JSC TGC-1 Annual Report 2015

Pre-approved APPROVED by resolution of the Board of Directors by resolution of the General JSC «TGC-1» Shareholders' Meeting of JSC «TGC-1» as of May 12, 2016 as of ______,2016 (Minutes No. 14) (Minutes No.____)

ANNUAL REPORT of Joint Stock Company «Territorial Generating Company №1» on 2015 results

A.V.Barvinok General Director, JSC «TGC-1»

St. Petersburg 2016 CONTENTS

1. LETTER TO SHAREHOLDERS ...... 4 2. COMPANY OVERVIEW...... 6 2.1. KEY INDICATORS ...... 6 2.2. OVERVIEW ...... 6 2.3. COMPANY’S ORGANISATIONAL STRUCTURE AS OF DECEMBER 31, 2015 ...... 8 2.4. BASIC COMPANY EVENTS IN 2015 ...... 9 3. JSC «TGC-1» IN THE ECONOMY AND INDUSTRY ...... 12 3.1. ECONOMIC SITUATION AND POWER INDUSTRY ...... 12 3.2. COMPETITIVE ENVIRONMENT ...... 14 3.2.1. Electricity market...... 14 3.2.2. Heat market ...... 16 3.3. KEY DEVELOPMENT AREAS IN 2015 ...... 17 3.4. RISKS RELATED TO THE COMPANY'S OPERATIONS ...... 19 4. OVERVIEW OF PRODUCTION OPERATIONS ...... 23 4.1. PRODUCTION CAPACITIES ...... 23 4.2. ELECTRICITY GENERATION ...... 24 4.3. HEAT GENERATION ...... 27 4.4. ANALYSIS OF FUEL CONSUMPTION BY CHPPS OF JSC «TGC-1» ...... 28 4.5. ENERGY SAVING AND ENERGY EFFICIENCY ...... 28 4.6. REPAIR AND MAINTENANCE PROGRAM ...... 29 5. OVERVIEW OF SALES ...... 31 5.1. ELECTRICITY AND CAPACITY SALES...... 31 5.1.1. Electricity and capacity purchase ...... 36 5.1.2. Electricity exports ...... 37 5.2. HEAT SALES ...... 39 6. FUEL SUPPLY AND PROCUREMENT ...... 42 6.1. FUEL SUPPLY ...... 42 6.2. PROCUREMENT ...... 44 7. INVESTMENT ACTIVITY OF JSC «TGC-1» ...... 48 7.1. OVERVIEW OF THE IMPLEMENTATION OF THE INVESTMENT PROGRAM OF JSC «TGC-1» IN 2015...... 48 7.2. IMPACT OF THE KEY PROJECTS IN 2015 ...... 50 7.3. NEW SYSTEMS AND TECHNOLOGY ...... 55 7.4. KEY OBJECTIVES OF THE INVESTMENT ACTIVITIES IN 2016 ...... 55 8. FINANCIAL PERFORMANCE OVERVIEW ...... 58 8.1. MAIN FACTORS IMPACTING THE COMPANY'S PERFORMANCE ...... 58 8.2. ACCOUNTING PRINCIPLES ...... 58 8.3. RAS FINANCIAL RESULTS ...... 61 8.4. IFRS FINANCIAL STATEMENT ...... 69 9. SECURITIES AND CORPORATE GOVERNANCE ...... 71 9.1. EQUITY STRUCTURE ...... 71 9.2. TRANSACTIONS WITH SECURITIES ...... 71 9.3. CORPORATE GOVERNANCE PRINCIPLES ...... 75 9.4. MANAGEMENT AND CONTROL BODIES ...... 76 9.4.1. General Shareholders' Meeting ...... 76 9.4.2. Board of Directors ...... 78 9.4.3. Committees of the Board of Directors ...... 83 9.4.4. Auditing Commission ...... 85 9.4.5. Management Board and General Director ...... 86 9.5. SUBSIDIARIES AND AFFILIATES OF JSC «TGC-1» ...... 90 9.5.1. Governance Principles Applicable to Subsidiaries and Affiliates ...... 90 9.5.2. Performance of the Subsidiaries and Affiliates in 2015...... 90 10. PERSONAL AND SOCIAL RESPONSIBILITY ...... 95 10.1. MAIN PRINCIPLES AND GOALS OF THE HR POLICY ...... 95 10.2. HEADCOUNT AND HR STRUCTURE ...... 95 10.3. HR DEVELOPMENT SYSTEM ...... 97 10.3.1. Changes in the average salary in 2014 and 2015 ...... 97

10.3.2. Remuneration and Social Security Benefits ...... 97 10.3.3. Employee Development and Incentive System ...... 98 10.3.4. Social Responsibility and Charity ...... 102 10.4. SPONSORSHIP AND CHARITY ...... 103 11. ENVIRONMENTAL PROJECTS ...... 105 APPENDIX 1 REFERENCE INFORMATION FOR SHAREHOLDERS AND INVESTORS APPENDIX 2 ABRIDGED FINANCIAL STATEMENTS OF JSC «TGC-1» FOR 2015 UNDER THE RUSSIAN ACCOUNTING STANDARDS APPENDIX 3 CONSOLIDATED FINANCIAL STATEMENTS OF JSC «TGC-1» FOR 2015 UNDER THE INTERNATIONAL FINANCIAL REPORTING STANDARDS

1. LETTER TO SHAREHOLDERS

Dear Shareholders, Gazprom in a difficult 2015 year continued an active development of power generation business. Thanks to many years of systematic work aimed at improving the efficiency and optimization of production processes, and the consistent improvement of the corporate governance system, by simultaneously maintaining the total revenues of the main companies in the sector (JSC “TGC-1”, Mosenergo, PJSC “MIPS” and JSC “OGK-2”) at the level of the previous period the growth of their net profit was ensured and tripled reaching RUB 11.7 bn. The improvement of the financial result was achieved despite the drop in demand for electricity and heat, and it became possible due to minimizing utilization of inefficient units, seizing opportunities for reconfiguration of the Moscow district heating system, and the commissioning of new generating facilities. In December 22, 2015, when the country traditionally celebrates the Energy Day, there was a solemn event dedicated to the commissioning of two modern combined cycle power units PGU-420 at the CHPP-20 of Mosenergo in Moscow and Serovskaya GRES of “OGK-2” in the Sverdlovsk Oblast. For the first time in Gazprom history in one day two new combined cycle units with a total capacity of 840 MW were introduced. In total, since the entry into power generation in 2007, Gazprom has introduced more than 7 GW of new capacity. Implementation of the Group Capacity Delivery Agreements (CDA) program is close to its accomplishment. The introduction of modern technology and equipment with high efficiency can achieve substantial energy savings and minimizes environmental impact. Total emissions of pollutants in the power of the Group decreased by 34% since 2010, greenhouse gas emissions - by 14%, water consumption and wastewater volumes - by 30%. Companies of the Group are working to implement and maintain effective environmental management system (EMS), improve them in accordance with international and national standards. This is extremely important for us, as companies of Gazprom Group provides a no-break supply of electricity and heat to the population and industrial consumers of such significant megapolises with millions of citizens like Moscow and St. Petersburg. Since the occurrence of JSC “TGC-1” in the Gazprom Group it was sent to more than RUB 120 bn in the development of the energy sector of the North-West. 1.6 GW of new capacity was commissioned - combined cycle power units were built and large-scale reconstruction of hydro facilities was carried out. In 2015, in St. Petersburg implementation of projects for the construction of new gas turbines at the Centralnaya CHPP and modern hot-water complex at Pervomayskaya CHPP was continued, in the Arctic preparatory work for the modernization of the Verkhne-Tulomskaya HPP was begun, which has strategic importance for the energy system of the region. In carrying out the investment program today we provide the reliability of the future development of the region, its industry and cities. Dear shareholders! Our key task is further increase of profitability and shareholder value of the Group's companies. To gain this goal we will continue to implement the package of measures aimed at strengthening the financial stability of the company, increasing the profitability of their operations, reducing costs and increasing production efficiency. We count on your support in this work!

Member of the Management Board, PJSC «GAZPROM» Chairman of the Board of Directors, JSC «TGC-1» Kirill Seleznev

Dear Shareholders, The year 2015 was a special one for the Company, as we marked our first significant milestone — 10 years of operations. We have been supported by our shareholders during this period, and have indeed managed to make many accomplishments. The Company's integration into Gazprom Group played a key role in the development of JSC «TGC-1». As of today, the implementation of a large-scale investment program under the Capacity Delivery Agreements (CDA) has been almost completed, and this has allowed revamping production facilities and significantly improving the reliability of power supplies to consumers. Over the years, state- of-the-art generation capacities were put into operation at the Vyborgskaya CHPP, Vasileostrovskaya CHPP, Avtovskaya CHPP, Yuzhnaya CHPP, Pravoberezhnaya CHPP and Pervomayskaya CHPP in St. Petersburg, at the Vuoksa HPPs Cascade in Leningrad Oblast, and at the Iovskaya HPP in Murmansk Oblast. Power supply reliability, operational safety, and efficiency of business processes — these are values the Company has relied on since day one. We have new projects ahead, as JSC «TGC-1» includes both the most modern plants and energy veterans who call for special attention and care. We continue addressing the issue of renewal and improvement of our companies’ efficiency. It is important not only to secure current demand, but also to take into account future growth in consumption. Nonetheless, the new capacities commissioned by the Company in the last decade made it possible to show stable financial performance for JSC «TGC-1». Thus, the Company's revenue in 2015 amounted to RUB 71.2 bn, which reflected an increase in revenue from sales of electricity and heat. One of the priorities that we are trying to address in our dialogue with the regional authorities is the strengthening of payment discipline. By working closely with the Government of Murmansk Oblast, we were able to complete the process of transition to direct payments from end consumers. In 2015, JSC «TGC-1» started working as a single heat supply company in Petrozavodsk, where the direct payment system has also been implemented. This has improved the rate of collection of heat payments and the payment system as a whole. We have accumulated vast experience, and the best regional practices are now being implemented in St. Petersburg. All the achievements of the past decade, as well as implementation of our future plans, would not be possible without good teamwork. Management, shareholders and employees focusing on effective cooperation is a guarantee of uninterrupted supply of heat and electricity to JSC «TGC-1» consumers and maintaining the leading position in the regional economy.

General Director, JSC «TGC-1» Alexey Barvinok

2. COMPANY OVERVIEW 2.1. Key indicators

Key Operating Indicators of JSC «TGC-1» 2015 2014 ∆ (%) Installed electric capacity, MW 7,057 7,164 -1.5 Installed heat capacity, Gcal/hr 14,142 14,152 -0.1 Electricity generation, kWh mln 25,811 26,426 -2.3 Electricity useful output, kWh mln 28,969 29,509 -1.8 Heat output, thousand Gcal 23,020 24,339 -5.4 Heat useful output, thousand Gcal 23,507 24,467 -3.9 * The data is given taking into account the indicators of PJSC «Murmanskaya CHPP» and Dubrovskaya CHPP LTD

Key Financial Indicators of JSC «TGC-1», RAS* (RUB mln) 2015 2014 ∆ (%) Revenue 65,184 65,173 0.02 Production cost (60,001) (59,445) 0.9 Gross profit 5,183 5,728 -9.5 Profit before taxation 3,407 3,613 -5.7 EBITDA 13,214 12,871 2.7 Net profit 2,676 3,475 -23.0 Total assets 119,766 119,865 -0.1 Earnings per share, RUB 0.00069 0.00090 -23.3 * Statements of JSC «TGC-1» as per RAS do not consolidate financial results of the subsidiaries.

Key Financial Indicators of JSC «TGC-1», IFRS (RUB mln) 2015 2014 ∆ (%) Revenue 69,424 68,996 0.6 Operating costs* (59,407) (62,500) -4.9 Operating profit 10,017 6,496 54.2 EBITDA** 17,222 13,209 30.4 Profit before taxation 7,463 3,871 92.8 Profit 5,826 4,149 40.4 Total assets 154,895 150,330 3.0 * Indicator includes state subsidies and other operating income. ** EBITDA = operating profit + depreciation of fixed assets, intangible assets and investment property.

2.2. Overview Joint Stock Company «Territorial Generating Company №1» (hereinafter referred to as JSC «TGC- 1» or the Company) is the leading producer of electricity and heat in the North-West region of Russia. JSC «TGC-1» was founded on March 25, 2005 in the course of reforming the electric energy industry of Russia. Today the Company incorporates generating enterprises from the Baltic Sea to the Barents Sea. Company's generating assets comprise 54 electric power plants of various types in four subjects of the Russian Federation such as St. Petersburg, the Republic of Karelia, Leningrad Oblast and Murmansk Oblast. Generated electricity is delivered to the domestic wholesale electricity and capacity market and is also exported to Finland and Norway. JSC «TGC-1» is a strategic supplier of heat in St. Petersburg, Petrozavodsk, Murmansk, Kirovsk in the Leningrad Oblast, and cities Apatity and Kirovsk of the Murmansk Oblast.

JSC «TGC-1» includes the following subsidiaries: PJSC «Murmanskaya CHPP» (energy supply to Murmansk and the surrounding areas; a 90.34% stake in the authorised capital), JSC «St. Petersburg Heating Grid» (an association of the heating grids within the area of the Company’s CHPP operations; a 74.99% stake in the authorised capital), Dubrovskaya CHPP LTD (energy supply to Kirovsk; a 100% stake in the authorised capital), and affiliates: JSC «HHC» (reformation of heat supply in the Apatity-and-Kirovsk region; a 50% stake in the authorised capital) and TGC-Service LLC (specialised repair and maintenance enterprise; a 26% stake in the authorised capital). JSC «TGC-1» is a part of Gazprom Group. The controlling stakes of generating companies in Gazprom Group are consolidated in the balance sheet of the special-purpose affiliate Gazprom Energoholding LLC, established during the implementation of Gazprom's Power Generation Strategy. This allows an effective management system to be created based on unified corporate standards. The Group consolidates the controlling stakes of Mosenergo, JSC «OGK-2», JSC «TGC-1» and JSC «MIPC». Gazprom is the largest owner of generating assets in Russia and is one of Europe's ten major electricity producers. The principal shareholders of JSC «TGC-1» are:  Gazprom Energoholding LLC with 51.79% of shares, and  Fortum Power and Heat Oy with 29.45% of shares. Shares of JSC «TGC-1» are circulated on the PJSC «Moscow Exchange MICEX-RTS». The second largest shareholder, Fortum Power and Heat Oy, is Scandinavia’s leading energy concern, with the highest standards of business conduct. Fortum Power and Heat Oy makes a valuable contribution to the enhancement of the Company’s management efficiency. Thus, operating environmentally responsible production and implementing an innovative social policy based upon international standards of business conduct, JSC «TGC-1» is striving to take the leading position on the energy market, to be a reliable partner for investors, to take care of shareholders’ interests, and satisfy customers’ highest requirements.

2.3. Company’s Organisational Structure as of December 31, 2015

JSC «TGC-1» Management

General Director

Civil Defence and Legal Matters Administrative and Service Public Relations Administration of Internal Audit Service Registry Mobilisation Division Department Department Department General Director

Deputy General Deputy General Director / Deputy General Deputy General Deputy General Deputy General Director Deputy General Director HR Director Director for Marketing Chief Engineer/ Director Director for Resources Director for Director for Capital for Corporate Protection for Economy and Finance and Sales of the Nevsky Branch Supply Development Construction

Procurements and Capital Construction Department of Corporate WECM Operation Repairs Department Chief Accountant Resources Supply HR Division Investment Department Project Implementation Protection Planning Department Department Department

Economic Security Electricity Sales Payroll and Labour Corporate Governance Cost Estimate and Deputy Chief Engineer Central Accounting Service Transportation Service Department Department Matters Department Department Contract Department

State Secret Protection Power Plant Operations Heat Sales Department Social and Labour Division Department Department for Economy Relations Department

Deputy Chief Engineer Financial Department

Treasury

Inventory Management Department

Administration Yuzhnaya CHPP-22 Vasileostrovskaya CHPP-7 SCS and IT Unit Environmental Service Central Electrical of JSC TGC-1 Engineering Service Heat Sales Dubrovskaya CHPP- Directorate Deputy General Director / Representative Office of Deputy General Director / 8 Pravoberezhnaya CHPP-5 Centralnaya CHPP Director of the Branch JSC TGC-1 in Moscow Director of the Branch Welding Materials and Engineering Centre Control Pervomayskaya Avtovskaya CHPP-15 Production and CHPP-14 Production Systems Apatitskaya Petrozavodskaya Processing Equipment Administration Administration Directorate CHPP CHPP Service Vyborgskaya CHPP- Ladoga HPPs Niva HPPs Paz HPPs Kem HPPs Vyg HPPs 17 Cascade Automation and ACPS Training Centre Cascade Cascade Cascade Cascade Service

Vuoksa HPPs Metrology Service of Tuloma HPPs Cascade and Narvskaya HPP-13 Suna HPPs Cascade Cascade Serebryanskiye HPPs Cascade JSC TGC-1 Severnaya CHPP-21

Nevsky Branch Kolsky Branch Karelsky Branch 8

2.4. Basic Company events in 2015 January The 5th anniversary of the Ladoga HPPs Cascade in the Leningrad Oblast. An ice rink for residents and visitors of Petrozavodsk was opened in the Governor's Park in the capital of Karelia with the support from JSC «TGC-1». February Start of work as a single heat supply organisation in the territory of the Petrozavodsk urban district; transition to direct payments from consumers. Launch of the Customer Centre of the Heat Sales Department in the Karelsky Branch of JSC «TGC-1» in Petrozavodsk. March The 10th anniversary of the state registration of JSC «TGC-1». Start of the Real Energy competition for journalists, photographers and bloggers, arranged to coincide with the 10th anniversary of JSC «TGC-1». Forty media tours were organised and more than 2,000 media items were published. Officials from St. Petersburg City Administration, heads of special committees and authorities visited the construction site of the integrated auxiliary building (IAB) at the Pervomayskaya CHPP. April First professional skills competition for occupational safety specialists of the Company. JSC «TGC-1» was named the best customer of SUE «Vodokanal of St. Petersburg» in 2014 among heating suppliers as part of the Crystal Drop competition. Press conference entitled "The new method of payment for heat and hot water: transition of JSC «TGC-1» to direct payments" was held to discuss work with сonsumers and improvement of payment discipline of utility service providers in St. Petersburg. As part of a sweeping upgrade of the Centralnaya CHPP, installation of two gas turbine units at the Power Plant 1 in St. Petersburg was commenced. May The annual press conference "Gazprom's Power Generation Strategy" with Denis Fedorov, General Director of Gazprom Energoholding LLC, was held. War veterans from Gazprom Energoholding companies in Moscow took part in the celebrations for the 70th anniversary of Victory. Participation in the 3rd Russian International Energy Forum. JSC «TGC-1» held the event "Energy Hour" for schoolchildren. June Annual General Shareholders' Meeting of JSC «TGC-1». Annual General Shareholders' Meeting of PJSC «Murmanskaya CHPP». Annual General Shareholders' Meeting of JSC «St. Petersburg Heating Grid». Start of large-scale renovation of the spillway at the Nizhne-Tulomskaya HPP in the Murmansk Oblast. The 25th anniversary of the Krivoporozhskaya HPP in the Republic of Karelia. July The 60th anniversary of the Paz HPPs Cascade in the Murmansk Oblast. Technical conference of representatives of Russia, Finland and Norway in Rayakoski, arranged to coincide with the 50th anniversary of the beginning of electricity exports from the Kola Peninsula to Finland.

Start of the Energy Cruise, a 10-day press tour around North-West of Russia for journalists, photographers and bloggers from different cities of the Russian Federation; the event was timed to coincide with the anniversary of JSC «TGC-1». August The 35th anniversary of the Yushkozerskaya HPP in the Republic of Karelia. The 40th anniversary of the start-up of the first unit of the Severnaya CHPP in Leningrad Oblast. September Deputy Minister of Energy of Russia Andrey Cherezov held a meeting on preparation for the autumn and winter period of 2015-2016 and visited the Verkhne-Tulomskaya HPP in the Murmansk Oblast. Photo exhibitions of work of Real Energy competition participants dedicated to the activities of JSC «TGC-1» were launched in St. Petersburg, Petrozavodsk and Murmansk. The Turn Your Head On animation and graphic art competition of JSC «TGC-1» was named the best event for the promotion of energy saving on the results of the regional phase of the Second All- Russian Design Competition as part of the International Forum on Energy Efficiency and Energy Development ENES-2015. An agreement on cooperation between JSC «TGC-1» and the State Hermitage Museum was signed. The 60th anniversary of the Narvskaya HPP in Leningrad Oblast. October The 10th anniversary of the start of operations of JSC «TGC-1». The Russian National Library hosted a presentation of the book "Ahead of Time: The History of the Northwest Energy Industry in Pictures", dedicated to the history of regional electrification. Opening of a memorial sign in honour of the first Russian power plant set on a wooden barge on the Moika River near the Green Bridge in St. Petersburg. "Power Petersburg" bus and walking tours for residents and guests of St. Petersburg. Completion of the first phase of integrated reconstruction of Palieozerskaya HPP in the Republic of Karelia; commissioning of Hydroelectric Unit 2. Winners of the Real Energy competition held for journalists, photographers and bloggers were awarded during the St. Petersburg International Gas Forum. Annual Report of JSC «TGC-1» for 2014 and the IR section of the corporate website were named among the leaders of the contest of corporate websites and online annual reports held by the Chamber of Commerce and Industry of St. Petersburg. The 45th anniversary of the Hevoskoski HPP in the Murmansk Oblast. The 60th anniversary of the Knyazhegubskaya HPP in the Murmansk Oblast. November Start of operations of Dubrovskaya CHPP LTD in the Leningrad Oblast. JSC «TGC-1» became the winner in three categories of the All-Russian competition of media and press services of energy companies and regional administrations MediaTEK. The 45th anniversary of the Serebryanskaya HPP in the Murmansk Oblast. The system of technological data exchange with the automated system of the system operator was put into trial operation at the Apatitskaya CHPP of JSC «TGC-1». December The charity event "New Year Tree of Wishes" in all regions of operations of the company was held. The Museum of the Tuloma HPPs Cascade and Serebryanskiye HPPs Cascade was opened in Murmashi, Murmansk Oblast. The 65th anniversary of the Yaniskoski HPP in the Murmansk Oblast. The 55th anniversary of the Iovskaya HPP in the Murmansk Oblast.

Installation of gas treatment equipment at the construction site of the Power Plant 1 at the Centralnaya CHPP in St. Petersburg was completed.

3. JSC «TGC-1» IN THE ECONOMY AND INDUSTRY 3.1. Economic situation and power industry The aggregate installed capacity of power plants of the UES of Russia as of January 1, 2016 amounted to 235,305.56 MW. The increase in the installed capacity of power plants of the UES of Russia through the commissioning of new generating facilities and the upgrade of existing facilities amounted to 5,027 MW, including:  Commissioning of new capacity in 2015 by power plants of the UES of Russia, including power plants of industrial enterprises amounted to 4,710.0 MW;  Increase in the installed capacity of the generating facilities through upgrading operations — 317.0 MW. Generating equipment of the UES of Russia with a total capacity of 2,357.25 MW was decommissioned.

Fig. 1. Installed capacity of the IPS in the UES of Russia in 2015 Installed capacity of the North-West IPS as of January 1, 2016 was 23,142.97 MW after the decrease by 0.6% from the similar value in 2014. In the gross installed capacity of the UES of Russia, the share of the IPS North-West was 9.8%. In 2015, electricity generation by power plants of the UES of Russia, including generation by the plants at industrial enterprises, amounted to 1,026,877.2 mln kWh (compared to 2014, the increase in production volume was 0.2%) including:  TPPs — 614.1 mln kWh (decrease by 1.1%);  HPPs — 160.2 mln kWh (decrease by 4.1%);  NPPs — 195.3 mln kWh (increase by 8.2%);  Power plants of industrial enterprises — 57.6 mln kWh (increase by 1.9%). Power plants of wholesale generation companies generated electricity of 324,864.6 mln kWh in 2015. Reduction in the total electricity generation was 5.3%, including:  Electricity generation by TPPs of WGC – 247,391.0 mln kWh (as compared to generation in 2014, the decrease was 6.1%),  Electricity generation by HPPs of WGC – 77,473.6 mln kWh (as compared to generation in 2014, the decrease was 2.8%).

The volume of electricity generation by power plants of the territorial generation companies in 2015 amounted to 359,376.5 mln kWh. Reduction in the total electricity output was 1.4%, including:  Electricity generation by TPPs of WGC – 307,570.0 mln kWh (as compared to generation in 2014, the increase was 0.1%);  Electricity generation by HPPs of WGC – 51,794.7 mln kWh (as compared to generation in 2014, the decrease was 9.5%); Generation of electricity by power plants not included in WGC and TGC (independent suppliers) was 90,078.5 mln kWh. Generation of electricity by power plants of industrial enterprises was 57,568.7 mln kWh, including TPPs – 57,312.1 mln kWh, NPPs – 256.6 mln kWh.

Fig. 2. Structure of electricity generation by the UES of Russia in 2015 The total electricity output of North-West IPS in 2015 was 101,279.4 mln kWh, which is 10% of the total output of the UES of Russia. Decline in the electricity output of North-West IPS in 2015 as compared to 2014 was 1.2%: output by TPP decreased by 7.7%, output by HPP, NPP and industrial enterprise power plants increased by 9.7%, 3.5%, 0.4%, respectively.

Fig. 3. Structure of electricity generation by the North-West IPS in 2015 Actual electricity consumption in the UES of Russia in 2015 was 1,008,250.8 mln kWh, which is less than the actual figure in 2014 by 0.55%. One of the main factors that influenced the consumption was the outdoor temperature. In February 2015, the increase in the outdoor temperature in the UES of Russia as compared to the

previous year was 4.1⁰С, which affected the decrease in the electricity consumption in the power system by 2.3%. Except for the temperature factor, the decline in electricity consumption in the UES of Russia during 2015 was largely influenced by lower electricity consumption by some industrial enterprises. The annual maximum consumption in the UES of Russia was recorded January 26, 2015 at 18:00 (MSK) at electrical frequency of 49.99 Hz and amounted to 147,377 MW. The load on the power plants of the UES of Russia was 149,392 MW. Table 1. Electricity consumption profile for the Russian power systems, mln kWh Power system 2015 2014 ∆ (%) Centre IPS 231,770.8 232,929.9 -0.5 Mid-Volga IPS 104,256.6 106,682.8 -2.3 Urals IPS 258,295.9 260,670.4 -0.9 North-West IPS 90,296.6 90,770.1 -0.5 South IPS 87,883.0 86,938.5 1.1 Siberia IPS 203,525.4 204,064.6 -0.3 East IPS 32,222.5 31,801.9 1.3 UES of Russia 1,008,250.8 1,013,858.2 -0.6 Table 2. Electricity consumption profile for the North-West IPS, mln kWh Power system 2015 2014 ∆ (%) Arkhangelsk PS 7,279.6 7,390.4 -1.5 Kaliningrad PS 4,373.4 4,414.6 -0.9 Karelian PS 7,716.8 7,689.8 0.4 Kola PS 12,234.0 12,225.0 0.1 Komi PS 8,844.2 8,952.9 -1.2 Novgorod PS 4,186.6 4,080.9 2.6 Pskov PS 2,139.9 2,162.5 -1.0 Leningrad PS 43,522.1 43,854.0 -0.8 North-West IPS 90,296.6 90,770.1 -0.5

3.2. Competitive environment

3.2.1. Electricity market The main sector of competitive activities in the wholesale electricity market for JSC «TGC-1» is the day-ahead market (DAM). In the current situation, the closest competitor in terms of main production and technological cycles in the free-trade sector of the wholesale market of the North-West IPS is Kirishkaya GRES (Leningrad Oblast), which forms part of JSC «OGK-2». To enhance the Company's competitiveness in the electricity market, JSC «TGC-1» takes measures to address the issues of pent-up capacities and optimise the output structure at CHPPs and HPPs, and to introduce new technology and refurbishment the production equipment. The main competitive advantages of JSC «TGC-1» are the following: The cost advantage of the Company’s CHPPs in terms of combined-heat-and-power generation (as compared to GRES); The large proportion of output by HPPs in the total production of electricity and the cost advantage of HPPs compared to heat power plants; The possibility for rapid change of active load at HPPs and the supply of electricity as specified by the System Operator; The geographical locations of the Company’s power plants, which enable the export of electricity. Apart from JSC «TGC-1», generation of electricity and capacity in St. Petersburg, the Republic of Karelia, Leningrad and Murmansk Oblast is performed by Rosenergoatom (REA, represented by the Leningrad and Kola Nuclear Power Plants), JSC «OGK-2» (represented by the Kirishkaya GRES), and JSC “INTER RAO - Electric Power Plants” (Severo-Zapadnaya CHPP Branch), which exports electricity, and other producers.

Leningrad Nuclear Power Plant and Leningrad Nuclear Power Plant 2 Leningrad Nuclear Power Plant (LNPP) is located 80 km west from St. Petersburg on the southern coast of the Gulf of Finland in the Baltic Sea in the city of Sosnovy Bor. LNPP includes 4 generating units. Electrical output of each generating unit is 1000 MW, heat output — 3,200 MW. The design electricity generation is 28 bn kWh per year. About 8% of the electricity generated is used by the plant for its own consumption. Leningrad NPP is the largest producer of electricity in the North-West of Russia. The NPP covers more than 50% of energy consumption in St. Petersburg and Leningrad Oblast. In the fuel and energy balance of the whole North-West region, the Leningrad NPP accounts for about 28%. Currently, REA is building replacement capacities for the LNPP — LNPP-2 in Sosnovy Bor. Commissioning of the first generating unit at the LNPP-2 is expected to take place in 2018 and of the second generating unit — in 2019. Design of generating units 3 and 4 is underway. Electrical output of each power generating unit will be 1,198.8 MW and heat output — 250 – 300 Gcal per hour. Kola NPP Kola Nuclear Power Plant is located 200 km south from Murmansk and 12 km from the city of Polyarnye Zori on the bank of Lake Imandra. Kola NPP is the main electricity supplier in Murmansk Oblast and the Republic of Karelia. Currently, the NPP runs four 440 MW VVER-440 type reactors which accounts for about 50% of installed capacity in the region). Heat output of the Kola NPP is 5,500 MW, which is the installed electric capacity of 1,760 MW. During the year, the Kola NPP can generate electricity of up to 13 bn KWh. As of today, capacities of the Kola NPP have not been fully utilised. This creates opportunities for the development of industry in the region. Kola NPP is one of the best Russian nuclear power plants in terms of safety, operational stability and production efficiency. Kirishskaya GRES Kirishskaya GRES is located at the town of Kirishi in Leningrad Oblast, on the river Volkhov, 150 km southeast from St. Petersburg. It is the largest thermal power station (GRES) in the North- West IPS. Installed electric capacity at Kirishskaya GRES is 2,595 MW, and installed heat capacity is 1,234 Gcal/hr. Kirishskaya GRES supplies electricity in a wide range of voltages from 0.4 to 330 kV to the wholesale market and to its own consumers. It is a supplier of heat (technical steam with different parameters and hot water), and also provides services for the supply of desalinated, chemically purified water and process water, and oxygen. Kirishskaya GRES consists of 3 power plants — cogeneration unit (CHPP - combined heat and power plant), condensation unit (condensation power plant), and combined cycle unit (CCGT-800). The advantage of Kirishskaya GRES is the ability to adjust the frequency and capacity of the power system. Kirishskaya GRES is essentially the main controller in the central part of the unified energy system, it ensures its reliable operation. Severo-Zapadnaya CHPP Severo-Zapadnaya CHPP of JSC “INTER RAO - Electric Power Plants” is situated in the Primorsky District of St. Petersburg on the bank of the Gulf of Finland and is the first Russian power plant with a CHP binary cycle. It is one of the most modern plants not only in Russia but also in the whole Europe. The combined cycle technology provides the efficiency at 51.5%, while, this figure does not exceed 40% in similar units. For its performance indicators and the level of environmental protection, the plant has no equal in Russia and serves as a model for the construction of new and the upgrade of older power plants. The plant has 2 generating units with electric capacity of 450 MW and heat capacity of 350 Gcal/hr each. The plant provides heat output to the Primorsky District of St. Petersburg, and operates not only for the power system of Russia but also for the power system of Finland.

