OAO IRKUTSKENERGO Address to Shareholders Performance OAO Irkutskenergo: PRODUCTION

OAO IRKUTSKENERGO Address to Shareholders Performance OAO Irkutskenergo: PRODUCTION...... 27 by the Chairman Highlights...... 9 an overview...... 15 of the Board...... 5 Installed Capacity Report of Directors General Information...... 16 of Power Plants...... 28 Address to Shareholders on Company by the General Performance ...... 11 Company Structure...... 17 Power Generation...... 28 Director...... 7 Major Events Plants and Facilities...... 18 Production and Developments...... 12 Performance...... 31 Power Generation Company’s Capacity of the Company.... 22 Procurement...... 31 Objectives, Activities, and FUTURE...... 13 Shareholder’s Equity...... 23 operational quality of the POWER system...... 32

Production Efficiency Improvement Program...... 33

OAO Irkutskenergo HEAT AND ELECTRICITY Organizational Investment Social Policy...... 60 MARKET...... 35 Structure of Corporate Activities...... 57 Management...... 44 Auditor’s Statement...... 62 TARIFFS AND TARIFF POLICY...... 37 Standardization and Streamlining ENERGY SALES...... 38 of Business Processes...... 47

DOMESTIC MARKET...... 40 Financial Management...... 50

EXTERNAL MARKET...... 41 Human Resources...... 53

Environmental Protection...... 54 Appendixes...... 63 INFORMATION Financial Statements of OAO Irkutskenergo, 2005...... 63 TECHNOLOGIES...... 55 Meetings of Management Bodies of OAO Irkutskenergo in 2005...... 68

Corporate Code of Conduct and Ethics...... 70

Annual Report 2005 «...The year 2005 was successful. The Company achieved a strong operating and financial performance and considerably increased payments to the local, regional and federal budgets without raising tariffs since 2004...»

OAO Irkutskenergo ADDRESS TO SHAREHOLDERS BY THE CHAIRMAN OF THE BOARD, OAO IRKUTSKENERGO

Dear Shareholders, The year 2005 was successful. The Company achieved tinued growth of the Company’s market capitalization and a strong operating and financial performance and consider- the shareholders’ dividends – a matter of high priority for ably increased payments to the local, regional and federal the government too, as it is looking to support social wel- budgets without raising tariffs since 2004. This was the re- fare programs thereby increasing budget receipts. The Com- sult of our painstaking efforts at reducing costs and opti- pany will pursue investment programs to upgrade technical mizing business processes; also of our strong community units and streamline operations: hydropower plants, heat- involvement and sound investment policy with regard to ing mains and the construction of new transmission lines. In power supply in the Irkutsk region. Everybody in Russia terms of sales, we will focus on reducing non-payments and today knows about the project for rural electrification of accounts receivable, and increasing sales profitability. The the unique Olkhon Isle on Lake Baikal. There are very few latter could be achieved, among other things, by acquiring power companies that can boast building similar heating wholesale distributors and resellers as well as through clos- and power lines and planning to launch advanced power er cooperation with housing and utilities organizations. generation facilities. We have many objectives to accomplish in the other The Company was also productive in other energy business segments of OAO Irkutskenergo, and this will activities. Since May 2005, OAO Irkutskenergo has been require great efforts by all our staff members. I am confi- successfully operating in the wholesale market. It has ac- dent that our experts, who are highly professional, respon- cumulated valuable experience, and the company’s finan- sible and talented workers, will succeed in achieving these cial performance has visibly improved. While targeting ef- targets. ficiency improvement, much has been done to enhance procurement management: we have streamlined business processes and worked to choose more suppliers through Yury M. Medvedev competitive tendering procedures. Sales have been on the Chairman of the Board rise, primarily due to the acquisition of heating and power networks from utility distributors and resellers. This excluded intermediaries between producers and consumers and brought about many benefits, such as increased reliability and a higher level of service and cost optimization. The successful work of our Human Resources department and the Company’s charitable activities have been acknowledged throughout Russia. In the past year, we were finalizing preparation for restructuring OAO Irkutskenergo. The Board saw it as one of the key issues and set up an ad-hoc committee for strategic development and restructuring. In fact, the Company became ready for functional unbundling as early as the beginning of 2006. All non-core assets were transferred to subsidiaries, and TPO (Total Production Optimization) and cost management programs got underway. In 2005, we split expenses, assets and liabilities between monopoly and le- gally competitive activities. This shows that the Company’s restructuring is evolving on schedule in compliance with accepted standards. In 2006, we will focus on completing restructuring of the power system while preserving reliable supplies to our customers. High on the list are the issues of cost reduction, streamlining of business processes and improvement of our corporate governance system. The latter is particularly important for restructuring. This, as I hope, will maintain con-

Annual Report 2005 «...In 2005, the Company pursued a balanced, coherent and targeted policy aimed at laying the ground for the reform of the power system, and improving the operating, economic and financial performance of the Company...»

OAO Irkutskenergo ADDRESS TO SHAREHOLDERS BY THE GENERAL DIRECTOR

Dear Shareholders, In 2005, the Company pursued a balanced, coherent In 2005, total investments of the Company in poten- and targeted policy aimed at laying the ground for the re- tially high-return projects exceeded RUR 667 mln. form of the power system, and improving the operating, In the same year, the arrangement of electricity sup- economic and financial performance of the Company. In ply to Olkhon Isle became the most important social invest- the past year, OAO Irkutskenergo increased power genera- ment project completed in the region, which included the tion by 1.8% to 54,693 million kWh resulting in the growth construction of the VL-35kV power line from Olkhonskiye of revenue by 4.1% to RUR 19,111 mln. Vorota to Khuzhir, with a capacity of 35/10 kW and distribu- Energy tariffs were maintained at the level of 2004, tion networks of 10 and 0.4 kV. This required laying a two-ki- which had a positive and important impact on the social lometer 33-tonne cable along the bottom of Lake Baikal at and economic development of the Irkutsk region. More- 40 m depth, which became the project’s notable feature. over, the Company managed to attain significant results In 2005, the Company further improved its heat trans- through streamlining the utilization of internal resources fer systems in the cities across the Irkutsk region. Munici- and implementation of an efficiency engineering program. palities granted the Company freehold or leasehold titles to The program’s key objectives were: heating networks in Angarsk, Zheleznogorsk-Ilimskiy, Cher- = to reduce maintenance and operating costs, emkhovo, Ust-Ilimsk and Irkutsk (the right bank), and in the settlements of Meget and Yugo-Vostochniy. This enabled = to raise fuel utilization efficiency, us to optimize network load and maintenance schemes, reduce heat losses and harmful emissions, initiate rehabili- = to reduce electricity transmission and distribution tation of heat supply systems, and improve the quality of losses in power networks. dispatch control of heating networks. Furthermore, by the In 2005, the program saved the Company over end of 2005 two subsidiaries of the Company were incor- RUR 522 mln. While aiming to reduce administrative costs porated in Irkutsk – OOO Elektrosbyt and OOO Irkutskaya and eliminate duplication of functions, the Company con- Gorodskaya Teplosbytovaya Kompaniya (energy trading tinued establishing heat clusters in Angarsk, Bratsk, Sayansk companies). The new entities are to raise client servicing and Irkutsk. standards in the regional center, improve collections and foster rational use of energy. From 2003 to 2005, on the back of proactive measures to enhance the professional development of personnel, the The year 2005 was also notable for new developments number of safety incidents at production facilities of OAO in energy sales: after liberalization of the wholesale electric- Irkutskenergo fell by 27% (from 35 in 2003 to just eight ity market in Siberia starting from May 1 OAO Irkutskenergo in 2005). has been selling energy in the open market. Last year we mostly concentrated on evolving training programs and In addition to allocating funds to replace physically improving the trading systems (including procurement reg- and functionally obsolescent equipment and rehabilitate ulations). Given the small proportion of the output that is power and heating networks the Company initiated a num- allowed to be offered for sale, the results of these efforts can ber of major high-return projects including: be considered positive. Over eight months, the Company = construction of a heating main connecting the distributed 590 million kWh in the open wholesale market Novo-Irkutskaya combined heat and power (1.1% of total output). plant (Novo-Irkutskaya CHPP) and the Sverdlovs- As in previous years, the Company focused on per- kaya District Boiler (Irkutsk). Payback period – sonnel assessment and training and continued paying so- 3.8 years; cial security benefits to the staff, totaling RUR 138.2 mln in the reported period. This work also included social allow- = construction of a heating main connecting the ances, a young specialist support program, social benefits, Novo-Ziminskaya CHPP (Sayansk) and the TETs-3 direct payments to pensioners, as well as social, cultural and CHPP (Zima). Payback period – 3.9 years; health promotion activities. = replacement of rotors and hydraulic turbines To sum up: OAO Irkutskenergo remains committed at the Bratskaya hydropower station (Bratskaya to creating a modern, efficient and flexible company that HPP). Payback period – 3.3 years; strives to meet Russian and international standards. = installation of flow meters at the Ust-Ilimskaya HPP. Payback period – 1.9 years. Sergey V. Emdin General Director

Annual Report 2005

Performance Highlights PERFORMANCE HIGHLIGHTS

Item 2002 2003 2004 2005

Electricity output, mln kWh, including: 56,455 51,414 53,717 54,693

- hydropower plants (HPPs), mln kWh 48,076 39,668 44,304 46,989

- thermal power plants (TPPs), mln kWh 8,379 11,746 9,413 7,704

Electricity sold to consumers, mln kWh: 45,760 42,507 45,253 47,885

- residential consumers, mln kWh 39,818 40,864 42,049 42,824

- Federal Wholesale Electricity Market (FOREM), mln kWh 5,942 1,643 3,204 5,062

Heat supplied to consumers, thousand Gcal 27,195 26,545 25,234 24,493

Installed capacity of TPPs, mln kW 3,879 3,879 3,879 3,877

Installed capacity of HPPs, mln kW 9,002 9,002 9,002 9,002

Length of power lines, km 34,698 34,159 34,549 35,158

Length of heating network, km 733 732 974 1,384

Employees, as of December 31 18,055 15,099 12,075 11,596

Average salary, RUR 8,974 10,954 13,905 16,969

Sales, mln RUR (net of VAT) 12,229 14,683 18,348 19,111

Gross profit, mln RUR 463 687 3,394 2,998

Profit before tax, mln RUR 193 1.3 1,485 1,732

Net profit, mln RUR 193 1.3 926 1,205

Assets as of December 31, mln RUR 36,966 40,747 52,270 54,007

Market capitalization as of December 31, (according to the Russian Trading System), mln RUR 11,187.7 16,317.1 27,060.3 53,216.7

Dividends per share, RUR 0.03655 0.03655 0.04196 0.05057

10 OAO Irkutskenergo REPORT OF DIRECTORS ON COMPANY PERFORMANCE

In 2005, OAO Irkutskenergo carried on with the re- In accordance with the coal strategy, we explored forms launched in 2003 aimed at improving the Com- possibilities for creating our own coal stock on Irbeys- pany’s efficiency. koye and Golovinskoye coal fields. The Company continued fulfilling plans to reduce The Board of Directors will work further to improve operating expenses, to optimize equipment perfor- the Company’s efficiency as its main priority. All req- mance, and bring down losses. uisite action is to be taken to ensure growth in capitalization and deliver value to shareholders, as well as to We implemented a new approach to repairs and main- prepare for operations in the competitive electricity tenance, whereby preventative maintenance was market in Russia. substituted by repair-as-necessary and age-repair. A major investment project to replace rotors at the Bratskaya HPP is underway. The construction of heat- Major events ing lines between the Novo-Irkutskaya CHPP and the Sverdlovskaya District Boiler (Irkutsk), and between the Novo-Ziminskaya CHPP (Sayansk) and the TETs-3 In the reporting period, the Company continued to CHPP was completed. These projects will enable us optimize its structure in keeping with the earlier ad- to bring down costs related to obsolete equipment opted strategy. maintenance, to save on the fuel component of production costs, to reduce harmful emissions, increase As part of these efforts, the Company accomplished reliability of heat supply systems in Irkutsk and Zima, administrative and technical consolidation of its sub- and increase low-cost electricity output. sidiaries. In Q2 2005, the assets of the TETs-5 CHPP and the Irkutsk Heating Networks were consolidated Further steps were made to decrease outstanding into the enlarged Novo-Irkutskaya CHPP. In Q3 2005, debtors’ days, to eliminate non-payments, and to ac- the TETs-9 СHPP grew through the merger of its as- quire power distribution networks of wholesale dis- sets with the TETs-1 CHPP and the Angarsk Heating tributors and resellers in Angarsk, Ust-Ilimsk, Bratsk, Networks. A study is underway to ensure the feasibil- Zheleznogorsk-Ilimsky, etc. ity of consolidating the TETs-6 CHPP and the Bratsk Another major focus was on the Company’s procure- Heating Networks. ment policy: we streamlined business processes relat- The annual general meeting of shareholders held on ed to materials supply; organized purchases through June 24, 2005 elected a new Board of Directors and competitive bidding; and developed procedures to the Company’s Internal Audit Committee, approved improve control and monitoring of inventory days. the annual report and financial statements, decided It should be noted that these and other efforts by on the distribution of profits for 2004 and payment the management of the Company were conducive of dividends, and appointed the Company’s Auditor to keeping electricity and heat tariffs unchanged for 2005. in 2005. Looking ahead to future energy market liberalization the Board of Directors considered and approved the Company reform plan. In 2005, OAO Irkutskenergo initiated the separation of natural monopoly activities from potentially competitive ones. This process will continue in 2006.

Annual Report 2005 11 Major Events and Developments

The following issues were discussed at the meetings of the Board:

= elimination of the forecast capacity deficit in the Irkutsk region by 2020;

= preparation of the lease agreement between the Federal Agency for Federal Property Man- agement and OAO Irkutskenergo on the lease of dams of the Angarsky HPP Cascade;

= the Company’s performance in the non-regulated segment of the wholesale electricity market;

= restructuring of OAO Irkutskenergo;

= the Company’s coal strategy.

On October 13, 2005, the Board appointed Sergey V. Emdin General Director of OAO Irkutsken- ergo (formerly the Company’s Executive Director). The Board of Directors formed the Committee on Strategic Development and Restructuring. Four subsidiaries were established as part of the strategy to divest non-core business activities:

= ZAO Irkutskzoloprodukt;

= OOO Pozharnaya Okhrana Irkutskenergo;

= OOO Irkutskaya Gorodskaya Teplosbytovaya РИСУНОК Kompaniya (heat supply company);

= OOO Elektrosbyt (power supply company)

As part of the work to improve the management in divested entities, formerly established subsidiaries and related companies reported on their performance in the past period. OAO Irkutskenergo approved their annual reports and financial statements and passed a decision on the distribution of profits and dividends for 2004.

12 OAO Irkutskenergo

OAO IRKUTSKENERGO: AN OVERVIEW General information

Joint stock company incorporated in accordance with Presidential Decree “On Measures to Reorganize State En- terprises and Voluntary Associations of State Enterprises into Joint Stock Companies” OAO Irkutskenergo

Irkutsk Joint Stock Company of Energetics Full name and Electrification

Short name OAO Irkutskenergo

Registration Number with 1023801003313 the Consolidated State Register of Legal Entities

Registration date July 12, 2002

General director Sergey V. Emdin

Chief accountant G. Tolstykh

3 Sukhe-Bator Street, Irkutsk 664025, Irkutsk Region Registered Office/Postal Address Russian Federation

39 Chkalova Street, Irkutsk 664025, Irkutsk Region, Regional Committee for Public Statistics Russian Federation

OAO Irkutskenergo is an independent electricity company separate from RAO UES of Russia. The Company assists RAO UES in maintaining the required frequency and level of voltage in the Siberian energy area and in carrying out electric power transmission through its own network, to provide its parallel operation within the Unified Energy System of Russia.

Core Operations

The Company’s core operations as set out in its Charter are as follows:

Generation, transmission and distribution of electric Operation of power and thermal power and selling it to consumers and heating networks (buyers)

Energy delivery services Dispatch control and provision of power consumption modes, participation in dispatch control in the Sibe- R&D, design and use of new equipment rian energy zone and Unified Energy System of Russia and technologies

Foreign trade Operation, installation supervision, installation, ad- justment, technical upgrading and modernization of Operation and maintenance of facilities electricity and heating facilities and equipment on the books of Rostekhnadzor

16 OAO Irkutskenergo COMPANY STRUCTURE

OAO IRKUTSKENERGO

REP. OFFICES

Subsidiaries Moscow office

Thermal Power Hydropower Energosbyt energy Power Networks Plants (TPPs) Plants (HPPs) trading company

TETs-6 TETs-10 combined combined heat and heat and power power Bratskaya Western Power plant plant HPP Networks

TETs-11 TETs-12 combined combined heat and heat and power power plant plant Ust-Ilimskaya Northern Power TETs-16 HPP Networks combined Bratsk heat and Heating power Networks plant

TETs-9 combined heat and power plant Irkutskaya Southern Power (TETs-9, TETs-1, Angarsk HPP Networks Heating Networks)

Novo-Irkutskaya combined heat and power plant (N-I TETs, TETs-5 combined heat and power plant, Irkutsk Heating Networks) Central Power Networks

Ust-Ilimskaya combined heat and power plant

Eastern Power Novo-Ziminskaya Networks combined heat and power plant

Annual Report 2005 17 PLANTS AND FACILITIES

Launched in 1964. 1. TETs-6 CHPP Installed Capacity – 270 MW. Total Boiler Steam Generation Capacity – 3,200 tonnes/hour.

