Annual Report

Preliminary Approved: by the Resolution of the Board of Directors JSC “LENENERGO” on ______, 2009 Record # __ dated ______, 2009

Chairman of the Board of Directors

______А.N. Chistyakov

ANNUAL REPORT

LENENERGO Open Joint-Stock Company of Power Industry and Electrification

for 2008

General Director, JSC “LENENERGO” D.V. Ryabov

Chief Accountant, JSC “LENENERGO” G.V. Kuznetcova

Saint-Petersburg

2009

TABLE OF CONTENT

Information on the JSC “LENENERGO”. Key Indicators of the Year 2008 Page 4 Glossary Page 8 Addresses of the Chairman of the Board of Directors and the Company’s General Director to Shareholders Page 10 Section 1. General Information. The Company’s Position in the Industry Page 14 Section 2. Structure and Principles of Corporate Management Page 30 Section 3. Operational Activity Page 68 Section 4. Key Accounting and Financial Indicators Page 102 Section 5. Profit Distribution and Dividend Policy Page 110 Section 6. Investment Activity Page 112 Section 7. Procurement Activity Page 121 Section 8. Market Share Page 129 Section 9. Prospects of the Equipment Retooling and Company’s Development Page 133 Section 10. HR and Social Policy Page 143 Section 11. Operation control and Protection of Labor Page 148 Section 12. Company’s Information Technologies Page 159 Section 13. Environmental Protection Page 166 Section 14. Analytical Summary of the Company’s Management Page 172 Section 15. The Company’s Objectives, Prospects and Strategic Tasks for the Next Year Page 201 Section 16. Contacts for Investors Page 205 Opinion of the Company’s Internal Audit Commission Page 208 Report of the Company's Auditor Page 210 Appendix # 1 JSC “LENENERGO” Management Structure on 31.12.2008 Page 211 Appendix # 2 Page 212 Information on the Company’s Compliance with the Corporate Behavior Code Appendix # 3 List of Interested Party Transactions of the Company in 2008 Page 229

This Annual Report 2008 of JSC “LENENERGO” (hereinafter Annual Report) has been drawn up based on the information available to the Company at the moment of compilation. The Annual Report comprises information on business results of the Company in 2008 as well as estimations and forecasts by the authorized governing bodies of the Company with respect to future events and/or steps, development prospects of JSC “LENENERGO” core industry and business results including JSC “LENENERGO” projects, probable events and expected steps. Investors shall not exclusively rely on estimations and forecasts made by the management of the Company, since they represent only a possible scenario and actual business results may differ from the expected outcome due to multiple reasons. Some statements given herein are not the matter of fact but future expectations. Such words as “planned”, “expected”, “estimated”, “will make”, “will happen” and the like are forecasting in such statements and underline the risk that they will never come true. Thus, the Company warns that actual results or events may significantly differ from the expectations given in the Annual Report. Key risks which are taken into account in tactical and strategic planning of JSC “LENENERGO” activities and may affect its business are as follows: public authorities may change the rates for services provided by the Company, actions taken by public authorities with respect to JSC “LENENERGO”, risks related to JSC “LENENERGO” business, amendments to tax legislation, risks of legal actions against JSC “LENENERGO” and etc. The above list of risks is not exhaustive.

INFORMATION ON JSC “LENENERGO” KEY INDICATORS OF THE YEAR 2008

JSC “LENENERGO” mission is to ensure reliable, continuous and high-quality power supply to consumers of Saint-Petersburg and Leningrad Region as well as to meet demand on electric power and power. JSC “LENENERGO” strategy implies:  Upgrade of technical facilities taking into account economic, social and other interests of employees and population;  Improvement of investment appeal of the Company;  Establishment of a unified network company based on JSC “LENENERGO” through generation of unified network area and improvement of technological and economic reliability ensured by technically continuous and interconnected network equipment, as well as through offering of better power connection conditions for customers in St. Petersburg and Leningrad Region. Key issues of JSC “LENENERGO” strategy are as follows: to show positive development trend amid financial crunch, improve financial performance, upgrade technical facilities and improve investment appeal taking into account public interest. Passport to success is high efficient management system and professionalism of JSC “LENENERGO” staff, whose efforts are focused on achievement of general goals of JSC “LENENERGO” development. JSC “LENENERGO” was registered by decision #2518 of Registration Chamber of Saint- Petersburg Administration dated January 22, 1993. Founder of JSC “LENENERGO” is the Committee for City Property Management of Saint-Petersburg Administration which is a Regional Agency of the State Committee for State Property Management of the Russian Federation (Goskomimushchestvo). JSC “LENENERGO” is a successor of rights and obligations of state enterprise bearer of the Order of the October Revolution and the Order of the Patriotic War 1st Class Leningrad Production Association of Power Industry and Electrification JSC “LENENERGO” to the extent defined in Privatization Plan for Public Enterprise of Power Industry and Electrification JSC “LENENERGO” approved by the Chairman of Committee for City Property Management of Saint-Petersburg Administration on December 22, 1992. Full name in Russian is Otkrytoe Aktsionernoe Obshchestvo Energetiki i Elektrifikatsii JSC “LENENERGO” (“LENENERGO” open joint-stock company of power industry and electrification); full name in English is JOINT-STOCK COMPANY “LENENERGO”. Short name in Russian is “ЛЕНЭНЕРГО”; short name in English is JSC “LENENERGO”. Location: 1 Ploshchad Konstitutsii, Saint-Petersburg 196247, Russia. JSC “LENENERGO” is a power distribution network company, whose core activities are distribution of electric power and connection of new customers to power supply network. JSC “LENENERGO” owns networks of 0.4-110 kV. JSC “LENENERGO” is operating in two Federal Subjects of Russia: Saint-Petersburg and Leningrad Region. Rates for services provided by JSC “LENENERGO” are prescribed separately for every Federal Subject of Russia by Power Distribution Zone of Saint-Petersburg and Power Distribution Zone of Leningrad Region respectively.

Key Performance and Investment Indicators of the Company:

Unit 2006 2007 2008 Installed capacity МВА 18,012.9 18,672.2 19,365.5 Overhead power transmission km 38,578.1 38,841.4 39,084.6 lines (OL) of 0.38-110 kV Cable lines of 0.38-110 kV km 16,417.0 16,338.3 16,731.0 Substations of 35-110 kV 362 368 unit (MVA) 368 (12,818) (11,549.9) (12,186.5) Transformer substations of 6-35 13,351 13,452 13,646 unit (MVA) kV (6,463) (6,486) (6,547.5) Disbursement of repair funds thousand RUR 519,651 556,069 704,314 Electric loss in networks per cent 14.08 12.10 9.97 Investment program thousand 2,860 10,627 11,699.5 RUR

Key Financial and Economic Indicators: Indicator Unit 2006 2007 2008 ROE per cent 2.37 3.74 4.35 Net profit thousand RUR 423,970 916,067 1,539,618 Equity capital thousand RUR 17,861,177 32,026,306 45,156,531

Quick assets ratio 0.59 1.07 0.75 EBITDA thousand RUR 3,017,268 4,132,695 5,566,233 Net proceeds thousand RUR 10,510,211 15,265,492 20,827,799

Governing bodies of the company are the General Meeting of Shareholders, Board of Directors, Management Board, and General Director. The Auditing Committee is a body controlling financial and operational activities of the Company.

Charter Capital of the Company: Charter capital of the Company amounts to RUR 1,019,285,990 (one billion nineteen million two hundred and eighty-five thousand nine hundred and ninety) and 4/100.

Shares: Face value Registration Registration Type, category Quantity (unit) (RUR) date number Ordinary registered 691,854,144 1.00 27.06.2003 1-01-00073-А uncertified shares Ordinary registered 234,167,535.04 1.00 12.12.2008 1-01-00073- uncertified shares А-001D Privileged registered 93,264,311 1.00 27.06.2003 2-01-00073-А uncertified A-type shares Total: 1,019,285,990.04 1,019,285,990.04

JSC “LENENERGO” shares are included into quotation lists: - Quotation list A2 of RTS Stock Exchange1; - Quotation list B MICEX Stock Exchange.

Bonds: Inconvertible interest-bearing certified bearer bonds of 02 series subject to mandatory centralized custody. Type, category, Quantity Face value Registration Registration Maturity Series form (unit) (RUR) date number date Certified bearer 3,000,000 1,000.00 14.11.2006 4-02-00073-А 02 27.01.2012 bonds

2. Inconvertible interest-bearing certified bearer bonds of 03 series subject to mandatory centralized custody. Type, category, Quantity Face value Registration Registration Maturity Series form (unit) (RUR) date number date Certified bearer 3,000,000 1,000.00 27.03.2007 4-03-00073-А 03 18.04.2012 bonds

1 According to Rules for Admission of Securities to Trading on RTS, since February 2, 2009 ordinary and privileged shares of the Company have been admitted to trades in A2 quotation list. 6

Major shareholders of JSC “LENENERGO”: 1. JSC “LENENERGO”Interregional Distribution Grid Companies Holding (IDGC Holding) with 45.71 per cent of shares in the charter capital 2. Committee for City Property Management on behalf Saint-Petersburg, which is a city and a federal subject of Russia, with 22.85 per cent of shares in the charter capital2; 3. Not-for-Profit Partnership “The National Depository Center” (nominee holder) with 13.78 per cent of shares in the charter capital; 4. Closed Joint-Stock Company “Depository Clearing Company” (nominee holder) with 9.3 per cent of shares in the charter capital.

Total volume of trades in JSC “LENENERGO” shares:

- on the trading floor of MICEX Stock Exchange: 2007, thousand RUR 2008, thousand RUR +/-, % Trading volume 199,094 322,084 + 38.19 %

In 2008 it made up RUR 322,084 thousand (including RUR 234,336 thousand in equity shares; RUR 87,748 thousand in privileged shares), which is 1.62 times more than in 2007 (RUR 199,093 thousand).

On the trading floor of RTS: 2007, thousand RUR 2008, thousand RUR +/-, % Trading volume 146,881 119,881 - 18.43 %

In 2008 it made RUR 119,881 thousand (including RUR 66,572 thousand in equity shares; RUR 53,240 thousand in privileged shares), which is 1.23 times less than in 2007. Capitalization of JSC “LENENERGO”:3

2007 2008 +/- % Capitalization RUR 34 billion / USD 1.4 billion RUR 15.4 billion / USD 0.52 billion - 55

At the end of 2008 capitalization made RUR 15.4 billion / USD 0.52 billion which is 55.88 per cent less than in 2007 (RUR 34 billion / USD 1.4 billion).

It should be noted that decrease in capitalization reflects general trend on the global financial market.

2 On 12.12.2008, The Federal Financial Markets Service of the Russian Federation registered Report on results of the Issue On 25.12.2008, Interdistrict Inspectorate of the Federal Tax Service No/15 Saint-Petersburg registered amendments to the Charter of JSC “LENENERGO”. 3 According to RTS 7

GLOSSARY AIMSPB Automated information and measuring system for power billing AIMSPBTM Automated information and measuring system for power billing and technical metering APMS Automated power management system APBSRC Automated power billing system for residential customers DTD Drilling and traversing device PTSS Package transformer substation DD Drilling device OL Overhead line VPDN Vyborg Power Distribution Networks – a subsidiary of JSC “LENENERGO” GtPDN Gatchina Power Distribution Networks – a subsidiary of JSC “LENENERGO” MDG Main distribution switchgear AOPP Annual overall procurement program CF Cash flow SaA Subsidiaries and affiliates MPC Management of projects under construction – a subsidiary of JSC “LENENERGO” SNPDN Unified National (Russian) Power Distribution Network Inflation A process, when the general level of prices in an economy rises or, consequently, the the purchasing power of money declines CL Cable line KnPDN Kingisepp Power Distribution Networks – a subsidiary of JSC “LENENERGO” KPI Key performance indicators CN Cable Network – a subsidiary of JSC “LENENERGO” KVA Kilovolt ampere CPMC of Saint- City Property Management Committee of Saint-Petersburg Petersburg LzPDN Luzhskie Power Distribution Networks – a subsidiary of JSC “LENENERGO” Liquidity of assets An asset's ability to be easily converted through an act of processing, buying or selling without causing a significant movement in the price. The degree of liquidity is defined by the period of asset’s conversion Company’s liquidity The company’s liquidity is defined by the company’s ability to convert its assets into money fast and with minimum loss of value. Accounting liquidity A measure of the ability of a company to pay its debts with assets as and when they fall due. LpPDN Lodeynoye Pole Power Distribution Networks – a subsidiary of JSC “LENENERGO” MTR Material and technical resources MVA Megavolt ampere MS Metrological service IAS International accounting standards VAT Value added tax NlPDN Novoladozhskie Power Distribution Networks – a subsidiary of JSC “LENENERGO” RTC Russian tax code RD Reference data TSaS Technical standards and specifications Company JSC “LENENERGO” open joint-stock company of power industry and electrification ODO Operational-dispatching office EC Emergency crew ODG Operational-dispatching group AWP Autumn and winter period WPM Wholesale power market ECA Emergency control automatics SAR Statutory accounting regulations Company’s financial An ability of a company to pay its debts out of business activities and loans. solvency MSS Mobile substation SuPDN Suburban Power Distribution Networks – a subsidiary of JSC “LENENERGO” TS Substation PPE Psychophysiological examination RDO Regional dispatching office RPAE Relay protection and automatic equipment DSS Distribution substation RAS Russian accounting standards 8

PDNC Power distribution network company RPC Regional power commission PDZ Power distribution zone PDNF Power distribution network facilities – total power distribution networks in a Russian constituent entity DPMS Dispatch and process management service SIaS Social infrastructure and service – a subsidiary of JSC “LENENERGO” HRMS Human resource management system PLS Power level service RPAES Relay protection and automatic equipment service TkPDN Tikhvin Power Distribution Networks – a subsidiary of JSC “LENENERGO” TR Transformer room CaM Commodities and materials TMR Technical modernization and reconstruction TSp Technical specifications SF Salary fund FGC FGC UES – Federal Grid Company of Unified Energy Systems (open joint-stock company) RFRS Russian Federal Rate Service IDC IDGC Holding – Holding of Interregional Distribution Grid companies (open joint-stock company) RCB Russian central bank MCS Main control service NMC Network management center FRC Financial responsibility center PDN Power distribution networks EBITDA The English acronym for Earnings before Interest, Taxes, Depreciation, and Amortization. It is an analytical metric that means profit before interest, tax, depreciation and amortization. ROE The English acronym for Return On Equity. It is the profit on the shareholders' equity and is equal to the net income after taxes divided by the total shareholders' equity. RAB The English acronym for Regulated Asset Base.

ADDRESS OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND GENERAL DIRECTOR

Dear Shareholders! Last year JSC “LENENERGO” underwent some most important changes aimed at increasing efficiency of the Company’s operations, further developing its capacities, improving financial performance and building constructive relations with customers. New management team was elected in 2008. The team addressed new challenges of the global financial crisis and achieved significant increase in the key financial indicators. 16 Meetings of the Board of Directors were held in 2008, including 2 in praesentia and 14 in absentia. 135 issues were submitted for consideration to the Company’s Board of Directors, thus, 135 issues were considered with 132 issues resolved and 3 issues adjourned. Special focus was put on development of Customer Service Standards, introduction of an Environmental Management System at JSC “LENENERGO” and organization of JSC “LENENERGO” securities circulation outside the Russian Federation with a GDR program. Other decisions included establishment of a single power network company in Saint-Petersburg; charity issues; election of the Management Board of the Company. The Board of Directors also approved the Report on the additional issue of securities and the new version of JSC “LENENERGO” Corporate Management Code. The following Committees were established late 2008 – early 2009 to ensure efficient implementation of functions of the Board of Directors in addition to the existing Strategy and Development Committee and Reliability Committee: - Audit Committee; - HR and Remuneration Committee; - Committee for Technological Connection to Power Networks (established by the Board of Directors decision on March 9, 2009). The Board of Directors resolved to hold regular quarterly meetings of the Strategy and Development Committee, where the Company’s investment program will be discussed and adjusted taking into account changing economic environment both in Russia and abroad. Under the arrangements set by the Agreement on Cooperation between the Administration of Saint-Petersburg and the RAO UES of Russia, in Q4 2008, JSC “LENENERGO” issued additional equity shares by private subscription in favor of the city of Saint-Petersburg. Total volume of the additional issue made up RUR 8.7 billion, including RUR 3 billion in cash funds and RUR 5.7 billion in fixed assets. In December 2008 FFMS of Russia registered the Report on the additional issue of the Company’s equity shares. The required amendments were made to the Charter and registered. Cash funds raised from additional issue were allocated to implementation of the investment program of the Company. The main goal of the additional issue of JSC “LENENERGO” shares was to establish a joint networking company in Saint-Petersburg with increased technologic and economic reliability. Establishment of such joint networking company will improve networks operation and reliability as well as allow business expansion and increase total income of the Company. JSC “LENENERGO” will stick to the strategy in the future and plans to take some measures aimed at consolidation of networking assets of St. Petersburg and Leningrad Region. In Q4 2008, Bank of New York Mellon launched sponsored GDR program for JSC “LENENERGO” shares in the amount of 11.95 per cent of the total amount of the shares offered in compliance with resolution of the Board of Directors and authorization given by the Federal Financial Market Service of Russia dated October 3, 2008 to trade the Company’s securities abroad. The depository receipts will be available to the wide investor community both in Central Europe and the USA within the frameworks of Rule 144A and Provision “S”.