3.2.2. Heat market JSC «TGC-1» sells and distributes heat in St. Petersburg, Leningrad Oblast (the Nevsky Branch), Murmansk Oblast (the Kolsky Branch, PJSC «Murmanskaya CHPP») and the Republic of Karelia (the Karelsky Branch). St. Petersburg The main producers of heat in St. Petersburg are as follow:  JSC «TGC-1»;  SUE “TEK of St. Petersburg”;  Peterburgteploenergo LLC;  Severo-Zapadnaya CHPP Branch of JSC “INTER RAO - Electric Power Plants”. Table 3. Structure of the St. Petersburg heat market* Installed heat Connected heat Heat output to Market Heating supplier capacity, load, consumers, share, % Gсal/hr Gсal/hr thousand Gсal JSC «TGC-1» 11,759 9,886 18,737 45 SUE “TEK of St. Petersburg” 9,185 9,029 18,768 45 Peterburgteploenergo LLC 2,377 1,589 3,061 7 Severo-Zapadnaya CHPP Branch of JSC “INTER RAO - Electric 700 282 1,274 3 Power Plants” * Heating suppliers with heat output of over 1 mln Gсal (data taken into account when setting heat tariffs for 2015 are indicated) Also, there are a number of heat producers with an output of less than one mln Gсal per annum in St. Petersburg, with aggregate share in the total heat output of not more than 5%. Leningrad Oblast In Leningrad Oblast, JSC «TGC-1» sells heat in the Kirovsky, Vsevolozhsky and Lodeynopolsky districts. On November 1, 2015, Dubrovskaya CHPP LTD started its operations involving heat generation and supply in Kirovsk and is the only source of heat for consumers in Kirovsk of Leningrad Oblast. In the Lodeynopolsky District, all the heat generated by the electric boiler operated by JSC «TGC-1» is sold to the wholesale buyer-reseller JSC LOTEK to supply heat to consumers in Svirstroy. Severnaya CHPP of the Nevsky Branch of JSC «TGC-1» is the only source of heat for consumers in the municipalities of Murinskoye rural settlement and Novodevyatkinskoye rural settlement in the Vsevolozhsky District of Leningrad Oblast. Pravoberezhnaya CHPP of the Nevsky Branch of JSC «TGC-1» is the main source of heat for consumers in Kudrovo village. Thus, one may talk of absence of competitors of JSC «TGC-1» in the area of its heat supply operations in Leningrad Oblast. Murmansk Oblast Apatitskaya CHPP of the Kolsky Branch of JSC «TGC-1» is the only source of heat for consumers in the towns of Apatity and Kirovsk. Table 4. Structure of heat market in Apatity and Kirovsk of Murmansk Oblast* Installed heat Connected heat Heat output to Market share, Heating supplier capacity, load, consumers, % Gсal/hr Gсal/hr thousand Gсal JSC «TGC-1» 590 466 1,205 100 * Data taken into account when setting heat tariffs for 2015 are indicated Apart from the Apatitskaya CHPP, in Murmansk Oblast, heat is supplied by subsidiary of JSC «TGC-1» — PJSC «Murmanskaya CHPP», which is a strategic supplier of heat in Murmansk; the share of heat sales is 75%. In 2015, PJSC «Murmanskaya CHPP» was given the status of a single heat

supplier in its area of operations. Only JSC Murmanenergosbyt can be considered as a competitor of PJSC «Murmanskaya CHPP». Republic of Karelia Before February 1, 2015, the sale of heat was provided on the boundary of balance sheet attribution and operational responsibility of JSC «TGC-1» and consumers. At the same time, 98% of the heat was sold to the wholesale buyer-reseller JSC PKS for further sale to end consumers. Since February 1, 2015, the Karelsky Branch sells heat, including that generated by the Petrozavodskaya CHPP, in the city of Petrozavodsk, and in the Prionezhsky and Pryazhinsky Districts.

3.3. Key development areas in 2015 Refurbishment of the generating assets The key areas of the Company’s development as part of the investment activities are as follow:  Completion of priority investment projects in progress;  Maintaining of the balance of connected load and installed capacity of the CHPPs after the decommissioning of outdated equipment;  Ensuring of the potential heat load to areas adjacent to the JSC «TGC-1» CHPPs;  Implementation of the energy saving and energy efficiency program providing for the upgrade of outdated generating facilities and the use of more efficient equipment with a totally different reliability level in compliance with international standards;  Replacement of worn-out power-generating equipment;  Implementation of projects aimed at protecting the environment, improving economical efficiency and environmental safety of power-generating facilities. The capacity increase investment program of JSC «TGC-1» is nearing completion. As of today, 1,500 MW of new capacity has been commissioned; by 2017, JSC «TGC-1» plans to commission 100 MW. In St. Petersburg, JSC «TGC-1» built highly efficient up-to-date combined cycle gas turbines (CCGT) with a total capacity of 1,280 MW. Also, JSC «TGC-1» has provided refurbishment and overhaul of main equipment of the hydroelectric power plants in the Republic of Karelia, Leningrad and Murmansk Oblasts, as well as commissioning of up-to-date automated process control, telemechanics and communication systems. In addition to the commissioning of new capacities, JSC «TGC-1» started consistent decommissioning of equipment of not only individual outdated units but also whole plants. The history of the Krasny Oktyabr power plant in St. Petersburg, the first CHPP built under the GOELRO plan is over now. The next will be the worn-out generating units of the Pervomayskaya and Centralnaya CHPPs. In order to cover the existing and future heat load after the worn-out CHPP equipment is decommissioned, the Company is looking into construction of boiler facilities (similar to the construction of the integrated auxiliary building at the Pervomayskaya CHPP). Grid business development The heating grid business of the Company will face changes in the near future. The heat capacities must be upgraded urgently. Despite the connection of new consumers to utilities of JSC «TGC-1», heat consumption is unlikely to increase due to the development of city energy saving and energy efficiency programs. In order to ensure reliable and high-quality heat supply to consumers of St. Petersburg and Leningrad Oblast, taking into account future heat loads, the Company is willing to optimise costs, attract external investors, and improve the efficiency of heating grids. Such reorganisation of St. Petersburg heat business should become a benchmark for heating assets in other regions where the Company operates currently. In 2011, the formation of equity of JSC «St. Petersburg Heating Grid» was completed; in addition to JSC «TGC-1», JSC «St. Petersburg Heating Grid» includes SUE “TEC SPb”. This new business unit is engaged in supplying heat to end consumers in all the areas of Company operations in St. Petersburg. One of the objectives of JSC «St. Petersburg Heating Grid» is to improve the reliability of the heat supply system and to expand the heat 17

supply operations of JSC «TGC-1» by constructing new heating pipelines to connect new residential development properties to the grid and by transferring consumers of other energy sources that have been overaged to centralised heat supply from the energy sources of JSC «TGC-1». In 2013, the heating main from the Apatitskaya CHPP to the heat distribution centre in Kirovsk of Murmansk Oblast was commissioned. The renovation of the Apatitskaya CHPP of the Kolsky Branch was completed. In 2013, the first heat supplies from the Apatitskaya CHPP to consumers in Kirovsk along the new heating main were started. The project was implemented by JSC «НHC» equally owned by JSC «TGC-1» and JSC Apatit, by investment in the authorised capital and with JSC «HHC» borrowings. Based on results of operations in 2014, the heat output of the Apatitskaya CHPP to the city of Kirovsk was about 550 thousand Gcal, and in 2015 — about 500 thousand Gcal. Improving the efficiency of operations The focus of the improving the efficiency of operations of JSC «TGC-1» in 2015 will be the production-related initiatives as follow:  Decommissioning of inefficient and unclaimed capacities — RUB 367 mln or 41% of the cumulative effect;  Improvement of the production system — RUB 100 mln or 11% of the cumulative effect;  Repair and maintenance — RUB 90 mln or 10% of the cumulative effect. The initiative of "Decommissioning of inefficient and unclaimed capacities" is aimed at reducing losses from decommissioning of inefficient equipment at the Pervomayskaya CHPP and at gaining benefits from making the Dubrovskaya CHPP a subsidiary of JSC «TGC-1» — Dubrovskaya CHPP LTD. The initiative of "Improvement of the production system" is divided into four areas: 1. Water use, where the following is to be decreased: Own water consumption and water for process needs; loss of steam and condensate; discharges into sewage system. 2. Fuel usage — reduction of the specific fuel consumption by bringing the main equipment to the performance standards during major and medium repairs, building a system of effective operation of heat-exchange equipment. 3. Own electricity consumption, where the effect of the initiative is calculated as the product of the amount of saved electricity and the fuel component of the cost of electricity. 4. Assimilation of innovative technology. As part of the initiative of "Repair and maintenance", it is planned to reduce the cost of repairs of fixed assets through the improving efficiency of its own maintenance personnel and optimising the volume and timing of work on CCGT service contracts.

Fig. 4. Implementation of the operating performance improvement program of JSC «TGC-1» in 2012-2016, RUB mln

Similarly to 2015, the initiatives started earlier will be continued in 2016:  Decrease in CHPP marginal losses;  Optimisation of construction assets in progress. The operating performance improvement program of JSC «TGC-1» in 2016 was supplemented by the new initiative - "Increase in the volume of natural gas sales on the stock exchange". The effect of the initiative will be achieved through the reduction of costs for the purchase of natural gas by reducing the volume of gas purchased at a price set by the regulator and increasing the volume of purchases of gas on the gas hub of the Closed Joint-Stock Company St. Petersburg International Mercantile Exchange (SPIMEX). The effect of implementation of the initiatives as part of the operating performance improvement program amounted to RUB 1,358 mln in 2012, to RUB 1,822 mln in 2013, to RUB 1,229 mln in 2015, and to RUB 1,026 mln in 2015. Projected effect for 2016 is RUB 897 mln. Reducing the overall effect of the implementation of the program initiatives in 2016 is associated with the maximum reduction of fixed costs recorded in the Company business plan and not allocated into a separate initiative of the operating performance improvement program.

3.4. Risks related to the Company's operations Principles of the risk management system of JSC «TGC-1» The Company's Risk Management Policy is the effective combination of measures to limit risks taken by the Company undertakes, and measures to minimise (reduce), avoid and redistribute the risks which are considered to be unacceptably high by the Company. The purpose of the Company's risk management system is to reduce the likelihood of an unfavourable outcome and the possible losses of the Company in the case of risk realisation. The Risk Management Policy for certain risk is determined by the Board of Directors of JSC «TGC-1» as part of making the following decisions:  Setting strategic goals of the Company with simultaneous definition of the risk appetite (the Company's overall readiness to take risks);  Setting strategic objectives related to the reduction of risk positions to prevent (minimise) possible losses;  Establishing strategic restrictions to be followed by the Company management to limit certain risks. Risk management system activities JSC «TGC-1» has fulfilled the main activities planned for 2015:  The project of Integrated Risk Management System designed by JSC «TGC-1» in view of the new requirements of PJSC «GAZPROM» (the Risk Management Policy of PJSC «GAZPROM» and the Regulations on the Risk Management System of Gazprom Group);  Draft Risk Management Policy of the Company is prepared; during the working session of the Company's management, it was decided to implement an efficiency improvement project for the existing risk management system;  Based on experience accumulated and practice of risk management, the Company's Risk Register and Risk Map were updated. For 2016, the following measures have been projected:  Carry out self-evaluation of the current state of risk management and taking into account its results, finalise the activity plan for the improvement of the risk management system;  Appoint an official responsible for managing the Company's risks;  Approve the Company's Risk Management Policy and Regulations on the Risk Management System;

 Perform the main stages of the activity plan for the improvement of the risk management system of the Company. Substantial legal proceedings involving JSC «TGC-1» As of December 31, 2015, no substantial legal proceedings involving JSC «TGC-1» whose outcome would materially affect the operations and/or financial status of JSC «TGC-1» had been initiated. Risks related to the operations of JSC «TGC-1» Table 5. Map of basic risks of JSC «TGC-1» Measures taken by JSC «TGC-1» to manage the Risks Risk weight risks Country risk Special aspects of social and economic and This country risk is low manageable, and it is taken political situation in Russia, the EU and US into account by the Company in making and pressure (sanctions) on Russia and Russian specifying strategic decisions. The Company is not companies. included in the sanction lists and does not pertain to the industries the sanctions have been imposed on; to reduce the relevant risks, the Company has implemented an import substitution program. Strategy risk Taking strategic decisions affecting the long-  The multilevel nature of the preparation and term development of the Company which do not adoption of decisions determining the development fully take into account the features of the strategy of the Company; external or internal environment.  Consideration of different scenarios of the Company's development;  Stress testing and rejection of measures associated with increased levels of risk. Risks related to the industrial electricity and capacity market and the heat supply of consumers Lower electricity and heat demand as compared  Implementation of programs aimed at to projected values as a result of the economic improving the operating performance; recession and energy saving projects in  Development and implementation of apartment buildings. decommissioning measures for inefficient generating capacities;  Improvement of activities in sales and communication with debtors. Changes in electricity prices in the non-  Implementation of programs aimed at regulated market, and simultaneous uncertainty improving the operating performance; and limitations of heat tariffs due to the  Refocusing load on the most efficient dependence on decisions of the tariff regulation generating capacities (new CCGT generating units bodies. put into operation under CDA). Change in cost of energy prices, services  Implementation of programs aimed at reducing (including repairs), supplies and equipment. production costs and saving fuel (including by refocusing load on new and more efficient CCGT generating units);  Conclusion of fixed-price medium-term contracts with suppliers (transition from annual procurement to long-term procurement);  Reducing the purchase cost pursuant to the legal requirements for the procurement on a competitive basis;  Optimising cost of repair and operation, optimisation of inventory. Risk of non-payment for electricity and heat  Transition to direct payment from end supplied. consumers of energy without intermediaries (housing services and utilities);  Intensification of debt collection in court;  Initiation bankruptcy proceedings for debtors - intermediaries. Production and technical risks, competitive risks

Measures taken by JSC «TGC-1» to manage the Risks Risk weight risks Unscheduled cessation of power generation due  Implementation of the investment program with to emergency interruption of the main replacement of outdated capacities with new production equipment. capacities;  Timely repair and upgrades, renovation and refurbishment activities;  Detection of equipment to be replaced (repaired) on a priority basis. Competition with Rosenergoatom which  Analysis of Rosenergoatom plans and activities generates electricity at nuclear power plants relating to commissioning and decommissioning of (and has a status of a preferred supplier of nuclear power units; electricity and capacity).  Preparation of proposals to ensure equal access to the electricity and capacity market for NPPs, HPPs and CHPPs. Competition in the pricing zone 1 based on  Analysis of competitor plans and activities commissioning of new capacities by the relating to commissioning of new capacities under competitors under CDA and in the case of CDA; construction of power transmission lines,  Analysis of plans and activities relating to the following which the pent-up capacities in the construction of power transmission lines affecting power grid of Murmansk Oblast and Siberia will the market environment in the pricing zone 1. be more accessible to a wide range of  Implementation of programs aimed at consumers in the pricing zone 1. improving the operating performance;  Timely repair and upgrades, renovation and refurbishment activities; Government regulation risks Government authorities passing resolutions to  Interaction with regional energy commissions in freeze or limit the rise in heat tariffs. the regions and cities where Company's generating capacities are operating to determine the economically justified level of tariffs;  Interaction with the regional authorities in case of significant deviations of actual parameters that affect the size of the tariff from their projected level. Change in regulations governing the activities Participation in the preparation of regulations, of electric power entities, including the rules of preparation of regulatory impact assessment for the the wholesale electricity and capacity, heat projects, preparation of proposals on change in supply regulations and rules for the provision of regulations and dissemination of this position to the utility services. draft regulation developer. Risks of changes in tax and civil laws of the Timely familiarisation with recent changes in the Russian Federation. tax and regulatory climate and the adjustment of the existing Company standards, rules and procedures.

Financial risks Interest rate risks  Periodic analysis of the Company's sensitivity to changes in interest rates in the credit market;  Timely increase in the borrowing term with fixed interest rate (in relation to the increase in the level of interest rates as projected for 2015);  Competitive selection of banks - creditors to reduce the credit interest rates on borrowings Inflation risks  Maintaining the decision-making system for  Decrease in the real value of receivables in transactions related to FX risk (transactions in case of delay or respite of the payment foreign currency or transactions tied to foreign  Increase in the price of goods, labour and exchange behaviour) at the level of the Board of services; Directors;  The need to raise additional funds for the  Accounting for the factor of "long-term

implementation of the investment program. dependency on exchange rates" when making decisions as to whether domestic or foreign equipment should be procured.

Measures taken by JSC «TGC-1» to manage the Risks Risk weight risks FX risks  Maintaining open currency positions as low as possible;  Implementation of the import substitution program to reduce the amount of future purchases of goods and services in foreign currencies;  Increase in revenues from electricity exports to Finland and Norway in 2015 as compared to 2014 (in order to compensate for the committed costs in EUR). Environmental risks Risks of damage to the environment, risks of  Maintaining environmental safety management bringing to civil liability and the need for system at the Company's facilities; corrective actions.  Training personnel correct actions in the event of risk of emergency which may result in a damage to the environment (joint exercise with EMERCOM of Russia);  Renovation and upgrade of the assets and changes in production processes to reduce the impact on the environment during normal operations. Risks related to the personnel and contractors Risks associated with disturbances and  Monitoring compliance with occupational safety accidents due to erroneous actions of the and production discipline requirements; personnel.  Briefing, training and professional development of the personnel (including special training with the use of simulators);  Insurance of property, insurance of civil liability of owners of hazardous facilities and hydraulic structures, vehicles, etc. Risks of the loss of goodwill Assessment of goodwill of partners and contractors both in entering into contracts and in the course of contract performance.

Failure of contractors and partners to comply  Improvement of the preliminary analysis of with contractual obligations relating to quality contractor risks before making decisions on the and delivery of goods, provision of services and possibility of entering into contracts with them performance of work. (before they are pronounced winners in procurement procedures);  Improvement of the performance monitoring processes. Note: – High risk

– Medium risk

– Low risk

4. OVERVIEW OF PRODUCTION OPERATIONS

4.1. Production capacities As of the end of 2015, the installed capacity of the Company power plants including the subsidiaries — PJSC «Murmanskaya CHPP» and Dubrovskaya CHPP LTD (since November 1, 2015, the Dubrovskaya CHPP has started its operations as a separate company) — was 7,056.6 MW of electric capacity and 14,142 Gсal/hr of heat capacity. The basis for production capacities of JSC «TGC-1» is 54 power plants, including: 40 hydroelectric power plants (HPP) and 14 combined heat and power plants (CHPP), including the subsidiaries — PJSC «Murmanskaya CHPP» and Dubrovskaya CHPP LTD. Most of the HPPs placed in sequence along the water flow and interconnected by water regime are arranged in cascades. The main portion of the production capacities of JSC «TGC-1» is concentrated in the Nevsky Branch, which includes 11 CHPPs with installed electric capacity of 3,640.5 MW and 11,741.0 Gcal/hr of heat capacity, as well as 7 HPPs with a total installed electric capacity of 709.8 MW. The Karelsky Branch is represented by the Petrozavodskaya CHPP with installed capacity of 280.0 MW and 689.0 Gcal/hr and 16 HPPs arranged in 3 cascades and the Smaller HPPs Group, with a total installed capacity of 553.7 MW. The Kolsky Branch includes the Apatitskaya CHPP – 266.0 MW and 590.0 Gcal/hr and 17 HPPs which include 3 cascades with a total installed capacity of 1,594.6 MW. In addition to these facilities, PJSC «Murmanskaya CHPP» produces heat and electricity in Murmansk Oblast; the installed capacity of the CHPP is 12.0 MW of electric capacity and 1,122.0 Gcal/hr of heat capacity. Table 6. Production capacities of JSC «TGC-1» as of December 12, 2015

Installed heat Capacity factor Fuel Installed electric Available capacity, (for electric (main/back- capacity, MW capacity, MW Gcal/hr capacity)*, % up)

Nevsky Branch Centralnaya CHPP 55 1,346.0 55.0 30.0 gas/fuel oil Pravoberezhnaya CHPP 643.0 1,283.0 630.0 35.3 gas/fuel oil Vasileostrovskaya CHPP 135.0 1,113.0 135.0 59.8 gas/fuel oil Dubrovskaya CHPP** 5.0 134.0 3.0 0.4 gas/fuel oil Pervomayskaya CHPP 524.0 1,419.0 460.0 38.7 gas/fuel oil Avtovskaya CHPP 321.0 1,849.0 321.0 39.0 gas/fuel oil Vyborgskaya CHPP 250.5 1,056.0 250.5 28.3 gas/fuel oil Severnaya CHPP 500.0 1,188.0 500.0 38.9 gas/fuel oil Yuzhnaya CHPP 1,207.0 2,353.0 1,207.0 37.0 gas/fuel oil Ladoga HPPs Cascade 345.0 - 260.4 38.7 - Narvskaya HPP 124.8 - 124.8 47.3 - Vuoksa HPPs Cascade 240.0 - 240.0 60.4 - Total for Nevsky Branch 4,350.30 11,741.0 4,186.7 38.6 - Karelsky Branch Petrozavodskaya CHPP 280.0 689.0 254.0 44.0 gas/fuel oil Vyg HPPs Cascade 160.0 - 109.2 62.1 - Kem HPPs Cascade 330.0 - 168.7 56.3 - Suna HPPs Cascade (with the 63.7 - 36.3 50.6 - Smaller HPPs Group) Total for Karelsky Branch 833.7 689.0 568.2 52.9 - Kolsky Branch gas/fuel Apatitskaya CHPP 266.0 590.0 203.0 18.6 oil*** Niva HPPs Cascade 569.5 - 564.3 69.7 - Paz HPPs Cascade 187.6 - 187.6 58.3 - Tuloma & Serebryanskiye 837.5 - 837.5 29.4 - HPPs Cascade Total for Kolsky Branch 1,860.6 590.0 1,792.4 43.1 - Total for JSC «TGC-1» 7,044.6 13,020.0 6,547.3 41.5 - 23

Installed heat Capacity factor Fuel Installed electric Available capacity, (for electric (main/back- capacity, MW capacity, MW Gcal/hr capacity)*, % up)

(excluding PJSC «Murmanskaya CHPP») PJSC «Murmanskaya CHPP» 12.0 1,122.0 12.0 16.2 fuel oil Total for JSC «TGC-1» (excluding PJSC 7,056.6 14,142.0 6,559.3 41.4 - «Murmanskaya CHPP») * Capacity factor for installed electric capacity; ** Since November 1, 2015, Dubrovskaya CHPP LTD has generated and supplied heat. *** Backup fuel

Installed electric capacity in 2015:  Decreased by 20.5 MW at the PP-2 of the Centralnaya CHPP as compared to 2014 due to decommissioning of the turbine unit type T-20.5-26;  Decreased by 87 MW at the Dubrovskaya CHPP due to decommissioning of the turbine units at the plant 5 (type T-37-90) and at the plant 6 (type K-50-90). Installed and available heat capacity in 2015 changed at the following plants:  As compared to 2014, increased by 30 Gсal/hr at the PP-2 of the Centralnaya CHPP due to the change in the heat diagram of the plant;  Decreased by 51 Gсal/hr at the Dubrovskaya CHPP due to decommissioning of the boiler unit 1 type PK-10Sh;  Increased by 11 Gсal/hr at the Murmanskaya CHPP as a result of the upgrade of the hot-water boiler PTVM-100 of the plant 10 at the BTH. Table 7. Installed electric capacity factor in 2015, % CHPP HPP HPP+CHPP Nevsky Branch 36.9 47.5 38.6 Karelsky Branch 44.0 57.4 52.9 Kolsky Branch 18.6 47.2 43.1 JSC «TGC-1» 36.2 49.3 41.5 PJSC «Murmanskaya CHPP» 16.2 - - The installed electric capacity factor in JSC «TGC-1» as a whole in 2015 was recorded at 41.5%, at 49.3% for the HPP and at 36.2% for the CHPP.

4.2. Electricity generation As of year-end 2015, the volume of electricity production by generating enterprises of the Company, including PJSC «Murmanskaya CHPP», was 25,811 mln kWh, which is 2.3% lower than in the same period in 2014. In the Nevsky Branch, the output decreased by 10.1%, in the Karelsky Branch — increased by 2.1%, in the Kolsky Branch — increased by 16.3%. In general, the decrease in electricity output by the CHPPs was 10% by 2014, while output by the HPPs increased by 7.7%.

Fig. 5. Electricity generation by JSC “TGC-1” branches and the PJSC “Murmanskaya CHPP” in 2015 The main reason for decrease in the electricity output by conventional power plants in 2015 was the decline in electricity consumption in the North-West region. The output by hydroelectric power plants increased due to the high water content in the Kolsky and Karelsky Branches.

Fig. 6. Electricity output by the CHPPs and HPPs of JSC «TGC-1» in 2014-2015, mln kWh Table 8. Electricity output by the plants of JSC «TGC-1» in 2014-2015, thousand kWh 2015 2014 Nevsky Branch Centralnaya CHPP 144,516 226,918 Pravoberezhnaya CHPP 1,985,609 2,827,100 Vasileostrovskaya CHPP 707,386 691,626 Dubrovskaya CHPP 2,111 59,982 Pervomayskaya CHPP 1,774,257 1,974,801 Avtovskaya CHPP 1,097,508 1,077,122 Vyborgskaya CHPP 620,029 667,520 Severnaya CHPP 1,704,713 1,922,560 Yuzhnaya CHPP 3,912,229 3,879,122 Narvskaya HPP 517,551 548,697 Vuoksa HPPs Cascade 1,270,027 1,415,428 Ladoga HPPs Cascade 1,168,197 1,295,517 Total for Nevsky Branch 14,904,134 16,586,392 Karelsky Branch Petrozavodskaya CHPP 1,079,963 1,162,532 Vyg HPPs Cascade 870,867 1,042,076 Kem HPPs Cascade 1,627,542 1,323,346 25

2015 2014 Suna HPPs Cascade (with the Smaller HPPs Group) 282 088 252 408 Total for Karelsky Branch 3,860,460 3,780,362 Kolsky Branch Apatitskaya CHPP 434,181 470,832 Niva HPPs Cascade 3,479,119 2,542,918 Paz HPPs Cascade 958,127 722,132 Tuloma & Serebryanskiye HPPs Cascade 2,158,374 2,306,907 Total for Kolsky Branch 7,029,801 6,042,788 PJSC «Murmanskaya CHPP» 17,031 16,639 Total for JSC «TGC-1» (excluding PJSC «Murmanskaya CHPP») 25,794,394 26,409,542 Total for JSC «TGC-1» (including PJSC «Murmanskaya CHPP») 25,811,425 26,426,181 Total for CHPPs 13,479,533 14,976,752 Total for HPPs 12,331,893 11,449,429

Hydrological conditions in the areas of the Company's operations. The effect of water content on the total electricity output Nevsky Branch The water content in 2015 for the Svir HPPs Cascade was close to average values; for the Narvskaya and Volkhovskaya HPPs — the water was very low; and only at the Vuoksa HPPs Cascade the water content was rather high. The output by the HPPs of the Nevsky Branch in 2015 was 2,955.8 mln kWh, which is 9.3% lower than in 2014; this is due to the decline in the useful inflow in the HPP reservoirs, and the higher number of sterile spills due to the repair activities at the Branch plants. Karelsky Branch The amount of water resources at the beginning of the year that was close to the long-term average annual values allowed achieving the target values of total electricity output for Q1 2015, despite the reservoir drawdown before flooding. The spring flood was early, with even intensity of snowmelt and high water inflow and fill in the reservoirs. Rainy summer and autumn contributed to the high water content, and the water inflow in the main reservoirs was 10-30% of inflow probability. Water content of most of the water bodies of the Republic of Karelia in 2015 was higher than the long-term average annual values, which allowed exceeding the target values of total electricity output for the year. The total HPP output of the Karelsky Branch in 2015 amounted to 2,780.5 mln kWh, which is 6.2% higher than in 2014. Kolsky Branch The annual inflow in the system as a whole was 67.25 km3 with probability of 12%, so that the year was abundant in water (especially for the reservoirs of the Kovda HPPs Cascade — from 1 to 6%Р, on the Niva -8%Р). Flooding started on the 3 decade of April and ended in late June. Reservoirs freed from the ice in the second half of May. The flood inflow probability in 2015 was 11%, with the volume of flood of 21.1 km3. In the second half of May, the level of the Kuma reservoir exceeded the flood-control storage level and remained above that level through the end of October; the other reservoirs were filled in the decade 1 of June. As of January 01, 2016, the energy reserves were 4,709 mln kWh, which is 119% of previous year and 109% of the long-term average annual values. As of December 20, 2015, the snow storage in the system was 80-100% of the standard value. The HPP output in the Kolsky Branch in 2015 was 6,595.6 mln kWh, which is 18.4% more than the value of 2014. The increase in the output was due to the high water content in the region.

4.3. Heat generation Heat output from headers and electric boilers in 2015 across the Company was 23,020 thousand Gcal, which is 5.4% less than in 2014. The decrease in the heat output was due to the outdoor temperatures: during the heating period of 2015, higher average monthly outdoor temperatures as compared to 2014 were recorded. Decrease in the output by the Nevsky, Karelsky and Kolsky Branches was 5.9%, 1.1% and 5.2%, respectively. Heat output by PJSC «Murmanskaya CHPP» also decreased as compared to the same figure in 2014 by 5%.

Fig. 7. Heat output by the Branches of JSC «TGC-1» and PJSC «Murmanskaya CHPP» in 2015. Table 9. Heat output by the plants of JSC «TGC-1» in 2014-2015, Gcal 2015 2014 Nevsky Branch Centralnaya CHPP 2,161,804 2,300,164 Pravoberezhnaya CHPP 1,937,640 2,047,185 Vasileostrovskaya CHPP 1,663,365 1,757,290 Dubrovskaya CHPP 164,738 219,855 Pervomayskaya CHPP 1,433,235 1,677,689 Avtovskaya CHPP 3,000,404 3,106,036 Vyborgskaya CHPP 1,087,868 1,166,502 Severnaya CHPP 2,732,306 2,925,863 Yuzhnaya CHPP 3,645,321 3,734,422 Boiler facilities 3,153 3,864 Total for Nevsky Branch 17,829,834 18,938,870 Karelsky Branch Petrozavodskaya CHPP 1,560,710 1,631,935 Boiler facilities 54,088 0 Total for Karelsky Branch 1,614,798 1,631,935 Kolsky Branch Apatitskaya CHPP 1,513,365 1,596,843 Electric boiler facilities 2,588 2,466 Total for Kolsky Branch 1,515,953 1,599,309 PJSC «Murmanskaya CHPP» 2,059,717 2,168,917 Total for JSC «TGC-1» (excluding PJSC «Murmanskaya CHPP») 20,960,585 22,170,114 Total for JSC «TGC-1» (including PJSC «Murmanskaya CHPP») 23,020,302 24,339,031 Table 10. Outdoor air temperature, °С Outdoor air temperature, Outdoor air temperature, average average Var. for the heating period Var. 2015 2014 2015 2014 St. Petersburg +7.7 +7.4 +0.3 +2.2 +1 +1.2 Petrozavodsk +6.1 +5.6 +0.5 +0.1 -0.9 +1 Apatity +2.6 -0.1 +2.7 -0.6 -3.8 +3.2 Murmansk +2,2 +1,3 +0,9 -1,0 -2,4 +1,4

4.4. Analysis of Fuel Consumption by CHPPs of JSC «TGC-1» Specific reference fuel consumption is the main parameter used to assess the fuel consumption at the Company’s CHPPs. As of year-end 2015, in JSC «TGC-1» as a whole, reference fuel consumption per unit of electricity sold was 260.5 g/kWh, which was 0.7% less than the value in 2014. Reference fuel consumption per unit of heat sold decreased by 0.3% and amounted to 138.8 kg/Gсal. The decline in the values of reference fuel consumption per unit of electricity sold was due to the implementation of measures aimed at improving the fuel utilisation. Table 11. Reference fuel consumption by CHPPs of JSC «TGC-1» in 2014-2015 2015 2014 per unit of per unit of per unit of per unit of electricity sold, heat sold, electricity sold, heat sold, g/kWh kg/Gcal g/kWh kg/Gcal Nevsky Branch Centralnaya CHPP 438.8 165.7 433.4 166.0 Pravoberezhnaya CHPP 211.5 137.9 215.5 136.3 Vasileostrovskaya CHPP 312.1 140.7 308.1 138.3 Dubrovskaya CHPP 611.5 191.4 455.3 174.6 Pervomayskaya CHPP 256.5 154.4 250.9 159.4 Avtovskaya CHPP 332.1 131.6 345.5 129.8 Vyborgskaya CHPP 288.3 128.3 279.5 131.9 Severnaya CHPP 273.2 122.1 270.9 123.4 Yuzhnaya CHPP 235.5 135.6 246.4 139.3 Average for Nevsky Branch 256.7 138.8 258.9 139.8 Karelsky Branch Petrozavodskaya CHPP 281.1 128.9 279.3 129.4 Boiler facilities in the Pryazhinsky District 0 254.9 0 0 Boiler facilities in the Prionezhsky District 0 273.9 0 0 Average for Karelsky Branch 281.1 133.5 279.3 129.4 Kolsky Branch Apatitskaya CHPP 324.8 143.9 321.6 141.8 Average for Kolsky Branch 324.8 143.9 321.6 141.8 Average for JSC «TGC-1» 260.5 138.8 262.3 139.2 PJSC «Murmanskaya CHPP» - 174.2 - 174.1

4.5. Energy saving and energy efficiency In 2013, pursuant to the Federal Law 'On Energy Saving and Improving Energy Efficiency, and Introducing Amendments to Certain Legislative Acts of the Russian Federation' No. 261-FZ dated November 23, 2009 and Government Decree of the Russian Federation 'On the Requirements of Regional and Municipal Programs in the Sphere of Energy Conservation and Improving Energy Efficiency' No. 1225 dated December 31, 2009, Government Decree No. 340 dated May 15, 2010 and the Minutes of the Meeting at the Ministry of Energy held on September 09, 2010, JSC «TGC-1» -1 adopted and approved its energy saving and energy efficiency program for 2014-2016. The main areas implemented in the program were as follow:  Refurbishment and renovation of the existing generating and auxiliary equipment (installation of variable-frequency drive on the storage tank pumps at the Vasileostrovskaya CHPP, renovation of the vented steam cooling system at open-type deaerators with the installation of a plate-type heat exchanger at the Vyborgskaya CHPP, installation of variable-frequency drive on 2 decarbonised water pumps and 2 raw coal feeders (RCF) at the Apatitskaya CHPP);  Activities under the repair program were performed;  Heating grid pipelines were further replaced with the use of PU foam pipes at the Apatitskaya CHPP;  Design and survey work was performed to upgrade the fuel oil facilities to equip the steam boiler house at the Pravoberezhnaya CHPP with a condensate recycle circuit;

 Incandescent lamps were replaced with energy-saving lamps at the power generating facilities and in the administrative building of the Karelsky Branch. The total expected annual effect of the energy saving measures is estimated at more than 10,000 tonnes of reference fuel and 2,500 thousand kWh. Also, safe and efficient energy consumption among the community was promoted (the series of Energy: How It Works?, energy saving videos, outdoor social advertising, My Energy education energy website, exhibitions, public events, publications in press and on the Internet).