Designed as an integral part of the Bratsk Timber Processing Complex (BLPK). Commissioned in De- cember 1964. In March 1965, it was separated from BLPK and handed over to the USSR Ministry of Energy (REU Irkutskenergo). In 2005, it became the first of all Company’s entities to install a hydraulic clutch on a makeup pump of PEN-2 type, and supersonic nozzles on oil guns of boiler units.

Launched in 1963. 2. TETs-9 CHPP Installed Capacity – 475 MW. Total Boiler Steam Generation Capacity – 4,620 tonnes/hour Integrated with the TETS-1 CHPP and Angara Heating Networks into one heat cluster in 2005.

Stations 2 and 4 were among the first 20 stations in Russia which carried out low-temperature stress-relieving of boiler drums, which increased the economic life of metal parts by 50,000 hrs. In 1992, high pressure rotors and cylinders of a turbine generator of PT-50-130 type on Station 1 were replaced with high pressure rotors and cylinders from a turbine of PT-80-130/13 LMZ type. Due to the adoption of the countercurrent demineralization technology with inert charge, lines 1 and 2 of the makeup demineralizer of HVO-2 type at the TETs-9 CHPP were reconstructed.

Launched in 1951. 2.1. Facility 1 of TETs-9 (TETs-1) CHPP Installed Capacity – 185 MW. Total Boiler Steam Generation Capacity – 2,985 tonnes/hour.

In April 1945, in order to satisfy the factory’s energy needs, it was decided to set up a fuel and chemical factory in the Angra-Kitoy interfluve as well as the TETs-1 CHPP. The TETs-1 CHPP supplies the city of Angarsk and its industrial facilities with thermal power and electricity. For many years TETs 1 has been the basis for the development of Angarsk Сity and served as an energy base for new power plants and factories. TETs-1 trains staff for many plants locally and throughout Russia.

2.2. TETs-9 Heating Networks (Angarsk Launched in 1964. Heating Networks, AHN) 437.4 kilometers of heating networks as of 2005.

The TETS-9 Heating Networks (Angara Heating Networks) transmit and distribute thermal power from the TETs-9 CHPP, Facility 1 of TETs-9 and the TETs-10 CHPP. In 2005, heating networks of the Angarsk Electrolytic Chemical Plant and the Megetsky Municipal- ity were consolidated with the assets of AHN.

Launched in 1959. 3. TETs-10 CHPP Installed Capacity – 1,110 MW. Total Boiler Steam Generation Capacity – 4,220 tonnes/hour.

The TETS-10 CHPP is the first modular power plant in Russia. The condensing turbogenerator of K-150-130 type in Station 6 was reconstructed and converted into an exhaust turbogenerator. Installed heat capacity of the unit – 150 Gcal/hour.

18 OAO Irkutskenergo Launched in 1959. 4. TETs-11 CHPP Installed Capacity – 350.3 MW. Total Boiler Steam Generation Capacity – 2,840 tonnes/hour.

The construction of the TETs-11 CHPP started in 1954. The plant was designed as the energy generating unit for the Usolsk Chemical Works. In 1959, the first power-generating unit was launched, and in the same year TETs-11 was transferred to the books of the Irkutsk Regional Economic Council under the USSR Ministry for Energy and Electrification. Upgrading: Modernization of coal pulverization systems with dust-ignition-proof construction on boilers of Sta- tions 1–6 and 9; Installation of an air-cooling system on Station 4 generator; Replacement of high pressure rotors and cylinders of a turbine generator of PT-50-130 type on Station 3 were replaced with high pressure rotors and cylinders from a turbine of PT-80-130/13 LMZ type. In 2005, TETs-11 was implementing the Project for Production Efficiency and Management Im- provement.

Launched in 1932. 5. TETs-12 CHPP Installed Capacity – 7.5 MW. Total Boiler Steam Generation Capacity – 345 tonnes/hour.

Generator No. 2, 2,500 kW was launched on July 28, 1932. In 1963, the Cheremkhovskaya Central Power Plant was consolidated with REU Irkutskenergo. In 2003, the new water treatment technology for demineralizing water for boiler feeds was implemented.

Launched in 1964. 6. TETs-16 CHPP Installed Capacity – 18MW. Total Boiler Steam Generation Capacity – 375 tonnes/hour.

The TETs-16 CHPP is the only source of heat for the Korshunovsky Ore Mining and Processing Fac- tory, for city households and utilities and related enterprises.

In 2005, Alfa-Laval heat exchangers were installed on DSA deaerators of Stations 1–4, a new technology of steam-free treatment of makeup water for the heating networks was adopted.

Launched in 1975. Installed Capacity – 655 MW. 7.1. Novo-Irkutskaya CHPP Total Boiler Steam Generation Capacity – 4,000 tonnes/hour Integrated with TETs-5 and Irkutsk (N-I CHPP) Heating Networks into one heat cluster.

A boiler unit of BKZ-820-140-1C type in Station 8 with a unique ring-type T-furnace was commissioned in 2003. First automated control mode makeup demineralizer was launched. Since 2004, condensate purification and water pretreatment have been done in an automated control mode. In 2005, the CHPP was combined with TETs-5 and Irkutsk Heating networks into one heat cluster. Assembly of turbine exhaust lines 3.8 MPa to OAO Irkutsky Maslozhirkombinat from primary turbogenerator exhausts PT 60-130/13 of Stations 1 and 2 was completed in December 2005. Construction of heat main No. 4 between the N-I CHPP and the RK Sverdlovskaya distribution company was completed in 2005, with the N-I CHPP taking over the heat load of RK Sverdlovskaya.

Launched in 1960. 7.2. TETs-5 CHPP Installed Capacity – 18MW. (Shelekhovsky Facility of N-I CHPP) Total Boiler Steam Generation Capacity – 525 tonnes/hour.

The TETS-5 CHPP was designed as a high-capacity boiler for the Irkutsk Aluminum Plant. The Plant’s budget allocated funds for the construction of the CHPP. However the newly established Irkutsk Energy Department ruled to put the boiler under the control of Irkutskenergo.

Annual Report 2005 19 Energy system objects

Installed Capacity: RK Sverdlovskaya – 74 Gcal/hour RP Kirovskaya – 196 Gcal/hour. 7.3. Facility of heating networks of the Total heat generation capacity of Irkutsk Heating Networks electric boilers – 659.44 Gcal/h. N-I CHPP (Irkutsk Heating Networks) 221.4 kilometers of heating lines as of 2005.

The Irkutsk TETs-2 CHPP became part of the Irkutsk power system following Resolution No. 54 of the USSR Council of Ministers dated June 29 1954 and the order of the Ministry for Power Plants. Together with the Novo-Irkutskaya CHPP, the Irkutsk Heating Networks supply heat to all city districts: Sverdlovsky, Pravoberezhny, Oktyabrsky districts and part of Leninsky district. It has leased heating networks of Pravoberezhny district from Irkutskteploenergo MPTP.

Launched in 1980. 8. Novo-Ziminskaya CHPP (N-Z CHPP) Installed capacity – 240 MW. Total Boiler Steam Generation Capacity – 1,680 tonnes/hour.

Construction began in 1972. The plant was designed as a unit of the Ziminsky Chemical Works. In 1985, the N-Z CHPP was consolidated with the Irkutsk power system. The plant succeeded in introducing and applying an automatic fuel supply control system. Water-cooling towers1 and 2 were modernized in 2005, and the tower 1 sprinkler was replaced. In September 2005, a heat main between the N-Z CHPP and TETs-3 was constructed. The heating load of TETs-3 was taken over by the N-Z CHPP.

8.1. TETs-3 CHPP Installed capacity – 11.7MW. (Ziminsky Facility of the N-Z CHPP) Total Boiler Steam Generation Capacity – 375 tonnes/hour.

In 2004 a 1,7 MW steam turbine of AP-4-35/5 type was dismantled. In 2005, the heating load was taken over by the N-Z CHPP.

Launched in 1978. 9. Ust-Ilimskaya CHPP (U-I CHPP) Installed capacity – 525 MW. Total Boiler Steam Generation Capacity – 2,940 tonnes/hour.

The Ust-Ilimskaya CHPP was designed as part of the Ust-Ilimsk Cellulose Plant under the USSR Min- istry of Pulp and Paper Industry. A low-temperature vortex combustion system was installed on the boiler unit of BKZ 420-140-9 type of Station 6. Boiler units on Stations 1–5 and 7 were reconstructed to burn cheap local coal. In 2005, а MACON-21 radiometric conveyor meter was installed to measure fuel weight, humidity and ash content.

10. Bratsk Heating Networks (BHN) Launched in 1961. Installed electric power capacity: CHPP– 12 MW. Installed heat generation (CHPP, District Galachinskaya Boiler, capacity: CHPP – 461.2 Gcal/hour. District Galachinskaya Boiler - 403.4 Gcal/hour electric boilers and heating lines) Electric boilers – 190.3 Gcal/hour. 381.2 kilometers of heating lines as of 2005.

The BHN were designed to provide construction industry enterprises and households and utilities of Bratsk suburbs with heat and process steam. The CHPP has 9 boiler units of BKZ-75-39FB type and two turbine generators of R-6-35/5 type. The District Galachinskaya Boiler has two steam generators of E 75-39FB type and three water-heating boilers of KBTK-100 type.

Launched in 1961. 11. Bratskaya HPP (B HPP) Installed capacity – 4,500 kW.

The Bratskaya HPP is a unique plant in terms of engineering design, concept, specifications, capacity, efficiency and high level of performance. It is the first plant in the world with a high slotted concrete gravity dam. In 2005, a hydraulic unit on Stations 5 and 15 was overhauled. Installation of an OPN-220 overvoltage suppressor on the busbars of sections 1 and 2 of a 220 kV outdoor switchgear was completed.

20 OAO Irkutskenergo Launched in 1956. 12. Irkutskaya HPP (I HPP) Installed capacity: 662.4 MW.

The Irkutskaya HPP is the first of the Angara HPP Cascade and the first major HPP in West Siberia (accounting for half of power generating capacity of all power plants designed by the GOELRO plan (State Commission for Electrification of Russia). The construction started one month after the Soviet Government decreed the building of the Irkutsk Hydropower Complex in January 1950. The Irkutskaya HPP was launched in September 1959. The HPP has been in operation for almost 50 years already, the standard operational lifespan being 30 years. In 2005, the Station 8 hydraulic turbine operation mode was moved from the propeller mode (with fixed runner blade position) to the adjustable-blade mode.

13. Ust-Ilimskaya HPP Launched in 1974. (U-I HPP) Installed capacity – 3,840 MW.

The Ust-Ilimskaya HPP is the third of the Angara HPP Cascade. The power site is located below the Ilim River estuary (the right Angara tributary). Construction started in 1963. By 1974, the Ust-Ilim reservoir started to fill up, and in 1980 it was launched into operation. The Ust-Ilimskaya HPP is a high-head hydroelectric power plant of reservoir type. The rotors of the hydraulic turbines, except for Station 2, are made of stainless steel.

14. Central Power Networks Launched in 1964. (CPN)

As of January 1, 2006, the length of overhead power lines and cables was 7,360,807 km.

15. Eastern Power Networks Launched in 1952. (EPN)

As of January 1, 2006, the length of overhead power lines and cables was 8,653,204 km. For the purpose of rural electrification of Olkhon Isle, a cable was laid through Olkhonskiye Vorota. A 35/10kV sub-station Khuzhir in Olkhon Isle featuring Mupasz microprocessor terminals was put into operation.

16. Northern Power Networks Launched in 1965. (NPN)

As of January 1, 2006, the length of overhead power lines and cables was 7,914,240 km.

17. Southern Power Networks Launched in 1955. (SPN)

As of January 1, 2006, the length of overhead power lines and cables, including 1,626,127 km of cables was 4,320,220 km.

18. Western Power Networks Launched in 1968. (WPN)

As of January 1, 2006, the length of overhead power lines and cables was 9,246,676 km.

Annual Report 2005 21 POWER GENERATION CAPACITY OF THE COMPANY

The Irkutsk power system is one of the biggest in Russia and the OAO Irkutskenergo is an independent vertically integrated en- energy leader in Siberia. ergy producer, incorporated as a shareholding company under Presidential Decree No. 721 dated July 1, 1992 On Measures to The rich natural resources of the Priangarie Region, including Reorganize State Enterprises and Voluntary Associations of State huge water resources of the Angara River create an excellent Enterprises Into Joint Stock Companies. platform for setting up clusters of power-intensive industries (non-ferrous metallurgy, petrochemical and cellulose industries, The Company’s core business is hydroelectric power generation timber processing, machine-building and mining) and, conse- based on unique water resources and their geography. This type quently, an ideal place for the development of a high-power of energy accounts for 80% of electric power output. The key system. power generators are three hydropower plants and 10 thermal power plants supplying energy to the major cities in the Irkutsk Another major element of the Irkutsk power system hydropower Region. Installed electric power capacity of the Irkutsk power potential is Lake Baikal with its 23 thousand cubic kilometers system is 12,879 MW, including 9,000 MW of HPPs capacity and of fresh water. Furthermore, the Irkutsk power system develop- 3,877 MW of TPPs capacity. Installed heat generation capacity is ment would not have been possible without the Angarsky HPP 13,003 Gcal/hour. Cascade, comprising the Irkutskaya HPP, the Bratskaya HPP, and the Ust-Ilimskaya HPP, as well as major 500 kV backbone power The Company owns 35 thousand kilometers of transmission and networks. Taken together, they shaped the Irkutsk system into its distribution networks which connect power plants to the neigh- current form and predetermined the creation of a unified electric boring regions and ensure electricity supply to consumers. The power system of Siberia. networks include 1,300 kilometers of heating networks.

Bratsk Ust-Ilimsk

Bratskaya HPP – 4,500 MW Ust-Ilimskaya HPP – 3,840 MW TETs-6 CHPP – 270 MW Ust-Ilimskaya CHPP – 525 MW Bratsk Heating Networks (BHN) – 12 MW, 417 km NPN – 6,595

Tulun Zheleznogorsk-Ilimskiy

WPN – 9,215 km TETs-16 CHPP – 18 MW

Sayansk, Zima

CHPP – 253.4 MW Including Zima facilities 13 and 4

Usolye-Sibirskoye, Cheremkhovo

TETs-11 CHPP – 350.3 MW TETs-11 CHPP – 5.5 MW

Angarsk TETs-1 CHPP (Facility 1 of TETS-9 CHPP) – 185 MW Irkutsk TETs-9 CHPP – 475 MW TETs-10 CHPP – 1110 MW Executive office Angarsk Heating Networks – 280 km Irkutskaya HPP – 662.4 MW CPN – 7,203 km Novo-Irkutskaya CHPP – 665 MW Heating Networks Facility Shelekhov Novo-Irkutskaya CHPP (Irkutsk Heating Networks) – 122 km TETs-5 CHPP SPN – 4,200 km (N-I CHPP facility) – 18 MW EPN – 8,636 km

22 OAO Irkutskenergo The Company’s core business is hydroelectric power generation based on unique water resources and their geography. This type of energy accounts for 80% of electric power output.

The Angarsky HPP Cascade comprises the Irkutskaya HPP, the Bratskaya HPP, and the Ust-Ilimskaya HPP

SHAREHOLDERS’ EQUITY

Shareholding Structure

As of December 31, 2005, the Company’s equity was estimated the Federal Agency for Federal Property Management, owns at RUR 4,766,807,700 divided into 4,766,807,700 registered or- 40% of the ordinary shares. The Charter of OAO Irkutskenergo dinary shares (nominal value – RUR 1 per share). No preferred has no provisions granting the Russian government preferred stock was issued. rights with regard to participation in the management of the Company (‘golden’ share). The share of the state in the charter capital of the Company amounts to RUR 1,906,723,080 (40% of the charter capital). The government of the Russian Federation, represented by

Annual Report 2005 23 ISSUE OF SHARES

Issue Issue registration date Amount (RUR mln) No. of shares in issue Type of shares

First issue Nov 23, 1992 1.97 1,978,677 ordinary, registered

Second issue Jan 27, 1994 45.7 45,689,400 ordinary, registered

Third issue Feb 29,1996 4,719.14 4,719,139,623 ordinary, registered

*Note: As of June 17, 2003, the RF Federal Commission for the Securities Market ruled to consolidate the three issues into one with 4,766,807,700 shares.

