Annual Report 2007 Oao Irkutskenergo

ANNUAL REPORT 2007 OAO IRKUTSKENERGO

Irkutsk 2007 ANNUAL REPORT

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 3

ABBREVIATIONS

BAM Baikal-Amur Mainline LV low voltage BHN Bratsk Heating Networks MBA Master of Business Administration BHPP Bratskaya Hydroelectric Power Plant MICEX Moscow Interbank Currency Exchange bn billion mln million BM balancing market MV medium voltage CHPP combined heat and power plant MW megawatt CMP Cost Management Program N-I CHPP Novo-Irkutskaya Combined Heat and Power Plant CPGD Central Power Grid District NKAZ Novokuznetsk Aluminium Smelter DAM day ahead market NOREM New Wholesale Electricity and Capacity Market (BM, DAM, LTBCM) EBITDA earnings before interest, taxes, depreciation and amortization NPGD Northern Power Grid District EPGD Eastern Power Grid District OAO open joint-stock company EPS earnings per share OOO limited liability company FST Federal Tariff s Service OPI overall performance improvement Gcal gigacalorie RAO UES of Russia RAO Unifi ed Energy System of Russia HND heating network district REC Regional Energy Commission HPP hydroelectric power plant ROA return on assets HR human resources ROE return on equity MAREM+ Interregional Agency of Electric Power and Capacity Market RTS Russian Trading System HV high voltage RF Russian Federation Hz hertz RUB Russian ruble IE OAO Irkutskenergo SPGD Southern Power Grid District IESK OOO Irkutsk Grid Company TCE tonne of coal equivalent IHPP Irkutskaya Hydroelectric Power Plant TPP thermal power plant IFRS International Financial Reporting Standards UDCC United Dispatch Control Center Irkustskenergosbyt Irkutsk Power Sales Company UES Unifi ed Energy System L.A.Melentiev Energy Systems Institute of the Siberian Branch of Russian ISEM SB RAS Academy of Sciences U-I HPP Ust-Ilimskaya Hydroelectric Power Plant kg kilogram USD United States Dollar km kilometer V volt kV kilovolt VAT value added tax kW kilowatt WPGD Western Power Grid District kWh kilowatt-hour y-o-y year on year LTBCM long-term bilateral contract market ZAO closed joint-stock company

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 4

CONTENTS Abbreviations ...... 3 Address to Shareholders by the Chairman of the Board of Directors, OAO Irkutskenergo ...... 7 Address to Shareholders by the General Director, OAO Irkutskenergo...... 9 PERFORMANCE HIGHLIGHTS ...... 11 2007 Major Events in the Reporting Period ...... 17 OAO IRKUTSKENERGO GENERAL PROFILE ...... 19 General Information ...... 21 Core Operations ...... 21 ОAO Irkutskenergo Management Structure ...... 22 SHAREHOLDERS’ EQUITY ...... 23 Stock Market and Dividends...... 26 Stock Market Quotations in 2007 ...... 27 PRODUCTION ...... 29 Generating Capacity Information ...... 31 Power Generation ...... 33 Power Grid Performance ...... 34 Safety and Reliability of Operations ...... 34 Cost Management ...... 35 Fuel Balance and Supply ...... 37 HEAT AND ELECTRICITY MARKET ...... 39 Tariﬀ s and Tariﬀ Policy ...... 41 Energy Trading ...... 45 Accounts Receivable ...... 46 Internal Market ...... 47 External Market ...... 49 MANAGEMENT OF THE COMPANY ...... 51 Corporate Management ...... 53 Property Management ...... 55 Standardization and Streamlining of Business Processes ...... 58 Legal Issues ...... 58 Risk Management ...... 59 COMPANY FINANCE ...... 61 HUMAN RESOURCES ...... 67 INFORMATION TECHNOLOGIES ...... 73 ENVIRONMENTAL ISSUES ...... 77 RESULTS OF INVESTMENT ACTIVITIES ...... 81 Appendix 1. Financial statements ...... 89 Appendix 2. Auditor’s report ...... 93 Appendix 3. Compliance with the corporate code of conduct and ethics ...... 103 Appendix 4. Meetings of OAO Irkutskenergo management bodies ...... 111

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 5

OAO IRKUTSKENERGO TODAY

OAO IRKUTSKENERGO IS ONE OF THE MAJOR ENERGY NETWORKS IN RUSSIA AND THE LEADER OF POWER INDUSTRY IN SIBERIA. THE INSTALLED ELECTRIC POWER CAPACITY AMOUNTS TO 12,879.9 MW AND THE INSTALLED HEATING CAPACITY  13,357.5 GCAL/H.

Installed capacity of power plants 13 GW Output per capita 23,000 kWh Average electricity price (2007) 0.3247 RUB/ kWh

The Company business is based on HPP generation, accounting for over 80% of power production. The Angara HPP Cascade of OAO Irkutskenergo is characterized by a steady watercourse provided by the world’s largest water reserve (Lake Baikal), with an annual potential of hydro energy over 40 bn kWh. Irkutskenergo owns 12 thermal power plants, providing heating to the major cities of the Irkutsk Region. The Company maintains heating networks with a total length of over 1,700 km.

Item 2006 2007 Electricity generated, mln kWh, including: 56,951 58,465 hydropower plants (HPPs), mln kWh 46,444 47,625 thermal power plants (TPPs), mln kWh 10,507 10,840 Electricity supplied to consumers, mln kWh including: 50,309 54,065 internal consumers, mln kWh 45,745 47,593 Eff ective net power fl ow, mln kWh 4,564 6,472 Heat supplied to consumers, thousand Gcal 24,590 22,507 Installed capacity of TPPs, mln kW 3,877.5 3,877.5 Installed capacity of HPPs, mln kW 9,002.4 9,002.4 Length of heating network, km 1,525.5 1,682.6 Average number of employees 9,725 8,421 Average salary, RUB 19,171 23,320 Sales proceeds, RUB mln (net of VAT) 23,251 27,660* Gross profi t, RUB mln 2,831 2,739 Retained earnings, RUB mln 1,433 1,302 Market capitalization as of December 31,(according to Russian Trading System), RUB mln 95,248.5 140,372.9 Dividends per share, RUB 0.07517 0.07522 *including resale in the wholesale market

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 6

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 7

Dear Shareholders,

This was another year of the Company’s successful operation. In 2007, the primary task of the OAO Irkutskenergo Board of Directors was to combine the objectives of energy network reformation, and social and economic development of the Irkutsk Region, in general. The solutions aimed at providing for strategic Company management, transparency and observance of share- Yuriy M. Medvedev holder rights were among the highest priority issues resolved by the Board Chairman of the Board of Directors of Directors in the reporting period. Particular attention was paid to ensuring OAO Irkutskenergo effi ciency of the Executive Board. We have approved and supported Company management initiatives to improve fi nancial discipline, enforce stricter requirements for unconscientious energy consumers and reduce production costs. In 2007, the Board of Directors’ meetings resulted in the adoption of the following major decisions: - approval of the OAO Irkutskenergo Credit Policy primarily aimed at the Company’s investment program implementation; - approval of OAO Irkutskenergo initiatives to include power facilities in the General Plan of the Electric Power Industry Facilities Location in the Irkutsk Region through 2020; - recommendation to the Annual Meeting of Shareholders’ to take a decision to pay dividends in the amount of RUB 0.07517 per share in cash equivalent through December 31, 2007; - decision to issue Company’s documentary non-convertible interest bonds payable on demand, Series 01 with mandatory centralized custody. Total face value of the bonds secured by the OOO Irkutskenergofi nans guarantee amounts to RUB 5 bn. The revenue from bond issue will be allocated to OAO Irkutskenergo investment projects;

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 8

- approval of the Business Plan and Budget for 2008, and the Credit Policy of OAO Irkutskenergo for 2008 as well as the strategy for the Company’s capacity expansion; - analysis of a prospective investment plan for OAO Irkutskenergo and acknowledgment of the need for another public off ering; - adoption of the concept to establish a distribution company with the status of a Supplier of Last Resort. Today one of the key aspects of Company operation is to provide for power balance for the coming years. According to the forecast power balance, the existing generating capacity of OAO Irkutskenergo may encounter problems, and consumers may face heavy defi cit as early as 2010. Therefore, to be a step ahead and to avoid restraining energy consumption by a rapidly developing industry, we are to take active measures today. In 2007, OAO Irkutskenergo developed and presented to the Board of Directors a step-by-step strategy to remedy the potential defi cit. At the fi rst stage, internal consumption will be reduced and electric boiler plants will be shut down, which will allow around 1.7 bn kWh to be released annually. The second stage is to remove limitations from the existing capacity: this includes completion of suspended and construction of new units for thermal power plants. The third stage involves building new power plants. Apart from the generating capacity, the Company also plans to improve its network infrastructure, primarily in the north of the Irkutsk Region to meet the needs of oil and gas, gold mining, steel, and pulp and paper enterprises and for further BAM railway development. The Human Resources Policy is another important area infl uencing the reliability of OAO Irkutskenergo and being permanently supervised by the Board of Directors. The qualifi cations and professional skills of the staff , as well as their willingness to work are key elements for the energy sector. This is condi- tioned by the obligations to consumers, readiness to rehabilitate capacity, as well as the opportunity to implement major new construction of energy facilities. The Company expends a great deal of eff ort to this sphere: not only does this include training our staff , but also the development of a program on material and non-material incentives and staff involvement. These eff orts have not been wasted: they have resulted in the successful implementation of the repair program and, consequently, uninterrupted operation of the Company in the peak seasonal demand. Moreover, we introduced tailored performance indicators directly dependant on the number of incidents caused by errors of the staff in branch KPI. The overall number of incidents at OAO Irkutskenergo HPPs reduced from 21 in 2006 to 18 in 2007, while the number of incidents caused by errors of the staff dropped from 22 in 2006 to 16 in 2007. The 21.6 % y-o-y growth rate of the average monthly wage in the Company in 2007 stems from the wage rate indexation for OAO Irkutskenergo employees in compliance with the consumer price index growth in the Russian Federation and a quarterly bonus payment. In 2007, the average monthly wage amounted to RUB 23,320. To provide favorable conditions for accumulation of retirement savings by the staff , in the reporting period we have conducted serious work aimed at the implementation of the Non-State Retirement Plan in collaboration with non-state pension funds Socium and Bolshoi Pension Fund. The OAO Irkutskenergo Collective Agreement includes the “Provision on Non-State Pension Insurance for OAO Irkutskenergo Employees”. In conclusion, I would like to emphasize that in 2007 our power engineers demonstrated confi dence and reliability in their work. No doubt, OAO Irkutsken- ergo will be able to deal with the tasks assigned for 2008 and reach the objectives specifi ed. Our joint eff orts will respond to the challenges posed by the regional economy, and investments will enable us to create an essentially new industry with state-of-the-art technology and provide an impetus for the development of a whole range of related fi elds.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 9

Dear Shareholders,

In 2007, OAO Irkutskenergo reached a new, advanced edge and continued its successful development as a stable, competitive and profi table energy Sergey V. Emdin enterprise. Since the collapse of the USSR, the Company again reached its General Director peak of major indicators – i.e. production and fi nance – and in some respects OAO Irkutskenergo has even excelled the energy sector of the Soviet times. In 2007, power production increased by 1,513.7 mln kWh y-o-y; with the HPP growth equaling 1,180.6 mln kWh and the CHPP growth – 333.1 mln kWh, respectively. In 2007, Company business yielded a net profi t of RUB 1,302 mln, and sales revenue grew by 19% against the target level. Throughout 2007, accounts receivable dropped by RUB 359.3 mln (-12% y-o-y) and as of January 1, 2008 fell to RUB 2,646 mln (VAT included). During 2007, energy exports increased by 68% y-o-y (the day-ahead market share makes 60%). Last year we observed the growth of capital investments that increased almost by a quarter (RUB 2.7 bn in 2006 vs RUB 3.4 bn in 2007). This trend will persist as the investment plans of the Company are entering the stage of their actual eff ectuation. This ran parallel to an ongoing implementation of all adopted programs aimed at optimizing the Company business in the context of market environment and energy sector reformation as well as management structure streamlining. Last year we continued to implement an investment program involving the construction of a heating main in Irkutsk, replacement of runners at Bratskaya HPP and development of the network infrastructure in the region. To fi nance both these and new projects, the Company registered its fi rst bond loan in the amount of RUB 5 bn planned for allocation throughout 2008. We

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 10 extended our work on the project “Comprehensive Development of Power Grids in the North of the Irkustk Region”. To fi le a request to the Investment Fund of the Russian Federation, we held negotiations with investment consultants and worked with technical specialists to obtain an expert review of the project. The concept of the latter was agreed with state bodies: we have already received an agreement of the Ministry of Industry and Energy, OAO FSK and OAO SO-CDU with all facilities being incorporated in the General Plan of the Electric Power Industry Facilities Location in the Irkutsk Region through 2020. Under the “South” project involving the construction of a unifi ed heating system in Irkutsk and Angarsk, the Board of Directors adopted a decision requiring a feasibility study by designers, specifi cation of investment conditions, the term of implementation and a fi nancial model. The project was approved by the Strategy Committee of the Company and an agreement for budget development was signed. At the fi nal stage of corporate structure streamlining, we united in our eff orts to defi ne the main trends for the optimal model of the Company restructuring considering key features of the system as well as the overall industry reforms. Major work was done to arrange the operations of our energy distribution subsidiary. On December 28, 2007 the title of the Supplier of Last Resort was transferred from OAO Irkutskenergo to our subsidiary OOO Irkutsk Power Sales Company. We also fi nished the conveyance of Irkutskenergo property to form an additional deposit in the charter capital of the subsidiary OOO Irkutsk Grid Company. At present, we are considering major focus areas for our subsidiaries and affi liated companies in wholesale and retail power markets. In this respect, another important fi eld for Irkutskenergo is its operations in the wholesale power market, which became a practical aspect of Company business responsible for its well-being in 2007. Providing for the Company effi ciency in new wholesale market conditions we conduct legislation monitoring and market risks analysis as well as develop preventive measures. Last year saw the establishment of a trading department operating on a 24-hour schedule, which allows the Company to be a fully-fl edged bidder at all auctions ensuring maximum effi ciency. OAO Irkutskenergo can claim to have already gained a stable and positive reputation in this fi eld. We are continuing to develop the Company’s own coal stock provided for in our coal and energy supply strategy. In October 2007, we commissioned the fi rst launch complex of the Golovinsky open-pit mine. The facilities to be launched include: an administrative and utility complex, a technical services block, power and water supply and transport. The current annual capacity of the launch complex makes up 500,000 tonnes, and in 2008 we are hoping to reach the target capacity of 1 mln tonnes per annum. In 2007, Irbeysky open-pit mine set a record of 1.5 mln tonnes of coal and is expected to reach 2 mln tonnes in 2008. For the fi rst time in many years, the operation of the open-pit mine can be characterized as stable. Another substantial area is capacity expansion of OAO Irkutskenergo power plants that is preconditioned by the attraction of new major consumers and a considerable increase in the number of connection applications. The Company introduced an investment program involving the removal of limitations and bringing available capacity to the level of installed capacity together with the expansion of existing and construction of new power plants. Specifi cally, we have analyzed options to develop capacity of the existing CHPPs via their expansion by installing new units with a total capacity of up to 1,500 MW. Moreover, the Strategy Committee approved a list of measures to remove limitations of the operating CHPPs. A decision was adopted to start fi nancing these activities in the amount of RUB 1.6 bn in 2008. All the above projects and new promising plans require a special approach to the Human Resources Policy. Its objectives are: maximum return on investment into personnel, development of the ‘best of the best’ selection system in the Company, motivation, training and level of achievement of every employee. For these purposes, we implemented a new motivational system focused on the increase of labour productivity and diligence of the staff in 2007. Moreover, the Company off ers training opportunities for its employees at all stages of their professional career. Last year 4,060 people were involved in all kinds of training and educational programs, and actual training costs ran up to RUB 43,539,000 instead of the planned amount of RUB 43,388,000. To conclude, I would like to emphasize again that the Company’s goals require full concentration and commitment both from our management and employees, as we need to use all the resources available to implement projects of such a scale. Today we are witnessing the revival of prestige and respect for the power engineering profession, which means great responsibility towards our consumers and for ourselves. And we do have confi dence in our skills, knowledge and our striving to create a successful basis for the development of the Angara area.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

PERFORMANCE HIGHLIGHTS

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 13

IN 2007, OAO IRKUTSKENERGO CONTINUED TO WORK AT THE FOLLOWING PRIORITY AREAS:

ENSURING HIGH PROFITABILITY OF THE COMPANY’S CORE BUSINESS - valuation and expert analysis of effi cient projects to be implemented in 2008 with investments over RUB 3 mln, including, the following strategic investment projects: • comparative analysis of cost eff ectiveness for alternative construction projects of gas and coal TPPs with regard to maintenance costs; • development of a comprehensive long-term business plan for OAO Irkutskenergo through 2024 to justify the need for a secondary public off ering; • calculation of fi nancial models for the proposed disposal of ash and slag from TETS-9 CHPP and Ust-Ilimskaya CHPP; • updated acquisition model of the Golovinsky open-pit mine; • updated replacement project model of the runners at Bratskaya HPP; • updated construction model of local railroad access tracks at TETS-10 CHPP; • estimation of acquisition cost of Eastern-Siberian Coal Company; • estimation of construction effi ciency of a natural gas boiler in Bratsk. Estimation of maximum price for gas; • estimation of construction effi ciency of a natural gas mini-CHPP in Bratsk. Estimation of maximum prices for gas; • economic feasibility study of proposed entry into the markets of residential property management and public utility services; • estimation of effi ciency of proposed measures to remove limitations from the operating CHPPs; • estimation of project effi ciency on construction of the 500 kWh Taishet-2 substation. - collaboration with McKinsey on the effi ciency enhancement of the Company’s operations; - implementation of projects aimed to reduce carbon dioxide emissions, with subsequent sale of the unused carbon credits under the Kyoto Protocol (con- tracting with a Tuev-Sued expert for the validation required by the Kyoto Protocol, negotiating with the World Bank and Macquarie Bank regarding the possibility to purchase the unused portion of carbon dioxide quotas).

ENSURING STABILITY OF COMPANY OPERATION • repair program concept development applying risk management methodology; • development of the methodology for estimating potential losses from a failure of generating and grid equipment of OAO Irkutskenergo; • development of the repair schedule for 2008 involving the assessment of the equipment status and potential loss due to a failure of main generating and grid equipment of the Company.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ГОДОВОЙ ОТЧЁТ 14

IN 2007, WE ACCOMPLISHED THE FOLLOWING OBJECTIVES:

COMPANY RESTRUCTURING IN THE FRAMEWORK OF THE INDUSTRY REFORM Currently the reform of the Company’s organization structure is entering its fi nal stage in order to bring itself into compliance with the current legislation. ISEM SB RAS completed its work on the optimal approach to restructuring of OAO Irkutskenergo at the end of the transitional period in power engineering. The development of the main features of the optimal model to reform OAO Irkutskenergo, considering the key aspects of the system as well as the reform of the industry as a whole, is complete. In this framework, the analysis of main advantages and disadvantages specifi c to diff erent alternatives suggested for the Company’s restructuring was performed estimating legal, economic and technological risks arising in the restructuring process, and preparing off ers for possible adjustments of the legal basis for regulation and restructuring of power engineering. The eff orts are ongoing to organize operations of our energy distribution subsidiary, the Supplier of Last Resort. Focus areas for our subsidiaries and affi liated companies in the wholesale (eff ective purchase of electric power) and retail (sales at regulated/unregulated prices) markets are being considered. In 2008, the RF Government plans to set up competitive markets for capacity, system services and fi nancial contracts. The Company conducts ongoing monitoring and analysis of legislation, market risks and develops preventive measures to provide for effi cient work of the Company in the wholesale market under the new conditions. Under the Federal Law of November 4, 2007, No. 250-FZ “On Amendments to Independent Legal Acts of Russian Federation in view of Measures on the Reorganization of the Unifi ed Energy System of Russia”, OAO Irkutskenergo is to terminate its affi liation with ООО IESK by July 1, 2008 and establish a framework for a new business relationship with OAO FSK with regard to the Unifi ed National Power Grid facilities owned by ООО IESK and to cease dispatch management by November 9, 2008. To comply with the legal requirements, several options to eliminate affi liation with ООО IESK were considered, with development of a detailed schedule for each alternative. The optimum variant to cut the restructuring period and costs, as well as to retain direct control over the asset by shareholders was selected. To meet the legal requirements to spin off dispatch management, on December 29, 2007, OAO Irkutskenergo and OAO SO-CDU signed a joint order to establish an OAO SO-CDU branch in Irkutsk and to transfer the assets and personnel from the Regional Dispatch Offi ce (RDO) of OAO Irkutskenergo to OAO SO-CDU.

