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Annual Report JSCo «RZD» 2007 Annual Report JSCo «RZD» 2007 Copyright 2006-2008, Anton Lange, JSCo "Russian Railways" Table of Contents Annual Report 3 JSC «RZD» 2007 Table of Contents 2-5 Disclosures and Projections 6-11 Welcoming Speech by A.D. Zhukov, Chairman of the Board of JSCo «Russian Railways» 8-9 Welcoming Speech by V.I. Yakunin, President of JSCo «Russian Railways» 10-11 General Information on JSCo «Russian Railways» 12-17 General legal information 13-15 Structure of the holding company 15-17 Activities of the Management and Control Bodies of JSCo 18-37 «Russian Railways» General Shareholders’ Meeting 19 Board of Directors 19-32 President of JSCo «Russian Railways» 32 Management Board 33-36 Audit Committee 37 The Company's Strategy and Mission 38-39 Overview of the Main Corporate Events in 2007 40-41 The Company's current position in the industry 42-53 Share of JSCo «Russian Railways» of the transportation services market 43 Freight transportation services 43-46 Passenger service 46-48 Maintenance and repair 48-49 Description of the Company’s infrastructure 49-50 Description of rolling stock 50-52 Summary performance information on railways 52-53 4 Оглавление Business Priorities 54-83 Principal results of investment activities 55-61 Innovation-based development of JSCo «Russian Railways» 61-64 International operations 64-67 Reform and Participation in Subsidiaries and Affiliates 67-73 Human Resources 73-74 Social sphere 74-78 Transportation Safety 78-79 Safety in operation 79-80 Labor Safety 80-81 Environmental Protection 81-83 Financial and economic results 84-105 (Board of Directors report) The Company's financial and economic achievements 85 Financial results 86 Key macroeconomic factors 86-90 Revenue from all types of activity 90-91 Expenses related to all types of activity 91-94 Other types of activity 94-95 Other income and expenses 95 Assets and liabilities 96-97 Changes in fixed assets 97 Financial investments 98 Working capital management 98-103 Leasing 104 Ratings 104 Financial Risk Management 104-105 Mortgage 105 Information about Interested party transactions 106-109 Information about Large Transactions 110-111 Statement on Dividends Paid 112-113 Annual Report 5 JSC «RZD» 2007 Draft Distribution of the Company's Net Profits Earned 114-117 in 2007 Description of the Main Risk Factors Associated 118-119 with Company's Operations Information about pending judicial procedures whereby the Company is a respondent 119 to debt collection claims with the specification of aggregate claimed amounts Information about pending judicial procedures whereby the Company is a claimant in 119 debt collection claims with the specification of aggregate claimed amounts Development Prospects 120-125 Development subject to accessing the promising markets 121 Possible Development Directions, subject to Market Trends and Company’s Potential 121-122 Planned Investment Projects 122-125 Reference 126 Приложение 1 Copyright 2006-2008, Anton Lange, JSCo "Russian Railways" Disclosures and Projections Annual Report 7 JSC «RZD» 2007 The Annual Report of Russian Railways for 2007 discloses Due to the characteristics of projections risks and uncer- information to provide the shareholders represented by tainties both of the general and specific nature are inherent the Government of the Russian Federation, government to them. In this context there is always a risk that the pre- agencies, potential and actual investors, shippers, pas- liminary estimates, projections, plans and other forecasts sengers, miscellaneous stakeholders and information users will not come true. It should be remembered that under the with comprehensive and relevant data about JSCo «Russian influence of a broad range of material circumstances the Railways»' operations in 2007 and the trends of Company's actual results may significantly differ from targets, bench- development. marks, expected results, the estimates and intents included into projections by a significant margin. The report complies with requirements of the following stan- dards and legal acts: — Federal Law On Joint-stock Companies; — Order No. 228 of Rosimushchestvo, dated July 26, 2005, On Regulation of Operations of the Federal Agency for Federal Property Management in the Sphere of Corpo- rate Governance (with recommendations on forming Russian Federation's position with respect to adoption of the annual report of an open joint-stock company whose shares are held by the Russian Federation); — Regulation No. 17/ps of the Federal Securities Commis- sion (FSC), dated 31 May 2002, On Adopting the Regula- tions on Additional Requirements to the Procedures for Preparing, Convening and Holding a General Sharehold- ers' Meeting. — Regulation No. 421/r of the FSC, dated 4 April 2002, On Recommendation to Apply the Code of Corporate Con- duct. This report is a review of the current conditions of Russian Railways and the results of its operations during the years ending on December 31, 2007, December 31, 2006 and, in some cases, December 31, 2005 as well as the major trends