ANNUAL REPORT 2009OAO IRKUTSKENERGO 11 ANNUAL REPORT 2009 OAO IRKUTSKENERGO Irkutsk г. Иркутск 2 ABBreViations ARIS Business process modelling methodology and software MIRBIS Moscow International Higher Business School ASKIB Automated Treasury Based Budget Management and Control System LV Low Voltage BHPP Bratskaya Hydroelectric Power Plant UDCC of Siberia United Dispatch Control Centre BM Balancing Market OREM Wholesale Electric power Market GDP Gross Domestic Product IPSS Incorporated Power System of Siberia HV High Voltage MPE Maximum Permissible Emission GS Guaranteeing Supplier MPD Maximum Permissible Discharge GPB OAO Gazprombank D&E Design and Exploration F&L Fuel and lubricants EIP Efficiency improvement programs HPP hydroelectric power plant RC Regulated long-term contracts for electric power BCPC Bilateral contract for power and capacity UDCC United Dispatch Control Centre AR Accounts Receivable DAM Day-ahead market SAC Subsidiaries and affiliated companies NRBC Non-regulated bilateral contract VMI Voluntary medical insurance NRECC Non-regulated electric power and capacity contracts EBWD Eniseysk Basin Water Directorate ANNUAL REPORT 2009OAO IRKUTSKENERGO 33 MV Medium voltage HUC Housing and utility companies SO UES System Operator of the Unified Energy System ASW ash and slag waste PIS Performance Indicator System EB Executive Board ES Enterprise Standard CSS Commodity stocks and supplies IESK OOO Irkutsk Grid Company CPOP Comprehensive production optimization program CCN Corporate computer network TPP Thermal Power Plant CPS Competitive power supply EF Efficiency Factor MICEX Moscow Interbank Currency Exchange KPI Key Performance Indicators FCSM Federal Commission for Securities Market NPNBP Northern Power Networks Boiler Plant FST Federal Tariff Service IRMS Integrated Risk Management System FEC ZAO Financial Estimation Centre MBA Master of Business Administration EBP Electric Boiler Plant CIP Construction in progress 4 TABle OF Contents Abbreviations 2 Table of Contents 4 Address to Shareholders by the Chairman of the Board of Directors, OAO Irkutskenergo 6 Address to Shareholders by the Acting Director General, OAO Irkutskenergo 8 OAO Irkutskenergo general profile 10 Geographic distribution of assets 12 IRKUTSKENERGO toDAY 13 Performance highlights 14 OAO Irkutskenergo profile 18 HPP - GENERATION 18 TPP - GENERATION 20 OAO Irkutskenergo – one of the major energy systems in Russia 19 The Board of Directors decisions and shareholders meetings252 26 Principal Operational Results 32 Energy Industry Progress in Irkutsk Oblast 33 Company Management 34 Corporate Management 35 Property Management 39 Shareholders’ Equity 42 Equity and shareholding structure 43 Markets and sales management 46 The core marketable product issuing structure 47 Heat power sales 48 Electric power sales 51 ТTariff policy up to date of AO O Irkutskenergo 2009 Report 54 Production 58 Generating Capacity Information 59 Production plan 60 Cost Control 63 Efficiency improvement programs 64 Procurement 66 ANNUAL REPORT 2009OAO IRKUTSKENERGO 55 Spares and consumables 67 Fuel 68 Services 70 Investments 72 Effective investment fund allocations under programs 73 Investments under programs 74 Allocated investments 77 Human resources and social policy 78 Personnel management 79 Investments into personnel 81 Social policy 82 Subsidiaries and affiliated companies activities 84 Environmental relations 86 Standardization and Streamlining of Business Processes 90 Legal Issues 92 Risk Management 94 Information Technology 96 Financial and economic activities 98 Credit portfolio analysis 104 Net Profit Allocation 107 Appendices 108 Appendix 1. OAO Irkutskenergo balance sheet as of 31 December 2009 109 Appendix 2. Profit and loss statement of AO O Irkutskenergo, 2009 112 Appendix 3. Audit Report 113 Appendix 4. Compliance with the Corporate Conduct Code 114 Appendix 5. Meetings of OAO Irkutskenergo Management Board 124 Appendix 6. Related party transactions approved by the Management of OAO Irkutskenergo, 2009 138 6 Address to Shareholders by the Acting Director General, OAO Irkutskenergo DeAR SHArehoLDers, The year of 2009 was a time for the country to make tough economic decisions and undertake structural reforms in key industries, including the energy industry. On the one hand, there has been a decrease in production levels of heating and electric power due to a general decline in industrial production in Russia and the forced freeze of key investment projects; on the other hand, there is growing attention towards the reliable and accident-free work of the energy networks. The Company pays close attention to the condition of facilities and equipment; to date, both our health check and our safety controls have been significantly reinforced. However, the