

F-171 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Interest rate risk. The Group’s operating profits and cash flows from operating activities are not dependent largely on the changes in the market interest rates. Borrowings issued at variable rates (Note 18) expose the Group to cash flow interest rate risk. The Group obtains debt financing with floating rates, which are established on the basis of the MOSPRIME, Euribor, Libor rates. As at 31 December 2016, had interest rates at that date been 2 percent higher (31 December 2015: 3 percent higher), with all other variables held constant, profit for the year ended 31 December 2016 and the amount of capital that the Group managed as at 31 December 2016 would have been RR 327 million (31 December 2015: RR 1,161 million) lower, mainly as a result of higher interest expense. The Group monitors interest rates for its financial instruments. Effective interest rates are disclosed in Note 18. For the purpose of interest risk reduction the Group makes the following arrangements:  credit market monitoring to identify favourable credit conditions,  diversification of credit portfolio by raising of borrowings with fixed rates and floating rates. Liquidity risk. Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Prudent liquidity risk management includes maintaining sufficient cash and marketable securities and the availability of funding from an adequate amount of committed credit facilities. The Group adheres to the balanced model of financing of working capital – both at the expense of short-term sources and long-term sources. Temporarily free funds are placed into short-term financial instruments, mainly bank deposits and short-term bank promissory notes. Current liabilities are represented mainly by the accounts payable to suppliers and contractors. The Group has implemented a control system under its contract conclusion process by introducing and applying typical financial arrangements which include standardised payment structure, payment deadlines, percentage ratio between advance and final settlement, etc. In such a manner the Group controls capital maturity. The table below shows liabilities as at 31 December 2016 by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows, including gross finance lease obligations (before deducting future finance charges). Such undiscounted cash flows differ from the amount included in the Consolidated Statement of Financial Position because this amount is based on the discounted cash flows. The maturity analysis of financial liabilities as at 31 December 2016 is as follows: Starting from year 2017 year 2018 year 2019 year 2020 year 2021 year 2022 Liabilities Current and non-current debt 55,373 102,732 28,490 24,992 3,600 20,210 Trade payables (Note 20) 31,451 - - - - - Accounts payable under factoring agreements (Note 20) 2,957 - - - - - Obligation to PJSC RAO ES East shares purchase (Note 20) 3 - - - - - Financial guarantees (Note 29) 800 1,008 1,269 1,536 1,791 20,376 Dividends payable (Note 20) 136 - - - - - Finance lease liabilities (Note 18) 601 267 196 196 196 4,287 Net settled derivatives 9 8 5 2 - - Total future payments, including principal and interest payments 91,330 104,015 29,960 26,726 5,587 44,873

F-172 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The maturity analysis of financial liabilities as at 31 December 2015 is as follows: Starting from year 2016 year 2017 year 2018 year 2019 year 2020 year 2021 Liabilities Current and non-current debt 74,633 33,577 65,664 8,313 28,242 38,978 Trade payables (Note 20) 33,475 - - - - - Accounts payable under factoring agreements (Note 20) 4,071 - - - - - Obligation to PJSC RAO ES East shares purchase (Note 20) 2,108 - - - - - Financial guarantees (Note 29) 712 771 1,008 1,269 1,537 22,178 Dividends payable (Note 20) 86 - - - - - Finance lease liabilities (Note 18) 706 442 267 203 204 4,546 Net settled derivatives 32 26 17 10 4 - Total future payments, including principal and interest payments 115,823 34,816 66,956 9,795 29,987 65,702

Note 31. Management of capital Compliance with Russian legislation requirements and capital cost reduction are key objectives of the Group’s capital risk management. As at 31 December 2016 and 31 December 2015 the Company was in compliance with the share capital requirements as established under legislation. The Group’s objectives in respect of capital management are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The amount of capital that the Group managed as at 31 December 2016 was RR 650,932 million (31 December 2015: RR 613,919 million). Consistent with others in the energy industry, the Group monitors the gearing ratio, that is calculated as the total debt divided by the total capital. Debt is calculated as a sum of non-current and current debt, as shown in the Consolidated Statement of Financial Position. Total capital is equal to the total equity, as shown in the Consolidated Statement of Financial Position. The gearing ratio was 0.31 as at 31 December 2016 (31 December 2015: 0.32).

