CONTENTS

MAIN COMPANY’S PERFORMANCE GENERAL EVENTS ...... 7 01 09 FINANCIAL INDICATORS. PRODUCTION PERFORMANCE .... 28 MISSION, STRATEGIC DIRECTIONS COMPANY’S 02 OF THE COMPANY’S DEVELOPMENT ...... 10 10 GROWTH OUTLOOK ...... 40 COOPERATION WITH INTERNATIONAL INVESTMENT 03 INVESTMENT INSTITUTIONS ...... 12 11 PERFORMANCE ...... 42 BEST SOCIAL COMPANY’S JOINT STOCK 04 DEVELOPMENT DEAL ...... 14 12 CAPITAL STRUCTURE ...... 46 STEPS TO INITIAL PUBLIC INCORPORATED 05 OFFERING I P O ...... 16 13 SOCIAL LIABILITIES ...... 50 PRODUCTION AND ENVIRONMENT 06 TECHNOLOGICAL POTENTIAL ...... 20 14 PROTECTION ...... 58 TARIFF GENERATION ADDITIONAL INFORMATION 07 METHODOLOGY ...... 22 15 FOR SHAREHOLDERS ...... 62 INFORMATION ON ENERGY 08 SOURCES USAGE VOLUME ...... 24 2018 Annual report | 5

Electricity losses have reduced from 12.8% to 8% and WELCOME SPEECH BY SAMVEL the entire process of joining the electrical network has become simpler and easier thus improving the KARAPETYAN, PRESIDENT OF Doing Business rank by 82 points. While only 3,700 new customers joined the electrical network in 2015, “TASHIR” GROUP this number already reached 4,700 in 2018. And after operating at a loss for many years, the company has now become a stable and profitable organization.

We are consistently investing international standards of management, thereby improving the company’s management system and expanding cooperation opportunities with international organizations and financial institutions. We are trusted not only by our partners in Armenia, but also by renowned international organizations such the Asian Development Bank, the European Bank for Reconstruction and Development, the Eurasian Bank, the International Finance Corporation, the European Investment Bank and other major organizations.

All these achievements have certainly become possible thanks to the professionalism of our staff, the competency of our management team and the ability to constantly stay up-to-date.

We vastly continue the use of modern technologies in our work from “smart” accounting systems to accounting and electronic document circulation.

We are doing our best to increase the trust and quality of the services provided both to the general public and the business sector. This is what the Company’s 10-year and $726 million dollar investment program is targeted at. The efficient implementation of this investment program is our top priority.

Additionally, all our programs of corporate social responsibility are ongoing and aimed at supporting Dear colleagues, and developing the sectors of education, art, culture, sports and preservation of historical values. One In September of 2015, “Tashir” Group and “INTER of the most important initiatives is the creation of RAO” companies signed a contract about the centers of excellence for the students of the National acquisition of Armenia’s energy assets. At the same Polytechnic University of Armenia, the provision of time, our company also assumed the responsibility scholarships for best students and assistance for of managing the “Electrical Networks of Armenia”. socially vulnerable groups, participation in major cultural and sports projects. Today, we can summarize our work of already three years. In this period, we have managed to create I assure you, that by assuming the responsibility for a working business-model, thanks to which our sustainable and continued business development in Company has become more powerful, more reliant the future, we will invest all possible efforts to meet and more efficient. the highest demands and expectations.

PRESIDENT OF “TASHIR” GROUP SAMVEL KARAPETYAN 6 | 2018 Annual report 2018 Annual report | 7 ELECTRIC NETWORKS OF ARMENIA 01. MAIN EVENTS

branch Tashir Noyemberyan Ashotsk

Amasia Stepanavan AGHSTEV BRANCH DEBED BRANCH ENA investment program got “Best social Tax audit results in signing of Act with no Ijevan Berd development deal in CEE” according to EMEA obligations Gyumri Spitak Gugark Finance magazine Akhuryan Dilijan Vanadzor GHARS BRANCH

Artik Ranking of Armenia for the index to get electricity Implementation of ISO 45001:2018 Health and Chambarak Aparan Sevan connection has been improved for 82 points over Safety Management Systems, ISO 50001:2018 Hrazdan the recent three years Energy Management Systems

Talin GEGHAMA BRANCH Gavar Aragats Ashtarak Connection of 85.000 subscribers to the automated system of metering and control system MUSALER BRANCH DBCS DTC "Kentron" Vardenis Etchmiadzin YEREVAN Martuni Armavir Masis

Artashat Vedi Ararat Jermuk ARAKS BRANCH Yeghegnadzor

Vayk

Sisian Goris “ELECTRIC NETWORKS OF ARMENIA” CJSC

BRANCHES, SERVICE CENTERS TATEV BRANCH

Kapan YEREVAN – DIRECTORY ON TERRITORIAL COORDINATION “KENTRON”

YEREVAN – DIRECTORY FOR BIG CONSUMERS SERVICE Kajaran ARAKS Branch – Ararat, Artashat, Masisս, Yeghegnadzor, Vayk, Vedi, Jermuk