MEASURES TO ADDRESS THE PROJECTED DEFICIT OF POWER CAPACITY Feasibility study conclusions for a new TPP construction in the Irkutsk Region were presented by the Company. This work included analysis of the available options to increase capacity of operating TPPs by 1,500 MW via construction of new units. In addition to designing the new power plant, other measures to remove limitations and overcome the ‘bottle-necks’ of the existing generating equipment were also evaluated. Based on data obtained from designing companies, four sites were chosen to allocate new generating capacity in the Irkutsk Region: • coal TPP 990 MW in the Taishet District; • coal unit 330 MW at Novo-Ziminskaya CHPP; • natural gas TPP 300 MW in Kirensk; • natural gas CHPP 900 MW in Irkutsk. The Strategy Committee adopted a list of measures to remove limitations from the operating CHPPs of the Company. A decision was made to allocate RUB 1.6 bn to this focus area in 2008.

ИРКУТСКОЕ ОТКРЫТОЕ АКЦИОНЕРНОЕ ОБЩЕСТВО ЭНЕРГЕТИКИ И ЭЛЕКТРИФИКАЦИИ (ОАО «ИРКУТСКЭНЕРГО») 2007 ANNUAL REPORT 15

In addition, on the basis of a long-term ﬁ nancial model, the following funding sources were tapped to remove limitations of CHPPs in operation and enable the construction of new power plants: • company’s own funds – RUB 41.7 bn; • borrowing (loans) – RUB 20.7 bn; • secondary public oﬀ ering – RUB 85.2 bn. This funding scheme of the long-term investment program was approved by the Strategy Committee and submitted for approval to the Board of Directors.

DEVELOPMENT OF HEATING AND POWER GRID INFRASTRUCTURE IN THE REGION We continue working on the project “Comprehensive Development of Power Grids in the North of the Irkutsk Region” as a part of the planned bid in the Investment Fund of the Russian Federation. The investment consultant was retained to discuss the prospects of the bid submission to the Investment Fund of the Russian Federation. The technical consultant completed the work to provide an expert overview of the project. We agreed the project’s concept with state bodies and RAO UES. The Company already obtained approvals from the Ministry of Industry and Energy, OAO FSK and OAO SO-CDU. All facilities are incorporated in the “General Plan of the Electric Power Industry Facilities Location through 2020”. In 2008, it is planned to ﬁ le an application to the Investment Fund of the Russian Federation in cooperation with the Irkutsk Region Administration and the Government of Sakha (Yakutia). The implementation of the project “Establishment of a Uniﬁ ed Heating System in Irkutsk and Angarsk” was approved by the Strategy Committee. An agreement was concluded for the development of the project budgeting documentation which will be submitted for approval to the Board of Directors in March of 2008.

DEVELOPMENT OF THE COMPANY’S OWN COAL STOCK In October 2007 it was put in operation the ﬁ rst launch complex of Golovinsky open-pit mine with the capacity of 500 thousand tonnes per annum.

OPTIMIZATION OF BUSINESS PROCESSES The Management Board developed and approved a new valuation methodology for investment projects; a workshop was conducted to train the branch personnel in new methodology for assessment of investment projects. Audit and controlling groups were formed for each focus area of the Company’s business to establish control over business processes and investment projects. In the context of implementation of the program on eﬃ ciency improvement of key business processes in the Company’s branches, at TETS-11 CHPP a process-oriented management structure was implemented.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 16

RISK MANAGEMENT PROGRAM In 2007, the following risk management measures were taken: • development of a methodology in order to evaluate the state of power equipment. This methodology will subsequently form the basis for Unit No. 4 “Risk Management” of the Equipment Status Automated Management System; • development of branch risk profi les, risks list unifi cation for all branches, standardization of branch risk profi le development procedure, involvement of branches in risk management process; • preparation of the Company’s risk profi le for 2008 with determination of the inherent and residual risks exposure, cost of risk prevention measures and elimination of its consequences, as well as allocation in the Company’s 2008 budget the funds for risk prevention measures; • development and testing of Key Performance Indicators for Directors by functional areas and indicators of branch Reserve Boards for risk management.

DEVELOPMENT OF THE REGION’S ENERGY SECTOR OAO Irkutskenergo is actively involved in the development of the “Program of Energy Sector Development in the Irkutsk Region in 2008–2020”. This program is being designed jointly with the Irkutsk Region Administration and major industrial enterprises (OAO Gazprom, OAO SUEK, OAO AngarskNefteKhimProekt and others). Based on the analysis of the current state and future perspectives for the Irkutsk energy grid development there will be projected power market trends in the region and performed an assessment of options to meet the growing demand for power. We will estimate the fuel balance in the region and analyze power grid expansion alternatives and areas for the placement of new generating facilities and locate new major energy consumers.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 17

2007 MAJOR EVENTS IN THE REPORTING PERIOD

Q1 2007

• Approval of the transaction on transferring OAO Irkutskenergo property totaling RUB 484, 221, 180 as an additional contribution to the charter capital of a subsidiary OOO Irkutsk Grid Company, which is a major deal for the Company; • Preparation of strategic and global risks proﬁ le of Irkutskenergo for 2008; • Cooperation with McKinsey on the eﬃ ciency enhancement project of the Company.

Q2 2007

The Board of Directors adopted the following decisions: • Approval of the reports on the results of the Company’s business plan and budget implementation in 2006 and the concept of establishment of a sales company with the status of a Supplier of Last Resort; • Preliminary approval of the OAO Irkutskenergo annual report, annual accounting statement, profi t and loss statement and a proposal on distribution of profi t for 2006; • Recommendation to the Annual General Meeting of Shareholders to adopt a decision to pay dividends in the amount of RUB 0.07517 per share in cash equivalent through December 31, 2007; • Inclusion of ZAO BDO Unicon into the voting bulletin “On Auditor Approval”; • Adoption of the agenda for the Annual General Meeting of Shareholders; • Convocation of the Annual General Meeting of Shareholders on June 22, 2007 and setting May 3, 2007 as the date of preparation of the list of participants for the Annual General Meeting of Shareholders; • An agreement was reached with the Irkutsk Region Administration on the construction of the Block modular boiler plant in Bratsk using gas of the Bratsk gas fi eld as the main fuel; • Order of the RF Federal Tariff Service (FST) No. 67-e/4 (67-э/4) dated April 11, 2007 established tariff limits for electricity and heating in the Irkutsk Region in 2008; • The projects “Comprehensive Development of Power Grids in the North of Irkutsk Region” and “Creation of a Unifi ed Heating System in Irkutsk and Angarsk” were presented at the investment projects exhibition in St Petersburg; • A decision was made on the approval of a related party transaction for Irkutskenergo – a lease agreement on hydrotechnical facilities in federal ownership, i.e. dams of the Angrask Cascade HPP under the territorial management of the Federal Agency on Federal Property Management in the Irkutsk Region; • On June 22, 2007 we held the Annual General Meeting of Shareholders of the Company and elected new members of the Board of Directors and the Audit Board, adopted a decision on profi t distribution and dividends payment, approved the auditor for 2007, approved of the amendments to the Company Charter and the Regulations on the General Meeting of Shareholders, the Board of Directors and the Management Board.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 18

Q3 2007

• Yury M. Medvedev was elected Chairman of the Board of Directors, Vladimir A. Kiryukhin was appointed Deputy Chairman of the Board of Directors and Alexander S. Shmagelsky – Secretary of the Board of Directors; • Approval of the results of the OAO Irkutskenergo’s additional contribution to OOO IESK charter capital in the amount of RUB 484,221,180; • Consideration of the reports prepared by the General Director, OAO Irkutskenergo Management Board, OOO IESK General Director as well as consolidated reports of OAO Irkutskenergo and OOO IESK for the H1 2007; • Approval of the transfer of OAO Irkutskenergo’s property as an additional contribution to OOO IESK charter capital amounting to RUB 1,060,207,618 as well as cash funds – RUB 275,700,000; • election of the Strategy and Restructuring Committee including 8 members: A.D. Glushchenko, V.N. Kiselev, M.M. Kulikov, M.Yu. Kurbatov, V.S. Palyutin, Yu.V. Paranichev, E.G. Filsh, V.M Shchadov; V.N. Kiselev was elected Chairman of the Committee and M.Yu. Kurbatov – Deputy Chairman; • B.P. Varnavskiy, V.N. Kiselev, A.I. Prilepskiy were elected members of the Audit Committee; B.P. Varnavskiy was appointed Chairman of the Committee; • B.P. Varnavskiy, A.D. Glushchenko and A.G. Polous were elected members of the HR and Remuneration Committee; A.D. Glushchenko was elected Chairman of the Commitee; • Election of the Budget Committee including 8 members: A.D. Glushchenko, V.A. Kiryukhin, V.M. Kramarenko, M.Yu. Kurbatov, U.Yu. Novikova, O.S. Utyomov and V.M. Shchadov; V.A. Kiryukhin was elected Chairman of the Committee and M.Yu. Kurbatov – Deputy Chairman; • Decision to appoint Sergey V. Emdin as the General Director of OAO Irkutskenergo and agree the terms of his labour contract thereof; • Adoption of the decision on OAO Irkustkenerego securities (bonds) off er for sales, estimation of the off er price, approval of the Decision on Securities (Bonds) Off er for Sales and Securities (bonds) Prospectus.

Q4 2007

• Signing of the Acceptance Act on the ﬁ rst launch complex facilities of the Golovinsky open-pit mine October 25, 2007. The facilities to be launched include: administrative and utility complex, technical services block, power and water supply and transport; • Approval of the concept for the heating main construction connecting TETS-10 (Angarsk) and the North Unit Boiler Plant (Irkutsk) in November; • Approval of the Business Plan and Budget for 2008, the Credit Policy of OAO Irkutskenergo for 2008 as well as the strategy for the Company’s capacity expansion; • On December 28, 2007, OAO Irkutskenergo transferred its status of the Supplier of Last Resort to its subsidiary – OOO Irkutsk Power Sales Company.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

OAO IRKUTSKENERGO GENERAL PROFILE

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 21

GENERAL INFORMATION

OAO Irkutskenergo is a joint-stock company incorporated according to Presidential Decree No. 721 “On Reorganizing State Enterprises and Voluntary Associations of State Enterprises into Joint-Stock Companies” July 1, 1992.

Full Name Irkutsk Power Generation and Distribution Company (OAO) Short Name OAO Irkutskenergo Registration Number in the Consolidated State Register of 1023801003313 Legal Entities Registration Date July 12, 2002 General Director Sergey V. Emdin Chief Accountant Gennady M. Tolstykh 3 Sukhe-Batora St., Irkutsk 664025, Irkutsk Region, Russia Legal/mailing address Tel.:790-300 Fax: 790-899 39 Chkalova St., Irkutsk 664025, Regional Committee for Public Statistics Irkutsk Region, Russia

OAO Irkutskenergo is an independent electricity producer (legally separate from RAO UES of Russia). The Company maintains the required current frequency and voltage in the Siberian Energy Zone for RAO UES and transmits electric power through its own grid thus providing parallel operations in UES of Russia.

CORE OPERATIONS

Under the Charter, the Company’s core operations are as follows: • power and heat generation and their sales to consumers (buyers); • operation, installation, installation supervision, adjustment, repair, technical re-equipment and overhaul of energy facilities, power and heating equipment; • R&D, design and use of new equipment and technologies; • energy delivery services; • operation of heating networks; • foreign trade; • operation and maintenance of facilities within the authority of Rostekhnadzor.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 22

ОAO IRKUTSKENERGO MANAGEMENT STRUCTURE GENERAL MEETING OF SHAREHOLDERS

Chairman General Director Chairman BOARD OF DIRECTORS MANAGEMENT BOARD AUDIT BOARD

Subsidiaries and aﬃ liated com- BRANCHES Executive Board panies (more than 51% interest)

HPPs OOO Irkutsk Grid Company Bratsk Hydroelectric Power Station - Central Power Network (CPN) Ust-Ilimsk Hydroelectric Power Station - Eastern Power Networks (EPN) Irkutsk Hydroelectric Power Station - Northern Power Networks (NPN) - Southern Power Networks (SPN) - Western Power Networks (WPN) ZAO IRMET OOO Baikalinvestenergo TPPs and Heating Networks OOO Irkutskenergosvyaz Unifi ed Heat Cluster OOO Angarsk Thermal Power Sales Company Novo-Irkutsk Thermal Power Station OOO Centralised Power Repair Company - Novo-Irkutsk Thermal Power Station OOO Irkutskenergo Security Service - Thermal Power Station-5 ZAO SibirEnergoTrade - Irkutsk Heating Networks ZAO Irkutskenergotrans Ust-Ilimsk Thermal Power Station ZAO HydroEnergoServis-remont Novo-Ziminsk Thermal Power Station ZAO Spetsenergoremont Unifi ed Heat Cluster of Thermal Power Station-6 ZAO Baikalenergo - Thermal Power Station-6 ZAO Bratskenergoremont - Bratsk Heating Networks ZAO Irkutskzoloprodukt Thermal Power Station-10 OOO Irkutsk City Thermal Power Sales Company Thermal Power Station-11 OOO Irkutskenergo Engineering Center Thermal Power Station-12 OOO Irkutskenergo Fire Prevention Service Thermal Power Station-16 OOO Electrosbyt Unifi ed Heat Cluster of Thermal Power Station-9 Non-State Non-Commercial Educational Institution Training Center - Thermal Power Station-9 OOO Irkutskenergofi nans - Thermal Power Station-1 OOO Irkutsk Power Sales Company - Angarsk Heating Networks OOO Energosbyt

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

не

SHAREHOLDERS’ EQUITY

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 25

As of December 31, 2007, the Company’s equity was estimated at RUB 4,766,807.7 thousand divided into 4,766,807,700 registered ordinary outstanding shares with par value of RUB 1 per share. No preferred stock was issued. The share of the Russian Federation in the Company’s charter capital amounts to RUB 1,906,723.08 thousand (40% of charter capital). The Government of Russia represented by the Federal Agency for Federal Property Management owns 40% of the Company’s ordinary shares. The OAO Irkutskenergo Charter does not grant any special rights to the Russian Government related to its participation in the management of the Company (‘golden share’).

Issue of Shares Issue Registration Date Amount (RUB mln) Number of Issued Shares Type

1st Issue Nov 23, 1992 1.97 1,978,677 Registered ordinary shares 2nd Issue Jan 27, 1994 45.7 45,689,400 Registered ordinary shares 3d Issue Feb 29,1996 4,719.14 4,719,139,623 Registered ordinary shares

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

Share in the Charter Capital, % Name of the Registered Entity December 31, 2006 December 31, 2007 The Russian Federation represented by the Federal Agency for Federal Property Management 40.00 40.00 ZAO ING Bank (Eurasia), nominee shareholder 47.75 0.16 OAO Sberbank (Savings Bank of the Russian Federation), nominee shareholder - 47.50 ZAO Depository Clearing Company (nominee shareholder) 4.65 4.78 The National Depository Center (nominee shareholder) 2.13 2.99 ADR holders 1.54 1.14 Other shareholders 3.93 3.43 TOTAL: 100 100

In Q4 2007, the share in nominee holding of ZAO ING Bank (Eurasia) dropped from 47.75% to 0.16%. This change is caused by joining of a new nominee shareholder – OAO Savings Bank of the Russian Federation (Sberbank) with a share of 47.50% in the Company’s charter capital.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 26

STOCK MARKET AND DIVIDENDS

OAO Irkutskenergo shares circulate at MICEX and Russian Trading System (RTS) Stock Exchange. The MICEX quotations of the Company’s shares were at the level of RUB 20.26 in early 2007 and RUB 29.45 in late 2007.

Term RTS Traing Volume, RUB’ 000 MICEX Trading Volume, RUB’ 000 Q1 179,993.5 2,557,404.6 Q2 79,913.6 1,198,262.2 Q3 60,990.8 877,283.1 Q4 174,842.6 11,119,945.4

Number of Shares RTS Trading Volume, MICEX Trading Term Turnover Issued Shares Volume, Shares Q1 4,766,807,700 6,652,992 96,673,300 2.17% Q2 4,766,807,700 2,910,700 42,845,700 0.95% Q3 4,766,807,700 2,465,561 35,473,400 0.80% Q4 4,766,807,700 6,588,200 413,002,400 8.80%

Dividend per Share*, RUB

Year of Payment Dividend per Share, RUB 2004 0.0419568 2005 0.05057 2006 0.07517

* the amount of dividends payable for 2007 is not estimated at the moment.

Dividends were paid within the terms established by the General Meetings of Shareholders. OAO Irkutskenergo dividend policy is deﬁ ned by the Annual General Meeting of Shareholders in compliance with the recommendations of OAO Irkutskenergo Board of Directors. Out of the total amount of dividends accrued (RUB 358,321,000), RUB 143,328,400 were paid to the Federal Budget on the shares of Irkutskenergo owned by the Russian Federation (payment orders No. 42312 dated October 26, 2006 and No. 52029 dated November 26, 2007). As of December 31, 2007, OAO Irkutskenergo had no dividends payable to the Federal Budget. The Annual Meeting of Shareholders held on June 22, 2007 resolved to pay dividends for 2006 on ordinary shares of OAO Irkutskenergo in the amount of RUB 0.07517 per share by December 31, 2007. (Source: Minutes of the Annual Meeting of Shareholders No. 20 of July 6, 2007).

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 27

STOCK MARKET QUOTATIONS IN 2007 RUB PER SHARE

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

OAO Irkutskenergo OAO Mosenergo RAO UES of Russia

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

PRODUCTION

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 31

GENERATING CAPACITY INFORMATION

Installed Capacity Available Capacity Operating Capacity Item MW Gcal/h MW Gcal/h MW OAO Irkutskenergo, 12,879.9 13,357.5 11,849.2 12,897.9 9,960 Including HPPs 9,002.4 - 8,461 - 7,395.9 TETSs+DBs* 3,877.5 13,357.5 3,521.3 12,897.9 2,564.1

NUMBER OF BOILER UNITS AND TURBINE GENERATORS AS OF JANUARY 1, 2008

Boiler Units (energy / water-heating) Turbine Generators (hydro) Item Generating Capacity Number Number Capacity (MW) (tonnes/hour, Gcal/h) TETSs 116/0 28,780/0 61 3,877.5 DBs* 10/9 280/560 - - TETS+ DBs* 126/9 29,060/560 61 3,877.5 HPPs - - 42 9,002.4 Total 126/9 29,060/560 103 12,879.9

*DB – district boiler

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 32

LENGTH OF HEATING NETWORKS OWNED BY OAO IRKUTSKENERGO AND LEASED FROM WHOLESALERS AS OF JANUARY 1, 2008 Branch Extension, km HND TETS -9 CHHP On the balance of HND TETS -9 CHHP 429.6 total 429.6 Heating sources and heating networks On the balance of heating sources and heating networks of TETS -6 CHHP 213.9 of TETS -6 CHHP Leased (MBTEP Bratsk) 167.9 total 381.8 HND N-I CHPP On the balance of HND N-I CHPP 130.1 Leased (ZAO Baikalenergo) 283.3 total 413.4 TETS -12 CHHP On the balance of TETS -12 CHHP 12.0 Leased (CHTS Cheremkhovo) 46.5 total 58.5 Heat, water supply and sewage On the balance of heat, water supply and sewage facilties of 72.4 facilties of U-I CHPP U-I CHPP 100.3 Leased 172.7 TETS-16 CHHP Leased (Nizhne-Ilimskoye, Zheleznogorsk-Ilimsky) 59.7 TETS -11 CHHP Leased 150.8 N-Z CHPP On the balance of N-Z CHPP (N-Z CHPP–Zima heating main) 16.1 Heating networks balance, total 874.1 Leased heating networks, total 808.5 TOTAL 1,682.6

LENGTH OF WATERPIPE AND SEWAGE SINGLEPIPE AS OF JANUARY 1, 2008 Location (City) Extension. km 1. Irkutsk, total, including 8.5 water-pipe 6.1 sewage 2.4 2. Ust-Ilimsk, total, including 362.9 water-pipe 213.6 sewage 149.3 Water-pipe, total 219.7 Sewage, total 151.6 Water-pipe and sewage, total 371.4

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 33

POWER GENERATION

POWER GENERATION, MLN KWH Indicator 2006 2007 Diﬀ erence Power generated, total 56,951 58,465 1,514 Internal power consumption 1,781 1,757 (24) Busline power generation 55,170 56,708 1,538 Power consumption for production needs 2,498 2,117 (381) Power consumption for utility needs 62 42 (20) Station network losses 324 539 215 Power supply, total 50,309 54,065 3,756

The increase in electricity output is explained by the growing demand on the part of major plants in the region.

HEAT PRODUCTION, THOUSAND GCAL Indicator 2006 2007 Diﬀ erence Heat production 27,522 25,029 (2,494) Heating network losses 2,746 2,366 (380) Heat consumption for utility needs 187 156 (31) Heat supply 24,590 22,507 (2,083)

Heat production against y-o-y decreased by 2,493.5 thousand Gcal, due to higher outside air temperatures in winter period. CHPPs, electric boilers and boiler account for this decrease.

