Annual Report 2007 MOSENERGO’S Mission

Mosenergo annual report 2007 MOSENERGO’s mission

Mosenergo’s mission is to provide consumers with electric and thermal energy, generated by using resource- saving advanced technologies with equipment, meeting the highest ecological standards and provide the Com- pany’s shareholders with reasonable income

MOSENERGO’s strategic objective The strategic objective is to maintain the leading position on the Moscow Area energy market, to take the lead on the Russian wholesale market of electric energy and power and to multiply company’s equity capital (to achieve maximum economic and social effect)

MOSENERGO Structure

General meeting of shareholders

Board of Directors Audit commission

Chairman of the Board of Directors Chairman of the Commission

Mosenergo Executive Board annual report 2007 General Director

General directorate

Power plants Service branches

(17 branches) (16 branches)

•P.G. Smidovich TEP-1 •APK Shatursky •R.E. Classon LAPS-3 •Avtokhozyaistvo •TEP-6 •Central Mechanical Repair Works •TEP-8 •Energosvyaz •TEP-9 •Energotorg •M.Ya. Ufaev TEP-11 •Experimental Plant for Automation Means •TEP-12 and Devices •TEP-16 •Heating networks •TEP-17 •Industrial-Technological Completing Enterprise •TEP-20 •Information-Computing Center •TEP-21 •Medsanchast •TEP-22 •Moselektroremenergo •TEP-23 •Mosenergonaladka •TEP-25 •Mosenergoproyekt •TEP-26 •Mosenergospetsremont •TEP-27 •Special Construction-Technological Bureau •TEP-28 for High-Voltage and Cryogenic Technology •Teplosbyt MOSENERGO Generating Facilities in Moscow and in the Moscow Region

TEP-27TEEP-227

ТEP-21ТEEPP-2211 ТEP-28ТEТEPP-2288

LAPS-3LAAPS-33 ТEP-23ТEТEPP-233

TEP-6TEEP-6 ТEP-16ТEEPP-166

ТEP-11ТТEEPP-1111

ТEP-12ТТEEPP-1122 TEP-1TEEEPPP--1-1 GTU-TEPGTTU-TTEP

ТEP-8ТEEPP-8 ТEP-25ТEEPP-225 ТEP-9ТТEEPP-9

ТEP-20ТEEPP-2020

ТEP-22ТEEPP-22

TEP-26TEEPP-262

TEP-17TEEP-117 MOSENERGO Numerically

Key performance indicators UOM 2006 2007

Installed electrical capacity MW 10,677.3 11,117.3 Installed thermal capacity Gcal/h 34,289.4 34,297.4 Electricity generation kWh mln 64,377.9 63,673.3 Heat1.3.1 generation Gcal thou 70,180.9 65,556.5 Payroll Pers 17,814 16,544

Basic financial and economic indicators UOM 2006 2007

TEP-27TEEP-227 Assets RUR mln 69,220.11 148,037.6 Shareholders' equity RUR mln 39,683.01 118,310.2 Capital investments RUR mln 14,702.7 29,846.7 ТEP-21ТEEPP-2211 Proceeds from sales of products RUR mln 70,267.4 78,324.7 ТEP-28ТEТEPP-2288 Profit on sales RUR mln 4,983.6 4,550.9

LAPS-3LAAPS-33 Pre-tax profit RUR mln 2,992.6 2,648.5 ТEP-23ТEТEPP-233 Net profit RUR mln 1,523.7 739.5 Weighted average number of shares in circulation Pcs thou 28,249,360 34,968,407 Earnings per share RUR 0.0539 0.0211 TEP-6TEEP-6 ТEP-16ТEEPP-166 Accrued dividends RUR mln 600.0 296.32 Number of shares as of the end of the year Pcs thou 28,249,360 39,749,360 ТEP-11ТТEEPP-1111 Dividends per share RUR 0.02116 0.010442

3 ТEP-12ТТEEPP-1122 Market capitalization RUR bln 148.8 235.7 TEP-1TEEEPPP--1-1 GTU-TEPGTTU-TTEP 1 after reevaluating group of fixed assets “Machinery and equipment used for electricity and heat energy generation” and “Heating main ТEP-8ТEEPP-8 grids” as of 01.01.2007 assets amount came to RUR 87,333.5 mln., equity amount came to RUR 57,627.3 mln; ТEP-25ТEEPP-225 ТEP-9ТТEEPP-9 2 share dividends for the 1st quarter of 2007; 3 market capitalization is calculated according to ZAO MICEX Stock Exchange data on market price per share as disclosed on the date of completion of respective reporting period and the number of MOSENERGO shares issued. ТEP-20ТEEPP-2020

Structure of MOSENERGO’s Share capital, Structure of MOSENERGO’s Share capital, ТEP-22ТEEPP-22 as of 31.12.2006 as of 31.12.2007 (the number of shares issued – 28,249,360 pcs) (the number of shares issued – 39,749,360 pcs)

TEP-26TEEPP-262 Legal entities Natural persons Moscow government Legal entities and nominee holders in the person of Moscow and nominee holders property Department

2/*10# 2*61# 0/*/4# 4*73#

1*2/# /3*./# Natural persons RAO UES of Russia

0*73# 3.*7.# 31*25# TEP-17TEEP-117 OAO Moscow Integrated RAO UES of Russia ОАО “Gazprom” Energy Company Towards light, warmth and friendly environment!

MOSENERGO Today

MOSENERGO is the largest regional generating company of the Russian Federation and is essentially an indispen- sable integral part of the Unified Energy System of Russia. The Company's installed electrical capacity is 11.1 thousand MW, and installed thermal capacity is 34.3 thousand Gcal/h (39.9 thousand MW). MOSENERGO core businesses are electric energy and power generation and supply to the wholesale market, heat generation, sales of heat for ultimate consumers of Moscow and the Moscow Region. MOSENERGO is one of the largest suppliers of the wholesale market of electric energy and power in Russia. MOSENERGO is a compact, technologically and economically interconnected generating capacity complex. MOSENERGO incorporates 33 branches, among which are 17 power plants generating energy and power, having a common operation mode and relying on a shared capacity reserve and a centralized operational and dispatching control system. All power plants of the Company are co-generators. Along with the power plants, the power utility's operation is supported by 16 branches engaged in production, designing, maintenance, setup and other operations.

The 2007 annual report of MOSENERGO was approved by MOSENERGO Board of Directors on March 31, 2008 and submitted to the Annual General Meeting of MOSENERGO Shareholders for approval on May 21, 2008 Contents

Address of the Chairman 3. Engineering support 6. Social Responsibility of the Вoard of Directors of production 64 4 42 6.1. Human Resources Policies Address of the Chairman 3.1. Procurement of Fuel 64 of the Executive Board 42 6.2. Occupational Health and Safety 8 3.2. Maintenance Activities 66 Moscow power system is 120! 43 6.3. Social Programs 12 3.3. Procurement Activities 67 Year 2007. Events and facts 45 6.4. Environmental Protection 18 68

1. Macroeconomic 4. New Equipment and and sector environment Technologies 7. Corporate Governance 24 48 74 1.1. MOSENERGO in the Country, 4.1. Engineering Policy and 7.1. Corporate Governance Principles Region, and Industry Energy Efficiency 75 24 48 7.2. Meeting of Shareholders 1.2. Legislative Environment 4.2. Information Technologies and 76 26 Telecommunications 7.3. Board of Directors 1.3. Risk Management 49 77 28 4.3. Combined cycle power plants. 7.4. Executive Bodies Features and advantages 84 50 7.5. Audit Commission 2. Energy generation 88 34 7.6. Brand 2.1. Production Facilities 5. Investments 89 34 in production 2.2. Electric Energy 54 and Power Generation 5.1. Investment activities in 2007 36 54 2.3. Heat Generation 5.2. Development Prospects 37 of Generating Facilities 59

2 MOSENERGO Annual Report 2007

8. Shares and stock market 10. Financial Statement 11. Additional Information 92 114 176 8.1. Issuing of shares 10.1. MOSENERGO Management's 11.1. Information on Material Facts 92 Opinion on Financial 176 8.2. Charter capital structure (Accounting) Statements 11.2. Decisions adopted 93 115 by meetings of shareholders 8.3. Outstanding Securities 10.2. Opinion of the Audit 176 93 Commission of MOSENERGO 11.3. Corporate Governance 8.4. Dividend policy 116 Code-Compliance Information 97 10.3. Recommendation of the Audit 182 Committee of MOSENERGO 11.4. Information regarding Board of Directors on approval Interested-party Transactions 9. Financial Results Review of Financial (Accounting) 189 100 Statements and Auditor’s report 11.5. Glossary 9.1. Sales 117 190 100 10.4. Auditor’s report 11.6. Contact Information 9.2. Cost Management 118 191 101 10.5. Balance Sheet 11.7. MOSENERGO official site map 9.3. Profit 121 192 102 10.6. Profit and Loss Statement 9.4. Attainment of Key 123 Performance Indicators 10.7. Capital Change Report 104 124 9.5. Tariff Policy 10.8. Cash Flow Statement 105 127 9.6. Analysis of Financial Results 10.9. Annex to the Balance Sheet 107 129 10.10. Explanatory Note 135

see the indicated page of the Annual Report see the indicated page of MOSENERGO web-site at www.mosenergo.ru

www.mosenergo.ru Internet version of Annual Report is placed in “To Our Shareholders and Investors” section of the web-site 3 Address of the Chairman of the Вoard of Directors

4 MOSENERGO Annual Report 2007

Dear shareholders!

Last year the Moscow energy system celebrated its 120- Today the strategy of technical development of MOSENER- th birthday. This event was not simply a significant date for GO is based on putting in operation of highly efficient heat- the Company, which provides 66.0% of Moscow’s require- ing gas-steam units as well as on changing of exhausted ments in heating energy and 68.7% of Moscow’s and the heating facilities for facilities of gas-steam cycle that enable Moscow Region’s in electric energy. MOSENERGO – the to save 25-30% of gas and reduce hazardous air emissions. biggest generating company, the third in Russia by electric In 2007 according with decisions of shareholders’ meet- power output and the biggest generator of heating energy in ing additional shares of the Company were issued. As a result the world. of distribution of additional issue of shares the charter cap- As a result of the MOSENERGO reform, conditions were ital of the MOSENERGO increased by RUR 11.5 billion and created for attracting large-scale investment resources for amounted to RUR 39,749,359,700. Funds in the amount of modernization and construction of new generating capaci- RUR 60.7 billion, obtained by additional issue of shares, were ties needed for upgrading the Company’s competitiveness used for realization of the Company’s Investment Program. As a result of distribution of additional issue of shares the charter capital of MOSENERGO increased by RUR 11.5 billion and amounted to RUR 39,749,359,700 in circumstances where Wholesale market of electric ener- MOSENERGO Investment Program for construction of gy is under formation and providing for actively developing new and technical re-equipment of operational powerhous- industrial and social sectors in the area. es is aimed at uninterrupted securing in the long term of sta- The MOSENERGO was among the first in Russia to pro- ble energy supply to the population and the fast developing ceed to large-scale building and commissioning of generat- economy of the Moscow area. ing capacities on the basis of gas-steam technology. In In my opinion, during the reporting year a solid founda- November, the first in the Moscow energy system combined tion was laid for successful realization of the investment pro- cycle gas turbine unit CCPU-450T – the most powerful ener- gram – commissioning at least 1700 MW of the new gener- gy unit in the Moscow Area – was commissioned at TEP-27. ating capacities.

5 Address of the Chairman of the Вoard of Directors

The Board of Directors determines directions of the devel- In 2007 major structural changes in share capital of the opment for the current year and defines landmarks for its MOSENERGO took place: the RAO UES of Russia was replaced activities over a long period. by a new controlling shareholder – the OAO “Gazprom”, the Among the members of the Board of Directors elected by Company’s blocking share holding is owned by the Moscow shareholders on May 15, 2007 were representatives of the government. Moscow government, the Gazprom Group, the RAO UES of In December 28, 2007 a special general meeting of the Russia and managers of the MOSENERGO. MOSENERGO shareholders adopted a resolution about reor- In 2007 the problems of implementation of the Program ganization of the Company in the form of merger with the of development and technical re-equipment of the MOSEN- OAO “MOSENERGO Holding” founded as a result of the ERGO on the basis of development of own generation in the process of reorganization of the RAO UES of Russia in form Moscow area with the account of growing electricity con- of separation, and about increasing charter capital of the sumption of Moscow and the Moscow region remained of MOSENERGO by distribution of additional shares through high priority in the work of the MOSENERGO Board of conversion into them of the OAO “MOSENERGO Holding” Directors. shares in the sum total of 16.5 millions of rubles. Current technical developement strategy of MOSENERGO is based on putting into operation high-efficiency gas-steam units, as well as on replacing exhausted heating facilities with gas-steam cycle facilities

Special attention was given to fulfillment of measures On December 29, 2007 the RAO UES of Russia signed an focused on preparation of the Company for the work during agreement with the Moscow government stipulating that the autumn-winter 2007/2008 peak load period. latter buys 8.4 billions of shares of the MOSENERGO (21.16%) In its information policy the MOSENERGO aims at making that were owned by the RAO UES of Russia and were the the results of work and basic decisions taken by the Board state owned shares. As a result of this deal the RAO UES of of Directors meetings transparent for shareholders and open Russia share in the MOSENERGO charter capital decreased for public as much as possible. to 15.0%.

6 MOSENERGO Annual Report 2007

An active cooperation with the MOSENERGO management and the Company’s shareholders will allow us to resolve current problems effectively and realize plans of developing MOSENERGO successfully in a long term perspective. I am sure that the staff members of the MOSENERGO will continue all efforts to provide secure supply of electric energy and heating to consumers and to accomplish the tasks of the current year and to realize strategic goals set forth for the Company.

Chairman of the Board of Directors MOSENERGO

K.G. Seleznev

7 Address of the Chairman of the Executive Board

Esteemed shareholders!

In the last year 2007 the MOSENERGO as a generating In conformity with the resolution of the special meeting of company dealt successfully with its main task – reliable work shareholders held in June 2007, according to the results of of powerhouses for supplying consumers of Moscow and the Company’s work in the 1-st quarter of 2007, dividends the Moscow region with electric and heating energy. in the amount of RUR 296.3 million were paid. We will remember this year because the first results of In agreement with the Company Charter RUR 37.0 million putting into life a large-scale program for building of new will be remitted to the MOSENERGO Reserve fund. Remaining generating capacities were achieved: after a record-break- portion of the net profit in the amount of RUR 406.2 million ing short term of construction (22 months) the first power- is planned to be used for financing of construction and recon- generating unit of a new generation (CCPU-450T) was put into struction of distribution devices at the MOSENERGO power- operation at the TEP-27. houses to secure possibilities of technological connection of A strategy of our Company’s technical development is based consumers. on commissioning highly effective heating gas-steam instal- Capitalization of the Company in 2007 grew by 58.4% and lations with degree of efficiency in condensation cycle 57-59% at the end of the year came to RUR 235.7 billion, including as well as on changing exhausted heating facilities with scope as a result of distribution of additional issue of the MOSEN- of functionality of 90 and below atmospheres for gas-steam ERGO shares. cycle facilities. Being the biggest industrial complex in Moscow, the In 2007 new capacities of 540 MW were commissioned, MOSENERGO lives by its motto – “Towards Light, Warmth investments in new construction and reconstruction of oper- and Friendly Environment”. The MOSENERGO production ational capacities and technical re-equipment and modern- activity is conducted within the framework of ecological stan- ization of equipment more than two times surpassed capital dards and ecological indicators of the Company’s power- investments of the previous year and reached almost 30 bil- houses regularly improve. In June 2007 the MOSENERGO was lions of rubles. declared the winner of the First All-Russian contest «Ecological One of the main tasks of the Company during 2007, as pillar of Russia» in nomination «Leader in protecting environ- always, was preparation of energetic facilities for operation ment». in winter time. All of power plants of the Company finished In December 2007 within the framework of All-Russian repair and maintenance campaign in time: facilities, buildings conference «New priorities of national ecological policy in and constructions were repaired in planned volume, neces- real sector of economy» the OAO MOSENERGO was declared sary reserves of fuel were accumulated. Heating systems of the winner of the contest “Leader of Environmental Activities the capital city began functioning on the target date. in Russia – 2007”. During the reporting year the Company achieved positive Esteemed shareholders, in 2008 even more serious prob- financial results. Earnings from sale of commercial products lems, then in the previous one stand before us. The Board of amounted to RUR 78.3 billion, including that from sale of Directors approved investment program in the amount of electric and heating energy – RUR 70.2 billion. Net profit RUR 37.2 billion. Generating capacities of 1111.5 MW are amounted to RUR 0.7 billion, which is 2.5 times higher than planned to be commissioned, including 450 MW capacity planned. units at the TEP-21 and TEP-27. Also all efforts will be made to achieve maximum of financial results.

8 MOSENERGO Annual Report 2007

I am sure that in this year the MOSENERGO, having high potential and high-grade technical staff, will fully carry out planned production program, assure planned commission of generating capacities and preparatory work for realization of the next stages in developing the Company as well as all necessary work preparing for autumn-winter period.

Chairman of the Executive Board MOSENERGO

V.G. Yakovlev

9 • Steam turbines of Shaturskaya LAPS • Raushskaya power plant of “The Company of Electric Lighting of the Year 1886”, presently – TEP-1 named after P.G. Smidovich, a MOSENRGO branch • Construction of Kashirskaya LAPS • Solemn startup ceremony for turbine of the first high-pressure TEP – TEP-8, 1930 (from left to right)

10 MOSENERGO Annual Report 2007

• Education of power engineers to-be, Moscow Power Engineering Institute, 1953 • Power boiler of TEP-20 • Field engine – such engines were at the beginning of the Moscow energy system • Construction of Kashirskaya LAPS • Thermal switchboard for units of the phase one of TEP-16 • Orekhovo-Zuevskaya TEP was commissioned in 1930 (presently TEP-6, a branch of MOSENERGO) (from left to right)

11 Moscow power system is 120!

In 1888 the first central direct current power plant “Georgievskaya” of 1.5 MW began its operation on Bolshaya Dmitrovka Street

1887–1920

“The Company of Electric Lighting of the Year 1886” (a joint stock company) was established in Moscow in 1887. The Company was founded in Saint Petersburg and had mainly German capital of “Siemens and Galske” (85%). According to Contract with the City Administration the Company was entitled to lay underground electric cables along streets for illuminating private accommodations. Two temporary locomobile generating plants were built for illuminating Postnykova’s and Lubyanka Passages. In 1888 the first central direct current power plant “Georgievskaya” of 1.5 MW began its operation on Bolshaya Dmitrovka Street. At the same time the first 20 electric street lamps were installed in Moscow. In November 1897 new Moscow municipal power plant (MMPP-1) was put in operation (the first alternating current power plant of 3.0 MW (now TEP-1 named after P.G. Smidovich) and in February 1907 – “Tramvaynaya” (MMPP- 2) of 6.0 MW, built by Administrative board of the city.

12 MOSENERGO Annual Report 2007

1920–1931

In April 1914 the first world power plant operating on divot In December 1920 the state plan for Russia’s electrifica- started to deliver current – Bogorodskaya power plant tion (GOELRO) was approved. For the period of 10–15 years “Elektroperedacha” of 10 MW (now LAPS-3 named after the output of Moscow power system was planned to be R.E. Klasson). There appeared perspective for electrification increased almost four times – from 93 to 340 MW. In fact by of the whole Central industrial district of Russia due to new the middle of the 30s the installed capacity of power plants generation of district power plants working on local fuel base. built according to plan and being reconstructed came to Connection of “Elektroperedacha” power plant with Izmailov- about 820 MW. skaya substation in Moscow and its inclusion in 1915 in According to the GOELRO plan the following facilities were parallel operation with MMPP-1 became the beginning of built in Moscow region: Kashirskaya LAPS (1922, now includ- establishing the first Russian power engineering system. ed in ОАО “OGK-1”), Shaturskaya LAPS (1925, now includ- In December 1917 by Council of People's Commissars ed in ОАО “OGK-3”). Krasnopresnenskaya TEP (1929, later decree the property of “The Company of Lighting of the Year TEP-7, now subsidiary of TEP-12), TEP-6 in Orekhovo-Zuyevo 1886” was declared to be the property of Russian Soviet (1930) and ТEZhE TEP (1930, now TEP-8) were put in oper- Republic. ation in Moscow. In February 1918 Presidium of Supreme Council of National In 1922 it was decided to arrange united control of Moscow Economy established Association of State Power Plants region power plants. New trust was given abbreviated name (ASPP) of Moscow Region. “Moscow Association of State Power Plants”– MOGES. In the same year Mosenergoproyekt institute was established, now it is a MOSENERGO subsidiary. In 1926 the Special Сonstruction-Technological Bureau of High-Voltage and Cryogenic Technology (SKTB VKT) was established.

13 Moscow power system is 120!

1931–1945 1945–1965

In 1931 Moscow centralized district heating began: the In 1946 for the first time in Russian power engineering first hot water district heating main from MMPP-1 was com- natural gas was burnt in MOSENERGO on TEP-1. missioned and specialized enterprise on using and develop- MOSENERGO development in post-war period was car- ment of Moscow heating network was established. ried by means of increasing of current power plants capaci- In July 1932 MOGES trust was rearranged in MOSENER- ties and building new ones (Shchekinskaya and Cherepetskaya GO District Power Board (DPB). LAPS) in the coal basin near Moscow. In 1933 TEP-9 was put in operation, where straight-through Equipment for steam hypercritical characteristics (pressure boiler of Ramzin was started for the first time in the history 180 kilogramm-force/cm2, the first in Russia’s history) includ- of heat engineering. In 1936 TEP-11 began its operation. In ing drum boilers and turbo generators of 150 MW was installed 1937 installed capacity of power system exceeded 1000 MW on Cherepetskaya LAPS. for the first time. On June 14th, 1941 the first TEP-12 units In 1950 Stupinskaya TEP-17 was put in operation, TEP-20 began operation. was built in 1952 and TEP-16 was built in 1955 in Moscow. On June 22nd, 1941 power system development was inter- In 1960 the first units of TEP-22 were put in operation and rupted by the Second World War.Part of equipment was dam- a heating pipeline with pipes of 1000 m from TEP-11 was aged and part was evacuated. MOSENERGO installed capac- installed for the first time in the country. ity was reduced twice. In spite of it Moscow power engineers In 1963 TEP-21 began working. reliably supplied capital military objects with energy, made half circle of high voltage electric barriers of 300 km. 1965–1985 Immediately after successful counter attack by the Soviet troops in winter 1941–1942 the recovery of power utilities In 1960s principally new conditions of parallel operation began. Moscow power engineers mounted power trains for of powerful thermal and heavy-duty hydraulic plants, which the freed territories of the country. formed united power system on great space were created. In 1945 MOSENERGO recovered the pre-war level of Period from the middle of 60s up to the middle of 80s schedule capacity. was characterized for our Company by construction of the new power plants in Moscow and putting them in operation: TEP-23 (1966), TEP-25 (1975), TEP-26 (1979), reconstruction of old and commissioning of new capacities of current TEP. In 70s district heating power unit of 250 MW with steam hypercritical characteristics was successfully mastered. First installed at TEP-22, this unit became basic for all multi-million-strong heating plants: TEP-21, 22, 23, 25 and 26. In 1977–1980 MOSENERGO became the pioneer of mastering gas turbines, designed for regulating peak loads in power system. Three gas turbine units of 100 MW were put in operation at LAPS-3 named after R.E. Klasson. With the beginning of large-scale housing development of Moscow district heating received its greatest development. Thermal mains of 20-30 km and 1200-1400 mm in diameter were installed from new powerful TEPs, that required development of new design solutions.

14 MOSENERGO Annual Report 2007

1985–1993 2001–2007

During the Perestroika years which began in USSR in 1985, In summer 2001 RF Government started a reform of Russian mechanism of economic management and relationship of power engineering. the Company with energy consumers changed a lot. From the 1st of June 2004 MOSENERGO became partic- In 1988 MOSENERGO was the first among power associ- ipant of the Wholesale electricity market competitive sector ations of the country to make a switchover to self financing. and obtained opportunity to buy and sell electric energy in At the end of 1987 the first hydraulic unit of Zagorskaya market trade system in hourly mode and open price. water storage power plant was commissioned. It is a unique In April 2005 during reforming MOSENERGO (at that time and the only power object in Russia which regulates peak it was the greatest vertically integrated regional power engi- loads in power system (now within ОАО “GidroOGK”). neering company in Russia) was divided into 14 independ- In 1990 Ryazanskaya LAPS-24 was included in Moscow ent companies based on business types: generating, net- power engineering system (now within ОАО “OGK-6”), in work, repair, etc. That year became starting for Company’s 1992 TEP-28 was launched in Moscow. The same year first operation as generating company. hot-water boilers at TEP-27 were put in operation. MOSENERGO became the first generating company which developed its own development concept based on combined cycle technologies using steam and gas. In 2006 the Company was among the first in Russia to begin construction of new generation of generating facilities. 1993–2000 On November 22nd, 2007 the first combined cycle power unit CCPU-450T was commissioned at TEP-27 in Moscow In 1993 Production Association “MOSENERGO” was reor- power engineering system, which was the most powerful ganized to become an open joint stock company. The power unit in Moscow region. Company’s shares took significant place in portfolios of the The whole history of MOSENERGO proves that it was largest Russian and foreign investors. always a pioneer in mastering up-to-date technologies and In December 1996 the first power unit was commissioned new equipment implementation. The Company’s improve- at TEP-27. ment did not stop even during the most difficult years. And In June 1999 GTU-TEP was put in operation in the even now we have given start for a completely new stage of town of Elektrostal. Construction of such power plant of development, and the first 120 years are only the beginning low output (64.9 MW) and little built-up area, with good the whole life is in front of us! environmental characteristics resulted in new prospective direction of development in the field of autonomous energy supply of localities near Moscow and the capital’s new buildings.

15 • Construction of cooling tower of TEP-27 • Construction of chimney flue for power unit № 11 CCPU-450Т at TEP-21 • Outdoor switchgear at TEP-21 (from left to right)

16 MOSENERGO Annual Report 2007

• Installation of turbine at power unit № 3 CCPU-450Т of TEP-27 • Construction of cooling tower of TEP-27 • Construction of chimney flue for power unit № 3 CCPU-450Т at TEP-27 (from left to right)

17 Year 2007. Events and facts

On November 22, a solemn ceremony was held at TEP-27 in conjunction with the start-up of a first gas-steam power unit CCPU-450T

January

New tariffs for electric energy delivered according to bilateral contracts of wholesale market were put in practice as from January, 1st, 2007, established by order of FST of Russia individually for each power plant within MOSENERGO. New heat energy tariffs for Moscow and Moscow Region consumers were put into practice as from January 1st, 2007, under the resolutions of Regional Energy Commission of Moscow and Moscow Region Energy and Fuel Committee1.

February

During meeting with “Alstom” and “EMAllians” representatives general layout was reviewed of new power unit of the last, 4th generation (CCPU-420) construction at TEP-26, work schedules, operational management, and contract works arrangement were agreed.

1 p. 105

18 MOSENERGO Annual Report 2007

March May

Meeting of standing working group of Moscow region Annual Meeting of MOSENERGO shareholders took place power engineering companies’ heads was held under the on May, 15 in Dzerzhinsk (Moscow region)1. chairmanship of MOSENERGO Director General А.Ya. Kopsov MOSENERGO shareholders approved new staff of the Board regarding considering information about development of Directors and Company’s Audit Committee, as well as Annual of Moscow region power supply for the period till 2030. Report of the Company for 2006, annual accounting, profit and loss statement and profit distribution. ZAO “PricewaterhouseCoopersAudit” was approved as MOSENERGO auditor. April Several alterations and amendments were made in the Company’s Charter by resolution of Annual Meeting of MOSENERGO held solemn ceremony at TEP-26 to mark Shareholders. the beginning of construction of new combined-cycle pow- There were system competitions between complex mait- er plant CCPU-420. enance brigades of the Company’s power plants’ with trans- Ambassador of France in Russia S. de Labulie, Moscow verse connections. Competitions revealed high level of MOSEN- mayor Yu.M. Luzhkov, Chairman of the Executive Board of RAO ERGO maintenance personnel preparation. Team of TEP-26 UES of Russia A.B. Chubais, MOSENERGO Director General won the victory. A.Ya. Kopsov, “Alstom” president F. Zhuber, representatives of RF Federal Assembly, representatives of Moscow and Moscow region governments, OAO “Gazprom” representatives, “Alstom” and “EMAllians” representatives took part in the ceremony.

1 p. 176

19 Year 2007. Events and Facts

June September

On June 22nd Extraordinary general meeting of sharehold- MOSENERGO Director General A.Ya. Kopsov was recog- ers was arranged in form of absentee voting where it was nized as the best manager in power engineering by rating of decided to pay dividends based on Company’s work in the Russian Manager association and publishing house first quarter of 2007 in the amount of RUR 0.0104408508 per “Kommersant” “Top 1000 of Russian Managers”. Company’s equity share1. Winners of the First All-Russian Contest “Ecological support of Russia” were awarded in Russian Federation Federal Assembly Council. MOSENERGO was recognized as a win- October ner in nomination “Leader of environmental protection”. On October 3rd, 2007 MOSENERGO arranged workshop conference “MOSENERGO – generation of future”, devoted to Company’s 120-years anniversary. July MOSENERGO Director General A.Ya. Kopsov, representatives of RF State Duma, Moscow and Moscow region govern- Moscow power engineering system turned 120. On July, ments, ОАО “Gazprom”, RAO UES of Russia, the Russian 31, 1887 Moscow department of “The Company of Electric Academy of Sciences, engineering concerns “Alstom” and Lighting of the Year 1886” concluded the first contract for “Siemens” took part in the conference. illumination of Postnikova’s Passage (now Moscow Theater Based on ZAO “MICEX Stock exchange” resolution named after M. N. Ermolova is situated there). MOSENERGO equity shares were included in calculation basis of MICEX index from October, 15th, 2007 to April 15, 2008. This fact confirms MOSENERGO status as one of the main issuer of Russian securities. Company’s equity shares August are also included in calculation basis of MICEX index – Russian power engineering, which unites shares of 12 great- According to MOSENERGO Scientific and Technical Council est Russian power engineering companies and is the main recommendation Company’s specialists began preparing indicator of Russian stock market of power engineering sec- the second revision of Moscow area power facilities techni- tor companies. cal upgrading strategy. Strategy was developed in 2005 by working group of the Russian Academy of Sciences with the help of specialists from MOSENERGO, Center MES, ODU Center,Moscow RDU, ОАО “MOEsK”, ОАО “MGEsK”, ОАО “Moscow Heat Distribution Company”, ОАО “Mosenergosbyt” and other power engineering companies, design and scientific and technical institutes of Moscow and Moscow region.

1 p. 179

20 MOSENERGO Annual Report 2007

November December

On November 1st subsidiaries of MOSENERGO and Two expander generating units DGA-5000 with total elec- Company as a whole were presented with certificate of readi- tric power of 10 MW for environmentally friendly power gen- ness. Before obtaining certificates subsidiaries of MOSEN- eration were put in operation on MOSENERGO TEP-23. Turbo ERGO underwent complex readiness inspection for heating expanders efficiency factor achieves 80%. period. This inspection was carried out by joint committee of MOSENERGO is recognized as a winner of “Leader of RAO UES of Russia, Federal agency on environment, process environment-oriented activities in Russia-2007” competition and nuclear supervision (Rostekhnadzor) and Russian within All-Russian conference “New priorities of national eco- Federation Ministry of Emergency Situation. logical policy in real sector of economics”. MOSENERGO began mounting the first gas turbine of During the last 10 years volume of harmful emissions of power unit No.11 CCPU-450T on TEP-21 of 450 MW. Company’s power plants was reduced thrice. System of emis- On November 22 solemn ceremony of starting the first sions monitoring is established on all power plants. combined cycle power unit CCPU-450T was held at “Mosenergoproyekt” institute (MOSENERGO subsidiary), TEP-27. one of the first ones of GOELRO plan, turned 85. The ceremony was held with participation of: the First Institute specialists took part in preparing projects of Deputy Chairman of RF Government S.B. Ivanov, Head of Kashirskaya, Shaturskaya and Novomoskovskaya LAPSs, Federal Agency on power engineering D.S. Akhanov, Mayor Moscow centralized district heating system, including the of Moscow Yu.M. Luzhkov, the First Deputy Chairman of greatest backbone power plants of Moscow: TEP-21, TEP-22, Moscow region government I.O. Parkhomenko, chairman of TEP-23 and TEP-27. RAO UES of Russia Executive Board A.B. Chubais, Deputy Extraordinary General Meeting of Company’s Shareholders Chairman of OAO “Gazprom” Executive Board V.A. Golubev, was held on December 28 by absentee voting. It was decid- MOSENERGO Director General A.Ya. Kopsov, representa- ed to reorganize MOSNERGO by way of attaching OAO tives of Minpromenergo, Moscow and Moscow governments, “MOSENERGO Holding” established as a result of RAO UES delegates of RF State Duma. of Russia reorganization. On November 28 TEP-1 turned 110. It is the oldest acting power plant of Moscow power engineering system, and the first three phase alternating current power plant. At the moment of opening its schedule electric capacity was 3.3 MW. Nowadays updated 95 MW TEP-1 supplies Moscow Central district with heat energy and electricity. TEP-1 is included in the list of monuments of UNESCO universal heritage as a unique monument of industrial architecture.

1 p. 179

21 General view of the main building № 1 of TEP-21 – a branch of MOSENERGO

22 MOSENERGO Annual Report 2007

The main building contains principal and auxiliary equipment performing the technological process of electric and heat energy generation

23 Macroeconomic and sector environment

Share of electricity generated by the Company’s power plants amounts to 6.3% of the total volume generated in /Russia. The Company produces2 4.6% of the total heating 5 /. generated in Russia

1.1. MOSENERGO in the Country, Region, and Industry

According to the Federal State Statistic Service (Rosstat), Russia's GDP edged up 8.1% in 2007 and 7.4% in 2006 (according to refined data). Production output in industry rose up 6.3% in 2007 (3.9% in 2006). Electricity generation rose up 2.0% (4.0% in 2006) and electricity consumption increased by 2.3% (4.2% in 2006). In 2007 inflation in Russia ran at 11.9%. Prices climbed 25.1% in the production and 13.3% in the electric power industry. Real cash incomes of the population (inflation-adjusted) at the year-end of 2007 were 12.3%, including 16.2% growth in real earnings and 15.8% rise in pensions. The volume of Russia's capital investments in 2007 ramped up by 21.1% (13.5% in 2006).

A stable surplus has been secured in the public sector,and Russia is paying its external debts. In 2007 Standard&Poor's upgraded Russia's credit rating (financial system reliability index) from BBB+ to the A-2 investment level. Its rating fluc- 0 tuation3 prospects are considered as Stable. 6 // The city of Moscow and the Moscow Region are two independent constituent members of the Russian Federation. Together they form the Moscow metropolitan area, whose development rates drastically surpass the Russia wide ones. 124 4 7 MOSENERGO Annual Report 2007

Moscow – the capital of Russia – is the largest in the In 2007 electricity consumption in the Moscow Region country and one of the most important in the world political, increased to 92.7 billion kWh, or 3.5% as compared to 2006. financial, industrial, transportation, scientific and cultural MOSENERGO generation provides for 68.7% of electric- centers. Moscow territory is 1.08 thousand sq. km, and the ity consumption in the Moscow area. Generation share of the population more than 10 million people. Company power stations amounts to 6.3% in the whole pow- In 2007 output of industrial products of Moscow grew by er generation of Russia. 11.5%. As compared with 2006 the salary level in the capi- In accordance with the Wholesale market regulations of tal ran up 17.9%. The inflation rate in Moscow in 2007 was electric energy and power all the electric energy from the 10.2%. Company power plants is delivered to the Wholesale market. In 2007 the share of the regulated market electricity was The Moscow Region occupies 46 thousand sq. km with about 90%. In accordance with the RF Government resolu- the population being 6.5 million people. tion, the gradual replacement of the regulated bilateral con- The gross regional output in 2007 went up 13.4%. The infla- tracts with the system of free (non-regulated) contracts is tion rate in the Moscow Region reached 13.3%. expected by 2011. By the industrial output, the Moscow Region is the sec- From December 1, 2007 there was installed the new tech- ond-best after Moscow among the Russian Federation nology of selection of generating equipment involved and in regions. Both Moscow and the Moscow Region actively ramp accordance with that technology the equipment start-stop up the volumes of housing and industrial construction and is performed by the system operator of the wholesale mar- development of social assets that is accompanied by expan- ket on the ground of the supplier’s price request. sion of consumption of electric energy and power. The main existing and supposed competitors of the The power consumption reached its absolute peak of Company by the main types of activity: 15,643 MW in the first part of 2007 on February 8 at a mean 1. In the Wholesale market of electric energy of the Center daily outside temperature of minus 13.1°C (in terms of the of Russia: temperature minus 28°С* is 17,618 MW) and the increment • wholesale generating companies; to the last year maximum in comparable conditions was • territorial generating companies; 4.6%. The absolute peak in consumption during the latter half • FSUE (Federal State Unitary Enterprise) “Rosenergoatom”. of the year was reached on December 18 at a mean daily out- The competition with generating companies outside the side temperature of minus 0,9°С and amounted to 15,437 MW territory of the Moscow area is limited to the amount of net (in terms of the temperature minus 28°С* is 18,319 MW) power flow from the adjoining energy systems through the which is higher than the previous peak by 4.0%. “500 kV ring». Meanwhile in the period of maximum loading the flow capacity of the ring is used 100%. In 2008 By supplying energy to the Moscow area MOSENERGO the volume of net power flow will amount to 3,500 MW. provides for stable functioning and sustained development of its economy and social sphere. 2. In the electrical power market in Moscow Region: In respect of the installed capacity which is morethan 50 thou- • Kashirskaya LAPS-4 (ОАО “OGK-1”); sand MW, including thermal power, MOSENERGO surpasses • Shaturskaya LAPS-5 (ОАО “OGK-4”); all territorial and wholesale generating companies of Russia. • Zagorsk PSP (ОАО “GidroOGK”); MOSENERGO installed capacity is near 5.0% of installed • block-stations, mini-GTU-TEP; capacity of Russia. • independent electric power producers which are gen- erally industrial plants under construction and large property developers.

* climatic norm according to SNiP 23-01-99 (construction norms and regulations), “Construction climatology” 25 Macroeconomic and sector environment

Complex character of the production of electric and heat Taking into consideration OAO “MOEK” reconstruction energy, fuel balance structure and increase of energy con- program for 2010 and availability of the similar development sumption in the region influences the competitive ability of program of MOSENERGO it might be supposed that the MOSENERGO product. competition on Moscow heat energy market would become more acute in the near future. The Company produces 4.6% of heat energy produced In 2007 in Moscow an authorization was issued for the con- in Russia (including NPP). sumers on the increase of existing power or a new connec- In 2007 MOSENERGO power stations produced 66.0% of tion in the range of 1.0 thousand Gcal/h. That allows fore- the total heat energy consumed in Moscow. The principal casting heat consumption increase in the near years by competitor of the Company on the heat power market is 3.0-4.0%. OAO “Moscow Integrated Energy Company” (OAO “MOEK”). Its share in the production of heat power in 2007 amounted In 2007, Standard&Poor's, the International credit rating 24.0%. The last 10.0% of heat power production falls on the agency, upgraded the international credit rating of MOSEN- part of departmental and other heat sources. ERGO from “B” to “BB” level and for the national Russian scale OAO “Moscow Heat Distribution Company” (a member of rating from “ruA–“ to “ruAA”. Its rating fluctuation prospects OAO “MOEK”) separated during the reforming process out are considered as Stable. of the structure of MOSENERGO responsible for the heat transmission to the consumer, started in 2007 to conclude contracts for heat supply that led to competition increase on 1.2. Legislative Environment the heat market. The activity of MOSENERGO is guided by the federal laws of the Russian Federation, executive orders of the President of the Russian Federation, regulations and orders of the governments of the Russian Federation, Moscow city and The share of MOSENERGO in the All-Russian Moscow region, by-laws of the ministries, federal services electricity generation in 2007, % and agencies, the Company Charter and internal normative documents. The Company’s activities are supervised by the Department MOSENERGO of Industry and Energy of the Russian Federation, Ministry 4,1 of Finance of the Russian Federation, Federal Antimonopoly Service, Federal Tariff Service, Federal Environmental, Engineering, and Nuclear Supervision Agency and other governmental authorities. The baseline documents regulating operation of power utilities can be found on MOSENERGO website1. Among the most significant changes in the Russian Federation legislation on the electric power industry in 2007 is the RF Government's Directive of 23.10.2007 No. 277- э/7 “On approval of Methodological guidelines of charge rate measurement for technological connection to electrical networks” that defines the main regulations on charge rate measurement for technological connection of power receivers The share of MOSENERGO in the All-Russian (power generation systems) of legal and natural persons to heat generation in 2007, % electrical networks. In the course of the year there have been made certain amendments to a number of the normative documents adjust- MOSENERGO ing activity of the enterprises of electric power industry, 2,4 including: • Federal law of 26.03.2003 No. 35-ФЗ “On power industry”; • Federal law of 14.04.1995 No. 41-ФЗ “On the state regulation of tariffs on electric and heat energy in the Russian Federation”; • resolution of the Russian Federation Government of 24.10.2003 No. 643 “On regulations of wholesale market of electric energy (power) of transient period”;

1 1.5.

26 MOSENERGO Annual Report 2007

The share of MOSENERGO in the All-Russian The share of MOSENERGO in the energy market electrical capacity in 2007, % of the Moscow area in 2007, %

MOSENERGO MOSENERGO 3,. 46 ,5

1/ ,1 Other power generation companies and isolating power plants

Electricity consumption structure The share of MOSENERGO in the Moscow in the Moscow area in 2007 , % thermal energy market in 2007, %

Electrified city Industry MOSENERGO transport 1,1 11 ,0 44

/6 ,4 Population 02 /. 13 ,6 7,/ OAO "Moscow Other Non-industrial Power supply Integrated heat supply and other consumers organizations Energy Company" organizations

27 Macroeconomic and sector environment

• resolution of the Russian Federation Government of The risk of inflation can cause MOSENERGO cost esca- 26.02.2004 No. 109 “On pricing in respect of electric lation and result in a profit crunch. An escalation of inflation and heat energy in the Russian Federation”; can also cause losses in the actual value of the Company's • resolution of the Russian Federation Government of accounts receivable in case of a significant deferment of or 31.08.2006 No. 529 “On Improvement of Operation of delay in payments. the Wholesale Electric Energy (Power) Market”. The impact of inflation on the financial soundness of the Company is forecasted in its financial plans. To decrease inflation risks, MOSENERGO concludes long-term agree- 1.3. Risk Management ments for gas supply and transportation for power plants at the price fixed during the year. The risk management deals with prevention of risks existing in the production and financial fields of MOSENERGO Risk of losses through an inadvertent change activities and minimization of their probable consequences. in fuel prices The Company abides by the Risk Management Regulation The price of purchased petroleum products (black oil and approved by the Board of Directors. The Regulation con- diesel fuel) and coal largely depends on the domestic and tains a Risk Map comprising primary kinds of risks that export markets behavior and may feature sizeable fluctua- affect MOSENERGO activities, and a risk management pro- tions. A situation is probable when the business-plan fuel price gram. will be exceeded, and additional financial resources will be required to pay for its delivery. Political risks To minimize the said risks the Company creates on its A certain reduction of political risks marked the year power plants stockpile of reserved fuel types (coal and black 2007 for Russia. At the present time, we can see a positive oil) to provide for the possibility of their use in excess of the trend in upgrading international ratings of the Russian planned amounts and to exclude in-bulk single-step fuel Federation. acquisition, the Company works with OAO “Gazprom” on For MOSENERGO, a fundamental risk is the risk of the conclusion of economic contracts. unreasonable rate regulation associated with a possibility of forced control or administered reduction of tariffs or Risk of losses through an inadvertent change approval of tariffs that may be inadequate to the Company's in exchange rates costs. Due to the fact that the Company sells its products in The electric power industry liberalization contemplates the domestic market, the Company's business is not direct- tariff deceleration for the account of more effective capac- ly exposed to fluctuations in the rates of foreign currency ity utilization and competition among generators at the exchange. However existence of currency liabilities of the Wholesale electricity market. The larger is the slice of the free Company with respect to investment credits gives rise to market sector, the stronger is its hold upon the tariffs. financial risks attributable to dollar rate movements with The Company experts are constantly working with the respect to ruble. At the present time, they are not too high FST of Russia, Moscow REC and Moscow Region Energy and forasmuch as the share of exchange commitments in Fuel Committee in order to approve economically sound lev- MOSENERGO debt portfolio at the close of 2007 was el of tariffs. about 0.8%. Also with the view to reduce the tariff regulation risk, the The Company is subject to financial (interest-rate) Company implements annually a Cost Control Program1. risks to the extent of an indirect influence of credit interest rate fluctuations on the Company's financial performance. Market risks This basically concerns settlements of floating interest rates MOSENERGO performs its activity in one of the most on long-term loans. developed areas of the country with a large quantity of con- With the view to minimize the financial risks incidental to sumers of electrical and heat energy. Year-by-year growth foreign exchange movements, the Company forms a reserve of energy consumption determines the Company’s stabili- fund that is intended to cover losses and to meet contin- ty as the main energy producer in the area with constant gencies, takes out insurance contracts to cover the borrow- growth of demand for its production. er's assets, as well as executes contracts for securing cred- The portfolio of contracts that are concluded as a secu- it commitments. rity for both the existing obligations in the BCM and volumes The liquidity risk is a probability of experiencing a cash uncovered by the BCM is used as a tool to minimize the gap due to a cash deficit for settlement of obligations by Wholesale electric (power) energy market risks. The the required date work is being implemented with regulative authorities and NP Planning of and control over daily volumes of cash receipts “ATS” for preparation of power market launch. and payments for the services rendered, as well as existence of a contingent loss reserve fund enable the Company to minimize the risk.