The Company’s Board of Directors consists of thirteen people, including 2 representatives of minor shareholder, 1 representative of Leningrad Region, 3 representatives of Saint-Petersburg Administration and 7 representatives of IDGC Holding as a major shareholder of JSC “LENENERGO”. I would like to thank JSC “LENENERGO” management on behalf of the Company’s Board of Directors for their constructive effort to the benefit of the Company. My gratitude towards St. Petersburg Administration and Leningrad Region Administration for constructive cooperation facilitating system development of the network complex ensuring high-quality power supply to the customers. I would like to thank all employees of the Company, whose professional work ensures reliability of the power system of JSC “LENENERGO”.

A.N. Chistyakov, Board of Directors Chairman, JSC “LENENERGO”

Dear shareholders!

The year 2008 was a real examination for JSC “LENENERGO”, as well as other power networking companies of Russia. For the first time we operated in Autumn and Winter without any support from the RAO UES of Russia. Such situation demanded great responsibility, expertise and thorough preparation from all the services and structures of the Company. Amid the global financial crisis broken out in September 2008, the Company tried to avoid decrease in key financial indicators and hold its market share. Today we can say that JSC “LENENERGO” has successfully met the tasks and ensured uninterrupted power supply to the customers and gained profit under such severe conditions. The Management Board of the Company started working since July 2008 in compliance with resolution of the General Sareholders Meeting. The Management Board governs the current activities of the Company alongside with the General Director. The Board is also responsible for presentation of perspective development plans to the Board of Directors. Improved corporate governance, business planning and budgeting, as well as achievement of goals set by the Board of Directors provided for the Company’s positive results. JSC “LENENERGO” net profit in 2008 amounted to RUR 1,539,618,000, i.e. 1.6 times more than in 2007 (RUR 916,067,000). In 2008 the volume of electric power supply to the network of JSC “LENENERGO” amounted to 32,353.9 million kilowatt-hour, including 20,311.7 million kilowatt-hour to Saint-Petersburg and 12,042.2 million kilowatt-hour to the Leningrad Region. The volume of electric power transmitted through JSC “LENENERGO” amounted to 28,439.1 million kilowatt-hour, including 17,991.2 million kilowatt-hour in Saint-Petersburg and 10,447.9 million kilowatt-hour in the Leningrad Region. January 1st, 2008 new tariffs for transmission of electric power through the network of JSC “LENENERGO” set by Saint-Petersburg Tariff Committee and The Leningrad Region Tariff and Pricing Committee for 2008 were introduced. The fee for transmission of electric power through the network of JSC “LENENERGO” in St. Petersburg increased by 36.9 per cent compared to 2007 and by 6.5 per cent in Leningrad Region. New tariffs for connection to the network in Saint- Petersburg set by Saint-Petersburg Tariff Committee were also applied since January 1, 2008. Connection costs from RUR 2,813 to 44,080 per kilowatt-hour depend on voltage, power and tariff zone. Such tariffs increased incomes of JSC “LENENERGO” to RUR 20.8 billion per year, which is 1.4 times more than for the previous year. In 2008 the Company’s shares were included into the Quotation List B of RTS and MICEX. And since February 2, 2009 equity and privileged shares of the Company have been traded under the Quotation List A, second tier of RTS. The total volume of trade in JSC “LENENERGO” shares in MICEX amounted to RUR 332,084 million in 2008, which is 38 per cent more than in 2007 (RUR 199,093 million). The total volume of trade in JSC “LENENERGO” shares in RTS amounted to RUR 119,811 million in 2008. The Company’s capitalization at year-end 2008 amounted to RUR 15.4 billion (USD 0.52 billion), a 55.88% decrease compared to RUR 34 billion (USD 1.4 billion) in 2007. However, the reduction of capitalization reflects the overall situation in the world market. The investment program of JSC “LENENERO” used RUR 10 billion 782 million in 2008. Working power transmission lines and transforming substations underwent stage-by-stage modernization and re-equipment, which will increase the system’s reliability and guarantee power supply to the customers. Distribution network units (357 km of power lines and power sources with total capacity equal to 705 MVA) were commissioned in 2008 under investment program of the Company. In 2008 groundwork was laid for commissioning of a great number of high availability facilities (“Tikhvin-West”, “Kudrovo”, “Lakhta” and “Strelna” substations) in 2009, and large-scale activities to expand the distribution network. Despite unfavorable economic environment in Russia, volume of the investment program has not decreased, scheduled terms of implementation are met.

Experts from JSC “LENENERGO” were the first in Russia to draw a master plan for development of average voltage (6-10 kilowatt) networks in Saint-Petersburg. This program is planned to be completed in 2012. To enhance reliability of power supply to the customers, the Company suggested to use new technological approaches, such as mobile sub-stations. Two such mobile sources were launched to ensure power supply to the Frunze radius of St. Petersburg metro; two mobile substations were mounted on Volkhovskaya sub-station. In April 2008 JSC “LENENERGO” Board of Directors made creation of a single power network company in Saint-Petersburg a priority. By September 2008, JSC “LENENERGO” has purchased 95 per cent shares in Tsarskoye Selo Power Company. On November 17, under the program of consolidating Saint-Petersburg networks, JSC “LENENERGO” purchased a 92.6 per cent of shares of Kurortenergo. Establishment of a single power network company in Saint-Petersburg will increase network manageability, stability of supply and the Company’s business horizons. Last year the Company’s management used a marketing approach to forecast geography and amount of applications for connection, which was part of the general strategy for social and economic development of the region. November 19, 2008, the first Service Centre in JSC “LENENERGO” subsidiary Suburban power networks. We plan to open 7 more Service Centers in The Leningrad Region: in Vyborg, Gatchina, Tikhvin, Luga, Kingisepp, Lodeinoe Pole and Vsevolozhsk districts. This is a breakthrough in the system of the Company’s relations with power users of the region. Last year JSC “LENENERGO” paid special attention to cooperation and dialog with all the members of the territory’s power industry. Regular meetings of the Operations Center for Implementation of Measures stipulated in the Agreement on Cooperation between the Administration of Saint-Petersburg and Leningrad Region and the RAO UES of Russia. The meetings concern progress of power companies in construction and reconstruction of facilities under the Agreement. In November 2008 JSC “LENENERGO” and the Non-commercial Partnership Saint-Petersburg Constructors Association signed a Memorandum to resolve the key energy problems of the city’s construction industry. In 2008 the Company’s social and charity policy included a number of steps to solve crucial social problems. The most notable activities included participation in architectural artistic lighting of the Palace Embankment, the Peter and Paul Fortress, the Saint Petersburg TV Tower. In 2009 the Company’s management faces new challenges. Our main priorities, as in 2008, include improvement of corporate governance, professional growth of employees, attraction of large-scale investments into construction and reconstruction of power network facilities to provide development of the power industry outpacing economic growth, reliable power supply to the region and guaranteed profit for shareholders.

D.V. Ryabov, General Director, JSC “LENENERGO”

SECTION 1. GENERAL INFORMATION, THE COMPANY’S POSITION IN THE INDUSTRY

1.1. General Information JSC “LENENERGO” was registered by the Resolution #2518 of the Registration Chamber under the Saint-Petersburg Administration as of January 22, 1993. The Company was founded by the City Property Management Committee of Saint-Petersburg, the regional representative of the Russian Federation State Property Committee. JSC “LENENERGO” is the largest electric power distribution and network company in the Northwest of Russia, servicing a large market of Saint-Petersburg and The Leningrad Region with an area of 87.1 thousand square meters and a population of 6.2 million people (4.6% of the country’s population). Power supply of Saint-Petersburg and The Leningrad Region is provided by 9 subsidiary power networks: Vyborg Power networks; Gatchina Power networks; Kingisepp Power networks; Lodeynoe Pole Power networks; Luga Power networks; Novaya Ladoga Power networks; Suburban Power networks; Tikhvin Power networks; Cable Network.

The Company’s main activities include:  Power transmission and services related to supply of users with electric power;  Grid connection of power-consuming equipment (power stations) of corporate and individuals. Tariffs for the Company’s services are established by the regional regulators within the frameworks of decision taken by the Federal Tariff Service. According to the Regulation #127/8 of the RF Federal Energy Commission as of 19.12.1997 JSC “LENENERGO” was included into the Register of Subjects of Natural Economy Regulated and Controlled by the Government, under Section I “Electric and (or) Heat Power transmission Services”. Companies providing electric power transmission and user connection services in Saint- Petersburg and The Leningrad Region besides JSC “LENENERGO” include: - Saint-Petersburg Grid; - Leningrad Region Grid Company ( LOESK); - IDGC of the North-West, - as well as a number of related network companies, whose areas of responsibility are set by regulations of the Subjects of the RF concerned: Peterhof Power networks, Tsarskoye Selo Power Company, Kurortenergo; Lenteplosnab, etc.

1.2. Information on the Company’s Products and Services JSC “LENENERGO” provides power transmission services to customers from wholesale and retail electric power market of The Leningrad Region and Saint-Petersburg. Power transmission services are provided to guaranteeing suppliers, independent power suppliers and direct users, members of the wholesale electric power market, as well as to a related network company. JSC “LENENERGO” is the largest power network company in Saint-Petersburg and The Leningrad Region. The share of power transmitted through the network of JSC “LENENERGO”

14 in the overall energy consumption by users of power suppliers operating in Saint-Petersburg and The Leningrad Region собственными amounts to 73.43%.

1.3. The Company’s organizational structure JSC “LENENERGO” management bodies include: General Shareholders Meeting, Board of Directors, Management Board and the Company’s General Director. JSC “LENENERGO” comprises 11 subsidiaries (created according to the Resolution of JSC “LENENERGO” Board of Directors as of 26.12.2006 from the Company’s structural units). # Name Address 1. Vyborg Power Networks 188800, Vyborg, Severny Val 7

2. Gatchina Power Networks 188300, Gatchina, K. Marx street 73-а

3. Cable Network 197022, Saint-Petersburg, Akademika Pavlova street 5 В

4. Kingisepp Power networks 188480, Kingisepp, K. Marx avenue 64

5. Lodeynoe Pole Power networks 187700, Lodeynoe Pole, Energetikov street 4

6. Luga Power networks 188230, Luga, Leningrad highway 6

7. Novaya Ladoga Power networks 187453, Novaya Ladoga, Sadovaya street 25

8. Suburban Power networks 196601, Saint-Petersburg, Pushkin, 2nd passage 20/5

9. Tikhvin Power networks 187500, Tikhvin, PS-143

10. Social infrastructure and Servicing 196247, Saint-Petersburg, Leninski avenue 160

11. Projects under Construction 196247, Saint-Petersburg, Leninski avenue 160 Management

Organizational structure of JSC “LENENERGO” management as of 31.03.2009 is given in Appendix 1. The total staff of JSC “LENENERGO” as of 31.12.2008 amounts to 5 609 employees, which is 0.3% of Saint-Petersburg employed population

1.4. History of the Company July 16th, 1886, Emperor Alexander III of Russia approved the Charter of the Electric Lighting Company, founded by Carl Siemens. This day is considered the beginning of the “electric” era, the date of JSC “LENENERGO” foundation. The Company’s history spanning more than a century reflects the history of Russia with all its good and bad moments, including nationalization, the GOELRO plan, World War II, restoration of the economy, stagnation of the 1970s and the return to the principles of democracy, private property and integration into the world business society in the end of the XXth century. On December 29th (16th in Old Style) 1917 The Company of 1886 was nationalized. In 1919 it joined the United State Electric Stations (USES). In 1922 it was reformed into the Petrotok trust. In 1924 the trust was renamed Electrotok. In 1932 it was renamed JSC “LENENERGO”, which has been the Company’s name ever since. 15

JSC “LENENERGO” has always been one of the country’s most progressive power companies. In 1897–1898 Russia’s first stationary power plants appeared in Saint-Petersburg on the Obvodnoy channel (constructed by The Electric Lighting Company of 1886), in Novgorod street (by Helios from Cologne) and on the Fontanka embankment (by the Belgian Anonymous Company). An in 1907 the renowned Russian scientist Heinrich Graftio designed and commissioned the Streetcar power station. Implementation of the famous GOELRO plan also started in Leningrad. In 1922 the first thermal power station “Utkina Zavod” was constructed. In 1924 the first heat line was built from the power station # 3 on the Fontanka to a residential house, which started construction of heating networks across the country. December 19th, 1926 saw the commissioning of Volkhovskaya hydroelectric plant, the country’s first and then most powerful. In those years JSC “LENENERGO” creates the first 110 kilovolt power line in the USSR. Early in 1929 Elektrotok’s Management moved to former Pavlovsky regiment barracks, where the first control room of the Leningrad power system was installed. On December 19, 1933 the Nizhnesvirskaya hydroelectric plant, the world’s first power plant to be constructed on floating Devonian clays, was commissioned with a ceremony. The facilities were constructed on a massive continuous concrete slab to avoid possible deformation. Such engineering solution was used for the first time in world practice. Energy from the hydroelectric plant was transmitted to the Chesmenskaya Leningrad substation via a 240 kilometer 220 kilovolt power line, the first in the USSR. And Dubrovskaya State District Power Station was the first power station to be constructed without foreign specialists and furnished with equipment produced by domestic manufacturers. In 1941 there system of JSC “LENENERGO” comprised 20 elements, including 6 thermal power plants, 3 hydroelectric plants, as well as networking and overhaul facilities with a total capacity of 758.5 megawatt, and energy output of more than 30 million kilowatt-hour. During World War II JSC “LENENERGO” suffered significant damages and lost two thirds of the power system capacities. On September 8th, 1941 Leningrad fell under blockade. However, due in no small part to the selfless labor and courage of Leningrad’s power engineers, the city withstood it. In winter 1942 JSC “LENENERGO” proposed to restore and partially reconstruct the Volkhov 110 kilovolt and 35 kilovolt power lines, and to lay a 10 kilovolt four-wire cable on the bottom of the Ladoga. Stretching for more than 100 kilometers, that cable was assembled by hand. The unique technical solution helped to lift the power blockade in September 1942. And Leningrad endured. By 1949 the power system was already at the pre-war level in capacity and energy output. Construction of new power stations and development of electric and heating networks followed. In 1964 the power network of the Leningrad Region was substantially reorganized. 28 regional agriculture energy operation divisions, JSC “LENENERGO”, were liquidated to be reorganized into 8 JSC “LENENERGO” power network divisions, and agriculture electrification and distribution network services. Thus Vyborg, Gatchina, Kingisepp, Lodeynoe Pole, Luga, Novaya Ladoga, Suburban and Tikhvin Power networks were created. The new companies provided power supply to agriculture, industry and population of the Leningrad Region. Over the first 20 years 53 098 kilometers of 10 and 6 kilovolt overhead networks and 31 822 kilometers of 0.5 kilovolt networks were constructed, which doubled the spread of networks received from the regional JSC “LENENERGO”. All collective and state farms had been electrified by 1967, and all settlements had been electrified by 1975. In 1965 the Company started to form the main 330 kilovolt power network. Vostochnaya, Chudovo, Yuzhnaya substations with 330 kilovolt lines were commissioned, providing connection of the JSC “LENENERGO” power system to the United Central Power System. Developments included construction of a 750 kilovolt high-voltage line, adoption of 10 kilovolt and 220 kilovolt oil-filled cables, construction of 1400 mm heating lines, complex automation of production processes, adoption of management telemechanics and many more. In 1980 a unique transformation complex comprising a transformation substation and two 400 kilovolt lines was built in Vyborg to increase energy export to Finland. The unique project