MUSALER Branch – Etchmiadzin, Ashtarak, Aparan, Aragats, Talin, Armavir Meghri

GEGHAMA Branch – Hrazdan, Vardenis, Chambarak, Martuni, Sevan, Gavar

DEBED Branch - Vanadzor, Gugark, Tashir, Stepanavan, Spitak

AGHSTEV Branch - Ijevan, Dilijan, Berd, Noyemberyan

GHARS Branch – Gyumri, Akhuryan, Ashotsk, Artik, Amasia

TATEV Branch - Kapan, Kajaran, Meghri, Goris, Sisian 8 | 2018 Annual report 2018 Annual report | 9

For the “Connection to the Electric Grid” Index, the Electric Networks of Armenia CJSC continues to DOING BUSINESS 2019 “system for automated supply restoration” as well improve the index for electricity connection aiming as the “regulators’ control” also play an important to obtain a higher ranking and provide conditions Armenia has improved its World Bank Doing Busi- Armenia was acquired by “Tashir” Group of Compa- role. A system for outage monitoring and automat- that are easy to understand and reduce the total ness index for getting connected to the electrical nies, Armenia was the 99th among Bulgaria, Equa- ed supply restoration has been introduced. Today, time for getting grid connection even more. The grid, and now Armenia ranks 17th compared to the tor, and Paraguay. Therefore, the ranking of Armenia due to digitalization of the process, the alarm on new package of changes has been already approved rank 66th in the previous report. (The Doing Busi- for the index to get electricity connection has been power outage (where and when is the supply inter- according to which the 3 steps for getting connect- ness report ranks countries as per different cate- improved for 82 points over the recent three years. rupted) is sent by meters without phone calls. gories related to ease of procedures for business ed to the electricity grid will become 2 (step 1 for Over recent years, the Company jointly with the creation and establishment. One of these categories filing the application and step 2 during connection, Public Services Regulatory Commission, the Munici- is the index for getting an electricity connection.) for security reasons). pality of Yerevan and other government bodies was This presents an unprecedented indicator for our working towards improving procedures for getting region. Among first twenty countries are Germany, connected to the electric grid. The entire business France, Sweden, Singapore and China. process has been digitalized. According to Doing For comparison, we can state that in 2017 Armenia Business 2018, “Armenia has made easy to obtain ranked the 66th among Cyprus, Qatar and Vietnam a connection by setting new terms and reducing and the 76th among Kazakhstan, Columbia, and the number of steps and requirements, necessary Malta in 2016. In 2015, when Electric Networks of for getting connected to the grid.” The total time DOING BUSINESS 2019 required for electricity connection has been reduced getting electricity score for about 50%. In 2015, during the reporting period RANK there were more than 3700 subscribers who con- nected to the grid by making 7-8 steps while in 2018 DOING BUSINESS 2019 there are more than 4700 subscribers connected to 17

the grid with only 3 steps. TIME (days) getting electricity score 250

200 187 180

150 138 127 66 100 76 99 72 131 Romania 50 53.53 RANK 154 2015 2016 2017 2018 2019 0 2014 2015 2016 2017 2018 2019 2020 Bulgaria 54.93 RANK 147

PROCEDURES (number) Regional Average 5,5 71.66 (Europe& Central Asia) 5

Greece 4,5 75.97 RANK 79 4

Georgia 3,5 RANK 39 84.38 3 Armenia 2,5 90.79 RANK 17 2 2015 2016 2017 2018 2019 10 | 2018 Annual report 2018 Annual report | 11

MISSION, STRATEGIC DIRECTIONS OF THE 4. IMPROVING THE LEVEL OF AUTOMATION OF THE SYSTEM FOR COMPANY’S DEVELOPMENT MANAGING ENERGY LOSSES AND BILLING.

Mission 5. MODERNIZATION AND EXPANSION OF THE COMPANY’S PRODUCTION To promote the development of economy and welfare of the population by providing reliable, high INFRASTRUCTURE quality and affordable electric power supply.

In order to ensure the sustainable development of the Company, meet the needs and expectations of reliability and quality of power supply, reduce technological losses and ensure the necessary capacity to the beneficiaries, to resist the external challenges and neutralize internal negative factors and risks, the meet the growing demand for electricity. Company has identified the following directions for the strategic development: 6. IMPROVEMENT OF THE COMPANY’S ASSET MANAGEMENT SYSTEM

aimed at the transition from a management model for planning and preventive work to a management 1. DEVELOPMENT OF MANAGEMENT SYSTEM model based on risk assessment and taking into account the objectives of the organization.

The primary objective of the Company is 7. INITIATING LAW REFORMS to increase the level of controllability and management efficiency of the Company. aimed at perfection of the regulatory framework for regulation of the main activity of the Company. This direction includes: 1.1 IMPLEMENTATION OF THE CORPORATE GOVERNANCE SYSTEM in accordance with the standards of the UK Corporate Governance Code. 8. IMPLEMENTATION OF CORPORATE SOCIAL 1.2 Implementation of ISO International Management Standards ISO 9001, 14001, 27001, 45001, 50001 (by 01.11.2018 the company was certified by TÜV Rheinland and received a certificate of compliance ISO RESPONSIBILITY POLICIES 9001, 14001 and 50001).