SPECIFIC FUEL CONSUMPTION Indicator Unit 2006 2007 Diﬀ erence Conventional fuel consumption for power generation thousand tonnes 2,803 2,970 167 Conventional fuel consumption g/kWh 319.55 325.51 5.96 Conventional fuel consumption for heat production thousand TCE 3,581 3,293 (288) Conventional fuel consumption kg/Gcal 139.48 140.19 0.71 Conventional fuel consumption, total thousand TCE 6,384 6,263 (121)

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 34

Factors which impact the change of SFC for power generation Factors which impact the reduction of SFC for heat generation (g/kWh) (kg/Gcal) 0 0 decrease in district change in equipment heating effi ciency change in equipment +1.86 production effi ciency due to the change -0.91 production effi ciency in volumes of power production and heat output via spent vapor decrease in power output +8.17 +1.04 in the heating cycle change in heat +0.41 decrease in effi ciency of district heating - 4.07 supply system facilities due to the reduction of heat supply improvement of power supply by types of to consumers with hot water system by types of equipment equipment +0.17 +5.96 +0.71 POWER GRID PERFORMANCE

In 2007, Irkutskenergo power plants accomplished the dispatch schedules of eﬀ ective output set by the United Dispatch Control Center (UDCC) of Siberia – a branch of the Central Dispatch Control Center of the Russian Uniﬁ ed Energy System. The Company’s hydropower plants of the Angara Cascade also managed to follow their operational plan in compliance with standard water usage rates set by the Ministry of Natural Resources of Russia in the context of the current hydrologic situation. Voltage levels in the power system check-points were maintained in accordance with the set up schedules and provided the required level of performance to consumers. The frequency was kept at the level of 50 Hz, and its deviations did not exceed admissible standard values. Under normal operating conditions no restrictions were applied with respect to customers in the Irkutsk power system. Consumers were temporarily disconnected from relay protection only during technical failures and only for the time required for automatic recovery. The main power network operated without restrictions and ensured continuous power supply to consumers.

SAFETY AND RELIABILITY OF OPERATIONS

EMERGENCIES IN 20062007 1 1 0 0 6 7 2006 2007

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 35

In 2007, the number of emergencies increased compared to 2006 due to the growing production volume at CHPPs. At the same time the number of emergencies at HPPs dropped from 21 to 18 and the number of the operating staff ’s errors decreased from 22 to 16. Moreover, there were introduced branch performance indicators directly depending on the number of emergencies caused by errors of the operating staff and the staff working with relay protection and automatic equipment. These indicators are analyzed by balance committees. Last year we developed and implemented a program to enhance CHHPs reliability and in this framework upgraded the equipment (runner Т-50-130 station No. 6 of TETS-9, R-50 station No. 5 of TETS -11); a frequency drive was integrated and hydraulic clutches were installed at grid pumps and PENs and heating surfaces of boiler units are being replaced. We are developing the “System for Production Assets Management” that would enable: 1. To provide for a more detailed (item-by-item) recording of both main and supporting equipment; 2. To provide for transparency of the mechanism for failure accounting of the supporting equipment with an address binding with technical servicing and repair costs; 3. To obtain an objective and independent estimation of costs to maintain economically effi cient reliability of equipment adjusted for risk management; 4. To obtain a balanced distribution of repair costs and investment for technical re-equipment and rehabilitation; 5. Due to the ageing of equipment and forecast shortage of capacity (i.e. involving more intense charging) to optimize costs with their targeted redistribution in view of the actual state of the equipment and development of an updated price database for repair and rehabilitation and standard maintenance. PRODUCTION SAFETY In the last three years OAO Irkutskenergo maintains a low level of injury incidence. In 2007 there occurred three accidents in the Company. In 2007, Company’s branches spent RUB 144,345.649 thousand on occupational safety measures against RUB 116,889.06 thousand in 2006. The amount of costs on personal protective equipment per employee amounted to RUB 2,827 compared to RUB 2,180 y-o-y. OAO Irkutskenergo conducted attestation of its working places according to their working conditions. In Compliance with the RF Government Resolution, the Company received a RUB 1,249 thousand allowance from the Social Insurance Fund to take preventive measures with respect to labour protection (medical examinations, privileged travel vouchers for medical treatment, purchase of equipment for workplace certifi cation, etc.). In 2007 we conducted certifi cation of labour protection to comply with the requirements of occupational health and safety management systems OHSAS 18001:2007.

COST MANAGEMENT

In 2007, market production costs amounted to RUB 21.998 bn, including power generation costs of RUB 21.288 bn. The cost for electric power generation was RUB 0.2619/kWh and for heat power – RUB 316.62/Gcal. The fuel expenses amounted to RUB 5.168 bn of total power generation costs with the fuel ratio being 24.3% of power generation costs. In 2007, the price for the main fuel – coal – reached 477.20 RUB/TCE, which is 8.1% higher against y-o-y. The price of fuel oil was 5,545.77 RUB/tonne, which exceeds the level of 2006 by 5.8%. The average price growth per tonne of coal equivalent (TCE) totalled RUB 825.14 and grew by 7.1% y-o-y. Last year’s repair costs amounted to RUB 3.343 bn or 15.7% of power generation costs, including payroll and social expenditures for repair personnel in the amount of RUB 0.417 bn, or 0.02 %. Total payroll including social expenditures reached RUB 2.708 bn, or 12.7% of power generation costs. OAO Irkutskenergo is constantly working on costs optimization to boost its proﬁ tability. These steps are taken in compliance with the Cost Management Program.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 36

OTHER INCOME AND EXPENSES

Interest income accrued in 2007, amounted to RUB 185 mln including RUB 133 mln from OOO IESK in the framework of the investment project on restructuring the power supply scheme of the Irkutsk and Cheremkhovsky Region. Interest expenses for the use of credit resources ran up to RUB 166 mln. Income and expenses with respect to leased property grew due to the increased lease for property rented to OOO IESK. Initially, it was scheduled to transfer property to the OOO IESK charter capital starting January 1, 2007, however, the actual property transfer eﬀ ectuated only in February and October 2007. Social expenses amounted to RUB 442 mln, which is RUB 51 mln less against y-o-y mainly due to the attribution of a share of expenses to the main Com- pany operations.

PERFORMANCE IMPROVEMENT PROGRAMS IN 2007, RUB ‘000 8 6 1. 5 4 4 0. 7. 8. 3 3 3 3. 1. 2 4 9 5. 4. 6 0 8 5 1 8 4 9 5 2 1 8 4 6 5 7 7 8 7 Cost Reduction at Overall Income from Repair Costs Eﬃ cient Fuel Use Central Heating Operational Costs Environmental HPPs Productivity Wholesale Reduction System Reduction Fees Reduction Improvement Electricity Market Optimization (OPI) power generated Implementation in condensation cycle

The Performance Improvement Programs are a package of measures aimed at the reduction of production costs and obtaining extra sales on the energy market. The results of program implementation are distributed between energy consumers and producers. The consumers get lower tariff level for the regulated types of operations, and the producers are entitled within two-year period upon expiration of the period of return of expenses spent for implementation of the above measures to maintain the predicted level of expenses accounted during of regulation of tariff s for the period which is prior to cost reduction. Moreover, the Performance Improvement Program allows gaining extra profi t in the non-regulated business (power sales at DAM) during the entire period of operations.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 37

FUEL BALANCE AND SUPPLY

FUEL RESERVES, THOUSAND TNE

Reserves January 1, 2007 January 1, 2008 Coal, total 2,346.3 2,009.5 Including: Cheremkhovsky 64.1 121.3 Azeysky 138.0 29.8 Mugunsky 865.7 627.8 Borodinsky 380.1 294.2 Pereyaslovsky 134.2 205.0 Irbeysky 175.0 167.2 Zheronsky 589.3 446.5 Golovinsky 31.6 Kansky 86.1 Fuel oil, total 5.4 5.8

FUEL CONSUMPTION BY FUEL TYPE, THOUSAND TCE

22007,007, FactFact Fuel, total 6,262.7 Including coal: 6,243.6 Cheremkhovsky 497.5 Azeysky 316.6 Mugunsky 2,553.7 Borodinsky 1,079.8 Pereyaslovsky 502.1 Irbeysky 581.8 Zheronsky 561.1 Tarasovsky Golovinsky 72.8 Kansky 78.2 Fuel oil, total 19.1

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 38

As of January 1, 2008 coal reserves of OAO Irkutskenergo CHPPs amounted to 2,009,500 tonnes of natural equivalent, which is 336,800 tonnes less y-o-y. The Order of the RF Ministry of Industry and Energy No. 181 dated August 3, 2006 approved the total standard coal reserve in the amount of 1,629,000 tonnes. In fact, coal reserves amounted to 2,147,400 tonnes surpassing the approved value by 518,400 tonnes of natural equivalent. This increase was caused by failure to implement the production program on power and heat generation at CHHPs due to high outside temperatures.

COAL SUPPLIERS

In 2007, main coal suppliers of Irkutskenergo included the following companies: • OAO SUEK (supplier of Azeysky, Mugunsky, Cheremkhovsky, Borodinsky and Kansky coal types); • OOO Olkhon (supplier of Golovinsky coal); • OOO TD Krasnoyarsktopugol (supplier of Pereyaslovsky coal); • OOO Baikalinvestenergo (supplier of Irbeysky coal); • OOO Trailing (supplier of Zheronsky coal); • ZAO Regionalniye Energeticheskiye Ugli (supplier of Kansky coal).

ALTERNATIVE TRANSPORTATION

In 2007, a portion of coal was delivered to Irkutskenergo CHHPs by the railway operators OOO Transgarant and OOO Transgarant-Vostok – the owners of the rolling stock. It was planned that in 2007 transportation operators would deliver 1,699,100 tonnes of coal (14.1% of total amount of coal planned for shipment in 2007). In fact, 1,914,800 tonnes of coal (18.5%) were shipped.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

HEAT AND ELECTRICITY MARKET

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 41

TARIFFS AND TARIFF POLICY

In Russia heat and electricity tariff s are regulated by the State based on Federal Law No. 41-FZ “On State Regulation of Electricity and Heat Tariff s in the Russian Federation”, dated April 14, 1995; Resolution No. 109 of the Federal Government “On Tariff Settling with Respect to Electricity and Heat Energy in the Russian Federation”, dated February 26, 2004; Methods for Calculating Regulated Tariff s and Costs of Electricity (Heat Energy) on Retail (Consumer) Market, as approved by Order No. 20-e/2 of the RF Federal Tariff s Service (FST), dated August 6, 2004.

ELECTRICITY

In compliance with the tariﬀ approval procedure for 2008, FST performed the work on setting tariﬀ limits for heat and electricity in the Irkutsk Region. Minimum and maximum prices for 2008 were approved by FST Order No. 67-e/4 dated April 11, 2007 (electricity prices were calculated according to the boiler method):

ELECTRICITY TARIFFS, RUB/KWH

Tariﬀ limit 2007 2008

Electricity tariﬀ Minimum price 0.3185 0.3589 Maximum price 0.3247 0.3766 Tariﬀ for electricity supplied to consumers Minimum price 0.38 0.44 Maximum price 0.41 0.45

In the framework of tariff calculation for 2008 for the Irkutsk Region consumers based on the estimates and validating documents presented by Company structural units and in accordance with Methodological recommendations approved by RF FST Order No. 20-e/2 dated August 6, 2004 there were performed calculations of energy and heat tariff s for regional consumers. The validated tariff proposals were submitted to the Tariff s Service of the Irkutsk Region (TS of the Irkutsk Region). TS of the Irkutsk Region Order No. 44-P, dated December 17, 2007 approved tariff s for electricity sold to consumers of the Irkutsk Region. Average electricity tariff of OAO Irkutskenergo (including the boiler tariff for electricity transmission in the territory of the region) was approved in the amount of 0.3549 RUB/ kWh, the growth was at the level of 9.3% by 2007.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 42

CONSUMER GROUPS, RUB/KWH

Consumer Groups 2007 2008 Growth

Base consumers 0.2858 0.3 105% Public sector 0.3373 0.3849 114% Urban sector, VAT included 0.4 0.45 112.5% Other consumers 0.407 0.4897 120% ВН (110 kW and above) 0.382 0.4114 107.7% СН-I (35 kW) 0.399 0.49 122.8% Voltage Range СН-II (1-20 kW) 0.4331 0.54 124.7% НН (0.4 kW) 0.4580 0.5755 125.6% Average tariﬀ 0.3247 0.3549 109.3%

AVERAGE TARIFFS IN 20042008, RUB/KWH

2 2 3 3 8. 8. 3 2. 5. 1 1 0. 4 4 1 1 5 7 9 2004 2005 2006 2007 2008

Due to a continuous work aimed at the reduction of cross-subsidization by consumer groups there was establised a diff erent tariff growth. In 2008, similarly to other wholesale market suppliers OAO Irkutskenergo will supply all the power generated to the wholesale market. In the context of diff erentiation of the sales activities with respect to electric energy sale the RF FST Order on approval of power generation tariff s gains special importance for OAO Irkutskenergo. Under RF FST Order No. 348-e/12, dated December 5, 2006 the calculations of tariff s for electric energy were made for the purpose of sales of power and capacity on the wholesale market in 2008 under the indexation method. The documents were submitted to the RF FST. As a result, the RF FST approved the tariff rates for power generation with the growth exceeding the infl ation rate: for power (average for power plants) – 81.04 RUB/thousand kWh with a 15.4% growth by 2007; and for capacity – 46,944.58 RUB/MW monthly with a 9.6% growth by 2007. The average tariff for power generation was approved in the amount of 202.31 RUB/thousand kWh, 9% growth by 2007.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 43

Tariﬀ rate for installed capacity, RUB/MW Power Plants Tariﬀ for power, RUB/MWh (net of VAT) monthly (net of VAT) Ust-Ilimskaya CHPP 327.01 TETS-1 400.50 TETS-5 518.84 TETS-6 305.98 TETS-9 269.15 TETS-10 335.27 TETS-11 283.90 TETS-12 557.47 46,944.58 TETS-16 397.81 Novo-Ziminskaya CHPP 260.55 Novo-Irkutskaya CHPP 281.93 Bratsk Heating Networks CHPP 545.21 Ust-Ilimskaya HPP 14.54 Bratskaya HPP 14.48 Irkutskaya HPP 14.57

“The Consolidated forecast balance of production and supply of power and capacity in the framework of the Uniﬁ ed Energy System of Russia” for 2008 established an indicator for OAO Irkutskenergo’s sales company for power purchases on the Wholesale Electricity Market, which made it possible for the Company to integrate into the wholesale market and to set up an indicative price. Moreover, the 2008 Consolidated Balance approved the sales volume of capacity to consumers in the wholesale market twice exceeding the year-on-year level, and the power sales volume has also considerably increased against 2007. This enabled to decrease the indicative price compared to the FST suggested value, as well as to maintain the results from power sales outside the region even excluding the sales scheme via MAREM+. Owing to the segregation power distribution into a separate type of business and establishment of OOO Irkutsk Power Sales Company, we calculated the distribution mark-up for the Supplier of Last Resort in compliance with Methods No. 302-e/5, dated November 24, 2006. TS of the Irkutsk Region Order No. 42-P, dated December 17, 2007 approved the distribution mark-up of the Supplier of Last Resort of OAO Irkutskenergo (OOO Irkutsk Power Sales Company) for 2008 in the amount of 0.0112 RUB/kWh. For 2008 we are retaining settlement conditions for system services in the wholesale market. The adopted RAO UES connection fee was adjusted only for the inﬂ ation multiplier.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 44

HEAT FST Order No. 67-e/4 of April 11, 2007 adopted the tariﬀ limits for heat co-generated by CHHPs in 2008:

HEAT PRICES, RUB/GCAL Heat Prices 2007 2008 Tariﬀ for heat co-generated by CHHPs Minimum price 207.70 237.00 Maximum price 219.40 238.00

TS of the Irkutsk Region Order No. 45-P of December 17, 2007 established tariﬀ s for heat supplied to Irkutsk Region consumers. The average heat tariﬀ in the region was approved at the level of 365.74 RUB/Gcal, which is 14% higher y-o-y.

CONSUMER GROUPS, RUB/GCAL Consumer Groups 2007 2008 Increase Public sector 305.10 350.87 115.4% Utilities 305.10 350.87 115.4% Other consumers Hot water 330.59 372.65 112.7% Steam 2.5-7.0 kg/cm2 331.48 373.64 112.7% Steam 7.0-13.0 kg/cm2 338.30 381.32 112.7% Steam >13 kg/cm2 350.23 394.77 112.7% Average tariﬀ 320.84 365.74 114%

AVERAGE PRICES IN 20042008, RUB/GCAL 3 3 2 2 5 5 2 2 6 0. 0. 8 0. 5. 6 6 3. 8 7 7 7 6 4 4 2004 2005 2006 2007 2008

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 45

ENERGY TRADING

SALES REVENUE BY PRODUCT, RUB ‘OOO Supply Sales, (RUB ‘000) Item (mln kWh, thousand Gcal, thousand tones) Diﬀ erence (%) 2006 2007 2006 2007 Electric power 57,741* 67,824* 15,466,000 19,564,752 26.5 External market 11,996 20,231 2,656,807 4,725,113 77.8 Internal market 45,745 47,593 12,809,193 14,136,425 10.4 Capacity, external market 0 1,370.8 0 703,214 – Heat 24,590 22,507 6,866,773 6,933,758 1.0 Treated water 98,518 94,599 640,215 703,893 9.9 Total production + + 22,972,988 27,202,403 18.4

* including electric power for re-sale on the wholesale market

In 2007, actual sales totaled to RUB 27,202.4 mln (net of VAT) against the planned sales in the amount of RUB 24,887.4 mln (net of VAT). Actual sales grew RUB 4,229.42 mln (18.4%) year-on-year, which was mainly contributed by the increase in wholesale electric power sales. Heat supply dropped by 2,083 thousand Gcal (8.5%) y-o-y, and the insigniﬁ cant growth of sales stems from the growth of heat prices in 2007. As compared to the previous year, actual internal sales increased by RUB 1,327.23 mln owing to the growth of electric power consumption in a number of major industrial enterprises.

In 2007, the main achievements of OAO Irkutskenergo in power supply were as follows: • settlement of current energy bills was 100.2% (less adjustment for written oﬀ receivables); • accounts receivable decreased by 12% y-o-y; • increased number of eﬀ ective trading operations in the wholesale electricity market; • improved system of settlements with population and customer service culture; • measures to change power supply activities in the situation of the ongoing reforms within OAO Irkutskenergo; • acquisition of wholesalers/resellers to strengthen market positions.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 46

Projects and measures aimed at improving the Company’s performance included the following: 1. Relations with consumers were governed by contractual terms, including close monitoring of timelines and volumes of payments for energy released. 2. The Company introduced restrictions and interruption of, energy supplies to non-paying customers in accordance with contracts and applicable legislation, as well as claims and suits were brought. 3. In the beginning of the heating season heat was supplied to the consumers only after signing of acts on technical and ﬁ nancial readiness of customers. 4. In implementing the program aimed at improving customer service, we launched a service desk for our customers. 5. In compliance with the principles of reorganization of companies, we transformed the sector of sales of power into a separate company – OOO Irkustskenergosbyt. Since January 1, 2008 OOO Irkustskenergosbyt has been performing power sales and the functions of a Supplier of Last Resort within the whole territory of the Irkutsk Region apart from two other power supply companies also endowed with the above status. 6. In March 2007, we liquidated MPTP Irkutskteploenergo – a heat wholesaler in Irkutsk, municipal heating networks were transferred to a subsidiary ZAO Baikalenergo.

ACCOUNTS RECEIVABLE

THE GROWTH OF ACCOUNTS RECEIVABLE IN 20062008 3, 4, 3, 3, 2 3, 3, 2, 2, 2, 2 7 0 0 7 9 6 6 2 0 2 9 0 3 9 2 4 4. 5. 0. 9. 5. 7. 7. 1. 6. 7 2 8 2 3 8 9 0 0 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 1 Apr 1 Jul 1 Oct 1 Jan 2006 2007 2008

The table below shows average turnover of accounts receivable (days) in 2003–2007:

Year 2003 2004 2005 2006 2007 Accounts receivable turnover (days) 76 54 53 40 36

In 2007, accounts receivable decreased by RUB 359.3 mln (-12.0%) to RUB 2,646.0 mln (including VAT) as of January 1, 2008.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 47

INTERNAL MARKET ELECTRIC POWER The main power consumers in Irkutsk Region comprise major industrial enterprises specializing in nonferrous metals, oil reﬁ ning, chemical, and pulp- and-paper industries and wholesalers/resellers. During 2007, large enterprises consumed 29,524.6 mln kWh (62.04% of the total of internal market), while wholesalers/resellers consumed 8,337.2 mln kWh (17.52% of the market total).

The largest consumers include aluminium producers, such as Bratsk and Irkutsk Aluminium Smelters, which consumed 22,634.2 mln kWh (47.7%), and OOO Rusenergosbyt, which consumed 3,460.7 mln kWh (7.3%) in 2007.