1 p. 101

28 MOSENERGO Annual Report 2007

Credit risks To reduce the above mentioned risks, the Company takes Anticipated losses incidental to refusal or inability of steps: the other party to a contract to meet its obligations in • to reduce pollutant emissions into the environment; whole or in part • to maintain instant readiness of the equipment for bear- When dealing with consumers, MOSENERGO adheres to ing a load, and to create a spare capacity; a practice of custom-tailored service allowing for the specifics • to develop the computer-aided system of commercial of financial and economic activities of each of them. This energy metering; permits to find optimal, mutually beneficial solutions to prob- • to conduct certification of workplaces and to provide lems of their debts. working teams and working stations with means of individual and collective protection; Tax risks • to carry out an action plan for ensuring industrial safe- Risks of improper computation and payment of tax- ty of hazardous facilities of the Company; es resulting from disparate treatment of ambiguous • risks insurance. norms of the law The senior officials consider that the Company is in full Corporate governance risks compliance with the tax legislation applicable to its activities, In order to minimize the abovementioned risks MOSEN- which nevertheless fails to eliminate the potential risk ERGO carries out constant work on control augmentation of of being at variance with the competent regulatory authori- the Company: the work of committees of directors, a mod- ties with respect to the issues that allow ambiguous interpre- ified administration structure, regulatory Company docu- tation. ments are being amended.

MOSENERGO analyses potential risk situations during implementation of the work program. Insurance seves as the primary method for mitigating and compensating damages

MOSENERGO legal department renders its advisory opin- Industrial and technical risks ion to the accountants of the General Directorate and branch- The Company hedges against the industrial and techni- es of the Company on the tax questions, prepares reports cal risks by way of creating stockpiles of fuel, spare parts, on matters of the tax law. materials, as well as by carrying out measures to improve reliability of the power system. Risk of assets loss In respect of the Company power stations there is the as a result of property destruction risk of equipment failure because of the personnel This risk includes the risks of deactivation of energy misoperation both in normal mode and emergency state. facilities and destruction of the Company's property as Advanced training for the Company personnel is held in a result of acts of terrorism, stealing and natural calamities specialized training centers and directly on TEPs. in the region. Risks incidental to bringing new equipment into serv- In order to reduce these risks, the company causes rou- ice are minimized through acquisition of equipment that is tine inspections of anti-terrorist protection of the personnel manufactured according to technologies of manufacturing and production facilities to be made, arranges for protection plants well-established on the market for a given product against probable consequences of accidents, disasters and and that has proved its technical/economic indicators dur- natural calamities, provides emergency and fire-fighting ing warranty tests and during the testing period of operation. training of personnel, concludes insurance contracts. Minimization of risks of competent personnel shortage for facilities operation is implemented by means of secur- Risks of civil responsibility ing the specialists for the Company branch offices by plan- This group of risks includes a risk of the area pollution ning their career, material incentives and social guarantees1. liability and third party property tort, a risk of product MOSENERGO analyses potential risk situations during liability in supplies to the domestic market of the area implementation of the work program. The primary organiza- and to the WEM as well as a risk of management respon- tional form for mitigation and compensation of the amount sibility for damage inflicted to life and health of the of damage is insurance. Subject to commercial insurance are Company's employes. assets, dangerous production facilities, means of transport, civil responsibility, accident and health insurance of personnel, and medical insurance.

1 p. 67

29 Macroeconomic and sector environment

Dynamics of the gross domestic product Dynamics of industrial production index and consumer price index in Russia* and discount rate of the Central Bank of Russia RUR trillion %% % 35 120 120 20 11 ,.

/5,.0,0..1 /6 ,. 30

0/,.4,0..1 /4 ,. 04 ,4 115 115 15 25 /3,./,0..2 /2 ,. /1 ,. //0 ,. 0/ ,5 /// ,7 /3,.4,0..2 /// ,5 /0 ,. 04,/0,0..3 20 //. ,7 // ,3 04,.4,0..4 // ,. 01,/.,0..4 /. ,3 /4 ,6 110 110 07,./,0..5 /. ,. 10 /7,.4,0..5 15 /1 ,1 /.7 ,. /.5 ,. /.4 ,/ /.4 ,1 10 105 105 5 /.2 ,. /.1 ,7

0 100 100 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Gross domestic product Industrial production index*, % in current prices, RUR trillion Discount rate of the Central Bank Consumer price index, % of Russia, %

* source Rosstat * source Rosstat

30 MOSENERGO Annual Report 2007

Organizational risks A risk of losses as a result of inferiority of management processes in the Company, wrong choice of the market strategy. In order to reduce the operational risk, the Company con- tinuously improves its corporate governance mechanisms. It arranges for training of managers and specialists at post-graduate training establishments, creates a reserve for filling managerial positions. Investment risks In implementation of the investment program, MOSEN- ERGO is exposed to investment risks, i.e. risks associated with degradation of key indicators of an ongoing project as a result of a change in external factors. This risk is minimized through preservation and maintenance of the secured amount of assets. Application of financial lease mechanisms for acquisition of the Company's fixed assets in 2007 made it possible not to burden the Company's budget with lump sum payments of the full cost of property, but rather to distribute payments with an allowance for sea- sonality of the operating proceeds. Reduction of the investment risks of the Company was also achieved for the account of application of the insurance mechanisms.

Legal risks Risks of losses associated with the fact that the legislation was either disregarded, or changed in the period of the transaction; a risk of improperly drawn up documentation Legal risk management is based on the optimization of documents legalization and Company activity monitoring. To minimize legal risks any business processes which are subject to the abovementioned risks (contract conclusion, for example) undergo an examination by experts. The legal department renders its advisory opinion to the Company employes in solving practical tasks that arise during application of laws on an on-going basis. Risks of increase of expenses for settlement of claims against MOSENERGO on liabilities occurred before reforming To minimize the abovementioned risks the Company concluded an agreement of joint and several responsibilities with segregated companies.

31 Construction of the power unit № 11 CCPU-450Т at TEP-21, January 2007

32 MOSENERGO Annual Report 2007

Assembly of metal constructions of the main building of the power unit № 11 CCPU-450Т. The construction has begun in March, 2006, commisioning is planned for the first half of 2008

33 2 5 /.

Energy generation

All power plants of the Company generate electricity and 0heat in a combined cycle on cogeneration3 turbines 6 //

2.1. Production Facilities

The generation base of MOSENERGO consists of 17 power plants with 104 cogeneration turbines, 7 gas-turbine units, 1 combined cycle power unit (CCPU) and 2 expansion generating units, 117 power boilers and 114 peak-load boilers. All power plants of the Company are combined heat and power plants, i.e. they perform co-generation of two kinds of energy, electric and thermal, using one and the same equipment – cogeneration turbines. Six power plants use equipment operating in a packaged circuit. A total of 20 power units are installed thereat, including CCPU-450Т. One of the Company's power plants, LAPS-3, is a peak- load power plant. It is equipped with gas-turbine units and is designed to level daily loads of the power system and to provide for reliable energy supply during peak hours. The most powerful power unit in Moscow area – CCPU-450Т – was put in operation in 2007 at TEP-271. Installed electric capacity of the Company’s power plants increased by 440 MW during 2007 and at the end of the year became 11,117.28 MW.Installed heat capacity,including PLB, increased by 8.0 Gcal/hour within a year and constituted 1 34,297.384 Gcal/hour. 7 Change of installed capacity occurred due to commissioning of a new combined cycle power unit at TEP-27, refurbishment of two turbines at TEP-9 and TEP-22 and demounting of turbine and peak-load boiler at TEP-9.

1 p. 48

34 MOSENERGO Annual Report 2007

Generating facilities (as of 01.01.2008)

Name of the General electric General heat Year of the 1st Year of the last unit power plant capacity, MW capacity*, Gcal/h unit commis- commissioning sioning Turbines Boilers

TEP-1 with a subsidiary 95.00 951.00 1897 2006 2001 LAPS-3 658.28 341.38 1914 2006 2000 TEP-6 24.00 139.00 1930 1985 1961 TEP-8 605.00 2,192.00 1930 1986 1986 TEP-9 220.00 571.00 1933 2007 1993 TEP-11 330.00 1,011.00 1936 2001 2002 TEP-12 with a subsidiary 408.00 2,043.00 1941 1998 1992 TEP-16 360.00 1,484.00 1955 1994 1963 TEP-17 192.00 712.00 1950 2002 1957 TEP-20 730.00 2,400.00 1952 2004 2002 TEP-21 1,350.00 4,618.00 1963 2006 1983 TEP-22 1,320.00 3,610.00 1960 2007 1973 TEP-23 1,410.00 4,515.00 1966 1997 1982 TEP-25 1,370.00 4,088.00 1976 1991 1991 TEP-26 1,410.00 4,006.00 1981 1988 1988 TEP-27 610.00 1,576.00 1992 2007 1998 TEP-28 25.00 40.00 1992 1993 1993 Total: 11,117.28 34,297.38

* total unit heat capacity includes the capacity of peak-load boilers

Efficiency of using the installed capacity of power plants and covering peak loads of day dispatcher schedules or depends on many factors: type of installed equipment, equipment operation in basic mode with constant load, equipment readiness for carrying maximum (minimum) change of power plant heat load, etc. load, equipment participation in modes of deep unloading

35 Energy generation

Usage coefficient of annual average installed capacity

Usage coefficient of annual Usage coefficient of annual average installed turbine average installed turbine heat electric capacity, % capacity, %

2006 2007 2006 2007

TEP-1 with a subsidiary 57.8 45.3 55.0 45.2 LAPS-3 3.3 3.1 29.5 25.4 TEP-6 17.3 15.4 18.0 15.5 TEP-8 59.1 54.9 24.5 23.6 TEP-9 61.5 71.6 25.0 29.2 TEP-11 73.5 74.0 40.0 37.7 TEP-12 with a subsidiary 74.5 79.0 39.8 38.8 TEP-16 76.9 75.2 54.0 52.4 TEP-17 38.9 47.9 15.9 14.3 TEP-20 71.1 69.2 42.3 42.0 TEP-21 82.0 77.5 57.2 51.7 TEP-22 80.5 75.8 46.4 45.1 TEP-23 74.8 72.6 49.7 47.3 TEP-25 73.8 76.5 40.4 39.1 TEP-26 74.5 70.6 47.8 46.3 TEP-27 92.6 82.0 51.4 45.5 TEP-28 47.8 44.3 58.1 53.8 MOSENERGO: 69.8 68.0 43.6 41.8

Usage coefficient of annual average installed electric 2.2. Electric Energy capacity in 2007 constituted 68.0%, that is lower than the and Power Generation level in 2006 by 1.8 points due to increase of annual average installed capacity and reduction of electricity generation of MOSENERGO as generating company performs genera- the Company’s TEPs, working according to dispatcher sched- tion and delivery of electric energy and power to the Wholesale ules, established by wholesale market operator. market. Usage coefficient of annual average installed turbine heat In 2007 electric energy and power wholesale market influ- capacity constituted 41.8%, that is less than the level of the enced considerably power plants operating modes, forming previous year by 1.8 point. schedules of their operation by strong changes of load Reduction of this index has been caused by significant during 24 hours, as market current regulations did not com- reduction of heat release due to weather conditions, in spite pletely consider heating character of the Company’s TEPs of 5 days increasing of heating period duration. operation. Operating modes of the Company’s power plants were specified by dispatcher schedules of the wholesale market system operator – OAO “SO-CDU UES”. In 2007 the system operator carried out power plant equipment unloading for several times in connection with abnormally warm weather in the Ist and IVth quarters. Annual average temperature of ambient air was +7.1°С, that is 1.2°С

36 MOSENERGO Annual Report 2007

Electric energy generation, eral contracts. 4.4 billion kWh of electric energy was sold at mln. kWh competitive prices on the market “day ahead” and on the balancing market. Name of the 2005 2006 2007 power plant Electric energy generation, mln kWh MOSENERGO power plants 70 ,000 TEP-1 365.3 358.1 377.3 42 *155 ,7

LAPS-3 148.4 183.9 180.4 60 ,000 42 *6/0 ,2( 41 *451 ,1 TEP-6 34.9 36.4 32.3 50 ,000 TEP-8 2,935.0 3,131.1 2,907.9 TEP-9 1,473.4 1,347.3 1,335.3 40 ,000 TEP-11 1,982.2 2,124.3 2,139.2 30 ,000 TEP-12 2,732.4 2,661.1 2,823.9 TEP-16 2,386.9 2,423.8 2,371.2 20 ,000

TEP-17 594.3 655.0 805.4 10,000 TEP-20 4,027.8 4,545.7 4,423.4 0 TEP-21 8,945.4 9,045.0 9,168.6 2005 2006 2007 TEP-22 8,489.4 9,167.6 8,634.9 TEP-23 8,943.6 9,236.3 8,962.0 * including the production of 3,256.9 mln KWh by the powerplants which formed part of MOSENERGO before 01.04.2005 TEP-25 8,648.6 8,859.5 9,186.3 TEP-26 8,479.5 9,199.6 8,724.8 TEP-27 1,261.3 1,298.5 1,503.3 TEP-28 107.1 104.7 96.9 2.3. Heat Generation

Total: 61,555.5 64,377.9 63,673.3 By its heating capacity, MOSENERGO is the world's largest power system and the principal supplier of heat to the Moscow Power plants affiliated to MOSENERGO area consumers. before 01.04.2005 Heat is produced by bleeding steam and peak-load boilers. Heat sales in turbine’s bleed steam in 2007 amounted LAPS-4 1,425.0* -- to 90.8%. LAPS-5 942.8* --MOSENERGO is a heat-generating company whose operation results hugely depend on the ambient air temperature. LAPS-24 431.6* -- In 2007, due to higher temperature of the heating period, Zagorsk PSP 457.5* --i.e. +0.4°С (in 2006 it was minus 1.4°С) – collectors of pow- Ultimate: 64,812.4 64,377.9 63,673.3 er plants delivered 65.6 million Gcal of heating energy which was by 6.6% lower than in 2006. * data for the Ist quarter of 2005 The heat deliveries with an allowance for purchases totaled 66.3 million Gcal, which makes by 6.5% less than in the previous year 2006. higher,than average long-term temperature and 1.5°С high- Ultimate consumers received 62.7 million Gcal, which is er than in 2006. by 5.7% lower than in the year 2006, including reduction of Working according to dispatcher schedules the Company’s heat consumption with hot water by 3.5% and with steam – power plants generated 63.7 billion kWh of electric energy, by 9.4%. that is by 1.1% less, than in 2006. Reduction of heat power consumption in comparison with In 2007 MOSENERGO delivered 58.1 billion kWh of elec- the year 2006 has been registered for all consumer groups. tric energy to the Wholesale market, as well as 53.7 billion Heat supply for compensation of losses in the heat sup- kWh of electric energy and capacity of 10.5 thousand MW ply networks totalled 4.3 million Gcal, which is by 18.4% low- were sold within market regulated sector according to bilat- er than in 2006.

37 Energy generation

Heat Power Delivery from Collectors, In order to solidify the Company's position in the heat mar- thou. Gcal ket, it is essential to respond to the maximum number of consumers' requests for connection to MOSENERGO generators Name of the 2005 2006 2007 and to expand its heating capacities. power plant The connected heating load of the Company consumers added 990.7 Gcal/h in 2007, reaching 34,956 Gcal/h by the MOSENERGO power plant beginning of 2008. TEP-1 1,948.9 1,876.6 1,758.8 LAPS-3 391.2 415.1 396.8 Heat delivery from collectors, thou. Gcal TEP-6 186.5 187.9 175.0 TEP-8 2,427.0 2,374.7 2,179.4 5. *502 ,3( 5. */6. ,7 70 ,000 TEP-9 1,552.3 1,432.8 1,313.4 43 *334 ,3

TEP-11 2,346.3 2,503.5 2,475.1 60 ,000 TEP-12 3,365.2 3,525.2 3,296.1 50 ,000 TEP-16 3,905.1 3,876.7 3,659.8

TEP-17 582.1 641.6 567.7 40 ,000 TEP-20 4,737.5 4,857.2 4,670.5 30 ,000 TEP-21 11,458.8 11,210.6 10,208.2 TEP-22 9,350.3 9,437.5 9,038.6 20 ,000 TEP-23 9,249.1 9,269.1 8,567.0 10,000 TEP-25 7,200.2 6,791.1 6,360.0 TEP-26 8,972.1 8,979.8 8,449.9 0 2005 2006 2007 TEP-27 2,447.0 2,600.1 2,253.2 TEP-28 205.5 201.5 187.0 * including the release of 399.2 thou Gcal from collectors of the powerplants which formed part of MOSENERGO Total: 70,325.1 70,180.9 65,556.5 before 01.04.2005

Power plants affiliated to MOSENERGO before 01.04.2005

LAPS-4 175.9* --Heat consumption structure in 2007, % LAPS-5 223.3* -- Other LAPS-24 ---consumers Industry Zagorsk PSP ---06 ,3 3,5 Ultimate: 70,724.5 70,180.9 65,556.5

* data for the Ist quarter of 2005

/2 ,0 3/ ,4 Budgetary Residential consumers organizations

38 MOSENERGO Annual Report 2007

Electrical balance of MOSENERGO in 2007, KWh mln.

41 *451 ,1 36 *500 ,3 36 *.7/ ,4 36 *.62 ,2 31 *732 ,1 Generation Discharge Discharge Useful RS sales from bus to the discharge network

3,130 .5 7,013 .0 Purchase on DAM DAM sales 1,954 .0 2,20 1.6 Purchase on BM BM sales

2*73.,6 41.,7 5,0 Own consumption Loss in the power Load loss plant grid WEM

Heat balance of MOSENERGO in 2007, thou. Gcal

43 *334 ,3 40 *432 ,6 4/ *134 ,2 Discharge Useful discharge In hot water from collectors to ultimate consumers

/*076 ,2 In steam

3,540 .9 OAO "Moscow 639 .2 Purchase from Heat Distribution Company" * regional boiler-houses

* to compensate technological flow rate in the heating grids

39 Construction of the cooling tower of the power unit № 11 CCPU-450Т at TEP-21, June 2007

40 MOSENERGO Annual Report 2007

Water recycling with the use of cooling towers is applied at the heating and power plant for cooling of waste steam of the steam turbines. The aim of the cooling towers is to cool circulation water by atmospheric air

41 2 5 /. 0 3 6 //

Engineering support of production

For the purpose of efficient fuel use MOSENERGO daily 1optimizes the fuel regimes. General4 economic benefit 7 from such work amounted in 2007 to RUR 387.1 million

3.1. Procurement of Fuel

Dependable organization of fuel supplies is one of the key points that provide for stable operation of generation plants. Natural gas is employed by MOSENERGO as primary fuel with coal and black oil used as back-up fuel.

Fuel Consumption by MOSENERGO TEPs, thou tfe

2005* 2006 2007 Total 25,634.0 26,654.6 25,897.9 Gas 24,761.7 25,504.0 25,443.0 Black oil 328.3 474.2 91.7 Coal 544.0 676.4 363.2 * data adjusted for the Company operation after restructuring

In 2007 22.2 billion cube meters of natural gas were used, including 21.8 billion at the TEPs of Moscow. 63.5 thousand tons of black oil and 485.6 thousand tons of coal were used. Taken as a whole, MOSENERGO total fuel consumption fell 2.8% from the level of 2006. However gas consumption fell 0.2%, and consumption of liquid and solid fuels fell 80.7% and 46.3% respectively. The solid fuel accounted for 1.4% and liquid fuel for 0.4% of the overall fuel mix of the system.

42 MOSENERGO Annual Report 2007

3.2. Maintenance Activities

For successful execution of production program and unin- terruptible generation of electricity and heat energy, power plant equipment must constantly be in the state of operational availability and correspond to up-to-date process requirements. Company’s maintenance activities provide for reliable and economical operation and for longer service life of power plant equipment. Repairs are performed by the personnel of MOSENERGO power plants, specialized repair subsidiaries, as well as by third party contractors. To optimize application of funds allocated for repair, the Company carries out pre-repair diagnostics of the equipment. The Company carries out regulated competitive procedures to conclude repair contracts under the most favorable conditions for the Company2. In 2007 the costs of repair equipment, buildings and structures was in total RUR 5.03 billion. Fuel expenditure cut is associated primarily with heat gen- The remedial maintenance expenses distributed as 85.6% eration lowering at MOSENERGO TEPs, due to climatic con- for the equipment repair and 14.4% – for the repair of build- ditions of 2007 – average annual temperature as compared ings and structures. to the last year was 1.5°С higher. In order to reduce fuel expenses the suppliers of reserve fuel types are selected through the competition procedure1. For the purpose of efficient fuel use MOSENERGO daily optimizes the fuel regimes. General economic benefit from that work amounted in 2007 to RUR 387.1 million at the expense of: • above-limit gas acquisition, agreed upon with gas suppliers in the amount of 0.7 billion cube meters, that made it possible to replace 846.9 thousand tfe of reserve fuel and to reduce fuel acquisition expenses at least by RUR 351.0 million; • recovery of RUR 36.1 million from the fuel suppliers and transport organizations for improper execution of the contract responsibilities. In order to decrease the risk of disconformities between fuel supply and consumption the Company creates reserves of fuel types.

1 p. 45 2 p. 45

43 Engineering support of production

In 2007 overhaul and medium repairs were accomplished Under reliability increase program the following circuit on 6 power units, 20 turbines, 21 power boiler and 6 peak- breakers with expired service life were replaced: load boilers. The remaining 14 power units and more than 50% • 500 kV circuit breakers – 2 pcs and 200 kV –1 pc at of turbines, power boilers and water heaters underwent TEP-26; current repairs. The technical and economic indices of the most • 110 kV circuit breakers – per 2 pcs at TEP-20 and 21. of boilers and turbines had been improved and brought to Besides batteries with expired service life were replaced the rated values. Auxiliary equipment was also repaired – with modernization of direct current boards at LAPS-3, 336 main line pumps and 245 main line heaters. TEP-21, 23 and 26. An extension program was implemented for heat-mechan- ic equipment whose specified service life had expired: a spe- Annual scheduled inspection and repair of their liquid fuel cial examination of metal of manifolds and steam bypass tanks were carried out at power plants. 16 tanks with total pipes of 8 boilers, 22 steam pipelines, 4 turbines and 6 boil- capacity of 58.7 thousand tons were inspected and 6 tanks er drums has been performed. with total capacity of 65.4 thousand tons were repaired. Boiler units reliability improvement was carried out by means Repairs of equipment of fuel transport departments were of changing surfaces and manifolds with expired service life. performed within the planned scope. Main steam pipelines reliability improvement was per- 35 funnels, 7 cooling towers were repaired and inspect- formed mainly by carrying out restoring heat treatment that ed, 48 thousand sq. meters of roofing of production buildings allows doubling steam pipeline service life. were vamped, 95 buildings and structures were inspected at In 2007 the Company performed 21 overhauls and 6 medi- the Company’s power plants. um repairs on generators.

The thorough repair campaign worked largely towards the Company's successful management of 2007/2008 autumn/winter peak loads

The most significant pieces of work that were executed in The thorough repair campaign worked largely towards 2007 repair campaign were: the Company's successful management of 2007/2008 • replacement of 3 generators with the new ones: No. 5 at autumn/winter peak loads. TEP-9, No. 1 at TEP-16 and No. 1 at TEP-22 according to reliability increase program; Maintenance activities reforming • repair of 5 rotors with removing retaining rings, and To increase maintenance activities efficiency the Company’s replacement of contact rings on 2 of them; Executive Board decided to perform its reforming and defined • replacement of rectifier bridge and automatic exciting main stages of the reform, as follows: regulator on turbo generator No. 2 of TEP-26; • at the first stage, a part of works executed by proper main- • inspection of 10 generators at 7 power plants. tenance personnel of power plants is transferred to MOSENERGO branches, i.e. CRMZ and MESR, with a The reporting year saw 18 transformer overhauls. part of power plant personnel being moved to CRMZ Under reliability increase program 5 worn power trans- and MESR areas; formers were replaced, including three at TEP-22, one at • at the second stage on the basis of Company’s produc- TEP-8 and one at TEP-23. tion and repairing facilities (CRMZ, MESR and MERE) one or several 100%-subsidiaries will be established without 3 air circuit breakers and 3 oil circuit breakers went through the right of their further sale. major repairs and 9 oil circuit breakers went through medi- In 2007 the first stage of maintenance activities reform um repairs. was completely performed: number of power plant maintenance personnel was reduced by 843 persons (25.5%), 103 persons of them were moved to production and repair facilities. Economic effect from transferring repairs for execution to production and repair facilities came to RUR 20.8 million for the reporting year.

44 MOSENERGO Annual Report 2007

3.3. Procurement Activities

For effective appropriation of the Company's financial 2.281 tenders were carried through in total amount of RUR resources, MOSENERGO established complex program of 16.7 billion. preparation and executing procurement, which allows attract- Besides 816 sole-sourced contracts were made in total ing organizations, whose quality of works execution, service amount of RUR 6.5 billion. rendering and delivery of goods complies with MOSENER- Economic effect from tenders in 2007 came to RUR 1.1 GO requirements. billion, or 5.0% of tenders costs. Procurement activities in 2007 were carried out on the MOSENERGO takes part in databases and bids in infor- basis of normative and regulatory documents of MOSENER- mation and analytic and trading and operational system locat- GO approved by Company’s Board of Directors: ed on the web site www.b2b-energo.ru. • Provisions on procedure for carrying out regulated pro- Information about procurement activities and their results curement of goods, works, services for MOSENERGO; is available on MOSENERGO web site in section • Procedure for establishing advantages of certain groups “Procurements”. Copies of publications regarding performed of subcontractors and suppliers for the purposes of procurements and their results are available on www.b2b- performing regulated procurement of goods, works, energo.ru. services for MOSENERGO; From 2007 MOSENERGO web site, section “Procurements” • Provisions on the Permanent Central Procurement has subject search as well as possibility of sending e-mails Committee of MOSENERGO. to the Company’s Central Procurement Committee1. Regulation of Procurement activities in MOSENERGO has been established to arrange interaction of Company’s subdivisions. Central Procurement Committee makes sure that a con- certed policy is framed and pursued in the field of procurement of goods in Company and performs regulated Procurements of special importance. Permanent tender committee of MOSENERGO performs regulated Procurements for the Company’s needs at their total amount from RUR 1.0 million (without VAT) and more. Carrying out regulated procurements for the Company’s needs at their total amount from RUR 0.2 million to 1.0 million is performed by Procurement Committee for each certain procurement. Procurement activities in 2007 were carried out according to annual complex procurement program, approved by Company’s Board of Directors and being an integral part of Company’s business plan in the following directions: • construction, technical upgrading and reconstruction; • maintenance and repair of power facilities; • services in property management; • fuel for power plants; • other procurements. The volume of purchases in 2007 totaled RUR 23.2 billion (without cost of purchase of the rationed gas to the amount of RUR 36.0 billion), that is 4.2 billion more as compared to 2006. Purchases cost increase can be explained mainly by the increase in purchase volume in construction, technical upgrading and reconstruction.

1 4.

45 Complex of production buildings and structures of TEP-27 – building with peak hot-water boilers, chimney flue, chimney flue under construction, main building, chemical department equipment (from left to right)

46 MOSENERGO Annual Report 2007

Complex of production buildings and structures of TEP-27 – cooling tower under construction and operating cooling tower (from left to right)

47 New Equipment and Technologies

4.1. Engineering Policy and Energy Efficiency

Balanced and consistent engineering policy is a compul- • converting two power plant boilers of TEP-16 to two-stage 2sory condition of the Company’s equipment reliable work fuel burning allowed5 reducing nitrogen oxides emissions /. and the basis for introducing advanced achievements of world by 119 tons a year; technologies in power generation. • installation of low toxic burner units at hot-water boiler Introduction of advanced technologies and solutions cov- № 4 of TEP-23 reduced nitrogen oxide emissions ers all directions or process cycle and is carried out in the fol- by 70 tons a year. lowing directions: Specialized organizations experienced in power industry • increase of equipment operation reliability and efficiency; have been engaged to take part in equipment checks and • reduction of auxiliary power consumption; implementation of advanced technologies. • reduction of costs for desalinated water preparation; According to MOSENERGO and Moscow Energy Institute • reduction of nitrogen oxides emissions; (Technical University) scientific and technical cooperation • reduction of water consumption and water discharge. program for 2006-2007, MEI (TU) and its scientific and pro- Among the new equipment and technologies implement- duction subdivision ZAO “Center POTEST” specialists have ed in 2007 by MOSENERGO subsidiary companies the fol- performed significant scope of work for the Company’s sub- lowing can be specified: sidiaries. • in November at TEP-27 power unit No.3 CCPU-450 was Based on thermal load analysis of turbines PT-60-130 and put into pilot operation. It was the first combined cycle pow- PT-80-130 at TEP-11, 12, 16 and 22 production sampling er unit in MOSENERGO with electric power of 450 MW and calculations of steam turbine drives for feed and main-line thermal power of 300 Gcal/hour.CCPU consists of two gas pumps usage efficiency, evaluation of required costs and turbines GTE-160 and steam turbine Т-125/150. High period of payback have been performed. performance combined cycle power unit with efficiency Installation of magnetic level indicators at TEP-1, 21 and factor in condensation cycle of 52% allows saving up to 25 instead of traditional glass ones allowed more distinct 30% of gas as well as reducing harmful emissions to visual monitoring of fluid level and required accuracy of read- atmosphere by one third; ings for fluids of different density and aggressivity, as well as • at TEP-9 and TEP-22 turbines PT-60-130 have been personnel safety. reconstructed with increasing maximal capacity of each In order to optimize distribution of internal station loads each turbine by 20 MW.Simultaneously turbo generators were power station has developed program complex for solving replaced for new type with total air-cooling at TEP-9 and problems regarding distribution of set loads (thermal and at TEP-22 providing work reliability and increasing eco- electric) between station equipment working in parallel. nomic efficiency; According to calculation results twice per hour and for a day 0 3• “Voith” hydraulic couplings was implemented on feed as a whole data on optimal6 load distribution, fuel consump- // pumps of TEP-11, 12 and 21, and main-line pumps of tion per units, total fuel costs are submitted. TEP-23, 25 and 26 for regulating working capacity and Prospective program of water consumption and water dis- reducing auxiliary power consumption; charge reduction has been developed in power system till • introduction of ultrafiltration and reverse osmosis tech- the year 2010 and main energy saving programs directions nology – water filtration through semipermeable mem- till the year 2020. branes with different pore sizes – at water treatment According to agreements with ОАО “VTI”: units of TEP-9 and TEP-16 allowed reducing costs for • guideline on welding and repair procedures of TEP steam preparation of desalinated water by 2-4 times; turbines setting elements and procedure of average and 1 48 4 7 MOSENERGO Annual Report 2007

low pressure rotor shafts acoustic-emissive monitoring ures were connected with optimization of loads on the pow- without removing discs to reveal circumferential cracks on er station equipment and its operation modes. outer surface have been developed for CRMZ; Within the framework of introduction of automated power • new procedure of hot-water and power boilers heating resource controlling and metering systems new gas, electric surfaces cleaning has been proposed for TEP-16. and thermal power metering devices as well as other control- It allows reducing consumption and concentration of sul- ling devices have been installed at power plants. phuric acid, heating surfaces corrosion rate as well as Planned power-related surveys of TEP-11 and TEP-28 reducing volume of water-chemical waste; have been carried out. • guidelines for circulating cooling system (CCS) operat- In 2007 total costs of energy saving activities came to RUR ing modes optimization have been developed for TEP-21. 207 million. Computer program developed on the basis of mathe- The implementation of the energy saving measures result- matical model of water impurities concentration process ed in the total saving of fuel and power resources in terms of in CCS enables on-line data collection about circulating fuel equivalent of 56,245 tfe, or RUR 80.4 million. water quality and composition control. In 2007 OAO “Engineering Center UES” – “ORGRES Company” performed major work on increasing MOSENERGO 4.2. Information Technologies electric plants survivability in case of system failures con- and Telecommunications nected with reduction of frequency or voltage in power system. Based on inspection results and analysis of current Effective usage of information technologies and telecom- process diagrams, control and protection systems perform- munications substantially contributes to ensuring reliable ance specification have been developed for automatic sys- generation of energy. tem of emergency unloading for TEP-8, 23 and 25. The largest IT projects realized by the Company in 2007 were the projects of establishing a record keeping system for Energy Saving energy resources at MOSENERGO objects. Creating of elec- MOSENERGO takes part in implementing Energy Saving tricity, heat and gas commercial information and metering Programs of Moscow and Moscow Region with respect to systems and remote control and telecommunication systems generating facilities. is being completed. Introduction of these systems enables Main directions of energy saving activities in 2007 were: MOSENERGO to fulfill completely NP “ATS” requirement • organizational and technical activities at generating elec- regarding interaction with commercial site (NP “ATS”) and tric and thermal energy; process infrastructure (ОАО “SO-CDU UES”) of electric ener- • activities on equipping with energy resources metering gy and power wholesale market. and monitoring units; Due to necessity of increasing quality of energy genera- • power-related surveys of power plants. tion processes control module automated process control Routine activities on removing air inflow in boilers gas-air systems have been continued and introduction of corporate ducts, sealing of vacuum systems of turbine condensers, information and analytical system of operating control has cleaning of heating surfaces, equipment preservation have begun. been carried out. Non-routine activities connected with recon- Gas, black oil fuel, delivery water metering systems were struction, replacement of out-of date equipment and instal- implemented to reduce costs for energy generation. lation of new economic equipment and implementation of Works on information system for main equipment devel- new process flow have been performed. A number of meas- opment maintenance and repair were carried out.

49 New Equipment and Technologies

4.3. Combined cycle power plants. Features and advantages.

In 2007 MOSENERGO performed works on support and At present time nearly two-third of power plants introduced development of the accounting and tax record system, the around the world operate on combined cycle technology. “Budgeting” information system and automated accounting Such popularity is explained by its high economic and pro- system of material and technical resources at subsidiary com- duction efficiency, as well as environment characteristics (low panies stock houses, “MOSENERGO Personnel Management” level of nitrogen oxide emissions). automated system in subsidiary companies. Works on improv- In CCPU burning gas energy rotates gas turbine rotor and ing information and analytic program for purchasing control, waste gases heat is used in recovery boiler for generating refurbishment of industrial and economic activity informa- steam of higher characteristics, sent to steam turbine. tion and analytic system data warehouse were also carried Such system of gas usage allows increasing unit efficien- out. cy factor up to 52-59%. Main directions of telecommunication systems develop- For more complete and efficient using of exhaust gases heat ment of MOSENERGO include: recovery boiler and steam turbine are made in two-circuit • construction of fiber optic telecommunication lines; (CCPU-450Т TEP-27) and three-circuit (CCPU-420 TEP-26) • improvement of the trunk SDH data network; versions with respect to quantity of separated steam-water • development and improvement of the subscriber access circuits. network. Depending on the number of used turbines combined To provide access of the Company’s subsidiaries to pro- cycle power units can be of single-shaft and multi-shaft ver- gram and information corporate resources transport data sion. At TEP-26 construction of CCPU-420 is carried out in network based on Fast Ethernet was established in 2007. two-shaft version: one GTU with its generator and recovery It connected subsidiaries by means of placing communica- boiler, working for steam turbine. At TEP-27, CCPU-450Т tion nodes at each power facility and united them into a log- is of three-shaft execution: power unit consists of two GTUs, ical data field. providing their recovery boilers with hot gases and having To provide high speed access of MOSENERGO branches their own generators, and steam from recovery boilers is sup- to program and information corporate resources, structured plied in one common steam turbine. cable systems, including computer,telephone and TEP power supply systems are scheduled for installation in 2008. Main design technical data of CCPU

CCPU-450Т CCPU-420

Installed electric capacity, 450 420 MW

Installed heat capacity, 300 228 Gcal/h

Efficiency factor 52.2 59.1 in condensate mode, %

Fuel: main gas gas standby gas gas emergency diesel fuel —

50 MOSENERGO Annual Report 2007

Combined cycle power units have the following advan- • High mobility of CCPU due to presence of GTU, with tages as compared with traditional steam-turbine units: electric load changes occuring within few minutes. • High economical efficiency. Efficiency factor of three- • Higher factor of fuel usage as compared with STU, that circuit CCPU with intermediate steam overheating allows saving up to 30% of fuel. achieves 60% even today. • Shorter construction period and less capital costs pro- • Ecological cleanness. Due to high efficiency factor heat vided by CCPU heat circuit peculiarities: simplified steam pollution of environment is less. CCPU give significant- turbine, no regeneration, no complex energy boiler,eas- ly smaller emissions of nitrogen oxides (not exceeding ier funnel, etc. 50 mg/m3).

Schematic diagram of the combined-cycle power unit

1. Gas turbine 4. Generator 7. Transformer 9. Smoke stack 2. Recovery boiler 5. Condenser 8. Delivery water 10. Pump 3. Steam turbine 6. Cooling tower heater

51 Assembly of recovery boilers of the power unit № 11 CCPU-450Т at TEP-21, September 2007

52 MOSENERGO Annual Report 2007

Recovery boiler is a boiler without its own heater using the heat of waste gases of gas turbine for generation of high-parameter steam, directed to the steam turbine

53 2 5 /.

Investments into production

MOSENERGO costs for construction of new production 0 3capacities amounted to RUR 21,692.86 million or 72.7% // of total performance of investment program

5.1.Investment activities in 2007

MOSENERGO investment activities are connected with introduction of new facilities, replacement of worn out equipment and refurbishment of equipment, buildings and facilities. MOSENERGO technical policy is based on introducing high-performance heating CCPU, as well as on replacement of morally old and worn out heating equipment with steam characteristics of 90 atmospheres and below with combined cycle equipment. In 2007 the first results of implementing an ambitious Program for Development and Technical Upgrading1 were achieved. The first combined cycle power plant CCPU-450Т at TEP-27 was put in operation on November 22, 2007. The Company's capital investment areas are specified by the annual special order on capital construction. 1 4 Capital investments7 in 2007 were RUR 29,846.7 million.

1 1.10.

54 MOSENERGO Annual Report 2007

Trends of actual capital investments (with given prepayments), RUR mln

Direction 2005* 2006 2007 Total 3,248.7 14,702.7 29,846.7 New construction 266.0 8,065.8 21,692.8 Technical Upgrading and refurbishment 2,876.1 6,572.8 7,981.6 Non-industrial construction 106.6 64.1 172.3

* data on subsidiaries included in MOSENERGO after reforming

Structure of capital Investments in 2007 by area, RUR mln

Area Plan Actually Total capital investments 29,614.7 29,846.7 Power stations* 27,749.9 27,981.7 Equipment not requiring installation 235.7 235.7 R&D of future years 194.6 194.6 Non-industrial construction* 144.9 144.9 Other branches* 582.1 582.1 Heating grids 707.5 707.5

* without equipment not requiring installation and R&D of future years

55 Investments into production

MOSENERGO costs for construction of new production bined cycle power units at TEP-21, TEP-26 and TEP-27. capacities amounted to RUR 21,692.8 million or 72.7% of Financing was performed by means of funds received from total performance of investment program. the Company’s additional shares issue. The largest new construction facilities in 2007 were com-

Fulfillment of the Investment Program in 2007 for key new construction facilities, RUR mln

Object Plan Actually Financing source Commissi- oning date

TEP-16. Extension of 10 kV MDU, Depreciation, IVth quarter construction of buildings of 20 kV ISG 375.3 375.3 compensatory funds, of 2008 and 110 kV CDUE borrowed funds

Depreciation, compensatory IInd quarter funds, borrowed funds, of 2008 TEP-20. Construction of 10 kV DU 137.4 137.4 credit from European Bank for Reconstruction and Development

TEP-21. Extension. Unit No.11 4,402.7 4,402.7 Shares’ issue IInd quarter of 2008

Credit from European Bank IInd quarter TEP-21. Construction of 10 kV MDU 427.7 427.7 for Reconstruction of 2008 and Development

TEP-26. Construction 3,870.1 3,870.1 Shares’ issue IInd quarter of power unit No 8 CCPU-420 of 2008

TEP-26. Construction of 10 kV CDU 158.8 158.8 Profit of the last years IVth quarter (closed) of 2008

TEP-26. Increase of ODU reliability Credit from European Bank for IIIrd quarter with installing the second 500/220 kV 516.1 516.1 Reconstruction and Develop- of 2008 autotransformer ment, compensatory funds

TEP-27. Construction of 10 kV СDU 304.9 304.9 Profit of the last years Ist quarter (complete) of 2008

TEP-27. Construction of power unit 7,873.3 7,873.3 Shares’ issue IVth quarter No 3 based on CCPU-450 of 2008

TEP-27. Construction of power unit 2,940.6 2,940.6 Shares’ issue IVth quarter No 4 based on CCPU-450 of 2008

TEP-27. Construction of Ostashkovo 28.0 28.0 Depreciation, IInd quarter Heating Main from TEP-27 compensatory funds of 2008

TEP-28. CCPU-60C electric capacity 55.0 55.0 Depreciation IVth quarter output of 2008

Fixed assets on new construction were commissioned for RUR 7,281.5 million.

56 MOSENERGO Annual Report 2007

During the year the Company also implemented capacity The costs of technical upgrading and refurbishment were modernization projects under technical upgrading program 7,981.6 million, which is 26.9% of actual costs. and reconstruction. Technical upgrading of the Company’s In 2007 capacity increase per technical upgrading and power stations’existing power equipment was performed to reconstruction came to 40.0 MW due to turbine reconstruc- improve electric and heat capacity at simultaneous reduction tion and refurbishment with production steam extraction No.5 of harmful substances emissions and increase of energy gen- at TEP-9 – 20 MW and No. 1 at TEP-22 – 20 MW. eration efficiency.

Large Completed Facilities under the Technical Retooling Program in 2007

Subsidiary Performed works

Turbine PТ-60/75-130/13 No. 5 reconstruction with generator replacement. TEP-9 Electric capacity is increased by 20 MW. Expected fuel saving about 900 tfe/year. Chemical water treatment reconstruction.

TEP-11 10 kV MDU reconstruction.

TEP-16 Chemical water treatment reconstruction

TEP-22 Turbine PT-60-130 No. 1 refurbishment. Electric capacity is increased by 20 MW. Expected fuel saving about 900 tfe/year

TEP-27 10 kV MDU reconstruction – construction of 10 kV CDS No. 2

TEP-11, 22, 23, 25, 26 Cooling towers reconstruction

Fixed assets on technical retooling and reconstruction were commissioned for RUR 4,165.6 million. To arrange designing and construction of new generating facilities design and construction complex based on MOSENERGO project and service subsidiary companies are being formed: Mosenergoproyekt institute, Mosenergospets- remont, Central Mechanical Repair Works, Mosenergonaladka, Experimental Plant for Automation Means and Devices. Design and construction complex development due to attracting certified personnel, mastering foreign experience of designing generating facilities, technical out- fitting allowed MOSENERGO to perform simultaneous designing of 6 new generation objects and construction of 4 power units in 2007.

57 58 MOSENERGO Annual Report 2007

5.2. Development Prospects of Generating Facilities According to agreement regarding joint scientific and technical activity between MOSENERGO, RAO UES of Russia and Moscow Region economy shows stable development rates, FSUE MMPP “Salut” works on construction of CCPU-60C exceeding the average rates of development in the country are being carried out. MOSENERGO function is to monitor the as a whole. Moscow Government approved the actualized whole complex of works and performing works on refurbish- General Plan of Moscow refurbishment and development up ment of TEP-28 equipment to provide possibility of joint work to 2025, Strategy of social and economic development of with CCPU-60С. Investor is FSUE MMPP “Salut”. In 2007 Moscow Region has been planned for the period up to 2020. construction and assembly works of the first stage were com- Power requirements declared in these documents are twice pleted at TEP-28, as well as trial startups of CCPU-60C of as many as the existing level. In February 2008 the Government 40 MW were performed. of the Russian Federation accepted the General Layout of In 2007 10 MW expander generator units were commis- power industry objects up to 2020. The General Layout takes sioned at TEP-23. Investor is ООО “Bazis-S”. Expander gen- into account the development of MOSENERGO power plants erator units at TEP-23 are investor’s property, maintenance in the scope of 3,000 МW for the period up to 2010 and 3,500 is performed by MOSENERGO. МW for the period up to 2015, including Petrovskaya LAPS. Actual growth rates for electric power demand outgo the growth of demand for thermal energy and exceed the levels accepted in Concept of Technical Retooling of Power Facilities of the Moscow Area developed by the working group of the Russian Academy of Science with the active participation of MOSENERGO. Moscow Region develops more intensively than Moscow.

