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JSC THE FIFTH POWER GENERATION COMPANY ANNUAL REPORT 2007 JSC THE FIFTH POWER GENERATION COMPANY ANNUAL REPORT 2007 ООГК-5:ГК-5: пилотный проект энергореформы! CONTENTS ADDRESS OF BOARD CHAIRMAN ..............4 POWER SALES ...........................59 ADDRESS OF DIRECTOR GENERAL ............5 FINANCIAL PERFORMANCE ...............65 EVENTS CALENDAR ...........................7 INVESTMENT ACTIVITIES ................73 COMPANY BACKGROUND ......................9 INNOVATIONS AND IT.....................77 GEOGRAPHY OF SALES .......................15 HR AND SOCIAL POLICY STRATEGY ...................................19 SOCIAL PARTNERSHIP....................79 CORPORATE GOVERNANCE ..................23 ENVIRONMENTAL PROTECTION ...........83 SHARE CAPITAL .............................43 APPENDICES .............................88 OPERATING PERFORMANCE..................53 JSC The Fifth Power Generation Company 2007 Annual Report 3 Dear shareholders! You are reading the annual report of one of the best practice, technological innovations, extensive work generation companies in Russia. It is the year 2007 experience on the free power market - these are the that brought a vivid example to this fact, as the real competitive advantages to be brought into the company again became the first in many positions Company thanks to the participation of one of the among its counterparts. world leaders in power. The Company was consistently implementing the The results achieved by the management deserve Development Strategy adopted by the Board of an ’excellent’ grade. Furthermore, the “Russia’s Top Directors of JSC OGK-5. The five-year investment Business Leaders” international research named programmeme (2007 - 2012) was adjusted and Anatoly Bushin, Director General of JSC OGK-5, the ratified to ensure reliable and effective operation of second best manager in the power sector after the production branches, as well as implementation Anatoly Chubais, Chairman of RAO UES of Russia. of new generation projects. The Company executed The management of the Company managed to show contracts with large international companies for the the investor community that the corporate construction of new capacity units, and we governance system of JSC OGK-5 is based on the managed to provide full financing of the first principles of accountability, transparency and construction stages. responsibility to shareholders and investors. The Company managed to work out effective tactics I can assure you that the Board of Directors of JSC for its operation on the market and provide its OGK-5 will persist in doing everything possible to commercial activities with relevant technological maintain the relations of maximum openness and opportunities. trust with the investor community. 2007 saw the significant enhancement of the role of independent directors and representatives of the strategic investor, Enel, in the Company’s Board of Directors. Their participation in governing the Company is a new impulse for the development of JSC OGK-5. State-of-the-art corporate governance Chairman of Board of Directors of JSC OGK-5 Eldar Orudzhev 4 Dear shareholders, colleagues and partners! In 2007 we witnessed the birth of the first generation companies of Russia. In 2007, OGK-5 independent power generation company in Russia, production affiliates generated 38.4 billion kW/h of this being JSC OGK-5. Not an easy thing fell to our power, while heat output totaled 6.8 million Gcal. lot, as we became the pioneers of the reform in the In general, the Company’s capitalisation increased Russian energy sector. It is a great achievement yet by more than 38%, from 115.45 billion RUB on also great responsibility, great trust and great December 31, 2006, to 152.77 billion RUB on attention to our Company. December 31, 2007 (review of share price The year results demonstrate that we worthily dynamics). accomplished the objectives set for us. The high management quality is illustrated by the All the procedures related to our spin-off from RAO fact that the Russian business elite gave OGK-5 the UES of Russia were accomplished. The Company got top spot in the “The Best IPO” and “The Best IR a strategic shareholder, Enel from Italy. Service” category, as well as an award for “The Best We successfully placed global depositary receipts, Corporate Governance Practice”. thus proving the appeal of OGK-5 shares on the All these facts indicate that OGK-5 is already a international market. Ordinary shares of OGK-5 leading company in the Russian energy sector. were included into the first-level quotation lists. It is We are facing new extensive objectives and real appreciation of the Company’s significance for ambitious aims. We are yet to grasp the first line the stock market, a guarantee of share liquidity to under new market conditions, raise the market our shareholders. capitalisation. I am sure that our team is up to it. Ensuring confidence in the future, OGK-5 started the implementation of projects for the construction of new generating capacities, concluded the contracts with