ENERGY CONSUMPTION IN 2007

Net Power Output (mln kW h) Sales (RUB ‘000) Sales variance Item 2006 2007 2006 2007 (%) Electric power, total (internal market) 45,745.4 47,593.1 12,809,193 14,136,425 10.4 Base consumers 24,589.8 22,768.5 6,667,116 6,435,141 (3.5) State-ﬁ nanced consumers 708.4 662.4 216,860 223,683 3.1 Households (urban+rural) 2,109.2 1,923.0 571,278 567,861 (0.6) Other 18,338.1 22,239.2 5,353,940 6,909,740 29.0

Net power output grew by 1,847.7 mln kW h (4.0%) y-o-y, which is a result of increased electric power sales of OOO Irkutsk Grid Company (since June 1, 2006, OOO Irkutsk Grid Company has purchased electric power to compensate losses in power grid) and is determined by the natural increase and production growth of a number of major enterprises (Bratsk Aluminium Smelter, OOO Rusenergosbyt and OAO Sayanskchimplast). Energy consumption structure changed year-on-year due to the shift of East-Siberian Railway consumers to a settlement system based on tariﬀ s introduced by the wholesaler/reseller OOO Rusenergosbyt. HEAT The main heat consumers are major oil-reﬁ ning, chemical, pulp-and-paper enterprises, housing and utility organizations, and wholesalers/resellers. In 2007, the major industrial consumers included Bratsk Pulp and Paper Plant – 2,605.7 thousand Gcal (11.58%) and Angarsk Petrochemical Plant – 2,268.7 thousand Gcal (10.08%). Overall 2007 sales to major industrial consumers totaled 8,894.8 thousand Gcal (39.5% of total sales), to housing and utility companies – 6,784.6 thousand Gcal (30.1%), to wholesalers/resellers – 2,898.1 thousand Gcal (12.9%).

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 48

HEAT CONSUMPTION IN 2007

Net output (Gcal ‘000, t ‘000) Sales (RUB ‘000) Sales variance Item 2006 2007 2006 2007 (%) Heat, total (internal market) 24,589.5 22,507.0 6,866,773 6,933,758 1.0 Public sector 1,643.8 1,311.9 442,346 400,255 (9.5) Housing and utility companies 7,332.3 6,892.3 1,973,119 2,102,834 6.6 Other 12,271 11,314.5 3,867,156 3,856,835 (0.3) Wholesalers 3,342.1 2,988.3 584,152 573,835 (1.8) Treated water 98,517.9 94,599.0 640,215 703,893 9.9

Heat sales dropped y-o-y by all groups of consumers due to the increased outside temperatures in early H1 and late H2 2007, as compared to average annual values. At the same time, the reduction of heat consumption by housing and utility companies and wholesalers/resellers resulted from accurate monitoring and maintenance of heat supply regimes (strict compliance with the temperature schedule and hydraulic control). The decrease in net heat output within the group of Industrial consumers was driven the implementation of energy-saving technologies in production and programs to reduce technological losses due to heat consumption with higher outside air temperatures in the heating season 2006-2007 against average annual values.

ACCRUALS AND PAYMENTS FOR MAIN PRODUCTION ON THE INTERNAL MARKET IN 2007 Settlement Accounts % as Receiv- Receivables as of Accrued Settled Cession of the adjusted for ces- % of Pay- receivablewrit- adjusted for ables as of 01.01.2007 Receivables Receivables right of claim sion of the right ment Consumers ten oﬀ write-oﬀ s 31.12.2007 of claim RUB ‘000 RUB ‘000 RUB ‘000 RUB ‘000 RUB ‘000 % RUB ‘000 % RUB ‘000 Internal market 2,588,437 24,133,971 24,441,526 9,313 24,450,838 101,3% 256,308 102.4% 2,015,261 Industrial enterprises 277,556 15,712,934 15,778,747 0 15,778,747 100,4% 0 100.4% 211,742 Electric power 62,141 488,881 489,880 0 489,880 100,2% 0 100.2% 61,142 wholesalers Heat wholesalers 324,710 813,017 945,178 0 945,178 116,3% 0 116.3% 192,549 Housing and utility 837,586 2,815,405 2,934,278 0 2,934,278 104,2% 181,099 110.7% 537,614 companies Other 1,086,444 4,303,733 4,293,442 9,313 4,302,754 100,0% 75,210 101.7% 1,012,213 OOO Irkutsk Grid (31,652) 1,535,509 1,461,089 0 1,461,089 95,2% 0 95.2% 42,768 Company ZAO Baikalenergo 0 23,919 16,774 0 16,774 70,1% 0 70.1% 7,146

In 2007, the settlement ratio adjusted for accounts receivable and cession of the right of claim was 102.4%. Accounts receivable dropped by all groups of consumers with the total decrease amounting to RUB 573.2 mln (22.14%).

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 49

EXTERNAL MARKET

2007 was the fi rst year geared by the new model of the New Wholesale Electricity and Capacity Market (NOREM) Rules introduced by RF Government Regulations No. 529 and 530 dated August 31, 2006. In 2007, OAO Irkutskenergo traded electricity and electrical capacity on the wholesale market using the following mechanisms: • trading at regulated prices under regulated long-term bilateral contracts (LTBC) separately for electricity and capacity; • electricity trading at non-regulated prices set by parties under free bilateral sales and purchase contracts; • electricity trading at non-regulated prices set by competitive selection of the buyers’ and suppliers’ price off ers fi led a day before the start of supply, i.e. trading in the day ahead market; • electricity trading in volumes corresponding to deviations at non-regulated prices defi ned by parties in bilateral contracts - free bilateral contracts for purchase and sales; • electricity trading at non-regulated prices set by competitive selection of suppliers’ and participants’ applications with regulated consumption initiated no later than an hour before the start of electric power supply in order to introduce a balanced production and consumption mode, i.e. trading in the balancing market (BM). In the current situation OAO Irkutskergo declared sales in the full volume of its generated power and market purchases of the total volume of its own consumption. In November 2007, OAO Irkutskenergo started introducing non-regulated prices for consumers (excluding households) for a portion of the volume supplied to the retail market.

WHOLESALE ELECTRICITY TRADING 2006 2007 Indicator Volume, Tariﬀ , Amount, Volume, Tariﬀ , Amount, kWh mln RUB/MWh RUB ‘000 kWh mln RUB/MWh RUB ‘000 SALES, total 11,996 221.5 2,656,807 20,231 233.56 4,725,113 including: ZAO MAREM+ 3,208 320 1,026,563 3,050 342.4 1,044,237 OAO Novokuznetsk Aluminium Smelter (NKAZ) 647 281.2 181,936 0 0 0 Free market (through September 1, 2006) 993 404.1 401,274 0 0 0 Regulated market (through September 1, 2006) 1,314 246.2 323,562 0 0 0 Regulated contracts (since September 1, 2006) 1,447 174.3 252,210 2,430 19.67 47,798 Day ahead market (since September 1, 2006) 3,480 93.1 323,883 12,128 242.78 2,944,465 Balancing market (since September 1, 2006) 907 162.5 147,379 2,623 262.5 688,613

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 50

2006 2007 Indicator Volume, Tariﬀ , Amount, Volume, Tariﬀ , Amount, kWh mln RUB/MWh RUB ‘000 kWh mln RUB/MWh RUB ‘000 PURCHASES, total 7,622 118.4 902,298 14,374 175.88 2,528,142 including: Regulated market (prior to September 1, 2006) 2,219 157.7 349,909 0 0 0 Regulated contracts (starting September 1, 2006) 74 19.7 1,454 0 0 0 Day ahead market (starting September 1, 2006) 4,151 89.7 372,353 10,871 190.48 2,070,751 Balancing market (starting September 1, 2006) 1,179 151.5 178,582 3,503 130.58 457,391 NET SALES, budget 3,280 406.8 1 334,208 5,025 265.12 1,332,098 NET SALES, actual 4,374 401.2 1,754,509 5,857 375.10 2,196,971 Actual vs. budget 1,094 5.6 420,301 833 109.97 864,873

The regulated NOREM sector involves regulated sales and purchase contracts established by Nonprofi t Partnership ATS (Administrator of Trade System) within the volume and at prices provisioned by the balance of the Federal Tariff Service of the Russian Federation in an hourly breakdown for every group of supply points. As compared to 2006, when a 100% volume was fi xed as an obligation under regulated contracts, according to the Federal Tariff Service budgeted balance, in 2007, a part of volumes was liberalized. Since January 1, 2007, regulated volumes decreased by 5% of the budgeted balance and by 10% since June 1, 2007. The RF Government set up a liberalization schedule with a gradual (once in 6 months) reduction of the regulated volumes share of base volumes (planned in the Federal Tariff Service balance for 2007). At the same time, liberalization measures are still not applicable for households consumption volumes. NP ATS set up the following contracts for OAO Irkutskenergo: on electric power supply in the volume of 2,430 MWh at the price of 19.67 RUB/MWh to the sum of RUB 56,4 mln (including VAT); and on capacity supply in the monthly volume of 1,370.8 MW at the price of 42,748 RUB/MW to the sum of RUB 703.2 mln. If converted to a single-rate scale the weighted average price under LTBC amounted to 309 RUB/MWh, i.e. 77% higher y-o-y. The sales/purchase volume in the free market at free prices is formed as the diff erence between the volume sold by auction and obligations fi xed by LTBC (both for production and consumption). For production supply points, free market sales/purchase comes into eff ect in a given hour provided the trading volume exceeds or does not comply with LTBC obligations; for consumption supply points – if the consumption volume based on auction results either exceeds or is below the volume purchased under LTBC. In each case the volume based on deviation is sold at a free price. Trading operations on the balancing market are performed according the algorithm similar to the one applied for the free market, but in a real-time mode. Settlements are made for actual deviations from the trading schedule established in the free market during each trading hour at prices determined according to the results of competitive selection of bids submitted by participants to the free market. As compared to the free market auction held once a day, the balancing market auction is held 4 times a day. Given that the results of BM auction lead to either charging of more expensive generators excluded from the trading schedule or discharging of the most expensive generators closing the list of those selected during a free market auction, the range of balancing market prices is much wider than the one applied for the free market. Consequently, qualifi ed work in the balancing market can potentially provide higher effi ciency.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

MANAGEMENT OF THE COMPANY

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 53

CORPORATE MANAGEMENT

CORPORATE MANAGEMENT TEAM Full Name Year of Birth Position BOARD OF DIRECTORS Yuriy M. Medvedev 1948 Deputy Head of Federal Agency for Property Management Boris P. Varnavskiy 1940 General Director of Production Department, OOO EuroSibEnergo Aleksey D. Glushchenko 1974 Senior Vice-President of Asset Management, ZAO Integrated Energy Systems Vladimir A. Kiryukhin 1956 General Director of OOO EuroSibEnergo Chairman of the Board of Non-Commercial Partnership of Suppliers of Last Resort and Vassiliy N. Kiselev 1947 Energy Supply Companies Deputy Director of Department for State Regulation of Tarrifs and Infrastructure Reforms, Mikhail Yu. Kurbatov 1981 Russian Federation Ministry of Economic Development and Trade Sergey A. Mikhailov 1958 Director of Department of State Energy Policy, Russian Federation Ministry of Industry and Energy Andrey G. Polous 1967 Director of Corporate Management, OAO System Operator – Centralized Dispatching Administration of UES Alexander I. Prilepskiy 1951 Deputy General Director, OOO EuroSibEnergo Olga S. Pushkareva 1955 Director of Department of Sector Development, Government of the Russian Federation Vladimir M. Shchadov 1954 Deputy Head, Federal Energy Agency MANAGEMENT BOARD Sergey V. Emdin 1971 General Director Vyacheslav M. Kramarenko 1976 First Deputy General Director, Director of Economics and Finance Mikhail A. Graiver 1950 Director of Power Generation, Chief Engineer Boris M. Rozenraukh 1948 Director of Energy Trading Vladimir A. Sharaburak 1964 Procurement Director AUDIT BOARD Yulia A. Bortsova 1984 Chief Specialist of Corporate Accounting of the Finance Department, OOO EuroSibEnergo Igor V. Gankov 1968 Chief Specialist of Economics of Production of Production Department, OOO EuroSibEnergo Elena G. Talalykina 1973 Chief Accountant, Deputy Director of Finance Department, OOO EuroSibEnergo Chief Specialist – Expert of Legal and Property Relations Board of Fuel and Energy Complex of Maria G. Tikhonova 1980 the Federal Agency for Energy Vitaliy V. Shelkovoy 1973 Deputy Head of Internal Control and Audit Department, ZAO Integrated Energy Systems

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 54

MANAGEMENT BOARD

The Management Board is a collective executive body of the Company. Members of the Management Board can be the Heds approved by the Company’s Board of Directors. The Management Board is chaired by the General Director. The Management Board’s procedures, rights, obligations and responsibilities are determined by the legislation of the Russian Federation, the Company’s Charter, the Regulations of the Company’s Management Board and agreements between the Company and the Management Board members. Issues falling under the Management Board’s authority, according to the Charter, may not be delegated to the Company’s General Director. The following issues are within the exclusive competence of the Management Board: 1. preliminary discussion of issues proposed for consideration by the Board of Directors, either at the initiative of the Management Board or at the request of the Board of Directors of the Company; drafting recommendations regarding issues thereof; 2. decisions on entering into a transaction or a series of related transactions (except transactions for which the Company Charter specifi es other rules) for the acquisition, alienation or possible alienation of property, directly or indirectly, by the Company for the amount equal to, or exceeding 1,000,000 (one million) US Dollars; 3. approval of monthly budgets and fi nancial plans of the Company and status reports thereon; 4. approval of terms and programs for debt restructuring (including, but not limited to, disposal of accounts receivable), which do not fall under the competence of the Board of Directors, and control over their implementation; 5. approval of programs and plans on organization of insurance of the Company’s property, transactions and employees as well as other types of insurance; and ensuring implementation thereof; appointment of the Company’s insurers; 6. approval of social security benefi ts and guarantees for Company employees; 7. approval of capital raising programs and plans to fi nance the Company’s development, and ensuring implementation thereof; 8. decisions on the Company’s participation in, or withdrawal from, commercial or non-profi t entities, including the purchase or sale of shares or equity interests; decisions on the alienation by the Company of shares or equity interests in other business entities, unless such a decision is referred by the Company Charter to the exclusive competence of the Board of Directors; 9. decisions on the nomination of candidates to management bodies, appointment of Company representatives for general meetings of shareholders, on approval of voting instructions for Company representatives at meetings of collective management bodies, general meetings and meetings of the Board of Directors on the approval of one-year business-plans and reports on execution thereof, on organizational issues; and on exercising other rights of the Company as a participant and/or shareholder of business entities in which the Company holds equity interests, except Network Companies. Decisions on the above issues in non-profi t and other entities where the Company holds equity interests, except Network Companies; 10. approval of the Company’s internal by-laws on issues falling under the Management Board authority; 11. decisions on alienation or possible alienation, directly or indirectly, of immovable property of the Company, unless such transactions fall under the competence of the Board of Directors; 12. approval of foundation documents of commercial and non-profi t entities in which the Company is a founder, participant or shareholder, except the foundation documents of Network Companies; 13. decisions on issues on the agenda of general meetings of shareholders and general meetings of Network Companies: • appointment of the chief engineer, chief accountant, directors and deputy directors of branches, and early termination thereof; approval of the terms and conditions of employment contracts concluded with them, and early termination thereof; • conclusion (approval) of related-party transactions, excluding interested-party transactions in the exclusive competence of the Board of Directors of the Company; • conclusion of a single transaction, or of a series of related transactions related to acquisition, alienation or possible alienation, directly or indirectly, of property by the Network Company, where the value of such property exceeds the equivalent of 100,000 (one hundred thousand) US Dollars;

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 55

• approval of quarterly budgets and ﬁ nancial plans of the Network Company, and status reports thereon; • approval of terms and programs for restructuring of debt against the Network Company (including, but not limited to, transactions on accounts receivable commanding ), the value of which do not exceed the amount equal to 300,000 (three hundred thousand) US Dollars, and ensuring control over its implementation thereof; • conclusion of a single transaction or a series of related transactions related either to alienation, acquisition or the possibility of alienation, directly or indirectly, of property belonging to the Network Company, (or by the Network Company), where the value of such property does not exceed the amount equal to 1,000,000 (one million) US Dollars; 14. decisions on other issues connected with the day-to-day operations of the Company that are proposed by the General Director for consideration by the Management Board of the Company.

MANAGEMENT REMUNERATION

By the decision of the Board of Directors members of the Management Board can be granted remuneration and/or compensation for the expenses incurred due to the performance of their respective functions. The amount of remuneration and compensation thereof are determined by the Board of Directors of the Company. Based on the decision of the General Meeting of Shareholders, members of the Board of Directors can be granted remuneration and/or compensation for the expenses incurred due to the performance of their respective functions for the term of oﬃ ce. The total amount of remuneration and compensation thereof is determined by the General Meeting of Shareholders.

PROPERTY MANAGEMENT

In 2007, OAO Irkutskenergo continued planned procedures to complete the state registration of its title to real property, including the rights to the land plots under the subject property. Due to the lack of explicit legislation regulating the procedure for allocation of land plots under heating networks, local authorities held long negotiations with the Company, and initially refused to allocate the land plot to OAO Irkutskenergo since land plots hereto are constituent public land and are not liable to land surveying. Only after an agreement was reached with the local authorities regarding the registration of title to land under heat chambers, the contractors started revalidation of land use planning issues. Therefore due the extended registration of documents for land plots under heat networks both within state and local bodies as well as the preparation of the List of property for transfer into the OOO IESK Charter Capital, the Property Management Department did not use the planned investment in full throughout the ﬁ nancial year. Actual 2007 expenses related to the registration of title to real property totaled to RUB 26,841,000 (net of VAT) against the planned RUB 31,748,000 (net of VAT), i.e. a diﬀ erence of RUB 4,907,000.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 56

SHARE OF OAO IRKUTSKENERGO IN PROFIT MAKING COMPANIES LONGTERM INVESTMENTS AS OF DECEMBER 31, 2007 Names of Joint-Stock Companies, the shareholdings (share equities) of which belong to Share in Charter Capital, % Share of Votes, % OAO Irkutskenergo based on right of ownership ZAO IRMET 100.00 100.00 ZAO Sibtranspress 19.98 19.98 ZAO Energoparitet 50.36 50.36 OOO Baikalinvestenergo 99.60 99.60 OOO Irkutskenergosvyaz 100.00 100.00 OOO Angarskaya Teplosbytovaya Kompaniya 100.00 100.00 OOO Tsentralizovannaya Energoremontnaya Firma 100.00 100.00 OOO Security Firm Irkutskenergo 100.00 100.00 ZAO SibirEnergoTrade 100.00 100.00 ZAO Irkutskenergotrans 100.00 100.00 ZAO HydroEnergoService-Remont 100.00 100.00 ZAO Spetsenergoremont 100.00 100.00 ZAO Bratskenergoremont 100.00 100.00 ZAO Baikalenergo 100.00 100.00 OOO Lizingovy Center 19.80 19.80 OAO Siberian Investment Company 0.16 0.16 OOO Pozharnaya Okhrana Irkutskenergo 100.00 100.00 OOO Irkutskaya Gorodskaya Teplosbytovaya Kompaniya 100.00 100.00 OOO Elektrosbyt 100.00 100.00 OOO Irkutsk Grid Company 100.00 100.00 OOO Irkutskenergo Engineering Center 100.00 100.00 ZAO Irkutskzoloprodukt 100.00 100.00 OOO Irkutsk Power Sales Company 100.00 100.00 OOO Energosbyt 100.00 100.00 OOO Irkutskenergoﬁ nans 100.00 100.00

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 57

PROPERTY MANAGEMENT Unit Item 2006 2007 of Measurement Long-term investments at the beginning of period RUB ‘000 1,619,262.08 21,669,554.12 Number of organizations from which Irkutskenergo withdrew 3 4 Proﬁ t/loss from sale of shares (interest) RUB ‘000 30,282.499 17,400.00 Dividends RUB ‘000 21,895.85 - Number of companies established 2 3 Long-term investments at the end of the period RUB ‘000 21,669,554.12 23,453,025.77

In 2007, OAO Irkutskenergo’s long-term investments grew y-o-y owing to the implementation of projects on Company restructuring. In 2007, the Management Board and the Board of Directors of Irkutskenergo approved the establishment of the following subsidiaries: OOO Irkutsk Power Sales Com- pany, OOO Energosbyt and OOO Irkutskenergoﬁ nans. Another factor contributing to the growth of long-term investments was the increase in the nominal value of the Company’s interest in OOO Irkutsk Grid Company where OAO Irkutskenergo is a sole participants through contribution of additional assets in the charter capital. In 2007, Irkutskenergo did not generate any income from equity participation in its subsidiaries. In addition, in 2007 OAO Irkutskenergo sold its equity interests and withdrew from participation in the following subsidiaries: ZAO Irkutskenergostroy and Grand Baikal LLC. The sales proceeds totaled to RUB 17,400,000.