4.6. Repair and Maintenance Program Repair and Maintenance Program of JSC «TGC-1» for 2015 is designed to maintain the fixed production assets in good working order with optimised maintenance and repair costs. Repair and Maintenance Program for 2015 was developed based on the following:  Long-term repair schedules for main equipment of the power plants;  Annual repair schedules for main and auxiliary equipment, buildings and facilities of the power plants;  The results of 2014 technical diagnosis and repair programs;  The predicted CPI and PPI values;  Expert estimations of repair costs taking into account the costs of similar fixed assets repair in the previous periods; Table 12. The volume of Repair and Maintenance Program for 2014-2015, RUB thousand, VAT excluded 2015 2014 Nevsky Branch 2,215,825 1,914,264 Karelsky Branch 365,579 348,064 Kolsky Branch 375,985 365,331 JSC «TGC-1» 2,957,389 2,627,659 Table 13. Cost structure for the fixed assets repairs in 2015, RUB thousand, VAT excluded Using Using own Share in the Share in the Branches Total contractor resources total costs total costs services Nevsky Branch 2,215,825 453,990 20.5% 1,761,835 79.5% Karelsky Branch 365,579 87,018 23.8% 278,561 76.2% Kolsky Branch 375,985 222,573 59.2% 153,412 40.8% JSC «TGC-1» 2,957,389 763,581 25.8% 2,193,808 74.2% Table 14. The volume of Repair and Maintenance Program for 2015 by cost estimate items, RUB thousand, VAT excluded including Branches Description JSC «TGC-1» Nevsky Karelsky Kolsky Repair costs, including 2,957,389 2,215,825 365,579 375,985 Payroll fund and insurance payments 606,331 368,379 50,143 187,809 Materials and components when using 157,250 85,611 36,875 34,764 own resources Give and take materials 147,708 92,088 31,662 23,958 Contractor services 2,046,100 1,669,747 246,899 129,454 Table 15. Implementation of the main equipment major and medium repair program in 2015 Nevsky Karelsky Kolsky Type of equipment JSC «TGC-1» Branch Branch Branch Power-plant boilers, (pcs/t/h) 5/2,286 2/840 2/440 9/3,566 Hot-water boilers, (pcs/Gcal/hr) 1/100 - - 1/100 Turbine units, (pcs/MW) 9/1,032 1/60 - 10/1,092 Hydroelectric units, (pcs/MW) 4/107.6 4/57.64 2/75.5 10/240.74 Turbine generators, (pcs/MW) 5/563 - - 5/563 Table 16. Number of completed current repairs of main equipment in 2015 Nevsky Karelsky Kolsky Number of repairs JSC «TGC-1» Branch Branch Branch Current repairs, pcs/days 238/1,312 101/1,522 378/1,334 717/4,168 Objectives of the repair campaign for 2016:

 Complete the Repair and Maintenance Program according to the fixed asset list within the established timeframe;  Restore the equipment performance;  Improve reliability of equipment at the power plants;  Perform preparation activities for energy facilities of JSC «TGC-1» for operation during autumn and winter period of 2016/2017;  Reduce scheduled repair time;  Improve repair quality and use new materials and technology at a wider scale. In accordance with the annual repair schedule for the main equipment in 2016, 18 major repairs and 7 medium repairs of process units must be provided in 2015, including: Table 17. Repair schedule for the main equipment in 2016 Unit Major repair Medium repair Turbine units (including those being part of the 4/483 2/220 generating units), (pcs/MW) Hydroelectric units, (pcs/MW) 8/197.5 - Turbine generators, (pcs/MW) - 1/156 Boiler units, (pcs/MW) 6/2,440 4/960 The target costs of fixed asset repair in 2016 have amounted to RUB 2,744,887 thousand, including the cost of contracted repair of RUB 1,974,405 and the cost of repair using own resources of RUB 770,482 (71.9% and 28.1% of the target repair costs, respectively). Table 18. Cost schedule for the fixed assets repairs in 2016, RUB thousand, VAT excluded Description 2016, target Repair of fixed assets, including: 2,744,887 Payroll fund when using own resources 467,111 Insurance payments when using own resources 148,082 Repair materials when using own resources 155,289 Give and take materials 111,694 Chief Engineer reserves 43,127 Third party contractor services 1,819,584

5. OVERVIEW OF SALES

The purpose of the Company's sales function is to achieve maximum marginal income from the operation of power plants in the electricity and capacity markets and in the sale of heat. Company's sales policy is based on the following principles:  Monitoring of technical and conceptual changes in the wholesale market, the Company's active influence on the changes, and control over compliance with the Wholesale Electricity and Capacity Market Rules by all business units of the Company;  Return on investment in the production of electricity, capacity and heat in all market sectors;  Development of electricity exports;  Development of proposals to increase the marginal income from the sale of electricity, heat, and capacity based on review of the sale results.

5.1. Electricity and capacity sales In 2015, electricity sales by JSC «TGC-1» was 28,969 mln kWh, which is 1.8% less than the value of 2014. PJSC «Murmanskaya CHPP» is not a participant of the Wholesale Electricity and Capacity Market, the entire volume of electricity produced in 2014-2015 was used for the own consumption. The largest volume of the Company's electricity is sold in the Day-Ahead Market, — in 2015, the proportion of the DAM accounted for 85.2% of the total sales volume and 87.9% of the total revenue from electricity sales, as well as under regulated contracts — the volume of sales amounted to 8.6%, the proportion in the electricity sales was 5.1%. The capacity sales of the Company are 3,490 MW/month, which is 31.1% less than in 2014. The decline was due to a fall in capacity sales through competitive capacity outtake (CCO) procedures. In 2015, the capacity sales under CDA accounted for 34.1%, under regulated contracts — for 7.7%, while 16% of capacity was sold under CCO. The largest portion of revenue from the capacity sale was generated by sales under CDA — 68.8%, the contribution to the sales under CCO was 7.5%, while the proportion of regulated contracts was 3.1%. In 2015, the volume of electricity purchases amounted to 5,043.5 mln kWh, which is 0.4% less than in 2014, the capacity purchases were 127.6 MW / month, which is 16.2% more than in 2014.

Fig. 8. Electricity sales (market sector breakdown), mln kWh

Table 19. Electricity sales (Branch breakdown), mln kWh JSC «TGC-1» Nevsky Branch Karelsky Branch Kolsky Branch RC 2,494.7 2,342.8 0.0 151.9 DAM 24,680.6 13,655.9 3,810.8 7,213.9 BM 1,096.6 416.3 69.0 611.3 Export supply 633.7 181.7 0.0 452.0 Retail supply 63.3 0.1 61.4 1.8 TOTAL 28,968.9 16,596.8 3,941.2 8,430.9

Fig. 9. Structure of electricity sales (market sector breakdown) in 2015

Fig. 10. Capacity sale (market sector breakdown) in 2014-2015, MW (monthly average) Table 20. Capacity sale (Branch breakdown), MW JSC «TGC-1» Nevsky Branch Karelsky Branch Kolsky Branch RC 270.0 198.9 0.0 71.1 CCO 557.2 401.4 0.0 155.8 CDA 1,191.1 1,191.1 0.0 0.0 FM 1,471.7 1,255.2 205.0 11.5 TOTAL 3,490.0 3,046.6 205.0 238.4

Fig. 11. Structure of capacity sales (market sector breakdown) in 2015

Tariff regulation For JSC «TGC-1», as a participant of the wholesale market, electricity and capacity tariffs are approved by the Federal Tariff Service of Russia (Federal Tariff Service of the Russian Federation was abolished by presidential decree of July 21, 2015 No. 373, is the legal successor of the Federal Antimonopoly Service (FAS Russia). Pursuant to clause 62 of the Wholesale Electricity and Capacity Market Rules approved by RF Government Decree No. 1172 dated December 27, 2010, electricity and capacity supplies at regulated prices (tariffs) may be carried out only for delivery of electricity and capacity to the public and equivalent consumer categories. Pursuant to clause 65 of the Wholesale Electricity and Capacity Market Rules, the total volume of electricity and the total volume of capacity to be supplied under regulated contracts in one calendar year may not exceed 35% of the generated electricity and capacity as defined in the forecast balance for regulatory period for the specified provider. In 2015, payments for electricity supplied to the wholesale market under regulated contracts were made as per electricity and capacity tariffs set by the Federal Tariff Service individually for each power plant of the Company. Payment for electricity supplied to the Day-Ahead Market and the balancing market were made at prices established on the basis of competitive bids by the bidders. Settlements for capacity supplied to the market under regulated contracts and for power plants operating in the "forced mode" (FM) were based on the tariffs approved by the Federal Tariff Service. Settlements for capacity supplied under CCO were based on the prices set through competitive processes for 2015. Settlements under CDA were based on the prices calculated by NP "Market Council". Table 21. Electricity and capacity tariff profile in 2015-2016 Electricity tariff, Capacity tariff, RUB/MWh (excluding VAT) RUB/MW/month (excluding VAT) Approved by Approved by Approved by the Approved by the Power plant the FTS Russia the FAS Russia FTS Russia FAS Russia for 2015 for 2016* for 2015 for 2016* From From From From From Jan From Jul From From Jul Jan 01 Jul 01 Jan 01 Jul 01 01 01 Jan 01 01 2015 2015 2016 2016 2015 2015 2016 2016 Nevsky Branch Centralnaya CHPP 1,596.91 1,596.91 1,322.95 1,322.95 387,659.52 425,015.70 - - Pravoberezhnaya CHPP Unit 1 1,014.76 1,014.76 913.56 1,174.57 132,988.00 132,988.00 122,174.60 122,174.60

Electricity tariff, Capacity tariff, RUB/MWh (excluding VAT) RUB/MW/month (excluding VAT) Approved by Approved by Approved by the Approved by the Power plant the FTS Russia the FAS Russia FTS Russia FAS Russia for 2015 for 2016* for 2015 for 2016* From From From From From Jan From Jul From From Jul Jan 01 Jul 01 Jan 01 Jul 01 01 01 Jan 01 01 2015 2015 2016 2016 2015 2015 2016 2016 Pravoberezhnaya CHPP Unit 2 859.27 859.27 771.68 771.68 - - - - CCGT (CDA) Vasileostrovskaya CHPP TG-4,5 1,198.48 1,198.48 848.94 848.94 132,999.00 132,999.00 132,999.00 132,999.00 Vasileostrovskaya CHPP TG-3 1,032.77 1,040.98 691.98 691.98 - - - - (CDA) Pervomayskaya CHPP CCGT-1 883.59 883.59 819.3 819.3 - - - - (CDA) Pervomayskaya CHPP CCGT-2 903.98 903.98 844.99 844.99 - - - - (CDA) Avtovskaya CHPP TG-1,4,5 1,127.13 1,127.13 687.96 687.96 132,995.00 132,995.00 - - Avtovskaya CHPP TG-2,3,6,7 1,127.13 1,127.13 851.93 851.93 132,995.00 132,995.00 132,995.00 132,995.00 Vyborgskaya CHPP TG-2,3 1,085.83 1,085.83 657.79 657.79 132,997 132,997 125,272.97 135,837.94 Vyborgskaya CHPP TG-4 1,085.83 1,085.83 806.12 806.12 132,997 132,997 115,826.29 115,826.29 Severnaya CHPP Units 1,3,5 1,087.41 1,087.41 854.77 854.77 132,983 132,983 132,983 132,983 Severnaya CHPP Units 2,4 1,087.41 1,087.41 854.77 854.77 132,985 132,985 132,985 132,985 Yuzhnaya CHPP Units 1,2,3 1,141.33 1,141.33 803.22 803.22 132,990.00 132,990.00 106,268.39 114,950.65 Yuzhnaya CHPP Unit 4 CCGT 765.06 785.09 715.17 715.17 - - - - (CDA) Volkhovskaya HPP (Ladoga HPPs 36.68 36.86 36.86 40.14 153,906.97 155,006.53 155,006.53 167,586.91 Cascade) Verkhne-Svirskaya HPP (Ladoga 36.62 36.8 36.8 40.1 113,774.43 114,577.57 114,577.57 124,070.89 HPPs Cascade) Nizhne-Svirskaya HPP (Ladoga 36.62 36.8 36.8 40.1 113,774.43 114,577.57 114,577.57 124,070.89 HPPs Cascade) Narvskaya HPP 36.4 36.57 36.57 39.86 95,447.2 96,352.98 96,352.98 104,443.09 Lesogorskaya HPP HG-1 (Vuoksa 10.01 10.2 10.2 13.13 123,913.13 123,913.13 123,913.13 133,082.70 HPPs Cascade) Lesogorskaya HPP HG-2 (Vuoksa 10.01 10.19 10.19 13.14 127,837.24 127,837.24 127,837.24 137,297.20 HPPs Cascade) Lesogorskaya HPP HG-3 (Vuoksa 10.01 10.19 10.19 13.14 133,000.00 133,000.00 133,000.00 142,842.00 HPPs Cascade) Lesogorskaya HPP HG-4 (Vuoksa 10.19 10.19 10.19 13.17 128,400.00 128,400.00 128,400.00 137,901.60 HPPs Cascade) Svetogorskaya HPP HG-1 11.08 11.23 11.23 14.22 123,913.13 123,913.13 123,913.13 133,082.70 (Vuoksa HPPs Cascade) Svetogorskaya HPP HG-2 10.33 10.54 10.54 13.5 133,000.00 133,000.00 133,000.00 142,842.00 (Vuoksa HPPs Cascade) Svetogorskaya HPP HG-3 10.3 10.59 10.59 13.5 123,913.13 123,913.13 123,913.13 133,082.70 (Vuoksa HPPs Cascade) Svetogorskaya HPP HG-4 10.3 10.39 10.39 13.63 127,837.24 127,837.24 127,837.24 137,297.20 (Vuoksa HPPs Cascade) Kolsky Branch Apatitskaya CHPP TG-6,7,8 972.12 985.1 555.97 555.97 133,000.00 133,000.00 133,000.00 133,000.00 Apatitskaya CHPP TG-1,3,4 972.12 985.1 487.19 487.19 133,000.00 133,000.00 - - Knyazhegubskaya HPP-11 (Niva 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 HPPs Cascade) Niva HPP-1 (Niva HPPs Cascade) 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Niva HPP-2 (Niva HPPs Cascade) 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Niva HPP-3 (Niva HPPs Cascade) 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Verkhne-Tulomskaya HPP (Tuloma & Serebryanskiye HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Nizhne-Tulomskaya HPP (Tuloma 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 & Serebryanskiye HPPs Cascade) Kaitakoski HPP (Paz HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) 34

Electricity tariff, Capacity tariff, RUB/MWh (excluding VAT) RUB/MW/month (excluding VAT) Approved by Approved by Approved by the Approved by the Power plant the FTS Russia the FAS Russia FTS Russia FAS Russia for 2015 for 2016* for 2015 for 2016* From From From From From Jan From Jul From From Jul Jan 01 Jul 01 Jan 01 Jul 01 01 01 Jan 01 01 2015 2015 2016 2016 2015 2015 2016 2016 Yaniskoski HPP (Paz HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Rayakoski HPP (Paz HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Hevoskoski HPP (Paz HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Borisoglebskaya HPP (Paz HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Kumskaya HPP (Niva HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Iovskaya HPP (Niva HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Serebryanskaya HPP-1 (Tuloma & 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Serebryanskiye HPPs Cascade) Serebryanskaya HPP-2 (Tuloma & 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Serebryanskiye HPPs Cascade) Verkhne-Teriberskaya HPP (Tuloma & Serebryanskiye HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Nizhne-Teriberskaya HPP (Tuloma & Serebryanskiye HPPs 19.09 19.39 19.39 22.85 81,298.22 81,984.19 81,984.19 87,986.87 Cascade) Karelsky Branch Petrozavodskaya CHPP TG-1,2,3 1,060.55 1,060.55 911.61 911.61 133,000.00 133,000.00 133,000.00 133,000.00 Matkozhnenskaya HPP (Vyg - - 19.78 22.98 - - 174,809.34 188,090.81 HPPs Cascade) Vygostrovskaya HPP (Vyg HPPs - - 19.78 22.98 - - 174,809.34 188,090.81 Cascade) Belomorskaya HPP (Vyg HPPs - - 19.78 22.98 - - 174,809.34 188,090.81 Cascade) Palokorgskaya HPP (Vyg HPPs - - 19.78 22.98 - - 174,809.34 188,090.81 Cascade) Kondopozhskaya HPP (Suna HPPs - - 19.24 24.18 - - 143,630.07 165,279.03 Cascade) Palieozerskaya HPP (Suna HPPs - - 19.24 24.18 - - 143,630.07 165,279.03 Cascade) Putkinskaya HPP (Kem HPPs - - 19.71 23.23 - - 180,732.81 191,238.32 Cascade) Poduzhemskaya HPP (Kem HPPs - - 19.71 23.23 - - 180,732.81 191,238.32 Cascade) Yushkozerskaya HPP (Kem HPPs - - 19.71 23.23 - - 180,732.81 191,238.32 Cascade) Krivoporozhskaya HPP (Kem - - 19.71 23.23 - - 180,732.81 191,238.32 HPPs Cascade) * The electricity tariff reduction at CHPP in 2016 is associated with the transition of JSC «TGC-1» to the "physical" distribution method of fuel in the combined-heat-and-power generation as from January 1, 2016. Heat tariffs are approved by the regional regulating entities of St. Petersburg, Leningrad Oblast, the Republic of Karelia and Murmansk Oblast by consumer groups. Table 22. Yearly average heat tariffs in 2012-2016, RUB Gcal 2012 2013 2014 2015 2016 Nevsky Branch 892.37 1,011.33 1,117.89 1,179.87 1,294.21 St. Petersburg 887.31 1,005.91 1,112.70 1,174.79 1,295.40 Leningrad Oblast* 1,133.86 1,257.50 1,364.13 1,406.87 1,208.60 Karelsky Branch 626.74 688.54 738.75 1,538.91 ** 1,628.76 Kolsky Branch 964.95 1,051.73 1,067.30 1,020.34 1,078.09 JSC «TGC-1» 877.22 989.74 1,087.56 1,198.03 1,306.54

PJSC «Murmanskaya CHPP» 1,730.85 1,960.27 2,167.75 2,294.09 2,412.40 * For Leningrad Oblast, yearly average tariffs for 2016 were given excluding Dubrovskaya CHPP LTD, which started to generate and supply heat as from November 1, 2015. ** Given the status of a single heat supplier *** Excluding transit through heating grids of JSC Murmanenergosbyt

Fig. 12. Electricity sale price profile for the DAM in 2015, RUB/MWh Table 23. Electricity sale revenue in 2014-2015, market sector breakdown for Company Branches, RUB mln JSC «TGC-1» Nevsky Branch Karelsky Branch Kolsky Branch 2015 RC 1,385.2 1,382.3 0.0 2.9 DAM 23,955.5 14,128.0 3,684.6 6,142.9 BM 678.4 333.9 40.5 304.0 Exports 1,131.7 390.2 0.0 741.5 Retail 87.9 0.1 82.9 4.9 TOTAL 27,238.7 16,234.5 3,808.0 7,196.2 2014 RC 3,438.0 3,223.4 189.9 24.7 DAM 22,062.5 14,377.2 3,024.8 4,660.5 BM 695.2 365.7 40.6 288.9 Exports 717.3 93.3 0.0 624.0 Retail 80.4 0.2 75.7 4.5 TOTAL 26,993.4 18,059.8 3,331.0 5,602.6 Table 24. Capacity sale revenue in 2014-2015, market sector breakdown for Company Branches, RUB mln JSC «TGC-1» Nevsky Branch Karelsky Branch Kolsky Branch 2015 RC 353.6 283.9 0.0 69.7 CCO 862.5 614.9 0.0 247.6 CDA 7,862.3 7,862.3 0.0 0.0 FM 2,348.9 2,001.4 330.4 17.1 TOTAL 11,427.3 10,762.5 330.4 334.4 2014 RC 1,852.8 1,059.6 327.0 466.2 CCO 4,126.4 2,540.8 551.4 1,034.2 CDA 6,952.8 6,952.8 0.0 0.0 FM 272.8 145.5 0.0 127.3 TOTAL 13,204.8 10,698.7 878.4 1,627.7

5.1.1. Electricity and capacity purchase The main reasons for the purchase of electricity in 2015 were the following: 36

Export sales; Own electricity consumption. The main reasons for the purchase of capacity in 2015 were the following:  Own consumption in excess of the maximum consumption above the standard (including for export sales);  Securing obligations under RC. Table 25. Electricity and capacity purchase in 2014-2015 2015 2014 Electricity purchase mln kWh RUB mln mln kWh RUB mln Nevsky Branch 3,120.1 3,057.0 3,138.4 3,130.2 Karelsky Branch 292.7 281.8 295.9 295.8 Kolsky Branch 1,630.7 1,166.3 1,628.5 1,307.8 TOTAL 5,043.5 4,505.1 5,062.8 4,733.8 Capacity purchases, MW MW/month RUB mln MW/month RUB mln Nevsky Branch 42.6 128.5 21.0 61.3 Karelsky Branch 3.0 7.7 2.0 6.8 Kolsky Branch 82.0 249.3 86.0 220.4 TOTAL 127.6 385.5 109.0 288.5

5.1.2. Electricity exports Thanks to the unique geographical location of its power plants, JSC «TGC-1» is able to export a portion of the electricity generated. Electricity is exported to Finland and Norway.

Fig. 13. Geography of the electricity exports of JSC «TGC-1» To Finland, electricity is supplied from:  Buslines of the Svetogorskaya HPP of the Vuoksa HPPs Cascade in Leningrad Oblast via the 110 kV line Imatra-1. The maximum supply capacity is 110 MW.  Buslines of the Kaitakoski HPP of the Paz HPPs Cascade in Murmansk Oblast via the 110 kV line L-82. The maximum supply capacity during flood is 70-75 MW. To Norway, electricity is supplied from:

 Buslines of the Borisoglebskaya HPP of the Paz HPPs Cascade in Murmansk Oblast via the 154 kV line L-225. The maximum supply capacity may reach 56 MW, but normal operation capacity is 28 MW. In 2015, the actual volume of export sales of JSC «TGC-1» was 633.739 mln kWh, which was an increase by 30.5% as compared to 2014. Pricing in export contracts is dependent on prices of the electricity spot market of the Nord Pool stock exchange. Current price situation and euro growth against the Russian ruble were the main reasons for increase of the Company export sales. Table 26. Export contracts Contract Contractor Country Contract date Valid Fortum Power and Heat Finland December 4, 2014 Valid RAO Nordic Oy * Norway October 31, 2012 Valid RAO Nordic Oy * Finland 10/31/2012 * Contracts with RAO Nordic Oy have involved the agent — PJSC “Inter RAO” acting on its own behalf, but at the expense of JSC «TGC-1» (the principal).

Fig. 14. Export profile for 2011-2015 The factors that contributed to electricity export sales in 2015 were the price level in the Nord Pool electricity market and the significant change in euro exchange rate against the Russian ruble. Export development prospects depend on price levels in the Nord Pool electricity market and, accordingly, the level of interest of foreign buyers in Russian electricity. Export sales performance also depends on the factors impacting the export trade potential. Currently, these factors include:  Limited grid transmission capacity of the grids;  Utilisation modes of the power plants as determined by the System Operator of the United Power System;  Increase in tariffs for grid company services;  Reservation of capacity paid for in the WECM to secure exports (including the expensive capacity under CDA);  Legal gaps in the export activities in the WECM;  The euro exchange rate against the Russian ruble.

5.2. Heat sales In 2015, the heat useful output from the power plants of JSC «TGC-1» to consumers including PJSC «Murmanskaya CHPP» was 23,507 thousand Gcal, which is 3.9% less than in 2014. The heat useful output excluding PJSC «Murmanskaya CHPP» was 21,523 thousand Gcal. As of year-end 2015, revenue from the heat supplied by JSC «TGC-1» increased by 6.8% to RUB 26,117.6 mln Table 27. The heat useful output in 2014-2015, thousand Gcal Indicator 2015 2014 ∆ (%) Heat useful output 18,390 19,360 -5 - To consumers 16,540 17,493 -5 Nevsky Branch - Sale of losses to JSC «St. Petersburg Heating 1,850 1867 -0.9 Grid» Heat useful output 1,372 1,502 -9 - To consumers 1,204 1,376 -13 Kolsky Branch - Sale of losses to JSC Apatityenergo 72 75 -4 - Sale of losses to JSC «HHC» 25 17 47.1 - Sale of losses to JSC Apatit 71 34 108.8 Heat useful output 1,761 1,577 12 - To consumers 1,619 1,577 3 Karelsky Branch - Sale of losses to JSC Petrozavodsk Communal 142 0 100 Systems – Heating Grids Heat useful output 21,523 22,439 -4 JSC «TGC-1» - To consumers 19,363 20,446 -5 - Sale of losses 2,160 1,993 8 Heat useful output 1,984 2,028 -2 PJSC «Murmanskaya - To consumers 1,877 1,917 -2 CHPP» - Sale of losses 107 111 -3.6 Total for JSC «TGC-1» Heat useful output 23,507 24,467 -4 (including PJSC - To consumers 21,240 22,363 -5 «Murmanskaya CHPP») - Sale of losses 2,267 2,104 8

Current system of heat sales by the Company Branches

Nevsky Branch The heat sales from CHPPs of St. Petersburg and Leningrad Oblast by JSC «TGC-1» are the responsibility of the Heat Sales Directorate of the Nevsky Branch of JSC «TGC-1». Also, JSC «St. Petersburg Heating Grid» provides heat transmission services to JSC «TGC-1» from CHPPs of JSC «TGC-1» to end consumers, and purchases heat from JSC «TGC-1» to compensate for losses in the heating grids.

Kolsky Branch Heat sold from the Apatitskaya CHPP by the Kolsky Branch of JSC «TGC-1» is brought to consumers under heat supply contracts via the heating grids of JSC Apatityenergo, JSC «HHC» and JSC Apatit. For the purposes of the heat supply contracts, JSC «TGC-1» has entered into heat transmission contracts with JSC Apatityenergo, JSC «HHC» and JSC Apatit, pursuant to which JSC «TGC-1» pays for heat transit, while JSC Apatityenergo, JSC «HHC» and JSC Apatit buy heat to compensate for losses in the heating grids.

Karelsky Branch The sales of heat from the Petrozavodskaya CHPP are the responsibility of the Karelsky Branch. Before February 1, 2015, the sale of heat was provided on the boundary of balance sheet attribution and operational responsibility of JSC «TGC-1» and consumers. It should be noted that 98% of the heat was sold to the wholesale purchaser-reseller JSC PKS.

As from February 1, 2015, since JSC «TGC-1» in Karelia was given the status of a single heat supplier, all heat consumers in Petrozavodsk were switched to the direct relations with the Karelsky Branch of JSC «TGC-1». In turn, heat transmission contract and heat loss purchase contract were concluded between JSC «TGC-1» and JSC PKS as lessee of the city heating grids. A portion of heat is purchased by the Karelsky Branch from JSC Petrozavodsk Communal Systems – Heating Grids, KARTEK LLC and JSC SLAVMO. Also, from February 1, 2015, JSC «TGC-1» is a heating supplier in the territory of settlements of the Prionezhsky and Pryazhinsky Districts. Heat in the districts is purchased under supply agreements concluded with Piter-Pit LLC and JSC Petrozavodsk Communal Systems – Heating Grids, and is also generated at the boiler facilities under lease agreements.

Fig. 15. Heat useful output by JSC «TGC-1» in 2015, consumer breakdown

Table 28. Revenue from heat sales and backup heating capacity services, thousand RUB, excluding VAT* 2015 2014 ∆ (%) Nevsky Branch (including backup heating capacity services) 21,353,522 21,119,479 1.1 Kolsky Branch (including contribution for lost income) 2,213,752 2,261,415 -2.1 Karelsky Branch 2,550,291 1,080,024 136.1 JSC «TGC-1» 26,117,565 24,460,918 6.8 PJSC «Murmanskaya CHPP» (including contribution for lost income) 6,009,446 5,421,148 10.9 TGC-1 Group 32,127,011 29,882,066 7.5 * Backup heating capacity services contracts for the Nevsky Branch of JSC «TGC-1» were concluded with consumers who do not consume heat but have not disconnected their heat consuming facilities from the heating grid to resume heat consumption, if necessary. Table 29. Structure of accounts receivable for heat as of December 31, 2015, thousand RUB, including VAT (consumer group breakdown) Accounts receivable for heat Industrial Budget- Wholesale Housing and consumers and Other TOTAL dependent purchasers- utilities equivalent consumers consumers resellers infrastructure consumers Nevsky Branch 7,951,078 486,740 103,740 589,823 6,498,508 272,267 Kolsky Branch 996,943 23,243 36,057 182,360 687,896 67,387 Karelsky Branch 580,711 36,264 2,779 0 442,685 98,983 JSC «TGC-1» 9,528,732 546,247 142,576 772,183 7,629,089 438,637 PJSC «Murmanskaya 3,425,315 119,870 38,500 0 3,063,103 203,842

Accounts receivable for heat Industrial Budget- Wholesale Housing and consumers and Other TOTAL dependent purchasers- utilities equivalent consumers consumers resellers infrastructure consumers CHPP» JSC «TGC-1» including PJSC 12,954,047 666,117 181,076 772,183 10,692,192 642,479 «Murmanskaya CHPP»

Fig. 16. Structure of receivables for heat of JSC «TGC-1» as of December 31, 2015

Table 30. Current and overdue receivables for heat as of December 31, 2015, thousand RUB, including VAT Current receivables (less TOTAL Overdue receivables than 1 month) Nevsky Branch 7,951,078 2,633,919 5,317,159 Kolsky Branch 996,943 191,131 805,812 Karelsky Branch 580,711 311,425 269,286 JSC «TGC-1» 9,528,732 3,136,475 6,392,257 PJSC «Murmanskaya CHPP» 3,425,315 632,971 2,792,344 JSC «TGC-1» including PJSC 12,954,047 3,769,446 9,184,601 «Murmanskaya CHPP»

6. FUEL SUPPLY AND PROCUREMENT

6.1. Fuel supply The main types of fuel that are used by power plants of JSC «TGC-1» are as follow:  Natural gas and dry gas at the Nevsky Branch CHPPs;  Natural gas at the Petrozavodskaya CHPP of the Karelsky Branch;  Power plant coal grades D and G at the Apatitskaya CHPP of the Kolsky Branch. The backup types of fuel are as follow:  Fuel oil and power plant coal grade G at the Nevsky Branch CHPPs;  Fuel oil at the Petrozavodskaya CHPP of the Karelsky Branch. Emergency and start-up types of fuel are as follow:  Fuel oil at the Apatitskaya CHPP of the Kolsky Branch. Fuel oil is the main fuel used by PJSC «Murmanskaya CHPP». To ensure reliable fuel supply of power plants of JSC «TGC-1», uninterrupted supplies of gas, fuel oil, and coal were provided in 2015. The required fuel reserves for the target dates were prepared. Payment for the fuel supplies was made in time and without any breach of the contract terms. In 2015, power plants of JSC «TGC-1» excluding PJSC «Murmanskaya CHPP» used 4,926.65 mln cubic meters of gas, 2.7 thousand tonnes of fuel oil, and 454.3 thousand tonnes of coal for the electricity and heat output. Share of gas in the fuel balance was 94.52%, share of fuel oil — 0.06%, share of coal — 5.42%.

Fig. 17. Fuel balance structure Fig. 18. Fuel balance structure (including PJSC «Murmanskaya CHPP») (excluding PJSC «Murmanskaya CHPP»)

Table 31. Fuel balance structure in 2015, % Gas Fuel oil Coal Nevsky Branch 99.96 0.04 - Karelsky Branch 99.88 0.12 - Kolsky Branch - 0.29 99.71 Total for JSC «TGC-1» 94.52 0.06 5.42 PJSC «Murmanskaya CHPP» - 100.0 - Total for JSC «TGC-1» (including PJSC «Murmanskaya CHPP») 89.39 5.48 5.13

Main suppliers of fuel to the power plants of JSC «TGC-1» in 2015 were the following:  Gas — CJSC Gazprom Mezhregiongaz St. Petersburg;  Fuel oil — Gazpromneft Regional Sales LLC and Rosneft;  Coal — OJSC Russian Coal and SUEK-Khakasia LLC.