1.3 MODELING AND OPTIMIZATION OF BUSINESS PROCESSES on the basis of BMPS by financing and organizing charitable, educational and environmental activities in order to enhance the Company’s image to the public, government agencies and consumers. 1.4 COMPLEX AUTOMATION OF MANAGEMENT INFORMATION SYSTEM on the basis of ADMS and ERP

2. IMPLEMENTATION OF STRUCTURAL REFORMS

management, processual approach implementation and formation of organizational structure in accordance with the business architecture of the Company.

3. PUBLIC OFFERING OF SHARES (IPO) ON INTERNATIONAL STOCK MARKETS. 12 | 2018 Annual report 2018 Annual report | 13 03. COOPERATION WITH INTERNATIONAL INVESTMENT INSTITUTIONS

The most important direction of the Company’s work is cooperation with institutional organizations, investment banks, in particular. Since 2015, the Company has been actively cooperating with the Asian Development Bank and the European Bank for Reconstruction and Development within the framework of the first phase of the investment program of $ 200 million. In 2017 an agreement was signed between ENA and ADB, the EBRD for the amount of $ 160 million to finance the investment program of the Company of $ 80 million, respectively. The rest of the sum (20%) is provided by the Company.

Currently, negotiations are underway with a wider pool of credit organizations and banks, in particular, the Eurasian Development Bank, the International Finance Corporation, the European Investment Bank.

Cooperation with international banks is not limited to attracting loans. International banks provide consultancy to improve the level of management, engineering, monitoring of investment programs and IPO.

Negotiations are being held with some banks in the format of their participation in the company’s capital. 14 | 2018 Annual report 2018 Annual report | 15 04. BEST SOCIAL DEVELOPMENT DEAL

June 6th “Electric Networks of Armenia got Social When we purchased our company in the end of 2015 The investments will help ENA improve private sector Project Award on Finance Award 2017 in London. The the first thing we initiated was the improvement of electricity distribution by reducing distribution losses, prize wad handed to the Head of Board of Directors of the reliability of electricity distribution through the improving the quality of the distribution network the company Mr.Karen Darbinyan. distinct and analyzed investment program. Today we and services of its multi-site operations across the already have loan agreements with ADB and EBRD, country, reducing electricity losses and operational I his speech he particularly mentioned. as well as Eurasian development bank that will help expenses, improving technical maintenance and First of all on behalf of our company “Electric improve electricity distribution and increase energy safety conditions, modernizing the metering system, Networks of Armenia” I would like to thank you for the independence and efficiency in Armenia. rehabilitating, reinforcing, and augmenting the opportunity of participating in this Finance Awards distribution network, connecting new customers, We are sure that our partnership will have a 2017 Charity Dinner. as well as introducing international standards of meaningful impact on Armenian people and management and automated control system. businesses by improving the reliability of electricity distribution. 16 | 2018 Annual report 2018 Annual report | 17 05. STEPS TO INITIAL PUBLIC DECISION OF CJSC ENA TO ENTER THE STOCK OFFERING I P O MARKET

KEY SUCCESS FACTORS AND PREREQUISITES TO The growth rate of CJSC ENA is higher than the GO THROUGH THE IPO PROCESS IN CJSC ENA average for the energy sector, the Company is also ahead on the following most important criteria, according to which investors evaluate Considering IPO as a consistent business development process the Company:

Possible reorganization of CJSC ENA into an open joint stock company (public company) – at least one year prior to the IPO Natural monopoly with a huge sales market across REASONS the country;

Leading through key performance indicators before, during and after the IPO Availability of experienced management staff;

The Company Positive dynamics of financial results; Selecting the right team - employees, consultants, and other project demonstrated positive participants operating results during Favorable financial projections; the previous periods Well-thought-out plans aimed at achieving a specific goal; THE IPO PROCESS PHASES, WHICH ON AVERAGE CAN LAST FROM An effective system of financial and industrial control, 1.5 TO 3 YEARS as well as monitoring the compliance with regulatory requirements;

Preparing for the IPO IPO After the IPO Implementation of ISO standards; Trust of international and other financial structures. Advance planning and Entering the stock market preparation Life of the public company

Project organization Evaluation of the readiness for going public (IPO diagnostics) Presentations for marketing purposes Implementation Plan for the Implementing changes IPO preparation to ensure the effective Preparation of the prospectus functioning of the Company as a public company Choosing the stock market, underwriters, consultants etc. Conducting the IPO 18 | 2018 Annual report 2018 Annual report | 19 ENTERING THE STOCK MARKET: ADVANTAGES THE PROCESS OF ENTERING AND CHALLENGES THE STOCK MARKET

MAIN ADVANTAGES OF ENTERING RUNNING THE BUSINESS IN THE STOCK MARKET TWO MAIN DIRECTIONS:

Entering the stock market 1 (obtaining the status of a public company)