As of December 31, 2005, the register of shareholders includes 3,780 companies and individuals, including 15 nominee shareholders with 56.8% of shares. SHAREHOLDING STRUCTURE

Share in Equity No. As of As of As of As of Registered Entities 31.12.2002 31.12.2003 31.12.2004 31.12.2005 The Russian Federation represented by the Fed- 1 24.5% 40% 40% 40% eral Agency for Federal Property Management 2 The Irkutsk Region 15.5% – – – ZAO ING Bank (Eurasia) (nominee shareholder) 3 50.69% 51.82% 49.64% 49.94% (including ADR holders) ZAO Deposit-Clearing Company 4 2.05% 1.47% 2.73% 3.63% (nominee shareholder) The National Depository Center 5 1.5% 2.14% 2.44% 2.01% (nominee shareholder) 6 Other shareholders 5.76% 4.57% 5.19% 4.42%

Total: 100% 100% 100% 100%

STOCK MARKET PERFORMANCE AND DIVIDENDS

OAO Irkutskenergo is listed on the Moscow Interbank Currency quote fluctuated throughout the year, from RUR 5.63 to 12.29 Exchange (MICEX) and the Russian Trading System (RTS). In early per share. As of the end of 2005 the Company’s capitalization 2005, the Company’s stock was traded at RUR 6 per share on increased by 92% to USD 1,846.5 mln year-to-date (according MICEX, and grew to RUR 11.3 per share by late 2005. The stock to the RTS methodology).

OAO Irkutskenergo Shares on MICEX and RTS in 2005

Trading Volume, RTS Trading Volume, MICEX Period Turnover USD’000 No. of shares RUR’000 No. of shares

Q1 1,192.14 5,358,559 395,851.63 63,718,082 1,45%

Q2 744.45 3,380,000 198,294.56 31,760,455 0,74%

Q3 7,357.41 24,580,977 1,951,382.16 208,891,400 4,90%

Q4 4,156.35 10,965,000 1,249,762.02 114,448,800 2,63%

24 OAO Irkutskenergo Dividend per Share, RUR

Year of Payment Dividend per Share, RUR Dividend Payment (gross)

2002 0.03655 174,226.82

2003 0.03655 174,226.82

2004 0.0419568 200,000.00

2005 0.05057* 241,057.00*

*Estimate

Dividends are payable on the dates set by the annual meeting As of December 31, 2005, OAO Irkutskenergo had no unsettled of shareholders. dividends due for payment to the federal budget. The Company’s dividend policy is defined at the annual gen- The amount of dividends for 2005 payable to the federal bud- eral meeting of shareholders in accordance with the recom- get is estimated at RUR 96,422,800. mendations of the Board. The amount of dividends to be paid recommended by the Directors will exceed the pervious year’s amount and will not be less than 10% of the Company’s net profits in the reporting period. Out of RUR 200 mln of total amount of dividends accrued, The annual meeting of shareholders held on RUR 80 mln were paid to the federal budget, including 91% June 24, 2005 resolved to pay dividends for (RUR 72.8 mln) paid on the shares owned by the Russian Fed- 2004 on ordinary shares of OAO Irkutskenergo eration (payment order No. 21741 dated August 29, 2005), and in the amount of RUR 0.0419568 per share by 9% (RUR 7.2 mln) of income tax collected in the form of divi- December 31, 2005. (Source: Minutes of the Annual dends by the Russian organizations (state package) (payment meeting of shareholders No. 17 as of June 24, 2005) order No. 22683 dated September 7, 2005).

OAO IRKUTSKENERGO, OAO MOSENERGO AND RAO UES OF RUSSIA STOCK PRICES FLUCTUATIONS IN 2005 (MICEX STOCK EXCHANGE) 14

0 ь ь ь ь т абр ус рт й тябр нтябрь eptember Январь Феврал Ма Апрель Ма Июнь Июль Авг Се Ок Ноябр Дек January February March April May June July August S October N ovember December

OAO Irkutskenergo OAO Mosenergo RAO UES of Russia

Annual Report 2005 25

PRODUCTION INSTALLED CAPACITY In 2005, no new facilities were installed or core OF POWER PLANTS equipment remarked at OAO Irkutskenergo power plants. On January 1, 2005, turbine generator set No. 2 at the Ziminsky Facility of Novozimin- skaya CHPP was dismantled (capacity: 1.7 MW, 6 Gcal/hr).

Installed capacity Available capacity

Thermal Year Electric power, MW Electric power, MW Thermal power power Gcal/hr Total Incl. CHPP Gcal/hr Total Incl. CHPP

2002 12,882 3,879.2 12,989 11,287 2,896 7,209

2003 12,882 3,879.2 13,002 11,279 3,282 7,536

2004 12,882 3,879.2 13,002 11,906 3,429 7,461

2005 12,879.9 3,877.5 13,002 12,108 3,439 7,461

Electricity Output

HPPs CHPPs

POWER GENERATION

The volume of the Company’s electric power generation is dependent on the level of demand for energy (regional con-

sumers, supplies to the federal wholesale market), and the cur- kWh Million rent situation with water resources. In 2005, electricity output increased by 975.7 million kWh year-on-year. Water resources of the Angarsky HPP Cascade in 2005 exceeded the previous year’s level, thereby increasing the volume of HPP energy output and reducing the load of the CHPPs. Electricity generation was optimized by increasing the cogene- ration share and reducing the share of condensing generation, which eventually brought about improved efficiency and sig- Electricity supply nificant savings.E lectricity supply to the areas outside the power system increased by 286.9 million kWh. Continuing growth of production resulted in increased electricity consumption by residential consumers of 774.3 million kWh. In 2005, the implementation of new energy saving technologies by consumers of thermal power and the use of alternative sources of heat caused a reduction in heat supply by 2.99%. Thousand Gcal Thousand

2003 2004 2005

HPPs Electric boilers Boilers

28 OAO Irkutskenergo

PRODUCTION PERFORMANCE

Year-on-year production and operational performance of the These changes in the level of performance were caused primar- Irkutskenergo CHPPs and regional boilers has improved when ily by implementing technical processes of the Production Ef- measured by the following parameters: ficiency Improvement Program developed by the Company. In addition, low actual power generation and heat supply load al- = specific fuel consumption (in coal equivalent) for elec- lowed to increase the performance of installed equipment. Ac- tric power generation has decreased by 18.69 g/kWh to cording to the dispatch schedule the load on HPPs was reduced 321.4 g/kWh; due to increased water resources and purchasing power from = specific fuel consumption (in coal equivalent) for heat sup- the Federal Wholesale Electricity Market (FOREM). ply has decreased by 1.36 g/kWh to 141.39 kg/Gcal;

= Internal power consumption for the purposes of power generation and heat supply amounted to 7.90% (0.10% less than in the previous year) and 38.44 kWh/Gcal (1.06 kWh/Gcal more than in the previous year), respectively.

Factors contributing to the reduction of SFC Factors contributing to the reduction of SFC for power generation (g/kWh) for heat generation (kg/Gcal)

0 0

Equipment Change in power (2.17) Equipment production (21.15) production supply system efficiency efficiency by types of equipment 1.60 Decrease in district heating 4.81 efficiency due to increased Change in heat loads on high pressure supply structure (0.30) exhaust lines of turbines at Decrease in district several CHPPs heating efficiency due 1.75 to increased load on high pressure exhaust (0.05) lines of turbines at Leasing out of the several CHPPs (4.1) TETs-10 CHPP by OAO Improved 0.5 Irkutskenergo in Q1 and production Q4 2005 Leasing out of the efficiency of district TETs-10 CHPP by OAO heating plants Irkutskenergo in Q1 and (18.69) (1.36) Q4 2005

PROCUREMENT

OAO Irkutskenergo fuel consumption, thousand TCE

Fuel type 2002 2003 2004 2005

Coal, total 6,264.099 7,326.204 6,190.555 5,388.602 including industrial 6,263.695 7,325.457 6,189.985 5,388.602 consumption Fuel oil, total 39.773 50.154 40.985 27.549 including industrial 39.423 49.866 40.680 27.141 consumption Total 6,303.872 7,376.358 6,231.540 5,416.151 including industrial 6,303.118 7,375.323 6,230.665 5,415.743 consumption

Annual Report 2005 31 Coal suppliers

In 2005, the following companies supplied coal to OAO Irkutskenergo: = OAO SUEK, a supplier of Azeysky, Mugunsky, Cheremk- hovsky, Borodinsky coal types; = OOO TD Krasnoyarsktopugol, a supplier of Irbeysky and Pereyaslovsky coal; = OOO Taron / Nikolskoye Coal Company, a supplier of Zheronsky coal; = OOO Nukutskaya Coal Company, a supplier of Alarsky coal; = OAO Vostsibenergougol, a supplier of Khinguysky coal; = ZAO Regionalniye Energeticheskiye Ugli, a supplier of Kan- sky coal. Alternative transportation

In 2005, a significant proportion of coal was delivered to OAO Irkutskenergo by the rolling-stock company OOO Transgarant (a transportation company for Azeysky, Mugunsky, and Boro- dinsky coal types). It was planned that in 2005 Transgarant would deliver 2,300 thousand tonnes of coal (25% of the In 2005, industrial fuel consumption compared with the pre- Azeysky, Mugunsky, and Borodinsky coal from OAO SUEK). In vious year decreased by 401.528 thousand TCE to 5,415.743 practice, 2,000 thousand tonnes of coal (23.5%) was actually thousand TCE. This was achieved by improving heating systems shipped. Rolling-stock owners were able to save on average and fuel consumption efficiency. A decrease in specific fuel RUR 2.5 per tonne of shipped coal. In 2005, the total economy consumption was achieved by reducing the heat and power on coal transportation by alternative transportation companies generation load on HPPs and transferring it to CHPPs. was approximately RUR 5 mln.

Materials and Spare Parts Procurement Inventory movement in 2005 (RUR’000) Stocks, Inventory write-off Inventory Stocks, end Stock beginning receipts Total to production sale other of period change of period 369,235 1,234,575 1,404,646 1,218,499 106,674 79,474 199,164 (170,072)

In 2005, the Company purchased 27% more materials than in The total value of contracts signed with procurement the previous year, at an amount of RUR 2,307.7 mln, including companies on a tendering basis, including through e-trading RUR 985 mln spent on materials for repair and maintenance floors, equalsRUR 1,467 mln. In negotiating delivery prices with (17% higher than in 2004). procurement companies OAO Irkutskenergo aims to keep the In 2005, OAO Irkutskenergo initiated a project to implement an rates below inflation in the industry. Inventory Management Automated Control System (IM ACS) for 800 users (launched on November 1, 2005).

OPERATIONAL QUALITY OF THE POWER SYSTEM

In 2005, OAO Irkutskenergo power plants accomplished the Regular repairs, reliable operating personnel and the work of dispatch schedules of effective output set by the United the Centralized Automated Emergency System (TsPA) at the Dispatch Control Center (UDCC) of Siberia – a branch of the Bratskaya HPP ensured the stable operation of the intersystem Central Dispatch Control Center of the Russian Unified Energy 500 kV power line connecting Bratsk and Krasnoyarsk as well System. The Company’s hydropower plants of the Angarsk as the backbone 500 kV power lines Ilim–Bratsk and Bratsk– Cascade also managed to follow their operational plan in Irkutsk. compliance with standard water usage rates set by the Ministry The intersystem 220 kV power line Irkutsk–Buryatiya was also of Natural Resources of Russia. stable. Voltage levels in the power system check-points were There were no customer restrictions in the Irkutsk power maintained as required by schedules and provided the required system in normal operational conditions. Consumers were performance to consumers. temporarily disconnected from relay protection only during Frequency was kept at the level of 50Hz, and its deviations did technical failures in the power system, and only for the time not exceed admissible values. taken for automatic recovery. No serious failures were reported in the Irkutsk power system during the past year.

32 OAO Irkutskenergo PRODUCTION EFFICIENCY IMPROVEMENT PROGRAM

Economy achieved (RUR mln)

Pollution fees reduction Achieved Overall Productivity Improvement 522.3 (OPI) implementation

Improvement of central heating systems performance

Cost reduction at HPPs

Plan In 2005, economies Economy in power network operation 354 achieved by implementa- Eﬃcient fuel use tion of the cost reduction program amounted to Reduction of maintenance and repair costs RUR 522.3 mln. Decrease of power transmission losses

Reduction of operational costs

Cost Saving Plan Performance

Economy No. Items Plan Achieved Deviation 1. Reduction of maintenance and repair costs 129.988 130.001 0.013 2. Reduction of operational costs 4.835 11.139 6.304 3. Efficient fuel use 89.050 101.947 12.897 4. Economy in power network operations 17.499 77.317 59.818 5. Decrease of power transmission losses 0.000 15.786 15.786 6. Cost reduction at HPPs 0.000 62.307 62.307 7. Fuel supply and storage improvement 30.200 0.000 (30.200) Improvement of central heating 8. 29.719 63.027 33.308 systems performance 9. Overall Productivity Improvement (OPI) 30.000 35.316 5.316 10. Pollution fees reduction 22.706 25.508 2.802 Total, Cost savings 353.997 522.349 168.351

Reduction of Operational Costs. Performance: 230.4% (Plan: Fuel Supply and Storage Improvement. Performance: 0% RUR 4.835 mln. Achieved: RUR 11.139 mln). Over-performance (Plan: RUR 30.2 mln. Achieved: RUR 0 mln). Failure to achieve is due to unplanned cost saving in “auxiliary materials” amount- the target resulted from excessive coal stock at OAO Irkutsken- ing to RUR 0.62 mln, and in “other services” – RUR 0.144 mln in ergo CHPPs due to a decrease in coal consumption on account the Western Power Networks. Another unplanned cost saving of power generation load displacement from CHPPs to HPPs. item was for auxiliary water consumption at N-I HPP equaling Improvement of Central Heating Systems Performance. RUR 6.991 mln. Performance: 212.1% (Plan: RUR 29.719 mln. Achieved: Efficient Fuel Use. Performance: 114.5% (Plan: RUR 89.05 mln. RUR 63.027 mln). The surplus of projected savings was due to Achieved: RUR 101.947 mln.) Above-plan economy is due to two heating lines introduced into the system: Sverdlovskaya the following factors: N-I TETs–RK and N-Z TETs–TETs-3 lines. = improved equipment production efficiency through main- Decrease of power transmission losses. Performance: tenance; 140.3%. (Plan: RUR 12.18 mln. Achieved: RUR 22.153 mln). Sav- = district heating performance improvement due to power ings stemmed from additional income as well as costs saved in generation increase in the district heating system; industrial fuel consumption. = improved heat supply structure (decreased heat supply Cost Reduction at (or extra income stemming from) HPPs. from pressure-reducing and desuperheating units). Performance: 136.6%. (Plan: RUR 62.066 mln. Achieved: RUR 84.796 mln). Savings stemmed from additional income as well as costs saved in industrial fuel consumption.

Annual Report 2005 33

HEAT AND ELECTRICITY MARKET

Heat and electricity market

Tariffs and Tariff Policy

Electric power

In Russia heat and electricity tariffs are regulated by the state In compliance with the tariff approval procedure for2 006, OAO based on Federal Law No. 41-FZ On State Regulation of Tariffs Irkutskenergo together with the FST of the Russian Federation for Electricity and Thermal Energy in the Russian Federation dated agreed a tariff range for the next tariff regulation period. The April 14, 1995; Federal government’s regulation On Price Setting RPC established the following range for the year 2006 (FST Res- with Respect to Electric and Heat Power in the Russian Federa- olution No.337-э/5 as of August 2, 2005): tion dated February 26, 2004; Methods for Calculating Regulated Tariffs and Costs for Electric (thermal) Energy on Retail (consumer) Market confirmed by the order of Federal Service (FST) for Tariffs № 20-э/2 dated August 6, 2004. Overall tariff levels Unit 2004 2005 2006 Minimal tariff RUR/kWh 0.289 0.295 0.305 In 2005, after considering all factors determining the level of tariffs for heat and electricity supplied by Irkutskenergo to Maximal tariff RUR/kWh 0.477 0.309 0.311 regional consumers, the Company’s management decided to keep past year’s tariffs, effective since January 1,2 004. This adds Minimal tariff RUR/Gcal 218.1 280.6 283.6 to economic stability of the region and supports local industries. The average electricity tariff stayed at 0.2811 RUR/kWh, Maximal tariff RUR/Gcal 261.7 281.5 295.2 and heat tariff at 250.67 RUR/Gcal.

In June 2005, OAO Irkutskenergo filed an application with the RPC of the Irkutsk Region for approval of heat and power tariffs for 2006. As a result of time- and labour-consuming work carried out by Irkutskenergo along with the DOC specialists, average sales tariffs ware approved for 2006.

Aiming to reduce cross-subsidies, the Company had long and difficult negotiations with the Regional Power Committee Historic average effective tariffs (RPC). As a result, on December 14, 2005, RPC approved the fol- for heat and electricity lowing tariffs: (RUR/kWh, RUR/Gcal).

