The Annual Report 2017 on Kubanenergo Progress for the Annual General Meeting of Shareholders

Kuban Power and Electrification Public Joint-Stock Company (Kubanenergo)

Approved: By the decision of the Board of Directors Kubanenergo (minutes No.306/2018 dd. April 20, 2018)

By the decision of the annual General Meeting of Shareholders of Kubanenergo (minutes No. 40 dd. the May 28 , 2018)

Reliability of data contained in the present report is confirmed by the Audit Committee of Kubanenergo of the __ of May, 2017 (minutes No. ___ of the __ of May, 2017)

The Annual Report 2017 on Kubanenergo Progress for the Annual General Meeting of Shareholders

General Director of Kubanenergo A.I. Gavrilov

Chief Accountant I.V. Skiba and Head of Financial Records, Accounts and Tax Returns Department

First Deputy Director General, E.G. Armaganyan Director of Sochi Electric Grids Branch, Deputy Director General for Service Sales

Deputy Director General for Economics and Finance O.V. Ocheredko

Deputy Director General I.V. Ivanova for Corporate Management

Deputy Director General I.N. Shishigin for Technical Issues, Chief Engineer

Deputy Director General V.Yu. Kostetsky for Development and Technological Connection

Deputy Director General A.V. Golov for Investment Deputy Director General, L.A. Golovakha Head of Office

Acting First Deputy Director General for Safety S.A. Lozovoy

Deputy Director General for Controlling I.V. Shmakov

Head of Department for Personnel Management V.A. Belik and Organization Design

Head of Public Affairs Department V.A. Sadym Krasnodar, 2018

This annual report includes the results of activities of Kuban power and electrification public joint stock company for the year 2017, as well as certain important developments in the Company’s affairs, which took place after the reporting date, in the period from January 1, 2018 to the preliminary approval of this Annual Report by Kubanenergo Board of Directors on May 11, 2018. For the purposes of this document, Kuban power and electrification public joint stock company is referred to as Kubanenergo, the Company. Rosseti PJSC (before April 4, 2013 known as IDGC Holding OJSC, and during the period from April 4, 2013 to July 17, 2015 known as Rosseti OJSC) and other legal entities are referred to in the form relevant for the period (event) stated in the text.

Disclaimer This annual report (hereinafter the “Annual Report”) has been prepared with the use of information available to Kubanenergo and its subsidiaries at the time of its drafting. The Annual Report also includes information related to production and economic activities of the Company in the future based on estimates and forecasts of the Company’s management, and on the current situation. Due to various objective factors, the actual results of the activities may differ from these forecasts and assessments. The Annual Report contains certain forecasting statements in relation to economic activity, economic performance and financial status of the Company and its plans, projects and expected results. The Annual Report may also contain evaluations of trends regarding prices for services/products, volumes of production and consumption, costs, estimated expenditure, development prospects and other similar factors, as well as forecasts in respect of the development of the industry and markets, start and end dates of certain projects for the Company’s activities. Words such as “intends”, “seeks”, “designs”, “expects”, “estimates”, “plans”, “considers”, “supposes”, “may”, “should”, “will”, “will continue” and other similar words and words derived from them usually indicate the forecasting nature of a statement. Forecasting statements, by their nature, are connected to inherent risks and uncertainties, both general and specific. There is a risk of forecasts, projects and other such statements not coming to true. In the light of these risks, uncertainties and assumptions, the Company warns that the actual results may significantly differ from the values, whether explicit or implicit in forecasting statements, valid only at the time of drafting the Annual Report. The Company does not definitely state and does not guarantee that the results indicated in the forecasting statements will be achieved. The Company does not take any responsibility for any damages that may be incurred by physical or legal persons who relied on such statements. In each particular case, such forecasting statements constitute only one of the many ways events can develop, and should not be seen as the most likely ones. Except as expressly prescribed by the law, the Company is not obligated to publish updates and changes in such statements, either on the basis of new information, or on the basis of subsequent events.

Contents Key Performance Indicators ...... 6 Chairman of the Board of Directors Address ...... 9 About the Company ...... 12 Kubanenergo Profile & Market Position ...... 12 Setup of Company’s Business Operations ...... 13 Corporate Structure ...... 16 History of Origin and Development of Kuban Power System and Kubanenergo ...... 18 Company Risk Management System ...... 19 Company’s Policy for Anti-Corruption and Resolution of Conflict of Interests ...... 23 Company’s Code of Corporate Ethics and Norms of Conduct for Employees ...... 24 Key Company ...... 24 Events in 2017 and in the beginning of 2018 ...... 25 Strategic Benchmark ...... 30 Company Strategic Goals and Priorities ...... 30 Long-Term Development of Company’s Power Grid Within Operation Area ...... 34 Integrated Management System of the Company ...... 34 Company’s Innovative Development ...... 36 Innovative Development Program ...... 36 R&D Execution ...... 37 Technical Policy and Regulatory and Technical Provision ...... 38 Consolidation of Power Supply Assets ...... 39 Results of Operating Activities ...... 41 Electric Energy Transmission ...... 41 Key Indicators ...... 41 Measures to Reduce Power Losses ...... 41 Electric Power Fiscal Accounting ...... 42 Implementing Automated Electric Power Control and Accounting Systems (AEPCAS) ...... 42 Technological Connection to Electric Grids of Kubanenergo ...... 44 Implementation of Agreements on Technological Connection of Customers ...... 44 Volume of Customer Demand for Technological Connection in 2017 ...... 46 Volume of Resulting Revenue and Collected Funds ...... 46 Technological Connection of Generating Facilities ...... 47 Reliable and Effective Operation of Electrical Power Systems ...... 48 Ensuring Quality, Reliable and Uninterrupted Electric Power Supply to Customers ...... 48 Repair and Operating Activities ...... 52 Program for Modernization (Renovation) of Power Grid Facilities ...... 54 Energy Conservation and Improvement of Energy Efficiency ...... 54 Documents regulating Company’s activities in the field of energy conservation and improvement of energy efficiency ...... 54 Results of Company’s performance in the field of energy conservation and improvement of energy efficiency ...... 55 Tariff Policy and Tariffs for Company Services ...... 58 Company’s Tariff Policy ...... 58 Tariffs for Electric Power Transmission Services ...... 58 Tariffs for Technological Connection Services ...... 63 Information Technologies and telecommunications ...... 64 Company’s Procurement Activities ...... 65 Investment Activity ...... 68 Main Results of the Company Investment Activity in 2017 ...... 68 Areas and Financing Structure of Capital Investments ...... 69 Results of Investment Program Implementation for 2017 ...... 70

Long-Term Investment Program ...... 71 Capital Construction Quality Control ...... 71 Key investment projects involving construction finished in 2017 ...... 72 Kubanenergo Accounting (Financial) Statements ...... 73 Results of Financial and Economic Activities of the Company ...... 75 Analysis of Results of Company's Financial and Economic Activities ...... 75 Accounts Receivable ...... 77 Accounts Payable ...... 78 Loans and Credits ...... 78 Corporate Governance ...... 80 Principles and Practices of Corporate Governance ...... 80 General Meeting of Shareholders ...... 83 Board of Directors ...... 83 The Board of Directors ...... 85 Activities of the Board of Directors ...... 94 Committees of the Board of Directors ...... 97 Reliability Committee ...... 97 Audit Committee ...... 99 Strategy, Development, Investments and Restructuring Committee ...... 101 Human Resources and Remuneration Committee ...... 102 Technological Connection Committee ...... 103 Executive Bodies ...... 104 Director General ...... 105 Management Board ...... 105 Corporate Secretary ...... 112 Auditing Commission ...... 112 Members of the Auditing Commission ...... 113 Auditing Commission's Work Results ...... 114 Remuneration and Reimbursement of the Company's Governance and Control Bodies ...... 114 Remuneration and Reimbursement of the Board of Directors ...... 114 Remuneration and Reimbursement of the Executive Bodies ...... 115 Remuneration and Reimbursement of the Auditing Commission ...... 116 Kubanenergo's Transactions in 2017 ...... 116 Information Policy ...... 117 Internal Control System ...... 119 Internal Control ...... 119 Internal Audit ...... 124 Shares and Dividends ...... 126 Shares of Kubanenergo ...... 126 Issue of Additional Shares of the Company ...... 127 Share Capital Structure ...... 127 Share Market and Capitalization of Kubanenergo ...... 128 Distribution of Profits and Dividend Policy ...... 129 History of Dividend Payments at Kubanenergo ...... 130 Sustainable Growth ...... 131 HR Policy ...... 131 Staff Size and Composition ...... 131 Staff Training & Development ...... 132 Company Staff Training at Third-Party Training Centers ...... 133 Company Talent Pool Management ...... 134 Key Performance Indicators (KPI) ...... 134 Quarterly Indices ...... 135 Yearly Indices ...... 135 Occupational Safety & Environment Protection ...... 135 4

Occupational Safety ...... 135 Industrial Safety ...... 137 Social Responsiveness ...... 137 Environment Protection and Key Ecological Principles of the Company ...... 140 Customer Relations Organization ...... 141 PR, Government & Public Affairs, Congresses and Exhibitions ...... 143 Government & Public Affairs ...... 143 Public Relations ...... 144 Mass Media Relations ...... 145 Congresses & Exhibitions ...... 146 Reference Data ...... 148 Contacts ...... 148 Registrar Data...... 150 Abbreviations & Terms ...... 150 Units of Measurement...... 153 Annual Report Appendices ...... 153 Appendix 1………………………………………………………………………………………….... Appendix 2…………………………………………………………………………………………… Appendix 3..………………………………………………………………………………………….. Appendix 4……………………………………………………………………………………………

Key Performance Indicators Units of 2016-2017 Measureme 2014 2015 2016 2017 Change nt Financial Results Revenue RUB mln 29,393.4 35,704.2 41,726.2 42,253 +1.3% including: - from electric power RUB mln 28,464.2 34,403.0 39,262.4 41,485.7 +5.7% transmission services - from services of technological RUB mln 847.8 1,213.3 2,380.5 647.9 -72.8% connection Net cost1 RUB mln 29,918.8 33,149.3 35,927.8 38,369.0 +6.8% Net profit (loss) RUB mln -3,632.3 1,452.5 2,140.5 525.3 -75.5% Return on equity % -11.55 4.69 6.32 1.48 -4.8 pp Return on assets % -5.92 3.52 5.33 1.68 -3.7 pp Cash at the end of the year RUB mln 7,071.0 2,577.5 1,245.6 1,667.7 +33.9% Long-term loans and borrowings at the end of the RUB mln 14,900.0 10,000 18,912.2 22,617.8 +19.6% year Short-term loans and borrowings at the end of the RUB mln 2,517.0 7,071.0 79.1 91.0 +15.2% year Implementation of capital RUB mln 9,177 8,329 4,913 6,700 +36.4% investments Operating Indicators Total length of overhead and cable power lines (circuit km 89,793.8 90,420.63 90,661.0 91,106 +0.5% length) Installed capacity of 35– MVA 9,166.10 9,446.13 9,519.1 9,696.63 +1.9% 110-kV substations Installed capacity of 10–6/0.4- kV substations in the MVA 4,556.83 4643.09 4,741.061 4,805.905 +1.4% distribution grid Average duration of power supply interruptions per one h 5.05 4.57 4.29 3.48 -18.3% process upset Electric power supplies to the mln kWh 21,572.6 22,032.6 22,732.3 22,633.2 -0.4% grid of Kubanenergo Volume of power transmission mln kWh 17,081.7 17,457.2 18,059.1 18,204.1 +0.8% services rendered Electric power losses mln kWh 2,852.7 2,835.7 2,945.6 2,729.0 -7.4% Connected capacity of the MW 543 691 618 684 +10.7% Consumers Actual Average Staff ppl 8364 8326 8428 8494 +0.8% Headcount Structure of the Company’s Personnel by Educational Attainment: Higher professional education % 42.6 43.8 45.2 47.3 +2.1 pp Secondary and basic vocational % 36.2 36.8 39.4 39.2 -0.2 pp education General secondary education % 21.2 19.4 15.4 13.5 -1.9 pp

1 Administrative costs accounted. 6

Electric Power Supplies to and from the Grid of Kubanenergo and Losses During Electric Power Transmission, mln kWh:

25 000,00

20 000,00

Electric power supplies to the 15 000,00 grid mln kWh

Supply from the grid to the 786,65 196,90 consumers and LGOs, mln kWh;

10 000,00 904,27

732,29

032,58

19 19

633,26 Electricity Losses, mln kWh;

945,64 835,68

5 000,00 728,98

2 2

0,00 2015 2016 2017

2015-2017 Dynamics of Key Economic Indicators of Kubanenergo.

2015-2017 Dynamics of the Number of Technological Accidents at Company’s Facilities:

2015-2017 Records of Volume of Capital Investments Implementation of Kubanenergo, million rubles (VAT excluded):

Chairman of the Board of Directors Address Dear Shareholders, In the reporting year, activities of the Board of Directors were focused on ensuring interests of shareholders of Kubanenergo, improving Company’s financial and economic performance, enhancing confidence in the Company of shareholders, creditors and investors. The Board of Directors has been traditionally focusing primarily on the approval of strategic projects, internal documents, and issues ensuring regular control of the Company’s management performance. One of the most important decisions made by the Board of Directors this reporting year concerns the approval of Company’s long- range programs. These include an investment program and framework for improvement of operating performance and retrenchment, reduction of electric power losses, modernization (renovation) of power supply facilities for 2017-2026, energy conservation and energy efficiency, innovation-driven growth, long-term development of electric power metering systems, and retirement of equipment in disrepair. Single documents for Rosseti Group of Companies, including provisions of Rosseti PJSC on Uniform Technical Policy for Power Grid, updated version of Anti-Corruption Policy of Rosseti PJSC and its subsidiaries and affiliates, and Environmental Policy for Power Grid are approved as internal documents of the Company. In 2017, Kubanenergo held 35 meetings of the Board of Directors, resolutions on all 169 items considered were made. Key issues examined during the meetings were the following: approval of strategic documents, ensuring of regular control of performance of the Company’s management, approval of transactions, and Company’s charity activities. In order to develop and reinforce control functions, the Board of Directors defined the following as priority areas for the Company: improvement of risk management, internal control, and internal audit systems. The Plan of Measures Aimed at Development and Improvement of Internal Control and Risk Management Systems of Kubanenergo for 2016-2018 was realized in a part of 2017. Implementation of the Plan provides for channeling the efforts to improvement of efficiency and performance of the Company, protection of its assets, fairness of financial and other statements, compliance with legal requirements and local regulations of the Company, and ultimately contributes to achievement of Company’s goals and objectives. Company’s share in the regional energy market (of the region’s RGR) in 2017 reached 73.9%. Total supply in the region is higher than in 2016 and in total amounts to 27 bln kWh. High rates of reconstruction and renovation of the Company’s electric grids as well as the dynamic growth of technological connection volumes to the Company’s grid suggest that in the future Kubanenergo will retain a dominant position in the regional market for electricity transmission. In 2017, PJSC Kubanenergo continued implementing a number of major investment projects. The Company mainly focused on the development of power grid infrastructure on the Black and Azov Sea coasts of the Krasnodar Krai. During the reporting period, the Company ensured reliable and uninterrupted power supply to the customers. Taking into account dynamic development of the Kuban Region, timely and accessible technological connection of new customers to the electric grids remains the most important area of focus for Kubanenergo. In 2017, the Company entered into 30.4 thousand agreements for technological connection with total capacity of 652 MW. The electric facilities of such major applicants as Lider LLC, Tamanneftegaz CJSC, and Sozdaem siluet Kubani- 23 LLC were connected to the Company’s electric grids. Under the energy efficiency program, Kubanenergo continued implementing innovative projects on improvement of the quality of electricity transmission and metering both at the Company’s own expense and by attracting investors. Kubanenergo raised private funds in order to develop and improve the energy supply metering. Currently the Company has entered into 24 energy service agreements with total investments exceeding RUB 3.9 bln covering over 130 thousand meetering points. At year-end 2017, the Company has reduced over 128 mln kWh of losses. Main production goals of Kubanenergo for 2018 is an accident-free passage of the seasons of peak loads, timely receipt of a certificate of readiness for the autumn-winter period, implementation of investment and maintenance programs, and minimization of excessive losses. Taking into account increasing demand for electricity and growing loads, it is no less important to address the issues of increasing accessibility and transparency of grid connections, quality and efficiency of services rendered. Besides, Kubanenergo sets a goal of continuous improvement of financial and economic indicators, increase of investment potential, openness and transparency of activities to serve the interests of shareholders and other concerned parties to the full.

Chairman of the Board of Directors of Kubanenergo A.N. Fadeyev 9

Address of the Director General Dear Shareholders, Partners, and Colleagues,

The absolute priority of Kubanenergo activities in 2017 was completing all tasks imposed on the Company in order to ensure reliable and uninterrupted power supply and technological connections to the electric grids of the Company. During the reporting period, the Company showed efficiency, reliability and stability in the achievement of its business goals. Major amount of investments planned in the framework of long-term investment program of Kubanenergo for 2017-2022 was channeled to construction of new power supply facilities. By the end of the reporting period, the Company mastered an investment program in the amount of 6.7 billion rubles. The volume of financing of design and survey, construction and installation, commissioning works, and acquisition of equipment and materials amounted to 8.9 billion rubles. The company commissioned 364 MVA of transformer capacity and 836 km of power lines. In 2017, the Company was pushing for construction of facilities of national importance, carried out within a government project Development of Dry-Cargo Area of Taman Sea Port. Railway Lines, Development of Current Public Railway Infrastructure towards Dry-Cargo Area of Taman Sea Port. As part of the project, the Company is building a 220 kW transforming substation Port with 432 MVA capacity and total length of overhead power lines reaching approximately 170 km. The total connected capacity under the performed agreements for technological connection amounted to 684 MW exceeding the planned volume by 11%. Company’s priority focus in the field of technological connection includes taking part in the government project dedicated to development of advanced energy infrastructure on the Taman Peninsula, providing electric power supply to dry-cargo area of Taman Sea Port, construction of transport transition through the strait of Kerch, construction of 110/35/10-kV Lesnoy Port SS in Novorossiysk to supply electric power to the future refrigeration sites, ensuring the required electric power capacities for facilities of the agricultural sector of the Russian South, making up for energy shortfall in large industrial and residential centers of the region. Total electric power supply to the grids amounted to 22.633 bln kWh. Decrease in power supply compared with the previous year is 99 mln kWh (-0.4%). The standard of power losses for 2017 was fulfilled saving -0.9 pp of the established figures. An important line of Company’s work consists in improvement of energy efficiency of operated equipment. The Program of Energy Conservation and Energy Efficiency Improvement is revised and upgraded annually. Main goals of the Program are reduction of technological losses and consumption of energy resources required for production and economic needs. The benefit of 2017 is expressed in reduction of power losses by 168.6 mln kWh (449.1 million rubles). In 2017, the Company was developing the updated Innovative Development Program for 2016-2020 with an outlook until 2025. The Company’s goal under this Program is to make a transition to digital substations with voltage type 35-110 and digital active-adaptive network with a distributed intelligent system of automation and control, as well as to reach overall efficiency of business processes and control systems automation, and to apply new technologies and materials to electric power industry. The Company continued to develop partnership relations with universities, research organizations, small and medium-sized businesses. Kubanenergo successfully passed the inspection by the Commission of the Ministry of Energy of the Russian Federation that checked readiness of the power grid complex for the autumn-winter period. As a result of the inspection, Kubanenergo obtained a certificate of readiness for the autumn-winter period of 2017-2018. To enhance the efficiency and improve financial and economic performance of Kubanenergo, the Company has developed and is now implementing a plan, which involves corporate and external measures aimed at financial stability and sustainable positive financial results of Company’s performance. The Company’s objective is to introduce an ever-improving system of management and control designed to ensure effective and optimal use of the Company’s resources and, at the same time, to implement advanced management techniques and methodological tools. In 2017, Kubanenergo completely fulfilled the directives of two system documents, which positively influence the efficiency and quality of the Company’s activities: a complex of measures aimed at improvement of management system of Kubanenergo and a Plan of Measures Aimed at Development and Improvement of Internal Control and Risk Management Systems of Kubanenergo for 2016–2018. At year-end 2017, the net profit of the Company reached RUB 525 mln. The Company has also developed and implemented a Program for Enhancement of Operating Efficiency and Reduction of Costs of Kubanenergo for 2017-2021. The Program involves a number of measures that ensure

10 achievement of Company’s strategic goals, improvement of internal efficiency and economic viability through optimization of internal business processes. In 2017, the specific operating expenses expressed in 2012 values added up to 6.07 thousand rubles per c.u. that corresponds to 15.7% of reduction in operating expenses for the reporting period against the level of 2012 and RUB 13.16 thousand per c.u. (3.1%) against the level of 2016. This positive trend is a result of systematic work of the Company regarding cost optimization associated with the enterprise’s operations. The Company is interested in creating a single point of responsibility for quality and reliable energy supply to customers within Krasnodar Krai and the Republic of Adygea. To increase a market share of electric grid services in the customer basin of Kubanenergo and reduction of the number of TGC, the Company implements a long-term Electric Grid Assets Consolidation Program. In 2017, PJSC Kubanenergo continued developing a system of production assets management. The Company completed its works on automation of the system for generation of electronic certificates for substations and power lines. Kubanenergo also integrated automated control systems for equipment maintenance and repair with the accounting systems, and implemented a system of automated statements for maintenance and repair business plan. 40.4 km of fiber-optical lines were installed. Using installed fiber-optical lines the Company arranged communication channels towards 110-kV Khadzhokh and Pionerskaya substations. To improve the quality of customer service in 2017, Kubanenergo expanded the functionality of the Customer Personal Account on the Company’s web-site regarding technological connections and customer services. Further improvement of Personal Account functionality in terms of forwarding requests for power rescheduling is planned. While 2017 was declared the Year of Environment in Russia, Kubanenergo held a number of environmental campaigns and took environment protection measures to draw public's attention to fostering an attitude of care towards nature, and reduction of negative impact on the environment. The Company faces challenges for further development, modernization and expansion of electric power infrastructure in the region in 2018. The main focus will be on the Southwest and Central Power Districts, which require improvement of electric power infrastructure. The priority areas in the field of technological connection are development of Temryuk District of the Krasnodar Krai, including energy supply to transport transition through the Strait of Kerch, which is a project of national importance. Overall, based on the year-end results, Kubanenergo has fulfilled its main task to provide reliable, high-quality power supplies to customers, and to strengthen the Company’s image, which has great significance for the stable social and economic development of Krasnodar Krai and the Republic of Adygea.

Director General Kubanenergo A.I. Gavrilov

About the Company

Kubanenergo Profile & Market Position Kubanenergo carries out transmission and distribution of electricity to customers through the electric grids of 110-kV and lower between settlements in rural areas, different cities, and regional centers of Krasnodar Krai (including Sochi) and the Republic of Adygea. The territory serviced by Kubanenergo in Krasnodar Krai and the Republic of Adygea has an area of 83.3 thousand sq km, and a population of over 6.0 mln people. The Company’s primary goal is to provide reliable and uninterrupted power supply to customers in the region and meet the growing needs of the region’s economy for electricity. Kubanenergo is the largest taxpayer of the region, and actively participates in the region’s social and economic life, providing employment and using services from supplier companies in related industries while implementing various social programs and charity events. Kubanenergo is a publicly traded company, the shares of which are traded on the Russian Stock Exchange – Moscow Exchange. The Company’s core activities are performed under conditions of natural monopoly regulated by the government in part of: • establishing tariffs for power transmission and technological connection of customers’ power receivers to the Company’s electric grid; • ensuring non-discriminatory access for customers to the specified Company’s services.

The Company’s Profile in 2017: Total length of transmission lines 91.106 thousand km Maximum design capacity of the electric power 7,229.6 MVA system 2 Load level of the electric power system’s design 5,037.15 MVA (69.67% of maximum capacity) capacity in 2017 underuse of design capacity due to the need for reservation in case of a power failure scheduled maintenance Total number of metering points of consumers connected to the grid of Kubanenergo in accordance 1,161,481 with signed contracts for electricity transmission Power grid branches 11

Kubanenergo is the largest electric grid company in Krasnodar Krai and Republic of Adygea. Company’s share in the regional energy market (of the region’s RGR) in 2017 reached 73.9%. High rates of reconstruction and renovation of the Company’s electric grids as well as the dynamic growth of technological connection volumes to the Company’s grid suggest that in the future Kubanenergo will retain a dominant position in the regional market for electricity transmission. Total power supply in the region increased in 2017 and reached 27 bln kWh.

Company’s share of electricity transmission for 2015-2017 in the region’s RGR with reference to rates and balance resolutions made by the Department of Prices and Rates of Regional Energy Commission for Krasnodar Krai when imposing common pot tariff for 2016-2018, based on 2015-2017 results: For 2016 For 2017 For 2018 Share of Kubanenergo 73.8% 73.9% 75.5% Growth of Kubanenergo share is conditioned by NGP increment for maintenance of electrical grids of Kubanenergo and consolidation of power supply assets. Kubanenergo remains a leader on the market for the services rendered.

The largest companies engaged in similar activities in Krasnodar Krai and the Republic of Adygea are: NESK Electroseti JSC, Oboronenergo OJSC, Russian Railways OJSC, and NGT-Energy JSC.

Company’s major production assets in 2015-2017 as of the end of the reporting period:

2 Only for 110-kV substations. 12

Units of Type of Assets Measure 2015 2016 2017 ment Substations units 23,223 23,568 23,767 Installed Capacity (total), MVA 14,089.22 14,273.59 14,502.54 including: units 715 716 715 SS 35-110 kV MVA 9,432.7 9,519.1 9,696.63 Transformer substations, distribution units 22,508 22,852 23,052 transformer substations 6-10(35)/0.4 kV MVA 4,656.516 4,754.491 4,819.34 OPL length along the route (total), km 86,003.2 86,169.4 86,545 including: OPL (220 kV and more) km 76.1 76.1 76.1 OPL (110-150kV) km 4,962.8 4,908.3 4,907.21 OPL (35 kV) km 6,932.5 6,833.7 6,833.85 OPL (6-10 kV) km 32,556.276 32,621.765 32,710.729 OPL (0.4 kV) km 41,475.550 41,729.512 42,017.11 CL length (total), km 2217.1 2279.9 2349.954 including: CL (110 kV) km 78.75 81.05 93.35 CL (35 kV) km 0.46 0.944 1.33 CL (6-10 kV) km 1663.414 1722.563 1777.95 CL (0.4 kV) km 473.429 475.316 477.32

Branches of Kubanenergo (EG – electric grids):

Setup of Company’s Business Operations 13

The power is supplied to the Company’s electric grids through the following sources: • grids of Federal Grid Company from FGC UES PJSC: 80% in the reporting year; • straight from generation facilities: 17% in the reporting year; • related power systems (Stavropolenergo, branch of IDGC of the Northern Caucasus PJSC; Karachaevo- Cherkesskenergo JSC; Rostovenergo, branch of IDGC of the South PJSC): 3% in the reporting year. Customers of Kubanenergo’s PJSC services of transmission of electrical power include: • individuals and legal entities having electric facilities connected to the Company’s electric grids who have signed agreements with energy supply companies3; • customers who have entered into agreements for energy transmission directly with the Company (Novoroscement JSC, Tamanneftegas CJSC, RAMO-M CJSC, EuroChem-BMU LLC, Ptitsefabrika Primorskaya LLC, Farming Enterprise Yuzhnaya OJSC, Stud Farming Enterprise Pobeda CJSC, Formika-Yug LLC, Sad-Gigant LLC, Novorossiysky morskoy torgoviy port OJSC, Abrau-Durso CJSC, Verhnebakansky tsementny zavod OJSC and others). Payment for services of the Company for electric power transmission is received from both energy supply companies and direct consumers. To compensate for power loss occurring during its transmission through the Company's grid, Kubanenergo purchases power from energy supply companies. Starting 2007, the region has been applying a “boiler” method of payment for electric power transmission: a single boiler rate applies to all customers of electric power transmission services in Kuban and Adygea belonging to the same rate class, regardless of the grid and the grid company the customers are connected to. The basic rate negotiated model used for payments is a “boiler above” model: Kubanenergo has a status of the core grid operator, or a “boiler holder”. This model stipulates that customer payments for the received electric power transmission services (regardless of the grid company the customers are connected to) are transferred to Kubanenergo, after which the Company pays the subordinate organizations, to the grids of which the power receivers of customers are connected, according to retail rates. Starting September 22, 2011, Kuban has adopted a system for individual use by LLC Maykopskaya CHP referred to as “boiler below”: Under this system, payments for power transmission received from customers connected to LLC Maykopskaya CHP are made according to the common boiler tariff to this organization, which pays Kubanenergo for rendering power transmission services by its grids as per a separate tariff.

3 Energy supply companies have, in turn, signed service agreements for power supply with Kubanenergo to perform the terms of the stated power supply agreements. In 2017, the Company had contractual arrangements with three guaranteed supply companies and 28 energy supply companies, the largest of them being TNS Energo Kuban PJSC (48% of earnings from services actually rendered) and NESK JSC (36% of earnings).

Corporate Structure In the reporting year, changes to corporate structure of the Company were introduced. These changes were related to efficiency improvement of power grid management system of the Company. They also included arrangement of prompt cooperation with government authorities of the Russian Federation, Krasnodar Krai, and the Republic of Adygea regarding implementation of a number of prime projects of national importance, as well as securing a required official and business profile for Company’s staff who represent its interests in the federal and regional government agencies with account of geography of high-priority special projects and development of network infrastructure in the dry-cargo area of Taman Sea Port, located in the service zone of Kubanenergo branch Slavyansk Electric Grids. The changes also affected system performance associated with ensuring a sufficient level of rate base and improvement of Company’s financial stability. A position of Deputy Director General for Special Projects was introduced into corporate structure – Director of Slavyansk Electric Grids branch; a Deputy Director General position with immediate supervision of Department of Interregional Cooperation, and upgrade of tariffs setting of the subdivision. A Department of Retrofitting and Upgrading of Existing Power Supply Facilities was introduced through the alignment of Deputy Director General for Technical Issues and Chief Engineer. The Department's goals include arrangement of engineering support for construction of new facilities, and for retrofitting and upgrading of existing power supply facilities, ensuring execution of renovation (modernization) programs, as well as effective use of the allocated funding sources for construction, reconstruction, and retrofitting of power supply facilities. Current corporate structure of Kubanenergo is approved by the decision of the Board of Directors of June 26, 2017 (Minutes No. 279/2017).

PJSC Kubanenergo Executive Organizational Structure

Director General

Deputy Director General Deputy Director General Deputy Director General for Deputy Director General Deputy Director General Deputy Director General Deputy Director General Deputy Director General for Economics and for Corporate Development and Deputy Director General for Technical Issues – Chief Engineer Deputy Director General for Sales of Services For Investment – Chief of Staff For Safety for Controlling Finance Management Technological Connection

Department of Sales of Services Administration and Department of Investment Department of Corporate Department of and Electricity Deputy Chief Engineer for General Services Safety Department Department of Economics Deputy Chief Engineer for Management Regional Relations Management and Customer Relations Metering HV Grids Operation and Department Controlling* Operational, Technological Shareholder Department MRO – Head of Department and Situation Management Relations of Operation and MRO

Department of Department of Department of Department of Internal Department of Tariff Department of Department for Technological Energy Capital Personnel Official Secretes Control and Risks Setting Department of Department of Operation Connection Conservation and Grid Control Center Construction Management and Protection Management Property and MRO Energy Efficiency Organization Design Management Improvement

Logistics and Department of Department of Long- Deputy Chief Engineer for Support Department of Department of Internal Finance Deputy Chief Engineer – Department of Term Development Distribution Network Department Mobilization Training Audit Head of Department of Legal Support Operation – Head of and Civil Defence Occupational Safety and In- Department of Distribution Process Control and Cable Network Department of Chief Accountant – Head Operation Corporate and of Department of Technological ACS Department of Occupational Accounting and Tax Department of Distribution Safety and In-Process Management and Cable Network Control Operation Department of Public Relations Department of Accounting and Tax Department of Retrofitting Management Technological Development and Upgrading of Power and Innovation Management Grid Facilities

Production Technology Service

Department of Metrology and Electric Power Quality Control

First Deputy Director General -– Deputy Director General for Director of Director of South- Director of Adygea Director of Armavir Director of Krasnodar Director of Labinsk Director of Leningrad Director of Timhoretsk Director of Ust-Labinsk Director of Sochi Power Grids Special Projects – Director of Timashevsk Power Western Power Grids Power Grids Branch Power Grids Branch Power Grids Branch Power Grids Branch Power Grids Branch Power Grids Branch Power Grids Branch Branch Slavyansk Power Grids Branch Grids Branch Branch

History of Origin and Development of Kuban Power System and Kubanenergo

th 19 century First development of Kuban electric power system – construction of small substations in the region.

1920 Soviet power established in Kuban, all industrial facilities were nationalized. 1921 Establishment of the Electricity Department under Kuban Black Sea National Economic Council to manage power facilities in Kuban. In total, there were 353 electric power plants operating in Kuban, with a total capacity of 13.7 MW; 16,200 electric lamps and 621 electric motors were connected to the network. The Vodeltram association was founded. It included urban and utility services for water supply, transport (trams) and electric power supply of Krasnodar. There were 45 km of transmission lines, and electrical grids were rated for 2-kV voltage. 1930s North Caucasus Power Authority (Sevkavenergo) was set up to manage power facilities in Kuban. In 1934, Sevkavenergo was divided into two independent departments: Azcherenergo (Rostov-on- Don) and Sevkavenergo (Pyatigorsk). 1944 Separation of Krasnodar District Department of Energy from Azcherenergo. The new Department was referred to as Krasnodarenergo. It engaged in production, distribution and sales of electrical power and thermal energy, restoration and development of energy systems, control of energy use and overseeing operation of power plants installed at Kuban enterprises. Krasnodarenergo had authority over such independent self-supporting organizations as electric power plants, substations, districts of electrical grids, retail power companies, machinery and repair plant, central warehouse, front-end engineering design bureau, and production and research laboratory. Late 1950s- Construction of 110- and 220-kV main transmission lines for connection with electric power systems early 1960s in Russian south and Transcaucasia; electrification of the railway system in Krasnodar Krai, construction of power distribution facilities, electrification of rural centers. 1963 Kuban urban and rural electric grid organizations were transferred from the Regional Department for Public Utilities to Krasnodarenergo. 1972-1975 The first two gas turbine plants in the USSR, each of 100 MW capacity, were installed in the Krasnodardskaya CHPP. Total capacity of the CHPP, block part and two gas turbines was 959 MW. 1970-1980 Significant increase in volume of construction of new electricity transmission lines due to explosive growth in electricity consumption. Total length of lines grew to 90,000 km, and the number of 35- 500-kV substations exceeded 700. 1988 Krasnodarenergo was eliminated and Krasnodar Production Association of Power Supply and Electrification (Krasnodarenergo) was set up as a successor. 1993 During privatization, Krasnodarenergo was reorganized into a joint stock company Kubanenergo. Apart from electric grid organizations, Kubanenergo then consisted of Krasnodar CHPP, Energonadzor, repair and construction enterprises, training school, corporate venue, and summer camp. 49% of Company’s shares were vested as payment of authorized capital for RAO UES OJSC and the remaining 51% were acquired by members of the work collective and other parties entitled to benefits according to State Privatization Program. 2004-2005 During restructuring of Russian electric power industry, Kubanenergo JSC disengaged from service and noncore operations, as well as dispatching functions by splitting them off into separate organizations: operations management and dispatching control was transferred to SO UES; Krasnodarenergoremont OJSC, Krasnodarenergosetremont, corporate recreation venue Energetik and health complex Plamya were founded, and a non-profit non-governmental educational institution Kubanenergo training center was established. 2006 As part of sector reforming, Kubanenergo JSC was divided into the following companies: Kuban Generating Company JSC (generating capacity), Kuban Transmission Network JSC (power supply facilities), Kubanenergosbyt JSC (guaranteed power supply company, purchase of electrical power on the wholesale market and its supply to end users). 2008 Starting July 1, Kubanenergo JSC became a dependent company in IDGC Holding JSC, which received a parcel of voting shares in the Company by way of succession based on the spin-off balance sheet resulting from restructuring of RAO UES OJSC of Russia. In 2012, IDGC Holding JSC acquired a parcel of additional shares in Kubanenergo JSC, and the Company became a subsidiary of IDGC Holding JSC. The main function of the Company within IDGC Holding JSC is taking part in shaping the power industry in Russia in terms of distribution grid complex. 2013 Using Rosseti JSC as a base, a single power grid management company was established (which included main power transmission and distribution lines), aimed to provide coordination of activities of all grid operators in Russia in terms of rates, technical policy and investment planning, to ensure transparency of financial and business operations, and to engage in anti-corruption policy. In 2013, share of Rosseti JSC in the Company’s authorized capital increased to 92.24% 2015 Reference to Company’s public capacity was included into its corporate name.

2017 The Company has become the key participant of a national-level project involving development of advanced energy infrastructure on Taman Peninsula to ensure the region's growth, power supply to a dry-cargo area of Taman Sea Port and construction of transport transition through the strait of Kerch. Investment of Kubanenergo in construction of Taman power facilities is expected to reach approximately 7 billion rubles.

Company Risk Management System The Company runs a Risk Management System (hereinafter referred to as the RMS), which enables reasonable assurance in the Company achieving specified objectives, as well as constant sustainable operation and development of the Company through timely identification, estimation and effective management of risks that threaten effective economic performance and Company’s reputation, health of employees, environment and financial interests of shareholders and investors. The Board of Directors and Company executives manage key risks of the Company. Key RMS Participants: Participant Title Primary RMS-Related Functions - approves internal documents of the Company, which regulate organization and performance of Company’s RMS Board of Directors - analyzes reports from the Company’s executive bodies concerning organization, performance and effectiveness of RMS, estimates its operations and develops recommendations for RMS improvement Committee for strategy, development, investment monitors and evaluates efficiency of risk management procedures, estimates and reforming of the effectiveness of risk management measures and improvement of RMS Board of Directors - specify requirements to format and completeness of information about the Company’s Executive bodies risk (Management board, - define lines and plans of development and improvement of RMS Director General) - analyze risk portfolio and generate strategy of response actions and resource reallocation with regard to certain risks management responsible for timely identification and evaluation of risks, adoption of response Risk owners actions, well-judge development and of risk management actions and their administration, as well as constant risk monitoring Performers of risk responsible for timely identification and/or minimization of risks, taking actions to management actions manage the risks at the appropriate time and to the full extent Internal Control and serves as general coordinator of risk management procedures Risk Management Board Internal Audit performs internal independent assessment of RMS efficiency and produces Department recommendations for enhancing efficiency and effectiveness of RMS

In 2017, the Company proceeded developing risk management system in accordance with the Risk Management Policy that was approved as amended by the Company’s Board of Directors on 3/17/2016 (Minutes No. 233/2016).

The information below specifies the risks inherent to the Company, main measures aimed at risk management, which were implemented in 2017, as well as estimation of risks significance and its dynamics in comparison with 2016 and during 2017. Risk Significance is understood to be a combination of risk probability and the range of its consequences for the Company in monetary and other terms. The following scale is applied: Level of Significance Dynamics Critical No change (or insignificant dynamics) Significant Increase

Moderate Decrease

Company Risks: Ite Risk Significance m Risk Name Risk Description Risk Mitigation Measures Grade and No. Dynamics Industrial Risks: 1 Tariff-Associated Risks The state's tariff policy is based on inflation control and stipulates such To mitigate this risk, the Company submits supporting materials changes in the controlled grid companies' tariffs in 2017–2019 that the tariff to regulatory authorities, which prove viability of the Company’s increases stay below the actual inflation despite a faster growth of prices in expenses; maintains a status of strategic company, a “boiler” the wholesale market; the risk is that the regulatory bodies might impose holder of Krasnodar Krai and the Republic of Adygea, and the such tariffs that will not ensure a sustainable reasonable revenue position that the expense tracking should be carried out performance appropriately; drafts and directs controversies to Federal Anti- Monopoly Service of Russia 2 Power transmission service This risk is due to the possible reduction in demands for power and to the Considering economic growth of the regions of the Company volume reduction risk optimization of external power supply schemes used by major consumers operation, there is evident dynamics of power consumption growth throughout the last couple of years. The Company carries out the following activities: − monitoring of current and forecasted economic climate − engaging in prep activities to ensure proper performance of power equipment in certain seasons of the year − performing maintenance and repair of power facilities 3 Technological connection These risks are due to: − submitting materials providing grounds for the payments service risks 1. Possible deficit of financing for technological connection contracts. proving individual-project costs to tariff regulation authorities; 2. Applicants' default on their respective technological connection contracts. − developing design specifications and estimates for 3. Applicants' non-use of capacities gained by such technological technological connection objects; connection. These factors might reduce the Company's revenue from such technological connections − improving technological connection processes 4 Risk associated with non- The mechanisms in place that aim at incentivizing timely payments for − analysis of reasons for disputes regarding the volume of payment for power power transmission services are not sufficient; coupled with transmitted power transmission volume transmission services on the macroeconomic factors (the ever-lower purchasing power of consumers), − implementation of a timed action plan for reduction of part of service users (i.e. the this factor causes a risk. accounts receivable for electric power transmission services emergence of contestable and − claim-related work non-contestable overdue − building up legal precedents and favorable cases when receivables) the consumer unlawfully disputes their ownership of a delivery point − installation of collective power-metering instruments Country- and Region-Specific Risks 5 Risks related to the political These risks are due to the lower economic activity in the Russian regions of − implementation of government programs for imports phase- and economic environment in the Company's footprint and increased costs of credit, which might in their out to reduce the price of procured equipment the country and in the region turn be related to the volatility of external conditions, international − implementation of a program for lowering of operating sanctions, lower credit ratings, and greater inflation loads. expenses These factors might reduce the Company's revenue and shareholder value. − improvement of energy performance and adoption of Taking into account economic growth of the regions, where the Company energy-saving technology conducts its business, there is evident dynamics of power consumption 20

growth throughout the last couple of years. Considering an improved national macroeconomic performance, including disinflation, the Company tends to cut down the average rate of borrowing capital 6 Risks related to possible These risks are due to possible unlawful interference with the Company's − taking actions to protect power engineering facilities from conflicts and their activities, which includes terror attacks (including those by international sabotage and terrorist acts manifestations, strikes, and terrorist cells and the nationalists in some countries). − interaction with law-enforcement authorities emergencies Such acts might have a negative impact on the Company's activities. − property insurance 7 Risks due to the state or These risks are due to natural and climatic disasters (hurricanes, heavy rains, − property insurance regional geography, including floods, snow blockages, icing, power outages due to fires, explosions, etc.). − cost management higher probability of natural These might disrupt power supply and transportation in the region. − crisis management measures disasters and possible interruption of transportation Financial Risks 8 Risks related to changes in Negative impact on the financial and business performance of the Company − procurement of power equipment produced by Russian exchange rates due to changes in currency exchange rates manufacturers − implementation of a program for lowering of operating expenses − monitoring of exchange rate dynamics, analysis of possible influence 9 Risks related to changes in Possible increase in the Company's credit costs associated with investment − efficient credit portfolio management interest rates program financing − profitable placement of temporarily disposable monetary resources for extra revenue − interaction with creditor banks to reduce the cost of borrowed capital for the Company 10 Inflation-related risks The impact of consumer price index increases on the interest expenditures, − preparing a business plan according to the current costs, profitability, and thus on the Company's financial status and ability to conditions perform its obligations − carrying out procurement procedures to reduce the cost of purchases − making a comprehensive review of financial risks Legal Risks 11 Legal risks These risks are related to changes in legislation, judicial practices regarding − prolongation of licenses and certificates required for the Company's activities, and/or balance of interests with other power business operations industry entities − legal and internal regulations compliance − monitoring of legislation of the Russian Federation − planning of Company’s financial and business operations with regard to changes in legislation 12 Compliance risk These risks are related to the sanctions of regulatory bodies, imposed on the − improvement of management and control systems of the grounds of the Company's non-compliance with the legislation, local Company regulations, and other mandatory regulations − legal and internal regulations compliance − execution of a plan of corrective actions according to the decisions and recommendations of outside control authorities − upholding of Company’s interests in court 21

Reputation Risk 13 Reputational risk This risk is related to the possible default on obligations to customers and While the Company is a natural monopoly entity, and there is counterparties. annual growth of a number of electrical power consumers, the Company has worked out good practices of long-term interactions with business partners

Strategic Risk 14 Strategic risk Risk of non-fulfillment of the Company's strategic goals and objectives due − development and implementation of key factors for to the potential changes in the Company's internal and external situation strategy delivering, their binding with bonus payments for managers − constant monitoring of cost-gain ratios by Company’s departments and presenting this information for review by the Company’s Board of Directors to make executive decisions (as well as to define quantity and quality of resources) Risks Related to the Company's Activities 15 Operational and technological 1. Less reliable power supply to the consumers due to natural and − scheduled and off-schedule maintenance and repair of risk technogenic disasters, which might result in the failure of power grid power supply equipment equipment. − retrofitting and upgrading, reconstruction and greenfield 2. High share of equipment with expired service life. development 3. Failure to comply with the regulatory technical requirements regarding − technical control the maximum permissible values of power grid equipment operating − regular refinement of value and volume of components parameters and parts in stock − ensuring safety and in-process monitoring − implementation of a program for reduction of losses − planning emergency prevention activities (based on evaluation of process upsets) to mitigate risk realization and prevent similar events in the future 16 Investment risk 1. Reduction in the Company's Investment Program financing due to − development (adjustment) of investment programs deterioration in its financial and economic situation, which results in lower according to existing conditions determined by tariff-related tariff revenues in case such Investment Programs are not carried out in full. decisions 2. Untimely commissioning of Investment-Program facilities due to the − cutting of costs on completion of tendering procedures non-performance − implementation of measures to reduce volume of or untimely performance of the contractors' and suppliers' obligations. unfinished construction work − deadline management for procurement procedures and contract conclusion

2017 Risk Profile by Significance:

1 – moderate risks 2 – significant risks 3 – critical risks

Company’s Policy for Anti-Corruption and Resolution of Conflict of Interests The objective of anti-corruption policy of PJSC Rosseti and its subsidiaries and affiliates is to shape a consistent approach to implementation of requirements of article 13.3 of the Federal Law No.273-FZ dd. December 25, 2008 On Corruption Control regarding the obligation of the Company to develop and take measures of preventing and fighting corruption, including: • Identification and further elimination of causes of corruption (corruption prevention) • Identification, prevention and suppression of corruptive and other wrongdoings • Minimization and (or) elimination of consequences of corruptive and other wrongdoings, including those stipulated in the article 19.28 of the Code of the Russian Federation on Administrative Offenses. In the reporting year: • by the decision of the Board of Directors of Kubanenergo dd. January 20, 2017 (Minutes No.261/2017 dd. February 2, 2017) an updated version of Anti-corruption policy was approved as an internal document for PJSC Rosseti and its subsidiaries and affiliates; • by the order of Kubanenergo No.28 dd. February 28, 2017, a Program of anti-corruption measures for Kubanenergo for 2017 was approved. In 2017, the following measures for execution of Company’s Anti-corruption policy were taken in the following areas: Policy Application Measures Taken in 2017 Area Organization of risk Standard matrices for process controls were approved, including the following: Safety management in the management: Economic stability, Compliance, Information security, Safety of energy service field of preventing companies: process: Corruption control. and fighting Measures were taken to implement a work flow chart for organization of risk management and corruption internal control in the field of preventing and fighting corruption Conflicts of personnel interests in 2016 were reported: 2,101 statements were collected, 8 pre- Identification and conflict situations were identified, of which 6 were resolved and 2 were not resolved due to lack of resolution of conflict vacant positions for employees of that certain specialty. of interests Kubanenergo Commission for compliance with corporate culture and conflict of interest management held five meetings.