Increase in cash and long-term Expecting the increase in the capital market value of the Company Transformation of the Company for performing activities after entering the 2 stock market (in the status of a public company)

Improving the image of the Increase in liquidity Company Entering the stock market Working as a public company

Strategy and development plan Emission prospectus

Accounting, reporting and financial efficiency

Financial information for prior periods Governance systems and management

Internal control system Structuring

Relations with mass media and investors Comprehensive inspection of financial and eco- nomic activity Treasury and financial risk management

Legal and taxation services and personnel man- Other reports of experts agement

Technologies

Underwriting Project management 20 | 2018 Annual report 2018 Annual report | 21 06. PRODUCTION AND MAIN ACTIVITIES TECHNOLOGICAL POTENTIAL THE COMPANY OWNS:

substations and transformation units, ENA’s performance is the transmission and For power transmission ENA uses own aerial including: ՝ distribution of the electric energy throughout the and cable (ground-based) lines, substations and territory of the Republic of Armenia. distribution units, with voltage from 0,4 up to 110 kV. 102 110 kV substations with total power 9056 preset as 4478 МWА; 8465 6(10) kV transformation units with total power preset as 3200 МWА;

226 35 kV substations with total power preset as 1736 МWА;

261 6(10) kV distribution units.

thousand kilometers of aerial electric lines, including:

2,9 thousand kilometers of 110 kV aerial 32.5 electric lines; 14,1 thousand kilometers of 35 kV aerial electric lines;

8,28 thousand kilometers of 6(10) kV aerial electric lines;

15,3 thousand kilometers of 380 V voltage aerial lines.

thousand kilometers of (ground) cable lines of electric transmission, including: 5.8 0,1 thousand kilometers of 35 kV (ground) cable lines of electric transmission;

2,4 thousand kilometers of (ground) cable lines of electric transmission with 380 voltage.

3,3 thousand kilometers of 6(10) kV (ground) cable lines of electric transmission; 22 | 2018 Annual report 2018 Annual report | 23

Electric power sales rates for subscribers in Armenia August 1, 2016 the tariffs decreased without decrease have been established in 1999, and since that time of the margin. On December 23 PSRC made a 07. TARIFF GENERATION have been changed just and only due to segregation decision on tariffs decrease starting from February 1, of rates of certain kinds 2017. (in accordance with voltage and time of the day). METHODOLOGY First time the rates were increased on April 1, 2009, and the next change took place on July 7, 2013 - after the tariffs of the whole electric power system had been reviewed. After, with a purpose of the energy framework financial strengthening, on August 1, 2014, an appropriate resolution of PSRC (Public Services Regulation Commission), came into The actual process of tariff generation is performed cost of purchased electric energy, force, and the rates were correspondingly reviewed annually and consists of several stages. At the first starting with August 1, 2015. stage the PSRC with the Company make projection other operating costs, on sale of electricity by the Company in Armenia in the natural measurement (kilowatt-hour) for a year, including for separate voltage (220 and 380 volt, 6, reserve on accounts receivable, 10, 35 and 110 kilovolt) and per time of use (day and night). As a result the PSRC forms the projection for allowed pre-tax profit, sale of electricity per each of established tariffs, for the weighted average tariff of sale of electricity and depreciation of the fixed assets, 39,78 45,78 48,78 the projection for the total revenue of the Company 35,78 35,78 38,78 from the sale of electricity in the domestic market of compensation of the deficiency of margin Armenia in monetary expression. In addition, to the revenue from the sale of electricity to the consumers 35 – 110kv 6 – 10kv 0,38 kv in Armenia the revenue of the Company from the sale of electricity to the NKR is added. ALL ELEMENTS OF THE In accordance with the actual tariff methodology, TARIFF MARGINS ARE the Company’s revenues from sales of electricity in Armenia and Nagorno-Karabakh must be equal NORMALIZED ACCORDING to the sum of the cost of acquisition of realized electricity and the tariff margin, which includes: TO THE METHODOLOGY FOR DAYTIME RATE NIGHT TIME RATE VOLTAGE CALCULATING OF THE TARIFF MARGIN. SALES RATES (IN AMD, INCLUDING VAT). 24 | 2018 Annual report 2018 Annual report | 25 08. INFORMATION ON ENERGY SOURCES SOURCES ON ENERGY INFORMATION 08. VOLUME USAGE 26 | 2018 Annual report 2018 Annual report | 27 ELECTRIC ENERGY PURCHASE ENERGY PURCHASE Period/station 2017 2018 % changes FRAMEWORK Energy purchase, total 6 011 6 443 -7% «Armenian Nuclear Power Plant» CJSC 1 898 2 411 -21%

9 10 31.6% «Hrazdan TPP» OJSC 291 295 -1% 8 Armenian Nuclear Power Plant CJSC 1. «Gazprom Armenia» 459 393 17%