* forecast at the heart of the Concept of Technical Retooling of Power Facilities of the Moscow area

59 Investments into production

These tendencies and requirements determine the stable Investment program of the Company for 2007-2011 is demand for electric and thermal energy in the long and mid- specified by the resolution of the Board of Directors, min- term run. At the same time it is required to solve serious tasks utes No. 8 dated September 3rd, 2007, and provides the of electric power engineering coordinated development as well stages of realization approved by the Board of Directors: as to take into account the features of cogeneration system stage 1 – is being realized. Unit No. 3 CCPU-450Т of megalopolis power supply. TEP-27 has been commissioned. CCPU-450 unit No 11 Reliable power supply is guaranteed by using the existing at TEP-21, unit No 8 CCPU-420 at TEP-26 and unit No 4 TEPs in sites within the city boundary as much as possible for CCPU-450 at TEP-27 are being constructed; location of high-performance and environmentally safe pow- stage 2 – preparation works. Construction of GTE-65 er equipment. at TEP-9 and CCPU-120 at TEP-12; For metropolitan conditions, the employed power technolo- stage 3 – the sources of financing are determined, by gies shall, in terms of efficiency, reliability and environmen- the resolution of the Board of Directors of MOSENERGO tal impact, meet the high requirements developed and imple- dated January 28, 2008 equipment has been reserved mented by the world community in this sphere. at the manufacturer. Construction of units CCPU-420 According to demands of Moscow Region economics at TEP-12, TEP-16, TEP-20 and TEP-25, as well as unit development, MOSENERGO reviews the variants of the fur- No. 5 CCPU-450 at TEP-27. ther development of generating facilities of the Company. MOSENERGO Board of Directors approved the 2008 investment program for RUR 37,202.2 million

In addition to new construction, MOSENERGO will have to Development plans for generating facilities of the Company perform a serious work to enhance the technical upgrading provide for the construction of Petrovskaya LAPS of total volumes, replacing the overage heating equipment by more capacity 4,000 MW in the future. advanced and combined cycle cost-effective equipment. Petrovskaya LAPS is intended for decreasing the power To provide quality while implementing investment proj- deficit, diversification of the Company’s fuel balance, increas- ects, the Company determined the following priorities: ing the level of power supply reliability of Moscow area, and • perfection of construction control for new generating is included in General Layout of the Russian Federation pow- facilities; er industry objects. • use of technologically effective scientific developments The Board of Directors of MOSENERGO at the meeting dat- for upgrading of existing power plants on the basis of cured January 28th, 2008 reviewed and made a positive decision rent technologies; on works continuation for Petrovskaya LAPS project ground- • qualitative upgrading of design activity as a basis for ing with required endorsement from the external organizations development of investment process. received, including ОАО “Russian Railways”, ОАО UES To eliminate disproportion in construction of housing and Federal Grid Company, ОАО “SO-CDU UES”, as well as about communal services objects as well as electric power objects working over the conditions of state support for the project. as soon as possible, and also to provide the possibility of new The decisions are made about development of TEP-17 consumers connection, the program of refurbishment of dis- and TEP-22 using the latest environmentally appropriate tech- tribution devices of 10 kV is developed and used at power nologies of power generation and waste products utilization plants of MOSENERGO. In 2006 the possibility was provided of coal power plants of the Company. to connect new consumers for 164 MW,in 2007 – for 240 МW. MOSENERGO Board of Directors approved the 2008 invest- Consumers for 85 MW are provided for in the plans for 2008. ment program for RUR 37,202.2 million.

60 MOSENERGO Annual Report 2007

Different bank loans, attraction of investors, issuing bonds in the international and Russian markets are considered as external financing source options. Work is done with fuel suppliers, potential customers of heat and electricity, creditors, and investors to promote the investment projects. To provide financing of the investment projects, MOSENERGO attracts the credits of Russian and foreign banks. In 2008 it is planned to add 1,111.5 МW including: • expansion of TEP-21 with CCPU installation. Unit No. 11 – 450 МW; • expansion of TEP-27 with CCPU installation. Unit No. 4 – 450 МW; • technical upgrading and refurbishment (installation of GTE-65 with a steam recovery boiler) at TEP-9 – 61.5 МW; • upgrading of PT-80/100-130 No 9 at TEP-12 – power increase 20 МW; • technical upgrading with change of turbine No. 2 TEP-23 at Т-110/120-130-5 – 110 МW (power increase 10 МW); • upgrading of PT-80/100-130 No. 1 at TEP-26 – power increase 20 МW. As the result of changes in the financing conditions, production and mastering of more modern equipment with the improved features by manufacturing enterprises, appearing of competitive projects, the investment program of the Company will be revised and amended.

61 Coal warehouse of TEP-22, rotary packer, March 2007

62 MOSENERGO Annual Report 2007

Rotary packer is a mechanism used to store coal delivered to the heating and power plant quickly and without any losses and then to deliver it for burning. Its advantage is quality and speed of work that makes the process of unloading considerably cheaper

63 2 5 /. 0 3 6 //

Social Responsibility

Efficient social security system developed and implemented by MOSENERGO facilitates recruitment 1 4of qualified specialists and constitutes an7 important factor of successful operation

6.1. Human Resources Policies

The prime objectives of the human resources policy of MOSENERGO include: • to give vocational education, improve skills and train the personnel; • to create conditions for self-fulfillment of every employee, their professional growth, and productivity enhance- ment; • to reach the personnel stability and qualitative refining for the account of influx of newly-fledged specialists; • to set up a personnel reserve for filling in managers vacancies; • to strengthen work and labor discipline.

In 2007, the steps taken to optimize the Company's organizational framework, including reform of the maintenance operations, reduced the number of employes by 1,270 (7.1%), presently the manpower totals 16,544 people). The actual number of maintenance personnel on power generating plants in the previous year decreased by 843 workers and amounts to 2,457 people. The Company’s fluctuation movement of personnel reached 8.4%, which is by 0.6 points lower than in the year 2006. The labor turnover on electric power stations was 6.8%. The educational level of MOSENERGO staff is sufficient- ly high: 30.3% of the Company employes have higher education, 24.0% have specialized secondary education. The Company's active roll includes 63 candidates of science and 4 doctors of science.

64 MOSENERGO Annual Report 2007

In 2007, MOSENERGO hired 267 young skills with higher The principles of material incentives are based upon annu- and specialized secondary education graduated from Moscow al and quarterly performance indicators approved by the Energy Institute (MEI), Ivanovo State Energy University, the Board of Directors for the General Director and the Company scientific and education establishment “Mosenergo College” in general: fulfillment of the reorganization schedule, return and other educational institutions, which is by 5.5% more on equity, limit of operating costs, efficiency of the investment than in the year 2006. program realization, reliability criterion, including: MOSENERGO employs a labor motivation system, which • no fatal on-the-job accidents; covers all personnel of the Company and includes incentives, • no record of disobedience of OAO "SO-CDU UES" dis- social benefits and guaranties. patcher instructions; In 2007 MOSENERGO paid for labor in accordance with • no breakdowns; its Order No. 298 "On the Scheme of Payment in MOSEN- • prevention of any growth of the number of breakdowns ERGO" dated April 18, 2005, and Regulation on Stimulating in process by more than 5.0% as against the respective Remuneration of MOSENERGO Top Managers approved by period of the last year; the Board of Directors of the Company as in force on August • prevention of any reduction of the preparedness coef- 14, 2006 and September 14, 2006. ficient by more than 5.0% as compared with the sched- An official salary of the General Director is determined uled one; proportionately to the volume of proceeds from sales of • obtainment of the certificate of preparedness. goods, products, works and services with respect to core The above indicators are common for the managers of operations in the preceding calendar year.Official salaries of MOSENERGO and its branches and designed to ensure joint top managers are fixed in proportion to the General Director's responsibility for the operating results of the Company. salary. Apart from general bonus indicators, the Company applies This order was extended to the branch managers: chief a system of individual indicators representing a personal con- engineers, deputy chief engineers, chief accountants, deputy tribution of every employee. directors and directors other than top managers. The average monthly wage of the industrial personnel determined on the basis of the Company's actual structure in 2007 with account of all lines of business totaled RUR 34,292.

65 Social Responsibility

Throughout 2007 the program of professional and tech- With a view to improving professional qualification of the nical education of employes and young personnel recruit- personnel, a system-wide competition of multiple-skill crews ment was continued. of operating personnel of packaged TEPs was held. The MOSENERGO personnel training expenses totaled RUR results of the competition allowed determining best qualified 53.74 million. managers and specialists, a personnel reserve was built up In 2007 a total of 6,435 workers and 3,999 managers and from them to fill vacancies of managers at electric power specialists improved their qualifications. plants of the Company. MOSENERGO cooperates with the Moscow Energy Institute A business game held in September 2007 allowed assess- (MEI), the State Management Institute (SMI) and other edu- ing professional business and personal competencies cational institutions with a good reputation in educational of candidates to personnel reserve – chief engineers, deputy market. chief engineers and works managers of a number of power In 2007, 21 people completed their 108-hour training plants. under the "Application of gas-turbine and combined-cycle technologies at TEPs" program in MEI. 25 employes from the personnel reserve were trained under a 100-hour course 6.2. Occupational Health and Safety “Accounting” in SMI. 2,877 people were trained in the scientific and education- MOSENERGO pays great attention to occupational health al center “PTC Mosenergo”, 40 top managers and chief engi- and safety issues. The Company aims at elimination or con- neers from the Company affiliates were trained in the Public siderable reduction of industrial injuries and risks of occupa- Servants Qualification Upgrading Institute. tional diseases occurrence. In 2007, under contracts with MOSENERGO, 38 enrollees With a view to prevent industrial injuries, the energy com- were admitted to institutions of higher learning, of them 31 to pany organized: Moscow Energy Institute and 7 to Ivanovo State Energy • provision of personnel with means of individual and col- University. lective protection, appliances that ensure safe perform- Nowadays, 383 MOSENERGO employes undergo training ance of work; in institutions of higher education. • implementation of administrative and technical measures 37 young skills graduated from higher educational estab- that ensure occupational safety; lishments under contracts with MOSENERGO and were sent • training of personnel with a view to develop their skills in the to work in the Company's branches. field of labor protection, holding of job safety briefings; MOSENERGO participated in Russian and international • training in administering first aid to the injured; career and educational forums: “Education and Career – XXI • review, study and analysis of information about injuries century”, “Vacancies Fair” and others. in the power industry; 14 corporate seminars were organized for specialists of the • holding professional skill contests and competitive reviews Company, the number of participants totaled 541 people. for the best branch in the occupational safety practice;

66 MOSENERGO Annual Report 2007

• provision of psycho-physiological support to occupation- ditions and accident prevention rules. Guarantees on safety al activities of the personnel; arrangement and precautions are included in the Collective • additional training of managers and supervisors, fore- Agreement between MOSENERGO and its employes. men, shift masters, and headmen prior to commence- ment of a repair campaign. A monthly single Labor Safety Day,scheduled and unsched- 6.3. Social Programs uled workplace inspections are organized within the working process. MOSENERGO performs an effective social policy taking The Company pursues a policy of obligatory preliminary into account the specifics of the industry and the Company’s medical inspection of the personnel upon hiring as well as possibilities. periodic medical examinations through the labor activities for The Collective Agreement regulates the relationship the company. In 2007, 918 people underwent preliminary between the employer,i.e. MOSENERGO, and the employes medical examination and 5,511 people underwent periodic in the social labor sphere, establishing the rights and obliga- medical examinations. tions of the Parties of the social partnership, including employ- Practically in all branches of MOSENERGO aid posts are er, employes and their representatives. established that render medical assistance to shift person- The employer’s representative is the Director General nel as well. of MOSENERGO and the representatives of employes are At the start of their field work employers of MOSENERGO “Electroprofsoyuz” Moscow City Committee and undergo a psycho-physiological test. In 2007, 202 people “Electroprofsoyuz” Moscow Region Committees. were put to these tests. The effective system of social protection, developed and Psychologists of the Company conducted a questionnaire commissioned within MOSENERGO stimulates the attraction monitoring, the results of which formed the basis for a com- of young qualified specialists to the Company and is an impor- plex of measures for all categories of personnel. tant factor of successful production activity. RUR 179.7 million were spent on occupational safety meas- Social policy priorities of MOSENERGO include: ures. • medical attendance and insurance; Costs of occupational safety as calculated per one employ- • housing program; ee made RUR 10.9 thousand, including RUR 2.4 thousand for • treatment at sanatoria and resorts; personal protection means. • recreation of children at recreational camps; With the aim to realize new approaches to management of • physical culture and sport; occupational safety MOSENERGO started work on imple- • culture; mentation of the Occupational Health and Safety Administration • retirement insurance. System (OHSAS 18001:1999) that gives a possibility to con- The Company provides obligatory social insurance of trol industrial injuries and occupational diseases, as well as employes against casualties and voluntary medical insurance. to increase effectiveness of production. In 2007 benefit payments were RUR 100.5 million. According The order of MOSENERGO dated 28.01.2008 No. 37 to an agreement with NMU “Medsanchast”, medical aid was approves and puts into force the Policy, aims and tasks of rendered in non-insured accidents for RUR 6.4 million. MOSENERGO in occupational health and safety measures. The Company has adopted the Mortgage Housing Lending MOSENERGO develops standards of occupational health Program. and safety management system. The actual costs in 2007 for provision of special-purpose The Company’s policy is aimed to increase responsibility material assistance to repay the interest for using the credit facil- and interests of each employee in building up safe labor con- ities to JSC “Gazprombank” (CJSC) were RUR 25.4 million.

67 Social Responsibility

In 2007 the additional statement to the Mortgage Housing Veterans, Non-state Educational Establishment “Boarding Lending Program was developed and approved by the Board School named after St. Sergius”, Relief fund for children of Directors for obtaining the housing for young specialists “Present Life”, Center of the treatment pedagogy, Udelninsky and young families. orphanage, Sergievo-Posad orphanage of deaf-blind chil- In the reporting year the employes of MOSENERGO were dren, Union of Football Clubs of Russian invalids, Society of provided with treatment at sanatoria and resorts at the Moscow invalids without larynx, Moscow Regional fund of culture and Sanatorium Treatment Association, Medkurort Non-commer- sport development, Federation of track and field athletics of cial Sanatorium Association, at sanatoria and rest homes on Moscow Region and others. the Black Sea coast of the Caucasus, in the Moscow area, In the year 2007 beneficial aid was rendered to Ivanovo State and Central Russia. 3,336 vouchers to “MOSENERGO” treat- Power University and Moscow Power Energy Institute. ment rest home in the Sochi City have been sold in the amount The Company, together with the International Culture of RUR 83.6 million. Assistance Association is a member of the “Open Europe” In 2007 the work was performed to arrange child recreation- Festival Competition of Children and Youth Artistic Creativity al process. 1,211 children had a rest at MOSENERGO recre- Project which was included in the “New Name” International ational camps during the summer season. Charitable Program by the Federal Council of the Federal In 2007 the 2nd Physical Culture Festival of the Moscow Assembly of the Russian Federation in 2007. Power System in 16 kinds of sport was held. In the beginning of 2007, the 2nd Open Arts Festival of the powermen of the Moscow area was held. The Festival was 6.4. Environmental Protection attended by about 700 persons, MOSENERGO employes and their children. Subsidiaries included in the structure of MOSENERGO Dancing teams of MOSENERGO branches took the prize and united in a common system form a significant industrial places in the Festival of Arts “Smile of the World”, took part production network in Moscow Area. Environmental protec- in the “Open Europe” International Festival. tion performed in the subsidiaries is one of the priorities of According to the Program of Commercial retirement insur- MOSENERGO acitivities. The Company takes care of the ance approved by the Board of Directors of the Company environment in Moscow City and Moscow Region, actively (Minutes No. 20 dated January 29th, 2007), the Regulation implementing up-to-date environmentally appropriate tech- about Commercial retirement insurance of MOSENERGO nologies and modern equipment. was developed, providing for the increase of the social pro- Operating in the megapolis where power generating facil- tection level of the Company employes. ities are located near residential districts entails increased Non-working pensioners are provided with out-patient environmental demands on the Company’s power plants treatment free of charge at NMU “Medsanchast MOSENER- operation. In its own turn it requires a great scope of techni- GO” with in-patient medical care at hospitals No. 83, cal and organizational measures. “Centrosoyuz”, and “Udelnoye”. Expenses for free medical Among technical measures, the most significant are: care of pensioners were RUR 12.4 million in 2007. • reduction of nitrogen oxides emissions in the process of Non-working pensioners are able to buy vouchers on priv- burning gas, fuel oil and coal; ileged terms for rest and sanatorium resort treatment. • reduction of ash emissions when burning coal; The Company consistently takes care of the Great Patriotic • reduction equipment noise within the whole controlled War veterans providing them with extra benefits. Welfare range; assistance to veterans of the Great Patriotic War and the labor • wastewater discharge reduction as quantitative as well front amounted to RUR 6.7 million in 2007. qualitative; MOSENERGO traditionally pays much attention to partic- • introduction of the environmental monitoring systems and ipation in charitable and socially important projects consid- control of power plant loads depending on the atmos- ering such work as the confirmation of the status of a social- phere conditions; ly responsible Company. • protection of land and water bodies, disposal of wastes. A distinctive trait of charitable programs implemented by The most important organizational measure is devel- the Company is the establishment of long-term partnership opment and introduction of environment management sys- relations with the establishments of culture, educational and tem, including personal responsibility of top managers, sport organizations. improvement of structural subdivisions providing the envi- The Company paid for charity RUR 36.7 million in 2007. ronmental activities, environmental training of personnel MOSENERGO assistance targets include the metochion at all levels and so on. of the Holy Trinity St. Serguis Lavra in Bogorodskoye, St. MOSENERGO is the first Company of power industry in Serguis Church, Ugreshsky Monastery of St. Nicolas, Irina Russia that was certified by the environment management Arkhipova Fund, Opera Singing Center named after G.P. according to international standard ISO 14001. In 2007 the Vishnevskaya, Peter Fomenko Workshop Theater,“Kinocentr” first supervision audit of the environment management sys- Charitable Fund of Social Protection of Cinematography tem was held by the certification center that confirmed its

68 MOSENERGO Annual Report 2007

high level and complete correspondence with international standard. Issues of environmental protection are solved by the Company in close cooperation with state authorities controlling environmental activity of companies in Moscow Area. Water consumption, water discharge, emissions of pollutants and disposal of wastes are carried out according to state permissions and licenses. In 2007 MOSENERGO environmental protection costs were RUR 210.3 million, with RUR 116.2 million coming out of the Company’s own funds and RUR 94.1 million borrowed.

Water-Pollution Control MOSENERGO production activities involve considerable water consumption. Elimination of the adverse impact on water basin is achieved due to cutting down the discharge of pollutants through treatment and recycling of waste water in power plants technological cycle, downsizing the discharge into surface water bodies and disposal of solid wastes. The total quantity of wastewater discharge to surface water bodies in 2007 was 457.9 million m3, out of them 443.9 million m3 of standard clean water, and 14.0 million m3 of standard treated water.There is no discharge of the spent process wastewater. All power plants, except for TEP-1, have general station oily water treatment facilities. TEP-1 has local treatment facilities for surface flow and fuel oil system, and general station treatment facilities are being constructed.

Measures for water-pollution control

Activity Objective Efficiency

Refurbishment and setup of the makeup demineralizer waste-water To reduce dischar- 60 thousand neutralization system at TEP-9, 21, 23 and 26 ge of acidic and tons/year alkaline waters

Introduction and repair of the existing oily water treatment systems, polluted To reduce dischar- 35 tons/year with petroleum products at TEP-1, GTU-TEP,TEP-12, 16, 17, 20, 21, 23, 26 ge of petroleum and 27 products

Replacement of water traps in cooling towers No. 4 in TEP-11, To reduce the Up to 0.007% No. 1 in TEP-20 and No. 2 in TEP-25 moisture loss

Installation, repair and adjustment of cavitation systems for protection of To protect 80% fish at TEP-9, 22 and the bank pump station No.3 LAPS-3 juvenile fish (standard is 70%)

69 Social Responsibility

Air-Pollution Control The prevalence of natural gas (98.2%) in MOSENERGO fuel balance makes it possible to minimize the impact of the electrical and thermal energy generation on the environment of Moscow City and Moscow Region. Pollutant emissions from the Company’s power plants decreased from 79.9 down to 55.8 thousand tons (30.2 %) in 2007 in comparison with 2006. The decrease of pollutant emissions to the atmosphere in 2007 is due to decreasing of the total quantity of burnt fuel, increasing the share of gas in the fuel balance and taking the environment protection measures. Established maximum levels of allowed emission have not been exceeded by any power plant for any parameter.

Measures for air pollution control

Activity Objective Efficiency

Installation of clean-burn burners at power boiler No. 4 TEP-20 130 tons/year and hot water boilers No. 2 TEP-1, No. 7 TEP-20, No. 4 TEP-23

Installation and modernization of fuel gas recirculation systems 35 tons/year at power boilers No. 6 TEP-6 and No. 4 TEP-20 To reduce emissions Introduction of staged combustion at power boilers No. 10 TEP-12, of nitroge 460 tons/year No-s. 1 and 5 TEP-16, No. 7 TEP-26 oxides

Repair of systems supplying fuel oil for burning with hydrodynamic treatment, of fuel at power boilers No. 10 TEP-8, No.11 TEP-12, 60 tons/year No.11 TEP-23

Introduction of stationary emission monitors at TEP-1, 8, 11, 23, 26 and 28 25 tons/year (8 units)

Introduction of noise suppressors at the main safety valves of power boiler , To eliminate No. 5 TEP-9, downstream of the smoke exhausters of power boilers adverse noise No-s. 6 and 7 TEP-1, No. 9 TEP-12, intake installation of the blow fans of impact power boilers No-s. 3 and 4 TEP-26; arrangement of the noise-protective on residential forest shelter-band of cooling towers No-s. 1-4 TEP-26 houses

Waste Disposal The Company has a license for handling hazardous wastes. In 2007 total volume of wastes was 218.6 thousand tons The scope of licensed activities includes generation, collec- that is 92.5 thousand tons less than in 2006. tion, use, decontamination, transportation and disposal (stor- Today not a single subsidiary of MOSENERGO breaks the age) of 1- 5 environmental hazard class wastes. environmental regulations. The experience of the Company MOSENERGO subsidiaries have preliminary standard is a unique example of the effective environmental manage- rates of waste generation and waste disposal permissions ment in Russia. That is why the words “Towards Light, Warmth which specify the methods of use, decontamination and and Friendly Environment” have become the motto of places of disposal. Wastes are delivered to other organiza- MOSENERGO. tions for processing and decontamination or further recycling In 2007 an honorary title “Leader of Environmental Activities as secondary raw materials (e.g. metal scrap) or for dispos- in Russia – 2007” was conferred on MOSENERGO which al at urban ore sites under agreements with organizations was awarded with the diploma at the Third All-Russian con- licensed to operate within this scope in strict compliance test “Leader of Environmental Activities in Russia – 2007”, with the environmental requirements. organized by the Government of the Russian Federation.

70 MOSENERGO Annual Report 2007

71 Interior of the main building of the power unit № 3 CCPU-450Т at TEP-27, November 2007

72 MOSENERGO Annual Report 2007

The power unit of the combined-cycle plant of TEP-27 consists of two gas turbines, supplying hot gases for the recovery boilers. The steam from recovery boilers is directed to one general steam turbine

73 Corporate Governance

Efficient corporate management is one of the crucial 2 5factors ensuring improvement of /. competitiveness and further growth of the Company’s shareholder value

MOSENERGO abides by corporate governance standards and regards the corporate governance as a means of defend- ing the rights of the Company’s shareholders and protecting their interests. Efficient corporate management is the determining factor ensuring improvement of competitiveness and advance in shareholder value of the Company. Pursuant to the MOSENERGO Charter1, the management bodies of the Company are: • the General Meeting of shareholders; • the Board of Directors; • the Executive Board; • the General Director. A body supervising financial and business operations of the 0 3 Company//6 is the Audit Commission.

1 1.4. 1 4 747 MOSENERGO Annual Report 2007

7.1. Corporate Governance Principles

The major corporate governance principles of the Company • participation in the Company's profits in the form of div- are formulated in Corporate Governance Code of MOSEN- idends; ERGO and are based on the regulatory and legal acts that • the right to receive true information about the Company include the legislation of the Russian Federation, Charter of regularly and in time. the Company, Corporate Conduct Code recommended for application by the Order of the Federal Commission for the The information policy of MOSENERGO in 2007 was based Securities Market No. 421/p dated 04.04.2002. on comprehensive treatment of significant events in produc- The corporate governance in MOSENERGO is based upon tion and corporate life of the Company as well as plans for devel- the following principles: opment. • accountability of the Board of Directors of the Company Thanks to regular press conferences, briefings and press to its shareholders and accountability of the executive tours to various MOSENERGO facilities, journalists of the bodies of the Company to the Board of Directors in national and regional mass media receive accurate, current accordance with the current legislation; and copious information about the Company’s activities. • fairness in exercising shareholders’ rights, equal treat- MOSENERGO official site is an important source of informa- ment of all shareholders, efficient protection of share- tion and an effective means of communication holders’ rights; (www.mosenergo.ru). • transparency and timeliness of disclosure of authentic information about material facts pertaining to the The Company publishes its quarterly and annual reports Company's activities, free access to the relevant infor- to the shareholders, in which it covers the key areas of pro- mation for all interested parties; duction and financial operations and carries out economic • responsibility before the shareholders and other par- analysis of the results of its work for the accounting period1. ties, efforts towards cooperation aiming at the financial The annual report to the shareholders of MOSENERGO was stability and development of the Company. awarded prizez in three competitions of annual reports: • 10th contest of annul reports and sites organized by the To all its shareholders and investors MOSENERGO guar- Stock Exchange “Russian Trade System” and the mag- antees enforceability of their rights protection secured through: azine “Securities Market” in the nomination of “Best • registration of share ownership; annual report in the Central Federal District”; • keeping and safe custody of the Company's share reg- • 9th contest of annual reports and sites organized by the ister pursuant to Articles 44, 45 and 46 of the Federal magazine “Expert RA” in cooperation with MICEX sup- Law "On Joint Stock Companies"; ported by ZAO PricewaterhouseCoopers Audit in the • the ability of free and quick alienation of the shares nomination “Best Representation of Ecological and belonging to the shareholders; Social Information”; • the right to take part in the Company management by • 4th annual contest of annual reports and sites of com- way of participation in General Meetings of sharehold- panies engaged in electric power supply industry organ- ers with a right to vote on all issues within its competence, ized by the magazine “Energy Market” in the nomination participation of shareholders’ representatives in the work “Best Annual Report”. of the Board of Directors and other bodies of the Company management and supervision;

1 3.2.1.

75 Corporate Governance

7.2. Meeting of Shareholders

The quality of MOSENERGO business management is The General Meeting of shareholders is the highest control controlled and assessed by the Board of Directors, Audit body of the Company, allowing shareholders to realize their Commission, Audit Committee of the Board of Directors, rights for participation in the Company’s management. The internal audit directorate and an external auditor of the procedure for holding and preparation of General Meetings is Company. consistent with the Law "On Joint Stock Companies", and In furtherance of the corporate governance principles and determined by the Company's Charter1, and conforms to the accomplishment of the goals and objectives set before optimum corporate governance practice. The established pro- MOSENERGO, the organizational structure of the Company cedure provides for pari passu ranking of all shareholders of is perfected and an appropriate relationship is built between the Company. the branches. The General Meeting of MOSENERGO shareholders was held on May 15, 2007 to discuss the Company's production and The governance of the organizations with MOSENERGO economic performance in 20062. participation is perfomed in correspondence with the order The Meeting of shareholders approved: annual report of established by the Board of Directors. With the aim to improve the Company, annual financial statements, profit and loss state- the corporate governance of the Company on July 25, 2007 ment based on financial year results, distribution of the a Committee on Strategy and Development of the Board of Company's profits based on annual returns of 2006, the rate Directors was established. The tasks of the Committee include of dividends payable per share, amendments and supplements elaboration and subsequent presentation of recommendations to the Company’s Charter1, elected the Board of Directors of to the Board of Directors members on the following spheres the Company and Audit Commission, and approved ZAO Price- of activities of the Company: waterhouseCoopers Audit. A resolution on payment of remu- • determination of priority orientations, strategic aims and neration and compensations to members of the Board of major principles of the Company’s strategic development; Directors and Audit Commission was passed. • determination of the Company’s development strategy According to resolution of the Company’s Board of Directors by the core activities, including the planning and budg- on June 22, 2007 there was an Extraordinary General Meeting eting system, marketing of products, formation of prime of MOSENERGO shareholders in the form of absentee vot- cost, fuel provision, purchasing and investment activi- ing, where it was decided to pay interim dividends on the ties, financial policy, operation on capital markets, tech- Company’s equities based on results of the Ist quarter of nology and human resources policies and the incen- 20073. tives system for the personnel; On December 28, 2007 within the second stage of • analysis of the course of execution of adopted programs RAO UES of Russia reorganization there was an Extraordinary and projects of strategic development of the Company, General Meeting of MOSENERGO shareholders in the form of adjustment of the Company’s development strategy; absentee voting4. The Meeting made resolutions on MOS- • determination of the evaluation criteria for the Company’s ENERGO reorganization in the form of attaching to it OAO activities; “Mosenergo Holding”, established as a result of RAO UES of • elaboration of other recommendations following the Russia reorganization on determination of quantity, nominal assignments of the Board of Directors. price, category (types) of MOSENERGO issued shares and rights provided by these shares, on introduction of appropri- The Company’s major plans for the year 2008 on improve- ate amendments to the Company's Charter, and on an increase ment of the corporate governance systems are: of the MOSENERGO Charter capital by placing additional • upgrading of quality of compliance with existing corpo- shares by means of converting to them OAO “Mosenergo rate governance principles; Holding” shares. • implementation of procedures of corporate management audit with the aim to identify taska to be accom- lished in order to achieve strategic goals of the Company and preparation of specific recommendations on improvement of the Company’s corporate governance.

1 1.4. 2 p. 176 3 p. 179 4 p. 179 76 MOSENERGO Annual Report 2007

7.3. Board of Directors

The Board of Directors of MOSENERGO administers To the most important resolutions of the Board of Directors Company activity in concordance with the Charter1 except for are: solving issues referred to the competence of the General • approval of Provision on using cash assets received on Meeting of shareholders and monitors execution of the the Company’s account as a result of the additional Company’s General Meeting of shareholders decisions. share issue; New staff of the Board of Directors was elected at annu- • approval order and accounting form on cash assets al General Meeting of MOSENERGO shareholders on May flow, attracted by the Company for financing investment 15th, 2007. program; As a result of elections, the members of the Board • approval of MOSENERGO annual complex purchasing I.Sh. Zagretdinov, E.I. Logovinskiy, M.N. Pichugina, A.I. Sobol program for 2008; vacated their offices. • approval of using part of funds from MOSENERGO shares The following new members were elected to the Board of additional issue for financing MOSENERGO investment Directors: B.V. Budzulyak – member of Executive Board, Head program for 2007; of Department on transportation, underground storage and • confirmation of MOSENERGO insurance protection pro- using of gas of OAO “Gazprom”; V.A. Golubev – Deputy gram for 2008; Chairman of OAO “Gazprom” Executive Board; O.P. Pavlova • confirmation of MOSENERGO investment program for – member of Executive Board, Head of Department on OAO 2008; “Gazprom” property and corporate relations; K.G. Seleznev – • confirmation of the Company's key performance indi- member of Executive Board, Head of OAO “Gazprom” mar- cators target values and business plan for 2007; keting, gas and liquid hydrocarbons processing Department. • approval of significant provisions of agreement with “Siemens” for reservation of production capacities for The first meeting of the new Board of Directors unani- manufacturing equipment for building and introducing mously elected K.G. Seleznev as chairman and Y. A. Udaltsov new capacities on the basis of CCPU at TEP-12, 16, 20 as its deputy. and 25. Number of independent Directors has been increased in the new Board of Directors. Their number determined accord- According to MOSENERGO Charter requirements, during ing to RF FSFR order No. 06-68/пз-н “Provision on activity 2007 the Board of Directors performed systematic monitor- regarding arranging sale at security market” dated June 6, ing of execution by MOSENERGO administration of resolu- 2006 came to 11 persons. tions of annual General Meeting of shareholders as well as During 2007 the Board of Directors arranged 32 meet- approved the Company’s business plan. ings, where about 500 issues were considered. The Board of Directors approved 199 interested-party transactions2. During 2007 the Board of Directors considered the fol- Company made no transactions qualified as major accord- lowing issues: ing to Federal Law “On Joint Stock Companies”, as well as • main stages of MOSENERGO investment program for other transactions, for execution of which a major transac- 2007-2011; tions approval is used according to the Company’s charter. • MOSENERGO working strategy on heat market; Information about resolutions adopted by MOSENERGO • MOSENERGO work on Wholesale electricity market, Board of Directors3, as well as about interested-party trans- Company preparation for capacity market entry; actions is available on the Company's web-site. • readiness of power plants and other MOSENERGO subsidiaries for working in autumn-winter period of 2007/2008; • Company development strategy; • supply of equipment for building and introducing new capacities on the basis of CCPU at TEP-12, 16, 20, 25 and Petrovskaya LAPS; • making amendments in the Company’s Executive Body organizational structure.

1 1.4. 2 3.2.1. 3 3.3.5. 77 Corporate Governance

Members of the Board of Directors

(elected at the Annual General Meeting of the Company shareholders on May 15, 2007)

Kirill Pyotr Bogdan Gennadyevich Nikolayevich Vladimirovich Seleznev Aksenov Budzulyak

Chairman of MOSENERGO First Deputy Head of Moscow Member of Executive Board, Board of Directors; member city building policy, Head of Department of Executive Board, Head of development and on transportation, marketing, gas and liquid reconstruction Department underground storage and hydrocarbons processing using of gas of OAO “Gazprom” Department of OAO “Gazprom”; Previous positions (last 5 years): OOO “Mezhregiongas” First Deputy Mayor of Moscow Previous positions (last 5 years): Director General in Moscow Government, Member of Executive Board, Head of Municipal Services Head of Department Previous positions (last 5 years): and Facilities of Moscow on transportation, underground Member of Executive Board, storage and using Head of marketing, gas and liquid of gas of OAO “Gazprom” hydrocarbons processing Department of OAO “Gazprom”; OOO “Mezhregiongas” Director General

78 MOSENERGO Annual Report 2007

Sergey Alexander Anatoly Sergeyevich Alexandrovich Yakovlevich Fil Negomedzyanov Kopsov

Head of Department of Corporate First Deputy Director General Chairman of Executive Board, Events, Business Unit No. 1, for Financial and Economic Issues, MOSENERGO, Director General, RAO UES of Russia Logistics and Sales, MOSENERGO MOSENERGO

Previous positions (last 5 years): Previous positions (last 5 years): Previous positions (last 5 years): Acting Head of Corporate Events Deputy Managing Director, Director, Capital Construction Section, Chief Specialist, Leading Executive Director, Business Directorate, RAO UESR Corporate Specialist, Category 1 Specialist, Unit No. 1, RAO UES of Russia; Center, Director for Construction Corporate Governance Department, Director of Operations, of Generation Facilities, RAO UES of Russia RAO UES of Russia; RAO UES of Russia Head of the Connection Fee Department, RAO UES of Russia

79 Corporate Governance

Yuriy Wolfgang Olga Arkadievich Skribot Petrovna Udaltsov Pavlova Managing Director, Member of Executive Board, Head Corporate Finance Department, Member of Executive Board, of Reform Management Center, JSB Gazprombank (CJSC) Head of OAO “Gazprom” RAO UES of Russia corporate relations and property Previous positions (last 5 years): management Department Previous positions Deputy Director General, (last 5 years): OOO "Gazprombank-Invest”; Previous positions (last 5 years): Head of Department Director, Corporate Finance Deputy Head of RF President for Energy Reform, Department, ZAO “OFG” economic division of RF President RAO UES of Russia; Administration Head of Corporate Strategy Department, RAO UES of Russia

80 MOSENERGO Annual Report 2007

Valery Pavel Anatoly Aleksey Alexandrovich Stepanovich Anatolievich Anatolievich Golubev Smirnov Gavrilenko Matveyev

Deputy Chairman of Member of Executive Director General Deputy Chairman OAO “Gazprom” Executive Board Board, RAO UES of ZAO “Leader” of Executive Board, of Russia JSB Gazprombank Previous positions (last 5 years): Previous positions (CJSC) Head of OAO “Gazprom” investment Previous positions (last 5 years): and building Department, member (last 5 years): Director for Strategic Previous positions of OAO “Gazprom” Executive Board; Member of Executive Financial Planning, (last 5 years): OOO “Gazkomplektimpeks” Board, RAO UES of Russia ZAO “Alor Invest” Adviser to Chairman Director General of Executive Board, JSB Gazprombank (CJSC); Managing Director, ZAO Troika Dialog Investment Company

81 Corporate Governance

Composition of the members of the Doard of Directors, elected at the Annual General Meeting of the Company shareholders on May 15, 2007

Full Name Year Citi- Education Shareholding Date of the first of zen- in the Company, election birth ship % to MOSENERGO Board of Directors

Kirill Gennadyevich 1974 Russia Higher Holds no MOSENERGO 15.05.2007 Seleznev shares

Pyotr Nikolayevich 1946 Russia Higher, Holds no MOSENERGO 28.06.2004 Aksenov candidate shares of economics

Bogdan 1946 Russia Higher, professor, Holds no MOSENERGO 15.05.2007 Vladimirovich doctor of technical shares Budzulyak sciences, academician

Anatoly 1972 Russia Higher Holds no MOSENERGO 28.06.2005 Anatolievich shares Gavrilenko

Valery 1952 Russia Higher, Holds no MOSENERGO 15.05.2007 Alexandrovich candidate shares Golubev of economics

Anatoly 1942 Russia Higher, doctor of 0.0015 22.04.1996 Yakovlevich technical sciences, Kopsov professor,

Aleksey 1963 Russia Higher Holds no MOSENERGO 28.06.2004 Anatolievich shares Matveyev

Alexander 1952 Russia Higher Holds no MOSENERGO 26.05.2006 Alexandrovich shares Negomedzyanov

Olga Petrovna 1953 Russia Higher, candidate Holds no MOSENERGO 15.05.2007 Pavlova of legal science shares

Wolfgang 1966 Austria Higher Holds no MOSENERGO 26.05.2006 Skribot shares

Pavel Stepanovich 1952 Russia Higher, candidate Holds no MOSENERGO 18.05.2001 Smirnov of legal sciences, shares doctor of economics

Yuriy Arkadievich 1961 Russia Higher, candidate of Holds no MOSENERGO 28.06.2004 Udaltsov Physical and Mathe- shares matical Sciences

Sergey Sergeyevich 1980 Russia Higher Holds no MOSENERGO 26.05.2006 Fil shares

82 MOSENERGO Annual Report 2007

The size of and procedure for payment of remunerations Committees of the Board of Directors. and compensations to the members of MOSENERGO Board of Directors are established by the Regulation on Payment of Audit Committee: Chairman – O.P. Pavlova; members: Remuneration and Compensations to the Members of the P.N. Aksenov, A.A. Gavrilenko, P.S. Smirnov, S.S. Fil. Board of Directors approved by the General Meeting of share- During last year Audit Committee held 7 meetings where holders on May 26th, 2006. This Provision does not apply to it discussed issues relating to revaluation of MOSENERGO fixed the Company’s members of the Board of Directors, being assets, to approval of the Company’s internal audit admin- the Company’s sole executive body or member of the istration Head candidature, as well as to the Company’s inter- Company’s joint executive body. In pursuance of this action with auditor regarding confirmation of MOSENERGO Regulation, all members of the Board of Directors receive consolidated financial accounting. the following types of remunerations: Strategy and development committee: Chairman – 1. Remuneration for participation in the meetings of the A.A. Matveev; members: P.N. Aksenov, A.A. Gavrilenko, Board of Directors. O.V. Evseenkov, A.S. Kravchenko, Y.N. Kucherov, S.Y. For participation in a meeting of the Boards of Directors, Rumyantsev, W. Skribot, P.S. Smirnov, Y.A. Udaltsov, D.V. arranged in the form of joint presence, member of the Board Fedorov. of Directors is paid remuneration in the amount of ten mini- In 2007 Committee held 6 meetings where it discussed the mum monthly base wages of the first class worker, established issues relating to the Company’s strategy development, tar- by branch tariff agreement in RF electricity complex (here- iff policy, the Company’s property management, as well as inafter referred to as Agreement). to improvement of Company’s business planning system and For participation in a meeting of the Boards of Directors, key performance indicators. by absentee voting, member of the Board of Directors is paid remuneration in the amount of seven minimum monthly base Investment Committee: Chairman – D.V. Fedorov; mem- wages of the first class worker, established by Agreement. bers: Y.E. Dolin, A.B. Lagutin, A. Y. Marinichev, A.G. Chesnokov, The ground for payment of remuneration is the fact of I.Sh. Zagretdinov, S.R. Prokurov, D.Y. Tushunov, E.V. Kurbasova, Director's participation in/presence at the meeting conduct- V.A. Demina, A.S. Kravchenko. ed either in person or in a mixed form (partly with personal During accounting period Committee held 9 personal and attendance and partly by absentee voting) recorded in the 1 remote meeting where the following was discussed: Minutes of the Board meeting. • the Company’s investment program; • quarter and annual plans and accounts on investment 2. Bonus on net profit. entities cash flow; Member of the Board of Directors is paid bonus remuner- • significant provisions of agreement with “Siemens” for ation for net profit based on data of annual accounting, realization of the third stage of the Company’s invest- approved by annual General Meeting of shareholders. This ment program for delivery of equipment and building remuneration is paid within a month after carrying out annu- and installation of new capacities on the basis of CCPU al General Meeting of shareholders. at TEP-12,16, 20 and Petrovskaya LAPS.

3. Bonus for market capitalization increase. Personnel and remuneration committee: Chairman – Member of the Board of Directors is paid bonus remuner- W. Skribot; members: S.S. Fil, P.N. Aksenov, B.V. Budzulyak, ation in the amount of 0.0175% from the Company’s market A.A. Gavrilenko, A.A. Matveev, P.S. Smirnov. value increase, less the Company’s net assets increase, cal- In 2007 Committee held 3 meetings where it discussed culated from the moment of electin to the Board of Directors the issues relating to key performance indicators for Director until electing new staff of the Board of Directors. General and Higher managers for 2008, to new revision of The Company’s member of the Boards of Directors is reim- Provisions on Director General and Members of Executive bursed for actually incurred expenses connected with par- Board bonus plan, to introducing alterations and amend- ticipation in the meetings of the Board of Directors. ments to current Provision on paying remunerations and The amount of remunerations paid to the members of the compensation to MOSENERGO members of the Boards of Board of Directors in 2007 totaled RUR 6,554,159. Directors.

83 Corporate Governance

Reliability Committee: Chairman – V.V. Sergeev; members: In 2007, the Executive Board held 53 meetings where it S.A. Pronin, I.Sh. Zagretdinov, V.G. Pleshivtsev, I.V. Belousenko, discussed 265 issues related to the current operations and A.A. Butko, V.S. Pavlikov, B.P. Modin. prospects of the Company. Of all meetings of the Executive During accounting period Committee held 6 personal and Board 2 were extended (with participation of heads of struc- 1 remote meeting where the following was discussed: tural subdivisions of the General Directorate and the • risk management program for 2008; Company’s branches) and 5 were held by absentee voting. • autonomous power sources and using reserve types of MOSENERGO Executive Board at its meetings regularly fuel at extremely low outdoor temperatures; considered such questions as: • preparation for fall-winter peakloads of 2007/2008; • financial performance of the Company; • MOSENERGO technical policy; • progress of the capital construction and remedial main- • reliability, ecological and fire safety increase program for tenance versus the plan; 2010–2014. • review of the technical and economic performance of the Company; • stockpiling of and payment for fuel; 7.4. Executive Bodies • inventory of accounts receivable and payable, build-up of a provision for doubtful debts; MOSENERGO day-to-day operations are administered by • results of the fall and winter season period, preparation the sole executive body represented by the General Director, for the next fall and winter period. and a collegial executive body represented by the Executive Board, who are accountable to the general meeting of share- The following documents were reviewed and approved by holders and to the Board of Directors of the Company. the Executive Board: The General Director is elected by the Board of Directors • draft order on capital construction; of the Company. Members of the Executive Board of the • schedule of measures on reforming of maintenance Company are nominated by the General Director of the activities at electric power plants executed by uncontract- Company and elected by the Board of Directors to the num- ed methods; ber determined by the Board of Directors. • report on costs management program executed by affil- In compliance with the Company's Charter1 the General iates of MOSENERGO in QIV and on the whole for the Director carries out the responsibilities of the Chairman year 2006; (Chairperson) of the Executive Board. • report on program of maintenance service of electric The rights and duties of the General Director and mem- power plants of MOSENERGO in the year 2008; bers of the Executive Board2 with regard to the administra- • report on reform of maintenance activities in MOSEN- tion of day-to-day operations of the Company are determined ERGO. by the Russian Federation law, the Company's Charter, Articles of the Executive Board3, as well as the employment contract The Executive Board took a decision on wage indexation concluded by each of them with the Company. in MOSENERGO and introduction starting from October 1, The major tasks of the Company's Executive Board are as 2007, of new tariff fees and official salaries on the basis of a follows: first-degree worker rate making RUR 3,000 per month. • ensuring compliance with rights and lawful interests of In 2007, the Executive Board reviewed the economic state the Company shareholders; of TEP-6 and measures taken with the aim to ensure effec- • elaboration of proposals regarding the Company’s devel- tiveness of its work, implementation of the program of tech- opment strategy; nical upgrading and reconstruction of TEP-22, improvements • realization of financial and economic policy of the of the activities of Mosenergoproyekt institute. Results of the Company, elaboration of solutions on important issues review allowed adoption of detailed decisions on further devel- of its day-to-day operation and coordination of work of opment of the above stated branches of MOSENERGO. its subdivisions; • increase of efficiency of work in systems of internal con- In 2007 the Executive Board of MOSENERGO developed trol and risk monitoring; a number of important documents and presented them to the • ensuring achievement of high level of profitability of the consideration of the Board of Directors: Company’s assets and maximum income from the • MOSENERGO investment program for 2008; Company’s activities. • a prospective scheme of Moscow region power system development till 2020 with a forecast till 2030; • draft of Regulations on provision of insurance of MOSEN- ERGO for the period from 01.01.2008 till 01.01.2011; • draft of Business Plan for the year 2008.