Presented certificates of income were inspected together with certificates for property and property-related obligations of the Company's executive employees (92 certificates) and their immediate family for 2016 (359 certificates). The inspection did not find any signs of affiliation, conflict of interests or pre-conflict situations. Development and practical application Information about signed contracts, additional agreements and new subcontractors of business of standards and partners was being added daily into an Automated system for collection and analysis of data on procedures aimed at beneficiaries. In the course of 2017, over 56 thousand contracts were added to the system. ensuring Conflicts of interests were declared for candidates who may fill vacant positions in Kubanenergo conscientious work Control is maintained according to Regulations on insider information of Kubanenergo approved by the decision of the Board of Directors on August 2, 2013 (Minutes No. 168/2013) and put into effect following the order No.955-A dd. August 12, 2013 regarding the Control over following: compliance with the • Routine control over legal compliance, requirements of the • Methodological work, Russian Federation legislation against • Coordination of activities aimed at development of control system for insider unlawful use of information. insider information As on December 25, 2017, date of the last inquiry from Moscow Exchange in the reporting year, a and market list of Company’s insiders consists of 17 legal entities and 266 private individuals. manipulation In the course of the year, the Company received and processed 12 inquiries from Moscow Exchange to submit lists of insiders. The Company publishes information for insiders at corporate website, section For Shareholders and Investors. Purchasing documents were coordinated for purposes of execution of the RF Government Taking measures to instructions No.ВП-П13-9308 dd. December 28, 2011 and No.ВП-П24-1269 dd. March 5, 2012. prevent corruption Over 2017, 1.3 thousand documentation packages from contractors were processed, 688 when interacting with documentation packages were approved prior to procurement procedures. partners and Anti-corruption undertaking and contractors’ obligations to notify about the beneficiaries are contractors included in more than 25 thousand contracts. To ensure execution of anti-corruption legislation of Russia, the Company updated regulatory and Education in law and administrative documents concerning the issues of conflict of interest management and approved building a foundation new procedures for receiving and processing applications, as well as making decisions on them for lawful conduct of (from employees, business partners of Kubanenergo, and other private persons and legal entities) employees, consulting regarding possible corruptive events. and training of Representatives of the Company took part in five workshops and meetings with representatives of personnel the Department of Security and Corruption Control of PJSC Rosseti. A Company provided a Declaration of compliance with the Anti-Corruption Charter of the Russian Business and implementation of its provisions into Company’s activities to the Chamber of Commerce and Industry of the Russian Federation. Joining a corporate The Company took part in Russian national interactive campaign associated with the International effort to fight and Anti-Corruption Day celebrated on December 9. A nation-wide campaign was organized in Moscow prevent corruption and was aired as a videoconference from the building of Chamber of Commerce and Industry of the Russian Federation in Krasnodar. Government agencies’ executives, heads of enterprises and large government companies took part in the campaign. The Company plans to adopt a new Program of anti-corruption measures for 2018 and improve the following mechanisms: • risk management and internal control in the field of preventing and fighting corruption; • a system of identification and clearing of conflicts of interests; • inspection of chains of ownership of partners, anti-corruption standards of procurement procedures.

Company’s Code of Corporate Ethics and Norms of Conduct for Employees

The Company has a Code of corporate ethics and norms of conduct for employees of Kubanenergo, approved by the decision of the Board of Directors dd. May 23, 2017 (Minutes No.275/2017 dd. May 26, 2017). According to the order No.525 dd. May 26, 2017 on Introduction of a Code of corporate ethics and norms of conduct for employees of Kubanenergo, all personnel were made familiar with the Code. Company’s employees follow the requirements of the Code, norms and rules of professional ethics and corporate conduct to the full extent.

Key Company

Events in 2017 and in the beginning of 2018

2017

Tikhoretskiye Electric Grids initiated the next phase of implementation and reconstruction of remote control engineering systems at seven substations of Tikhoretsk District. Total project cost under the Company’s investment January program will reach approximately 300 million rubles.

Amid the Russian Investment Forum in Sochi, Aleksandr Gavrilov, Director General of Kubanenergo, and Veniamin Kondratiev, Governor of Krasnodar Krai, signed a cooperation agreement regarding development of energy infrastructure on Taman Peninsula.

Within the Russian Investment Forum Sochi 2017, Aleksandr Gavrilov, Director General of Kubanenergo, Murat Kumpilov, Deputy Governor of the Republic of Adygea, and Saida Kuizheva, the President of Maykop State February Technological University, signed a cooperation agreement on personnel training for the electric power industry of Adygea.

Amid the Russian Investment Forum in Sochi, Aleksandr Gavrilov, Director General of Kubanenergo, and Murat Kumpilov, Deputy Governor of the Republic of Adygea, signed a cooperation agreement regarding large-scale reconstructions of 110 kW Hadzhoh substation – a major power supply center for the mountain regions of Adygeya, which costs 600 million rub.

During 2017, employees of Labinsk Power Grids, a branch of Kubanenergo, shall perform comprehensive, overhaul and current repair of 21 substations in three districts of Krasnodar Krai: Labinsky, Kurganinsky and Mostovsky. Electric power supply of 170 socially significant facilities in 52 settlements of krai depend on reliable performance of March these supply centers.

Within two months of 2017, employees of South-Western branch of Kubanenergo revealed 72 cases of unrecorded electric power consumption (more than 2 mln kWh) during inspections.

Kubanenergo provided power connection of a residential institution for orphaned children in Adygea. To connect a multi-dwelling unit for orphaned children and children without parental custody, personnel of Adygea Power Grids branch restored a transformer substation.

Technicians of Ust-Labinsk Electric Grids branch finished repair works at 110 kV line Ust-Labinskaya tyagovaya – Ladozhskaya located in Ust-Labinsk district of Krasnodar Krai. Power men replaced 21 set of overhead line hardware and accessories, 83 faulty insulators, updated numbering system, evaluated the condition of metal towers and footing, and measured ground loop at towers.

Kubanenergo created a social project called “1941-2016 Operation”. The idea behind the project was to return the remains of Grigory Nekrasov, Sochi power man, to his homeland, and to commemorate his life. The project was recognized the best in Social Projects nominated category at sector-wide PR awards KonTEKst. KonTEKst award ceremony was held in Moscow in the multimedia press center of MIA “Russia Today”.

April In-house newspaper of Kubanenergo was recognized as best at the international contest for PR professionals Press- Service of 2016 in nomination “Best Corporate Press Cover”. The awarding ceremony was held in Moscow.

The staff of Krasnodar Electric Grids branch completed full repairs of 110-kV overhead power lines of Otpayka k Voengorodok substation. Repair works improved reliability of electric power supply to domestic consumers and infrastructure facilities in western Krasnodar.

A new occupational retraining program for employees of energy providers was launched aided by Power Engineering Institute for Advanced Training of Kubanenergo. Available course is dedicated to electrical engineering, mechanics and technology. Among the first course participants were 16 technicians and senior managers of Kubanenergo and other power supply enterprises of Krasnodar Krai.

A project of a functional unit for group of companies Rosseti was developed by press-service of Kubanenergo, which was recognized the best PR department of 2016 according to the results of an in-house competition. Ceremony of awarding the finalists was held during PJSC Rosseti celebration day on April 4, 2017, in Moscow.

A delegation team of Kubanenergo took part in the Economic Forum Eysk-2017 supported by district administration and Eysk interdistrict chamber of commerce and industry.

Kubanenergo ensured reliable power supply within its areas of responsibility to all venues where students passed uniform state exams and basic state examination.

Before summer holidays, technicians of Kubanenergo organized a ten-day event dedicated to electric safety in educational facilities of Krasnodar Krai and the Republic of Adygea to reduce risks of injuries among young children and teenagers.

Kubanenergo ensured electric power supply to three practice fields for pre-contest matches of 2018 FIFA World Cup and 2017 FIFA Confederations Cup held in Sochi.

May Kubanenergo repaired two socially significant HV lines in Ust-Labinsk power district. Ust-Labinsk Electric Grids have completed repair works of 110 kV overhead power lines of Ust-Labinsk - Korenovskaya-Tyagovaya and Ladozhskaya-Tbilisskaya.

Since the beginning of 2017, the staff of South-Western Electric Grids branch drew up 148 reports of off-the-meter and unregistered power consumption. Total electrical power consumed off-the-meter reached 14 mln kWh worth over 70 million rubles.

By the initiative of Kubanenergo, high-profile ceremony of unveiling of the memorial plate for Grigory Nekrasov, soldier and power man, was held in Sochi’s youth athletic center No.2 on May 4, 2017. Memorial sign was unveiled before city administration, war veterans, Kubanenergo staff, students and the public.

Kubanenergo took extra measures to provide reliable electric power supply to facilities of Sochi infrastructure for the course of the Russian Grand Prix Formula One.

The staff of Labinsk Electric Grids branch completed full repairs of equipment of 110-kV substation Labinsk-2. The power facility is the key power supplier for 21.7 thousand people living in Labinsk. The Company allocated over 2.5 million rubles for this project.

Krasnodar Electric Grids branch refitted high-voltage electrical transmission lines Afipskaya-Keramzitoiy zavod. Electric power supply to 56 socially significant facilities and 20.5 thousand people living in Seversky and Takhtamukaysky district depends on fail-safe operation of the power site.

During All-Russian energy conservation festival VmesteYarche (Brighter Together) the members of student June construction brigade Energy of Kuban and participants of a Festival #VmesteYarche planted trees of energy men in All-Russian children’s center Orlyonok. The event was held to mark a Year of the Environment in Russia.

On June 16, 2017, the annual general meeting of Kubanenergo shareholders was held in Krasnodar. It was chaired by Yury Mangarov, deputy head of the office of Rosseti PJSC, chairman of the board of directors of Kubanenergo.

Kubanenergo representatives met with attendees of Educational Center Sirius in Sochi during Children’s Day celebrations. Facing summer school holidays the students were instructed on electric safety measures at home and rules of conduct near hazardous facilities.

The staff of Labinsk Electric Grids discovered electrical power theft by a construction company. Arbitrazh court of Krasnodar Krai ordered to collect the amounts owed, over RUB 2.2 mln, from the construction company for the electrical power consumed off-the-meter plus legal costs.

Since the beginning of the year, Adygea Power Grids branch finished construction and reconstruction of 56 units of power distributive equipment in the area of its responsibility for a total amount of over RUB 28 mln.

During the first six months of the year, technicians of Slavyansk Electric Grids branch of Kubanenergo identified and eliminated in the course of inspections 138 attempts at misappropriation of electrical power in Slavyansky, July Krasnoarmeysky and Temryuksky districts. Dishonest consumers illegally used more than 2.5 mln kWh of power worth 7.66 million rubles.

From the beginning of 2017, consumers of Krasnodar branch of Kubanenergo installed around 2.7 thousand “smart” metering instruments. Cost advantage of these measures was worth 17.3 mln kWh or 37.5 million rubles for the first six months of 2017.

Kubanenergo ensured sustainable electric power supply in the area of its responsibility to sports facilities and city infrastructure during 2017 FIFA Confederations Cup held in Sochi.

Kubanenergo allocated over 80 million rubles for repair project of Sochi Electric Grids branch. The project included refitting of substation equipment, renovation of underground power cables and overhead power lines, clearance and expansion of overhead line routes, as well as other works to provide add-on security of electric power supply to consumers in popular recreation centers of Sochi and Tuapse in autumn and winter.

Since the beginning of the year, Armavir Electric Grids branch allocated over 37 million rubles for a repair program to prepare power facilities for maximum load season of autumn and winter. The technicians refitted 7 large supply August centers, and fixed 297 km of overhead power lines and 38 transformer substations.

Employees of Leningrad Electric Grids branch connected a school in Starominskaya Cossack village to the power lines. A new building, including a unit for primary school will house 400 young children and teenagers.

In the first half of 2017, Slavyansk Electric Grids branch installed, reconstructed and put into operation 77 power facilities in the distributing network of Slavyansky, Krasnoarmeysky and Temryuksky districts. Special measures were taken to ensure technological connection of welfare beneficiaries.

During holiday season 2017, the technicians of Slavyansk Electric Grids branch of Kubanenergo identified and eliminated in the course of inspections 135 attempts at misappropriation of electrical power in Slavyansky, Krasnoarmeysky and Temryuksky districts.

The team of Kubanenergo got the third position for maintenance of power metering instruments in the Trans-regional competition of professional excellence held among personnel of Rosseti Group.

September The staff of Labinsk Electric Grids branch completed full repairs of equipment of 110-kV substation Promyshlennaya in Mostovsky district of Krasnodar Krai. This substation supplies electrical power to important objects of infrastructure and 5000 people living in the district center, as well as to a rock-crushing plant, schools and children care centers of the small town.

Power men of Slavyansk Electric Grids took part in creating a memorial to a teacher, which was unveiled during Knowledge Day holiday celebrations in Poltavskaya Cossack village in Krasnoarmeysky district.

On October 27, 2017, Kubanenergo supported its readiness to complete a maximum load season of autumn and winter 2017/2018. A commission of RF Ministry of Energy made a decision and issued a certificate of readiness after having inspected the preparation of electrical power network of the region for the upcoming cold season.

Employees of Timashevsk Power Grids branch identified over 200 cases of illegal power consumption in the course of 9 months of 2017. Dishonest consumers will have to compensate 23 million rubles for stolen electrical power.

Labinsk Electric Grids employees carried out over 100 inspections and identified more than 60 cases of energy theft. As a result, in the reporting year, 20 favorable court judgments were delivered for the amount of over 1.7 million rubles.

Adygea Power Grids branch completed repair works of a high-voltage substation Kuzhorskaya in Maykopsky district of Adygea. 1.57 million rubles were allocated to repair this facility.

General Director of Kubanenergo A.I. Gavrilov took part in an offsite meeting on Taman Peninsula chaired by Head of Rossseti Pavel Livinsky. The meeting was dedicated to discussing issues of reliability improvement of power supply to consumers in Taman and neighboring regions. October

Project developed by Kubanenergo got the top position in the All-Russian competition ENES-2017 in the category “Best Project on Implementing Automatic Electric Power Control and Accounting System on the Retail Market in Houses of Individuals”.

Energy of Kuban, a students' electrical power team of Kubanenergo took part in an educational program Industry of the Future organized within the 19th World Festival of Youth and Students that was held in Sochi.

Minister of Energy, Aleksandr Novak, held a working meeting with senior management of Rosseti and Kubanenergo in Sochi. Director General of PJSC Rosseti Pavel Livinsky, Director General of Kubanenergo Aleksandr Gavrilov and representatives of the region took part in this meeting.

Executing energy service agreements, Leningrad Power Grids installed around 5 thousand smart power metering instruments for consumers of Kushchevsky district of Krasnodar Krai.

Kubanenergo was third in the All-Russian competition Media TEK in nomination Safe Energy held among press- services of regional companies of Russian fuel and energy complex.

Since the beginning of 2017, employees of Adygea Power Grids, a branch of Kubanenergo, have inspected 30 high- voltage substations and 136 km of overhead power lines using a thermal imager and UV camera.

In 2017, 6.7 million rubles were collected from private individuals and corporate entities for unregistered electrical power consumption in Slavyansky, Kransoarmeysky and Temryuksky districts of Krasnodar Krai.

In the course of 10 months, Kubanenergo allocated 7.9 million rubles for repair and maintenance of high-voltage substations in Vyselkovsky, Korenovsky, Tbilissky and Ust-Labinsky districts of Krasnodar Krai.

Since the beginning of 2017, Adygea Power Grids branch allocated more than 100 million rubles for development of power grid in Adygea capital. Power men reconstructed a prefabricated transformer substation in Zapadny village, November increased the capacity of power transformer and installed outgoing overhead power lines. Retrofitting and upgrading of a power facility provided for connection of 32 new consumers to the Company’s power grid.

A chairperson of Krasnodar Krai election board Aleksey Chernenko expressed his gratitude to Kubanenergo for hands-on assistance to election committees in organizing and holding the elections of members of legislative assembly of Krasnodar Krai that took place on September 10, 2017.

Kubanenergo took part in the first International Investment Forum INVEST IN ADYGEA, held on November 9, 2017 in Maikop. Company’s delegation watched an introduction to investment-attractive areas of the region’s economy, and took part in discussions of investment potential and high-priority investment projects in Adygea, held with the participation of the administration of the Republic of Adygea, representatives of expert community, foreign investors and heads of large Russian companies.

In 2017, the technicians of Sochi branch of Kubanenergo installed over 1,000 remote electrical power metering points in private residences of Sochi.

Since the beginning of 2017, service points and centers for consumers of South-Western branch have registered 6,602 applications for technological connection to Kubanenergo grids for total capacity of 135.9 MW.

Immediately before a professional holiday, Energy Man Day, employees of Kubanenergo were presented with high departmental and regional rewards for major contribution to the development of fuel and energy complex, and for many years of dedicated work. December Power Engineering Institute for Advanced Training of Kubanenergo and Kuban State Agrarian University of I.T. Trubilin signed an agreement for mutual assistance in questions of information, consulting, methodology and technical support during training of qualified specialists in power industry. In 2018, the educational institutions plan to organize and hold joint workshops, training sessions, courses, conferences and other events to help skilled workers of electrical power enterprises advance their proficiency level.

In 2017, service points and centers for consumers of South-Western branch registered over 7.6 thousand applications for technological connection to Kubanenergo grids for total capacity of 383 MW. There was a 17% increase in applications as compared with the same period of 2016.

2018

In 2017, the technicians of Kubanenergo restored 2,839 km of overhead power lines and underground power cables of various voltage type in the area of Company’s responsibility. In the course of the year, over 52 thousand insulators of overhead lines were replaced. The Company exceeded the target in replacement and repair of overhead ground-wire cable (127 km in absolute terms) and towers (3,543 units).

In 2017, technicians of Adygea Power Grids branch installed over 30 thousand antimagnetic seals on electrical power metering instruments of consumers.

Sochi Power Grids provided technological connection to its grids for a new child-care center in Loo village. During construction of a transformer substation for the purposes of technological connection, advanced technology and materials were used. Two advanced low-noise power transformers with sealed housing were installed along with environmentally friendly and safe equipment with SF6 insulation.

January In 2017, Adygea Power Grids repaired power equipment at 17 high-voltage substations. Repair works enhanced sustainability of power supply to consumers in 8 districts of Krasnodar Krai and the Republic of Adygea.

During his working visit to Sochi, Director General of Rosseti Pavel Livinsky held an unscheduled inspection of 110/10/6-kV substations Vereshchaginskaya and Bocharov Ruchey. At Vereshchaginskaya substation, he checked a micro-tunnel for 110 kV aerial cable line Vereshchaginskaya – Dagomys and Vereshchaginskaya – Alpyskaya. Head of Rosseti marked good condition and satisfactory operation of power facilities of Sochi branch of Kubanenergo.

In 2017, technicians of South-Western Electric Grids branch installed over 6.3 thousand electrical power metering instruments with remote data transmission in suburban districts of Anapa.

In 2017, technicians of Krasnodar Electric Grids built 1,070 power facilities and added 50 MVA supplemental reserve service for welfare beneficiaries.

Krasnodar Electric Grids finished the next scheduled stage of reconstruction of an important supply center – a 110-kV substation Loris.

Kubanenergo delegation led by the Company’s Director General Aleksandr Gavrilov took part in a business program of the Russian Investment Forum held on February 15-16, 2018, in Sochi. Amid the Forum, Director General of Kubanenergo shared the news about Company’s participation in national-scale projects, and development of advanced and sustainable energy infrastructure in Krasnodar Krai and the Republic of Adygea.

In the course of 2017, Krasnodar Electric Grids fulfilled the obligations under 5.3 thousand agreements for technological connection to power grids.

February During 2017, technicians of South-Western Electric Grids branch performed overhaul of equipment at seven high- voltage substations. Repair costs exceeded 19 million rubles.

In 2018, Kubanenergo plans to put into operation a new 220 kV substation Port and 35, 110 and 220-kV power transmission lines on Taman Peninsula. Amount of investment in construction of a substation and transmission line equaled 7 billion rubles.

Kubanenergo raised 3.9 million rubles of private investments into development of the regional power supply facilities. As of today, the Company has entered into 24 energy service agreements with private investors covering over 130 thousand metering points. At year-end 2017, the Company has reduced over 128 mln kWh of losses.

Strategic Benchmark Igor Vladimirovich Shmakov, Deputy Director General for Controlling: “The course of development of the national economics of the Russian Federation in general and group of companies Rosseti in particular is targeted at application of growth drivers on a new level to improve performance with the help of a new technological, administrative and professional background. “Furthermore, the enormous accumulated technological and technical potential provides for a leap to reach improved sustainability and quality of the services rendered through implementation of digital technology and automated systems that would encourage investments. “The Company is prepared to face modern-day challenges and has developed a response system to react to emerging threats owing to its constantly improving model of management and control. Today, the Company is implementing a series of actions to upgrade and advance its systems of management, internal control and risk management.” Mission of Kubanenergo is to gain profit under conditions of long-term provision of reliable, high-quality and affordable electric power supply for customers of Krasnodar Krai and the Republic of Adygea by establishing the most efficient management of the distribution grid infrastructure using advanced technologies and innovations with the account of global standards of quality of the provided services and the best practice of corporate management. Company Strategic Goals and Priorities Being a part of the unified distribution power grid of Russia, the Company seeks to achieve the objectives defined at a state level, that is to reach the milestones for power grid, specified by the Development Strategy for the Power Grid of the Russian Federation4. To reach the above-stated milestones as well as to ensure effective performance and development, the Company sets the following strategic goals: 1. Increase of reliability of electric power supply in Krasnodar Krai and the Republic of Adygea 2. Improvement of customer service quality and promotion of accessibility of power grid infrastructure 3. Rapid development of power grid and adoption of new technology 4. Increase of investment appeal and capitalization 5. Decent working conditions, improvement of professional competence and loyalty of the Company personnel 6. Not exceeding the specified standard of electric power losses during its transmission The Board of Directors approved certain areas of Company’s activities as priority. In order to achieve strategic goals, the Company sets specific objectives and attains growth in the following priority areas: 1. Providing a specified level of reliability and quality of rendered services according to regulatory legal acts (decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.121/2011 dd. November 21, 2011 on Priority areas of Company’s activities: Providing a specified level of reliability and quality of rendered services.). By the order of the Ministry of Energy of Russia No.1256 dd. November 29, 2016 Recommended practices of calculation of reliability and quality of supplied produce and rendered services for organizations regulating a unified national (all-Russian) electric grid and for grid operators of certain territories were approved. According to these recommended practices, an essential component of estimation of company’s performance is a composite index of rendered services quality of a grid operator, the value of which is used for adjustment of prices (rates) set for a long-term regulatory period. By the order of Pricing and Tariff Department of Krasnodar Krai No.10/2012 dd. June 20, 2012 a target figures of rendered services are approved equaling 1.0102. Based on the results of departments’ work with Kubanenergo clients, the actual index of level of rendered services in 2017 is 0.8574. Kubanenergo is considered to have reached the target value.

2. Providing accessible energy infrastructure and good quality of technological connection to the Company’s electric grids (decision of the Board of Directors on the 1st question of minutes of the

4 Approved by Executive Order of the Government of the Russian Federation No. 511-p dd. April 3, 2013.

meeting of the Board of Directors No.196/2014 dd. September 9, 2014 on Priority areas of Company’s activities: Providing accessible energy infrastructure and good quality of technological connection to the Company’s electric grids.). Today a procedure of technological connection includes three stages: • filing an application, • making of a contract, • execution of a contract. Moreover: • an application for technological connection to the electric grid could be filed through Internet using an online account at Company’s website; a contract could be signed using a digital signature; • the cost of technological connection could be pre-estimated on the Company’s website (according to given parameters); • there is available information about total transfer capability of each section of the electric grid, and current capacity margin for connection of consumers. According to the criteria approved by the order of PJSC Rosseti No.148 dd. December 2, 2016 on Creating favorable environment for small- and medium-size business, the average time of processing of a contract offer did not exceed 8 days, and the average time of contract execution decreased from 119 to 94 days compared with 2016. In 2018, the Company plans further reduction of terms of contract execution and technological connection for rebate-receiving applicants. To improve accessibility and reduce the cost of technological connection for small- and medium- size business, the cost of technological connection of power receivers with maximum power of 150 kWh will exclude construction expenses for power supply network facilities starting October 1, 2017: from existing power supply network facilities to connected power receivers and (or) electricity generation facilities (Federal Law No.35-FZ dd. March 26, 2003 Concerning the Electric Power Industry). The Company improves engineering solutions with regard to reducing the amount of reconstruction (construction) of facilities of electrical grid infrastructure by the Company. 3. Planning development of the distribution power grid of Kubanenergo (decision of the Board of Directors on the 2nd question of minutes of the meeting of the Board of Directors No.116/2011 dd. September 7, 2011 on Priority areas of Company’s activities: Planning development of the distribution power grid of Kubanenergo.). Planning development of a Kubanenergo’s distribution power grid of is targeted at ensuring the advance of a power infrastructure and generating capacities to satisfy long- and mid-term demand for electric power and capacity, laying the groundwork for stable and favorable environment for investment in construction of electricity generation facilities, and building an efficient and balanced energy infrastructure, ensuring social and economic growth of Krasnodar Krai and the Republic of Adygea. The Company was directly involved in development of the Strategy and Program for long-term growth of electrical power industry of Krasnodar Krai during 2018-2022, as well as the Strategy and Program for growth of electrical power industry of the Republic of Adygea during 2017-2021. In the reporting year, Kubanenergo made a request for Institute ENERGOSETPROEKT JSC to prepare a Comprehensive program for development of electric grids of 35 kV and higher in the territory of Krasnodar Krai and the Republic of Adygea for 2018-2022. This Program will serve as a basis for Strategies and Programs and be complemented annually with proposals of measures and actions for long-term development of electrical power industry of Krasnodar Krai and the Republic of Adygea during a five-year period.

4. Certification of equipment, materials and systems at Company’s facilities (decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.190/2014 dd. June 6, 2014 on Priority areas of Company’s activities: Certification of equipment, materials and systems at Company’s facilities.). In 2014, to arrange certification of equipment, materials and systems at Company’s facilities an order was issued, enforcing the following: • implementation of the order and method for certification of equipment, materials and systems of the power grid; • assignment of a committee to issue clearance for the equipment, materials and systems of Company’s facilities, and approval of its operating procedure.

In 2017, no applications for certification were filed. A common technical policy adopted in Rosseti Group prescribes that certification of equipment, materials and systems used in the power grid of Kubanenergo shall be performed directly by Rosseti PJSC.

• assignment of a committee to issue clearance for the equipment, materials and systems of Company’s facilities, and approval of its operating procedure. In 2017, there no applications for certification were filed. A common technical policy adopted in group of companies Rosseti dictates that certification of equipment, materials and systems used in the power grid of Kubanenergo is to be performed directly by Rosseti PJSC.

5. Improvement of counter-terrorist and anti-sabotage protection of Company's power supply network facilities (decision of the Board of Directors on the 5th question of minutes of the meeting of the Board of Directors No.94/2010 dd. August 6, 2010 on Priority areas of Company’s activities: Measures of improvement of counter-terrorist and anti-sabotage protection of Company's facilities; art. 1 of minutes No.202/2015 dd. January 30, 2015 Company’s Integrated Safety and Security Policy.). To ensure safety of the Company’s facilities, the following measures were taken in 2017: • Company produced and followed in-house policies and procedures aimed at improvement of counter-terrorist protection of facilities and promotion of personnel awareness and knowledge of actions to be taken in the event of detection of suspect items or signs of terrorism; • technical security equipment at Company’s facilities and in network control center was regularly inspected; • security at facilities was checked in cooperation with representatives of law-enforcement authorities; • work of the employees of private security companies providing protection of Company’s facilities was randomly inspected; • duty operators and members of mobile service teams were instructed on weekly basis on actions to be taken in the event of detection of signs of terrorism at Company’s facilities; • personnel of all Company’s branches received training on taking measures in the event of detection of foreign objects or unauthorized persons at power engineering facilities; • joint plans of action were developed for the Company and law-enforcement authorities of Krasnodar Krai and the Republic of Adygea, which are intended for application in case of any emergencies; interaction patterns were produced and approved; • measures for improvement of counterterrorist protection of facilities were introduced into a long-term investment program of the Company for 2018-2022; • security of Company’s power facilities during 2017 FIFA Confederations Cup held in Sochi was ensured in close cooperation with the local offices of Federal Security Service and Ministry of Internal Affairs of Russia; • measures were taken to arrange integrated safety and security system for Company’s facilities before 2018 FIFA World Cup. 6. Improvement of internal control and risk management system, development of internal audit function (decision of the Board of Directors on the 2nd question of minutes of the meeting of the Board of Directors No.196/2014 dd. September 12, 2014 on Priority areas of Company’s activities: Improvement of internal control and risk management system, development of internal audit function.). The aim of implementation of internal control and risk management system, and development of internal audit function is to rationalize business processes of the Company. Identified risks are regularly evaluated and managed; Company's executive bodies review reported information about performance of a risk management system and measures that are taken to manage the risks of the Company. A 2016-2018 Plan of Measures Aimed at Development and Improvement of Internal Control and Risk Management Systems of Kubanenergo is approved and being executed. In 2017, maturity of the internal control system and RMS advanced from “moderate” to intermediate between “moderate” and “optimal”.

7. Company’s 2015-2017 comprehensive program for aimed at mitigation of injury risk of personnel or third parties at power grid facilities (decision of the Board of Directors on the 19th question of

minutes of the meeting of the Board of Directors No.201/2014 dd. December 12, 2014 on Approval of the comprehensive program for 2015-2017 aimed at mitigation of injury risk of personnel and third parties at Company’s power grid facilities; art.7 of minutes No.207/2015 dd. April 17, 2015). In the line with prevention of occupational traumatism and injuries of third parties, and to further improve injury risk management, by the order of Rosseti OJSC No.41 dd. February 26, 2014 “On Measures of mitigation of occupational injuries and traumatism”, the Company developed a Comprehensive program for 2015-2017 aimed at mitigation of injury risk of personnel of Kubanenergo OJSC and third parties at power grid facilities. The Program was approved by the Company’s Board of Directors (Minutes No.201/2014 dd. December 30, 2014), and accepted for execution pursuant to the Company’s order No.41 dd. January 23, 2015. Purpose and scope of the Program includes implementation of measures for prevention of occupational traumatism and death of third parties resulting from electrical shock. Expected result consists in prevention of occupational traumatism and injuries of third parties. Measures stipulated in the Comprehensive program and planned for 2017 were executed to the full. 8. A 30% reduction of specific investment costs compared with 2012 (Company’s Order No.1226 of October 8, 2013 “On Approval of Planning procedure to ensure a 30% reduction of specific investment costs compared with 2012 when shaping an investment program of OJSC Kubanenergo (order No.209 dd. March 3, 2016)). The aim is to promote the efficiency of power grid and reduce specific investment costs by 30% compared with 2012. At year-end 2017, the actual result of investment costs reduction in money terms was worth 962.79 million rubles, including VAT (815.93 million rubles excluding VAT) that is 52.79 million rubles higher than the target value including VAT (44.87 million rubles excluding VAT).

9. A 15% cut of operating expenses by 2017, inflation-adjusted, compared with 2012 per unit of electrical equipment maintenance (decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.264/2017 dd. March 3, 2017 on Approval of a business plan of Kubanenergo for 2017, which includes an investment program and information about key operational risks, and consideration of estimated figures for 2018-2021, including a program for promoting operating efficiency and reducing Company’s expenses in 2017-2021 (decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.284/2017 dd. August 21, 2017 on Approval of the updated Program for promoting operating efficiency and reducing expenses of Kubanenergo in 2017-2012)). At year-end 2017, operating expenses adjusted for inflation compared with 2012 per unit of electrical equipment maintenance decreased 15.7% at 15% target value.

10. Annual reduction of operating expenses (costs) by at least 2-3% (decision of the Board of Directors on the 10th question of minutes of the meeting of the Board of Directors No.214/2015 dd. June 11, 2015 on Annual reduction of operating expenses (costs) by at least 2-3%; minutes of the meeting of the Board of Directors No.228/2015 dd. December 30, 2015 on the 2nd question on Approval of a Company's internal document, Regulations for promoting of operating efficiency and reducing the expenses of Kubanenergo; decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.264/2017 dd. March 3, 2017 on Approval of a business plan of Kubanenergo for 2017, which includes an investment program and information about key operational risks, and consideration of estimated figures for 2018-2021, including a program for promoting operating efficiency and reducing Company’s expenses in 2017-2021; decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.284/2017 dd. August 21, 2017 on Approval of the updated Program for promoting operating efficiency and reducing expenses of Kubanenergo in 2017-2012). At year-end 2017, the effect of reduction of specific operating expenses (costs) in percentage terms was 3.1% at 3% target value.

11. Measures for central planning and automation of treasury (decision of the Board of Directors on the 1st question of minutes of the meeting of the Board of Directors No.205/2015 dd. March 16, 2015 on Priority areas of Company’s activities: Implementation of measures for central planning and automation of treasury; decision of the Board of Directors on issue, minutes of the meeting of the

Board of Directors No.212/2015 dd. May 25, 2015 on Implementation of a timed action plan for integrating a Common treasury of Rosseti PJSC into a unified IT-system). Update of report forms and reference manuals for 1C: Enterprise software, used for generation of templates for uploading information into an automated information management system of treasury transactions records, in order to administer data exchange with a unified IT-system of a Common treasury of Rosseti PJSC. Measures for central planning and automation of treasury were executed in 2017 according to a Timed action plan approved by the order of Kubanenergo No.282 dd. March 30, 2017.

Long-Term Development of Company’s Power Grid Within Operation Area Vyacheslav Yuriyevich Kostetsky, Deputy Director General for Development and Technological Connection: “The main objective of long-term development of Company’s power grid consists in finding the best possible direction of modernization and expansion of the grid to make up for a shortfall of generating capacities and satisfy a potential demand for generating capacity in the long term.” In 2017, acting under the Government decree of the Russian Federation No.823 dd. October 17, 2009 On Strategies and Programs of the Electricity Industry Prospective Development, Kubanenergo directly participated in the development of strategies and programs of prospective development of the electrical power industry of Krasnodar Krai and the Republic of Adygea for a five-year period. Representatives of Kubanenergo, Deputy Director General for Technical Issues, Chief Engineer and Deputy Director General for Development and Technological Connection, were included into acting coordinating bodies of Krasnodar Krai and the Republic of Adygea responsible for development of strategies and programs of power industry development in these federal subjects of the Russian Federation, namely: - an interdepartmental working group for development of strategies and programs of power industry development in Krasnodar Krai (formed according to the directive of head of administration (governor) No.181-р dd. February 11, 2011 on formation of an interdepartmental working group for development of strategies and programs of power industry development in Krasnodar Krai); - a working group for issues of development of strategies and programs of power industry development in the Republic of Adygea (formed according to the order of Ministry of Economics, Trade and Industry of the Republic of Adygea No.26-п dd. February 1, 2011 on Formation of a working group). 2018-2022 Strategy and Program of prospective development of electrical power industry in Krasnodar Krai was approved by the order of the head of administration (governor) of Krasnodar Krai No.117-р dd. April 28, 2017. 2018-2021 Strategy and Program of prospective development of electrical power industry in the Republic of Adygea was approved by the order of Ministry of Economics, Trade and Industry of the Republic of Adygea No.84-рг dd. April 28, 2017. According to the strategies and programs, the Company should focus on developing the more troubled power districts of Kuban power system, South-Western and Central, which require improvement of electric power infrastructure. As part of execution of an order of PJSC Rosseti No.155 dd. August 25, 2015 on Promoting quality of grid development planning, in the reporting year Kubanenergo made an agreement with Institute ENERGOSETPROEKT JSC to prepare a 2018-2022 Comprehensive program for development of electric grids of 35 kV and higher in the territory of Krasnodar Krai and the Republic of Adygea . In December 2017, a project of this program, consisting of source data for further development of strategies and programs of prospective power industry development of the regions in 2018, was forwarded to executive authorities.

Integrated Management System of the Company The Company has an integrated management system (IMS), which includes the following: 1. Quality management system (QMS). QMS is a foundation for a common management system of the Company, which provides for implementation of system approach to management of the Company through goal setting, and definition of processes and resources required for obtaining the intended results. QMS ensures high quality of process management according to the requirements of regulatory documents, needs and expectations of consumers, serving the interests of all concerned parties, including employees, shareholders, investors and partners of the Company. 2. Environment management system (EMS).

EMS is a part of a common management system employed for managing environmental aspects of Company’s activities, execution of assumed responsibilities, and accounting for risks and possible effect of Company’s activities on the environment. 3. Occupational health and safety management system (OHSMS). OHSMSis a part of a common management system, which ensures risk management and improvement of performance with regard to workplace safety and health care. 4. Energy management system (EnMS). EnMS is a part of a common management system, which ensures constant research and acquisition of data on distribution and consumption levels of power resources at the enterprise, as well as on optimal use of power resources both for production and non-production needs. Company’s IMS was developed and documented pursuant to the requirements of international and national standards ISO 9001:2015, ISO 14001:2015, ISO 50001:2011, OHSAS 18001:2007, and GOST Р 54934. Company’s Management System Certificates (in 2017):

Ite m Management System Expiry Date Certification authority No.

1. ISO 9001 Quality management system 2. ISO 14001 Environment management system March 5, 2018 SZHS Vostok Limited JSC 3. OHSAS 18001 Occupational health and safety management system 4. ISO 50001 Energy management system December 28, 2018 Certification Association “Russian Register” Company’s IMS and certificates of compliance are applicable to transmission and distribution of electrical power through power grids of 110 kV voltage and lower, design, construction, reconstruction, and overhaul of power facilities in Krasnodar Krai and the Republic of Adygea. The Company executes a Plan of actions to improve management system of Kubanenergo (approved by the order No.1114 dd. December 16, 2016 as revised within minutes of the Board of Directors meeting No.18/2017 dd. August 31, 2017). The Plan includes administrative and methodological procedures for strategic management, as well as measures for integration, unification and automation of Company’s activities regarding management of reference data and regulatory technical documentation. Concerned parties include the following: − Consumers of power transmission services, energy supply companies that signed supply agreements with the Company − Applicants for technological connection to the Company's power grid − End users of electric power, directly or indirectly connected to the Company’s power grid − Company’s personnel − Rosseti PJSC as a corporate parent of the Company − Company’s shareholders − Regional, municipal and local authorities in areas of Company's operation − A trade union organization of private association Russian National Trade Union of Power Industry in Krasnodar Krai − Other electric power industry entities (power generation companies, transmission system operator, local and related grid operators, etc.) − Suppliers of products and services. Main results of management system work: a) improvement of reliability and quality of power supply (for information, see section Reliable and Effective Operation of Electrical Power System); b) promotion of security of power supply (for information, see section Reliable and Effective Operation of Electrical Power System); c) ensuring occupational safety and health care during operating activities, including reduction of accidents while meeting the requirements of Health, Safety and Environmental Law (for information, see sections Occupational and Industrial Safety and Environmental Protection and Key Environmental Aspects); d) improvement of energy efficiency (for information, see section Energy Conservation and Improvement of Energy Efficiency);

e) promotion of quality of technological connection services (for information, see section Technological Connection to Electric Grids of Kubanenergo).

In general, work of Company’s integrated management system has shown positive results for the past year which is confirmed by certification authorities. Within April 4-7, 2017, in the course of compliance audit, a certification authority SGS Vostok Limited (part of SGS Group) confirmed that management systems of executive, Tikhoretskiye Power Grids, and Leningrad Power Grids branches comply with the requirements of the international standards in the field of quality management ISO 9001:2008, occupational health and safety OHSAS 18001:2007, and environmental management ISO 14001:2004. As a result of the audit, certification authority made a conclusion that management system of Kubanenergo has high performance, is well engineered and could bring results following the objectives specified in the Policy of Kubanenergo regarding quality, environment and occupational health and safety. Within September 11-15, 2017, in the course of compliance audit, a Certification Association “Russian Register” confirmed that management systems of executive, Armavir Electric Grids, and Leningrad Power Grids branches comply with the requirements of the international standard ISO 50001:2011 in the field of energy management. As a result of the audit, certification authority made a conclusion that management system of Kubanenergo has high performance, is well engineered and could bring results following the objectives specified in the Energy Policy of Kubanenergo.

Company’s Innovative Development

Innovative Development Program Central areas of focus of the current 2016-2020 Innovative Development Program with an outlook through to 2025 approved by the Board of Directors of Kubanenergo dd. July 19, 2017 (Minutes No.281) include the following: • Transition to digital substations of various voltage classes (35-110 (220) kV) • Transition to digital active-adaptive networks with distributed intelligent system of automation and control • Transition to comprehensive efficiency of business processes and automation of control systems • Application of new technology and materials in electrical power industry • Advance of development system and implementation of innovative products and technologies • Development of human resources and partnership in the field of education The following integrated innovative projects were completed in the reporting year: • Completion of construction, installation, testing and commissioning, and putting into service project “Implementation of intelligent systems for monitoring and diagnostics of 110-kV CL performance in the process of construction of 2 Dzhemete-Pionerskaya CL of 110 kV; • survey and design works perform with the project “Reconstruction of 110-kV Tuapse-Gorod SS involving digital substation technology. Stage 1. Implementation of digital power-system protection”; • development of technical specifications for design and arrangement of tendering procedures for project: “Automation of 6-10-kV distributing network sections involving automatic reclosers5 and installation of SCADA-system6 of Seversky power distribution zone”; • Completion of construction, installation, testing and commissioning, and putting into service projects “Installation of composite supports” and “Implementation of new voltage class (0.95 kV)”; • promotion of Production assets management system of Kubanenergo; • survey and design works, and construction, involving application of innovative solutions (according to Registry of innovative solutions); • 748 students undertook work experience internship in the Company, 34 employees of the Company completed requalification courses in higher education institutions.

5 Automatic recloser is an automated grid sectioning point that comprises the high-voltage cabinet with a vacuum switch, control cabinet with the microprocessor relay protection and emergency automatics. 6 SCADA – Supervisory Control and Data Acquisition – is a software package used for development or real-time collection, processing, displaying, and archiving information regarding a monitored/managed object.