reporting year became an ordeal of endurance throughout the energy industry. At the same time, this was a year of gradual economic ‘thawing’ and system-wide resolutions in the security of national energy supply: as soon as the post-crisis economy started to recover, the power system load increased, the financial position of energy companies stabilized, and we found ourselves again talking about growth prospects. For instance, the earnings of Irkutskenergo in 2009 increased by 20% year-on-year to make RUB 38.8 billion. The growth of actual earnings against the forecast amounted to 10.4%, thanks to an efficient supply of capacities at the exchange. Electric energy generation had reached about 56.8 billion kWh by the end of rkutskenergo the year. It is expected to reach about 59 billion kWh in 2010, which will be more than in 2009 but less than in 2008. The sales of heat power in 2009 made RUB 9.7 million, which is a 16.9% increase year-on-year. The heat power supply by the end of the , OAO I year amounted to 22.7 million Gcal; it is planned to bring it up to 22.9 million Gcal in 2010. In addition, after thoroughly revising its methods of cost minimization and improvements to energy network reliability in 2009, Irkutskenergo currently has great eneral potential for the further progress of previously undertaken projects and for the diversification of its business and operations. G The reporting year was accompanied by the creation of a new and ambitious brand in a national economy, energy and coal company Irkutskenergo. A strategy for OJSC Irkutskenergo to acquire the 100% equity share of CJSC Resourceserviceholding, irector which owns some key coal assets in Irkutsk Oblast, was adopted by the Board of Directors on 6th February 2009; the Board also D prepared a plan to form a consolidated institutional and management structure, and identified objectives to achieve synergy cting in the financing and operating activities of energy producers and coal mining companies. We believe that the creation of a A vertically integrated energy and coal company is a timely and necessary step on the path towards reinforcing the positions of the Y B the infrastructure industry in terms of energy security for the entire region. This means both an optimal logistical solution and efficient coordination of investment programs for Irkutskenergo, and translates into a reasonable tariff policy for consumers. Today, the Company is capable of enduring any falls or increases in coal prices, as in 2007 and 2008, with minimum losses, and the coal mining operations can be scheduled in an optimal manner, which will additionally minimize primary costs. A prime example of harmonious cooperation between energy companies and coal miners is the situation in Baykalsk city, where difficult hareholders economic circumstances were encountered. Over the reporting year, Irkutskenergo fulfilled all commitments in preparing S to the single-company city for the timely beginning of the heating season; administrative and technical measures have been implemented pursuant to the Instruction by the Government of the Russian Federation and the order by the Board of Directors of OJSC Irkutskenergo. ddress A ANNUAL REPORT 2009OAO IRKUTSKENERGO 77 The Company managed to get a head start: by the time Power Engineer’s Day had come around and, symbolically, in the year of its 55th anniversary, OJSC Irkutskenergo commissioned a modular-assembly gas-powered boiler plant in Bratsk. The implementation of this local project will allow the Company to save electric power and reduce heat power generation costs. This project has a continuation, a construction of a mini-CCHP, which will totally replace an inefficient electric boiler house in the Gidrostroitel Township (Bratsk city). Through the control of hydraulic resources and the ownership of coal and gas facilities, the Company will easily overcome any twists and turns and clearly formulate its economic policy, which will further increase its efficiency. The overall volume of the investment program in 2009 amounted to RUB 2.1 billion. Historically, the Company has been implementing and improving social programs under its collective agreement, ensuring safe working conditions at its premises, organizing recreational activities and improving the health of employees. In 2009, 464 people stayed in health resorts for a total amount of RUB 5.4 million under the VMI Program. According to the current Provision for Providing Recreation Benefits to Employees, Their Families, and Retirees, 2,929 people (including 741 children) were provided with pre-paid vouchers for Russian health resorts. The Company spent RUB 23.6 million of its earnings to pay rkutskenergo for this program. Also, in accordance with the current Housing for New Employees