1 1.4. 2 1.2.3. 3 1.6. 84 MOSENERGO Annual Report 2007

In its work in 2007 the Executive Board paid special atten- Remunerations to the members of the Executive Board tion to the review of financial and economic performance of are defined by the Board of Directors of MOSENERGO in the Company’s branches: it heard reports of directors of shares by equities of their salaries. Remunerations to the LAPS-3, TEP-8, 11, 16, 20, 25 and 27 and adopted decisions members of the Executive Board who are simultaneously the aimed at improving in performance of the said branches. members of the Board of Directors of the Company are paid The Executive Board placed high emphasis on the issues only as to the members of the Executive Board. relating to preparation and holding of the annual General Meeting of the Company shareholders based on the results The amount of remunerations, benefits and compensations of work in 2006 and two extraordinary meetings held in 2007. for expenses paid to all members of the governing bodies in The Executive Board regularly dealt with social issues of 2007 totaled: the Company: official salary: RUR 43,180,245; • housing for the employes under the Mortgage Housing bonus payments: RUR 114,830,084; Lending Program; other material allowances: RUR 24,497,957; • wage indexation; Total: RUR 182,508,286. • collective agreement for the year 2008; • non-government additional retirement payments to By resolution of the Board of Directors a composition of employes in 2007; the Executive Board was changed: E.I. Borisov was removed • introduction of changes in Provision “On benefits to par- from members of the Executive Board and a new member ticipants of Great Patriotic War 1941–1945” and “On A.S. Ivannikov was introduced. benefits to participants of the labour front in the years of the Great Patriotic War of 1941–1945”; • charitable support. In 2007, the Executive Board ensured constant control of execution of earlier adopted decisions.

The amount of payments to the General Director of the Company is determined in accordance with the Regulation on Stimulating Remuneration of MOSENERGO General Director approved by the Board of Directors on September 19, 2005 (Minutes No.8) as amended by the Board of Directors on August 14, 2006 (Minutes No. 5). The amount of payments to the General Director of the Company is determined as follows: 1. An official salary determined subject to the Company's proceeds from sales of goods, services, works of the core activity for the preceding calendar year. 2. Bonus payments on a quarter results and year results basis are effected depending on achievement of key performance indicators approved for the joint-stock company on the whole. Indicators by which bonus payments are effected are list- ed in Section 6.1, the calculation technique is presented in Section 9.4 of the present Report.

With a view to motivating the Company's General Director to attain a high value of the Return of Equity KPI, a provision may be made for the General Director to receive a special bonus based on the results of the Company's work in the reporting year as a share of net profit. This percent is approved by the Board of Directors and can not exceed 1.0%.

85 Corporate Governance

Members of the Executive Board (as of 31.12.2007)

Anatoly Yakovlevich Yuriy Leonidovich Tatiana Petrovna Kopsov Guskov Dronova

Chairman of the Executive Director of TEP-21, Chief Accountant, MOSENERGO Board of MOSENERGO, a MOSENERGO branch General Director of MOSENERGO Previous positions (last 5 years) Previous positions (last 5 years) Deputy Head of the Accounting Previous positions (last 5 years) Director of TEP-21, and Reporting Department, Director, Capital Construction a MOSENERGO branch Rosenergoatom Concern, Directorate, RAO UESR Corporate Ministry of Atomic Energy Center, Director for Construction | Year of birth – 1938 of the Russian Federation of Generation Facilities, | Education – Higher, RAO UES of Russia Candidate of Engineering | Year of birth – 1954 | Citizenship – Russia | Education – Higher | Year of birth – 1942 Holds no MOSENERGO shares | Citizenship – Russia | Education – Higher, Doctor Holds 0.0017% of MOSENERGO shares of Engineering, Professor | Citizenship – Russia Yuriy Efimovich Holds 0.0015% of MOSENERGO shares Dolin Alexander Sergeevich Ivannikov Deputy General Director Dmitry Alexandrovich for Capital Construction and Deputy General Director Barshak Procurement, MOSENERGO on Finance of MOSENERGO

Director for Thermal Previous positions (last 5 years) Previous positions (last 5 years) Engineering, MOSENERGO Deputy General Director for Logistics Deputy General Director of OAO and Procurement, MOSENERGO; “TGK-1” on Economy and Finance; Previous positions (last 5 years) Deputy Managing Director, Executive head of Management and Investment Deputy Chief Engineer for Thermal Director, Business Unit No. 1, Policy Department; First Deputy Engineering, MOSENERGO RAO UES of Russia; Head of Chairman of The Committee, Head the Fuel Supply Department, of Department of Industrial Policy | Year of birth – 1956 RAO UES of Russia Management of Defense Industries | Education – Higher, Enterprises, Full State Counselor of Candidate of Engineering | Year of birth – 1949 Saint Petersburg of the 3d class | Citizenship – Russia | Education – Higher of the Committee of Economic Holds 0.00126% of MOSENERGO shares | Citizenship – Russia Development, Industrial Policy Holds no MOSENERGO shares and Trade of the Government of Saint-Petersburg

| Year of birth – 1966 | Education – Higher, Сandidate of Economics | Citizenship – Russia Holds no MOSENERGO shares

86 MOSENERGO Annual Report 2007

Aleksey Nikolayevich Acting Deputy General Director Sergey Yurievich Karev for General Affairs; Head of Rumyantsev the Marketing Section, Director of the CRMZ (Central ОАО “Vladimirenergo” Deputy General Director Mechanical and Repair Works), for Economics, MOSENERGO a MOSENERGO branch | Year of birth – 1955 | Education – Higher Previous positions (last 5 years) Previous positions (last 5 years) | Citizenship – Russia Deputy Chairman of the Executive Director of the CRMZ (Central Holds no MOSENERGO shares Board for Finances and Payments, Mechanical and Repair Works), NP “ATS”; Finance Director, a MOSENERGO branch ZAO “DitGaz” Anatoly Pavlovich | Year of birth – 1941 Kuleshov | Year of birth – 1956 | Education – Higher, Doctor | Education – Higher, of Engineering, Academician Director for Capital Candidate of Economics | Citizenship – Russia Construction, MOSENERGO | Citizenship – Russia Holds 0.0113% of MOSENERGO shares Holds no MOSENERGO shares Previous positions (last 5 years) Deputy General Director for Capital Construction, MOSENERGO; Vladimir Valentinovich Vladimir Anatolyevich Director of Complete Equipment Sergeyev Kimerin Supply Company, an MOSENERGO branch First Deputy General Director – General Director, Chief Engineer, MOSENERGO ОАО Mosenergosbyt, | Year of birth – 1954 Deputy General Director | Education – Higher Previous positions (last 5 years) for Energy Sales, MOSENERGO | Citizenship – Russia TEP-20, a MOSENERGO branch (pluralistically) Holds 0.0030% of MOSENERGO shares | Year of birth – 1957 Previous positions (last 5 years) | Education – Higher, Deputy Head of Department – Alexander Candidate of Engineering Head of Section, First Deputy Alexandrovich | Citizenship – Russia Head of Department, Head of Negomedzyanov Holds 0.014% of MOSENERGO shares Department, Deputy Managing Director, Executive Director, First Deputy General Director Business Unit No. 1, for Financial and Economic Issues, RAO UES of Russia Logistics and Sales, MOSENERGO

| Year of birth – 1963 Previous positions (last 5 years) | Education – Higher Deputy Managing Director, Executive | Citizenship – Russia Director, Business Unit No. 1, Holds no MOSENERGO shares RAO UES of Russia; Director of Operations, RAO UES of Russia; Head of the Connection Fee Vasily Yakovlevich Department, RAO UES of Russia Krivonosov | Year of birth – 1952 Deputy General Director | Education – Higher for General Affairs, MOSENERGO | Citizenship – Russia Holds no MOSENERGO shares Previous positions (last 5 years) First Deputy General Director, ОАО “Volgaenergosnabkomplekt”; Deputy General Director,

87 Corporate Governance

7.5. Audit Commission

The Company’s Audit Commission is a standing organ of • supervision over compliance of conducted business the Company’s internal audit to main tasks of which belong: transactions with the Russian Federation law and the • performing monitoring of the Company’s financial and Company's Charter1; economic activity; • performing independent evaluation of information regarding the Company’s financial state.

Members of the Audit Commission

Sergey Borisovich Andrey Victorovich Ludmila Dmitrievna Sidorov Belobrov Kormushkina

Chairman of the Audit Commission Deputy Head of Department for Leading expert of Internal Audit of MOSENERGO; Head of Internal Internal Audit and monitoring for Department of RAO UESR Audit Department, RAO UESR financial and economic activities Corporate Center Corporate Center of subsidiary companies and organizations – Head of control Previous positions (last 5 years) Previous positions (last 5 years) Department for organization Adviser on working audit commissions Head of Internal Audit Department, activity on providing work on Professional Directors Institute RAO UESR Corporate Center; of OAO “Gazprom” Foundation work; adviser on work Head of Financial Audit Department, gas supply system of RAO UESR representative office RAO UES of Russia audit commissions on managing Previous positions (last 5 years) joint stock companies of the Eastern | Year of birth – 1952 Deputy Head, Head of Russian part of Russia “Vostokenergo”; | Education – Higher transport inspection Kaliningrad OOO “Audit firm “AKFA” | Citizenship – Russia regional department Director General Holds no MOSENERGO shares | Year of birth – 1958 | Year of birth – 1956 | Education – Higher | Education – Higher Rafael Vladimirovich | Citizenship – Russia | Citizenship – Russia Ishutin Holds no MOSENERGO shares Holds no MOSENERGO shares

Head of Department for Internal Audit and monitoring for financial Oleg Victorovich and economic activities of Zabrodin subsidiary companies and organizations of OAO “Gazprom” Chief accountant of TEP-1 named after P.G. Smidovich – MOSENER- Previous positions (last 5 years) GO branch Head of “Gazprom” executive office control-audit Department; adviser, Previous positions (last 5 years) chief adviser of North-Western region- Deputy Chief accountant, main spe- al inspection of Main Control cialist of MOSENERGO account Department of RF President, department RF President authorized representative body in North-eastern federal district | Year of birth – 1960 | Education – Higher | Year of birth – 1971 | Citizenship – Russia | Education – Higher, Holds no MOSENERGO shares Doctor of Economics, professor | Citizenship – Russia Holds no MOSENERGO shares 1 1.4.

88 MOSENERGO Annual Report 2007

7.6. Brand

Audit Commission conducts its activity on the basis of MOSENERGO has one of the oldest and one of the most Provision on MOSENERGO audit commission1, approved by significant brands in Russian energy industry. General Meeting of shareholders on May 30, 2002. “MOSENERGO” brand actually has been in existence since The Company’s Audit Commission performed documen- 1932 after renaming of Moscow association of state power tary verification (audit) of MOSENERGO financial and eco- plants (MOGES) into District energy division “MOSENER- nomic activities in 2007. GO”. Brand’s great history of vertically integrated organiza- Based on the audits and on the Company's Auditor's tion established stable combination of associations with dif- report, the Audit Commission drew up its Opinion2 which ferent social groups. In the course of over 70 years of its confirms authenticity of data contained in the Company's existence “MOSENERGO” brand defined the Company’s statements and other financial documents for 2007. Copies complete responsibility for electricity and heat supply relia- of the Opinion were sent to Board of Directors and to General bility in Moscow Area. Director. Division of vertically integrated company MOSENERGO The size of and procedure for payment of remunerations according to activity types into 14 individual organizations, and compensations to members of the Audit Commission completed on April 1st, 2005, resulted in responsibility dis- are established in accordance with the Regulation on tribution for providing system reliability between different Payment of Remuneration and Compensations to Members energy companies included in the capital energy complex. of MOSENERGO Audit Commission approved by General Today MOSENERGO is one of the greatest generating Meeting of shareholders on May 30, 2002. companies in Russia working on organic fuel, the greatest heat For participation in audits of financial and economic producer and the third producer with respect to electricity gen- activities, members of the Audit Commission receive a eration. lump-sum remuneration calculated as the amount of triple Retention of the brand by the generating company MOSEN- minimum monthly base wage of a first class worker. ERGO has put a problem of its repositioning in order to min- Besides for each performed inspection (audit) of the imize information risks connected with activities of separat- Company financial and economic activity each member of ed companies. Audit Commission can receive additional remuneration in In 2007 Company performed active information campaign the amount of twentyfold minimum monthly base wage of to update brand’s meaning content without changing the a first class worker. official trade mark of the Company’s name. Members of the Audit Commission are compensated for Retention of brand’s inherent significant attributes such as expenses incidental to their participation in meetings of the Company’s activity scale, social significance and respon- the Audit Commission and auditing in the amount of reim- sibility while emphasizing the main type of MOSENERGO bursement of business travel expenses as of the time of hold- activity – electricity and heat generation – were provided. ing meeting or auditing. In 2005-2007 MOSENERGO rebranding was arranged on Size of remunerations paid to audit commission chair- the basis of realizing Development and technical reequipment man is increased by 50%. program that accelerated putting into operation of new gen- The total amount of remunerations, benefits and com- erating capacities. In 2007 MOSENERGO also laid emphasis pensations paid by Company to the members of MOSEN- on the Company’s fundamental role in energy supply of not only ERGO Audit Commission for 2007 was RUR 608,850. Moscow Area but also adjacent regions of central Russia.

1 1.6 2 p. 116

89 Power unit № 3 CCPU-450Т at TEP-27, August 2007

90 MOSENERGO Annual Report 2007

Finish pressing out gas-compressor station provides the necessary gas pressure at the inlet of the gas turbine

91 / 2 5 /.

Shares and stock market

8.1. Issuing of shares

MOSENERGO has conducted four issues of ordinary reg- As of the end of 2007 the Charter capital of MOSENER- 0 3 istered shares. The first issue of MOSENERGO shares was GO amounted//6 to RUR 39,749,359,700. The Company placed undertaken in 1993 in the process of the Company privatiza- 39,749,359,700 ordinary registered shares of one (1) ruble tion and was distributed as follows: 49.0% of the shares were par value each. Each ordinary registered share entitles its transferred by the State to the Charter capital of RAO UES of holder to an equal measure of rights as provided by the effec- Russia, 51.0% of shares were placed through a private sub- tive legislation of the Russian Federation. scription among the labor collective members. The second and third issues of MOSENERGO shares conducted at the The year 2006 saw two bonded loans floated to the total expense of the funds from the revaluation of the Company's amount of RUR 10 billion with a view to refinance the Company's fixed assets in 1994 and 1998, respectively, have been placed debt instruments and to optimize its financial activities. among the shareholders in proportion to the share of their During the year of 2007 there was implemented prepara- contributions to the Charter Capital of MOSENERGO. tion work for reorganization of MOSENERGO in the form of MOSENERGO fourth issue was placed in 2000 through a closed takeover of the company OAO “Mosenergo Holding” as part target subscription to the Moscow City Government represent- of the second stage of RAO UES of Russia reorganization. ed by the Moscow Property Department and to RAO UES of OOO “Ernst & Young – joint consulting” an independent Russia. appraiser for redemption purpose evaluated the market val- In 2004, the annual General Meeting of MOSENERGO share- ue of one ordinary registered share of MOSENERGO com- holders adopted a resolution on the Company reorganization. posed of monitoring pack no more than 5.0% of Charter cap- As a result of retirement of the shares redeemed by the Company ital as of September 30, 2007. Under the report of the pursuant to Article 76 of the Federal Law "On Joint Stock independent appraiser the Company’s Board of Directors Companies", No. 208-Ф3, MOSENERGO Charter capital was evaluated the value of one MOSENERGO ordinary registered reduced to 0.06%. share for redemption purpose as 6 roubles 21 kopecks. The fifth shares issue was implemented in 2007 for the On December 28, 2007 the extraordinary General Meeting purpose of the Company investment program financing. The of 0 shareholders adopted a resolution to reorganize MOSEN- amount of the additional issue was 11,500,000,000 of ERGO in the form of the company takeover and to increase MOSENERGO ordinary registered shares. 128,565,570 shares Charter capital by 16.5 million roubles as a result of distribu- of additional issue were distributed in the process of implemen- tion of additional shares of the Company tation of shareholder’s privilege in accordance with by means of OAO “Mosenergo Holding” share conversion2. Article 40 of the Federal Law "On Joint Stock Companies", 11,371,434,430 of shares placed through a private subscrip- 1 4 7tion of OAO “Gazprom”. The texts of the registered Resolution on the Additional Issue and Issue, Prospectus and Report of the additional issue can be found on the Company's website1.

1 3.3. 2 p. 179

92 MOSENERGO Annual Report 2007

8.2. Charter capital structure

According to Article 84.2 of the Federal Law “On Joint Company’s total amount of outstanding stock. OAO “Gaz- Stock Companies” OAO “Gazprom” which in 2007 purchased prom” share in Company’s charter capital amounted to through closed target subscription over 30 percent of the 53.47%. total amount of MOSENERGO shares, has forwarded to In December 2007 RAO UES of Russia signed sales contract with Moscow government for 21.16% of MOSENER- MOSENERGO Charter capital structure, % GO shares, which belong to RAO UES of Russia. According to this contract Moscow Government buys back MOSEN- as of 31.12. as of 31.12. ERGO equities at the price of 6 rubles 50 copecs per share. 2006 2007 Payment for the shares shall be made before June 30, 2008. RAO UES of Russia 50.90 15.01 As a result of this transaction RAO UES of Russia share in MOSENERGO Charter capital has reduced to 15.01%. ОАО“Gazprom” – 53,47

Moscow Government 8.3. Outstanding Securities represented by Moscow property Department – 21.16 MOSENERGO shares are traded by major trading systems of the Russian stock market, ZAO MICEX Stock Exchange Legal entities and and OAO RTS Stock Exchange (RTS). nominee holders 44.27 6.95 In 1995 MOSENERGO implemented an ADR (American Individuals 4.83 3.41 Depositary Receipts) program for the Company's shares. As of December 31, 2007, the percentage of MOSENERGO shares deposited against ADRs is 0.73% of the Charter Capital MOSENERGO a mandatory offer for purchasing MOS - of the Company. ENERGO shares at the price of 6 rubles 50 copecs per ordi- The Bank of New York Mellon is the program depository. nary share. One depository receipt corresponds to 100 shares of MOSEN- According to Report on results of accepting the manda- ERGO. Depository receipts for MOSENERGO shares are trad- tory offer regarding securities purchase received from OAO ed on over-the-counter markets in the U.S. and Europe. “Gazprom”, quantity of paid shares reached 3.57% of the

MOSENERGO Share Codes in Major Russian Trading Systems

MOSENERGO shares OAO RTS Stock Exchange MSNG ZAO MICEX Stock Exchange MSNG Bond certificates of MOSENERGO, series 01 ZAO MICEX Stock Exchange RU000A0JNMN6 Bond certificates of MOSENERGO, series 02 ZAO MICEX Stock Exchange RU000A0GN9B5

93 Shares and stock market

MOSENERGO ADR-Assigned Tickers

Over–the–counter USA market AOMOY Over–the–counter European market (London) AOMDLI

Trading Volume of MOSENERGO Shares in 2007 in Major Trading Systems

OAO RTS Stock Exchange, USD thou 7,966 ZAO MICEX Stock Exchange, RUR mln 53,021 European (London) over–the–counter market*, USD thou 10,002

* trading volume of depository receipts issued for the Company's shares

MOSENERGO regularly takes measures aimed at enhanc- on the background of market expectations of decisions of the ing capitalization of the Company in pursuance of the require- Company shareholders’ meetings and RAO UES of Russia con- ments of Russian and international laws imposed on the com- nected with reorganization. panies whose shares are traded at stock markets with respect The minimum share price of MOSENERGO shares through- to compliance with the corporate governance standards, pub- out 2007 at the trading floor of ZAO MICEX Stock Exchange lic awareness and transparency of the Company's business, pro- was registered on January 10, 2007, and made RUR 5.057, tection of the rights of shareholders and prospective investors. the maximum was RUR 7.482 on February 12, 2007. Two issues of bond certificates of MOSENERGO are trad- In 2007, MOSENERGO capitalization increased by 58.4% ed at stock markets: by the end of the year reaching RUR 235.7 billion, partly as series 01 – issues volume is RUR 5 billion, the trading term the result of placement of the additional issues of MOSEN- is 5 years, offer is 3 years and profitability is 7.54% per annum; ERGO shares. series 02 – issues volume is RUR 5 billion, the trading term is 10 years, offer is 6 years and profitability is 7.65% per The Company shares were included in the following annum. quotation lists of the trade institutors: ZAO MICEX Stock Bond certificates of MOSENERGO are included in the quo- Exchange – quotation list "A", level 1, OAO RTS Stock tation list “A”, level 1 of ZAO MICEX Stock Exchange. Bond cer- Exchange – list "A", level 2. tificates of series 02 are traded from May 2006, bond certifi- In 2007, trading in MOSENERGO shares was character- cates of series 01 – from March 2007. The aggregate volume ized by small volumes of trading sections, which accounted of trading in bond certificates of both series in 2007 made for a small volume of the Company’s shares in free circula- RUR 6,726.5 million. The current price of bond certificates tion. Fluctuations of prices of MOSENERGO shares occurred makes on the average 99% from the face value of the issue.

Market Capitalization As of the Close of the Fiscal Year

Date Price Per Share, RUR Qty of Shares, Pcs Capitalization*, RUR

31.12.2004 4.108 28,267,726,000 116,123,818,408 30.12.2005 4.122 28,249,359,700 116,443,860,683 29.12.2006 5.266 28,249,359,700 148,761,128,180 30.12.2007 5.929 39,749,359,700 235,673,953,661

* market capitalization is calculated according to ZAO MICEX Stock Exchange data on the market price per share as disclosed on the date of completion of the respective reporting period and the number of MOSENERGO shares issued

94 MOSENERGO Annual Report 2007

95 Shares and stock market

96 MOSENERGO Annual Report 2007

8.4. Dividend policy

In distribution and payment of dividends, MOSENERGO is In 2007 dividends on MOSENERGO shares were distrib- guided by the requirements of the Federal Law "On Joint uted and paid based on the Company’s work results in 2006 Stock Companies" and the Company's Charter1. and the first quarter of 2007. Distribution and payment of Decision about payment of dividends on shares, includ- dividends on MOSENERGO shares was performed in strict ing dividend amount and form of payment are made by General compliance with the resolution of the annual General Meeting Meeting of shareholders. of shareholders dated May 15, 20072 and extraordinary Dividend amount shall not exceed the amount recom- General Meeting of shareholders dated June 22, 20073. mended by the Company’s Board of Directors. Dividends for 2006 were paid within 60 days after the According to the results of the first quarter, half year, Shareholders' Meeting so resolved. 9 months of financial year and (or) according to the results Dividends for the first quarter of 2007 were paid within 60 of a financial year the Company is entitled to make decisions days after the Shareholders' Meeting so resolved. regarding dividend payment. Decision can be made within Dividends due and owing to RAO UES of Russia were paid three months after completing the corresponding time period. in accordance with the schedule signed by both parties. The source for dividends payment is the Company’s net revenue which is determined based on accounting data. Terms for dividend payment are determined by the Company’s General Meeting of shareholders, but cannot exceed 60 days after making the decision regarding such payment.

Dividend payments in 2007

Period Distri- Tax Dividends Payment Market value Dividend buted deducted, for per share, of share at yield*, dividends, RUR thou. payment, RUR trading site % RUR thou. RUR thou. MICEX Stock Exchange, RUR

In 2007 600,000 50,341 549,659 0.02116389 6.638 0.32 based on work results in 2006

In 2007 296,290 25,764 270,525 0.0104408508 6.135 0.17 based on work results in the 1st quarter of 2007

* calculated as a ratio of the amount of dividend paid to the price of shares on the date of preparing the list of persons eligible to receive the dividend

1 1.4. 2 p. 176 3 p. 179 97 Power unit № 3 CCPU-450Т at TEP-27, August 2007

98 MOSENERGO Annual Report 2007

General view of the pumphouse of diesel oil. Diesel oil is used for CCPU-450Т as emergency fuel

99 2 5 /. 0 3 //6

Financial Results Review

The Company's net profit after the profit tax and other 1 4 7mandatory payments amounted to RUR 739.5 million as compared to RUR 296.8 million originally planned

9.1. Sales

In 2007, the proceeds from sales of commercial output (net of VAT) yielded RUR 78,324.7 million, including RUR 70,200.9 million from sales of electricity and heat and RUR 8,123.8 million of proceeds from sales of other goods, services and works. In comparison with results of the year 2006 sales of commercial output increased by 11.5% and of energy – by 12.4%. The major factor of this increase was growth of delivered products cost. MOSENERGO has been operating in the Wholesale energy market and has been making electricity and power purchase and sale transactions in its sectors. In 2007, the proceeds from sales of electricity and power yielded RUR 36,724.7 million, which exceeded the level of the year 2006 by 19.3%. Regulated bilateral contracts (RBC) on the Wholesale market are concluded in accordance with counteragents and volumes executed by a non-commercial partnership “Commercial System Administrator”. Fees for electric energy and power are approved by the Federal Tariffs Service of Russia. The major buyer of the electric energy supplied by MOSEN- ERGO in the regulated sector (RBC) is OAO “Mosenergosbyt”. In the regulated sector the proceeds from sales of electricity and capacity was RUR 34,048.2 million (27.7% higher than in 2006), including RUR 20,378.3 million in revenues from electricity sales and RUR 13,669.7 million in payment for installed capacity. Sales of electric energy at competitive prices on the “Day Ahead Market” made RUR 2,650.1 million, on the balancing market – RUR 26.6 million.

100 MOSENERGO Annual Report 2007

The annual revenues from heat energy sales were RUR dance with Ordinance of Government of the RF dated 33,476.2 million, which is 5.6% higher than in the year 2006. 23.05.2006 No. 307 envisage payment for the heat energy Heat sales to customers in Moscow and seven towns of on the basis of measurements of heat-measuring devices for Moscow Region are handled by Teplosbyt, a MOSENERGO the preceding month. Advanced payments in this situation branch. make 30-50% from the scheduled consumption. In 2007 To secure heat sales and arrange for settlements for the increase of the accounts receivable for the heat energy from consumed heat an independent sales company OOO the start of the year corresponds to the unpaid consumption “Orekhovo-Energosbyt” was hired. for December 2007 with due account of paid advances. LAPS-3 and TEP-17 sell heat in the Cities of Elektrogorsk The accounts receivable of customers and buyers in the and Stupino by proxy. amount of RUR 1.2 billion is acknowledged as impossible to recover and is included in the provision for doubtful debts. The proceeds from sale of other goods, works and serv- The Company performs ongoing work to strengthen the ices of production and non-production purpose include pro- payment discipline of customers and recover overdue accounts ceeds from sales of electricity and power purchased on the receivable for the power supplied. Wholesale market, including for ensuring the fulfillment of In 2007, MOSENERGO brought 174 legal actions against bilateral contracts, in the volume RUR 2,795.3 million, pay- power customers through arbitration courts to recover over- ment for services on connection of capacities – RUR 1,493.9 due accounts receivable for the amount of RUR 139.4 million. million, proceeds from equipment lease is RUR 1,356.4 mil- Arbitration rulings sustained claims of 106 legal actions for lion and other proceeds – RUR 2,532.2 million. the amount of RUR 66.3 million.

Accounts receivable from electricity and heat customers, inclusive of electricity supplies to the Wholesale market, have 9.2. Cost Management increased by RUR 2.1 billion (from RUR 1.4 to 3.5 billion) since the beginning of the year, including: The production cost of MOSENERGO commercial out- • by RUR 0.6 billion for electricity; put in 2007 totaled RUR 73,681.2 million, including RUR • by RUR 1.5 billion for heat. 67,803.0 million of energy, RUR 5,878.2 million of other The sales level of electric power on the wholesale market, products. other activities included, in the year 2007 made 98% as com- In comparison with 2006 costs for marketable products pared with the planned 97%. manufacturing increased by RUR 8,470.3 million, including Increase of accounts receivable for electric energy is due by RUR 8,167.9 million for energy generation. Cost increase to a debt of electric power distribution companies of the was influenced by performed revaluation of capital assets1, North Caucasus. MOSENERGO signed an agreement about as well as increased cost of fuel, materials and services. re-structuring of the debt and a schedule of its compensa- Energy production cost in 2007 came to 55.2 kopecks/kWh, tion by monetary facilities and bills of exchange of approved and heat production cost to 539.9 RUR/Gcal. banks is approved. The cost of fuel contributed RUR 36,853.2 million to the Level of sales of heat energy including heat energy sup- generation costs making up 54.3% thereof. plied in order to compensate heat loss in the pipelines of The price of the primary fuel, natural gas, in 2007 was OAO “Moscow Heat Distribution Company” was 98%, which RUR 1,619.1 per thousand cubic m, up 15.8% compared to meets the planned value. 2006. Growth of accounts receivable for heat energy is due to A ton of fuel oil was RUR 4,274.2, a 44.4% increase against the fact that effective agreements for heat supply in accor- the level of 2006.

1 p. 142

101 Financial Results Review

Kuznetsk coal was procured at RUR 1,261.4 per ton inclu- 9.3. Profit sive of the railroad tariff and remained at the level of the last year. In 2007 MOSENERGO made a RUR 4,550.9 million profit on The average price of equivalent fuel was RUR 1,423 per sales of marketable products, including a RUR 2,397.96 mil- ton, 14.0% higher as compared with 2006. lion profit on electricity and heat sales. In comparison with 2006 Power plants’ maintenance expenses in 2007 amounted profit value from sales decreased by 8.7% due to performed to RUR 5,032.2 million or 7.4% of the energy generation capital assets revaluation as of 01.01.2007, as a result of costs. which there was an increase of depreciation charges and The payroll costs, including allocations, amounted to RUR property tax. 4,812 million or 7.1% of the total energy generation costs. The profit from electricity sales totaled RUR 4,660.83 million with the loss from heat sales being RUR 2,262.87 million. Taking into consideration MOSENERGO work on the Amount of balance of other revenues and expenditures Wholesale market of electricity (power) in the main sector of was influenced by receiving revenues from allocation of tem- regulated bilateral contracts, where over 90% of energy is porally free cash assets, which were received to MOSENER- sold at tariffs established by FST of Russia1, the only way to GO account as a result of additional shares issue. increase the Company’s profitability is to optimize its expens- Taking into consideration other revenues and expendi- es. This work is carried out in accordance with cost manage- tures the pretax profit was RUR 2,648.5 million, profit tax and ment program along the following main lines: other mandatory payments being RUR 1,909.1 million. • increase of sale proceeds; The Company's net profit after the profit tax and other • cost of production reduction; mandatory payments amounted to RUR 739.5 million as com- • optimization of other activities. pared to RUR 296.8 million originally planned. The actual fulfillment of the program in 2007 worked out In accordance with Article 8 of the Company's Charter3, at RUR 793.6 million which is 1.3 million higher than the tar- the amount of mandatory annual allocations to the Reserve get figure. Fund is five percent of the net profit of the Company until the One of the main tools for MOSENERGO costs optimiza- established amount of the Reserve Fund is reached (five per- tion is conducting tenders2 for concluding contracts for the cent of the Company's charter capital). procurement of goods, works and services on the most favor- In accordance with the decision of the extraordinary General able terms for MOSENERGO. Meeting of shareholders4, arranged in June 2007, dividends are paid as a result of the Company’s work in the Ist quarter of 2007 in the amount of RUR 296,290 thousand. Remaining portion of the net profit in the amount of RUR 406.2 million is planned to be used for investments.

Distribution of Profits, RUR thou

2005 2006 2007*

Retained earnings 2,081,926 1,523,725 739,470 Reserve Fund 104,096 76,186 36,974 Accumulation 1,523,863 847,539 406,206 including investments for 2008 ––406,206 Dividends 453,967 600,000 296,290**

* submitted to the General Meeting of shareholders for approval ** share dividends for the 1st quarter of 2007

1 p. 105 3 1.4. 2 p. 45 4 p. 179

102 MOSENERGO Annual Report 2007

* submitted to the General Meeting of shareholders for approval ** share dividends for the 1st quarter of 2007

103 Financial Results Review

9.4. Attainment of Key Performance Indicators

Annual and quarterly key performance indicators (KPI) that are used to assess the effectiveness and efficiency of the Company’s management actions, processes and functions are approved by MOSENERGO Board of Directors.

Attainment of Key Performance Indicators in 2007

KPI Plan Fact Deviation Calculation formula

Return on equity, % 0.75 1.32 0.57 Net profit - (Profit of the past years + account payable for the period more than 3 years x 0.76) / Section III Total of Balance sheet (capital and reserves) as of 31.12.2006.

Limit of operating costs for 1 MW 495.0 491.3 -3.7 Fixed costs for output regardless of relative installed capacity as of the of irreducible expenses beginning of the year, RUR thou (amortization, taxes, etc) / Relative installed capacity as of the beginning of the year

The return on equity which characterizes the net return on each ruble of the Company's equity capital attained in 2007. With target value of net return in the amount of RUR 296.8 million, actual profit amounted to RUR 739.5 million, which increased return on equity by 0.57 points. The limit of operating costs orients the Company management on increase of the Company profitability by means of cost management program. It shows the Company's fixed costs for output except for irreducible costs (taxes, tax payments and other expenditures, recognized as irreducible) and was attained according to the results of 2007. Reliability criterion index which provides monitoring of energy equipment operation process reliability level is attained according to the results of the year. Execution of the annual index Investment program realization effectiveness testifies that the Company’s investment program realization was performed according to the established terms and financing scope.

104 MOSENERGO Annual Report 2007

9.5. Tariff Policy

One of the most important lines of MOSENERGO management work in 2007 was interaction with the regulatory organizations regarding establishment of economically sound energy tariffs.

Electricity In 2007 electricity supplied to the bilateral contracts’ market of the Wholesale market, was sold according to the tariffs1 set by order No. 484-э/5 dated December 29, 2006 of the FST (Federal Service for Tariffs) of Russia individually for each power plant within MOSENERGO. Electricity supplied to the market “for a day ahead” and balancing market was charged at the tariffs formed on the basis of bidders' competitive bids.

Tariffs set for the Regulated Sector of the Wholesale market

2006 2007 Deviation, %

Capacity rate, RUR/MW 93,682.8 108,811.8 16.1

Power rate, RUR/MWh 335.9 379.6 13.0

Average tariff, RUR/MWh 548.2 621.3 13.3

Energy actual average sale tariff at wholesale market came to 632.3 RUR/MWh due to increase of electricity volume sold at competitive prices.

Heat Average heat sale tariff, RUR/Gcal Since January 1, 2007 end consumers of heat were charged at the tariffs2 approved: • in Moscow, by ordinance No. 51 dated December 11, 2006 of the REC of Moscow; • in the Moscow Region – by minutes No.16 dated December 22, 2006 of the meeting of the board of Moscow region Fuel and Energy Committee.

1 1.9. 2 1.9. 105 Financial Results Review

Heat tariffs according to consumer groups, RUR/Gcal

Customer groups 2006 2007 Deviation, %

Moscow Moscow Moscow Moscow Moscow Moscow region region region

Population, with VAT 388.0 – 463.0 – 19.3 –

Budget, housing and communal services, building cooperative society, etc – 423.0 – 486.0 – 14.9

Other customers 490.0 509.0 554.0 610.0 13.1 19.8

Average tariff for hot water and steam 462.3 449.2 519.5 528.7 12.4 17.7

In 2007 MOSENERGO in heat sales to OAO Moscow Heat Distribution Company used the tariffs to compensate process losses approved by the REC of Moscow by ordinance No. 60 dated December 20, 2006 for Moscow and by minutes No.16 dated December 22, 2006 of the meeting of the board of Moscow Region Fuel and Energy Committee for Moscow Region.

Trends in Heat Tariffs, RUR/Gcal

MOSENERGO Moscow Moscow region

Average annual schedule tariff for 2006 461.8 462.3 449.2

Average annual schedule tariff for 2007 519.9 519.5 528.7

Accretion to the average schedule tariff, % 12.6 12.4 17.7

Schedule tariff for sale of heat for compensation 309.4 305.4 424.5 of process consumption in networks from 01.01.2007

Actual average sale tariff in 2006 459.4 459.7 451.3

Actual average sale tariff in 2007 516.6 516.2 525.6

Accretion to the actual average sale tariff, % 12.5 12.3 16.5

Reduction in the actual average sale tariff for end consumers of heat in 2007 against the schedule tariff is influenced by the change of actual consumption structure by consumer groups. The actual average tariff for sales of heat for compensation of technological consumption in OAO Moscow Heat Distribution Company in 2007 amounted to 312.7 RUR/Gcal and increased in comparison to the level of 2006 by 11.5%.

106 MOSENERGO Annual Report 2007

9.6. Analysis of Financial Results

ANALYTICAL BALANCE SHEET, RUR thou

Balance sheet structure, % ASSETS As of As of Devi- As of As of Devi- 01.01. 31.12. ation 01.01. 31.12. ation 2007* 2007 2007 2007

I. NONCURRENT ASSETS Intangible assets 94 80 -14 0.00 0.00 0.00 Fixed assets 58,220,328 65,167,395 6,947,067 66.67 44.02 -22.65 Construction in progress 8,071,827 22,804,484 14,732,657 9.24 15.40 6.16 Long-term financial investments 25,693 82,892 57,199 0.03 0.06 0.03 Deferred tax assets 261 813 552 0.00 0.00 0.00 SECTION I TOTAL 66,318,203 88,055,664 21,737,461 75.94 59.48 -16.46

II. CURRENT ASSETS Inventories 4,675,754 4,834,599 158,845 5.35 3.27 -2.08 Value-added tax on valuables acquired 584,851 421,827 -163,024 0.67 0.28 -0.39 Receivables (expected to be paid in more than 12 month from the reporting date) 71,001 78,026 7,025 0.08 0.05 -0.03 Receivables (expected to be paid within 12 month after the reporting date) 9,621,344 20,115,789 10,494,445 11.02 13.59 2.57 Short-term financial investments 910,427 26,200,544 25,290,117 1.04 17.70 16.66 Monetary assets 4,971,776 8,217,590 3,245,814 5.69 5.55 -0.14 Other current assets 180,103 113,542 -66,561 0.21 0.08 -0.13 SECTION II TOTAL 21,015,256 59,981,917 38,966,661 24.06 40.52 16.46

BALANCE 87,333,459 148,037,581 60,704,122 100.00 100.00

LIABILITIES

III. CAPITAL AND RESERVES Charter capital 28,249,360 39,749,360 11,500,000 32.35 26.85 -5.50 Additional capital 27,375,295 76,635,945 49,260,650 31.35 51.77 20.42 Reserve capital 612,435 688,621 76,186 0.70 0.47 -0.23 Retained earnings (uncovered loss) 1,390,253 1,236,271 -153,982 1.59 0.84 -0.75 SECTION III TOTAL 57,627,343 118,310,197 60,682,854 65.99 79.93 13.94

IV. LONG-TERM LIABILITIES Loans and credit facilities 20,283,054 16,715,194 -3,567,860 23.22 11.29 -11.93 Deferred tax liabilities 578,355 1,038,024 459,669 0.66 0.70 0.04 Other long-term liabilities 190,247 152,000 -38,247 0.22 0.10 -0.12 SECTION IV TOTAL 21,051,656 17,905,218 -3,146,438 24.10 12.09 -12.01

V. SHORT-TERM LIABILITIES Loans and credit facilities 869,941 1,043,159 173,218 1.00 0.70 -0.30 Accounts payable 7,204,255 9,136,150 1,931,895 8.25 6.17 -2.08 Arrears of revenues payable to members (founders) 607 561 -46 0.00 0.00 0.00 Deferred incomes 579,657 690,433 110,776 0.66 0.47 -0.19 Other short-term liabilities 0 951,863 951,863 0.00 0.64 0.64 SECTION V TOTAL 8,654,460 11,822,166 3,167,706 9.91 7.98 -1.93

BALANCE 87,333,459 148,037,581 60,704,122 100.00 100.00

* the data with consideration of the fixed assets evaluation groups «Machinery and equipment used for electricity and heat energy generation» and «Heating main grids»

107 Financial Results Review

The given analytical balance shows changes in the prop- Non-current assets have increased by RUR 21,737,461 thou- erty of MOSENERGO occured as a result of production and sand, or 32.8% substantially due to the increase of the fixed economical activities during 2007 as well as issue of the addi- assets value and increase in assets regarding the item tional shares of the Company. “Construction in progress” and the growth of fixed assets val- According to the decision of the Company’s Board of ue. Main funds introduction for the year of 2007 amounted to Directors of March 5, 2007, the revaluation of the main assets the sum of RUR 11,531,527 thousand, as well as in relation groups “Machines and equipment used for electric and heat to TEP-27 – to the sum of RUR 6,529,800 thousand. The val- energy generation” and “Heating main grids” was performed ue of the charged amortization was RUR 4,631,381 thousand. as of January 1st, 2007. The revaluation entailed significant The increase in assets regarding the item “Construction in increase of the current (replacement) cost of the main funds progress” is stipulated by expansion of the Company’s invest- in comparison with current (replacement) cost represented ment program implementation. The cost of the fixed assets, in annual report of MOSENERGO for 2006 in balance sheet brought to building and placed into operation, with the doc- as of December 31, 2006. uments for registration of property right executed, amounted In 2007 issue of the Company’s additional shares was per- to RUR 6,039,368 thousand at the end of the accounting formed according to the decisions adopted by Extraordinary period, as well as regarding the property of TEP-27 – Meeting of shareholders of MOSENERGO on December 20th, RUR 5,859,601 thousand. 2006. As a result of such issue the amount of RUR 60,720,000 The value of MOSENERGO current assets has increased thousand was attracted for implementation of the Company’s by the amount of RUR 38,966,661 thousand or 185.4% in investment program. comparison with the beginning of the accounting year.This is MOSENERGO total assets as of the end of 2007 accord- due to the following reasons: ing to the balance assessment amounted to the sum of RUR • increase of short-term accounts receivable by RUR 148,037,581 thousand, which is higher by the sum of RUR 10,494,445 thousand (109.1%). Debts of buyers and 60,704,122 thousand or 69.5% than the sum as of the begin- customers increased by RUR 2,855,963 thousand ning of the year. (124.4%), debts of other debtors increased by RUR 927,023 thousand (107.6%); the amount of the made advances has increased by RUR 6,711,459 thousand (103.8%) due to advances paid to construction organizations in connection with implementation of the invest- Structure of total assets, RUR thou ment program; • creation of additional short-term financial investments in connection with the free monetary funds temporarily disposed by the Company as a result of issue of the additional shares and their placement on deposit account in the amount of RUR 11,000,000 thousand and in inel- igible bills – in the amount of RUR 15,200,544 thousand; • increase of the demand balance by RUR 3,245,814 thousand (65.3%), that is also connected with the free monetary funds temporarily disposed by the Company as a result of issue of the additional shares.

Owned equity capital stock of MOSENERGO has increased by RUR 60,682,854 thousand or 105.3%, at the expense of issue of the additional shares. Attracted total amounted to RUR 60,720,000 thousand: the Company’s Charter capital has increased by RUR 11,500,000 thousand, the sum of RUR 49,220,000 thousand was taken into account as a part of the additional capital.

108 MOSENERGO Annual Report 2007

Within the period from January 1st, 2007 till December accounting year. All the arrears are current, formed accord- 31st, 2007 the Company attracted the credits in the amount ing to the payment terms of the agreements. of RUR 7,793,087 thousands, including the sum of RUR As a part of the other current liabilities, the amount to be 3,721,027 thousand for increase of floating assets, and the paid by MOSENERGO is shown in favor of four legal entities sum of RUR 4,072,060 thousand for financing of the as a compensation of the market value of their shares of the Company’s investment program. The credits and loans have stock in CB Transinvestbank (LLC), returned by MOSENER- been repaid in the amount of RUR 11,151,117 thousand. GO in the order of restitution on invalid transactions. The The interest for usage of the borrowed current assets amount- details are given in Paragraph 17 of Section III of the ed to the sum of RUR 1,581,071 thousand, including the Explanatory note to the Accounting report. interest on credits attracted for repayment of the floating assets – to the sum of RUR 523,797 thousand. The arrears, of MOSENERGO on credits and loans as of December 31st, 2007 amounted to RUR 17,758,353 thousand, meanwhile the sum of loan arrears amounted to RUR 17,475,944 thousand and the sum of accounts payable on accrued interest which has not become due amounted to the sum of RUR 282,409 thousand. MOSENERGO has no overdue arrears on performing obligations on credits and loans. Accounts payable has increased by the sum of RUR 1,931,895 thousand or 26.8% in comparison with the beginning of 2007. Arrears payable to suppliers and contractors has qrown by the sum of RUR 2,705,565 thousand (59.2%) mainly as a result of the growth of the current debt to construction organizations in connection with the increase of the capital construction. Accounts payable ratio in the currency of the Company’s balance constituted 6.2% at the end of the

Structure of total liabilities, RUR thou

109 Financial Results Review

Analytical Ratios characterizing financial condition

Index As of As of As of As of As of 31.12. 31.12. 31.12. 31.12. 31.12. 2003* 2004* 2005** 2006*** 2007

Absolute liquidity ratio 0.28 0.23 0.18 0.74 3.09 Current liquidity ratio 1.46 1.02 0.95 2.64 5.39 Financial stability ratio 0.87 0.84 0.74 0.89 0.92

Analytical Ratios characterizing financial result

Index 2003* 2004* 2005** 2006*** 2007

Overall capital turnover ratio (number of cycles) 0.57 0.69 0.76 1.14 0.67 Current assets turnover ratio (number of cycles) 3.20 3.86 4.04 4.13 1.93 Funds in accounts turnover ratio (days) 61.03 41.66 36.89 40.70 68.34 Capital productivity 0.73 0.91 1.02 1.79 1.27 Sales margin 9.5% 15.2% 9.5% 7.1% 5.8% Production margin 10.6% 18.0% 10.5% 7.6% 6.2% Return on aggregate capital 1.4% 1.7% 2.2% 2.5% 0.6%

*over the period of 2003 and 2004, MOSENERGO included 61 subsidiaries (before reforming) ** over the Ist quarter of 2005, MOSENERGO included 61 subsidiaries (before reforming) *** calculated according to the data of the balance sheet published in the annual report for 2006

Changes of the main ratios of liquidity, stability, business Reduction of the sales and production margin is caused activity and efficiency of MOSENERGO in the accounting mainly due to the increase of costs for manufacturing at the year have been caused by significant structural changes in expense of: the Company’s assets and liabilities. • depreciation charges increased in connection with reval- Increase of the values of liquidity ratios is temporarily and uation of separate groups of the main funds; has been caused by the presence of the free monetary funds • uneconomic operation modes of the power plant equip- desposed by the Company as a part of the floating assets as ment as a result of abnormally warm weather conditions a result of issue of the additional shares placed on deposit in the I and IV quarters 2007 in comparison with long- account and in bills. term average temperature conditions. Reduction of the capital turnover ratios, fixed and mobile assets is due to revaluation of separate groups of the main funds as of January 1st, 2007, and due to issue of the additional shares of the Company. The balance currency of MOSENERGO has increased by 113.9% in comparison with data as of the end of 2006. Proceeds from sale amounted to 11.5% in comparison with 2006. A certain increase in the funds in accounts turnover ratio (calculated per days) is due mainly to the increase of advanc- ing of construction organizations in connection with implementation of the investment program of the Company.