Main suppliers of fuel oil to PJSC «Murmanskaya CHPP» were Gazpromneft Regional Sales LLC, Unified Municipal Systems LLC, Aquamak-Processing LLC, INTEK-M LLC, Rosneft, TeploEnergoKomplekt LLC and RUTEK LLC. For the needs of CHPPs of JSC «TGC-1», the following amounts of fuel were purchased in 2015:  Coal — 235.0 thousand tonnes from OJSC Russian Coal and 174.3 thousand tonnes from SUEK-Khakasia LLC;  Fuel oil — 4.8 thousand tonnes from Rosneft and 0.9 thousand tonnes from Gazpromneft Regional Sales LLC; Table 32. Reserves, supply and consumption of fuel in 2015 Reserves as of Consumption in Reserves as of Fuel type Supply in 2015 beginning of 2015 2015 end of the period Nevsky Branch Coal (thousand tnf) 9.6 - 9.6 * - Fuel oil (thousand tnf) 153.1 2.7 4.5 ** 151.3 Gas (mln cubic m) - 4,524.0 4,524.0 - Karelsky Branch Fuel oil (thousand tnf) 16.9 2.6 2.2 *** 17.3 Gas (mln cubic m) - 404.7 404.7 Kolsky Branch Coal (thousand tnf) 113.7 418.9 454.9 77.7 Fuel oil (thousand tnf) 1.7 0.6 0.8 1.5 PJSC «Murmanskaya CHPP» Fuel oil (thousand tnf) 24.0 263.4 256.3 **** 31.1 * Transfer of coal to the Apatitskaya CHPP of the Kolsky Branch due to the removal of coal from fuel management processes of Dubrovskaya CHPP of the Nevsky Branch as from September 01, 2015; ** The fuel oil consumption in the amount of 4.5 thousand tonnes includes the fuel oil burned at the CHPPs in the amount of 1.6 thousand tonnes, the fuel oil sold to external parties in the amount of 2.7 thousand tonnes and the fuel oil written-off as oil-contaminated waste in the amount of 0.2 thousand tonnes; *** The fuel oil consumption in the amount of 2.2 thousand tonnes includes the fuel oil burned at the Petrozavodskaya CHPP in the amount of 0.4 thousand tonnes, the fuel oil transferred to boiler facilities of Pryazhinsky and Priozersky Districts in the amount of 0.7 thousand tonnes and the fuel oil sold to external parties in the amount of 1.1 thousand tonnes; **** The fuel oil consumption by PJSC «Murmanskaya CHPP» includes the fuel oil sold to external parties in the amount of 4.0 thousand tonnes Table 33. Actual fuel purchased in 2015 Purchase cost Purchase price Quantity Fuel type RUB mln RUB/1000 m3, RUB/tnf, (mln m3/thousand tnf) (VAT included) (VAT included) Nevsky Branch Gas 4,524.0 24,956.2 5,516.3 Fuel oil M-100 2.7 31.9 11,895.5 Karelsky Branch Gas 404.7 2,123.4 5,246.4 Fuel oil M-100 2.5 30.8 12,489.1 Coal 10,3 30,1 2 926,6 Firewood 0,05 32,8 616,9 Peat 1,7 3,0 1 790,7 Kolsky Branch Coal Kuzbass 56.5 128.4 2,271.5 Coal Khakasia 352.7 826.3 2,342.5 Total coal 409.2 954.7 2,332.7 Fuel oil M-100 0.6 5.9 10,500.0 PJSC «Murmanskaya CHPP» Fuel oil M-100 263.5 3,029.6 11,497.8 TOTAL: 31,198.4 Table 34. Fuel consumption in the production in 2014-2015 2015 2014 ∆ (%) for ∆ (%) for ∆ (%) in the Fuel type fuel Natural Reference % in the Natural Reference % in natural oil fuel balance fuel fuel fuel fuel fuel the fuel equivalent

consumpticonsumption balance consump consumptio balance on, mln , thousand tion, mln n, thousand m3/ tonnes of m3/ tonnes of thousand fuel thousand fuel tonnes equivalent tonnes equivalent Gas 4,522.2 5,236.9 100.0 4,993.3 5,760.9 100.0 90.6 90.9 - Nevsky Fuel 1.6 2.1 0.0 1.4 2.0 0.0 109.0 106.4 - Branch oil Coal ------Total - 5,239.0 100.0 - 5,762.9 100.0 - 90.9 - Gas 404.5 468.7 99.9 432.7 499.5 100.0 93.5 93.8 -0.1 Karelsky Fuel oil 0.4 0.6 0.1 0.0 0.0 0.0 1,425.0 1,449.0 0.1 Branch Total - 469.3 100.0 - 499.5 100.0 - 93.9 - Coal 454.3 327.4 99.7 464.7 346.5 99.8 97.7 94.5 -0.1 Kolsky Branch Fuel oil 0.7 1.0 0.3 0.6 0.8 0.2 123.4 120.9 0.1 Total - 328.4 100.0 - 347.3 100.0 - 94.5 - Gas 4,926.6 5,705.7 94.5 5,426.1 6,260.4 94.7 90.8 91.1 -0.2 Fuel oil 2.7 3.6 0.1 2.1 2.8 0.0 131.1 129.3 0.0 JSC «TGC-1» Coal 454.3 327.4 5.4 464.7 346.5 5.3 97.8 94.5 1.2 Total - 6,036.7 100.0 - 6,609.7 100.0 - 91.3 - PJSC «Murmanskay Fuel oil 251.1 346.5 100.0 265.4 363.3 100.0 94.6 95.3 - a CHPP» Table 35. Funds spent for purchase and consumption by energy resource types in 2014-2015 (RUB thousand) 2015 2014 Use Use Purchase For process For other Purchase For process For other needs needs needs needs Gas 22,948,743.5 22,939,900.6 8,842.8 24,424,673.7 24,409,733.3 14,940.4 Fuel oil 59,131.7 25,481.5 23,233.3 84,657.9 17,445.7 7,782.4 Coal 839,096.6 911,658.7 1,032.8 969,970.1 941,495.7 1,171.3 Fuel 23,846,971.8 23,877,040.8 33,108.9 25,479,301.7 25,368,674.7 23,894.1

Table 36. Quantity of each of the energy resource types used in 2015, by volume and value* Consumption Consumption Type of energy resource Unit by volume by value Motor gasoline 937.4 thousand litres 26,319.3 Diesel 727.3 thousand litres 19,970.8 Fuel oil 2,711.8 tonnes 25,709.6 thousand cubic Natural gas 4,926,895.1 22,939,900.6 metres Coal 463,628 tonnes 911,658.7 Peat 1,317 tonnes 2,362.2 thousand cubic Firewood 46.5 29,639.1 metres * No types of energy resources except those given in the Table were consumed or used in the reporting year.

6.2. Procurement In 2015, procurement in JSC «TGC-1» (hereinafter referred to as the "Company") was regulated by the following documents:  Federal Law 'On Procurement of Goods, Works and Services by Certain Types of Legal Entities' No.223-FZ dated July 18, 2011;  Federal Law 'On Protection of Competition' No.135-FZ dated July 26, 2006;  Code of Administrative Offences of the Russian Federation No.195-FZ dated December 30, 2001;  RF Government Decree 'On Approval of the List of Goods, Works and Services, Procurement of Which is Carried Out in Electronic Form' No.616 dated June 21, 2012;  RF Government Decree 'On Approval of the Regulations on Disclosure of Information on Procurement on the Official website' No.908 dated September 10, 2012;

 RF Government Decree 'On peculiarities of participation of small and medium enterprises in the procurement of goods, works and services of certain kinds of legal entities' No.1352 dated December 11, 2014;  Regulations on procurement of goods, works and services of the Company, as approved by resolution of the Board of Directors dated July 18, 2013 (Minutes No. 2) and put into effect by the Company order No.82-a dated July 18, 2013, as amended by resolution of the Board of Directors dated July 28, 2015 (Minutes No. 2) and put into effect by the Company order No. 98-a dated July 28, 2015, as amended by resolution of the Board of Directors dated October 02, 2015 (Minutes No. 4) and put into effect by the Company order No. 134 dated October 02, 2015;  Regulations 'On the Committee on Procurement of the Company' as approved by resolution of the Board of Directors dated October 28, 2011 (Minutes No. 6) and put into effect by the Order of the General Director No. 156 dated November 09, 2011;  Rules and Procedures of the Committee on Procurement of JSC «TGC-1» dated May 05, 2012 (Minutes No.20);  Regulations 'On the Procedure for Preparation and Conclusion of Contracts on behalf of the Company and Contract Administration' as approved by the Order of the General Director of the Company No. 5 dated January 28, 2015 (as revised and approved by the Orders of the General Director No. 26 dated February 18, 2010, No. 84 dated May 28, 2012, No. 121 dated October 15, 2013);  Rules for the Gas Procurement Management for the Needs of JSC «TGC-1» No. 120 dated August 20, 2014;  Provisional rules for Marketing Research of Certain Types of Goods, Works and Services Procured by JSC «TGC-1» No. 90 dated August 14, 2013;  Annual Comprehensive Procurement Program (the ACPP) for 2015 approved by resolutions of the Board of Directors of the Company:  As of September 15, 2014 (Minutes No. 5) as relates to top-priority purchases;  As of February 27, 2015 (Minutes No. 13) — the final part of the ACPP. The main objective of the Company’s procurement activities is to cover the Company’s need in goods, labours and services in a timely fashion and in full, and to improve the order placement procedure and efficiency. The main principles of the Company’s procurement policy in 2015 were the following:  Creating conditions for covering the Company’s need in goods, labour and services in a timely fashion and in full, in compliance with the requirements for prices, quality, and reliability;  Ensuring safe operation of power engineering facilities;  Ensuring targeted and economically efficient spending of Company’s funds on goods, labour and services, and taking measures aimed at cutting the Company’s costs;  Ensuring equality, fairness, and freedom from discrimination and unreasoned restrictions of competition in relation to participants of the procurement processes;  Ensuring information openness of the procurement to a degree sufficient for prospective contractors, the state, and the public;  Ensuring due care and diligence in selecting contractors. The Committee on Procurement was responsible for permission of procurement of products, monitoring and coordination of the procurement activities. The activities of the Committee on Procurement were regulated by the Regulations of the Standing Committee on Procurement of the Company as approved by resolution of the Board of Directors and put into effect by the Order of the General Director No. 82-a dated July 18, 2013. The Purchasing Division was responsible for the Company's purchasing activities in 2015. Purchasing procedures in the interest of the business units of the Company were performed by the tender group of the Purchasing Division in accordance with the ACPP of the Company as approved by resolution of the Board of Directors. 45

In accordance with the applicable procedure, and pursuant to the Regulations on procurement of goods, works and services of the Company, and the Order of the General Director of the Company No. 5 dated January 28, 2015, the right to act as Purchase Organiser on behalf of the Company in individual purchases was granted to the Karelsky Branch, the Kolsky Branch and a third party organiser, PPTK LLC, Moscow, pursuant to the Agency Agreement No. 20381 dated February 13, 2009. The Annual Comprehensive Procurement Program for 2015 was fulfilled by 99%. The total share of competitive purchases in the 2015 purchases amounted to 61%, 100% of which were open procedures. Of 1,241 regulated competitive purchases, 1,228 were effected, which amounted to 99%. The initial cost of the lots was RUB 6,232.85 mln, however, the competitive bidding enabled reducing the cost of procurement of materials, labour, and services for the Company significantly. The economic effect of the competitive purchases amounted to RUB 471.58 mln. Pursuant to the RF Government Decree No.1352 dated December 11, 2014 'On peculiarities of participation of small and medium enterprises in the procurement of goods, works and services of certain kinds of legal entities' (as amended June 26, 2015 under No. 641), the annual volume of purchases from small and medium enterprises (hereinafter - SME) in 2015 was established in the amount not less than 9% of the total annual value of contracts concluded on results of procurement. The total annual value of contracts concluded with SME on results of procurement with only SME as participants is not less than 5% of the total annual value of contracts concluded on results of procurement. The plan for procurement from SME as established by the RF Government Decree was performed in full by the Company in 2015. The annual value of contracts concluded with SME in the period from July 01 till December 31, 2015, on results of procurement, was:  40.25% (of the volume of procurement in RUB) — on results of procurement with any persons, including SME, as participants;  6.85% (of the volume of procurement in RUB) — on results of procurement with only SME as participants. In 2015, Internet technologies and modern telecommunications were used in competitive purchases.  All information about the planned purchases (Purchase Plan) was published in the prescribed form on the official website http://zakupki.gov.ru;  All open competitive purchases were carried out on the official website http://zakupki.gov.ru, with the full set of documents on open competitive procedures posted to the Company website. Pursuant to the RF Government Decree 'On Approval of the List of Goods, Works and Services, Procurement of Which is Carried Out in Electronic Form' No.616 dated June 21, 2012, on the GasNeftetorg trading system website at http://www.gazneftetorg.ru/, 330 purchases were made in 2015. Copies of all publications on purchases and their results were published at www.tgс1.ru in the Tenders and Competitions section. No advisory services regarding the implementation of competitive and regulated non-competitive purchases were required in 2015. In 2015, the procedure organiser complied with the requirement, under which suppliers of products (goods, labour, services) must provide certificates of mandatory and voluntary certification systems in accordance with the Federal Law 'On Technical Regulation' No. 184-FZ dated December 27, 2002. Also, the requirement of the Order of the Ministry of Regional Development of the Russian Federation of 30.12.2009 № 624 "On approval of list of works related to engineering surveys, preparation of project documentation for construction, reconstruction, repair of capital construction, which affect the security of capital construction" of the provision to members of the purchasing

procedures of certificates (permits) for certain types of work affecting safety, as issued by self- regulatory organisations. In 2015, the experts of the Purchasing Division were given the required special training in competitive procedures management, as well as the retraining program pursuant to the effective Federal Law 'On Procurement of Goods, Works and Services by Certain Types of Legal Entities' No.223-FZ dated July 18, 2011.

7. INVESTMENT ACTIVITY OF JSC «TGC-1»

7.1. Overview of the implementation of the investment program of JSC «TGC-1» in 2015 Investment program of JSC «TGC-1» for 2015 was approved by the Board of Directors of the Company as of December 30, 2014 (Minutes No. 12 dated December 30, 2014). During 2015, the Board of Directors approved 2 revisions of the investment program: Minutes No. 16 dated April 24, 2015 and Minutes No. 3 dated September 03, 2015. In 2015, the implementation of the large-scale investment program of JSC «TGC-1» was continued. Company's investment activities covered the following areas:  Implementation of new generating capacities construction projects;  Improvement of equipment reliability and efficiency;  Replacement of outdated power equipment;  Compliance with the requirements of supervisory and regulatory bodies and NP "Market Council" for quantity and quality of measurements at all the Company's delivery point clusters (AIMEMS), JSC SO UPS to the System of technological data exchange with the automated system of the system operator (SO);  Ensuring of safe operation of the power facilities;  Assimilation of new technology. In 2015, the actual funding of the investment program was RUB 7,521 mln including VAT, of which:  RUB 6,901 mln — Payment to suppliers and contractors under contracts made for the purposes of the investment program;  RUB 442 mln — Interest paid on loans taken out for the purposes of the investment projects;  RUB 179 mln — Funding of project management costs (including payroll). The cost of performed work and delivered equipment amounted to RUB 6,836 excluding VAT or 81% of the target value, the fixed asset commissioning amounted to RUB 4,215 mln excluding VAT or 49% of the target value approved by the Board of Directors of JSC «TGC-1» as of August 31, 2015 (Minutes No. 3 dated September 3, 2015).

Fig. 19. Funding, implementation, and commissioning of fixed assets under the 2014-2015 investment program

Table 37. Funding, implementation, and commissioning under investment projects in 2015 Implementation, Commissioning of Funding, RUB mln, Investment Project class RUB mln, fixed assets, RUB including VAT excluding VAT mln, excluding VAT 1. Strategic 3,234 2,950 983 Construction of the IAB and FOOF (the emergency fuel oil and oil-fired facilities) at the Pervomayskaya CHPP 3,129 2,872 983 Upgrade of the Verkhne-Tulomskaya HPP 30 7 0 Renovation of PP-2 at the Centralnaya CHPP of the Nevsky Branch of JSC «TGC-1» 68 65 0 Upgrade of the Avtovskaya CHPP 7 6 0 2. Efficiency 62 58 180 3. Mandatory 1,225 977 1,361 4. Reliability 1,190 997 1,323 5. Other 1,368 1,412 368 Interest on loans 442 442 0 Total 7,521 6,836 4,215 The investment program funding sources in 2015 remained at the level of 2014, with depreciation of 94% and other own sources of 6%. Table 38. Key projects of JSC «TGC-1» involving commissioning of new capacity Capacity, Target/ Brief description MW actual year of commissioning Pravoberezhnaya CHPP Construction of CCGT unit 463 2012 Yuzhnaya CHPP Construction of CCGT unit 457 2011 Pervomayskaya CHPP Construction of CCGT units 2×180 2010-2011 Replacement of all hydroelectric Lesogorskaya HPP 4×29.5 2009-2013 units Replacement of all hydroelectric Svetogorskaya HPP 4×30.5 2009-2012 units Commissioning of GTU at the Centralnaya CHPP 2×50 2016 CHPP The key to the implementation of the investment program of JSC «TGC-1» was the strategic decision to build new capacities mainly with the use of the combined-cycle technology, or combined- cycle gas turbines (CCGT). Although the cost of maintenance and repair of installations using the steam turbine units (STU) is lower than with combined-cycle technology, the production of electricity and heat on this type of equipment has been found so far the most cost-effective and environmentally friendly way of generation. Combined-cycle units are those where the heat of exhaust gas of the gas-turbine unit (GTU) is used for electricity generation in a steam-turbine cycle. The main benefits will be greater electricity generation efficiency, lower consumption of cooling water as compared to STU plants, high environmental performance and good flexibility. This is associated with additional electricity generation in gas turbines and recovery of low-temperature heat in the heat-producing steam turbine. Another important feature of CCGT is a simple design of the steam turbine and waste heat recovery unit, which enables reducing the period of construction and commissioning of new facilities.

Fig. 20. Structure of capacity commissioned in 2009-2016

7.2. Impact of the key projects in 2015 In 2015, work was continued on the following major projects: Pervomayskaya CHPP, Centralnaya CHPP, the Tuloma & Serebryanskiye HPPs Cascade of the Kolsky Branch.

Pervomayskaya CHPP In the continued renovation of the Pervomayskaya CHPP, high-priority projects of construction of the integrated auxiliary building (the new hot-water boiler facility with auxiliary equipment) and the emergency diesel and fuel oil facilities were approved for implementation by resolution of the Board of Directors (minutes No.4 dated September 12, 2012). The implementation of these projects is focused on further improving and increasing reliability of the heat supply system in the industrial area and housing sector adjacent to the Pervomayskaya CHPP in order to cover the existing heat loads. Construction of the integrated auxiliary building (IAB) Heat capacity to be commissioned 679 Gcal/hr EPC contractor JSC EMK-Engineering JSC Dorogobuzhkotlomash, Supplier of the main power equipment CJSC Energomash (Belgorod) – BZEM Estimated cost of construction RUB 4,852 mln excluding VAT Estimated cost of construction including the RUB 7,486 mln excluding VAT increase (2015) Scheduled commissioning year 2016 The project provides for the construction of the integrated auxiliary building (IAB) with supporting buildings and structures with subsequent decommissioning of outdated and obsolete steam turbine and auxiliary equipment of the operating part of the Pervomayskaya CHPP. During the first stage of IAB project, construction of the following facilities is performed:  Integrated Auxiliary Building (IAB) comprised of 5 hot-water boilers and 3 steam boilers, and water treatment systems;  Outdoor auxiliary power transformer;  Steam boiler chimney;  Hot-water boiler chimney;  2 process pipe racks;  5 storage tanks 5,000 m3 each, overflow tanks 2х400 m3, sealant tank of 50 m3;  Water treatment tanks;

 IAB run-off balancing tank of 400 m3;  Crossway connection between the IAB and the Main Building of CCGT-180 power units. As of year-end 2015, project design documentation for the IAB construction is prepared, with a positive opinion of the RF State Expert Evaluation Department and a building permit received. The full set of preparatory work is completed. As part of the main construction work, the installation of the IAB frame is completed, including operations to improve the fire resistance of steel structures of the frame, floor slabs are put in place, wall panels and window frames are installed. All main and auxiliary equipment for the IAB is in place. Steam boilers 1 and 2, hot-water boilers 1, 2, 3 and 4 are installed. First firing of burner units at the hot-water boiler 1 and steam boiler 1 is provided. Installation of thermal insulation on steam and hot-water boilers is in progress. Installation and hydraulic testing of main water pipelines are performed. Pipeline is installed; system water pipeline flushing is commenced. Water treatment equipment and pipeline installation is in progress. Installation of main pump and heat exchange equipment of steam and hot-water boilers is complete. Installation of 0.4 kV BOP switchgear, packaged 0.6 kV OSWG, current leads between RT-4 to 0.6 kV OSWG is closing its completion, as well as installation of the operating DC voltage system. Chimney installation is almost finished. 5 new storage tanks are installed. Commissioning of the project has been scheduled for Q1 2016. During the second stage of IAB project, construction of the following facilities is performed:  The expandable portion of the main building of CCGT-180 designed to organise the repair area;  Modular automated power plant, container type;  Cargo check-point;  Administrative building combined with check-point and canteen;  Renovation of the CHPP heat distribution scheme. During the second stage of IAB project, the installation of the metal frame of the administrative building is continued (the building with check-point and canteen); internal walls, brick masonry exterior walls and internal utility systems are installed. Installation of cast-in-place floor slabs and main CCGT-180 building expansion frame is continued; basement and heating systems are installed, roofing work is continued. Construction of the emergency fuel oil and oil-fired facilities (FOOF) EPC contractor JSC EMK-Engineering Supplier of the main power ARP-Komplekt — TN LLC (loading/unloading rack equipment equipment) Estimated cost of construction RUB 880 mln excluding VAT Commissioning year 2014 Construction of the emergency fuel oil and oil-fired facilities will enable receiving and shipping liquid fuel and fuel oil from/to the rail and motor road transport, and will provide storage of emergency reserve of diesel fuel for the needs of the emergency fuel supply of gas turbines at the CCGT-180 generating units of the plants 1 and 2. Also, the project provides for construction of fuel oil consumed tanks for the IAB. As part of the FOOF project, construction and installation work is completed, and the facility is commissioned.

Centralnaya CHPP The investment project of the Centralnaya CHPP provides for construction of 110/6 kV ISG on the site of PP-2 of the Centralnaya CHPP and two GTU-CHPP generating units with capacity of 50 MW each on the site of PP-1 of the Centralnaya CHPP to cover growing heat and electricity loads, replacement of outdated and obsolete and auxiliary equipment, increase in reliability and economical efficiency of the Centralnaya CHPP.

Construction of 110/6 kV ISG of PP-2 of the Centralnaya CHPP Construction cost RUB 3,987 mln excluding VAT Commissioning year 2014 The project of construction of 110/6 kV ISG on the site of PP-2 of the Centralnaya CHPP provides for a gradual replacement of existing worn out outdoor switchgear with a possibility of construction and connection of new generating capacities. The scheduled technical solutions will improve the reliability of power supply not only for consumers connected to the switchgear of PP-2 of the Centralnaya CHPP through 6 kV lines, but also the whole city centre by expanding the 110 kV grid. The 110/6 kV ISG of the PP-2 of the Centralnaya CHPP was commissioned by the Order of JSC «TGC-1» (dated July 29, 2014) as from July 25, 2014. Construction of GTU at the CHPP 2x50 MW Electric capacity to be commissioned 100 MW Heat capacity to be commissioned 120 Gcal/hr Estimated cost of construction RUB 8,685 mln excluding VAT Scheduled commissioning year 2016

At the PP-2 of Centralnaya CHPP, construction of 2 GTUs at the CHPP with electric capacity of 50 MW each is implemented; scheduled commissioning year is 2016. The implementation of this project will enable the reliability and quality of heat and electricity supply in the area of operations of the PP-1 of Centralnaya CHPP-2. The project is implemented under SPV scheme with subsequent transfer of the facility to JSC «TGC-1» on the basis of a lease. Mezhregionenergostroy LLC performs functions of Client and Developer in this project. In 2015, during the construction of 2 GTUs at the CHPP with electric capacity of 50 MW each, the following key events were performed: Main building:  Installation of waste heat recovery units 1 and 2, and chimney at the backup hot-water boiler is completed; modular transformers and standby auxiliary transformer are in place; installation, start-up and commissioning operations at the Main Building pipeline are completed. 110 kV ISG:  Installation and balancing operations of 10 kV switchgear and 0.4 BOP switchgear units are performed. Water treatment system building:  Work on the foundation for the tank farm is completed, tanks are installed on foundations. Gas conditioning station and gas distribution station (GCS - GDS):  Construction of GCS - GDS modular building is completed, along with installation of intra- site high-pressure gas pipeline from Rybinskaya Street; start-up and commissioning operations are completed; construction of medium-pressure GDS modular building is completed, with installation of indoor equipment; the Report on Conformity of the constructed/renovated facility to the technical regulation and project design documentation requirements (ROC) is obtained. Pumping station for fresh water and process and fire-fighting water pipelines:  Assembly of heat mechanical equipment inside the building is completed;  Construction of the oil storage building is completed.

The Tuloma HPPs Cascade and the Serebryanskiye HPPs Cascade of the Kolsky Branch The high-priority project of “Upgrade of the Verkhne-Tulomskaya HPP of the Tuloma & Serebryanskiye HPPs Cascade of the Kolsky Branch” with step-by-step replacement of hydroelectric units was approved by resolution of the Board of Directors (Minutes No.16 dated February 27, 2014). The investment project consists of 2 stages:  Replacement of 2 hydroelectric units and common plant systems;  Replacement of the 2 other units. The maximum cost of implementation of the first stage is RUB 3,809 mln including VAT. As a result of the project, the installed capacity of the plant will increase to 288 MW. This project will make it possible for JSC «TGC-1» to retain the current share of the electricity market in Murmansk Oblast, increase the operational reliability and durability of hydroelectric units of the hydroelectric power plant (HPP), increase the economic efficiency of the HPP, reduce the cost of maintenance of the equipment during the operation and ensure compliance of the upgraded HPP equipment with the applicable requirements for reliability and safety. In 2015, the technical requirements for hydro turbines and hydroelectric generating equipment, the technical requirements for electrical and mechanical equipment, and the terms of reference for design of APCS of the Verkhne-Tulomskaya HPP were approved.

Investment projects of reliability improvement and AUMS During the implementation of projects of refurbishment and renovation of power plants for providing the required reliability and improving the operational efficiency of equipment in 2015, the following major projects were performed: Nevsky Branch At the Avtovskaya CHPP:  Peak-load hot-water boiler PTVM-100 of the plant 4 put into operation after the refurbishment operations;  Heat metering stations renovated at the CHPP headers. At the Vasileostrovskaya CHPP:  Cogeneration plant put into operation after the renovation;  Diagnostics system at TG-3 and FWP-6 (turbine generator 3 and feed water pump 6) installed and upgraded. At the Vyborgskaya CHPP:  Development of the oil content monitoring system for effluent completed;  Installation of submersible circulating pump in the intake chamber of the river-water pump house 1 completed. At the Dubrovskaya CHPP:  Fuel oil handling equipment put into operation after the upgrade work to cease using the solid fuel. At the Vuoksa HPPs Cascade:  Upstream facilities at the Lesogorskaya and Svetogorskaya HPPs put into operation as part of upgrade of hydraulic structures. At the Ladoga HPPs Cascade:  Transformer GT-3 at the Volkhovskaya HPP put into operation as part of the project of replacement of compound-filled and oil-filled bushings with solid insulation bushings;  ACS (automatic control system) at the hydroelectric unit 7 at the Volkhovskaya HPP put into operation. At the Pravoberezhnaya CHPP:

 Work completed and fixed assets commissioned under the project of 'Construction of a make- up water pumping facility with fish barriers';  The organisation of metering station for heat and heat transfer medium at the boundary point on the inplant communication Nevskaya between the Pravoberezhnaya CHPP and JSC «St. Petersburg Heating Grid» completed. At the Narvskaya HPP:  Renovation of hydroelectric unit 2 control system with implementation of unit level and plant level of APCS at the Narvskaya HPP;  Service water system for the hydroelectric unit 2 put into operation after the renovation. At the Pervomayskaya CHPP:  System to return foul condensate to water/steam circuits of the units CCGT-180 at the Pervomayskaya CHPP commissioned. At the Severnaya CHPP:  Main steam line of unit 2 commissioned;  Fast-speed arc protection is fitted at the 6-10 kV swithchgear. At the Centralnaya CHPP:  Relay Protection and Automatic Equipment at the 110/6 kV ISG of the PP-2 installed;  Relay protection 110 kV of the primary equipment at the lines Moskovskaya -1+K112, Moskovskaya -2+K-113 at the PP-2 put into operation;  Heating main section Soyedinitelnaya at the PP-3 put into operation;  System water pipeline of the boilers PTVM-100 of the plants 1, 2, 3 at the PP-2 replaced. At the Yuzhnaya CHPP:  Foam- and water-based fire-fighting pipelines of the fuel oil tanks at the Yuzhnaya CHPP renovated;  Water discharge system for the chemical water cleaning filter loosening at the IAB of the Yuzhnaya CHPP;  Fire department building put into operation after the renovation. Karelsky Branch  Hydroelectric unit excitation systems at the Palieozerskaya HPP of the Suna HPPs Cascade renovated;  Renovation of auxiliary grid completed, with a possibility to connect diesel generator at the Belomorskaya HPP of the Vyg HPPs Cascade;  Protection of open metal conduits of the HPP-1 from the gap with standby and repair gates at the intake house completed;  Renovation of the Koykora dam completed. Kolsky Branch  Coal depot at the Apatitskaya CHPP commissioned;  Upgrade of the electrical measurement systems G-1 and G-2 completed, with installation of new transformers and laying of small wiring cables at the Verkhne-Teriberskaya HPP and Nizhne-Teriberskaya HPP;  Shaft whipping control system at the GT 3 put into operation at the Niva HPP-2;  Water treatment facility renovation projects completed at the Serebryanskaya HPP-2, Verkhne-Teriberskaya HPP, Nizhne-Teriberskaya HPP, and Iovskaya HPP. As a result of the AUMS activities (Automated Utility Metering System), in 2015:  Renovation provided for the system of technological data exchange with the automated system of the system operator at the Matkozhnenskaya HPP, Vygostrovskaya HPP, Belomorskaya HPP and Palokorgskaya HPP of the Vyg HPPs Cascade of the Karelsky Branch.  AIMEMS at the Narvskaya HPP of the Nevsky Branch was put into operation;

 Automated system of the system operator was implemented at the Hevoskoski HPP and Borisoglebskaya HPP of the Paz HPPs Cascade and Apatitskaya CHPP of the Kolsky Branch;  AIMEMS at the Kumskaya HPP, Iovskaya HPP, Knyazhegubskaya HPP of the Niva HPPs Cascade of Kolsky Branch was put into operation; Implementation of these projects has allowed lowering penalties, and causing the measurement, collection, processing, visualisation and transmission of telecontrol information for Branches of JSC SO UPS, as well as the supervisory control of facilities and meeting the requirements of JSC TSA and NP "Market Council" as required for the inclusion in the structure of the WECM and to receive data on electricity generation and consumption. Also, in 2015, in all the business units of the Company, projects for upgrade and development of new technical security equipment aimed at bringing the technical resistance and anti-terrorism security of facilities of JSC «TGC-1» to the uniform standards of PJSC «GAZPROM» and RD 78.36.006-2005 of the RF Interior Ministry.

7.3. New Systems and Technology The biggest jobs as part of IT Infrastructure projects in 2015 were the following:  Fibre optic communication line Niva HPP-1 — Apatitskaya CHPP, Verkhne-Tulomskaya HPP — Substation 21 (L163/164) of the Kolsky Branch built and commissioned;  Upgrade of the SCS at the CHPP-8 of the Nevsky Branch provided. Also, development and upgrade activities on control systems, servers, network devices and/or peripherals, storage and backup systems, software, communications and telecommunications systems, and enterprise security systems were carried out. On the results of projects implemented for the Corporate Control Systems, the following work was performed:  Upgrade of the automated data systems for operational information on energy generation and consumption by Nevsky Branch businesses;  Expansion and addition of the IS Income and Expenditure Control;  Development of performance and cost accounting system for the Operation and Technical Departments at the CHPPs of the Nevsky Branch of JSC «TGC-1».

7.4. Key objectives of the investment activities in 2016 In 2016, the implementation of the investment program of JSC «TGC-1» will be focused on the completion of obligations under Capacity Supply Agreements, renovation and refurbishment of the existing generation and auxiliary equipment, and replacement of outdated power equipment. Key objectives of the Company's investment activities in 2016:  Completion of construction of the IAB at the Pervomayskaya CHPP, commissioning;  Continuation of construction and installation operations and beginning of the supply of equipment for the upgrade of Verkhne-Tulomskaya HPP;  Completion of the second stage of IAB construction at the Pervomayskaya CHPP for complete decommissioning of generation equipment of the old part of the Pervomayskaya CHPP, the buildings and structures;  Performance of work and supply of equipment for the technical connection of the Severnaya CHPP-21, Avtovskaya CHPP, Pravoberezhnaya CHPP and Centralnaya CHPP;  Improvement of reliability of the HPP and CHPP equipment;  Commissioning of the AUMS, telemechanical, and communications facilities. In terms of the implementation of project classes 3.1 'Mandatory', 4 'Reliability', 5.1, 5.2, 5.3 'Other reliability', 5.6 'Technical security equipment', the following is planned for 2016:  Implementation of projects to ensure the specified reliability level and the improvement of equipment performance, increasing of heat efficiency and saving, cutting of costs associated with equipment operation, and cutting of penalties and contingent expenses; 55

 Implementation of projects related to the compliance with prescripts of supervisory authorities (Rostekhnadzor, Rosprirodnadzor, Rospotrebnadzor, EMERCOM of Russia, etc.) and bringing the facilities to conformance with the legal requirements and of the system operator requirements;  Implementation of renovation and upgrade projects on the power plants which enables the performance of technical connection obligations in compliance with the formal contracts and in view of future connections;  Upgrade and development of new technical security equipment aimed at bringing the technical resistance and anti-terrorism security of facilities of JSC «TGC-1» to the uniform standards of PJSC «GAZPROM» and RD 78.36.006-2005 of the RF Interior Ministry.  Completion of the operations commenced in 2015. Implementation of project classes 3.3 'AUMS', 3.2 'Information Technology', 5.4 'IT Infrastructure' is aimed at the developing ready-to-use process system that would meet the requirements of NP "Market Council" for quantity and quality of measurements at all the Company's delivery point clusters (AIMEMS), and the requirements of the system operator for the System of technological data exchange with the automated system of the system operator. As a result, the Company will eliminate the risks associated with the elements of discrimination in the electricity market because AIMEMS is not ready and in the capacity market because the System of technological data exchange is not ready. In 2016, full completion and commissioning of the upgrade projects of the AIMEMS and the System of technological data exchange are scheduled for the following facilities:  Kolsky Branch: Paz HPPs Cascade, Apatitskaya CHPP;  Nevsky Branch: PP-1 of the Centralnaya CHPP. Also for 2016, full completion and commissioning of the upgrade projects of the AIMEMS and the System of technological data exchange at the Avtovskaya CHPP is planned. In 2016, completion fibre optic communication line construction projects in the Karelsky Branch and Kolsky Branch is expected, with subsequent commissioning of the facilities. Also, development and upgrade activities are planned for the following: control systems, servers, network devices and/or peripherals, storage and backup systems, software, communications and telecommunications systems, and enterprise security systems. Implementation of project class 3.5 'Technical connection' is focused on renovation and upgrade projects on the power plants which enable the performance of technical connection obligations in compliance with the formal contracts and in view of future connections. The area of possible future heating operations of the Avtovskaya CHPP of the Nevsky Branch includes the capital construction projects associated with the development of the territory within the confines of Obvodny Canal, Moskovsky Prospekt, Blagodatnaya Street and the Baltiyskaya Railroad track (Decrees of the St. Petersburg Government No.864 dated July 17, 2007, and No.1265 dated August 17, 2011). JSC «St. Petersburg Heating Grid» received the application from LenSpetsSMU for the issuance of technical requirements for connection to the heating grids in the area of heating supply of the Avtovskaya CHPP with approximate heat load of 90 Gcal/hr of the prospective plan till 2020. The total increase in the heat load till 2025 in view of the energy saving activities will be 160 Gсal/hr. The area of possible future heating operations of the Pravoberezhnaya CHPP of the Nevsky Branch includes the capital construction projects of the Kudrovo village with intensive development of residential properties (Vienna, London, Spring, Austrian Town and others) The total increase in the heat load in the long term, taking into account the energy saving measures will be 160 Gcal/hr. The area of possible future heating operations of the Severnaya CHPP of the Nevsky Branch includes the capital construction projects of the Murinskoye rural settlement and Novodevyatkinskoye rural settlement in the Vsevolozhsky District of Leningrad Oblast. The increase in the heat load till 2016 will be 97 Gcal/hr. As for Implementation of project class 5.5 'Corporate management systems', the following automated control systems projects are planned for 2016:

 Energy supply management system for the WECM;  Power plant operation modelling;  Calculation of performance indicators and optimal performance planning;  Heat supply. As for project class 5.8 'Participation in the authorised capital', in accordance with resolution of the Committee for Business Strategy and Investments (Minutes No. 13 dated March 23, 2015), it is planned to increase the authorised capital of PJSC «Murmanskaya CHPP» in 2016 by placing the additional ordinary shares of PJSC «Murmanskaya CHPP». In 2016, JSC «TGC-1» plans to repurchase shares of PJSC «Murmanskaya CHPP» in the amount of 95.03% of the authorised shares in amount of RUB 1,619 mln, where:  RUB 1,591 mln — Repayment of debt of PJSC «Murmanskaya CHPP» to JSC «TGC-1»;  RUB 27.5 mln — Purchase of shares from minority shareholders.