R&D Execution One of the main areas of the Program is performance of R&D (development of breakthrough technologies to create fundamentally new techniques, methods, including applied subjects aimed at improvement of the existing technology and products). 2017 R&D Results: Item R&D Technical Result No. 1. A site of pilot development of device was located and approved; the Advancement of a reflectometry issues of electro-magnetic compatibility of the developed device were complex of monitoring 35-220-kV addressed; device software and its mockup test sample were OPLs to identify areas of their produced, customized and adjusted; three applications to register an damage and ice coating. intellectual property item were prepared. 2. Phase-differential protection device for power transmission lines with A utility model patent No.174043 dd. September 24, 2017 was duplicate power supply, and a obtained; a commercial prototype of phase-differential protection function of remote backup protection device with remote backup protection function was developed; device and switching devices of substations was put into experimental-industrial operation. connected to branches. 3. Covering the demand for fuel and Data collection and classification methods were developed to perform power resources through use of optimization calculations of energy audit of official buildings and renewable energy sources at facilities substations where the Company's employees are always present. of Kubanenergo. 4. Requirements for implementation architecture of power-system protection and SCADA networks were formulated using the Design of routing profiles defined by Standard. IEC 61850 standard 7for power- Data model of the Standard was analyzed along with the system protection and SCADA requirements for implementation of power-system protection and devices/cabinets, ensuring their SCADA functions using logical nodes, data objects and attributes of interchangeability. the Standard, requirements for distribution of logical nodes between physical devices according to current requirements documents. 5. Development of hardware and A software program, which enables hot swapping, was developed for software package to identify areas of a communication unit; technical specifications and documentation damage of 35-750-kV lines with were prepared to produce a pilot sample of the device identifying optical channels. areas of line damage. 6. A technique for automatic design of grounding of OPLs supports was developed using software programs; a technique for automatic design Development of an automatic design of lightning protection of substations with OS, indoor switchgear and engineering system for lightning gas-insulated switchgear was developed using software programs; protection of substations and OPLs. requirements for software package of automatic design of lightning protection of OPLs and substations were specified. 7. Design of technique and multifunction software package for A physically based model of discharge of a negative lightning estimation of damage caused by downward leader to the ground was developed; a method of lightning to electrical transmission estimation of damage caused by lightning to electrical transmission line components based on the line components based on the probabilistic approach was developed. probabilistic approach.

Expenses Related to Key Areas of Innovative Development in 2017, million rubles, VAT excluded: Item Actual Area of Innovative Development Target No. Value 1 Transition to digital substations of various voltage class 6.9 6.9 Transition to digital active-adaptive networks with distributed intelligent system of 2 7.0 0.0 automation and control Transition to an integrated efficiency of business processes and automation of control 3 36.5 45.0 systems

7 IEC-61850 – a standard of the International Electrotechnical Commission “Networks and Communications at Substations”; describes formats of data flows, information types, rules for describing power facility elements, and rules for organizing the event-driven flow of data transmission.

4 Application of new technology and materials in the electrical power industry 256.7 228.0

Based on the results of the reporting year, the purchase rate of innovative products (goods, works, and services) was 4.18% of the total implementation of the investment program of Kubanenergo, while the target was 3.55%.

Technical Policy and Regulatory and Technical Provision Key Projects of the Company Implemented in 2017 with the Use of Innovative Technologies: Item Branch Facility Key technical parameters No. 1 Adygea Electric Grids Introduction of 6-kV OHL composite 6-10-kV composite poles for 6-10 kv overhead poles at feeder 84 from 35/6 lines Shirvanskaya SS 2 Timashyovsk Electric Introduction of 10-kV OHL composite 6-10-kV composite poles for 6-10 kv overhead Grids poles between poles 20 and 46 from lines Sadki SS, feeder 1 3 Krasnodar Electric Grids Introduction of a 0.95-kV grid in Innovative 0.95-kV grid Vasyurinskaya village, Dinskoy District, OHL from TP10/0.4-kV VS1-601 4 South-Western Electric Construction of two 110-kV Dzhemete- Smart monitoring and diagnostic system Pry- Grids Pionerskaya cable lines and installation Cam for 110kV cable lines8 of 110-kV cells at Dzhemete SS 5 South-Western Electric Reconstruction of 35/10-kV Pionerskaya • Local backup protection of PUMA-type Grids SS, with transfer of voltage to 110 kV, power transformers and installation of 2x40 MVA • TMGe-type energy-saving transformers transformers with voltages of 110/35/10- • Hardware and software package used to kV determine the location of damage at heterogeneous cable lines with 110-kV voltage or higher 6 Krasnodar Electric Grids Reconstruction of 110/10-kV South- • Local backup protection of PUMA-type Western SS Installation of T-3, 40 MVA power transformers • RDMK-type oil-based arc suppression coil • Complex distributed system of protection from single line-to-earth faults with increased degree of self-sufficiency of devices and improved selectivity • Flameproof coupling capacitors 7 Krasnodar Electric Grids Reconstruction of 35/10-kV Shapsug SS, RDMK-type oil-based arc suppression coil with transfer of voltage to 110/35/10 kV, and installation of two 40 MVA transformers 8 Krasnodar Electric Grids Reconstruction of 110/35/10-kV Loris RDMK-type oil-based arc suppression coil SS, replacement of the second 25 MVA transformer with the 40 MVA one, and installation of the third 25 MVA transformer On March 28, 2017, the Board of Directors of Kubanenergo approved Rosseti PJSC’s Regulations “On unified technical policies at power grids” as the Company’s internal document (protocol No. 267/2917 of March 31, 2017). This Regulation is in effect according to Order No. 859 of August 10, 2017. Order No. 115 of February 16, 2016 approves “The list of regulatory and technical documents devoted to power supply networks in effect in Kubanenergo.” The list of regulatory and technical documents may be widely accessed by all executive employees of employees of Company branches. It is renewed annually or when necessary during review or development of the new List. In the reporting year, the Company put together 48 regulatory and technical documents, including: Number Ite Technical Regulation Area of Documents m No. 1. Operative and process management and situational management 17

8 Pry-Cam is a type of partial discharge monitoring system which is used for online diagnostics of power grids’ condition and quick maintenance.

2. Organization of emergency recovery works 2 3. Regulations in power supply network 13 4. Environmental safety 1 5. Prevention of accidents 6 6. Production control 1 7. Staff relations 2 8. ETL, SS 1 9. Metrology and electric power quality 2 10. Requirements to equipment 1 11. Maintenance 1 12. Technological development 1 All documents were executed by Kubanenergo without involvement of contractors or additional costs.

Consolidation of Power Supply Assets As part of implementation of Development Strategy of Power Supply Networks in Russia approved by Russian Government’s order No. 511-p of April 3, 2013, which presupposes decrease in the amount of local grid operators by 50% in 2017 (compared to 2012) and 50% in 2030 (compared to 2017), Kubanenergo takes measures aimed at consolidation of power supply property in Krasnodar Krai and Adygea. By Orders of Krasnodar Krai Regional Energy Committee’s Department of Prices and Rates No. 52/2016-э (December 26, 2016), No. 56/2016-э (December 29, 2016), No. 59/2016-э (December 30, 2016), and No. 2/2017-э (February 8, 2017), individual electricity transfer rates for 2017 were established for 49 local grid operators. The company took the following measures during the reporting year: 1. Evaluation of viability of consolidations of power grids belonging to local grid operators and not compliant with requirements listed in Russian Government’s Order No. 184 of February 28, 2015 “On designating owners of power supply assets as local grid operators.” Owners of local grid operators have received offers on consolidation of their property at the premises of Kubanenergo. 2. Annual inventory of ownerless power supply assets. 3. A roadmap for consolidation of power supply property has been sent to Governor of Krasnodar Krai V.I. Kondratyev (being reviewed by the government of Krasnodar Krai). 4. Creation of a Working Group involving representatives of Kubanenergo and other local grid operators and concerning transfer of power grids located within the boundaries of gardeners’ non-commercial partnerships at the premises of Ministry of Fuel and Energy Complex and Ministry of Housing Services of Krasnodar Krai. 5. In November of the reporting year, off-schedule drills devoted to elimination of mass power outages involving Kubanenergo, 41 local grid operators, representatives of government agencies, EMERCOM of Russia, FGC UES, and SO UES took place. During these drills, local grid operators who were unable to quickly react to emergencies have been identified. Results of the drills were presented to Committee for Prevention and Elimination of Emergencies and Provision of Fire Safety (a part of government of Krasnodar Krai). Kubanenergo also put together the following propositions: • - to organize activities aimed at identifying local grid operators unable to quickly eliminate emergencies and their subsequent consolidation; these activities are to be performed by Ministry of Fuel and Energy Complex and Ministry of Housing Services of Krasnodar Krai (proposition sent to the Governor of Krasnodar Krai); • - to make amendments to Government’s Order No. 184 of February 28, 2015, in particular, to extend the list of criteria of designating owners of power supply assets as local grid operators by approving their readiness for emergency recovery work (proposition sent to Chairman of Legislative Assembly of Krasnodar Krai); • - to identify local grid operators unable to quickly eliminate emergencies and to provide any support necessary for implementation of Development Strategy of Power Supply Networks in Russia; these activities are to be performed by law enforcement agencies and Rostechnadzor. 6. During 2017, a total of 1,566.2 units with total length of 532.9 km and 204.5 MVA were consolidated, and 62 deals were concluded, including the following: - purchase of a power grid facility from the administration of Sovetskoye village settlement; - 31 deals involving transfer of property without compensation from NPOs and private persons were closed; - 29 loan agreements concluded with local grid operators (9), municipal organization (14), and other owners (6);

- ownerless property from a project in Ust-Labinsk District was taken. The effect from consolidation of power supply assets during the reporting year is the increase of Company’s income by 345 million rubles. Furthermore, placing additional power supply facilities onto the Company’s books allows for elimination of costs necessary to transfer electricity to consumers connected to these facilities. Monitoring of volume of consolidation of power supply assets performed by the Company between 2015 and 2017: Volume of Consolidated Power Supply Assets over a Specific Period Consolidation Methods 2015 2016 2017 MVA km Units MVA km Units MVA km Units Total over Kubanenergo 11 137.5 443 104 627.5 1,770 204.5 532.9 1,566.2 Purchase of power supply 1.5 6.1 9 5 16.3 86 0.2 2.3 5.9 facilities Lease of power supply 7.5 109.3 351 96 586.9 1,587 196.0 511.5 1,467.7 facilities Other (permanent rights of 0 0 0 0 0 0 8.2 19.1 90.3 ownership and use) Other (temporary rights of 2.0 22.1 83 3 24.3 97 0.2 0 2.3 ownership and use)

Results of Operating Activities

Electric Energy Transmission Oleg Fyodorovich Nishchuk, Deputy Director General for Service Sales: “Transmission and distribution of electric power to customers through electric grids of 110 kV and less is the main activity of Kubanenergo. The share of power transmission services in the total revenue of the Company for the reporting year amounted to 98.2%. In 2017 the Company achieved the planned key indicators for electric power transmission and distribution: the volume of electric power transmission services came to 101% of the planned volume, while the electric power losses during its transmission amounted to 12.06%, which is lower than the planned level by 0.9 percentage points. Following the results of execution of energy service agreements, the benefit in 2017 amounted to 215.9 million kWh, including reduction of losses that came to 128 million kWh.”

Key Indicators In 2017, there was a decrease in power supply to the grid of Kubanenergo, as compared to the previous year, by 99 million kWh (-0.4%). 2015-2017 Company Production Activity Results: Indicator Change in Indicators 2015 2016 2017 2017 Against 2016 Supply to the grid, mln kWh 22,032.578 22,732.291 22,633.258 -99.033 Supply from the grid to customers and related territorial organizations within the limits of the balance of 19,196.901 19,786.650 19,904.274 +117.624 operational responsibility, mln kWh Electric power losses during its transmission mln kWh 2,835.676 2,945.641 2,728.984 -216.657 % 12.87 12.96 12.06 -0.9 pp Volume of power transmission services rendered mln kWh 17,457.234 18,059.116 18,204.054 +144.938 RUB mln 34,403.020 39,262.365 41,485.670 +2,223.305 Actual power losses in the electric grids of Kubanenergo for the reporting year amounted to 2,729 mln kWh or 12.06% of the total supply to the grid. The relative level of electricity losses in 2017 decreased by 0.09 pp against 2016. Decrease of actual electricity losses in 2017 amounted to -216.657 mln kWh compared to 2016. Overall in 2017, the Company rendered power transmission services in the amount of 18,204 mln kWh, which is 145 mln kWh or 0.8% more than in 2016. Measures to Reduce Power Losses Measures to reduce power losses is one of Company’s priority areas. In 2017, the total benefit gained due to implementation of measures aimed at decreasing power losses equaled to 168.6 mln kWh, or RUB 449.1 mln, including: ✓ - organizational activities – 24.1 mln kWh (RUB 37.9 mln); ✓ - technical measures – 13.4 mln kWh (RUB 37.8 mln); ✓ - improvement of electric power accounting – 131.1 mln kWh (RUB 373.4 mln). These measures are to be continued. Measures to reduce power losses have been taken, and the target level of power loss reduction has been achieved.

Electric Power Fiscal Accounting The following number of subscribers registered in Kubanenergo was on December 31, 2017: • - 47,954 legal entities with a total of 99,259 electricity metering points; • - 1,059,447 domestic customers with a total of 1,062,222 metering points. Whereas the plan was to upgrade 24,976 metering points in 2017, with planned costs of 732.3 million rubles, over 60 thousand metering points were upgraded, and the costs amounted to 687.8 million rubles. The expenditure plan was not fulfilled due to untimely drawing up Kubanenergo’s expense saving acts by energy service companies.

Implementing Automated Electric Power Control and Accounting Systems (AEPCAS) In 2017, as part of implementation of energy service agreements, the Company organized remote data collection from 60,744 electric power metering points, whereas the automation plan was for 24,486 metering points. Overachievement of the plan was due to early execution of work by energy service companies. The number of Company’s AEPCAS as on December 31, 2017 was 171,352 pcs (including those within the framework of implementation of energy service agreements).

AEPCAS implementation proved its efficiency in reducing electricity losses. In 2017, actual losses on feeders, including those in energy service agreements, were reduced at the average of 12%.

In 2018, the Company plans to continue AEPCAS implementation under the energy service agreements, as well as introduction and automation of technical energy accounting9 at Company’s substations, including transformer substations, as part of the investment program. It is being planned to automate more than 14 thousand Company-owned metering points and to increase the number of AEPCAS

9 Technical energy accounting is a set of measures aimed at metering of electric energy consumption at power plants, substations and enterprises; calculation and analysis of power losses in electric grids, as well as at evaluating auxiliary, production and utility power consumption.

to 186 thousand pcs by the end of 2018, which shall amount to 15.7% of all electricity meters throughout the Company.

Technological Connection to Electric Grids of Kubanenergo Vyacheslav Yuryevich Kostetskiy, Deputy Director General for Development and Technological Connection: “In 2017, the number of valid technological connection agreements has reduced by 24% from 26,874 to 20,384. Compared to last year, the number of untimely executed agreements has increased by three times. The main reason of this untimely execution was insufficiency of funds required to meet all technological conditions. At the same time, the total capacity of consumers connected during 2017 increased by 11%. The positive trend of increase in the number of technological connection claims and agreements concluded is being maintained.” Upcoming technological connection activities of Kubanenergo are aimed at supplying the demands of the growing economy of Krasnodar Krai in energy facilities, transition to a unified scheme of formation and application of rates for technological connection and achieving of interest balance in determining the cost of technological connection of customers to electric grids. In accordance with the current legislation, Kubanenergo does not reject any applicants submitting appropriate applications. Basic regulations governing the Company’s activities for technological connection of power receivers (power plants) of legal entities and private persons to the electric grids of Kubanenergo10 are as follows: • Federal Law No. 35-FZ dd. March 26, 2003 “On Electricity Production”; • Rules for technological connection of power receivers of electricity customers, electricity production facilities, as well as electric facilities that belong to electric grid companies and other parties to electric grids (approved by Decree of the Government of the Russian Federation No. 861 dd. December 27, 2004); • Decree of the Government of the Russian Federation No. 1178 dd. December 29, 2011 “On Pricing in the Area of Controlled Prices (Tariffs) in Electric Power Industry”; • Order of the Federal Tariff Service No. 1135/17 dd. August 29, 2017 “On Approval of Guidelines for Determining the Amount of Payment for Technological Connection to Electric Grids”.

Implementation of Agreements on Technological Connection of Customers Over the reporting year, the Company implemented 31,193 agreements for technological connection to electric grids of Kubanenergo. The total capacity under the executed agreements for technological connection amounted to 684 MW, which is 11% higher than the planned capacity. Connections in 2017 by customer categories, in MW: Number of Executed Agreements for Technological Connection Connection Category pcs Total Capacity, MW

Up to 15 kW inclusive, total 29,682 329.81 including individuals 25,051 279.22 Over 15 kW and up to 150 kW inclusive 1,140 73.86 including applicants having 50% rebate 41 2.63 including installment-plan users 0 0 287 98.02 150-670 kW At least 670 kW 57 182.17

10 For the full list of legal documents governing the technological connection process visit the Company’s website www.kubanenergo.ru, section “For Customers”.

Electric power production facilities 0 0 Total amount, excluding temporary technological 31,166 683.88 connection Temporary connection 27 0.60 Total amount, including temporary technological 31,193 684.48 connection Structure of agreements executed by Kubanenergo, by capacity connected, MW and %:

The largest and most important power facilities of the following applicants were connected to the electric grids of the Company in 2017: Connected Capacity, Applicant MW ZAO (CJSC) Tamanneftegaz 60.0 OOO (LLC) Lider 20.0 OOO (LLC) Creating the Outline of Kuban-23 6.0 South regions of Russia are first and foremost characterized by agricultural production. Power capacities are just as important for this industry sector as for other sectors. In 2017, Kubanenergo concluded more than 1 thousand technological connection agreements with agricultural sector enterprises for the total capacity for 49 MW. More than 1 thousand agreements have been executed; in particular, the following enterprises were connected to Kubanenergo’s electric grids: • a livestock breeding complex in Vyselki village settlement, with yield capacity of 10.5 thousand head of cattle; • a poultry farm in Krasnodar; • facilities at Progress greenhouse complex in Timashyovsk; • facilities at Russkiy Grib enterprise (Russian Mushroom), one of the largest mushroom-breeding enterprises in Russia located in Dyadkovskaya village settlement, Korenovsk District); • facilities at Agro-Yug complex in Teuchezky District, Republic of Adygea; In 2018, the Company plans to connect facilities of a factory located in Vyselki village settlement combining cheese and butter production as well as complex processing of whey, with total daily capacity of 600 tons of milk, as well as several dairy farms; The customer in this case is Syry Kubani (Cheese of Kuban) LLC.

Kubanenergo is involved in implementation of measures stipulated in target models called “Technological connection to electric grids” approved by regional executive bodies of Krasnodar Krai and Republic of Adygea. As a result, in 2017 the Company duly executed all planned measures aimed at increasing accessibility of technological connection to electric grids. Volume of Customer Demand for Technological Connection in 2017 In 2017, the Company entered into 30,428 agreements for technological connection to electric grids of Kubanenergo for the total capacity of 652 MW with the total value of 1.549 billion rubles, excluding VAT. Number of Agreements for Technological Connection Implemented Connection Category pcs Total capacity, MW

Up to 15 kW inclusive, total 29,022 327.46 including individuals 24,204 274.02 Over 15 kW and up to 150 kW inclusive 1,015 67.61 including applicants having 50% rebate 80 5.89 including installment-plan users 1 0.15 150-670 kW 268 92.67 At least 670 kW 56 163.05 Electric power production facilities 0 0 Total amount, excluding temporary technological 30,361 650.79 connection Temporary connection 67 0.78 Total amount, including temporary technological 30,428 651.57 connection Structure of Kubanenergo’s Agreements for Connected Capacity Executed in 2017, MW and %

Volume of Resulting Revenue and Collected Funds The revenue from the services for technological connection in 2017 amounted to 658 million rubles (VAT excluded), which is 15% lower than the goal. The plan is not fulfilled due to the following reasons: • prolongation of execution terms (on applicants’ initiative) of more than 5 thousand technological connection agreements with total amount of funds of 77 million rubles;

• termination (on applicants’ initiative) of more than 5 thousand technological connection agreements with the total revenue amount of 140 million rubles. At the same time, within the reporting year, some technological connection agreements (with the total revenue amount of 101 million rubles) were implemented earlier. In 2017, total amount of funds received for technological connection came to 1,294 million rubles (VAT excluded), which is 52% less than the target. The main reason non-fulfillment of the plan is prolongation of the technological connection agreement with FTI Rostransmodernizatsiya throughout 2018. Still, the amount of funds received from other applicants amounted to 883 million rubles, which is 178% higher than the goal. In 2018, the Company plans to gain revenues from technological connection services in the amount of 5,086 million rubles (VAT excluded). FTI Rostransmodernizatsiya will be the major source of revenue from technological connection services in 2018. The total amount of revenue gained from implementing this agreement is 3,238.37 million rubles (VAT excluded) — within the framework of implementation of the project for construction of a transport passage across the Kerch Strait.

Technological Connection of Generating Facilities Requested Capacity for Effective Date, Price technological (VAT excluded) of a Item Connected connection of Technological Connection Status as for the End of Applicant technological No. Generation Facility generating plants 2017 connection to supply power to agreement the grid, voltage class

The agreement is being implemented. April 1, 2010 The Company is currently implementing measures Rosneft Oil 24 MW, 1. 1 Tuapse Oil Refinery 56,371.8 thousand aimed at technological connection. Company 110 kV rubles Applicant has asked to extend the deadline for implementation of technological connection.

The agreement is being implemented. Kurganinsk The Company is currently implementing measures Group Water Power generators of aimed at technological connection. Pipeline, North- 1 MW, July 25, 2013 2. sewage treatment The deadline for implementation of technological East Water 10 kV 32.0 thousand rubles facilities connection according to the agreement is November Managing 13, 2019. Company

The agreement is being implemented. Fanagoria Agro- May 6, 2015 Company is currently implementing measures aimed Mini-TPP with two 2 MW, 3. Industrial 1,076 thousand at technological connection. gas-piston plants 10 kV Company OJSC rubles Work completion and commissioning are planned for 2018.

The agreement is being implemented. The Company is currently implementing measures Gazprom Block-modular gas April 17, 2015 5.844 MW, aimed at technological connection. 4. Teploenergo piston plant for the 18,877 thousand 6 kV Applicant has asked to extend the deadline for OJSC boiler station rubles implementation of technological connection until June 1, 2019 due to changes in the deadline of an investment project. The agreement is being implemented. September 3, 2015 The Company is currently implementing measures Verkhnebakansk Power plant of 56.41 MW, 93.25 thousand aimed at technological connection. 5. y Cement Plant Verkhnebakansky 6 kV rubles The deadline for implementation of technological OJSC Cement Plant connection according to the agreement is June 1, 2019.

The agreement is being implemented. Power station November 3, 2016 The Company is currently implementing measures for storage of food 2.4 MW, 1,377 thousand 6. Tander JSC aimed at technological connection. and non-food 10 kV rubles The deadline for implementation of technological products connection according to the agreement is June 30, 2018. Power station for the 8.0 MW, November 3, 2016 The agreement is being implemented. 7. Tander JSC administrative and 6 kV 4,590 thousand The Company is currently implementing measures office building rubles aimed at technological connection.

The deadline for implementation of technological connection according to the agreement is November 3, 2018.

Reliable and Effective Operation of Electrical Power Systems Igor Nikolayevich Shishigin, Deputy Director General for Technical Issues and Chief Engineer: “In the reporting year, Kubanenergo generally fulfilled the primary goal of its production activity, which is maintenance of sufficient functioning reliability level for the electric grid equipment. Total undersupply of electricity came to 2,092.9 thou kWh, which is 47.7% less than in 2016. Among other things, a decline in key accident rates has been noted. For instance, average duration of power supply interruptions decreased by 18.3%, total number of accidents decreased by 15.1%, specific accident rate by 16.6%. This decline was due not only to decrease of impact of adverse natural and climatic events, but also due to: - implementation of maintenance plans and target programs; - implementation of equipment renovation programs; - compliance with industrial safety requirements for the operation of hazardous production facilities; - effective cooperation with Rostekhnadzor; - technical verification of equipment for substations, power transmission lines, buildings and structures; - implementation of a set of measures to ensure maximum readiness in the event of an emergency; - staff development; - improvement of quality of accident investigation in accordance with Regulations for Investigating Accident Causes in Electricity Industry approved by Order No. 846 of the Government of the Russian Federation dd. October 28, 2009 (with amendments dd. June 10, 2016). In order to successfully get through the 2017/2018 autumn and winter period, 735 events were scheduled, and all of them were completed. On October 27, 2017, the Commission of the Ministry of Energy of the Russian Federation issued a certificate of approval of readiness for the 2017/2018 heating season No. 06-2017.”

Ensuring Quality, Reliable and Uninterrupted Electric Power Supply to Customers In order to ensure reliability, quality and uninterrupted power supply to customers, the Company annually generates and fulfills a program of technical re-equipment, reconstruction, repair and maintenance of power facilities. Furthermore, the Company takes measures aimed at ensuring reliable and accident-free performance of its electric grids during flood seasons, periods of extreme high and low outside temperatures, lightning storm seasons, fire hazard periods, as well as fall and winter periods. In 2017, Kubanenergo generally fulfilled the primary goal of its production activity, which is maintenance of sufficient functioning reliability level for the electric grid equipment. In order to prevent fires at Company’s facilities, Order No. 264 dd. March 27, 2017 “On Preparation for Successful Passage of 2017 Fire Hazardous and High Temperature Period” was issued: • cooperation with local entities of EMERCOM of Russia within the framework of agreements related to anticipation and control of fire hazardous situations as well as development and implementation of measures concerning elimination of fire hazardous situations; 34 agreements were concluded; • agriculture manufacturers and owners of land lots (land users, land owners, land tenants) where power lines are located, received notifications and letters containing rules and regulations for security of OPLs and responsibility for their fire safety; a total of 508 notifications were sent; • plowing of land around 35-110-kV substations not having uninterrupted concrete guard rails and located in fire hazardous areas, having the width of at least 2 m; total area of 68.5 hectares was plowed;

• combustible items like felling residues, woodpiles, lumber piles, haystacks, fuel and lubricant materials etc. were eliminated from guarded areas of OPLs; forest roads were cleared of tree and shrubbery vegetation; total area of 374 hectares was cleared; • fire inspection committees within Company branches carried out fire safety inspections at power facilities in order to verify their compliance with fire safety regulations; • systematic control over thermal behavior of cables, air temperature and performance of ventilation systems in cable structures was provided; absence of litter or oil spills in cable structures was ensured; control over the condition and designation of fire safety fills was provided; control over the condition of non-combustible cable glands where cables pass through walls, including separation walls, as well as over the integrity of structure of cable channels and trays, was ensured; total number of sites is 578; • free entrance of fire trucks to 37 fire hydrants, reservoirs and other fire-water supply sources was provided. No fires at the Company’s facilities or fire-caused emergency outages of power grid equipment were recorded in the reporting year. In order to ensure reliable operation of power grid facilities in the thunderstorm period, Kubanenergo issued Order No. 138 dd. February 21, 2017 “On Preparation for Successful Passage of 2017 Thunderstorm Period”, the measures specified below were timely executed: • cooperation with territorial entities of Roshydromet with the purpose of receiving forecasts regarding time and nature of anticipated thunderstorms; with entities of EMERCOM of Russia and with local authorities has been established in order to prevent or eliminate consequences of accidents at power sites; • engineering inspections of all 35-110-kV substations, 11 fuel and lubricant depots, 9 mineral oil facilities, 11 antenna mast structures were carried out, including: ✓ compliance of lighting protection with design solutions and regulatory requirements; ✓ condition of stand-alone and portal lighting rods and their earthing in accordance with the design; ✓ condition of earthing devices for electrical equipment of substations; ✓ condition of insulation; • conductivity without disconnection from the grid and thermal imaging control of 754 110-kV surge arresters was carried out, and comparison of measurement results with the previous ones was made; • visual inspection of condition of dischargers and surge arresters (base fittings of support insulation, porcelain jackets, stub lines, trip recorders) was carried out; • comparison of readings of trip recorders of valve and surge arresters was made, and recordings were made in operation or response log books; • readiness of emergency recorders, fixing devices, oscilloscopes and other devices used for localization of faults on OPLs installed at substations was ensured; • selective engineering inspections of sections of OPLs were carried out, in particular: ✓ for earthing of ground wires in design points; ✓ compliance of earthing of ground wires with project requirements; ✓ condition of earthing devices of supports and anchor stays; ✓ condition of insulation; • sufficiency of emergency reserve for lighting arresters was verified both in terms of quality and range; • performance and adjustment of capacitance current compensation devices short to earth was verified; • it was established that arrangement of devices protecting against lighting power surges complies with project requirements as well as requirements listed in regulatory documents; • off-schedule briefings and emergency response drills of operating staff were conducted with the purpose of locating damages at OPLs fixing devices; • inspection of 6-10-kV high voltage lines with insulation made of cross-linked polyethylene was carried out, particularly with the purpose to verify installation of devices protecting from wire burning during lighting power surges; • in 11 branches of Kubanenergo, lists of measures aimed at eliminating identified violations before the start of thunderstorm period were developed and approved; • faulty ground wire at a 35-110-kV OPL 117 km long was restored (replaced);

• registration of all instances of ETL and substation equipment outages and faults and lighting power surges was arranged to assess reliability of the surge protection for switchgears and transmission lines; • registration of readings of arrester discharges and surge arresters in operation or response log books after passing of each thunderstorm front was organized. Apart from basic measures aimed at providing fail-safe performance of Company’s power facilities, the following activities were carried out: • replacement of 35-110 kV valve-types arresters, which have been in operation on surge arresters for more than 25 years, was carried out; • off-schedule inspections of insulation of substations and OPLs with voltages of 35 kV or more, where power outages during thunderstorms were registered, were carried out; • continuous registration of outages due to thunderstorms was provided, and analysis of efficiency of measures taken was carried out; • in case of identification of overlaps or breakdowns of insulation at OPLs with voltages of 35 kV due to impact of electric arc, measurements of resistance of earthing devices were carried out; • as part of repair program in Kubanenergo, in 2017 obsolete disconnectors of surge arresters at a 110 kV high voltage line which is a part of Sochi Electric Grids were replaced by the new ones resistant to mechanical impact; • faulty 110-kV linear surge arresters at a 110-kV OPL was replaced by the new ones; • faulty linear insulation at 35-110-kV OPL was replaced; • lighting protection schemes of 35-110-kV OPLs which had frequent power outages during 2017 were reviewed. The main measures carried out in 2017 were aimed at: • maintenance of normal condition of production assets, i.e. power transmission lines, substation equipment, relay protection; • timely detection and remedy of defects based on electrical equipment diagnostic results; • improvement of lighting resistance of electrical equipment; • development of an automated information system to monitor ice formation on the OPLs; • ensuring preparedness for the prevention and elimination of process upsets; ✓ agreements with contractors and associated power grid operators as well as EMERCOM of Russia and Roshydromet have been extended; ✓ 22 mobile crews (124 people, 49 vehicles) have been organized; ✓ emergency reserve of the Company has been brought up to full; ✓ operating capacity of the existing 105 diesel generator units has been tested. Implementation of these measures made it possible to reduce the number of process upsets occurring due to emergency shutdowns by 15.1%. There was also a decrease in the electrical energy undersupply and economic damage. The number of accidents at Company’s facilities between 2015 and 2017:

2015-2017 Specific Accident Rates at the Company’s Facilities (number of accidents per 1,000 conventional units):

2016-2017Main Causes of Accidents at the Company’s Facilities

5% 2016 4% 29%

31% 30% 33% 2017

4% 5% 7% 10% 11% 10% 8%

13% 3.4.7.2, Incompliance with the prescribed scope of maintenance 3.4.7.3.5, Equipment deterioration 3.4.8, Impact of third-parties not involved into the technological process 3.4.12.2, Repeating wind load (project conditions not exceeded) 3.4.12.3, Lightning surges 3.4.13.4, Installation defects Other causes

All measures stipulated in regulations by the Federal Environmental, Industrial and Nuclear Supervision to be implemented in 2017 have been executed and control thereof has been discontinued. In order to ensure reliable operation of the power grid complex in the event of loss of supply to

customers and other abnormal situations associated with the loss of supply to consumers, the Company’s Command Unit is permanently operating. Its representatives participate on a regular basis in operations ensuring security of power supply in Krasnodar Krai and the Republic of Adygea. In order to successfully get through the 2017/2018 autumn and winter period, Kubanenergo branches completed all planned activities and received certificates proving their readiness to work throughout said period. On October 27, 2017, the Commission of the Ministry of Energy of the Russian Federation issued a certificate of approval of readiness for the 2017/2018 heating season.

Repair and Operating Activities The Company annually draws up and carries out a repair program that considers the following parameters: • standard frequency of complete overhauls, medium and running repairs of power equipment; • technical condition of facilities; • results of routine checks; • necessity to comply with instructions provided by supervisory agencies; • mitigation of technological failures; • economic feasibility and effectiveness of power grid operation. The 2017 repairs program included: • repairs of electricity transmission lines, substations, power equipment, relay protection and emergency automation devices, metering instruments and systems, measuring instruments, dispatcher and production equipment, mechanization means and vehicles, as well as buildings and structures, computers and office equipment; • compliance with instructions of supervisory agencies; • implementation of target programs, including work on energy conservation, improving reliability of power equipment and OPLs, preparation for the storm season, ensuring reliable operation during flooding, preparation for operation during fall and winter period. The repair program during the reporting year was fully completed. Repair program was implemented for the total amount of 918.4 million rubles, which is 100.8% of the planned amount (including funds reserved for salary, insurance payments, fuel, oil and lubricants, and trip expenses). 2014-2017 Basic Program Implementation Parameters, the plan for 2018: Type of Work 2014 2015 2016 2017 2018 OPL route clearance, hectares 730.2 852.8 826.7 968.5 1,017.8 Replacement of ground wires, 236.5 151.9 72.7 130.4 77.1 km Replacement of insulation 45,286 44,653 43,612 52,056 37,430 devices, pcs Repair of switching devices, pcs 15 21 26 41 15 Repair of switching devices, pcs 1,035 1,176 1,110 1,120 876 Repair of isolating switches, short-circuit switches, disconnect 1,186 1,281 1,087 1,290 1,626 switches, in pcs Repair program, million rubles 950.9 820.9 861.7 918.4 1,696.7 Use of funds reserved for 2017 repair program according to general technological directions of energy system’s performance: Plan for 2017, Actual in 2017 Technological directions Completion, % million rubles million rubles 35-110-kV substations 140.08 157.60 112.5 35-220-kV substations 137.93 163.04 118.2 0.4-10-kV distribution networks 264.78 275.13 103.9 In the reporting year: • scheduled training related to introduction of temporary disconnection of power supply, as well as emergency training concerning ice melting on 110-kV OPLs were executed; • availability of protective garments for emergency staff, proper operation of equipment, and existence of basic fire safety equipment was verified.

In order to increase performance reliability of power grid complexes in accordance with the general program aimed at increasing performance reliability of substations, the following measures were taken in 2017: • 147 6-10-kV low-oil-content circuit breakers at 35-110-kV substations were replaced with the vacuum ones; • 7 35-kV oil switches at 35-110-kV substations were replaced with the vacuum ones; • 3 110-kV oil switches at 35-110-kV substations were replaced with the SF6-insulated ones; • sources of reactive power were restored – 652 faulty static capacitor bank were replaced; • mechanical and electromagnetic locks were repaired at 59 35-110-kV substations; • 2 isolating and disconnect switches at 35-110-kV substations were replaced; • 133 worn and torn 35-110-kV entries of oil switches and power transformers were replaced. In order to identify and in due time eliminate heating of contacts at 35-kV+ OPLs and substations, the thermal control was performed at: • 490 OPLs, including off-schedule inspection of the most important segments when preparing 35- 110-kV OPLs used for power generation in Crimea and facilities of resorts of federal and regional significance, as well as during preparations for the 2017 Confederations Cup and other important events; the planned number was 233; • 725 35-110-kV substations, including off-schedule inspection of 35-110-kV substations when preparing equipment used for power generation in Crimea and facilities of resorts of federal and regional significance, as well as during preparations for the 2017 Confederations Cup and other important events; the planned number was 322. In order to increase reliability of 0.4-10-kV distribution networks, the following measures were taken during 2017: • 1,080 supports at 10-kV OPLs were replaced; • 2,251 supports at 0.4-kV OPLs were replaced; • 808.3 km of wire at 0.4-10-kV OPLs was replaced; • uninsulated 0.4-10-kV wire was replaced with 686.63 km of steel insulated wire; • 27,204 open-wire drops to housing estates were replaced; • 20 OPLs with uninsulated wires were removed from the territory of pre-school facilities, schools, children summer camps and other educational facilities (in case of inability of removal, open wire was replaced with the insulated one). For 2018, repair works are scheduled for the total amount of 1,696.72 million rubles (including expenses for fuel, oil and lubricants, trip expenses, funds reserved for salaries and insurance payments), including by methods of their completion, million rubles:

The 2018 repair program includes the following items: OPL route clearance 1,017.8 hectares Replacement of ground wire 77.1 km Replacement of isolating devices 37,430 pcs Repair of power transformers 15 pcs Repair of switches 876 pcs Repair of isolating switches, short-circuit switches, disconnect switches 1,626 pcs Measures scheduled for 2018 are sufficient to ensure reliable power supply to electric power consumers of Kubanenergo and its branches. Implementation of the main scope of the 2018 repair program (69.5%) is scheduled for the Q2 and Q3 of 2018.

Program for Modernization (Renovation) of Power Grid Facilities In order to ensure reliable performance of energy system and to determine the optimal direction of investment and its targets, on November 30, 2017 the Company’s Board of Directors approved the Program of Modernization (Renovation) of Power Grid Facilities during 2017-2026 (protocol No. 290/2017 dd. December 1, 2017). Program of Modernization (Renovation) is aimed at the following objectives: • increasing reliability of power grids’ performance; • replacement and decommissioning of equipment that has repeatedly undergone a technical survey and has an excess operating period and an index of technical condition that does not allow to provide the required reliability; • implementation of measures aimed at reducing the accident rate and damageability of equipment, damage to the grids from undersupply of electricity to consumers, as well as reducing the duration of the interruption of electricity supply to consumers; • implementation of measures developed based on the results of passage of special periods and shortcomings identified during operation, as well as based on requirements of supervisory bodies, the implementation of which should be carried out within the framework of investment activities. Program update is planned: • after the approval of industry regulations establishing or changing the frequency, methods, volume and technical means of control, a system of technical condition indicators and their permissible and limiting values that allow reliable determination of the actual technical condition of basic equipment and its change during the operation period until the next control period; • annually when making changes the investment program of Kubanenergo, taking into account changes in the technical condition of the equipment and other factors affecting its safe operation, as well as the need to include facilities according to the requirements of supervisory bodies.

Implementation of Program of Modernization (Renovation) of Power Grid Facilities in 2017: Modernized (Renovated) Facilities Planned Actual Note 35-110-kV substations: 35-kV+ power transformers (pcs) 6 9 35-kV+ switches (pcs) 9 10 35-kV+ disconnecting switches (pcs) 40 54 110-kV OPLs Reconstruction of 1st circuit of the Overhaul of 35-kV+ OPLs (in km) 16.60 0 Yablonovskaya-Naberezhnaya 110-kV overhead line wire (in km) 25.14 8.46 and 2nd circuit of the including high-temperature wire (in km) 16.68 - supports (pcs) 71 13 same overhead line has been rescheduled for the Q3 of including raised support (pcs) 58 - 2019, isolating devices (pcs) 4,138 1,108 as per Order No. 21@ of Ministry of Energy of the Russian ground wire (pcs) 9.75 1.41 Federation, December 1, 2017 0.4-6-kV OPLs 29.10 23.30 0.4-kV OPL no. 2 from TP KP-6- 230 and including assembly of steel-insulated wire (in km) 29.10 23.30 10-kV OPL AP-5 have been Steel-insulated wire in forests (in km) - - excluded from the individual development program in 2017, as per Order No. 21@ of Ministry of 18.84 13.04 Energy of the Russian Federation, Steel-insulated wire in populated areas (in km) December 1, 2017 Power distribution and transformer substation 1 1 0.4/6-35-kV

Energy Conservation and Improvement of Energy Efficiency

Documents regulating Company’s activities in the field of energy conservation and improvement of energy efficiency

In the reporting year, all work related to energy conservation and increasing energy efficiency was carried out by the Company in accordance with: • Federal Law of the Russian Federation No. 261-FZ dd. November 23, 2009 “On Energy Conservation and Increasing Energy Efficiency and Amending Certain Legislative Acts of the Russian Federation”; • Decree of the Government of the Russian Federation “On Procedure for Establishing Requirements for Programs in the Field of Energy Conservation and Improvement of Energy Efficiency of Organizations Engaged in Regulated Activities” No. 340 dd. May 15, 2010; • Decree of the Government of the Russian Federation “On Investment Programs of Electric Power Industry Subjects” No. 977 dd. December 1, 2009 (as amended); • Order of REC-PTD KT “On Approval of Requirements for Programs in the Field of Energy Conservation and Energy Efficiency of Organizations Engaged in Regulated Activities in the Krasnodar Krai” No. 5/2011 dd. March 31, 2011; • Law of Krasnodar Krai “On Energy Saving and Energy Efficiency Improvements in the Krasnodar Krai” No. 1912-KZ dd. March 3, 2010; • Program for Energy Conservation and Improvement of Energy Efficiency of Kubanenergo for the years 2017-2022 approved by the Board of Directors on November 30, 2017 (Minutes No. 290/2017) (hereinafter referred to as the “Program”). In order to ensure implementation of the Program, Kubanenergo appointed persons in charge of the organization and supervision of its execution. The Program target indicators include: • power losses during power transmission and distribution; • energy consumption for industrial and economic needs; • share of buildings, structures and facilities: ✓ in relation to which there are reports concerning executed energy inspection; ✓ equipped with water metering instruments; ✓ equipped with natural gas metering instruments; ✓ equipped with thermal power metering instruments; ✓ equipped with electricity metering instruments; ✓ equipped with low-energy light bulbs; • total number of LED lighting devices. Values of target indicators are set for the years 2017-2022.

Results of Company’s performance in the field of energy conservation and improvement of energy efficiency Estimated and Actual 2017 Target Values of the Program: Item Units of 2017 Indicator No. Measurement Planned Actual mln kWh 2,880.03 2,728.98 million rubles, VAT 1 Electric power losses 7,892.73 7,599.76 excluded % of supply to grid 12.80 12.06 mln kWh 19.15 17.82 2 Consumption for own needs of substations % of power losses 0.66 0.65 million rubles, VAT Consumption of power resources for 112.65 112.54 excluded 3 economic needs of administrative and kilotons of fuel industrial buildings, including: 4.80 4.69 equivalent mln kWh 32.62 32.29 kilotons of fuel 3.91 3.87 equivalent 3.1. Electric energy million rubles, VAT 101.03 103.51 excluded mln kWh per sq. m 0.00015 0.00015 3.2. Gcal 4,936.23 4,400.29

kilotons of fuel 0.71 0.63 equivalent thermal energy (heating systems in million rubles, VAT 10.04 8.21 buildings) excluded Gcal per m3 0.00717 0.00639 thou m3 153.11 161.51 kilotons of fuel 0.18 0.19 3.3. natural gas (including liquefied gas) equivalent million rubles, VAT 1.58 0.82 excluded thou m3 - - thou l - - thou t - - 3.4. other energy resources (coal, fuel oil, diesel fuel, kerosene, etc.) kilotons of fuel - - equivalent million rubles, VAT - - excluded million rubles, VAT Consumption of natural resources for 4.88 2.94 4. economic needs of administrative and excluded industrial buildings, including: thou m3 127.68 94.89 thou m3 - - 4.1. hot water supply million rubles, VAT - - excluded thou m3 127.68 94.89 4.2. cold water supply million rubles, VAT 4.88 2.94 excluded thou m3 - - thou l - - 4.3. other types of natural resources thou t - - million rubles, VAT - - excluded thou l 8,785.79 8,370.55 kilotons of fuel 5 Motor fuel consumption of vehicles and 10.27 9.82 special machinery, including: equivalent million rubles, VAT 305.33 277.16 excluded 5.1. petrol, including: thou l 5,584.50 4,989.13 kilotons of fuel 6.32 5.65 equivalent million rubles, VAT 198.46 166.25 excluded thou l per 100 km - 0.023 5.1.1. vehicles thou l 5,584.50 4,989.13 kilotons of fuel 6.32 5.65 equivalent million rubles, VAT 198.46 166.25 excluded thou l per 100 km - 0.023 5.1.2. special machinery thou l - - kilotons of fuel - - equivalent million rubles, VAT - - excluded thou l per 100 km - -

thou l/in-service hour - - 5.2. diesel fuel, including: thou l 3,201.28 3,381.42 kilotons of fuel 3.95 4.17 equivalent million rubles, VAT 106.87 110.91 excluded thou l per 100 km - 0.057 5.2.1. vehicles thou l 3,201.28 3,381.42 kilotons of fuel 3.95 4.17 equivalent million rubles, VAT 106.87 110.91 excluded thou l per 100 km - 0.057 5.2.2. special machinery thou l - - kilotons of fuel - - equivalent million rubles, VAT - - excluded thou l per 100 km - - thou l/in-service hour - - kilotons of fuel 0.01 - equivalent 5.3. Other types of fuel for vehicles and special machinery, total, including: million rubles, VAT 0.09 - excluded thou l 5.34 - kilotons of fuel natural gas (including liquefied gas) 0.01 - 5.3.1. equivalent million rubles, VAT 0.09 - excluded mln kWh - - kilotons of fuel Electric energy - - 5.3.2. equivalent million rubles, VAT - - excluded Share of buildings, structures and facilities of regulated entities in relation to which 6. % 100.00 100.00 there are reports concerning executed energy inspection Share of buildings, structures and facilities 7. of regulated entities equipped with water % 100.00 100.00 metering instruments Share of buildings, structures and facilities 8. of regulated entities equipped with natural % 100.00 100.00 gas metering instruments Share of buildings, structures and facilities 9. of regulated entities equipped with thermal % 100.00 100.00 power metering instruments Share of buildings, structures and facilities 10. of regulated entities equipped with electricity % 100.00 100.00 metering instruments Share of buildings, structures and facilities 11. % 90.00 89.00 equipped with low energy light bulbs 12. Total share of LED lighting devices % 10.00 11.00 Kubanenergo obtained certificates of conformity to ISO 50001:2011 (GOST R ISO 50001-2012 “Energy management systems. Requirements with guidance for use”) No. 15.1552.026 dd. December 28, 2015.