16 allowed transmission of up to 4 billion kilowatt-hour annually for 10 years with the primary power of 600 megawatt, the highest in Europ at that time. In 1992 the Company was privatized to become the Joint Stock Company of Energetics and Electrification JSC “LENENERGO”, successor to the Leningrad Energetics and Electrification Production Association JSC “LENENERGO”. The damages of the 1980–90s to the power system are felt even now. Payment default, debt offsetting and the following cancellation of overhaul and construction programs were a dramatic impact on the industry. 2000 was a critical year for the Company. From 2000 to 2005 5 new major 110 kilovolt substations were constructed, and more than 120 kilometers of heating lines and dozens of kilometers of power networks were reconstructed in Saint-Petersburg. On April 08, 2005 JSC “LENENERGO” extraordinary General Shareholders Meeting resolved to reorganize JSC “LENENERGO” by separating the following companies: Saint-Petersburg Generating Company, Northwestern Power Management Company, Saint-Saint-Petersburg Power Sales Company, Saint-Petersburg Backbone Networks. The first three companies were registered on October 1st, 2005, and Saint-Petersburg Backbone Networks on December 1st, 2005. The name JSC “LENENERGO” was kept by the distribution network company that became the largest among the similar companies of the Northwestern Russia. The reform was a new stage in development of the first Russian power system. The main objective was to adapt the power system operations to the market conditions, retaining all the experience accumulated by generations of Saint-Petersburg power engineers. July 27th, 2006 Anatoliy Chubais, Chairman of the RAO UES of Russia Management Board, and Valentina Matvienko, Governor of Saint-Petersburg, signed the Agreement on Cooperation between the Administration of Saint-Petersburg and the RAO UES of Russia in Providing Stable Power supply and Connecting Saint-Petersburg users to Power networks. This document provides for unprecedented investments into the development of the Saint-Petersburg power industry. The cost of this joint program scheduled for the period from 2006 to 2012, is estimated at RUR 300 billion. The investments into the development of JSC “LENENERGO” power network totals RUR 78 billion. On June 9th, 2007 a similar Agreement was signed between Anatoliy Chubais, Chairman of the RAO UES of Russia Management Board, and Valentin Serdyukov, Governor of The Leningrad Region. Funds channeled to JSC “LENENERGO” facilities will exceed RUR 26 billion. Alone in 2007 Saint-Petersburg received 927 Megavoltampere additional transformer capacities. 4 new 110 kilovolt substations, Lakhta, Strelna, Osinovaya Roshcha-2 and IKEA-Kudrovo, were constructed. Besides construction of new power sources, much effort was made to reconstruct 11 existing substations and increase their capacity. April 27th, 2007 the RAO UES of Russia Board of Directors approved the structure comprising 11 independent IDGC, including JSC “LENENERGO”. On 01.07.2008 under the second stage of reorganizing the RAO UES of Russia, according to the division balance sheet the controlling stock of JSC “LENENERGO” of 465,896,500 ordinary shares (45.71% of charter capital) were transferred to IDGC Holding. In 2008 JSC “LENENERGO” charter capital was increased from RUR 785 million to RUR 1,019 million by additional issue in favor of Saint-Petersburg, a Subject of the RF, represented by the City Property Management Committee. As a result Saint-Petersburg acquired the blocking stake in the Company’s charter capital. Additional issue in favor of the Subject of the Federation is an example of a completely new approach to defining strategy of forming distribution network complexes in Russia.

1.5. Event Calendar 2008

JANUARY

New tariffs for services of JSC “LENENERGO” introduced

January 1st, 2008 new tariffs for transmission of electric power through the network of JSC “LENENERGO” set by Saint-Petersburg Tariff Committee and The Leningrad Region Tariff and Pricing Committee for 2008 were introduced. The fee for transmission of electric power through the network of JSC “LENENERGO” was from RUR 341.73 to 642.71 per 1 megawatt-hour in Saint-Petersburg and from RUR 275.98 to 547.44 per 1 megawatt-hour in the Leningrad Region depending on voltage. January 1st, 2008 new tariffs for connection to the network in Saint-Petersburg set by Saint- Petersburg Tariff Committee were also introduced. Connection costs from RUR 2,813 to 44,080 per kilowatt-hour depending on voltage, power and tariff zone.

January 18th, 2008. The first meeting of the Strategy and Development Committee under JSC “LENENERGO” Board of Directors

The committee pays a key part in discussing strategic objectives, priority areas and assessment of the Company’s long-term efficiency. The issues discussed included setting JSC “LENENERGO” customer service standards; report on business plan performance in the first three quarters of 2007, as well as approval of the procedure for calculating borrowing limit cost parameters for Q1 2008.

January 31th, 2008. Electric power complies with the State Standard

Certificates of conformity to the State Standard requirements 13109 - 97 are given to 9 subsidiaries of JSC “LENENERGO” (Novaya Ladoga, Luga, Tikhvin, Lodeynoe Pole, Gatchina, Suburban, Vyborg, Kingisepp Power networks and Cable Network).

FEBRUARY

Experts from JSC “LENENERGO” are the first in Russia to draw a master plan for development of average voltage (6-10 kilowatt) networks in Saint-Petersburg. This program is planned to be completed in 2012, by which time 250 distribution substations and 2500 transforming substations will be constructed, and more than 5000 kilometers of supply and distribution cables will be laid. Investments into construction of new and reconstruction of existing average voltage lines will amount to RUR 33 billion.

MARCH

March 17th, 2008. The new Toyota-Shushary 110 kilovolt substation commissioned

This substation is one of the key units of Saint-Petersburg and The Leningrad Region power supply system. The new power source was constructed under the Agreement of Cooperation between Saint-Petersburg and the RAO UES of Russia. The fully automated substation will provide power to plants in the Shushary industrial zone, including Toyota, General Motors and Suzuki. 18

March 31st, 2008. Three modern mobile labs start working

One of the reasons for acquiring new laboratories is maintenance of modern cables from cross- linked polyethylene, JSC “LENENERGO” networks will be using.

APRIL

April 11th, 2008. Dmitry Ryabov is Appointed the Company’s new General Director

The regular meeting of JSC “LENENERGO” Board of Directors resolved to terminate powers of JSC “LENENERGO” General Director Valeri Chistyakov from April 14th, 2008 due to his transfer to another office. Dmitry Ryabov, who had previously headed Interregional Distribution Grid Company of the Volga Region (IDGC), was elected the Company’s new General Director.

MAY

May 5th, 2008 JSC “LENENERGO” Guarantees Energy Safety of the XIIth World Economic Forum

To provide additional stability of power supply to all facilities independent diesel generators were installed at the Lenexpo exhibition center, where the Forum took place. Emergency teams, exerts on diesel generators and the control service of the Vasilievski Island division of the Cable Network were on round-the-clock duty.

May 30, 2008 the Annual General Meeting of JSC LENENERGO Shareholders

The Annual General Meeting approved the Annual Report and annual accounts of the Company for fiscal year 2007. Shareholders decided not to pay dividends on equity shares and pay dividends on privileged shares in the amount of RUR 91,607 thousand. The Board of Directors and Internal Audit Commission were reelected. LLC Fineart-Audit was approved as the Company’s auditor. Amendments to the Carter were adopted including those regarding establishment the Management Board which is a collegial executive body of the Company.

JUNE

June 30, 2008 the RAO UES of Russia liquidated

The RAO UES of Russia, the world’s largest power industry monopoly, was liquidated in another important stage of the state power industry reform.

JULY

July 1st, 2008 shares of JSC “LENENERGO” are transferred to IDGC Holding

On 01.07.2008 after reorganization of the RAO UES of Russia, according to the division balance sheet the controlling stock of JSC “LENENERGO” of 465 896 500 ordinary shares (45.71% of charter capital) were transferred to IDGC Holding.

July 11, 2008 first meeting o the newly elected Board of Directors

The first remote meeting of the newly elected Board of Directors of JSC LENENERGO resulted in election of the President of the Board of Directors (Mr. A.N. Chistyakov), deputy President of the Board of Directors (Mrs. A.I. Polukeeva), Corporate Secretary of the Company, Management and Board of Directors’ Committee for Strategy and Development as well as in approval of new institutional structure of the Executive Body of the Company.

July 16th, 2008. Anniversary of the first Russian power system

JSC “LENENERGO” celebrated its 122nd anniversary. On that day in 1886 Emperor Alexander III of Russia approved the Charter of the Electric Lighting Company, founded by Carl Siemens, de facto the country’s first power supplier.

AUGUST

Target programs developed and implemented in JSC “LENENERGO” according to the technological policy of IDGC Holding

The programs for replacement of 110 kilovolt inputs with hard insulation inputs, installation of reservoirs in 0.4 – 10 kilovolt networks, and widening of clearings around 35 – 110 kilovolt lines to avoid damage by falling trees.

Establishment of new committees of the Board of Directors

On August 22nd, 2008 the Board of Directors approved Regulations and elected members of HR and Remuneration Committee of the Board of Directors and Audit Committee of the Board of Directors as well as elected new members of the Reliability Committee of the Board of Directors.

SEPTEMBER

September 3rd, 2008. Subsidiaries are given greater powers to speed up connection to networks

The program has been developed to transfer part of responsibilities for grid connection from the headquarters to affiliates in order to speed up conclusion and execution of network connection contracts.

September 22nd, 2008. JSC “LENENERGO” acquires a 95% share in Tsarskoye Selo Power Company Under the program of consolidating Saint-Petersburg networks JSC “LENENERGO” acquired a share in Tsarskoye Selo Power Company through its 100% subsidiary Lenenergospezremont. 20

OCTOBER

October 3rd, 2008. THE FFMS authorizes trade in JSC “LENENERGO” shares abroad

THE FFMS (the Federal Financial Market Service of Russia) authorized trade in JSC “LENENERGO” 74,206,626 equity and 19,585,504 privileged shares (about 11.95 per cent of the total amount of shares offered) outside Russia in the form of global depository receipts (GDR). JSC “LENENERGO” is one of the first companies of IDGC Holding to issue GDRs. The depositary chosen for JSC “LENENERGO” GDR program was The Bank of New York Mellon, the global leader in asset management and securities business.

October 24th, 2008. JSC “LENENERGO” securities are traded abroad

JSC “LENENERGO” instructed the Bank of New York Mellon to launch a sponsored GDR program. Conversion ratio of one depository receipt to JSC “LENENERGO” shares is 1:10.

October 28th, 2008. JSC “LENENERGO” issues additional ordinary shares in favor of Saint-Petersburg, a Subject of the RF, represented by the City Property Management Committee Equity shares were issued by private subscription by October 24th, 2008. As a result Saint- Petersburg acquired the blocking stake for RUR 8.7 billion (3 billion in funds and 5.7 billion in assets on its balance (network facilities)).

October 31st, 2008. A GDR program for JSC “LENENERGO” privileged shares is launchedЗапущена

JSC “LENENERGO” instructed the Bank of New York Mellon to launch a GDR program for privileged shares.

NOVEMBER

November 12th, 2008. LENENNERGO receives a certificate of readiness to the winter season

The certificate of readiness to the winter season is a confirmation of technical readiness and qualification of a company to work in the heat deficit season. Resolution on issuing the certificate was made by a special commission appointed by IDGC Holding. The commission included representatives of the Ministry of Energy of Russia; the Russian Federal Service for Environmental, Technical and Atomic Supervision; The Leningrad Region Division of SO-CDA, and the Main Department of EMERCOM in Saint-Petersburg and The Leningrad Region.

November 17th, 2008. JSC “LENENERGO” acquires a 92.6% share in Kurortenergo Under the program of consolidating Saint-Petersburg networks JSC “LENENERGO” acquired a share in Tsarskoye Selo Power Company its 100% subsidiary Lenenergospezremont.

November 19th, 2008. A Customer Service Center is opened at JSC “LENENERGO” subsidiary Suburban Power networks

Organizing a network of customer service centers in the Leningrad Region drastically changes the situation in customer service. With the Suburban Customer Service Center and service centers in other districts of the Leningrad Region opened a new reliable and comfortable system will be available to provide complex customer service across the Region.

DECEMBER

December 12th, 2008. THE FFMS registers the results of JSC “LENENERGO” additional securities issue

THE FFMS of Russia registered the Report on the additional issue of the Company’s ordinary inscribed undocumented shares by private subscription. The Resolution on additional issue of JSC “LENENERGO” shares had been registered by THE FFMS on 25.10.2007 under state registration number 1-01-00073-А-001D.

Two mobile modular 110/10 kilovolt substations were installed for the Frunzenskaya line of the Saint-Petersburg Metro

The unique 60-tonn wheeled power complex with a capacity of 50 Megavoltampere was installed at the substation #45 of Suburban Power networks in only one month and a half. Mobile substations were mounted on a specially prepared reinforced concrete platform and connected to JSC “LENENERGO” network. This allowed to power the new Volkovskaya and Admiralteyskaya stations of the Saint-Petersburg.

December 18th, 2008. Lighting of the Palace Embankment commissioned

On the Power Engineers Day a ceremony was held at the spit of Vasilievsky Island to commission the architectural artistic lighting of the Palace Embankment, the Peter and Paul Fortress, the Saint Petersburg TV Tower. The reconstruction project Проект was financed by the charitable contribution of JSC “LENENERGO”.

December 25th, 2008. Registration of amendments to JSC LENENERGO Charter regarding increase of the charter capital Inspection of the Ministry of Taxation of the Russian Federation No.15 in St. Petersburg registered amendments to the Charter of JSC LENENERGO regarding increase of the charter capital of the Company from RUR 785,118,455 to RUR 1,019,285,990.04 resulted from additional issue of equity shares by private offering to St. Petersburg.

2009

JANUARY

New tariffs for services of JSC “LENENERGO” introduced

January 1st, 2009 new tariffs for transmission of electric power through the network of JSC “LENENERGO” set by Saint-Petersburg Tariff Committee and The Leningrad Region Tariff and Pricing Committee for 2008 were introduced. The fee for transmission of electric power through the network of JSC “LENENERGO” was from RUR 427 to 856 per 1 megawatt-hour in Saint- Petersburg and from RUR 609 to 774 per 1 megawatt-hour in The Leningrad Region depending on voltage. 22

January 1st, 2009 new tariffs for connection to the network in Saint-Petersburg set by Saint- Petersburg Tariff Committee were also introduced. Connection costs from RUR 2,687 to 42,100 per kilowatt-hour depending on voltage, power and tariff zone. Payment for applicants for grid connection of 15 kilowatt or less is RUR 550.

JSC “LENENERGO” subsidiary Gatchina Power networks started to reconstruct the 110/10 kilovolt substation #539 “Tosno - New”

Modernization will almost quadruple the capacity of the Tosno District key substation. Two 6.3 megavoltampere power transformers will be replaced with 25 megavoltampere transformers. Moreover, 10 kilovolt switchgear will be extended by 18 cells with modern vacuum switches. The overall cost amounts to more than RUR 130 million, funds received from grid connections.

FEBRUARY

February 2nd, 2009. Shares of JSC “LENENERGO” are transferred to Quotation List А, second tier, and are qualified for trade in RTS

Inclusion of JSC “LENENERGO” shares to a higher tier quotation list increases the interest of investors and supports the Company’s strong position among the industry’s leading companies.

February 9th, 2009. Establishment of Committee for Technological Connection to Power Networks under the Board of Directors of the Company

The Board of Directors approved Regulation on Committee for Technological Connection to Power Networks under the Board of Directors of JSC LENENERGO. The main objective of the Committee is to ensure transparency and indiscriminate access to services implying technological connection of customers to the Company’s power networks.

February 16th, 2009. JSC “LENENERGO” Board of Directors approves the Company’s business plan

JSC “LENENERGO” expects a net profit of RUR 1,728.3 million, and a sales revenue of RUR 26,466 million in 2009. Even under the severe economic conditions JSC “LENENERGO” investments in 2009 will not exceed the level of 2008 and will exceed RUR 11 billion. This will allow to provide for stable power supply of the city and connection of new users to power networks both in Saint-Petersburg and The Leningrad Region.