110 MOSENERGO Annual Report 2007

Methodology for Calculation of Analytical Ratios

Absolute liquidity ratio Indicates the proportion of the short-term debt that the organization can promptly pay with its monetary assets (Short-term financial investments + Monetary assets) / (Short-Term Loans and Credits + Short-term accounts payable + Arrears of revenues payable to members (founders) + Other short-term liabilities)

Current liquidity ratio Indicates the proportion of the short-term debt that can be paid with the total current assets Section II total (Current assets) / (Short-term loans and credits + Short-term accounts payable + Arrears of revenues payable to members (founders) + Other short-term liabilities)

Financial stability ratio Shows which part of the assets is financed at the expense of stable sources (Section III total (Capital and reserves)+ Section IV total (Long-term liabilities) + Deferred income + Provision for Liabilities and Charges) / Balance-sheet currency

Overall capital turnover ratio Reflects the turnover rate of the organization's total capital (in cycles per period) (number of cycles) Sales proceeds / Balance-sheet total (a mean value for the period under review)

Current assets turnover ratio Shows the turnover rate of the organization's total current assets (both tangible and (number of cycles) monetary) Sales proceeds / Section II total (Current assets) (a mean value for the period under review)

Funds in accounts Indicates the efficiency with which the proceeds from sales are used, and the quali- turnover ratio (days) ty of work with debtors Mean receivables due up to 12 months X 360 / Sales proceeds

Capital productivity Shows how efficiently the organization's fixed assets are used Sales proceeds / Fixed assets (a mean value for the period under review)

Sales margin (%) Shows the profit per unit of sales (Profit on sales / Sales proceeds) X 100%

Production margin (%) Shows the profit per unit of costs spent on production and realization of products (Profit on sales / Production cost of sold goods, work, services) X 100%

Return on aggregate Shows how efficiently the aggregate capital is used capital (%) (Net profit / Balance-sheet currency (a mean value for the period under review)) Х 100%

111 The main building of the power unit № 3 CCPU-450Т at TEP-27, November 2007

112 MOSENERGO Annual Report 2007

The main building of the power unit № 3 CCPU-450Т and station module, assembly of the main building of the power unit № 4 CCPU-450Т

113 Financial statement

MOSENERGO prepares annual financial statements in accordance with the Russian Financial Reporting Standards, as well as in agreement with the International Financial Re- porting Standards. The financial statements prepared in accordance with the Russian Financial Reporting Standards for the year ended on December 31, 2007, are presented in this section of thе Annual Report. The financial statements prepared in accordance with the International Financial Reporting Standards for the year ended on December 31, 2007, can be found on the Com- pany's website in the «To Our Shareholders and Investors» section1.

1 3.2.3.

114 MOSENERGO 2007 Annual Report

10.1. MOSENERGO Management's Opinion on Financial (Accounting) Statements

This management’s opinion shall be considered together with the financial (accounting) statements of the Company prepared in accordance with the accounting rules in force in the Russian Federation. The Company’s management bears full responsibility for preparation of financial (accounting) statements accurately reflecting MOSENERGO’s property status, financial results and cash flow for the year ended on December 31, 2007. The Company has a system of internal auditing of its financial and economic activities. Members of the Audit Commission were approved by the General Meeting of shareholders on May 15, 2007. The financial (accounting) statements for 2007 were examined by ZAO PricewaterhouseCoopers Audit, an independent private firm of auditors, approved as the Company auditor by the General Meeting of shareholders held on May 15, 2007. In order to render assistance for the Board of Directors to adopt a decision concerning accounting and financial statements there was formed the Audit Committee of MOSENERGO’s Board of Directors. It is Committee’s duty to analyze the Company’s accounting and the results of inner audit reports of the Company to correspond with the Russian Federation legislature. Based on the results of the conducted audits MOSENERGO’s management obtained pertinent reports. The annual financial (accounting) statement of MOSENERGO for the year ended on December 31, 2007, was approved on February 28, 2008, on behalf of the management by:

General Director A.Ya. Kopsov

Chief Accountant T.P. Dronova

115 Financial statement

10.2 Opinion of the Audit Commission of MOSENERGO, Open Joint Stock Company for Energy and Electrification

March 12, 2008 Moscow

The Audit Commission of MOSENERGO, Open Joint Stock Company for Energy and Electrification, elected by the Gen- eral Meeting of shareholders on May 15, 2007, acting within the powers defined by the Federal Law “On Joint Stock Companies”, Charter of MOSENERGO, Open Joint Stock Company for Energy and Electrification, and the Articles of the Audit Commission of MOSENERGO, Open Joint Stock Company for Energy and Electrification, had audited financial and economic activities of the Company in 2007. Based on the audit findings and taking into account the opinion by ZAO PricewaterhouseCoopers Audit, a private company, on the financial (accounting) statements dated February 28, 2008, the Audit Commission concludes that data contained in the annual report of MOSENERGO can be recognized as authentic.

Chairman of the Audit Commission S.B. Sidorov

Members of the Commission: R.V. Ishutin

A.V. Belobrov

O.V. Zabrodin

L.D. Kormushkina

116 MOSENERGO 2007 Annual Report

10.3. Recommendation of the Audit Committee of MOSENERGO’s Board of Directors on approval of Financial (Accounting) Statements and Auditor’s report (abstract from the minutes of 17.03.2008 of the meeting of the Audit Committee of MOSENERGO’s Board of Directors)

Audit Committee of MOSENERGO’s Board of Directors examined financial (accounting) statements of the Company for the year of 2007, discussed the audit process, efficiency of the internal control system of the Company, completeness and quality financial statement processing with the Company’s management and Auditor, the company ZAO Pricewater- houseCoopers Audit. Audit Committee also examined the Auditor’s report on the financial (accounting) statements of the Company for the year of 2007. Based on the information obtained in the course of examination of the Company’s financial (accounting) statements and discussion of its processing aspects with management and auditor, the Audit Committee recommends the Company’s Board of Directors to pre-authorize the financial (accounting) statements of the Company for the year of 2007 and the Auditor’s report for further on approval application of the General Shareholder’s Meeting of the Company.

Chairman of Audit Committee of MOSENERGO’s Board of Directors O.P. Pavlova

117 118 119 120 MOSENERGO 2007 Annual Report

10.5. BALANCE SHEET RUR’000 Indicator code As of 01.01.2007 As of 31.12.2007 ASSETS I. NONCURRENT ASSETS Intangible assets 110 94 80 Fixed assets 120 58,220,328 65,167,395 Construction in progress 130 8,071,827 22,804,484 Income-bearing placements in tangibles 135 0 0 Long-term financial investments 140 25,693 82,892 Deferred tax assets 145 261 813 Sundry noncurrent assets 150 0 0 Section I TOTAL 190 66,318,203 88,055,664 II. CURRENT ASSETS Inventories, 210 4,675,754 4,834,599 including: raw materials, supplies and other similar valuables 211 4,326,284 4,400,165 rearers and fatteners 212 83,059 93,655 expenditures for work in progress (distribution costs) 213 72,406 81,761 finished products and goods for reselling 214 25,646 29,828 goods forwarded 215 0 0 deferred expenses 216 168,359 229,190 other inventories and expenses 217 0 0 Value-added tax on valuables acquired 220 584,851 421,827 Receivables (expected to be paid in more than 12 months 230 71,001 78,026 from the reporting date), including: buyers and customers 231 171 1,215 Receivables (expected to be paid within 12 months after the 240 9,621,344 20,115,789 reporting date), including: buyers and customers 241 2,296,411 5,152,374 Short-term financial investments 250 910,427 26,200,544 Monetary assets 260 4,971,776 8,217,590 Sundry current assets 270 180,103 113,542 Section II TOTAL 290 21,015,256 59,981,917

BALANCE 300 87,333,459 148,037,581

121 Financial statement

RUR’000 Indicator code As of 01.01.2007 As of 31.12.2007 LIABILITIES III. CAPITAL AND RESERVES Charter capital 410 28,249,360 39,749,360 Company stocks redeemed from stockholders 411 0 0 Additional capital 420 27,375,295 76,635,945 Reserve capital, including: 430 612,435 688,621 reserve funds formed in compliance with the legislation 431 612,435 688,621 reserve funds formed in compliance with the constituent 432 0 0 documents Retained earnings (uncovered loss) 470 1,390,253 1,236,271 Section III TOTAL 490 57,627,343 118,310,197

IV. LONG-TERM LIABILITIES Loans and credit facilities 510 20,283,054 16,715,194 Deferred tax liabilities 515 578,355 1,038,024 Other long-term liabilities 520 190,247 152,000 Section IV TOTAL 590 21,051,656 17,905,218 V. SHORT-TERM LIABILITIES Loans and credit facilities 610 869,941 1,043,159 Accounts payable, including: 620 7,204,255 9,136,150 suppliers and contractors 621 4,567,546 7,273,111 accrued payroll 622 215,424 294,417 debts payable to public extra-budgetary funds 623 86,327 53,706 arrears of taxes and levies 624 725,210 414,346 other accounts payable 625 1,609,748 1,100,570 Arrears of revenues payable to members (founders) 630 607 561 Deferred incomes 640 579,657 690,433 Provision for Liabilities and Charges 650 0 0 Other short-term liabilities 660 0 951,863 Section V TOTAL 690 8,654,460 11,822,166

BALANCE 700 87,333,459 148,037,581

Statement of Valuables on Off-balance Sheet Accounts RUR’000

Metric Indicator code As of 01.01.2007 As of 31.12.2007 Fixed assets taken on lease, including: 910 139,608 26,214 on long-term leasing 911 112,899 13,227 Inventory taken in charge 920 14,221 137,524 Goods taken on commission 930 0 0 Bad debts written off to losses 940 2,056,449 2,007,690 Security for liabilities and payments received 950 1,967,421 7,369,422 Security for liabilities and payments issued 960 212,737 344,638 Depreciation of housing stock 970 4,146 4,180 Depreciation of utilities and other similar facilities 980 0 0 Intangible assets received for use 990 0 0

122 MOSENERGO 2007 Annual Report

10.6. Profit and Loss Statement for 2007 RUR’000 Line For the reporting For the analogous period Metric code period of the previous year I. Income and expenditure for core activities Proceeds from sales of goods, products, works, services 010 78,324,744 70,267,375 (net of VAT, excises and similar mandatory payments) Production cost of goods, products, works, services sold 020 (73,681,185) (65,210,940) Gross profit 029 4,643,559 5,056,435 Business expenses 030 (92,611) (72,862) Management expenses 040 – – Sales profit (loss) 050 4,550,948 4,983,573 II. Other income and expenditure Interest receivable 060 1,482,712 16,219 Interest payable 070 (523,797) (538,412) Revenues from interest in other organizations 080 121,321 24,525 Other income 090 19,046,775 2,329,224 Other expenses 100 (22,029,412) (3,822,561) Pre-tax profit (loss) 140 2,648,547 2,992,568 Deferred tax assets 141 552 (78) Deferred tax liabilities 142 (459,669) (246,379) Profit tax expense – current 150 (1,449,960) (1,222,386) Net profit (loss) 190 739,470 1,523,725 FOR REFERENCE Standing tax liabilities (assets) 200 1,273,426 750,627 Basic earnings (loss) per share 201 0.0211 0.0539 Diluted earnings (loss) per share 202 0.0000 0.0000 Decoding of Individual Profits and Losses RUR’000 Line For the reporting For the analogous period Metric code period of the previous year Penalties, fines and forfeits recognized or imposed by decision of the court (arbitration) 210 56,974 3,328 profit loss 211 86,696 114,384 Profit (loss) of previous years 220 279,801 218,502 profit loss 221 192,734 347,536 Reimbursement for losses inflicted by nonfulfillment or improper fulfillment of obligations 230 175 1,666 profit loss 231 63,081 26,813 Differences in rates of exchange for transactions in foreign currency 240 54,733 122,952 profit loss 241 28,740 23,057 Allocations toward assessed reserves 250 2,531,081 1,154,892 loss Writing off of accounts receivable and payable with expired period of limitation 260 4,566 2,554 profit loss 261 64,227 3,565

123 Financial statement

10.7. Capital Change Report for 2007

I. Alteration in Capital RUR’000

Retained earn- Indicator Charter Additional Reserve ings (unco- Total capital capital capital item code vered loss) Balance as of December 31 of the year 010 28,249,360 8,910,561 508,339 950,187 38,618,447 preceding the previous year 2006 (previous year) Changes in the accounting policy 011 х х х – – Result from revaluation of fixed asset items 012 х – х – – Changes in the accounting rules 013 х – х – – Balance as of January 1 of the previous year 020 28,249,360 8,910,561 508,339 950,187 38,618,447 Result from recalculation of foreign currencies 023 х – х х – Net profit 025 х х х 1,523,725 1,523,725 Dividends 026 х х х (453,967) (453,967) Allocations to the reserve fund 030 х х 104,096 (104,096) – Increase of the capital value for the account of: 040 – 5,622 – 19,871 25,493 additional issue of shares 041 – х х х – increase of the shares par value 042 – х х х – reorganization of the legal entity 043 – х х – – other 044 – 5,622 – 19,871 25,493 Decrease of the capital value for the account of: 050 – (19,871) – (10,803) (30,674) reduction of the shares par value 051 – х х х – reduction of the number of shares 052 – х х х – reorganization of the legal entity 053 – х х – – other 054 – (19,871) – (10,803) (30,674) Balance as of December 31 of the previous year 060 28,249,360 8,896,312 612,435 1,924,917 39,683,024 2007 (reporting year) Changes in the accounting policy 061 х х х – – Result from revaluation of fixed asset items 062 х 18,478,983 х (534,654) 17,944,329 Changes in the accounting rules 063 х – х (10) (10) Balance as of January 1 of the reporting year 100 28,249,360 27,375,295 612,435 1,390,253 57,627,343 Result from recalculation of foreign currencies 103 х – х х – Net profit 105 х х х 739,470 739,470 Dividends 106 х х х (896,290) (896,290) Allocations to the reserve fund 110 х х 76,186 (76,186) – Increase of the capital value for the account of: 120 11,500,000 49,339,676 – 79,026 60,918,702 additional issue of shares 121 11,500,000 49,220,000 х х 60,720,000 increase of the shares par value 122 – х х х – reorganization of the legal entity 123 – х х – – other 124 – 119,676 – 79,026 198,702 Decrease of the capital value for the account of: 130 – (79,026) – (2) (79,028) reduction of the shares par value 131 – х х х – reduction of the number of shares 132 х х х – reorganization of the legal entity 133 – х х – х other 134 – (79,026) – (2) (79,028) Balance as of December 31 of the reporting year 140 39,749,360 76,635,945 688,621 1,236,271 118,310,197

124 MOSENERGO 2007 Annual Report

II. Provisions RUR’000

Indicator Balance Received Used Balance item code Reserve funds formed in compliance with the legislation: Reserve capital data of the preceding year 150 508,339 104,096 612,435 data of the reporting year 151 612,435 76,186 688,621 Reserve funds formed in compliance with the constituent documents data of the preceding year 152 – – – – data of the reporting year 153 – – – – Assessed reserves: bad debt provision data of the preceding year 160 1,427,133 1,149,489 (1,466,405) 1,110,217 data of the reporting year 161 1,110,217 1,579,218 (1,300,170) 1,389,265 provision for impairment of financial investments data of the preceding year 162 – 5,403 – 5,403 data of the reporting year 163 5,403 – (4,759) 644 provision for liabilities arising due to recognizing that the business may be wound up data of the preceding year 164 – – – – data of the reporting year 165 – – – – provision formed in connection with the consequences of business contingencies data of the preceding year 166 – – – – data of the reporting year 167 – 6,840 – 6,840 provision for reduction in the value of tangible valuables data of the preceding year 168 – – – – data of the reporting year 169 – – – – others data of the preceding year 170 – – – – data of the reporting year 171 – – – –

Provision for Liabilities and Charges provision for payment of a remuneration upon the year results data of the preceding year 180 – – – – data of the reporting year 181 – – – – provision for payment of vacations (including allocations) data of the preceding year 182 – – – – data of the reporting year 183 – – – – provision for payment of annual long-service benefits data of the preceding year 184 – – – – data of the reporting year 185 – – – – provision for repairs of fixed assets data of the preceding year 186 – – – – data of the reporting year 187 – – – – others data of the preceding year 188 – – – – data of the reporting year 189 – – – –

125 Financial statement

Reference Information RUR’000

Indicator Balance as at the begining Balance as at the end of the accounting year of the accounting year Name Code 1) Net Assets 200 58,207,000 119,000,630 Budgetary funds Extra-budgetary funds for the reporting for the previ- for the reporting for the previous period ous period period period 2) Received for core activities 210 400,258 22,714 2,317 270 spending — total including for payments to Chernobyl victims 211 – 1,279 – – Others 212 400,258 21,435 2,317 270 capital investments in non-current assets 220 – – – – including 221 – – – – 222 – – – –

126 MOSENERGO 2007 Annual Report

10.8. Cash Flow Statement for 2007

RUR’000 for the analogous Indicator for the report- period of the ing period Name Code previous year Opening cash flow 010 4,959,751 2,522,664 Cash flow for day-to-day operation Cash received from buyers, customers 020 88,371,170 83,014,987 Receipts of purchased foreign currency 030 3,325,938 672,331 Proceeds from contingencies 040 – 2,338 Cash received from in-house account 045 47,968,459 43,332,879 Other income (proceeds) 050 3,248,884 1,500,097 cash refunds 0501 2,163,966 1,301,089 other income (proceeds) 0502 1,084,918 199,008 Cash allocated for: payment for purchased goods, works, services, raw materials and other 150 (68,869,043) (63,514,393) current assets payment for labor 160 (5,595,180) (4,569,235) payment of dividends, interest 170 (824,466) (412,785) payment of taxes and levies 180 (6,020,442) (4,854,841) contingency payments 181 – – in-house interaccount transfers 182 (47,968,459) (43,332,879) social transfers 183 (494,346) (283,920) other expenses (payments) 190 (12,165,406) (4,689,334) allocations to state off-budget funds 1901 (1,238,636) (1,204,533) payment of interest on loans and borrowings 1902 (1,585,279) (844,275) advances granted 1903 (2,866,356) (443,397) other expenses 1904 (6,475,135) (2,197,129) Net cash from day-to-day operations 200 977,109 6,865,245 Cash flow in investment activities Proceeds from sales of fixed assets and other non-current assets 210 63,624 22,317 Proceeds from sales of securities and other financial investments 220 1 154 Dividends received 230 110,402 22,318 Interest received 240 96,306 629 Proceeds from repayment of borrowings granted to other organizations 250 – – Other receipts 260 21,112,190 9,990,985 special-purpose financing 2601 – – other receipts 2602 21,112,190 9,990,985 Acquisition of subsidiaries 280 – – Acquisition of fixed assets, income-bearing placements in tangible and 290 (22,231,730) (8,441,895) intangible assets Acquisition of securities and other financial investments 300 (31,326,550) – Borrowings granted to other organizations 310 – – Other expense 320 (15,566,823) (6,218,200) share participation in construction 3201 – – advances granted 3202 (8,172,219) (5,898,940) other expense 3203 (7,394,604) (319,260) Net cash from investment activities 340 (47,742,580) (4,623,692)

127 Financial statement

RUR’000 for the analogous Indicator for the report- period of the ing period Name Code previous year Cash flow in financial activities Proceeds from issuing shares and other equity securities 350 60,720,000 9,998,100 Proceeds of loans and credit facilities granted by other organizations 360 3,721,029 21,695,858 Receipt of funds under target financing 370 16,875 21,496 Other income 380 13,203,592 3,300,000 Deposits 3801 13,200,000 3,300,000 Payment of shares of MOSENERGO 3802 3,592 Repayment of loans and credit facilities (net of interest) 390 (4,261,391) (30,492,309) Extinction of financial lease obligations 400 (74,844) (117,294) Other expense 405 (23,303,565) (4,200,003) Financial investments 40501 (23,300,000) (4,200,000) other expense 40502 (3,565) (3) Net cash from financial activities 410 50,021,696 205,848 Net increase (decrease) in cash and cash equivalents 420 3,256,225 2,447,401 Cash balance as at the end of the accounting period 430 8,215,976 4,970,065 Effect of foreign exchange fluctuations with respect to ruble 440 (10,314) (14,142)

128 MOSENERGO 2007 Annual Report

10.9. Annex to the Balance Sheet for 2007

Intangible Assets RUR’000

Indicator Availability as of the Availability as of the beginning of the Received Retired end of the reporting Item Code reporting period period Intellectual property objects (exclusive rights 010 96 – – 96 to intellectual property results) including: with the patent holder to invention, industrial 011 0 0 0 0 design, utility model with the right holder to software programs, 012 0 0 0 0 databases with the holder to trademark and service mark, name of the place of origin of the 014 96 0 0 96 goods with the patent holder for selection 015 – 0 0 – achievements Organizational expenses 020 0 0 0 0 Goodwill 030 0 0 0 0 Others 040 0 0 0 0 Total 045 96 – – 96

Availability as of the Indicator Availability as of the beginning of the end of the reporting period Item Code reporting period Depreciation of intangible assets, total 050 2 16 including: with the holder to trademark and service 051 2 16 mark, name of the place of origin of the goods

129 Financial statement

Fixed Assets RUR’000 Indicator Availability as of the Availability as of beginning of the Received Retired the end of the Item Code reporting period reporting period Buildings 110 21,831,660 431,875 (209,247) 22,054,288 Facilities and transfer devices 111 45,366,201 1,148,486 (13,563) 46,501,124 Machines and equipment 112 101,399,612 10,175,716 (329,996) 111,245,332 Transport vehicles 113 432,898 61,426 (20,115) 474,209 Production and household tools 114 137,930 28,570 (11,845) 154,655 Draft cattle 115 0 0 0 0 Productive livestock 116 90,210 75,433 (34,962) 130,681 Perennial planting 117 84 0 0 84 Other types of fixed assets 118 61,885 62,036 (26,502) 97,419 Land and objects of nature management 119 85 0 0 85 Capital investments for profound 120 0 0 0 0 improvement of land Total 130 169,320,565 11,983,542 (646,230) 180,657,877

Indicator As of the As of the beginning of the end of the Item Code reporting period reporting period Depreciation of fixed assets, total 140 111,100,237 115,490,482 including: buildings and facilities 141 36,411,109 38,846,943 machines, equipment, transport vehicles 142 74,589,624 76,535,983 others 143 99,504 107,556 Fixed assets items given on lease, total 150 31,797,396 31,471,816 including: buildings 151 749,208 738,469 facilities 156 30,726,832 30,409,424 machines, equipment, transport vehicles 152 319,544 323,298 others 153 1,812 625 Fixed asset items laid up 155 454,788 428,059 Fixed asset items received on lease, total 160 139,608 26,214 including: buildings and facilities 161 18,278 3,546 machines, equipment, transport vehicles 162 121,330 22,580 others 163 0 88 Real estate accepted for operation and undergoing state 165 134,740 18,323 registration

FOR REFERENCE As of the As of the beginning of the end of the Code reporting period reporting period Result of revaluation of fixed asset items: 170 17,944,329 0 original (replacement cost) value 171 72,903,957 0 depreciation 172 54,959,628 0 Change in the value of fixed asset items as a result of additional construction, additional equipment, 180 14,232,982 16,068,557 refurbishment, and partial liquidation

130 MOSENERGO 2007 Annual Report

Income-bearing Placements in Tangibles RUR’000

Indicator Availability as of the Availability as of the beginning of the Received Retired end of the reporting Item Code reporting period period Property given on lease 210 0 0 0 0 Property given under a rent agreement 220 0 0 0 0 Others 230 0 0 0 0 Total 240 0 0 0 0

As of the As of the beginning of the end of the Code reporting period reporting period Depreciation of income-bearing placements in tangibles 250 0 0

Expenses of Research, Development and Technological Works

Indicator Availability as of the Availability as of the beginning of the Received Retired end of the reporting Item Code reporting period period Total 310 0 0 0 0 including: 311 0 0 0 0 312 0 0 0 0 313 0 0 0 0

FOR REFERENCE As of the As of the beginning of the end of the reporting Code reporting period period Amount of expenses of incomplete research, 320 0 0 development and technological works

Code For the reporting period For the analogous period Amount of unsuccessful expenses of research, development and technological works charged to non- 330 0 0 operating expenses

131 Financial statement

Expenses of development of natural resources RUR’000 Balance as of the Balance as of Indicator beginning of the Received Written-off the end of the Item Code reporting period reporting period Expenses of development of natural 410 0 0 0 0 resources, total including: 411 0 0 0 0 412 0 0 0 0 413 0 0 0 0

FOR REFERENCE As of the As of the beginning of the end of the Code reporting period reporting period Amount of expenses for land plots not completed by prospecting and appraisal of 420 0 0 deposits, exploration and (or) hydro geological surveys and other similar works Amount of expenses for development of natural resources charged in the 430 0 0 reporting period to non-operating expenses as unsuccessful

Financial Investments RUR’000 Long-term Short-term Indicator As of the As of the As of the As of the beginning of end of the beginning of end of the Item Code the reporting reporting the reporting reporting period period period period Contributions to authorized (partners') capitals of other 510 26,518 83,518 0 0 organizations, total including those of subsidiaries and related business 511 17,064 78 511 0 0 companies State and municipal securities 515 18 18 0 0 Securities of other organizations, total 520 0 0 0 0 including debt securities (bonds, bills of exchange) 521 0 0 0 0 Borrowings granted 525 0 0 0 15,200,544 Deposits 530 0 0 900,000 11,000,000 Others 535 4,560 0 10,427 0 Total 540 31,096 83,536 910,427 26,200,544 Out of the total amount, financial investments that have a 0 0 0 0 current market value: Contributions to authorized (partners') capitals of other 550 0 0 0 0 organizations, total including those of subsidiaries and related business companies 551 0 0 0 0 State and municipal securities 555 0 0 0 0 Securities of other organizations, total 560 0 0 0 0 including debt securities (bonds, bills of exchange) 561 0 0 0 0 Others 565 0 0 0 0 Total 570 0 0 0 0

FOR REFERENCE Code For financial investments that have a current market value, 580 0 0 0 0 change in the value as a result of evaluation adjustment For debt securities, the difference between the original value and the nominal value is charged to the financial 590 0 0 0 0 result of the reporting period

132 MOSENERGO 2007 Annual Report

Accounts Receivable and Payable RUR’000 Indicator For the reporting year For the previous year Item Code Accounts receivable: short-term, total 610 10,731,561 21,505,054 including: settlements with buyers and customers 611 3,227,274 6,344,328 advances granted 612 6,463,333 13,174,792 others 613 1,040,954 1,985,934 long-term, total 620 71,001 78,026 including: settlements with buyers and customers 621 171 1,215 advances granted 622 0 0 others 623 70,830 76,811 Total 630 10,802,562 21,583,080 Accounts payable: short-term, total 640 8,074,196 10,179,309 including: settlements with suppliers and 641 4,567,546 7,273,111 contractors advances received 642 1,196,788 745,534 settlements on taxes and levies 643 725,210 414,346 loans 644 635,680 806,817 borrowings 645 234,261 236,342 others 646 714,711 703,159 long-term, total 650 20,473,301 16,867,194 including: settlements with suppliers and 651 0 0 contractors settlements on taxes and levies 652 0 0 loans 653 10,283,054 6,715,194 borrowings 654 10,000,000 10,000,000 others 655 190,247 152,000 Total 660 28,547,497 27,046,503

Expenses for Core Activities (by Cost Element) RUR’000 Indicator For the reporting year For the previous year Item Code Tangible expenses 710 57,933,072 51,815,537 Labor payment costs 720 6,627,533 5,556,746 Allocations for social needs 730 1,284,667 1,220,077 Depreciation 740 4,631,381 2,569,674 Other costs 750 3,307,842 4,155,248 Total for cost elements 760 73,784,495 65,317,282 Change in balances (increase [+], reduction [-]): work in progress 765 9,355 34,136 expenses of future periods 766 60,831 50,577 provisions for future expenses 767 0 0

133 Financial statement

Security RUR’000 Balance as Indicator Balance as of the end of of the beginning of the the reporting period Item Code reporting period Received, total 810 1,967,421 7,369,422 including: bills of exchange 811 0 0 Property pledged 820 57,249 57,080 out of it: fixed asset items 821 57,249 57,080 securities and other financial investments 822 0 0 others 823 0 0 Issued, total 830 212,737 344,638 including: bills of exchange 831 0 0 Property pledged 840 0 0 out of it: fixed asset items 841 1,437,255 1,259,349 securities and other financial investments 842 0 0 others 843 0 0

State Assistance RUR’000 Indicator For the reporting For the same period period of the previous year Item Code Budget funds received in the reporting year, total 910 398,857 21,414 including: Subsidies for agriculture 911 15,899 21,414 Others 912 382,958 – as of the as of the received in returned in end of the beginning of the the reporting the reporting reporting reporting year period period year Budget loans, total 920 0 0 0 0 including 921 0 0 0 0 922 0 0 0 0

134 MOSENERGO 2007 Annual Report

10.10. Explanatory Note to Annual Date of state registration: April 6, 1993, registration num- Financial Statements for the Year 2007 ber 012.473.

The Company’s Charter capital is RUR 39,749,360 thou- I. General Information sand as divided into 39,749,359,700 ordinary shares of RUR 1 par value each. 1. Company Profile Open joint stock company for energy and electrification OAO “Gazprom” is a holder of 53.47% interest in the com- MOSENERGO is a regional power company with opera- pany. tions covering electricity generation and facilities for supply of electricity to the Wholesale market, heat generation The government of Moscow represented by the Moscow and sales to end users in Moscow and Moscow Region. Property department owns 21.16% interest in the company. MOSENERGO was registered in the Russian Federation on April 6, 1993 under Resolution No. 169-P issued by RAO UES of Russia holds a 15.01% interest in the com- the State Property Management Committee on March pany. 26, 1993. As a result of privatisation of the Russian power industry, the state-owned company MPO MOSENERGO Other Company’s shareholders share fraction makes was re-incorporated as an open joint-stock company, with 10.36%. individual assets and liabilities previously under control of the Ministry of Fuel and Energy of the Russian Federation The Company’s registered address: being transferred to the company’s Balance Sheet. 8, Raushskaya naberezhnaya, Moscow 115035.

135 Financial statement

2. Affiliates (Structural Subdivisions) In December 2007,in accordance with the resolution of the Board of Directors of MOSENERGO (Minutes dated Under the Company’s Charter, MOSENERGO included 33 30.07.2007 No. 5) about renewal of activities of a medi- affiliates represented as local units and structural subdivi- cal and sanitary department and accounting them on the sions as of December 31, 2007. Balance Sheet of MOSENERGO. The company transferred the property of a non-commercial medical unit Medsanchast (NMU Medsanchast) to the medical and sanitary department.

No. Affiliate, Structural Subdivision Registered Address

1. P.G. Smidovich TEP-1 115035, Moscow, Sadovnicheskaya Str., 11 2. R.E. Klasson LAPS-3 142530, Moscow region, Electrogorsk 3. TEP-6 142600, Moscow region, Orekhovo-Zuevo, Moiseenko Str., 9 4. TEP-8 109316, Moscow, Ostapovskiy pr-d, 1 5. TEP-9 115280, Moscow, Avtozavodskaya Str.,12, Bldg. 1 6. M.Ya. Ufaev TEP-11 111024, Moscow, shosse Entuziastov, 32 7. TEP-12 123995, Moscow, Berezhkovskaya nab., 16 8. TEP-16 123298, Moscow, 3-d Khoroshevskaya Str., Bldg. 14 9. TEP-17 142800, Moscow region, Stupino, Frunze Str., Bldg. 19 10. TEP-20 117312, Moscow, Vavilova Str., 13 11. TEP-21 125412, Moscow, Izhorskaya Str., 9 12. TEP-22 140091, Moscow region, Dzerzhinskiy, Energetikov Str., 5 13. TEP-23 107497, Moscow, Montazhnaya Str., 1/4 14. TEP-25 119530, Moscow, General Dorokhova Str.,16 15. TEP-26 117403, Moscow, Vostryakovskiy proezd, Bldg.10 16. TEP-27 141031, Moscow region, Mitischinskiy area, Chelobityevo 17. TEP-28 125412, Moscow, Izhorskaya Str.,13 18. Energosvyaz 115035, Moscow, Sadovnicheskaya Str., 15/2 Industrial-Technological Completing 19. 115035, Moscow, Raushskaya nab., 8 Enterprise (PPTK) Central Mechanical Repair works 20. 109428, Moscow, Ryazanskiy prospect, 10 (CRMZ) Experimental Plant for Automation 21. 119072, Moscow, Bolotnaya nab., 15 Means and Devices (OZAP) 22. Mosenergospetsremont (MESR) 105094, Moscow, Golyanovskaya Str., 5, Bldg. 9 23. Mosenergonaladka (MEN) 115432, Moscow, 2nd Kozhukhovskiy proezd, 29, 2, Bldg. 16 24. Moselektroremenergo (MERE) 109428, Moscow, Ryazanskiy prospect, 10 Special Construction-Technological 25. Bureau for High-Voltage and Cryo- 115432, 2nd Kozhukhovskiy proezd, 29, Bldg. 2, genic Technology (SKTB VKT) 26. Information-Computing Center (IVC) 123995, Moscow, Berezhkovskaya nab., 16 27. Avtokhozyaistvo 121059, Moscow, Berezhkovskaya nab., 18 28. Teplosbyt 105005, Moscow, Aptekarskiy per. 4, Bldg. 4 29. Mosenergoproyekt (MEP) 115035, Moscow, Sadovnicheskaya Str., 13, Bldg. 11 Sales and production enterprise of 30. 115432, Moscow, 2nd Kozhukhovskiy proezd, 29, Bldg. 2 work supply (Energotorg) Agricultural plant Shatursky (APK 140711, Moscow region, Shaturskiy area, Petrovskoye settlement, 31. Shatursky) Bldg. 2 32. Heating networks 115035, г. Moscow, Raushskaya naberezhnaya, 8 33. Medsanchast 115035, Moscow, Sadovnicheskaya Str., 11, Bldg. 2

136 MOSENERGO 2007 Annual Report

3. Basic Activities of the Company 4. Information about corporate governance, executive and control bodies Basic activities of the Company include: generation of electrical and thermal energy; activities on supply (sales) Company Executive Bodies of electrical and thermal energy; activities on receipt (pur- 1. General Meeting of shareholders. chase) of electrical energy from the Wholesale market of 2. Company Board of Directors. electricity (power); activities on receipt (purchase) of ther- 3. General Director – Chairman of the Company Execu- mal energy; activities on maintenance of heating networks; tive Board. design and estimate activities. 4. Company Executive Board. The Company also carries out other types of activities that include: communication services, information and com- A control body of economical activities of the Company is putation services, agricultural activities; commercial ac- the Audit Commission of the Company. tivities and so on. Before the Annual Meeting of shareholders held on May 15, 2007, the Company’s management bodies included the following persons: Board of Directors

No. Full name Job Title

Chairman of the Board of Directors, MOSENERGO; Member of the 1. Yuriy Arkadievich Udaltsov Executive Board, Head of the Reform Management Center, RAO UES of Russia

First Deputy Mayor of Moscow in the Moscow Government, Head 2. Pyotr Nikolayevich Aksenov of the Municipal Services and Facilities of Moscow

3. Anatoly Anatolievich Gavrilenko General Director, ZAO “Leader”

Deputy Managing Director, Executive Director, Business Unit No. 1, 4. Ilias Shamilevich Zagretdinov RAO UES of Russia

5. Anatoly Yakovlevich Kopsov Chairman of the Executive Board, General Director, MOSENERGO

6. Yevgeny Ilyich Logovinsky Deputy Chairman of the Executive Board, OAO SOGAZ

7. Aleksey Anatolievich Matveyev Deputy Chairman, Executive Board, JSB Gazprombank (CJSC)

Alexander Alexandrovich Senior Deputy General Director for Financial and Economic Issues, 8. Negomedzyanov Logistics and Sales, MOSENERGO

Deputy Managing Director, Executive Director, Business Unit No. 1, 9 Maria Nikolayevna Pichugina RAO UES of Russia

Managing Director, Corporate Finance Department, JSB Gaz- 10. Wolfgang Skribot prombank (CJSC)

11. Pavel Stepanovich Smirnov Member of the Executive Board, RAO UES of Russia

Deputy Chairman of the Executive Board, JSB Gazprombank 12. Alexander Ivanovich Sobol (CJSC)

Head of the Department of Corporate Events, Business Unit No. 1, 13. Sergey Sergeyevich Fil RAO UES of Russia

137 Financial statement

Audit Commission

No. Full name Job Title

Head, Internal Audit Department, Corporate Centre 1. Sergey Borisovich Sidorov of RAO UES of Russia

2. Sergey Vyacheslavovich Vasiliev Head of the Legal Department, RAO UES of Russia

Operations Director, Investment Operations of JSB Gazprombank 3. Olga Andreyevna Sannikova (CJSC)

4. Dmitry Yurievich Tushunov Senior economist, ZAO “Leader”

Head, Financial and Economic Activities Control Department, DZO, 5. Igor Ivanovich Uzgorov Business Unit No. 1, RAO UES of Russia

Executive Board

No. Full name Job Title

Chairman of the Executive Board, MOSENERGO, General Director, 1. Anatoly Yakovlevich Kopsov MOSENERGO

Alexander Alexandrovich Senior Deputy General Director for Financial and Economic Issues, 2. Negomedzyanov Logistics and Sales, MOSENERGO

3. Dmitry Alexandrovich Barshak Director for Thermal Engineering, MOSENERGO

4. Yevgeny Ivanovich Borisov Deputy General Director for Finance, MOSENERGO

Senior Deputy General Director for Strategy and Corporate 5. Dmitry Valerievich Vasiliev Policies, MOSENERGO

6. Yuriy Leonidovich Guskov Director of TEP-21, a MOSENERGO branch

7. Tatiana Petrovna Dronova Chief Accountant, MOSENERGO

Deputy General Director for Capital Construction 8. Yuriy Efimovich Dolin and Procurements, MOSENERGO

Director of the CRMZ (Central Mechanical Repair Works), 9. Aleksey Nikolayevich Karev a MOSENERGO branch

General Director, OAO “Mosenergosbyt”, Deputy General Director 10. Vladimir Anatolievich Kimerin for Energy Sales, MOSENERGO

11. Vasily Yakovlevich Krivonosov Deputy General Director for General Affairs, MOSENERGO

12. Anatoly Pavlovich Kuleshov Director for Capital Construction, MOSENERGO

13. Sergey Yurievich Rumyantsev Deputy General Director for Economics, MOSENERGO

14. Vladimir Valentinovich Sergeyev Senior Deputy General Director – Chief Engineer, MOSENERGO

15. Nestor Ivanovich Serebryanikov Adviser to the General Director, MOSENERGO

138 MOSENERGO 2007 Annual Report

Following the result of voting at the Annual General Shareholder Meeting held on 15.05.2007, the following persons were elected in the Board of Directors of MOSENERGO:

No. Full name Job Title

Member of the Executive Board, head of Marketing, Gas and 1. Kirill Gennadyevich Seleznev Liquid Hydrocarbons processing Department of OAO “Gazprom”, Director general of OOO “Mezhregiongaz”

First Deputy Mayor of Moscow in the Moscow Government, Head 2. Pyotr Nikolayevich Aksenov of the Municipal Services and Facilities of Moscow

Member of the Executive Board, head of Department on Transpor- 3. Bogdan Vladimirovich Budzulyak tation, Underground Storage and using of gas of OAO “Gazprom”

4. Anatoly Anatolievich Gavrilenko General Director, ZAO “Leader”

Valery Alexandrovich 5. Deputy Chairman of the Executive Board of OAO “Gazprom” Golubev

6. Anatoly Yakovlevich Kopsov Chairman of the Executive Board, General Director, MOSENERGO

7. Aleksey Anatolievich Matveyev Deputy Chairman, Executive Board, JSB Gazprombank (CJSC)

8. Alexander Alexandrovich First Deputy General Director for Financial and Economic Issues, Negomedzyanov Logistics and Sales, MOSENERGO

Member of the Executive Board, Head of Corporate Relations and 9. Olga Petrovna Pavlova Property Management Department of OAO “Gazprom”

Managing Director, Corporate Finance Department, JSB Gazprom- 10. Wolfgang Skribot bank (CJSC)

11. Pavel Stepanovich Smirnov Member of the Executive Board, RAO UES of Russia

Member of the Executive Board, Head of the Reform Management 12. Yuriy Arkadievich Udaltsov Center, RAO UES of Russia

Head of the Department of Corporate Events, Business Unit No. 1, 13. Sergey Sergeyevich Fil RAO UES of Russia

139 Financial statement

The following persons were elected to the Audit Commission:

No. Full name Job Title

Head, Internal Audit Department, Corporate Centre of RAO UES 1. Sergey Borisovich Sidorov of Russia Deputy Head of Internal Audit Department and monitoring on financial and economic activities of subsidiary companies and 2. Andrey Victorovich Belobrov organizations – Head of control department for organization activity on providing work of OAO “Gazprom” gas supply system 3. Oleg Victorovich Zabrodin Chief Accountant of P.G. Smidovich TEP-1 – MOSENERGO branch Head of Department for Internal Audit and monitoring 4. Rafael Vladimirovich Ishutin on financial and economic activities of subsidiary companies and organizations of OAO “Gazprom” Leading expert of the Internal Audit Department of the Corporate 5. Ludmila Dmitrievna Kormushkina Center of RAO UES of Russia

The Board of Directors of MOSENERGO elected the following persons to the Executive Board of the Company:

No. Full name Job Title

1. Anatoly Yakovlevich Kopsov Chairman of the Executive Board, General Director, MOSENERGO

2. Alexander Alexandrovich First Deputy General Director for Financial and Economic Issues, Negomedzyanov Logistics and Sales, MOSENERGO

3. Dmitry Alexandrovich Barshak Director for Thermal Engineering, MOSENERGO

4. Yuriy Leonidovich Guskov Director of TEP-21, a MOSENERGO branch

Deputy General Director for Capital Construction and Procure- 5. Yuriy Efimovich Dolin ment, MOSENERGO

6. Tatiana Petrovna Dronova Chief Accountant, MOSENERGO

7. Alexander Sergeevich Ivannikov Deputy Director General of MOSENERGO on Finance

Director of the CRMZ (Central Mechanical Repair Works), a MO- 8. Aleksey Nikolayevich Karev SENERGO branch

General Director, OAO “Mosenergosbyt”, Deputy General Director 9. Vladimir Anatolievich Kimerin for Energy Sales, MOSENERGO (pluralistically)

10. Vasily Yakovlevich Krivonosov Deputy General Director for General Affairs, MOSENERGO

11. Anatoly Pavlovich Kuleshov Director for Capital Construction, MOSENERGO

12. Sergey Yurievich Rumyantsev Deputy General Director for Economics, MOSENERGO

13. Vladimir Valentinovich Sergeyev First Deputy General Director – Chief Engineer, MOSENERGO

140 MOSENERGO 2007 Annual Report

The resolution of the Board of Directors introduced Information about personnel numbers amendments to the composition of the Executive Board and namely: E.I. Borisov was discharged from his office The Company’s staff on the payroll makes 17,492 people and a new member of the Executive Board – A.S. Ivan- in the year 2007 (18,459 employees in the year 2006). nikov – was appointed.

II. Material aspects of Accounting rates as of December 31, 2007. As of this date, the ex- Policies and Disclosure of Information change rates were RUR 24.5462 for 1 USD (RUR 26.3311 as of December 31, 2005), RUR 35.9332 for Euro 1 (RUR in Financial Statements 34.6965 as of December 31, 2005).