In 2016, the Company conducted training on the following subjects: Number of Subject of Training People Trained Energy efficiency and energy conservation when designing power grid complex based on ISO:50001 56 Energy conservation and energy efficiency (within the scope of development program for power operators’ 22 engineers as part of the program “School for Specialists in Development and Sales of Services”) In accordance with requirements listed in Order No. 971 of the Government of the Russian Federation dd. September 27, 2016, it is required to increase the share of LED lighting devices to 10% of total amount of lighting devices. In the end of 2017, this target has been achieved: the share of LED lighting devices has reached 11%. A mandatory energy audit of the buildings, structures and the electric grid complex of the Company was conducted, following which an energy passport No. E-015/066-17 was issued. In the reporting year, Kubanenergo won the All-Russian ENES-2017 contest, having been named “The Best Project for Implementation of the Automated System for Electricity Accounting in the Retail Market in Individual Houses.” The Company pays much attention to promotion of energy saving. In the reporting year, the Company participated in the following events: • Vmeste Yarche (Brighter Together) Energy Saving Festival in Krasnodar, organized by the Ministry of Fuel and Energy and Ministry of Housing and Communal Services of Krasnodar Krai (the Company presented an exhibition stand demonstrating energy-saving technologies, received diplomas of regional ENES contests; furthermore, an electrical safety workshop was held); • an event devoted to the 80th anniversary of Krasnodar Krai, organized by the Ministry of Fuel and Energy and Ministry of Housing and Communal Services of Krasnodar Krai (the Company presented an exhibition stand demonstrating energy-saving technologies, a mobile electric laboratory was exhibited); • in a social partnership concerning formation of an innovative educational environment organized by the Sochi professional technical school (the Company participated in discussions devoted to interaction with representatives of educational institutions; a stand demonstrating energy-saving technologies as a result of cooperation with educational institutions and innovation centers was exhibited). In order to carry out an R&D project called “Compensation of consumption of technical and economic resources through the use of renewable energy sources” at the facilities of “Kubanenergo” PJSC in the reporting year, the Company ensured involvement of a contractor.

Tariff Policy and Tariffs for Company Services

Company’s Tariff Policy The prices (tariffs) of the Company’s services for electric power transmission and technological connections are regulated by the state and fixed by REC PTD KT orders. For Krasnodar Krai and the Republic of Adygea where the Company operates, the uniform tariffs are set for each group of electric power customers. Basic regulatory legal acts governing relations in the fields of establishing regulated tariffs and their application are: • • Federal Law No. 35-FZ dd. March 26, 2003 “On Electricity Production” (as amended); • • Decree of the Government of the Russian Federation No. 1178 dd. December 29, 2011 “On Pricing in the Area of Controlled Prices (Tariffs) in Electric Power Industry” (as amended); • orders of the Federal Tariff Service of Russia: ✓ “On Approval of Methodological Guidelines for Regulation of Tariffs Using the Method of Return on Invested Capital” No. 228-e dd. March 30, 2012; ✓ “On Approval of the Methodological Guidelines for the Calculation of Regulated Tariffs and Prices for Electricity (Thermal) Energy in the Retail (Consumer) Market” No. 20-e/2 dd. August 6, 2004; • Order No. 1135/17 of FAS of Russia dd. August 29, 2017 “On Approval of the Methodological Guidelines for the Calculation of Tariffs for Technological Connection to Electric Grids.”

Tariffs for Electric Power Transmission Services 2015-2017 Dynamics of Kubanenergo Revenues (million rubles):

Based on results of 2017, the actual revenue for electric power transmission services (minus the cost of loading losses) amounted to 41,486 million rubles (excluding VAT), which is 2,224 million rubles (excluding VAT) or 6% more than in 2016. Changes in actual revenues from the electricity supply services in 2017 compared with 2016 were associated with increase in the net electricity supply by 145 mln kWh, or 1%, taking into consideration indexation of tariffs by 4.3% since July 1, 2017, as well as with changes in procedures of compensation of load losses included in electricity market pricing to participants of the wholesale market for electricity and power; as a result of this, since August 1, 2017 the revenue for electricity transmission does not include the value above (item 1b of Decree No. 810 of the Government of the Russian Federation dd. July 7, 2017 “On Changes in Several Decrees of the Government of the Russian Federation Regarding Compensation for Electricity Losses at the Wholesale Market for Electricity and Power and Capacity as well as at the Retail Electricity Market and Regarding Obtaining the Status of a Participant of the Wholesale Market for Electricity and Power.” In relation to Kubanenergo, starting from January 1, 2011 (taking into account the “reset” of long-term control parameters in 2012), a method of long-term tariff regulation is applied, the RAB (Regulatory Asset Base) method. Starting 2007, the region has been applying a “boiler” method of payment for electric power transmission: a single boiler rate applies to all customers of electric power transmission services in Kuban and Adygea belonging to the same tariff group, regardless of the grid and the grid company the customers are connected to. The basic tariff-negotiated model used for payments is the “boiler above” model, while the Company has the status of the “boiler holder” that means the higher grid company. In addition, starting from 9/22/2011, the individual scheme of “boiler below” has been applied for LLC Maykopskaya CHP. The following tariffs were established for 2017 for LLC Maykopskaya CHP pursuant to Order of REC-PTD KT No. 52/2016-e dd. December 26, 2016, accounting for amendments No. 56/2016-e dd. December 29, 2016 and No. 6/2017-e of March 29, 2017: Two-rate tariff Electric grid maintenance Rate for payment of technological Straight-line tariff rate consumption (losses) LLC Maykopskaya January 1, 2017 through to June 30, 2017 183,193.23 CHP — Kubanenergo RUB 638.34 per MWh RUB 1.45694 per kWh RUB/MW*month July 1, 2017 through to December 31, 2017 225,220.30 RUB 754.89/ MWh RUB 1.76130 per kWh RUB/MW*month

The following common boiler tariffs were established for 2017 for electric grids of Krasnodar Krai and Republic of Adygea pursuant to Order of REC-PTD KT No. 57/2016-e dd. December 30, 2016, accounting for amendments stipulated by Orders No. 1/2017-e dd. January 18, 2017, No. 4/2017-e dd. February 15, 2017, No. 6/2017-e dd. March 29, 2017, and No. 13/2017-e dd. June 28, 2017: For Other customers:

Range of Voltage Item Tariff Groups of Electric Power (Capacity) Units of High Voltage Medium Medium No. Customers Measurement (110 kV and Voltage I Voltage II (1- Low Voltage higher) (35 kV) 20 kV)

1 2 3 4 5 6 7

1 Other customers (tariffs are specified excluding VAT) first half of 2017

1.1. Two-rate tariff

1.1.1 - rate for maintenance of electric grids RUB/ . MW*month 1122452.19 756781.47 882134.68 1405091.80

1.1.2 RUB/MW*mo - rate for the payment of technological . nth 88.46 154.47 372.24 1082.60 consumption (losses) in the electric grids

1.2. RUB/kWh Straight-line tariff 1.75093 1.87291 2.88050 3.63267

2 Other customers (tariffs are specified excluding VAT) Second half of 2017

2.1. Two-rate tariff

1.1.2 RUB/ - rate for maintenance of electric grids 1129186.90 885434.32 1077011.46 1440219.10 . MW*month

2.1.2 RUB/MW*m - rate for the payment of technological onth 98.42 171.87 414.14 1204.54 consumption (losses) in the electric grids

2.2. Straight-line tariff RUB/kWh 1.83204 2.12775 3.28180 4.38301

Population and customers equivalent to population: Item Units of Tariff Groups of Electric Power (Capacity) Customers H1 2017 H2 2017 No. Measurement 1 2 3 4 5 1. Population and customers equivalent to population (tariffs are specified excluding VAT) Population and customers equivalent to population except for those listed in paragraphs 1.2 and 1.3: providers of public services (homeowners association, homebuilding, housing or other specialized customer cooperatives or managing authority) acquiring electric power (capacity) for the provision of public services to owners and users of accommodation facilities and for the maintenance of common property in apartment buildings; renter (or their authorized persons) providing citizens with accommodation facilities of specialized housing funds, including accommodation facilities in dormitories, accommodation facilities of temporary public housing, accommodation facilities in social service buildings, accommodation facilities for temporary settlement of forced migrants, accommodation facilities for temporary settlement of citizens recognized as a refugees, as well as accommodation facilities for social protection of certain 1.1. categories of citizens, acquiring electric power (capacity) for the provision of public services to users of such accommodation facilities in the amount of the electric power supplied to the citizens and for the maintenance of common property in apartment buildings which have accommodation facilities of specialized housing funds; legal entities and individuals acquiring electric power (capacity) for public living needs in settlements and residential areas with military units and paying under the power supply agreement upon readings of a common power metering device. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for further sales to citizens and customers equivalent to the categories specified in this paragraph. Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 2.40429 2.62916 day zones) Population living in urban areas in homes duly equipped with stationary electric stove and/or electric heaters and customers equivalent to population: providers of public services (homeowners association, homebuilding, housing or other specialized customer cooperatives or managing authority) acquiring electric power (capacity) for the provision of public services to owners and users of 1.2. accommodation facilities and for the maintenance of common property in apartment buildings; renter (or their authorized persons) providing citizens with accommodation facilities of specialized housing funds, including accommodation facilities in dormitories, accommodation facilities of temporary public housing, accommodation facilities in social service buildings, accommodation facilities for temporary settlement of forced migrants, accommodation facilities for temporary settlement of citizens recognized as a refugees, as well as accommodation facilities for social protection of certain

categories of citizens, acquiring electric power (capacity) for the provision of public services to users of such accommodation facilities in the amount of the electric power supplied to the citizens and for the maintenance of common property in apartment buildings which have accommodation facilities of specialized housing funds; legal entities and individuals acquiring electric power (capacity) for public living needs in settlements and residential areas with military units and paying under the power supply agreement upon readings of a common power metering device. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for further sales to citizens and customers equivalent to the categories specified in this paragraph. Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 1.31955 1.50204 day zones) Population living in rural areas and customers equivalent to population: providers of public services (homeowners association, homebuilding, housing or other specialized customer cooperatives or managing authority) acquiring electric power (capacity) for the provision of public services to owners and users of accommodation facilities and for the maintenance of common property in apartment buildings; landlords (or their authorized persons) providing citizens with accommodation facilities of specialized housing funds, including accommodation facilities in dormitories, accommodation facilities of temporary public housing, accommodation facilities in social service buildings, accommodation facilities for temporary settlement of forced migrants, accommodation facilities for temporary settlement of citizens recognized as a refugees, as well as accommodation facilities for social protection of certain categories of citizens, acquiring electric power (capacity) for the provision of 1.3. public services to users of such accommodation facilities in the amount of the electric power supplied to the citizens and for the maintenance of common property in apartment buildings which have accommodation facilities of specialized housing funds; legal entities and individuals acquiring electric power (capacity) for public living needs in settlements and residential areas with military units and paying under the power supply agreement upon readings of a common power metering device. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for further sales to citizens and customers equivalent to the categories specified in this paragraph. Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 1.31955 1.50204 day zones) 1.4. Customers equivalent to the population, except for those in Paragraph 71(1) of Pricing Basics: Horticultural, market-gardening or dacha non-commercial associations of citizens, i e. non-commercial organizations established by citizens on a voluntary basis in order to assist its members in achieving common social-economic targets of horticultural, market-gardening or dacha activities. 1.4.1 Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for further sales to customers’ categories equivalent to the population specified in this paragraph Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 2.40429 2.62916 day zones) Legal entities acquiring electric power (capacity) for convicted persons consumption in detention facilities subject to the availability of separate electricity metering for these facilities. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for 1.4.2. further sales to customers’ categories equivalent to the population specified in this paragraph Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 2.40429 2.62916 day zones) Congregates-sponsored religious organizations. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for 1.4.3. further sales to customers’ categories equivalent to the population specified in this paragraph Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 2.40429 2.62916 day zones) Associations of citizens acquiring electric power (capacity) for use in household buildings (cold cellars sheds): non- commercial associations of citizens (garage-building and garage co-operatives) and citizens owning detached garages acquiring electric power (capacity) for public living needs not related to commercial activities. 1.4.4. Default providers, power supply companies, energy-supplying organizations, acquiring electric power (capacity) for further sales to customers’ categories equivalent to the population specified in this paragraph Straight-line tariff (including the tariff differentiated by two and three RUB/kWh 2.40429 2.62916 day zones) Structure of Kubanenergo Revenues for Electric Power Transmission Services Rendered by Groups of Counterparties in 2017 (%):

Dynamics of the Structure of Kubanenergo RGR for Electric Power Transmission (million rubles):

For information about tariffs for electric power transmission services in 2017, visit the official website of the Company in the section For Customers / Electric Power Transmission / Tariffs for Electric Power Transmission. Dynamics of Kubanenergo RGR, million rubles:

2015 2016 2017

NGP NGP NGP NGP NGP NGP Own Own Own Boilers Boilers Boilers Kubanenergo Kubanenergo Kubanenergo

33,613 12,363 41,658 17,417 44,379 17,425 According to the tariff decision of REC PTD KT, the amount of the required “boiler” gross revenues for the transmission services of Kubanenergo in 2017 amounted to 44,379 million rubles, including for own maintenance of 17,425 million rubles.

Analysis of changes in the average tariff for electric power transmission services rendered by Kubanenergo approved by REC-PTD KT: Indicator 2015 2016 2017

Average Tariff, kop/kWh 201.34 235.60 240.26

Growth Rate, % - 17.02 1.98 As compared with 2016, the average tariff for electric power transmission services rendered by Kubanenergo increased by 1.98% in 2017.

Tariffs for Technological Connection Services Order of REC-PTD KT No. 53/2016-e dd. December 26, 2016 (as amended and supplemented) established standardized tariff rates and the rates per unit of maximum capacity for technological connection to electric grids of Kubanenergo for 2017. Order of REC-PTD KT No. 56/2016=7-e dd. November 29, 2017 established standardized tariff rates for technological connection of power receivers of electricity consumers and power supply facilities owned by grid operators or other individuals (per one connection). For information about standardized tariffs for technological connection to Kubanenergo’s electric grids and rates for maximum capacity units in 2017, visit the official website of the Company in the section For Customers / Technological Connection / Tariffs for Technological Connection. The shortfall in income related to the implementation by Kubanenergo of technological connection of power receivers of categories of applicants, the cost for the grid connection of which is determined by taking into account the features of price-setting established by Decree of the Government of the Russian Federation “On Pricing in the Area of Controlled Prices (Tariffs) in Electric Power Industry ” No. 1178 dd. December 29, 2011, considered in the tariff for electric power transmission services in 2015-2017, thousand rubles: 201511 2016 201712 103,012.62 82,944.85 138,845.31

Analysis of changes in average rate per power unit throughout Kubanenergo, rubles per kW: Indicator 2015 2016 2017

Total over Kubanenergo 538.47 573.80 599.42

Increase/decrease, % 5.1 6.6 4.5 In order to analyze changes in the rate per unit of capacity, the rate of payment for technological connection of power receivers of electricity consumers, electric grid facilities owned by grid organizations and other persons to distribution grids of Kubanenergo, not including construction and reconstruction of electric grid facilities, at a voltage level below 35 kV and the connected power less than 8900 kW was set. Changes in Average Rate per unit of Capacity, rubles per kW

11 Including under-compensated shortfall in revenues from granting privileges for technological connection of power-receiving devices of applicants with a maximum connected capacity of up to 15 kW for 2013 in the amount of 7,795.10 rubles; shortfall in revenues 2015 was 95,217.52 rubles; they were accounted by REC PTD KT when setting tariffs for electricity transmission through the networks of Kubanenergo for 2015. 12 Including shortfall in revenue in 2015, which was 39,971.18 rubles, shortfall in revenue in 2017, which was 98,874.17 rubles, with an economically feasible payment for technological connection in the amount of 599.42 rubles per kW (excluding VAT).

The growth of the actual rate of payment per unit of capacity in 2015 was related to the closing of revenue under agreements, the accession of which is carried out based on an individual project. • Oboronenergo PJSC – agreement for the total amount of 524,873,649.39 rubles (VAT excluded), total capacity is 21,000 kW. • Gazprom Invest LLC – agreement for the total amount of 181,340,745.03 rubles (VAT excluded), total capacity is 7,600 kW. The growth of the actual rate of payment per unit of capacity in 2016 is related to the closing of revenue under agreements, the accession of which is carried out based on an individual project. • Gazprom Invest LLC – 2 agreements for the total amount of 2,092,621,568.45 rubles (VAT excluded), total capacity is 8,700 kW. The decrease in the average rate per unit of capacity in 2017 was due to the merger of two facilities of Gazprom Invest LLC with a capacity of 8,700 kW, that took place in 2016. Total volume of the merger is more than 2 billion rubles.

Information Technologies and telecommunications Oleg Nikolayevich Golovakha, Head of Corporate and Process ACS Department: “In accordance with the Development Plan for the Production Asset Management System (PAMS) approved by the Board of Directors of Kubanenergo, the following types of automation works were completed in the reporting year: • automation of defect e-logs; • automation of calculating the volumes of services in conditional and volume-forming units, • automation of assessment of technical condition and report forms for renovation projects for developing a program of technical re-equipment and reconstruction; • automation of development of technical passports for substations and transmission lines; • automation of the procedure for organizing and conducting an assessment of the effectiveness and maturity level of PAMS; • automation of calculating the volume and cost of work using the budget-normative base, as well as forms of reporting on a business plan for MRO; • bringing the functionality of the automated system of technological management and repair system (ASTM MRO) to the requirements of the Regulation on planning and accounting of maintenance costs; as well as the integration of ASTM MRO with accounting systems. In 2017, modernization and development of functionality of the Electricity Transport Management System were carried out. Registration of seals and certificates, and technical accounting were introduced into industrial operation. As part of the development of the “1C: Enterprise” corporate information system, the function of forming tax reporting (form 6-NDFL) was implemented.

The program of modernization and expansion of data collection and transmission system at the substations of Kubanenergo in 2017 was completed in full”. In the reporting year, within the framework of the Company's investment program as well as the development of communication networks and an automated system of technological management (ASTM), the following works were performed: • Tikhoretsky Distribution Zone dispatch center was equipped with a central receiving and transmitting station and a KOTMI operational information complex; • reconstruction of the central receiving and transmitting station at the dispatch center of Tikhoretsk Electric Grids, a branch of Kubanenergo; • reconstruction of telemechanic equipment of the 110-kV Khadzhokh SS and 110-kV Pionerskaya SS, with organization of digital communication channels and transmission of teleinformation via fiber-optic line and high-frequency communication channels to dispatch centers of Kubanenergo and Kuban Regional Dispatch Office, a branch of SO UES; the number of 110-kV substations telemechanized in accordance with modern requirements increased; at the end of the reporting year this number came to 4% of the total number of substations; • reconstruction of telemechanic equipment at 110-kV Varenikovskaya SS, 110-kV Gostagayevskaya SS, 110-kV Nikitinskaya SS, and 110-kV Dzhiginskaya SS was performed; • 40.4 km of fiber optic communication lines were built, which was 4% of the total length of the fiber optic link of the Company. Dynamic of ASTM, Data Collection and Transmission Systems in 2017:

Company’s Procurement Activities When procuring goods, works, and services, Kubanenergo follows the norms of the laws of the Russian Federation, the Company’s Charter and Unified Procurement Standard of PJSC Rosseti, approved as an internal document by Decision of the Company’s Board of Directors on December 25, 2015, Minutes No. 227/2015.

Procurement Principles: • timely (long-term and short-term) planning of procurement, rapid decision-making on adjusting the parameters of procurement; • equality, justice, non-discrimination and absence of unjustified restrictions of competition to the procurement participants; • targeted and cost-effective funds use for the procurement of goods, works and services; • absence of restrictions for admission to the procurement; • determination of procurement parameters with regard to the specific features of purchased products, markets and circumstances under which the purchase is made; • competition-based selection of suppliers, contractors, executors, wherever possible and expedient, and, if possible collective decision-making in situations where competition-based selection is not possible or expedient; • recognition of the necessary combination of price and non-price factors ensuring efficient selection of the best offers for the Company;

• procurement transparency; • application of advanced information technologies, electronic document management tools and procurement activities automation, including the use of functional electronic trading platforms; • collective decision making on the critical issues of the entire procurement activity and of the individual purchases arrangement; • Company’s employees expertise and competence in preparing and making decisions on purchases, impeccable in terms of ethical behavior of such employees. The methods of procurement and conditions of their application are specified in the above mentioned internal documents of the Company. Procurement methods used by the Company, in order of priority: Tender, auction. Request for offers, competitive negotiations, request for prices. Simple purchase, small purchase. Purchase from a single supplier (service provider, contractor). Main results of the Company’s procurement activities in 2017 In 2017, the Company conducted 822 procurement procedures for a total amount of 18,583.7 million rubles (VAT excluded). 773 purchases for the amount of 18,175.6 million rubles were conducted using e- commerce (VAT excluded), making 100% of the total cost of procurement (excluding purchases from a single supplier). In the reporting year, following the results of scheduled procurements the Company obtained an economic effect in the amount of 1,274.5 million rubles (VAT excluded), making 6.6% of the planned yearly costs of procurement of goods, works, and services. As of the end of 2017, the results of 28 procurements of innovative and high-technology products for the amount of 3,755 million rubles (VAT excluded) were summarized. 2017 Structure of the Company’s Procurements, million rubles (by activity type, VAT excluded):

2017 Structure of the Company’s Procurements, million rubles (by procedure, VAT excluded):

Involvement of small and medium-size enterprises in the procurements conducted by Kubanenergo As part of implementation of the road map on the collaboration with small and medium businesses, the Partnership Program between Kubanenergo and small and medium businesses has been effective since 2014. 35 participants have joined the program since its start. In 2017, winners of 63.4% of conducted procurement procedures were small and medium-size businesses, totaling to 8,273 million rubles. During 2017, the Company conducted 331 procurement procedures with small and medium-size businesses, totaling to 3,397 million rubles (VAT excluded), amounting to 26% of the total purchases. In order to ensure efficient procurements conducted by Kubanenergo, including procurement from small and medium business, starting from 2014 the Company has the Advisory Body involving not only the Company employees, but also the representatives of MSP Corporation JSC, the Fund for Infrastructure and Educational Programs, regional offices of the Russian Union of Industrialists and Entrepreneurs, All- Russian Public Organization of Small and Medium-Size Business OPORA RUSSIA, and All-Russian Public Organization Delovaya Rossiya.

Investment Activity Andrey Valeryevich Golov, Deputy Director General for Investment: “In 2017, the Company Investment Program was successfully implemented in the following areas: • use of capital investments in the amount of 6,700 million rubles (VAT excluded) or 109% of the plan; • deployment of fixed assets in the amount of 4,441.0 million rubles (VAT excluded), or 99% of the plan, including 836 km of power transmission lines (166% of the plan), 364 MVA of substations transformer capacity (96% of the plan); • actual amount of finance totaled to 8,943 million rubles (VAT included), or 100% of the plan in the reporting period. In 2017, Kubanenergo performed reconstruction and technological re-equipment of supergrid facilities (110 kV) in energy districts which are of utmost importance for the economy of Kuban Region. Adygea: - reconstruction of the 110/35/10/6-kV Severnaya SS; replacement of 31.5 and 25-MVA transformers with 2x40-MVA transformers; - reconstruction of the 110/35/10-kV Khadzhokh SS. Krasnodar: - reconstruction of the 110/10-kV North-Eastern SS, installation of the 40-MVA T3 transformer; - reconstruction of the 110/10-kV South-Western, installation of the new 40-MVA T3 transformer; - construction of overhangs of 110-kV cable lines at KTPP – ZIP, OBD – Severnaya (4 cable lines of 110 kV, L=2.5 km) and Loris-Pashkovskaya (2-chain OHL, 110 kV, L=0.7 km) at the 220 kV Eastern Industrial Zone SS. South-Western Electric Grids (Novorossiysk, Anapa): - reconstruction of the 35/10-kV Pionerskaya SS, transmission to 110-kV voltage, installation of 2x40 MVA with 110/35/10-kV voltage; - reconstruction of the 110/6-kV NovoRES SS (block module unit with vacuum switches); - construction of two 110-kV Dzhemete-Pionerskaya cable lines, installation of 110-kV cells at the 110- kV Dzhemete substation. Technical re-equipment of the listed substations, construction of power transmission lines in the South-Western energy district will ensure reliable energy supply of strategically important facilities which are Novorossiysk Commercial Sea Port, Novoroscement OJSC etc. Construction of objects of national importance is being actively carried out under the state project “Construction of dry cargo area in the seaport of Taman. Railway and the development of the existing public railway infrastructure towards of the dry cargo area in the seaport of Taman. “ Within the framework of the project, the construction of a 220-kV "Port" substation with a capacity of 432-MVA and construction of 110-220-kV overhead transmission lines with the total length of 157.7 km is planned.” Investment activity of Kubanenergo in the reporting year was carried out as part of implementation of the 2017 investment program approved by Decree of the Ministry of Energy of the Russian Federation No. 21@ dd. December 1, 2017.

Main Results of the Company Investment Activity in 2017 Capital Deployment of Financing Capacity Commissioning Investments Fixed Assets million rubles, VAT million rubles, VAT million rubles, VAT MVA km excluded excluded included 6,700 4,441 8,943 364 836

Dynamics of Capital Investments of Kubanenergo in 2015-2017, million rubles, VAT included:

In 2017, actual capital investments amounted to 8,943 million rubles, which is 47% more than in 2016 and 10% less than in 2015. This increase is linked to completion of works at important infrastructure facilities at Taman Peninsula and in the South-Western Energy District.

Areas and Financing Structure of Capital Investments Main implementation areas of Kubanenergo Investment Program for 2017 are capital investments in technological connection (4,510 million rubles, VAT included; the share is 50%) and technical re- equipment and reconstruction totaling to 2,860 million rubles, VAT included (32%). In the reporting year, capital investments in new construction totaled to 153 million rubles, VAT included (2%). Investment projects the implementation of which is stipulated by schemes and programs of energy development in Krasnodar Krai and the Republic of Adygea amounted to 629 million rubles(7%). Other investment projects were financed in the amount of 791 million rubles, VAT included (2%). 2015-2017 Financing Structure of Kubanenergo, million rubles 2015 2016 2017 Investment Projects

Total 9,956 6,079 8,943 Technological connection 4,564 3,268 4,510 Reconstruction, renovation, technical re-equipment 3,966 1,883 2,860 Investment projects the implementation of which is stipulated by 991 643 629 schemes and programs of regional energy development New construction of power grid facilities 107 0 153 Purchase of land lots for implementation of investment projects 0 1 0 Other investment projects 328 284 791 2017 Financing Structure of Capital Investments of Kubanenergo, million rubles, incl. VAT

Other own funds Payment for (including VAT Own funds (amortization) Raised funds technological reclaimed, funds connection raised from issuance of additional shares)

Results of Investment Program Implementation for 2017 Data on results of 2017 obtained due to implementation of measures included in the Company’s Investment Program approved by the Order No. 21@ of Ministry of Energy of the Russian Federation of December 1, 2017: Item Indicator 2017 Results No. 1 Loading efficiency of transformer substations 82.7%

2 Change in share of net electricity supply which is formed due to +14.8% electricity metering instruments included in the data collection and transmission system 3 Determination of average duration of disconnect of consumers from -2.99 hrs electricity supply 4 Determination of average frequency of disconnect of consumers -0.13 pcs from electricity supply 5 Total number of agreements of technological connection concluded 3,144 agreements as part of implementation of the investment program 6 Maximum power of connected consumers, electricity-generating 129.37 MW facilities, and electric grid facilities owned by other grid operators or individuals

Long-Term Investment Program Company’s 2017-2022 long-term investment program has been approved by the Order No. 21@ of Ministry of Energy of the Russian Federation dd. December 1, 2017. Parameters of the Company’s 2017-2022 Long-Term Investment Program: 2017 2018 2019 2020 2021 2022

(actual) (plan) (plan) (plan) (plan) (plan) Financing of facilities, million rubles, 8,943 6,808 3,398 5,501 4,300 5,300 VAT included Capital investments, million rubles, VAT 6,700 7,310 20,626 4,533 3,750 4,492 excluded Introduction of capital assets, million 4,441 9,468 20,478 4,590 4,191 4,786 rubles, VAT excluded km 836 581 1040 620 481 484

MVA 364 778 968 356 281 405

Capital Construction Quality Control As part of implementation of the Decree of the Government of the Russian Federation “On Procedure for Construction Supervision During Construction, Reconstruction and Overhaul of Capital Facilities” No. 468 dd. June 21, 2010 and in order to verify compliance of work performed during construction, reconstruction or overhaul with requirements listed in design documents, technical guidelines, land plot development plans, and results of engineering surveys, construction control is performed. Of 25 facilities with voltages of 35 kV or higher, where construction or assembly works were performed, 6 (24%) underwent independent construction control.

Key investment projects involving construction finished in 2017 Key facilities involved in the Company’s investment program commissioned in 2017: Commissioned Volume of Duration of Construction Capacity Commission ing, RUB Facility Name million Start End km MVA rubles, VAT excluded - reconstruction of the 110/35/10/6-kV Severnaya SS; replacement of 31.5 and 25-MVA transformers with 2016 2017 80 181 2x40-MVA transformers; - reconstruction of the 110/35/10-kV Khadzhokh SS 2009 2017 1.27 25 433 - reconstruction of the 35/10-Pionerskaya SS, transmission to 110-kV voltage, installation of 2x40- 2016 2017 0.11 80 521 MVA with 110/35/10-kV voltage - construction of two 110-kV Dzhemete-Pionerskaya cable lines, installation of 110-kV cells at the 110-kV 2016 2017 10.28 517 Dzhemete substation

- reconstruction of the 110/6-kV NovoRES SS (block 2016 2017 234 module unit with vacuum switches)

The above-mentioned facilities will enable the Company to increase the reliability of power supply, increase the capacity of electrical networks and transformer capacity of substations, which creates the opportunity for connecting additional consumers. Technical re-equipment of substations, construction of power transmission lines in the South- West power district will provide reliable power supply, including for strategic objects such as PJSC Novorossiysk Commercial Sea Port and Novoroscement OJSC.

Financial Results

Kubanenergo Accounting (Financial) Statements Inna Viktorovna Skiba, Chief Accountant and Head of Financial Records, Accounts and Tax Returns Department: “Kubanenergo Accounting (Financial) Statements for 2017 were prepared in accordance with the applicable laws of the Russian Federation. Unqualified audit reports on fairness of both accounting statements made in accordance with the Russian Accounting Standards and consolidated statements made in accordance with the International Financial Reporting Standards were received”. The accounting statement of Kubanenergo for 2016 is prepared based on the applicable standards and provisions of the Russian Federation regulating accounting and reporting (hereinafter referred to as the “RAS”): • Federal Law “On Accounting” No. 402-FZ dd. December 6, 2011; • Order of the Ministry of Finance of the Russian Federation “On Forms of Accounting Statements of Organizations” No. 66n dd. July 2, 2010; • Order of the Ministry of Finance of the Russian Federation “On Amendments to Forms of Accounting Statements of Organizations Approved by Order of the Ministry of Finance of the Russian Federation No. 66n of 7/2/2010” No. 124n dd. October 5, 2011; • Order of the Ministry of Finance of the Russian Federation “On Approval of Regulations on Accounting and Reporting in Russian Federation” No. 34n dd. July 29, 1998; • Chart of accounts of financial and economic activities of organizations approved by Order of the Ministry of Finance of the Russian Federation No. 94n dd. October 31, 2000; • Accounting Regulations “Company’s Accounting Policy”, PBU 1/2008 approved by Order of the Ministry of Finance of the Russian Federation No. 106n dd. October 6, 2008. The annual financial statements of Kubanenergo for 2017 prepared in accordance with the Russian Accounting Standards (RAS) include: 1. balance sheet; 2. statement of financial results; 3. statement of changes in equity; 4. cash flow statement; 5. notes; 6. audit report. Basic Provisions of Kubanenergo Accounting Policy: Accounting of the Company’s fixed assets is performed in accordance with the Accounting Regulation “Accounting of Fixed Assets” (ПБУ 6/01) approved by Order of the Ministry of Finance of the Russian Federation No. 26n dd. March 30, 2001. Depreciation of fixed assets is accrued linearly based on their useful life. Depreciation is not accrued on fully depreciated items of fixed assets. Work in progress is assessed at its actual cost of production. Recognition of expenses as deferred expenses and equating them to assets with posting them in accounts and statements are in accordance with the principal approach approved by the Company. This approach is based on understanding of the time fact of probability of obtaining economic benefits from the asset by the Company in the future and sufficiently reliable evaluation of its value. Advances relating to the acquisition of a non-current asset in the future as well as raw materials and supplies intended to the creation of fixed assets are stated in Fixed Assets (line 1150). Actually-commissioned real estate facilities with capital investments completed in full and primary documents duly executed are entered into accounts as fixed assets in a separate sub-account of Real Estate Facilities without Registration of Title. Depreciation of these facilities is accrued pursuant to the standard procedure on the first day of the month following the month of commissioning. Accounting of the Company’s revenues and other income is performed in accordance with the Accounting Regulations “Company Income” (ПБУ 9/99) approved by Order of the Ministry of Finance of the Russian Federation No. 32n dd. May 6, 1999. The Company established the estimated liabilities resulting from the possible payment of compensation for unused vacations, outstanding claims of power suppliers to compensate for losses and electric power transmission services, provisions for litigations and other employee benefits, in accordance

with ПБУ 8/2010 on “Provisions, Contingent Liabilities and Contingent Assets”, approved by Order of the Ministry of Finance of the Russian Federation No. 167n dd. December 13, 2010. The Company has a provision for doubtful accounts receivable which have not been repaid or with a high degree of probability will not be paid in due time stipulated by the agreement and are not secured by warrants. The provision is corrected on a quarterly basis. The Company establishes a provision for devaluation of financial investments in case of a constant significant reduction of their cost. Corrections related to previous periods Changes were made to the form No. 4 “Cash Flow Statement” for 2016, in the part of the cash flow from the current account to the deposit one at line 4329 and the return to the current account at line 4319 in the amount of 1,695,836 тыс rubles. The Company prepared the consolidated financial statements in accordance with the requirements of Federal Law “On Consolidated Financial Statements” No. 208-FZ dd. July 27, 2010. In accordance with the requirements of the legislation, the Company is obliged to conduct an annual audit of the financial statements. To verify and confirm annual financial statements, the General Meeting of Shareholders annually approves the Company's auditor. In order to ensure the independent and objective nature of the external auditor, the choice of the external auditor of the Company was carried out by means of an open competitive procedure using the B2B- energo electronic trading platform. Information on holding an open tender for concluding agreements for performing audit of accounts between 2015 and 2017 was published in the unified information system at www.zakupki.gov.ru, No. 31502075235 as well as the B2B-energo electronic trading platform (http://www.b2b-mrsk.ru). The tender took place from February 27, 2015 through April 21, 2015. Evaluation of applicants was carried out in accordance with preset criteria listed in rules and regulations of the tender. As a result of the open one-stage tender for concluding agreements to conduct audit of accounts between 2015 and 2017 without prior qualification-based selection, the winner was RSM RUS (Minutes No. 5/552p of the meeting of the Tender Committee of ROSSETI dd. April 20, 2015). Obligatory audit of accounts in 2017 includes the audit of accounting books prepared in accordance with Russian Accounting Standards (RAS) for the calendar year ending on December 31, 2017. Cost of services rendered to Kubanenergo for the years 2015-2017 is 4,842,313.20 rubles (VAT included). The above-mentioned auditor is also approved by the decision of the annual General Meeting of Shareholders of Kubanenergo (Minutes No. 39 dd. June 20, 2017). Full name of the auditing company: RSM RUS Limited Liability Company. Abbreviated name of the auditing company: RSM RUS, LLC. Address: 119285, Russia, Moscow, ul. Pudovkina, 4. Phone/fax: +7 (495)363-2848 / 981-4121 E-mail (in Russian): [email protected] Website (in Russian): http://rsmrus.ru RSM-RUS LLC is a member of the non-commercial partnership “Audit Association Sodruzhestvo” and is included in the register of auditors and audit organizations of the Self-Regulatory Organization of Auditors of the Non-Profit Partnership “Audit Association Sodruzhestvo”, main registration number (ORNZ) 11306030308. The amount to be paid for the audit of the annual financial statements for 2017 is approved by the decision of the Board of Directors of Kubanenergo (Minutes No. 286/2017 dd. August 31, 2017) in the amount of 1,614,104.40 rubles, VAT included. The actual amount of remuneration paid for the audit of the Company's financial statements for 2017 equals to 1,614,104.40 rubles, VAT included. No deferred or late payments for services rendered by the auditor. Non-audit services were not rendered to the Company in the reporting year.

Results of Financial and Economic Activities of the Company Olga Vyacheslavovna Ocheredko, Deputy Director General for Economy and Finance: “In 2017, the 2017-2021 Program for Operating Efficiency Improvement and Expenses Reduction of Kubanenergo was designed and implemented; it is designed aimed at optimizing costs, reducing specific costs for operating power equipment, reducing power losses in networks and increasing energy efficiency. Efficiency criteria of the Program consider the targets established by the Strategy for the Development of the Power Grid Complex of the Russian Federation approved by the Decree No. 511-r of the Government of the Russian Federation dd. April 3, 2013 and the Directive of the Government of the Russian Federation No. 2303p-P13 dd. April 16, 2015. As a result of the reporting period, the target parameters for reducing operating expenses relative to the level of 2016 have been met.”

Analysis of Results of Company's Financial and Economic Activities In the end of the reporting year, revenues from sales of Company’s services amounted to 42,253.0 million rubles, which is 526.8 million rubles (1.3%) more than in 2016, including: • revenues from electricity transmission is 41,485.7 million rubles (2,223.3 million rublesmore than in 2016); this growth is linked to: ✓ growth of volume of electricity transmission services by 145 mln kWh, taking into consideration tariff indexation by 4.3% since July 1, 2017; ✓ changes in procedure of reimbursing the participants of the wholesale electricity market of values of load losses included in market prices, due to which, since August 1, 2017 the revenues for electricity transmission have been calculated without subtracting the above-mentioned values13; • Revenues from technological connection services amounted to 648.0 million rubles, which is less than the level of 2016 by 1,732.5 million rubles due to early completion in 2016 of technological connection agreements with PJSC Gazprom Invest for a total of 2,093 million rubles. The costs (including management costs) for the year 2017 amounted to 38,369.0 million rubles, which is 2,441.2 million rubles (6.8%) more than in 2016. The increase in costs is due to an increase in the expenditure level of purchased electricity to compensate for losses, expenses for FGC UES PJSC and TSS services, and depreciation of fixed and intangible assets. The net profit of the Company following the results of 2017 amounted to 525.3 million rubles, which is 1,615.2 million rubles (75.5%) below the level of 2016. Main factors influencing the financial parameters: increase in revenue from service sales by 526.8 million rubles (1.3%), including due to an increase in revenue from electricity transmission services in 2017 by 2,223.3 million rubles (5.7%), compared with the + previous year, with a decrease in revenues from technological connection services by 1,732.5 million rubles (72.8%); increase in cost, taking into account management costs, by 2,441.2 million rubles (6.8%) compared to 2016 - year-on-year; decrease in the balance of other incomes and expenses from profit by 424.2 million rubles (18.5%) - compared to 2016 year-on-year; + reduction of income tax by 723.3 million rubles (53.0%) compared to 2016 year-on-year; 2015-2017 Key Financial & Economic Indicators of Kubanenergo, million rubles: Item Indicator 2017 2016 2015 No. Revenue from products (services) sales, 1 42,253 41,726 35,704 including: 1.1 from power transmission 41,486 39,262 34,403 1.2 from technological connection 648 2,381 1,213

13 As defined by the Decree No. 810 of the Government of the Russian Federation dd. July 7, 2017 “On Changes in Several Decrees of the Government of the Russian Federation Regarding Compensation for Electricity Losses at the Wholesale Market for Electricity and Power and Capacity as well as at the Retail Electricity Market and Regarding Obtaining the Status of a Participant of the Electric Energy Wholesale Market.” 75

1.3 from sales of electric power 0 0 0 1.4 from other activities 119 83 88 2 Net costs of products (services) -38,259 -35,830 -33,149 3 Gross profit 3,994 5,896 2,555 4 Administrative expenses -110 -98 0 5 Selling expenses 0 0 0 6 Profit (loss) from sales 3,884 5,798 2,555 7 Interest receivable 47 90 479 8 Interest payable -1,907 -1,889 -2,261 9 Affiliation income 0.3 0 0.06 10 Other income, total 2,393 2,616 6,851 11 Other costs, total -3,249 -3,109 -5,407 12 Income (loss) before tax 1,168 3,506 2,216 13 Income tax and other payments -642 -1,366 -763 14 Net profit 525 2,141 1,452 15 EBITDA*14 6,847 9,015 7,670 The Program for Operating Efficiency Improvement and Expenses Reduction The Program for Operating Efficiency Improvement and Expenses Reduction of Kubanenergo for 2017-2021 was approved by the Company’s Board of Directors on August 18, 2017 (Minutes No. 284/2017 dd. April 25, 2016). Implementation of measures under the Program is covered by the Business Plan, Investment Program, Energy Conservation and Energy Efficiency Improvement Program, Innovative Development Program and other target programs developed by the Company. The Program efficiency criteria take into account the target values specified by the Development Strategy of the Electric Grid Complex of the Russian Federation (approved by Decree of the Government of the Russian Federation No. 511-r of April 3, 2013) as well as by Directive of the Government of the Russian Federation No. 2303p-P13 of April 16, 2015. The reduction of manageable operating costs in 2017 against 2012 for implementation of the Development Strategy of the Electric Grid Complex of the Russian Federation approved by Executive Order of the Government of the Russian Federation No. 511-p dd. April 3, 2013 amounted to 653 million rubles or 15.7%, with the target value of 15%. The reduction of operating costs in accordance with Directive of the Government of the Russian Federation No. 2303p-P13 dd. April 16, 2015 in 2017 against 2016 amounted to 275 million rubles, or 3.1%, which corresponds to the target value. In 2017, within the framework of increasing operational efficiency and receiving additional revenues, the Company implemented measures with an aggregate economic effect of 3,865 million rubles, with a planned value of 3,715 million rubles (104% of the plan) in the following domains: • improvement of equipment, buildings, structures maintenance and overhaul control efficiency (implementation of a set of measures aimed at redistribution of the method of performing work on technological areas: 35-220-kV overhead lines, 35-110-kV substations, 0.4-10-kV distribution networks (OPLs, transformer substations); optimization of distribution of work between contract and economic methods; reduction of costs for the services of contractors due to clearing of routes by economic means, with the amount of effect 1 million rubles);

• improvement of the working capital management efficiency (optimization of accounts receivable (decrease in overdue debt) for electricity transmission services –2,284 million rubles);

• improvement of the fixed assets management efficiency (consolidation of electric grid facilities –345 million rubles; decrease in specific investment costs by 30% by 2017 compared to 2012 (application of the Planning Method for reducing investment costs by 30% compared

14 *EBITDA is calculated based on the following formula: EBITDA = income before tax - interest payable + depreciation. 76

to 2012, when the Investment Program of Kubanenergo was being developed) – 816 million rubles;

• improvement of energy efficiency (measures aimed at reduction of electric power losses in accordance with the 2017-2021 Power Losses Reduction Program of Kubanenergo , and the Energy Conservation and 2017-2022 Energy Efficiency Improvement Program of Kubanenergo in the amount of 101 million rubles; measures aimed at efficient use of fuel and energy resources and water for Company’s operating purposes in the amount of 4 million rubles);

• increase of energy efficiency (decrease in unit operating expenses):

✓ use of recycled materials –4 million rubles; ✓ reduction of use materials for maintenance, consumables for maintenance of office equipment; reduction of costs for communication services, IT services, write-off of software products –1 million rubles; ✓ optimization of costs linked to decommissioning of vehicles the operation of which is impractical, including decrease of costs on fuel, oil and lubricants – 5 million rubles; ✓ measures aimed at improvement of the motivation system (average wage level does not exceed the level of consumer price index) –26 million rubles; ✓ reduction in the cost of procurement of raw materials and materials, procurement of production and non-production services based on the results of regulated procedures –234 million rubles; - other activities (measures aimed at reduction of non-contractual electric power consumption in the amount of 44 million rubles).