MARCH

Modern traffic monitoring system installed

Mobile teams of JSC “LENENERGO” subsidiary Cable Network were equipped with special GPS/GSM/GPRS modules. The whole route, fuel consumption, report on stops and even information on speeding are transmitted to the control monitor via satellites. Such control system provides for automatic operation reports over any period of time, which in its turn facilitates reporting and provides for more effective expenditure planning and workload control.

March 25th, 2009. The XIth International Fuel and Energy Forum in Saint- Petersburg. JSC “LENENERGO” calls for stable power supply at the federal level

The XIth International Fuel and Energy Forum in Saint-Petersburg is one of the most reputable federal-level events of the industry held annually before the Saint-Petersburg Economic Forum and gathers managers and experts from ministries and services, state authorities, fuel and energy companies, industrial enterprises, banks and investment funds, design and research institutes. Vladimir Farafonov, JSC “LENENERGO” CTO, made a speech on Stable power supple under crisis conditions”.

1.6. Competitive Environment and Risk Factors 1.6.1. Industry Risks Power industry is predominantly an infrastructural branch of the economy. Most end users of the industry’s products are located in the RF. A small amount of energy produced is exported. Thus the forecast trend of the industry’s development is defined by the overall trend of the social and economic development of all other branches of the Russian economy, the trend of household consumption, and to certain extent climatic and weather conditions (annual average temperature) in Russia. JSC “LENENERGO” is a regional network company operating as a natural monopoly. Under the current conditions there is almost no competition between the region’s network companies in electric power transmission services. Competition between network companies is possible if several network companies dispose of networks with the same voltage and the consumer can chose between them. Network available today from the regional and local network company mainly use the voltage of 0.4-10 kilovolt and power supply to neighboring network companies is carried out through JSC “LENENERGO” power network complex. Methods of competition in power networking with regard to power transmission services are non- market and depend on political decision (e.g. decision of the regional administration to make a network company into a distributor of funds raised from consumers (the so-called “kettle holder”) with the kettle above” tariff adjustment principle), and in most cases are not influenced by actions of regional network companies, including JSC “LENENERGO”. In 2008 under the world financial crisis JSC “LENENERGO” adjusted its programs for construction of new and reconstruction of existing power network facilities in Saint-Petersburg and The Leningrad Region, characterized by high capital intensity and long term of network construction. Having this in view, economic feasibility of such projects is of utmost importance for a network company when it enters the market and launches such programs, because JSC “LENENERGO” takes repayment risk. Today JSC “LENENERGO” is the leading power company of Northwestern Russia in power transmission and connection of new users to power network infrastructure. The main industry risk for network companies, such as JSC “LENENERGO”, are decisions of federal and regional authorities on the following issues:  Transfer of 110 kilovolt network facilities to FGS UES;  Designation of networking companies besides JSC “LENENERGO” as “kettle holders” in Saint-Petersburg and The Leningrad Region.  Dismissal of the next year tariffs for grid connection or approval of tariffs for power transmission and grid connection on an insufficient level. JSC “LENENERGO” cannot influence such decisions. If a decision is made volumes of services provided and the revenue of JSC “LENENERGO” may decrease. The main measures taken by JSC “LENENERGO” to reduce industry risks include: Active investment policy using both own and attracted resources to update the production base; Systematic interaction with Saint-Petersburg Tariff Committee and The Leningrad Region Tariff and Pricing Committee to set economically justified tariffs, taking into account the Company’s possible expenses;

Increasing efficiency of the Company’s operations through programs to reduce production expenses.

1.6.2. Country and Regional Risks 1.6.2.1. Country Risks As the Company operates in the Russian Federation, its activity is vulnerable to risks arising from changes in the country’s general economic situation and its development depends on the current political and economic situation.

1.6.2.2. Regional Risks JSC “LENENERGO” is active in Saint-Petersburg and The Leningrad Region. The most significant risk is the consequences of the world financial crisis causing the real economy crisis. Political situation in the Region is stable. Efforts of city government ensure improvement of investment climate, development of city infrastructure and improve its investment appeal. In March 2008, Standard & Poor's rating agency increased long-term ratings of St. Petersburg in foreign and local currency from ВВВ- to ВВВ. Rating forecast is “stable”. In April 2009 Standard & Poor’s confirmed long-term credit rating of St. Petersburg at the level of BBB. Forecast is “negative”. Rating level is affected by limited predictability and flexibility of incomes and expenses of the city due to control by the federal center, current pressure on financial indicators caused by decrease in collected taxes under the current economic conditions and pressure by the expenses, and moreover by substantial long-term demands of St. Petersburg in financing of infrastructure. On November 12, 2008 Standard & Poor's changed forecast on credit ratings of Leningrad Region from “Stable” to “Positive” thanks to rapid growth of incomes of the region and improvement of economic structure. At the same time, long-term credit rating BB- and national ruAA rating were confirmed. On November 24, Standard & Poor’s improved long-term credit rating and national rating of Leningrad Region from ВВ-/ ruAA- to BB/ ruAA. Rating forecast is “Stable”. Ratings of Leningrad Region located to the North-West of the Russian Federation (foreign currency liabilities rating is BBB+/Negative/A-2; national currency liabilities rating is ruAAA) are affected by low flexibility and predictability of budget incomes and expenses in the context of Russian system of inter-budget relations and tax system. Minor negative impact is also due to moderate concentration of economy and continuing pressure on budget expenses of the region. With this, factors supporting ratings are good prospects of economic development caused by favorable geographical location near St. Petersburg (BBB/Stable/--), low debt burden, available cash reserves exceeding short-term demand in loan capital and high budget execution indicators. Development of the Region gives grounds for positive forecast in the long-term perspective. According to experts, St. Petersburg and Leningrad Region will keep their investment appeal. Regional risks in the Company’s business imply ignoring of some economically feasible expenses, which the Company intends to include to the appropriate tariff , by the authorized bodies. This factor may substantially affect implementation of JSC “LENENERGO” investment program as well as its financial standing. To reduce negative impact of regional risks, the Company maintains permanent cooperation with the regional regulating bodies and other stakeholders in order to achieve fair tariffs for power transmission and customers connection to JSC “LENENERGO” network, which are required to ensure development of network infrastructure and implementation of the Company’s strategy. There are no forecasts saying about negative changes, which may affect the Company’s business, in the regions of operation.

1.6.2.3.Proposed Measures to Counter the Adverse Effect of Changing Situation in the Country (Countries) and the Region The RF Government directly influences the Company by regulating power wholesale through the Federal Tariff Service and retail sales of heat and electric power through regional tariff regulation authorities. Changes in political situation, legislation, fiscal and regulatory control impact JSC “LENENERGO” operations and profitability. The quality and frequency of such changes and the risks involved, as well as their influence on the Company’s operations and profitability are hard to forecast. In case of the adverse effect of changing situation in the country and the region on the Company’s operations it plans to conduct analysis of the situation and make decisions in each particular case.

1.6.2.4. Risks of Possible Wars, Public Emergency or Strikes in the Country (Countries) and the Region, where the Company was Registered as a Taxpayer and/or Carries out its Principal Activity The Company considers the possibility that public emergency will be imposed in Saint-Petersburg and (or) The Leningrad Region because of warfare or terrorist attacks minimal due to remote location of warzones from the region.

1.6.2.5. Risks Arising from the Geographical Peculiarities of the Country (Countries) and the Region, where the Company was Registered as a Taxpayer and/or Carries out its Principal Activity, Including Danger of Natural Disasters, Possible Transport Problems Due to Remoteness and/or Inaccessibility, etc. Since the Company was registered as a taxpayer in a seismically safe region (Saint-Petersburg) with a well-established transport infrastructure, the risks related to the geographical peculiarities of the region, including increased danger of natural disasters and possible transport problems due to remoteness and/or inaccessibility, are considered minimal. Possibility of anthropogenic disasters is small. The number of functioning enterprises using poisonous, flammable or radioactive materials has significantly decreased compared to the period before 1990. Facilities, whose functioning involves danger to environment and population are tightly controlled by supervisory government bodies.

1.6.3. Financial Risks Financial risks, especially important in Russia, arise in relations of the Company with banks and other lending and financial organizations. The more the ratio of the Company’s borrowed funds to its own funds, the more it depends on creditors and the more serious are financial risks, because limitation and termination of lending, strict terms of credit lead to problems in economic activity. The most significant risk is the consequences of the world financial crisis causing the real economy crisis. Authorities are still fighting recession. Measures outlined earlier have started to work. Additional measures to be taken in the near future include credits for companies (mainly banks, developers and retailers). The situation gets aggravated by the impact of the financial system crisis on the real economy. Late in 2008 the RF Government published a list of backbone companies. The list includes 36 power companies, among them all Wholesale and Territorial Generating Companies (WGC-1, 2, 3, 4, 5, 6 and Mosenergo, TGC-1, 2, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14), and Federal Grid Company UES, RusGidro, Intere RAO UES, IDGC Holding, RAO East Power Systems, Moscow United Power Grid Company (MUPGC) and JSC “LENENERGO”. The Government will provide crisis support to Enterprises on the list. According to Igor Shuvalov, the First Vice-Premier of the RF, the key Russian enterprises require an estimate of RUR 3.5 trillion out of RUR 5 trillion credit resources allocated to fight the crisis. 26

Detailed information on impact of risks related to change in interest rates and foreign exchange rates on the Company as well as hedging transactions made by the Company to reduce unfavorable consequences of the above risks is given in Section 14 of this Annual Report.

1.6.4. Legal Risks The Company carries out its core activity in the Russian Federation and does not export its services. Accordingly, legal risks related to the Company’s activity are mostly related to its activity in the domestic market, which is relevant for business entities operating in the Russian Federation.

1.6.4.1. Fiscal Change Related Risks Fiscal change related risks affect the Company on an equal basis with other market participants. The Russian fiscal system is only in its formative stage now. Often, development is carried out through trial and error. Drawbacks of fiscal draft laws are usually revealed after their adoption. Bringing the legislation in accordance with the prevalent economic conditions is usually done with a substantial delay. This augments fiscal change related risks. Fiscal risk may manifest itself in a number of ways: the probability of imposing new taxes and duties, increasing the rates of existing taxes, expanding the taxable base, changing terms and procedure of taxes payment, and submission of tax return. Nevertheless, there is certain improvement in the fiscal system. The adoption of Part 1 and 2 of the Tax Code rendered the fiscal system more stable. Decreased rates of the income tax and VAT evidence gradual liberalization of the fiscal legislation. In case of changes to the existing fiscal procedures and terms, the Company will plan its economic activity with regard to such changes.

1.6.4.2. Customs Control and Duties Related Risks As the Company carries out its core activity in the Russian Federation and does not export its services, nor does it purchase equipment from foreign manufacturers, the impact of possible customs control changes on the Company’s activity may be regarded as insignificant.

1.6.4.3. Risks Related to Changes in Core Activity Licensing Requirements or Licensing the Usage of Objects with Limited Transferability (including Natural Resources) Core activity licensing of the Company is regulated by the Federal Law # 128-FZ dated 08.08.2001 “On Licensing Certain Types of Activities”. This law does not provide for licensing electric and heat networks operation. The activity of JSC “LENENERGO” does not imply usage of objects with limited transferability. The Company, however, possesses some specific objects that require usage licensing. JSC “LENENERGO” has obtained the required licenses. In case of changes to/new core activity licensing requirements, JSC “LENENERGO” will take the necessary steps to obtain such licenses and permits.

1.6.4.4. Risks Related to Changes in Judicial Practices on Issues Related to the Company’s Activity (including Licensing) that May Have an Adverse Impact on its Activity as well as the Current Proceedings that the Company is a Party to The organization and carrying out its business by JSC “LENENERGO” is subject to risks related to the Russian legal system. These risks, in particular, include possible contradictions between the Russian legislation and regulations of federal subjects Executive Branches and local authorities, and the absence of judicial practice on applying certain legal acts. Today, the probability of changes in the judicial practice related to the Company’s activities (including licensing) is regarded as insignificant and unable to have a substantial impact on its activity. 27

In case of changes to the judicial practice on issues related to the activity of JSC “LENENERGO”, the Company will plan its economic activity with regard to such changes. As the Company does not intend to operate in external markets, the analysis of impact of legal risks related to the Company’s activity in external market is omitted.

1.6.5. Issuer Activity Related Risks 1.6.5.1. Power Transfer Related Risks In 2008, the Company did not experience any problems with license renewal for specific activity and usage of objects with limited transferability, and no such problems are foreseen in the future. JSC LENENERGO did not incur liability for third party debts under Technological Connection Agreement and Power Transmission Agreement in 2008. In 2008, JSC “LENENERGO” carried out operations under Power Transfer Agreements with sales companies, including Guaranteed Suppliers operating in Saint-Petersburg and the Leningrad Region, and direct Consumers (Baltika Breweries). In 2008, the Company waged a wide negotiating campaign with sales companies and cooperating network organizations that provide services of transferring JSC “LENENERGO” power. The existing agreements comply with the applicable power industry laws.

1.6.5.2. Risks Related to Connecting New Consumers There is a high risk of losses due to applicants’ refusal from connections to meet their obligations regarding technological connection. These refusals are possible both at the stage of signing Agreement on technological connections, i.e. rejection to sign the offer, and at the stage of making advance payment under agreement signed. It is noteworthy that at the moment of signing of an Agreement on technological connection the Company has planned investments into construction of a distribution network as well as transferred the appropriate payments to contiguous networking companies. Thus, it is obvious that customer's refusals affect financial and investment activities of the Company approved by Agreement concluded between the RAO UES Chairman of the Board and the governor of Saint-Petersburg and the governor of the Leningrad Region.

1.6.5.3. Issuer’s Business Organization and Operation Is Subject to Risks Related to the Russian Legal System These risks include, in particular, possible contradictions between the Russian legislation and regulations of federal subjects Executive Branches and local authorities, and the absence of judicial practice on applying certain legal acts.

1.6.5.4. Risks Related to the Impossibility to Renew Issuer’s License for a Certain Activity Type of Usage of Objects with Limited Transferability (including Natural Resources) The issuer and the enterprise that the issuer is the successor to, have carried out power industry business in Russia for many years. The environmental legislation in the Russian Federation is only being developed, and the position of governmental authorities in this respect is also changing. The issuer evaluates its environmental protection obligations from time to time. Potential obligations that may emerge from changes in requirements of the applicable laws and regulations as well as arbitrary practice, cannot be estimated, but they may prove to be substantial. Under the current environmental legislation, the issuer does not bear any substantial pollution related risks.

1.6.5.5. Risks Related to the Possible Issuer’s Responsibility for Third Party Debts Including Subsidiaries

JSC “LENENERGO” has the following subsidiaries and affiliates: JSC “LENENERGO” Special Repair Works” (100%), “Electric Metering” (40%). The issuer estimates the risk of responsibility for third party debts as insignificant.

1.6.5.6. Risks Related to Possible Loss of Consumers Accounting for Less than 10% of Proceeds from the Issuer’s Products (Works, Services) There are certain risks related to the transfer of large consumers to FGC UES, including construction of alternative power network objects. The probability of this risk is estimated as insignificant. This section of the Annual Report includes only those risks which the Company regards as significant. There may be other risks that were not mentioned in this section. Such other risks that the issuer is unaware of or that are currently insignificant for the issuer, may have an adverse impact on the issuer’s economic activity. The Company conducts a risk management policy, and adopts measures to reduce impact of risks on its activities. Along with typical risk management methods, such as insurance (agreements with insurance companies), provisioning (creation of reserves to cover unforeseen losses or interruption in power supply), diversification (cooperation with multiple suppliers/customers) – the issuer plans to apply specific methods (establishment of coordinating councils within dedicated not-for-profit institutions).