MAJOR DEALS AND RELATED PARTY TRANSACTIONS

On February 8, 2007 the Board of Directors approved the transaction on transfer of Irkutsk Power Generation and Distribution Company’s property (OAO Irkutskenergo) in the amount of RUB 484,221,180 as an additional contribution to the Charter Capital of OOO Irkutsk Grid Company. On September 14, 2007 the Board of Directors approved the following: • a transaction on the transfer of OAO Irkutskenergo’s property in the amount of RUB 1,060,207,618 as an additional contribution to the Charter Capital of OOO IESK; • related transactions with OOO IESK on purchase and sale of OAO Irkutskenergo property totaling RUB 211,175,450; Pursuant to the Federal Law “On Joint Stock Companies”, these transactions were major deals for OAO Irkutskenergo and, therefore, according to the applicable law required prior approval by the Board of Directors. On June 17, 2007 the Board of Directors approved a deal qualifying as a related-party transaction for OAO Irkutskenergo – a lease agreement of Angara HPP Cascade dams, i.e. hydraulic engineering facilities in federal ownership, signed with the Territorial Management of the Federal Agency on Federal Property Management in the Irkutsk Region acting on the part of the leased property owner – the Russian Federation. In 2007, according to the agreement, annual rent amounted to RUB 74,400,000, net of VAT.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 58

STANDARDIZATION AND STREAMLINING OF BUSINESS PROCESSES

Management improvement eff orts of the Company were focused on the overall streamlining of corporate management. In order to establish audit procedures for key Company operations and ensure compliance of business processes and investment projects with the set up key performance indicators as well as consolidation of other audit and control functions we introduced the position of the Director for Audit and Control, and audit and control groups in all main areas of business. Company departments are structured based on functionality, which enables certain operations to be made more process-specifi c, preserving the principle of individual responsibility. According to applicable laws, in the framework of the Company restructuring, sales functions were transferred from the Company to a separate legal entity, OOO Irkutsk Power Sales Company. The Company adopted the following authority breakdown of functions: heat production and transportation and power generation – Company branches, electric power transportation, heat and power sales and maintenance – subsidiaries and affi liated companies, and servicing and general management – the Executive Board. All functions of the Company management are distributed between the General Director and the directors of Company operational business lines. For the purpose of implementation of the program aimed at enhancing the effi ciency of key business processes, Company experts initiated description and analysis of branch processes and proposed ways of their improvement. We are controlling processes implementation and results thereof, this work being monitored by the Reserve Boards. Production Standard 001.083.083-2007 Methods on Development and Application of Key Performance Indicators was introduced to establish the system for performance monitoring and business processes improvement, to interrelate the Company’s performance indicators with the indicators of the main processes and to develop an overall system of Company performance indicators. In the framework of the standardization plan, 4 Policies and over 40 production standards were introduced. In the context of the program on effi ciency improvement of key business processes in branch TETS-11 CHPP a process-oriented management structure was proposed and implemented. CHPP branches merged with the respective branches of heating networks followed by optimization of the heating unit organization structure. Projects on performance improvement were implemented at Irbeysky open-pit mine and the same projects are now underway at TETS-10 CHHP. As a result of implementation of the performance improvement projects, relevant package measures were proposed aimed for decreasing of Irbeysky open- pit mine estimated budget by 29.4 %. Implementation of Overall Productivity Improvement (OPI) (in the framework of the Cost Management Program) led to the saving of RUB 73.3 mln; investments amounted to RUB 25.3 mln.

LEGAL ISSUES

The Company raised 947 claims in the amount of RUB 203,097,207; 890 claims were sustained in the amount of RUB 201,943,178 (including 16 claims raised by the Executive Board totaling to RUB 58,532,239). All claims were sustained; one case is in trial for a sum of RUB 163,612,513. 9 claims for the sum of RUB 101,149,361. 8 were ﬁ led against the Company, including claims by OOO Zhilservice amounting to RUB 74,625,314.8 and other cases in the amount of RUB 25,506,039, including the following: • 3 claims against the Executive Board for the sum of RUB 21,118,008; 1 claim was satisﬁ ed in the amount of RUB 70,000; • 6 claims against Company branches totaling to RUB 79,931,353.8, including claims by OOO Zhilservice amounting to RUB 74,625,314.8 and other cases in the amount of RUB 5,306,039; 4 claims were sustained to the sum of RUB 1,401,442.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 59

MAJOR LITIGATIONS - OAO Irkutskenergo – plaintiff . Interdistrict Inspectorate of the Federal Tax Service on major taxpayers No. 4 – defendant. Contestation of a non-regulatory state act requiring additional tax charge in the amount of RUB 163,612,513. The case was suspended by a court decision dated October 10, 2007. Moreover, the Federal Tax Service received an appeal for the decision of the Interdistrict Inspectorate of the Federal Tax Service on major taxpayers No. 4. On February 2, 2007 the RF Federal Tax Service adopted decision No. MM-26-3/14@ on the OAO Irkutskenergo appeal, which resulted in a decrease of the claimed amount of additional tax charge to RUB 67,735,000. - OOO Zhilservice of the town of Usolye-Sibirskoye – plaintiff . OAO Irkutskenergo – defendant. Restitution of unjust enrichment and interest. In the course of the court hearing the plaintiff claimed the transfer of RUB 168,513,000 to the account of OAO Irkutskenergo in the period from 2004 to 2005. At the time of passing judgment the amount claimed reached RUB 41,824,907.40 – unjust enrichment and RUB 32,800,407.40 – unjust interest. On May 25, 2007 the claim was dismissed. On July 2, 2007 the Usolskoye branch received an appeal from OOO Zhilservice which was disallowed and the decision of the court of fi rst instance remained unchanged. On November 13, 2007 the reversal of judgment was refused. The claim was dismissed and a supervisory appeal was fi led. - Plaintiff V.I. Popov claimed against the Company a compensation for the breach of copyright in the amount of RUB 20 mln and moral damage in the amount of RUB 100,000. On January 23, 2007 compensation was enforced totaling RUB 50,000, including RUB 20,000 for moral damage and RUB 1,300 litigation expenses. By the ruling of the appellate court dated March 14, 2007 the decision remained in force. - Plaintiff G.A. Lamm claimed against the Company the recovery of damage for the sum of RUB 1,999,000. Court of fi rst instance – Decision of June 20, 2007 on the recovery of RUB 1,999,000 damage and RUB 14,095 state duty. An appeal was prepared and fi led, and the decision remained in force. The supervisory appeal was allowed on January 14, 2008, and the case was sent for a new trial. There is a risk of claims settlement thereof.

RISK MANAGEMENT

Currently the Company is implementing a corporate risk management system, which would provide for more transparency and control over risk management system. EXTERNAL RISKS Country and Regional Risks The current stable economic and political situation in Russia is characterized by strong federal and regional governments, and a clear economic policy pursued by the federal government. Country and regional risks are not expected to have any material eff ect on the fi nancial and economic indicators of OAO Irkutskenergo. One of the main regional risks that may signifi cantly infl uence the Company’s operations is the inadequate tariff setting for electricity pursued by the regional tariff s service. This is fraught with the risk of either reduced profi ts to pay dividends or their complete absence. As an option to overcome this situation, the Company may submit a request to the FST to review the level of approved tariff s. The accelerated price growth may boost Company’s expenses (due to increased fuel prices and transportation costs), cause inventory and assets turnover slowdown and result in reduced profi t and profi t margins. To mitigate this risk, the Company has initiated a comprehensive cost optimization program. For the Irkutsk Region the risks of military confl icts, a state of emergency or strikes are highly improbable and are not expected to signifi cantly aff ect Company’s operations. Natural risks stemming from the regional geography include the risk of losses caused by adverse weather conditions, such as hurricanes, fl oods, etc. as well as earthquakes since the region is located in a zone of moderate seismic activity. The probability of these risks does not exceed historical levels. Consequently, the Company is taking technical (reinforcement of buildings and other structures) and fi nancial (property insurance) measures to indemnify against potential loss or damage caused by natural disasters.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 60

Industry Risks The current situation in the energy sector is characterized as stable, with no deterioration expected. The stable situation in energy sector will positively impact the Company’s operations. Industry risk related to a possible change in prices for the Company production and services may result in reduced sales volume, collectability and revenue. In the near future the probability of this risk is low. The change in prices for water supply, which may considerably modify the breakdown of costs, is not expected in the near future either. Main risks that may largely aff ect Company operations and liabilities with respect to securities include the restructuring of the energy sector and growing fuel tariff s. The reform of the Russian energy sector is aimed at diff erentiation of Company’s business by types of operations may aff ect both the overall approach to Company’s performance and its fi nancial indicators. However, the energy reform does not currently exert any signifi cant infl uence on the Company’s business nor will the adoption of regulations on operations in the electricity retail market.

COMMERCIAL RISKS

Industrial and Technical Risks (risks related to equipment and accidents) Industrial and technical risks may include the threat of losses from equipment failures. The probability of these risks will be kept at their historical levels through the repair program focused on maintaining reliable operation of equipment and generation units and also through a risk management program used for comprehensive analysis and eﬀ ective control of all Company risks. In 2007, the Company started the implementation of a program on equipment status management, involving equipment repair by applying the risk management methodology (to determine the quotient of generating equipment status and estimate potential losses in case of accidents).

Business Risks (relations with business partners and customers) Business risks include risks related to declining demand for heat power from major industrial customers, which plan the implementation of energy-saving technologies and the construction of in-house heat generation facilities. This situation may result in a further decrease in Irkutskenergo’s revenue from heat sales. To mitigate the possible negative eﬀ ect of the above risks, the Company needs to focus on negotiating long-term agreements on ﬁ xed heat supplies and on the use of waste energy.

Financial Risks The accelerated price growth may boost Company expenses (due to increased fuel prices and transportation costs), cause inventory and assets turnover slowdown and result in reduced proﬁ t and proﬁ t margins. To mitigate this risk, the Company has initiated a comprehensive cost optimization program and introduced a practice of tenders for suppliers and providers.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

COMPANY FINANCE

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 63

KEY 2007 FINANCIAL INDICATORS, RUB MLN Item 2006 2007 Diﬀ erence y-o-y, % Revenue 23,251 27,660 19% Cost of sales 20,420 24,921 22% EBITDA 4,094 2,938 (28)% Gross proﬁ t 2,831 2,739 (3)% Net income 1,433 1,302 (9)%

In 2007, revenue grew 19% y-o-y. The main factor contributing to the increase in revenue was effi cient operations on the wholesale market. Within the periods of minimum purchase prices and maximum sales prices on the wholesale electricity market, the Company purchased and sold electricity on the wholesale market, which was more profi table compared to power generation at TPPs. The revenue from purchase and sale transactions totaled to RUB 5,428 mln (including supply of capacity). The income analysis by consumer groups in the reporting period is given in Section 7 of the Annual Report. The cost of sales grew 22% y-o-y due to infl ation and the following cost growth factors: • increased electricity purchases on the external market – RUB 2,528 mln, which is three fold more y-o-y; • increased tariff for electricity transmission in the Unifi ed National Power Grid by 170% or RUB 482 mln; • increased tariff for electricity transmission to OOO IESK by 71% or RUB 2,166 mln (in 2006 this service was paid starting from June); 2007 income before tax was RUB 1,998 mln. Income tax expense of RUB 606 mln was accrued at an eff ective rate of 30%. Net income was RUB 1,302 mln, net income margin – 4.7%.

Item Unit 2006 2007 Diﬀ erence y-o-y Overall sales margin, including: % 12.2 9.9 (2.3) Electricity % 17.6 14.3 (3.3) Heat % 0.3 (2.8) (3.1) Other (aggregate) % 9.9 12.1 2.2 Net income margin % 6.2 4.7 (1.5) Return on assets (ROA) % 2.6 2.3 (0.3) Return on equity (ROE) % 2.9 2.5 (0.3) Earnings per share (EPS) RUB 0.30 0.27 0.0

In 2007, the sales margin (ratio of gross proﬁ t to revenue) declined by 2.3 percentage points y-o-y. The margin decline is explained by a faster cost increase against revenue growth.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 64

CASH FLOW ANALYSIS INDIRECT METHOD, RUB MLN Item 2006 2007 Diff erence Cash at beginning of year 1,570.9 288.3 (82)% Cash fl ow from operations 3,722.4 3,022.1 (19)% Net income 1,107.8 943.0 (15)% Adjustment for depreciation 1,891.6 1,450.7 (23)% Inventory 43.3 227.5 425% Trade accounts receivable 108.5 (21.8) (120)% Trade accounts payable 678.4 351.1 (48)% Other (107.3) 71.6 (167)% Cash fl ow from investment activities (5,009.2) (4,536.9) (9)% Fixed assets (16,422.8) (561.3) (97)% Construction in progress (480.2) (739.2) 54% Other 21,912.2 (3,236.4) (115)% Cash fl ow from fi nancing activities 4.1 1,254.3 30,411% Long-term loans (226.2) 79.1 (135)% Short-term loans 229.6 1,178.2 413% Dividends paid 0.7 (3.1) (557)% Net cash fl ow (1,282.6) (260.5) (80)% Cash fl ow at end of year 288.3 27.7 (90)%

In 2007, cash fl ow from operations totaled to RUB 3,022 mln. 1. The Company reported profi ts, net of dividends and expenses chargeable to profi t at RUB 943 mln. Positive adjustment for depreciation amounted to RUB 1,450.7 mln. 2. The decrease in inventory resulted in a positive adjustment of RUB 227.5 mln to the net cash fl ow. 3. The increase in accounts receivable of energy consumers resulted in a cash infl ow decrease of RUB 22 mln. 4. The increase in trade payables to material suppliers and capital construction contractors in 2007 led to the increase in net cash fl ow of RUB 351 mln. Cash fl ow from operations partly fi nanced investment activities of the Company. Cash outfl ow on investment projects amounted to RUB 4,537 mln. Investment programs implementation involved loans, which increased the cash fl ow by RUB 1,178 mln. In 2007, the resulting Company’s net cash fl ow was RUB (-260.5) mln. As of January 1, 2008 the cash balance was RUB 27.7 mln.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 65

TURNOVER INDICATORS Indicator 2006 2007 Diﬀ erence y-o-y, days Inventory turnover (days) 26 22 (4) Accounts receivable (less than 12 months) turnover (days) 33 28 (5) Accounts payable turnover (days) 64 61 (3)

The decrease in inventory turnover y-o-y stems from the increasingly complicated situation with coal supply at the end of 2007, due to which coal was immediately burnt bypassing storage facilities. Accounts receivable turnover decreased due to a slower growth of accounts receivable (+6.2%) against revenue growth (+19%). The drop in accounts payable turnover is explained by the decreased growth of liabilities to suppliers and contractors against the growth of cost of sales in 2007 compared to 2006. The Company demonstrates an improved payment discipline to its creditors. In late 2007, the Company's working capital was RUB 3,794 mln and was ﬁ nanced with debt capital, as follows: • short-term loans – RUB 2,222 mln; • current accounts payable – RUB 1,572 mln; Working capital structure changed as follows compared to the start of the year: • the ratio of short-term accounts receivable to current assets increased from 37% to 43%; • the ratio of long-term accounts receivable to current assets increased from 23% to 25% against start of the year; • the ratio of current liabilities to total liabilities remained at 94%.

LIQUIDITY INDICATORS Indicator December 31, 2006 December 31, 2007 Current ratio 0.96 0.61 Quick ratio 0.76 0.35 Debt to equity ratio 0.10 0.13 Ratio of accounts payable to accounts receivable 116% 117%

The current and quick liabilities ratios decreased y-o-y. The increased accounts receivable turnover resulted in a decline of current assets with the growth of short-term liabilities. Short-term liabilities grew as a result of increased loans (+113%) allocated for the implementation of the investment program. Despite the decrease in liquidity indicators in 2007, current assets cover current liabilities (current and quick liquidity ratios) demonstrating the availability of funds suﬃ cient for the timely repayment of liabilities. The change in the ratio of payables to receivables over the year was driven by the increase in accounts payable in 2007 with a smaller increase in accounts receivable against the beginning of the year.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

HUMAN RESOURCES

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 69

IItemtem 22006006 22007007 DDiﬀiﬀ erenceerence Average number of employees 9,725 8,421 (1,304) Monthly average salary, RUB 19,171 23,320 121.6%

In 2007, OAO Irkutskenergo personnel number decreased by 1,304 people y-o-y, which is explained as follows: • spin-off of OOO IESK from grid districts and RDO of the Executive Board as of June 1, 2006 (decrease of 1,242 people); the personnel of grid districts in 2006 (before the spin-off ) was estimated at the average level for OAO Irkutskenergo (SPGD, CPGD, EPGD, NPGD and WPGD); • acceptance of heating networks in Usolye-Sibirskoye (as of June 1, 2006 – 125 people) – (+ 43 people); • employment of personnel for customer servicing in the Nizhne-Ilimskiy Region and the North-West part of the Taishet Region (as of March 1, 2007 – 16 people, Irkutskteploenergo consumers (as of March 15, 2007 – 15 people) – (+ 26 people); • acceptance of heating networks from ZAO Baikalenergo at Novo-Irkutskaya TPP (since September 1, 2007 + 160 people) – (+ 46 people); • human resources optimization program in 2006-2007 – (decrease of 110 people); • staff turnover – (decrease of 67 people). The 21.6% y-o-y growth rate of the average monthly wage in the Company in 2007 stems from the wage rate indexation for OAO Irkutskenergo employees in compliance with the consumer price index growth in the Russian Federation and a quarterly bonus payment.

QUALITATIVE ANALYSIS OF COMPANY’S PERSONNEL Category Unit December 12, 2006 December 12, 2007 Total number of OAO Irkutskenergo personnel people 8,451 8,474 including: - managers and engineering personnel --“-- 3,403 3,546 - administrative staﬀ --“-- 71 67 - workers --“-- 4,977 4,861

In 2007, the Company hired 1,157 employees, including 41 employees who were transferred from Company subsidiaries and affi liated companies. The Company dismissed 1,134 employees, including 45 employees transferred to subsidiaries, 25 – terminated under staff redundancy programs, 694 – re- signed, 96 – under both parties’ agreement, 251 – retired. In 2007, staff turnover ratio was 0.83.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 70

BREAKDOWN OF HUMAN RESOURCES BY AGE

IMPROVEMENT OF STAFF MOTIVATION SYSTEM

The Human Resources Policy centers around the following main objective: maximum return on investment into personnel through the development of the ‘best of the best’ selection system in the Company motivating, training and assessing the level of achievement of every employee. Key tasks: 1. meet the Company's requirements for qualifi ed personnel through training of reserve staff and recruiting; 2. introduce performance-based personnel appraisal techniques; 3. improve the Company's performance through professional and personal employee development; 4. train reserve staff to ensure that management vacancies are promptly fi lled with qualifi ed professionals; 5. ensure appropriate social and material incentives for personnel; 6. In order to improve HR management and promote the implementation of the Company's business development strategy, the following projects were implemented: • to regulate social and labor relations, the employees and the employer signed the OAO Irkutskenergo Collective Agreement for 2007-2008; • to provide favorable conditions for the employees to accumulate their retirement savings, we conducted work in the reporting period aimed at the implementation of the Non-State Retirement Plan in collaboration with non-state pension funds Socium and Bolshoi Pension Fund. The OAO Irkutskenergo Col- lective Agreement includes the Provision on Non-State Pension Insurance for OAO Irkutskenergo Employees as well as relevant changes and amendments; • for the streamlining and improvement of assessment procedure, we developed and implemented an electronic assessment database, which enhances performance and effi ciency; • with the purpose to boost labor motivation of Executive Board employees, the Company adopted the Provision on Bonuses for Executive Board Employees of OAO Irkutskenergo for Compliance with Key Performance Indicators; • for the development of a long-term management succession plan, a reserve list of candidates for the position of Director of the Functional Board was proposed. OAO Irkutskenergo prepared a program on candidates’ development in 2008 according to the results of an assessment performed by the Manage- ment Company (OOO EuroSibEnergo) jointly with OAO Irkutskenergo.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 71

INVESTMENT IN HUMAN RESOURCES In 2007, 5,308 employees took part in corporate training programs. Actual training expenses totaled RUB 52,676,000 of the allotted RUB 52,760,000, i.e. a saving was of 0.16%. The actual expense diff erence was 19.3% y-o-y. In 2007, 5 top managers completed an MBA program in Moscow. The Company proceeds with its MBA program (corporate management, fi nancial and strategic management) for top and mid-level managers (Baikal Institute of Business and International Management, Irkutsk State University). In the reporting period we arranged 17 intra-corporate seminars. In the framework of reserve staff trainings the Company psychologysts developed and indroduced a new training “Confl ict Management” and two trainings to implement the effi ciency management system – “Talent Management” (staff involvement) and “Feedback Skills”. To strengthen the positive image of the Company, promote effi cient and comfortable personnel relations, manage working behavior, and develop the feeling of personal involvement in corporate success, Irkutskenergo in collaboration with the Non-State Non-Commercial Educational Institution Training Center prepared a mandatory course for all employees “Code of Corporate Culture” as part of the distance learning system. We successfully held the contest “Irkutskenergo Future Leaders 2007” to identify gifted and promising experts to solve the challenging issues faced by the Company. The Grand Prix winner was awarded an internship abroad. To attract talented and bright senior undergraduates for future work in Company branches, OAO Irkutskenergo developed an advanced program on relay protection and electrical equipment study for the students of the Energy Department of the Irkutsk State Technological University. To provide for the new personnel fast integration in the working environment and mastering job responsibilities as well as their exposure to corporate culture, the Counseling regulation and an electronic distance learning adaptation course were developed. Moreover, for the standardization of distance learning, the regulation Distance Learning Organization for OAO Irkutskenergo Employees was prepared and adopted.