1 4.8% «Yerevan TPP» CJSC 990 880 13% 6 2. Hrazdan TPP OJSC Contour Global Hydro Cascade 896 935 -4% 7.6% «International Energy Corporation» CJSC 402 457 -12% Small HPPs 1 004 865 16% 5 2 3. Gazprom Armenia Import 18 179 -90% 3 16.5% 4 «Artsakhenergo» CJSC 52 28 89% 4. Yerevan TPP CJSC 14.9% ENERGY SALES 5. Contour Global Hydro Cascade THE COMPANY PURCHASES THE ELECTRIC Title 2017 2018 % changes ENERGY IMMEDIATELY FROM POWER 6.7% Total sales 5,410 5,774 -6%

GENERATING (PRODUCING) COMPANIES ON 6. IEC Sales in domestic market 5,368 5,596 -4% THE BASIS OF STRAIGHT CONTRACTING, BUT IN VOLUMES, THAT ARE BEING DETERMINED Population 1,815 1,906 -5% BY THE SYSTEM DISPATCHER UNIT, 16.7% Other subscribers, including 3,552 3,690 -4% APPEARING AS THE «ELECTRIC ENERGY 7. Small HPPs Budget organizations 212 234 -10%

SYSTEM OPERATOR» CJSC, WHICH OPERATES Industry 1,266 1,440 -12% THE ELECTRICITY PRODUCTION AND FLOWS 0.0% Transport 96 102 -5% REGIMES AND SHIFTS. 8. Independent producers Irrigation 170 158 8% USUALLY THE RATE FOR THE ENERGY 0.3% Drinking water 62 67 -7% 9. Import PRODUCED BY SMALL HPPS, IS BEING Other consumers 1,746 1,689 3%

ESTABLISHED IN THE BEGINNING OF (EACH) Export 43 178 -76% YEAR AND IS VALID THROUGHOUT THE WHOLE 0.9% YEAR. “Artsakhenergo” 35 51 -31% 10. Artsakhenergo CJSC Other 8 127 -94% 28 | 2018 Annual report 2018 Annual report | 29 09.COMPANY’S PERFORMANCE GENERAL GENERAL PERFORMANCE 09.COMPANY’S PRODUCTION FINANCIAL INDICATORS. PERFORMANCE 30 | 2018 Annual report 2018 Annual report | 31 DYNAMICS OF THE MAIN THE DYNAMICS OF THE MAIN PRODUCTION AND FINANCIAL INDICATORS PRODUCTION AND FINANCIAL COULD BE DESCRIBED AS FOLLOWING: INDICATORS mln AMD

Financial Results 2018 2017 % changes

Benefit 181,412 191,026 -5.0

Energy purchased (120,951) (123,219) -1.8

Power transmission services (7,723) (11,758) -34.3

MARGINAL PROFIT 52,738 56,049 -5.9 Salaries, associate payments and taxes by actually (19,261) (19,849) -3.0 paid wages Deterioration/amortization (8,791) (7,651) 14.9

Technical maintenance and repair expenses (1,873) (1,410) 32.8

Use of stock/reserves (1,128) (2,053) -45.0

Reserve rehabilitation/devaluation expenses (34) 55 -162.6

Other operational expenses 689 779 -11.6

Other operational expenses (7,035) (7,135) -1.4

OPERATIONAL PROFIT 15,305 18,786 -18.5

Financial incomes 543 137 296.2

Financial costs and expenses (3,830) (8,658) -55.8

PRE-TAX PROFIT (LESION) 12,018 10,266 17.1

Profit tax expenses (1,265) (3,612) -65.0

NET PROFIT (LESION) 10,753 6,654 61.6

EBITDA 26,284 28,324 -7.2

*The reduction of EBITDA is due to the reduction of tariff margin 32 | 2018 Annual report 2018 Annual report | 33

COMPANY’S PRODUCTION PERFORMANCE INDICATIONS COVENANTS TRENDS

% guideline 2018 2017 2016 2015 2018 2017 figure formula for calculating values changes

Transmission facilities total length (km) 32 500 32 200 0,5 (Long term + short-term credits Debt/EBITDA ≤ 3 2.95 2.78 1.55 1.78 and borrowings) EBITDA

High voltage networks (110kV and higher) 2 900 2 800 0,8

Current assets Current Ratio ≥ 1 1.03 1.00 0.70 0.62 Medium voltage networks (35-10 kV) 14 100 14 100 0,8 Current liabilities

Low voltage networks (0,4 kV and lower) 15 300 15 300 0,1 (Current liabilities + non- D/E Ratio current liabilities) ≤ 3 1.69 2.07 2.01 3.65 Transformers division power (МWА) 9 435 9 678 -7 Capital