SECTION 2. STRUCTURE AND PRINCIPLES OF CORPORATE MANAGEMENT

2.1. Principles of Corporate Management. Main Documents Corporate management is viewed within the Company as a set of processes aimed at governing and controlling its activities, which includes relationships between the shareholders, Board of Directors, and executive bodies of the Company with regard to the rights and interests of the shareholders. The Company views corporate management as a means of enhancing the efficiency of its activities, strengthening its reputation and optimization of costs aimed at attracting investments. Corporate management within the Company is based on the principles as follows: Subordination. The subordination of the Board of Directors to all shareholders is performed in accordance with the current legislation and is aimed at developing the Company’s strategy and implementing the management and control of the executive bodies of the Company. The Company’s Bylaw regulate the relationships between the Company and its shareholders; the Board of Directors and executive bodies of the Company report to the General Shareholder Meeting; and the spheres of competence are delimited between the General Shareholder Meeting, the Board of Directors, and the executive bodies of the Company. The General Shareholder Meeting elects the Internal Audit Commission which implements the internal financial and economic control of the activities performed by the Board of Directors, management bodies and functionaries of the Company for compliance with Russian legislation, the Bylaw, and internal documents of the Company. An annual business plan is developed in the Company on a yearly basis which makes it possible to effectively implement permanent control over the financial and economic activities of the Company. To check and approve annual accounting documents of the Company, the General Shareholder Meeting confirms the Auditor of the Company every year, who checks the financial and economic activities of the Company in compliance with the laws of the Russian Federation and with the contract on the basis of which he works. There’s also a Financial Audit and Consulting Office within the Company which has to perform the daily internal control of the economic activities which are performed within the Company. Justice. The Company is obliged to protect the rights and interests of the shareholders and provide for equal treatment of all shareholders. The Board of Directors gives all shareholders the possibility to obtain effective protection in the event that their rights are violated. The shareholders are entitled to participate in the management of the joint-stock company by making decisions on most important issues at the General Shareholder Meetings. An announcement on the coming General Shareholder Meeting is sent to all shareholders entitled to participate in it no later than 30 days before the date for which the General Shareholder Meeting is scheduled. The shareholder (shareholders) who owns (own) no less than 1 (one) per cent of voting shares of the Company is (are) entitled to get acquainted with the list of persons who are entitled to participate in the General Shareholder Meeting. The rights of the shareholders for shares are registered in accordance with the current legislation. The register of the shareholders of the Company is transferred to the Registration body (Moscow Central Depositary Open Joint-Stock Company) by the decision of the Board of Directors. The time and place of the General Shareholder Meetings are chosen so as to provide all shareholders a real and easily-implemented possibility to participate in them, and so that every shareholder would be able to vote in the easiest and most convenient way. In accordance with art. 10 of the Company’s Bylaw, the General Shareholder Meeting can be held in the city where the headquarters of the Company are located (Saint Petersburg), or in Moscow.

The Company guarantees that the shareholders obtain full and reliable information on the Company on a regular basis and in due manner. This is implemented by: providing full information on every issue of the agenda to the shareholders while preparing a General Shareholder Meeting; including necessary information provided to shareholders into the Annual Report which is also provided to the shareholders and which makes it possible to estimate the performance of the Company within the given year; introducing a position of the Corporate Secretary who shall be responsible for the arrangement and preparation of the General Shareholder Meeting and sessions of the Board of Directors within the frame of his competence. Transparency. The Company guarantees that information on all substantial facts pertaining to its activities, including financial situation, social and environmental performance, results of its activities, structure of ownership and management, shall be disclosed in due time and accessible to all privies. The Company complies with the requirement to disclose information in due time by submitting all accounting documents and information sheets to the Federal Agency for Financial Markets of the Russian Federation, by publishing the information which is to be disclosed in accordance with the current legislation of the Russian Federation, in the Nevskoye Vremya newspaper, in the news blog of the Interfax news agency as well as on the Company’s website: (http://www.lenenergo.ru). The company discloses information as follows: information which is disclosed while issuing securities; prospectus of stock issue; quarterly report; information on essential facts; information which can substantially affect the value of the Company’s securities; Annual Report of the Company; Annual accounting documents and other financial information of the Company; information on the provisions of the Company’s Bylaw and other internal enactments which regulate the activities of the Company, including changes and amendments; information on the affiliated persons of the Company; prices for electricity, which are differentiated depending on the conditions stipulated by Russian legislation. The transfer costs of electricity are indicated separately, as well as the costs for other services which are integral components in the process of delivering electricity to the end user; main provisions of the contract for the delivery of electricity. The disclosure and use of the information within the Company is regulated by the documents as follows: Memorandum of Corporate Management of JSC “LENENERGO” (approved by the decision of the JSC “LENENERGO” Board of Directors on July 04, 2000); Provision on the Internal Information of JSC “LENENERGO” (approved by the decision of the JSC “LENENERGO” Board of Directors on February 28, 2006); Provision on the Information Policies of JSC “LENENERGO” (approved by the decision of the JSC “LENENERGO” Board of Directors on December 09, 2008); Code of Corporate Management of JSC “LENENERGO” (approved by the decision of the JSC “LENENERGO” Board of Directors on December 26, 2008). Responsibility. The Company acknowledges the rights of all privies which are envisaged by the current legislation of the Russian Federation, and strives for cooperation with such privies in view of its further development and enhancement of financial stability. Members of the Board of Directors, Management Board, General Director, Acting General Director, and the managing organization (manager) bear the responsibility towards the Company

31 for the losses to the Company caused by their actions (or inactivity) (item 15.4. of art. 15, item 21.23. of art. 21 of the JSC “LENENERGO” Bylaw). There are also other internal documents within the Company which regulate the activities of the management and control bodies of the Company: Provision on the Preparation and Arrangement of the General Shareholder Meeting (Annual General Shareholder Meeting of June 26, 2006); Provision on the Procedure of Summoning and Arranging the Sessions of the Company’s Board of Directors (Annual General Shareholder Meeting of June 26, 2006); Provision on the Procedure of Summoning and Arranging the Sessions of the Management Board (Annual General Shareholder Meeting of May 30, 2008); Provision on the Procedures of Internal Control of the Internal Audit Commission of the Company (Annual General Shareholder Meeting of May 23, 2002); Provision on the Procedures of Internal Control within the Company (Board of Directors of December 09, 2008); Provision on the Payment of Remuneration and Compensation to the Members of the Board of Directors (Annual General Shareholder Meeting of May 30, 2008); Provision on the Payment of Remuneration and Compensation to the Members of the Internal Audit Commission of the Company (Annual General Shareholder Meeting of May 30, 2008).

2.2. Compliance with Corporate Behavior Stipulated by the Federal Committee on the Securities Market (FCSM) The activities of JSC “LENENERGO” are performed in compliance with the principles and recommendations of the Code of Corporate Behavior which was endorsed at the session of the Government of the Russian Federation of November 28, 2002 (Record # 49) and recommended for use by joint-stock companies by the Direction of FCSM # 421/r of April 04, 2002. Complete information concerning the compliance of JSC “LENENERGO” with the provisions of the Code of Corporate Behavior is given in Appendix 2 to the present report. The Code of Corporate Management for the JSC “LENENERGO” was endorsed by the Company’s Board of Directors on December 26, 2008 (Record # 7 of 29.12.2008).

2.3. Information on Major Transactions, Interested-Party Transactions, and Other Significant Transactions Performed by the Company in 2008 The Company has not performed any transactions in this year which can be categorized as major transactions in accordance with the Federal Law “On Joint-Stock Companies”. Information on the interested-party transactions (so categorized in accordance with the Federal Law “On Joint-Stock Companies”) performed by the Company in 2008 is given in Appendix 3 to the present report.

2.4. Information on the executive and controlling bodies of the Company In accordance with item 9.1. of art. 9 of the JSC “LENENERGO” Bylaw, the following bodies pertain to the executive and controlling bodies of the Company: General Shareholder Meetings; Board of Directors; Management Board; General Director. In accordance with item 9.2. of art. 9 of the JSC “LENENERGO” Bylaw, the Internal Audit Commission shall be the body which controls the economic activities of the Company.

2.4.1. General Shareholder Meeting General Shareholder Meeting is the supreme managing body of the Company.

The proposals of the shareholders to include different issues into the agenda of the Annual General Shareholder Meeting of the Company as well as recommendations of candidates for election into the managing and controlling bodies of the Company were discussed on March 05, 2008 within the term stipulated by the current legislation of the Russian Federation and the Company’s Bylaw (Session of the Board of Directors, record # 19). The Annual General Shareholder Meeting of JSC “LENENERGO” was held on May 30, 2008 (Record # 1 of June 09, 2008), with the agenda as follows: 1. Endorsement of the Annual Report for 2008, annual accounting documents for 2008, including the report on profits and losses of the Company. 2. Distribution of profits (including payment of dividends) and losses of the Company in the financial year 2008. 3. Election of the members of the Company’s Board of Directors. 4. Election of the members of the Internal Audit Commission of the Company. 5. Endorsement of the Auditor of the Company. 6. Endorsement of a new edition of the Company’s Bylaw. 7. Payment of remuneration and compensation to the members of the Company’s Board of Directors. 8. Payment of remuneration and compensation to the members of the Internal Audit Commission of the Company. 9. Endorsement of internal documents which regulate the internal activities performed by the executive bodies of the Company. The list of persons entitled to participate in the meeting, was drafted as of April 18, 2008. The functions of the returning board at the Annual General Shareholder Meeting of JSC “LENENERGO” on the results of the year 2008 were performed by the Registration body of the Company, i.e. the Moscow Central Depositary Open Joint-Stock Company. The shareholders were notified on the coming meeting by registered letters prior to April 30, 2008, and voting ballots were sent to them prior to May 10, 2008. In accordance with the Company’s Bylaw, the announcement on the coming meeting was placed on the Company’s website (http://www.lenenergo.ru/), and published in the Nevskoye Vremya newspaper of April 29, 2008. Filled voting ballots were sent to the address as follows Russia, 105082, Moscow, Bolshaya Pochtovaya Str., 34, bldg. 8, Moscow Central Depositary Open Joint-Stock Company. The number of votes held by the persons entitled to participate in the General Shareholder Meeting was 773,201,851 and 04/100. The number of votes held by the shareholders who participated in the Meeting was 664,227,757 and 90/100, which makes up 85.9061 per cent of the total amount of voting stock of the Company. The Meeting was chaired by First Deputy Chairman of the FGC UES Board of Directors, Chairman of the JSC “LENENERGO” Board of Directors Alexander Nikolayevich Chistyakov. The General Shareholder Meeting was held in compliance with the requirements of the current legislation of the Russian Federation, legal enactments of the Federal Agency for Financial Markets of the Russian Federation, which provide for additional requirements on General Shareholder Meetings, Company’s Bylaw, and Provision on the Preparation and Arrangement of the General Shareholder Meetings of JSC “LENENERGO”. The results of the voting on all issues in the agenda were announced at the meeting while summing up its results in accordance with art. 62 of the Federal Law “On Joint-Stock Companies”. The record of the meeting, the record of the voting, and the report on the voting comply with the requirements of the Federal Law “On Joint-Stock Companies” and Provision on Additional Requirements to the Preparation, Summoning, and Arrangement of the General Shareholder Meeting (endorsed by the Resolution of the Federal Agency for Financial Markets of the Russian Federation # 17/ps of May 31, 2002).

The new edition of the JSC “LENENERGO” Bylaw was endorsed by the Annual General Shareholder Meeting of JSC “LENENERGO” of May 30, 2008 (Record # 1 of June 09, 2008). Special (Extraordinary) General Shareholder Meetings: The Company did not hold any special General Shareholder Meetings in 2008.

2.4.2. Board of Directors: 2.4.2.1. Goals and Objectives of the Board of Directors The main goals and objectives of the Company’s Board of Directors are: determine the key directions and development strategy for the Company aimed at enhancing its market capitalization and investment attractiveness, attaining maximum profits and augmenting the assets of the Company; protect the rights and lawful interests of the shareholders of the Company, contribution to the settlement of corporate disputes; ensure that information within the Company is disclosed completely, reliably, and objectively to the shareholders and other privies; create effective procedures of internal control; regular evaluation of the performance of the executive bodies of the Company and management. To implement the above mentioned goals and objectives, the members of the Board of Directors comply with the following principles: all decisions should be made on the basis of reliable information on the activities of the Company; the rights of shareholders for the participation in the management of the Company and for obtaining dividends and information about the Company should not be limited; the interests of different groups of shareholders should be well-balanced; the decisions carried out by the Board of Directors should be as objective and unprejudiced as possible and guarantee the interests of all shareholders of the Company. Sixteen meetings of the Company’s Board of Directors were held in 2008, including two real-time meetings, and fourteen meetings in absentia. 135 issues were brought in for discussion; 135 of them were discussed, 132 of which were resolved, and 3 were postponed to a later date. The most significant of these issues are: 1. Endorsement of customer service standards for the JSC “LENENERGO” (Record # 17 of February 11, 2008); 2. Implementation of the system environmental management system at JSC “LENENERGO” (Record # 20 of March 19, 2008); 3. Creation of a single electricity company in Saint Petersburg (Record # 21 of April 11, 2008); 4. Arrangement of the turnover of JSC “LENENERGO” securities outside the Russian Federation by issuing Global Depositary Receipts (Record # 21 of April 11, 2008); 5. Charity arranged by the Company (Record # 22 of April 18, 2008); 6. Summoning of Annual General Shareholder Meeting (Record # 23 of April 25, 2008); 7. Election of the Committee of the Board of Directors on Strategy and Development (Record # 1 of July 11, 2008); 8. Determining the membership and composition of the Management Board of the Company, election of its members (Record # 1 of July 11, 2008); 9. Determining the membership and composition of the Committee on Reliability of the JSC “LENENERGO” Board of Directors (Record # 2 of August 22, 2008); 10. Creation of the Audit Committee of the JSC “LENENERGO” Board of Directors and election of its members (Record # 2 of August 22, 2008); 11. Creation of the Committee on HR and Remuneration of the JSC “LENENERGO” Board of Directors and election of its members (Record # 2 of August 22, 2008); 34

12. Endorsement of the Report on the Additional Issue of Securities of the JSC “LENENERGO” Open Joint-Stock Company of Power Industry and Electrification (Record # 4 of November 12, 2008); 13. Endorsement of the new edition of the Code of Corporate Management of the JSC “LENENERGO” Open Joint-Stock Company of Power Industry and Electrification (Record # 7 of December 26, 2008). The activities of the Company’s Board of Directors in 2008 was regulated by the current legislation of the Russian Federation, Company’s Bylaw, and Provision on the Summoning and Arranging the Sessions of the JSC “LENENERGO” Board of Directors (Endorsed by the Annual General Shareholder Meeting of June 26, 2006. Record # 1 of July 11, 2006).

2.4.2.2. Composition of the Board of Directors In accordance with item 16.1. of art. 16 of the JSC “LENENERGO” Bylaw, the Board of Directors shall comprise 13 (thirteen) members. The members shall be elected by cumulative voting.