283.6 Consumer groups 2004 2005 2006

Electricity (RUR/kWh) 250.67 Base consumers 0.2532 0.2532 0.2722 202.97 218.08 Budget consumers 0.2800 0.2800 0.3066 Urban sector, VAT included 0.3200 0.3200 0.3700 Others: High voltage power consumers 0.3636 0.3636 0.3700 Group 1 medium voltage 0.3636 0.3636 0.3800 power consumers Group 2 medium voltage 0.3636 0.3636 0.4020 0.305 power consumers 0.198 0.218 0.281 Low voltage power consumers 0.3636 0.3636 0.4165 Heat (RUR/Gcal) 2002 2003 2004-2005 2006 Budget consumers 234.00 234.00 269.10 Utility companies 234.00 234.00 269.10 Average effective electricity tariff, RUR/kWh Other consumers 276.96 276.96 307.51 Average effective heat tariff, RUR/Gcal

Annual Report 2005 37 Tariff Setting for 2005 (with Regional Energy Commission (REC) and Federal Energy Commission (FEC))

= In accordance with Federal Law № 36-FZ, On peculiarities of = After long negotiations, OAO Irkutskenergo managed to electricity industry operations in the transition period…, effective convince the Administration of the Irkutsk Region not to change from April 1, 2006, power companies are expected to separate the structure of the Base consumer group in 2006. This change natural monopoly and competitive types of activity. Accordingly, would raise the tariffs for “Base consumers” and for “Other con- the FST of the Russian Federation initiated procedures to split the sumers” for medium and low voltage power, which would con- required gross revenue (RGR) of power companies and to estab- sequently serve as a constraint on medium and small business lish tariffs based on business sector breakdown. The FST of the development in the region. Russian Federation commissioned OOO AKF TOP Audit to perform the specified due diligence for OAO Irkutskenergo for 2005. = In 2005, OAO Irkutskenergo elaborated changes and addi- Based on calculations and supporting materials provided by OAO tions to the methods of setting tariffs. Irkutskenergo, OOO AKF TOP Audit prepared an opinion that was considered and approved by the FST of the Russian Federation.

Energy Trading In 2005, the main achievements of OAO Irkutskenergo in power supply were: • settlement of energy bills increased to 99.7%

In order to improve operational efficiency the Company took • power consumption for distribution needs the following actions: fell by 21% 1. Closely monitored the energy payment schedule and size • Distribution networks expanded due to the acquisi- in accordance with agreements. tion of local heating and power lines of Cheremkhovo, Inrkutsk, Ust-Ilimsk, and Angarsk. 2. power supply restrictions and temporary power disconnec- tion were implemented with regard to nonpaying customers. 3. At the beginning of the heating season, heat supply connection was implemented after signing agreements on techni- In 2005, accounts receivable increased by RUR 90.8 mln (or by cal and financial preparedness. 2.9%). As of January 1, 2006, they equaled RUR 3,243 mln. 4. OAO Irkutskenergo leased local heating networks from The factors determining this growth were: Cheremkhovo City. Since January 1, 2005, heat has been sup- • payments for power supply fell short of 100%; plied to the city by Energosbyt, the Company’s subsidiary. • there were no liquid debts to settle; 5. From March 1, 2005, the Company leased a part of the Ir- kutsk municipal heating lines from the Company’s subsidiary • the Company started a new business in Ust-Ilimsk (water MPTP Irkutskteploenergo. supply and sewage services). 6. From November 1, 2005, the Company has been leasing municipal heating and power networks in Ust-Ilimsk City from MUP Inzhenernyie Seti Goroda. Historic accounts receivable in 2002–2006 7. the energy trading company OOO Elektrosbyt was ready for start-up to serve the “small-engine” sector of the Irkutsk retail power market. 8. the municipal power supply company OOO Irkutskaya Gorodskaya Teplosbytovaya Kompaniya was prepared for start- up to meet contractual relations between housing and utility (19%) companies and heat suppliers in Irkutsk. (12%) (14%) 9. the Company entered new industry sectors (such as water 2% supply and sewage systems). 10. A pilot project for housing and utility assets management

in Angarsk was launched with the purpose of improving power million rubles supply to consumers. 11. “One-stop” customer service was introduced to connect consumers to power lines of OAO Irkutskenergo. 12. positive image-building procedures were undertaken for the Company’s subsidiary Energosbyt.

Jan. 1, 2002 Jan. 1, 2003 Jan. 1, 2004 Jan. 1, 2005 Jan. 1, 2006

38 OAO Irkutskenergo Major plants regularly paid their electricity bills. Bad debts benefits from the state budget to cover expenses connected decreased. A traditionally problematic group includes wholesale with energy supply, particularly heat supply. On the one hand, heat energy traders and utility companies. The share of non- this consumer group is protected from having power and heat payments in this sector is quite high. The main difficulties supply cut off; conversely, there are no effective ways to collect are the low level of public payments and poor repayment of outstanding debts.

Treatment of Energy Losses Ratio of electric power loss to useful output in 2002–2005

In 2005, the Company’s power losses amounted to 4,430.99 9.80 million kWh. 9.58 9.60 9.52 Since 2004, the energy-loss-to-generation ratio has decreased 9.40 0.6% by 0.08% due to the following: 9.20 = Joint action by the Company’s subsidiary Energosbyt and the power network branches to restrict power supply to non-paying 9.00 consumers. 8.80 = Installation of electricity-usage meters in the offices of corporate 8.60 (1.17%) customers. 8.41 (0.08%) 8.40 8.33 = Introduction of a new form of energy retailing in the household 8.20 sector (establishment of OOO Energosbyt). The Company improved its control of individual consumers’ payment of bills and 8.00 improved the detection of failures in power consumption ac- 7.80 counting. 7.60 = Replacement of induction watt-hour meters by electric meters to 2002 2003 2004 2005 ensure greater precision in the cost system.

Sales (Revenue)

2002 2003 2004 2005 Production RUR’000 RUR’000 RUR’000 RUR’000 net of VAT net of VAT net of VAT net of VAT Electric Power 7,957,193 8,585,680 11,685,693 12,402,175 External market 757,956 329,814 712,931 1,242,600 Local market 7,199,236 8,255,866 10,972,762 11,159,575 Heat power 3,583,220 5,435,028 6,008,564 5,925,776 Treated water 456,326 514,796 526,690 559,556 Total, production 11,996,739 14,535,504 18,220,947 18,887,507

In 2005, the year-on-year growth of electricity sales was 4%. At the same time, sales in the heat supply sector decreased This increase was due to the following factors: year-on-year by 1.4% (or by RUR 83 mln). In 2005, a decreasing 1. Compared with 2004, energy delivered to the external mar- trend in heat consumption continued due to the following: ket increased by 74% (or by RUR 530 mln) based on: = decrease of energy consumption by core production units = energy trading in the open wholesale power market since of OAO ANKhK; May 1, 2005; = decrease of net energy supply-to-loss ratio in the heating = increase in power supply to ZAO MAREM+; networks leased by OAO Irkutskenergo from local entities; = increase in power supply to the Federal Wholesale Electric- = decrease of heat consumption by some industrial enter- ity Market (FOREM) of the Russian Federation. prises due to cost and power saving programs, such as the use of internal and renewable power resources; 2. power consumption in the local market increased due to enhanced production at several enterprises, such as OAO BrAZ, = decrease of heat consumption by utility companies through OAO SUAL-IrkAZ, OAO Sayanskhimplast, FGUP AEKhK, OAO optimizing heating network operation modes (water use Korshunovskiy GOK, and OAO Bratskiy LPK. regulation, temperature control).

Annual Report 2005 39 Local Market

Electric Power

2004 2005

Item Net power Share Net power Sales, Share Tariff Sales, revenue Tariff supply of total supply (mln revenue of total (RUR/kWh) (RUR’000) (RUR/kWh) (mln kWh) sales (%) kWh) (RUR’000) sales, %

Electric Power, total (local market) including 42,049.3 26.09 10,972,762 100% 42,823.6 26.06 11,159,575 100% consumer groups:

Base consumers 24,540.0 25.33 6,216,282 57% 24,199.0 25.43 6,153,024 55%

Budget consumers 476.5 27.85 132,713 1% 546.6 28.01 153,092 1%

Household 1,579.6 21.50 339,628 3% 1,337.1 22.43 299,924 3%

Other 15,453.2 27.72 4,284,139 39% 16,741.0 27.20 4,553,534 41%

The main power consumers in the local market included ma- Bratskiy Zavod Elektrosplavov to the category of ‘other’ consum- jor industrial enterprises specializing in nonferrous metal- ers since January 1, 2005. At the same time, several consumers lurgy, oil refining, chemical, and timber-processing industries: from this group increased their power consumption owing to OAO Russian Railways (a branch of West-Siberian Railways), and the growth of production. wholesalers. Power consumption growth in the budget consumer group was The highest share was accounted for by the “Base consumer” due to the lease by OAO Irkutskenergo of MUP Nizhneilimskoye group. In 2005, they consumed 24,199 million kWh (55% of UKKh municipal networks from November 1, 2004, and of MUP the total supplied to the local market). A decrease in power Inzhenerniye Seti Goroda networks from November 1, 2005. consumption in this sector is due to the reassignment of OOO

Heat Power

2004 2005

Item Net heat supply Sales, Net heat supply Sales, Tariff (RUR/ Share of total Tariff (RUR/ Share of total (thousand Gcal, revenue (thousand Gcal, revenue Gcal, RUR/t) sales (%) Gcal, RUR/t) sales (%) thousand tonnes) (RUR’000) thousand tonnes) (RUR’000) Heat Total 25,233.7 238.12 6,008,564 100% 24,493.1 241.94 5,925,776 100% (inner market)

Budget consumers 1,338.0 233.96 313,039 5% 1,966.1 233.93 459,930 8%

Utility companies 5,691.7 234.00 1,331,875 22% 6,496.4 234.00 1,520,153 26%

Other 11,619.0 284.97 3,311,079 55% 11,592.1 283.38 3,284,978 55%

Wholesale resellers 6,585.0 159.84 1,052,572 18% 4,438.5 148.86 660,714 11% Water demineraliza- 107,708.1 4.89 526,690 101,834.9 5.49 559,556 tion, makeup water

40 OAO Irkutskenergo At the same time, the overall heat supply of OAO Irkutskenergo has been decreasing. The main reasons are: The main heating consumers are major oil-refining, 1. Industrial enterprises reduced their heat consumption on chemical, timber-processing enterprises, wholesal- the back of cost saving programs (power saving programs, de- ers, and housing and utility companies. velopment of internal power sources). 2. Heat consumption fell on account of the acquisition of Ir- kutsk local networks. As a result, standard heat losses in these networks were excluded from the net heat supply by OAO The growth of heat consumption in the “Budget” and “Utility Irkutskenergo. company” consumer groups is due to the lease of municipal heating networks of MUP Nizhneilimskoe UKKh by OAO Ir- An increase in commodity sales with regard to demineralized kutskenergo since November 1, 2004, of MUP Cheremhovskye and feed-water is explained by raised tariffs for these commod- Teplovye Seti since January 1, 2005, of MPTP Irkutskteploen- ities in step with the rate of inflation. ergo since March 1, 2005, and of MUP Inzhenerniye Seti Goroda since November 1, 2005. Previously sold by wholesale resellers, heat is now directly supplied to the consumers by OAO Irkutskenergo. Consequently, the wholesale consumer group reduced its consumption of heat.

External market

Unit 2002 2003 2004 2005

Power supplied to wholesale market, total mln kWh 5,942.4 1,643.2 3,203.9 5,061.6

Wholesale power market mln kWh 4,494.1 563.3 1,191.3 910.2 Direct contracts mln kWh 1,448.3 1,079.9 2,012.6 3,561.2 FTS wholesale electricity market mln kWh 0.0 0.0 0.0 590.2

Power purchased in wholesale market mln kWh 278.9 242.1 1,570.9

The average price for energy on the open market was 317 RUR/MWh; the average price on the regulated market was Participation in the wholesale power market earned 146 RUR/MWh. OAO Irkutskenergo an additional revenue of The main power consumers of OAO Irkutskenergo on the ex- RUR 244 mln. ternal market are ZAO MAREM+, OAO NKAZ, OAO Omskaya En- ergosbytovaya Kompaniya, OAO Chitinskaya Energosbytovaya Kompaniya, OAO Kuzbassenergo, OAO Krasnoyarskenergos- This additional revenue was made up of: byt, OAO Altayenergo, OAO Khakasenergosbyt, OAO Novosi- = earnings from selling power for RUR 2.9 mln during trading birskenergo etc. sessions for extra power; In Siberia, new wholesale power market regulations (for the = earnings in the deviation sector amounting to transition period) have been effective since May 1, 2005. These RUR 121.7 mln; regulations introduced new principles covering the definition of generation and sales volumes, pricing, and penalties/ = earnings from selling power at market prices in the FTS of premiums for deviations from hourly power generation and RUR 78.6 mln; consumption schedules. Thus, it was possible to partially sub- = earnings from improving the sources of power (partial stitute high-priced condensation power for that purchased on substitution of condensing power with power purchased the wholesale power market whenever there was a favorable on the wholesale electricity market), and from supplying price. power to wholesalers, – RUR 40.7 mln. The new regulations provide more flexible mechanisms for pur- In February 2005, a special-purpose branch of OAO Irkutsken- chasing and selling electric power, allow partial sales of power ergo’s executive management was established for the purpose on the open market, and introduce penalties/premiums for of dealing with the wholesale market – the Wholesale Energy deviations from hourly power generation and consumption Trading (WET) Office.T he WET Office helped the Company pre- schedules. pare for market restructuring, to take an active part in all trading operations and earn a significant revenue.

Annual Report 2005 41

CORPORATE MANAGEMENT ORGANIZATIONAL STRUCTURE OF CORPORATE MANAGEMENT

Board of Directors

Year of Shares No. Full name Position Birth in ownership

Deputy Head of Federal Agency for Federal 1 Yuriy M. Medvedev 1948 – Property Management Head of Electric Energy Division at Depart- ment of Investment and Structural Policy in 2 Maxim G. Balashov 1970 – Industry and Energy Sectors, RF Ministry of Industry and Energy First Deputy General Director, 3 Vladimir A. Kiryukhin 1956 – OOO YevroSibEnergo Vice-President, Head of Department, Relations with Federal and Local Govern- 4 Vassiliy N. Kiselev 1947 – ments and Natural Monopolies, OAO SUAL-HOLDING General Director, 5 Vladimir V. Kolmogorov 1953 – OOO YevroSibEnergo-Engineering Head of Business Property Management at 6 Gleb S. Nikitin 1977 Federal Agency for Federal Property Man- – agement Deputy General Director, 7 Alexander I. Prilepskiy 1951 – OOO YevroSibEnergo Director, Department of Sectoral Develop- 8 Olga S. Pushkareva 1955 ment, Government of the Russian Federa- – tion General Director, ZAO Kompleksnye Ener- 9 Mikhail Yu. Slobodin 1972 – geticheskiye Sistemy

10 Sergey A. Tazin 1961 General Director, OOO YevroSibEnergo –

11 Vladimir M. Shadov 1954 Deputy Head, Federal Energy Agency –

Internal Audit Committee

Year of Shares No. Full name Position Birth in ownership Chief Specialist, Department for Asset Man- 1 Tatyana S. Kiseleva 1975 – agement, OOO YevroSibEnergo Head of Department for Internal Control and 2 Vyacheslav M. Kramarenko 1976 Audit, ZAO Komplexnye Energeticheskiye – Sistemy Chief Specialist, Fuel and Energy Organiza- tions Property Unit, Business Property De- 3 Sofya A. Sedykh 1981 – partment, Federal Agency for Federal Prop- erty Management Chief Accountant, Deputy Director, Financial 4 Yelena G. Talalykina 1973 – Department, OOO YevroSibEnergo Chief Specialist, Financial Department, 5 Artyom A. Torchinskiy 1979 – OOO YevroSibEnergo

44 OAO Irkutskenergo Management Board

Year of Shares No. Full name Position Birth in ownership 1 Sergey V. Emdin 1971 General Director – First Deputy General Director, Director for 2 Grigoriy N. Bakayev 1968 – Finance and Economics Director for Power Generation, 3 Mikhail A. Graiver 1950 – Chief Engineer 4 Boris M. Rozenraukh 1948 Director for Energy Trading –

5 Vladimir A. Sharaburak 1964 Procurement Director –

General Director Management Board

On October 12, 2005, the Board of Directors of OAO Irkutsken- The Management Board is a collective executive body of the ergo passed the following resolutions (minutes No. 12(138) of Company. Senior managers may become members of the Man- October 12, 2005): agement Board by decision of the Company’s Board of Direc- tors. The General Director performs the functions of the Chair- = To remove from office Vladimir V. Kolmogorov as General man of the Management Board. Director of OAO Irkutskenergo before term. The Management Board’s procedures, rights, obligations and = To appoint Sergey V. Emdin General Director of OAO Ir- responsibilities are defined by the legislation of the Russian kutskenergo. Federation, the Company’s Charter, the Statute of the Com- Accordingly, as of October 13, 2005 Sergey V. Emdin, formerly pany’s Management Board and contracts concluded between Executive Director of the Company, replaced Vladimir V. Kol- the Company and the Management Board members. Issues mogorov in the position of General Director of OAO Irkutsken- falling under the Management Board’s authority, according to ergo. the Charter, may not be delegated to the Company’s General Director.