The Program of Operating Efficiency Improvement and Expenses Reduction creates an effective tool for increasing internal efficiency and ensuring profitability through the productive use of the Company's internal reserves in order to implement the Company's main strategic directions.

Accounts Receivable Analysis of Changes in Accounts Receivable, million rubles: As of As on December As on December December 31, 31, 2017 31, 2016 2015 Total 6,847.39 7,119.42 4,900.77 Including: purchasers and customers 6,155.95 6,410.58 4,601.99 power transmission 6,104.65 6,381.93 4,591.30 bills receivable advances paid 32.12 13.37 25.24 Other accounts receivable 659.32 695.47 273.55 The total amount of accounts receivable of Kubanenergo at the beginning of the reporting period was 7,119.42 million rubles, and as on December 31, 2017, it amounted to 6,847.39 million rubles. Accounts receivable from buyers and customers amounted to 6,155.95 million rubles, which is 254.64 million rubles (3.97%) lower than the level as on December 31, 2016. This decrease is due to a decline in the debt for provision of electricity transmission services by 277.27 million rubles. Accounts receivable on advances paid out amounted to 32.12 million rubles, which is 18.75 million rubles (140.24%) higher than the level as on December 31, 2016. Accounts receivable for other debts amounted to 659.32 million rubles, which is 36.15 million rubles(5.20%) below the level as on December 31, 2016. The main share (89.15%) of Company’s accounts receivable was reflected in settlements for rendered services of electricity transmission. During the reporting period, unrecorded accounts receivable in the amount of 5.14 million rubles were written off. Measures to reduce accounts receivable for electricity transmission services:

Accounts receivable for electricity transmission services rendered to counterparties of Kubanenergo as on December 31, 2017 (net of provision for doubtful debts) amounted to 6,104.65 million rubles, which is less than the results of 2016 by 413.39 million rubles, or 5.29%. Disputed accounts receivable at the end of the reporting year amounted to 1,133.61 million rubles. One of the largest debtors for electricity transmission services is TNS Emergo Kuban PJSC, whose debt as on December 31, 2017 amounted to 3,763.60 million rubles, including the disputed part amounting to 719.24 million rubles. In order to reduce accounts receivable, the Company files claims and lawsuits, including settlement of disputes in pre-trial and judicial proceedings. Results of Company’s measures taken to reduce accounts receivable for electricity transmission to counterparties of Kubanenergo in 2016 and 2017: 2016 2017 Levy denied, Favorable court Court orders Arrears Arrears paid number of Favorable court Court orders Levy denied, number rulings received received in paid according to cases / rulings received / received in the of cases / claimed / claimed the amount according to court orders claimed claimed amount amount of amount amount of court orders amount 18 cases / 1 case / 304.19 265.52 62 cases / 544.38 2 cases / 466.37 million 28.73 913.63 million million million 911.15 million million 50.32 million rubles million rubles rubles rubles rubles rubles rubles rubles

Accounts Payable Analysis of Changes in Short-Term Accounts Payable, million rubles As on December As on December As on December

31, 2017 31, 2016 31, 2015 Short-Term Accounts Payable, including 11,044.75 8,280.20 11,799.75 suppliers and contractors 6,198.14 4,837.35 4,343.66 bills payable taxes and duties payable 258.01 654.43 1,502.99 advances received 2,889.10 1,922.41 3,860.09 other accounts payable 1,699.51 866.01 2,093.02 Short-term payables as on December 31, 2017 decreased by 2,764.55 million rubles against 2016 and amounted to 11,044.75 million rubles. The following changes were observed: - debts to suppliers and contractors increased by 1,360.78 million rubles due to the growth of arrears in payments for the electricity transit services by 1,978.64 million rubles, as well as due to decrease in arrears in payment for electricity purchased for loss compensation purposes by 786.21 million rubles; - arrears in advances received increased by 966.69 million rubles, the bulk of the arrear includes advances for technical integration in the amount of 2,867.11 million rubles; - taxes and duties payable decreased by 396.43 million rubles; - other accounts payable decreased by 833.50 million rubles. As of the end of 2017, the overdue accounts payable of Kubanenergo amounted to 3,938.68 million rubles. In 2016, long-term accounts payable amounted to 989.51 million rubles.

Loans and Credits On September 20, 2016 the Board of Directors of Kubanenergo approved the Program of Exchange-Traded Bonds of 002P series of Kubanenergo (Minutes No. 251/2016 dd. October 24, 2016). The exchange bonds program was assigned the identification number 4-00063-А-002Р-02Е. The program provides for the possibility of placing non-convertible certificated interest-bearing exchange-traded bonds in bearer form with mandatory deposit with a total nominal value of all issues of exchange bonds placed within the program of 002R exchange bonds amounting to 25 billion rubles; the maturity date comes no later than 10,920 days from the start date of placement of exchange-traded bonds issue within the framework of the stock exchange bonds program placed by public subscription. In 2017, placement of bonds within the framework of this program was not made.

In addition, non-convertible certificated interest-bearing exchange-traded bonds in bearer form with mandatory deposit of 001R-01 and 001R-02 series placed in 2015 under the Program of Exchange- Traded Bonds, identification number 4-00063-А-001Р-02Е dd. August 26, 2015, are also in circulation (total value is RUB 3.6 and 3.4 billion rubles respectively). Payments of coupon profits were made in full within the set time. In 2017, Kubanenergo did not interact with the rating agencies. Credit ratings have not been assigned to the Company since 2009.

Corporate Governance Khazikova Zanda Ivanovna, Acting Deputy General Director for Corporate Governance: “Company’s Objectives in the field of corporate governance set for 2017 have been completed, which could be justified by the following: • no facts of violation of rights and legal interests of shareholders, of corporate conflicts; • active involvement of governing bodies in Company’s activities; • timely execution of the General Meeting of Shareholders and meetings of the Board of Directors and their committees; • complete and timely disclosure of information in accordance with legislation of the Russian Federation and Company’s Information Policy, evidence by absence of regulations of the Bank of Russia in regard to violations in the domain of corporate governance. In 2017, in order to bring the recommendations of the Bank of Russia in line with the established practice of corporate governance in Rosseti PJSC, the Charter and the Regulations on the General Meeting of Shareholders, the Board of Directors, and the Audit Commission were approved and the scope of tasks of the Committee for Technological Connection was expanded. The Company plans to maintain the achieved level of corporate governance practices and strives to improve it in future.”

Principles and Practices of Corporate Governance Corporate governance is understood by the Company as a complex of processes ensuring management of and control over the Company’s activity, including relationships between the shareholders, the Board of Directors and executive bodies in the interest of all participants of corporate relations that include shareholders and management bodies, as well as potential investors, service customers, Company’s employees, contractors, creditors, partners, the state and local communities. Kubanenergo considers corporate governance to be a tool to improve its business efficiency, enhance its reputation and reduce the cost of raising funds. The company adheres to the following principles of corporate governance:

• Fairness. The Company shall respect shareholders’ legitimate rights and ensure equal treatment of all shareholders, as well as enable them to obtain efficient remedies in case of violation of their rights. • Accountability. The Company’s Board of Directors is accountable to all shareholders in accordance with the laws of the Russian Federation. • Transparency. The Company provides for timely disclosure of reliable information of all significant facts related to its activity, including its financial state, operational results, structure of property and Company management, as well as free access to such information for all interested parties. • Liability. The Company recognizes its responsibility to the shareholders of the Company and provides a reliable method of considering rights to their shares.

• In order to ensure continuity of the corporate governance practices, the following internal documents have been approved and in force in the Company1: • Corporate Governance Code; • Regulations: ✓ on General Meeting of Shareholders; ✓ on Board of Directors;

✓ on Management Board; ✓ on Revision Commission; ✓ on Committees of the Board of Director; ✓ on Insider Information; ✓ on Information Policy; ✓ on Company’s Corporate Secretary; ✓ on Dividend Policy, etc. The Company generally observes the principles and recommendations of the Corporate Governance Code recommended by the Bank of Russia in Letter No. 06-52/2463 dd. April 10, 2014 for application by joint-stock companies having stocks admitted to on-exchange trading (hereinafter referred to as the “Corporate Governance Code”)15.

Involvement of members of the Board of Directors in Company management increased by 10.4% compared to the previous year.

The number of independent members of the Company’s Board of Directors increased from one to three against the previous year.

The Company plans to maintain the achieved level of corporate governance practices and strives to improve it in future.

15 For Report on Compliance with the Corporate Governance Code, see Appendix 3. 82

General Meeting of Shareholders General Meeting of Shareholders is the top management body of the Company. In accordance with the Charter of Kubanenergo, the following issues, among other things, are the responsibility of the General Meeting of the Company’s Shareholders: • introduction of amendments and additions to the Charter; • re-organization and liquidation of the Company; • increase and decrease of the Company’s authorized capital; • split-up and consolidation of the Company’s shares; • decision-making on placement of stocks converted into shares by the Company; • election of members of the Board of Directors and Revision Commission of the Company and early termination of their powers; • approval of annual reports, annual accounting statements, profit distribution (including payment of dividends); • decision-making on approval of major transactions and interested party transactions in the cases stipulated by the Federal Law “On Joint-Stock Companies”; • approval of internal documents regulating the activity of the Company bodies; • decision-making on payment of remuneration and/or compensation to the members of the Board of Directors and the Audit Committee of the Company. • decision-making on delisting application of the Company’s shares and/or equity securities converted in its shares. The General Meetings of Shareholders of Kubanenergo are prepared and held in accordance with the laws of the Russian Federation and Regulations on Procedure for Convening and Holding General Meeting of Shareholders16. The only General Meeting of Shareholders having taken place in 2017 was the annual one: Date and General Meeting of Number of the Meeting Quorum Key Decisions Made by the General Meeting of Shareholders17 Shareholders’ date Minutes • Company’s Annual Report for the year 2016 was approved. • Company’s Annual Accounting Books for the year 2016 was approved. • The following distribution of revenue (costs) during 2016 was approved: ✓ 107,025 thousand rubles are allocated to the reserve fund; ✓ 1,498,350 thousand rubles are allocated to Company’s development, ✓ 535,125 thousand rubles are allocated to payment of dividends. 99.63% of • Dividends from basic shares in 2016 are to be paid in cash in No. 39 total number the amount of 535,125 thousand rubles are allocated. June 16, 2017 June 20, 2017 of placed • Members of the Board of Directors and the Audit Committee voting shares were selected. • RSM RUS LLC was approved as the Company’s auditor. • Revised edition of the Company’s Charter was approved. • Revised editions of the following regulations were approved: ✓ On the General Meeting of Shareholders, ✓ On the Board of Directors, ✓ On the Auditing Commission. • Discontinuation of Kubanenergo’s involvement in ENERGOSTROY association was approved.

Board of Directors The Board of Directors is the collective control body performing the general management of the Company’s business, determining its strategy, and controlling work of the Company’s executive bodies. Main goals and objectives of the Board of Directors are as follows:

16 Regulations on the General Meeting of Shareholders of Kubanenergo are located at www.kubanenergo.ru, section About the Company / Charter and Internal Documents». 17 Minutes of the General Meetings of Shareholders of Kubanenergo are located at www.kubanenergo.ru, section About the Company / Governing Bodies / General Meeting of Shareholders. 83

• to determine the Company’s development strategy aimed at enhancement of its market capitalization and investment prospects, achievement of maximum profit and increments of assets of the Company; • to ensure exercise and protection of rights and legitimate interests of shareholders, as well as to assist in settlement of corporate conflicts; • to ensure completeness, reliability and neutrality of disclosure of information about the Company; • to create effective internal control mechanisms; • to regularly assess the Company’s management work. In order to implement the above purposes and tasks, the Board of Directors is guided by the following principles: • to adopt decisions on the basis of reliable information on the Company’s activity; • to avoid restriction of the shareholders’ rights to participate in the management of the Company, receipt of dividends and information about the Company; • to achieve balance of convenience of different groups of shareholders and to have the most neutral decisions adopted by the Board of Directors to the benefit of all shareholders of the Company.

In its activities, the Board of Directors is guided by the Federal Law “On Joint-Stock Companies”, other regulatory legal acts of the Russian Federation, the Company’s Articles of Association, the Regulation on Board of Directors 18. The responsibility of the Company’s Board of Directors is extended compared to the standards of Federal Law “On Joint-Stock Companies”; it additionally includes the following matters: • determination of the Company’s development strategy; • approval of business plan and review of quarterly reports on implementing this business plan; • approval of investment program and review of quarterly reports on implementing this investment program; • approval of target values of key performance indicators of the Company and reports on performance thereof; • determination of the Company’s policy: ✓ with regard to improvement of a distribution electric grid complex and other electric grid facilities reliability; ✓ in the field of insurance; ✓ credit; ✓ procurement; ✓ housing • organization of management and control over activities of organizations where the Company is involved: ✓ approval of cooperation between the Company and organization wherein the Company is involved; ✓ determining of Company’s position regarding agendas of general meetings of shareholders and meetings of boards of directors of subsidiaries and affiliates; ✓ appointing Company’s representatives to participate in top governing bodies of organizations with which they are involved in; ✓ decision-making regarding nominating Company representatives for possible future election into controlling bodies of organizations with which the Company is involved in, as well the auditor; • preliminary approval of Company’s decisions regarding specific transactions: ✓ the subject of which are Company’s capital assets in the amount of more than 10% of their book value; ✓ linked with purchase, alienation or possibility of alienation of property constituting fixed assets, intangible assets, or construction in progress the purposes of which are production, transfer, dispatching or distribution of electric and thermal power, as well as any other types of property as determined by specific decisions of the Board of Directors; ✓ involving assignment (acceptance) to/for temporary use of real estate property or electric grid facilities for more than 5 (five) years; ✓ involving transfer of property or property rights (claims) without compensation to or from the Company or a third party; transactions involving relieving of property liabilities from the Company or third parties; transactions involving rendering of services by the Company to third parties without compensation; ✓ which may entail financial liabilities in foreign currencies, or transactions involving derivative financial instruments;

18 Regulations on the Board of Directors of Kubanenergo are located at www.kubanenergo.ru, section About the Company / Charter and Internal Documents 84

• organization of and control over the activities of the Company’s executive bodies: ✓ decision-making regarding appointing acting Director General of the Company; ✓ bringing the Company’s executive bodies to responsibility as well as their commendation; ✓ review of reports provided by Company’s Director General regarding Company’s activities; ✓ control over executive bodies’ activities as it pertains to implementation of Company's strategy; ✓ putting together recommendations to Company’s executive bodies regarding any issue related to the Company’s activities; ✓ approval of provisions concerning financial stimulation of the Company’s Director General and top management; ✓ approval of candidates for specific executive positions within the Company. • preliminary approval of the Collective Bargaining Agreement of other agreements concluded by the Company as part of regulating social or labor relations; approval of documents concerning non-state pension provision of Company’s staff; • approval of candidates of auditors or financial advisors; • decision-making related to participation of the Company in industry and cross-industry standards, regulations or other documents in the domain of electricity transmission in various fields of Company’s activities, including technical regulations; • creation of Board committees and election of their members; • determining principles and approaches towards organizing internal audit, risk management systems and internal control within the Company; • evaluation of key operational risks as well as setting tolerable risk value for the Company; • organizing of annual analysis and evaluation of functioning of risk management system and internal control; • annual review of issues related to organizing, functioning and effectiveness of risk management and internal control systems within the Company; • control over and organization of activities of units responsible for internal audit, review of results of verification of internal audit efficiency.

The Board of Directors19 The Board of Directors is elected by the General Meeting of Shareholders of the Company in the amount of 11 persons for the period until the next annual General Meeting of Shareholders. In the event that the Board of Directors is elected at an extraordinary General Meeting of Shareholders, the members of the Board of Directors shall be deemed elected for the period up to the date of the next annual General Meeting of Shareholders. Two personal compositions of the Board of Directors acted in the reporting year. The current Board of Directors was elected at Annual General Meeting of Shareholders of the Company on June 16, 201720: 1. Aleksandr Nikolayevich Fadeyev, Chairman of the Board of Directors, Non-Executive Director21: Year of birth 1949 Education Higher. Graduated from Moscow Institute of Geodesy, Aerial Photography and Cartography, major: “Electrooptical devices.” Work Experience for the last 5 years: 2011-2014 Deputy Chairman of the Board for Security Issues, FGC UES

19 Consent for disclosure of personal information listed in Corporate Governance section has been received from all individual who used to be or currently are part of Kubanenergo executive and control bodies. 20 Information regarding members of the Board of Directors contains only the most recent positions at the most recent place of employment. All positions held by members of the Board of Directors (in chronological order) are listed in quarterly reports of emitters published at www.kubanenergo.ru, section To Shareholders and Investors / Disclosure of Information / Quarterly Emitter Reports Information regarding employment of the members of the Board of Directors and the positions held by them are indicated in accordance with the data provided by them to the Company as of the end of the reporting year. “Present” in this case the Company means until December 31, 2017 21 Status of the members of the Board of Directors (executive, non-executive, independent) is determined according to criteria listed in the Corporate Governance Code. 85

2013-2016 Chairman and member of the Board of Directors, IDGC of Urals PJSC 2014 – till present Chief Advisor of Rosseti PJSC (primary place of employment) 2015-2017 Chairman of the Board, IDGC of Center and Volga Region PJSC 2015 – till present Chairman of the Board, IDGC of Siberia PJSC. Member of the Board of Directors, IDGC of the South PJSC 2017 – till present Chairman of the Board, IDGC of the North Caucasus PJSC, IDGC of Urals PJSC. Member of the Board of Directors, IDGC of Volga PJSC Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo

2. Svetlana Aleksandrovna Balayeva, Non-Executive Director: Year of birth 1973 Education Higher. Graduated from the State University of Management, major: “economist and manager”; has passed post-graduation entry examination Work Experience for the last 5 years: 2008 – till present Chief Advisor and First Deputy Director of a branch of Rosseti PJSC, Center for Engineering Supervision (primary place of employment) 2013-2014 Member of the Board of Directors, IDGC of the North-West OJSC 2014-2017 Member of the Board of Directors, Tyumenenergo JSC Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo

3. Aleksandr Viktorovich Varvarin, Non-executive Director Year of birth 1975

Education Higher. Graduated from the Institute of International Law and Economics named after Griboyedov, majoring in legal science Work Experience for the last 5 years: 2005-till present Vice-President for Corporate Relations and Legal Support of RSPP (primary employment) 2006-till present Director General, Board member of Non-Commercial Partnership Center of Corporate Relations Development and Economic Disputes Settlement 2006-2014 Deputy Chairman of the Management Board of the Russian Union of Self-Regulatory Organization of Insolvency Practitioners 2008-till present Chairman of the Board of Non-Commercial Partnership MSO PAU 2009-2016 Member of the Board of Directors of VTsIOM OJSC; Chairman of the Board of Directors of VNIPIneft OJSC 2011-2016 Chairman of the Board of Directors of INPC TLP OJSC. 2011-2017 Member of the Board of Directors of IDGC of Volga PJSC 2012-2013 Member of the Board of Directors of TransTelecom CJSC 2012-till present Member of the Revision Commission of RZD OJSC

2013-2015 Chairman of the Board of Directors of OJSC Science and Production Center, CNIIMMashdetal OJSC, CNIICP OJSC, CNIILKA OJSC, CNIIPIK OJSC. Member of the Board of Directors of GTLK OJSC, IDGC of the Northern Caucasus OJSC 2014-till present Chairman of the Committee for Technological Connection, Board of Directors of Kubanenergo 2014-2017 Member of the Human Resources and Remuneration Committee of the Board of Directors of Kubanenergo 2016-2016

Member of the Board of Directors of VNII NP OJSC 2017-till present Member of the Board of Directors of Mosenergostroy OJSC. Member of the Council of Institute of Internal Auditors June 17, 2013 — present Duration of work in Board of Directors of Kubanenergo

4. Aleksandr Ilyich Gavrilov, Executive Director Year of birth 1973 Education Higher. Graduated from Kuban State University, majoring in Accounting and Audit; from Kuban State Technological University, major: “Development and Operation of Oil-and-Gas Field”. Completed advanced training course at Ernst &Young, subject: Risk Management. In 2017, completed the education program called “Organization of mobilization work in companies of fuel and energy complex having mobilization assignments” in Institute for Continuous Education of Staff of Fuel and Energy Companies. Academic degree: DPhil in Economics Work Experience for the last 5 years: 2013 Top Advisor to the Chairman of the Management Board of FGC UES OJSC. 2013-till present Director General, Chairman of the Management Board of Kubanenergo June 23, 2014 — present Duration of work in Board of Directors of Kubanenergo

5. Vladimir Fyodorovich Gritsenko, Independent Director: Year of birth 1965 Education Higher. Graduated from Russian State University for the Humanities, majoring in law Work Experience for the last 5 years: 2012 – till present Business Development Director, Unitel Engineering, LLC (primary place of employment) 2016 – till present Member of the Presidium, OPORA RUSSIA Non-Commercial Partnership Member of the Committee for Strategy, Development, Investments and Overhaul, Board of Directors of Kubanenergo Duration of work in June 24, 2016 — present Board of Directors of Kubanenergo

6. Aleksandr Leonidovich Yefimov, Non-Executive Director: Year of birth 1982 Education Higher. Graduated from Moscow University of Internal Ministry of the Russian Federation, majoring in law Work Experience for the last 5 years:

2009-2013 Protocol Director and Head of Department of Protocol Provision, FGC UES 2013 – till present Head of Administrative Department, Rosseti PJSC (primary place of employment) Duration of work in June 24, 2016 — present Board of Directors of Kubanenergo

7. Mikhail Vladimirovich Medvedev, Independent Director: Year of birth 1969 Education Higher. Graduated from St. Petersburg State University of Economics, major “Finance and Loans” Work Experience for the last 5 years: 2011-2015 Director General, VTM Engineering LLC 2011 – till present Deputy Director General, INTRATOOL Group (primary place of employment) 2015 – till present Deputy Director General for Finance and Chairman of the Board, Safonovo Industrial Park, LLC 2017 – till present Member of the Board of Directors, Avangard JSC. Member of the Reliability Committee, Kubanenergo. Member of the Strategy and Development Committee, Board of Directors of JSC Tyumenenergo Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo

8. Yelena Nikolayevna Osipova, Non-Executive Director: Year of birth 1984 Education Higher. Graduated from Financial University under the Government of the Russian Federation (Moscow), Institute of Accounting, Account Analysis and Audit, major ” Accounting, Account Analysis and Audit” Work Experience for the last 5 years: 2009-2014 Lead expert of Directorate for Budgeting, Treasury Department of Inter RAO Group 2013-2014 Lead specialist of Small Businesses Department, Bank of Moscow 2014 – till present Head of Financial Analysis and Liquidity Management Department, Treasury of Rosseti PJSC (primary place of employment) 2017 – till present Member of the Audit Committee of Kubanenergo’s Board of Directors Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo

9. Konstantin Vladimirovich Tyurkin, Non-Executive Director: Year of birth 1982 Education Higher. Graduated from Lomonosov Moscow State University, major “economist and area studies specialist” Work experience for the last 5 years: 2007-2013 Head of Media and Social Media Relations Department, Directorate of Corporate Communications, Transaero Airlines OJSC 2013 – till present Head of Communication and External Relations, Department of Information Policy and Public Relations, Rosseti PJSC (primary place of employment) Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo

10. Kseniya Valeriyevna Khokholkova, Non-Executive Director

Year of birth 1970 Education Higher. Graduated from the State University of Management named after Sergo Ordzhonikidze, qualification: “Organization of Management in Fuel and Energy Sector”

Work Experience for the last 5 years: 2008- till present Deputy Head of Share Capital Administration, Head of Office of Shareholders’ Rights Enforcement of the Department of Corporate Governance and Shareholder Relations and Investors of PJSC Rosseti (primary employment) 2009-2013 Member of the Board of Directors of SZEUK OJSC 2009-2014 Member of the Board of Directors of Ingushenergo OJSC 2010-2014 Member of the Board of Directors of Volga Power Engineering Center OJSC 2013-2014 Member of the Revision Commission of IDGC of Volga OJSC Member of the Strategy, Investments and Restructuring Committee of the Board of Directors of IDGC of Siberia OJSC 2014-2015 Member of the Board of Directors of Energoservice OJSC, NITs of Volga OJSC 2014-2016 Member of the Strategy, Development, Investment and Reforming Committee, Member of the Board of Directors of Kubanenergo 2014-2017 Member of the Board of Health and Recreation Resort “Energetik” OJSC 2014-till present Member of the Board of Directors of Lenenergospetsremont OJSC, Member and Chairman of the Audit Committee of the Board of Directors of Kubanenergo. 2015-till present Member of the Board of Directors of ENIN OJSC Duration of work in June 23, 2014 — present Board of Directors of Kubanenergo

11. Irina Aleksandrovna Shagina, Non-Executive Director: Year of birth 1979 Education Higher. Graduated from All-Russian Part-Time Finance and Economics Institute, major “Accounting and Audit”, as well as from Vladimir Legal Institute of Federal Penitentiary Service of Russia, majoring in law Work Experience for the last 5 years: 2011-2015 Deputy Head of Department for Regulation in Electricity Sector, Federal Tariff Service of Russia 2015 – till present Head of Office for Tariff Regulation, Department of Tariff Policy of Rosseti PJSC (primary price of employment) 2016 – till present Member of the Board of Directors, of Volga PJSC IDGC 2017 – till present Member of the Audit Committee of the Board of Directors of Kubanenergo. Member of the Strategy and Development Committee, Board of Directors of IDGC of Centre, IDGC of Center and Volga Region, and IDGC of the North Caucasus Duration of work in June 16, 2017 — present Board of Directors of Kubanenergo The share of independent directors in this Board of Directors is 3 out of 11.

The current Board of Directors elected at Annual General Meeting of Shareholders of the Company on June 24, 2016 and acting up until the election of new Board of Directors on June 16, 201722:

22The consent to disclosure of personal data indicated in section “Corporate Governance” was secured from all persons who are or were the members of the management and control bodies of Kubanenergo. Information about the experience of the Board members specifies only the last positions held by them for each place of employment. All positions held by Board members (in a chronological order) are specified in the quarterly reports of the issuer published at www.kubanenergo.ru, section For Shareholders and Investors / Information Disclosure / Quarterly Reports of the Issuer.

1. Yuri Nikolayevich Mangarov, Chairman of the Board of Directors, Non-Executive Director:

Year of birth 1956 Education Higher. Graduated from Plekhanov Russian University of Economics, major: “Economic Cybernetic” Work Experience for the last 5 years: 2010-2013 Deputy Chairman of the Management Board, Head of Office of OJSC FGC UES

2012-2013 Deputy Executive Director, Head of Office (external secondary employment) of OJSC Rosseti (till April 4, 2013 - IDGC Holding OJSC) 2013 – till present Deputy Head of Office of Rosseti PJSC (primary place of employment) 2013-2014 Chairman of the Human Resources and Remuneration Committee of the Board of Directors of OJSC Kubanenergo 2014-2016 Member of the Board of Directors of IDGC of the Northern Caucasus PJSC, MOESK PJSC 2014-2017 Member of the Board of Directors of Yantarenergo JSC, IDGC of Center PJSC 2015-2016 Member of the Board of Directors of Sevkavkazenergo PJSC, Kabbalkenergo PJSC, PJSC Dagestan Energy Retail Company, Karachaevo-Cherkesskenergo JSC, Kalmenergosbyt JSC, Tyvaenergosbyt JSC, Ingushenergo JSC 2015-2017 Chairman of the Human Resources and Remuneration Committee of the Board of Directors of Kubanenergo 2015-2017 Advisor Director General, Acting Head of Administration (secondary employment) of Lenenergo PJSC. 2016-2017 Member of the Board of Directors of IDGC of the Northwest PJSC Duration of work in June 10, 2015 — June 16, 2017 Board of Directors

2. Dmitry Alekseyevich Bobkov, Non-Executive Director: Year of birth 1982 Higher. Graduated from Lomonosov Moscow State University, major: “Philology” Postgraduate studies in the Institute of Socio-Political Research. Academic degree: Ph.D. in Education Economics. Work Experience for the last 5 years: 2012-2013 Deputy Director General for Media and Government Authorities Relations of Kubanenergo OJSC 2013 – till present Head of Information Policy and Public Affairs Department of Rosseti PJSC (primary place of employment) Duration of work in June 24, 2016 — June 16, 2017 Board of Directors

3. Aleksandr Yevgenyevich Bogashov, representative of the legal interests of the Russian Federation, Non-Executive Director: Year of birth 1989 Higher. Graduated from Federal State Budgetary Educational Institution of Higher Professional Education the State University of Management, qualification: “Enterprise Education Management” Work Experience for the last 5 years: 2011-2013 Acting Advisor of Administration of the Federal Agency for State Property Management 2012-2013 Member of the Revision Commission of VNIKTI Neftekhimoborudovanie OJSC, Stavropolneftegeofizika OJSC, VNIPIneft OJSC, VNIMI OJSC, CNIEIugol OJSC, Research Center VostNII OJSC, Nefteproduktkomplekt OJSC, All-Russia Research Institute of Oil Refining OJSC, NIITeplopribor OJSC, Soyuzmorgeo OJSC, SPC Supermetall OJSC named after Ye.I. Rytvin

The data on the places of work and positions of the members of the Board of Directors are specified in accordance with the data provided by them to the Company as of the end of the reporting year. Here "till present" shall as on March 31, 2017. 90

2012-2014 Member of the Revision Commission of Kubanenergo OJSC, Moskovskiy Neftemaslozavod OJSC, Volgogradneftegeofizika OJSC, Permneftegeofizika OJSC, CGE OJSC 2013 – till present Head of Corporate Governance Office of the Department of Corporate Governance, Price Environment and Internal Control of the Fuel and Energy Sector of the Ministry of Energy of the Russian Federation (primary place of employment) 2013-2014 Member of the Board of Directors of Nizhnevartovskneftegeofizika OJSC, Krasnodarneftegeofizika OJSC, Mosenergostroy Construction Industrial Company OJSC. Member of the Revision Commission of Samaraneftegeofizika OJSC. Member of the Strategy, Development, Investment and Restructuring Committee, Member of the Board of Directors of Kubanenergo OJSC 2015-2016 Member of the Revision Commission of Rosseti PJSC 2016-2017 Member of the Board of Directors of PJSC IDGC of Center, PJSC IDGC of Volga, PJSC IDGC of South Duration of work in June 24, 2016 — June 16, 2017 Board of Directors

4. Aleksandr Viktorovich Varvarin, Independent Director: Year of birth 1975

2013-2015 Chairman of the Board of Directors of Science and Production Center OJSC, CNIIMMashdetal OJSC, CNIICP OJSC, CNIILKA OJSC, CNIIPIK OJSC. Member of the Board of Directors of GTLK OJSC, IDGC of the Northern Caucasus OJSC 2014-till present Chairman of the Committee for Technological Connection, Board of Directors of Kubanenergo 2014-2017 Member of the Human Resources and Remuneration Committee of the Board of Directors of Kubanenergo 2016-2016 Member of the Board of Directors of VNII NP OJSC Duration of work in June 17, 2013 — present Board of Directors

5. Aleksandr Ilyich Gavrilov, Executive Director: Year of birth 1973 Education Higher. Graduated from Kuban State University, majoring in Accounting and Audit; from Kuban State Technological University, major: “Development and Operation of Oil-and-Gas Field”. Completed advanced training course at Ernst &Young, subject: Risk Management. In 2017, completed the education program called “Organization of mobilization work in companies of fuel and energy complex having mobilization assignments” in Institute for Continuous Education of Staff of Fuel and Energy Companies. Academic degree: DPhil in Economics

Work Experience for the last 5 years: 2013 Top Advisor to the Chairman of the Management Board of FGC UES OJSC. 2013-till present Director General, Chairman of the Management Board of Kubanenergo June 23, 2014 — present Duration of work in Board of Directors

6. Vladimir Fyodorovich Gritsenko, Independent Director: Year of birth 1965 Education Higher. Graduated from Russian State University for the Humanities, majoring in law Work Experience for the last 5 years: 2012 – till present Business Development Director, Unitel Engineering, LLC (primary place of employment) 2016 – till present Member of the Presidium, OPORA RUSSIA Non-Commercial Partnership Member of the Committee for Strategy, Development, Investments and Overhaul, Board of Directors of Kubanenergo Duration of work in June 24, 2016 — present Board of Directors of Kubanenergo

7. Aleksandr Leonidovich Yefimov, Non-Executive Director: Year of birth 1982 Education Higher. Graduated from Moscow University of Internal Ministry of the Russian Federation, majoring in law Work Experience for the last 5 years: 2009-2013 Protocol Director and Head of Department of Protocol Provision, FGC UES 2013 – till present Head of Administrative Department, Rosseti PJSC (primary place of employment) Duration of work in June 24, 2016 — present Board of Directors of Kubanenergo

8. Aleksey Yuryevich Serov, Non-Executive Director: Year of birth 1979 Education Higher. Graduated from: - Lomonosov Moscow State University, major: “Applied Mathematics”; - New Economic School, Master of Finance Work Experience for the last 5 years: 2009-2012 Senior analyst in power engineering of the Stock Market Analysis Department of TKB Capital CJSC 2012-2013 Senior Analyst of Business Development Office of Business Environment CJSC 2013 – till present Director of Finance Department of Rosseti PJSC (primary place of employment) 2015-2017 Member of the Board of Directors of JSC NITs UES, Ingushenergo JSC 2016-2017 Member of the Board of Directors of TRK PJSC Member of the Audit Committee of the Board of Directors of Kubanenergo. Duration of work in June 24, 2016 — June 16, 2017 Board of Directors

9. Vladimir Vladimirovich Sofyin, Deputy Chairman of the Board of Directors, Non-Executive Director: Year of birth 1969 Education Higher. Graduated from Ural State Technical University qualification: “Electrical Power Systems and Grids” Work Experience for the last 5 years:

2010-2013 First Assistant Minister of the Ministry of Energy and Housing and Utility Infrastructure of the Murmansk Region 2012-2013 Director of Innovative Development of FGC UES OJSC 2013 – till present Director of Technological Development and Innovation Department of Rosseti PJSC (primary place of employment) 2014-2015 Member of the Board of Directors of VNIPIenergoprom OJSC 2015-2016 Member of the Board of Directors of Lenenergo PJSC 2015-2017 Member of the Board of Directors of FTC PJSC, ENIN OJSC 2016-2017 Member of the Board of Directors of IDGC of Urals OJSC, Administration of FOCL-OHL JSC Chairman of the Audit Committee of the Board of Directors of Kubanenergo. Duration of work in June 24, 2016 — June 16, 2017 Board of Directors

10. Kseniya Valeriyevna Khokholkova, Non-Executive Director: Year of birth 1970 Education Higher. Graduated from the State University of Management named after Sergo Ordzhonikidze, qualification: “Organization of Management in Fuel and Energy Sector”

Work Experience for the last 5 years: 2008- till present Deputy Head of Share Capital Administration, Head of Office of Shareholders’ Rights Enforcement of the Department of Corporate Governance and Shareholder Relations and Investors of Rosseti PJSC (primary employment) 2009-2013 Member of the Board of Directors of SZEUK OJSC 2009-2014 Member of the Board of Directors of Ingushenergo OJSC 2010-2014 Member of the Board of Directors of Volga Power Engineering Center OJSC 2013-2014 Member of the Revision Commission of IDGC of Volga Member of the Strategy OJSC, Investments and Restructuring Committee of the Board of Directors of IDGC of Siberia OJSC 2014-2015 Member of the Board of Directors of Energoservice OJSC, NITs of Volga OJSC 2014-2016 Member of the Strategy, Development, Investment and Reforming Committee, Member of the Board of Directors of Kubanenergo 2014-2017 Member of the Board of Health and Recreation Resort “Energetik” OJSC 2014-till present Member of the Board of Directors of Lenenergospetsremont OJSC, Member and Chairman of the Audit Committee of the Board of Directors of Kubanenergo. 2015-till present Member of the Board of Directors of ENIN OJSC Duration of work in June 23, 2014 — present Board of Directors of Kubanenergo

11. Igor Vladimirovich Shmakov, Executive Director: Year of birth 1974 Education Higher. Graduated from Kuban State University, qualification: “Economic and Social Planning” Work Experience for the last 5 years: 2008-2012 Head of Internal Audit and Risk Management Department of OJSC IDGC of South 2012-2013 Head of Internal Control Directorate of OJSC FGC UES 2013-2016 Head of Internal Audit Directorate of Rosseti PJSC 2013-2014 Member of the Revision Commission of MUS Energetiki OJSC 2013-2015 Member of the Revision Commission of Kubanenergo OJSC, IDGC of South OJSC, Yantarenergo OJSC, NITs of South OJSC 2015-2016 Member of the Board of Directors, Chairman of the Audit Committee of the Board of Directors of IDGC of South PJSC Chairman of the Audit Committee of the Board of Directors of TRK PJSC. Member of the Revision Commission of Kubanenergo, IDGC of Urals OJSC 2015-2017 Member of the Revision Commission of Rosseti PJSC, MOESK PJSC

2016 – till present Deputy Director General for Controlling of Kubanenergo (primary place of employment) 2016-2017 Member of the Revision Commission of FGC UES PJSC, IDGC of the North Caucasus PJSC Member of the Strategy, Development, Investment and Reforming Committee, Member of the Board of Directors of Kubanenergo Duration of work in June 24, 2016 — June 16, 2017 Board of Directors The share of independent directors in this Board of Directors is 1 out of 11.

All Company’s Board Members (in 2017) are citizens of the Russian Federation. None of the Company’s Board Members: • held the Company’s shares or carried out transactions with them in the reporting year23; • was trained at the Company’s expense in the reporting year; • was in kinship relations with any person being a member of management and/or financial and economic control bodies of Kubanenergo; • was brought to administrative liability for offenses in the field of finance, taxes and dues, securities market or criminal liability for crimes in economy or for crimes against the government; • held positions in management bodies of commercial organizations during the period when these organizations were filed for bankruptcy and / or one of bankruptcy proceedings stipulated by the legislation of the Russian Federation on insolvency; • had conflicts of interests with the Company’s Executive Bodies in the reporting year.

Activities of the Board of Directors In 2017, 35 meetings of the Board of Directors were held, 3 of them were via conference calls, the rest – via questionnaires. 2015-2017 Activities of the Board of Directors between: 2015 2016 2017 Number of meetings of the Board of Directors held 27 32 35 including in absentia (via conference calls) 0 2 3 Number of issues taken into consideration 211 234 169 including decisions made 211 234 169 Average involvement of members of the Board of Directors in its activity 92.7% 84.6% 95.0% Structure of Issues Considered by the Board of Directors in 2017:

23 According to the information provided to the Company by members of the Board of Directors 94

The number of issues tackled by the Board of Directors in the reporting year is less than in 2016 due to: • changes in legislation of the Russian Federation in regards to joint-stock companies and procedures on concluding deals which the Company had interest in concluding; • approval in 2016 of a wide range of documents in the domain of internal control and risk management, disposal of non-core assets, development and use of sponsor support funds etc., which continued to be in effect during the reporting year.

At meetings in person or in absentia (including via conference calls) held during the reporting year, the Board of Directors:

• approved Company’s business plans for 2017 and 2018; • reviewed the reports concerning implementation of Company’s business plan in the first quarter and the first nine months of 2017 and preparedness of the Company for the 2017-2018 fall and winter periods; • approved the reports concerning implementation of Company’s business plan in the 1st and 3rd quarter and the first nine months of 2017. Participation of Board members of Kubanenergo in meetings of the Board in 2017: All members of the Board of Directors of the Company, who were members of the committees of the Board of Directors in 2017, took part in all meetings of the committees. As a rule, at the first meeting of the newly formed Board of Directors the new Chairman of the Board of Directors is elected. At one of its first meetings, the Board of Directors approves its work plan for the corporate year. The plan is formed on the basis of proposals of the Chairman and members of the Board of Directors, the Audit Commission, the General Director, members of the Management Board, and the auditor in the following areas: • Company’s strategic development; • mid-term and long-term planning of Company’s activities; • organization of activities of the Board of Directors; • control over implementation of decisions made by the Board of Directors and the General Meeting of Shareholders.

Minutes of meetings of Kubanenergo’s Board Directors can be found at www.kubanenergo.ru, section About the Company / Governing Bodies / Board of Directors.

Committees of the Board of Directors In order to ensure effective implementation by the Company’s Board of Directors of its functions in relation to overall management of the Company, the Committees of the Board of Directors were established, including: - Reliability Committee; - Audit Committee; - Strategy, Development, Investment and Restructuring Committee; - Human Resources and Remuneration Committee; - Technological Connection Committee. The Committees have the status of advisory bodies engaged in profound elaboration of critical issues within the competence of the Board of Directors and preparation of recommendations (opinions) for the Board of Directors, and consider any other issues as instructed by the Board of Directors. Activities of each Committee are governed by respective regulation establishing purposes and tasks of the Committee, the procedure for establishment thereof and organization of its work (Regulations on Committees of Company’s Board of Directors may be found at www.kubanenergo.ru, section About the Company / Charter and Internal Documents). Personal composition of the committees and their chairmen shall be elected by the Board of Directors of the Company from the candidates introduced by members of the Board of Directors during one of the first meetings of the newly elected Board of Directors. Members of the Audit Committee shall be elected for a period until the next election of members of this Committee. Members of the other Committees shall be elected for a period until the first meeting of the newly elected Board of Directors. Usually, during one of the first meetings the Committees approve their operating plans for the current corporate year; these plans are developed on the basis of the operating plan of the Board of Directors, decisions of the Board of Directors and Committees, proposals of committee members, the Director General. In the reporting year, all issues subject to preliminary consideration by the Committees of the Board of Directors were considered by the Committees in a timely manner. Minutes of meetings of Kubanenergo’s Board of Directors are published at www.kubanenergo.ru, section About the Company / Governing Bodies / Committees of Board of Directors. Members participating in meetings of the Committees of the Board of Directors are entitled to respective remuneration. Total amount of remuneration paid to members of the Committees of the Board of Directors in 2017 amounted to 847 thousand rubles. The Company has no outstanding amounts payable to any members of the Committees.

