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ANNUAL REPORT Public Joint Stock Company Interregional Distribution Grid Company of Center and Volga Region

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Approved by the decision of the General Shareholders Meeting of PJSC IDGC of Center and Volga Region Minutes No.11 as of June 06, 2017 Preliminarily approved by the decision of the Board of Directors of PJSC IDGC of Center and Volga Region Minutes No. 267 as of May 02, 2017 ANNUAL REPORT Public Joint Stock Company Interregional Distribution Grid Company of Center and Volga Region for 2016 Acting General Director of PJSC IDGC of Center and Volga Region O Yu. Isaev Nizhny Novgorod 2017 PJSC IDGC of Center and Volga Region management is performed in conformity with the requirements of ISO 9001, OHSAS 18001, ISO 14001 and ISO 50001 Contents 1. COMPANY PROFILE .................................................................................................................................................. 5 1.1. COMPANY OVERVIEW ................................................................................................................................................... 5 1.2. COMPANY'S SHARES ..................................................................................................................................................... 5 1.3. KEY EVENTS IN 2016 .................................................................................................................................................... 6 1.4. HISTORY OF INDUSTRY AND THE COMPANY........................................................................................................................ 9 1.5. OPERATING RESULTS ................................................................................................................................................... 11 1.6. INVESTMENT ATTRACTIVENESS ...................................................................................................................................... 13 1.7. COMMISSIONING OF NEW CAPACITIES OF PRIORITIZED FACILITIES ......................................................................................... 14 1.8. STRUCTURE OF THE COMPANY ...................................................................................................................................... 16 1.9. FOOTPRINT MAP ........................................................................................................................................................ 17 1.10. ADDRESS OF CHIEF EXECUTIVES..................................................................................................................................... 18 2. STRATEGY AND DEVELOPMENT PROSPECTS ............................................................................................................... 20 2.1. POSITION IN THE INDUSTRY AND OPERATIONS ........................................................................................................................ 20 2.2. BUSINESS MODEL ............................................................................................................................................................. 22 2.3. MISSION, MAIN OBJECTIVES AND PRIORITIES ......................................................................................................................... 24 2.3.1. KPI in the Strategic Planning System .................................................................................................................... 25 2.3.2. Strategic Objectives and their Fulfillment ............................................................................................................ 27 2.3.3. Report of the Board of Directors on Priority Areas............................................................................................... 31 2.4. QUALITY POLICY ............................................................................................................................................................... 33 2.5. RISK MANAGEMENT SYSTEM .............................................................................................................................................. 35 2.6. INVESTMENT ACTIVITIES ..................................................................................................................................................... 44 2.6.1. Investment Program Development ...................................................................................................................... 44 2.6.2. Capital Construction Quality Management ......................................................................................................... 54 2.6.3. Long-Term Development ...................................................................................................................................... 57 3. REPORT ON PRODUCTION .......................................................................................................................................... 63 3.1. OVERVIEW ...................................................................................................................................................................... 63 3.2. POWER TRANSMISSION ...................................................................................................................................................... 65 3.3. TECHNOLOGICAL CONNECTION TO GRIDS .............................................................................................................................. 69 3.4. OTHER ACTIVITIES ............................................................................................................................................................ 74 3.5 INNOVATIVE DEVELOPMENT ................................................................................................................................................ 74 3.5.1. Energy Saving and Energy Efficiency Improvement ............................................................................................. 82 3.5.2. Reactive Power Flow Management ..................................................................................................................... 85 3.5.3. Operative and Technological Process Control ...................................................................................................... 88 3.5.4. Information Technologies and Telecommunications ........................................................................................... 90 3.6. TECHNICAL POLICY ............................................................................................................................................................ 93 3.7. POWER SUPPLY RELIABILITY ................................................................................................................................................ 96 3.7.1. Reliability Assurance ............................................................................................................................................ 96 3.7.2. Repair and Maintenance ...................................................................................................................................... 96 3.7.3. Emergency Prevention and Response at Power Distribution Grid Facilities ......................................................... 98 3.8. CONSOLIDATION OF POWER GRID ASSETS ........................................................................................................................... 101 3.9. DECREASE IN ENERGY LOSSES ............................................................................................................................................ 102 3.10. ORGANIZATION OF INTERACTION WITH SERVICE CONSUMERS ................................................................................................ 103 4. SUSTAINABILITY REPORTING .................................................................................................................................... 107 4.1. FINANCIAL AND ECONOMIC ACTIVITIES ............................................................................................................................... 107 4.1.1. Accounting Policy ............................................................................................................................................... 107 4.1.2. Analysis of Financial Performance under RAS .................................................................................................... 107 2 4.1.3. Capital Structure ................................................................................................................................................ 113 4.1.4. Credit Policy ........................................................................................................................................................ 117 4.1.5. Tariff policy......................................................................................................................................................... 120 4.1.6. Procurement Activities ....................................................................................................................................... 132 4.2. HUMAN RESOURCES POLICY ............................................................................................................................................. 134 4.2.1. HR Policy............................................................................................................................................................. 134 4.2.2. KPIs and Information on their Achievement....................................................................................................... 143 4.3. SOCIAL RESPONSIBILITY
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