Management Remuneration Contractors were selected through competitive tenders to provide services of deed of title registration to the 35, 10 and 6 kV Remuneration and/or executive compensation to the mem- power lines and 35kV substations of the subsidiaries EPN, WPN, bers of the Management Board is determined by the Board of CPN, NPN, and SPN; maintenance and operating services of dis- Directors. trict power networks of subsidiaries: EPN, WPN, CPN, and NPN; Remuneration and/or executive compensation to the members deed of title registration to land occupied by package trans- of the Board of Directors is determined by the Annual General former substations (PTS) of the high-voltage power lines 0.4kV Meeting of shareholders. TP owned by subsidiaries EPN, WPN, CPN, NPN, and SPN. Property Management Costs involved in registering the Company’s title to physical property in 2005 amounted to RUR 151,977 thousand (net of In 2005, while preparing documentation required by law for VAT), the major part of these expenses relates to registration of restructuring OAO Irkutskenergo, the Company implemented title deeds to buildings, structures and plots of land for subsid- planned procedures to record deeds of title to its physical iaries SPN, EPN, NPN, WPN, CPN, and the TETs-9 CHPP (AHN). property (including land). Furthermore, the Company made provisions for its subsidiaries – SPN, EPN, NPN, WPN, CPN, I HPP, B HPP, and AHN – to prepare the documents necessary for re- cording their deeds of land and registering title to their facilities; to assess the market value of current generating assets of the following subsidiaries: SPN, the U-I HPP, the U-I CHPP, and the Energosbyt energy trading company.

Annual Report 2005 45 Share of OAO Irkutskenergo in Other Subsidiary Companies and Organizations Property Portfolio as of December 31, 2005

Share in Charter No. Name of Entity Share of Votes, % Capital, %

1 ZAO Baikal Business Center 71.00 71.00 2 ZAO IRMET 100.00 100.00 3 ZAO Sibtranspress 19.98 19.98 4 ZAO Irkutskenergoremont 100.00 100.00 5 ZAO Irkutskenergostroy 100.00 100.00 6 ZAO Energoparitet 50.36 50.36 7 OOO Baikalinvestenergo 99.60 99.60 8 OOO Grand Baikal 100.00 100.00 9 OOO Irkutskenergosvyaz 100.00 100.00 10 OOO Angarskaya Teplosbytovaya Kompaniya 100.00 100.00 11 OOO Tsentralizovannaya Energoremontnaya Firma 100.00 100.00 12 OOO Security Firm Irkutskenergo 100.00 100.00 13 ZAO SibirEnergoTrade 100.00 100.00 14 ZAO Irkutskenergotrans 100.00 100.00 15 ZAO GidroEnergoServis-remont 100.00 100.00 16 ZAO Specenergoremont 100.00 100.00 17 ZAO Bratskenergoremont 100.00 100.00 18 ZAO Baikalenergo 100.00 100.00 19 OOO Lizingovy Center 19.80 19.80 20 OAO Sibirskaya Investizionnaya Kompaniya 0.16 0.16 21 OOO Podstantsiya Shelekhovo 100.00 100.00 22 OOO Pozharnaya Okhrana Irkutskenergo 100.00 100.00 23 OOO Irkutskaya Gorodskaya Teplosbytovaya Kompaniya 100.00 100.00 24 OOO Elektrosbyt 100.00 100.00

Unit of Amount No. Item measure- As of Dec. 31, As of Dec. 31, ment 2004 2005 1 Long-term investments: RUR’000 1,495,567.00 2,272,478.00 - including subsidiaries and related companies RUR’000 1,387,302.54 1,619,258.6

Unit of No. Item measure- 2004 2005 ment Number of non-core companies from which 1 4 – OAO Irkutskenergo withdrew 2 Profit/Loss from sale of shares (interest) RUR’000 (16,224.00) – 3 Dividends RUR’000 4,615.55 7,715.474 4 Number of companies founded 4 5

In 2005, the Company’s long-term investments grew against In 2005, the Company’s revenues grew through participation in the previous year. This increase was attributable to the Com- economic entities, with a rising proportion of dividends from pany restructuring through divestiture of non-core businesses the Company’s subsidiaries established in the process of non- and the establishment of new subsidiaries. Another reason was core business divestiture. the growth in nominal value of the Company’s shares in OOO During 2005, the Management Board of OAO Irkutskenergo Grand Baikal and OOO Irkutsenergosvyaz (where it is the only resolved to establish the following subsidiaries: ZAO Irkutskzo- shareholder) due to the additional contribution of property by lotoprodukt, OOO Pozharnaya Okhrana Irkutskenergo, OOO Ir- OAO Irkutskenergo to the charter capital of these companies. kutskaya Teplosbytovaya Kompaniya, and OOO Elektrosbyt. The Company sold its share in the charter capital of OOO Bai- kalinvestenergo.

46 OAO Irkutskenergo Major deals and related-party transactions

In 2005, OAO Irkutskenergo had no major transactions The above contract of guarantee was concluded on (in keeping with the definition of the FederalL aw On Joint Stock December 19, 2005, to secure liabilities under a loan agreement Companies) requiring prior approval of the authorized manage- between Sberbank of Russia and OAO Baikalskiy Tsellulozno- ment bodies of the Company. Bumazhniy Kombinat (pulp and paper mill) for a period of up to 18 months bearing an interest rate not exceeding 13.5%. In Q4 2005, OAO Irkutskenergo entered into a contract of guarantee with the Savings Bank of the Russian Federation (Sber- OAO Irkutskenergo is a related party in this transaction since bank of Russia). According to the Federal Law On Joint Stock the Russian Federation is a shareholder of both OAO Irkutsken- Companies this contract is a related-party transaction and re- ergo (40%) and OAO Baikalskiy Tsellulozno-Bumazhniy Kombi- ceived prior approval of the Company Board of Directors (min- nat (49%). utes of the meeting of the Board of Directors No.13(139) of No- The value of the contract is RUR 700,000,000 (seven hun- vember 25, 2005). dred million rubles), which is 1.3% of the book value of OAO Irkutskenergo as of the latest reporting date before the transaction.

STANDARDIZATION Goals and objectives pursued in 2005: AND STREAMLINING = geographic consolidation of subsidiaries performing similar functions; OF BUSINESS PROCESSES = consolidation of the Company’s support functions and streamlining of business processes; = optimization of the organizational structure of the executive board and the Company based on process management techniques; OAO Irkutskenergo is a vertically integrated company organized = analysis of business processes and standardization of along functional lines grouped by production type. Power gen- best practices; eration, transmission, distribution and sales is the area of the = improvement of the Company’s normative documen- Company’s subsidiaries. Organizational changes were aimed tation system; at consolidation of auxiliary (or supporting) functions and di- = developing a single functional organizational model vesting them from the Company’s core structure to dependent of the Company’s activities as a necessary tool for set- subsidiaries. Non-core activity was also divested to a number ting up and implementing regular management proof independent entities. The management is performed by the cedures. Company executive board including the First Deputy General Director, Director for Finance and Economics, and other direc- Projects carried out to improve the management of heat- tors in charge of functional areas of the Company. The existing ing companies: structure reflects the priority given to production in the Com- = management reform at the Novo-Irkutskaya CHPP, and pany’s activities. the TETs-5 CHPP, and Irkutsk Heating Networks with es- Given the need to be flexible and adaptive in the emerging tablishment of the Irkutsk Heat Cluster; energy market and the overall reform of the energy sector of = management reform at the TETs-9 CHPP, TETS-1 CHPP Russia, the Company is restructuring business while stream- and Angarsk Heating Networks with the establishment lining business processes and optimizing the organizational of the Angarsk Heat Cluster. structure.

As a result, the Company worked out and accepted new organizational structure for subsidiaries. It combined and consolidated support functions of similar type geographically proximate companies. The new structure is largely based on the application of the process approach to the management of core processes (generation and transmission of energy). It will help to eliminate duplication of management functions, effectively distributing functional responsibilities between the general director and the technical directors. At the site supervised by chief engineer it will allow to separate management of power generation and equipment maintenance.

Annual Report 2005 47 A principally new approach to managing subsidiaries was adopted at the TETs-11 CHPP, where process management principles were employed more broadly and the grounds were laid for a gradual transition to site-based management. Targeting the creation of a single system that will integrate all information flows about Company’s activities – goals, processes, functions, organizational structure and resources – in 2005, In 2005, the Company reviewed over 20 main business the Company continued reviewing core business processes in processes, formulated proposals on how to streamline the subsidiaries and the executive board. these processes, approved plans for the implementation of these proposals, and standardized a number of processes.

The Company developed policies for the following areas:

= Logistics;

= IT;

= Legal support;

= Fuel supply;

= Investment project management;

= Human resources;

= Maintenance and repair management;

= Fuel use;

= Energy sales.

The Company developed corporate standards in the following areas:

= Relation of Energosbyt company and subsidiaries of OAO Irkutskenergo;

= Procedures for the execution, registration, storage, implementation and termination of contracts;

= Procedure for energy cut-off to consumers;

= Protection of individual records on OAO Irkutskenergo workers;

= Personnel assessment regulations;

= Internal audit of financial and economic activities of OAO Irkutskenergo;

= Preparation of corporate reports;

= Repair works management;

= Actions to be taken by personnel in emergency situations (breakdowns);

= Composition and management procedure for regulatory management documents.

The use of a systemic approach to the description of the Com- agement based on permanent monitoring of the efficiency of pany’s activities, the integration of approaches to process opti- business processes, the prevention of safety incidents, and a mization “from the bottom” (TOP program) and “from the top” phased implementation of a quality assurance system, enable (production efficiency improvement program), and the stan- OAO Irkutskenergo to meet the standards of an international dardization of best practices, create the necessary prerequisites level company. for implementing the concept of regular management. Man-

48 OAO Irkutskenergo r s n

t t s y ce ment of Labo of ment tmen tmen tment rt aining velopment Tr Head of Huma Resour Depa and Salar Human Resource Depar Depar of Development and Depar of Social De l r icing Pr e t l

d or Repai tion tion tion Materials tmen enanc ment of Capita of ment tor f ment of of ment rt rt onstruc r Repair an onstruc onstruc Repair and Maint Depar Direc Capita and C Depa C Depa fo C t s p t e n nt ou rt ic t gistic io nt at me nt eatmen Lo ol Gr ol ment of ment or nt Tr me rt al Serv al oc me ct rt el Supply curemen rt me Canteen curement Car Flee Car ot pa Fu nter cu Pr ener Manage Pro Dire Depa Pro and Suppo G De Health Ce Head of Depa of Do t t t t n t rt tmen re ntrolling tmen t Suppor tment of rmatio Co -suppo elopmen velopment ternal Audi ternal fo jec IT echnologies In Depar In T Softwa De Dev and Depar of Analysis and Appraisal Pro Depar s , g or r ment fo ct nt RS rt t nt r ry re or IF ting pa ccounting e fo ct oﬁt Planning oﬁt su ccounting inancin me of of rtme

un or re Pr le De tmen ccounting y A y r t F -c tor tt co p Trea p rt fo Se Depa jec Head Ac rst Deputy nance and ccounting ope tivities Management Fi General Di Direc Fi Economics A Depar IFRS A Grou nance and Economic and nance Pro Grou Budget A Pr Budget Deputy Di Fi Ac Group and Non R ARD s TO g r nt r y n cy fo t adin io me t e nt rt Tr at en

or Energy rupt me is rm tm tmen tment ys fo or of th tor f l Depa l tricity In ct oceedings r Bank Depar of Anal ading GEMENT BO Debt Manage Lega Dire energy Elektrosbyt compan trading Depar fo Pr Wholesale Elec Direc Tr Depar Economic Analyse GENERAL DIREC y Situations Enginee Situations y MANA

r s p fo ublic s t s ou or y’ vice) ct ct or P re Emergenc tment tment tmen f f mpan y tor f rnment nment Relations blic and or Co blic Relation ve Pu ver Chie Depar PR-proje (press-ser r Pu Depar Museum of the Hist Direc Government and Relations Deputy Di fo Go Go Relations Gr

s al s e se tern ment rt tion In d pon la r

d s an Servic d d nt n

ns gu t t fo nt nt ic Re ty an

Re en ri me me ty nt nt al al tor y Situations rt rt y om ri pm cu ulatio rmatio et ety and Internal pa ui pa cu on tern Se fo cide eg af ternal Regulation Eq In De Ec Se Assistant for for Assistant In Security Depa R S In De Direc Saf Regulations

Security an In , ment or vation rt ct vation re ty r , l s fe vironmental t fo onser ntro t ces Conser ces t r En ident rst Depa t Co fo Fi r tion and Emergenc e Acc tion fo tion anagemen tment duc otec echnical Matter echnical T ment duc rporat Pro Pr rt ty and Resour egal Suppor vironmental Sa vironmental ety and Co Managemen Depar tal fe L evention Pro and Engineering En and Resources C To Deputy Chief Engineer Chief Manager Sa Optimization Group Depa M Systems Improvemen and Saf Pr Deputy Chief Engineer Engineer Chief Deputy General Deputy General Di Civil s r g s , fo g l g on t ti tion sting r ra acilities

h r r d fo Te tomation c l d ne duc l tion fo cilities

Au ntrol System ntrol ntrol System ntrol Fa Pro tion and or r Ge r ment ment tric Engineerin tric otec Co Co tomati draulic F ct rt Pr chnological tric Engineerin tric we ocedures elding oduc Au toring and y tric tomated Contro tomated Te ntrol Suppor ntrol ocesses drogeneration, Head draulic Pr r Elec ocess Monitoring Chemica Pr Chief Engineer r Heat Engineerin Heat r Metals an W Dire Po

Elec chnologica ocess Depa Au of Pr Deputy Chief Engineer fo Deputy Chief Engineer Hy of Operation and Repair of Hy Deputy Chief Engineer fo Pr Dispatc and Co justment and Rela and Elec Operation an Operation Repair of and Hy Moni Te Pr Ad of Steam and Equipment h h e ic rv ntrol Se ntrol ntrol ntrol ntral Dispatc ntral Ce Co Head of Regional Dispatc Co

Annual Report 2005 49 Finance Management

Financial Performance Indicators Item, RUR’000 2004 2005 Change % Sales revenue 18,348,235 19,111,012 4.2 Cost of goods sold 14,953,921 16,112,988 7.8 Gross profit 3,394,314 2,998,024 (11.7) Net profit 926,328 1,205,235 30.1 EBITDA 3,962,642 4,256,209 7.4 Sales margin, % 18 16 (2.0) Net profit margin, % 5.1 6.3 1.2

In 2005, sales revenue increased by 4.2% year-on-year, mainly RUR 396.3 mln less than last year due to a higher rate of growth due to the growth of effective sales of electricity to consum- in COGS than in sales revenues. ers (+5.8%). Energy was sold at the tariffs adopted for 2004. In 2005, gross profit including operational and non-sale activi- Cost of goods sold increased by 7.8% year-on-year, as a result ties decreased by RUR 1,265.3 mln. of inflation and additional expenditures on the acquisition of networks. Gross profit amounted to RUR 2,998 mln, which is

50 OAO Irkutskenergo Operating and non-sale income and expenses, 2005

Item, RUR’000 Income Expenses Balance

Interest 140.0 62.1 78.0 Property rent 290.0 185.5 104.5 Fixed assets flows 57.2 56.4 0.7 Property tax 411.7 (411.7) Sale of Inventory 304.2 299.0 5.2 Sale of securities 293.2 331.2 (38.0) Social benefits, charity, sports and cultural events 332.1 (332.1) Risk debt provisions 880.5 (880.5) Other 367.0 158.4 208.6 Total 1,451.6 2,716.9 (1,265.3)

Based on the 2005 performance results, profit tax of In 2005, the Company’s rate of return on sales amounted to RUR 763 mln was accrued. 16%, which is 2 percentage points lower than in 2004, including: Thus, net profit in 2005 amounted to RUR 1,205.2 mln, which is 30% higher than in 2004. The net profit rate of return was = electricity – 27% (+1 percentage point over 2004); 6.3%. = heat – (-7%) (-12 percentage points below 2004). The overall financial outcomes of operating and non-sale activities in 2005 were better than in 2004, which had a positive impact on EBITDA and net profit as compared with 2004.

Item 2004 2005 Inventory days 30 31 Accounts receivable days 39 41 Accounts payable days 70 75

The minor growth in the inventory turnover period was caused The growth in accounts payable days was caused by growth in by the growth of coal reserves. a current backlog to materials suppliers and contractors performing repairs and capital construction works, which were Accounts receivable days barely changed against 2004 and incurred as a result of signing acceptance acts as of the end of stay within the range corresponding to payment terms for con- the period. tract consumers. Collections for energy deliveries in 2005 were 100%.