Power network release (mln kWh) 5 907 6 339 5,0

Network energy losses (mln kWh), total 475 539 -12

Technological 475 539 -12

The same % as per network release 8.0% 8,5% -0,5

Electric power sales (mln kWh) 5 432 5 799 -6%

The same % as per network release 8.04 8,5% -5.41

Electric power sales (mln kWh) 5410 5774 6,3

for production and economic use (mln kWt*h) 22 25 -11%

Commercial 0 0 - 34 | 2018 Annual report 2018 Annual report | 35

COMPANY’S FINANCIAL CONDITION

mln AMD

% Indications 2018 2017 changes

ASSETS

Non-current assets 135,867 122,377 11.0

Current assets 39,565 44,385 -10.9

Assets in total 175,432 166,762 5.2

CAPITAL AND OBLIGATIONS

Stock funds 65,153 54,400 19.8

LONG TERM OBLIGATIONS

State subsidies 3,759 4,000 -6.0

Credits and loans 59,299 57,905 2.4

Commercial and other credit obligations 3,353 54 6087.1

Clearly suspended tax liabilities 5,639 6,075 -7.2

Total for long term obligations 72,049 68,035 5.9

SHORT TERM OBLIGATIONS

State subsidies 244 244 0.0

Credits and loans 18,180 20,725 -12.3

Commercial and other credit obligations 19,805 23,358 -15.2

Commercial and other credit instruments 0 0 0

Reserves 0 0 0

Total for short-term obligations 38,229 44,327 -13.8

Total obligations 110,279 112,362 -1.9

Total for funds and obligations 175,432 166,762 5.2 36 | 2018 Annual report 2018 Annual report | 37

FUNDS FLOW

mln AMD mln AMD

% % 2018 2017 2018 2017 changes changes

OPERATIONAL ACTIVITIES Net cash proceeds from operational activities 22,639 18,082 25.2

Net profit 10,753 6,654 61.6 INVESTMENT PERFORMANCE

CORRECTION OF NON-FINANCIAL ITEMS FOR VERIFICATION OF PRE-TAX LESION WITH NET FUNDS FLOWS Main assets purchase (16,266) (20,203) -19.5

Deterioration and amortization 8,791 7,651 14.9 Non-material assets purchase (322) (337) -4.2

Impairment (reversal)/losses 34 (55) -162.6 Main assets sales revenues 94 174 -46.1

Loss on disposal of property and equipment 136 191 -29.1 Net proceeds from placement of bank deposits (65) 13 -618.4

Amortisation of government grants (13) (54) -76.4 Obtained interest (%) 558 121 362.2

Net cash flows targeted for investment Reversal of provision for litigations and claims (241) (243) -1.2 (16,002) (20,233) -20.9 activities Reversal of tax provision 0 0 0 FINANCIAL ACTIVITIES

Accrual of vacation reserve 1,983 2,042 -2.9 Proceeds from borrowings 124,058 173,079 -28.3

Net finance costs 3,287 8,521 -61.4 Repayment of borrowings (124,124) (151,611) -18.1

Income tax expense 1,265 3,612 -65.0 Interest paid (4,679) (18,992) -75.4

CHANGES IN: Net cash flows used in financing activities (4,745) 2,477 -291.6

Inventories (2,505) (918) 172.9 Net decrease in cash and cash equivalents 1,892 326 479.7 Trade and other receivables 2,413 3,287 -26.6 Cash and cash equivalents at 1 January 1,852 1,342 38.0 Trade and other payables (2,966) (5,836) -49.2

Effect of movements in exchange rates on cash and Cash flow from operations before income taxes and (146) 184 -179.2 22,939 24,852 -7.7 cash equivalents interest paid

Interest paid (300) (6,769) -95.6 Cash and cash equivalents at 31 December 3,599 1,852 94.3 38 | 2018 Annual report 2018 Annual report | 39

2012-2018 2018 2017 2016 2015 2014 2013 2012 Benefit 181,412 191,026 192,743 181,005 157,935 132,101 112,281

Energy purchased (120,951) (123,219) (117,695) (110,768) (112,887) (96,996) (78,073)

COMPARATIVE ANALYSIS Power transmission services (7,723) (11,758) (7,091) (7,840) (8,192) (5,245) (3,948)

MARGINAL PROFIT 52,738 56,049 67,956 62,397 36,856 29,860 30,260

OF EBITDA Salaries, associate payments and (19,261) (19,849) (20,195) (19,129) (18,961) (18,166) (17,084) taxes by actually paid wages

Deterioration/amortization (8,791) (7,651) (6,734) (6,370) (6,156) (5,735) (5,563)

Technical maintenance and (1,873) (1,410) (1,279) (1,320) (1,360) (1,346) (993) repair expenses

Use of stock/reserves (1,128) (2,053) (2,020) (3,028) (3,137) (3,234) (2,788)

Reserve rehabilitation/ (34) 55 695 (591) 367 (792) (214) devaluation expenses

Other operational income 689 779 1,790 2,160 2,733 2,659 1,466

Other operational expenses (7,035) (7,135) (6,873) (7,022) (8,310) (6,591) (8,080)

OPERATIONAL PROFIT 15,305 18,786 33,340 27,095 2,032 (3,345) (2,997) 26,284 2018 Financial incomes 543 137 91 3,619 190 257 404

28,324 2017 Financial costs and expenses (3,830) (8,658) (4,562) (6,321) (12,073) (6,450) (7,828) PRE-TAX PROFIT (LESION) 12,018 10,266 28,869 24,392 (9,851) (9,538) (10,421)

41,058 2016 Profit tax expenses (1,265) (3,612) (5,584) (3,385) (826) (349) 227

NET PROFIT (LESION) 10,753 6,654 23,285 21,007 (10,677) (9,887) (10,194)

34,718 2015 EBITDA 26,284 28,324 41,058 34,718 10,164 3,362 5,306

EBITDA without reimbursement, included in 26,284 28,324 27,392 24,956 19,222 14,233 8,804 10,164 2014 margin 2012-2018.