8. FINANCIAL PERFORMANCE OVERVIEW

8.1. Main factors impacting the Company's performance The Company's performance is impacted by a number of factors, such as the government influence on heat and electricity tariff regulation, the cost of main fuel (gas) and taxation system. The following drivers significantly impact the Company's performance: decline in demand for products, excessive free electricity in the electricity and capacity market and water content in the regions. Fuel costs Gas is the Company's main fuel accounting for 97.5% of its fuel costs. Gas is supplied to the Company by CJSC Gazprom Mezhregiongaz St. Petersburg. The Company uses both limit-based (gas within the pre-set limits for regions at regulated prices approved by FTS Russia) and additional gas (gas supplied above the volumes recorded in a basic gas supply contract). Average weighted gas prices increased by 3.5% as compared to 2014. Based on 2015 results, fuel costs accounted for 39.9% of the Company's total operating costs. Generally, fuel expenses in 2015 reduced by RUB 1,454 mln (-5.7%) to RUB 23,915 mln as compared to 2014. Fuel cost reduction is driven by smaller electricity and heat generation volumes at CHPPs. Seasonality Electricity generation at the Company's power plants depends on the electricity demand which varies depending on the season, time of the day, weather conditions, outdoor temperature, duration of daylight, day of the week (day-off or week day). The demand for the specific power plant offering depends both on the electricity demand and generating capacity structure in the covered areas (taking into account the systems reliability requirements). Water content This factor influences electricity generation at HPPs situated in the Republic of Karelia, Leningrad and Murmansk Oblasts and is a determining factor for the performance of the Company's Kolsky and Karelsky Branches. Electricity generation by the Company's Branch HPPs was observed to increase by 7.7% in 2015 as compared to 2014. Taxation JSC «TGC-1» is one of the largest tax payers in four constituent entities of the Russian Federation: St. Petersburg, Leningrad Oblast, the Republic of Karelia, and Murmansk Oblast. The total amount of taxes and duties to be transferred to the budget has classified the Company to the largest tax payers. Since 2006, it has been registered for taxation purposes in Interregional Inspectorate for Major Taxpayers No. 4 of the Federal Tax Service of Russia for (Moscow). The Company's net profit in 2015 amounted to RUB 2,676 mln. The taxes and duties accrued for the same period amount to RUB 5,368.8 mln, including RUB 4,015.4 mln to the federal and off- budgetary funds, and RUB 1,353.4 mln to the regional and local budgets.

8.2. Accounting Principles The accounting policy adopted by JSC «TGC-1» as the set of principles, rules, and technology of accounting is developed to generate the complete, unbiased and objective financial and managerial information in reporting and accounts taking into account organisational and industry specifics. The accounting and tax reporting procedures adopted by JSC «TGC-1» are approved by an order of the General Director and are used consistently since the Company registration date. The Company's Accounting Policy is approved by JSC «TGC-1» Order No. 181 dated December 31, 2015. JSC «TGC-1» (hereinafter, the Company) organises and keeps accounts in accordance with Federal Law ‘On Accounting’ No. 402-FZ dated December 06, 2011, the Statute on Accounting and Reporting in the Russian Federation enacted by Order No. 34n dated 29 July 1998 of the Russian

Ministry of Finance (hereinafter — the “Statute No. 34n”) and current Chart of Accounts developed based on the Chart of Accounts for Purposes of Financial Accounting approved by Order No. 94n of the Russian Ministry of Finance dated October 31, 2000 taking into account the industry and company specifics. The accounting, tax reporting, and financial statements document flow rules in the Company are regulated by the schedule for document flow. The schedule sets the timeframe and procedure for and scope of source accounting and other documents to be submitted to the Central Accounting Service by other departments and services of the Company, its Branches, representative offices, and business units. The timeframe for and the scope of accounts and tax reports to be submitted by the Company to the relevant supervisory authorities are not set out in the schedule for document flow but are governed by applicable laws. The main accounting and business reporting rules are in line with the Statute on Accounting and Reporting in the Russian Federation taking into account individual industry-specific aspects adopted and recorded in the document and other Company instructions. The Company's annual financial statements are considered and approved by the General Shareholders' Meeting and submitted within the timeframe stipulated by article 13 of Federal Law ‘On Accounting’ No. 402-FZ dated December 06, 2011. Business documents involving the flow of funds (in bank accounts and in the company's cashiers are signed by the Company's General Director and Chief Accountant and the persons duly authorised under powers of attorney. Property accounts, liabilities, and business operations are recorded in rubles with kopeks. Property stock-taking is performed in accordance with article 11 of Federal Law ‘On Accounting’ No. 402-FZ dated December 06, 2011 and the Methodological Guidelines on the Inventory of Property and Financial Liabilities approved by Order No. 49 of the Ministry of Finance of the Russian Federation dated June 13, 1995. Taking inventory of property, including property transferred under lease agreements is performed on site by Branches and business units responsible for the operation of relevant facilities. The procedure and timeframe for annual inventory of property and liabilities are outlined in orders of the Company's General Director. Fixed Assets Fixed assets are recorded in the Company in accordance with RAS 6/01 approved by Order No. 26n of the Russian Ministry of Finance dated March 30, 2001. Fixed asset depreciation is accrued using the line straight-line method based on the period of useful life of the fixed assets. Based on order of the Company's manager, the Company may re-evaluate the groups of homogeneous fixed assets at their current (replacement) cost by direct revaluation based on documented market prices. Intangible Assets Intangible assets are recorded in the Company's accounts in accordance with RAS 14/2007 approved by Order No. 153n the Russian Ministry of Finance dated December 27, 2007. Intangible assets are depreciated using the straight-line method based on the period of useful life of the assets. Intangible asset depreciation is recorded in the accounts through the accrual of the relevant amounts in balance sheet account 05 ’Amortisation of intangible assets’. Investment Investment is recorded in the Company's accounts in accordance with RAS 19/02 approved (restated and amended) by Order No. 126n of the Russian Ministry of Finance dated December 10, 2002. When financial investment retires without determination of the market price, the initial cost of each accounted investment item applies. 59

All costs which are directly related to the acquisition of assets as financial investment irrespective of the amount are included in the initial cost of financial investment. Material and Industrial Inventories Material and industrial inventories are recorded in the Company's accounts in accordance with RAS 5/01 approved by Order No. 44n dated June 09, 2001 by the Russian Ministry of Finance. Real-time accounting (balance) method applies for analytical accounting. Contractual prices are taken as book prices. Future Costs Future costs are written off as intended evenly based on special calculations throughout the entire period they are incurred in. Future costs incurred in the periods starting after the end of the year following the reporting year are recorded in the balance sheet as long-term assets in the balance-sheet item of ‘Other Non-current Assets’. Future costs incurred in the current year are recorded in the balance-sheet item of ‘Other Non- current Assets’. Settlements, Other Assets, and Liabilities The accounts receivable due from buyers are recorded in the invoiced amount to be paid at justified prices and tariffs. Settlements with other debtors and under the claims are recorded in the reports based on the prices set under agreements. Accounts receivable are recorded in the accounts without a provision for bad debts. The provision for bad debts is created once a year based on a relevant order after annual inventory before the development of financial statements. Other assets of the Company, its Branches and business units are evaluated at actual costs when recorded. The accounts payable on loans and credits are recorded and reported taking into account any interest due as at the end of the reporting period. The accounts payable due to suppliers and other lenders are recorded in the amount of invoices and accrued liabilities. Deferred Taxes Deferred tax assets and liabilities are recorded in the balance sheet detailed as part of non- current assets in the line of ‘Deferred Tax Assets’ and as part of long-term liabilities in the same, respectively. Financial results Revenue from the sales of products and goods and any proceeds from work performed and services provided are recorded by type of operations. Proceeds from ordinary activities include the revenue from the sales of electricity and heat and other operations. Accounts of costs of ordinary activities are kept in accordance with RAS 10/99 ‘Company Expenses’, including industry specifics of production and selling costs of products (goods, labour, and services) in accordance with the Company's general cost accounting and distribution principles, and product cost reporting. Recording of R&D, Design and Process Expenses Research and development, design and process expenses are recorded in the Company's accounts in accordance with RAS 17/02 approved by Order No. 115n of the Russian Ministry of Finance dated November 19, 2002. Subsequent Events Subsequent events which impacted or can impact the Company's financial standing are recorded in the financial statements through the disclosure of relevant information in explanatory note.

Tax Accounting The Company accrues and pays taxes and levies in accordance with Russian taxation laws, taxation laws of constituent entities of the Russian Federation, and local tax regulations. Changes in the Accounting Policy The Accounting Policy may be amended in the following cases: Changes in Russian statutory accounting requirements, federal and/or industry standards; Development or selection of a new accounting method which adoption results in higher quality of information about the accounting item; Material change in the entity's business. Any amendment to the accounting policies shall be reasoned and properly documented in a Company order.

8.3. RAS financial results Table 39. Financial performance report for 2014 and 2015 Financial performance, RUB k 2015 2014 Proceeds and costs of ordinary activities Revenue (net) from goods, products, labour, services sales: 65,183,587 65,172,916 electricity and capacity to domestic consumers 37,534,183 39,480,881 electricity and capacity exported 1,131,683 717,353 heat 26,117,565 24,460,918 other goods, products, labour, and services 400,156 513,764 Production cost (60,000,856) (59,445,057) electricity and capacity to domestic consumers (31,249,504) (32,399,999) electricity and capacity exported (271,220) (241,111) heat (28,328,975) (26,633,063) other goods, products, labour, and services (151,157) (170,884) Gross profit 5,182,731 5,727,859 Profit (loss) from sales 5,182,731 5,727,859 Other proceeds and costs Interests receivable 394,017 275,097 Interests payable (2,132,271) (1,757,115) Income earned from equity participation in other companies 0 0 Other proceeds 4,599,740 3,809,890 Other expenses (4,637,691) (4,442,311) Profit (loss) before tax 3,406,526 3,613,420 Current income tax (796,682) (281,942) including Permanent tax liabilities (assets) 129,605 109,269 Change in deferred tax liabilities 101,736 (21,516) Change in deferred tax assets (21,453) (427,500) Other (14,074) 592,659 Net profit 2,676,053 3,475,121

Revenue The Company's revenue in 2015 was generated by heat, electricity, and capacity sales in the WEM and retail electricity market, exports and sale of other products, goods, labour, and services and amounted to RUB 65,184 mln remaining flat as compared to 2014.

Fig. 21. Revenue structure in 2014 and 2015, RUB mln

Table 40. Revenue structure in 2014 and 2015 2014 2015 ∆ (%) RUB mln share, % RUB mln share, % Electricity and capacity, including: 40,198 61.7 38,666 59.3 -3.8 Electricity and capacity in the regulated 5,291 8.1 1,739 2.7 -67.1 sector Electricity and capacity in the competitive 34,110 52.3 35,707 54.8 4.7 sector Exported electricity 717 1.1 1,132 1.7 57.9 Electricity in the retail market 80 0.1 88 0.1 10.0 Heat 24,461 37.5 26,118 40.1 6.8 Other products, labour, and services 514 0.8 400 0.6 -22.2 Total revenue 65,173 100.0 65,184 100.0 0.02 Revenue from Capacity and Electricity Sales Based on 2015 results, the revenue from electricity and capacity sales decreased 3.8% year-over- year and amounted to RUB 38,666 mln as compared to RUB 40,198 mln in 2014. The revenue share from electricity and capacity sales in the regulated WEM of the total JSC «TGC-1» revenue decreased by 5 percentage points to 2.7% (RUB 1,739 mln) year-over-year due to a smaller scope of tying-in to regulated agreements approved by FTS of Russia based on competitive output of capacity by the Company's power plants in 2015. The share of revenue from the sales in the competitive sector increased to 54.8% as compared to 52.3% in 2014, to amount to RUB 35,707 mln, mainly in relation to the increase in electricity sales in DAM (11.6%), while the DAM price decreased 3% year-over-year. The revenue from the electricity exports amounted to RUB 1,132 mln, being the equivalent of 1.7% of the Company's total revenue due to an increase in export supplies by 30.5% driven by a

favourable environment in the Scandinavian electricity market NordPool and significant changes in the euro exchange rate against the Russian ruble. Revenue from electricity sales on the retail market totalled RUB 88 mln which is equivalent to 0.1% of the Company's total revenue. Revenue from Heat Sales Based on 2015 results, the revenue form heat sales increased 6.8% year-over-year and amounted to RUB 26,118 mln as compared to RUB 24,461 mln in 2014. An increase in heat sales is driven by the growth of mean heat tariffs of 11% year-over-year and the granting of the status of a single heat supplier (SHS) in the Petrozavodsk Urban district. The revenue from heat sales in the Company's total revenue increased by 2.6 percentage points to 40.1% in 2015. Revenue from sale of other products, labour, and services The main source of the revenue from the sale of other products, labour, and services, are the grid connection services offered to consumers, railway and other transport services, and commercial water supply. Based on 2015 results, the revenue from the sales of other products, labour, and services decreased 22.2% year-over-year and amounted to RUB 400 mln as compared to RUB 514 mln in 2014. The reduction is due to decreased revenue from heating grid connection services by over 30% in relation to regulatory changes pertaining to heat supply and transfer to indexation of grid connection tariffs. The share of revenue from the sale of other products, labour, and services of the Company's total revenue was 0.6% in 2015 having decreased 0.2 p.p. year-over-year. Return on sales The Company's ROS in 2015 decreased to 7.95% as compared to 8.79% in 2014 due to a lower gross profit. Production cost The production cost and sales of products, labour, and services in 2015 amounted to RUB 60,001 mln, including RUB 59,850 mln for the core operations and RUB 151 mln for the non- core operations. The major share of the production cost is represented by electricity generation expenses (RUB 31,521 mln) and heat generation expenses (RUB 28,329 mln). Table 41. Structure of the production cost related to core operations in 2014 and 2015 2014 2015 Indicator ∆ (%) RUB mln share, % RUB mln share, % Production cost by core operations, 59,274 100 59,850 100 1.0 total Fuel 25,369 42.8 23,915 40.0 -5.7 Purchased energy 5,230 8.8 5,536 9.2 5.9 Water for process needs 2,411 4.1 2,458 4.1 1.9 Fixed asset repair 2,022 3.4 2,351 3.9 16.3 Payroll and insurance payments 4,877 8.2 5,081 8.5 4.2 Depreciation 7,765 13.1 8,060 13.5 3.8 Heat transit 6,932 11.7 7,662 12.8 10.5 WEM and retail market services 836 1.4 857 1.4 2.5 Lease 215 0.4 249 0.4 15.8 Taxes 908 1.5 863 1.4 -5.0 Other 2,709 4.6 2,818 4.8 4.0 Table 42. Electricity generation cost in 2014 and 2015 2014 2015 Indicator ∆ (%) RUB mln share, % RUB mln share, %

2014 2015 Indicator ∆ (%) RUB mln share, % RUB mln share, % Production cost, total 32,641 100.0 31,521 100.0 -3.4 Fuel 13,641 41.8 12,445 39.5 -8.8 Purchased energy 5,022 15.4 4,891 15.5 -2.6 Water for process needs 176 0.5 124 0.4 -29.5 Fixed asset repair 1,422 4.4 1,650 5.2 16.0 Payroll and insurance payments 3,100 9.5 3,074 9.8 -0.8 Depreciation 5,969 18.3 6,079 19.3 1.8 WEM and retail market services 836 2.6 857 2.7 2.5 Lease 141 0.4 143 0.5 1.4 Taxes 686 2.1 660 2.1 -3.8 Other 1,648 5.0 1,598 5.1 -3.0 Table 43. Heat generation cost in 2014 and 2015 2014 2015 Indicator ∆ (%) RUB mln share, % RUB mln share, % Production cost, total 26,634 100 28,329 100 6.4 Fuel 11,728 44.0 11,470 40.5 -2.2 Purchased energy 208 0.8 645 2.3 210.1 Water for process needs 2,235 8.4 2,334 8.2 4.4 Fixed asset repair 599 2.2 701 2.5 17.0 Payroll and insurance payments 1,777 6.7 2,007 7.1 12.9 Depreciation 1,796 6.7 1,981 7.0 10.3 Heat transit 6,931 26.0 7,662 27.0 10.5 Lease 74 0.3 106 0.4 43.2 Taxes 222 0.8 203 0.7 -8.6 Other 1,064 4.0 1,220 4.3 14.7 The production cost of the core operations grew by RUB 576 mln year-over-year. It was mainly due to:  Lower fuel expenses driven by a decrease in the CHPP production plan scope;  Higher expenses of the purpose and transit of heat and other costs related to the granting of the status of a single heat supplier (SHS) to the Karelsky Branch;  Higher repair expenses caused by larger overhaul and medium repairs of main equipment.

Profit Profit from sales in 2015 decreased by RUB 545.2 mln to RUB 5,182.7 mln. Profit before tax amounted to RUB 3,406.5 mln. The Company's net profit in 2015 was RUB 2,676.1 mln after it decreased by RUB 799.0 mln year-over-year. The decrease in the net profit was caused by higher interest payable due to growing interest rates on short-term and long-term loans and a higher income tax base in 2015. Table 44. Profit pattern at JSC «TGC-1» in 2014 and 2015, RAS (RUB mln) 2014 2015 ∆ (%) Profit from sales 5,727.9 5,182.7 -9.5 Profit before tax 3,613.4 3,406.5 -5.7 Net profit 3,475.1 2,676.1 -23.0

EBITDA EBITDA increased by 2.7% to RUB 13,213.9 mln.

Credit Portfolio The 2015 credit portfolio reduced to RUB 25,917,073 thousand. The loans structure changed as of the reporting date with increasing short-term loans to RUB 11,353,573 thousand due to re- qualification of the long-term credit of RUB 10,000,000 thousand provided by Gazprom. The total credits increased from 38.32% to 45.61%, and the total loans therefore decreased from 61.68% to 54.39%. There are no overdue credits or loans. The Company fully satisfies the covenants outlined in credit agreements. The 2014 credit portfolio The 2015 credit portfolio RUB 26,523.0 mln RUB 25,917.0 mln

Fig. 22. Credit portfolio structure at JSC «TGC-1» Weighted average rate on the credit portfolio The average weighted rate on RUB loans by the end of 2015 amounted to 10.23% for foreign currency loans - 3.59%, in 2014 the weighted average rate on RUB and foreign currency loans amounted to 8.34% and 3.89% respectively. In 2015, interest rates on RUB loans increased due to higher interest rates on loans and borrowings both in existing treaties, and on newly attracted borrowed resources. Table 45. Company's business analysis 2014 2015 Indicator Share in the Share in ∆ (%) RUB k balance RUB k the balance sheet, % sheet, % Non-current assets 99,824,948 83.28 98,504,710 82.25 -1.32 Assets Current assets 20,039,651 16.72 21,261,547 17.75 6.10 Total 119,864,599 100.00 119,766,257 100.00 -0.08 Equity and reserves 82,177,934 68.56 83,985,207 70.12 2.20 Long-term liabilities 25,553,116 21.32 18,844,823 15.74 -26.25 Liabilities Short-term liabilities 12,133,549 10.12 16,936,226 14.14 39.58 Total 119,864,599 100.00 119,766,257 100.00 -0.08

Asset Structure The total assets as of December 31, 2015 amounted to RUB 119,766,257 thousand. The non- current assets totalled RUB 98,504,710 thousand. The share of non-current assets of the Company's total assets is 82.25%, with 59.51%, or RUB 71,267,334 thousand of fixed assets. Construction in progress is 9.38%, or RUB 11,233,564 thousand of the assets. This indicator in the reporting period increased by RUB 2,388,894 thousand which certified to continued upgrades, retrofit, and construction of new energy facilities under JSC «TGC-1» investment program.

Fig. 23. Asset structure at JSC «TGC-1» in 2015 Long-term investment accounts for 13.12% of the total assets including the shares of the Company's subsidiaries, including JSC «St. Petersburg Heating Grid», PJSC «Murmanskaya CHPP», JSC «HHC», TGC-Service LLC, and Dubrovskaya CHPP LTD, as well as loans granted by the Company to PJSC «Murmanskaya CHPP» in 2014 in the amount of RUB 1,380,000 thousand under the debt restructuring plan between PJSC «Murmanskaya CHPP» and JSC «TGC-1» and the debt of JSC Petrozavodsk Communal Systems – Heating Grids under an agreement on payment deferral for consumed heat and interest of RUB 744,228 thousand, of which RUB 186,383 thousand is recorded as long-term investment. Other non-current assets and intangible assets of the Company (including deferred tax) account for 0.23% and 0.01% respectively. The total current assets of the total were 17.75% as of the reporting date making RUB 21,261,547 thousand. Based on 2015 results, the Company's current assets increased RUB 1,221,896 thousand year-over-year as a result of growing receivables, short-term investment, and debts due from the debtors. Table 46. Changes in JSC «TGC-1» receivables (RUB thousand) 2014 2015 Share in the Share in the Receivables RUB ∆ (%) RUB thousand balance sheet, balance sheet, thousand % % due from long-term 549,128 492,034 -10.40 customers and 79.87 77.12 short-term 10,841,901 11,497,763 6.05 buyers long-term 0 969,477 - advances paid 8.02 10.24 short-term 1,144,600 623,142 -45.56 long-term 28,560 27,693 -3.04 other receivables 12.11 12.64 short-term 1,698,263 1,936,869 14.05

2014 2015 Share in the Share in the Receivables RUB ∆ (%) RUB thousand balance sheet, balance sheet, thousand % % Total 14,262,453 100.00 15,546,978 100.00 9.01 The receivables grew in 2015 both in relation to a 5.26% increase in receivables due from buyers and customers and a 13.77% increase of receivables due from other debtors, and a 39.14% increase in receivables on advances paid. The growth of long-term accounts receivable is mainly caused by the payment of advances to TER-Service LLC under an agreement for the purchase and maintenance of an emergency spare parts kit for turbines in the amount of RUB 969,477 thousand. The advances paid to contractors will be offset under relevant agreements. The Company's short-term investment in 2015 grew by 33.13%, which is in particular related to the agreement between JSC «TGC-1» and JSC Petrozavodsk Communal Systems – Heating Grids on deferral of payment for consumed heat. The Company's net assets as of December 31, 2015 amounted to RUB 83,985,207 thousand. They include property valuation after technical or actual satisfaction of third party claims. The Company's authorised capital as of December 31, 2015 is below the net asset value which satisfies the requirements of article 35 of the Federal Law 'On Joint-Stock Companies’. Liabilities Structure The total liabilities as of December 31, 2015 at JSC «TGC-1» amounted to RUB 119,766,257 thousand. Based on the financial statements, the third section of the balance sheet (‘Equity and Reserves’) has the largest weight accounting for 70.12% of the balance-sheet total, or RUB 83,985,207 thousand. The long-term liabilities as of the reporting date amounted to 15.74%, or RUB 18,844,823 thousand and short-term liabilities amounted to 14.14%, or RUB 16,936,227 thousand. Table 47. Liabilities structure at JSC «TGC-1» in 2015 as of December 31, 2014 as of December 31, 2015 Share in the Share in the LIABILITIES RUB ∆ (%) RUB thousand balance balance thousand sheet, % sheet, % Authorised capital 38,543,414 38,543,414 0.00 Additional capital 32,969,109 32,959,991 -0.03 Equity and Reserve capital 919,570 68.56 1,093,326 70.12 18.90 reserves Retained earnings 9,745,841 11,388,475 16.85 (uncovered loss) Credits and loans 21,167,908 14,563,500 -31.20 Long-term 21.32 15.74 liabilities Deferred tax liabilities 4,337,115 4,240,925 -2.22 Other 48,093 40,398 -16.00 Credits and loans 5,355,128 11,353,573 112.01 Short-term Payables 6,591,692 5,389,187 -18.24 10.12 14.14 liabilities Provisions 186,728 193,467 3.61 Other 0 0 0 Total liabilities 119,864,599 100.00 119,766,257 100.00 -0.08 Table 48. Changes in JSC «TGC-1» payables (RUB thousand) December December Changes in JSC «TGC-1» payables (RUB thousand) ∆ (%) 31, 2014 31, 2015 Payables, including: 6,591,693 5,389,187 -18.24 Suppliers and contracts, including: 4,472,092 3,764,017 -15.83 Electricity and heat suppliers 465,860 531,531 14.10 Fuel suppliers 595,453 121,845 -79.54 Building contractors 1,306,833 1,478,664 13.15 Repair companies 450,465 499,655 10.92 Other suppliers and contractors 1,653,481 1,132,322 -31.52 Bills payable - - - 67

December December Changes in JSC «TGC-1» payables (RUB thousand) ∆ (%) 31, 2014 31, 2015 Payables to staff 159,559 167,811 5.17 Payables to state and off-budget funds 76,350 85,872 12.47 Tax and duties payables 1,194,056 746,376 -37.49 Advance payments received 428,133 280,015 -34.60 Other lenders 261,503 345,096 31.97 As of December 31, 2015, the payables due to suppliers and contractors amounted to RUB 3,764,017 thousand. The major lenders under this item are JSC «St. Petersburg Heating Grid», TGC-Service LLC, OJSC EMK-Engineering, OJSC Power Machines, JSC «HHC», JSC “FSC”, ANT- Service LLC, and JSC Petrozavodsk Communal Systems – Heating Grids accounting for 60.29% of the debt due to suppliers and contractors. All debts are current and payable under agreements. The payables also include tax and duties payables (13.85%), payables due to other lenders (6.40%), payables under advances received (5.20%), payables to staff (3.11%), and payables to state and off- budget funds (1.59%). Liquidity Analysis Table 49. Liquidity analysis at JSC «TGC-1» Liquidity indicators 2014 2015 Absolute liquidity ratio 0.24 0.16 Quick liquidity ratio 1.40 1.03 Current liquidity ratio 1.63 1.18 Equity ratio 0.69 0.70 The liquidity parameters as of the reporting date certify to JSC «TGC-1» sustainable financial standing and record the adequacy of the Company's financial resources for the satisfaction of lender demands. Thus, the absolute liquidity ratio shows the Company's capability to repay 16% of its current liabilities before maturity. High quick and current liquidity indicators are the result of consistent efforts of the management team to rule the credit position of the Company to maintain a required liquidity level and characterise the overall sufficiency of working capital in the Company for business purposes and timely repayment of its liabilities. The total liabilities of JSC «TGC-1» amount to 30% which is within a permissible range required to ensure the financial soundness. The Company satisfies all limits set pursuant to internal regulations. Profitability Analysis Table 50. Profitability analysis at JSC «TGC-1» Profitability indicators 2014 2015 Return on sales 8.79% 7.95% Return on core operations 9.64% 8.64% Return on total assets 3.01% 2.84% Return on equity 4.28% 3.20% EBITDA margin 19.75% 20.27% In 2015, the profitability indicators (except for EBITDA margin) demonstrate negative trends. That was mainly caused by decreasing revenues from electricity and capacity sales as a result of reduced demand in WEM under regulated contracts; reduced average selling price under CCO; lower heat supplies due to higher ambient air temperatures in autumn and winter; and growing heat generation cost: the production cost & heat supply ratio in physical units grew by 20.7%. Return on total assets (ROTA) and return of equity (ROE) values in 2015 were also adversely impacted by the growth of interest rates on credits and loans, higher volatility of RUB FX rate throughout 2015, and a creation of a provision for bad debts. However, it should be noted that the decreasing profitability trends could be partially offset by the optimisation of production utilisation with the use of new power-generating units, growing electricity demand in the DAM, higher volumes, growth of electricity export prices, and higher heat tariffs. EBITDA margin increase in 2015 to 20.3% was achieved through leading the higher-than-anticipated growth of EBITDA in the reporting year (by 2.7%) versus the Company's revenue (by 0.02%).

Business Analysis Table 51. Business analysis at JSC «TGC-1» Business indicators 2014 2015 Labour efficiency (RUB thousand/people) 9,567.37 9,729.47 Return on assets 0.87 0.91 Capital to labour ratio (RUB thousand) 11,029.76 10,637.55 Accounts receivable turnover (in rotations) 4.41 4.57 Accounts receivable turnover (in days) 81.65 78.69 Inventory turnover (in rotations) 23.93 23.80 Inventory turnover (in days) 15.05 15.13 Accounts payable turnover (in rotations) 11.05 11.98 Accounts payable turnover (in days) 32.59 30.05 Lead time (days) 96.70 93.82 Financial cycle time (days) 64.10 63.77 2015 business indicators certify to higher labour efficiency and return on assets. Similar trends are the result of maintained revenue at the previous year's level and reduction of the average headcount and fixed assets. The positive trends in the turnover ratios in the Company and therefore, the reduction of operating and financial cycles by 2.88 days or 0.33 days respectively have demonstrated a reduction in time when financial resources are taken out from circulation which ensures stable financing of the Company's business.

8.4. IFRS financial statement Table 52. Main indicators, RUB mln. 2014 2015 ∆ (%) Revenue 68,996 69,424 0.6 Operating expenses* (62,500) (59,407) -4.9 Operating profit 6,496 10,017 54.2 EBITDA** 13,209 17,222 30.4 Profit before tax 3,871 7,463 92.8 Profit 4,149 5,826 40.4 Total assets 150,330 154,895 3.0 * The indicator takes into account the state subsidies and other operating proceeds ** EBITDA = operating profit + amortisation of fixed assets, intangible assets and investment property. Based on 2015 results, the consolidated revenue of TGC-1 Group companies increased by 0.6% year-over-year to RUB 69,424 mln. Table 53. Revenue structure, RUB mln 2014 2015 ∆ (%) Electricity 26,196 26,020 -0.7 Capacity 13,205 11,427 -13.5 Heat 27,691 29,626 7.0 Export 717 1,131 57.7 Other sales 1,107 1,132 2.3 Supplies to the retail market 80 88 10.0 Total revenue 68,996 69,424 0.6 The Company's operating expenses in 2015 reduced 4.9% year-over-year to RUB 59,407 mln. And the variable costs reduced 2.6% to RUB 37,296 mln mainly through the optimised fuel use and decrease in ineffective generation. Table 54. Structure of operating expenses, RUB mln 2014 2015 ∆ (%)

State subsidies 562 877 56.0 Operating expenses (60,661) (61,023) 0.6 Fixed costs (15,664) (16,523) 5.5 Variable costs (38,284) (37,295) -2.6 FA, NTA, and investment property depreciation (6,713) (7,205) 7.3 69

(Accrued)/restored provision for FA impairment over the year (2,953) 221 -107.5 Other operating proceeds 552 518 -6.2 Total operating expenses (62,500) (59,407) -4.9 JSC «TGC-1» operating profit grew by 54.2% to RUB 10,017 mln. EBITDA increased by 30.4% year-over-year to RUB 17,222 mln. Based on 2015 results, JSC «TGC-1» operating profit increased by 40.4% to RUB 5,826 mln.

9. SECURITIES AND CORPORATE GOVERNANCE

9.1. Equity Structure

JSC «TGC-1» authorised capital amounts to RUB 38,543,414,165.71 and divided into 3,854,341,416,571,3/7 registered ordinary shares with the same par value of RUB 0.01. The majority shareholder structure of JSC «TGC-1» did not change during the year.

Fig. 24. Equity capital structure at JSC «TGC-1» as of December 31, 2015 As of May 22, 2015, final record date for the Annual General Shareholders' Meeting of JSC «TGC-1», the total number of the Company's shareholders was 317,287, including: 1,379 corporate shareholders, Including 269 non-resident legal entities; 315,868 individual shareholders, Including 1,932 non-residents; 3 federal executive authorities of the constituent entities of the Russian Federation; 34 nominal shareholders; 3 unidentified shareholders. There were no changes in the persons entitled to manage at least 5 percent of votes under the Company's voting shares in 2015, and the Company did not place any additional shares. JSC «TGC-1» and its controlled legal entities do not hold Company shares to dispose of.