Item As of January 1, 2005 As of January 1, 2005 Current liquidity ratio 1.41 1.46 Fixed-term liquidity ratio 0.88 0.89 Absolute liquidity ratio 0.35 0.41 Debt to equity ratio 0.09 0.10 Accounts payable to accounts receivable ratio, % 79 111

Liquidity ratio is indicative of funds availability for timely pay- Change in ratio of accounts payable to accounts receivable is ment of liabilities. Values of absolute and fixed-term liquidity not a sign of worsening the Company’s solvency, since the turn- are above the average statistical level, which indicate that the over indicators remained at the 2004 level. The Company seeks Company had a minimum risk of not having sufficient coverage to maintain the level of its liabilities at the level of its debtor of accounts payable by due dates. liabilities.

Annual Report 2005 51

Human RESOURCES

Human Resources Policy: Corporate Human Resources Policy Personnel Motivation Development

Item Unit 2002 2003 2004 2005 The key objective of the Company’s HR policy is to obtain maximum return on investment in personnel through a Total number of per- system that enables us to select the best people to work in employees 18,055 15,099 12,075 11,596 sons the Company, create incentives for each worker to achieve as of December 31 the goals defined by the Company’s strategy, objectively including: assess the degree of results attained, and fairly reward and encourage achievements. - managers per- 5,033 4,579 4,377 4,418 and experts sons To promote staff relation and create the best conditions for per- implementation of the Company’s development strategy - administrative staff 190 117 113 108 sons based on the existing human potential the following activities were pursued: per- - workers 12,832 10,403 7,585 7,070 sons = development of the Company’s human resources policy; Average monthly rubles 8,974 10,954 13,905 16,969 wages = development of approach to dealing with human resources management risks;

= writing the Young Specialist Guidebook;

= participation in development and implementation of the Virtual Public Reception Project;

= monitoring dismissal cases in the Company.

Investment in Human Resources

One of the key strategic goals for OAO Irkutskenergo is to ac- cumulate and preserve human capital, which encourages the workers to maintain their knowledge, skills and abilities throughout their service years. In general during the reporting period all types of training were provided to 4,863 employees. Training costs amounted to RUR 41.485 mln. In 2005, an MBA program (production systems, corporate management, financial and strategic management) was launched for top and mid-level managers. To provide effective training for the reserve staff to be promot- ed to management positions, training courses were prepared to develop skills in personal effectiveness, staff management, teamwork, conflict resolution, and stress management. A com- mon database was developed to include the requisite information about each individual on the reserve list and his/her individual development plan.

Annual Report 2005 53 ENVIRONMENTAL PROTECTION

Environmental protection activities were implemented in ac- Water Discharge cordance with the requirements of environmental protection The volume of wastewater in 2005 amounted to 185,024 thou- legislation. Water consumption, water discharge, emissions, sand cubic meters, which was 8,119.1 thousand cubic meters discharge of pollutants into natural environment, and waste more than in the previous year. Wastewater discharge volumes disposal were carried out based on state permits and licenses. increased in a number of subsidiaries, namely in: Permitted Emission Concentration = the Novo-Irkutskaya CHPP due to relocation of the power In 2005, permitted emission concentration was established by site and a change in filtered waste metering (in accordance state regulations at 304,402.833 tonnes. with water use conditions); Actual emission to the atmosphere was 211,748.295 tonnes, = the TETs-10 CHPP due to a change in filtered waste meter- which was 92,654.538 tonnes less than the allowed limit and ing in accordance with the recommendations of the agreed 2,653.672 tonnes less than the emissions of 2004, due to: draft for maximum permissible rates of content;

= reduction in the overall consumption of fuel by 6.6% arising = the Bratskaya HPP due to a higher than average level of the from from fuel saving efforts under the Cost Management Bratsk water reservoir. Program; Production and Consumption Residues = environmental protection activities. The total amount of waste resulting from production and Emission of pollutants into the atmosphere per unit of energy consumption in 2005 was 1,446,861.348 tonnes, including delivered was 0.4789 kg/kWh (in 2004 – 0.4754 kg/kWh). 1,429,985.342 tonnes of ash and slag. The growth of per unit emission of pollutants was caused by The amount of ash and slag waste decreased by 94,156.134 an increased proportion of coal burning having worse environ- tonnes over the previous year because consumption of lique- mental characteristics. fied fuel fell by 6.6%. Water Consumption As of the end of 2005, 77,831,107.550 tonnes of ash and slag waste were stored in dumps. During 2005, 54,340.978 tonnes The limit on water consumption (719,599.5 thousand cubic m) of waste were utilized for company needs, including 54,000 was not exceeded. tonnes of ash and slag; 233,416.362 tonnes of waste were trans- In 2005, the overall water consumption in OAO Irkutskenergo ferred to other organizations, including 185,129.600 tonnes of amounted to 416,224.4 thousand cubic meters; compared with ash and slag. In 2005, 239,129.6 tonnes of ash and slag were 2004, overall water consumption decreased by 12,695.4 thou- utilized (16.72% of the total amount of such waste). sand cubic meters due to unloading of the CHPP and measures taken to save water. Environmental Protection Activities The volume of water recycled in 2005 amounted to 433,311.4 Total environmental protection expenditure in 2005 amounted thousand cubic meters. to RUR 426,011.1 thousand, including: = Charges for Environmental Pollution current costs – RUR 145,301.1 thousand; Ecological charges for 2005 were assessed at RUR 122.186 mln. = capital repairs – RUR 77,982.0 thousand; The actual ecological charges in 2005 amounted to RUR 80.999 = investment – RUR 204,818.0 thousand. mln, including:

= charge for normative and temporarily agreed emissions, discharges, dumping of waste – RUR 60.695 mln; The annual average cost of fixed environmental protection assets is RUR 3,788,523.0 thousand. = charge for surplus emissions, discharges, waste disposals – RUR 20.304 mln. In 2005, no incidents leading to environmental problems occurred in the subsidiaries. The actual charge was lower than planned due to a reduction in actual emissions, environmental discharges and dumped The environmental management authorities did not impose waste compared with the set limit. any sanctions.

54 OAO Irkutskenergo INFORMATION TECHNOLOGIES

Information Technologies Office continued implementing a series of state-of-the-art projects including the following: • Automated energy sales and billing system was put into operation in all branches of Energosbyt company of OAO Irkutskenergo • Automated specific accounting of factor costs was put into operation in all subsidiaries of OAO Irkutskenergo • Automated logistics management system was put into operation in all subsidiaries of OAO Irkutskenergo • Corporate computer information network The work on the core systems of the corporate computer information system of OAO Irkutskenergo has been completed. IT infrastructure was built to effectively support the functioning and development of current applications, as well as processes for the development, creation and implementation of information systems, tasks and applications of various purposes. • Corporate web-site of OAO Irkutskenergo A new site was developed based on modern technologies and designed in keeping with the corporate style. • Mobile office A mobile office service was introduced that provides the Company’s management with access to the corporate main computer information resources while outside Irkutsk and the region.

• Automated System of Budget Execution and Control • Cryptographic protection and biometric authentication complex Current status: system design works Current status: obtaining agreement on the detailed design, Expected result: Optimization of cash flow planning and im- development of regulatory documents, testing on a pilot site proved efficiency of control in financial responsibility centers and the Treasury department of OAO Irkutskenergo. Expected result: Creation of infrastructure that would ensure cryptographic protection of data, operation of electronic sig- • Automated system of investment data processing, re- nature and biometric authentication of users. Improvement of cording and analysis information security of the corporate computer information Current status: usage testing in pilot branches network. Expected result: Improved efficiency of capital investment • Disaster-resistant file backup system management in the Company. Prompt delivery of summary Current status: developing agreement on technical solution reports across the Company. A mechanism for supervision of construction. Expected result: creation of a file backup system that would keep data intact in the corporate network’s central server in • Boss-HR-Manager software (pay-roll module) case of natural and manmade disasters (earthquakes, floods, Current status: testing in pilot branches fires, explosions). Expected result: implementation of a single unified system to calculate wages in OAO Irkutskenergo.

Annual Report 2005 55 56 OAO Irkutskenergo INVESTMENT ACTIVITIES

Annual Report 2005 57 In 2005, the Company’s capital investment amounted to Investment projects, RUR mln RUR 2,975 mln allocated as follows:

= Non-profit projects that ensure reliable heat and electricity supply to consumers and reduce the risk of emergency Other projects Thermal plants disconnections at RUR 1,674.4 mln; 249,1 772,5 = Efficiency and payback projects at RUR 667.3 mln, including production efficiency improvement program – RUR 183.5 million; TOP program – RUR 21.1 mln; = Regional Administration program – RUR 287.8 mln; Heating networks = Sales programs – RUR 151.4 mln; 734,5 = Non-core assets – RUR 30.4 mln; = Other – RUR 164.2 mln.

The Company allocated RUR 2,945.1 mln (or 99.7% of total in- Power networks and Hydropower vestment) to production facilities, including provision of new substations - 969 plants equipment and rehabilitation – RUR 1,941.3 mln (65.2% of total capital investment and 65.9% of production investment).

Facilities launched by OAO Irkutskenergo in 2001–2005

Facilities Unit 2001 2002 2003 2004 2005

Electric boilers Gcal/h 0 160.6 0.0 50 0 Thousand Ash dumps 0 706.7 2375.0 1,376.5 982.0 m3 Thousand Transformers 645.9 196.8 214.6 392.2 70.6 kVa Heating networks Km 7.8 13.3 7.2 18.73 26.0 Overhead transmission lines, 220 kV Km 59.6 73.3 95.0 55.66 26.1 and more Overhead transmission lines, 35-110 kV Km 69.4 114.7 148.5 126.08 19.2

Overhead transmission lines, 10 kV Km 163.6 131.5 56.0 124.28 70.8

Overhead transmission lines, 0.4 kV Km 116.3 114.5 76.1 72.07 55.3

Cable power lines Km 5.1 7.8 16.3 18.46 23.9

Dwelling – total square m2 8,268.4 6,417.6 3,853.9 0 4,238

A 14-km heating main was put into operation between the of Irkutsk from the less efficient Sverdlovskaya district boiler to Novo-Ziminskaya CHPP and the TETs-3 CHPP of OAO Irkutsken- the more efficient Novo–Irkutskaya CHPP. ergo that will generate additional profit through switching the Commercial metering compliance statements were signed un- heat load of Zima from the less efficientTET s-3 to the more ef- der the second stage of HPP-generation and CHPP-generation ficient Novo-Ziminskaya CHPP with the subsequent closing of (on the TETs-1, TETs-6, TETs-9, TETs-11 CHPPs, the N-I CHPP, the TETs-3. N-Z CHPP, the U-I CHPP) confirming that the Company meets Construction of a 6-km heating main the Novo–Irkutskaya CHPP the technical requirements for connection to the trading sys- and Sverdlovskaya district boiler, was completed and consum- tem and assigning the quality certification that allowed the ers connected. It will generate additional profit through switch- Company to enter the electricity and heating wholesale market ing the load of heat supply to the Sverdlovskiy okrug of the city with direct contracts.

58 OAO Irkutskenergo A plant for issuing dry ash to external consumers was installed Total cost of purchasing fixed assets put to use was on the N-I CHPP under the ash and slag waste sales and utiliza- RUR 2,351 mln; furthermore, facilities with statements of readi- tion program. ness for commissioning and the requisite documents are being prepared for registration for RUR 713 mln.

Commissioned fixed assets and construction-in-progress

2001 2002 2003 2004 2005 Commissioning of fixed assets CIP

Equity-based financing

Unit 2001 2002 2003 2004 2005 Source of funding, including RUR mln 1,248.0 1,627.8 1,726.7 2,309.1 2,975.4

Depreciation RUR mln 1,032.6 1,583.6 1,674.2 2,283.4 2,662.9

Profit RUR mln 203.4 29.3 35.2 25.5 301.4

Other RUR mln 12.0 14.9 17.3 0.2 11.1

Total debt as of January 1, 2006, is RUR 460.5 mln, including liabilities payable to the following entities:

= Construction and installation companies – 267.3 million;

= Design organizations– RUR 53.1 mln;

= Suppliers of materials– RUR 112.9 mln;

= Other – 27.2 million.

Annual Report 2005 59 SOCIAL POLICY

60 OAO Irkutskenergo Social programs are implemented in accordance with the multi- party agreements concluded between the Company’s manage- In 2005, the Company implemented the largest ment and the trade union. in the Irkutsk region and absolutely unique in Given the level of occupational danger and health hazards for Russia socially significant energy project: elec- energy sector workers as well as the environmentally unfavor- trification of Olkhon Isle on Lake Baikal, which able location of subsidiaries, the Company’s primary concern is included the laying of a two km NEXANS cable to create safe working conditions, organize recreational facilities, and promote the workers’ health. In 2005, the proportion in polyethylene sheathing on the bottom of of personnel on sick leaves in the total number of employees Olkhonskiye Vorota Strait. fell by 0.47% against the previous year to 2.53%. By investing in health promotion of workers and members of their families, the Company resolved the most important issue of improving the stability of enterprise operations, reducing the incidence of injuries, occupational and general morbidity, reducing work-time losses and the unproductive costs of temporary disability allowances. As a result of capital investment in the workers’ health promotion, work-time losses are decreasing: in 2005, 6.3 days per worker were lost, which was 1.1 days less than in the previous year. The Company has a voluntary health insurance system for workers; employees in need of medical treatment were provided with these services under agreements with medical clinics. Actual payments under VHI agreements in 2005 amounted to RUR 13,157 thousand. In accordance with the current provisions of the Company for granting benefits to workers, members of their families and retired pensioners, 4,049 individuals (including 1,359 children) were provided with tickets to Electra Spa, Nilova Pustyn Pension, Recreation Camps: Zvezdny, Zama, Druzhba, Energetik (settlements Arshan and Murino), Baikal (settlement Utulik); Health Promotion Camps for Children: Zvezdny, Losenok, Druzhba. In 2005, RUR 19,793 thousand were allocated from profits and RUR 3,892 thousand from the social security fund to pursue these purposes. In 2005, 31 apartments were bought in the secondary market for the amount of RUR 15 mln to provide accommodation to young workers under special Young Specialists Housing Pro- gram. OAO Irkutskenergo implements a program of social protection of workers and non-working pensioners (targeted material support is provided to low-income households) and organizes cultural events for workers and members of their households, developing physical culture and sports.

Annual Report 2005 6161 AUDITOR’S STATEMENT

The Company was audited in compliance with Federal Law We presume that the audit provides sufficient grounds for us No.119-FZ On Auditor Activities dated August 7, 2001, federal to express our opinion on the reliability of these financial state- audit rules (standards) approved by the RF Government Reso- ments in all their material aspects and on the compliance of the lution No. 696 of September 23, 2002 (revised and amended accounting procedures with the RF legislation. version), other legal acts regulating audit activities, as well as In our opinion, the financial statements of the Company reli- internal company standards and methods of audit. ably reflect all material aspects of the Company’s financial sta- In auditing the Company we were governed by the internal tus as of December 31, 2005, and its financial and economic rules (standards) of the accredited qualified auditor associa- performance for the period from January 1 to December 31, tion, IPB of Russia. 2005, inclusive. The audit was scheduled and conducted to obtain reliable as- Without changing our opinion on the reliability of the financial surance that the financial reports do not contain any material reports, we would note the following: distortions. = the statement on availability of assets to be recorded on The audit was conducted on a sample basis and included a the off-balance sheet accounts does not reflect the cost of test-based review of evidence confirming figures in financial rented land, due to the absence of a cadastral value of land statements and the provision of data on financial and eco- in the Irkutsk region for the energy sector; nomic activities; an assessment of compliance with accounting principles and rules applied in the preparation of financial = the capital of the Company was increased by investment statements; a review of the key evaluation indicators prepared in construction of electricity lines on Olkhon Isle in the by the Company’s management; and an assessment of the sub- amount of RUR 301,44 thousand through retained earnings mission of financial reports. of the Company.

Deputy General Director A.N. Kozlov

General Audit Qualification Certificate No. K 022402 issued by the RF Ministry of Finance in accordance with RF Ministry of Finance Order No. 54 of March 29, 2005, for unlimited term.