Reliability Committee Date of Committee September 15, 2006 Establishment Date and number of the Minutes of Meetings of the Company’s Board of Directors where the № 281/2017 dd. July 21, 2017 Regulation on Committee was approved (as amended) Development and presentation of recommendations (opinions) to the Company’s Board of Directors with regard to the following areas of focus of the Board of Directors: • examination of investment programs and plans for repair of power facilities, analysis of their performance in terms of integrated reliability requirements; Main Objectives • evaluation of completeness and sufficiency of measures taken in response to accidents of the Committee and major process faults, and follow-up thereof; • examinations of quality of investigating causes of technological violations (accidents); • examination of the Company's activity in the domain of emergency response (ensuring readiness, organization and performance of emergency recovery operations at electric grid facilities);

• examination of and control over the implementation of programs for the prevention and reduction of the risks of injury to Company personnel and third parties in the Company's electrical installations; • monitoring and evaluation of the technical services of the Company in terms of ensuring reliability of operation of electrical networks and industrial safety; • monitoring of internal technical control system within the Company; • monitoring of job safety management; • monitoring of implementation of environmental policy; • monitoring of fire and industrial safety systems. Committee composition acting from July 21, 2016 to June 23, 2017 (amendments to the Committee composition were made by the decision of the Board of Directors of March 1, 2017, Minutes No. 265.2016): 1. Vasily Vladimirovich Rozhkov (Chairman of the Committee), Head of Production Planning Unit of Operation and Technological Department, Rosseti PJSC 2. Edgar Garriyevich Armaganyan, First Deputy Director General, Director of Sochi Electric Grids Branch, Deputy Director General for Service Sales of Kubanenergo, Member of the Management Board of Kubanenergo. 3. Polina Nikolayevna Kanyuka, Deputy Head of Production Planning Unit of Operation and Technological Department, Rosseti PJSC 4. Olga Vyacheslavovna Ocheredko, Deputy Director General for Economy and Finance of Kubanenergo, Member of the Management Board of Kubanenergo. 5. Dmitry Yurievich Ryazantsev, Deputy Director General for Technical Issues, Chief Engineer of Kubanenergo, Member of the Management Board of Kubanenergo. Members of the 6. Mikhail Vladimirovich Smaga, Deputy Director of Rosseti PJSC Branch “Technical Committee in the Supervision Center”. Reporting Year 24 7. Sergey Aleksandrovich Shabalin, Principal Advisor to the Pricing Policy and Industry Infrastructure Control Division of the Electric Power Industry Development Department of the Ministry of Energy of the Russian Federation Current composition of the Committee (elected on July 19, 2017): 1. Vladimir Anatolyevich Ukolov (Chairman of the Committee), Deputy Head of Situational and Analytical Center of Rosseti PJSC 2. Eduard Valeryevich Bogomologv, FirstDeputy Director of Rosseti PJSC Branch “Technical Supervision Center” 3. Mikhail Vladimirovich Medvedev, Deputy Director General, INTRATOOL Group, Member of the Management Board of Kubanenergo. 4. Olga Vyacheslavovna Ocheredko, Deputy Director General for Economy and Finance of Kubanenergo, Member of the Management Board of Kubanenergo. 5. Igor Nikolayevich Shishigin, Deputy Director General for Technical Issues and Chief Engineer, Kubanenergo; Member of the Management Board of Kubanenergo. 13 meetings were held (1 in person, the rest – in absentee form), 44 issues were taken into consideration. In the reporting year, the Committee submitted to the Board of Directors its opinions (recommendations) on the following key issues: • on approval of: ✓ 2016-2020 Innovative Development Program of the Company, with and outlook through to 2025; ✓ 2017-2026 Program of Renovation of Electric Grid Facilities; Main Results of ✓ 2018-2022 Target production programs; the Committee in ✓ Plan for Technological Maintenance and Repair of Company’s facilities; the Reporting • on implementation of environmental policy; Year • on reviewing suggestions for planned values of reliability and quality of services rendered for the period up to 2022; • on reviewing the following reports: ✓ on implementation of the Investment Program in regard to provision of overall reliability; ✓ on preparedness of the Company for the 2017/2018 autumn and winter period; ✓ on implementation of the Plan for Development of Production Assets Management of Kubanenergo. During the reporting year, the Reliability Committee also discussed the following:

24 Positions of members of the Committees of the Board of Directors are hereinafter indicated as on the date of election to the Committees. 98

• Program of Increasing Efficiency, Reliability and Safety of Energy Production by the Company and the reports regarding their implementation; • Program of measures aimed at elimination of “narrow” places influencing reliable energy supply to the Company’s consumers, and progress reports; • reports of Company’s management: ✓ on passing the fall and winter periods by the Company; ✓ on readiness for organizing and implementing maintenance and repair works during the fall and winter periods; ✓ on preparation for working during fire, flood and thunderstorm periods; ✓ on implementing the repair program; ✓ on implementing the production programs; ✓ on implementing the comprehensive program to reduce the risks of injury to the Company’s personnel and third parties; • data on key indicators of quality and reliability of services rendered. Share of issues previously considered by the Committee with preparation of recommendations for the Board of Directors in the total number of issues considered by the Committee: 37.0% (2016) and 27.3% (in 2017). Participation of Committee members in the operation of this body averaged to 86.3% (2016) and 92.4% (2017).

Audit Committee Date of Committee October 16, 2009 Establishment Date and number of the Minutes of Meetings of the Company’s Board of No. 233/2016 dd. March 18, 2016 (with amendments No. 253/2016 dd. October 28, Directors where the Regulation on 2016) Committee was approved (as amended) • consideration of the Company’s accounting (financial) statements and supervision over the process of preparation thereof; • control of reliability and efficiency of the internal control system, risk Main Objectives management system, corporate governance practices; of the Committee • control of external audit and selection of an auditor; • ensuring independence and objectivity of the internal audit function; • supervision over functioning efficiency of the system of counteraction to unethical practice of Company’s employees and third parties. Committee composition acting from July 21, 2016 to July 19, 2017: 1. Vladimir Vladimirovich Sofyin (Chairman of the Committee), Director of Technological Development and Innovation Department of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 2. Kseniya Valeriyevna Khokholkova, Deputy head of Share Capital Administration, the Head of Office of Shareholders’ Rights Enforcement of the Department of Corporate Governance and Shareholder Relations and Investors of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 3. Aleksey Yuryevich Serov, Interim Director of Finance Department, Head of Capital Members of the Markets and Strategic Investments Department, Rosseti PJSC; Member of the Board of Committee in the Directors, Kubanenergo. Reporting Year Current composition of the Committee (elected on July 19, 2017): 1. Kseniya Valeriyevna Khokholkova, Deputy head of Share Capital Administration, the Head of Office of Shareholders’ Rights Enforcement of the Department of Corporate Governance and Shareholder Relations and Investors of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 2. Elena Nikolayevna Osipova, Head of Financial Analysis and Liquidity Management Department, Treasury of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 3. Irina Aleksandrovna Shagina, Head of Office for Tariff Regulation, Department of Tariff Policy of Rosseti PJSC, Member of the Board of Directors of Kubanenergo Main Results of 16 meetings were held (7 in presentia, the rest in the form of absentee voting), 46 issues the Committee in were considered.

the Reporting On April 25, 2017, the Board of Directors considered and took note of the report on the Year efficiency of the internal control and risk management system of the Company based on 2016 year-end results (Minutes No. 271/2017 dd. April 28, 2017). For information on assessment of Company’s internal control system effectiveness in the reporting year see section “Internal Control and Internal Audit”. The following significant issues were considered at meetings of the Audit Committee of the Company’s Board of Directors in the reporting period: • the candidacy of the Company’s external auditor carrying out audit of the accounting (financial) statements of the Company for 2017 prepared in accordance with RAS as well as audit of the consolidated financial statements for 2017 prepared in accordance with IFRS is pre-approved (Minutes No. 52/2017 dd. April 5, 2017); • the assessment of external audit efficiency is given, including the assessment of external auditor’s opinion (Minutes No. 54/2017 dd. April 28, 2017); • written information provided by the external auditor with regard to the main problems of accounting (financial) statements of the Company was considered (Minutes No. 54/2017 dd. April 28, 2017; Minutes No. 56/2017 dd. June 6, 2017; Minutes No. 59/2017 dd. August 17, 2017; Minutes No. 62/2017 dd. December 20, 2017); • information related to non-standard operations and events of the Company as well as information related to creation of provisions for doubtful debts and estimated liabilities was discussed (Minutes No. 54/2017 dd. April 28, 2017); • substantial aspects of the accounting policy and changes planned were considered (Minutes No. 62/2017 dd. December 20, 2017); • accounting (financial) statements of the Company prepared in accordance with RAS, and the consolidated financial statements prepared in accordance with IFRS were periodically considered (Minutes No. 54/2017 dd. April 28, 2017; Minutes No. 55/2017 dd. May 17, 2017; Minutes No. 59/2017 dd. August 17, 2017; Minutes No. 60/2017 dd. November 15, 2017); • changes to Internal Audit Policy (Minutes No. 46/2017 dd. February 20, 2017) and Anti-Corruption Policy of Rosseti PJSC and its Subsidiaries and Affiliates (revised edition as an internal document of the Company was reviewed before approval by the Board of Directors (Minutes No. 48/2017 dd. January 26, 2017); • the report on Audit Committee’s activities in 2016-2017 corporate years was compiled and presented for review to the Company’s Board of Directors (Minutes No. 55/2017 dd. May 17, 2017); • plan and budget for internal audit in 2017 were approved (Minutes No.58/2017 dd. 10.08.2017, dd. December 4, 2017 No. 61/2017); • reports on implementation of the operating plan and work results of the internal audit department were periodically considered (Minutes No. 50/2017 dd. February 28, 2017; Minutes No. 55/2017 dd. May 17, 2017; Minutes No. 59/2017 dd. August 17, 2017; Minutes No. 60/2017 dd. November 15, 2017); • management information on the implementation of the Company’s Internal Control Policy was reviewed, including the plan for development and improvement of systems of internal control and risk management (Minutes No. 59/2017 dd. August 17, 2017); • information and reports of the Company’s management were reviewed on a periodical basis with respect to the implementation of planned corrective actions to eliminate defects identified by the Company’s Revision Commission, internal audit of the Company, external control and supervision bodies, with respect to the implementation of measures taken based on the information on employees’ potential unfair acts and results of investigations (Minutes No. 50/2017 dd. February 28, 2017; No. 59/2017 dd. August 17, 2017; No. 63/2018 dd. January 10, 2018); • report on the efficiency of the Company’s internal control system and risk management system was considered (Minutes No. 51/2017 dd. March 20, 2017); • results of anti-corruption monitoring within the Company were discussed (Minutes No. 49/2017 dd. February 20, 2017; No. 59/2017 dd. August 17, 2017); • plan for development and improvement of Company’s internal audit was discussed (Minutes No. 58/2017 dd. August 10, 2017). Share of issues previously considered by the Committee with preparation of recommendations for the Board of Directors in the total number of issues considered by the Committee: 50.0% (2016) and 39.1% (2017). Participation of Committee members in the operation of this body averaged to 91.3% (2016) and to 100% (2017).

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Strategy, Development, Investments and Restructuring Committee Date of Committee February 5, 2010 Establishment Date and number of the Minutes of Meetings of the Company’s Board of No. 84/2010 dd. February 5, 2010 (with amendments No. 233/2016 dd. March 18, Directors where the Regulation on 2016) Committee was approved (as amended) Development and submission of recommendations (opinions) to the Board of Directors on the issues related to: • identification of priorities, strategic objectives and core principles for the strategic development of the Company; Main Objectives • assessment of its activity efficiency; of the Committee • enhancement of investment appeal, improvement of investment activities; • control of implementation of the approved programs, projects and restructuring of the Company; • dividend policy; • control of the risk management system organization and functioning. Committee composition acting from July 21, 2016 to June 23, 2017: 1. Aleksey Igorevich Pavlov (Committee Chairman), Head of Office of Finance of Rosseti PJSC. 2. Fyodor Nikolayevich Balaban, Head of Research and Information Department of Rosseti PJSC. 3. Aleksey Nikolayevich Goncharov, Head of Department for Cooperation with Participants of Wholesale and Retail Electricity Markets of Rosseti PJSC. 4. Vladimir Fyodorovich Gritsenko, Business Development Director of LLC Unitel Engineering, Member of the Board of Directors of Kubanenergo. 5. Tatyana Valentinovna Zobkova, Head of Division of the Department for Corporate Governance, Pricing Environment and Internal Control of the Fuel and Energy Sector in the Ministry of Energy of the Russian Federation. 6. Marina Aleksandrovna Lavrova, Head of S&A Economy Administration of the Department of Economic Planning and Budgeting of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 7. Olga Vyacheslavovna Ocheredko, Deputy Director General for Economy and Finance, Member of the Management Board of Kubanenergo. 8. Yuriy Nikolayevich Pankstiyanov, Head of Tariff Policy Department of Rosseti PJSC 9. Sergey Vladimirovich Podlutsky, Head of Office of Master Planning and Reporting of Members of the Investment Department of Rosseti PJSC. Committee in the 10. Igor Vladimirovich Shmakov, Deputy Director General for Controlling of Reporting Year Kubanenergo, Member of the Board of Directors of Kubanenergo The current composition of the Committee (elected on July 19, 2017): 1. Aleksey Igorevich Pavlov (Committee Chairman), Head of Office of Finance of Rosseti PJSC. 2. Fyodor Nikolayevich Balaban, Head of Research and Information Department of Rosseti PJSC. 3. Vladimir Fyodorovich Gritsenko, Business Development Director of LLC Unitel Engineering, Member of the Board of Directors of Kubanenergo. 4. Konstantin Sergeyevich Guselnikov, Director General of Fininvestconsulting LLC 5. Olga Sergeyevna Ivanova, Advisor for Deputy Director General for Strategic Development of Rosseti PJSC. 6. Dmitry Vasilyevich Mikryukov, lead expert of Office for Master Planning and Reporting, Investment Department, Rosseti PJSC. 7. Marina Aleksandrovna Lavrova, Head of S&A Economy Administration of the Department of Economic Planning and Budgeting of Rosseti PJSC, Member of the Board of Directors of Kubanenergo. 8. Olga Vyacheslavovna Ocheredko, Deputy Director General for Economy and Finance, Member of the Management Board of Kubanenergo. 9. Inna Sergeyevna Rafalskaya, Deputy Head of Office for Settlement of Tariff Disputes, Tariff Policy Department of Rosseti PJSC.

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10. Viktor Yuryevich Seleznyov, Head of Office for Organization of and Control over Implementation of R&D, Department of Technological Development of Innovations, Rosseti PJSC. 11 meetings were held (1 in person and in absentia, the others in the form of absentee voting), 37 issues were considered, recommendations to the Board of Directors with regard to the following most important issues were developed: • approval of the Company’s business plan, including the investment program and information on key operational risks, as well as on approval of reports on its performance • on approval of results of milestones performance of KPIs of the Director General of the Company; • on approval of the action plan aimed at increasing performance efficiency as well as Main Results of costs of reduction of the Company, revised edition of the Procedure of organizing the the Committee in investment program and reporting on its implementation, increase of investment efficiency the Reporting and cost reduction of the Company; Year • on approval of the list of investment projects due for technological price audit; • on review of Company’s draft long-term investment program; • on consideration of reports of the Director General regarding competence of the Committee. Share of issues previously considered by the Committee with preparation of recommendations for the Board of Directors in the total number of issues considered by the Committee: 90.4% (2016) and 86.5% (2017). Participation of Committee members in the operation of this body averaged to 96.0% in 2016 and to 88.4% in 2017

Human Resources and Remuneration Committee Date of Committee August 6, 2010 Establishment Date and number of the Minutes of Meetings of the Company’s Board of Directors where the No. 194/2014 dd. August 1, 2014 Regulation on Committee was approved (as amended) Development and submission of recommendations (opinions) to the Board of Directors on the issues related to establishment of selection and assessment criteria of candidates to the Main Objectives Company’s Board of Directors and its executive bodies, formation of principles and of the Committee criteria to determine remuneration amount for members of the Company’s management, work assessment of the Director General and members of the Management Board, amount of remuneration to members of the Board of Directors. Committee composition acting from July 21, 2016 to June 23, 2017: 1. Yuri Nikolayevich Mangarov (Committee Chairman), Top Advisor to Rosseti PJSC, Chairman of the Board of Directors of Kubanenergo. 2. Aleksandr Viktorovich Varvarin, Vice-President for Corporate Relations and Legal Support of RSPP, Member of the Board of Directors of Kubanenergo. 3. Tatyana Valentinovna Zobkova, Head of Division of the Department for Corporate Governance, Pricing Environment and Internal Control of the Fuel and Energy Sector in the Ministry of Energy of the Russian Federation. Members of the 4. Dmitry Aleksandrovich Chevkin, Director of Department of HR Policy and Committee in the Organizational Development of Rosseti PJSC. Reporting Year 5. Nataliya Ilyinichna Erpsher, Head of Office of Organizational Development of the Department of HR Policy and Organizational Development of Rosseti PJSC. The current composition of the Committee (elected on July 19, 2017): 1. Nikolay Nikolayevich Varlamov (Chairman of the Committee), Deputy Director General, Head of Office, Rosseti PJSC. 2. Dmitry Aleksandrovich Chevkin, Director of Department of HR Policy and Organizational Development of Rosseti PJSC. 3. Nataliya Ilyinichna Erpsher, Head of Office of Organizational Development of the Department of HR Policy and Organizational Development of Rosseti PJSC Main Results of 10 meetings in the form of absentee voting were held, 19 issues were considered. the Committee in

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the Reporting Recommendations to the Board of Directors with regard to the following main issues were Year developed: • on amendments to the composition of the management Board of the Company; • on approval of corporate structure of the Company’s executive office; • on approval of results of milestones performance of KPIs of the Director General; • on preliminary approval of the list of positions included into the category of top managers of the Company; • on preliminary review of the report on activities of the Corporate Secretary of Kubanenergo. Furthermore, the Committee: • considered performance of Deputies of the Director General of the Company and recommended to the Director General to extend employment contracts with them; • approved projects of governing bodies of management of Company’s branches. Share of issues previously considered by the Committee with preparation of recommendations for the Board of Directors in the total number of issues considered by the Committee: 71.4% (2016), 63.2% (2017). Participation of Committee members in the operation of this body averaged to 93.3% in 2016 and 97.3% (2017).

Technological Connection Committee Date of Committee October 11, 2011 Establishment Date and number of the Minutes of Meetings of the Company’s Board of Directors where the No. 281/2017 dd. July 19, 2017 Regulation on Committee was approved (as amended) Development of recommendations (opinions) to the Board of Directors on the issues related to: • improvement of anti-trust law and provision of equal-opportunity access to services of technological connection of consumers to electric grids; • improvement of internal standards of the Company in relation in provision of equal- opportunity access to services of technological connection of consumers to electric grids; • development of principles and criteria of efficiency of Company’s activities in the Main Objectives domain of technological connection of consumers to electric grids; of the Committee • evaluation of efficiency of Company’s activities in the domain of technological connection of consumers to electric grids; • evaluation of efficiency of Company’s activities in the domain of increasing quality of planning development of electric grids in Company’s regions of presence; • analysis of current situation within the Company and preparation of suggestions to the Board of Directors in the domain of technological connection of consumers to electric grids and development of the network in general.

Members of the Committee composition acting from July 21, 2016 to June 23, 2017: Committee in the 1. Aleksandr Viktorovich Varvarin, Vice-President for Corporate Relations and Legal Reporting Year Support of RSPP, Member of the Board of Directors of Kubanenergo.

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2. Aleksandr Yuriyevich Korneyev, Head of Office of Technological Connection Regulation of the Department of Grid and Technological Connection Prospective Development of Rosseti PJSC. 3. Vyacheslav Yuriyevich Kostetsky, Deputy Director General for Service Sales and Development, Member of the Management Board of Kubanenergo. 4. Irina Borisovna Masalyova, Director of Department of Grid and Technological Connection Prospective Development of Rosseti PJSC. 5. Aleksandr Valeryevich Pavlov, Principal Adviser of the Industry Regulations Development Division of the Electric Power Industry Development Department of the Ministry of Energy of the Russian Federation. 6. Denis Yevgenyevich Sokolov, Chief Expert of Office of Technological Connection Regulation of the Department of Grid and Technological Connection Prospective Development of Rosseti PJSC. 7. Elena Leonidovna Soltan, Head of Department of Technological Connection of Kubanenergo. The current composition of the Committee (elected on July 19, 2017): 1. Aleksandr Viktorovich Varvarin, Vice-President for Corporate Relations and Legal Support of RSPP, Member of the Board of Directors of Kubanenergo. 2. Aleksandr Yuriyevich Korneyev, Head of Office of Technological Connection Regulation of the Department of Grid and Technological Connection Prospective Development of Rosseti PJSC. 3. Natalya Vladimirovna Denezhnaya, chief expert of Office for Regulation of Technological Connection, Department of Prospective Network Development and Technological Connection, Rosseti PJSC. 6 meetings were held (all in the form of absentee voting), 25 issues were considered, including: • election of the Chairman, Deputy Chairman and Secretary of the Committee; • as a result of monitoring Company’s activities in the domain of technological connection between 2013 and 2016, recommendations were given to Company’s management to reduce the volume of liabilities in accordance with technological connection agreements and reduce terms of their execution, as well as to initiate making changes to legislation of the Russian Federation related to state regulation of rates for technological connection; • report on developing Comprehensive programs of development of 35 kV+ electric grids in Krasnodar Krai and Adygea for the years 2018-2022 was reviewed; • results of tariff campaigns concerning approval of rates for technological connection Main Results of were considered; the Committee in • the following was reviewed on a regular basis: the Reporting ✓ reports on technological connections of electricity consumers’ electrical installations to Year Company’s electric grids; ✓ analysis of dealing with applications for technological connection and relevant claims, development of recommendations related to dealing with applications and claims; ✓ reports on performance of KPIs concerning meeting the deadlines for technological connection and increase of capacity utilization of electric grid equipment; ✓ analysis of technological connection of enterprises pertaining to small and medium businesses; • the Committee’s work plan was approved. Share of issues previously considered by the Committee with preparation of recommendations for the Board of Directors in the total number of issues considered by the Committee: 13.0% (2016), 8.0% (2017). Participation of Committee members in the operation of this body averaged to 95.7% in 2016 and to 100% in 2017.

Executive Bodies Current activities of Kubanenergo are managed by the sole executive body, the Director General, and a collective executive body, the Management Board. The Director General and the Management Board are accountable to General Meeting of Shareholders and the Board of Directors of the Company. In accordance with the Company’s Articles of Association, the Director General is elected by the Board of Directors and is the Chairman of the Management Board. Members of the Management Board are

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also elected by the Board of Directors following a proposal of the Director General of the Company in the number specified by the decision of the Board of Directors. All members of the Management Board, including the Chairman of the Management Board, have sufficient experience, knowledge and skills required for due performance of their obligations. The Director General and members of the Management Board act in good faith in the interests of the Company and all its shareholders. In order to avoid conflict of interest and related negative consequences for the Company, members of the Management Board disclose all information on their commercial activity unrelated to the Company.

Director General In accordance with the Articles of Association of Kubanenergo, the competence of the Director General includes all matters of the current activities of the Company, except for the matters falling within the competence of the General Meeting of Shareholders, the Board of Directors and the Management Board of the Company. The Director General of the Company is entitled to act on behalf of the Company without any power of attorney, including, but not limited to, as follows: • secures the implementation of plans of the Company activities, required for attaining of the set objectives; • arranges accounting and reporting in the Company; • disposes of the Company property, implements transactions on behalf of the Company, issues powers of attorney; • issues local normative acts and other internal documents of the Company related to the matters within his competence, gives instructions binding on all employees of the Company; • approves the Regulations on Branches and Representative Offices of the Company; • in accordance with the organizational structure of the executive body of the Company, approves the manning table and salaries of the Company employees; • exercises the rights and performs the obligations of an employer in respect of the Company’s employees as required by the labor law; • performs the functions of the Chairman of the Management Board of the Company; • distributes duties between the Deputy Directors General. Since March 19, 2013, the functions of the sole executive body of the Company have been performed by Aleksandr Ilyich Gavrilov25.

Management Board The Management Board is responsible for practical implementation of the Company’s purposes, strategy and policy and performs management of the Company’s current activity within its competence. Main objectives of the Management Board: • ensuring of respect for rights and legal interests of the Company’s shareholders; • development of proposals on the Company’s development strategy; • implementation of business and financial policy of the Company, elaboration of decisions on the most urgent issues of business activities and coordination of the work of the Company’s units; • increase of efficiency of internal control and risks monitoring systems; • ensuring of achievement of high level of return on the Company’s assets and maximum operating profit. The Management Board of the Company operates on the basis of the Articles of Association and the Regulation on the Management Board26 approved by the Decision of the General Meeting of Shareholders of the Company. In particular, the following issues fall within the competence of this executive body: • approval of resolutions on the issues falling within the competence of the supreme governance

25 For more information about A.I. Gavrilov see the information on the current compositions of the Board of Directors and the Management Board. 26 Regulations on the Management Board of Kubanenergo may be found at www.kubanenergo.ru, section About the Company / Charter and Internal Documents. 105

bodies of economic societies in which 100% of authorized capital or all voting shares are held by the Company; • elaboration and submission to the Board of Directors of prospective plans for implementation of the principal areas of Company activities; • preparation of business plan and reports on the progress of its implementation, as well as approval and adjustment of cash flow; • preparation of report on financial and business activities of the Company, and on compliance with the decisions adopted by the General Meeting of Shareholders and the Board of Directors by the Management Board; • establishment of social benefits and guarantees for the Company employees; • approval of resolutions on entering into transactions the subject matter whereof is the property, works and services, the value of which makes from 1 to 25% of the book value of the Company assets. • effective risk management within the current activity of the Company; the adoption of the • budget for risk management measures within the limits approved by the Decision of the Board of Directors of the Company; finding of solution to risk management issues performed by several structural units.

Composition of the Management Board During the reporting year, the following changes took place in the composition of the Management Board: • Dmitry Yuryevich Ryazantsev was relieved of his duties as member of the Company’s Management Board; • Igor Nikolayevich Shishigin, Deputy Director General for Technical Issues and Chief Engineer, Kubanenergo was elected as member of the Company’s Management Board. Current composition of the Management Board as of the end of the reporting year27: 1. Aleksandr Ilyich Gavrilov, Management Board Chairman: Year of birth 1973 Education Higher. Graduated from Kuban State University, majoring in Accounting and Audit; from Kuban State Technological University, major: “Development and Operation of Oil-and-Gas Field”. Completed advanced training course at Ernst &Young, subject: Risk Management. In 2017, completed the education program called “Organization of mobilization work in companies of fuel and energy complex having mobilization assignments” in Institute for Continuous Education of Staff of Fuel and Energy Companies. Academic degree: DPhil in Economics Work Experience for the last 5 years: 2013 Top Advisor to the Chairman of the Management Board of FGC UES OJSC 2013 – till present Director General of Kubanenergo 2014 – till present Member of the Board of Directors of Kubanenergo Date of election as June 4, 2013 Chairman of the Management Board

2. Edgar Garriyevich Armaganyan: Year of birth 1984 Education Higher. Graduated from Kuban State Agrarian University, qualification: “Electrification and Automation”, Non-State Educational Institution of Higher Professional Education Moscow Institute of Entrepreneurship and Law, qualification: “Management of Organization”.

27 Information about the experience of the Management Board members specifies only the last positions held by them for each place of employment. All positions held by Management Board members (in a chronological order) are specified in the quarterly reports of the issuer published at www.kubanenergo.ru, section For Shareholders and Investors / Information Disclosure / Quarterly Reports of the Issuer». 106

Passed professional retraining course in: - “Management of Organization” in Bauman Moscow State Technical University on the basis of Non-Commercial Non-State Educational Institution Training Center of Kubanenergo; - “Jurisprudence: civil law relations” in the Federal State Budgetary Educational Institution of Higher Professional Education Kuban State University Completed advanced training courses: - at Ernst &Young, subject: Risk Management; on the basis of the Moscow School of Management Skolkovo, subject: Development of Leaders in the Power Grid Complex. Work Experience for the last 5 years: 2009-till present First Deputy Director General, Director of Sochi Electric Grids Branch, Deputy Director General for Service Sales (in addition to other duties) of Kubanenergo 2015-2017 Member of the Reliability Committee of the Board of Directors of Kubanenergo 2016-till present Chairman of the Board of Directors of Energoservice Kubani OJSC Date of election to the August 28, 2014 Management Board

3. Andrey Valeriyevich Golov: Year of birth 1980 Education Higher. Graduated from Orenburg State University, qualification: “Finance and Credit”. Academic degree: Ph.D. in Economics. Completed advanced training courses: - at Ernst &Young, subject: Risk Management; - at Autonomous Non-profit Organization “Education and Advisory Center Energopersonal”, subject: Internal control: theoretic and practical background” Work Experience for the last 5 years: 2012 – till present Deputy Director General for Investment of Kubanenergo Date of election to the April 9, 2013 Management Board

4. Dmitry Nikolayevich Golovakha: Year of birth 1977 Education Higher. Graduated from Krasnodar Technical College, qualification: “Installation and Maintenance of Electrical Equipment of Agricultural Companies”, Kuban State Agrarian University, qualification: “Electrification and Automation of Agricultural Industry” Attended the course of professional retraining at Bauman State Technical University, discipline: Company management. Completed advanced training courses: - at Kuban State University, subject: Protection of Secret of State by Executive and Local Authorities of the Krasnodar Krai, - at the Federal State Educational Institution of Continuing Professional Education “Institution of Advanced Training for High-Level Personnel and Fuel and Energy Sector Specialists”, subject: Mobilization of economy, preparation of entities for the mobilization; - at State Public Institution of the Krasnodar Krai “Education and Methodology Center for Civil Defense and Emergency Response”, subject: Training of officials and specialists for civil defense and emergency response Work Experience for the last 5 years: 2008-2012 Head of Prospective Development Department of IDGC of the South OJSC. 2012-2013 Deputy Minister of the Ministry of Industry and Energy of the Krasnodar Krai 2013 – till present Kubanenergo, South-Western Power Grids Branch Director Date of election to the June 14, 2013 Management Board

5. Lyudmila Alekseyevna Golovakha: Year of birth 1955

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Education Higher. Graduated from Kuban State University, qualifications: “Law” and “State and Municipal Management”, the Krasnodar College of Sugar Industry, qualification “Electrical Equipment of Industrial Enterprises and Facilities.” Completed advanced training course at Ernst &Young, subject: Risk Management Completed a professional training course in the Southern Management Institute, subject “Staff Management” Completed the following advanced training courses: - at Ernst &Young, subject: Risk Management; - at Kubanenergo's Energy Training Institute, subjects: “Responsibility for Traffic Safety”, “Safety at Vehicular and Electric Transport”. Work Experience for the last 5 years: 2013 – till present Deputy Director General, Head of Office of Kubanenergo Date of election to the June 14, 2013 Management Board

6. Irina Viktornovna Ivanova: Year of birth 1973 Education Higher. Graduated from Kuban State University, qualification: “Accounting and Audit” and “Law”. Completed professional retraining at the Bauman Moscow State Technical University, qualification: “Company Management”. Completed advanced training course at Ernst &Young, subject: Internal audit: best practice concepts and tools. Work Experience for the last 5 years: 2003-2015 Deputy Head of Document Audit and Anti-Corruption Department of the Chief Directorate of the Ministry of Internal Affairs of the Russian Federation for the Krasnodar Krai 2015 – till present Advisor for Director General of Kubanenergo Date of election to the December 30, 2016 Management Board

7. Vyacheslav Yurievich Kostetsky: Year of birth 1974 Education Higher. Graduated from the Institute of Economics, Law and Natural Specialties, qualification: “Jurisprudence”; the Kuban State Technical University, qualification: “Electric Power Supply”. Completed the “Company Management” professional retraining course at Bauman Moscow State Technical University on the basis of Non-Commercial Non-State Educational Institution Training Center of Kubanenergo. Completed advanced training courses: - at Ernst &Young, subject: Risk Management, and at Autonomous Non-profit Organization “Education and Advisory Center Energopersonal”, subject: Internal control: theoretic and practical background; at FBI ITC of the FAS of Russia (seminar), subject: Tariff regulations in 2016 and regulatory authorities’ objectives for 2017. - at BIPRES LLC (Bureau for Intellectual Support of Renovations in Energy Sector), subject «FAS of Russia: Changes made and to be made in regulations of retail electricity markets.” Work Experience for the last 5 years: 2013 – till present Deputy Director General for Development and Technological Connection of Kubanenergo 2013-2015 Chairman of the Board of Directors of Energoservice Kubani OJSC Member of the Strategy, Development, Investment and Restructuring Committee, Member of the Board of Directors of Kubanenergo OJSC 2013-2017 Member of the Committee for Technological Connection of the Board of Directors of Kubanenergo Date of election to the June 14, 2013 Management Board

8. Vladimir Aleksandrovich Mikhaylov:

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Year of birth 1982 Education Higher. Graduated from South-Russian State Technical University (Novocherkassk Polytechnic University), qualification: “Electric Systems and Grids”. Completed professional retraining course: - at South-Russian State Technical University (Novocherkassk Polytechnic University), qualification: Process and Production Safety in the Energy Industry and Energy Supply; at Bauman Moscow State Technical University on the basis of Non-Commercial Non- State Educational Institution Training Center of Kubanenergo, program: Company Management. Completed advanced training courses: - at NPK Innovative Technologies LLC, program: Internal Auditor Training for Environmental Management Systems; - at the National Academy of Retraining and Advanced Training of Managers and Investment Specialists, program: Ensuring environmental safety managers and specialists of general business management systems; at Autonomous Non-profit Organization “Education and Advisory Center Energopersonal”, subject: Economic Mobilization Training; - at training facility of Federal, Environmental, Industrial and Nuclear Supervision Service of Russia (Rostekhnadzor), subject: “Precertification training in industrial safety. Basics of industrial safety (general requirements in industrial safety).” Work Experience for the last 5 years: 2011 – till present Director of Krasnodar Electric Grids, branch of Kubanenergo Date of election to the February 26, 2016 Management Board

9. Olga Vyacheslavovna Ocheredko: Year of birth 1972 Education Higher. Graduated from Kuban State University, qualification: “Economic and Social Planning”, the Moscow State Institute of International Relations (University) at the Ministry of Foreign Affairs of Russia, MBA “Management and Regulation of Economic Activity in the International Power Industry”. Completed the “Company Management” professional retraining course at Bauman Moscow State Technical University on the basis of Non-Commercial Non-State Educational Institution Training Center of Kubanenergo. Completed advanced training courses: - at Ernst &Young, subject: Risk Management; at the Training and Information Center EnergoResheniye, subject: Russian Electric and Thermal Energy Industry Development, at the Bureau for Intelligent Support to Reforms in the Energy Sector, subject: FAS of Russia. Updates in tariff-making and setting balances in thermal and electric energy industry, at FBI ITC of the FAS of Russia (seminar), subject: Tariff regulations in 2017 and regulatory authorities’ objectives for 2018-2025; - at BIPRES LLC (Bureau for Intellectual Support of Renovations in Energy Sector), subject “FAS of Russia: Changes in tariff regulation and formation of statements in thermal power and electricity sectors”, “FAS of Russia: Changes in tariff regulation and formation of statements in thermal power and electricity sectors. Theory and practice of anti-trust regulations in electricity sector”, “FAS of Russia: Changes made and to be made in regulations of retail electricity markets.” Work Experience for the last 5 years: 2008 – till present Deputy Director General for Economics and Finance of Kubanenergo 2014-2015 Chairman of the Board of Directors of Recreation Center Plamya OJSC 2014 – till present Chairman of the Board of Directors of Recreation Center Energetik OJSC 2015 – till present Member of the Strategy, Development, Investment and Restructuring Committee and the Reliability Committee of Kubanenergo 2017 – till present Member of the Reliability Committee of the Board of Directors, Kubanenergo Date of election to the August 28, 2014 Management Board

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10. Vladislav Andreevich Statuyev: Year of birth 1956 Education Higher. Graduated from Dzerzhinsky Higher Naval Engineering School (St. Petersburg), qualification: “Physics and Power Facitlities”; the Federal State Educational Institution of Higher Professional Education Financial University under the Government of the Russian Federation, qualification: “Enterprise Management”. Advanced vocational training on “Risk Management” provided by Ernst & Young Work Experience for the last 5 years: 2009-2013 Director of Krasnodar branch of Federal State Unitary Enterprise Federal Computer Center of Share and Commodity Information Technologies (FT-CENTER) 2013 – till present Deputy Director General for Security of Kubanenergo Date of election to the December 4, 2013 Management Board

11. Igor Nikolayevich Shishigin, Deputy Chairman of the Management Board: Year of birth 1979 Education Higher. Higher. Graduated from Kuban State Agrarian University, qualification: “Electrification and Automation”, from Moscow New Law Institute, majoring in law. “Management of Organization” in Bauman Moscow State Technical University on the basis of Non-Commercial Non-State Educational Institution Training Center of Kubanenergo. Completed the following advanced training courses: - at SGS Vostok Limited, qualification: “Internal auditor of management system of industrial and job safety. OHSAS 18001:2007“; - at Russian State Academy of Advanced Training of Personnel Working in Construction Industry and Housing and Utility Sector, subject “Electricity supply: changes to regulatory acts, modern technologies, materials and equipment, peculiarities of assembly”; - at Non-Commercial Non-State Educational Institution Training Center of Kubanenergo, subject “Provision of environmental safety at electric grid facilities”; - at Kubanenergo’s Energy Training Institute on the following subjects: “Advanced training in job safety”, “Training on basic issues of industrial safety”, “Precertification training of managers and specialists of organizations operating electric grids”, “Precertification training of managers and specialists responsible for operation of hazardous industrial facilities where lifting equipment is used for hoisting and displacement of loads”, “Precertification training of managers and specialists responsible for operation of hazardous industrial facilities where lifting equipment is used for hoisting and displacement of personnel.” Work Experience for the last 5 years: 2013 – till present Deputy Director General for Technical Issues and Chief Engineer, Kubanenergo 2017 – till present Member of Reliability Committee, Board of Directors of Kubanenergo Date of election to the May 23, 2017 Management Board All members of the Management Board are citizens of the Russian Federation. All Company’s Management Board members at the same time being members of the Committees of the Board of Directors attended all meetings of the Committees in 2017, except for: Meeting Names of Absent Committee of the Board of Directors Management Board date members Feb 16, E.G. Armaganyan 2017 Apr 21, Reliability Committee D.Yu. Ryazantsev 2017 Oct 18, 2017 O.V. Ocheredko Aug 17, Strategy, Development, Investments and Restructuring Committee 2017 Neither member of the Management Board of the Company, save for O.V. Ocheredko, held any position in management bodies of commercial organizations during the period when these organizations

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were filed for bankruptcy and / or one of bankruptcy proceedings stipulated by the laws of the Russian Federation on insolvency (bankruptcy). O.V. Ocheredko was the Chairman of the Board of Directors of OJSC Recreation Center Plamya during initiation of the bankruptcy case against this company in accordance with the ruling of the Commercial Court of the Krasnodar Krai of March 3, 2015 and finding OJSC Recreation Center Plamya as insolvent and commencement of the bankruptcy proceeding in accordance with the decision of the Commercial Court of the Krasnodar Krai of September 2, 2015. None of the Management Board of the Company in the reporting year: • held shares in the Company or made transactions in respect thereof28; • made transactions with the Company; • was in kinship relations with any person being a member of management and/or financial and economic control bodies of Kubanenergo, except for L.A. Golovakha and D.N. Golovakha (mother and son); • was brought to administrative liability for offenses in the field of finance, taxes and dues, securities market or criminal liability for crimes in economy or for crimes against the government; • had any conflict of interest with the Company.

Activities of the Management Board Activities of the Management Board in 2015-2017: 2015 2016 2017 Number of meetings of the Management Board 22 25 27 including those held by joint attendance 1 3 7 Number of issues considered 53 74 102 The meetings of the Management Board were held in the reporting period in accordance with its action plans and upon the initiative of the Chairman of the Management Board. All Management Board members were fully engaged in the meetings.

28 According to the information provided to the Company by members of the Management Board.

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Corporate Secretary The Company's Board of Directors elects the Corporate Secretary to appropriately prepare and hold the General Meeting of Shareholders, as well as to arrange the activities of the Board of Directors at Kubanenergo.29 The Corporate Secretary is an official of Kubanenergo who ensures compliance of the Company with the current legislation of the Russian Federation, the Charter, and internal documents that guarantee the exercise of the rights and legitimate interests of the Company's shareholders. The Corporate Secretary is functionally subordinate to the Company's Board of Directors; the latter shall determine the terms and conditions of the Corporate Secretary's employment, the procedure and amount of their remuneration, as well as their bonuses. The Board of Directors shall evaluate the Corporate Secretary's work and approve the Report thereon 10 calendar days before the Annual General Meeting of Shareholders at the latest.

Olga Vladimirovna Russu has been the Corporate Secretary of Kubanenergo since July 20, 2011 continuously: Year of birth 1967 Education Higher education. Graduated from Krasnodar Polytechnic Institute majoring in Economics and Organization in Food Industry; graduated from Ural Academy of State Service majoring in Jurisprudence. Has been retrained for Organization's Management at Bauman MSTU on the grounds of the Kubanenergo Training Center, a non- state educational institution. Has taken advanced training as a Corporate Secretary, offered by NP Russian School of Management Experience over the last 5 years: 2011 – present Chief Specialist, then Deputy Head of the Department for Corporate Governance and Shareholder Relations, Kubanenergo Kubanenergo Corporate Secretary O.V. Russu: • owned no shares of the Company and entered into no transactions with such shares over the reporting year; • has no family ties with any member of the governance bodies and / or financial and economic control bodies of Kubanenergo; • has not been held administratively accountable for any violation of law in finance, taxation and levies, or securities market; has not been held criminally accountable for any economic crimes or crimes against the state; • has not held any governance-body position at any commercial organization at a time such organization be filed for bankruptcy and/or subjected to any bankruptcy procedure stipulated by the Russian laws of insolvency. Auditing Commission The Auditing Commission is a permanent elected internal-control body of Kubanenergo that exerts periodic control over the financial and economic activities of the Company, its individual structural units, the officials of the Company's governance bodies, and the structural units of the Company's Executive Office, by documentation-based and actual validation of: • the legality, economic feasibility, and efficiency (expediency) of the Company's economic and financial transactions made over the reporting period; • completeness and correctness of reporting such economic and financial transactions in the Company's documents. The Company's Auditing Commission is tasked to: • control the Company's financial and economic activities; • independently evaluate the Company's Annual Report and annual accounting statements for accuracy of data.

29 Corporate Secretary's functions, rights, duties, appointment, and termination of powers are determined by the Regulation on the Corporate Secretary as approved by the Board of Directors (published in the About the Company / Constituent and Internal Documents section at www.kubanenergo.ru). 112

The Auditing Commission functions on behalf of the shareholders of the Company and is accountable to the General Meeting of Shareholders. In its functions, it is independent from the officials, the governance bodies, and the managers of the structural units of the Company's Executive Office. In its activity, the Auditing Commission is guided by Russian legislation, the Charter of Kubanenergo, and the Regulation on the Auditing Commission30.

Members of the Auditing Commission Over the reporting year, two different memberships of the Auditing Commission were active.

Current Membership of the Auditing Commission (as elected by the General Annual Meeting of Shareholders of Kubanenergo June 16, 2017 31): No . Full Name Employer and Position p/ p Anzhelika Aleksandrovna Head of the Internal Audit Directorate, PJSC Rosseti Zadorozhnaya, chairperson 1 of the Auditing Commission Kabizskina Yelena Deputy Head of the Audit Activities Directorate, Department for Control and 2 Aleksandrovna Auditing Activities, PJSC Rosseti

Artyom Nikolayevich Deputy Head of the Audit Activities Directorate, Department for Control and 3 Kirillov Auditing Activities, PJSC Rosseti

Sergey Vladimirovich Senior Expert of the Audit Activities Directorate, Department for Control and 4 Malyshev Auditing Activities, PJSC Rosseti 5 Yelena Yuryevna Slesareva Chief Expert of the Internal Audit Directorate, PJSC Rosseti Membership of the Auditing Commission (as elected by the Company's Annual General Meeting of Shareholders June 24, 2016 and active until June 16, 2017 32): No . Full Name Employer and Position p/ p Svetlana Anatolyevna Kim, Head of the Audit Activities Directorate, Department for Control and Auditing 1 Chairperson of the Auditing Activities, Rosseti PJSC Commission Kabizskina Yelena Deputy Head of the Audit Activities Directorate, Department for Control and 2 Aleksandrovna Auditing Activities, PJSC Rosseti

Artyom Nikolayevich Deputy Head of the Audit Activities Directorate, Department for Control and 3 Kirillov Auditing Activities, PJSC Rosseti Sergey Vladimirovich Senior Expert of the Audit Activities Directorate, Department for Control and 4 Malyshev Auditing Activities, PJSC Rosseti 5 Yelena Yuryevna Slesareva Chief Expert of the Internal Audit Directorate, PJSC Rosseti Over the reporting year, the Company did not enter into any transactions with any person who acted as a member of the Auditing Commission of Kubanenergo in 2017.

30 Regulation on the Internal Audit Committee of Kubanenergo can be found in the About the Company / Constituent and Internal Documents section at www.kubanenergo.ru. 31 The Committee's members' employment details are given in accordance with what they reported to the Company as of the end of the reporting period. "Present" means "until December 31, 2017". 32 These Committee members' employment details are given in accordance with what they reported to the Company as on March 31, 2017.

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None of the persons who were members of the Auditing Commission in 2017 held any shares of the Company in the reporting year33.