The Company’s accounting report has been prepared on Exchange rate differencies arising in transactions with for- the basis of the following accounting policies. eign currency denominated assets and liabilities over the year and in their revaluation as of the reporting date were 1. Basis for Preparation applied to the financial result as other revenues and expenses. Financial statements were prepared on the basis of accounting and reporting rules effective in the Russian 3. Short-term and Long-term Federation, in particular, Federal Law No. 129-ФЗ «On Assets and Liabilities Accounting» dated November 21, 1996, Provisions for Accounting and Reporting in the Russian Federation ap- In the accounting Balance Sheet, assets and liabilities are proved by Ordinance No. 34н issued by the RF Ministry recognised as short-term of their maturity (repayment pe- of Finance on July 29, 1998, as well as other normative riod) does not exceed 12 months after the reporting date acts that form the system of regulation of accounting and or not established. reporting of companies in the Russian Federation. If liabilities as of the beginning of the reporting period are Valuation of the property, liabilities and economic transac- recognized as long-term but within the reporting period tion is denominated in rubles, the legal tender of the Rus- the certainty arose that the accounts receivable will be sian Federation. settled the long-term assets shall be requalified as short- term. The Company's assets and liabilities are valued in financial statements at the actual cost of their purchase. Other assets and liabilities are shown as long-term. Finan- cial investments are classified as long-term or short-term Exceptions: on the basis of the supposed term of their usage (circula- • fixed and intangible assets; tion, exploitation or repayment) after the reporting date. • assets for which impairment provisions were established as legally provided for. 4. Intangible Assets

In the financial statements, intangible assets are shown at 2. Foreign Currency Denominated Assets and their original cost minus depreciation accumulated over Liabilities the period of their useful life. Depreciation of intangible assets is calculated by a Economic transactions performed in a foreign currency straight-line method by means of accumulation of corre- were recognised at the official rouble exchange rate es- sponding amounts on a separate account on the basis of tablished by the Central Bank of the Russian Federation the period of their useful life 20 years unless other term is effective as of the transaction date. Cash amounts in established in the agreement, patent, certificate or other foreign exchange and deposit accounts with banks and analogous document. cash department, financial investments into short-term securities and float including issued and received foreign Throughout the year 2007, the intangible assets included currency denominated loans were recognised in financial MOSENERGO trademark. statements as calculated on the basis of official exchange

141 Financial statement

5. Fixed Assets Depreciation of fixed assets is accrued by a straight-line method. Fixed assets include assets that comply with requirements of Provision of Accounting “Accounting of Fixed Assets” No depreciation is accrued on: (PBU 6/01) approved by the Ordinance of the RF Minis- • land and object of natural management; try of Finance dated 30.03.2001 No. 26н, and accounted • amenities and other similar objects purchased before in the established order from the moment of introduction 01.01.2006; into service and objects accepted for accounting in the • housing facilities purchased before January 1, 2006 fixed assets group only after transfer of documents for (with the exclusion of objects used for rendering of cor- state registration of title. responding services, income from which is recorded as the result of ordinary types of activities or as included in Fixed assets purchased before January 01, 2002, are re- other income); ported at the replacement asset value determined as of • objects of social state sphere; the date of revaluation as of January 1, 2002, less the de- • fully depreciated facilities which were not written off the preciation value. Fixed assets purchased from January 1, Balance Sheet. 2002, through December 31, 2005, are to be recognized at their original cost less the depreciation amount accu- Fixed assets complying with conditions of their recogni- mulated through the whole period of their useful life. The tion as included in the fixed assets group worth up to RUR analysis of the current (replacement) cost showed that 10,000 per item are recorded in the inventory group. In the cost of the fixed assets as of 01.01.2007 considerably order to ensure security of these items in production or differs from the market cost of the property, due to this operation, MOSENERGO will organize control over their the Company’s Board of Directors (Minnutes No 24 dated flows and availability in terms of their number. March 5, 2007) decided to revalue the group of fixed assets “Machinery and equipment used for electricity and Fixed assets abtained under lease agreement are recor- heat generation” and “Heating main grids” as of January 1, ded on off-balance accounts (in accordance with the 2007. Fixed assets that were purchased after 01.01.2007 agreement). and fixed assets not subject to revaluation as of January 01, 2007, are recorded at their original cost less the de- The company Balance Sheet includes objects of social preciation value accrued through their useful life. state sphere in the fixed assets group. The above-stated objects were received by the Company as a result of a For fixed assets commissioned for operation before Janu- privatization of the Russian energy industry without the ary 1, 2002, depreciation was accrued on the basis of ownership right transfer and in accordance with the then standards approved by USSR Government Resolution No. effective order were accounted with the formation of a 1072 dated October 22, 1990 “On unified norms of depre- reserve of social fund facilities in the amount of the de- ciation deductions for complete restoration of fixed assets preciated book value of these objects. With the transfer of of USSR economy” and for fixed assets commissioned these objects to municipal authorities (and other types of for operation after January 1, 2002, depreciation was ac- retirement) their depreciated book value is recorded as crued in accordance with norms calculated on the basis of diminution of the social fund. Accounting of social sphere useful life terms of objects set by the Company. Classifica- objects in fixed assets of the Company is a contravention tion of fixed assets included into depreciation groups ap- of effective rules but according to the governing bodies of proved by the Resolution No. 1 dated January 1, 2002 of the Company this order ensures reliable disclosure of the the Government of the Russian Federation is used as one property state of the Company as these objects are used of the sources of information about useful life of objects. in accordance with their designation and the Company is The useful life periods adopted by the Company for con- responsible for their integrity and safety. solidated groups of fixed assets are represented below:

Fixed Assets Groups Useful lives of objects recorded in Balance Sheet (number of years)

before 01.01.2002 from 01.01.2002 Buildings from 55 and more from 20 and more Constructions 8 – 50 years 5 – 30 years Machinery and equipment 10 – 30 years 2 – 30 years Transport means and other fixed assets 5– 50 years 3 – 30 years Objects of social sphere 5 – 50 years 5 – 50 years

142 MOSENERGO 2007 Annual Report

6. Construction in progress Inventories include objects complying with conditions of inclusion to fixed assets with the acquisition cost not more Construction in progress includes objects of real property than RUR 10,000 (inclusive) for item, including objects finished in construction and accepted in operation, with (accessories and tools) that on transfer in production are documents on registration of property rights in Single not consumed at once but serve within a period not ex- State Register not transferred. ceeding 12 months, special work wear (with useful life less Objects not requiring assembly but kept in the storehouse than 12 months) as well as objects with useful life less than are recorded in the construction in progress objects by a 12 months, application of which does not yield immediate separate item. economic profit (income).

7. Financial Investments 9. Production Costs, Production in Progress and Finished Products Securities (with the exception of individually identified, including bills of exchange and depository certificates), the Production in process is valued at actual production cost market value of which is not determined, are accounted in without accounting for administrative expenses. the Balance Sheet on retirement by FIFO method. The full amount of administrative expenses is written off on a monthly basis to the cost of sales with breakdown by Other financial investments, including individually identi- types of sales in proportion to the specific weight of sales fied securities with undeterminable market value (bills of proceeds (works, services) in their total amount. exchange), are accounted on retirement at the historic Finished products are assessed at the Balance Sheet at cost of each item. the reduced production prime cost without accounting of administrative expenses. Financial investments with undeterminable current market value are recognized in accounting books as of the end of Valuation of finished goods at disposal is carried out by an the reporting period by their book value less the impair- average cost method. ment provisions for the difference between the book and estimated value that are to be set up for financial invest- The commercial expenses include sales costs. Transport ments which show a sustainable depreciation. A Reserve expenses included in the sales expenses are written off of financial investments for impairment is formed once a in proportion to cost (quantity) of goods less the part that year on December 31 of any reporting year, once there is belongs to the balance of the goods remained unsold. indication of depreciation. On determination of the impairment provisions value the Company on the basis of the 10. Deferred Expenses available information determines the cost of financial investments with a sustainable depreciation and creates a Expenses incurred by the Company in the reporting year reserve for the impairment of financial investments for the but attributable to the next reporting periods are recog- for amount of the difference between the book and esti- nized as deferred expenses (including payments for the mated value. right to use the software). These expenses are to be written off evenly over the periods to which they are attribut- Revenues and expenses on financial investments are able in accordance with their purpose. recognized in the Profit and Loss Statement as other revenues and expenses. The Company set up provisions for 11. Trade Receivables impairment of financial investments, with the total amount applied to other expenses. Trade receivables were determined on the basis of prices stipulated by agreements between the Company and 8. Inventories buyers (customers) taking into account any available dis- counts (additions) and VAT. Inventories are assessed at their actual acquisition costs. Valuation of inventories at their disposal is carried out by Debts not paid when due under agreements and not se- the average cost method. cured by relevant guarantees or otherwise are shown less the bad debt provisions. These provisions are a conser- Goods acquired for resale are evaluated on the Balance vative estimate by the Company’s management of debts Sheet in the amount of acquisition costs with the exclusion which are unlikely to be paid for. The bad debt provisions of delivery expenses (including loading and off-loading are attributable to other costs. works).

143 Financial statement

Bad debts are written off the Balance Sheet once they are Liabilities scheduled in the financial statements as long- recognized with their consequent record at the off-bal- term and supposed for repayment in the reporting period ance account within 5 years time. are accounted in the short-term group.

12. Cash 15. Provisions for Deferred Expenses

In accordance with PBU 3/2006 “Accounting of Assets The Company does sets up provisions for deferred ex- and Liabilities the Cost of which is reflected in Foreign Cur- penses for contingent factors of economic activities. rency” information about cash flow in foreign currency on Amounts of the built up provisions for deferred expenses drawing up of Cash Flow Statement is calculated at the ex- for contingent factors are attributable to other costs. change rate of the Central Bank of the Russian Federation as of the date of the financial statement drawing up. 16. Deferred taxes

13. Charter, Surplus and Reserve Capital The Company reflects in the financial statements and accounting reports deferred taxes and liabilities, constant The Charter capital is shown as the amount of ordinary tax assets and liabilities – amounts capable of influencing shares purchased by their holders at par value. The amount the amount of the current tax in the current and/or conse- of the Charter capital corresponds to the one specified in quent reporting periods. the Company’s Charter. Amounts of deferred tax assets and tax liabilities are re- In accordance with legislative provisions and the Article flected in the Balance Sheet in detail in non-current assets of Association of the Company the Company builds up a (Line 145 “Deferred tax assets”) and in long-term liabilities reserve capital in the amount 5% from the Charter capital. (Line 515 “Deferred tax liabilities”) of the Balance Sheet The amount of annual contributions to the Reserve fund is respectively. established at the resolution of the General Shareholder Meeting in the amount no less than 5% of the Company’s Amounts of income tax overpayment to the budget re- net profit. flected in accordance with requirements of PBU 18/02 are recognized as deferred tax assets and recorded in the The surplus capital was built up at the expense of surplus val- Balance Sheet in Line 240 “Accounts receivable”, as in the ue of fixed assets as determined by revaluation, premium re- economic sense they present accounts receivable and not alized from sale of the Company’s shares at a price exceeding deferred tax assets. their par value, received donations, expended accumulation fund resulting from commissioning fixed assets financed at 17. Recognition of Income the expense of profit generated by the Company. Proceeds from sales of products and services were ac- 14. Borrowings and Loans Received knowledged, for the purposes of accounting, as the products were dispatched (or services rendered) to the buyers Extra expenses incurred by the Company to receive bor- and settlement documents were presented by such buy- rowings and loans for investment assets are included in ers. These proceeds are reflected in the Profit and Loss the costs of the latter. Statement less the value-added tax, export duties, and other similar mandatory charges. Extra expenses incurred by the Company to receive borrowings and loans for current assets are recorded in other Recognized as other income of the Company are: costs on their usage basis. • proceeds associated with interest in Charter capitals of other organizations; Extra expenses incurred by the Company to receive bor- • proceeds from sales of fixed and other assets, other rowings and loans for current assets that were partially than cash (save for foreign currency), products, goods; used for investment purposes, are included in the cost of • interest received for granting cash assets of the orga- the latter in the corresponding proportion. nization, as well as interest for use of cash assets by a bank deposited on the organization’s account with the Interest paid by the Company with borrowed funds used bank; for financing of capital construction objects (including re- • interest received on acquired bills of exchanges of third construction and modernization) are included in the con- parties – in accordance with the interest provision in the struction in progress group on the accrual basis. bill of exchange on presentation of it for payment.

144 MOSENERGO 2007 Annual Report

18. Changes in the Accounting Policies transfer in production are not consumed at once but serve within a period not exceeding 12 months, application of The following changes were introduced in the Accounting which does not yield immediate economic profit (income). Policies of the Company in the year 2007: 19. Reference and Comparative Data The order of formation in the accounting reporting and in financial statements on information about assets and li- As evaluation in money terms due to the change of the ac- abilities denominated in foreign currencies subject in accounting policies in relation to previous reporting period cordance with the legislation or agreement of the parties to in the part of accounting of assets and liabilities denomi- settlement in rubles changes due to introduction into force nated in foreign currencies can not be carried out with due starting from the accounting reporting for the year 2007 of accuracy, the comparative data for the year 2006 included the Ordnance of the Ministry of the RF dated 27.11.2006 in the financial statement of the year 2007 were not ad- No. 154н “On approval of provision on accounting “Ac- justed for reflection of consequences of the change of the counting of assets and liabilities denominated in foreign accounting policies. currencies” (PBU 3/2006). Beginning from January 01, 2007, denomination in rubles of the cost expressed in a The information of the Balance Sheet as of 01.01.2007 is foreign currency in settlements (including by borrowed compiled by means of adjustment of the Balance Sheet funds) with legal and physical entities subject for payment of 31.12.2006 with due account of denomination in RUR on the basis of conditions of agreements (irrespective of of the cost of accounts receivable expressed in foreign terms of their conclusion) in rubles is carried out in the or- currency (including by borrowed funds) subject for pay- der established by provisions 5 and 8 of PBU 3/2006. ment in rubles: adjustments of the information of the Bal- ance Sheet with due account of separating from the group The accounting policies of the Company for the year 2008 “Other Current Assets” of a VAT amount from advances re- will be changed in the following way: ceived as well as adjustment of the Balance Sheet due to revaluation of two groups of fixed assets of MOSENERGO The inventories shall include those objects that comply “Machinery and equipment used for electricity and heat with conditions of inclusion in the fixed assets group with generation” and “Heating main grids”. Other groups of the acquisition cost not more than RUR 20,000 (inclusive) fixed assets were not revaluated. per unit, including objects (accessories and tools) that on

Adjustment of Balance Sheet data RUR’000 Amount before Line Adjustment Adjusted amount as of Article adjustment as code amount 01.01.2007 of 31.12.2006 Fixed assets 120 40,275,999 17,944,329 58,220,328 Total by Section I 190 48,373,874 17,944,329 66,318,203 Receivables (expected to be paid within 12 months after the reporting date), including 240 9,632,412 (11,068) 9,621,344 - Buyers and customers 241 2,296,418 (7) 2,296,411 - Other accounts receivable 246 872,661 (11,061) 861,600 Sundry current assets 270 – 180,103 180,103 Total by Section II 290 20,846,221 169,035 21,015,256 Total assets 300 69,220,095 18,113,364 87,333,459 Additional capital 420 8,896,312 18,478,983 27,375,295 Retained earnings (uncovered loss) 470 1,924,917 (534,664) 1,390,253 Total by Section III 490 39,683,024 17,944,319 57,627,343 Accounts payable, including 620 7,035,210 169,045 7,204,255 - Other accounts payable 625 1,440,703 169,045 1,609,748 Total by Section V 690 8,485,415 169,045 8,654,460 Total liabilities 700 69,220,095 18,113,364 87,333,459

145 Financial statement

III. Disclosure of Significant Reporting works, information and computation services, communi- Indicators cation services, services on elimination of technological limitations on supply of electric and thermal power and 1. Segmented Disclosures connection of capacities and so on, which are neither material nor form identifiable reporting segments either col- Segmented disclosures are not made since the Compa- lectively or individually. ny’s core business is power and heat generation which accounts for 93.2% of product (goods, services) sales. The Company operates in the territory of the Moscow The Company is engaged in other business lines: design region and does not identify individual geographic segments. 2. Fixed assets

Breakdown of fixed assets’ cost by groups as of 31.12.2007 RUR’000 Historic (replacement) Percent of total No. Fixed Assets Group Salvage value cost replacement cost

1. Buildings 21,991,771 13,801,710 12.17

2. Facilities 46,501,124 15,842,310 25.74

3. Machinery and equipment 111,245,332 35,058,446 61.58 Transport vehicles and other fixed 4. 857,048 402,327 0.47 assets 5. Land and nature management objects 85 85 –

6. Housing 62,517 62,517 0.04

Total 180,657,877 65,167,395 100

As of the end of the year 2007 the fixed assets leased by the agreement with JSB Gazprombank (CJSC) leasing for Company made RUR 12,987,thousand (RUR 26,709,thou- the delivery of the gas turbine plant to TEP at Pavlovskiy sand in the year 2006). In 2007 the company returned to Posad town of the Moscow region. The total cost of the the Lease Holder leased fixed assets (without intention of agreement makes RUR 652,330 thousand; in 2007 the repeated lease) at the cost indicated in the lease agree- amount of the advanced payment reached RUR 90,990 ment to the amount RUR 18,834,thousand (in 2006 – to thousand. the amount RUR 6 thousand). MOSENERGO is leasing as of 31.12.2007 land allotments Values as of December 31, 2007, are indicated in the Ex- with the total space 1,126.9 (1,060.02 as of 31.12.2006), planatory Note are presented with due account of adjust- that are not reflected in the cost terms in the line 910 ments disclosed in Section II of the Section “Introductory “Fixed Assets on Lease” of the certificate about values on and Reference Data”. off-balance accounts.

Fixed assets obtained by lease agreements are accounted Line 120 “Fixed Assets” of the Balance Sheet includes on off-balance accounts, their aggregate cost in accor- pledged fixed assets, the depreciable cost of which makes dance with the lease agreement as of 31.12.2007 makes RUR 1,259,349 thousand as of 31.12.2007 (RUR 1,437,255 RUR 13,227 thousand (RUR 112,899 thousand by analo- thousand by analogous objects as of 31.12.2006). gous objects on 31.12.2006). The Company transferred the following fixed assets in The Company is to complete payments till the end of the pledge in the following evaluation to ensure compliance agreement term in the amount RUR 13,322 thousand, in with provisions of the loan agreements: 2007 the Company settled RUR 12,898 thousand. In 2007, the Company effected payments under the lease

146 MOSENERGO 2007 Annual Report

RUR’000 The value of social state sphere objects as of 31.12.2007 As of As of makes RUR 20,851 thousand (RUR 20,851 thousand as of 31.12.2006 31.12.2007 31.12.2006). In 2007, the Company did not transfer objects of social sphere to municipal bodies. The depreciable Pledged value 1,163,827 1,163,827 value of transferred and liquidated objects is attributable to reduction of the state social sphere reflected on Line Book value as of 1,437,255 1,259,349 470 “Undistributed profit (uncovered loss)” of the Balance reporting date Sheet. In 2008 work on transfer of objects of social sphere will be continued. In the Appendix to the Balance sheet all pledged fixed assets are accounted at depreciated value. Capacities commissioned over 12 months of 2007 totalled 540 MW, including: The Company carries out works on registration of rights for • CCPU-450Т No. 3 on TEP-27 – 450 MW; immovable property received in the legal succession order • Turbine set No. 5 on TEP-9 – 20 MW (replacement of a on re-organization. In accordance with the Federal Law No. generator); 122-ФЗ «On State Registration of Title to Real Estate and • Turbine set No. 1 on TEP-22 – 20 MW (modernization with Related Transactions» dated July 21, 1997, immovable replacement of a generator); property transferred in settlement of the Charter capital • CCPU-60С on TEP-28 – 40 MW (property of the investor, of the Company is subject for state registration in authori- construction and assembly works of the first stage are ties of the Ministry of Justice of the Russian Federation. completed, trial start-ups are conducted, maintenance In addition to this, the Company carries out registration of is carried out by MOSENERGO); title to real estate objects accounted on the Balance Sheet • Expansion-generating units on TEP-23 – 10 MW (property of MOSENERGO at the moment of organization of MOS of the investor, maintenance is carried out by MOS- ENERGO and on other grounds in the established order. ENERGO).

The Company owns 172 km of heating networks, the title Fixed assets commissioned over 12 months of 2007 to- for which is not registered in the established order. talled RUR 11,531,527 thousand, including: • block CCPU-450Т No. 3 on TEP-27; In accordance with the concluded lease agreement the • second auto-transformer No.1 АТ 500/220 kV on property is transferred on lease to OAO Moscow Heat Dis- TEP-26; tribution Company. • capacity supply by a temporary schedule (12 MW) from RUR’000 CCPU-60С TEP-28; • reconstruction of a turbine set PT-60/75-130/13 No. 5 As of As of with replacement of a generator of the type TV-60-2 on 31.12.2006 31.12.2007 TZFP-80-2UZ on TEP-9 – 20 MW ; Depreciable value, the • modernization of a turbine set PT-60-130 No.1 on title for which is subject TEP-22 – 20 MW; for obligatory state • Reconstruction of a generator hall No. 1, 2 on TEP-1; registration, total: 21,615,256 26,739,061 • transfer of generators No. 26, No. 27 R-12-3,4/0,1, including: No. 30 PT-25-3,4/0,6/0,1 for control through the PTK Kvint on TEP-1; Fixed assets cost, the • reconstruction of a chemical water treatment unit on title for which is regis- TEP-9 and TEP-16; tered in the established • modernization of a system of management and control order 20,410,005 25,466,047 of the steam power generator No. 5 with automated system of management of TP on TEP-9; Fixed assets cost com- • reconstruction of main distributing unit (MDU) 10 kV missioned and pending (1-5 sections) on TEP-11; registration 134,740 18,323 • technical upgrading of a reserve coal storage with re- Including for the report- placement of a loading-unloading equipment on TEP-22; ing period 111, 486 – • reconstruction of electric equipment on MDU-10 kV – construction of CDU-10 kV No. 2 on TEP-27; • reconstruction of coolers on TEP-11, 22, 23, 25, 26; • reconstruction of heating grids.

147 Financial statement

3. Construction in progress The Company has been engaged in construction and reconstruction of facilities. As of beginning of the year 2007 Item 130 of the Balance Sheet “Construction in Progress” costs attributable to construction in progress reached RUR includes: 7,324,117,thousand, with costs totalling RUR 23,742,576 RUR’000 thousand incurred over a year, commissioning and write- off expenses make RUR 11,532,939 thousand, including As of As of writes-off – RUR 1,412 thousand. 31.12.2006 31.12.2007 Construction The remaining costs of construction in progress make RUR in progress, total: 7,324,117 19,260,800 19,260,800 thousand. including: Immovable property In 2008 the Company expects to commission 1,111.5 MW objects completed of capacities, including: in construction and • expansion of TEP-21 with installation of CCPU. Block commissioned, with No. 11 – 450 MW; documents for title • expansion of TEP-27 with installation of CCPU. Block No. 4 registration are trans- – 450 MW; ferred to the Unified • technical upgrading and reconstruction (installation of State Register (at the GTE-65 with a steam boiler-utilizer) on TEP-9 – 61,5 MW ; depreciable value) 179,766 6,039,368 • modernization of PT-80/100-130 No. 9 on TEP-12 – 20 MW; including by objects • technical upgrading with replacement of a generator No. 2 TEP-27 – 5,859,601 for Т-110/120-130-5 on TEP-23 – 110 MW (growth by 10 MW); • modernization of PT-80/100-130 No.1 on TEP-26 – 20 MW. Equipment for installation 747,710 3,543,684 Total 8,071,827 22,804,484

148 MOSENERGO 2007 Annual Report

The most significant objects of capital construction:

Amount, RUR Affiliate Name of facility by title thousand

TEP-27 Main building (Block No. 3) 3,703,655 TEP-21 Expansion of Block No.11 3,655,236 TEP-27 Ostashkov heating mains from TEP-27 1,007,535 TEP-22 Technical upgrading of WTP 1, 2 phase 679,000 TEP-16 Expansion of MDU-10 kV and construction of buildings of CDU-20 kV 671,920 and CDUE-110 kV TEP-27 Diesel fuel area (Block No. 3) 521,279 TEP-21 Reconstruction MDU-10 kV No. 3 501,252 TEP-27 Main building of energy block No. 4 (Block No. 4) 481,179 IVC Automated information and computational system of commercial accounting 476,500 of electric energy and system of telemechanics (AIIS KUE of MOSENERGO) TEP-27 Overpass of technological pipeworks (Block No. 3) 390,365 TEP-22 Technical upgrading of reserve coal storage 326,401 TEP-27 Construction of CDU-10 kV 304,845 TEP-27 Cooler No. 2 (Block No. 3) 281,149 TEP-27 CDUE – 220 kV No. 2 (Block No. 3) 259,879 TEP-25 Expansion of WPU. 3d phase 259,004 TEP-27 Ostashkov heating mains along the territory of TEP-27 249,254 TEP-21 Reconstruction of Open Distribution Unit (ODU)-220 kV No. 2 248,669 TEP-26 Generating unit No. 8 CCPU 400-420 247,596 TEP-20 Distribution unit 10 kV 242,169 TEP-27 Cable line 220 kV (Block No. 3) 239,016 TEP-27 Reconstruction CDU E No. 1 – 220 kV No. 2 236,543 General Druzhinnikovskaya heat main line 226,349 Directorate TEP-27 Circulation water pipelines (Block No. 3) 219,061 TEP-21 Reconstruction of GDU-1 174,083 TEP-26 Closed distribution unit 10 kV 171,707 TEP-12 Reconstruction with installation of CCPU-120 161,060 TEP-16 Replacement of a turbine-type generator TV-2-30 No. 1 with a new one of the type 116,698 TFP-40-2 MUZ LAPS-3 Supply of electric energy from GTU-TEP Pavlovskiy Posad on SS 356 Pavlovo 90,161 TEP-9 Technical upgrading and reconstruction 73,396 (gas-turbine powerplant-65 with a steam bolier-utilizer) TEP-12 Reconstruction of GDU-10 kV (1-3 sections) 65,209 TEP-1 Sewage disposal plants 60,444 Total 16,340,614

149 Financial statement

4. Long-term financial investments

Financial investments are accounted in the Balance Sheet in the amount RUR 82,892 thousand less the accrued provision for devaluation of the financial investment show- ing sustainable depreciation. The cost of financial investments by which the provision was accrued made RUR 2,814 thousand as of 31.12.2007 (RUR 7,414 thousand as of 31.12.2006), the amount of the provision made RUR 644 thousand as of 31.12.2007 (RUR 5,403 thousand as of 31.12.2006). The remainder of the provision amount accrued in the year 2006 and accounted in other expenses made RUR 644 thousand. The amount of the provision accrued in the year 2006 and attributable to other expenses made RUR 5,403 thousand.

Distribution of provision (reserve) by groups of long-term financial investments RUR’000 Provi- Provision Provision recognized Provisions Groups of long-term Provision as of sion as of created in the as other income of used in the financial investments 31.12.2007 31.12.2006 year of report the year of report year of report

1. Investments in af- 514 – 159 153 202 filiate companies 2. Investments in 4,889 – – 4,447 442 other organizations Total 5,403 – 159 4,600 644

Line 140 “Long-term financial investments” of the Balance Under the MOSENERGO’s Executive Board decision No. Sheet includes: 12 dated 30.10.2006, it was decided to dispose of MOS • other financial investments with undeterminable market ENERGO participation stakes in entities where the Com- value for the amount RUR 18 thousand as of 31.12.2007 pany held stakes or shares of non-core assets: (RUR 4,578 thousand as of 31.12.2006). • Ergomax production firm (LLC); • Kriokor OJSC. Long-term investments in the amount RUR 50,000 thou- In 2007 these shares were disposed of. sand (RUR 0,in 2006) were realized within the year 2007. Under ordnances of MOSENERGO dated 22.03.2007 Under the Board of Director’s decision No. 10 dated No. 146 and dated 27.04.2007 No. 226 lthe following 21.09.2007 and No. 12 dated 12.10.2007) the Com- long-term financial investments where the Company held pany acted as a co-founder of the affiliate company stakes or shares of non-core assets were written off: OAO “Teploenereticheskaya Kompania of MOSENERGO” • Energy-production association EPA LLC; with 100% of the interest in the Charter capital stock of • Segol Radiopage Inc.; the Company. • Turbin motor pump LLC.

The interest share in CB Transport Investment Bank LLC under the resolution of the arbitration was restored to 72.43909% (the amount of the restored share made 47.82909%, which in the money terms made RUR 11,600 thousand).

Within the year of report long-term investments to the amount RUR 9,160 thousand (RUR 291 thousand in the year 2006) were disposed of.

150 MOSENERGO 2007 Annual Report

Objects of long-term financial investments as of 31.12.2007 RUR’000 Item Company name Core Invest- Contribu- Amount of Contribution Share of No. operations ment tion accrued amount as of the Char- date amount provisions for 31.12.2007 ter capi- as of impairment of with due tal held 31.12.2007 financial invest- account of by MOS- ments accrued provi- ENERGO, as of 31.12.2007 sions % Affiliate companies 1. OAO Teploenereticheskaya Sale, purchase Kompania of MOS and distribution of ENERGO heat energy 2007 50,000 – 50,000 100 2. Energoinvest-ME, a closed joint-stock Brokerage ser- company vices 1994 2,249 (79) 2,170 90.0 3. АОZT Mosenergo- Financial transac- Finance B.V. tions 1997 118 (118) – 100 4. Energoconsult, Consultancy a closed services, design joint-stock activities, engi- company neering services 1991 5 (5) – 100 Total by affiliate companies 52,372 (202) 52,170 Dependent companies 5. Transport Investment Bank, a commercial bank (limited liability Banking transac- company) tions 1997 23,905 – 23,905 72.44* 6. Shatura Peat Digging Industrial Association, an open joint-stock company Peat digging 1998 1,713 – 1,713 33.99 7. Seba-energo, Design and a limited liability manufacture company of instruments 1995 521 – 521 44.0 Total by dependent companies 26,139 – 26,139

* As of December 31, 2007, MOSENERGO held 72.44% of the Charter share capital of the CB Transport Investment Bank (LLC). MOSENERGO can not control the bank and define many decisions adopted by a participant meeting as well as decisions of the Board of Supervisory Directors, Executive Board and the Chairman of the Bank Executive Board. This is accounted for by the fact that in accordance with the Articles of the Association of the Bank each of the three participants holds one vote at the general meeting of bank participants and the decision can be taken by a simple majority by many issues of the meeting of the bank participants. MOSENERGO can block adoption of decisions taken by bank participants requiring unanimous voting.

151 Financial statement

Item Company name Core Invest- Contribu- Amount of Contribution Share of No. operations ment tion accrued amount as of the Char- date amount provisions for 31.12.2007 ter capi- as of impairment of with due tal held 31.12.2007 financial invest- account of by MOS- ments accrued provi- ENERGO, as of 31.12.2007 sions % Other investments 8. Energogarant-Invest Ltd, a closed joint- stock investment Investment, bro- company kerage services 1998 3,000 – 3,000 12.0 9. Energogarant, an open joint-stock insurance company Insurance 1993 1,565 – 1,565 0.18 10. Moscon, a closed Production waste joint-stock company disposal 1992 200 (200) – 20.0 11. Telecomenergo, a closed joint-stock company Telecom 1999 150 (150) – 15.0 12. Khoroshevskaya Pow- Construction of er Company, a closed combined cycle joint-stock company TEP 1994 91 (91) – 16.1 13. Shatura Meat Factory, an open joint-stock company Food processing 1992 1 (1) – 1.1 14. Other investments 18 – 18 Total by other investments 5,025 (442) 4,583 Total 83,536 (644) 82,892

152 MOSENERGO 2007 Annual Report

5. Inventories 8. Accounts receivable

The value of raw and other materials on the Balance Sheet Breakdown of Accounts Receivable by Line 230 made RUR 4,400,165 thousand as of 31.12.2007 (RUR RUR’000 4,326,284 thousand as of 31.12.2006); costs of production in progress made RUR 81,761,thousand as of No. Name Amount as of Amount as of 31.12.2006 31.12.2007 31.12.2007 (RUR 72,406,thousand as of 31.12.2006); goods for resale – RUR 18,884 thousand as of 31.12.2007 1. Buyers, customers 171 1,215 (RUR 16,046 thousand as of 31.12.2006), finished goods – RUR 10,944 thousand as of 31.12.2007 (RUR 9,600 thou- 2. Other debtors (other debt- sand as of 31.12.2006). ors also include the amount of the instalment plan 6. Deferred expenses granted to MOSENERGO’s employees for purchase of housing, to be repaid in The composition of deferred expenses in the Balance more than 12 months after Sheet includes the following expenses attributable to fu- the reporting date) 70,830 76,811 ture reporting periods. RUR’000 Total 71,001 78,026 As of As of Expenses 31.12.2006 31.12.2007 Purchase of software 71,387 170,009 Line 230 “Accounts receivable (due in more than 12 months after the reporting date)” of the Balance Sheet reflects the Life, property and re- 56,711 25,212 accounts receivable restructured in accordance with con- sponsibility insurance cluded agreements and amicable agreements in the amount Training of staff 9,102 16,536 RUR 1,215 thousand as of 31.12.2007 (RUR 171 thousand Deferred vacation costs 9,732 9,629 as of 31.12.2006), the amount of the instalment plan Acquisition of licenses for granted to MOSENERGO’s employees for purchase of certain types of activities 2,622 2,433 housing reaches RUR 33,345 thousand as of 31.12.2007 Others 18,805 5,371 (RUR 21,174 thousand as of 31.12.2006), as well as Total 168,359 229,190 the amount of the claim against the Municipal Unitary Enterprise “Administration of the Single Customer of Com- 7. Value Added Tax on Acquired Tangible Assets munal Housing Services of Klin region” that makes RUR 49,609 thousand as of 31.12.2007 (RUR 43,466 thousand Line 220 of the Balance Sheet “Value Added Tax on Acquired as of 31.12.2006). Tangible Assets” reflects an amount of the value added tax in the amount RUR 421,827 thousand as of 31.12.2007 Breakdown of Accounts Receivable by Line 240 (RUR 584,851 thousand – as of 31.12.2006). RUR’000 On carrying out of the Company’s own construction No. Name Amount as of Amount as of amounts of the tax imputed to the Company on goods 31.12.2006 31.12.2007 (works, services) acquired for the execution of construction and assembly works as well as amounts of the tax im- 1. Buyers, customers 2,296,411 5,152,374 puted to the Company on acquisition of fixed assets and of 2. Advances issued 6,463,333 13,174,792 capital construction in progress amount to RUR 417,070 thousand as of 31.12.2007 (RUR 498,691 thousand as 3. Other debtors 861,600 1,788,623 of 31.12.2006). Out of which RUR 212,781 thousand as of 31.12.2007 (RUR 100,175 thousand as of 31.12.2006) Total 9,621,344 20,115,789 are attributable to objects, the construction of which is expected to be completed in more than 12 months after the Accounts receivable of customers and buyers by line reporting date. 241 “Buyers, customers” of the Balance Sheet are shown less the bad debt provision, the amount makes RUR 1,191,954 thousand as of 31.12.2007 (RUR 930,863 thousand as of 31.12.2006).

153 Financial statement

Flow of bad debt provisions RUR’000 Balance of bad debt Bad debt provi- Written off to bad Balance of unused bad Balance of bad debt provisions as of sions accrued in debt provisions in debt provisions applied to provisions as of December 31, 2006 2007 2007 profit in the end of 2007 December 31, 2007

1,110,217 1,579,218 (234,191) (1,065,979) 1,389,265

Other accounts receivable also include tax overpayment Within the reporting period short-term financial invest- in the amount RUR 982,419 thousand as of 31.12.2007 ments for the amount RUR 49,723,743 thousand (RUR (RUR 132,406 thousand as of 31.12.2006). 4,200,000 thousand in 2006) were realized, out of them: bills of exchange for the amount RUR 26,423,743 thou- The amount of accounts receivable by Item “Other ac- sand (RUR 0 in 2006), deposits for the amount RUR counts receivable” of the Balance Sheet less the provi- 23,300,000 thousand (RUR 4,200,000 thousand in 2006). sion for bad debts makes RUR 197,311 thousand as of 31.12.2007 (RUR 179,354 thousand as of 31.12.2006). Within the reporting period short-term financial investments for the amount RUR 24,433,626 thousand (RUR The balance item “Accounts receivable (due within 12 months 3,306,965 thousand in 2006) retired, including: bills of ex- after the reporting date)” by Item 240 of the Balance Sheet change for the amount RUR 11,223,200 thousand (RUR 0 in also reflects the amount of advances under forthcoming 2006), deposits for the amount RUR 13,200,000 thou- settlements paid to other organizations in accordance sand (3,300,000 thousand in 2006), as well as other with conditions of agreements. short-term financial investments for the total amount RUR 10,426 thousand (RUR 6,965 thousand in 2006). The amount of advances included in the accounts receivable by line 240, makes RUR 13,174,792 thousand as of 10. Other current assets 31.12.2007 (RUR 6,463,333 thousand as of 31.12.2006). Growth of advances occurred by items: capital construc- Line 270 “Other current assets” as of the end of the report- tion, fuel suppliers and service providers. ing period records VAT amount by advances received for the forthcoming supply of goods (works, services) and not If liabilities as of the start of the reporting period are classi- settled as of 31.12.2007 in the amount RUR 113,542 thou- fied as long-term and there’s a certainty within the report- sand (RUR 180,103 thousand as of 31.12.2006). ing period that settlement of accounts receivable will occur, then the above stated long-term accounts receivable 11. Capital and Reserves will be re-classified as short-term ones. Extraordinary General Meeting of MOSENERGO share- The trade receivable classified as of 31.12.2006 as a long- holders held on December 20, 2006 (Minutes No. 2 dated term in the amount RUR 16,696,thousand is reflected as December 20, 2006) resolved to increase the MOS- of 31.12.2007 as part of a short-term in accordance with ENERGO charter capital through private offering of addi- the terms of settlement envisaged in agreements. tional shares MOSENERGO in the number of eleven billion five hundred million shares (11,500,000,000) in favor of 9. Short-term financial investments ОАО “Gazprom” and/or its affiliated persons.

Line 250 “Short-term financial investments” of the Balance On January 23, 2007, the Federal Service on Financial Mar- Sheet makes RUR 15,200,544,thousand as of 31.12.2007 kets of Russia registered an additional issue of shares. (RUR 0,thousand as of 31.12.2006). The above stated bills of exchange are non-interest-bearing. The actual placement of 100% of additional emission shares included 1,118% — in the process of the execution of pri- Short-term financial investments also include deposits of ority rights of acquisition of additional shares. As a result the Company placed in banks for the total amount RUR of offering of 11,500,000,000 ordinary shares, which made 11,000,000 thousand as of 31.12.2007 (RUR 900,000 40.709% from the Charter capital stock of the company thousand as of 31.12.2006). MOSENERGO raised RUR 60,72 billion. Funds attracted as a result of the additional emission are forwarded for realiza- The provision for depreciation of short-term investments tion of the investment program of MOSENERGO on design, objects was not created. construction and commissioning of energy capacities.

154 MOSENERGO 2007 Annual Report

On September 20, 2007, corresponding changes in the Basic earnings per share are calculated as the ratio of Articles of Association of the Company were registered by the basic earnings in the reporting period to the average the Inter-district Federal Tax Service Inspectorate No. 46 weighted number of ordinary shares in circulation within of Moscow. the reporting period. The basic earnings are equal to net profit of the reporting period (Item 190 of Profit and Loss The Company’s Charter capital stock as of the end of the Statement). reporting period made RUR 39,749,360,thousand (RUR 28,249,360 thousand as of 31.12.2006). 2007 2006 The Annual General Meeting of MOSENERGO sharehold- Net profit (undistrib- ers held on 15.05.2007, following results of the operation uted) in the accounting of the Company in the year 2006 resolved to accrue the in- period, RUR’000 739,470 1,523,725 come subject for payment to founders in the amount RUR Average weighted num- 600,000 thousand. ber of ordinary shares in circulation within the Extraordinary General Meeting of MOSENERGO share- accounting year, shares 34,968,406,830 28,249,359,700 holders held on 22.06.2007 following results of the com- Basic earning per share, pany’s operation in Quarter 1 of the year 2007, resolved to RUR 0.0211 0.0539 accrue income subject for payment to the founders in the amount of RUR 296,290 thousand. Payment of dividends is executed by Specialized registrar Reestr-Service, an The Company did not place ordinary shares without pay- open joint stock company. As of December 31, 2007, the ment or at a cost lower than the market value, that is why existing liabilities in the amount RUR 561 thousand are re- the average weighted number of ordinary shares in circu- flected in the short-term liabilities by Item 630 “Arrears of lation is not subject to adjustment. revenues payable to members (founders)” of the Balance Sheet. This amount represents a return of the paid amount The Company has no convertible securities or sale and of the shareholder income due to incorrect banking de- purchase agreements for shares at the cost lower than the tails submitted by shareholders. market value and due to this the watered profit per share is not calculated and equal to the basic profit per share. The surplus capital of the Company was RUR 76,635,945 thousand as of 31.12.2007 (RUR 27,375,295 thousand as 12. Long-term liabilities of 31.12.2006). Increase of the surplus capital occurred due to accounting of the emission income and made RUR “Other long-term liabilities”Item 520 of the Balance Sheet 49,220,000 thousand. The surplus capital increase by reflect liabilities secured by own bills of exchanges, the RUR 119,675,thousand was caused due to reorganization term of maturity for which is due in more than 12 months of NMU Medzanchst. This amount represents a return of after the reporting date in the amount of RUR 152,000 the property earlier transferred in operative management thousand as of 31.12.2007 (RUR 190,247 thousand as of by the Company in the process of reforming and creation 31.12.2006). of NMU Medsanchast. Decrease of the surplus capital in RUR’000 the the amount of RUR 79,026,thousand connected with disposal of fixed assets objects and transfer of the amount Period of maturity of Amount as of Amount as of of revaluation by them is attributable in the undistributed bills of exchange 31.12.2006 31.12.2007 income of the Company. 17.11.2008 38,247 – 16.11.2009 57,000 57,000 The Charter of the Company envisages creation of the 15.11.2010 95,000 95,000 Reserve fund in the amount 5% from the Charter capital stock of the Company. The annual shareholder meet- Total: 190,247 152,000 ing of MOSENERGO dated 15.05.2007 resolved that in 2006 the net profit of the Company in the amount RUR 76,186,thousand was sent to formation of a Reserve fund. As of 31.12.2007 the Reserve fund was 1.73% from the Charter capital stock.

155 Financial statement

13. Loans and credit

Accounts payable on received loans and borrowings are accounted and reflected in financial statements with inclusion of all accrued interest due as of the end of the reporting period.

The total amount of loans obtained through the year 2007 made RUR 7,793,087 thousand, including RUR 4,072,058 thousand for investment purposes and RUR 3,721,029 thousand for the basic activities, from which a part of facilities was utilized in investment purposes. The total amount of credits reimbursed through the year 2007, made RUR 11,151,117 thousand. RUR’000 Disbursement Amount as of Amount as of Creditors period 31.12.2006 31.12.2007

Long-term loans European Bank of Reconstruction and Development 2012 4,300,000 3,822,222 European Bank of Reconstruction and Development 2018 2,900,000 2,755,000 European Bank of Reconstruction and Development 15.07.2009 177,606 82,783 International Financial Corporation 15.07.2009 118,404 55,189 OAO Vneshtorgbank 25.06.2008 2,787,044 – Total: 10,283,054 6,715,194 Short-term loans (including a short-term part of long-term loans) European Bank of Reconstruction and Development 2012 – 498,416 European Bank of Reconstruction and Development 2018 31,327 158,918 European Bank of Reconstruction and Development 15.07.2009 100,128 89,690 International Financial Corporation 15.07.2009 66,752 59,793 European Bank of Reconstruction and Development 28.11.2007 435,355 – OAO Vneshtorgbank 25.06.2008 2,118 – Total: 635,680 806,817

156 MOSENERGO 2007 Annual Report

The interest rate by long-term loans within the year 2007 made from 8,25 to 9,22%.

The interest rate by short-term loans within the year 2007 made from 7,25 to 8,0%.

Additional expenses connected with raising of loans made RUR 655 thousand as of the year 2007 (RUR 5,085 thousand as of 2006). Within 2007 MOSENERGO didn’t receive or disburse loans. RUR’000 Disbursement Amount as of Amount as of Loan holders period 31.12.2006 31.12.2007

Long-term borrowings Bonded debt (series 02) 2016 5,000,000 5,000,000 Bonded debt (series 01) 2011 5,000,000 5,000,000 Total: 10,000,000 10,000,000 Short-term borrowings (including a short-term part of long- term borrowings) Bonded debt (series 02) – 127,865 128,913 Bonded debt (series 01) – 106,396 107,429 Total: 234,261 236,342

The interest rate by long-term borrowings within the year tures – in the reporting (taxable) period to which they are 2007 made from 7.54 to 7.65%. attributable irrespective of the time of actual payment of monetary facilities and (or) other form of settlement. The interest rate by short-term borrowings within the year 2007 made from 7.54 to 7.65%. The amount of the contingent income tax determined on the basis of the accounting income made RUR 635,51 thou- Additional expenses connected with raising of borrowings sand (in 2006, – RUR 718,216 thousand). made RUR 1,337 thousand in the year 2007 (RUR 41,414 thousand in the year 2006). Permanent differences

In 2007 the amount of permanent differences influencing 14. Taxation the difference between the contingent expenditure by the income tax and the income tax determined pursuant to the tax accounting rules (current income tax), made RUR Income Tax 5,305,941 thousand (in 2006 – RUR 5,093,275 thousand).