In 2008, the management of the Company was performed by the following compositions of the JSC “LENENERGO” Board of Directors:

Period between January 01, 2008 and May 30, 2008 Period between May 30, 2008 and December 31, 2008 # Name Position # Name Position 1. Alexander Chairman of the Committee for 1 Alexander Chairman of the Energy and Vitalyevich Power Industry and Engineering Vitalyevich Engineering Committee of St. Bobrov, born in in the Government of Saint Bobrov, Petersburg Administration, 1968 Petersburg born in 1968 Advisor to the Governor of St. Petersburg (since February 22nd, 2008) 2. Oleg Vice President for Government 2 Boris Felixovich General Director of Territorial Vladimirovich Reletions, Complex Energy Vainzikher, born Generating Company Dudkin, born in Networks on 08.04.1968 1965 3. Anton Deputy Head of the Control Center 3 Alexey Senior Vice President, head of the Sergeevich for Interregional Distribution Dmitrievich Strategy Center of the Complex Kolesnikov, Network Complexes of FGC UES Glushchenko, Energy Systems Holding born in 1980 born on 30.11.1974 4. Tatiana Head of the Department for 4 Grigory Vice Governor of Leningrad Vladimirovna Competitive Wholesale Market of Viktorovich Oblast, Chairman of the Kochetkova, the Reform Center of RAO UES of Dvas, born on Committee for Economic born in 1978 Russia 01.03.1965 Development 5. Yelena Head of the Department for 5 Alexey Director for Corporate Alexeyevna Standardization of the Reform Valeryevich Management of Holding of Medvedeva, Center of RAO UES of Russia Kurochkin, born Interregional Distribution Grid born in 1954 on 30.10.1973 Companies 6. Mikhail Vice Governor of Saint Petersburg 6 Mikhail Vice Governor of Saint Eduardovich Eduardovich Petersburg Oseyevskiy, Oseyevskiy, born in 1960 born in 1960 7. Andrey Head of the Project Group for the 7 Pavel Ivanovich Deputy General Director, Olegovich Monitoring of the Power Okley, born on Technical Director of Holding of Pivovarov, Companies Activities within RAO 17.12.1970 Interregional Distribution Grid born in 1970 UES of Russia Companies 8. Alexander Vice Governor of Saint Petersburg 8 Alexander Vice Governor of Saint Ivanovich Ivanovich Petersburg, Assistant to the Polukeyev, Polukeyev, born Plenipotentiary of the President born in 1948 in 1948 of Russia in North-Western Federal District 9. Valeriy Governor of Leningrad Oblast 9 Pankstyanov Head of the Department for Pavlovich Yury Pricing of Holding of Serdyukov, Nikolaevich, Interregional Distribution Grid born in 1945 born on Companies 19.08.1980 10. Alexander First Deputy Chairman of the 10 Alexander First Deputy Chairman of the Nikolayevich Management Board, FGC UES. Nikolayevich Management Board, FGC UES. Chistyakov, Chistyakov, born born in 1973 in 1973 11. Valery General Director of JSC 11 Dmitry Head of the Department for Nikolayevich “LENENERGO” Borisovich Technical Development and Chistyakov, Medvedev, born Regulation of Holding of born in 1955 on 28.05.1975 Interregional Distribution Grid Companies 12 Konstantin Director of the office of the EDM 12 Konstantin Director of the office of the Vladimirovich (Electricity Distribution Vladimirovich EDM (Electricity Distribution Shevchenko Management (Cyprus)) Limited Shevchenko Management (Cyprus)) Limited born in 1977 Company in Moscow born in 1977 Company in Moscow 13 Pavel Vice President of the office of the 13 Vasily General Director of the branch Viktorovich EDM (Electricity Distribution Ivanovich of JSC System Operator of Shpilevoy, Management (Cyprus)) Limited Sinyansky North-West Central Dispatch born in 1977 Company in Moscow born in Unit of Unified Energy System 1950

On July 11, 2008, Alexander Nikolayevich Chistyakov, First Deputy Chairman of the Management Board of FGC UES, was elected Chairman of the JSC “LENENERGO” Board of Directors. Alexander Ivanovich Polukeyev, Vice Governor of Saint Petersburg, was elected Deputy Chairman of the Company’s Board of Directors. Andrey Sergeyevich Smolnikov, head of the Corporate Policy and Investors Care Department of JSC “LENENERGO” (since November 1st, 2008 Head of the Corporate Management Department of JSC “LENENERGO”), was elected Corporate Secretary of JSC “LENENERGO”. The current members of the JSC “LENENERGO” Board of Directors were elected by the Annual General Shareholder Meeting of the Company on May 30, 2008.

Chairman of the Board of Directors: Full Name Alexander Nikolayevich Chistyakov

Year of Birth. Nationality 1973. Russian Federation

Education Higher: Leningrad Financial and Economic Institute Positions within last 5 years Period: 2002 – present Company: FGC UES Position: First Deputy Chairman of the Management Board, Member of the Management Board.

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Agency for the Prediction of Balances in Electric power, Moscow Heating Network Company, Moscow Management Energy Network Company, Russian Utility Systems.

Deputy Chairman of the Board of Directors: Moscow United Power Network Company, Moscow City Power Network Company.

Chairman of the Board of Directors: Interregional Distribution Grid Companies of the North-West, Interregional Distribution Grid Companies of the Ural Region, Interregional Distribution Grid Companies of the Volga Region.

Members of the Board of Directors: Full Name Alexander Vitalyevich Bobrov

Year of Birth. Nationality 1968. Russian Federation.

Education Higher: North-Western Academy of Public Service under the auspices of the President of the Russian Federation. 36

Positions within last 5 years Period: 2008 – present Organization: Government of Saint Petersburg Position: Advisor to the Governor of Saint Petersburg

Period: 2003 – 2008 Organization: Committee for Power Industry and Engineering in the Government of Saint Petersburg Position: Chairman of the committee

Period: 1999 – 2003 Company: Saint Petersburg Regional Gas Limited Company, Gazprom. Position: Deputy General Director.

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Saint Petersburg Power Networks Saint Petersburg Power Networks, Saint Saint- Petersburg Power Sales Company Petersburg Gas

Chairman of the Board of Directors Lengaz Exploitation

Full Name Boris Felixovich Vainzikher Year of Birth. Nationality 1968. Russian Federation Education Higher: Saint Petersburg State Technical University Positions within last 5 years (including Period: 2008 – present second jobs) Organization: Territorial Generating Company 1 Position: General Director

Period: 24.06.2007 – 30.06.2008 Company: RAO UES of Russia Position: Member of the Management Board, Technical Director

Period: 03.07.2007 – 23.10.2007 Company: RAO UES of Russia Position: Member of the Management Board, Technical Director

Period: 03.07.2007 – 23.10.2007 (second job) Company: RAO UES of Russia Position: Member of the Management Board, Technical Director

Period: 2005 – 2007 Company: RAO UES of Russia Position: Member of the Management Board, Technical Director

Period: 21.05.2005 – 24.06.2005 Company: Kirishi State Power Distribution Network Position: Executive Director

Period: 2002 – 2005 Company: Kirishi State Power Distribution Network Position: General Director

Stock in the charter capital of the None Company Positions in other organizations and Member of the Board of Directors: companies FGC UES.

Full Name Alexey Dmitrievich Glushchenko

Year of Birth. Nationality 1974. Russian Federation.

Education Higher: Irkutsk State Academy of Economy Manager training program under the auspices of the President of the Russian Federation (additional education) Institute of the Ministry of Energy of the Russian Federation (training program)

Positions within last 5 years Period: 2007 – present Company: Complex Energy Systems Position: Senior Vice President, Head of the Strategies Center

Period: 2006 - 2007 Company: Complex Energy Systems Position: Senior Vice President for Assets Management

Period: 2002 -2006 Company: Complex Energy Systems Position: Deputy General Director for Assets Management

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Rostovenergo Sverdlovenergo 38

Permenergo Komienergo Nizhnovenergo Kirovenergo Pskovenergo Irkutskenergo Volga Territorial Generating Company Territorial Generating Company-5 Territorial Generating Company-6 Territorial Generating Company-9

Member of the Management Board: Territorial Generating Company-9

Full Name Grigory Viktorovich Dvas

Year of Birth. Nationality 1965. Russian Federation.

Education Higher: Leningrad Polytechnic Institute

Positions within last 5 years Period: June 1999 – present Organization: Vice Governor of Leningrad Oblast

Stock in the charter capital of the None Company

Positions in other organizations and Chairman of the Board of Directors: companies Trading Seaport of Primorsk Ust-Luga Planning and Engineering Company

Full Name Alexey Valerievich Kurochkin

Year of Birth. Nationality 1973. Russian Federation

Education Higher: Ural State Law Academy Positions within last 5 years Period: 2008 – present Company: Holding of Interregional Distribution Grid Companies Position: Director for Corporate Management

Period: 2005 – 2008 Company: FGC UES Position: Deputy Head of the Control Center for Interregional Network Complexes

Period: 2003-2005 Company: Urals Energy Company Position: Advisor to the General Director, Deputy Head of Department.

Stock in the charter capital of the None Company

Positions in other organizations and member of the Board of Directors companies Tyumenenergo Interregional Network Company of the Central and Volga Regions Interregional Distribution Grid Companies of the North-West Interregional Distribution Grid Companies of the Volga Region Interregional Network Company of the North Caucasian Region Interregional Distribution Grid Companies of the Ural Region Yekaterinburg Power Network Company

Full Name Dmitry Borisovich Medvedev Year of Birth. Nationality 1975. Russian Federation

Education Higher: Omsk State Technical University

Positions within last 5 years Period: 2008 – present Company: Holding of Interregional Distribution Grid Companies Position: Head of the Department for Technical Development and Regulation

Period: 2007 – 2008 (present) Company: FGC UES Position: Head of the Department for Technical Development of the Central Department of the Interregional Network Company

Period: 2006 – 2007 Company: Mir Scientific Production Association Position: Director of the company’s office in Moscow

Period: 2002 – 2006 Company: Omskenergo Position: Deputy head of the Power Networks Service, Deputy Head of the Department for Engineering Diagnosis

Stock in the charter capital of the None Company Positions in other organizations and None companies

Full Name Pavel Ivanovich Okley Year of Birth. Nationality 1970. Russian Federation Education Higher: Omsk Engineering Institute Positions within last 5 years Period: 2008 – present Company: Holding of Interregional Distribution Grid Companies Position: Deputy General Director, Technical Director of Holding of Interregional Distribution Grid Companies

Period: 2007 – 2008 Company: FGC UES, Control Center of the Interregional Network Company Position: Head of the Center

Period: 2005 – 2007 Company: FGC UES, Control Center of the Interregional Network Company Position: Deputy Head

Period: 2005 – 2005 Company: Omskenergo Position: Director for Transportation

Period: 2004 – 2005 Company: Omskenergo, branch Power Networks Position: Deputy Chief Engineer

Period: 2003 – 2004 Company: Omskenergo, branch Western Power Networks Position: Head of the Service of Power Networks

Period: 2001 – 2003 Company: Omskenergo, branch Western Power Networks Position: Head of Sherbakul District Electricity Network

Stock in the charter capital of the None Company Positions in other organizations and Member of the Board of Directors: companies Interregional Distribution Grid Companies of the Ural Region Interregional Network Company of the Central Region Interregional Network Company of the Southern Region Caucasian Power Management Company

Chairman of the Board of Directors: 41

Tyumenenergo Interregional Network Company of the Siberian Region Interregional Network Company of the Central and Volga Regions

Full Name Mikhail Eduardovich Osseyevskiy

Year of Birth. Nationality 1960. Russian Federation

Education Higher: Leningrad Polytechnic Kalinin Institute

Positions within last 5 years Period: November 2003 - present Organization: City Government of Saint Petersburg Position: Vice Governor

Period: September 1999 – November 2003 Company: Industrial Construction Bank Position: Deputy Chairman of the Management Board, First Deputy Chairman of the Management Board of the Bank

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Saint Petersburg Power Networks Okhta Business Center Company Klimov

Member of the Supervision Board: Saint Petersburg Monetary Exchange

Chairman of the Board of Directors: Petrodvorets Electricity Network Technical Park of Saint Petersburg Metrocom

Full Name Yuri Nikolayevich Pankstyanov

Year of Birth. Nationality 1980. Russian Federation

Education Higher: State University of Management

Positions within last 5 years Period: 2008 - present Company: Holding of Interregional Distribution Grid Companies Position: Head of department

Period: 2004 – 2008 Company: FGC UES 42

Position: Head of department

Period: 2003 – 2004. Organization: Federal Energy Committee of Russia Position: specialist

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Interregional Network Company of the North Caucasian Region

Full Name Alexander Ivanovich Polukeyev

Year of Birth. Nationality 1948. Russian Federation

Education Higher: Riga Institute of Civil Aviation Engineers

Positions within last 5 years Period: June 01, 2006 – present Organization: City Government of Saint Petersburg Position: Vice Governor

Period: November 25, 2003 – May 31, 2006 Organization: Administration of Moskovsky District of Saint Petersburg Position: Head of Administration

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Pulkovo Airport Saint Petersburg Electricity Networks Saint Petersburg Gas Limited Company

Full Name Vassily Ivanovich Sinyavsky Year of Birth. Nationality 1950. Russian Federation Education Higher: Karaganda Polytechnic Institute

Positions within last 5 years Period: 2002 – present Company: Branch of System Operator of Single Electricity Network (Operational-Dispatching Center)of the North-Western Region Position: General Director of branch

Stock in the charter capital of the None Company Positions in other organizations and Member of the Board of Directors: 43

companies Interregional Distribution Grid Companies of the North-West

Full Name Konstantin Vladimirovich Shevchenko

Year of Birth. Nationality 1977. Russian Federation

Education Higher: University of Drexel, Philadelphia, USA Positions within last 5 years Period: November 2006 – present Company: Office of the EDM (Electricity Distribution Management (Cyprus)) Limited Company in Moscow Position: Director

Period: 2005 – October 2006 Company: Complex Energy Systems Position: Project manager

Period: November 2003 – April 2005 Company: Versatel Position: Sales Director

Period: June 2002 – October 2003 Company: New Transportation Company Position: Managing Director for Marketing and Sales, Director of the Department for Commercials on Transport

Stock in the charter capital of the None Company

Positions in other organizations and Member of the Board of Directors: companies Interregional Distribution Grid Companies of the Ural Region

2.4.2.3. Information on the Remuneration and Compensation to the Members of the Board of Directors The Provision on the Payment of Remuneration and Compensation to the Members of the Board of Directors was endorsed by the Annual General Shareholder Meeting (Record # 1 of June 09, 2008). It stipulates the amount of remuneration which are paid to the members of the Company’s Board of Directors for the period during which they perform their duties. In accordance with the provision, remuneration and compensation are paid: for participation in the sessions of the Board of Directors in absentia (by filling out a questionnaire), a member of the Company’s Board of Directors receives a sum equivalent to four minimum monthly wages of a first-class worker as stipulated by the branch wages agreement within the electric power industry of Russia; For participation in the real-time sessions of the Board of Directors, a member of the Company’s Board of Directors receives a sum equivalent to eight minimum monthly wages of a first-class worker as stipulated by the branch wages agreement within the electric power industry of Russia. 44

The amount of compensation paid to the Chairman (Deputy Chairman) for each session at which he acted as Chairman of the Board of Directors (hereinafter referred to as “acting as Chairman”), shall be increased by 50 per cent. The members of the Board of Directors receive additional compensation for the pure income of the Company depending on the results of the annual accounting as endorsed by the General Shareholder Meeting of the Company. Members of the Board of Directors receive additional compensation in case the market capitalization of the Company during the term of the current composition of the Board of Directors has increased. Moreover, the members of the Board of Directors shall also receive a compensation for their expenses during business trips to the facilities of the Company, which will include meetings with shareholders and investors, participation in General Shareholder Meetings of the Company, as well as for other activities which may follow from their duties as members of the Company’s Board of Directors. The total amount of remuneration and compensation paid to the members of the Company’s Board of Directors in 2008, made up RUR 5,655,231.14. No transactions were effected between the members of the Board of Directors and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Board of Directors.