which may impact on its future performance. For the pur- poses of this document the word «Company», the pronoun «we» and its different forms refer to Russian Railways. All amounts are quoted in billion rubles unless specified other- wise. This report contains statements which have the same nature as projections. Such verbs as «consider», «expect», «seek», «plan» and their synonyms signify the current projections and opinion of Company's management with respect to future results. Welcoming Speech by A.D. Zhukov, Chairman of the Board of JSCo «Russian Railways» Annual Report 9 JSC «RZD» 2007 sector’s work is not reduced. Such conditions include the at- Ladies and Gentlemen, traction of considerable investments in the railway industry; they should go to all the segments of railway transportation Our state’s strategic issues concerning the economic and and be used mainly to develop the public-private partner- social spheres may be resolved if Russian railways develop at ship. a rapid rate. The Target Model of the Railway Transportation Service Taking into account the current GDP growth rates and the Market by the End of the Third Reform Stage, adopted in population’s migration activity, the requirements for railway 2007, is of great importance. It was worked out with the services will increase in the next five years, not to men- direct participation of the executives and experts from JSCo tion the long term: new mineral and raw material deposits «Russian Railways». This model offers clear-cut guidelines cannot be developed without developing the railways. In this for planning work and business by all the market partici- respect, JSCo «Russian Railways» plays an important role. pants, namely, transportation companies, service users and potential investors. Therefore, the previous year has become The growth rates of freight turnover, an increase in freight an important landmark of development of JSCo «Russian traffic, investment growth and the financial indicators of Railways» for many years to come. JSCo «Russian Railways» shows that the year 2007 was quite successful for the Company. I wish all the employees of JSCo «Russian Railways» success in their work for the Company’s benefit. Conditions have been created for promoting competition in the most diverse spheres of the railway market; operations on the railway freight car market are rapidly growing, and transportation costs are decreasing due to the introduction Chairman of the Board of JSCo «Russian Railways» of innovative technologies. Over 179 billion rubles have been A.D. Zhukov paid by the Company into the budgets of all levels, and in many regions the Company remains a system-forming enter- prise and the largest taxpayer and employer, proving without fail that “roads are a source of life in Russia”. The Company continues to bear a heavy social burden by ensuring that the public fully enjoys the constitutional right to freely travel across the country’s territory; it uses the revenue from other types of activities to cover the losses in- curred by passenger transportation. Herewith, the Company is making a considerable effort to improve the services of- fered to passengers. By decision of the Board of JSCo «Rus- sian Railways», the Company is providing the usual benefits to students and schoolchildren at its own expense. Last year’s results have shown that the Company is becom- ing one of the European leaders in railway transportation and railway infrastructure development. Today, railway transportation is playing an important role in forming Rus- sia's geo-economic and geopolitical position. Our task is to make the utmost use of our geographic advantages and the transit potential so as to receive dividends from internation- al traffic and create a new instrument of Russian influence on world economic processes. Many important events have occurred in the railway indus- try in 2007, being initiated and actively promoted by JSCo «Russian Railways». Certainly, we believe that the formation of the “Strategy of Development of Railway Transportation in Russia up to 2030”, supported by the country’s leader- ship, was the most notable event of the year. The Strategy of Development of Railway Transportation in Russia up to 2030 clearly shows the extent of state support and the limits to state regulation, whereby competitive conditions are cre- ated while the stability and effectiveness of the state railway Welcoming Speech by V.I. Yakunin, President of JSCo «Russian Railways» Annual Report 11 JSC «RZD» 2007 Railways» are strictly maintaining the economically substan- Dear Shareholders, tiated relationship between the growth of real wages and Partners and Colleagues, labor productivity. In 2007, JSCo «Russian Railways» used 75 billion rubles to Today, we are summing up the results of the anniversary fulfill the obligations under the Collective Agreement. In year of Russian railways, which are now 170 years old. November of that year, a new Collective Agreement was Symbolically, the anniversary year 2007 has become the signed for 2008-2010.

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