Auditor S.L. Aistova

General Audit Qualification Certificate No. K 001471 of the RF Ministry of Finance issued following the decision of the Central Auditor Certification and Licensing Commission of the RF Ministry of Finance of July 29, 1999; extended from November 6, 2002, to unlimited term (RF MOF CACLC Minutes No.70)

62 OAO Irkutskenergo Appendixes

Profit and Loss Statement, thousand rubles Item 2004 2005 Sales revenue (net of VAT, excise tax and similar compulsory charges) 18,348,235 19,111,012 Cost of sales 14,953,921 16,112,988 Gross profit (loss) 3,394,314 2,998,024 Interest income accrued 26,693 140,036 Interest expense (65,511) (62,051) Income from equity participations 4,616 7,558 Other operating income 1,056,532 1,100,613 Other operating expenses (1,794,599) (2,312,527) Non-operating income 98,415 203,434 Non-operating expenses (1,196,184) (342,365) Extraordinary income 62,786 0 Extraordinary expenses (101,499) 0 Profit (loss) before tax 1,485,563 1,732,722 Profit tax and other similar compulsory charges 559,235 762,977 Net profit (loss) for the reporting period 926,328 1,205,235

FINANCIAL STATEMENTS OF OAO IRKUTSKENERGO, 2005

Stand-Alone Balance Sheet, thousand rubles

January 1, December 31, ASSETS 2005 2005 Property, plant and equipment 42,262,162 41,866,411 Construction in progress 1 215,934 1 829,322 Long-term financial investments 1,495,567 2 272,478 Inventory 1 547,814 1,801,964 Input VAT 522,687 705,328 Accounts receivable 3,930,978 3,212,436 Short-term financial investments 353,561 223,340 Cash 1 016,923 1,570,894 Other assets 210,804 525,649 Balance 52,556,430 54,007,822 LIABILITIES AND SHAREHOLDERS EQUITY Share Capital 45,163,372 45,410,362 Provisions 1,191,702 1,191,702 Retained earnings (accumulated deficit) 1,745,914 2,449,705 Long-term liabilities 530,108 537,923 Short-term debt 847,700 813,800 Accounts payable 3,052,334 3 581,191 Deferred income 25,300 23,139 Total liabilities and shareholders’ equity 52,556,430 54,007,822

Annual Report 2005 63 Consolidated Balance Sheet, thousand rubles As of December, 31 2005 2004 ASSETS

Long-term assets Property, plant and equipment, net 40,644,308 39,421,681 Intangible assets 43,513 25,966 Long-term accounts receivable 472,879 565,141 Long-term investments 380,511 344,846 Long-term promissory notes receivable 504,397 512,080 42,045,608 40,869,714

Current assets Inventory 1,758,230 1,307,158 Accounts receivable 1,595,338 1,408,099 Other current assets 1,079,765 784,315 Short-term investments 836,008 886,162 Short-term bills 94,737 94,737 Cash and cash equivalents 1,627,308 1,046,607 6,991,386 5,527,078

TOTAL ASSETS 49,036,994 46,396,792

SHAREHOLDERS’ EQUITY AND LIABILITIES

Capital and reserves Authorized capital 4,766,808 4,766,808 Revaluation reserve 2,025,804 2,146,362 Retained earnings 31,808,278 30,024,441 Total shareholders’ equity 38,600,890 36,937,611

Long-term liabilities Long-term notes payable 733,616 705,486 Long-term taxes payable 293,470 330,626 Long-term leases payable 94,118 44,083 Deferred tax liability 3,996,524 3,894,672 Severance pay 883,687 776,157 Other long-term liabilities 113,637 39,984 Total long-term liabilities 6,115,052 5,791,008

OAO Irkutskenergo consolidated IAS financial statements for 2005 were audited by Ernst & Young (CIS) Limited.

64 OAO Irkutskenergo Current liabilities Short-term loans 847,719 904,585 Accounts payable 1,473,703 1,053,259 Short-term taxes payable 1,048,276 1,065,100 Short-term promissory notes payable 161,019 161,736 Other short-term liabilities 790,335 483,493 4,321,052 3,668,173

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 49,036,994 46,396,792

Consolidated Statement of Income, thousand rubles, except shares data For years up to December 31 2005 2004 Sales revenue Electricity 12,402,175 11,734,100 Heat 6,485,332 6,531,506 Other 657,307 534,436 Total sales revenue 19,544,814 18,800,042

Cost of sales Fuel used in generation (3,746,328) (3,913,594) Payroll and social contributions (2,209,793) (1,882,378) Repair and maintenance (2,905,872) (2,845,749) Materials (295,514) (289,927) Vodokanal charges (346,953) (323,944) Insurance (565,303) (502,939) Depreciation (2,003,598) (1,974,390) Other expenses (2,301,910) (1,856,181) Total cost of sales (14,375,271) (13,589,102)

Gross profit 5,169,543 5,210,940

Selling expenses (378,273) (244,197) General and administrative expenses (497,644) (385,528) Taxes other than income tax (1,433,193) (1,354,323) Other operating (expenses) / income (127,336) (748,276) Income before interest and taxes 2,733,097 2,478,616

Interest gain 243,718 105,751 Interest loss (167,006) (134,426)

OAO Irkutskenergo consolidated IAS financial statements for 2005 were audited by Ernst & Young (CIS) Limited.

Annual Report 2005 65 Profit before taxes, minority interest and extraordinary expenses 2,809,809 2,449,941

Income tax expense (946,531) (964,281)

Net income 1,863,278 1,485,659

Earnings per share – basic and diluted 0.3909 rubles 0.3117 rubles

Consolidated Statement of Changes in Shareholders’ Equity, thousand rubles, except share data

Shareholder equity Revaluation Retained Total Number Amount reserve earnings

As of December 31, 2003 4,766,807,700 4,766,808 – 28,576,303 33,343,111

Revaluation of property, plant – – 2,984,945 – 2,984,945 and equipment

Reclassification of – – (150,980) 150,980 – depreciation

Reclassification of disposals – – (6,009) 6,009 –

Deferred income tax on revaluation of property, plant – – (681,594) – (681,594) and equipment Net income – – – 1,485,659 1,485,659 Dividends – – – (174,227) (174,227) Acquisition of minority – – – (20,283) (20,283) interest in subsidiary As of December 31, 2004 4,766,807,700 4,766,808 2,146,362 30,024,441 36,937,612

Revaluation of property, plant and equipment

Reclassification of – – (149,518) 149,518 – depreciation

Reclassification of disposals – – (9,111) 9,111 –

Deferred income tax on revaluation of property, plant – – 38,071 (38,071) – and equipment

Net income – – – 1,863,278 1,863,278

Dividends – – – (200,000) (200,000)

As of December 31, 2005 4,766,807,700 4,766,808 2,025,804 31,808,278 38,600,890

OAO Irkutskenergo consolidated IAS financial statements for 2005 were audited by Ernst & Young (CIS) Limited.

66 OAO Irkutskenergo Consolidated Cash Flow Statement, thousand rubles

For years up to December 31

2005 2004

Cash flow from operations

Net income 1,863,278 1,485,659

Adjustments to reconcile net income to net cash from operations

Depreciation 2,021,821 1,984,947

Interest expense 167,006 134,426

Interest income (243,718) (105,751)

Income tax expense 946,531 964,281

Increase / (decrease) in allowance for doubtful accounts receivable 72,794 322,268

Loss from impairment of property, plant and equipment 149,348

Write-off of accounts receivable — 409,876

Gain from sale of investments 37,995 (7,553)

Loss on restructured accounts receivable 26,220

(Income) / loss on sale of property. plant and equipment and other assets 53,713 (86,145)

(Recovery) / accrual of provisions for possible loss (12,600)

Gain from recovered hurricale loss 62,537

Changes in assets and liabilities

Trade accounts receivable (358,676) 50 213

Other current assets (295,450) (89,000)

Inventories (451,072) (47,683)

Accounts payable and accrued liabilities 918,670 (71,771)

Interest paid (46,846) (62,991)

Interest received 140,035 25,287

Income tax paid (859,209) (330,179)

Net cash flows from operating activities 4,142,422 4,625,821

OAO Irkutskenergo consolidated IAS financial statements for 2005 were audited by Ernst & Young (CIS) Limited.

Annual Report 2005 67 Consolidated Cash Flow Statements (continued)

Cash flows from investing activities

Purchase of plant and equipment (3,628,411) (2,314,438)

Proceeds from sale of plant and equipment 57,184 102,806

Proceeds from sale of long-term investments — 10,000

Purchase of short-term investments (634,272) (2,017,221)

Purchases of a minority interest in a subsidariary — (60,874)

Proceeds from sales of short-term investments 986,651 1,304,862

Loans issued (123,600)

Net cash used in investing activities (3,342,448) (2,974,865)

Cash flows from financing activities

Proceeds from borrowings 6,699,700 4,709,584

Repayment of loans (6,481,400) (4,844,884)

Decrease in notes payable (237,573) (513,603)

Dividends paid (200,000) (174,227)

Net cash used in financing activities (219,273) (823,130)

Net increase (decrease) of cash and cash equivalents 580,701 827,826

Cash and cash equivalents at beginning of year 1,046,607 218,781

Cash and cash equivalents at end of year 1,627,308 1,046,607

MEETINGS OF MANAGEMENT BODIES OF OAO IRKUTSKENERGO IN 2005

I. Annual general meeting of OAO Irkutskenergo share- III. Meetings of the Board of Directors of OAO Irkutsken- holders in 2005 ergo in 2005 Date: June 24, 2005 Date: March 3, 2005 Minutes No. 17 of June 24, 2005 Minutes No. 09(135) of March 3, 2005 Agenda: Agenda: 1) Approval of the annual report, annual financial statements, 1) Establishment of subsidiaries with a 100% ownership by including the Profit and Loss Statement (profit and loss ac- OAO Irkutskenergo: ZAO Irketskenergogeneratsiya and ZAO counts), distribution of profit based on OAO Irkutskenergo’s Irkutskaya Energosetevaya Kompaniya. performance in fiscal year 2004. 2) Approval of business-plan of OAO Irkutskenergo for 2005. 2) Approval of the amount, time periods and forms of payment 3) Approval of OAO Irkutskenergo budget for 2005. of annual dividends on OAO Irkutskenergo shares 4) Liquidation of subsidiaries of OAO Irkutskenergo: TETs-1 3) Election of members to the Board of Directors of CHPP and Angarsk heating networks and appropriate amend- OAO Irkutskenergo ment of the Company’s Charter 4) Election of members to the Internal Audit Committee of 5) Review of the proposal made by the shareholders regarding OAO Irkutskenergo the agenda for the annual shareholders general meeting and 5) Approval of the auditor of OAO Irkutskenergo candidates to the Board of Directors and Internal Audit Com- mittee of OAO Irkutskenergo

II. No extraordinary meetings of OAO Irkutskenergo shareholders were held in 2005

OAO Irkutskenergo consolidated IAS financial statements for 2005 were audited by Ernst & Young (CIS) Limited.

68 OAO Irkutskenergo Date: April 22, 2005 8) Appointment of the First Deputy General Director of OAO Minutes No. 10(136) of April 22, 2005 Irkutskenergo responsible for economics and finance; specifi- Agenda: cation of responsibilities falling under his authority 1) Provisional approval of the 2004 annual report of OAO Ir- 9) Early termination of office of members of the Management kutskenergo and other documents submitted for approval Board of OAO Irkutskenergo by the annual shareholders general meeting: annual financial 10) Specification of the number of members and election of reports, profit and loss statement (profit and loss accounts) of members of the Management Board of OAO Irkutskenergo OAO Irkutskenergo, distribution of profit of OAO Irkutskenergo based on performance in the previous fiscal year. 11) Guarantees of OAO Irkutskenergo 2) Recommendations on distribution of profit, including 12) Increase of authorized capital of OOO Grand Baikal by amount of dividend on shares of OAO Irkutskenergo and pro- 163,955,000 rubles through a deposit in Sberbank of Russia cedure for its payment based on performance in the previous 13) Execution of decisions made earlier by the Board of Direc- fiscal year tors of OAO Irkutskenergo 3) Discussion of candidate for auditor of OAO Irkutskenergo 14) Approval of the schedule of meetings of the Board of Direc- 4) Approval of the agenda for the annual shareholders general tors of OAO Irkutskenergo for 2005 – 2006 (till annual share- meeting of OAO Irkutskenergo holders general meeting of OAO Irkutskenergo in 2006) 5) Approval of draft resolutions covering the agenda for the annual shareholders general meeting of OAO Irkutskenergo Date: November 25, 2005 Minutes No. 13(139) of November 25, 2005 6) On convening the annual shareholders general meeting of Agenda: OAO Irkutskenergo 1) Progress in preparation of the rent agreement for hydroelec- 7) Clarification of decisions made earlier by the Board of Direc- tric facilities (hydroelectric dams of the Angara system) to be tors of OAO Irkutskenergo signed by the Federal Agency for Federal Property Manage- ment and OAO Irkutskenergo Date: July 14, 2005 2) Increase of authorized capital of OOO Grand Baikal through Minutes No. 11(137) of July 14, 2005 additional deposit in Sberbank of Russia Agenda: 3) Approval of transaction: contract on provision of information 1) Election of the Chairman of the Board of Directors of OAO services to be signed with a non-profit partnership – Adminis- Irkutskenergo trator of electricity wholesale market trade system of the unified 2) Election of the Deputy Chairman of the Board of Directors of energy system, in which OAO Irkutskenergo has an interest OAO Irkutskenergo 4) Plan of acquisition of ownership by OAO Irkutskenergo of 3) Appointment of the Secretary of the Board of Directors of real estate at a cost of 115,000 thousand rubles towards cover- OAO Irkutskenergo age of a debt risk in 2005 4) On prospects of development of OAO Irkutskenergo 5) Amended 2005 budget for OAO Irkutskenergo 6) Operation of OAO Irkutskenergo in non-regulated sector of Date: October 12, 2005 the electricity wholesale market, improvement of efficiency and Minutes No. 12(138) of October 12, 2005 increasing income of OAO Irkutskenergo within the electricity Agenda: wholesale market non-regulated sector operations program 1) Election of the Chairman of the Board of Directors of OAO 7) Elimination of possible shortfall in electricity facilities in the Irkutskenergo Irkutsk Region 2) Election of the Deputy Chairman of the Board of Directors of 8) Approval of the Strategy and Restructuring Committee OAO Irkutskenergo Statute to be established by the Board of Directors of OAO Ir- kutskenergo 3) Report of the General Director and Management Board of OAO Irkutskenergo on financial and economic performance in 9) Changes in personnel composition of the Budget Committee the first six months of 2005 of the Board of Directors of OAO Irkutskenergo 4) Early termination of office of the General Director of OAO Ir- 10) Approval of the employment agreement terms and condi- kutskenergo tions to be signed with S. V. Emdin, General Director of OAO Irkutskenergo 5) Remuneration to V.V. Kolmogorov 11) Approval of the employment agreement terms and con- 6) Appointment of S.V. Emdin as General Director of OAO Ir- ditions to be signed with G. N. Bakayev, First Deputy General kutskenergo Director of OAO Irkutskenergo responsible for finance and eco- 7) Changes in management organizational structure in OAO nomics Irkutskenergo 12) Amendment of Statute of OAO Irkutskenergo subsidiary – TETs-9, approved by the Board of Directors of OAO Irkutsken- ergo (minutes No.74 of October 14, 2000)

Annual Report 2005 69 13) Amendment of Statute of OAO Irkutskenergo subsidiary Date: December 23, 2005 – Novo-Irkutskaya CHPP, approved by the Board of Directors of Minutes No. 14(140) of December 23, 2005 OAO Irkutskenergo (minutes No.74 of October 14, 2000) Agenda: 14) Conclusion of a guarantee agreement with Sberbank of 1) Review of the report of the General Director and the Man- Russia agement Board of OAO Irkutskenergo on the financial and economic performance of OAO Irkutskenergo in nine months of 15) Approval of transaction: agreement on issue of a guarantee 2005 to OAO Baikalskiy Tsellulozno-Bumazhniy Kombinat (pulp and paper mill), in which OAO Irkutskenergo has an interest 2) Agreement on the number of members and personal composition of the Strategy and Restructuring Committee of the 16) Approval of the OAO Irkutskenergo managers Board of Directors. Appointment of the Strategy and Restruc- 17) Setting up the Secretariat of the Board of Directors of OAO turing Committee chairman Irkutskenergo 3) Restructuring OAO Irkutskenergo 18) Request to the Federal Service for Tariffs regarding the 4) Approval of the coal strategy of OAO Irkutskenergo change of output volumes and production volumes envisaged by the summary balance projection and delivery of electric- 5) Competitive selection of an entity offering the most favor- ity/heat within the UnifiedE nergy System of Russia by subjects able conditions for OAO Irkutskenergo to buy the following as- of the Russian Federation for 2006 in part pertaining to OAO sets: Irkutskenergo – 1,500,000 (one million five hundred thousand) nominal ordinary non-documentary shares of ZAO Irkutskenergoremont with value of 1 ruble, which equals 100% of the authorized capital of ZAO Irkutskenergoremont; – 1,500,000 (one million five hundred thousand) of nominal ordinary non-documentary shares of ZAO Irkutskenergostroy with value of 1 ruble, which equals 100% of the authorized capital of ZAO Irkutskenergostroy [THE ABOVE TWO STATEMENTS ARE IDENTICAL] 6) Postponing consideration of issues on the agenda of the meetings of the Board of Directors of OAO Irkutskenergo

Compliance with the corporate code of conduct and ethics

Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance Shareholders’ general meeting Requirements of the Shareholders shall be notified of the shareholders’ general meeting at Federal Law “On Joint 1 least 30 days before the date, irrespective of the issues on the agenda, Stock Companies” unless legislation specifies a longer period and of the Company’s Charter are met Shareholders may familiarize themselves with the list of individuals eligible for participation in the shareholders general meeting, starting 2 from the date of notification of the shareholders general meeting to the Comply Charter, Para 5.1 closure of an ordinary shareholder general meeting and to the closing date of acceptance of postal ballots from absentee shareholders