SOCIAL POLICY Social programs are implemented in accordance with the collective agreement signed between the Management Board and the trade union. Given the level of occupational danger and health hazards for energy sector workers as well as unfavorable locations of branches in the zone of environ- mentally hazardous emissions, the Company’s primary concern is to create safer working conditions, recreational facilities, and improve the workers’ health. The Company has a voluntary health insurance system (VHI) for workers; employees in need of medical treatment were provided with these services under agreements with medical clinics. In 2007, 506 people were on health improvement programs in recreation camps to the sum of RUB 4.4 mln. Actual payments under VHI agreements in 2007 amounted to RUB 14.9 mln. In accordance with the Company’s current Regulations on Providing Travel Voucher Benefi ts to Staff , Their Family Members and the Retired, 2,680 individuals (including 823 children) were provided with privileged travel vouchers to Electra, Bratskoe Vzmorye and Ust-Kut Spa, Nilova Pustyn Pension, Zvezdny, Druzhba, Energetik (Arshan settlement), and Baikal (Utulik settlement) recreation camps, and Zvezdny and Druzhba health promotion camps for children. In 2007, RUB 18.8 mln from profi ts and RUB 4.4 mln from the social security fund were allocated for this purpose. In 2007, to provide accommodation to young workers under the Young Specialists Housing Program 25 apartments were purchased on the secondary market for RUB 21.9 mln. Moreover, in 2007, 100 individuals were provided with housing allowances to cover the initial mortgage installment under the program, comprising a total of RUB 20.0 mln. OAO Irkutskenergo provides a social protection program for workers and non-working pensioners, lends targeted material support to low-income households, successfully organizes cultural events for workers and their family members, and promotes physical training and sports.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

IINFORMATIONNFORMATION TECHNOLOGIESTECHNOLOGIES

IIRKUTSKR K U T S K PPOWERO W E R GGENERATIONE N E R AT I O N ANDA N D DISTRIBUTIOND I S T R I B U T I O N COMPANYCO M PA N Y (OAO(OAO IRKUTSKENERGO)IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 75

In 2007, the Information Technology Oﬃ ce continued to implement a wide range of promising projects involving state-of-the-art information technologies.

IMPLEMENTED PROJECTS • Development of an Information Technologies Concept for OAO Irkutskenergo Result: Determination of key areas of OAO Irkutskenergo IT development through 2011. The concept was agreed with the Management Board and approved by the Board of Directors. • Automated System of IFRS Consolidated Statements Result: Commercial operation of the system. Automation of consolidated statement generation in compliance with international standards, reduction of generation time, decreased risk of invalid data output and automated control over incoming information. • Automated System of Budget Execution and Control Result: Commercial operation of the system in the Executive Board. Replication in subsidiaries and affi liated companies. Optimization of centralized fi nancial resources planning and cash fl ow control. • Automated System of Equipment Status Management (1 launch complex) Result: Commercial operation of the system in branches and the Executive Board of OAO Irkutskenergo. An equipment repair plan for 2008 was developed; equipment certifi cates were uploaded. • Automated Accounting of Inventory in Work-shop Storerooms Result: Inventory management in work-shop storerooms. Analysis of operation, effi cient management of remaining inventory, tracking of inventory and spare parts provision as requested by work-shops.

CURRENT PROJECTS • Automated System of Equipment Status Management (2 launch complex) Current status: Completion of functionality modeling, which would enable the registering of actual costs of repair and equipment defects and failures. Expected result: Reporting on non-failure operations and equipment failures. Accounting of actual costs, debugging log and task log maintenance. • Electronic Document Turnover System Current status: Study and technical task development for a corporate electronic document turnover system based on the ECM Documentum platform. Expected result: Creation of an electronic document turnover system in the framework of the holding and processes uniﬁ cation (organizational and administrative documents and agreements). • Corporate Portal on the MS SharePoint 2007 Platform Current status: Technical task developed Expected result: A uniﬁ ed corporate system of collective work with documentation and web-services provision (passes ordering, transportation request, reports generation for the management). • Automated System of Household Settlements Current status: Experimental and commercial operation in point-to-point automatic switching systems. Expected result: Development of a system for housing and public utilities. • Automated System of Consolidated Statements under Russian Accounting Standards Current status: Test run Expected result: Reduced time for consolidated statements preparation, a tool for automated input data check.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

ENVIRONMENTAL ISSUES

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 79

Environmental protection activities have been implemented pursuant to environmental protection legislation. Water consumption and discharge, emissions, waste disposal and other procedures regarding environmental pollutants have been performed in accordance with state permits and licenses. AIR POLLUTION In 2007, the allowed limit of air pollutants to the atmosphere under state regulations was 325,392.046 tonnes. Actual emissions into the atmosphere amounted to 220,984.905 tonnes (68% of the allowed limit), which was 2,944.823 tonnes less than in 2006 due to a 2.7% reduction in fuel consumption, environmental protection measures and the implementation of the “Cost Management Program”. The emission of pollutants into the atmosphere per unit of energy delivered was: • according to carbon dioxide – 0.4853 kg/kWh, in 2006 – 0.4646 kg/kWh; • according to contaminants (ash, sulphur dioxide, nitrogen dioxide) – 0.0060 kg/kWh, in 2006 – 0.0058 kg/kWh. The increase in carbon dioxide emissions was caused by an increase in the ratio of power generation to energy delivered from 22.7% to 25%. The rise in the emission of pollutants into the atmosphere was driven by a higher fuel consumption for power and heat supplies and a 3% increase in the concentration of sulphur in coal (2006 – 0.65%, 2007 – 0.67%). WATER CONSUMPTION The limit of annual water consumption (755,125.1 thousand cubic meters) was not exceeded. In 2007, the overall water consumption for OAO Irkutskenergo amounted to 496,049.7 thousand cubic meters; overall water consumption increased by 34,761.4 thousand cubic meters y-o-y due to a 4% increase in the power supply of CHPPs and an 8.6% increase in the amount of power generated in the condensation cycle. The volume of water recycled in 2007 amounted to 571,835.6 thousand cubic meters. WATER DISCHARGE The volume of wastewater in 2007 amounted to 258,219.0 thousand cubic meters, which was 36,271.8 thousand cubic meters more y-o-y due to a 4% increased electricity supply of CHPPs. PRODUCTION AND CONSUMPTION RESIDUE In 2007, the total amount of waste resulting from production and consumption was 1,391,667.443 tonnes, including 1,371,575.898 tonnes of ash and slag. The amount of ash and slag waste decreased by 93,325.854 tonnes y-o-y due to a 2.7% decline in total fuel combustion. As of the end of 2007, 80,151,993.091 tonnes of ash and slag waste were stored in dumps. During 2007, 464,787.8 tonnes of waste were utilized for company needs or sold on to consumers, which represents 33.9% of the total ash and slag waste in 2007; in 2006 – 23.6%. CHARGES FOR ENVIRONMENTAL POLLUTION Planned environmental protection costs in 2007 amounted to RUB 88.02 mln. Actual environmental protection costs in 2007 amounted to RUB 68.417 mln, including: • RUB 59.61 mln for standard and temporarily agreed emissions, discharge and waste disposal; • RUB 8.807 mln for surplus emissions, discharge and waste disposal of OAO Irkutskenergo againsts the planned amount of RUB 16.631 mln. The discrepancy between actual and planned costs was caused by an 8.9% decrease in actual fuel combustion as well as environmental protection activities and measures under the “Cost Management Program”.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 80

ENVIRONMENTAL PROTECTION ACTIVITIES

Total environmental protection expenditures in 2007 amounted to RUB 585.323 mln, including: • operating expenses – RUB 390.795 mln; • capital repairs – RUB 116.551 mln; • investments – RUB 77.977 mln.

ENVIRONMENTAL PROTECTION ACTIVITIES

Capital investments Result Branch Type of Activity (net of VAT) RUB ‘000 Plan 2007 Fact 2007 Plan 07 Fact 07 Location of ash and slag dump is in compliance Facility 1 at TETS-9 CHPP Expansion of the existing ash dump 14,611 17,177 with requirements imposed under Federal Law (see “Production and Consumption Waste”) Shelekhovsky Facility Rehabilitation of the second waste mineshaft Compliance with the maximum permissible 11,016 10,381 N-I CHPP at the ash dump discharge standards Justiﬁ cation of investments regarding the replacement of the wet ash collectors Compliance with the maximum permissible N-I CHPP 126 125 of AO ORGRES by electrostatic precipitators emission standards in the boilers of Stations 1 and 2 N-I CHPP, TETS-9 CHPP, Reliability enhancement, ensuring the full TETS-10 CHPP, Ust-Ilims- Facilities improvement of production and 11,014 implementation of production and environmental kaya CHPP, TETS-6 CHPP, environmental control controls Novo-Ziminskaya CHPP Rehabilitation of the ash dump. Fortifying Full compliance with water consumption terms TETS-10 CHPP of the dam slopes at the survey stations 6,158 6,158 and requirements under Federal Law of the Industrial Facilities 16–28 and 42–59 (see “Security of Hydraulic Facilities”) TETS-11 CHPP Revegetation of the 1st map of the ash dump 4,804 8,904 Sustainable land use, prevention of dust formation Implementation of the working project Utilization of ash and slag. Extension of the ash 2,000 11,476 on the installation of the dredge dump’s service life TETS-9 CHPP Full compliance with requirements imposed under Extension of circular spillways 1 and 2 12,741 12,741 Federal Law (see “Security of Hydraulic Facilities”) TOTAL TOTAL 51,456 77,977

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

RESULTS OF INVESTMENT ACTIVITIES

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 83

According to the 2007 OAO Irkutskenergo Annual Report the total sum of actual expenses under the capital construction plan amounted to RUB 3,423.8 mln and led to the following breakdown of costs: • construction and assembly works – RUB 1,853.4 mln; • equipment – RUB 1,168.9 mln; • other – RUB 401.5 mln. The volume of investments increased by 126.8% (+RUB 723.1 mln) year-on-year. In 2007, the investment program results and diﬀ erences against 2006 were mainly inﬂ uenced by the implementation of a major investment project – the construction of heating main No. 4 Sverdlovskaya District Boiler and the Right-bank part of Irkutsk. The capital expenditure with respect to the project amounted to RUB 845.4 mln, or 24.7% of the cost of the whole program.

EFFECTIVE INVESTMENT FUNDS ALLOCATION BY PROGRAMS, RUB ‘OOO NET OF VAT

Actual distribution during the period Construction CIP as of the Volume of in progress at Investment area beginning Including Capital invest- construction Other works and fi nancing the end of the of the period Equipment ments, total and assembly costs period works Effi cient and profi table 367,579 1,449,289 921,439 405,076 122,774 511,639 1,292,853 projects Reliability Assurance 743,983 1,702,258 855,987 660,137 186,134 1,868,119 573,724 Program Regional Administration 1,344 0 0 0 0 0 1,344 Program Sales 16,470 63,088 6,841 49,058 7,189 42,747 36,804 Other 66,802 177,582 69,123 53,368 55,091 162,026 80,821 Non-production 148,219 31,611 1,265 30,346 30,492 143,386 2007 TOTAL 1,344,397 3,423,828 1,853,390 1,168,904 401,534 2,615,023 2,128,932 2006 TOTAL 1,822,761 2,700,693 1,243,570 1,131,328 325,795 2,877,069 1,344,397

The fi nancing of the Reliability Assurance Program amounted to RUB 1,702.3 mln, tantamount to its 2006 level. However, the ratio of the Reliability Assur- ance Program in the breakdown of investments was reduced to 49.7%, from 63.3%, due to increased investments in effi cient and profi table projects. The volume of investments made into other projects, including sales and non-production activities, was reduced by 9.1% year-on-year.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 84

IMPLEMENTATION OF THE INVESTMENT PLAN BY PROGRAMS, RUB ‘OOO NET OF VAT Investment area Capital investments, total Volume of fi nancing Effi cient and profi table projects 1,449,289 511,639 Reliability Assurance Program 1,702,258 1,868,119 Sales 63,088 42,747 Other 177,582 162,026 Non-production 31,611 30,492 TOTAL 3,423,828 2,615,023

Within the framework of the scheduled annual programs, the following projects were implemented:

UNDER THE EFFICIENT AND PROFITABLE PROJECTS PROGRAM: • Construction of a water route for the heating main of the No. 4 Sverdlovskaya District Boiler and of the Right-bank (RUB 845.4 mln); • Commissioning of the fi rst launch complex for reconstruction of coal storage facility in N-I CHPP, with the installment of a rotary stacker 1100/1100 (RUB 148.9 mln); • Replacement of the second runner at the hydraulic unit No. 17 of Bratskaya HPP (RUB 71.6 mln); • Feasibility studies regarding the construction of new CHPPs within the framework of the Petition on Investment Intentions into the new CHPP Construction in the Irkutsk Region (RUB 22.3 mln); • Implementation of technical processes, under the cost management and overall productivity improvement programs, for a total sum of RUB 184.8 mln. UNDER THE RELIABILITY ASSURANCE PROGRAM: • Replacement of the transformer 1T at the IHPP Irkutskaya Hydroelectric Power Plant (RUB 95.4 mln); • Overhaul of unit No. 6 of Ust-Ilimskaya Hydroelectric Power Plant (RUB 68.8 mln); • Replacement of thyristor excitation units for the generators No. 14 and 17 of Bratskaya HPP (RUB 51 mln); • Completion of the targeted program regarding the replacement of air circuit breakers by sulfur hexafl uoride breakers 500kW ORU-500 at Bratskaya HPP, replacement of the last 3 sets (RUB 24.9 mln); • Completion of the program regarding the modifi cation incontroller turnover rates for the BHPP hydro turbines; in 2007 said replacement was implemented for turbine No. 8; • Completion of the 3d stage of the development of the comprehensive security system at BHPP and U-I HPP (RUB 44.7 mln); • Commissioning of the fi rst launch complex within the internal rehabilitation framework of IHPP (RUB 46.9 mln); • Reconstruction of the electric communication scheme 10kW of TETS-5 CHPP (RUB 30.7 mln); • Completion of the planned overhaul of heating networks (RUB 454.9 mln); • Completion of the planned overhaul of heating networks equipment (RUB 919.3 mln); • Upgrade of the power plant’s telemechanics (RUB 37.9 mln).

Capital investments amounted to RUB 2,615 mln or 101.4% of the plan’s budget.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 85

INVESTMENT PROGRAM IMPLEMENTATION BY FOCUS AREAS, RUB ‘OOO NET OF VAT 2007 Facilities 2006 Including technical Total % of total volume re-equipment and overhaul TPPs 833,623 955,563 28% 919,298 HPPs 527,160 539,803 16% 538,046 Power grids and substations 309,210 8,270 0.4% 711 Heating networks 656,650 1,453,741 43% 454,932 Other 351,742 466,451 14% 353,646 Total 2,678,385 3,423,828 100 2,266,633

The breakdown of investments by areas demonstrates the increase in the amounts that were invested into the overhaul of heating networks (up to 43% from 25% y-o-y). This increase is also reﬂ ected in the commissioned capacity. More than 95% of the investments made into CHPPs and HPPs were allocated to the overhaul of operating facilities.

COMMISSIONED CAPACITY 2006 2007 Facilities Commissioned Measurement Unit Actual Actual Overhaul and launch of new facilities Heating Networks km 48.61 79.3 Steam Generators tonne/hour 0.0 3.0 Sewage system km 0 2.6 Water-pipes km 0 3.3 Ash Dumps thousand m3 00

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT

APPENDICES

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 89

APPENDIX 1 FINANCIAL STATEMENTS

BALANCE SHEET

Assets Line Code Opening balance Closing balance

I Long-term assets Intangible assets 110 Fixed assets 120 24,473,496 23,584,113 Construction in progress 130 1,349,076 2,088,292 Interest-bearing investments 135 Long-term investments 140 24,321,492 27,568,975 Deferred tax assets 145 415,693 404,649 Other long-term assets 150 Total for section I 190 50,559,757 53,646,029 II Current assets Inventory 210 1,756,486 1,528,973 VAT recoverable 220 82,647 49,919 Accounts receivable (due more than 12 months after the balance sheet date) 230 1,282,648 1,221,770 Accounts receivable (due within 12 months of the balance sheet date) 240 2,050,613 2,216,914 Short-term investments 250 62,684 8,950 Cash and cash equivalents 260 288,253 27,706 Intercompany adjustments 280 Total for section II 290 5,523,331 5,054,232 TOTAL (sum of lines 190+290) 300 56,083,088 58,700,261

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 90

Liabilities Line Code Opening balance Closing balance

III Equity and reserves Charter Capital 410 4,766,808 4,766,808 Company shares purchased from shareholders 411 Additional paid-in capital 420 23,204,409 18,500,873 Reserves 430 1,191,702 1,191,702 Including Reserves formed in complinace with legislation 431 596,113 596,113 Reserves formed in complinace with constituent documents 432 595,589 595,589 Retained earnings (loss) in past periods 460 21,918,141 26, 262,772 Including revaluation of disposed ﬁ xed assets in past periods 461 15,741,204 19,888,740 Earned surplus 462 2,619,399 3,825,148 Retained earnings (loss) for the reporting year 470 1,301,910 Total for section III 490 51,081,060 52,024,065 IV Long-term liabilities Loans and borrowings 510 Deferred tax liabilities 515 292,541 371,675 Other long-term liabilities 520 19,217 18,884 Total for section IV 590 311,758 390,559 V Current liabilities Loans and borrowings 610 1,043,407 2,221,638 Accounts payable 620 3,640,217 4,060,728 Payables to participants (founders) 630 5,411 2,352 Deferred income 640 1,235 919 Provision for future expenses 650 Other short-term liabilities 660 Intercompany adjustments 680 Total for section V 690 4,690,270 6,285,637 TOTAL (sum of lines 490+590+690) 700 56,083,088 58,700,261

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 91

Item Line Code 2007 2006

Operating income and expenditure Sales (net of VAT, excise tax and similar compulsory charges) 010 27,660,044 23,250,964 Including sales of: power 19,564,752 15,466,000 heat 6,933,758 6,866,773 system charge 525,170 467,859 treated water and condensate 178,723 172,356 other services 457,641 277,976 Cost of sales 020 23,056,632 20,420,018 Including sales of: power (15,632,156) (12,747,543) heat (6,403,661) (6,845,350) system charge (443,013) (402,146) treated water and condensate (143,277) (140,037) other services (434,525) (284,942) Gross proﬁ t 029 4,603,412 2,830,946 Selling expenses 030 (546,217) Administrative expenses 040 (1,317,916) Proﬁ t (loss) (lines 10-20-30-40) 050 2,739,279 2,830,946

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 92

Item Line Code 2007 2006

Other income and expenses Interest income 060 185,404 102,545 Interest expense 070 (166,180) (47,510) Interest from equity participations 080 21,896 Other income 090 1,684,809 1,431,333 Other expenses 100 (2,444,908) (2,199,965) Proﬁ t (loss) before tax (lines 050+060-070+080+090-100+120-130) 140 1,998,404 2,139,245 Deferred tax assets 141 (11,044) (109,956) Deferred tax liabilities 142 (79,135) (224,831) Income tax and other similar compulsory charges 150 (606,315) (820,745) Net proﬁ t (loss) for the reporting period (lines 140-150) 190 1,301,910 1,433,375 FOR REFERENCE ONLY: Recurring tax liabilities (assets) 200 216,878 202,027 Deferred tax assets 201 Deferred tax liabilities 202 Basic earnings (loss) per share 210 Diluted earnings (loss) per share 220

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 93

APPENDIX 2 AUDITOR’S REPORT

OAO Irkutskenergo’s fi nancial statements for 2007 were audited by ZAO BDO Unicon under agreement No. 10101-01-467/07. The fi nancial statement was prepared by the Company’s management in compliance with the Federal Law dated November 21, 1996 No. 129-FZ “On Ac- counting”, accounting provisions, the order of the RF Ministry of Finance of July 22, 2003 No. 67n “On Forms of Business Accounting” and other RF regulations. The Company was audited in compliance with Federal Law No. 119-FZ “On Auditing” dated August 7, 2001, federal audit rules (standards) approved by the RF Government Resolution No. 696 of September 23, 2002, other legal acts regulating audit activities, as well as internal company standards and methods of audit. The audit was scheduled and conducted to obtain a reliable assurance that the fi nancial reports do not contain any material distortions. The audit was conducted on a sample basis and included a test-based review of evidence to confi rm fi gures in fi nancial statements and to provide data on fi nancial and economic activities, an assessment of compliance with accounting principles and rules applied in the preparation of fi nancial statements, a review of the key evaluation indicators prepared by the Company’s management, and an assessment of the submission of fi nancial reports. We presume that the audit provides suffi cient grounds for us to express our opinion on the reliability of these fi nancial statements in all material aspects and compliance with the accounting standards of the Russian Federation. The audit showed that the Company did not perform revaluation of fi xed assets in compliance with the accounting policy in 2007. In our opinion, the Company’s fi nancial statements reliably refl ect all material aspects of the Company’s fi nancial status as of December 31, 2007 except for the parameter stated in the previous paragraph.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 94