For the purpose of computation of the income tax, rev- The stated permanent differences are derived from differ- enues and expenditures are recognized by the accrual ences in recognition of revenues and expenditures for ac- method, i.e. income is recognized in the reporting (tax- counting purposes and for computation of the income tax, able) period in which they occurred irrespective of the in particular, for build-up of the provision for bad debts, fixed actual receipt of the monetary facilities, other property assets depreciation, salaries expenses and social costs. (works, services) and (or) property rights, and expendi-

157 Financial statement

In 2007,permanent differences resulted in excess of the amount RUR 246,379 thousand were accrued in reduction current income tax over the contingent expenditure on in- of the current income tax. come tax by RUR 1,273,426 thousand (in 2006 – by RUR 750,627 thousand). Out of which permanent tax liabilities Taxable temporary differences are derived from differenc- were RUR 1,339,952 thousand (in 2006 – RUR 826,228 thou- es in recognition of the income tax for the accounting pur- sand), permanent tax assets – RUR 66,526 thousand poses and for the purposes of tax computation, in particu- (in 2006 – RUR 75,601 thousand). lar this concerns expenditures for build-up of the provision for doubtful debts and fixed assets depreciation. Deductible temporary differences Taxable income and the current income tax In 2007 the total amount of deductible temporary differences resulting in the differences between the contingent Pursuant to the information of the tax accounting the tax- expenditure for income tax and the current income tax able income in the year 2007 made RUR 6,041,500 thou- made RUR 2, 300 thousand (in 2006 – RUR 323 thousand), sand (in 2006, – RUR 5,093,275 thousand). including (leading to increase (accrual) of corresponding deferred tax assets) in the reporting period – RUR 2,320 thou- The current income tax recorded in Item 150 of Profit and sand (in 2006 – RUR 0). Loss Statement made RUR 1,449,960 thousand (for the year 2006 – RUR 1,222,386 thousand). The amount of reduction (repayment) of deductible temporary differences resulting in reduction (reimbursement) Other taxes of corresponding tax assets made in the reporting period RUR 20 thousand (in 2006 – RUR 323 thousand). Starting from January 01, 2006, the Company began ap- plying the method of actual delivery (transfer) of goods In 2007 deferred tax assets were accrued in the amount (works, services), property rights for determination of the RUR 552 thousand that led to increase of the current in- taxable base with the purpose of VAT computation. The come tax in comparison with the contingent expenditure taxable base is determined as of the earlier of the two for income tax of the reporting period. In 2006 the de- dates: ferred tax assets in the amount RUR 78 thousand were reimbursed that led to reduction of the current income tax • date of delivery (transfer) of goods, (works, services), in comparison with the contingent expenditure for income property rights; tax of the reporting period. • date of payment (actual payment) for forthcoming deliveries of goods (works execution, services rendering), Deductible temporary differences are derived from differ- transfer of property rights. ences in recognition of the income tax for the accounting purposes and for the purposes of tax computation in particular In the period till January 01, 2008, for repayment of ac- this concerns revenues from gratuitously obtained property. counts receivable arisen before January 01, 2006, VAT with respect to this accounts receivable in the period till Taxable temporary differences January 01, 2008, is calculated as on the basis of payment for sold goods (works, services), property rights. The In 2007 the total amount of taxable temporary differences outstanding accounts receivable till January 01, 2008 is resulting in the differences between the contingent expen- subject for inclusion in the taxable base in the first taxable diture for income tax and the current income tax made RUR period of the year 2008. 1,915,289 thousand (in 2006 – RUR 1,026,581 thousand), including (leading to increase (accrual) of corresponding de- VAT presented by suppliers on acquisition of goods (works, ferred tax assets) in the reporting period – RUR 1,927,756 thou- services), property rights, is subject for deduction after re- sand (in 2006 – RUR 1,054,574 thousand). cording on the Balance Sheet of the corresponding goods (works, services), property rights on condition of availabil- The amount of reduction (repayment) of taxable tempo- ity of corresponding primary documents irrespective of the rary differences resulting in reduction (reimbursement) of fact of payment to the supplier. The analogous order of VAT corresponding tax liabilities made in the reporting period deductions is applied on execution of construction and as- RUR 12,467,thousand (in 2006 – RUR 27,993,thousand). sembly works carried out starting from January 01, 2006.

In 2007 the deferred tax liabilities in the amount RUR VAT amounts charged by suppliers with respect to goods 459,669,thousand were accrued in reduction of the cur- (works, services), property rights, purchased before Janu- rent income tax. In 2006 the deferred tax liabilities in the ary 01, 2006, are attributable to tax deductions if they are

158 MOSENERGO 2007 Annual Report

settled by the Company before January 01, 2008. The out- vestbank (LLC) (RUR 11,600 thousand, see Paragraph 4 standing amount of the tax after January 01, 208, is subject Section III of the present explanatory note). for deduction in the first taxable period of the year 2008. On April 2, 2007, under the decision of the Arbitration As of December 31, 2007, Item 625 “Other accounts pay- Court of the city of Moscow the amicable settlement able” of the Balance Sheet includes the deferred VAT on agreement between MOSENERGO and other parties was outstanding sales proceeds in the amount RUR 218,749 concluded, in accordance with which MOSENERGO share thousand (as of January 01, 2007 – RUR 273,862 thou- was acknowledged as equal to 72,44% in the Charter cap- sand). ital stock of CB Transport Investment Bank (LLC) in the amount RUR 50,000 thousand. 15. Other accounts payable On April 26, 2007 participants of CB Transport Invest- Item 621 of the Balance Sheet includes liabilities of the ment Bank (LLC) adopted a decision about introduction of Company to suppliers and contractors. The amount of li- changes in the Articles of Association and Memorandum abilities made RUR 7,273,111,thousand as of 31.12.2007 of Association of CB Transport Investment Bank (LLC) (RUR 4,567,546 thousand as of 31.12.2006). Growth of li- (Minutes No. 3/2007-61 dated April 26, 2007). Changes abilities occurred by items: capital construction and other in the constituent documents of CB Transport Investment suppliers and contractors. Bank (LLC) were registered in the Federal Tax Service In- spectorate of Moscow on July 25, 2007. For all third par- Salaries payable made RUR 294,417 thousand as of ties MOSENERGO is acknowledged as holder of 72,44% 31.12.2007 (RUR 215,424 thousand as of 31.12.2006). in the Charter capital stock of CB Transport Investment Liabilities to state and extra-budgetary funds made RUR Bank (LLC) with the amount RUR 50,000 thousand upon 53,706 thousand as of 31.12.2007 (RUR 86,327 thousand the moment of state registration in the Federal Tax Ser- as of 31.12.2006). These liabilities are of current character vice Inspectorate of Moscow of changes in the constituent and are settled in January 2008. documents of the bank, that is from July 25, 2007.

Item 625 “Other accounts payable” of the Balance Sheet Under the decision of the Arbitration Court of the city of includes advances obtained in the amount RUR 745,534 Moscow dated 28.04.2007 four orders of enforcement of thousand as of 31.12.2007 (RUR 1,196,788,thousand as the decision of the Arbitration Court of the non-commer- of 31.12.2006). Advances are recorded less the value- cial association – Fund “Right and Economy of Fuel and added tax make RUR 113,542,thousand as of 31.12.2007 Energy Complex (TEK)” – were issued for exaction from (RUR 180,103 thousand as of 31.12.2006). MOSENERGO of RUR 956,623 thousand in favour of four legal entities as a compensation of a market value of their 16. Deferred revenues shares in CB Transport Investment Bank (LLC) returned to MOSENERGO as a restitution by invalid transactions. MOS The deferred revenues in Item 640 of the Balance Sheet ENERGO filed an application in the Arbitration Court of the “Deferred Revenues” account: city of Moscow on 26.02.2008 about retrial due to newly 1. Special purpose funding obtained from the government discovered circumstances of the decision of the Arbitration of Moscow in the amount RUR 523,461 thousand as of Court of the city of Moscow dated 28.04.2007 about the is- 31.12.2007 and 31.12.2006. The facilities are granted sue of the orders of enforcement to contest the judicial acts on a gratuitous basis for construction of certain objects. under which MOSENERGO is to pay RUR 956,623 thousand. 2. Subsidy grants received by the Company from the Mos- In addition to this application, MOSENERGO plans to con- cow budget for compensation of losses connected with test the above stated judicial acts by other ways. application of state regulated prices for heating energy consumed by population. The balance of subsidy 18. Expenditures related to Ordinary grants by this Item made RUR 109,384 thousand as of Types of Activity 31.12.2007 (RUR 0 as of 31.12.2006). The prime cost of sold goods, products, works, services 17. Other short-term liabilities (total by lines 020, 030, 040 of the blank No. 2) correlates with the total amount of expenses recorded in Item 760 Short-term liabilities include the amount awarded pursu- “Expenses by ordinary types of activity” of Blank 5 “Appen- ant to decisions of the Arbitration Court dated 07.12.2006 dix to Balance Sheet” as it’s disclosed in the correspond- and 15.01.2007 wrt participants of CB Transport Invest- ing section of Blank 5. ment Bank (LLC) (RUR 956,623 thousand) less the amount of the restored amount of MOSENERGO in CB Transin-

159 Financial statement

19.Other revenues and expenditures RUR’000 2007 2006 Parameter Revenues Expenditures Revenues Expenditures

Financial investments movement, including bills of 17,038,414 17,038,414 292 291 exchange of third parties

Sale of accounts receivable 22,957 26,538 460,927 488,887 Sale and purchase of foreign currency 221 3,830 – 4,328 Sale of other assets 154,010 126,528 161,001 151,526 Alteration of a provision for doubtful debts, total 1,065,979 1,579,218 1,300,857 1,149,489 Including the replacement provision for doubtful 34,539 – 34,994 – debts (on payment of liabilities) Alteration of a provision for devaluation of financial 4,759 – – 5,403 investments Other taxes – 57,844 – 70,639 VAT at the cost of profit – 169,861 – 277,976 Tax on dividends – 10,919 – 2,207 Social costs – 878,080 – 535,581 Other revenues and expenditures disclosed in De- coding of separate income and losses of Income 396,249 1,387,341 349,002 515,355 and Loss Statement Bank services – 184,775 – 147,783 Sponsor support, charity expenditures – 36,670 – 65,169 Dismantling costs – 56,722 – 40,777 Others 329,647 472,672 57,145 367,150 Total 19,046,775 22,029,412 2,329,224 3,822,561 Other revenues/expenditures

Revenues and expenditures connected with build-up of a The major item of the government aid is receipt of sub- provision for doubtful debts as of December 31, 2006, and sidies from the budget of Moscow for recovery of losses December 31, 2007, are recorded in statements of the connected with application of government-regulated Company in a contracted form with the exclusion of the prices for heating energy consumed by population. The provision restored within a reporting period for obligations amount of subsidies made RUR 382,958 thousand in 2007 by debts discharged by debtors, under which the provi- (in 2006 the Company didn’t receive government aid). sion was created earlier. Government aid also included the facilities from the Mos- cow region for funding of agriculture in the amount RUR 20. Government aid 15,899 thousand in 2007 (RUR 21,414 thousand in 2006). The total amount of government facilities received by the Company in 2007 made RUR 400,258,thousand (RUR The balance of special purpose funding from government 22,714 thousand in 2006). The total amount of govern- aid makes RUR 109,384 thousand as of December 31, ment aid rendered to the Company in 2007 made RUR 2007 (as of December 31, 2006, there was no unused bal- 398,857,thousand (RUR 21,414,thousand in 2006). ance of special purpose government funding).

160 MOSENERGO 2007 Annual Report

21. Affiliated and dependent companies 22. Affiliated entities

Information about affiliated and dependent companies is Affiliated natural persons of the Company as of 31.12.2007 submitted in Appendices 1 and 2 to the present Explana- are members of the Board of Directors and members of tory Notes respectively. the Executive Board information by which is represented in section “General Information” of the Explanatory Note as well as in the following table:

Organizational and legal form No. Grounds for Affiliation (control or significant control) Organization Name

The entity has control over more than 20% of voting shares of the Company 1. OAO Gazprom The entity belongs to a group of entities owning MOSENERGO 2. Moscow represented by the Prop- The entity has control over more than 20% of voting shares of the Company erty Department of Moscow 3. AOZT Mosenergo-Finans B.V. MOSENERGO controls more than 20% of the total amount of votes attributable to shares (contributions, interests) that make up the Charter capital stock of this entity 4. Energoinvest-ME, MOSENERGO controls more than 20% of the total amount of votes a closed joint-stock company attributable to shares (contributions, interests) that make up the Charter capital stock of this entity Energoconsult, MOSENERGO controls more than 20% of the total amount of votes 5. a closed joint-stock company attributable to shares (contributions, interests) that make up the Charter capital stock of this entity 6. Transport Investment Bank, MOSENERGO controls more than 20% of the total amount of votes Commercial Bank (a limited attributable to shares (contributions, interests) that make up the Charter liability company) capital stock of this person. The entity belongs to a group of entities, to which MOSENERGO belongs

7. Seba-Energo Joint Venture, MOSENERGO controls more than 20% of the total amount of votes a limited liability company attributable to shares (contributions, interests) that make up the Charter capital stock of this entity 8. Electroinvest-ME, a closed joint The entity belongs to a group of entities, to which MOSENERGO stock company belongs 9. Lizinginvest-ME, a limited liability The entity belongs to a group of entities, to which MOSENERGO company belongs 10. Shatura Peat Digging Industrial MOSENERGO controls more than 20% of the total amount of votes Association, an open joint-stock attributable to shares (contributions, interests) that make up the Charter company capital stock (share capital) of this entity 11. INTEKO GRUPP, a limited liability The entity belongs to a group of entities, to which MOSENERGO belongs company 12. Pavlovskiy energosbyt, a limited The entity belongs to a group of entities, to which MOSENERGO belongs liability company 13. MEGA, a limited liability company The entity belongs to a group of entities, to which MOSENERGO belongs

14. Teploenereticheskaya MOSENERGO controls more than 20% of the total amount of votes Kompania of MOSENERGO, attributable to shares (contributions, interests) that make up the Charter an open joint stock company capital stock of this entity. The entity belongs to a group of entities, to which MOSENERGO belongs

161 Financial statement

Sales of products to affiliated entities were carried out on standard commercial conditions at market prices with the exclusion of prices for goods and service subject for tariff legislation-regulated prices. Purchases of products to affiliated persons were carried out on standard commercial conditions at market prices with the exclusion of prices for goods and service subject for tariff legislation-regulated prices.

Transactions with companies of the Gazprom Group As of 31.12.2007 the Company is a member of Gazprom Group that includes OAO “Gazprom” and its affiliated companies (as of 31.12.2006 – the Company was a member of Group of RAO UES of Russia).

In the reporting period the Company rendered services of The following organizations of Gazprom Group rendered lease of property, communication services and realized services of supply of product (gas) as well as other ser- bills of exchanges to the following organizations of Gaz- vices to the Company: prom Group:

RUR’000 RUR’000 Sales proceeds Organizational Cost of received goods, (VAT, excise and export fees Organizational works and services and legal form excluded) Organization Name and legal form (VAT, excise and export fees 2007 2006 Organization Name excluded) OAO Gazprombank 17,621,012 221,571 2007 2006 including HY II of 2007 17,402,465 – OAO Gazpromregiongaz 858,161 759,656 OAO Gazavtomatika 641 595 including HY II of 2007 264 – including HY II of 2007 – – ZAO AKB Sovfintrade 36 248 OAO NTV-PLUS 317 171 including HY II of 2007 – – including HY II of 2007 177 – OAO AK Sibur 2,202 2,172 including HY II of 2007 959 – OAO Gazprombank – 16,024 Total: 17,623,891 224,586 Total: 858,478 775,851

As of December 31 liabilities of the Company by settlements with organizations of Gazprom Group made: RUR’000 Organizational and legal form Accounts receivable Accounts payable Organization Name 2007 2006 2007 2006 OAO Gazprombank 52,147 721 3,855 350 OAO NTV-PLUS 120 75 – – OAO Sibur 73 – – 651 OAO Gazavtomatika 57 – – 31 OAO Sovfintrade 17 – – – OAO Gazprom 13 – – – OAO Gazpromregiongaz – – 45,709 45,359 OAO Mezhregiongaz – – – 465,302 Total: 52,427 796 49,564 511,693

162 MOSENERGO 2007 Annual Report

Operations with other affiliated entities

Sales of Products to Affiliated entities — to the enterprises of the RAO UES of Russia Group and other affillated entities

The following affiliated entities received services from the Company in the accounting year: RUR’000 Sales proceeds ((VAT, No. Organizational and legal form Type of transactions excise and export fees Organization Name excluded) 2007 2006 1. ОАО Mosenergosbyt Electricity (power) through the New Wholesale Electricity (Power) Market 31,229,039 26,932,702 (NOREM), lease 2. ОАО Moscow Heat Distribution Compensation for losses within grids, Company lease, other realization goods, 2,501,350 2,494,835 works, services Electricity (power) through 3. ОАО Zagorskaya PSP 609,375 1,001,098 NOREM, lease ОАО Daghestan Energy Distribution 4. Electricity (power) through the NOREM 463,223 20,328 Company OAO Moscow Municipal Power-Line 5. Lease, other realization 457,565 42,963 Company ОАО Moscow Integrated Electricity 6. Lease, other realization 295,007 1,548,111 Distribution Company 7. ОАО Ulyanovskenergo Electricity (power) through the NOREM 269,214 98,653 8. ОАО Nurenergo Electricity (power) through the NOREM 178,744 37,157 9. OAO SO CDU UES Lease, other realization 84,309 97,951 10. ОАО OGK-1 Other realization 47,089 46,045 11. ОАО Kalmenergosbyt Electricity (power) through the NOREM 39,894 12,875 12. ОАО Ingushenergo Electricity (power) through the NOREM 37,955 23,375 13. OAO Kabbalkenergo Electricity (power) through the NOREM 20,411 3,069 14. ОАО Karachaevo-Cherkesskenergo Electricity (power) through the NOREM 15,855 7,460 15. ОАО OGK-5 Electricity (power) through the NOREM 12,497 1,086 16. ОАО Kurgan Generating Company Electricity (power) through the NOREM 4,992 – 17. ОАО OGK-2 Electricity (power) through the NOREM 4,537 5 18. ОАО TGK-1 Electricity (power) through the NOREM 3,469 138 19. ОАО OGK-4 Electricity (power) through the NOREM 3,394 13,200 20. ОАО Mosteplosetenergoremont Other realization 3,222 10,882 21. ОАО FSK UES Other realization 2,567 117,341 22. ОАО Sevkavkazenergo Electricity (power) through the NOREM 2,381 11,021 23. ОАО Dzerzhinskaya TEP Electricity (power) through the NOREM 1,620 – 24. ОАО TGK-9 Electricity (power) through the NOREM 1,590 65 25. ОАО Severozapadnaya TEP Electricity (power) through the NOREM 1,383 – ОАО Nizhegorodskaya Generating 26. Electricity (power) through the NOREM 1,132 183 Company 27. OAO Smolensk Repair Company Other realization 1,080 –

163 Financial statement

RUR’000 Sales proceeds Organizational and legal form (VAT, excise and export No. Type of transactions Organization Name fees excluded) 2007 2006 28. ОАО Smolenskenergosbyt Electricity (power) in a free sector – 132,257

29. ОАО Kirovenergosbyt Electricity (power) through the NOREM – 129,043 ОАО Udmurtskaya Heat Distribution 30. Electricity (power) in a free sector – 105,470 Company ОАО Belgorodskaya Heat Distribu- 31. Electricity (power) through the NOREM tion Company – 59,607 ОАО Tulskaya Heat Distribution 32. Electricity (power) through the NOREM Company – 58,072 ОАО Bryansk Heat Distribution 33. Electricity (power) through the NOREM Company – 36,338 Other realization of goods, services and 34. ОАО FSK UES – 10,608 works Transport Investment Bank, Com- 35. mercial Bank (a limited liability Lease, other realization – 6,495 company) ОАО Chuvashskaya Heat Distribu- 36. Electricity (power) through the NOREM tion Company – 1,074 37. Others 6,215 25,908 Total: 36,299,109 33,085,415

MOSENERGO conducts no transactions beyond the set regulated tariffs (their upper levels), if any, as well as complies with the Wholesale Market Rules and Regulation No. 109 “On Pricing of Electric and Heat Energy in the Russian Federation” issued on February 26, 2004 by the Govern- ment of the Russian Federation.

In addition, in 2007, MOSENERGO sold electrical power in the “day-ahead market” and the “balancing market” to the amount of RUR 5,360,655 thousand and the capacity in the amount RUR 6,725 thousand. Most of these sales were effected to RAO UES of Russia intercompany buyers at prices determined through competition-based selection of price bids offered by buyers and suppliers in accordance with Resolution No. “On Rules in the Wholesale Electricity (Power) Market in Transition” issued on October 24, 2003, by the Government of the Russian Federation.

164 MOSENERGO 2007 Annual Report

Purchases from Affiliated entities – the enterprises of the RAO UES of Russia Group and other affiliated entities

The following affiliated entities provided service (including performance of works and deliveries) to the Company in the accounting year: RUR’000 Sales proceeds ((VAT, Organizational and legal form excise and export fees No. Type of transactions Organization Name excluded) 2007 2006 ОАО Moscow Heat Distribution 1. Heat energy transmission services 12,737,637 13,402,664 Company Transport Investment Bank, Com- Cash-settlement services, other 2. mercial Bank (a limited liability 171,129 141,519 banking services company) 3. ОАО UES Engineering center Services 26,097 - Property lease, other purchase of 4. ОАО Mosenergosbyt 1,946 121,012 goods, works, services 5. OAO Zagorskaya PSP Lease of property 1,833 - Operational dispatch management 6. ОАО SO-CDU UES - 606,541 services

Purchase of electrical power through 7. RAO UES of Russia - 27,313 the WEM, subscription fee (2005)

Other purchase of goods, works, 8. ZAO Energoinvest-ME - 438 services Other purchase of goods, works, 9. ОАО Shaturtorf - 7 services Total: 12,938,642 14,299,888

Heat energy transmission services were purchased from ОАО Moscow Heat Distribution Company at the tariffs approved by Resolution No. 51 issued on December 11, 2006 by the REC of Moscow and Minutes No. 16 issued on December 22, 2006 by the Board of the Moscow Region Energy Committee. Others purchases from affiliated entities were based on regular commercial terms and conditions.

165 Financial statement

Settlements with Affiliated entities – the enterprises of the RAO UES of Russia Group and other affiliated entities

As of December 31, 2006, arrears of the affiliated entities to the Company are as follows: RUR’000 Organizational and legal form Accounts receivable Accounts payable Organization Name 2006 2007 2006 2007 Enterprises of the RAO UES of Russia Group ОАО Moscow Heat Distribution Company 410,193 1,257,212 957,076 2,215,482 ОАО Daghestan Energy Distribution Company 23,246 348,626 – – ОАО Nurenergo 39,566 242,674 – – ОАО Moscow Integrated Electricity Distribution Company 236,693 101,192 32,248 12,953 ОАО Ingushenergo 26,092 68,328 – – ОАО Mosenergosbyt 165,136 21,854 116,506 8,575 OAO Moscow City Electricity Distribution Company 47,895 12,948 2,007 1,995 ОАО OGK-4 13,499 6,846 329 51 ОАО OGK-1 17,871 5,159 2,121 – ОАО UES Engineering center – 4,236 37,324 26,952 ОАО OGK-5 6,109 2,621 – – ОАО OGK-6 1,258 2,412 – – ОАО Mosenergosetstroy 2,857 1,721 8,128 – ОАО FSK UES 30,596 884 – 59 ОАО Zagorskaya PSP 8,173 659 470 0 ОАО SO-CDU UES 7,096 368 0 125 Energy-construction complex of UES – – 8,643 13,565 ОАО Mosteplosetenergoremont 5,453 – 427 311 ОАО Ulyanovskenergo 11,459 – – 70 ОАО Kalmenergosbyt 12,542 – – – Others 1,391 2,445 4,138 100 Total by enterprises of the RAO UES of Russia Group 1,067,125 2,080,185 1,169,417 2,280,238 Other affiliated entities Teploenereticheskaya Kompania of MOSENERGO, an open joint stock company – 50,000 25,000 – Transport Investment Bank, Commercial Bank (a limited liability company) 13,252 12,425 23,579 – ZAO Energoinvest-ME 2,249 2,249 – – ООО Shaturotorf 1,713 1,713 – – ООО Seba-Energo 521 521 – – AOZT Mosenergo-Finans B.V. 118 118 – – ООО Energy-production Enterprise EPA 153 – – – ООО Leasinginvest-ME 56 – – – ZAO Energoconsult 5 5 – – ООО PF Ergomax 1 – – – ОАО Mosenergosetstroy – – 8,128 – Total by other affiliated entities 18,068 67,031 56,707 –

166 MOSENERGO 2007 Annual Report

Due to registration of property rights for shares of MOS Data on Remunerations Paid to the Board of Di- ENERGO by the Government of Moscow represented by rectors and the Executive Board Property Department as of December 28, 2007, information on settlements with companies of the city is submitted In 2007, the aggregate amount of remunerations, allow- as of December 31, 2007. ances and compensations of expenses to all executive RUR’000 bodies totals: Accounts re- Accounts Salaries (RUR): 43,180,245 Organizational and legal ceivable as of payable as of Bonus payments (RUR): 114,830,084 form Organization Name 31.12.2007 31.12.2007 Other pecuniary payments (RUR): 24,497,957 Total (RUR): 182,508,286 ОАО Moscow Integrated Energy Company 1,530,734 – ОАО Olympic Complex 22. Contingent factors of economic Luzhniki 1,728 – activities ОАО DekMos 1,664 – Taxation ZAO Mospromstroy 1,549 – Others 5,689 3,586 The Russian tax, currency and customs legislation allows for Total: 1,541,364 3,586 different interpretation and is subject to frequent changes. The executive bodies of the Company accept that with relation to some transactions executed in the reporting Remuneration to members of Executive bodies period and previous accounting period disputes with controlling bodies in the future are possible and might lead Remuneration to Director General will be determined by to change of the results of the economic activities of the Provision on incentive to Director General of MOSENERGO Company. Pursuant to Paragraph 24 of Provision of ac- approved by the Board of Directors of the Company. counting “Contingent factors of economic activities” PBU 8/01 similar information about such transactions is not In 2007 financial year remunerations and compensations disclosed. Recent events that occurred in the Russian to members of the Board of Directors were paid in accor- Federation certify that the tax authorities might have a dance with Provision about payment to members of the stricter position in interpretation of the legislation and in- Board of Directors of remunerations and compensations spection of tax settlements and might dispute operations approved by the Annual General Shareholder Meeting of and activities that earlier were not subject to contesta- MOSENERGO. tion. As a result, significant additional amounts might be imposed in the form of penalties, surcharges and default Pursuant to Provisions on Executive Board of MOSENER- interests. Moreover, tax inspections might cover three cal- GO approved by the Annual General Shareholders Meeting endar years of the activities that come before the year of of the Company the Company concludes with members of inspection. Under certain circumstances still earlier peri- the Executive Board a labor agreement. ods might be subject for inspection.

Conditions of the labour agreement that concern term According to the executives of the Company, as of De- of office and remunerations and compensations paid to cember 31, 2007 corresponding provisions of the legisla- members of the Executive Board are determined by the tion are interpreted by them correctly and the state of the Board of Directors of the Company. Company from the point of view of compliance with tax, currency and customs legislation will be stable. The amount of remuneration to members of the Executive Board is determined by decision of the Board of Directors In the period from 03.06.2004 to 08.09.2005 the Inter- in shares wrt salary, established by them. regional Inspectorate of Federal Tax Service of Russia by largest tax-payers No. 4 (hereafter – MRI FNS RF by KN 4) The amount and the order of payment of all remunerations conducted an on-site tax inspection of MOSENERGO for and compensations to members of the Audit Commission compliance with the legislation on tax and collections in of the Company in 2007 is determined by “Provision about the period from 01.01.2002 to 31.12.2003. The results payment to members of the Audit Commission of MOS of inspection of MOSENERGO allowed MRI FNS RF by ENERGO of remunerations and compensations” adopted by KN 4 adopting a decision No.15/14 dated 13.12.2006 the Annual General Shareholder Meeting of the Company as about tax responsibility for tax legislation violation. of May 30, 2002.

167 Financial statement

The total amount of additional accruals under this deci- In the period from 21.05.2007 to 06.07.2007 MRI FNS sion amounts to RUR 1,273,192 thousand. The major RF by KN 4 conducted an on-site tax inspection of MOS- share of these additional accruals belongs to additional ENERGO for compliance with the legislation on tax and accrual of the income tax due to applicable order of ac- collections in the period from 01.01.2004 to 31.12.2005. counting of electrical energy losses and re-calculation Following the results of inspection MOSENERGO received of the depreciation for the year 2002 based on he re- on February 07, 2008 a Decision of MRI FNS RF by KN 4 placement value of fixed assets as of 01.01.2002, calcu- No. 02-1-23/001 dated 09.01.2008 about bringing to tax lated without due account of 30% limitation established responsibility for tax legislation violation. The total amount by the Federal Law “On Introduction of Amendments of additional accruals by taxes by this Decision makes and Supplements in Part II of the Tax Code of the RF and RUR 574,200 thousand, RUR 571,808 thousand out them some other acts of the RF legislation” dated 24.07.2002 is accrual of income tax for the year 2004 due to the appli- No. 110-ФЗ. cable order of accounting of electrical energy losses.

Currently MOSENERGO is contesting this decision in a ju- MOSENERGO filed a cassation appeal of this Decision in dicial procedure. the superior tax authorities (Federal Tax Service of Rus- sia) that is at present is not yet processed. Thus, as of the Under the Decision of the Arbitration Court of the city of moment of approval of the present financial (accounting) Moscow dated 20.03.2007 claims of MOSENERGO were statements Decision is not in force. partially satisfied in the total amount RUR 68,068 thousand. As the result of a consideration of an appeal peti- On the basis of calculations of an independent expert action filed by MOSENERGO, the Decision of the Arbitration credited in the Ministry of Industry and Energy of Russia Court of the city of Moscow dated 20.03.2007 was left un- the latter approved a normative of technological losses of changed by the Decision of 9th Arbitration Appeals Court electric energy losses for MOSENERGO for the year 2004. dated 26.06.2007. By assessment of MOSENERGO the amount of potential additional accrual of the income tax for the year 2004 based In September 2007 processing of the cassation appeal on the loss normative approved by the Ministry of Industry of MOSENERGO was carried out in the FAS of the Mos- and Energy of Russia makes RUR 102,567 thousand. cow region that resolved on 05.10.2007 to enforce Deci- sion of the Arbitration Court of the city of Moscow dated In addition to this, according to the opinion of the com- 20.03.2007 and Decision of the Arbitration Appeals Court mission in the Ministry of Industry and Energy of Russia dated 26.06.2007 concerning the satisfaction of demands other losses conditioned by a number of objective rea- of MOSENERGO. In respect of other issues (the order of sons might occur on transmission of the electric energy by accounting losses of electric energy) the matter was sub- networks in addition to technological losses (in particular, mitted for a new processing. not timely metering of measuring devices of commercial accounting of electric energy). Decision MRI FNS RF by Reduction of the income tax in the result of the above- KN No. 4 does not take these factors into account. stated recalculation of fixed assets was not reflected in the Balance Sheet of MOSENERGO and all consequent Issued guarantees payments by the income tax were carried out without due account of the overpayment by income tax. Thus, addi- As of December 31, 2007, the Company issued guaran- tional accrual of the income tax by results of the on-site tees for third persons in the total amount RUR 344,638 tax inspection relating to re-calculation of fixed assets de- thousand. The analogous value as of December 31, 2006, preciation will not alter the financial result of MOSENERGO made RUR 212,737 thousand. Executives of the Company of the current reporting period as well as of subsequent do not expect any significant liabilities due to these guar- accounting periods. antees.

In 2007, MOSENERGO secured a conclusion of an inde- Judicial proceedings pendent commission of the Ministry of Industry and Energy of Russia with relation to amount of technological losses The Company is the defendant in a number of arbitration of electric energy and their components. Executives of proceedings, including the ones with tax authorities. But MOSENERGO believe that this conclusion will be taken according to the opinion of the Company executives re- into consideration in subsequent judicial proceedings and sults of these processes will not have significant influence will be reflected in court decisions. on the financial position of the Company.

168 MOSENERGO 2007 Annual Report

23. Subsequent Events conducted with involvement of an independent evaluator Ernst & Young – Joint Consulting, Limited. Reorganization The Board of Directors of the Company resolved to revalu- The Extraordinary Meeting of shareholders of MOSENER- ate a group of fixed assets “Substations, auto-transform- GO was held on December 28, 2007. The decision about ers, transformers, switches, overload limiters, disconnect reorganization of MOSENERGO by means of consolidation switches, arrestors, reactors, synchronous compensators, with OAO “MOSENERGO Holding” created through re-or- HF stoppers, equipment ORU, RUSN, OUT and so on”, ganization of RAO UES of Russia in the form of separation “Pumps, compressors, ventilation equipment, electric en- was adopted at the shareholder meeting. Reorganization gines, equipment of chemical water treatment and fuel of MOSENERGO scheduled in the form of consolidation supply, diesel fuel generators” and “Construction equip- with OAO “MOSENERGO Holding” is expected to be com- ment, loading mechanisms, special purpose transport” as pleted by July 01, 2008. of January 1, 2008. The revaluation entails a substantial increase in present (replacement) value of fixed assets The Company shareholders voting AGAINST the reorgani- and their value in book records and reports. The results zation of MOSENERGO or failing to participate in voting of the revaluation will be reflected in full in the Company’s have the right to present claims about buy-out of shares accounting report for 2008. belonging to them within 45 days upon the adoption of the decision about reorganization of the Company (upon Due to the fact that currently the revaluation is not com- holding of the General Shareholder Meeting on the above- pleted the Company has no possibility to assess conse- stated issue), that is from December 28, 2007 till February quences of revaluation in money terms with sufficient reli- 12, 2008. As of February 12, 2008, 156,101,884 shares ability. were submitted for buy-out for the total amount RUR 969,392,699 kopecks 64.

The Company notified creditors, including holders of bills of exchange about the adopted decision within 30 days upon adoption of the decision on reorganization, and namely, till January, 28, 2008. Notification of creditors of MOSENERGO was done through a corresponding publication of an announcement and dispatch of notifications within the period from January 23 to 28, 2008. Credi- tors of the Company have the right to present the claim on early execution of liabilities by the Company within 30 days upon dispatch of notifications to them. Thus, the ending date for MOSENERGO creditors to submit claims is February 28, 2008.

Dividends

General Meeting of shareholders will approve in May 2008 the amount of annual dividend per share. The Board of Di- rectors of the Company is to meet in April 2008 to consider the amount of a dividend for 2007 to be recommended for approval to the General Meeting of shareholders.

Revaluation

The Board of Directors of the Company resolved, by Reso lution No. 18 dated January 28, 2008 to revaluate three groups of fixed assets that were not revaluated as of Janu- ary 01, 2008 and of January 01, 2008, with the purpose of determining the current (replacement) value of fixed assets owned by the Company. The revaluation will be

169 Financial statement

Appendix 1. Largest affiliate companies of MOSENERGO

Participation Participation Net assets as of Net profit as of Organizational and legal form, Participation income in share as of shares as of Place of location Type of activities 31.12.2007, 2007, Name of Organization 2006, RUR’000 31.12.2007, % 31.12.2006, % RUR’000 RUR’000

29-33, bld. А, Energoinvest-ME, a closed joint-stock 90.00 90.00 Valovaya str., Brokerage services 2,434 167 - company (ZAO Energoinvest ME) Moscow, 113054

Supply (sales) of heat energy; purchase Teploenereticheskaya Kompania of MO- of heat energy; distribution and trans- 10, Ryazanskiy pros- SENERGO, an open joint stock company 100.00 0.00 mission of heat energy; calculation and (see Note 1) (see Note 1) - pect, Moscow 109428 (OAO TEK MOSENERGO) reservation of heat capacities to consumers of heating energy

Energoconsult, a closed joint stock com- 1/4, Montazhnaya str., Consulting services and others 100.00 100.00 (see Note 2) (see Note 2) - pany, (ZAO Energoconsalt) Moscow, 107497 (see Note 2)

45, Airt van Nessart, AOZT Mosenergo-Finans B.V (company 100.00 100.00 3012 СА Rotterdam, Financial transactions (see Note 2) (see Note 2) (see Note 2) - duly registered under the laws of Holland) the Netherlands

Energy-production Enterprise EPA, a 5, bld. 9, Tourism, dental business limited liability company (OOO Energy and 0.00 99.92 Golyanovskaya str., (see Note 3) (see Note 3) - (see Note 3) Industrial Enterprise EPA) Moscow, 105094

The following changes in the participation shares of the Note 1 Company occurred through the year 2007: Term of accounting statements delivery for OAO TEK MOS- • a participation share in OAO TEK MOSENERGO ap- ENERGO has not come. peared due to adoption by MOSENERGO on 23.11.2007 of the sole founder decision No. 1 about establishment Note 2 of this company as a result of shares placement by Affiliated companies of MOSENERGO – ZAO Energocon- means of their acquisition by the sole founder on estab- sult, AOZT Mosenergo-Finance B.V. – are not engaged lishment of the joint stock company. The participation in economic activities and do not submit financial state- share made 100%; ments. The company AOZT Mosenergo-Finans B.V. is to • a participation share in Energy-production Enterprise be liquidated. EPA, LLC reduced due to write-off of financial contribution by 99.92%. RUR 153,375 thousand are written off Note 3 the balance. Energy-production Enterprise EPA, LLC is not engaged in economic activities and does not submit financial statements. The given contribution is written off.

170 MOSENERGO 2007 Annual Report

Appendix 1. Largest affiliate companies of MOSENERGO

29-33, bld. А, Energoinvest-ME, a closed joint-stock 90.00 90.00 Valovaya str., Brokerage services 2,434 167 - company (ZAO Energoinvest ME) Moscow, 113054

Energoconsult, a closed joint stock com- 1/4, Montazhnaya str., Consulting services and others 100.00 100.00 (see Note 2) (see Note 2) - pany, (ZAO Energoconsalt) Moscow, 107497 (see Note 2)

171 Financial statement

Appendix 2. Largest dependent companies of MOSENERGO

Net assets as of Net profit as of Organizational and legal form, Participation share Participation shares Participation income in Place of location Type of activities 31.12.2007, 2007, Name of Organization as of 31.12.2007, % as of 31.12.2006, % 2006, RUR’000 RUR’000 RUR’000

Transport Investment Bank, Commercial 18, bld.1, Sadovo- Bank, a limited liability company, 72.43909 24.61 Spasskaya str., Banking 1,549,736 230,950 120,249 (KB OOO Transport Investment Bank ) Moscow, 107078

Peat digging for energy industry purpos- Shatura Peat Digging Industrial Association, 2, Chernozersky pr-d., 118,110 (2,846) es, peat production (by its processing) an open joint-stock company, 33.99 33.99 Shatura, Moscow (as of 30.09.2007– (in 9 months 2007 – see – of agricultural products and consumer (OAO Shatura Peat Digging) Oblast, 140700 see Note 1) Note 1) goods

Design, production and assembly of 29, bld.2, constr.16, separate sets, devices and mobile 9,214 4,154 Seba-Energo, a limited liability company, 2nd Kozhukhovsky laboratories for detection of damages in 44.00 44.00 (as of 30.09.2007 – (in 9,months 2007 – see 1,058 a joint venture (OOO Seba-Energo) pr-d, Moscow, communications networks of water sup- see Note 1) Note 1) 109432 ply, heat supply, gas supply, power lines and information cables

Ergomaks Production Firm, a limited liability 1, Ostapovsky pr-d, company (ООО Ergomaks Production Firm, 0.00 24.27 Goods and Services (see Note 2) (see Note 2) - Moscow, 109316 ООО PF Ergomaks)

The following changes in the participation shares of the Company occurred through the year 2007: • a participation share in CB OOO Transport Investment Bank by decision of the Arbitration Court increased from 24.61% to 72.43909% (by 47.82909%); • a participation share in OOO PF Ergomax as a result of sale of a participation share reduced by 24.27%. Income form this operation made RUR 0.

Note 1 Information by financial indicators is submitted as of the last reporting date of the available information.

Term of accounting statements delivery for the companies has not yet come.

Note 2 Information on OOO PF Ergomax is lacking due to sale of MOSENERGO of its share.

172 MOSENERGO 2007 Annual Report

Appendix 2. Largest dependent companies of MOSENERGO

173 Equipment of chemical department of TEP-26 supplying water of required quality for the technological process of power generation

174 MOSENERGO Annual Report 2007

Equipment of the chemical department of TEP-26, interior of the main building, turbine hall, steam turbine T-250 of TEP-26

175 2 5 /.

Additional Information

11.1. Information on Material Facts 11.2. Decisions Adopted at Meetings of Shareholders The year 2007 saw 67 material facts (in keeping with the 0 3 //6 classification of the Federal Financial Markets Service of the Annual General Meeting of shareholders Russian Federation). Detailed information on all material facts is available on the Company’s website1. Date and place of the General Meeting: May 15th, 2007, 3 Lenina str., the city of Dzerzhinsky, the Moscow Region. Type of the General Meeting: annual. Form of conducting of General Meeting of shareholders: meeting (co-presence of shareholders to discuss issues on the agenda and adoption of decisions with regard to the issues put for voting). General Meeting quorum: in accordance with Article 58 (P.1) of the Federal Law “On Joint-Stock Companies” General Meeting of shareholders is legally qualified (has a quorum), if shareholders possessing in the aggregate more than half of the votes (50% +1) of issued voting shares of the Company (14,175,089,988 votes) have taken part therein. At the opening of Meeting of shareholders, considering the ballots received two days before the date of Meeting of shareholders, the shareholders and their Charter representatives, possessing in the aggregate 26,469,117,069 voting shares, that is 93.4% of shareholders’ votes, having the right to participate in General Meeting of shareholders, have registered. The quorum is present. General meeting of Shareholders of the Open Joint-Stock Сompany of Energy and Electrification was declared legally qualified.

Issues put to vote and relevant voting results are as follows: 1. On Approval of the annual report, annual financial 1 4 7 accounting, including profit and loss statements of the Company. Calculation of votes from among the valid voted ballots showed the following results: “For” – 99.42% “Against” – 0.00% “Abstained” – 0.01%

1 3.3.1.

176 MOSENERGO Annual Report 2007

2. On Distribution of the Company’s profit (including dis- 4. On Election of members of the Company's Internal Audit tribution of dividends) and loss according to the results for Commission. the financial year of 2006. The shares, held by the members of the Company’s Board Calculation of votes from among the valid voted ballots of Directors or by the persons, holding posts in the Company’s showed the following results: management bodies, did not participate in voting while elect- “For” – 99.42% ing the members of the Company’s Audit Commission. “Against” – 0.00% Calculation of votes from among the valid voted ballots “Abstained” – 0.00% showed the following results:

3. On Election of members of the Company’s Board of “For”, “Against”, “Abstained”, Directors. %% % The cumulative voting has been taken on this issue. 1. Belobrov Calculation of votes showed the following results: Andrey Viktorovich 99.0 0.09 0.01 1. Akimov Andrey Igorevich 0.01% 2. Vasiliev 2. Aksenov Pyotr Nikolaevich 7.38% Sergey Vyacheslavovich 0.77 8.07 90.15 3. Budzulyak Bogdan Vladimirovich 7.94% 3. Zabrodin 4. Byhanov Evgeny Nikolaevich 0.00% Oleg Viktorovich 55.26 8.00 35.79 5. Gavrilenko Anatoly Anatolievich 7.94% 4. Ishutin 6. Golubev Valery Alexandrovich 7.27% Rafael Vladimirovich 98.80 0.19 0.02 7. Zagretdinov Ilias Shamilevich 0.01% 5. Klyuchnikov 8. Kopsov Anatoly Yakovlevich 8.39% Anatoly Nikolaevich 44.53 0.11 54.37 9. Kravtsov Andrey Nikolaevich 0.00% 6. Kovalyov 10. Matveyev Aleksey Anatolievich 7.27% Vitaliy Anatolievich 43.90 0.67 54.38 11. Negomedzyanov Alexander Alexandrovich 7.94% 7. Kormushkina 12. Pavlova Olga Petrovna 7.27% Ludmila Dmitrievna 54.58 8.57 35.82 13. Pichugina Mariya Nikolaevna 0.01% 8. Prostokishina 14. Poyarkov Ivan Sergeevich 0.00% Tatyana Alexandrovna 0.13 8.66 90.16 15. Remes Seppo Yuha 0.02% 9. Sidorov 16. Rumyantsev Sergey Yurievich 0.03% Sergey Borisovich 54.56 8.68 35.80 17. Skribot Wolfgang 7.27% 10. Fomichyov 18. Seleznev Kirill Gennadievich 7.27% Sergey Egorovich 43.81 0.77 54.38 19. Smirnov Pavel Stepanovich 7.94% 20. Sobol Alexander Ivanovich 0.00% 21. Udaltsov Yuriy Arkadievich 7.94% 5. On Approval of the Company's Auditor. 22. Fil Sergey Sergeevich 7.94% Calculation from among the valid voted ballots showed 23. Shtykov Dmitry Viktorovich 0.00% the following results: 24. Yatsenko Sergey Viktorovich 0.00% “For” – 63.51% «Against» all candidates 0.00% “Against” – 0.01% «Abstained» from all candidates 0.01% “Abstained” – 35.77%

177 Additional Information

6. On Introduction of amendments and supplements to the On issue 3: Company’s Charter. To elect the following members of Company’s Board of The decision on this issue is to be adopted by the three- Directors: fourths majority vote of shareholders, being the holders of vot- Kopsov Anatoly Yakovlevich ing shares of the Company and participating in General Negomedzyanov Alexander Alexandrovich Meeting of shareholders. Smirnov Pavel Stepanovich The decisions have been adopted on 30 offers concern- Budzulyak Bogdan Vladimirovich ing introduction of amendments and supplements to the Gavrilenko Anatoly Anatolievich Company’s Charter1. Udaltsov Yuriy Arkadievich The full wording of this issue is offered at the website of Fil Sergey Sergeevich MOSENERGO2. Aksenov Pyotr Nikolaevich Golubev Valery Alexandrovich 7. On Payment of remunerations and compensations to Matveyev Aleksey Anatolievich the members of the Company's Board of Directors. Pavlova Olga Petrovna Calculation of votes from among the valid voted ballots Seleznev Kirill Gennadievich showed the following results: Skribot Wolfgang “For” – 99.24% “Against” – 0.04% On issue 4: “Abstained” – 0.03% To elect the following members of the Company’s Audit Commission: 8. On Payment of remunerations and compensations to Belobrov Andrey Viktorovich the members of Company’s Internal Audit Commission. Ishutin Rafael Vladimirovich Calculation of votes from among the valid voted ballots Zabrodin Oleg Viktorovich showed the following results: Kormushkina Lyudmila Dmitrievna “For” – 99.25% Sidorov Sergey Borisovich “Against” – 0.04% “Abstained” – 0.02% On issue 5: To approve ZAO PricewaterhouseCoopers Audit as the Wording of the decisions adopted by Annual General Company’s Auditor. Meeting of shareholders On issue 6: On issue 1: To introduce amendments and supplements to the fol- To approve the annual report, annual financial accounting, lowing articles of the Company’s Charter1: 5, 6, 10, 13, 14, including profit and loss statements of the Company. 15 and 18. The full wording of the decision, adopted on issue 6, is On issue 2: offered at the Company’s website2. 1. To approve the following distribution of the Company's profit (loss) according to the results for the financial year of On issue 7: 2006, thousand RUR: To pay remunerations and compensations to the mem- Undistributed profit (loss) bers of the Company’s Board of Directors according to the for the accounting period 1,523,725 results of the year in compliance with the Regulation on Reserve fund 76,186 Payment of Remunerations and Compensations to the Accumulation fund 847,539 Members of the Board of Directors of MOSENERGO, approved including investments in 2006 159,027 by Annual General Meeting of shareholders on May 26, 2006. including investments in 2007 688,512 Dividends 600,000 On issue 8: Cover for losses of the past years – To pay remunerations and compensations to the members of the Company’s Audit Commission according to the 2. To pay dividends on the Company’s ordinary shares results of the year in compliance with the Regulation on according to the results for the year 2006 in the amount of Payment of Remunerations and Compensations to the RUR 0.02116389 per one ordinary share of the Company in Members of Audit Commission of MOSENERGO, approved cash within 60 days from the date the decision regarding pay- by Annual General Meeting of shareholders on May 30, 2002. ment of dividends has been adopted.