2.4.2.4. Committees of the Board of Directors The main tasks of all Committees include preliminary discussion of the most important issues of the agenda scheduled for the session of the Board of Directors, leveling out of the discrepancies between shareholders before the session, preparation of deliberate recommendations to the Board of Directors before it carries out well-weighed decisions. Committee on Strategy and Development On December 19, 2007, the Board of Directors has endorsed the Provision on the Committee on Strategy and Development of the JSC “LENENERGO” Board of Directors (Record # 15 of December 19, 2007). The current members of the Committeewere elected on July 11, 2008: Armani Moushegovich Ayrapetyan Deputy Head of the Center for Strategy and Development of Holding of Interregional Distribution Grid Companies Pavel Mikhaylivich Berezovskiy Chairman of the Committee for Pricing of the Government of Leningrad Oblast Vyacheslav Olegovich Kozlov Head of the Department for Economic Analysis and Pricing of the Committee for Power Industry and Engineering in the Government of Saint Petersburg Alexey Viktorovich Lisitsin Deputy General Director for Economy and Finance of Holding of Interregional Distribution Grid Companies Yelena Alexandrovna Morozova Deputy General Director for Corporate Management of JSC “LENENERGO” Andrey Valentinovich Sorochinskiy Deputy Chairman of the Committee for Power Industry and Engineering in the Government of Saint Petersburg Konstantin Vladimirovich Shevchenko Director of the office of EDM (Electricity Distribution Management (Cyprus)) Limited Company in Moscow

The main assignment of the Committee is to prepare and present its recommendations (evaluations) to the Board of Directors and executive bodies of the Company on the following range of issues: 45

Definition of the strategic objectives of the Company; Development of priority spheres of the Company’s activities; Evaluation of the Company’s long-term performance; Formation, implementation, and correction of the Company’s investment program; Definition and improvement of the Company’s policies concerning business planning; Definition and improvement of the Company’s policies concerning finance and budgeting of the Company; Formation, implementation, and correction of the Company’s financial and economic plan (business plan, budget), definition of credit and dividend policies of the Company; Control over the implementation of the approved business plan, budget, and investment program of the Company. In 2008, fourteen sessions of the Committee were carried out, including three real-time meetings, and 11 meetings in absentia. No transactions were effected between the members of the Committee and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Committee. Committee for Reliability On February 28, 2008, the Company’s Board of Directors endorsed the Provision on the Committee for Reliability of the JSC “LENENERGO” Board of Directors (Record # 13 of February 28, 2008). The current members of the Committee were elected on August 22, 2008 (Record of the Board of Directors #2 of August 27, 2008) and revised on December 9, 2008 (Record of the Board of Directors # 9 of December 9, 2008). # Name Position 1. Alexander Nikolayevich Head of the Department for the Prospective Development Nazarov Programs of the Committee of Energy and Engineering of Saint Petersburg 2. Pavel Mikhaylovich Chairman of the Committee for Pricing of the Berezovskiy Government of Leningrad Oblast 3. Pavel Ivanovich Okley Deputy General Director – Technical Director of Holding Interregional Network Company 4. Dmitry Anatolyevich Head of the Department of Operational-Technical Koryakin Management and Control of Holding of Interregional Distribution Grid Companies 5. Vladimir Yevgenyevich Deputy General Director – Technical Director of JSC Farafonov “LENENERGO” 6. Vyacheslav Ivanovich Head of the Technical Inspection Department of JSC Savinov “LENENERGO” 7. Andrey Klavdievich Operations and Maintenance Manager of JSC Mamontov “LENENERGO”

The main assignment of the Committee is to develop and present recommendations and evaluations to the Board of Directors and Corporate Center of the Company on the following aspects of the Company’s activities: Defining the strategic goals of the Company’s activities; assessment of investment programs and maintenance plans for different facilities, analysis of their feasibility in view of overall reliability; assessment of measures introduced after accidents and major technological violations, and control of their implementation;  control and evaluation of the activities of the technical services of the Company pertaining to:  guaranteeing the reliability of network equipment and facilities; 46

 guaranteeing normal state of the main funds of the Company and provision of the appropriate information on predictable reliability risks to their operation;  analysis of the contractual and economic methods of reliability management; quarterly reports to the Company’s Board of Directors on the state of main energy facilities of the Company. In 2008, one session of the Committee was carried out. No transactions were effected between the members of the Committee and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Committee. Audit Committee On August 22, 2008, the Company’s Board of Directors endorsed the Provision on the Committee for Audit of the JSC “LENENERGO” Board of Directors (Record # 2 of August 27, 2008). The current members of the Committee: # Name Position 1 Grigoriy Viktorovich Dvas Vice Governor of Leningrad Oblast, Chairman of the Committee for Economic Development 2 Pavel Ivanovich Okley Deputy General Director, Technical Director of Holding of Interregional Distribution Grid Companies 3 Dmitry Borisovich Medvedev Head of the Department for Technical Development and Regulation of Holding of Interregional Distribution Grid Companies 4 Alexander Vitalyevich Bobrov Chairman of the Committee for Power Industry and Engineering in the Government of Saint Petersburg 5 Alexey Valeryevich Kurochkin Director for Corporate Management of Holding of Interregional Distribution Grid Companies

The main assignment of the Committee is to develop and present recommendations and evaluations to the Board of Directors and Corporate Center of the Company on all aspects of the Company’s activities in the sphere of audit and accounting. The frame of competence of the Committee encompasses: Control over the annual independent audit of the consolidated financial reports and accounting reports of the Company; Recommendations to the Company’s Board of Directors on arranging the annual independent audit of the Company; Evaluation of the candidates for the auditors of the Company and recommendations to the Board of Directors on the selection of external auditors of the Company in accordance with the requirements of the current legislation of the Russian Federation, proficiency level of external auditors, quality of their work and their compliance with the requirement to maintain independent stance; Analysis of the reports of the Company and results of the external audit of these reports for compliance with the current legislation of the Russian Federation, International Standards for Financial Reports, Russian Accounting Standards, other legal enactments and standards, evaluation of the Company’s reports and the report of the auditor of the Company, as well as recommendations to the Company’s Board of Directors concerning the improvement of reporting practices within the Company; Analysis and evaluation of efficiency for the procedures of internal control within the Company, including compliance with laws and legal enactments; improvement proposals in this sphere to the Company’s Board of Directors; Other issues pertaining to audit of the Company on the orders of the Board of Directors.

In 2008, no sessions of the Committee were carried out. No transactions were effected between the members of the Committee and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Committee. HR and Remuneration Committee On August 22, 2008, the Company’s Board of Directors endorsed the Provision on the Committee for Human Resources and Remuneration of the JSC “LENENERGO” Board of Directors (Record # 2 of August 27, 2008) and elected members of the Committee. The current members of the Committee: # Name Position 1 Grigoriy Viktorovich Dvas Vice Governor of Leningrad Oblast, Chairman of the Committee for Economic Develpoment 2 Alexey Valeryevich Kurochkin Director for Corporate Management of Holding of Interregional Distribution Grid Companies 3 Yury Nikolaevich Pankstyanov Head of the Department for Pricing, Management Center of the Interregional Network Company FGC UES

4 Alexander Vitalyevich Bobrov Chairman of the Committee for Power Industry and Engineering in the Government of Saint Petersburg 5 Pavel Ivanovich Okley Deputy General Director – Technical Director of Holding Interregional Network Company

The main assignment of the Committee is to develop and present recommendations and evaluations to the Board of Directors and Corporate Center of the Company on the following aspects of the Company’s activities: development of principles and criteria for rewarding the members of the Company’s Board of Directors, members of its Corporate Center, and the entity which performs the functions of the executive manager of the Company, including management company or external manager; definition of the substantial provisions of contracts with the members of the Corporate Center and the person who performs the functions of the executive manager of the Company; development of criteria for choosing candidates for the Company’s Board of Directors, for the position of the executive manager of the Company; evaluation of the performance of the executive manager (management company, external manager) and the members of the collective Corporate Center of the Company. In 2008, two sessions of the Committee were carried out. No transactions were effected between the members of the Committee and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Committee. Committee for Grid Connection On February 09, 2009, the Company’s Board of Directors endorsed the Provision on the Committee for Grid Connection of the JSC “LENENERGO” Board of Directors (Record # 8 of February 10, 2009). The current members of the Committee were elected by the Board of Directors on March 24, 2009 (Record # 12 of March 24, 2009): # Name Position 1. Pavel Mikhaylovich Chairman of the Committee for Pricing of the Berezovsky Government of Leningrad Region 2. Alexey Yuryevich Bushuyev Director for Grid Connection for Saint Petersburg in JSC “LENENERGO”

3. Boris Feliksovich Vainsikher General Director, JSC “TGC-1”

4. Valentin Mikhaylovich Head of the Grid Connection Office of the Innovative Komarov Development and Grid Connection Department, Holding of Interregional Distribution Grid Companies 5. Yelena Alexandrovna Deputy General Director for Corporate Management, Morozova JSC “LENENERGO” 6. Alexander Nikolayevich Head of the Department for the Prospective Development Nazarov Programs of the Committee of Energy and Engineering of Saint Petersburg 7. Nikolay Nikolayevich Director for Grid Connection for Leningrad Oblast Chuchalov

The main aim of the Committee is to guarantee the openness of the Company’s activities and equal access to the services pertaining to the Grid Connection of end users to the Power Networks of the Company. The main assignment of the Committee is to develop and present recommendations and evaluations to the Board of Directors and Corporate Center of the Company on the following aspects of the Company’s activities: suggestions on the improvement of the legislation on antimonopoly regulation and provision of equal access to the services of Grid Connection of end users to electricity networks; suggestions on the improvement of internal regulations and standards of the Company concerning equal access to the services of Grid Connection of end users to electricity networks; development of the principles and criteria aimed at evaluating the efficiency of the Company’s activities with regard to the Grid Connection of end users to electricity networks; evaluation of the efficiency of the Company’s activities with regard to the Grid Connection of end users to electricity networks; analysis of the current situation within the Company and suggestions to the Company’s Board of Directors with regard to the Grid Connection of end users to electricity networks. No sessions of the Committee were carried out in March and April, 2009. No transactions were effected between the members of the Committee and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Committee.

2.4.3. Internal Audit Commission. 2.4.3.1. General Information. Functions of the Internal Audit Commission. The Internal Audit Commission is elected by the General Shareholder Meeting for a term of one year (until the date of the next General Shareholder Meeting). The number of members of the Internal Audit Commission is five. The Internal Audit Commission of JSC “LENENERGO” is a standing body of internal control of the Company, and is independent on the functionaries of the management and executive bodies of the Company, and performs its duties as stipulated by the Federal Law of the Russian Federation “On Joint-Stock Companies”, the Company’s Bylaw and the Provision on the Internal Audit Commission of JSC “LENENERGO” which was endorsed by the General Shareholder Meeting of the Company on May 23, 2002 (Record # 1). In accordance with the Company’s Bylaw, the frame of competence of the Internal Audit Commission includes: 1) verification of the data contained in the Annual Report, annual accounting documents, 49

balance of incomes and expenditures of the Company; 2) analysis of the financial state of the Company, search for the possible ways to improve the financial state of the Company, drafting recommendations for the management bodies of the Company; 3) arrangement and performing of the checks (audits) of the financial and economic activities of the Company, including: check (audit) of the financial, accounting, payment, and other documents of the Company for compliance with the legislation of the Russian Federation, the Bylaw, and other internal documents of the Company; control over the use of main assets; control over the compliance with the proper write-off procedure concerning the debts of insolvent debtors; control over the use of the Company’s financial assets in accordance with the approved business plan and budget of the Company; control over the formation and use of the reserve and other funds of the Company; verification of the proper procedure of paying dividends on the shares of the Company, interest on obligations, income on other securities; verification of compliance with earlier orders to eliminate violations and defects which were discovered during prior checks (audits); other activities (measures), connected with checking financial and economic activities of the Company.

2.4.3.2. Members of the Internal Audit Commission The following compositions of the Internal Audit Commission performed their duties in the year 2008: Period of January 1, 2008 to May 30, 2008 Period of June 1, 2008 to December 31, 2008 1. Anatoliy Head of the Financial 1. Anatoliy Head of the Financial Valeryevich Control and Internal Valeryevich Control and Internal Audit Baitov, Audit Department, Baitov, Department, FGC UES born in 1977. FGC UES (until born in 1977. (until 31.12.2008) 31.12.2008) 2. Igor Alikovich Deputy head of the 2. Marina Alexeyevna Deputy Head, senior Zenyukov, Corporate Management Lelekova, expert, chief specialist of born in 1966 and Shareholders Cooperation Department born in 1961. the Financial Control and of the Corporate Center of Internal Audit Department, RAO UES of Russia FGC UES

3. Sergey Borisovich Head of Internal Audit 3. Irina Vassilyevna Deputy Head of the Sidorov, Department of the Mikhno, Financial Audit born in 1952 Corporate Center of RAO UES of Russia born in 1957. Department, Holding of Interregional Distribution Grid Companies

4. Vekkilä Irja, Vice President, Fortum 4. Vitaliy Valerievich Deputy Head of the born in 1949 Oyj Corporation Shelkovoy, Internal Audit Department, born in 1973. Complex Energy Systems

5. Natalya Deputy Chief 5. Natalya Deputy Chief Accountant, Vladimirovna Accountant, Head of Vladimirovna Head of the Taxation and Korepanova, the Taxation and Korepanova, Accounting Office, JSC born in 1973. Accounting Office, born in 1973. “LENENERGO”

JSC “LENENERGO”

The current membership of the Internal Audit Commission was elected on May 30, 2008. Chairman of the Internal Audit Commission: Full Name Irina Vassilyevna Mikhno Year of Birth. Nationality 1957. Russian Federation Education Higher: Positions within last 5 years Period: 07.2008 – present Company: Holding of Interregional Distribution Grid Companies Position: Deputy Head of the Financial Audit Department Period: 2004 – present Company: RAO UES of Russia Position: Deputy Head of the Internal Audit Department, Corporate Center

Period: 1999 – 2004 Company: RAO UES of Russia Position: Head of the Financial Audit Department

Stock in the charter capital of the None Company

Members of the Internal Audit Commission: Full Name Anatoliy Valeryevich Baitov Year of Birth. Nationality 1977. Russian Federation Education Higher: Kurgan State University Positions within last 5 years Period: 2004 – 31.12.2008 Company: FGC UES Position: Head of the Financial Control and Internal Audit Department

Period: 2003 – 2004 Company: Foundation “Institute of Professional Directors” Position: Deputy General Director

Positions within last 5 years: Period: 2002 – 2003 Company: RAO UES of Russia Position: Advisor on the Activities of Internal Audit Commissions

Stock in the charter capital of the None Company

Full Name Marina Alexandrovna Lelekova Year of Birth. Nationality 1961. Russian Federation Education Higher: Far-Eastern Institute of Soviet Trade 51

Positions within last 5 years Period:21.05.2004 – present Company: FGC UES Position: Deputy Head, senior expert, chief specialist of the Financial Control and Internal Audit Department Period: September 2003 – July 2004 Company: Foundation “Institute of Professional Directors” Position: Advisor on the Activities of Internal Audit Commissions Stock in the charter capital of the None Company

Full Name Vitaliy Valeryevich Shelkovoy Year of Birth. Nationality 1973. Russian Federation Education Higher: Krasnoyarsk State Agricultural University Positions within last 5 years Period: 2007 – present Company: Complex Energy Systems Position: Deputy Head of the Internal Audit Department

Period: 2006 – 2007 Company: Complex Energy Systems Position: Deputy Head of the Internal Audit Department

Period: 2005 – 2006 Company: Russian Utility Systems Position: Head of the Control and Auditing Department

Period: 2004 – 2005 Company: RAO UES of Russia Position: senior expert of the Internal Audit Department of the Corporate Center

Period: 2003 – 2004 Company: Institute of Professional Directors Foundation Position: Advisor on the Activities of Internal Audit Commissions Stock in the charter capital of the None Company

Full Name Natalya Vladimirovna Korepanova Year of Birth. Nationality 1973. Russian Federation Education Higher: Saint Petersburg Trade and Economic Institute Positions within last 5 years Period: 2006 - present Company: JSC “LENENERGO” Position: Deputy Chief Accountant – Head of the Taxation Department

Period: 2000 – 2006 52

Company: Municipal Unitary Enterprise Izhevsk Electricity Networks Position: Chief Accountant

Stock in the charter capital of the None Company

2.4.3.3. Information on the Remuneration and Compensation to the Members of the Internal Audit Commission. Compensation and remuneration are paid to the members of the Internal Audit Commission in accordance with the Provision on the Payment of Remuneration and Compensation to the members of the Internal Audit Commission of JSC “LENENERGO” which was approved by the Annual General Shareholder Meeting on May 30, 2008. The payment is performed by the Company in the monetary form. Members of the Internal Audit Commission are entitled to the compensation of their expenses on the participation in the meetings of the Internal Audit Commission and for performing checks in compliance with subsistence reimbursement effective on the date of the session or check. The members of the Internal Audit Commission are entitled to an equivalent of twenty-three minimum monthly wages for a first-class worker, which are stipulated by the branch payment agreement in the Electricity Energy Complex of Russia (hereinafter referred to as “Agreement”) for the period of performing a check (audit), indexed as provided for by the agreement. The aforementioned reward is paid within one week after an audit report was drafted on the results of the check (audit). The amount of compensation paid to the Chairman of the Internal Audit Commission shall be increased by 50 per cent. The compensation to the experts and specialists employed by the Internal Audit Commission but are not members of the said Committee, shall be performed on the basis of the contracts which they have signed with the Company. The provisions of such contracts shall be endorsed by the Company’s Board of Directors. Remuneration and compensation to the members of the Internal Audit Commission who are functionaries of the federal authorities of Russia, authorities of the subjects of the Russian Federation, municipal authorities, are paid in compliance with the current legislation of the Russian Federation, its subjects, and municipal legal enactments. No transactions were effected between the members of the Internal Audit Commission and the Company in the year 2008. No lawsuits were brought in by the Company against the members of the Internal Audit Commission. The total amount of compensation and remuneration paid to the members of the Internal Audit Commission including involved specialists in 2008, made up 534,405.5 rubles.