3,362 2013 As a result of the changes in the structure of power production in 2012-2015 the Company suffered losses, as a result of which long overdue obligations accumulated for power producing companies: in total 23,4 bln. drams, including 3.5 billion for 2012; 10.9 billion drams for 2013 and 9.1 billion drams for 2014 . In the tariff 5,306 2012 margin 2015-2016 the sum was included for the previous years, including 9.8 billion drams for 2015 and 13.7 billion drams or 2016. 40 | 2018 Annual report 2018 Annual report | 41

TO REACH THE OBJECTIVES PLANNED, THE 10. COMPANY’S COMPANY SUPPOSES TO IMPLEMENT ASEQUENCE GROWTH OUTLOOK OF KEY EXTENTS:

2020 MAIN TARGETS

installation of so called ASKOUE system (Automated system of commercial billing of electric power),

ISO standards implementation, business processes automatization,

providing subscribers decrease of the power loss with power supply in indications down to 7,5% level accordance with RA regulations

development, capsulation and economical, political implementation of the Company’s and technological data strategic growth plan, monitoring,

to arrange mutual cooperation with state permanent control and liquidity authorities, Public Services Regulatory Commisssion, shareholders and other management, governmental entities,

securing the billing collection for the power supplied at the level not less than 99% credit portfolio refurnishing, 42 | 2018 Annual report 2018 Annual report | 43 11.INVESTMENT PERFORMANCE 44 | 2018 Annual report 2018 Annual report | 45

DURING THE YEAR OF 2018 THE FUNDING FORMED 24 322 508 THE COMPANY INTENDS TO COMPANY HAS COPED 27 042 930 THOUSAND AMD (INCLUDING VAT), IMPLEMENT THE FOLLOWING MAJOR THOUSAND AMD (WITHOUT VAT) COMPRISING: PROJECTS OF GREAT IMPORTANCE IN CAPITAL INVESTMENTS 2019:

• «Reconstruction of 35 kW voltage cable lines for Yerevan, Davitashen-Ajapnyak 1,2 Davitashen- Mergelyan 1,2 Vardashen-Charents 1,2 Vardashen- Nar Dos 1,2», 4 988 716 5 049 462 4 867 893 7 192 946 • «Construction of 6x1000 kVA and 6/0.4 voltage new underground distribution units adjacent to the main avenue in Yerevan», 27 042 930 24 322 508 • Reconstruction of 110 kW air lines for «Shengavit 2» and «Central 2» in Yerevan,

• «It is anticipated to replace around 151,000 meters 6 286 304 7 479 402 10 718 447 4 782 267 within the framework of “The implementation of automated accounting and control systems for electricity in 0.38/0.22 kW networks”».

MAIN ASSETS FORMING 21 593 237 THOUSANDS AMD (WITHOUT VAT) INPUT, COMPRISING:

3 948 704 4 030 147

21 593 237

4 888 597 8 725 789

technical reequipment and reconstruction

new constructions and enhancement

other investments as capital injections

other work of solid (capital) kind 46 | 2018 Annual report 2018 Annual report | 47 12.COMPANY’S JOINT STOCK JOINT STOCK 12.COMPANY’S STRUCTURE CAPITAL 48 | 2018 Annual report 2018 Annual report | 49

The authorized capital of the Company forms 18 654 221 100 RA drams and is divided to 246 423 simple 18 654 221 100 stock shares, each with nominal value of 75 700 DRAMS RA drams. There are no privileged shares in the authorized capital of the Company. 246 423 Before that the shareholder of 50.0002029% shares PIECES (123212.000 stock shares) of the Company was the INTER RAO Holding B.V.

The shareholder of 49.9997971% shares (123212.000 000 stock shares) of the Company was 75 700 FROM 28.12.2016 THE SHAREHOLDER OF 100% SHARES OF the LIORMAND HOLDING LIMITED. DRAMS THE COMPANY WAS LIORMAND HOLDING LIMITED. 50 | 2018 Annual report 2018 Annual report | 51 13.INCORPORATED SOCIAL SOCIAL 13.INCORPORATED LIABILITIES 52 | 2018 Annual report 2018 Annual report | 53 BRIEF REVIEW

The incorporated social liability, as a principal of Starting with 2012, in all the schools, Company holds corporate management, plays a significant role at all trainings on power usage rules, and, while holding the stages of solutions preparation and managerial that trainings, Company’s employees in a children- decision making, and appears as one of the basic friendly manner describe what power is, how it is criterions for the sustainable development of the being supplied and how one can use it safely. Company. Among most significant charity and sponsorship The «Electric Networks of Armenia» CJSC, appearing projects should be stated separately: providing help as the largest employer in the Republic of Armenia, to kid houses in Vanadzor and Yerevan, shelters for provides worthy working conditions and appropriate children with physical and mental decease (Mother social packages for its employees. Theresa’s Shelter in Spitak, «Prkutyun» Shelter in Yerevan), for families in Gyumri, financial support to Herein, we consider as one more achievement the socially vulnerable groups of population, supporting fact of ENA staff sustainability and development, education and culture. The social incorporated as well as all those steps that are being made for liability, as a principle of corporate management, plays professional skills improvement. A great deal of a big role at all the stages of decision making and attention is paid to sports – particularly, to football, appears as one of the basic factors for the sustainable chess and backgammon tournaments. The ENA development of the Company. permanently arranges football matches between teams representing different companies.