9.2. Transactions with Securities

Shares The state registration number of JSC «TGC-1» share issue is 1-01-03388-D, state registration date is May 17, 2005, and the international stock identification code (number) (ISIN) is RU000A0JNUD0. JSC «TGC-1» shares have been traded in the main Russian stock-exchange at the PJSC Moscow Exchange MICEX-RTS since March 26, 2007. Securities are traded at MICEX in the main market trading mode: Т+Shares and DR, security code (stock-exchange ticker) TGKA. JSC «TGC-1» shares are included in the First-Tier shares.

In 2015, JSC «TGC-1» traded RUB 2,660.7 mln at MICEX in the main trading mode which is a 32.5% increase year-over-year. The monthly average transactions calculated based on the last 6 months and monthly transactions with JSC «TGC-1» shares over the last 3 months exceed the volume required to maintain shares in the First-Tier Quotation List. Over the twelve months 2015, the MICEX index increased by 26.12%, RTS index decreased by 4.26%, and the industry MICEX-Electricity index increased by 18.43%. Capitalisation of JSC «TGC- 1» as of the end of Q4 2015 was RUB 15,995,516,878.77. The implementation of the operating performance improvement program was a favourable driver that impacted the investment appeal of the shares of JSC «TGC-1». In its complying with the Russian and international law and following information transparency and disclosure principles, JSC «TGC-1» considers the protection of rights of its shareholders and potential investors a priority.

Fig. 25. Trading in shares of JSC «TGC-1» at MICEX in 2015 (main trading)

Dividends and Dividend Policy The Resolution of JSC «TGC-1» Board of Directors dated December 24, 2010 approved the Company's Dividend Policy (with amendments adopted on May 26, 2011). The Company plans to annually pay 5% to 35% of its net profits as dividends subject to a fully developed Reserve Fund. The main goal under JSC «TGC-1» Dividend Policy is observance of the shareholders' right to dividends with the balance between the interests of the shareholders and the Company. JSC «TGC-1» Annual General Shareholders' Meeting passed the resolution on June 22, 2015 to pay out dividends on the Company's ordinary shares in cash based on 2014 as RUB 0.000225403 per ordinary share. The date for the determination of persons entitled to dividends was set on July 10, 2015. Dividends will be paid out to the nominal shareholders and trustees being securities traders registered in the Register of Shareholders within 10 business days and to other persons registered in the Register of Shareholders within 25 business days from the date when the persons entitled to dividend payout are determined. The total amount of declared dividends of JSC «TGC-1» based on 2014 results was RUB 868,780,118.32, or 25% of the net profit. A total of RUB 829,048,858.70, or 95.43% of dividends was paid out as of December 31, 2015.

The Company's management bodies did not pass any resolutions on interim dividend payout in 2015. Table 55. The size of accrued and paid dividends by the Company for the period from 2010 to 2014 2015 2014 2013 2012 2011 Dividends (for 2014) (for 2013) (for 2012) (for 2011) (for 2010) The total amount of dividends, mln RUB 868.8 643.6 469.5 187.9 180.3 The amount of dividend per share, RUB 0.000225403 0.000166988 0.000121805 0.000048741 0.000046791 Dividends (% of net profit) 25% 20% 14% 5% 5% Date Posted 22.06.2015 16.06.2014 17.06.2013 18.06.2012 27.06.2011 Date of actual payment 13.08.2015 08.08.2014 16.08.2013 16.08.2012 26.08.2011

Bond Table 56. Information on bond issues at JSC «TGC-1»

Bond issue 1 Bond issue 2 Bond issue 3 Bond issue 4

Non-convertible Non-convertible Non-convertible Non-convertible interest-bearing interest-bearing interest-bearing interest-bearing bonds in bearer form bonds in bearer form bonds in bearer form bonds in bearer form Type (category) of with mandatory with mandatory with mandatory with mandatory securities deposit 01 deposit 02 deposit 03 deposit 04

Par value RUB 1,000 RUB 1,000 RUB 1,000 RUB 1,000 Issue size 4,000,000 pcs. 5,000,000 pcs. 2,000,000 pcs. 2,000,000 pcs. Circulation (as of issue redeemed issue redeemed 2,000,000 pcs. 2,000,000 pcs. December 31, 2015) Date of registration February 21, 2007 October 21, 2008 December 8, 2011 December 8, 2011

State registration 4-01-03388-D 4-02-03388-D 4-03-03388-D 4-04-03388-D number

ISIN Code RU000A0JP435 RU000A0JQ722 RU000A0JS1W0 RU000A0JS470

February 27, 2012 (placement started), Placement date March 20, 2007 July 07, 2009 December 27, 2011 March 11, 2012 (placement ended)

Method of Public subscription, Public subscription, at Public subscription, Public subscription, placement at par value par value at par value at par value

MICEX (Quotation MICEX (Third-Tier MICEX (Third-Tier MICEX (Third-Tier Trading site List – А2) Quotation List) Quotation List) Quotation List)

Maturity Seven years Five years Ten years Ten years Maturity date March 11, 2014 July 01, 2014 December 14, 2021 February 14, 2022 Frequency of Twice a year Twice a year Twice a year Twice a year coupon payments 1–6 coupons at 1-4 coupons at 1 coupon at 10.3% 1-2 coupons at 7.6% 7.75% p.a. 16.99% p.a. p.a. p.a. 7-10 coupons at 5-8 coupons at 6.7% 2-3 coupons at 7.6% 3-4 coupons at 8.1% 8.5% p.a. p.a. p.a. p.a. 11-14 coupons at 9-10 coupons at 4-5 coupons at 8.1% 5–6 coupons at 8.0% Coupon rate 7.6% p.a. 7.25% p.a. p.a. p.a. 6-7 coupons at 8.0% 7–8 coupons at p.a. 12.9% p.a. 8-9 coupons at 9 coupons at 14.4% 12.9% p.a. p.a.

Bond issue 1 Bond issue 2 Bond issue 3 Bond issue 4

10–20 coupons – 10–20 coupons – determined by the determined by the Issuer Issuer Date of the end of June 21, 2016 August 22, 2016 the nearest coupon - - (9 coupons) (9 coupons) period March 18, 2010: July 11, 2011: bought bought out bonds – 0 out bonds – 2,105,813 pc. pcs. March 15, 2012: July 08, 2013: bought bought out bonds – out bonds – 2,768,407 742,852 pcs. pcs. Early buyout* None None *2008: 2,856,497 bonds were presented for buyout to satisfy

the lenders' demands during RAO UES restructuring

Gazprombank, Organiser Raiffeisenbank CJSC MC Lider CJSC MC Lider Gazenergoprombank Credit rating - - - -

The par value was paid on the bonds of JSC «TGC-1» bond issue 01 on March 11, 2014 as their maturity date was reached. The obligations performed in full. A total of 400,651 bonds were in circulation at the maturity date taking into account the bonds bought out earlier. The par value was paid on the bonds of the bond issue 02 on July 1, 2014 as their maturity date was reached. The obligations were performed in full. A total of 125,780 bonds were in circulation at the maturity date taking into account the bonds bought out earlier. Currently, two JSC «TGC-1» bond issues are circulated at MICEX, series 03–04.

Securities circulation abroad As of December 31, 2015, the GDR share in JSC «TGC-1» authorised capital was 0.03%, with the number of GDR according to Rule 144А being 16,100, and according to Regulation S, 215,179. GDR type Reg. S / sponsored Rule 144A / sponsored GDR ratio 1 GDR = 5,000 ordinary shares CUSIP number Reg. S - 88145T206 144A - 88145T107 Circulation Reg. S – OTC market 144A – PORTAL system ISIN Reg. S - US88145T2069 144A - US88145T1079 The Global Depository Receipt (GDR) program for JSC «TGC-1» shares was launched on July 09, 2008 to secure the rights of the holders of the depository receipts of RAO UES of Russia that received securities of divested companies after its liquidation their share in the holding pro rata. JSC «TGC-1» was authorised by the Russian Federal Financial Markets Service (FFMS) in May 2008 to allocate and trade 20% of its ordinary registered shares abroad in the amount. The Bank of New York Mellon was chosen as a depository bank based on open proposals. It is world's leader in this financial market segment and holder of the depository receipts of RAO UES of Russia.

Depository receipts were issued according to Regulation S and Rule 144A. One GDR certifies the rights in relation to 5,000 ordinary registered shares of JSC «TGC-1». The securities are traded in the OTC market (over-the-counter market). GDR according to Rules 144A. The GDR which according to the SEC rule may be issued by non-American companies in the U.S. market without registration with the SEC among the Qualified Institutional Buyers (QIBs). GDR according to Regulation S. May be allocated outside the United States only in accordance with Regulation S of the Board of Governors of the Federal Reserve System. Table 57. Changes in the number of GDRs in 2015 Quantity Date % of AC 144A Reg S. Total January 31, 2015 16,100 215,179 231,279 0.0300 February 29, 2015 16,100 215,179 231,279 0.0300 March 31, 2015 16,100 215,179 231,279 0.0300 April 30, 2015 16,100 215,179 231,279 0.0300 May 30, 2015 16,100 215,179 231,279 0.0300 June 30, 2015 16,100 215,179 231,279 0.0300 July 31, 2015 16,100 215,179 231,279 0.0300 August 31, 2015 16,100 215,179 231,279 0.0300 September 30, 2015 16,100 215,179 231,279 0.0300 October 31, 2015 16,100 215,179 231,279 0.0300 November 30, 2015 16,100 215,179 231,279 0.0300 December 31, 2015 16,100 215,179 231,279 0.0300

9.3. Corporate Governance Principles

The Board of Directors and the management govern the Company strictly in compliance with the principles outlined in the Corporate Governance Code recommended by the Bank of Russia, including absolute protection of the rights of the Company's shareholders and investors, information transparency and disclosure. The documents that support the corporate governance system are published on the Company's website. In 2015, the Company management made certain efforts to secure the rights of its shareholders and investors. For the purpose of efficient decision-making by JSC «TGC-1» Board of Directors, the following Board of Directors' Committees remained operational:  Audit Committee;  Committee for Business Strategy and Investments;  Committee for HR and Remuneration;  Reliability Committee. As resolved by the Board of Directors, Committee Regulations were approved to improve the performance of the Committees. The Board of Directors' Committees include members of the Board of Directors, representatives of shareholders and the St. Petersburg Government Committee for Energy and Engineering Support. The Committees discussed at their meetings in 2015 organisational and business items of JSC «TGC- 1» submitted to the Board of Directors and proposed by Committee members. The Board of Directors approved the Company's Dividend Policy on December 24, 2010. The adopted document outlines the principles to JSC «TGC-1» Board of Directors should follow when developing recommendations to the Company's General Shareholders' Meeting regarding the resolution on profit distribution, including dividend payout. In 2015, the Company management continued improving the corporate governance policy in the Company in accordance to the recommendations of the Corporate Governance Code. 75

9.4. Management and Control Bodies

9.4.1. General Shareholders' Meeting

In accordance with Article 14 of the Articles of Association of JSC «TGC-1», General Shareholders' Meeting is the Company's supreme management body. The following matters are referred to the competence of the General Shareholders' Meeting: 1. Amendments and addenda to the Articles of Association (except for cases stipulated by clause 20.1.34 of the Articles of Association) or approval of the new version of the Company's Articles of Association with resolutions to be passed by at least three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 2. Company restructuring with a resolution passed by at least three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 3. Company liquidation, appointment of a liquidation committee and approval of an interim or final liquidation balance-sheet with a resolution passed by at least three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 4. Election of the Company's Board of Directors and early termination of authority. Resolution regarding election of members of the Board of Directors shall be passed by cumulative voting. The resolution regarding early termination of authority of a member of the Board of Directors is passed by a majority of votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 5. Determination of the quantity, par value, category (type) of authorised shares and rights granted under these shares with a resolution passed by at least three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 6. Increase in the Company's authorised capital by increasing the par value of shares or by placing additional shares with the by a majority of votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting unless the authorised capital is increased through the placement of shares by private or public subscription of ordinary shares representing over 25% of earlier placed ordinary shares with a resolution passed by at least three fourths of votes of shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 7. Reduction of the Company's authorised capital by reducing the par value of the shares with a resolution passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; through the acquiring a portion of the shares by the Company to reduce their total number and the redemption of shares acquired or bought out by the Company with a resolution passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 8. Election of members to the Company's Auditing Commission and early termination of their authority with a resolution passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 9. Approval of the Company's Auditor with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 10. Approval of annual financial statements, annual statutory financial statements, including profit and loss statements (profit and loss accounts) of the Company and profit distribution (including payout (declaration) of dividends, except for the profit distributed as dividends based on Q1, the first 6 months and 9 months of a fiscal year) and loss of the Company based on the fiscal year's results with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting;

11. Payout (declaration) of the Company's dividends based on the results of Q1, the first 6 months and 9 months of a fiscal year, approval of their amount, forms, period, and procedure for the payout (type) of shares with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 12. Approval of internal documents regulating the activities of the Company's bodies with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 13. Determination of a procedure for the General Shareholders' Meeting with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 14. Dilution and consolidation of the Company's shares with resolutions passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 15. Placement of issue-grade convertible securities by the Company by private subscription or placement of convertible issue-grade securities by public placement representing over 25% of earlier placed ordinary shares with a resolution passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 16. Resolutions regarding related-party transactions in cases stipulated by Russian laws with a resolution passed by a majority of all related shareholders owning the voting shares who/which are not interested in the transaction; 17. Resolution regarding the approval of major transactions with their subject being the property with a value over 50% of the book value of the Company's assets with a resolution passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; and resolutions on the agenda items involving the approval of a major transaction with its subject being the property with a value from 25% to 50% of the book value of the Company's assets if the Company's Board of Directors is not unanimous thereon and the agenda item involving major transaction approval is submitted to the General Shareholders' Meeting as resolved by the Company's Board of Directors. In this case, the resolution involving the approval of the major transaction is passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting. 18. Resolutions regarding membership in financial and industrial groups, associations, and other profit organisations with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 19. Resolutions regarding the transfer of authority of the sole executive body of the Company to a management company (corporate administrator) and early termination of authority of the management company (corporate administrator) with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 20. Resolutions regarding the payout of remuneration and/or reimbursements to the members of the Company's Auditing Commission with resolutions passed by a majority of three fourths of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 21. Resolutions regarding the payout of remuneration and/or reimbursements to the members of the Company's Board of Directors with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting; 22. Resolutions regarding other agenda items referred to the competence of the General Shareholders' Meeting in accordance with laws of the Russian Federation with a resolution passed by a majority of the votes of the shareholders owning the Company's voting shares who participate in the General Shareholders' Meeting unless stipulated otherwise by law.

The procedure for convocation, preparation, holding, and closing of the General Shareholders' Meeting is determined by the General Shareholders' Meeting Regulations of JSC «TGC-1» approved by the General Shareholders' Meeting on June 22, 2015 (Minutes No. 1 dated June 23, 2015) An Extraordinary General Shareholders' Meeting is held as resolved by the resolution of JSC «TGC-1» Board of Directors initiated by the same, requested by the Company's Auditing Commission, Company's Auditor, and shareholder(s) owning at least 10% of the Company's voting shares at the request date. Items to the agenda of the Extraordinary General Shareholders' Meeting are proposed by the initiator of the meeting. One General Shareholders' Meeting of JSC «TGC-1» was held in 2015 on June 22, 2015.

9.4.2. Board of Directors The procedure of the Company's Board of Directors' Meeting is governed by the Board of Directors' Regulations of JSC «TGC-1» approved by the Annual General Shareholders' Meeting on June 22, 2015 (Minutes No. 1 dated June 23, 2015). In accordance with the Regulations, the Board of Directors of JSC «TGC-1» ensures overall management of the Company, controls fulfilment of the resolutions of the Annual General Shareholders' Meeting and protection and assurance of the legal interests of the Company's shareholders in accordance with requirements of the laws of the Russian Federation. The Board of Directors includes 11 people with three of them representatives of PJSC «GAZPROM», four being the representatives of Fortum Power and Heat Oy, one member being the General Director of JSC «TGC-1», one member being the General Director of CJSC Gazprom Mezhregiongaz St. Petersburg and two members are the representatives of Gazprom Mezhregiongaz LLC. The Board of Directors of JSC «TGC-1» held 14 meetings in 2015. Members of the Board of Directors of JSC «TGC-1» in 2015 Board of Directors elected on June 22, 2015 (held six meetings in 2015) Number of Full name Position meetings attended Chairman of the Board of Directors Member of the Management Board, Head of Department 614 at PJSC Kirill Seleznev 6 «GAZPROM», General Director of Gazprom Mezhregiongaz LLC Deputy Chairman of the Board of Directors Head of Department at PJSC «GAZPROM», General Director of Denis Fedorov Gazprom Energoholding LLC, General Director of PJSC 6 Сentrenergoholding Members of the Board of Directors Alexey Barvinok General Director of JSC «TGC-1» 6 Irja Vekkila Vice-President at Fortum, Mergers and Acquisitions 6 Irina Grave Vice-President at Fortum Oyj, St. Petersburg Representative Office 6 Alexander Dushko Head of Department 839 at PJSC «GAZPROM» 5 Head of Procurement at Gazprom Mezhregiongaz LLC, Deputy Segey Ezhov 6 General Director for Procurement at PJSC «MIPC» Valentin Kazachenkov General Director of CJSC Gazprom Mezhregiongaz St. Petersburg 6 Deputy General Director for Strategy and Development at Gazprom Karen Karapetyan Mezhregiongaz LLC, First Vice-President of Bank GPB 6 (concurrently) Member of the Management Board, Senior Vice President, Strategy Kari Kautinen 6 and M&A, Fortum Corporation Executive Vice President, Management Board Member of Fortum Alexander Chuvayev Corporation, President of Russia Division of Fortum Corporation, 5 General Director of JSC Fortum Board of Directors from June 16, 2014 till June 22, 2015 (eight meetings held in 2015)

Number of Full name Position meetings attended Chairman of the Board of Directors Member of the Management Board, Head of Department 614 at PJSC Kirill Seleznev 8 «GAZPROM», General Director of Gazprom Mezhregiongaz LLC Deputy Chairman of the Board of Directors Head of Department at PJSC «GAZPROM», General Director of Denis Fedorov Gazprom Energoholding LLC, General Director of PJSC 8 Сentrenergoholding Members of the Board of Directors Irina Grave Vice-President at Fortum Oyj, St. Petersburg Representative Office 7 Alexander Dushko Head of Department 839 at PJSC «GAZPROM» 8 Head of Procurement at Gazprom Mezhregiongaz LLC, Deputy Sergey Ezhov General Director for Procurement at PJSC «MIPC», General Director 8 of the Social Initiatives Support Fund at PJSC «GAZPROM» Konstantin Zotov Adviser in the Administration of the Vice-Governor of St. Petersburg 2 Valentin Kazachenkov General Director of CJSC Gazprom Mezhregiongaz St. Petersburg 8 Deputy General Director for Strategy and Development at Gazprom Karen Karapetyan Mezhregiongaz LLC, First Vice-President of Bank GPB 8 (concurrently) Member of the Management Board, Senior Vice President, Strategy Kari Kautinen 8 and M&A, Fortum Corporation Andrey Filippov General Director of JSC «TGC-1» (before November 15, 2014) 8 Executive Vice President, Management Board Member of Fortum Alexander Chuvayev Corporation, President of Russia Division of Fortum Corporation, 8 General Director of JSC Fortum

Biography of Members of the Board of Directors Kirill Seleznev, Chairman of the Board of Directors Born in 1974 Education: University degree. PhD in Economics 1997 Baltic State Technical University, a degree in impulse devices and automatic rotor lines 2002 St. Petersburg State University, a degree in finances and credit 2006 Gubkin Russian State University of Oil and Gas, postgraduate studies 2011 International Management Institute of St. Petersburg Positions over the last 5 years: 2001–2002 Deputy Head of Management Committee Administration, Assistant to the Chairman of the Management Board, JSC Gazprom 2002–2014 Member of the Management Board, Head of Marketing, Gas and Liquid Hydrocarbons Processing, PJSC «GAZPROM» 2003–to General Director, Gazprom Mezhregiongaz LLC date 2015–to Member of the Management Board, Head of Department 614 at PJSC «GAZPROM» date Does not hold any shares in JSC «TGC-1».

Denis Fedorov, Deputy Chairman of the Board of Directors Born in 1978 Education: University degree. PhD in Economics 2001 Moscow Bauman State Technology University, Manager Economist 2003 Moscow Energy Institute (Technical University), major in Economics and Industrial Energy

Positions over the last 5 years: 2007–to Head of a Department at PJSC «GAZPROM» date 2007–to General Director, PJSC Сentrenergoholding date 2009–to General Director, Gazprom Energoholding LLC date Does not hold any shares in JSC «TGC-1».

Alexey Barvinok, member of the Board of Directors Born in 1971 Education: University degree. PhD in Engineering, Doctor of Economics, Professor 1994 Moscow Bauman State Technology University, major in Spacecraft Engines and Power Units 1996 Plekhanov Russian University of Economics, major in Economic and Social Planning Positions over the last 5 years: 2008–2014 Deputy General Director – Head of Sales Directorate, OJSC Power Machines 2014–to General Director of JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Irja Vekkila, member of the Board of Directors Born in 1949 Education: University degree. 1973 Principal Commercial Institute of Helsinki, 1973, Economist Positions over the last 5 years: 2009–2014 Senior Manager, Mergers and Acquisitions, Fortum Corporation 2014–to Vice-President, Mergers and Acquisitions, Fortum Corporation date Does not hold any shares in JSC «TGC-1».

Irina Grave, member of the Board of Directors Born in 1968 Education: University degree. 1992 St. Petersburg State University, a degree in Law 2000 St. Petersburg State University, a degree in Financial Management 2012 St. Petersburg State University, a degree in Mediation Positions over the last 5 years: 2004–to Vice-President, St. Petersburg Representative Office, Fortum Corporation date Does not hold any shares in JSC «TGC-1».

Alexander Dushko, member of the Board of Directors Born in 1964 Education: University degree. Doctor of Economics 1993 St. Petersburg Engineering Economic Institute, Economist Engineer Positions over the last 5 years: 2004–2014 Deputy Head of Department for Economy and Finance, PJSC «GAZPROM» 2015–2014 Deputy Head of Department 816, PJSC «GAZPROM» 2015–to Head of Department 839, PJSC «GAZPROM» date Does not hold any shares in JSC «TGC-1».

Sergey Ezhov, member of the Board of Directors Born in 1972 Education: University degree. 2008 Gubkin Russian State University of Oil and Gas, Manager Economist in Gas Industry Positions over the last 5 years: 2006–2012 Consultant to the Board of Gazprombank 2006–2014 General Director of Sports School, LLC 2012–to Head of Procurement, Gazprom Mezhregiongaz LLC date 2013–to General Director of the Social Initiatives Support Fund at PJSC «GAZPROM» date 2013–to Deputy General Director for Procurement at PJSC «MIPC» date Does not hold any shares in JSC «TGC-1».

Valentin Kazachenkov, member of the Board of Directors Born in 1949 Education: University degree. PhD in Economics 1972 Bryansk Technological Institute, a degree in Turbomachinery Positions over the last 5 years: 2007–2011 General Director, Kaliningradregiongaz LLC (concurrently) 2011–to General Director, CJSC Gazprom Mezhregiongaz St. Petersburg date Does not hold any shares in JSC «TGC-1». Karen Karapetyan, member of the Board of Directors Born in 1963 Education: University degree. Doctor of Economics 1985 Erevan State University, a degree in Applied Mathematics Positions over the last 5 years: 2010–2011 Mayor of Erevan 2011–to date First Vice-President of Bank GPB (concurrently) 2012–to date Deputy General Director, Gazprom Mezhregiongaz LLC Does not hold any shares in JSC «TGC-1».

Kari Kautinen, member of the Board of Directors Born in 1964 Education: University degree. PhD in Law 1989 University of Helsinki Positions over the last 5 years: 2007–2014 Vice-President at Fortum Corporation, Mergers and Acquisitions 2014–to date Member of the Management Board, Senior Vice President, Strategy and M&A, Fortum Corporation Does not hold any shares in JSC «TGC-1».

Alexander Chuvaev, member of the Board of Directors Born in 1960 Education: University degree. 1983 Moscow Bauman State Technology University, major in Equipment and Welding Technology Positions over the last 5 years: 2009–to date Member of the Management Board, Executive Vice President at Fortum Corporation, President of the Russian Division 2009–to date General Director, Fortum Energy LLC

2009–to date General Director, JSC CHER 2009–to date General Director, AO UTSK 2009–to date General Director, JSC Fortum 2013–2014 General Director, TCHPP LLC Does not hold any shares in JSC «TGC-1». No information was submitted on the conflict of interest of JSC «TGC-1» Board of Directors, including that related to the participation of Members of the Board of Directors in the management body of JSC «TGC-1» competitors. JSC «TGC-1» did not grant loans (credits) to members of the Company’s Board of Directors. Transactions in shares of JSC «TGC-1» Board members for 2015 were not made. In accordance with the Articles of Association of JSC «TGC-1» and approved Regulations on the Procedure for the Determination of Remuneration and Reimbursements for the Members of JSC «TGC-1» Board of Directors approved by the Annual General Shareholders’ Meeting on June 22, 2015 (Minutes No. 1 dated June 23, 2015), members of the Board of Directors are entitled to remunerations and reimbursement of expenses related to the performance of their functions. Remuneration to the Board of Directors consists of the base part and additional part. The base part includes a remuneration paid to the Company’s Members of the Board of Directors for their attendance of meetings of the Board of Directors. A member of the Board of Directors receives a remuneration in the amount equal to four (4) minimum monthly tariff rates of the first grade workers established by the tariff agreement in the energy sector of the Russian Federation on the day of meeting of the Board of Directors taking into account the indexation stipulated by the Agreement within a month after holding of the Company’s Board of Directors’ meeting. The remuneration payable in accordance with the Regulations to the Chairman of the Board of Directors (Deputy Chairman of the Board of Directors or another person presiding at the meeting of the Board of Directors) for each meeting where he/she had the chairman’s functions (hereinafter — the “Chairman’s functions”) is increased by 50%. An additional part of the remuneration is paid to members of the Company’s Board of Directors based on the financial year’s results in case the Company gains net profit. The resolution involving the payment to the members of the Board of Directors of an additional remuneration is passed by the General Shareholders’ Meeting of the Company. The resolution of the Company’s General Shareholder’s Meeting regarding the payment of an additional remuneration to the members of the Board of Directors determines the total amount of the remuneration. Based on the Company’s results, the total additional remuneration may not exceed five per cent (5%) of the Company’s net profit earned based on the financial performance in the year when these members were elected to the Company’s Board of Directors. The additional remuneration is paid within a month after the General Shareholders’ Meeting of the Company specified in the Regulations. The total additional remuneration based on the Company’s performance is distributed between the members of the Board of Directors equally, except for the cases specified in the Regulations. The additional remuneration based on the Company’s performance is not paid to the members of the Board of Directors who attended less than half of all meetings of the Board of Directors (from the election date to the termination of its authority). If the Company does not earn net profit, no additional remuneration is determined for the members of the Company’s Board of Directors. Members of the Board of Directors receive reimbursement of expenses for the performance of their authority. Expenses are reimbursed to the Members of the Board of Directors provided they present documents supporting these expenses. The supporting documents must be submitted to the Company’s accounting department. Members of the Board of Directors are not entitled to other remunerations and/or reimbursements of their expenses for the performance of their authority, except as specified in the Regulations.

Remuneration and/or reimbursement of expenses are transferred to the personal account of a member of the Board of Directors or paid in the cashier’s office. Information on the remuneration and/or reimbursement of expenses to the members of the Board of Directors is disclosed by the Company in cases stipulated by the laws of the Russian Federation. The members of the Board of Directors who may not receive payments from profit organisations as stipulated by the laws of the Russian Federation do not receive remuneration. Table 58. Information on remunerations to the members of the Board of Directors, RUB Indicator 2015 Remuneration for the participation in a management body 23,593,354 Salary 0 Bonuses 0 Commission fees 0 Other remunerations 0 TOTAL 23,593,354

9.4.3. Committees of the Board of Directors The purpose of the Committees is operational efficiency of the Board of Directors when handling items referred to their competence. There are 4 Committees of the Board of Directors at JSC «TGC-1»:  Audit Committee;  Committee for Business Strategy and Investments;  Committee for HR and Remuneration;  Reliability Committee.

Audit Committee of the Board of Directors The purpose of the Committee is to develop and provide recommendations (opinions) to the Company's Board of Directors and executive body regarding audit and financial statements of the Company.

Members of the Audit Committee Full name Position Chairman of the Committee Alexander Dushko Head of Department 839 at PJSC «GAZPROM» Members of the Committee Irina Grave Vice-President at Fortum Corporation, St. Petersburg Representative Office Valentin Kazachenkov General Director of CJSC Gazprom Mezhregiongaz St. Petersburg Denis Fedorov Head of Department at PJSC «GAZPROM»

Committee for Business Strategy and Investments of the Board of Directors The purpose of the Committee is to develop and provide recommendations (opinions) to the Company's Board of Directors and executive body regarding the following key areas of the Board of Directors' activity:  Determination of priorities, strategic goals, and main principles of the strategic development of the Company, assessment of the Company's mid-term and long-term performance, and approval of the Company's strategy;  Analysis of the progress of adopted programs and projects of the Company's strategic development;  Adjustment of the Company's strategic development;  Determination of key performance indicators (KPIs) to be approved by the Board of Directors;  Control over achievement of the Company's strategic goals and KPIs approved by the Board of Directors;

 Determination and improvement of a business planning and budgeting policy of the Company;  Financial planning and determination of the Company's credit and dividend policies;  Consideration of borrowings, including issuance of bonds and other debt securities;  Enhancement of the Company's investment potential, improvement of investment activity, and passing of justified investment resolutions;  Assistance to Company management, assessment of investor finding proposals, and development of recommendations regarding the compliance with the Company's and investors' business interests when implementing investment processes in the Company and its Branches;  Timely and high-quality expert review of investment projects and programs submitted to the Company's Board of Directors.

Committee for Business Strategy and Investments Full name Position Chairman of the Committee Deputy Office Director / Head of Electric Energy Sector Development Division, Alexander Rogov Electricity and Heat Generation Development, Marketing and Gas and Liquid Hydrocarbons Processing Department at PJSC «GAZPROM» Members of the Committee Irja Vekkila Vice President, M&A, Fortum Corporation Irina Grave Vice-President at Fortum Corporation, St. Petersburg Representative Office Yury Dolin Deputy General Director for Capital Construction, Gazprom Energoholding LLC Deputy General Director for Economy and Finance, Gazprom Energoholding Evgeny Zemlyanoy LLC Member of the Management Board, Senior Vice-President at Fortum Corporation Kari Kautinen for Strategy, Mergers and Acquisitions Eduard Lisitsky Deputy General Director for Development at JSC «TGC-1» Chief Specialist of Support for Electric Energy Sector Reform at PJSC Vladimir Predein «GAZPROM» Alexey Rodin Head of Financial Planning Division for Subsidiaries at PJSC «GAZPROM» Head of Prospective Development Office, Energy and Engineering Committee, Anatoly Tarasov St. Petersburg Government Alexander Yuzifovich Deputy Head of Corporate Financing and Budgeting, Gazprom Energoholding LLC

Committee for HR and Remuneration of the Board of Directors The purpose of the Committee is to develop and provide recommendations (opinions) to the Company's Board of Directors and executive body regarding the HR, social and employment policies.

Committee for HR and Remuneration Full name Position Chairman of the Committee Denis Fedorov Head of Department at PJSC «GAZPROM» Members of the Committee Irina Grave Vice-President at Fortum Corporation, St. Petersburg Representative Office Karen Karapetyan Deputy General Director, Gazprom Mezhregiongaz LLC

Reliability Committee of the Board of Directors The purpose of the Committee is to develop and provide recommendations (opinions) to the Company's Board of Directors and executive body regarding the following areas of the Board of Directors' activity:  Expert review of priority areas, strategic goals, and main principles of the Company's strategic development, approval of the Company's strategy to ensure integrated reliability; 84

 Expert review of retrofit and refurbishment plans for power facilities and analysis of fulfilment thereof in terms of integrated reliability;  Development of proposals to the Committee for HR and Remuneration pertaining to management performance in terms of ensuring integrated reliability;  Assessment of the completeness and adequacy of measures based on emergencies and major process violations and follow up;  Consideration and approval of the Company's Technical Policy;  Consideration and approval of an annual report of the Company's General Director on the implementation of the Company's Technical Policy;  Assessment of the performance of the Company's technical services in terms of: ensuring integrated reliability of grids, generation equipment, structures, and other process infrastructure; normal condition of fixed assets and communication of information on forecasted reliability risks.