Auditing Commission's Work Results In 2017, the Company's Auditing Commission was exercising control by inspecting the financial and economic activities. The Committee held 9 meetings and discussed the following key issues34: • approval of the Program for Auditing the Financial and Economic Activities of the Company for 2016, including the approval of the facilities, procedures, time, and scope of such audit; • review and approval of the Auditing Commission's opinion on the accuracy of the Annual Report and the Accounting (Financial) Statements of Kubanenergo JSC for 2016; • review and approval of the Auditing Commission's Act on the Audit of the Financial and Economic Activities of Kubanenergo JSC for 2016; • election of the Chairman and the Secretary of the Company's Auditing Commission for 2017– 2018; • approval of the Company's Auditing Commission's Agenda for 2017–2018; • approval of the Program for the First Stage of Auditing the Financial and Economic Activities of the Company for 2016, including the approval of the facilities, procedures, time, and scope of such audit; • review and approval of the Auditing Commission's Act on the First-Stage Audit of the Financial and Economic Activities of Kubanenergo JSC for 2016. As a result of auditing the financial and economic activities for 2016, the Committee has drawn an act and an opinion that contain recommendations on improving the control environment and resolving violations; both were submitted to the Company to resolve such violations and follow the recommendations. The Company has developed, approved, and is implementing a plan of corrective measures to resolve the violations and shortcomings identified by the Auditing Commission as a part of the audit of the Company's financial and economic activities for 2016. Pursuant to the Auditing Commission's agenda, the first stage of auditing the Company's financial and economic activities was carried out in September to December 2017. On the basis of the submitted Audit Act, the Company has developed and approved a plan of corrective measures. Details on implementing the Auditing Commission's recommendations and on the developed measures have been reported to the Company's Board of Directors. Pursuant to the Auditing Commission's agenda, the second stage of auditing the Company's financial and economic activities is scheduled for March to May 2018.

Remuneration and Reimbursement of the Company's Governance and Control Bodies

Remuneration and Reimbursement of the Board of Directors Pursuant to the effective Regulation on Remuneration and Reimbursement of the Kubanenergo Board of Directors35 as approved by the Annual General Meeting of Shareholders (Minutes dd. June 11, 2015 No. 36), remuneration is payable to the members of the Board of Directors at the same time for the work done from electing a member to the Board of Directors to electing a new membership of the Board of Directors, i.e. for one corporate year. Payments are made simultaneously within 60 days of the Company's Annual General Meeting of Shareholders. Remuneration of each member of the Company's Board of Directors is calculated on the basis of: • baseline remuneration that is based on the Company's RAS-calculated revenue for the fiscal year; • total number of the Board of Directors meetings held over the past corporate year and the number of meetings in which this or that member partook.

33 As reported to the Company by the members of the Internal Audit Committee. 34 Minutes of the Internal Audit Committee of Kubanenergo are available in the About the Company / Control System / Internal Audit Committee section at www.kubanenergo.ru. 35 Regulation on Remuneration and Reimbursement of the Kubanenergo Board of Directors can be found in the About the Company / Constituent and Internal Documents section at www.kubanenergo.ru. This Regulation does not apply to such members of the Board of Directors that are simultaneously members of the Management Board, nor to the Director General. 114

The above-mentioned remuneration is further increased by: • 30% for the Chairman of the Company's Board of Directors; • 20% for the Chairmen of the Board of Directors' Committees; • 10% for being a member of the Board of Directors' Committees. Such additional remuneration for chairmanship of and/or membership in a Board of Directors' Committee shall be payable if the Committee held at least three meetings over the corporate year. No remuneration is payable if a member of the Board of Directors missed more than 50% of the Board of Directors meetings that took place from the election of such member until the termination of their powers. Members of the Board of Directors are also paid additional remuneration from the net profits if the Company's market capitalization increases over the period of their employment as members of the Board of Directors. The Chairman and the members of the Board of Directors are not paid any remuneration if the federal law prescribes a restriction or prohibition on them receiving any payments from commercial organizations. Kubanenergo Kuban PJSC also reimburses any expenses incurred by the members of the Board of Directors as a part of their meeting-related duties, for which the Company uses its own travel expense reimbursement rates. Remuneration paid to the members of the Board of Directors totaled 6,829 thousand rubles in 2017. The Company paid no other remuneration to the members of the Board of Directors. Over the reporting year, the Company reimbursed no expenses incurred by the members of the Board of Directors. The Company has no arrears in the payment of remuneration or reimbursement to the members of the Board of Directors.

Remuneration and Reimbursement of the Executive Bodies Remuneration and Reimbursement of the Management Board: By the decision of the Company's Board of Directors (Minutes dd. February 25, 2015 No. 203/2015) members of the Board are regarded as First-Category Top Managers. Pursuant to the Regulation on Material Incentives and Social Benefits for the Top Managers of Kubanenergo as approved by the Company's Board of Directors (Minutes dd. April 17, 2015 No. 207/2015), members of the Management Board are remunerated under their respective employment contracts by establishing a personal monthly allowance for acting as a member of the collegial executive body that is the Company's Management Board. The Company's Management Board receives bonuses based on their yearly and quarterly performance to the KPIs approved by the Company's Director General. Shall the Company meet the strategic priorities set by the Company's Director General, the latter may decide to pay additional bonuses to the members of the Management Board. For attaining a high KPI that the Company's Director General deems a priority, the latter may decide to pay the members of the Management Board a special bonus based on the Company's performance in the reporting year. Members of the Management Board are reimbursed accommodation rentals pursuant to the Regulation on the Reimbursement of Accommodation-Related Rental (Subrental) Costs as approved by the Company's Order dd. March 27, 2015 No. 262. Remuneration of the Director General: Remuneration of the Director General is governed by the Regulation on Material Incentives for the Director General of Kubanenergo as approved by the Company's Board of Directors (Minutes dd. July 22, 2011 No. 114/2011) with due account of amendments made by the decisions of the Company's Board of Directors (Minutes dd. December 29, 2012 No. 150/2012 and Minutes dd. March 6, 2015 No. 204/2015). This Regulation is an integral part of the Director General's employment contract and as such, it establishes the procedure for determining, approving, and adjusting the Director General's salary and bonuses, as well as the procedure for the payment thereof. The Company's Director General receives bonuses based on their yearly and quarterly performance to the KPIs approved by the Company's Board of Directors. Shall the Company meet the strategic priorities set by the Company's Board of Directors, the latter may decide to pay additional bonuses to the Director General. For attaining a high KPI that the Company's Board of Directors deems a priority, the latter may decide to pay the Director General a special bonus based on the Company's performance in the year of assessment.

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The Company's Board of Directors is entitled to pay a bonus to the Director General for especially important tasks (duties) that are subject to specific quality and timing requirements and/or are of special importance for the industry and the state. Remuneration paid to the members of the Company's executive bodies totaled 73,189 thousand rubles, including: Indicator 2017 Remuneration for involvement with a governance body 1,703 Wage 38,442 Bonuses 31,453 Commissions 0 Benefits 0 Other types of remuneration 1,591 TOTAL 73,189 Reimbursements paid to the members of the Company's executive bodies totaled 684 thousand rubles in 2017. The Company has no arrears in the payment of remuneration and reimbursement to the members of the executive bodies.

Remuneration and Reimbursement of the Auditing Commission Pursuant to the effective Regulation on Reimbursement of the Auditing Commission of Kubanenergo as 36approved by the Annual General Meeting of Shareholders (Minutes dd. June 11, 2015 No. 36) each member of the Auditing Commission is remunerated once a year at the year end on the basis of their involvement with the Company's control body. Remuneration of the members of the Auditing Commission is calculated on the basis of: • baseline remuneration that is based on the Company's RAS-calculated revenue for the fiscal year; • Auditing Commission member's personal involvement factor that reflects their participation in the Committee's meetings and auditing activities, as well as their additional duties as the chairman or the secretary of the Auditing Commission. Remuneration is not payable to the members of the Auditing Commission that have taken part in less than a half of the meetings held over the period of their membership. Reimbursement of expenses incurred by the members of the Auditing Commission as a part of their Committee-related duties is calculated as the actual expenses thus incurred on the basis of the Regulation- stipulated rates. Remuneration paid to the members of the Auditing Commission for participating in the Committee totaled 782 thousand rubles in 2017. Over the reporting year, the Company reimbursed no expenses incurred by the members of the Auditing Commission. The Company has no arrears in the payment of remuneration or reimbursement to the members of the Auditing Commission.

Kubanenergo's Transactions in 2017 In 2017, Kubanenergo did not make any major transactions (including multiple interrelated transactions) associated with the direct or indirect acquisition, alienation, or possible alienation of property on the part of the Company, the value of which would amount to, or exceed 25% of the book value of the Company's assets based on its accounting statements. The Company deems transactions (or groups of interrelated transactions) significant if the liabilities under such transactions amount to, or exceed 5% of the book value of the Company's assets according to

36 Regulation on Remuneration and Reimbursement of the Kubanenergo Internal Audit Committee can be found in the About the Company / Constituent and Internal Documents section at www.kubanenergo.ru. The Regulation applies to such members of the Company's Internal Audit Committee that are neither restrained nor prohibited from receiving any payments from commercial organizations under the federal laws. 116

its accounting statements for the last reporting quarter preceding the transaction date. Over the reporting year, the Company made 3 significant transactions for a total of 8,565,875 thousand rubles: Significant transactions made by Kubanenergo in 2017: Counterpar Contract Name Transaction Scope and Other Essential Terms and Conditions of Transaction ty and Date Value, rubles Creditor: Bank GPB JSC Borrower: Kubanenergo. Subject matter: The Creditor shall open a Credit Line for the Borrower in the amount and on the terms specified in the Agreement, whereas the Borrower shall return the Loan gained loan agreement to Bank GPB under the Credit Agreement, pay the interest rates, and fulfill other Obligations under the open a credit line; 3,900,900,000 JSC Agreement. March 31, 2017 The transaction value includes: a limit value of 3,000,000,000 rubles plus a total accrued interest of 900,900,000 rubles as calculated on the basis of the limit term and the interest rate. Limit term: 36 months. Interest rate: 10.01% apr Creditor: Sberbank PJSC. Borrower: Kubanenergo. General Agreement Subject matter: The Creditor opens for the Borrower a renewable framework credit line to to open a renewable finance the production and economic activities of the Borrower, including the investment framework credit activities of the Borrower, as well as to repay the outstanding debts under loans provided by Sberbank line with 4,312,500,000 commercial banks and by Sberbank PJSC. PJSC differentiated The transaction value includes: a limit value of 3,000,000,000 rubles plus a total accrued interest rates; interest of 1,312,500,000 rubles as calculated on the basis of the limit term and the interest September 25, rate. 2017 Limit term: 60 months. Interest rate: 8.75% apr Guarantor: PJSC Sberbank. Principal: Kubanenergo. Subject matter: The Guarantor considers the Principal-submitted offers and issues a guarantee, or amends the terms and conditions of issued guarantees in the manner and on the General Agreement terms specified in the General Agreement, whereas the Principal shall by way of recourse on Issuance of reimburse the sums paid to the beneficiary under such guarantees, pay the premium for the Sberbank Bank Guarantees; 3,520,475,000 issuance of guarantees, and fulfill other obligations under the General Agreement. PJSC September 25, The transaction value includes: bank guarantee issuance limit of 3,500,000,000 rubles plus 2017 premium of 20,475,000 rubles based on the premium rate and the limit term. Limit term: 36 months. Guarantee issuance premium: 0.195% apr of the amount of each guarantee issued, calculated for the period from the guarantee issuance date (inclusive) until the guarantee expiry date (inclusive) Total: 8,565,875,000 Over the reporting year, the Company made four interested-party transactions (per Ch. XI of the Federal Law dd. December 26, 1995 No. 208-FZ On Joint-Stock Companies) for a total of 681,940.8 thousand rubles. Annex 2 hereto details the interested-party transactions made by Kubanenergo in 2017.

Information Policy The Company's Information Policy is in place to fully satisfy the demands of shareholders, potential investors, professional participants of the securities market, state agencies, and other stakeholders in complete, relevant, and accurate information on the Company and its activities, as well as to ensure free and unrestrained access to such information. The objectives, the principles, the scope of information and the list of documents to be disclosed, as well as the manner and time of such disclosure are regulated by the Company's Information Policy Regulation as approved by the Board of Directors37. Beside information subject to mandatory disclosure, the Company discloses details on its activities, securities, shareholders, governance and control bodies, significant transactions, subsidiaries and affiliates. The Company discloses such information in Russian as well as in English if so permitted by the Russian law. The Company seeks to disclose information both in Russian and in English.

37 Regulation on the Company's Information Policy is published in the About the Company / Constituent and Internal Documents section at www.kubanenergo.ru 117

Information on the Company's activities is mostly disclosed by publication on the corporate Kubanenergo's Information Policy website, in the newsfeed of Interfax, in the news Principles: stories published by printed and digital media, as • regularity, consistency and timeliness; • accessibility of information; well as during meetings with shareholders and other • completeness of information; stakeholders. • accuracy and objectivity of disclosed information; The Company's Director General is • reasonable balance between the Company's responsible for implementing the Information openness and commercial interests. Policy. The Company's Annual Reports for 2015 and 2016 made it to the short lists of the XIX and the XX Annual Report Contest arranged by the Moscow Exchange and the RCB Media Group, in the category Best Annual Report of a Company Capitalized Under 40 Billion Rubles. At the year-end 2017, Kubanenergo ranked 55th (69th at the year-end 2016) in the Transparency Rankings in Russia,38 which is Transparency Level III, "Disclosure in excess of what is legally required".

38 Held by the Russian Regional Network for Integrated Reporting. 118

Internal Control System

Internal Control The Company's Internal Control System (hereinafter, "the ICS") is a component of the Company's overall management system. The ICS covers all of the Company's activities, with control procedures being continually followed in all the processes (activities) of the Company at all management levels. Such procedures are aimed at securing reasonable guarantees of goal attainment in the following areas: • efficiency and effectiveness of activities;

• compliance with the law and the Company's local regulations;

• prevention of illegal actions against the Company's assets on the part of the Company's employees and third parties;

• ensuring the accuracy and timeliness of accounting (financial) statements and other reports.

The Company's Internal Control System is based on the new revision of the Internal Control Policy of Kubanenergy PJSC (Minutes dd. March 18, 2016 No. 233/2016), the Strategy for the Development and Improvement of the ICS of PJSC Rosseti and Its Subsidiaries and Affiliates as approved by the Board of Directors of PJSC Rosseti February 10, 2014 (Minutes No. 143), and the Regulation on the Internal Control Policy Compliance Procedure (Order dd. January 27, 2017 No. 45). The Internal Control Policy specifies the objectives, functioning principles and components of the Company’s ICS, primary functions and responsibilities of the ICS participants, as well as the procedure for assessment of the ICS efficiency. The Strategy for the Development and Improvement of the ICS of PJSC Rosseti and Its Subsidiaries and Affiliates defines the targets of ICS development. The Regulation on the Internal Control Policy Compliance Procedure defines the applied aspects of using the norms set by the Internal Control Policy. Resolution of the Company's Board of Directors (Minutes dd. December 2, 2016 No. 256/2016) approved, and the Company's Order dd. December 19, 2016 No. 1122 introduced the Action Plan to Develop and Improve the Internal Control System and the Risk Management System of Kubanenergo for 2016–2018. The ICS follows a three-lines-of-defense model. This model means that the Company's internal control is implemented at three levels: • Line 1 comprises governance bodies (the sole and the collegial executive bodies), the Company's units and subdivisions responsible for control within their functional and job duties;

• Line 2 comprises the Company's special control units;

• Line 3 comprises the Internal Audit Unit.

Control procedures for the main- and support-activity processes as well as for the Company's management processes are documented in the control and risk matrices (Orders dd. April 28, 2017 No. 415, dd. June 26, 2017 No. 640, and dd. October 24, 2017 No. 1193).

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Internal Control System Elements:

Powers and Responsibilities of Key ICS Elements: Name of the Basic ICS functions Participants • monitors the Company's financial and economic activities to draft Auditing proposals/recommendations on ICS enhancement; Commission • independently evaluates the reliability of data presented in the Company's Annual Report and Annual Accounting Statements • defines the principles and approaches to the organization of the Internal Control System, whereby it (i) approves the Company’s internal documents stipulating the ICS Board of Directors organization and development and enhancement strategy, (ii) approves the Company’s Internal Control Policy;

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Name of the Basic ICS functions Participants • exercises control over the activities of the Company’s executive bodies in the key (priority) areas; • reviews the Management Board's report on the arrangement and functioning of the ICS; • annually reviews the internal auditor's ICS Efficiency Reports; • reviews the external independent efficiency assessment of the Internal Control System • is tasked with the preliminary review, prior to the approval by the Board of Directors, of the Company’s internal documents stipulating the organization and the development and improvement strategy of the Company’s Internal Control System, of the Internal Control Policy and subsequent amendments thereto; • is tasked with the preliminary review, prior to consideration by the Board of Directors, of the results of assessment of the ICS efficiency based on the report of the internal Audit Committee of auditor on the ICS efficiency, as well as reports on the results of external independent the Board of assessment of the ICS efficiency; drafts proposals / recommendations regarding the Directors enhancement of the Company’s ICS; • supervises the Internal Control System, in particular considers the issues related to control of the accuracy of the Company’s accounting (financial) statements, selection of an external auditor and carrying out external audit, compliance with the regulatory requirements, considers the Management Board’s report on organization and functioning of the Internal Control System, as well as considers the issues regarding analysis and assessment of compliance with the Internal Control Policy • supervise the attainment of the desired financial and operational performance, the Other Committees of compliance with applicable law and the rules and procedures established by the local the Board of regulations; validate the accuracy and timeliness of the Company's reporting within their Directors competences as set by the Board of Directors Director General • ensure the creation and the efficient functioning of the ICS; and Management • are responsible for fulfillment of decisions of the Board of Directors related to the Board ICS organization • specifies the areas of, and drafts the plans for, the development and improvement of the ICS; • drafts reports on the Company’s financial and economic activities, organization and Management Board functioning of the Company’s Internal Control System; • reviews the results of external independent assessment of the ICS efficiency, prepares measures for the development and improvement of the ICS • approves the regulations and methodological documents of the Company on the issues of the organization and the functioning of the ICS except the documents the approval of which is a task of the Board of Directors of the Company; • ensures that the Company performs to its action plans necessary for achieving its Director General goals; • arranges accounting and management reporting, preparation of accounting (financial) statements and other reporting; • submits reports on the Company's financial and economic activities and on the organization and functioning of the Company's ICS to the Board of Directors for review • perform functions for developing, documenting, implementing, monitoring and enhancing the Internal Control System in the functional areas of Company’s activities, the Heads of Units and organization and coordination / implementation of which are within their responsibility Structural subject to the Company’s regulatory documents / regulations on the structural units, in Subivisions particular: • enforce compliance with the internal control principles;

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Name of the Basic ICS functions Participants • arrange efficient processes (activities), including development and implementation of new control procedures or changes in the existing control procedures taking into account identified risks; • enforce the regulation of the supervised processes (activities); • arrange the execution of control procedures; • evaluate (monitor) the execution of control procedures; • assess the supervised processes (activities) for the need to optimize them in order to increase efficiency and meet changing external and internal conditions, draft proposals for the improvement of control procedures; • ensure the elimination of identified drawbacks in the control procedures and processes (activities) Collective working bodies created by the Company's executive • perform control procedures and/or draft recommendations for improving control bodies for specific procedures, certain components (elements) of internal control and the Internal Control System functions (commissions, working groups, etc.) • execute control procedures; Employees of the Company's • ensure timely notification of the line managers about events when the implementation structural units that of control procedures became impossible due to any reasons and / or the change of design are involved in control procedures is required due to a change of internal and / or external functioning control procedures conditions of the Company; as a part of their job • submit proposals for introduction of control procedures in relevant areas of activities duties to their immediate superiors for consideration • counteract unfair competition; • investigate the facts (premises) of the Company having its economic security interests damaged; • arrange actions to combat theft of electricity, financial and material resources, or intellectual property, as well as to prevent other crimes against the Company's property; • participate in the joint audits of the financial and economic activities of the Specialized Control Company's subdivisions to prepare their own reports on violations and to build the evidence Units base in the interest of the Company; Line 2: • provide a single case management system for the Company's Executive Office and

- Department of branches; Economic Security • supervise the executive of documents; • supervise the executive of documents in the areas of responsibility of Deputy - Directorate for Directors General Documentation and • supervise the Company's compliance with the legislation by carrying out legal Order Execution Control expertise and approval procedures in the manner stipulated by the Company's organizational- administrative documents; subject to such expertise and approval are draft contracts and - Legal Department agreements, draft organizational-administrative documents, draft powers of attorney for the representation of the Company's interests to third parties, draft applications, letters, requests, and complaints to be filed on the Company's behalf with legislative and executive authorities, judicial authorities, and law enforcement agencies; • track and inform the Company's management on the adopted regulatory legal acts of the Russian Federation that may considerably affect the Company's activities, thus minimizing the risk of non-compliance with the law and the Company's interests Directorate for • drafts and ensures the implementation of baseline and guideline documents on Internal Control and Risk Management building and improving the ICS; Line 2

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Name of the Basic ICS functions Participants • assists the Management in creating the Internal Business Process Control System and drafting recommendations for describing and implementing control procedures in processes (activities), and for assigning responsibilities to the Company's officers;

• coordinates the maintenance and monitoring of the target status of the ICS;

• prepares ICS Status Reports for stakeholders;

• collaborates with the state control and supervisory bodies on the internal control issues • uses the internal audit results as a basis to draft recommendations on enhancing the control procedures, specific internal control elements (components), and the Internal Control Internal Audit System in general; Department (Line 3) • independently evaluates the efficiency of the ICS and makes recommendations on how to improve its efficiency and effectiveness

Over the reporting year, the Company took the following key ICS improvement measures: • approved the Company's process control matrices; • approved the Regulation on the Functioning of Specialized Internal Control Bodies, which bodies developed their Agendas for 2018 regarding their specialized functions; • approved the Performance Audit Regulation; • approved the Assets and Liabilities Inventory Guidelines; • approved the ICS and RMS participant cooperation scheme; • in 2017, a number of processes were re-engineered, gained additional control procedures, were altered in terms of regulation, and had control environment improvements, which affected such high-risk processes as management of receivables, procurement management, power grid assets consolidation, claim management, assets inventory, and functioning of committees and staffs. The above measures have positive effect on the efficiency of the Company's control environment and activities in general; they are listed in the following system documents implemented for 2017: ✓ Action Plan to Develop and Improve the Internal Control System and the Risk Management System of Kubanenergo for 2016–2018 (Board of Directors Meeting Minutes dd. December 2, 2016 No. 256/2016, Order dd. December 19, 2016 No. 1122); ✓ Set of Measures to Improve the Internal Control System of Kubanenergo (Order dd. December 16, 2016 No. 1114). In 2017, the internal auditor evaluated the maturity of the Company's ICS and RMS as "Moderate" (Level 4), see Audit Committee Meeting Minutes dd. April 5, 2017 No. 52/2017, Board of Directors Meeting Minutes dd. April 28, 2017 No. 271/2017. Internal independent evaluation of ICS and RMS efficiency for 2017 was carried out by the Company's internal auditor: according to the decision of the Audit Committee of the Company's Board of Directors, in 2017 the maturity level of the RMS and the ICS was "intermediate", i.e. between "Moderate" and "Optimal", see Minutes dd. March 26, 2018 No. 67/2018. In 2017, the Company's Internal Control System was subject to no external independent evaluation. The Company's Auditor, RSM Rus LLC, evaluated the Company's ICS as a part of the Agreement for Auditing the Accounting (Financial) Statements of Kubanenergo for 2017; the Auditor made the following conclusions: • the internal control components in use are aimed at organizing an efficient ICS. Many control procedures are automated and integrated into the preparation of financial statements; • development of the internal audit function is in line with the Strategy for the Development and Improvement of the ICS of the Rosseti Company Group. The current organization of the internal audit function is aimed at efficiency and effectiveness. As a part of its ICS Development Strategy for 2018, the Company plans: • to improve the control environment, which shall include the improvement of control procedures in the Company's processes and regulatory framework;

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• to evaluate the efficiency of the Company's main processes (power transmission and technological connection) while also analyzing the control procedures established in the Company's process matrices to make proposals on how to optimize these business processes; • to continue implementing the Policy for the Comprehensive Security of the Company as well as the Company's Anti-Corruption Program for 2018; • to monitor the performance to plan in terms of corrective measures; • to develop methods and tests for the competence models and to certify the employees of controlling units. Implementing these measures will raise the ICS maturity to Level 5 ("Optimal").

Internal Audit The Internal Audit Department is responsible for the internal audit in the Company. Internal Audit is functionally subordinate to the Company's Board of Directors, which means the Board of Directors supervises and organizes the activities of the Internal Audit Department, including: • approval of the Department's Plan and Performance-to-Plan Reports;

• approval of the Department's budget;

• approval of the decisions to appoint or dismiss the Internal Audit Department's Head as well as to determine their remuneration.

The objectives, the tasks, the basic organizational and functioning principles, as well as the powers of internal audit are set in the Internal Audit Policy of Kubanenergo, the latest revision of which was approved by the Board of Directors March 17, 2016 (Minutes No. 233/2016). The internal audit functions are also regulated by such documents as: • Ethics Code of the Internal Auditors of the Rosseti Company Group as approved by the Company's Board of Directors, Minutes dd. March 18, 2016 No. 233/2016; • Regulation on the Internal Audit Department as approved by the Company's Board of Directors, Minutes dd. September 23, 2016 No. 251/2016; • Program to Maintain and Improve the Quality of Internal Audit as approved by the Company's Board of Directors, Minutes dd. December 6, 2016 No. 257/2016. In 2017, the number of employees who performed the internal audit function was 5 people. Over the reporting year, the Internal Audit Department carried out 25 control actions, including:

As a result of such control actions taken by the Internal Audit Department in 2017, 196 corrective measures were ordered for execution, intended to eliminate and further prevent the identified violations and shortcomings. All 151 measures with deadlines in the reporting year were completed. Corrective measures taken in 2017:

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Total corrective measures prescribed 196

Measures with expired deadlines 151

Measures completed 151

Feedback from the Audit Committee is received by the Head of Internal Audit in various forms as a part of their cooperation with the Audit Committee, which includes the analysis of the Audit Committee's decisions and recommendations on internal-audit matters; surveying the members of the Audit Committee is another feedback channel. Calculated as per the above-mentioned Quality Program, the Audit Committee of the Company's Board of Directors was satisfied with the Internal Audit Department's work done in 2017, level of satisfaction: "compliant". The Company's 2017–2019 Plan for Internal Audit Development and Improvement has been developed and is being implemented under the Program to Maintain and Improve the Quality of Internal Audit. Of 24 measures scheduled under the Plan for 2017, 19 were completed within their respective deadlines, with 5 more being currently in progress due to delays.

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Shares and Dividends

Shares of Kubanenergo Beginning of 2017 End of 2017 Kind, category, type, and Ordinary registered uncertified shares form of issue of securities Par value of each 100 rubles. security Authorized capital 28,286,813,000 rubles. 303,793,350 pcs, including Securities in circulation 282,868,130 pcs. 20,925,220 outstanding shares of additional issue No. 1-02-00063-А dd. July 8, 2003 State registration (primary issue) number of the securities No. 1-02-00063-А dd. July 8, 2003 issue; state registration date No. 1-02-00063-А dd. December 15, 2016 (additional issue) Special entitlement of the Russian Federation to The Russian Federation does not hold any special entitlement ("the Golden participate in managing Share") to participate in managing the Company the Company ("the Golden Share") Authorized shares the 194,439,107 ordinary shares for a total value of 19,443.9 million rubles at par Company is entitled to value place in addition to the outstanding shares The Company has issued no preferred shares. The Company's balance sheet lists no own shares, and the Company does not plan to acquire any. Subsidiaries and affiliates do not hold any shares of Kubanenergo. Pursuant to the Charter of Kubanenergo, each ordinary registered share of the Company entitles its holder to the equal scope of rights. Shareholders holding the ordinary registered shares of the Company are entitled: 1. to participate personally or by representation in the General Meeting of Shareholders of the Company with the right to vote on all matters within its competence; 2. to make proposals to the agenda of the General Meeting in the manner prescribed by the legislation of the Russian Federation and by the Charter of Kubanenergo; 3. to be informed on the Company's activities and to examine its documents pursuant to Article 91 of the Federal Law on Joint-Stock Companies, or to other regulatory legal acts and the Charter of Kubanenergo; 4. to receive dividends declared by the Company; 5. to preferentially purchase subscription-based additional shares and issued securities convertible into shares in numbers proportional to the number of ordinary shares held, where such purchase is stipulated by the legislation of the Russian Federation; 6. to acquire a part of the Company's property in case of the Company liquidation; 7. to appeal against the decisions of the Company's governance bodies, which decisions shall entail civil legal consequences, in cases and manner stipulated by the legislation of the Russian Federation; 8. to demand compensation of damages to the Company; 9. to challenge the Company's transactions on grounds stipulated by the legislation of the Russian Federation, to demand that the consequences of their invalidity be applied, as well as to demand that the consequences of the invalidity of the Company's insignificant transactions be applied; 10. to enter into agreements on the implementation of corporate rights (corporate agreements) with other shareholders as well as with the Company's creditors; 11. under a contract with the Company, to make grant contributions in cash or non-cash to the Company's assets at any time with a sole purpose of financing and supporting the activities of

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Kubanenergo, which contributions shall neither increase the Company's authorized capital, nor affect the par value of its shares; 12. to exercise any other rights stipulated by the legislation of the Russian Federation and by the Charter. Shareholder rights are also cited in the Company's Charter.

Issue of Additional Shares of the Company On September 19, 2016, an extraodinary General Meeting of Shareholders of the Company (Minutes dd. September 21, 2016 No. 38) decided to increase the authorized capital of Kubanenergo by placing 57,457,846 additional shares by public subscription. December 15, 2016 the Bank of Russia made a decision on the state registration of this additional issue and registered the prospectus of ordinary registered uncertified shares of Kubanenergo. The additional issue was given a state registration number: 1-02-00063-А. The additional issue comprised 57,457,846 shares. Maximum funds that could be raised by placing all of such additional shares totaled 5,75 billion rubles. Purpose of the issue: to attract investments and to increase the financial stability of Kubanenergo. The offering price (including the one offered to persons granted the preferential right to purchase such additional outstanding shares) is 100 rubles. Additional shares are payable by cash. From December 20, 2016 to October 16, 2017 the issuer was accepting applications from shareholders to purchase additional shares of the Company on a preferential basis, as a result of which it placed 20,925,220 shares, or 36.42% of the total additional issue. The remaining 36,532,626 shares were offered to an indefinite number of persons by public subscription from October 24, 2017 to November 13, 2017. As there were unplaced additional shares, November 13, 2017 the Board of Directors of Kubanenergo (Minutes No. 189/2017) decided to make amendments to the decision on the additional issue and to the prospectus of the Company's securities so as to extend the collection of offers for share acquisition through to February 28, 2018 while also extending the deadline of placing additional shares through to March 28, 2018. These amendments to the issue documents were registered by the Bank of Russia December 14, 2017. Details on the issue of additional shares of Kubanenergo can be found on the Company's website: Homepage / For Shareholders and Investors / Information Disclosure / Disclosure of information at specific stages of the securities issue procedure / Additional issue of shares of Kubanenergo (state registration number 1-02-00063-A, 15.12.2016).

Share Capital Structure

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Changes in the Company's share capital in the reporting year were not significant (up to 1%) and were due to the placement of an additional share issue. Kubanenergo Shareholders Statistics (as on December 31, 2017): No Registered Persons Number Number of % of the . of Shares Total p/p Persons Number of Shares 1 Natural persons 1,776 339,871 0.1119 including non-residents 2 485 0.0002 2 Legal persons, including nominal holders (total) 19 303,446,659 99.8859

including holders (nominal holders) of >5% shares 2 302,674,742 99.6318

including non-residents 1 325 0.0001 3 Trustees 0 0 0 4 Shares in shared ownership 14 6,820 0.0022 5 Share premium account (non-outstanding shares of 1 36,532,626 - additional issue) Register Total: 1,810 340,325,976 100

Share Market and Capitalization of Kubanenergo In 2017, the shares of Kubanenergo were traded at the Moscow Exchange in the Third Level, ticker KUBE, ISIN Code: RU0009046767. Information on the current quotes and transaction prices is available in Russian and English: • http://moex.com • http://kubanenergo.ru

The Company's market capitalization totaled 24.69 billion rubles as in the beginning of 2017 and 21.3 billion rubles as of year-end 2017 (exclusive of the additional issue).

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In 2017, capitalization peaked at 28.3 billion rubles, while minimum capitalization was 17.6 billion rubles. Over the reporting year, the market value of shares dropped by 10% on top of the MICEX index dropping by 6% and the MICEX Energy index dropping by 9%. Kubanenergo Share Price Dynamics in 2017: Weighted average Minimum price Maximum price Weighted average Relative increase price (start of period) price (end of period) over the period, % 86.5 62.1 100.2 78.3 -9.5 Quotes and trading volumes: Indicator 2015 2016 2017 2017/2016 (relative increase, %) Weighted average price (end of period) 59.3 87.3 78.3 -10.3 Trading volume, pcs. 796,480 1,675,440 979,750 -41.5 Trading volume, rubles. 49,070,335 124,397,570 85,314,890 -31.4 The Company's share trading volume at MICEX totaled 85.3 million rubles or 0.98 million shares in 2017. Such low activity was due to a low number of shares in free float.

Distribution of Profits and Dividend Policy

The Company's Dividend Policy is a set of principles and methods the Company uses to determine the ratio of the capitalized portion of its profits and the payable-as-dividends profits; it is also a system of relations and principles used to determine the manner and time of dividend payments as well as the Company's responsibility for dividend payment. The Company's Dividend Policy is based on the strict observance of the shareholder rights stipulated by the effective legislation of the Russian Federation, the Company's Charter and in-house documents. The Company's Dividend Policy is in place to improve the Company's investment attractiveness and increase its market capitalization. The Policy is based on balancing the interests of the Company and its shareholders. The Company's Dividend Policy is determined by the Regulation on the Dividend Policy as approved by the Board of Directors January 31, 2018 (Minutes dd. February 1, 2018 No. 297/2018) and published at the Company's corporate website www.kubanenergo.ru, see About the Company / Constituent and In-House documents. Main principles of the Company's Dividend Policy: − the Company's practice of dividend calculation and payment shall comply with the law of the Russian Federation and the corporate governance standards (Decree of the Government of the Russian Federation dd. May 29, 2017 No. 1094-p); − the Company's and the shareholders' interests shall be optimally balanced; − dividends shall; amount to at least 50% of the net profits per the financial statements (including the consolidated financial statements) based on the International Financial Reporting Standards, which profits are calculated in the manner prescribed by the Regulation; − dividends shall be payable on a quarterly basis, provided that the relevant criteria are met; − dividend calculation and payment mechanism shall be absolutely transparent (clear); − dividends payable shall increase if the Company's net profits increase; − information on the Company's Dividend Policy shall be accessible to shareholders and other stakeholders; − it is necessary to maintain the Company's certain financial and technical status (i.e. to carry out the Investment Program), while also ensuring its development prospects.

2014–2017 Distribution of Profits, thousand rubles:

for 2014 for 2015 for 2016 (AGMS 2015) (AGMS 2016) (AGMS 2017) Undistributed profits (loss) of the reporting period, including: (3,632,333) 1,452,479 2,140,500 Reserve fund - 72,624 107,025

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Profit for development - - 1,498,350 Dividends - 1,144,797 535,125 Repayment of losses from previous years - 235,058 - * Information on the allocation of profit in accordance with the resolutions of the Annual General Meetings of Shareholders (AGMS): AGMS 2015 (for 2014), see AGMS Minutes No. 36 dd. June 11, 2015; AGMS 2016 (for 2015), see AGMS Minutes No. 37 dd. June 27, 2016; AGMS 2017 (for 2016), see AGMS Minutes No. 39 dd. June 20, 2017. In accordance with the Company’s Charter, decision on the distribution of profits for the end of 2017 will be made on the basis of the AGMS resolution.

History of Dividend Payments at Kubanenergo

and terms and and terms and

payment of declared declared of payment

General Meeting of Meeting General

dividends

(type), (type), rubles:

Dividend period, year period, Dividend

per share, rubles per share,

pay the dividends the pay

Company's shares Company's

Amount of declared (accrued) (accrued) declared of Amount

Payment method Payment

Total dividends paid on all of the the of on all paid dividends Total

Deadline for payment of declared of declared payment for Deadline

Total declared (accrued) dividends dividends (accrued) declared Total

Number and date of the Minutes of Minutes of the date and Number

Kubanenergo

Date of the list of persons to receive receive to of persons list the of Date

Reasons for non for Reasons

dividends for this dividend period dividend this for dividends

dividends on the Company's shares Company's on the dividends

the

Company's shares of a single category category a single of shares Company's

conditions of declared dividends on the on the dividends declared of conditions

Shareholders, which made the decision to to decision the made which Shareholders,

dividends for shares of this category (type) (type) category this of shares for dividends for all shares of this category (type), rubles: (type), category of this all for shares No. 18 dd. 2005 June 11, April 12, 2006 4.476917 80,000,000 79,662,676.97 2006 60 days No. 20 dd. 2006 April 26, 2007 1.253593 22,401,000 22,303,192.20 June 5, 2007 No. 23 dd. 2007 April 17, 2008 1.678844 30,000,000 29,873,068.07 15 days Persons June 6, 2008 registered in the 10 Shareholder business Cash Register did not No. 37 dd. days and provide details 2015 June 27, July 13, 2016 4.047105 1,144,797,000 1,144,254,698.87 25 on changes in 2016 business their ID days39 10 business No. 39 dd. days and 2016 June 29, June 27, 2017 1.762658567 535,125,135 534,862,621.45 25 2016 business days40

39 The deadline for payment of dividends is 10 business days for the nominal holder and the trustee that is a professional securities-market participant; for other Registry-registered shareholders, the deadline is 25 business days from the date of listing dividend-entitled persons. 40 Same as in the previous footnote. 130

Sustainable Growth

Deputy Director General — Administration Head, Lyudmila Alekseevna Golovakha, “Over 2017, the Company has reached the following goals in social and HR policy: • timely fulfillment of the Company demand for the staff; • staff efficiency ensured; this enabled to enhance the production rate.”

HR Policy The primary goals of the Company’s social and HR policy (hereinafter, “the Policy”), which are to ensure completing objectives of the Electric Grid Complex Development Strategy, are as follows: • Planning the staff demand: providing credible information regarding current and forecasted quantitative and qualitative demand for human resources sufficient for Company performance; • Timely meeting of the Company’s demands for the staff of required qualification; • Ensuring the staff efficiency and production rate enhancement.

These key goals of the Policy can be reached through taking measures on various fields of activity and completing objectives regarding: • Organizational design; • Human resourcing and staff development; • Staff efficiency management (motivation); • Social benefits and protection; • Labor safety and culture. Staff Size and Composition The average headcount of Kubanenergo in 2017 came to 8,494 people (0.8% higher than in 2016). Such an increase in headcount is due to resourcing to electric grid regions. 2015-2017 Average Headcount of Kubanenergo:

Staff sufficiency in the Company came to 96.7% (1.1 pp lower than in 2016). Though the share of “50-year to senior age” workers decreased by 2 pp and working seniors by 0.3 pp; compared to 2016, the average age of workers in 2017 increased and came to 42 years (41 year in 2016), which is mostly due to gradual growth of the share of 25-50-year workers (+3

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pp).

Kubanenergo staff is highly-qualified: 86% employees are professionally educated. This value gained 6 pp over last 3 years. Staff Training & Development Training is one of the top-priority strands of the Company’s Policy; training activities are regulated by the following documents: Rules for HR Management in Electric Energy Companies of the Russian Federation (approved by the Order No. 49 of the Ministry of Fuel and Power of the Russian Federation, dd February 19, 2000, HR Management Order of Kubanenergo (approved by the Order No. 1048 dd. September 25, 2017), and regulations and recommendations of regulatory authorities. The share of employees that passed off-job training sessions comes to 71.1% (6,043 people), which is 4.9 pp (377 people) lower than in 2016. Plant staff holds the highest share in the headcount of the trained staff (85%, 5,149 people). This value came to 82% in 2016. The diagram below shows the composition of the trained staff, divided into three categories: administrative, plant, support.

Composition of the Staff Passed Off-Job Training Sessions, by Category, %:

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5,193 people passed professional training at corporate training centers in 2017; this number amounts to 85.9% of the total number of employees trained in 2017, which is 5.7 pp lower than in 2016 (5,882 people (91.6% of all trained) were trained at corporate training centers). Plant staff holds the highest share of the staff trained at corporate training centers (86.7%, 4,500 people). Funds actually spent on staff training (regardless of sources) came to 61,221 thousand people; of which, 49,632 thousand rubles, or 81.1%, were spent on training employees at corporate centers. In 2016, 58,871 thousand rubles were allocated to staff training, of which 47,567 thousand rubles, or 80.8%, were allocated to staff training at corporate centers. The ratio between expenses on corporate-center training and training at third-party organizations within the total amount of expenses is due to the pricing policy of training organizations. The 2017 ratio between expenses on staff training and the wage fund came to 1.4% (same to 2016). Share of the Staff Passed Off-Job Training Sessions / Ration Between Training Expenses and Wage Fund Over the Reporting Year, %

Company Staff Training at Third-Party Training Centers Further training of the Company staff may involve third parties. The following were the Company partners in this field in 2017: - St. Petersburg Institute of Further Education; - Private Education lnstitution of Supplementary Education (CNTI Progress). By the end of the reporting year, 17 cooperation agreements were in effect, concluded between the Company (or its subsidiaries) and secondary and higher professional education institutions. Under these agreements, the parties arrange and develop mutually-beneficial strategic cooperation in the field of training, scientific-innovational, and research activities — all aimed at enhancing qualification of alumni that are to become energy-field professionals. Key directions of cooperating with training centers are: - Target preparation of specialists for electric grid distribution complex companies; - Organization of practical training for students and trainees of training centers; - Cooperation in educational, scientific and scientific-practical fields; - Organization of conferences at training centers, with involving representatives of electric-grid companies, scientific institutions, public organizations, and other interested parties, in order to develop common decisions on acute topics related to operation and development of the electric grid complex; - Popularization of the energy profession among young people.

The bulk of training centers providing education on electric energy field for the Company is concentrated in the regional center, the city of Krasnodar. Employees, children of executive

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persons of the Company, are studying at these institutions (higher, secondary, and primary professional education). In 2017, 113 students of higher-education institutions and 648 students of secondary professional-education institutions passed the practical training at Company’s premises — this value significantly increases that of the previous year.

Company Talent Pool Management Talent pool formation and development is among the highest-priority objectives of Kubanenergo within the framework of the corporate HR Policy. In order to timely meet the Company’s demands for competent and effective managers, ensure conditions for unleashing the human resource potential, Kubanenergo is continuously working on forming and developing the talent pool and the pool of young specialists. Management talent pool is built for operative and proficient meeting the Company’s demands for employees well-prepared to hold managerial offices, namely: - Top managers; - Mid-level executives (starting at department head); - Heads and chief engineers of production departments, distributions zones; - Operations supervisors. The company prioritizes forming the talent pool of technical managers. These are key criteria for letting specialists into the management talent pool: - high-grade professional qualification; - experience in holding certain posts; - personal and business potential, essential for career and professional improvement.

As on December 31, 2017, the Company’s management talent pool counts 512 specialists. With the purpose of involving young specialists into solving acute problems regarding the electric grid complex, enhancing their professional competence, supporting them in their career development, the Company conducts systematic activities on training young specialists within the framework of the youth talent pool. Youth talent pools consist of young specialists under 35 years, having promising potential for development, motivated for professional development and career in the Company. The composition of the youth talent pool is updated yearly, and new young specialists of the Company replace members of the talent pools that are appointed to higher-level positions and then leave the tool. As for the end of the reporting year, the Company’s youth talent pool counted 124 people. Each member of the talent pool has target posts and mentors (selected from high- proficiency managers and specialists of the Company, of the corresponding field of activity). Employees belonging to management and youth talent pools of the Company, regularly take part in training programs, All-Russian and regional industrial conferences aimed at introducing cutting-edge technology and experience of electric grid companies, as well as more efficient methods of operation. In 2017, within the framework of the professional education of the Company’s staff, 351 members of the talent pool passed training in various fields. Over 2017, 48 posts were fulfilled by virtue of the management talent pool, 32 posts by virtue of the youth talent pool, 14.9% of all members of talent pools were appointed to executive positions. Key Performance Indicators (KPI) The Company’s KPI system was established by the Decision of the Board of Directors dd. April 4, 2017 (Minutes No. 270/2017 dd. April 5, 2017).