1 1.4. 2 3.3.4.

178 MOSENERGO Annual Report 2007

Extraordinary General Meeting Extraordinary General Meeting of Shareholders of Shareholders

Date and place of General Meeting: The last day of Date and place of General Meeting: The last day of acceptance of the filled-in voting ballots is June 22nd, 2007. acceptance of the filled-in voting ballots is December 28th, The mailing addresses, at which the filled-in voting ballots were 2007. The mailing addresses, at which the filled-in voting bal- sent to are as follows: 8 Raushskaya Naberezhnaya, Moscow, lots were sent to are as follows: 8 Raushskaya Naberezhnaya, 115035, MOSENERGO; 15 Sadovnicheskaya Street, Moscow, Moscow, 115035, MOSENERGO; 15 Sadovnicheskaya Street, 115035, ZAO Register-Service Specialized Registrar. Moscow, 115035, ZAO Register-Service Specialized Registrar. Type of General Meeting: extraordinary. Type of General Meeting: extraordinary. Form of General Meeting: absentee voting. Form of General Meeting of shareholders: absentee General Meeting quorum: in accordance with Article 58 voting. (P.1) of the Federal Law «On Joint-Stock Companies», General General Meeting quorum: according to Article 58 (P.1) Meeting of shareholders is legally qualified (has a quorum), if of the Federal Law «On Joint-Stock Companies», General shareholders possessing in the aggregate more than half of Meeting of shareholders is legally qualified (has a quorum), if the votes (50% +1) of issued voting shares of the Company shareholders possessing in the aggregate more than half of have taken part therein. Number of votes, possessed the votes (50% +1) of issued voting shares of the Company by the persons included into the list of persons, having the (19,874,679,851 votes) have taken part therein. The share- right to participate in General Meeting of shareholders, is holders and their Charter representatives possessing in the 28,377,925,270 votes. Number of votes, possessed by the per- aggregate 34,308,980,154 voting shares, that is 86.31% of the sons who took part in General Meeting on the issue on the agen- votes of shareholders, having the right to participate in General da, is 16,493,556,603 votes, that is 58.12% of the total amount Meeting of shareholders, registered at the Meeting. Quorum of voting shares of the Company. Quorum is present. is present. General Meeting of shareholders of the Open Joint-Stock General Meeting of shareholders of the Open Joint-Stock Company of Energy and Electrification MOSENERGO was Company of Energy and Electrification MOSENERGO was declared legally qualified. declared legally qualified.

The issues put to vote and relevant voting results are Issues put to vote and relevant voting results are as as follows: follows: 1. On Payment (declaration) of dividends of the Company 1. On reorganization of MOSENERGO in the form of affil- according to the results for the first quarter of 2007. iation of OAO “MOSENEGRO Holding”, being established as Calculation of votes from among the valid voted ballots a result of reorganization of RAO UES of Russia in the form showed the following results: of segregation, as well as on approval of the Affiliation “For” – 99.97% Agreement. “Against” – 0.006% Calculation of votes from among the valid voted ballots “Abstained” – 0.002% showed the following results: “For” – 99.985% Wording of the decisions, adopted by General Meeting: “Against” – 0.005% On issue 1: “Abstained” – 0.009% To pay the dividends on the Company’s ordinary shares based according to the results for the first quarter of 2007 in 2. On Determination of amount, nominal value, categories the amount of RUR 0.0104408508 per one ordinary share of (classes) of the declared shares of MOSENERGO as well as the Company in cash within 60 days from the date the deci- the rights granted by these shares. sion on payment of dividends has been adopted. Calculation of votes from among the valid voted ballots showed the following results: “For” – 99.986% “Against” – 0.006% “Abstained” – 0.008%

179 Additional Information

3. On Introduction of amendments and supplements to the share of MOSENERGO with the nominal value of 1 (one) Charter of MOSENERGO. Ruble. Calculation of votes from among the valid voted ballots 3.4. The number of the ordinary shares of MOSENERGO, showed the following results: which each shareholder of OAO “MOSENERGO Holding” “For” – 99.977% must receive, is calculated via division of the owned number “Against” – 0.004% of OAO “MOSENERGO Holding” shares of the definite cat- “Abstained” – 0.009% egory by the corresponding conversion ratio. If at determination of the calculated number of MOS - 4. On Increase of the Charter capital of MOSENERGO by ENERGO shares, which each shareholder of OAO “MOS - placement of additional shares via conversion of the affiliat- ENERGO Holding” must receive, the calculated number of ed company’s shares. shares, held by any shareholder of OAO “MOSENERGO Calculation of votes from among the valid voted ballots Holding”, will be fractional, then the fractional part of such num- showed the following results: ber of shares is subject to rounding as follows: “For” – 99.986% • if the value of the sign, following the comma, is within “Against” – 0.005% the range of 5 – 9 inclusive, then the integral number is “Abstained” – 0.008% added by one and the numbers, following the comma, are not taken into account; Wording of the decisions, adopted by Extraordinary • if the value of the sign, following the comma, is within General Meeting of shareholders: the range of 0 – 4 inclusive, then the integral number is On issue 1: taken into account only and the numbers, following the 1. To reorganize MOSENERGO in the form of affiliation of comma, are not considered; OAO “MOSENERGO Holding”, being established via reor- • if, as a result of rounding, no share is owned by any of ganization of RAO UES of Russia on terms provided for by this the shareholders, then such shareholder receives one decision and the Agreement on Affiliation of OAO “MOS - share of MOSENERGO. ENERGO Holding” to MOSENERGO. In case of issue of the additional ordinary shares of MOS - 2. To approve the Agreement on Affiliation of OAO “MOS - ENERGO, the number of the ordinary shares of MOS - ENERGO Holding” to MOSENERGO. ENERGO from among the shares, put at the disposal and/or 3. To determine the following procedure and terms of con- paid up and/or taken up by MOSENERGO, which a sharehold- version of OAO “MOSENERGO Holding” shares into MOS - er of OAO “MOSENERGO Holding” must receive, is the inte- ENERGO shares: gral part of the number, calculated by multiplication of the num- 3.1. All shares of OAO “MOSENERGO Holding”, put at the ber of the ordinary shares of MOSENERGO, which such disposal of MOSENERGO as a result of affiliation shareholder must receive in compliance with Paragraph 1 of of OAO “MOSENERGO Holding”, are converted into shares this Sub-paragraph (taking rounding into account), by the of MOSENERGO, or into taken up and/or paid up by MOS - ratio of the total amount of the ordinary shares of MOS - ENERGO, and/or into additional shares of MOSENERGO ENERGO, put at the disposal of MOSENERGO at affiliation of (if the number of shares of MOSENERGO, put at the dispos- OAO “MOS ENERGO Holding”, and/or paid up and/or taken al of MOSENERGO as a result of affiliation of OAO “MOS - up by MOSENERGO, to the total amount of the ordinary ENERGO Holding”, as well as taken up and/or paid up by shares of MOSENERGO, required for conversion of all the MOSENERGO, will be insufficient for conversion of all the ordinary and privileged shares of OAO “MOSENERGO shares of OAO “MOSENERGO Holding” in compliance with Holding”. the approved conversion ratio). The number of the ordinary shares of MOSENERGO from 3.2. In case of issue of the additional ordinary shares of among the additional shares, which a shareholder of MOSENERGO the shareholders must be granted the same OAO “MOSENERGO Holding” must receive, is determined as rights as in case of placement of ordinary shares of MOS - the difference between the number of the ordinary shares of ENERGO in compliance with the Charter of MOSENERGO MOS ENERGO, which such shareholder must receive in com- and legislation of the Russian Federation. pliance with Paragraph 1 of this Sub-paragraph (taking round- 3.3. Share conversion ratio: ing into account), and the number of shares of MOSENERGO 2.9763321903943500 of the ordinary share of from among the shares, put at the disposal and/or paid up OAO “MOSENERGO Holding” is converted into one ordinary and/or taken up by MOSENERGO, which such shareholder share of MOSENERGO with the nominal value of 1 (one) must receive. Ruble; 3.5. The shares of OAO “MOSENERGO Holding” are 3.2499805529529900 of the privileged share of declared to be converted into the ordinary shares of MOS - OAO “MOSENERGO Holding” is converted into one ordinary ENERGO on the day the entry on termination of OAO “MOS -

180 MOSENERGO Annual Report 2007

ENERGO Holding” activities, according to the data of registered share of MOSENERGO with the nominal value of OAO “MOSENERGO Holding” register of Shareholders on 1 (one) ruble; the date specified, is made in the Unified State Register of 3.2499805529529900 of the privileged registered share Legal Entities. of OAO “MOSENERGO Holding” is converted into one ordi- 3.6. The shares of OAO “MOSENERGO Holding”, subject nary registered share of MOSENERGO with the nominal val- to conversion, are paid off at converting. ue of 1 (one) ruble. The shares of OAO “MOSENERGO Holding” are declared On issue 2: to be converted into the ordinary shares of MOSENERGO on 1. To determine the limit size of the declared shares of the day the entry on termination of OAO “MOSENERGO MOSENERGO in the amount of 16,477,961 (Sixteen million Holding” activities, according to the data of OAO “MOS - four hundred seventy seven thousand and nine hundred ENERGO Holding” register of Shareholders on the date spec- sixty one) pieces of ordinary registered shares with nominal ified, is made in the Unified State Register of Legal Entities. value of 1 (one) ruble per each share to the total nominal The shares of OAO “MOSENERGO Holding”, subject to value of 16,477,961 (Sixteen million four hundred seventy conversion, are paid off at converting. seven thousand and nine hundred sixty one) rubles. 2. To ascertain that the additional ordinary shares of 2. The ordinary registered shares declared by MOS - MOSENERGO are placed if the number of shares of MOS - ENERGO for placement confer the rights to their holders stip- ENERGO, put at the disposal of MOSENERGO as a result of ulated by the provisions of Paragraph 6.2 of the Charter of affiliation of OAO “MOSENERGO Holding”, as well as the MOSENERGO1. number of the shares taken up and/or paid by MOS- ENERGO, will be insufficient for conversion of all the shares On issue 3: of OAO “MOS ENERGO Holding” for the purpose of affiliation To introduce the following amendments to the Charter1 of of OAO “MOSENERGO Holding” to MOSENERGO. MOSENERGO: The number of the ordinary shares of MOSENERGO, which а) To add Paragraph 4.7. to Article 4 “The Company’s each shareholder of OAO “MOSENERGO Holding” must Charter capital” and to read it as follows: receive as a result of affiliation of OAO “MOSENERGO Holding” «4.7. The Company declares in addition to issued shares to MOSENERGO, is calculated by division of the owned num- 16,477,961 (Sixteen million four hundred seventy seven thou- ber of OAO “MOSENERGO Holding” shares of the definite cat- sand and nine hundred sixty one) pieces of ordinary registered egory by the corresponding conversion ratio. shares with nominal value of 1 (one) ruble per each share to the If by calculating the number of MOSENERGO shares, which total nominal value of 16,477,961 (Sixteen million four hundred each shareholder of OAO “MOSENERGO Holding” must seventy seven thousand and nine hundred sixty one) rubles. receive, the calculated number of shares, held by any share- The ordinary registered shares, declared by the Company holder of OAO “MOSENERGO Holding”, will be fractional, for placement, confer the rights to their holders, stipulated then the fractional part of such number of shares is subject for by the provisions of Paragraph 6.2 of this Charter. to rounding as follows: • if the value of the sign, following the comma, is within On issue 4: the range of 5 – 9 inclusive, then the integral number is 1. To increase MOSENERGO Charter capital by placing added by one and the numbers, following the comma, additional ordinary registered shares in the amount of are not taken into account; 16,477,961 (Sixteen million four hundred seventy seven thou- • if the value of the sign, following the comma, is within sand and nine hundred sixty one) with the nominal value of the range of 0 – 4 inclusive, then the integral number is 1 (one) ruble per each share to the total nominal value of taken into account only and the numbers, following the 16,477,961 (Sixteen million four hundred seventy seven thou- comma, are not considered; sand and nine hundred sixty one) rubles. • if, as a result of rounding, no share is owned by any of The method of placement is the conversion of the ordinary the shareholders, then such shareholder receives one and privileged shares of OAO “MOSENERGO Holding” into share of MOSENERGO. the additional ordinary registered shares of MOSENERGO In case of placement of the additional ordinary shares of according to the procedure, prescribed by the decision on reor- MOSENERGO, the number of the ordinary shares of MOS - ganization of MOSENERGO in the form of affiliation of ENERGO from among the shares, put at the disposal and/or OAO “MOSENERGO Holding” and by the Agreement on paid up and/or taken up by MOSENERGO, which each share- Affiliation of OAO “MOSENERGO Holding” to MOSENERGO. holder of OAO “MOSENERGO Holding” must receive, is an To determine the following share conversion ratios: integral part of the number, calculated by multiplication of 2.9763321903943500 of the ordinary registered share of the number of the ordinary shares of MOSENERGO, which OAO “MOSENERGO Holding” is converted into one ordinary such shareholder must receive in compliance with Paragraph

1 1.4.

181 Additional Information

2 of this Item (taking rounding into account), by the ratio of 11.3. Corporate Governance the total amount of the ordinary shares of MOSENERGO, put Code-Compliance Information at the disposal of MOSENERGO at affiliation of OAO “MOS - ENERGO Holding”, and/or paid up and/or taken up by MOSENERGO, to the total amount of the ordinary shares of General Meeting of Shareholders MOSENERGO, required for conversion of all the ordinary and privileged shares of OAO “MOSENERGO Holding”. 1. Notifying shareholders about a General Meeting of The number of the ordinary shares of MOSENERGO from shareholders at least 30 days prior to its holding irrespective among the additional shares, which each shareholder of of the business to be transacted unless a longer period is OAO “MOSENERGO Holding” must receive, is determined stipulated by law as the difference between the number of the ordinary shares Observed of MOSENERGO, which such shareholder must receive in Charter, Art. 11, Item 11.5 compliance with Paragraph 2 of this Item (taking rounding into account), and the number of shares of MOSENERGO from 2. Granting shareholders an opportunity to familiarize among the shares, put at the disposal and/or paid up and/or themselves with the list of persons entitled to participate in taken up by MOSENERGO, which such shareholder must the General Meeting of shareholders, starting with the day of receive. notification of a General Meeting of shareholders to be held until the closure of a General Meeting of shareholders held in person, and if the General Meeting of shareholders is held in absentia – until the final date of ballot acceptance Observed In accordance with the current legislation, List of persons with the right to participate in the General Meetings of shareholders is provided by the Company to public inspection at the request of persons included into this list and holding no less than 1,0 % of votes.

3. Granting shareholders an opportunity to familiarize themselves with information (materials), that are to be provided to shareholders during preparation for holding of a General Meeting of shareholders, by means of communications equipment, including through the Internet Observed Charter, Art. 11, Item 11.7

4. The shareholders' entitlement to enter an item on the general meetings' agenda or demand the convocation of a General Meeting of shareholders without presenting any documents if his/her rights to shares are exercised within the register-keeping system, and if his/her rights to shares are accounted on a custody account – with the presentation of a statement of the custody account in order to exercise the aforementioned rights Observed The procedure for entering an item on the General Meeting of shareholders' agenda and the procedure for convocation of a General Meeting of shareholders are determined by the current legislation. Neither Charter nor internal documents of the Company make any provision for mandatory issuance of an extract from the share register or a statement of the custody account when placing questions on the agenda or con- vening a meeting

182 MOSENERGO Annual Report 2007

5. Existence of a requirement in a joint stock company's 10. Stipulating in a joint stock company's Charter the Charter or internal documents of a provision for compulso- authority of the board of directors to suspend the mandate ry attendance of the General Meetings of shareholders by of the General Director appointed by the General Meeting of the General Director, members of the Executive Board, mem- shareholders bers of the Board of Directors, members of the Audit Observed Commission and auditor of the joint stock company Charter, Art. 15, Item 15.1, Sub-item 12 Observed in part The Director General is elected by the Board of Directors Charter, Art. 11, Item 11.1 of the Company A general meeting of the Company shareholders may be attended by the General Director, members of the Executive 11. Stipulating in a joint stock company's Charter the Board, members of the Board of Directors, members of the authority of the board of directors to set requirements to the Audit Commission and the auditor of the Company qualifications and amount of remuneration of the General Director, members of the Executive Board, principal execu- 6. Compulsory attendance of candidates during discus- tives of the joint stock company sion at a General Meeting of shareholders of items concern- Observed in part ing election of members of the board of directors, the General Charter, Art. 15, Item 15.1, Sub-item 14. Director, members of the Executive Board, members of the Within the competence of the Company’s Board of Directors Audit Commission, as well as the item of approval of the joint falls the issue of contracts conditions approval (including stock company's auditor terms of office, remuneration and authorities), concluded Observed in part with the General Director of the Company, members of man- Charter, Art. 11, Item 11.1. agerial Board, changes in the abovementioned contracts A General Meeting of the Company shareholders may be attended by the General Director, members of the Executive 12. Stipulating in a joint stock company's Charter the Board, members of the Board of Directors, members of the authority of the board of directors to approve the terms and Audit Commission and the auditor of the Company conditions of employment contracts with the General Director and members of the Executive Board 7. Detailing in a joint stock company's internal documents Observed the procedure for registration of participants in a General Charter, Art. 15, Item 15.1, Sub-item 14 Meeting of shareholders Observed 13. Existence of a requirement in a joint stock company's Procedure for Preparation and Holding of the General Charter or internal documents stipulating that the votes of the Meeting of MOSENERGO Shareholders, Item 3.1, determines members of the board of directors who are the General Director a procedure for registering persons eligible to participate in or members of the Executive Board should not be counted the general meeting of the Company shareholders when approving the terms and conditions of employment contracts with the General Director (managing organization, manager) and members of the Executive Board Board of Directors Not observed

8. Stipulating in a joint stock company's Charter the author- 14. Presence of at least three independent directors at the ity of the board of directors to approve annually a financial and joint stock company's board of directors meeting the require- economic plan of the joint stock company ments of the Corporate Governance Code Observed Observed MOSENERGO Charter, Art. 15, Item 15.1, Sub-item 22 There are 11 independent directors on the Board of Directors 9. Existence in a joint stock company of a board of directors approved risk management procedure 15. Absence among the members of the board of direc- Observed tors of the joint stock company of persons who were found MOSENERGO Risk Management Regulation approved by guilty of an economic offence or offences against the state the Company Board of Directors, minutes No. 9 of 18.11.2004 power, interests of civil service and service in local government bodies, or who were subject to administrative punishments for a business delinquency or wrong-doing in the sphere of finance, revenue, and securities market Observed

183 Additional Information

16. Absence among the members of the board of direc- 22. Stipulating in a joint stock company's internal docu- tors of a joint stock company of persons who are sharehold- ments procedures for holding meetings of the board of direc- ers, General Directors (managers), members of manage- tors ment bodies or employees of legal entities competing with Observed the joint stock company Procedure for Convocation and Holding of Meetings of Observed the Company's Board of Directors, Art. 7

17. Stipulating in a joint stock company's Charter a require- 23. Existence of a provision in a joint stock company's ment for the board of directors to be elected by cumulative internal documents envisaging the board of directors' approval voting of the joint stock company's transactions in the amount of ten Observed or more percent of the company's asset value, with the excep- Charter, Art. 10, Item 10.8 tion of transactions carried out in the ordinary course of business 18. Stipulating in a joint stock company's internal docu- Observed ments of a requirement for the members of the board of direc- Charter, Art. 15, Item 15.1, Sub-item 26 tors to refrain from doing anything that will or may potentially give rise to a conflict between their interests and interests 24. Stipulating in a joint stock company's internal docu- of the joint stock company, and if such a conflict arises – a ments the right of the members of the board of directors to requirement to disclose information about the conflict to the receive information from the executive bodies and heads of board of directors major divisions of the joint stock company that they need to Observed in part properly discharge their functions, as well as penalties for Article 8, Item 8.1 of the Regulation on MOSENERGO failure to do so Information Policy stipulates the duty of the members of the Observed in part Board of Directors to notify the Board of Directors in writing Procedure for Convocation and Holding of Meetings of that a conflict between their interests and interests of the the Company's Board of Directors, Art. 3, Item 3.1., Sub- Company has arisen or may arise item 1, Item 3.2., Item 3.3

19. Stipulating in a joint stock company's internal docu- 25. Existence of the board of directors' strategic planning ments the duty of the members of the board of directors to committee or assignment of the committee's functions to notify the board of directors in writing of their intention to another committee (other than the audit committee or per- carry out transactions with securities of the joint stock com- sonnel and remuneration committee) pany, of which they are members of the board of directors, Observed or its subsidiaries (associated companies), and to disclose The Board of Directors approved the resolution on the cre- information on transactions with such securities carried out ation of strategic planning committee, minutes No.3 of by them 25.06.2007. The Board of Directors approved the Regulation Observed on strategic planning committee of MOSENERGO Board of Regulation on MOSENERGO Information Policy, Art. 8, Directors, minutes No. 4 of 16.07.2007 Item 8.2 26. Existence of a committee of the board of directors 20. Existence of a requirement in a joint stock company's (the audit committee) which recommends an auditor of the internal documents for holding meetings of the board of direc- joint stock company to the board of directors and interacts tors not less frequently than once every six weeks with him and with the Audit Commission of the joint stock Observed company Charter, Art. 18, Item 18.2 Observed The Board of Directors approved the resolution on the 21. Holding meetings of the board of directors of a joint creation of audit committee, minutes No.12 of 09.10.2003. stock company during the year of the annual report of the joint The Board of Directors approved the Regulation on the audit stock company not less frequently than once every six weeks committee of MOSENERGO Board of Directors, minutes Observed No. 18 of 04.03.2005, Item 2.1.2, Item 2.1.3, Item 8.4.4 In 2007, the Board of Directors held 32 meetings

184 MOSENERGO Annual Report 2007

27. Existence of only independent and non-executive 32. No officers of the joint stock company on the human directors on the audit committee resources and remuneration committee Observed Observed Composition of the audit committee is approved by min- The Board of Directors adopted the structure of the human utes of the Board of Directors No. 3, 25.06.2007: resources and remuneration committee of MOSENERGO Pavlova O.P. (the independent director); Board of Directors on 25.06.2007, minutes No. 3: Aksenov P.N. (the independent director); Skribot W. (independent director); Gavrilenko A.A. (the independent director); Aksenov P.N. (independent director); Smirnov P.S. (the independent director); Budzulyak B.V. (independent director); Fil S.S. (the independent director) Gavrilenko A.A. (independent director); Matveyev A.A. (independent director); 28. An independent director at the head of the audit com- Smirnov P.S. (independent director); mittee Fil S.S. (independent director) Observed Chairman of the Audit Committee of MOSENERGO Board 33. Establishment of the board of directors' risk commit- of Directors is Pavlova O.P. (the independent director) tee or assignment of the committee's functions to another committee (other than the audit committee or personnel and 29. Stipulating in a joint stock company's internal docu- remuneration committee) ments the right of all members of the audit committee to Not observed access any documents and information of the joint stock The committee has not been appointed. company subject to non-disclosure of confidential informa- The Board of Directors adopted the Resolution of MOSEN- tion ERGO risk administration, minutes No. 9 of 18.11.2004 Observed Regulation on the Audit Committee of MOSENERGO Board 34. Establishment of the board of directors' corporate of Directors, Art. 3, Art. 11 conflict resolution committee or assignment of the committee's functions to another committee (other than the audit com- 30. Establishment of a committee of the board of direc- mittee or personnel and remuneration committee) tors (the human resources and remuneration committee) Not observed charged with definition of eligibility criteria applicable to can- The committee has not been appointed didates for the position of a member of the board of directors and development of the joint stock company's remuner- 35. No officers of the joint stock company on the corpo- ation policy rate conflict resolution committee Observed Not observed The Board of Directors adopted the resolution of the cre- The committee has not been appointed ation of the human resources and remuneration committee, minutes No.18 of 04.03.2005. The Board of Directors adopt- 36. An independent director at the head of the corporate ed the Resolution on the human resources and remuneration conflict resolution committee committee of MOSENERGO Boards of Directors, minutes Not observed No. 4 of 16.07.2007 The committee has not been appointed

31. An independent director at the head of the human 37. Existence of board of directors-approved internal doc- resources and remuneration committee uments of the joint stock company stipulating procedures for Observed formation and functioning of the board of directors commit- The Chairman of the Human Resources and Remuneration tees Committee of MOSENERGO Board of Directors was Observed approved – Skribot W. (independent director) MOSENERGO Charter, Art. 20. Regulation on the Audit Committee of MOSENERGO Board of Directors. Regulation on the Human Resources and Remuneration Committee of MOSENERGO Board of Directors. Regulation on the reliability of MOSENERGO Board of Directors. Regulation on the strategy and development committee of MOSENERGO Board of Directors. Regulation on investments committee of MOSENERGO Board of Directors

185 Additional Information

38. Existence of procedures in a joint stock company's 44. Existence of a provision in a joint stock company's Charter for determining whether a quorum is present at a Charter or internal documents prohibiting the managing meeting of the board of directors that enables to ensure oblig- organization (manager) from carrying out similar functions at atory participation of independent directors in the board of a rival company or have any connection with the joint stock directors' meetings company apart from carrying out the functions of the man- Observed in part aging organization (manager) Charter, Art. 18, Items 18.7 through 18.13 Observed in part Charter, Art. 21, Item 21.3 The rights and obligations of a managing organization for Executive bodies management of the current activities of the Company are determined by the legislation of the Russian Federation and 39. Existence of a collegial executive body (Executive the agreement entered into between the management organ- Board) of a joint stock company ization and the Company Observed Charter, Art. 21, Item 21.1 45.Existence of a requirement in a joint stock company's internal documents for the members of the executive 40. Existence of a provision in a joint stock company's bodies to hold back from doing anything that will or may Charter or internal documents envisaging the requirement potentially give rise to a conflict between their interests and of the Executive board's approval of any real estate transac- interests of the joint stock company, and if such a conflict aris- tions and borrowings by the joint stock company, provided es – a requirement to advise the board of directors to that effect that such transactions are not classified as major transactions, Observed in part and the joint stock company does not customarily engage in Regulation on MOSENERGO Information Policy, Art. 8 item such transactions in the ordinary course of its business 8.1 provides for the obligations of the Executive Board mem- Observed bers to inform the Board of Directors on existence or possi- Charter, Art. 22, Item 22.2, Sub-item 10-12 ble existence of conflicts between their interests and that of Articles of the Executive Board of MOSENERGO, Item 5.9, the Company. Sub-item14-21 Articles of the Executive Board of MOSENERGO, Item 3.1.3 41. Detailing in a joint stock company's internal documents the procedure for obtaining approval for operations out- 46. Stipulating in a joint stock company's Charter or inter- side the scope of the financial and business plan of the joint nal documents the eligibility criteria applicable to the man- stock company aging organization (manager) Observed Observed in part Articles of the Executive Board of MOSENERGO, Item 5.9, See Item 44 Sub-item 14-20 47. Submission by the executive bodies of a joint stock 42. Absence among the members of the executive bod- company of monthly reports on their work to the board of ies of a joint stock company of persons who are sharehold- directors ers, the General Director (manager), a member of a manage- Observed ment body or an employee of a legal entity competing with Charter, Art. 15, Item 15.1 the joint stock company Observed 48. Stipulating in contracts concluded between a joint stock company and its General Director (management organization, 43. Absence among the members of the executive bod- manager) and members of the Executive Board of their respon- ies of a joint stock company of persons who were found guilty sibility for breach of provisions concerning use of confidential of an economic offence or offences against the state pow- and insider information er, interests of civil service and service in local government Observed bodies, or who were subject to administrative punishments for a business delinquency or wrong-doing in the sphere of finance, revenue, and securities market. Where the functions of the sole executive body are exercised by a managing organization or a manager, the General Director and members of the Executive Board of the managing organization or the manager should meet the eligibility criteria applicable to the General Director and members of the Executive Board of the joint stock company Observed

186 MOSENERGO Annual Report 2007

The Company’s Secretary 54. Stipulating in a joint stock company's Charter that during acquisition of large blocks of shares of the joint stock 49. Existence in a joint stock company of a special offi- company (takeover) the company should refrain from actions cer (the secretary of the company) whose task is to ensure that are aimed at protecting the interests of executive bod- that corporate bodies and officers of the joint stock compa- ies (members of such bodies) and members of the board of ny comply with procedural requirements safeguarding the directors of the joint stock company, and which may result in rights and legitimate interests of the company's sharehold- weakening the position of shareholders (and in particular, ers pending the expiration of the acquisition period, the board of Observed directors should refrain from issuing additional shares, con- Charter, Art. 15, item 15.1, Sub-item 4, Art. 19. vertible shares or securities that otherwise entitle their hold- Regulation on the order of calling and holding of the ers to purchase shares of the company, even if such issuance Company’s Board of Directors Meeting, Art. 4 is authorized by the Charter of the company) Not observed 50. Detailing in a joint stock company's Charter or inter- The Charter contains no such provisions nal documents the procedure for appointment (election) of the secretary of the company and his/her responsibilities Observed 55. Stipulating in a joint stock company's Charter that the Charter, Art. 15, item 15.1, Sub-item 4, Art. 19 board of directors must invite an independent assessor to Regulation on the order of calling and holding of the determine the current market value of the company's shares Company’s Board of Directors Meeting, Art. 4 and how it could be affected by the takeover Observed 51. Stipulating in a joint stock company's Charter the eli- See item 53 gibility criteria applicable to candidates for the position of the secretary of the company 56. A joint stock company's Charter should grant no relief Observed in part to the entity taking over the company of the responsibility to See Item 50 offer to buy out shareholders' ordinary shares (issuer's securities convertible into ordinary shares) Observed Major corporate actions

52. Existence of a requirement in a joint stock company's The Charter Charter or internal documents for major transactions to be approved prior to their consummation 57. Stipulating in a joint stock company's Charter or inter- Observed nal documents that an independent assessor must be invit- Charter, Art. 15, Item 1 5.1, Sub-item 26 ed for determination of the conversion value of shares after the reorganization 53. Obligatory invitation of independent assessors to Observed determine the market value of property involved in major Charter, Art. 15, Item 15.1, Sub-item 55 transactions Observed Charter, Art. 15, Item 1 5.1, Sub-item 55 Information Disclosure

58. Existence of a board of directors-approved internal document setting forth rules of and approaches to disclosure (Regulation on Information Policy) Observed Regulation on MOSENERGO information Policy was adopted by the Board of Directors of 01.11.2004, minutes No. 8

187 Additional Information

59. Stipulating in a joint stock company's internal docu- 64. Existence of a board of directors-approved internal doc- ments the requirement to disclose information about the pur- ument regulating the use of significant information about a poses of issuing new shares and the persons purchasing new joint stock company's operations, shares and other securi- shares, including those who intend to purchase a large block ties of the company and transactions therewith, which is not of shares, as well as whether senior executives of the joint stock available to the public and disclosure of which may substan- company will purchase shares offered tially affect the market value of shares and other securities Not observed of the joint stock company The Company discloses all the necessary information in Observed accordance with the Russian Federation legislative, norma- Regulation on MOSENERGO Information Policy, Art. 7, tive acts, the Charter and internal documents adopted by the Board of Directors on 01.11.2004, minutes No. 8. 60. Existence in a joint stock company's internal docu- Regulation on MOSENERGO inside information adopted ments of a list of information, documents and materials to by the Board of Directors on 21.10.2005, minutes No. 9 be furnished to the shareholders to enable them to make decisions regarding issues brought up at a General Meeting of shareholders Supervision of the Financial and Business Observed Operations Regulation on MOSENERGO Information Policy, Art. 5, Item 5.9.5 65. Existence of board of directors-approved procedures for internal control over financial and business operations of 61. Existence of a joint stock company's website and reg- the joint stock company ular disclosure of information about the joint stock company Observed on such website The Regulation on Internal Control of MOSENERGO, Observed approved by the Board of Directors, on 05.09.2005, minutes Regulation on MOSENERGO Information Policy, Art. 4, No. 7, Art. 5 Item 4.7, (www.mosenergo.ru) 66. Existence of an ad hoc unit of the joint stock compa- 62. Stipulating in a joint stock company's internal docu- ny that ensures compliance with the internal control procedures ments the requirement to disclose information about trans- (control and audit service) actions between the joint stock company and its senior exec- Observed utives in accordance with the Charter, and about transactions Internal audit directorate in the General Directorate of between the joint stock company and entities in which the com- MOSENERGO pany's senior executives directly or indirectly own 20 percent or more of the company's Charter capital or which can be oth- 67. Existence of a requirement in a joint stock company's erwise strongly influenced by such executives internal documents for the structure and composition of the Observed control and audit service of the joint stock company to be deter- Regulation on MOSENERGO Information Policy, Art. 4, mined by the board of directors Item 4.1, Item 4.4.4 Observed in part Regulation on internal control, Art.8 provides for the require- 63. Stipulating in a joint stock company's internal documents to the structure in the Internal audit directorate ments the requirement to disclose information about all transactions which may substantially affect the market value of 68. Absence among the members of the control and audit shares of the joint stock company service of persons who were found guilty of an economic Observed offence or offences against the state power, interests of civ- Regulation on MOSENERGO Information Policy, Art. 4, il service and service in local government bodies, or who Item 4.3 (d), Item 4.4.4, Item 4.4.5 (g, h), Items 4.4.8, 4.4.19 were subject to administrative punishments for a business delinquency or wrong doing in the sphere of finance, revenue, and securities market Observed

188 MOSENERGO Annual Report 2007

69. Absence among the members of the control and audit Dividends service of persons who are members of the executive bodies of a joint stock company or persons who are sharehold- 76. Existence of a Board of Directors-approved internal ers, the General Director (manager), members of the man- document which is followed by the Board of Directors in adop- agement bodies or employees of a legal entity competing tion of recommendations concerning the dividend rate with the joint stock company (Regulation on Dividend Policy) Observed Not observed

70. Stipulating in a joint stock company's internal docu- 77. Stipulating in the Regulation on Dividend Policy the pro- ments the period of time for presentation of documents and cedures for determining the minimal portion of net profit of materials to the control and audit service for evaluation of the joint stock company directed towards the payment of div- the financial and business operation undertaken, as well as idends, and circumstances under which dividends are not the responsibility of officers and employees of the joint stock paid or paid only partially on preference shares with respect company for failure to present same within such period to which the amount of dividends is provided by the Charter Observed in part of the joint stock company The order of inspection is also mentioned in the plan. Not observed Regulation on internal control adopted the Board of Directors on 05.09.2005, minutes No. 7 78. Publishing of information about the dividend policy of the joint stock company and all amendments thereto in a 71. Existence of a requirement in a joint stock company's periodic publication authorized by the company's Charter to internal documents for the control and audit service to report announce General Meetings of shareholders, as well as on the revealed violations to the audit committee, and if such com- the company's web-site mittee is not available – to the board of directors of the joint Observed in part stock company The Company abides by the Guidelines for Dividend Observed Payment approved by RAO UES of Russia The order of inspection is also mentioned in the plan. Regulation on internal control adopted the Board of Directors on 05.09.2005, minutes No.7, item 7.1.4 11.4. Information regarding 72. Stipulating in a joint stock company's Charter that the Interested-party Transactions advisability of carrying out operations falling outside the scope of the financial and business plan of the joint stock compa- In 2007 Company settled the Interested-party transaction ny (non-standard operations) should be preliminary evaluat- approved by General Meeting of Shareholders (minutes of ed by the control and audit service meeting No.2 of December 20th, 2006). Not observed Transaction date: May 16th, 2007. Parties to the transaction: MOSENERGO, ОАО “Gazprom”. 73. Stipulating in a joint stock company's internal docu- Subject of the transaction: purchase and sale of MOSEN- ments the procedure for obtaining the board of directors' ERGO shares. Number of shares – 11,371,434,430 pcs, approval of a non-standard operation shares’ payment – within three days from the date of the con- Not observed tract signing. The sum (size) of the transaction in money terms – RUR 74. Existence of a board of directors-approved internal doc- 60,041,173,790.40 or 64.2% of Company’s assets net book ument setting forth the procedure for conducting audits of the value as of 31.03.2007. financial and business activity of the joint stock company by The Number of securities, placed in accordance with the the Audit Commission transaction: 11,371,434,430 shares, or 40.25% of the num- Not observed ber of the ordinary shares placed prior to the date of the transaction settlement. 75. Evaluation by the audit committee of the auditor's report before it is presented to shareholders at a General In 2007 the Board of Directors of MOSENERGO approved Meeting of shareholders 199 Interested-party transactions. The list of Interested-par- Observed ty transactions is available at the Company's website1. Regulation on Audit Committee of MOSENERGO Board of Directors, Art. 2, item. 2.1.4

1 3.2.1.

189 Additional Information

11.5. Glossary 2. Measurement units

Gcal – Gigacalorie. A unit of heat energy 1. Acronyms Gcal/h – Gigacalorie/hour. A unit of heat power kV – kilovolt. A unit of voltage BPS of the Center – “Bulk Power Systems of the kWh – kilowatt-hour. A unit of electric energy Center” – branch office of OAO “FGC UES” MW – megawatt. A unit of electric power CCPU – Combined Cycle Power Unit tfe – ton of fuel equivalent CDS – Central Distribution Substation CDU – Closed Distribution Unit CDUE – Complete Distribution Unit with SF6 3. Terms Circuit Breaker CRMZ – Central Mechanical Repair Works Balancing market. A constituent part of WEM offering for DAM – “Day Ahead” market sale electric energy generated in excess of the planned vol- EC – Efficiency Coefficient umes. FSFM of Russia – Federal Service for Financial Markets Bilateral contract. An agreement according to which a sup- FSMC – Federal Securities Market Commission plier undertakes to supply the definite quantity of electricity FST of Russia – Federal Service for Tariffs of Russia of the definite quality to a buyer, and the buyer undertakes GDP – Gross Domestic Product to accept and pay for such electricity under terms and con- GTU (GTE) – Gas Turbine Unit (gas-turbine power plant) ditions of the contract concluded in accordance with the rules IVC – Information-Computing Center of the wholesale market. KPI – Key Performance Indicators "Day ahead" market. WEM’s sector the work of which is LAPS – Local Area Power Station (a historical name) based upon NP “ATS” competitive selection of price bids of Moscow RDU – Moscow Regional Dispatching Unit – suppliers and buyers for the periof of 24 hours before the branch office of OAO “SO-CDU UES” actual delivery of electric energy specifying the delivery prices MS – Main Switchgear and volumes for each hour of the 24 hours. MSM – Mass Media Equivalent Fuel. Accounting unit of the organic fuel used for MUD – Makeup Demineralizer comparing the efficiency of different types of fuel and their NME – Non-profit Medical Establishment total accounting. NP ATS – Non-profit Partnership “Administrator of Trading Fast Ethernet. High-speed technology of shared access of System” of the Wholesale electricity (power) market users to a data network. NPF – Non-state pension fund Generation. Production of electric and thermal energy. NPP – Nuclear Power Plant Installed Capacity. The maximum active electric power with OAO – Open Joint Stock Company which an electric installation is capable of running continu- OAO “RTS Stock Exchange” – OAO Russian Trading ously without overload in accordance with the Equipment System Stock Exchange Certificate. OAO “FGC UES» – ОАО Federal Grid Company of Unified Load. Total electric power consumed by all recipients (con- Energy System sumers) of electric energy connected to the distribution grids OAO “SO-CDU UES” – OAO System Operator – Central of the system as well as the power used to cover the losses Dispatch Unit of the United Energy System in all the chains of the electric grid (transformers, converters, PPTK– Industrial-Technological Completing Enterprise electricity transmission lines). PWB – Peak Water Boiler Regulated sector of the WEM. Supply sector of electric RBC – Regulated Bilateral Contracts energy (power) to the wholesale market and consumption REC – Regional Energy Commission from the WEM at the tariffs approved by the Federal Tariff SAC – Subsidiary and Associated Companies Service. STU – Steam-turbine Unit SDH- network. Technologies for high-speed optical commu- TEP – Total Energy Plant nication networks. This network allows flexible, reliable and TEP-1 – State Power Station (a historical name) efficient networks with a full software control. TPS – Thermal Power Station SF6 circuit breaker. A circuit breaker employing SF6 gas UDO of the Center – Unified Dispatching Office of the instead of air or oil insulation, which enables to increase load Center Power System – branch office of OAO SO UES of live parts and to reduce their mass at the expense of its cool- VAT – Value Added Tax ing properties. WEM – Wholesale Market of Electric Energy (Power) Unit. A power boiler (steam generator) represented by one ZAO (CJSC) – Closed Joint Stock Company or two shells and a turbine (or several turbines) rigidly con- ZAO “MICEX” – ZAO “Moscow Interbank Currency nected thereto with a directly coupled electric generator (sev- Exchange” eral generators according to the number of the turbines).

190 MOSENERGO Annual Report 2007

11.6. Contact Information Registrar

MOSENERGO Open Joint Stock Company ZAO Register-Service Specialized Registrar for Energy and Electrification Address: 15 Sadovnicheskaya St., Moscow 115035 Telephone: (495) 234-70-76, (495) 234-79-78 Address: 8 Raushskaya Naberezhnaya, Moscow 115035 E-mail: [email protected] Telephone: (495) 957-35-30 Fax: (495) 957-15-80 License No. 10-000-1-00312 Web address: www.mosenergo.ru Date of issue: 30.03.2004 Effective date: for an indefinite term Securities Section: License issuing authority: the Federal Commission Telephone: (495) 957-25-99 for the Securities Market of Russian Federation Fax: (495) 951-09-64 E-mail: [email protected] Auditor Mass Media and Authority Relations Section: Telephone: (495) 957-22-90 ZAO PricewaterhouseCoopers Audit Fax: (495) 957-37-99 Address: 52 bldg 5, Kosmodamianskaya Naberezhnaya, E-mail: [email protected] Moscow 115054 Telephone: (495) 967-60-00 Details with CB Transinvestbank (OOO) in Moscow: Fax: (495) 967-60-01 Settlement account No. 40702810900000000068, Correspondent account No. 30101810500000000212, Audit license No. Е000376 INN (Taxpayer ID) 7705035012, Date of issue: 20.05.2002 BIC 044579212, Effective date: to 20.05.2012 OKPO code 00102798, License issuing authority: Ministry of Finance KPP (Industrial Enterprises Classifier) 997450001, of the Russian Federation Basic State Reg. No 1027700302420, OKVED code 40.10, 40.30 Valuer

OOO “Ernst & Young – joint consulting” Address: 77 bldg.1, Sadovnicheskaya naberezhnaya, Moscow 115035 Telephone: (495) 705-97-00 Fax: (495) 755-97-01 E-mail: [email protected]

License: № 003632 Date of issue: 08.02.2002 Effective date: to 08.02.2008 License issuing authority: Ministry of Property Relations of the Russian Federation

191 Additional Information

11.7. MOSENERGO official site map

www.mos en er go.ru 3. To our shareholders and investors 3.1. Basic information 1. On the Company 3.1.1. Share Issue policy 1.1. Our mission 3.1.2. Eurobonds 1.2. Structure of our company 3.1.3. Dividend History 1.2.1. The Board of Directors 3.1.4. Stock Exchange Indices 1.2.2. Auditing Commission 3.1.5. Markets 1.2.3. Executive Board 3.1.6. Registrar 1.2.4. Branches 3.1.6. Auditor 1.3. History 3.2. Reports 1.4. Mosenergo Charter 3.2.1. Annual and Quarterly Reports 1.5. Regulatory Documents 3.2.2. MOSENERGO in figures 1.6. Internal Documents 3.2.3. IFRS 1.7. Energy Efficiency 3.3. Documents to be Disclosed 1.8. Retrofitting 3.3.1. Essential Facts 1.9. Tariffs 3.3.2. Quarterly Issuer Reports 1.10. Technical upgrade 3.3.3. Affiliates 1.11. Strategy (Development strategy of the company) 3.3.4. Information for Shareholders’ General Meeting 1.12. Heating season 3.3.5. Information on the Board of Directors’ Resolutions 2. Press centre 3.4. Presentations 2.1. Press releases 2.2. Company News 4. Procurement 2.3. Interviews 2.4. Publications 5. Contacts 2.5. Photos

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