It’s very important to note also the efficient work of the Company’s trade union, which, in the framework of the Corporate Agreement, disburses 50% retire bonus for World War 2 and Labor veterans (about 180 people), supports handicaps, Company’s employees medical treatment etc. 54 | 2018 Annual report 2018 Annual report | 55 STAFF MANAGEMENT AND HR POLICY

During the reported period, the priorities of the Company’s performance in the aspect of human capital were the improvement of management, including Company’s chart organization, increase of the work productivity, staff THE HR POLICY OF THE COMPANY IS training projects implementation, safety issues etc. TARGETED TO:

arrangements on staff skills improvement, social partnership development, teaching and training,

improvement of the staff motivation tools, extension of the corporate policy role,

career planning and staff development, involving young specialists, development.

staffing reserve formulation, 56 | 2018 Annual report 2018 Annual report | 57 COMPANY’S STAFF THE PERSONNEL STRUCTURE BY AGE CATEGORIES LOOKS BACKGROUND AS FOLLOWS:

Under 30 726 10.57% From 31 to 40 1216 17.69% From 41 to 50 1646 23.95% The roaster number of the Company 6872 staff as per the end of 2017 formed From 51 and over 3284 47.79% EMPLOYEES The staff is categorized also as presented below:

Educational level by staff categories:

higher professional education PERSONS, CATEGORIZED 2377 INCLUDING: STRUCTURE 60.24% 1 432 27.64% 657 12,12% 288 1 1 24.87% / 1 709 specialists clerks and technical staff managers, workers specialists clerks and team leaders (laborers) technical staff 2 9.68% / 665 managers, team leaders 2 3 65.45% / 4 498 3 workers (laborers) 174 2 870 1451

persons possess 2 higher persons possess high associates of the Company educations, professional education, possess common high education. 58 | 2018 Annual report 2018 Annual report | 59 14.ENVIRONMENT PROTECTION 60 | 2018 Annual report 2018 Annual report | 61

The Company operates a number of units, making reducing the production waste generation and taking preventive steps to liquidate negative impact on environment because of waste disposing environmentally safe operating with those, environmental consequences, and keeping, noise and electrical induction impact. priority of the implementation of best technological Within the purpose of industrial safety the Company The impact mentioned cannot be completely practices existing, in comparison with arrangements implements technical supervision on design, cancelled, but the Company works hard to minimize to minimize the environmental impact of the construction and operation works, supports the and to compensate it. working equipment (considering the technical- development and implementation of arrangements economical justification), aimed to prevent industrial errors, breakdowns and accidents,

THE BASIC PRINCIPLES OF THE COMPANY’S ENVIRONMENTAL POLICY ARE:

international cooperation in the field of environmental and efficient power technologies, as well as supporting research in the aspect of environmental impact assessment and climate change,

transparency and availability of environmental database, urgent acknowledgement of all the stakeholders in a case of breakdowns, environmental consequences and troubleshooting,

IT’S SEEMS IMPORTANT TO NOTE, THAT THE DIRECTORS’ BOARD HAS DEFINED AS A PRIORITY THE DEVELOPMENT, CERTIFICATION AND IMPLEMENTATION OF ENVIRONMENTAL MANAGEMENT CONCEPT, IN ACCORDANCE WITH ISO 14001:2004. 62 | 2018 Annual report 2018 Annual report | 63

«ELECTRIC NETWORKS OF ARMENIA» CJSC CONTACT INFORMATION: Address: 127 Armenakyan Street, Yerevan 0047, Republic of Armenia Phone: +374 (10) 650 086 Fax: +374 (10) 655 457 E-mail: [email protected] Website: www.ena.am Taxpayer ID: 01520882 Banking details: 160485017828, «VTB Armenia Bank» CJSC REGISTRATOR According to the appropriate signed Agreement, registrator of «Electric Networks of Armenia» CJSC is «ArmSwisBank» CJSC Address: 10 V. Sargsyan Street, Yerevan, Republic of Armenia Registrator’s contact phones: +374 (10) 540 782; +374 (10) 540 696 Registrator’s license details: No license requirements. AUDITOR: The Company’s auditor is: «KPMG» CJSC («KPMG ARMENIA») Auditor’s contact phones: +374 (10) 566 762 Auditor’s license details: № 002 April 10, 2002 15.ADDITIONAL INFORMATION FOR INFORMATION FOR 15.ADDITIONAL SHAREHOLDERS