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According to this Decision, the following KPIs and corresponding target values were set for 2017: Quarterly Indices Index 2017 Target Values For Q1, H1, and 9 months of the EBITDA reporting year ≥ 0; For year ≥ 5,3 % Q1,2,3,4 ≤ 3,0 Net Debt/EBITDA

Performance to Plan for Reducing Accounts Receivable of the ≥ 100.0% Company Subsidiaries Growth of Major Accidents No Growth Growth of the Number of Accident Casualties No Growth Yearly Indices Index 2017 Target Values Net Cash Flow ≥ - 6,128.0 million rubles Specific Operational Costs Reduction ≥ 3.0% Electric Grid Equipment Capacity Utilization Increase Yes Electric Energy Losses ≤ 12.80% Specific Investment Costs Reduction ≤ 1.00 Production Rate Enhancement ≥ 2.00% Innovative Activities Efficiency ≥ 90% Performance to Plan for Clearing Facilities for Operation ≥ 90% Compliance with Deadlines of Technological Connection ≤ 1.1 Service Reliability Ensuring ≤ 1.00 Actual values of KPIs, considering deadlines and order of preparing reporting materials to calculate KPIs, had not been finished and approved by the Company Board of Directors by the time of preparing the annual report. The KPI system that the Company exploits is tied to the amount of the variable renumeration of management staff; each parameter has its specific weight in the volume of renumeration. Quarterly and yearly bonuses are provided in case of reaching corresponding KPIs. Occupational Safety & Environment Protection

Occupational Safety Company’s key principle regarding occupational safety is recognition and ensuring of the priority of health and life of employees over the results of the Company activities. Kubanenergo is continuously improving labor conditions, carries out activities on preventing injuries, according to the effective legislation of the Russian Federation. In order to establish the unified occupational management system in the Company and provide safe and normal labor conditions for employees of all process stages, supervise compliance with occupational safety at all management levels, the Company has the Decree on the Occupational Safety Management System. Company Standard for the Integrated Management System СТО 00104604-ИСМ 007-2015, compliant with GOST 12.0.230-2007, OHSAS 18001, interstate standards on occupational safety management system, and requirements stipulated by the labor legislation of the Russian Federation. Company management is responsible for provision of safe labor conditions and occupational safety, as well as for their compliance with the prescribed requirements. The Company fully carries

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out responsibilities regarding occupational safety, as stipulated by the labor legislation of the Russian Federation. Over the reporting year, the Company carried out activities on occupational safety, developed according to the Order No. 181н of the Ministry of Public Health and Social Development of Russia dd. March 1, 2012 On Approval of the Typical List of Annually Conducted Activities on Improving Labor Conditions and Occupational Safety and Reduction of Professional Risks. The Company continuously controls employees’ compliance with occupational safety rules when organizing and performing works at electric facilities. The behavioral audit is carried out regularly, which includes monitoring of safe operation at workplaces. According to results of such supervision, measures on elimination and prevention of breaches are developed, and psychological-correction sessions are held. To coordinate activities related to health and occupational safety carried out by Kubanenergo’s subsidiaries, 25 telephone conferences were held (11 were held in the videoconference mode, involving First Deputies of Directors — Chief Engineers and Company subsidiary division heads. Days of occupational safety take place every month, which enables to involve lots of the Company employees into self-supervisory and mutual supervisory, and to enhance staff knowledge at and experience in occupational safety. For the purpose of experience exchange and organizing activities on health and occupational safety and at Company’s subsidiaries, correct organization and optimization of controlling compliance with regulations and requirements for occupational safety, further training, the offsite meeting with heads of corresponding services of subsidiaries was held. The topics were occupational safety, organization of structural unit operation, occupational safety activities planning. Simulation exercises that involved specialists at psychophysiological ensuring of reliability of operation of the Company subsidiaries, training sessions devoted to operation of the occupational safety system and timely detection of potential threats and hazards to life and health of the Company employees, were held. Within the framework of operation of the internal technical control system, complex supervisions of Adygea, Labinsk, St. Petersburg, and Ust-Labinsk Electric Grids (Company subsidiaries) were carried out. According to discovered breaches of regulations regarding electric equipment operation, reprimands were given to 4 employees of Adygea Electric Grids and 5 employees of St. Petersburg Electric Grids. At all Company subsidiaries, targeted supervisions of structural units were carried out over the year; these measures enabled to discover and eliminate breaches timely. In 2017, the number of casualties came to 3 (against 1 in 2016). No professional diseases of Kubanenergo staff were found in 2017. In order to protect life and health of the Company employees, protective equipment and devices to ensure labor safety, were purchased in 2017. The yearly quote for procurement of special clothes and shoes was performed in full.

Specific Costs of Occupation Safety per Company Employee in 2013-2017, thousand rubles

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25,00

20,80 20,00 17,07 17,27 15,30 14,69 15,00

10,00

5,00

0,00 2013 2014 2015 2016 2017

Industrial Safety In-process control of industrial safety is carried out pursuant to the Company Order No. 217 dd. March 16, 2016 on In-Process Control of Compliance with Requirements Regarding Industrial Safety at Hazardous Facilities of Kubanenergo and Decree dd. July 27, 2016 On In-Process Control of Compliance with Requirements Regarding Industrial Safety at Hazardous Facilities of Kubanenergo. Both documents were developed pursuant to the following regulations:

• Federal Law No. 116-FZ dd. July 21, 1997 On Industrial Safety of Hazardous Facilities; • Order of the Federal Service for Ecological, Technological and Atomic Supervision No. 533 dd. November 12, 2013 On Approval of Federal Regulations Regarding Industrial Safety — Safety Rules for Hazardous Facilities Having Hoisting Constructions; • Industry-specific decree on in-process control of compliance with requirements regarding health, safety, and environment at hazardous facilities. Kubanenergo has 3 hazardous facilities. The facilities are registered at the Federal Service for Ecological, Technological and Atomic Supervision (Certificate No. А30-00777 dd. April 7, 2015). In 2017, hazardous facilities were being under operation in compliance with the requirements prescribed by corresponding regulations. Only employees that passed training, pre-examination drills, first-time and regular Q&A sessions carried out at specialized organizations having corresponding certificates, are authorized for working at hazardous facilities of the Company and using technical devices used thereat. Social Responsiveness Company’s Social Policy prioritizes ensuring convenient conditions for labor and leisure of its employees, enhancing social safety, improving labor and social relations within the personnel. One of Kubanenergo’s key activities is social policy that considers interests of the Company employees. Key principles of the social policy are ensuring convenient conditions for labor and leisure of its employees, enhancing social safety, improving labor and social relations within the personnel. When forming programs for motivation of employees and enhancing their professional involvement, the Company pays lays special emphasis on social support of the staff. Social benefits and protection provisions, support activities and programs, enable the Company to attract

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and save most valuable employees, enhance employee loyalty to the Company, ensure reaching Company goals. Requiring highest possible involvement and labor efficiency of each and every employee, the Company admits the necessity in providing employees with extra social benefits and support (over the norms prescribed by the legislation), funding such programs from the Company profits. The core of the Company’s social policy is Industry-specific tariff agreement in the electric energy industry of the Russian Federation, collective agreement, internal regulations, rules, and other local regulations.

2015-2017 Social Benefits for Employees and Their Families, and Seniors Social Benefits 2015 2016 2017 Material Assistance for the Company Employees 20,996.56 22,074.89 24,030.57 and Seniors, thousand rubles Health Resort Treatment of Employees and Their 13,635.2 14,372.0 13,986.12 Children, thousand rubles Voluntary Health Insurance, Insured People 8,831/ 8,738/11,632.12 8,928/21,603.57 (persons) / Insurance Premium (thousand rubles) 11,682.10 Accident Insurance, Insured People (persons) / 8,675/ 8,765/ 8,834/2,550.92 Insurance Premium (thousand rubles) 1,107.01 1,093.85

Within the social benefits package, the Company employees receive material assistance in case of a child delivery, marriage, burial of close relatives, resignation, emergency, death of an employee; also, compensations for children studying at pre-school institutions and other compensations prescribed by the collective agreement are provided. Being socially responsive, Kubanenergo cares for veterans and seniors. Non-working seniors are provided with monthly material assistance by the Company. Over the reporting period, more than 2,773 veterans and seniors of the Company received various benefits (Victory Day-devoted support, Energy Man Day support, monthly material assistance, material assistance by request, etc.). The total amount of support came to 8,155.01 thousand rubles. Recreation of employees and their children is the significant focal area within the framework of enhancing performance ability of the staff. Over the year, 753 holiday packages for employees and their families, and 250 vouchers to children’s camps were procured. Kubanenergo provides employees with high-grade and timely medical services by means of concluding VHI and full-time accident insurance agreements. According to the regulations prescribed by Kubanenergo, the Company insures 100% employees pursuant to VHI and full-time accident insurance agreements. In order to enhance social safety of employees and improve non-material assistance methods, the Company develops programs for non-state pension support. Non-state pension support of the Company employees is carried out through the Non-State Electric Energy Industry Pension Fund. Non-state pension support is aimed at ensuring adequate standard of living of senior-age employees, providing conditions for efficient human resourcing (related to personnel attraction, retention, and motivation). Considering the difficulty of providing employees with accommodation, the Company’s collective agreement prescribes corporate support in improving housing conditions through providing financial support for an employee when taking out a loan, and then assisting in repaying a part of the interest. For the purpose of developing and maintaining healthy lifestyle, the Company conducts health-and-fitness activities and cultivates mass sports among employees, providing them with sports infrastructure.

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In February, Kubanenergo team participated in Sochi Corporate Games within the Sports Program of the Sochi Investment Forum (February 25, 2017). In March, Kubanenergo team participated in the Rosseti Volleyball Cup. In April, Kubanenergo team participated in the Rosseti Arena Football Cup devoted to 4th Anniversary of Rosseti PJSC Foundation. In June 2017, Kubanenergo team participated in the Rosseti Swimming Championship. In September 2017, Kubanenergo team participated in the Rosseti Ping Pong Championship. In October 2017, Kubanenergo team participated in the Rosseti Basketball Championship. In November 2017, Kubanenergo team participated in the 8th Open Chess Championship of Energy Workers Named for M.M. Botvinnik. Kubanenergo provides social support for veterans and non-working seniors of the Company. In 2017, active measures were taken on interacting with the veteran community. Within the framework of celebrating the 72nd Anniversary of the Victory in Great Patriotic War, all 11 subsidiaries and the executive board of the Company were involved in historical- memorial campaign Relay. Ensigns of Victory and St. George Ribbon. Also, employees of Kubanenergo participated in the All-Russian Campaign Bessmertny Polk (Eternal Regiment). Honoring and supporting veterans are the integral element of the Company’s humanitarian activities. Kubanenergo lays special emphasis on teambuilding events that contribute to enhancement of the corporate culture. The following events were held in 2017: - Defenders of the Fatherland Day celebrations; - International Women's Day celebrations; - Great Patriotic War veterans honoring; - Children's Day celebrations; - childern’s art contest Electrosha Needs Talents; - children’s drawing contest Rosseti: Children Do Draw; - Christmas celebrations for children of the Company’s employees. Kubanenergo won the regional stage of the corporate vocal contest Energy in the Southern Federal District, in the city of Krasnodar. The contest was held under the patronage of Oleg Gazmanov, the singer and Honored Artist of Russia. Energy Man Day celebrations are of highest priority. More than 220 employees of Kubanenergo got departmental, industrial, and corporate awards, awards of Krasnodarsky Krai administration, and awards of the State Council of Adygea. The awarding ceremony of the industry-best specialists took place on December 19, 2017, on the threshold of Energy Man Day, within the event organized by the Krasnodar Krai administration. In total, within the framework of celebrations and for great contribution for development of the electric grid complex, one employee of Kubanenergo was awarded the title of an Honored Energy Specialist of the Ministry of Energy of Russia; five employees were awarded the title of a Merited Energy Specialist of Kuban Energy Facilities; two employees got the awards of Adygea. Besides, work of 14 Kubanenergo employees was appreciated by the state authorities and got Honored Certificates and Letters of Gratitude; 12 employees were awarded a commendation by the Krasnodar Krai Governor; 15 employees were awarded Honored Certificates of the Ministry of Energy and Housing of Krasnodar Krai. In order to popularize energy-industry professions and involve children of Kubanenergo employees into the creative process, Rosseti’s annual contests Rosseti: Children Do Draw and Electrosha Needs Talents were held. Across the Company, more than 250 children participated in these contests, and 180 were awarded prizes and gifts. Kubanenergo’s social activities are aimed at developing social partnership, enhancing social safety of employees, and ensuring perspectives for the Company evolvement.

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Environment Protection and Key Ecological Principles of the Company Providing consumers with the highest-efficiency and ecologically-compliant energy, electricity, Kubanenergo does affects environmental components by its activities. Company’s environmental management system is oriented on reducing negative impact on environment and ensuring ecological safety at electric grid facilities. Within the framework of the Year of Ecology, the Company held ecological campaigns and environment-protection events, namely: • 4,615 plant nursery of forestry crops were deployed under the forest canopy in the area of Sochi National Park; this was done as a part of compensational activities related to construction of OPLs; • In order to cultivate careful treatment and preservation of environment among young people, 21 evergreen thujas were planted at the All-Russian Children’s Center Orlyonok (Eaglet). Children took place in planting activities. • In areas of the Company operation and municipal institutions of Krasnodar Krai and Republic of Adygea, spring voluntary Saturday ecological works were performed. • In Tikhoretsk District, nesting boxes were crafted and installed in order to improve environment for living and reproducing of fauna; • Among children of the Compamy’s employees, the children’s drawing contest Rosseti: Children Do Draw was held and included the nomination Keeping Environment Safe Together; • Waste and weeds were removed from the forest recreation zone in the Stanitsa Kaladzhinskaya (Labinsk District, Krasnodarsky Krai). Planning and performing environment-protection activities were carried out with consideration of obligations (approved by the Environmental Policy) to use cutting-edge technology, having no poisonous impact on the environment, prevent ecological risks, improve the environmental management system. All activities approved by the Kubanenergo’s 2017-2019 Environmental Activities Plan (Minutes of the Board of Directors No.288/2017) were performed in full, including: 1. Compliance with requirements of the Stockholm Convention on persistent organic pollutants: 560 units of equipment containing polychlorinated biphenyls were taken out of operation and replaced with environmentally safe ones. 443 units of toxic equipment were transferred to the dedicated organization for further disposal. The Environmental Policy prescribes the goal of taking 100% units of equipment containing polychlorinated biphenyls out of operation with further transfer of such equipment for further disposal. The objective must be complete by 2025. To date, the Company’s facilities have 4,470 units of equipment containing polychlorinated biphenyls. The Board of Directors of the Company developed and approved the 2018-2023 Plan for Taking Equipment Containing Polychlorinated Biphenyls Out of Operation (Minutes No. 296/2018 dd. January 23, 2018).

2. Requirements of Russian environmental legislation are followed: • Projects of maximum allowable polluting-agent emissions of to the atmosphere, and projects of standards of waste formation and limits for their disposal. These standards are set for units of St. Petersburg, South-Western, Adygea, Armavir, and Slavyansk Electric Grids. Corresponding authorization documents shall be obtained; • In-process environmental control was carried out at sources of polluting-agent emissions, within boundaries of sanitary protection zones, places of discharge of polluting agents into water sources — these activities are aimed at maintaining compliance with prescribed standards of allowed environmental impact; • Projects of sanitary protection zones and their deployment were developed for 17 substations of Adygea, Slavyansk, Sochi, Timashevsk, and South-Western Electric Grids;

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• 8 managers and specialists responsible for decision-making in the field of environment protection completed the training course “Ensuring Environmental Safety at Electric Grid Facilities”. 3. Activities aimed at reducing negative impact on environment (technical events) are carried out, namely: • 41 oil circuit breakers were replaced with vacuum and SF6 ones in order to eliminate risks related to oil leakage and intrusion into soils, ground waters, or atmosphere; • 48 oil-filled bushings were replaced with solid-insulation bushings; • Emergency oil drainage systems and transformer oil receivers were repaired (reconstructed) at 36 substations for prevention of possible pollution; • Construction/reconstruction of 200km+ OPLs was conducted with use of self-supporting insulated wires; this was done also for preserving biological diversity; • On 110-kV OPLs of the Sochi energy district, 45 bird-safety devices were installed; • Reusing of transformer oil provided (at least 10% (20 tons) of the oil purchased per year); this is to enable reduction of natural resource use. 4. Environmental management system is being maintained and enhanced. The Company is certified as compliant with requirements of ISO 14001:2004 “Environmental Management System”. In 2017, within the framework of getting audited by the certification authority, it proved this compliance. The Company’s environmental management system enables it to efficiently handle ecological risks, prevent and mitigate negative impact on environment, and therefore, improve its image.

Kubanenergo PJSC Expenses on Performing Environmental Policy Activities, thousand rubles 250000 223 461,57 218 270,57

200000

Actual 2017 150000 Expenses, thousand rubles 104 205,53 100000 Planned 2018 Expenses, thousand rubles 50000 16 990,00 25 540,80 11 336,84 700,93 584,33 12 964,16 6 910,30 Planned 2019 5 713,57 1 196,13 Expenses, 0 Taking equipment Standardizing and Other (training, audit) Technical activitiesthousand rubles containing polychlorinated Environmental Control biphenyls out of operation

Customer Relations Organization The key function of Kubanenergo’s divisions responsible for customer relations is provision of immediate and easy problem-solving regarding technological connection, energy transmission, energy accounting, and other services for individuals and legal entities across the territory of the Company’s operational responsibility. In order to ensure high quality of services rendered, 12 customer-service centers and 41 customer-relations offices operate in electric-grid districts.

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For the purpose of remote customer services, the Company organizes 24/7 operation of a call center (8-800-100-15-52). Call center operators timely inform citizens of Krasnodar Krai and Republic of Adygea on the matter of energy supply and terms of performing emergency recovery works and scheduled maintenance. Besides, call center operators accept customer reports on facts of electricity thefts, and provide consultations on technological connection and other Company services. Over 2017, more than 400,000 consumers contacted the Company call center. In 2017, Kubanenergo received: • 6,233 customer complaints (2% more than in 2016); • Among all complaints, there were 2,719 grounded complains (11% fewer than in 2016); • 153 thanks (5 more than in 2016). Reasons of Customer Complaints in 2017:

Customer complaints were reviewed, and corresponding corrective measures taken. Kubanenergo also exercises interactive customer service on the corporate website www.kubanenergo.ru, Section “For Customers” through: • Service request submission via Customer Account; • Online Reception; • Informing customers in the Section “FAQ”. In 2017, Kubanenergo received 2,372 requests submitted via interactive customer services (online reception, customer account, email); including 1,629 technological connection requests (280 or 12% more than in 2016). For the purpose of enhancing customer service quality, Kubanenergo enhanced functions of Customer Account in 2017, regarding technological connection and customer service; customers were enabled to: • Submit a request for temporary technological connection; • Submit a request for re-issuing technological connection documents; • Evaluate quality of request reviewing; • Submit and receive the technological connection contract / power supply contract, signed with the electronic digital signature. For 2018, the Company planned enhancing functions of the Customer Account, regarding submission of requests for power rescheduling. In order to improve applicant awareness, Kubanenergo held meetings with current and potential applicants in 2017; these meetings were dedicated to access to the electric grid infrastructure and electronic submission of technological connection requests. Public meetings are also planned for 2018.

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PR, Government & Public Affairs, Congresses and Exhibitions Vladimir Aleksandrovich Sadym, Director for Public Relations: “Over the reporting year, Kubanenergo proceeded implementing the single relations policy of the Company, both internally and externally. The Company was in high public presence in the region: it provided information support of meetings between the Company administration and representatives of federal-, regional-, municipal-level authorities, and implementation of the investment and repairs programs. In order to enhance the image of a socially-responsive enterprise, the Company implemented a set of targeted projects in 2017 that got awards of All-Russian contests among press services of the fuel-and-energy complex. Close cooperation with the leading regional and industrial mass media enabled to increase recognizability of the Company brand in the external environment. Public media events involving the Company administration were aimed at forming its positive and integral image, enhancing the business reputation, and reinforcing the publicity capital within the market value of the Company.” Government & Public Affairs Kubanenergo’s priority task in the field of government and public affairs is establishing integrated information channels with target audiences and implementation of the Rosseti PJSC’s unified relations policy. Over the reporting year, Kubanenergo has been on high public presence in the region. The Company provided information support of meetings between the Company administration and representatives of federal-, regional-, municipal-level authorities, participation of Kubanenergo in 2017 and 2018 Russian Investment Forum held in Sochi, and signing of agreements at the Forum, namely: - agreements for cooperation on development of the energy infrastructure on the Taman Peninsula, signed by V.I. Kondratyev, the Governor of Krasnodarsky Krai, and A.I. Gavrilov, Director General of Kubanenergo, on February 27, 2017; - agreements for cooperation on staff training for the electric energy industry of Adygea, signed by A.I. Gavrilov, Director General of Kubanenergo, M.K. Kumpilov, Deputy Governor of the Republic of Adygea, and S.K. Kuizheva, the President of the Maikop State Technological University; - agreements for cooperation on major reconstruction of Khadzhokh 110-kv substation in Adygea, signed by A.I. Gavrilov, Director General of Kubanenergo and M.K. Kumpilov, Deputy Governor of the Republic of Adygea. Information support of participation of the top management of Kubanenergo in activities involving Ministry of Energy of Russia and Rosseti PJSC, including: - participating in the visiting meeting on the Taman Peninsula hosted by P.A. Livinsky, Director General of Rosseti PJSC. The meeting covered topics related to enhancing reliability of power supply to consumers of Taman and neighboring regions (October 2017); - working trip of P.A. Livinsky, Director General of Rosseti PJSC to Sochi and visiting 110/10/6-kv substations Vereshchaginskaya and Bocharov Ruchey (January 2018). The following PR campaigns were carried out: - Information support of implementing the investment and repairs programs of the Company, preparation and passage of the autumn-winter period; - Prevention of illegal electric energy consumption (no agreement and no accounting); - Prevention of third-party electrical accidents at electric grid facilities; - Explanation of activities on technological connection to electric grids of the Company (including meetings with representatives of small and medium-size enterprises), expansion of additional services, implementation of energy-service contracts on installation of mobile energy accounting devices at premises of the Company’s customers, within the framework of reducing energy losses;

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- Informing energy users of Krasnodar Krai and Republic of Adygea on facts of illegal replacement of energy accounting devices by unauthorized third-parties.

Over the reporting period, Kubanenergo also provided information support of the Company’s participation in: - Restoration of power supply across Krasnodar Krai and Republic of Adygea, disturbed by a climatic disaster; - Operation of regional offices for ensuring power supply safety, commissions for financial monitoring of payments for power supplied and transmission services in Krasnodar Krai and Republic of Adygea.

In 2017, top management and employees of Kubanenergo participated in educational programs and events at the Educational Center Sirius, Children’s center Orlyonok (Eaglet); these activities were widely covered by regional mass media. Within the framework of implementing programs on preventing cases of electrical accidents of third parties at Kubanenergo facilities, prevention of energy theft, round-table conferences took place in 2017 and involved top management of Kubanenergo subsidiaries and directors of municipal institutions of Krasnodar Krai and Republic of Adygea; the conferences were devoted to cooperation topics. These activities made contribution to constructive interaction between Kubanenergo and state authorities of all levels, enhancement of state authorities’ awareness of the Company operation, and improvement of assessment of the Company operation. Public Relations In 2017, the Company proceeded implementation of target public relations programs in order to reinforce its image of a socially-responsive enterprise. This, corresponding activities on preventing accidents and casualties among children at energy facilities of Kubanenergo, carried out in 2017, covered more than 500 secondary schools of Krasnodar Krai and Republic of Adygea. More than 1,000 electric safety lectures and lessons were conducted and involved more than 32,000 students of the region. For the purpose of preventing children’s electrical accidents, creative contests, thematic excursions, and Doors Open Days were held. Energy specialists organized more than 30 excursions for students. During school vacation in 2017, a campaign Safe Energy for Happy Summer was held at children’s health camps of Krasnodar Krai and Republic of Adygea. Within this campaign, the Company specialists held 127 lectures, thematic lessons, and meetings. In July 2017, specialists of Kubanenergo’s Sochi subsidiary conducted an open lesson at the education center Sirius in Sochi and met summer camp residents. The specialists told school students about electric safety rules and specifics of energy industry. The meeting of energy specialists and participants of the forum “Step to the Future of Russia” at the Children’s center Orlyonok (Eaglet) became one of the most noticeable events of 2017. The specialists held a master class on electric safety and told about energy efficiency technology. In June 2017, specialists of Kubanenergo, jointly with vergers of Yeisk and Timashevsk province held a safety lesson for young church members at the Church of Dimitry Rostovskiy at Dimitrov farm yard of Timashevskiy Region. Kubanenergo is constantly improving work on preventing children’s electrical accidents: learning films are created and widely used, as well as audio lessons, presentations; new forms of interacting with the target audience are being developed. The Company website contains the information platform Prevention of Children’s Electrical Accidents, which introduces methodological materials for conducting thematic conversations on children’s electric safety. Kubanenergo partners for implementation of the program for prevention of children’s electric accidents within the framework of cooperation agreements concluded are: Ministry of 144

Education, Science, and Youth Policy of Krasnodar Krai and Republic of Adygea, regional directorates of EMERCOM of Russia of Krasnodar Krai and Republic of Adygea. In October 2017, student energy team of Kubanenergo, Energy of Kuban, participated in the educational program Industry of Future, which took place within the 19th World Youth and Student Festival in Sochi. Within the framework of the All-Russian energy-saving festival BrighterTogether (VmesteYarche), Kubanenergo employees, Energy of Kuban team members, and participants of BrighterTogether festival, planted the Alley of Energy Specialists at the Children’s center Orlyonok (Eaglet). The event was devoted to the Year of Environment in Russia. On May 4, 2017, on the initiative of Kubanenergo, a ceremony of opening the memorial plate for the energy-industry veteran, Grigory Nekrasov was held at the children’s sports schools No. 2 in Sochi. The presentation was attended by representatives of Sochi administration, veterans, Kubanenergo employees, students, and public representatives. Kubanenergo became the winner of the All-Russian contest ENES-2017, with the category Best Project on Implementing Automatic Electric Power Control and Accounting System on the Retail Market in Houses of Individuals. Over the reporting period, Kubanenergo’s social projects won prizes in a set of All-Russian contests:

• Top position in the international contest of PR specialists Press Service of the Year 2016, with the category “Best Corporate Mass Media Cover”; • Top position in the category “Safe Energy” of the regional stage of the All-Russian award Media TEK (Krasnodar); • 2nd position in the category “Popularizing Fuel & Energy Profession” of the regional stage of the All-Russian award Media TEK (Krasnodar); • 2nd position in the category “Social and Environmental Initiative” of the regional stage of the All-Russian award Media TEK (Krasnodar); • 3rd position in the category “Social Initiative” of the All-Russian contest of mass media, press services of fuel-energy companies, and regional administrations of Media TEK, for the project “Safe Energy”; • Best project in the category Social Project of the industrial PR contest KonTEKst (social project of the Company “1941-2016 Operation”, devoted to repatriation of remains of Grigory Nekrasov, an energy specialist and veteran from Sochi, and perpetuation of his memory). Following the results of the corporate contest for the best functional unit of Rosseti Group, Kubanenergo’s Press Service was recognized as the best PR unit of 2016. An awarding ceremony took place on April 4, 2017 in Moscow, within the framework of celebrations on the Day of Rosseti. Mass Media Relations In order to improve brand recognizability, form positive reputation and image, expand the influenced audience, the Company was closely cooperating with the leading regional and industrial mass media over 2017. Public media events that involved the Company administration were aimed at forming its integral and positive image, enhancement of business reputation, and enrichment of the publicity capital within the structure of the Company’s market value. In 2017, printed media of Krasnodar Krai and Republic of Adygea published more than 600 materials regarding the Company’s activities. According to the information of the monitoring system SKAN-Interfax, the total number of Kubanenergo mentions in 2017 came to 20,371 (including printed, digital, ration, and TV media). Over the reporting period, 795 news were published on the Company website. Information was also published on the Company’s official social media profiles and blogs.

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Online mass media holds the highest share (79%) of news items regarding the Company’s activities for the reporting period. With that, the share of central information agencies is also considerable (21%). The share of positive news items regarding the Company’s activities, invoked by PR services of Kubanenergo, came to 65%; neutral news came to 30%. The following are the Company’s most significant activities covered in federal and regional mass media: • Preventive measures against unauthorized electric energy use and electric equipment theft (more than 113 press releases on the Company website, 40 news spots on TV, 2,500 radio messages, 1,593 mentions in digital mass media, 145 mentions in printed media); • Prevention of children’s electric accidents (1,347 mass media mentions, including 200 printed and 3,000 radio and TV broadcasts); • Preventive measures against illegal replacement of energy accounting devices by third parties within the Company’s area of responsibility (addresses to customers on the Company website published, about 40 materials published in regional mass media, 19 TV spots (49 dedicated broadcasts in total) on television channels of Krasnodar Krai and Republic of Adygea); • PR support of social projects “Man of Labor” (63 texts on the Company website, 38 texts in printed media, 154 republications in digital media). In 2017, the Company proceeded its activities on adding content to and improving of the corporate website. Technical modernization of the website is driven by the Company’s intention to align with the standards of high-grade representation of required-for-disclosure and voluntarily- disclosed information, timely and for highest possible transparency of the Company. In order to develop the Company’s corporate structure and traditions, forming positive image among employees, 13 Company’s appendices to the corporate newspaper Rossiyskiye Seti were published within the period from January 2017 to May 2018; these appendices contained publications regarding productive achievements, texts about honored workers, young specialists, and the Company’s veterans. Over the reporting period, preventive measures against unauthorized electric energy use and electric equipment theft were taken by means of publications on the Company’s website and in regional media, broadcasting on radio and TV, and posting in social media and blogs. Congresses & Exhibitions For the purpose of introducing Kubanenergo in key economical, political, and industrial fields, improving its investment attractiveness, forming and maintaining its image, developing and enhancing international and interregional cooperation, and exchanging experience, the Company took part in the following congresses and exhibitions in 2017: • Russian Investment Forum 2017 (Sochi). Within this forum, Kubanenergo presented projects on construction of the 220-kV substation “Port” and 35/110/220-kV power lines on the Taman Peninsula (Krasnodar Krai); and the project on reconstruction of the 110-kV Khadzhokh substation in the Republic of Adygea; • All-Russian Week of Occupational Safety (Sochi); • Yalta International Economic Forum 2017 (Yalta, Crimea); • 3rd International Industrial Strategic Conference “Energy of Future. Current Dynamics” (Sevastopol, Crimea); • 20th All-Russian Technical Conference “Ways of Enhancing Reliability, Efficiency, and Safety of Energy Production” (Gelendzhik, Krasnodar Krai); • Exhibition of 2016 Achievements of Rosseti PJSC’s Subsidiaries within the General Meeting of Rosseti PJSC Shareholders (Moscow); • International Youth Forum “Biryusa” (Krasnoyarsk); • Youth Forum of Young Energy and Industrial Specialists “Forsazh 2017” (Kaluga Oblast);

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• North Caucasian Youth Forum “Mashuk 2017” (Pyatigorsk); • All-Russian Energy-Saving Festival “BrighterTogether” (“VmesteYarche”) (Krasnodar); • Fuel & Energy Enterprises Exhibition Dedicated to 80th Anniversary of Krasnodar Krai (Krasnodar); • International Energy Efficiency and Energy Industry Development Forum “Russian Energy Week” (Moscow); • 19th World Youth and Student Festival (Sochi); • Seminar Conference “Tariff Regulation in 2017. 2018-2025 Objectives of State Regulation Authorities” (Yalta, Crimea); • Investment Forum “Invest In Adygea” (Maikop, Republic of Adygea); • International Exhibition “Electric Grids of Russia 2017” (Moscow).

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Reference Data

Contacts KUBAN POWER AND ELECTRIFICATION PUBLIC JOINT Full Company Name STOCK COMPANY Abbreviated Company Name Kubanenergo The Company is not listed on the Register of Strategic Enterprises and Joint-Stock Companies, approved by the Decree

No. 1009 of the President of the Russian Federation (with further revisions) Location Krasnodar, Russia Mail Address 350033, Russia, Krasnodar, 2A Stavropolskaya St. Primary State Registration 1022301427268 Number INN/KPP 2309001660/997650001 Current Account 40702810330020101989, at Krasnodar Branch Bank Details No. 8619 of Krasnodar, Correspondent Account 30101810100000000602, BIK 040349602 Telephone / Fax +7 (861) 268-59-13 / +7 (861) 268-24-93 Email [email protected] Website www.kubanenergo.ru

Shareholder Relations Chief Specialist, Corporate Anna Ivanovna Yurchenko Management and +7 (861)212-26-72 Shareholder Relations [email protected] Department Chief Specialist, Corporate Irina Vladimirovna Podsvirova Management and +7 (861) 212-22-76, fax: +7 (861) 212-27-08 Shareholder Relations [email protected] Department

Investor and Financial Analyst Relations Head of Corporate Ekaterina Evgenyevna Didenko Management and Shareholder +7 (861) 212-23-09, [email protected] Relations Department

Customer Relations Head of Customer Alexey Anatolyevich Voropaev Relations +7 (861) 212-22-74, [email protected] Departments Company Website www.kubanenergo.ru – Section For Online-Reception Customers / Customer Service System / Interactive Feedback (Web-based Reception Desk) Call Center 8-800-100-15-52 (24/7)

Customer Service Centers Contacts Kubanenergo Subsidiary Telephone Email

Adygea Electric Grids +7 (8772) 59-22-02 [email protected]

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Armavir Electric Grids +7 (86137) 698-03 [email protected]

Krasnodar Electric Grids +7 (861) 255-79-84 [email protected]

Labinsk Electric Grids +7 (86169) 691-53 [email protected]

Leningraskaya Electric Grids +7 (86145) 735-00 [email protected]

Slavyansk Electric Grids +7 (86146) 433-14 [email protected]

Sochi Electric Grids +7 (8622) 69-02-42 [email protected]

Timashevsk Electric Grids +7 (86130) 232-65 [email protected]

Tikhoretsk Electric Grids +7 (86196) 704-17 [email protected]

Ust-Labinsk Electric Grids +7 (86135) 503-43 [email protected] South-Western Electric Grids +7 (8617) 67-84-20 (Novorossiysk),

[email protected] +7 (86133) 566-72 (Anapa)

Jobseeker Relations Oleg Gennadyevich Sergienko Krasnodar: Head of Organizational Development +7 (861) 212-26-16, 8 AM – 5 PM Department E-mail: [email protected]

Sochi: Deputy Head of HR Department of Vera Ivanovna Smerdova Sochi Electric Grids (Kubanenergo +7 (8622) 690-218, 8 AM – 5 PM subsidiary) [email protected]

Kubanenergo Press Service Telephone: +7 (861) 212-24-68 Email for mass media requests: [email protected]

Kubanenergo Subsidiaries as on December 31, 2017: Ite Telephone / Fax m Name Location No. Adygea Electric Grids Russia, Republic of Adygeya, Maikop, 358 +7 (8772) 57-17-20 1. Shovgenova St. / +7 (8772) 56-01-41 Armavir Electric Grids +7 (86137) 698-59 2. Russia, Armavir, 54 Vorovskogo St. / +7 (86137) 785-54 +7 (861) 255-53-97 Krasnodar Electric Grids Russia, Krasnodar, 131 Pashkovskaya St. 3. /

+7 (861) 255-74-34 +7 (86169) 699-07 Labinsk Electric Grids Russia, Labinsk, 334 Mira St. 4. /

+7 (86169) 693-11 Russia, Stanitsa Leningradskaya, 6 302 Divizii 5. Leningraskaya Electric Grids +7 (86145) 703-01 St.

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+7 (86146) 262-50 Slavyansk Electric Grids Russia, Slavyansk-na-Kubani, 49 Stroitelnaya 6. / St. +7 (86146) 739-67 Sochi Electric Grids +7 (8622) 69-03-59 7. Russia, Sochi, 42 Konstitutsii SSSR / +7 (8622) 61-40-71 Timashevsk Electric Grids +7 (86130) 233-59 8. Russia, Timashevsk, 176 Lenina St. / +7 (86130) 234-00 Tikhoretsk Electric Grids +7 (86196) 721-26 9. Russia, Tikhoretsk, 62 Dzerzhinskogo St. / +7 (86196) 769-50 Ust-Labinsk Electric Grids +7 (86135) 421-01 10. Russia, Ust-Labinsk, 4 Krasnodarskaya St. / +7 (86135) 524-66 +7 (8617) 67-85-59 South-Western Electric Grids Russia, Novorossiysk, 1 Vostochny Mol 11. /

+7 (8617) 67-81-21 Registrar Data Full Registrar Name Joint-Stock Company «R.O.S.T. Registrar» Abbreviated Registrar Name JS Company « R.O.S.T. Registrar » INN/OGRN 7726030449 / 1027739216757 Location Moscow, 18 Unit 13 Stromynka St. Registrar Certificate – No. 045-13976-000001 – Issued On 03.12.2002 – Duration Perpetual – Certified by FCSM of Russia Telephone / Fax +7 (495) 780-73-63 / +7 (495) 780-73-67 Email [email protected] Website www.rrost.ru JS Company « R.O.S.T. Registrar» has been registering placement owners since December 16, 2010. JS Company « R.O.S.T. Registrar» has no transfer agents that can render services listed on the register of Kubanenergo’s shareholders. Abbreviations & Terms AEPCAS — Automatic Electric Power Control and Accounting System ATMS — Automated Technology Management System OPL — overhead power line HV — high voltage (110 kV and higher) FOL — fiber-optic line Shortfall in income related to technological connection rebates for under 15-kV consumers — the shortfall of income of the regulating authority, which occur due to the difference between actual expenses related to technological connection and the received rebated payment for technical connection, prescribed in compliance with the effective legislation. Guaranteed Power Supply Company — a commercial organization, obliged (according to the Federal Law No. 35-FZ dd. March 26, 2003 On electric energy industry) or voluntarily committed to conclude an agreement of purchase and sale of electric energy with any energy user applied, or with a party acting on behalf of an energy user and intending to purchase electric energy. GTPS — gas-turbine power station.

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Subsidiaries — subsidiaries and affiliates of the Company or Rosseti PJSC FEG — Federal Electric Grid. Indoor switchgear — distributive devices installed indoors or protected from environment by means of special covers. CL — cable power line. Boiler required gross revenue — an economically-grounded volume of funds required for performing activities during the accounting period, with consideration of expenses on services of local grid companies, FGC UES PJSC, and procurement of electric energy for loss compensation. Boiler energy transmission tariffs — unified tariffs for energy transmission in Krasnodar Krai and Republic of Adygea for all energy users, regardless of the grid company the latter are connected to. OMCS — Outdoor Metal-Clad Switchgear — a devices for electric energy reception and distribution. GIS — Gas (SF6)-Insulated Switchgear — a devices for electric energy reception and distribution PL — power line RAB — Regulatory Asset Base Method — A method for regulating tariffs for distribution grid companies, stating that the required gross revenue shall be determined for the long-term and calculated with the use of the return on invested capital method. One of RAS’s key parameters is the longevity of tariffs set, returnability of invested funds — all that reduces investor risks and “long” loans. Besides, the method guarantees safety of investments, and this can also stimulate attraction of funds. At the same time, RAB assumes fair return on investment, comparable with profitability of investing in other similar-risk assets. Required gross revenue of a region — an economically-grounded volume of funds required to enable electric grid companies to perform energy transmission activities during the accounting period in Krasnodar Krai and Republic of Adygea. Company’s required gross revenue — an economically-grounded volume of funds required for performing activities during the accounting period, net of expenses on services of local grid companies, FGC UES PJSC, and procurement of electric energy for loss compensation. Undersupply — undersupply of electric energy to consumers in case of a technological disturbance of the electric grid operation. Runaway expenses — expenses that cannot be maintained, do not change after decision-making by the Company managers within the set period. Runaway expenses include energy procured for loss compensation; services of distribution electric grid companies; services of FGC UES PJSC; amortization; leasing; taxes and insurance payments; rent. R&D — research, development and technological work. LV — low voltage. Scope of services rendered — the amount of electric energy transmitted via technical devices of electric grids belonging to Kubanenergo under the property right or another ground, as prescribed by the effective legislation of Russia. OS — outdoor switchgear — an electric device for electric energy reception and distribution. Power conductors of such a device are located outdoors with no protection from the environment. EEWM — Electric Energy Wholesale Market — the field of circulation of electric energy and power within Russian Unified Energy System, within the unified economic area of the Russian Federation, which involves major generation companies and major users of energy and power, and other parties that obtained the status of a wholesale market entity, operating in compliance with the wholesale market rules approved according to the Federal Law of the Government of the Russian Federation On Electric Energy.

Power (Energy) Supply — the volume of electric energy received by the distribution grid at points of supply from the Federal Electric Grid, by generation, or from other related systems; formed by the voltage level at the interface of balance responsibility.

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Kubanenergo, the Company — Kuban Power and Electrification Public Joint-Stock Company Accounting Regulations — methods for accounting stipulated by the corresponding regulations. Manageable costs — costs that the Company management can control. Net supply — the volume of electric energy transmitted via distribution grids at points of supply to end users or lower-level grid organizations, formed by the voltage level at the interface of balance responsibility. Equivalent to the physical process of transmitting electric energy via grids. Energy losses: Actual losses — the difference between the volume of electric energy supplied to the electric grid from other grids or from generation companies, and the volume of the electric energy consumed by receiving devices connected to the grid and energy transmitted to other grid organizations. Standard of losses — projected values of losses, prescribed by the state authority regarding the system of power lines and other electric grid facilities belonging to the grid organization and differentiated by the voltage levels. Costs of standard losses are included in the transmission tariff. Excessive losses — the difference between actual and standard losses; subject to full compensation by the grid organization in grids of which excessive losses occurred. Loading losses — losses depending on loads in transformers and lines occur during energy transmission. SS — substation RPEA — relay protection and emergency automatics. DEDG — districts of electric distribution grids of Kubanenergo’s subsidiaries, spanning several grid districts and groups (dispatching, transportation, transmission), and exercising operative management thereof (through the Chief of DEDG). RAS — Russian Accounting Standards. REC-DPT KK — Regional Energy Commission — Department of Prices and Tariffs of Krasnodar Krai. Executive authorities of Krasnodar Krai on state regulation of tariffs. DEG — districts of electric grids of Kubanenergo’s subsidiaries. Automatic recloser — an automated grid sectioning point that comprises the high-voltage cabinet with a vacuum switch, control cabinet with the microprocessor relay protection and emergency automatics. Grid Organization, Distribution Grid Company — an organization exercising activities on distribution and/or distribution of electric energy via electric grids. SSIC — self-supporting insulated conductor. Related Grid Organization — a grid company owing (based on the property right or another legal ground) electric grid facilities technologically connected to electric grids of another grid organization (which it is related to). AV1 — average voltage 1 (35 kV) AV2 — average voltage 2 (1-20 kV) Average Headcount — the amount of the headcount for each calendar day of the accounting period, including holidays and day-offs, divided by the number of calendar days of the accounting period. Headcount — the number of permanent, seasonal, temporary, and other employees listed with the organization. The headcount includes attending and absent (not terminating the employment contract) workers that get wages in the Company. Technical losses — electric energy losses in lines and equipment of electric grids, occurring due to physical processes that take place when transmitting electric energy according to technical specification and operation modes of lines and equipment, with accounting for electric energy consumption for in-house needs of substations. Technological Disturbance — an unauthorized disturbance of the electric grid’s normal operation. TSS — transformer substation. Technological connection — technological connection of energy-receiving devices of legal entities and individuals to the electric grids of the Company providing energy-transmission services. MRO — Maintenance, Repairs and Operations. RPEA Setting — a relay pickup value or time. c.u. — currency unit

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LGO — Local Grid Organization, a commercial enterprise owing (based on the property right or another legal ground) electric grid facilities, by using which it renders energy-transmission services and exercises technological connection of energy-receiving devices of legal entities and individuals to the electric grids, and also exercising agreement-making powers regarding transmission of energy with use of electric grid facilities that do not belong to the Federal Electric Grid. TPS — thermal power station. Feeder — an energy-transmission line connecting busbars of the distribution device with distribution and consumer electric grids that are powered by these buses. Power Center — buses of 110, 35, 6/10-kV substations. EBITDA – Earnings before Interest, Taxes, Depreciation and Amortization IEC-61850 – a standard of the International Electrotechnical Commission “Networks and Communications at Substations”; describes formats of data flows, information types, rules for describing power facility elements, and rules for organizing the event-driven flow of data transmission. Pry-Cam – a type of a partial discharge monitoring system; used for online electric grid diagnostics and operative maintenance. SCADA – Supervisory Control and Data Acquisition – a software package used for development or real-time collection, processing, displaying, and archiving information regarding a monitored/managed object. Units of Measurement VA — volt-ampere W — watt Gcal — gigacalorie kV — kilovolt kVA — kilovolt-ampere kW — kilowatt kWh — kilowatt-hour km — kilometer m — meter MVA — megavolt-ampere MW — megawatt mln — million bln — billion pp. — percentage point s — second d. — day pcs. — pieces

Annual Report Appendices The following appendices are the integral part of the present Annual Report of Kubanenergo: Item No. Appendix 1 RAS-form 2017 annual financial statements of Kubanenergo and audit conclusion on credibility of the RAS-form 2017 annual financial statements of Kubanenergo 2 Statements of deals closed by Kubanenergo as a concerned party in 2017 3 Report on Kubanenergo’s compliance with the Corporate Management Code recommended by the Central Bank of Russia, in 2017 4 Information regarding Kubanenergo’s non-core assets. Participation of the Company in commercial organizations.

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