Members of the Reliability Committee Full name Position Chairman of the Committee Mikhail Fedorov Operations Director, Gazprom Energoholding LLC Members of the Committee Alexey Vorobyev Deputy Chief Engineer, JSC «TGC-1» Andrey Kalashnikov Head of Retrofitting and Upgrading Division, Gazprom Energoholding LLC Deputy General Director - Chief Engineer - Director of the Nevsky Branch, Sergey Laputko JSC «TGC-1» Head of Technical Office, Energy and Engineering Committee, St. Petersburg Petr Levin Government Sergey Radchenko Head of Technical Audit and Inspection Service, Gazprom Energoholding LLC Mikhail Sorokin Head of a Division at PJSC «GAZPROM» Irina Grave Vice-President at Fortum Corporation, St. Petersburg Representative Office 9.4.4. Auditing Commission The procedure for operation of the Auditing Commission of JSC «TGC-1» is governed by the Regulations on the Auditing Commission approved by the Annual General Shareholders' Meeting on June 22, 2015 (Minutes No. 1 dated June 23, 2015). The Regulations outlines the following main objectives of the Company's Auditing Commission:  Control over the Company's business;  Control over compliance with legislation and statutory regulations for the Company's accounts, financial statements, and annual report;  Assistance in increasing efficiency of Company’s asset management and other financing and operating activities of the Company, mitigation of financial and operational risks, improvement of internal controls. Members of the Auditing Commission Full name Position Svetlana Dascheschak Chief Economist of Department, PJSC «GAZPROM» Anatoly Kotlyar Administrative Head, PJSC «GAZPROM» Head of Internal Audit Department, Gazprom Energoholding LLC, Internal Audit Yury Linovitsky Project, Gazprom Personnel LLC Nikita Osin Director for Economy and Finance, Gazprom Energoholding LLC Irina Telbizova Administrative Deputy Head - Head of Department, PJSC «GAZPROM» Reimbursements and remuneration to the Auditing Commission members are paid in accordance with the Regulations on Reimbursements and Remuneration to Auditing Commission Members of JSC «TGC-1» approved by the General Shareholders' Meeting as of June 23, 2015. The Regulation provides the following amounts and procedure for remuneration and reimbursements payment: 85

 Remuneration and reimbursements are paid by the Company in cash;  Members of the Auditing Commission are compensated any expenses related to the participation in meetings of the Auditing Commission and audits at the travel expense rates effective on the meeting or audit date;  For participation in the audit (inspection) of company business, a member of the Auditing Commission receives a one-off remuneration in the amount equivalent to 3 minimum monthly tariffs of first grade worker established by the industry tariff agreement in the energy industry of the Russian Federation for the period of the audit (inspection) taking into account the indexation stipulated by the Agreement;  For each audit (inspection) of company business, members of the Auditing Commission are entitled to an additional remuneration in an amount not exceeding 20 minimum monthly tariff rates of a first grade worker established by the Agreement taking into account the indexation stipulated by the Agreement.  The procedure and timeframe for the payment of an additional remuneration are established by the Company's Board of Directors;  The amount of remuneration to the Chairman of the Auditing Commission is increased by 50%. Table 59. Remuneration to members of the Auditing Commission, RUB Indicator 2015 Remuneration for involvement in business control of the issuer 700,920 Salary - Bonuses - Commission fees - Other incentives - TOTAL 700,920

9.4.5. Management Board and General Director The Management Board is a collegial executive body of JSC «TGC-1» which performs executive management of the Company to the extent of their authority as set out in article 27 of the Articles of Association of JSC «TGC-1». The Regulations on the Management Board of JSC «TGC-1» was approved by JSC «TGC-1» General Shareholders' Meeting as of June 22, 2015 (Minutes No. 1 dated June 23, 2015). The General Director is the sole executive body of the Company entitled to pass resolutions on executive management in accordance with article 26 of the Articles of Association of JSC «TGC-1». The General Director also chairs the Management Board of JSC «TGC-1». Members of the Management Board as of December 31, 2015: Full name Position Alexey Barvinok General Director of JSC «TGC-1» (Chairman of the Management Board) Alexander Antipov Deputy General Director – Director of the Kolsky Branch Valery Belov Deputy General Director – Director of the Karelsky Branch Vadim Vederchik Deputy General Director for Capital Construction Deputy General Director - Chief Engineer of JSC «TGC-1» – Director of the Sergey Laputko Nevsky Branch Eduard Lisitsky Deputy General Director for Development Yury Marakin Deputy General Director for Corporate Protection Gennady Semenov Deputy General Director for Marketing and Sales Andrey Sokolov Deputy General Director for Resources Supply Raisa Stanishevskaya Chief Accountant Mikhail Tuznikov Deputy General Director for Economy and Finance Biography of Members of the Management Board Alexey Barvinok, Chairman of the Management Board, General Director

Born in 1971 Education: University degree. PhD in Engineering, Doctor of Economics, Professor 1994 Moscow Bauman State Technology University, major in Spacecraft Engines and Power Units 1996 Plekhanov Russian University of Economics, major in Economic and Social Planning Positions over the last 5 years: 2008–2014 Deputy General Director – Head of Sales Directorate, OJSC Power Machines 2014–to General Director of JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Alexander Antipov, member of the Management Board Born in 1953 Education: University degree. 1976 Leningrad Polytechnic Institute, major in Hydraulic Facilities Positions over the last 5 years: 2007–to Deputy General Director – Director of the Kolsky Branch, JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Valery Belov, member of the Management Board Born in 1972 Education: University degree. 1995 St. Petersburg Technical Institute, major in Power Plants. Positions over the last 5 years: 2007–to Deputy General Director – Director of the Karelsky Branch, JSC «TGC-1» date Share in JSC «TGC-1» – 0.00000002%.

Vadim Vederchik, member of the Management Board Born in 1979 Education: University degree. 2002 St. Petersburg State Polytechnic University Positions over the last 5 years: 2009–2011 Head of Capital Construction Project Implementation Department, JSC «TGC-1» 2011–2014 Director for Capital Construction, JSC «TGC-1» 2014–to Deputy General Director for Capital Construction, JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Sergey Laputko, member of the Management Board Born in 1948 Education: University degree. 1971 Leningrad Technology Institute of the Pulp and Paper Industry, major in Industrial Heat- and-Power Engineering Positions over the last 5 years: 2009–to Deputy General Director – Chief Engineer of JSC «TGC-1» – Director of the Nevsky date Branch Share in JSC «TGC-1» – 0.000005%.

Eduard Lisitsky, member of the Management Board Born in 1973 Education: University degree. 1996 St. Petersburg State Technical University, major in Nuclear Power Plants and Units

Positions over the last 5 years: 2010–2012 Director of the Pravoberezhnaya CHPP, JSC «TGC-1» 2012–2014 Director for Development, JSC «TGC-1» 2014–to Deputy General Director for Development of JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Yury Marakin, member of the Management Board Born in 1960 Education: University degree. 1983 Kaliningrad Higher Naval Academy, qualification of an Electrical and Mechanical Engineer 2011 Academy of Security and Special Programs, professional development in Prevention of Terrorist Activities Positions over the last 5 years: 2010–2012 Deputy General Director for Security, JSC «MOESK» 2012–2014 Director for Corporate Protection, JSC «TGC-1» 2014–to Deputy General Director for Corporate Protection, JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Gennady Semenov, member of the Management Board Born in 1965 Education: University degree. 1988 Moscow Power Engineering Institute (Technical University), major in Electrical Energy Positions over the last 5 years: 2002–2014 Head of the Contract Creation and Management Department; Deputy Head of the Geographic Division Russia; Head of the Sales Department at NOREM (New Wholesale Electricity Market); Head of the Department of Commerce; Head of the Department for Commerce, PJSC “Inter RAO” 2014–to Deputy General Director for Marketing and Sales, JSC «TGC-1» date 2014–to Director for Energy Market Operations, Gazprom Energoholding LLC (concurrently) date Does not hold any shares in JSC «TGC-1».

Andrey Sokolov, member of the Management Board Born in 1963 Education: University degree. 1985 Leningrad State University, a degree in Law 1988 Leningrad State University, postgraduate studies Positions over the last 5 years: 2010–2014 Director for Logistics, JSC «TGC-1» 2014–to Deputy General Director for Resources Supply, JSC «TGC-1» date Does not hold any shares in JSC «TGC-1».

Raisa Stanishevskaya, member of the Management Board Born in 1959 Education: University degree. 1985 Leningrad Institute of Soviet Trade Positions over the last 5 years: 2005–to Chief Accountant, JSC «TGC-1» date

Share in JSC «TGC-1» – 0.0000001%.

Mikhail Tuznikov, member of the Management Board Born in 1961 Education: University degree. 1985 St. Petersburg Polytechnic University, Power Engineering Department 2004 St. Petersburg State University, major in Economics and Company Management Positions over the last 5 years: 2007–2012 Director, Production Centre of SevZapVNIPIenergoprom – SevZapEnergomontazhproekt, JSC SevZap NTC 2012–2014 Director for Economy and Finance, JSC «TGC-1» 2014–to Deputy General Director for Economy and Finance, JSC «TGC-1» date Does not hold any shares in JSC «TGC-1». JSC «TGC-1» did not receive any information about any conflict of interest of the members of JSC «TGC-1» Management Board. JSC «TGC-1» did not grant any loans (credits) to the members of the Management Board. Transactions in shares of JSC «TGC-1» Board members for 2015 were not made. Pursuant to clause 4.8. of the Management Board Regulations of JSC «TGC-1», «During the period of their authority, members of the Company's Management Board are entitled to remuneration under relevant agreements they enter into with the Company. As resolved by the Company's Board of Directors, members of the Management Board are entitled to additional remuneration subject to the Company's performance." Table 60. Remuneration to members of the Management Board, RUB Indicator 2015 Remuneration for the involvement in the activities of a management body - Salary 64,366,935.27 Bonuses 22,912,415 Commission fees - Benefits - Other incentives 167,000 TOTAL 87,446,350.27

9.5. Subsidiaries and Affiliates of JSC «TGC-1»

JSC TGC-1

JSC St. Petersburg PJSC Murmanskaya Dubrovskaya CHPP JSC HHC (50%) Heating Grid» CHPP (90,34%) LTD (100%) (74,99%)

Fig. 26. Subsidiaries and affiliates of JSC «TGC-1»

9.5.1. Governance Principles Applicable to Subsidiaries and Affiliates The Company ensures corporate governance of its subsidiaries and affiliates (S&A) in accordance with the following principles:  Compliance with current statutory requirements of the Russian Federation, the Articles of Association, and internal documents of the Company and S&A in the course of corporate governance of S&A;  Compliance of S&A corporate governance with the Company's and S&A development strategy;  Corporate governance at S&A based on timely and reliable information;  Compliance with the resolutions of the Company's management bodies during S&A corporate governance;  Ensuring the involvement of the Company's shareholders in the determination of a position on critical items within the scope of authority of S&A management and control bodies (determination of the position of the Company's Board of Directors);  Publicity and transparency of S&A corporate governance. The regulatory basis for S&A corporate governance is:  Laws of the Russian Federation;  Articles of Association of JSC «TGC-1»;  Internal documents of JSC «TGC-1» governing the Company's management and control bodies;  Procedure for the development and presentation by JSC «TGC-1» subdivisions of instructions to JSC «TGC-1» representatives at General Shareholders' Meetings and in the Boards of Directors of the companies of which JSC «TGC-1» is a shareholder/participant;  Regulations on JSC «TGC-1» Representatives in the management and control bodies of the companies of which JSC «TGC-1» is a shareholder/participant;  Certain resolutions of JSC «TGC-1» Board of Directors.

9.5.2. Performance of the Subsidiaries and Affiliates in 2015

PJSC «Murmanskaya CHPP» The Murmanskaya CHPP was built in 1934 to supply heat and electricity to Murmansk and surrounding areas. It became part of Kolenergo in 1963. In October 2005, under the reformation plan for the energy industry of Russia, it was spun off as a separate joint stock company with the same personnel and production assets as part of RAO UES of Russia and became a subsidiary of JSC «TGC-1» in 2007. The main operations of PJSC «Murmanskaya CHPP» are generation, transfer, and distribution of steam and hot water. The Company supplies heat to the regional centre of Murmansk Oblast and populated localities in the Kolsky District such as Kola. PJSC «Murmanskaya CHPP» is a monopoly

payer in the heat supply market in its area of operations and one of the main heat supply sources (about 70% of heat load) in Murmansk. PJSC «Murmanskaya CHPP» was founded after the restructuring of Kolenergo Open Joint Stock Energy and Electrification Company as spin-off (based on resolution of the extraordinary General Meeting of Shareholders of Kolenergo dated March 30, 2005). PJSC «Murmanskaya CHPP» was registered October 01, 2005 by Interdistrict Inspectorate No. 7 of the Federal Tax Service for Murmansk Oblast under principal state registration number 1055100064524. As part of cost optimisation, the Board of Directors of PJSC «Murmanskaya CHPP» passed the resolution on June 03, 2011 to incorporate Kolskaya Heating Company LLC with a 100% participation of PJSC «Murmanskaya CHPP». Kolskaya Heating Company LLC was registered June 17, 2011. On September 16, 2011, the property of PJSC «Murmanskaya CHPP» functioning to generate heat (electrical boiler houses and heating grids in Murmashi and the Verkhnetulomsky settlements) was transferred as a contribution to the authorised capital of Kolskaya Heating Company LLC. The transfer of this property of PJSC «Murmanskaya CHPP» allowed separating it from the capacities powered by fuel oil. A 100% share in Kolskaya Heating Company LLC was sold to a third party on April 27, 2012. In order to improve the recovery of and reduce receivables, PJSC «Murmanskaya CHPP» initiated direct settlements in 2010. Currently, about 55% of heat consumed by utility service providers (management companies, homeowner associations, building co-operatives) under heat supply contracts with PJSC «Murmanskaya CHPP» is paid on a direct settlement basis. Direct settlements are supported by the Government of Murmansk Oblast and Murmansk City Administration. In accordance with the MICEX Trading Rules, the ordinary registered and preferred shares of PJSC «Murmanskaya CHPP» are traded at Moscow Stock-Exchange. The company's main shareholder as of December 31, 2015 was JSC «TGC-1» with a participatory interest in the authorised capital of 90.34%. JSC «TGC-1» holds 95.03% of the ordinary shares of PJSC «Murmanskaya CHPP». Other shares are distributed among many shareholders, including individuals, nominee shareholders, and other legal entities. The share of PJSC «Murmanskaya CHPP» in the heat supply market in the region approximates 74.3% of the total heat sales. JSC «Murmanskaya CHPP» was renamed to PJSC «Murmanskaya CHPP» as of June 29, 2015. The change of its form of incorporation is documented in the Articles of Association approved by the Annual General Shareholders' Meeting. The name was changed to comply with requirements of the Civil Code of the Russian Federation. Currently, PJSC «Murmanskaya CHPP» includes a combined heat and power plant, 2 major boiler facilities with a heat and electricity generation capacity of 1,122 Gcal/hr and 12 MW and a distribution power plant supplying electricity to the city centre. The overall length of the heating grids is 103.5 km as one pipe. The CHPP supplies heat to three fourths of all companies and homes in the regional centre. PJSC «Murmanskaya CHPP» is registered at: 14 Schmidta Street, 183038 Murmansk, Russia

JSC «HHC» Open Joint Stock Company «Hibiny Heat Company» (JSC «HHC») was established for the purposes of the agreement on main selling principles and interaction during the reform of the heat supply system in the Apatity-Kirovsk region signed May 26, 2006 between the Government of Murmansk Oblast, RAO UES of Russia, JSC «TGC-1», JSC Apatitskaya CHPP, JSC PhosAgro, and JSC Apatit. JSC «HHC» was established as resolved by the General Founders' Meeting on March 15, 2007 and registered with the Inspectorate of the Federal Tax Service for Apatity, Murmansk Oblast, April 26, 2007 under principal state registration number 1075101000215. JSC «TGC-1» and JSC Apatit were the founders of JSC «HHC» with equal shares.

JSC «HHC» was established to perform client’s functions in the implementation of the project of 'Renovation of the Apatitskaya CHPP and construction of the heating main to the city of Kirovsk, with installation of heat distribution centre', commissioning and operation of the heat supply system. In Q3 2010, JSC «TGC-1» increased its financial participation in JSC «HHC» authorised capital by RUB 28.3 mln. The share of JSC «TGC-1» in JSC «HHC» authorised capital remained the same at 50%. The cash received by JSC «HHC» from this additional issue were allocated to complete project documentation, obtain the building permit, and secure the land allotment. FFMS of Russia registered an additional issue of securities of JSC «HHC» August 22, 2011 represented by 800 mln shares placed by closed subscription with a par value of 1 ruble each. JSC «TGC-1» paid RUB 400 mln for the additional contribution to JSC «HHC» authorised capital from February through May 2012 and kept its previous shareholding since JSC Apatit made an equivalent contribution. On August 02, 2012, FFMS of Russia registered a report of the additional securities issue at JSC «HHC». The purpose of the project of 'Renovation of the Apatitskaya CHPP and construction of the heating main to the city of Kirovsk, with installation of heat distribution centre' is to build a heat system to ensure the heat supply from the Apatitskaya CHPP to Kirovsk and Kukisvumchor after the shutdown of the boiler facility in Kirovsk. There are plans to connect heat line to Kirovsk and Kukisvumchor with a capacity of up to 270 Gcal/hr. A proposed heat output will reach 650,000 Gcal per year. The installation project of the heat line Apatity-Kirovsk- junction 1 was officially launched November 25, 2011. The construction of the heat supply line started in 2011 and was resumed in 2012. The renovation project at the Apatitskaya CHPP (Kolsky Branch) commenced at the same time as the construction was continued, too. In September 2013, JSC «HHC» completed the construction of the heat supply line from the Apatitskaya CHPP to Kirovsk. The project was implemented by JSC «HHC», owned equally by JSC «TGC-1» and JSC Apatit through contributions to the authorised capital and borrowings of JSC «HHC». The commissioning permit was obtained on October 2, 2013, and the Apatitskaya CHPP- Kirovsk heat supply line was commissioned. It reached the design capacity in November 2013, and heat supplies to Kirovsk and Kukisvumchor from the Apatitskaya CHPP were started. In December 2013, JSC «HHC» fully connected the heat supply system for Kirovsk and Kukisvumchor neighbourhood and shut down 2 boiler facilities in Kirovsk and Kirovsk ore mine which made the region less dependent on fuel oil and boosted capacity of the Apatitskaya CHPP. In 2014, the Company supplied heat to Kirovsk from the Apatitskaya CHPP. Heat supply from the Apatitskaya CHPP to Kirovsk approximated 550,000 Gcal in 2014 and 500,000 Gcal in 2015. Annual additional heat output at the Apatitskaya CHPP is planned to exceed 600,000 Gcal. June 18, 2015 OJSC «HHC» was renamed to JSC «HHC». The change in the legal form is documented in the Articles of Association approved by the annual General Shareholders' Meeting. The name was changed to comply with the provisions of the Civil Code of the Russian Federation. Currently, the company is considering connection of new heat consumers in the Kirovsk- Apatity region to increase the JSC «HHC» business in the long-term range and stabilise its financial performance. A long-term expansion of JSC «HHC» main operations includes connection of new consumers at the ANOF-3 site and in Titan settlement to the heat supply line from the Apatitskaya CHPP to the heat distribution centre in Kirovsk. JSC «HHC» is registered at: 28a Khibinogorskaya Street, 184250 Kirovsk, Murmansk Oblast. JSC «St. Petersburg Heating Grid» The Board of Directors of JSC «TGC-1» resolved to found a subsidiary on December 21, 2009, JSC «St. Petersburg Heating Grid». JSC «St. Petersburg Heating Grid» was established under trilateral agreement between the St. Petersburg Administration, JSC «TGC-1», and SUE “TEK of St. Petersburg” to combine the heating grids in the area covered by CHPPs of JSC «TGC-1». JSC «St. Petersburg Heating Grid» was registered February 1, 2010 by Interdistrict Inspectorate No. 15 of the Federal Tax Service for St. Petersburg under principal state registration number 1107847010941.

JSC «St. Petersburg Heating Grid», one of the largest heat generating companies in the city, was founded based on the assets of the company Heating Grid in the Nevsky Branch with the support from the St. Petersburg Government. The Company was established to improve the reliability and quality of heat and hot water supply to the residents of the capital of the North by ensuring uniform management of the heating grids and heat supply areas covered by CHPPs of JSC «TGC-1». JSC «St. Petersburg Heating Grid» started its operations on May 1, 2010. It has supplied heat in the areas covered by JSC «TGC-1» CHPPs as an agent leasing JSC «TGC-1» heating grids and the submain grids of TEK of St. Petersburg since July 1, 2010. In December 2010, FFMS of Russia registered an additional securities issue of JSC «St. Petersburg Heating Grid» with JSC «TGC-1» and “TEK of St. Petersburg” as participants. On December 31, 2010, JSC «TGC-1» and JSC «St. Petersburg Heating Grid» signed an agreement on December 31, 2010 for the acquisition of the ordinary shares of JSC «St. Petersburg Heating Grid» paid for by property recorded in the balance of the company Heating Grid in the Nevsky Branch. Placement was completed and a report on the results of additional securities issue of JSC «St. Petersburg Heating Grid» was approved in December 2011. The Company placed 31,304,269,380 ordinary registered shares additionally. The equity structure of JSC «St. Petersburg Heating Grid» changed respectively: JSC «TGC-1» holds 74.9997% and “TEK of St. Petersburg” holds 25.0003% of the Company's placed shares. In January 2012, FFMS of Russia registered a report on the additional securities issue. The issue of shares resulted in an increase in the Company's authorised capital by more than 1,000 times to RUB 31,334 mln. JSC «TGC-1», the founder and strategic partner of the company, is a Gazprom Group company included through Gazprom Energoholding LLC, a subsidiary consolidating all of the Group's generation assets (controlling stakes of JSC «TGC-1», Mosenergo, and JSC “OGK-2”), and the controlling stake in JSC «MIPC», owner of the entire heating grid in Moscow which is the largest in the world. State Unitary Enterprise Fuel and Energy Complex of St. Petersburg, one of the leading heat generating companies in St. Petersburg, contributes to the management of JSC «St. Petersburg Heating Grid» by implementing the city utilities and energy development strategy. The Company's heating grids cover 11 administrative districts of St. Petersburg ensuring the supply of over 45% of all heat consumed in the city. Today, JSC «St. Petersburg Heating Grid» is the only specialised heating grid company in the Northern capital. The number of its city consumers exceeds 2.5 mln people. JSC «St. Petersburg Heating Grid» is registered at: 73 Bldg. 2 Lit. A Basseinaya Street, 196211 St. Petersburg, Russian Federation Dubrovskaya CHPP LTD July 14, 2014, the Board of Directors of JSC «TGC-1» resolved to found a subsidiary, Limited Liability Company “Dubrovskaya CHPP”, to source additional investment for the following upgrade of the Dubrovskaya CHPP and the heat supply system in Kirovsk, Leningrad Oblast. JSC «TGC-1» founded Dubrovskaya CHPP LTD on March 26, 2015, 100% subsidiary. On November 1, 2015, Dubrovskaya CHPP LTD started its operations involving heat generation and supply in Kirovsk. December 15, 2015, the sole member resolved to accept SMES as a member of Dubrovskaya CHPP LTD with cash brought to the authorised capital of Dubrovskaya CHPP LTD as additional contribution. March 28, 2016, JSC «TGC-1» discontinued its participation in Dubrovskaya CHPP LTD by selling its share to SMES. It was necessary to optimise the business processes in TGC-1 Group, improve performance, and attract additional investment to upgrade the Dubrovskaya CHPP and renovate the heat supply system in Kirovsk, Leningrad Oblast.

Dubrovskaya CHPP LTD is registered at: 17 Naberezhnaya Street, 187342 Kirovsk, Leningrad Oblast.

TGC-Service LLC In 2011, JSC «TGC-1» jointly with JSC Elektrocentromontazh established a specialised repair enterprise, TGC-1-Service LLC, to optimise and improve repair quality at the power plants of JSC «TGC-1». TGC-1-Service LLC was registered August 10, 2010 by Interdistrict Inspectorate No. 10 of the Federal Tax Service for St. Petersburg under principal state registration number 1107847259740. By resolution of the company's members, the company name was changed of TGC-1-Service LLC to TGC-Service LLC on June 3, 2013. The Company is involved in the repair of CHPP and HPP main and auxiliary equipment at JSC «TGC-1» and other power energy companies of the Northwest of Russia and provides balancing and diagnostics services, performs upgrades and retrofit of energy facilities. JSC «TGC-1» share in TGC-Service LLC is 26%. TGC-Service LLC is registered at: Room 10-N, 10 Lit. A. Manezhny Pereulok, 191123 St. Petersburg.

10. PERSONAL AND SOCIAL RESPONSIBILITY

10.1. Main Principles and Goals of the HR Policy The HR Policy of JSC «TGC-1» aims at reasonable combination of process update and perseverance to maintain the optimal headcount and employee qualifications with employees pursuing professional and social development and competent in electricity generation and wholesale, head generation, transfer and sales, ensuring uninterrupted electricity supply to industrial sites and homes in the Northwest of Russia. The HR management policy at JSC «TGC-1» is based on conceptual approaches to HR management ensuring successful development of the Company and harmony of the interests of employees, shareholders, consumers, and the state:  The principle of transparency and openness implies building a career planning system with professionalism, sustainable high performance, and commitment to the Company’s values as prerequisite and guarantees of career development.  The principle of industry leadership implies the Company’s understanding that achievement of HR management goals requires significant investment in human resources and development of HR divisions and improvement of IT support to managers.  The principle of efficient investment implies building an employee incentive system based on achievement of the business strategy goals with transparent performance assessment and rewards.  The principle of continuous improvement implies continuous planning of HR management process based on regular HR and management quality assessment.  The principle of organisational order implies common approaches to HR management taking into account the regional specifics. The main objective of the HR Policy is the management system the guarantees for the Company the stable status of the “employer of choice” for the people capable of making benefit to the Company.

10.2. Headcount and HR structure The average headcount of JSC «TGC-1» as of December 31, 2015 was 6,509 employees. The Company's headcount decreased by 357 employees in the previous year (5.2%). Table 61. Headcount changes at JSC «TGC-1» in 2015 Headcount, people Variance as of December 31, as of December 31, abs., people rel., % 2015 2014 JSC «TGC-1» Administration 360 345 15 4.3 Nevsky Branch 3,743 4,114 - 371 - 9.0 Karelsky Branch 961 903 58 6.4 Kolsky Branch 1,445 1,504 - 59 - 3.9 JSC «TGC-1» 6,509 6,866 - 357 - 5.2 The main factors that influenced headcount change, are as follows:  Transfer of part of workers to Dubrovskaya CHPP LTD, JSC «TGC-1» subsidiary;  Restructuring of the emergency repair service and optimisation of the headcount in the Turbine Hall at the Apatitskaya CHPP (Kolsky Branch);  Establishment of the Heat Sales Office at the Karelsky Branch on February 1, 2015;  Restructuring of the sales and generation businesses of JSC «TGC-1» Administration.

Most of the Company’s personnel are workers (49.8%), the proportion of managers and specialist is about the same (24.7% and 25% respectively), the amount of clerical staff is insignificant.

Fig. 27. HR structure at JSC «TGC-1» by category as of December 31, 2015

16.2% of Company employees are below 30 years old, 46.0% are aged 30 to 50 years old, and 37.8% of all employees are above 50 years old. The average age in the Company is 45 years old.

Fig. 28. HR age structure at JSC «TGC-1» as of December 31, 2015

Turnover ratio of JSC “TGC-1” in 2015 amounted 4.3% (is calculated as a part of fired due to absence of valid excuse in percentage from the total amount of personnel, dismissal for valid reason is considered the dismissal on the initiative of the employee due to discontent with salary, position, labour conditions and characteristics, distance of work place from place of residence, etc.). According to these causes 283 people were dismissed in 2015.

46.8% of JSC «TGC-1» employees have a University degree (+0.6% vs 2014), 24.2% of employees have secondary vocational education (+2.2% vs 2014), 28.4% of employees have secondary education (-2.8% vs 2014), and 0.6% have not completed secondary education (without changes vs 2014). The growth of professional education speaks to improvement of the overall qualifications in the Company.

Fig. 29. Level of education of personnel at JSC «TGC-1» as of December 31, 2015

10.3. HR Development System

10.3.1. Changes in the average salary in 2014 and 2015 The average salary for operating personnel in 2015 amounted to RUB 53,723. In 2015, the average salary at JSC «TGC-1» increased by 4.1% year-over-year.

Fig. 30. Changes in the average salary of JSC «TGC-1» employees

10.3.2. Remuneration and Social Security Benefits The Collective Bargaining Agreement signed in 2014 was effective in 2015. That year, the amount of social payments to JSC «TGC-1» employees and pensioners, cultural and sports expenses, trade union social charges, and bonuses to trade union chairmen relieved of their responsibilities amounted to RUB 172,957.2 thousand. The growth of social security benefits comparing to the previous year by 3,15% was caused by the increase in the size of payments by May 9, retirees and veterans in connection with the 70th anniversary of the Victory in Great Patriotic War.

The employees and pensioners have enjoyed a significant benefit as reimbursement of household electricity and heat expenses. Furthermore, JSC «TGC-1» employees receive a one-off incentive pay additionally to their average salary in an amount of their base salary on their first day of vacation leave however not more than RUB 35,000. JSC «TGC-1» employees are also entitled to receive support when in need (after a disaster, fire, theft, illness, etc.). One of the objectives of the Company’s social policy is protection to retired employment veterans who face isolation and financial vulnerability issues after retirement. An employee who has worked at least twenty years in the energy sector in JSC «TGC-1» or its predecessors and retiring from JSC «TGC-1» will enjoy support and aid from the Company. There are 2,527 retired employment veterans in the energy sector and all of them receive payments on holidays and anniversaries as stipulated by the Financial Support Regulations. These payments are determined jointly by the administration of JSC «TGC-1» and the Council of Shop-floor Union Organisation Representatives. Agreement on the Benefits and Guarantees for Shop-floor Union Organisation Representatives of Public Association All-Russian Electrical Trade Union functioning in the business units of JSC «TGC-1» (hereinafter — the “Agreement”) was effective in 2015 at JSC «TGC-1». Under the Agreement, TGC- 1 transfers funds to the accounts of shop-floor union organisations of the business units as financial support above the amounts stipulated by legislation for trade union members: for birth of a child, registration of a marriage, and funeral of relatives. The employees who are trade union members also enjoy benefits for children at pre-school centres if there are three or more minor children in the family; financial support is provided to employees caring for five or more children or a disabled child; to employees taking care of their cohabitating family members (disabled people who need care on a permanent basis) based on a medical opinion.