Shareholders may familiarize themselves with information (materials) Established practice of 3 to be submitted in preparation for the shareholders general meeting Comply corporate behavior through electronic communications, including through Internet

Shareholders may propose an issue for inclusion on the shareholders general meeting agenda or request a shareholders general meeting without submitting an abstract from the shareholders register, if the Established practice of 4 rights of such shareholders are recorded in the register of shareholders, Comply corporate behavior and if the rights of such shareholders are recorded on the depot account it will be sufficient to submit an abstract from the depot account to exercise the above right

70 OAO Irkutskenergo Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance Statute of the Board of The Company’s Charter or internal documents require that the General Directors, Article 7; Director, members of the Board of Directors and Management Board, 5 Comply Statute of Sharehold- Internal Audit Committee and Auditor of the Company be present at ers General Meeting, the shareholders general meeting Article 27, Para 2 Candidates shall be present at the shareholders general meeting elect- Statute of Sharehold- ing members of the Board of Directors, General Director, members of 6 Comply ers General Meeting, the Management Board, Internal Audit Committee and considering the Article 27, Para 1 issue of approval of the Company’s Auditor

Statute of Sharehold- Internal documents of the company provide for the registration proce- 7 Comply ers General Meeting, dure for the shareholders participating at the general meeting Section 12

Board of Directors

The Company’s Charter establishes the authority of the Board of 8 Directors annually to approve the financial and economic plan of the Comply Charter, Para 10.2 Company

The Company shall have the Company’s risk management policy ap- Statute of the Board of 9 Comply proved by the Board of Directors Directors, Article 7

According to the The Company’s Charter establishes the authority of the Board of Direc- Charter, the Board of 10 tors to make a decision on the suspension of powers of the General Charter, Para 10.2 Directors appoints the Director General Director

The Company’s Charter establishes the authority of the Board of Direc- tors to establish the qualification requirements and amount of remu- 11 Comply Charter, Para 10.2 neration of the General Director, members of the Management Board, and managers of the key organization units of the Company

The Company’s Charter establishes the authority of the Board of Direc- 12 tors to approve the terms and conditions of contracts with the General Comply Charter, Para 10.2 Director and members of the Management Board

The Company’s Charter or internal documents require that in approv- ing the terms and conditions of contracts with the General Director (managing organization), managers and members of the Management Established practice of 13 Comply in fact Board, the votes of the members of the Board of Directors who are the corporate behavior General Director and members of the Management Board shall not be taken into account

The Company’s Board of Directors includes at least three independent Established practice of 14 Comply directors who meet the requirements of the Corporate Code of Conduct corporate behavior

The Company’s Board of Directors shall not include individuals who According to estab- have been found guilty of economic crimes or crimes against govern- lished practice, facts ment authority, hold interests in government service or service in 15 Comply are revealed during local self-governments or who have been subjected to administrative consideration of can- sanctions for illegal actions in business or finance, taxes, collections, or didates securities markets

According to establis- The Company’s Board of Directors shall not include individuals who are hed practice, facts are 16 participants, general director (manager), members of the management Comply revealed during consi- body or worker of a legal entity competing with the Company deration of candidates

Annual Report 2005 71 Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance

The Company’s Charter requires that the Board of Directors be elected 17 Comply Charter, Para 10.6 by cumulative voting

Company internal documents require that members of the Board of Directors avoid actions that lead to or potentially may lead to a conflict Statute of the Board of 18 Comply of interest between them and the Company and, should such conflict Directors, Article 7 arise, disclose this information to the Board of Directors Company internal Company internal documents require that members of the Board of documents establish Directors notify the Board of Directors in writing about intentions to en- information disclosure gage in any transaction involving securities of a company whereof they procedure covering 19 Do not comply are members of the board of directors or its subsidiary (dependent) transactions with inter- companies, as well as provide information about actual transactions est in accordance with involving such securities the current legislation norms Requirement of the Company internal documents require that the meeting of the Board of 20 Statute of the Board of Directors be held at least once every six weeks Directors is met

In 2005, six meetings of Meetings of the Board of Directors during the reporting year be held at 21 Do not comply the Board of Directors least once every six weeks were held

Company internal documents establish procedures for meetings of the Statute of the Board of 22 Comply Board of Directors Directors, Section 7

Company internal documents require that the Board of Directors approve transactions of the Company involving an amount equal to 10 23 Comply Charter, Para 10.2 or more percent of the Company’s asset value, with the exception of transactions concluded in the process of ordinary business activities Company internal documents enable the Board of Directors to obtain information from the executive bodies and managers of the key orga- Statute of the Board of 24 Comply nizational units required for performance of their functions, as well as Directors, Para 6.8.9 establish responsibility for failure to provide such information Availability of the strategic planning committee of the Board of Direc- Statute of Strategy and tors or delegating functions of such committee to another committee 25 Comply Restructuring Com- (with the exception of the audit committee and HR and remuneration mittee committee) Given that the Gov- ernment’s share in the Company’s authorized capital exceeds 25%, Availability of a committee of the Board of Directors (audit committee) Committee not the Company Auditor 26 that recommends a Company Auditor to the Board of Directors and established is selected through a interacts with him and the Internal Audit Committee procedure established by the RF Government Resolution No.706 of November 39, 2005 The requirement will The audit committee includes only independent and non-executive be taken into account 27 directors in establishing the audit committee The requirement will be taken into account 28 An independent director shall manage the audit committee in establishing the audit committee

72 OAO Irkutskenergo Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance The requirement will Company internal documents enable all audit committee members to be taken into account 29 have access to any Company documents and data provided non-disclo- in establishing the sure requirements are met audit committee Availability of a committee of the Board of Directors (HR and remunera- The requirement will tion committee) with the functions of determining criteria for selection Committee not be taken into account 30 of candidates to be members of the Board of Directors and developing established in establishing the Company remuneration policy audit committee The requirement will An independent director shall manage the HR and remuneration com- be taken into account 31 mittee in establishing the audit committee The requirement will The HR and remuneration committee does not include officials of the be taken into account 32 Company in establishing the audit committee Availability of the risk committee of the Board of Directors or delegating Committee not 33 functions of such committee to another committee (with the exception established of the audit committee and HR and remuneration committee) Availability of the corporate conflict settlement committee of the Board of Directors or delegating functions of such committee to another com- Committee not 34 mittee (with the exception of the audit committee and HR and remu- established neration committee) The requirement will The corporate conflict settlement committee does not include officials be taken into account 35 of the Company in establishing the audit committee The requirement will An independent director shall manage the corporate conflict settle- be taken into account 36 ment committee in establishing the audit committee Board of Directors approved Statute of the Availability of Company internal documents approved by the Board of Budget Committee and 37 Directors establishing procedures for establishment and work of com- Comply Statue of the Strat- mittees of the Board of Directors egy and Restructuring Committee

The Company’s Charter defines the procedure for identification of a 38 quorum of the Board of Directors that requires mandatory participation Comply Charter, Para 10.10 of independent directors in meetings of the Board of Directors

Executive bodies

Availability of a collegial executive body (Management Board) of the 39 Comply Charter, Para 9.11 Company

The Company’s Charter or internal documents require approval by the Management Board of transactions with real estate, obtaining loans, 40 Comply Charter, Para 11.10 unless such transactions are not related to large transactions and they are not executed in the course of ordinary business

Company internal documents establish a procedure for obtaining Provisions for formula- 41 agreement on operations that go beyond the business plan of the Comply tion of operational Company budget

Annual Report 2005 73 Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance The Company executive bodies shall not include individuals who are 42 participants, general director (manager), members of management Comply Charter, Para 11.1 body or workers of a legal entity competing with the Company The Company’s executive bodies shall not include individuals who have According to estab- been found guilty of economic crimes or crimes against government lished practice, facts authority, hold interests in government service or service in local self- 43 Comply are revealed during governments or who have been subjected to administrative sanctions consideration of can- for illegal actions in business or finance, taxes, collections, or securities didates markets The power of a sole The Company’s Charter or internal documents prohibit the managing executive body is per- organization (manager) to perform similar functions in a competing formed by the General 44 Do not comply company or be in any other legal relationship with a company besides Director according to provision of management organization (manager) services the Statute of the Gen- eral Director The Company’s internal documents require that executive bodies avoid Statute of the General actions that lead to or potentially may lead to a conflict of interest be- Director, Section 3; 45 Comply tween them and the Company, and should such conflict arise, disclose Statute of the Manage- this information to the Board of Directors ment Board, Section 4 The power of a sole executive body is per- The Company’s Charter or internal documents define criteria for selec- formed by the General 46 Do not comply tion of a management organization (manager) Director according to the Statute of the Gen- eral Director Requirement of the The Company’s executive bodies submit monthly reports on their work Statute of General 47 Statute of General to the Board of Directors Director, Para 2.3 Director is met Contracts executed between the Company and the General Director (management organization, manager) and members of the Manage- 48 Comply ment Board shall establish responsibility for violation of information disclosure clauses Company Secretary The Company has a special official (Company Secretary) whose func- Secretariat of the tion is to ensure that meetings of the Company’s bodies and officials Board of Directors was 49 observe procedural requirements that guarantee rights and legal rights established to meet of the Company’s shareholders this requirement Responsibilities of The Company’s Charter or internal documents establish the procedure the Secretariat of the Statute of Secretariat of 50 for appointment (election) of the Company Secretary and his responsi- Board of Directors are the Board of Directors bilities regulated

The Company’s Charter establishes requirements for a candidate for the 51 Do not comply post of Company Secretary

Material corporate actions

The Company’s Charter or internal documents require that a large trans- 52 Comply Charter, Para 10.2 action be approved before execution

Mandatory involvement of an independent valuer to value the market 53 Comply value of property that is the subject of a large transaction

74 OAO Irkutskenergo Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance

The Company’s Charter prohibits any actions to purchase large share- holdings of a company that would be aimed at the protection of interests of the executive bodies (members of these bodies) and members of the Board of Directors, or that would impair the situation of shareholders as compared with the current status (in particular, a prohibition on 54 No prohibition the Board of Directors to make a decision before the end of expected period of shares purchase to issue additional shares, securities convertible to shares or securities granting a right to purchase shares of the company, even if the right to make such a decision is established by the Charter

The Company’s Charter requires that an independent valuer be involved 55 to value the current market value of shares and possible variations of No such requirement their value as a result of takeover

The Company’s Charter does not require that a purchaser offer the 56 shareholders to sell company ordinary shares in their possession (emis- No such requirement sion securities convertible into ordinary shares) in case of acquisition

The Company’s Charter or internal documents require that an indepen- Established by the 57 dent valuer be involved to determine the share conversion rate in case No such requirement current legislation of reorganization as defined by the current legislation

Information disclosure

Information is disclo- The Board of Directors approves an internal document defining the sed in accordance with 58 rules and approaches of the Company to information disclosure (Infor- No such document the requirements of mation Policy Provisions) the current legislation

Company internal documents require that information about the purpose of sales of shares, about individuals that intend to purchase shares 59 offered for sale (including large share holdings), as well as information No such requirement about whether top company officials will participate in purchase of company shares offered for sale be provided

Charter, Para 13.7, 13.8 Company internal documents define the list of information, documents Statute of sharehol- 60 and materials to be provided to shareholders to be informed on issues Comply ders general meeting, raised at the shareholders general meeting Section 8

The Company shall have a web-site on the Internet where it provides 61 Comply www.irkutskenergo.ru information about the Company on a regular basis

Company internal documents require disclosure of information about transactions of the Company with individuals that, according to the Charter, are referred to the top officials of the Company, as well as about 62 No such requirement transactions of the Company with organizations whereof officials own directly or indirectly 20 or more percent of the authorized capital of the Company or whereon such individuals may have substantial influence Company internal documents require disclosure of information about 63 all transactions that may have an impact on the market value of the No such requirement Company’s shares

Annual Report 2005 75 Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance The Board of Directors approves an internal document on use of material information about the Company’s activities, shares and other securities of the Company and transactions with them that is not to 64 No such document be provided to the wider public and disclosure of which may have a substantial effect on the market value of shares and other securities of the Company Internal audit of financial and economic activities Statute of the Internal The Board of Directors approves procedures of internal audit of financial Such procedures are Audit Committee 65 and economic activities of the Company regulated Statute of the Internal Audit Department

Internal Audit Com- Availability of a special unit of the Company ensuring procedures mittee: 66 Comply of internal audit (audit service) Internal Audit Depar- tment Charter, Article 12 Company internal documents require the Board of Directors to define Statute of Internal 67 the structure and composition of the internal audit service Comply Audit Committee; of the Company Statute of Internal Audit Department The Company internal audit service shall not include individuals who According to estab- have been found guilty of economic crimes or crimes against govern- lished practice, facts ment authority, hold interests in government service or service in 68 Comply are revealed during local self-governments or who have been subjected to administrative consideration of can- sanctions for illegal actions in business or finance, taxes, collections, or didates securities markets The Company’s internal audit service shall not include individuals who are members of executive bodies of the Company or participants, gen- 69 Comply Charter, Para 12.4 eral director (manager), members of management body or workers of a legal entity competing with the Company

Company internal documents establish time periods for submission to the internal audit service of documents and materials for assessment of 70 Do not comply financial and economic activities, as well as responsibility of officials and workers of the company for failure to submit such documents on time

Company internal documents require that the internal audit services Statute of Internal inform the internal audit committee about discovered violations and 71 Comply Audit Committee, Sec- - in case such committee does not exist - the Board of Directors of the tion 6 Company

The Company’s Charter requires that the internal audit service makes a preliminary assessment whether an operation not included in the 72 Comply Charter, Para 10.2 financial and economic plan of the Company is advisable (non-standard operations) Statute of the Board Company internal documents establish a procedure for obtaining 73 Comply of Directors, Articles agreement on a non-standard operation with the Board of Directors 11, 24 The Board of Directors approves an internal document that defines a Statute of Internal 74 procedure for auditing financial and economic activities of the Com- Comply Audit Committee pany by the Internal Audit Committee

The internal audit committee reviews the Auditor’s report before it is 75 Do not comply submitted to the shareholders and the shareholders general meeting

76 OAO Irkutskenergo Compliance/ Corporate Code of Conduct and Ethics Notes noncompliance Dividends

The Board of Directors approves an internal document to govern the 76 Board of Directors in accepting recommendations on the size Do not comply of dividends (Dividend Policy Provisions)

Dividend Policy Provision establishes a procedure for defining the minimum proportion of net profit of the company to be allocated for paying 77 dividends and conditions when dividends on preference shares (the size No such provisions of which is defined in the Company’s Charter) are not paid or are paid incompletely Publishing data on the dividend policy of the Company and changes The requirement will thereof in a periodical defined by the Charter of the Company for be taken into account 78 publication of shareholders general meeting notices, as well as on the when Dividend Policy Company’s web-site on the Internet Provisions are adopted

Information for Shareholders

Mail address: 3 Sukhe-Bator Street, Irkutsk 664025, Irkutsk Region, Russia OAO Irkutskenergo E-mail: [email protected] Web-site: www.irkutskenergo.ru

Telephone number, e-mail address of the Corporate Management Department Department Head: Natalia G. Kovaleva Tel.: (3952) 790-067 E-mail: [email protected]

Register holder: OAO Registrator R.O.S.T p.o.b 9, 18 Stromynka Street, Moscow 107996 Tel./fax: (495) 771-73-37; 771-73-34 E-mail: [email protected]

Irkutsk branch of OAO Registrator R.O.S.T Office 302 A, 6 Lenina Street, Irkutsk 654000 Tel./fax: (395-2) 20-33-40 E-mail: [email protected]

Bratsk branch of OAO Registrator R.O.S.T Office 408, 53 Gidrostroiteley Street, Bratsk 665712 Tel./fax: (395-3) 36-25-82 E-mail: [email protected]

Auditors ZAO BDO UNICON 125, bdg 1 Varshavskoye Shosse, Moscow 117545 Tel.: (495) 319-72-90; 319-56-90; 797-56-65 Fax: (495) 319-59-09; 797-56-60 E-mail: [email protected] Web-site: www.bdo.ru

Annual Report 2005 77 Edition: Annual Report of OAO Irkutskenergo fo the year 2005 Design of the publication: Design-studio «Oberon» Making-up, prepress and color separation: Pavel Lamykin Illustrator: Pavel Ershov Designer: Olga Babachenko Photography: Anatoly Byzov

Translated and copyedited by professional business editors ZAO ELSE 2 Bolshoy Palashevskiy Pereulok, Moscow 123104 Tel.: (495) 741-8585, 762-8747, E-mail: [email protected] www.pravka.com

Contact person (Publisher): 10 Chekhova Street, Irkutsk 664011 E-mail: [email protected] Tel.: (3952) 209056, 209355

Format: 210х297 мм, size: 78 р., circulation 350 copies. Offset printing, paper Union Art, type font Myriad Pro Signed for print: 30.05.2006

Produced by: ООО Operativnaya tipografiya Na Chekhova 10 Chekhova Street, Irkutsk 664011 Tel.: (3952) 209056, 209355 E-mail: [email protected] www.print.irk.ru