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2007, RUB’OOO IFRS

Notes 2007 2006 (as restated) ASSETS Long-term assets Fixed assets 7 57,689,109 53,067,935 Goodwill 5 560,781 560,781 Intangible assets 120,000 61,941 Long-term accounts receivable 9 309,676 440,806 Long-term investments 8 209,771 328,164 Long-term notes receivable 28 484,890 495,407 59,374,227 54,955,034 Current assets Inventory 10 1,826,302 1,871,421 Accounts receivable 9 2,301,539 1,613,876 Prepaid and recoverable VAT 11 296,184 527,716 Cash and cash equivalents 13 280,040 522,938 Short-term investments 12 103,063 123,443 Short-term notes receivable 28 94,737 94,737 Other current assets 11 918 2,639 4,902,783 4,756,770 Assets held for sale 14 – 415,418 4,902,783 5,172,188 Total assets 64,277,010 60,127,222 EQUITY AND LIABILITIES Parent company equity Charter Capital 15 4,766,808 4,766,808 Revaluation reserve 9,039,789 9,770,261 Retained earnings 34,856,129 32,047,611 48,662,726 46,584,680 Minority interests – 162,515 Total equity 48,662,726 46,747,195

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 95

Notes 2007 2006 (as restated) Non-current liabilities Long-term loans 16 – 341,868 Long-term notes payable 21 807,125 776,357 Long-term tax liabilities 17 18,884 138,592 Long-term ﬁ nance lease liabilities (net of current payments) 18 90,478 85,599 Deferred tax liabilities 26 6,401,206 6,381,984 Employee beneﬁ ts 19 870,063 784,814 Other non-current liabilities 226,939 59,137 8,414,695 8,568,351 Current liabilities Short-term loans 16 2,556,937 411,414 Current portion of long-term loans 16 – 341,868 Accounts payable 20 2,315,748 2,167,622 Short-term tax liabilities 17 959,561 876,875 Short-term notes payable 21 135,742 130,209 Other current liabilities 22 1,231,601 801,826 7,199,589 4,729,814 Liabilities held for sale 14 81,862 7,199,589 4,811,676 Total liabilities 15,614,284 13,380,027 Total equity and liabilities 64,277,010 60,127,222

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 96

CONSOLIDATED PROFIT AND LOSS STATEMENT FOR THE YEAR ENDED DECEMBER 2007, RUB’OOO IFRS

Notes 2007 2006 (as restated) Continuing operations Revenue from core business Power 18,244,079 14,773,072 Heat 8,515,135 8,063,866 Other 2,017,726 900,559 Total revenue from core business 28,776,940 23,737,497 Cost of sales Cost of fuel for generation (5,013,542) (4,663,555) Payroll and social benefi ts (4,253,604) (3,100,037) Maintenance and repairs (3,143,199) (2,753,718) Materials (634,484) (754,680) Water usage expenses (440,561) (371,921) Insurance expenses (443,064) (528,183) Depreciation and amortization (2,581,970) (2,019,460) Purchased energy (2,953,315) (1,437,419) Other expenses (2,671,538) (1,708,029) Total cost of sales (22,135,277) (17,337,001) Gross profi t 6,641,662 6,400,496 Selling expenses (508,337) (442,598) General and administrative expenses (1,087,569) (1,016,217) Taxes other than income tax 23 (1,337,037) (1,270,859) Other operating expenses 24 (204,340) (219,529) IFRIC 12 eff ect (Note 3.24) – 1,097,420 Subsidiary acquisition profi t 5 – 353,292 Operating profi t 3,504,379 4,902,006 Interest income 49,837 161,297 Interest expense (122,879) (130,022) Profi t before taxes 3,431,337 4,933,280 Current income tax (943,788) (1,065,248) Deferred income tax (13,038) (108,175) Total income tax 26 (956,826) (1,173,423)

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 97

Notes 2007 2006 (as restated) Proﬁ t from continuing operations 2,474,511 3,759,857 Discontinued operations Loss from discontinued operations after taxes 14 (25,245) (6,196) Proﬁ t for the year 2,449,266 3,753,661 Attributable to: Shareholders of the parent company 2,436,367 3,742,789 Minority interests 12,899 10,872 Basic and diluted earnings per share, RUB 0.5138 0.7875 Basic and diluted earnings from continuing operations 0.5191 0.7888 per share, RUB

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 98

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2007, RUB’OOO IFRS

Year ended December 31 2007 2006 (as restated) Cash fl ows from operating activities Net profi t 2,449,266 3,753,661 Adjustments to reconcile net profi t to net cash fl ows from operating activities: IFRIC 12 eff ect (Note 3.24) (1,097,420) Depreciation and amortization 2,664,342 2,083,026 Interest income 37,652 (13,696) Income tax expenses 956,826 1,173,424 Increase (decrease) in allowance for bad debts (252,282) (163,437) Impairment of fi xed assets 8,497 – Write-off of accounts receivable 257,007 431,509 Loss on restructuring of receivables (81,269) – Gain on purchase of investments (Note 5) – (353,292) Profi t/loss on sale of investments (60,149) (126,406) Investments write-off for sale 138,736 Loss on disposal of fi xed and other assets 92,610 23,675 Changes in assets and liabilities: Increase in accounts receivable (400,745) (314,532) Decrease (increase) in other current assets 208,003 543,202 Decrease (increase) in inventory 8,439 (127,055) Increase in payables and accruals 1,056,666 237,243 Interest paid (76,565) (40,946) Interest received 33,306 83,934 Income tax paid (977,335) (1,052,301) Net cash fl ows from operating activities 6,063,005 5,040,588

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 99

Year ended December 31 2007 2006 (as restated) Cash fl ows from investing activities Purchase of fi xed assets (7,524,628) (5,508,195) Proceeds from sales of fi xed assets (65,094) 326,542 Purchase of subsidiaries 22,122 (1,834,442) Sales of subsidiaries 18,900 – Proceeds from sale of minority interest in subsidiary – 151,642 Proceeds from sale of short-term investments 112,398 659,303 Loans issued 36,946 100,099 Net cash used in investing activities (7,399,356) (6,105,051) Cash fl ows from fi nancing activities Proceeds from loans 9,133,490 5,674,948 Repayment of loans (7,671,703) (5,384,600) Decrease in notes payable (10,013) (43,809) Dividends paid (358,321) (241,057) Net cash used in fi nancing activities 1,093,453 5,482 Cash and cash equivalents recognized as part of disposal group held for sale – (45,389) Net decrease in cash and cash equivalents (242,898) (1,104,370) Opening cash and cash equivalents 522,938 1,627,308 Closing cash and cash equivalents 280,040 522,938

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 100

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2007, RUB’OOO IFRS

Share capital Revaluation Retained Minority Total Total equity Shares Amount reserve earnings interests Balance as of December 31, 4,766,807,700 4,766,808 2,025,804 31,808,278 38,600,890 – 38,600,890 2005 IFRIC 12 eff ect (Note 3.24) – (2,025,804) (3,689,190) (5,714,994) – (5,714,994) Balance as of December 31, – 4,766,808 – 28,119,088 32,885,896 – 32,885,896 2005 (as restated) Fair value revaluation of fi xed – – 10,197,051 – 10,197,051 – 10,197,051 assets (as restated) Reclassifi cation of depreciation and amortization on fi xed assets – – (384,450) 384,450 – – – (as restated) Reclassifi cation of disposed – – (177,406) 177,406 – – – fi xed assets (as restated) Deferred income tax on revaluation – – 135,065 (135,065) – – – of fi xed assets (as restated) Income and expense in equity – – 9,770,260 426,791 10,197,051 – 10,197,051 for the year, total Net profi t (as restated) – – – 3,742,789 3,742,789 10,872 3,753,661 Income and expense for – – 9,770,260 4,169,580 13,939,840 10,872 13,950,712 the year, total Dividends – – – (241,056) (241,056) – (241,056) Sale of interest in subsidiary – – – – – 151,642 151,642 Balance as of December 31, 4,766,807,700 4,766,808 9,770,260 32,047,612 46,584,680 162,514 46,747,194 2006 (as restated)

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 101

Share capital Revaluation Retained Minority Total Total equity Shares Amount reserve earnings interests Reclassifi cation of depreciation – – (912,876) 912,876 – – – and amortization on fi xed assets Reclassifi cation of disposed – – (48,270) 48,270 – – – fi xed assets Deferred income tax on revaluation – – 230,675 (230,675) – – – of fi xed assets Income and expense in equity, – – (730,741) 730,471 – – – total Net profi t – – – 2,436,367 2,436,367 – 2,436,367 Income and expense, total – – (730,471) 3,166,838 2,436,367 – 2,436,367 Dividends – – – (358,321) (358,321) – (358,321) Sale of subsidiary – – – – – (162,514) (162,514) Balance as of December 31, 4,766,807,700 4,766,808 9,039,789 34,856,129 48,662,726 – 48,662,726 2007

OAO Irkutskenergo Consolidated Financial Statements in compliance with IAS for 2007 were audited by OOO Ernst&Young

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 102

Ernst & Young LLC ООО «Эрнст энд Янг» Sadovnnicheskaya Nab., 77, bld. 1 Россия, 115035, Москва Moscow, 115035, Russia Садовническая наб., 77, стр. 1 Tel: +7 (495) 705 9700 Тел: +7 (495) 705 9700 +7 (495) 755 9700 +7 (495) 755 9700 +7 (495) 755 9701 Факс: +7 (495) 755 9701 www.ey.com/russia ОКПО: 59002827

INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of ОАО Irkutskenergo

We have audited the accompanying consolidated fi nancial statements of ОАО Irkutskenergo and its subsidiaries («the Company»), which comprise the consolidated balance sheet as at 31 December 2007, and the consolidated income statement, consolidated statement of changes in equity and consolidated cash fl ow statement for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated fi nancial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eff ectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of the Company as at 31 December 2007, and its fi nancial performance and its cash fl ows for the year then ended in accordance with International Financial Reporting Standards.

April 28, 2008

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 103

APPENDIX 3 COMPLIANCE WITH THE CORPORATE CODE OF CONDUCT AND ETHICS

Corporate Code of Conduct and Ethics Status Notes

General Meeting of Shareholders Shareholders shall be notifi ed of the General Meeting of Shareholders at least 30 days 1 prior to the date of the Meeting, irrespective of the agenda issues, unless the term is Comply Charter, Para 9.26 longer by law Shareholders have access to the list of individuals eligible for participation in the General Meeting of Shareholders, starting from the date of notifi cation of the General Meet- 2 Comply Charter, Para 5.1 ing of Shareholders to the closure of an ordinary General Meeting of Shareholders and to the closing date for acceptance of postal ballots from absentee shareholders The materials are published Shareholders have access to information (materials) to be submitted in preparation for on the corporate website 3 the General Meeting of Shareholders through electronic communications, including Comply at www.irkutskenergo.ru, and sent the Internet to shareholders upon request Shareholders may propose an agenda issue for a General Meeting of Shareholders or require the convocation of a General Meeting of Shareholders without submitting an abstract from the Shareholders Register if the rights of such shareholders are recorded 4 Comply Charter, Para 5.1 in the register of shareholders. And if the rights of such shareholders are recorded on the depot account, it will be suffi cient to submit an abstract from the depot account to exercise the above right Regulations on the Board The Company’s Charter or internal documents require that the General Director, mem- of Directors, Article 7; Regulations 5 bers of the Board of Directors and Management Board, the Audit Board, and Auditor Comply on the General Meeting of the Company be present at the General Meeting of Shareholders of Shareholders, Article 27, Para 2 Candidates shall be present at the General Meeting of Shareholders electing members of Regulations on General Meeting 6 the Board of Directors, General Director, members of the Management Board, Audit Board Comply of Shareholders, Article 27, Para 1 and considering the issue of approval of the Company’s Auditor Internal documents of the Company provide for the registration procedure of participants Regulations on the General Meeting 7 Comply in the General Meeting of Shareholders, Section 12

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 104

Corporate Code of Conduct and Ethics Status Notes

Board of Directors The Company’s Charter establishes the authority of the Board of Directors to approve 8 Comply Charter, Para 10.2 annual business plans of the Company The Company shall have the Company’s risk management policy approved Regulations on the Board 9 Comply by the Board of Directors of Directors, Article 7 According to the The Company’s Charter establishes the authority of the Board of Directors to make Charter, the Board 10 Charter, Para 10.2 a decision on early termination of the powers of the General Director of Directors appoints the General Director The Company’s Charter establishes the authority of the Board of Directors to set quali- 11 ﬁ cation requirements and amount of remuneration of the General Director, members Comply Charter, Para 10.2 of the Management Board, and managers of the key departments of the Company The Company’s Charter establishes the authority of the Board of Directors to approve 12 the terms and conditions of contracts with the General Director and members Comply Charter, Para 10.2 of the Management Board The Company’s Charter or internal documents require that in approving the terms and conditions of contracts with the General Director (Managing Company, Manager), manag- Established practice of corporate 13 ers and members of the Management Board, the votes of the members Comply behavior of the Board of Directors who are the General Director and members of the Management Board shall not be taken into account The Company’s Board of Directors includes at least three independent directors who meet Established practice of corporate 14 Comply the requirements of the Corporate Code of Conduct behavior The Company’s Board of Directors shall not include individuals who have been found guilty of economic crimes or crimes against government authority, hold interests in According to established practice, 15 government service or service in local self-governments or who have been subjected Comply facts are revealed during to administrative sanctions for illegal actions in business or ﬁ nance, taxes, collections, consideration of candidates or securities markets The Company’s Board of Directors shall not include individuals who are participants, According to established practice, 16 the General Director (Manager), members of a management body or employees of a legal Comply facts are revealed during entity competing with the Company consideration of candidates The Company’s Charter requires that the Board of Directors be elected by cumulative 17 Comply Charter, Para 10.6 voting

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 105

Corporate Code of Conduct and Ethics Status Notes

The Company’s internal documents require that members of the Board of Directors avoid actions that lead to or potentially may lead to a conﬂ ict of interest between them and Regulations on the Board 18 Comply the Company and, should such conﬂ ict arise, disclose this information to the Board of Directors, Article 7 of Directors Company internal documents require that members of the Board of Directors notify the Board of Directors in writing about intentions to engage in any transaction involving Para 4.3. Regulations on Information 19 securities of a company whereof they are members of the board of directors or its subsidi- Comply Policy ary (dependent) companies, as well as provide information about actual transactions involving such securities Provisions of the Regulations The Company’s internal documents require that the meeting of the Board of Directors 20 on the Board be held at least once every six weeks of Directors are complied with Meetings of the Board of Directors during the reporting year be held at least once every In 2007, 14 meetings of the Board 21 Comply six weeks of Directors were held The Company’s internal documents establish procedures for meetings of the Board Regulations on the Board 22 Comply of Directors of Directors, Section 7 The Company’s internal documents require that the Board of Directors approve transac- 23 tions of the Company involving an amount equal to 10 or more percent Comply Charter, Para 10.2 of the Company’s asset value, to the exception of ordinary business transactions The Company’s internal documents enable the Board of Directors to obtain information Regulations on the Board 24 from the executive bodies and managers of the departments required to perform their Comply of Directors, Articles 6, 8, 9 functions, as well as establish responsibility for failure to provide such information Availability of the strategic planning committee of the Board of Directors or delegating Regulations on the Strategy and 25 functions of such committee to another committee (with the exception of the Audit Com- Comply Restructuring Committee mittee and HR and Remuneration Committee) Availability of a committee of the Board of Directors (Audit Committee) that recommends 26 a Company Auditor to the Board of Directors and interacts with him/her/it and the Audit Comply Regulations on the Audit Committee Board Regulations on the Audit 27 The Audit Committee includes only independent and non-executive directors Comply Committee, Para 2.4 Regulations on Audit 28 An independent director shall manage the Audit Committee Comply Committee, Para 2.4

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 106

Corporate Code of Conduct and Ethics Status Notes

The Company’s internal documents enable all Audit Committee members to have access Regulations on Audit 29 Comply to any Company documents and data, provided non-disclosure requirements are met Committee, Para 3.3 Availability of a committee of the Board of Directors (HR and Remuneration Committee) Regulations on the HR and 30 with the functions of determining criteria for selection of candidates to the Board Comply Remuneration Committee of Directors and developing Company remuneration policy Regulations on HR and 31 An independent director shall manage the HR and Remuneration Committee Comply Remuneration Committee, Para 5.4 Regulations on HR and 32 The HR and Remuneration Committee shall not include offi cials of the Company Comply Remuneration Committee, Para 5.4 Availability of the Risk Committee of the Board of Directors or delegating functions of such Committee not 33 committee to another committee (with the exception of the Audit Committee and HR and established Remuneration Committee) Availability of the Corporate Confl ict Committee of the Board of Directors or delegating Committee not 34 functions of such committee to another committee (with the exception of the Audit established Committee and HR and Remuneration Committee) The requirement will be taken into 35 The Corporate Confl ict Committee shall not include offi cials of the Company account in establishing the Audit Committee. The requirement will be taken into 36 An independent director shall manage the Corporate Confl ict Committee account in establishing the Audit Committee. Board of Directors approved Regula- tions on the Budget Committee and Availability of Company internal documents approved by the Board of Directors Regulations on the Strategy and Re- 37 establishing procedures for formation and operation of committees Comply structuring Committee, Regulations of the Board of Directors on the Audit Committee and Regula- tions on the HR and Remuneration Committee The Company’s Charter defi nes the procedure for counting the quorum of the Board 38 of Directors that requires mandatory participation of independent directors in meetings Comply Charter, Para 10.11 of the Board of Directors

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 107

Corporate Code of Conduct and Ethics Status Notes

Executive bodies 39 Availability of a collegial executive body (Management Board) of the Company Comply Charter, Para 9.11 The Company’s Charter or internal documents require approval by the Management Board 40 of transactions with real estate, obtaining loans, unless such transactions are related Comply Charter, Para 11.10 to large and ordinary business transactions The Company’s internal documents establish a procedure for obtaining agreement 41 Comply Charter, Para 10.2 and Para 11.10 on operations that go beyond the business plan of the Company The Company’s executive bodies shall not include individuals who are participants, 42 General Director (Manager), members of a management body or employees of a legal Comply Charter, Para 11.3 entity competing with the Company The Company’s executive bodies shall not include individuals who have been found guilty of economic crimes or crimes against government authority, hold interests in government or local administration service, or who have been subjected to administrative sanctions According to established practice, 43 for illegal actions in business or fi nance, taxes, collections, or securities markets. Should Comply facts are revealed during the Managing Company or the Manager perform the functions of the sole executive body, consideration of candidates the General Director and members of the Management Board of the Managing Company shall comply with the requirements for the General Director and Management Board The power of a sole executive body The Company’s Charter or internal documents prohibit the Managing Company (Manager) is performed by the General Direc- 44 from performing similar functions in a competing company or being in any other legal tor according to the Regulations relationship with a company apart from Managing Company (Manager) services on the General Director The Company’s internal documents require that executive bodies avoid actions that lead Regulations on the Board of Direc- 45 to or potentially may lead to a confl ict of interest between them and the Company, and Comply tors, Section 3; Regulations on should such confl ict arise, disclose this information to the Board of Directors the Management Board, Section 4 The power of a sole executive body The Company’s Charter or internal documents defi ne criteria for selection of a Managing is performed by the General Director 46 Do not comply Company (Manager) according to the Regulations on the General Director Requirement The Company’s executive bodies shall report on their work of the Regulations Regulations on General Director, 47 to the Board of Directors monthly on the Board Para 3.3, Charter, Para 11.11 of Directors is met Contracts executed between the Company and the General Director (Managing Company, Regulations on Insider Information, 48 Manager) and members of the Management Board shall establish responsibility Comply Section 2 for violation of information disclosure clauses

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 108

Corporate Code of Conduct and Ethics Status Notes

Company Secretary Secretariat of The Company has a special offi cial (Company Secretary) whose function is to ensure that the Board of Direc- 49 meetings of the Company’s bodies and offi cials observe procedural requirements that tors was established guarantee the rights of the Company’s shareholders granted by the law to meet this requirement Responsibilities of The Company’s Charter or internal documents establish the procedure for appointment the Secretariat of Regulations on Secretariat 50 (election) of the Company Secretary and his/her/its responsibilities the Board of Direc- of the Board of Directors tors are regulated The Company’s Charter establishes requirements for a candidate for the post of Company 51 Do not comply Secretary Material corporate actions The Company’s Charter or internal documents require that a large transaction be approved 52 Comply Charter, Para 10.2 before execution Mandatory involvement of an independent appraiser to estimate the market value 53 Comply of property subject to a large transaction The Company’s Charter prohibits any actions to purchase large shareholdings of a company that would be aimed at the protection of interests of the executive bodies (members of these bodies) and members of the Board of Directors, or that would impair the situation of shareholders as compared with the current status (in particular, a prohibition 54 No prohibition on the Board of Directors to make a decision before the end of expected period of shares purchase to issue additional shares, securities convertible to shares or securities granting a right to purchase shares of the Company, even if the right to make such a decision is established by the Charter The Company’s Charter requires that an independent appraiser be involved in the analysis No such 55 of the current market value of shares and possible variations of their value as a result requirement of takeover The Company’s Charter does not require that a purchaser off er the shareholders to sell No such 56 Company ordinary shares in their possession (emission securities convertible into ordinary requirement shares) in case of acquisition The Company’s Charter or internal documents require that an independent appraiser No such 57 be involved to determine the share conversion rate in case of reorganization as defi ned Established by current legislation requirement by current legislation