F-173 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

The level in the fair value hierarchy into which the recurring fair value measurements are categorised are as follows: 31 December 2016 Level 1 Level 2 Level 3 Total Financial assets Available-for-sale financial assets 20,619 - 562 21,181 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 496,637 496,637 Total assets recurring fair value measurements 20,619 - 497,199 517,818

31 December 2015 Financial assets Available-for-sale financial assets 6,057 - 37 6,094 Non-financial assets Property, plant and equipment (except for construction in progress, office buildings and land) - - 480,692 480,692 Total assets recurring fair value measurements 6,057 - 480,729 486,786 As at 31 December 2016 and 31 December 2015 the Group’s liabilities measured at fair value are not significant. The valuation technique, inputs used in the fair value measurement for significant Level 3 measurements and related sensitivity to reasonably possible changes in those inputs are as follows at 31 December 2016: Fair Valuation Significant Reasonable Sensitivity of fair value technique unobservable inputs change value measurement Non-financial assets Electricity and Property, plant and equipment -10% (16,725) (except for construction in Discounted capacity prices 496,637 progress, office buildings and cash flows Discount rate +1% (7,366) land) Capital expenditures +10% (1,582) Total recurring fair value measurements at Level 3 496,637 (25,673) The above tables discloses sensitivity to valuation inputs for property, plant and equipment as changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions would change fair value significantly. There were no changes in valuation technique for Level 3 recurring fair value measurements during the years ended 31 December 2016 and 31 December 2015. (b) Assets and liabilities not measured at fair value but for which fair value is disclosed Financial assets carried at amortised cost. The Group considers that the fair value of cash, short term deposits (Level 1 of the fair value hierarchy) and accounts receivable (Level 3 of the fair value hierarchy) approximates their carrying value. The fair value of long term accounts receivable, other non-current and current financial assets is estimated based on future cash flows expected to be received including expected losses (Level 3 of the fair value hierarchy), the fair value of these assets approximates their carrying value. Liabilities carried at amortised cost. The fair value of floating rate liabilities approximates their carrying value. The fair value of bonds is based on quoted market prices (Level 1 of the fair value hierarchy). Fair value of the fixed rate liabilities is estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity (Level 3 of the fair value hierarchy). The fair value of current liabilities carried at amortised cost approximates their carrying value. As at 31 December 2016 fair value of bonds exceeded their carrying value by RR 92 million. As at 31 December 2015 the carrying value of bonds exceeded their fair value by RR 763 million. As at 31 December 2016 the carrying value of non-current fixed rate debt exceeded their fair value by RR 4,705 million. As at 31 December 2015 the carrying value of non-current fixed rate debt exceeded their fair value by RR 7,121 million.

F-174 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

Note 33. Presentation of financial instruments by measurement category The following table provides a reconciliation of classes of financial assets with the measurement categories of IAS 39, Financial Instruments: Recognition and Measurement as at 31 December 2016: Available-for-sale Loans and receivables financial assets Total Assets Other non-current assets (Note 10) 8,838 - 8,838 Promissory notes 8,491 - 8,491 Long-term loans issued 332 - 332 Net settled derivatives 15 - 15 Available-for-sale financial assets (Note 9) - 21,181 21,181 Trade and other receivables (Note 12) 37,376 - 37,376 Trade receivables 33,036 - 33,036 Promissory notes receivable 4,340 - 4,340 Other current assets (Note 14) 8,118 - 8,118 Special funds 3,507 - 3,507 Deposits and promissory notes 4,292 - 4,292 Short-term loans issued 310 - 310 Net settled derivatives 9 - 9 Cash and cash equivalents (Note 11) 67,354 - 67,354 Total financial assets 121,686 21,181 142,867 Non-financial assets 840,579 Total assets 983,446 The following table provides a reconciliation of financial assets with the measurement categories as at 31 December 2015: Available-for-sale Loans and receivables financial assets Total Assets Other non-current assets (Note 10) 7,896 - 7,896 Promissory notes 7,218 - 7,218 Long-term loans issued 633 - 633 Net settled derivatives 45 - 45 Available-for-sale financial assets (Note 9) - 6,094 6,094 Trade and other receivables (Note 12) 38,383 - 38,383 Trade receivables 34,917 - 34,917 Promissory notes receivable 9 - 9 Other financial receivables 3,457 - 3,457 Other current assets (Note 14) 22,291 - 22,291 Deposits and promissory notes 19,532 - 19,532 Short-term loans issued 2,728 - 2,728 Net settled derivatives 31 - 31 Cash and cash equivalents (Note 11) 48,025 - 48,025 Total financial assets 116,595 6,094 122,689 Non-financial assets 814,660 Non-current assets and assets of disposal group classified as held for sale 788 Total assets 938,137 All of the Group’s financial liabilities are carried at amortised cost. Financial liabilities are represented mainly by the current and non-current debt (Note 18), trade payables and other accounts payable (Note 20).