10.3.3. Employee Development and Incentive System People have been one of the most valuable assets of JSC «TGC-1». An efficient customer- focused and result-oriented team would not be possible without ongoing employee development. JSC «TGC-1» supports and encourages employee focus on professional development and personal improvement. Employee training and development are pre-requisites of the Company’s success and are the key to achievement of its goals. Employee Training The Training Centre founded by JSC «TGC-1» in 1983 has been the service of guaranteed quality where approximately 3,500 employees each year attend professional training courses, pre- certification courses, certification exams and competency assessment in compliance with the rules and regulations applicable in the electric power industry, and the rules and regulations developed by the government supervisory authorities and applied in the electric power industry. JSC «TGC-1» Training Centre provides:  Licensed training in 24 tradesmen occupations;  On-the-job training with minimum day releases;  Simulator trainings for the operating personnel;  Pre-examination testing using cutting-edge software and hardware;  Pre-certification training for managers and specialists in the certified fields controlled by the Federal Service for Ecological, Technological and Nuclear Supervision;  Mandatory fire safety training;  Professional trainings and professional development of workers in main jobs;  Professional development of managers and specialists;  Support to young professionals;

 Themed workshops and trainings;  Corporate education aimed at developing managerial competencies;  Training for talented employees and employees’ children in universities and vocational colleges at the Company’s cost;  Cooperation with leading colleges and universities in the Northwestern Federal District;  Programs for the Company’s talent pool. Table 62. Trainings for personnel of JSC «TGC-1» by employee category Number of people trained in 2015** Average headcount, Employee category JSC Nevsky Karelsky Kolsky people* Administration «TGC-1» Branch Branch Branch Managers 1,654 1,942 228 1,345 166 203 Specialists and office 1,586 1,014 78 734 95 107 personnel Workers 3,425 1,896 0 1,696 83 117 Total 6,665 4,852 306 3775 344 427 Training costs, 19,722 6,617 6,507 2,980 3,618 2015, RUB thousand The costs of personnel training and consultancy 16,492 3,387 6,507 2,980 3,618 services The costs of development and production of training 3,230 3,230 materials and computer- based training systems * Average headcount taking into account external part-timers ** Training sessions taken into account (the same employee could have attended several training courses) Table 63. Trainings for JSC «TGC-1» employees, 2015, by type of training Number of employees Item Type of training trained, No. people 1 Mandatory trainings 3,571 2 Professional development 1,225 3 Professional re-training 25 4 University and secondary vocational education 31 Total 4,852

Trainings at JSC «TGC-1» Training Centre Table 64. Trainings for JSC «TGC-1» personnel in 2015 held at JSC «TGC-1» Training Centre Number of Incl. by category Item Disciplines and employees trained, No. training courses workers specialists managers people Job training for recently employed workers:  Boiler operator, central boiler control heat switchboard operator, boiler equipment operator and inspector, 1  Electrician for automatics and 95 95 - - instrumentation maintenance at power plants,  Chemist,  Chemical water treatment instrumentation operator,  Compressor operator Training in second (related) jobs 2 6 6 - - 3 Professional development of workers 319 319 - - Pre-examination and pre-certification 4 1,076 - 277 799 training

5 Fire safety basics 1,332 845 212 275 6 Simulator training 276 240 36 - 7 Consultancy workshops 103 - 23 80 Competitions for operating personnel at TPPs and cross-connected TPPs and 8 the professional skills competition for 99 39 20 40 occupational safety specialists of the Company Total 3,306 1,544 568 1,194

Development of Educational and Methodology Assets and Training Methods Activities in 2015:  A total of 13 courses were developed: 5 pre-examination trainings, 1 pre-certification training course for managers and specialists, 1 professional development course for managers and specialists, and 6 tradesmen courses;  A total of 14 courses were revised: 8 pre-certification training course for managers and specialists, 6 professional development courses for new workers and tradesmen. Trainings for Managers and Specialists JSC «TGC-1» Training Centre considers professional training for its employees as the main development and motivation driver for employees. The Company provides training courses in specific areas and issues depending on its goals and objectives. Centralised Education Centralised training was provided to 911 employees of JSC «TGC-1» in 2015. They included professional re-training and development courses for employees. Further certification in the Northwestern Office of Rostekhnadzor required pre-certification trainings for managers and specialists in industrial, energy, and hydraulic safety, NDT methods at hazardous industrial facilities in the energy industry. The competency of heat and electricity engineers and workers from business units was assessed. Centralised training for workers was held to train them in related professions and to grant work permits. Table 65. Centralised education in 2015 by discipline Item Number of Training course No. participants Professional retraining course of ‘Chemical Technology in the Power Unit Operation at 1 13 CHPPs 2 Professional development in the ‘Production Management’ 56 3 Professional development in ‘Occupational Health and Safety’ 212 4 Training in new occupational health and safety requirements for work at heights 114 Training in new occupational health and safety requirements for handling operations and load 5 146 placement, during electrical and gas welding, use of tools and appliances in construction Professional development for the employees of electrotechnical laboratories and electrical 6 21 shops 7 Professional development in environment protection and environmental safety 54 8 Professional development for procurement and contractwork employees 5 9 Professional development for chief accountants and deputy chief accountants in business units 42 10 Pre-certification training in: industrial safety, energy security, safety of waterworks, and NDT 146 Assessment of the competency of heat and electricity generation personnel in main process 11 40 areas Education for workers in second (related) jobs: strapping operator, lift operator, oxygen cutter, 12 62 waterwork inspector, electrical fitter, welder, crane operator, and battery attendant TOTAL 911 Trainings Trainings in 2015: Talent pool trainings:  Management methods and techniques: Execution control;  Management methods and techniques: efficient production decision-making. 100

Trainings for young specialists:  Efficient project management;  Efficient time management;  Presentation skills for technology projects and work improvement suggestions. Training courses for JSC «TGC-1» employees and their children in universities and vocational colleges at the Company’s cost In accordance with the Regulations JSC «TGC-1» cooperation with higher and secondary vocational institutions, in order to improve HR performance, find and recruit talented graduates, JSC «TGC-1» provides vocational education opportunities to the talented employees and their children of the Kolsky and Karelsky Branches of JSC «TGC-1» at the Company's cost. Education funded by JSC «TGC-1» is provided only in major electricity generation operations and technical disciplines required to ensure sustainable operation of energy system business units, including:  Power plants;  CHPPs;  Industrial energy;  Power supply;  Electricity generation;  Energy engineering;  Automation of processes and process sites; and  Installation, balancing and operation of electrical equipment in industrial and civil buildings. In 2015, JSC «TGC-1» funded the education in vocational colleges and universities for 31 employees from the business units of the Nevsky, Kolsky, and Karelsky Branches of JSC «TGC-1». Table 66. Education in universities and vocational colleges in 2015 Number Number of employees who Number of employees who of employees Business unit completed their courses in continued learning in 2015 who started learning 2015 in 2015 Nevsky Branch 2 10 5 Kolsky Branch 1 6 - Karelsky Branch 1 4 2 Total 4 20 7 12 school graduates, including children of Company employees were admitted by the leading St. Petersburg universities in 2015 to be later employed by JSC «TGC-1». R&D Development The Training Centre supports young talent initiatives and fosters creativity and cross-functional idea sharing. JSC «TGC-1» held a science conference at the Vasileostrovskaya CHPP on July 17, 2015 attended by Company specialists and managers, and representatives of the Peter the Great St. Petersburg Polytechnic University. The Company's Training Centre initiates the contest for young specialists and improvement originators from Gazprom Energoholding LLC for the fourth consecutive year providing them with an opportunity to present their idea outside their business unit to all employees of the holding company. Many ideas of young specialists became a part of investment projects aimed at improving the process and Company's operations. The JSC «TGC-1» team has brought together the brightest, most resourceful and talented specialists from business units who presented 6 projects this year. The results of the contest for young specialists and improvement originators from Gazprom Energoholding LLC were summed up on October 01, 2015. The contest jury voted and the following winners were awarded:

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 Alexander Tebiev won the first prize in the Control and Automation section;  Dmitry Malegov participating in the contest for the second time in a row was awarded the title of the Innovator of the Year in Gazprom Energoholding group;  The project of Ekaterina Pyulzyu was awarded a special diploma for improvement of economiс efficiency of a project implemented. Professional Competitions for the Operating Personnel Many events associated with professional contests and competitions were held in 2015.  The Training Centre (St. Petersburg) hosted the Occupational Health and Safety Professional Contest on April 6 and 7 for the first time to celebrate the Safety Year announced by Gazprom. A total of 19 representatives from the Company's business units took part in the contest.  From June 1 to June 5, the teams of the Avtovskaya CHPP (Nevsky Branch) and the Petrozavodskaya CHPP (Karelsky Branch) took part in the Professional Skills Competitions for cross-connected CHPP operating personnel held by Gazprom Energoholding LLC in Yessentuki. 6 teams from the holding company subsidiaries competed for the prize. The result of the hot competition was the Petrozavodskaya CHPP team coming second and the Avtovskaya CHPP team coming fourth.  The Training Centre in St. Petersburg held professional competitions for operators of the modular and cross-connected CHPPs of JSC «TGC-1» from June 16 to June 19. The competitions were attended by eight teams from the Nevsky Branch (the Centralnaya CHPP, the Pravoberezhnaya CHPP, the Vasileostrovskaya CHPP, the Dubrovskaya CHPP, the Pervomayskaya CHPP, the Vyborgskaya CHPP, the Severnaya CHPP, and the Yuzhnaya CHPP) and the teams of the Apatitskaya CHPP of the Kolsky Branch and, of PJSC «Murmanskaya CHPP»; the latter was taking part off-score.  From August 31 through September 4, 9 teams from the hydroelectric power plants in Murmashi, Arctic Circle settlement, competed for the first prize during professional skills competitions for HPP operators held by JSC «TGC-1». Cooperation with Universities and Vocational Colleges One of the key areas of the HR policy at JSC «TGC-1» is recruitment and retention of young talents. Every year, the Training Centre provides internship opportunities for students in related universities and professional colleges at the Company's business units, holds Company Days, and round tables with Company leading experts. Graduation project contests are annually to recruit talented graduates. The Company participates in Career Fairs and Gazprom Days at specialised colleges and universities. Contest for the best graduation project among university graduates in the Northwestern Federal District In 2015, JSC «TGC-1» held the 12th contest of graduation projects among university students in the Northwestern Federal District. Students from the leading power engineering universities in the Northwest of Russia presented their projects; the universities included:  St. Petersburg Polytechnic University;  St Petersburg State Technological University of Plant Polymers;  Gorny, National Mineral Resources University; and  Petrozavodsk State University.

10.3.4. Social Responsibility and Charity An important social area is provision of vacation opportunities to employees and their families. In 2015, 768 employees with their families could have their vacation on the Black Sea coast (Dagomys Recreation Centre), in Crimea (Solnechny Kamen Resort), and in Leningrad Oblast (Dacha 102

Countryside Club in the Priozersky District) funded by the Company with a total investment of RUB 19,160,190.00 (net of VAT), including: Table 67. Financing of recreational projects at JSC «TGC-1» Price of Number of Price of Number of Total price of Number of vacation in the employees vacation in employees vacation employees south of (prs) the Leningrad (prs) (RUB) (prs) Russia Oblast (RUB) (RUB) Nevsky Branch 10,555,543 427 2,090,000 76 12,645,543 503 Karelsky Branch 2,324,257 96 165,000 6 2,489,257 102 Kolsky Branch 3,805,390 155 220,000 8 4,025,390 163 JSC «TGC-1», total 16,685,190 678 2,475,000 90 19,160,190 768 Travel vouchers are allocated to business units based on the proportion principle, actual headcount, and employee demand for recreational vacation. Company management takes care of family vacation for its employees. For this purpose, employees are provided with 2 travel vouchers they can use to invite their family members, while the Company reimburses a part of travel voucher expenses. JSC «TGC-1» has an Occupational Pension Scheme in place which includes two main pension plans: corporate and parity plans. In 2015, the Company allocated RUB 28,580,390.00 under its Occupational Pension Scheme. Corporate pension was issued to 254 employees in an amount of RUB 25,158,000. As of December 31, 2015, a total of RUB 3,422,389.78 was allocated under the parity Occupational Pension Scheme for 428 employees. One of the major objectives is to ensure the physical health of employees. The objective is achieved by provided mandatory and voluntary medical insurance plans to employees. Similarly to 2014, voluntary medical insurance for JSC «TGC-1» employees in 2015 was provided by JSC SOGAZ under uniform agreement. VMI plans provide Company employees with highly qualified and technology-intensive medical services. Table 68. VMI plans for JSC «TGC-1» employees Branch JSC «TGC-1» Nevsky Karelsky Kolsky Total VMI expenditure in 2015 (RUB) 110,728,962 71,045,591 15,602,789 24,080,582 In 2015, a common accident insurance agreement applied to insure the interests of employees in relation to life and health damage as a result of accidents. The agreement was in force for the second year and a total of RUB 1,600,000 was paid out thereunder in relation to confirmed insurable events. Another RUB 400,000 will be paid out after necessary documentation is provided. Table 69. Insurance of the financial interests of TCG-1 employees Branch JSC «TGC-1» Nevsky Karelsky Kolsky Total accident insurance expenditure in 2015 4,372,395 2,807,841 589,998 974,556 (RUB) The Company also focuses on sports and corporate events. In 2015, it held a winter sports event in all Branches which was attended by about 1,000 employees. Other activities included indoor soccer and volleyball tournaments (JSC «TGC-1» Cup) attended by 600 employees, participation in the indoor soccer tournament and Spartakiade hosted by Gazprom Energoholding LLC attended by 40 employees and in PJSC «GAZPROM»'s the Summer Spartakiade attended by 17 Company employees.

10.4. Sponsorship and Charity

In 2015, the Company provided sponsorship and charity support to 72 organisations in the regions serviced by the Company which are St. Petersburg, Karelia, Leningrad and Murmansk Oblasts.

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Table 70. Charity and sponsorship projects in 2015 Project Amount, RUB % Support to health facilities 6,848,741.0 18.0 Support to disabled children, orphans, and children from low-income families 2,206,250.0 5.8 Support to WWII veterans 638,409.0 1.7 Support to public organisations 21,425,000.0 56.4 Cultural projects 6,050,600.0 15.9 Support to disabled people, boarding houses and rest houses for elderly people 155,000.0 0.4 Support to science and educational institutions 676,000.0 1.8 Total 38,000,000.0 100.0 Involvement of JSC «TGC-1» in charity activities:  Financing of surgery for the children with different forms of severe diseases;  Charity support with rehabilitation and purchasing of medicine drugs for cancer and cerebral palsy treatment;  Support to hospitals with purchasing of cutting-edge equipment, instrumentation, and difficult-to-obtain drug products;  Support to the Kikerino Boarding House with repair, purchasing of furniture and bed linen and gifts to boarding house residents on holiday occasions. It presented wool plaids to all boarding house residents in 2015 to celebrate the 70th anniversary of the victory in the WWII;  Support with organisation of the Northern Dance party hosted by the MASTER CLASS International Fund for Culture Support for orphan children, "special" kids’ creative groups, children who became laureates of international festivals and contests, and cadets from St. Petersburg;  Summer sports vacations for orphans in Leningrad Oblast and Crimea;  Support to the event Dance on Wheels (St. Petersburg) for children with disabilities. The Company provided assistance in purchasing expensive wheel-chairs for dancing;  Support to the Energy New-Year Tree of Wishes. On the New Year's Eve, children in foster care and problem families in St. Petersburg, Petrozavodsk, and Murmansk — the localities where power plants of JSC «TGC-1» operate — write their letters to the Energy Father Frost. The Company not only fulfils every single wish, it also holds a very special New Year party for the children;  Funding of the regional project of manufacturing unique toy books for visually impaired children of the Picture Books for Little Blind Children Fund;  Provision of funds for current repair of kindergartens, classrooms, boarding schools, and sports facilities;  Support with payments to exercise therapy professionals engaged with disabled children from Building 3 of Pavlovsk Boarding House 4 treated at the Albrecht and Turner Prosthetics Research Institute.  Support to the Save a Child charity project aimed at helping seriously ill children;  financing of the participation of the Piano Theatre for deaf children in the Equal Opportunities Theatre initiative at the Harlequin Theatre Arts Festival;  Support with the implementation of the Green City project involving planting of valuable trees along the Neglinka River in Petrozavodsk (Petrozavodsk 300th Anniversary Alley Park);  Support with the opening and maintenance of an outdoor skating rink in the Governor's Park in Petrozavodsk.

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11. ENVIRONMENTAL PROJECTS

In 2015, JSC «TGC-1» invested in the following environmental projects: Nevsky Branch:  Environmental safety of fuel oil storage in railway tanks at the Avtovskaya CHPP;  R&D for the renovation of the sewage systems with separate wastewater flows; construction of local wastewater treatment facilities at the outlet to the public sewer at the Avtovskaya CHPP;  R&D for the renovation of the sewage systems involving the construction of the wastewater treatment facilities for the wastewater discharged to the Neva River from the Vasileostrovskaya CHPP-7;  Renovation of the external sewage of the chemical shop building at the Vasileostrovskaya CHPP-7;  System for control of oil products in the wastewater from the Vyborgskaya CHPP;  R&D for the renovation of the sewage networks, installation of the unit for dehydration of the chemically treated water liquid residue, and construction of local wastewater treatment facilities at the outlet to the public sewer at the Pravoberezhnaya CHPP;  R&D for the redirection of household and rainwater effluents from outlets 1 and 2 to the public sewer at the Centralnaya CHPP;  R&D for the renovation of the sewage networks involving the construction of the wastewater treatment facilities at the Centralnaya CHPP (PP-2) for the wastewater discharged to the Neva River and the municipal collector;  Completion of the project of 'Construction of a make-up water pumping facility with fish barriers' at the Pravoberezhnaya CHPP;  Upgrade of the fuel oil facilities at the Dubrovskaya CHPP to discontinue the solid fuel use. Karelsky Branch:  Renovation of the wastewater treatment facilities at the outlet of the industrial and storm water sewers at the Petrozavodskaya CHPP. Kolsky Branch:  R&D and installation of wastewater meters at the following power plants: Niva HPP-1, Niva HPP-2, Niva HPP-3, Kumskaya HPP at Niva HPPs Cascade;  Renovation of the wastewater treatment facilities at the Rayakoski HPP of the Paz HPPs Cascade;  Installation of a wastewater meter at the Borisoglebskaya HPP of the Paz HPPs Cascade;  Renovation of the wastewater treatment facilities at the Serebryanskaya HPP-2, Verkhne- Teriberskaya HPP, and Nizhne-Teriberskaya HPP of the Tuloma and Serebryanskiye HPPs Cascade;  Renovation of the fish way at the Nizhne-Tulomskaya HPP of the Tuloma and Serebryanskiye HPPs Cascade. The expenditure exceeded RUB 95 mln.

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Fig. 31. Total investment in environmental projects Pollutant air emissions at JSC «TGC-1» in 2015 reduced by 2.84 thousand tonnes (9%) year- over-year driven by a number of factors:  Reduced fired fuel volumes;  Reduced electricity generation and heat output at the business units of the Nevsky Branch;  4.45% increase in electricity generation at JSC «TGC-1» HPPs as compared to the previous year;  Improvement of fuel consumption for major and medium repairs of the main equipment. The fuel balance at the Apatitskaya CHPP of the Kolsky Branch in 2015 is represented by coals from the Khakassky (69.3%), Kuznetsky (29.0%) and Intinsky (1.7%) basins. In 2015, the share of coal with a higher ash content of the Khakassky basin increased 32% year-over-year, while the share of low-ash Kuznetsk coal decreased. That contributed to an increase in particulate emissions.

Fig. 32. Air emissions Water intake and discharge in 2015 decreased by 13.5% and 14.4%, respectively. The decrease was driven by:  Reduced electricity generation by the business units of the Nevsky Branch;  Reduced make-up volumes at the heating grids of St. Petersburg and Leningrad Oblast due to less heat output during a warmer winter (average annual temperature in 2015 was 0.49°С above the 2014 temperature);  Completion of organisational and technical measures aimed at improving water use performance: finding and elimination of pipeline defects, transfer of water consumption metering from calculations to meter readings at internal water pipelines; 106

 Shut-down of the "old equipment" of the Pervomayskaya CHPP and the second phase of the Avtovskaya CHPP at the Nevsky Branch from May through September 2015.

Fig. 33. Wastewater discharge in surface water facilities

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APPENDIX 1 REFERENCE INFORMATION FOR SHAREHOLDERS AND INVESTORS

Banking details of JSC «TGC-1» Tax reference number (INN)/KPP 7841312071 / 780501001 4070 2810 3090 0000 0005 Settlement account: in JSC AB ROSSIYA, St. Petersburg Correspondent account 3010 1810 8000 0000 0861 BIC 044030861 OGRN 1057810153400 OKPO 76201586

Information on the Registrar of JSC «TGC-1» Specialised Registrar – Holder of the Register of Gas Industry Shareholders Closed Joint Stock Company (CJSC SR-DRAGA) License number 10-000-1-00291 Issued on December 26, 2003, for an unlimited period of time Federal Securities Market Commission of the Russian Issuing authority Federation Location / Mailing address 71/32 Novocheremushinskaya Street, 117420 Moscow Tax reference number (INN) 7704011964 Telephone +7 (495) 719-40-44 Fax: +7 (495) 719-45-85 Website http://draga.ru/ E-mail: [email protected] Branch of CJSC SR-DRAGA (St. Petersburg) Location in St. Petersburg Room 3, 4 Lit. A Izmailovsky Pr., 190005 St. Petersburg Telephone +7 (812) 676-1813 Fax: +7 (812) 676-1813 E-mail: [email protected] Date of appointment of this registrar for the maintenance of the register of the issuer's registered securities: December 23, 2010

Information on the Auditor of JSC «TGC-1» BDO Unicon Joint Stock Company (JSC BDO Unicon) Section 11, 125 Bdlg. 1 Varshavskoye Shosse, 117587 Location / Mailing address Moscow Tax reference number (INN) 7716021332 Telephone +7 (495) 797-5665 Fax: +7 (495) 797-5660 Website http://www.bdo.ru/rus/ E-mail: [email protected] Branch of JSC BDO Unicon (St. Petersburg) Location in St. Petersburg 18A Petrogradskaya Embankment, 197046 St. Petersburg Telephone +7 (812) 332-0892 Fax: +7 (812) 332-0892 E-mail: [email protected] Details of the Auditor's membership in self-regulatory organisation of auditors Full name: Audit Chamber of Russia non-profit partnership Location: 3/9 3rd Syromyatnichesky Pereulok, 105120 Moscow, Russia Membership Certificate No. 3127 PRNE (primary registration number of entry in the SRO Register): 10201018307 Procedure for the Auditor Selection by the Issuer The tender involving the selection of an auditor in 2015 took the form of an open request for 108

proposals and the relevant notice was published on the official website at www.zakupki.gov.ru with terms of reference. Quotations were evaluated based on the following criteria:  Value criterion: contract price.  Non-value criteria:  Quality characteristics of purchased property.  Qualification of RFP participants, including their experience in auditing (statutory) financial statements, summary accounts, and consolidated IFRS financial statements and availability of sufficient labour resources with necessary competency and skills. The weight of criteria is determined in percentage terms. For evaluation purposes, criteria were rated as follows at the RFP stage: Item Request assessment criterion Weight No. 1. Value criterion 60% 1.1 Contract price 60% 2. Non-value criteria, including: 40% 2.1. Quality characteristics of purchased property 30% 2.2. Qualification of RFP participant 10% Sum of criteria weights 100% The Commission assigns a sequence number to each Request based on evaluation results in the descending order of benefits of Contract conditions. The Request with the best Contract conditions is rated the first. If several Requests contain similar Contract conditions, the Request received earlier will be assigned a lesser numerical than the other Requests with the same conditions. Factors that can influence the independence of the Company’s Auditor There are no factors that can influence the independence of the auditor (auditing company) or material interests binding the auditor (persons holding positions in the management and control bodies of the auditing company) with the issuer (persons holding positions in the management and control bodies of the issuer). To the extent of the auditor independence status, auditors are guided by article 8 of Federal Law ‘On Auditing Activities’ No. 307-FZ dated December 30, 2008, as well as Russian and international professional ethics codes of auditors. Period of the last external auditor selection procedure Based on the resolution of the Audit Committee of JSC «TGC-1», an open request for proposals was initiated to submit the auditor candidate to the consideration and approval by the General Shareholders’ Meeting followed by signing of agreement with JSC «TGC-1» for auditing of the statutory financial accounts in 2015. Bids were opened on April 17, 2015 witnessed by the representatives of auditing companies. Bid materials were evaluated based on such criteria as fee for the services, purchased property quality, qualification of the bidders, and final rating. The bidding commission of JSC «TGC-1» summed up the results of the open request for proposals and resolved to recommend JSC BDO Unicon as the Company’s Auditor for 2015. In accordance with clause 20.1.9 of the Issuer’s Articles of Association, the Board of Directors are authorised to “provide recommendations to the General Shareholders’ Meeting regarding the agenda items involving the approval of the Company’s auditor.” In accordance with clause 15.1.9 of the Issuer’s Articles of Association, the General Shareholders’ Meeting is authorised to “approve the Company’s Auditor.” Material conditions of the agreement with the Company’s external auditor The subject of the agreement is independent review of JSC «TGC-1» annual financial statements:  Annual statutory financial statements for 2015;

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 Consolidated financial statements for 2015. Period of services: the Auditor’s Opinion on the statutory financial statements shall be provided to the Company not later than on February 28, 2016 and the opinion on the financial statements shall be provided not later than on March 10, 2016. Fee for the services: pursuant to clause 20.1.10 of the Issuer’s Articles of Association, the determination of the fee for the auditor’s services is referred to the competence of the Board of Directors. Actual remuneration paid to the auditor: the remuneration for the audit of the RAS and IFRS statutory financial statements of JSC «TGC-1» for 2015 (including VAT) amounted to RUB 6,027,257.10. There are no deferred or overdue payments for the services rendered by the auditor.

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Contact information:

JSC «TGC-1»

Antonina Maksimova Head of Corporate Management Department Tel.: +7 (812) 901-3131 Е-mail: [email protected]

Svetlana Vaschenko Head of Equity and Investor Relations Division Tel.: +7 (812) 901-35-04 E-mail: [email protected]

Nikolay Isaev Head of Investor Relations Tel.: +7 (812) 901-32-97 E-mail: [email protected]

Viktor Nesterov Corporate Secretary, Head of the Shareholder Relations Division Tel.: +7 (812) 901-3591 Е-mail: [email protected]

The Bank of New York Mellon (GDR Depository Bank of JSC «TGC-1»)

Roman Kumits (New York) The Bank of New York Mellon Depositary Receipts ADR Division/EEMEA Tel: +1 (212) 815 5984 Fax: +1 (212) 571 3050 [email protected]

Yury Mandzhiev (Moscow) Tel.: +7 (495) 967-31-10 Fax: +7 (495) 967-31-06 [email protected]

APPENDIX 2 ABRIDGED FINANCIAL STATEMENTS OF JSC «TGC-1» FOR 2015 UNDER THE RUSSIAN ACCOUNTING STANDARDS

AUDITOR’S REPORT To the Shareholders and the Board of Directors of Joint Stock Company “Territorial Generating Company №1” (JSC “TGC-1”) Audited Entity Joint Stock Company “Territorial Generating Company №1” (JSC “TGC-1”) JSC "TGC-1" is registered by Inter-District Tax Inspectorate of the Federal Tax Service No. 15 of the City of Saint-Petersburg. Registered in the Unified State Register of Legal Entities on 25 March 2005 under the state registration number 1057810153400. Registered office: Litera B, 6 Bronevaya Ulitsa, Saint-Petersburg, 198188, Russian Federation. Auditor BDO Unicon Aktsionernoe Obshchestvo (BDO Unicon AO) Registered by Tax Inspectorate No. 26 of the RF Ministry of Taxation in the Southern Administrative District of the City of Moscow, Certificate of Registration No. 1037739271701. Registered office: 11/1, 125 Warshavskoye Shosse, Moscow, 117587, Russian Federation. BDO Unicon AO is a member of the professional audit association Self-regulated organization of auditors "Audit chamber of Russia" (Association), Main State Registration No. 10201018307 in the State Register of Auditors and Audit Organisations. Authority to sign the Auditor's Report rests with Sergey Albu, Partner, by way of Power of Attorney No. 13-01/2016-БДО of 1 January 2016. We have audited the accompanying financial statements of JSC "TGC-1", which comprise the following: ─ balance sheet as of 31 December 2015; ─ statement of financial results for the year 2015; ─ appendixes to the balance sheet and statement of financial results, including: - statement of changes in equity for the year 2015; - statement of cash flows for the year 2015; - notes to the financial statements for the year 2015. Management's Responsibility for the Financial Statements

Management of JSC "TGC-1" is responsible for the preparation and fair presentation of these financial statements in accordance with legislation of the Russian Federation in respect of the preparation of the financial statements, and for the internal control system necessary for the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on financial statements based on our audit. We conducted our audit in accordance with Federal Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial 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 financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

An audit also included evaluation of the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management of the audited entity, as well as evaluation of the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of JSC "TGC-1" as at 31 December 2015, and their financial performance and cash flows for the year then ended in accordance with legislation of the Russian Federation in respect of the preparation of the financial statements.

Other Matter

The financial statements for the year ended 31 December 2014 were audited by another auditor, who expressed an unmodified opinion on those financial statements on March 2, 2015.

BDO Unicon AO

S. Albu, Partner

26 February 2016

BALANCE SHEET as at 31 December 2015, RUB thous.

31 December 31 December 31 December

2015 2014 2014 I. FIXED ASSETS Intangible assets 16,128 20,078 24,028 Fixed assets 82,500,898 83,979,385 85,772,923 Income-bearing investments into tangible assets – – – Long-term financial investments 15,711,685 15,534,126 14,167,125 Deferred tax assets 45,783 67,150 575,007 Other non-current assets 230,216 224,209 219,790 Total Section I 98,504,710 99,824,948 100,758,873 II. CURRENT ASSETS Inventories 2,428,392 2,518,716 2,432,422 Value added tax on goods purchased 127,932 187,129 182,086 Accounts receivable 15,546,978 14,262,453 15,741,351 Short-term financial investments 1,112,773 835,835 1,820,198 Cash 1,627,896 1,977,751 186,782 Other current assets 417,576 257,767 250,532 Total Section II 21,261,547 20,039,651 20,613,371 TOTAL SECTION I AND II 119,766,257 119,864,599 121,372,244 III. EQUITY AND RESERVES Authorized capital 38,543,414 38,543,414 38,543,414 Own shares buy-back – – – Additional capital 32,959,992 32,969,109 32,997,502 Reserve capital 1,093,326 919,570 758,663 Retained earnings (loss) 11,388,475 9,745,841 7,046,864 Total Section III 83,985,207 82,177,934 79,346,443 IV. NON-CURRENT LIABILITIES Borrowings and bank loans 14,563,500 21,167,908 19,852,260 Deferred tax liabilities 4,240,925 4,337,115 5,016,680 Other non-current liabilities 40,398 48,093 – Total Section IV 18,844,823 25,553,116 24,868,940 V. CURRENT LIABILITIES Borrowings and bank loans 11,353,573 5,355,128 10,488,631 Accounts payable 5,389,187 6,591,693 6,438,774 Payables to participants (shareholders) – – Income of future periods – – Provisions for liabilities and charges 193,467 186,728 229,456 Other current liabilities – – Total Section V 16,936,227 12,133,549 17,156,861 TOTAL SECTION III, IV, V 119,766,257 119,864,599 121,372,244

Statement of financial performance for 2015 (RUB thous.) 2015 2014 Revenue 65,183,587 65,172,916 Cost of sales (60,000,856) (59,445,057) Gross profit (loss) 5,182,731 5,727,859 Sales expenses – – General business expenses – – Profit (loss) from sales 5,182,731 5,727,859 Income from participation in other companies – – Interest receivable 394,017 275,097 Interest payable (2,132,271) (1,757,115) Other income 4,599,740 3,809,890 Other expenses (4,637,691) (4,442,311) Income (loss) before taxation 3,406,526 3,613,420 Current income tax (796,682) (281,942) Prior income tax (8,028) (28,061) including permanent tax liabilities (assets) 129,605 109,269 Changes in deferred tax liabilities 101,736 (21,516) Changes in deferred tax assets (21,453) (427,500) Other (6,046) 620,720 Net profit (loss) 2,676,053 3,475,121 REFERENCE Result of revaluation of non-current assets not included to the net – – profit (loss) for the reporting year Results of other transactions not included to the net profit (loss) – – for the reporting year Cumulative financial result for the year 2,676,053 3,475,121 Basic earnings (loss) per share 0.00069 0.00090 Diluted earnings (loss) per share – –

APPENDIX 3 ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS OF JSC “TGC-1” FOR 2015 UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS AUDITOR’S REPORT To the Shareholders and the Board of Directors of Joint Stock Company “Territorial Generating Company №1” (JSC “TGC-1”) Audited Entity Joint Stock Company “Territorial Generating Company №1” (JSC “TGC-1”) JSC "TGC-1" is registered by Inter-District Tax Inspectorate of the Federal Tax Service No. 15 of the City of Saint-Petersburg. Registered in the Unified State Register of Legal Entities on 25 March 2005 under the state registration number 1057810153400. Registered office: Litera B, 6 Bronevaya Ulitsa, Saint-Petersburg, 198188, Russian Federation. Auditor BDO Unicon Aktsionernoe Obshchestvo (BDO Unicon AO) Registered by Tax Inspectorate No. 26 of the RF Ministry of Taxation in the Southern Administrative District of the City of Moscow, Certificate of Registration No. 1037739271701. Registered office: 11/1, 125 Warshavskoye Shosse, Moscow, 117587, Russian Federation. BDO Unicon AO is a member of the professional audit association Self-regulated organization of auditors "Audit chamber of Russia" (Association), Main State Registration No. 10201018307 in the State Register of Auditors and Audit Organisations. Authority to sign the Auditor's Report rests with Sergey Albu, Partner, by way of Power of Attorney No. 13-01/2016-БДО of 1 January 2016.

We have audited the accompanying consolidated financial statements of JSC "TGC-1" and its subsidiaries, which comprise the consolidated statement of financial position as at 31 December 2015, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and explanatory notes to the consolidated financial statements for the year ended 31 December 2015 which comprise a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements

Management of JSC "TGC-1" is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and legislation of the Russian Federation in respect of the preparation of the consolidated financial statements, and for the internal control system necessary for the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Federal Standards on Auditing and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The audit procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated financial 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 consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.

We believe that the audit evidence we have obtained is sufficient to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JSC "TGC-1" and its subsidiaries as at 31 December 2015, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and legislation of the Russian Federation in respect of the preparation of the consolidated financial statements.

Other Matter

The consolidated financial statements for the year ended 31 December 2014 were audited by another auditor, who expressed an unmodified opinion on those consolidated financial statements on 10 March 2015.

BDO Unicon AO

S. Albu, Partner

10 March 2016

Consolidated statement of financial position as at December 31, 2015 (RUB thous.) 31 December 31 December

2015 2014 ASSETS Non-current assets Property, plant and equipment 132,033,165 128,476,563 Investment property 181,232 88,489 Intangible assets 700,553 506,919 Investments in associates 395,544 427,137 Deferred income tax assets 438,839 302,332 Other non-current assets 1,273,073 369,044 Total non-current assets 135,022,406 130,170,484 Current assets Cash and cash equivalents 1,701,151 2,265,399 Short-term investments 42,073 30,073 Trade and other receivables 15,025,863 15,009,886 Current income tax prepayments 250,446 120,705 Inventories 2,636,994 2,646,806 Non-current assets held for sale 215,846 86,651 Total current assets 19,872,373 20,159,520 TOTAL ASSETS 154,894,779 150,330,004 EQUITY AND LIABILITIES Equity Share capital 38,543,414 38,543,414 Share premium 22,913,678 22,913,678 Merger reserve (6,086,949) (6,086,949) Other reserves (1,209,011) (1,209,011) Effect of remeasurements of post-employment benefits obligations (11,672) 128,851 Retained earnings 43,014,555 37,821,995 Equity attributable to the Company’s owners 97,164,015 92,111,978 Non-controlling interest 8,365,373 8,605,089 TOTAL EQUITY 105,529,388 100,717,067 LIABILITIES Non-current liabilities Deferred income tax liabilities 10,825,246 10,258,223 Long-term borrowings 16,807,500 21,260,080 Other non-current liabilities 185,623 208,755 Post-employment benefits obligations 958,732 724,666 Total non-current liabilities 28,777,101 32,451,724 Current liabilities Short-term borrowings 13,030,655 8,692,944 Trade and other payables 6,438,527 7,015,331 Current income tax payable 32,835 – Other taxes payable 1,086,273 1,452,938 Total current liabilities 20,588,290 17,161,213 TOTAL LIABILITIES 49,365,391 49,612,937 TOTAL EQUITY AND LIABILITIES 154,894,779 150,330,004

Consolidated statement of profit or loss and other comprehensive income for 2015, RUB thous. Year ended Year ended 31 December 31 December 2015 2014 Revenue Sales of electricity 38,665,866 40,198,234 Sales of heat 29,625,783 27,691,439 Other sales 1,132,252 1,106,540 Total revenue 69,423,901 68,996,213 Government grants 877,112 561,864 Operating expenses (61,023,161) (60,660,734) Impairment loss reversed/(recognized) during the year 220,949 (2,952,877) Other operating income 518,375 551,765 Total operating expenses (59,406,725) (62,499,982) Operating profit 10,017,176 6,496,231 Finance income 239,125 116,633 Finance costs (2,793,455) (2,741,471) Finance costs, net (2,554,330) (2,624,838) Profit before income tax 7,462,846 3,871,393 Income tax expense (1,636,624) 277,506 Profit for the year 5,826,222 4,148,899 Other comprehensive income Items that will not be reclassified to profit or loss: Remeasurements of post-employment benefits obligations (175,585) 114,305 Income tax on remeasurement of post-employment benefit obligations 30,464 (17,388) Other comprehensive income for the year (145,121) 96,917 Total comprehensive income for the year 5,681,101 4,245,816 Profit is attributable to: Owners of the TGC-1 6,061,340 3,889,674 Non–controlling interests (235,118) 259,225 Profit for the year 5,826,222 4,148,899 Total comprehensive income is attributable to: Owners of the TGC-1 5,920,817 3,981,524 Non–controlling interests (239,716) 264,292 Total comprehensive income for the year 5,681,101 4,245,816 Earnings per ordinary share for profit attributable to owners of the TGC-1, basic and diluted (in Russian Roubles) 0.0016 0.0010