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 109

Corporate Code of Conduct and Ethics Status Notes

Information disclosure The Board of Directors approves an internal document defi ning the rules and approaches Regulations on the Information 58 Comply of the Company to information disclosure (Regulations on the Information Policy) Policy The Company’s internal documents require that information about the purpose of sales of shares, about individuals that intend to purchase shares off ered for sale (including No such 59 large share holdings), as well as information about whether top Company offi cials will requirement participate in purchase of Company shares off ered for sale be provided The Company’s internal documents defi ne the list of information, documents and materi- Charter, Para 13.7, 13.8 Regulations 60 als to be provided to shareholders to be informed on issues raised at the General Meeting Comply on the General Meeting of Shareholders of Shareholders, Section 8 The Company shall have a website on the Internet where it provides information about 61 Comply www.irkutskenergo.ru the Company on a regular basis The Company’s internal documents require disclosure of information about transactions of the Company with individuals that, according to the Charter, are a related party to Regulations on the Information 62 the top offi cials of the Company, as well as about transactions of the Company with or- Comply Policy, Para. 4.3. ganizations whereof offi cials directly or indirectly own 20 or more percent of the Author- ized Capital of the Company or whereon such individuals may have substantial infl uence Company internal documents require disclosure of information about all transactions that Regulations on Insider Information 63 Comply may have an impact on the market value of the Company’s shares Para 2.2, Para 4.1, Para 4.2 The Board of Directors approves an internal document on use of material information about the Company’s operations, shares and other securities of the Company, and transac- 64 tions with them that is not to be provided to the wider public and that may have an Comply Regulations on Insider Information impact on the market value of the Company’s shares and other securities of the Company Internal audit of processes Regulations on the Audit Board; 65 The Board of Directors approves procedures of internal audit of processes of the Company Comply Regulations on the Internal Audit Department Availability of a special unit of the Company ensuring procedures of internal audit Audit Board; Internal Audit 66 Comply (Internal Audit Department) Department Charter, Article 12 Regulations on The Company’s internal documents require the Board of Directors to defi ne the structure 67 Comply the Audit Board; Regulations on and composition of the Internal Audit Department of the Company the Internal Audit Department

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 110

Corporate Code of Conduct and Ethics Status Notes

The Company’s Internal Audit Department shall not include individuals who have been According to established practice, found guilty of economic crimes or crimes against government authority, hold interests in 68 Comply facts are revealed during considera- government or local administration service, or who have been subjected to administrative tion of candidates sanctions for illegal actions in business or fi nance, taxes, collections, or securities markets The Company’s Internal Audit Department shall not include individuals who are members 69 of executive bodies of the Company or participants, General Director (Manager), members Comply Charter, Para 12.4 of management body or workers of a legal entity competing with the Company The Company’s internal documents establish time periods for submission to the Internal Audit Department of documents and materials for assessment of fi nancial and economic 70 Do not comply activities, as well as responsibility of offi cials and workers of the Company for failure to submit such documents on time Company internal documents require that the Internal Audit Department inform the Audit Regulations on the Audit Board, 71 Committee about discovered violations and – in case such committee does not exist – Comply Section 6 the Board of Directors of the Company The Company’s Charter requires that the Internal Audit Department makes a preliminary 72 assessment whether an operation not included in the business plan of the Company is Do not comply advisable (non-standard operations) Company internal documents establish a procedure for obtaining agreement on a non- Regulations on the Board 73 Comply standard operation with the Board of Directors of Directors, Article 11, The Board of Directors approves an internal document that defi nes a procedure for audit- 74 Comply Regulations on the Audit Board ing business processes of the Company by the Audit Board The Audit Comittee reviews the Auditor’s report before it is submitted to the shareholders Regulations on the Audit 75 Comply and the General Meeting of Shareholders Committee, Para 3.1 Dividends The Board of Directors approves an internal document to govern the Board of Directors in 76 No such provisions accepting recommendations on the size of dividends (Regulations on Dividend Policy) Regulations on Dividend Policy establish a procedure for defi ning the minimum propor- The requirement will be taken tion of net profi t of the Company to be allocated for paying dividends and conditions 77 No such provisions into account when Regulations on when dividends on preference shares (the size of which is defi ned in Dividend Policy are adopted the Company’s Charter) are not paid or are paid incompletely Publishing data on the dividend policy of the Company and changes thereof in a periodical The requirement will be taken 78 defi ned by the Charter of the Company for publication of General Meeting of Shareholders into account when Regulations on notices, as well as on the Company’s website on the Internet Dividend Policy are adopted

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 111

APPENDIX 4 MEETINGS OF OAO IRKUTSKENERGO MANAGEMENT BODIES

I. ANNUAL GENERAL MEETING OF OAO IRKUTSKENERGO SHAREHOLDERS IN 2007

Date: June 22, 2007 Minutes No. 20 Agenda: 1. Approval of OAO Irkutskenergo annual report. 2. Approval of annual fi nancial statements, including OAO Irkutskenergo Profi t and Loss Statement (income statement). 3. Distribution of profi t based on OAO Irkutskenergo’s performance in FY2006. 4. Approval of the amount, time periods and forms of payment of OAO Irkutskenergo annual dividends based on 2006 performance results. 5. Election of members of OAO Irkutskenergo Board of Directors. 6. Election of members of OAO Irkutskenergo Audit Committee. 7. Approval of OAO Irkutskenergo auditors. 8. Amendments and additions to the OAO Irkutskenergo Charter. 9. Amendments and additions to the Regulations on the General Meeting of OAO Irkutskenergo Shareholders. 10. Amendments and additions to the Regulations on the OAO Irkutskenergo Board of Directors. 11. Amendments and additions to the Regulations on OAO Irkutskenergo Management Board.

II. MEETINGS OF OAO IRKUTSKENERGO BOARD OF DIRECTORS IN 2007

Date: January 16, 2007 Minutes No. 1 (154) Agenda: 1. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: entering into (approval of) a related party transaction with OOO Irkutsk Grid Company. 2. Decision on the issue of the agenda of the general shareholders’ meeting of and general participants’ meeting of the Network Companies: entering into (approval of) a related party transaction with OOO Irkutsk Grid Company – approval of transactions earlier concluded with IESK.

Date: February 8, 2007 Minutes No. 2 (155) Agenda: 1. Approval of a major deal involving the transfer of Irkutskenergo assets for a total of RUB 484,221,180 (Four Hundred and Eighty Four Million Two Hundred and Twenty One Thousand One Hundred and Eighty Rubles), in accordance with the List of Asset (Appendix 1) as an additional contribution to the OOO Irkutsk Grid Company Charter Capital. 2. Decision on the issue of the agenda of the general meeting of the Network Company shareholders: changes in the Network Company Charter Capital – on increase of the Charter Capital of OOO Irkutsk Grid Company owing to an additional shareholder’s contribution.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 112

Date: March 5, 2007 Minutes No. 3 (156) Agenda: 1. Consideration of shareholders’ proposals on the agenda of the Annual General Meeting of Shareholders and on the nomination of candidates to the OAO Irkutskenergo Board of Directors and the Audit Committee, and the schedule of preparation and timing of the Annual General Meeting of Share- holders in 2007. 2. Decision on the issue from the agenda of the general meeting of shareholders of the Network Company on approval of terms of the employment contract with B.N. Karatayev, OOO Irkutsk Grid Company Director. 3. On reporting information to taxation bodies according to place of registration. 4. Progress report on the property acquisition transaction between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL).

Date: March 12, 2007 Minutes No. 4 (157) Agenda: 1. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: entering into (approval of) a related party transaction with OOO Irkutsk Grid Company. 2. Addendum No. 1 to Loan Agreement No. 1,669 dated August 7, 2006 between OAO Irkutskenergo and OOO Irkutsk Grid Company. 3. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: entering into (approval of) a related party transaction, entering into a fi nancial transaction (guarantee) that will result in increase of the Network Company’s fi nancial liabilities exceeding the amount equal to USD 8,000,000 (Eight Million US Dollars) – addendum No. 1 to Loan Agreement No. 1669 dated August 7, 2006 between OAO Irkutskenergo and OOO Irkutsk Grid Company. 4. Addendum No. 1 to Loan Agreement No. RBA/2699-NSK dated October 25, 2006 between OAO Irkutskenergo and Raiff eisenbank Austria. 5. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: entering into (approval of) a related party transaction, entering into a fi nancial transaction (guarantee) that will result in increase of the Network Company’s fi nancial liabilities exceeding the amount equal to USD 8,000,000 (Eight Million US Dollars) – Addendum No.1 to Loan Agreement No.RBA/2699-NSK dated October 25, 2006 between OOO IESK and Raif- feisenbank Austria.

Date: April 13, 2007 Minutes No. 5 (158) Agenda: 1. Approval of report on OAO Irkutskenergo business plan implementation in 2006. 2. Approval of report on OAO Irkutskenergo budget implementation in 2006. 3. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: approval of report on OOO Irkutsk Grid Company business plan implementation including 2006 budget. 4. Decision on the issue from the agenda of the general meeting of shareholders of the Network Company: approval of the auditors and amount of payment for services thereof for OOO IESK in 2006. 5. Establishment of a distribution company with the status of a Supplier of Last Resort. 6. Progress report on the property acquisition transaction between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL).

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 113

Date: April 25, 2007 Minutes No.6 (159) Agenda: 1. Preliminary approval of OAO Irkutskenergo annual report for 2006 and other documents submitted for approval by the Annual General Meeting of Share- holders: OAO Irkutskenergo annual fi nancial statements and the Profi t and Loss Statement (profi t and loss accounts). 2. Recommendations on distribution of profi t, including the amount of dividends on OAO Irkutskenergo shares and the procedure for dividend payments based on performance in the previous fi scal year. 3. Discussion of candidates to be OAO Irkutskenergo’s auditor. 4. Approval of the agenda of OAO Irkutskenergo Annual General Shareholders’ Meeting. 5. Approval of draft resolutions covering the agenda for the Annual General Meeting of OAO Irkutskenergo Shareholders. 6. Calling an Annual General Meeting of OAO Irkutskenergo Shareholders. 7. Discussion of draft amendments and additions to the OAO Irkutskenergo Charter and internal regulations governing the work of management bodies. 8. Decision on the issue of the agenda of the Network Company’s general meeting of shareholders: approval of OOO Irkutsk Grid Company annual report and annual fi nancial statements for 2006. 9. Decision on the issue of the agenda of the Network Company’s general meeting of shareholders: distribution of OOO Irkutsk Grid Company’s profi t in 2006. 10. Decision on the issue of the agenda of the Network Company’s general meeting of shareholder: election of the OOO Irkutsk Grid Company’s auditors. 11. Decision on the issue of the agenda of the Network Company’s general meeting of shareholder: approval of OOO Irkutsk Grid Company’s auditors and remuneration for services provided. 12. Progress report on the property acquisition transaction between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL).

Date: May 20, 2007 Minutes No.7 (160) Agenda: 1. Decision on the issue of the agenda of the Network Company’s general meeting of shareholder: entering into (approval of) a related party transaction with OOO Irkutsk Grid Company. 2. Decision on the issue of the agenda of the Network Company’s general meeting of shareholder: approval of OOO Irkutsk Grid Company’s annual business plan including 2007 budget.

Date: June 17, 2007 Minutes No.8 (161) Agenda: 1. Approval of a related party transaction with OAO Irkutskenergo – Lease Agreement on Angara HPP Cascade Dams, i.e. hydraulic engineering facilities in federal ownership, signed with the Territorial Management of the Federal Agency on Federal Property Management in the Irkutsk Region acting on the part of the leased property owner – the Russian Federation.

Date: August 17, 2007 Minutes No.9 (162) Agenda: 1. Election of the Chairman of the Board of Directors of OAO Irkutskenergo. 2. Election of the Deputy Chairman of the Board of Directors of OAO Irkutskenergo. 3. Appointment of the Secretary of the Board of Directors of OAO Irkutskenergo.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 114

4. Discussion of the report of the General Director and the Management Board on ﬁ nancial and economic performance in Q1 2007. 5. Placement of shares (bonds) of OAO Irkutskenergo. 6. Determination of price for placement of shares (bonds) of OAO Irkutskenergo. 7. Approval of the Decision on issue of shares (bonds) of OAO Irkutskenergo. 8. Approval of Shares (Bonds) Prospectus of OAO Irkutskenergo. 9. Approval of sales and purchase agreements (related transactions) on placement of shares (bonds) of OAO Irkutskenergo. 10. Decision on the issue of the agenda of the Network Company’s general meeting of shareholders: changes in the Network Company’s Charter Capital – approval of the results of additional contributions to Charter Capital and relevant amendments to the constituent documents of OOO Irkutsk Grid Company to reﬂ ect the increase in the Charter Capital and the new nominal value of the interest held by the contributing IESK shareholder. 11. Project of construction of 500 kWh Taishet-2 substation. 12. Election of members of the Board of Directors’ Strategy and Restructuring Committee and the Chairman thereof. 13. Election of members of the Audit Committee of the Board of Directors and election of Chairman thereof. 14. Election of members of the Human Resources and Remuneration Committee of the Board of Directors and election of Chairman thereof. 15. Election of members of the Budget Committee of the Board of Directors and election of Chairman thereof. 16. Discussion of the list of issues to be considered at meetings of OAO Irkutskenergo Board of Directors in 2007–2008 (up to the date of the 2008 Annual General Meeting). 17. Progress report on the property acquisition transaction between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL).

Date: September 9, 2007 Minutes No. 10 (163) Agenda: 1. Report of OAO Irkutskenergo General Director and Management Board on fi nancial and economic performance and business plan implementation in H1 2007: 2. Report of OAO Irkutskenergo General Director and Management Board on fi nancial and economic performance; 3. Report of OOO Irkutsk Grid Company Director on fi nancial and economic performance and business plan implementation in H1 2007; 4. Consolidated report of OAO Irkutskenergo and OOO Irkutsk Grid Company on fi nancial and economic performance and business plan implementation in H1 2007. 5. Approval of a major deal involving the transfer of OAO Irkutskenergo assets as an additional contribution to OOO Irkutsk Grid Company Charter Capital. 6. Decision on the issue of the agenda of the Network Company general shareholders’ meeting: on increase of OOO Irkutsk Grid Company Charter Capital owing to an additional shareholder contribution. 7. Approval of major related transactions involving the transfer of OAO Irkutskenergo assets for a total of RUB 211,175,450 (Two Hundred Eleven Million One Hundred Seventy Five Thousand Four Hundred Fifty Rubles) to OOO Irkutsk Grid Company. 8. Amendments and additions to Section 11 of Information on Branches and Districts of OOO Energosbyt of the Regulation on OAO Irkustskenerg Subsidiary – OOO Energosbyt approved by the decision of the Board of Directors of OAO Irkutskenergo (Minutes No. 74 of October 14, 2000). 9. Election of the Board of Directors’ Strategy and Restructuring Committee members and election of Chairman thereof. 10. Election of members of the Audit Committee of the Board of Directors and election of Chairman thereof. 11. Election of members of the Human Resources and Remuneration Committee of the Board of Directors and election of Chairman thereof 12. Election of members of the Budget Committee of the Board of Directors and election of Chairman thereof. 13. Progress report on the property acquisition transaction between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL). 14. OAO Irkutskenergo General Director.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 115

Date: October 1, 2007 Minutes No. 11 (164) Agenda: 1. Placement of shares (bonds) of OAO Irkutskenergo. 2. Determination of price for placement of shares (bonds) of OAO Irkutskenergo. 3. Approval of the Decision on issue of shares (bonds) of OAO Irkutskenergo. 4. Approval of Shares (Bonds) Prospectus of OAO Irkutskenergo. 5. Approval of sales and purchase agreements (related transactions) on placement of shares (bonds) of OAO Irkutskenergo.

Date: November 2, 2007 Minutes No. 12 (165) Agenda: 1. Construction framework of TETS-10 CHPP heating main (Angarsk) – North Industrial Hub Boiler (Irkutsk). 2. Attraction of bank credit to ﬁ nance investment projects – sales and purchase agreement for the acquisition of real property between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (SUAL). 3. Agreement with OOO Usoliekhimprom on service provision on technological connection of power receivers to switchgears of TETS-11 CHPP. 4. Agreement on payment deferment (with the municipal guarantee to fulﬁ ll the obligations hereto) with the Service Municipal Unitary Enterprise. 5. Approval of terms of the registration agreement – addendum to the agreement on the shareholders’ register maintenance of OAO Irkutskenergo No. OKU/10.1.001 (1140) dated October 31, 2001 with OAO Registrator R.O.S.T. 6. OAO Irkutskenergo entering into autumn-winter operations 2007-2008.

Date: November 11, 2007 Minutes No. 13 (165) Agenda: 1. General Plan of Power Engineering Development in the Irkutsk Region through 2020. 2. Project coordination of local railway construction to branch TETS-10 CHPP of OAO Irkutskenergo. 3. Measures performed in the framework of cost reduction program, including the principles of purchasing operations. 4. Determination of Company priority area of operations – an agreement on power supply (power purchase and sale) with Siberian and Urals Aluminium Company (OAO SUAL). 5. Determination of Company priority area of operations – an agreement on power supply (power purchase and sale) with OAO RUSAL Bratsk Aluminium Smelter. 6. Development and implementation of key performance indicators related to business plan implementation by the Company to estimate the quality of management across diff erent areas of responsibility. 7. Addendum No. 2 to Loan Agreement dated August 7, 2006 between OAO Irkutskenergo and OOO Irkutsk Grid Company. 8. Decision on the issue of the agenda of Network Company’s general shareholders’ meeting: entering into a related party fi nancial transaction (including loan, credit, guarantee and bank guarantee) that will result in increase of Network Company’s fi nancial liabilities exceeding the amount equal to USD 8,000,000 (Eight Million US Dollars) – Addendum No. 2 to Loan Agreement dated August 7, 2006 between OAO Irkutskenergo and OOO Irkutsk Grid Com- pany. 9. Approval of changes in 2007 budget OAO Irkustskeenrgo on the construction of heating main No. 4 Sverdlovskaya District Boiler − Right Bank of Irkutsk.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 116

Date: December 26, 2007 Minutes No. 14 (165) Agenda: 1. Consideration of OAO Irkutskenergo and OOO Irkutsk Grid Company consolidated report for nine months of 2007. 2. Consideration of the report of OAO Irkutskenergo General Director and Management Board on fi nancial and economic performance for nine months of 2007. 3. Approval of OAO Irkutskenergo 2008 business plan. 4. Approval OAO Irkutskenergo 2008 budget. 5. Agreement on the OAO Irkutskenergo credit policy for 2008. 6. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: approval of OOO Irkutsk Grid Company 2008 business plan 7. Company priority area of operations: strategy for generating facility development and public off ering of OAO Irkutskenergo to fi nance the promising investment program of generation development. 8. Decision on the issue of the agenda of the Network Company’s general shareholders’ meeting: entering into a transaction or a series of related transactions for the acquisition, alienation or possible direct or indirect alienation of property,, by the Company for amounts equal to, or exceeding USD 1,000,000 (One Million US Dollars) – Addendum No. 1 to Agreement No. 42 dated August 7, 2006 between OOO Irkutsk Grid Company and Siberian and Urals Aluminium Company (OAO SUAL). 9. Approval of key conceptual trends for Information Technologies development of OAO Irkutskenergo. 10. Determination of Company priority area of operations – an agreement on power supply (power purchase and sale) with Siberian and Urals Aluminium Company (OAO SUAL). 11. Determination of Company priority area of operations – an agreement on power supply (power purchase and sale) with OAO RUSAL Bratsk Aluminium Smelter. 12. Determination of Company priority area of operations – a preliminary agreement on power supply (power and capacity purchase and sale) with OOO RUSAL Taishet Aluminium Smelter.

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 117

CONTACTS

Postal address: 3 Sukhe-Batora st., 664025 Irkutsk, Irkutsk Region, Russia OAO Irkutskenergo Теl. (395-2) 790-300, 790-061 Fax: (395-2) 790-899 E-mail: [email protected] Website: www.irkutskenergo.ru

Corporate Management Department Department Head: Natalia G. Kovaleva Tel.: (395-2) 790-061 E-mail: [email protected]

Register holder: OAO Registrator R.O.S.T p.o.b 9, Stromynka st., 18107996 Moscow Tel./fax: (495) 771-73-37; 771-73-34 E-mail: [email protected]

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

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

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

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO) 2007 ANNUAL REPORT 118

Title: Annual Report of OAO Irkutskenergo for 2007 Dimensions: 220x210mm, 118 pages Print: oﬀ set Paper: Union Silk Typeface: Myriad Pro Publication date: July 02, 2008 300 copies

Publisher: Oberon Design-Studio Project Manager: Margarita Shebeshtjen Designed by: Alexey Ponomarenko Layout: Matvey Martenson Prepress and colour separation: Pavel Lamykin

Contacts: 10 Chekhova str., 664011 Irkutsk Tel.: (3952) 66-40-11, tel./fax: (3952) 20-90-56, 20-93-55 E-mail: [email protected] Web-site: www.oberon.irk.ru

Printed by: Na Chekhova Instant Printery Address: 10 Chekhova str., 664011 Irkutsk Tel./fax: (3952) 20-90-56, 20-93-55 E-mail: [email protected] Web-site: www.print.irk.ru

IRKUTSK POWER GENERATION AND DISTRIBUTION COMPANY (OAO IRKUTSKENERGO)