general contractors and main equipment suppliers. Our production results prove a clear example of the fact that OGK-5 is one of the leading power 70% Director General of JSC OGK-5 Anatoly Bushin JSC The Fifth Power Generation Company 2007 Annual Report 5 ННАШАШ П ПРИНЦИП:РИНЦИП: прозрачность, эффективность, ответственность! EVENTS CALENDAR Board of Directors of the Company approves Regulation on Internal Control System of JSC OGK-5, February Regulation on Internal Audit Department of JSC OGK-5 and Rules of Interaction of Internal Audit Department of JSC OGK-5 with Audit Committee of Board of Directors of JSC OGK-5, Internal Audit Commission of JSC OGK-5, Executive Bodies of JSC OGK-5. Company pays the first coupon yield (interest) on bonds in the amount of 187 million RUB, or 37.40 April RUB per bond. Standard & Poor’s assigns the corporate governance score (CGS) to JSC OGK-5. The international score is 5, the Russian score is 5.4. Auction for sale of ordinary shares of JSC OGK-5 (25.0306%) held by RAO UES of Russia. ENEL June Investment Holding B.V. wins the auction. The Federal Financial Markets Service of Russia gives permission for circulation of ordinary registered August uncertified shares of JSC OGK-5 in the amount of 7,074,537,100 pcs outside the RF. The sponsored GDR programmeme for OGK-5 shares is launched. Reorganisation of JSC OGK-5 in the form of consolidation of JSC OGK-5 Holding takeover. The September reorganisation is implemented within the framework of the restructuring of RAO UES of Russia, as a result of which OGK-5 Holding is spun off from RAO of UES and simultaneously consolidated to JSC OGK-5. In accordance with the requirements of legislation in force, ENEL Investment Holding B.V. makes a November mandatory buyout offer to the holders of rest ordinary shares of JSC OGK-5. The mandatory offer is effective through February 4, 2008. December Inclusion of ordinary registered uncertified shares of JSC OGK-5 into Quotation List A1 of RTS SE. JSC The Fifth Power Generation Company 2007 Annual Report 7 ДЕНЬДЕНЬ ЗАЗА ДНЕМДНЕМ И ШШАГАГ ЗЗАА ШШАГОМ:АГОМ: ЭНЕРГЕТИКА ПОБЕД! COMPANY BACKGROUND JSC The Fifth Power Konakovskaya GRES GRES for permanent operation. At Generation Company Location that moment, Konakovskaya Power (hereinafter ‘OGK-5’ or The power plant is located on the Plant was the largest power plant in ‘Company’) was established bank of the Volga River, in the Europe. by Decree No. 113r dd. south-east of Tver Oblast. The January 1993 – Konakovskaya GRES October 25, 2004, of the Konakovsky District of Tver Oblast is was transformed into an open Executive Board of RAO UES favorably located at the junction of joint-stock company and a daughter of Russia, as part of the major water-, rail- and roadways. company of RAO UES of Russia. Konakovo, with the population of Since 2000, the company has reforms in the country’s achieved a number of awards, power industry. 45,000, is one of the most developed towns in Tver Oblast. including the «European Standard» The company was registered Award, and became the winner of on October 27, 2004 by the Background various awards including the ‘Best Inspectorate for the Russian Enterprises’ Award and the Leninsky District of Konakovskaya GRES was set up as a ‘1000 Best Russian Enterprises of Yekaterinburg, Sverdlovsk power plant of a new type, and has 21st Century’ Award. During the Oblast, of the Russian been considered one of the leaders recent years, the plant has been Ministry of Taxation, with in the industry throughout its history. enjoying a Top 3 spot among power the state registry number In fact, the town of Konakovo grew suppliers in the competitive of 1046604013257. out of a small village of Kuznetsovo, wholesale power sector. thanks to the establishment of Since 1 April 2006, after the OGK-5 is one of the largest Konakovskaya GRES. completion of all the corporate and wholesale power 1961 – Survey of the construction legal procedures, Konakovskaya generation companies in site. GRES has been a production branch Russia, which aggregates 1962 – Excavation of the of JSC OGK-5. the generating capacities groundwork for the power plant. of Tver and Sverdlovsk October 1964 – Power Generation Oblasts, as well as Unit 1 was put into operation Stavropol Krai. January 1965 – a state commission signed an acceptance certificate for Unit 1. December 1971 – a state commission accepted Konakovskaya KONAKOVSKAYA GRES t as l Tver b Кonakovo O r e v T JSC The Fifth Power Generation Company 2007 Annual Report 9 Nevinnomysskaya GRES fertilizer-producing enterprise and Reftinskaya GRES Location gained the status of a separate Location enterprise. The power plant is located in the The power plant is located in the 1962 – The power plant was north-eastern part of the town of south of Sverdlovsk Oblast, 80 renamed into Nevinnomysskaya Nevinnomyssk in Stavropol Krai. kilometers away from the city of GRES. Nevinnomyssk was founded in 1825 Yekaterinburg. April 2005 – a new 80MW as a Cossack village which was The district centre, the town of turbine-type generator, TG-3, was put transformed into a town in 1939.