Note 34. Subsequent events Additional issue of new shares. In January 2017 the Company resumed the results of execution of pre- emptive right by eligible shareholders to acquire Company’s shares of additional issue, registered by Bank of Russia on 7 December 2016. During the pre-emptive right period the Company placed 33,348,661 additional shares priced at RR 1,00 per share, or 0.08 percent of the total volume of additional issue (Note 15).

F-175 RusHydro Group Notes to the Consolidated Financial Statements as at and for the year ended 31 December 2016 (in millions of Russian Rubles unless noted otherwise)

In March 2017, the Company and PJSC Bank VTB signed agreements related to a purchase of 55 billion ordinary shares of the Company (40 billion shares of the new issue and 15 billion shares of quasy-treasury stock) and conclusion of a 5-year non-deliverable forward contract in respect of these shares. The cash in the amount of RR 55 billion received by the Company through the sale of shares is intended to repay the debts of RAO ES East subgroup. In accordance with the forward contract, the Company has no obligation to buy back its own shares; for the purposes of final settlement under the forward contact it is envisaged that bank sells the Company’s shares. Any difference between bank’s income from the sale of the above shares at the end of the forward contract and the forward price is due to be settled in cash between the Company and the bank. The forward price is defined as the purchase cost of the shares increased by the total amount of interests charged less total dividends paid during the contract period. At the moment of these consolidated financial statements approval, the estimate of the forward price and the related effect of the contract on the carrying amount of assets and liabilities, and financial result within the next financial year is not completed by the Group's management.

F-176

ISSUER BORROWER

RusHydro Capital Markets DAC PJSC “RusHydro” 3rd Floor, Kilmore House 43 bld. 1 Dubrovinskogo Street Park Lane, Spencer Dock Krasnoyarsk, 660017 Dublin 1 Russian Federation JOINT LEAD MANAGERS VTB Capital plc GPB Financial Services Hong Kong Limited 14 Cornhill (Gazprombank) London 8 Finance Street Cental EC3V 3ND Level 37, IFC2 United Kingdom Hong Kong

J.P. Morgan Securities plc Sberbank CIB (UK) Limited 25 Bank Street, Canary Wharf 85 Fleet Street London E14 5JP London EC4Y 1AE United Kingdom United Kingdom TRUSTEE PRINCIPAL PAYING AGENT REGISTRAR AND TRANSFER AGENT BNY Mellon Corporate The Bank of New York Mellon, The Bank of New York Mellon SA/NV, Trustee Services Limited London Branch Luxembourg Branch One Canada Square One Canada Square Vertigo Building – Polaris London E14 5AL London E14 5AL 2-4 Rue Eugene Ruppert United Kingdom United Kingdom L-2453 Luxembourg LEGAL ADVISERS TO THE BORROWER As to English law As to Russian law Latham & Watkins (London) LLP Latham & Watkins LLP 99 Bishopsgate Ulitsa Gasheka 6 London EC2M 3XF Ducat III, Office 510 United Kingdom Moscow 125047 Russian Federation LEGAL ADVISERS TO THE ISSUER As to Irish law Arthur Cox Ten Earlsfort Terrace Dublin 2, Ireland LEGAL ADVISERS TO THE MANAGERS As to English law As to Russian law Linklaters LLP Linklaters CIS One Silk Street Paveletskaya Sq.2, bld 2 London EC2Y 8HQ Moscow 115054 United Kingdom Russian Federation LEGAL ADVISERS TO THE TRUSTEE As to English Law Linklaters LLP One Silk Street London EC2Y 8HQ United Kingdom INDEPENDENT AUDITORS AO PricewaterhouseCoopers Audit White Square Office Center 10 Butyrsky Val Moscow, 125047 Russian Federation LISTING AGENT Arthur Cox Listing Services Limited Ten Earlsfort Terrace Dublin 2 Ireland