2.4.4. General Director. The management of the current activities of the Company is performed by an Corporate Center, i.e. the General Director. The General Director is elected by the Company’s Board of Directors. On April 14, 2008 JSC “LENENERGO” Board of Directors terminated powers of Valery Nikolayevich Chistyakov as the General Director of the Company, and elected Dmitry Vladislavovich Ryabov the General Director of the Company since April 15, 2008 (Record # 21 of April 11, 2008). General Information on the General Director of JSC “LENENERGO”: Full Name Dmitry Vladislavovich Ryabov Year of Birth. Nationality 29.01.1967. Russian Federation Education Higher. Perm State University. 53

Positions within last 5 years Period: 15.04.2008 – present: Company: JSC “LENENERGO” Position: General Director, Chairman of the Management Board

Period: 29.06.2007 – 04.14.2008 Company: Interregional Distribution Grid Companies of the Volga Region Position: General Director

Period: 22.05.2007 – 28.06.2007 Company: Interregional Distribution Company of the Volga Region Position: General Director

Period: 2005 – 2007 Company: Interregional Distribution Grid Companies of the Ural and Volga Region Position: Deputy General Director for Business Performance und Finance, Deputy General Director for Business Performance

Period: 2003 – 2005 Company: SOK Group of Companies Position: Vice President

Stock in the charter capital of the None Company Positions in other organizations and Member of the Board of Directors: companies Interregional Distribution Grid Companies of the Volga Region

The compensation to the General Director is defined by the employment contract and the Provision on the Financial Stimulation which was approved by the Company’s Board of Directors (Record # 21 of April 11, 2008). The payment of awards to the General Director of the Company depends on the compliance with the Key Performance Indicators (KPI) determined by the Company’s Board of Directors for accounting periods (quarter and year).

2.4.5. Management Board According to Resolution of the annual General Shareholders Meeting of JSC “LENENERGO”, amendments to the Charter of the Company regarding establishment of a collegial executive body – the Management Board were introduced on May 30, 2008. Members of the Management Board were elected by the Board of Directors on July 11, 2008 and reelected on December 9, 2008. The Management Board consists of 7 members. Key functions of the Management Board: - development and presentation of perspective plans regarding implementation of core activities of the Company to the Board of Directors; - revision of reports on execution of approved plans, programs, directives and other information submitted by the managers of the Company; 54

- revision of reports submitted by the deputy general director, directors of the branches and general directors of the Company’s affiliates; - decisions on major trades in the amount of 5 to 25 per cent of balance value of assets of the Company; - social benefits and protection for the employees.

Members of the Management Board:

Chairman of the Management Board: Position Name General Director Dmitry Vasilyevich Ryabov, Born in 1967

Deputy Chairman of the Management Board: Position Name Deputy General Director for Yelena Aleksandrovna Morozova, Corporate Governance Born in 1976

Members of the Management Board: Position Name Deputy General Director – Vladimir Yevgenyevich Farafanov, Technical Director Born in 1950

Chief Accountant Galina Vladimirovna Kuznetsova, Born in 1959

Deputy General Director for Vladimir Leonidovich Lusinin, Investments and Capital Born in 1959 Development Deputy General Director for HR Andrey Gennadyevich Budnikov, and Organizational Structure Born in 1969 Planning

Director for Economy Tatyana Gennadyevna Sudakova, Born in 1954.

2.5. Subsidiaries and Dependent Companies. Shares in other organizations 2.5.1. Subsidiaries Full name JSC “LENENERGO”SPESTREMONT Closed Joint-Stock Company Abbreviation JSC “LENENERGO”SPESTREMONT Legal Address 199178, Russia, Saint Petersburg, Vassilievsky Ostrov, 12th Line, 43A Actual Address 199178, Russia, Saint Petersburg, Vassilievsky Ostrov, 12th Line, 43A Charter capital RUR 7,500,000.00 Stock of JSC “LENENERGO” in the 100 per cent

charter capital of the Company Stock of the Company in the charter capital 0 per cent of JSC “LENENERGO” Main types of activities functions of an executive body of business entities; trust management of property; electric power transmission General Director Alexander Yevgenyevich Bychkov, born in 1975. Elected on October 01, 2008 (Record # 05/08 of 30.09.2008)

2.5.2. Dependent Companies Full name ENERGOUCHET Open Joint-Stock Company Abbreviation ENERGOUCHET Legal Address 195197, Russia, Saint Petersburg, Zhukova St 19 Actual Address 195197, Russia, Saint Petersburg, Zhukova St 19 Charter capital RUR 10,000.00 Stock of JSC “LENENERGO” in the 40 per cent charter capital of the Company Stock of the Company in the charter capital 0 per cent of JSC “LENENERGO” Main types of activities  manufacturing, adoption, and maintenance of measuring devices for energy resources;  development and adoption of energy- efficient technologies;  certification of energy-efficient technologies. General Director Vladimir Gennadyevich Kornev, born in 1955. Elected on 15.07.2008. (Record # 23 of 16.07.2008)

2.5.3. Information on the Shares of the Company in Other Companies

Stock in the Charter capital Year of Name of the Company Types of Activity Charter capital (RUR) Investment (per cent) North-Western Power Management of other Management Company business entities in joint- stock and other 897,363,008.00 12.51 2005 companies; trust management of property; consulting services. Saint-Petersburg Power Sales Wholesale and retail Company purchase and sale of 897,363,008.00 12.51 2005 electric power Federal Grid Company of the Enhancing the reliability United Energy System and efficiency of United National Electricity Networks, including 1,153,514,196,362. isolated networks; 0.0506 2008 00 development of the wholesale market Implementation of state policies in the sphere of 56

energy. VELMA Modernization and substitution of energy 104.00 7.69 1992 equipment Neva Syndicate Investment construction group. Development of construction technologies. 1,000,000.00 4.00 1993 Attraction of public investment, incl. through mortgaging procedures Ruskobank Banking services, broker activities, depositary and 503,275,080.00 0.0208 1989 dealership activities. Aquatron Manufacturing and sale of 3,000.00 1.33 1991 fishery products. In 2008, the Company sold its stock in the ENERGOGARANT Insurance Company (0.0000064 per cent with accounting value of RUR 4,480).

2.6. JSC “LENENERGO” shares in Non-Profit Organizations

 Since 03.09.2003, the JSC “LENENERGO” is a member of Leningrad Oblast Chamber of Commerce and Industry.  Since 14.12.2006, the JSC “LENENERGO” is a member of Saint Petersburg Chamber of Commerce and Industry.  Since 25.09.2008, the JSC “LENENERGO” is a member of Saint Petersburg Association of the of Construction Companies Non-Commercial Partnership;  Since 27.09.2007, the JSC “LENENERGO” is a member of the Delovaya Rossiya Russian Organization  Since 28.06.2006, the JSC “LENENERGO” is a member of the Union of Industrialists and Entrepreneurs  Since 12.11.2008, the JSC “LENENERGO” is a member of the Power Industry Veterans Council Non-Commercial Partnership  Since 01.12.2008, the JSC “LENENERGO” is a member of the Scientific and technical council of Unified Energy System of Russia Non-Commercial partnership

2.7. Charter capital. Equity Capital Structure. Securities of the Company 2.7.1. Charter Capital During the first issue in 1993, the Company issued 2,951,852 shares, including 2,519,852 ordinary shares and 432,000 privileged shares (State Registration Number 72-1p-191 of 01.02.1993); during the second issue in 1995, the Company issued 894,411,156 shares, including 763,515,156 ordinary shares and 130,896,000 privileged shares (State Registration Number 72- 1-2367 of 29.11.1995). On June 27, 2003, the Federal Committee for Securities issued a decree # 03-1269/r to merge additional issues of securities, which resulted in the cancellation of the state registration numbers of the shares of the first and second issues, which received a new state registration number of 1- 01-00073-А of June 27, 2003; the state registration numbers of the privileged shares of the first and second issues were also canceled; they received a new state registration number of 2-01- 00073-А of June 27, 2003. The JSC “LENENERGO” was reorganized by the decision of an extraordinary General Shareholder Meeting of April 08, 2005 by spinning off the Saint Petersburg Generating Company, North-Western Power Management Company, Saint Saint-Petersburg Power Sales Company, and Saint Petersburg Backbone Network.

In accordance with Item 1 of Art. 75 of the Federal Law “On Joint-Stock Companies” the shareholders of the Company who voted against the reorganization of JSC “LENENERGO” or did not participate in the voting, were entitled to claim the redemption of all or part of their shares from the JSC “LENENERGO” as provided by the JSC “LENENERGO” Board of Directors in compliance with the legislation of the Russian Federation. The shares are redeemed at the price stipulated by the JSC “LENENERGO” Board of Directors in accordance with Item 3 of Art. 75 of the Federal Law “On Joint-Stock Companies”; namely, the prices for one share were: RUR 30.00 for one equity, RUR 14.00 for one privileged share. As a result of the redemption, 74,180,864 ordinary shares and 38,063,689 privileged shares were redeemed on the basis of transfer forms of the shareholders of JSC “LENENERGO”. The report on the results of the redemption was endorsed by the decision of the JSC “LENENERGO” Board of Directors (Record #2 of 08.01.2005). The decision to increase the charter capital of JSC “LENENERGO” through the private placement of additional registered ordinary shares in favor of Saint Petersburg was carried out at an extraordinary General Shareholder Meeting of the Company which took place on August 23, 2008. The company has completed the private offer of additional equity shares in favor of Saint Petersburg in the 4th quarter of 2008. As of December 31, 2008, the Charter capital of JSC “LENENERGO” made up RUR 1,019,285,990.04 (RUR one billion nineteen million two hundred and eighty-five thousand nine hundred and ninety and 4/100).

2.7.2. Equity Capital Structure Information on Shareholders as of 31.12.2008 Number of persons registered as shareholders 6,743 Total number of nominal shareholders 18

Information on JSC “LENENERGO” Major Shareholders of as of 31.12.2007 % Privileged % of equity Holders Total shares Ordinary shares capita shares shares l stock RAO UES of Russia4 465,896,500 465,896,500 0 60.26 53.77

VTB Bank (nominal holder) 221 596 635 172,963,535 48,633,100 22.37 25.57 Saint Petersburg, represented by the City Property 80,128,205 80,128,205 0 10.36 9.26 Management Committee Citibank 19,006,398 11,779,703 7,226,695 1.52 2.19 Other 79,838,424.04 42,433,908.04 37,404,516 5.49 9.21 Total 886,466,162.04 773,201,851.04 93,264,311 100 100

4 The stock of «JSC “LENENERGO” was transferred to the Holding of Interregional Distribution Grid Companies in accordance with the separation balance during the second stage of the reorganization of RAO UES of Russia. 58

As of 31.12.2008 % % of equity Holders Total shares Ordinary shares Privileged shares capital shares stock Holding of Interregional 465,896,500 465,896,500 - 50.31 45.71 Distribution Grid Companies5 Saint Petersburg, represented by the City Property 232,948,033 232,948,003 - 25.16 22.85 Management Committee National Depositary Center 139,684,939.48 108,121,586.48 31,563,353 11.68 13.70 (nominal holder) Depositary Clearing Company 95,337,888 72,297,355 23,040,533 7.80 9.35 (nominal holder) J.P. Morgan International Bank 20,812,000 20,812,000 - 2.25 2.04 Ltd. (nominal holder) Deutsche Bank Ltd. (nominal 10,455,908 83,302 10,372,606 0.01 1.03 holder)

Other 54,150,721.56 25,862,902.56 28,287,819 2.79 5.32

Total 1,019,285,990.04 926,021,679.04 93,264,311 100 100

Structure of the JSC “LENENERGO” Equity Capital of as of 31.12.2007

City of Saint Citibank (nominal) Petersburg 2,19% 9,25% RAO UES Others 9,21% VTB

The City of Saint VTB Bank Petersburg 25,57% Citibank (nominal) Others

RAO UES 53,77%

5 The same as indicated under 4. 59

Structure of the JSC “LENENERGO” Equity Capital as of 31.12.2008

Depository Clearing Interregional Company 9,30% Distribution Grid Company (IDGC) Others 8,37% The National Depository Center The City of St. Petersburg 22,85% The City of St. Petersburg

Depository Clearing Company

Others

Interregional The National Distribution Grid Depository Center Company (IDGC) 13,77% 45,71%

2.7.3. Information on the Company’s Securities 2.7.3.1. Shares Number Nominal % of Date of Registration Type, Category (items) value (RUR) stock registration number uncertified registered ordinary 691,854,144 1.00 27.06.2003 1-01-00073-А shares 90.85 uncertified registered ordinary 234,167,535 1.00 12.12.2008 1-01-00073-А- shares and 4/100 001D A type uncertified registered 93,264,311 1.00 9.15 27.06.2003 1-01-00073-А privileged shares Total: 1,019,285,990 100 and 4/100

Turnover of the JSC “LENENERGO” shares on the Stock Market Tool RTS MICEX Stock Name Name Global Exchange Ordinary shares LSNG 691,854,144 926,021,679 A type privileged shares LSNGP 93,264,311 93,264,311 Trading session start date 23.11.2004 16.07.2003

The JSC “LENENERGO” shares were admitted for turnover on the stock markets of RTS and MICEX Stock Exchanges until December 2007, without listing. On 25.12.2007, the simple and privileged shares of JSC “LENENERGO” were included into the listing B of RTS. Since February 2, 2009 the simple and privileged shares were included into the listing A, second level of RTS. On 21.12.2007, the JSC “LENENERGO” shares were included into the listing B of MICEX.

Turnover of the JSC “LENENERGO” shares on the RTS in 2008

Ordinary shares Privileged shares Total 60

Turnover, thousands 66,692 53,301 119,933 of RUR Turnover, items 1,804,267 1,950,794 3,666,061 Number of 175 143 318 transactions

Turnover of the JSC “LENENERGO” shares on the MICEX Stock Exchange in 2008

Ordinary shares Privileged shares Total Turnover, thousands 234,336 87,748 322,084 of RUR Turnover, items 6,021,400 3,005,100 9,026,500 Number of 1,897 1,282 3,197 transactions

General Information on the Registration Body: Full Name Moscow Central Depositary open joint-stock company (equals to "OAO" in Russian) Abbreviated Name MCD Date of Registration March 1st, 1994, Registration Chamber of Moscow, registration # 024573 License # 10-000-1-00255 dated September 13th, 2002 Location 107078, Moscow, Orlikov pereulok 3, building V Saint-Petersburg, Bolshoy Smolenskiy prospect 12, level 1 (North-western branch) Contacts Moscow: Phone/fax: +7 495 221-13-33, E-mail: [email protected] Saint-Petersburg: Phone/fax: +7 812 380-34-64, +7 812 380-34-65, +7 812 380-34-66 E-mail: [email protected]

2.7.3.2. Additional Issue of Shares The decision to increase the charter capital of JSC “LENENERGO” through the private placement of additional registered ordinary shares was carried out at an extraordinary General Shareholder Meeting of the Company which took place on August 23, 2008. The additional issue of JSC “LENENERGO” was primarily aimed at creating a joint network company in Saint Petersburg which would have a higher technological and economic reliability by means of continuous and integral equipment, by placing additional issue of JSC “LENENERGO” ordinary shares in favor of the government of Saint Petersburg. This was done in accordance with the appropriate cooperation agreement between Saint Petersburg and the RAO UES of Russia dated 27.07.2006 (hereinafter referred to as Agreement) for the purpose of guaranteeing reliable power supply and improving conditions for the connection of end users to the Power Networks of Saint Petersburg, Record of the meeting between the FGC UES and the Government of Saint Petersburg #118-V/186 dated 16.10.2006. The money obtained from this additional issue was meant to be used for the financing of the Investment Program of first-priority measures for the construction and renovation of electricity and heating networks in Saint Petersburg for 2006-2010 (Appendix #2 to the Agreement) which is part of the Investment Program of JSC “LENENERGO”. 61

In accordance with the decision of the JSC “LENENERGO” Board of Directors (Record # 5 of 31.08.2007), price for the placement of one additional registered equity of JSC “LENENERGO” (including the preemption of some of additional shares), made up RUR 37.44. In accordance with the decision of the Federal Agency for Financial Markets of the Russian Federation, the additional issue of ordinary shares was registered on October 25, 2007. The state registration of the additional issue of securities was performed along with the registration of the prospectus of securities. The placement of ordinary shares of JSC “LENENERGO” of additional issue was performed since 14.11.2007. The number of placed shares of additional issue made up 234,167,535 and 4/100, which is 97.6 per cent of the total amount of the ordinary shares of additional issue. The number of placed shares of additional issue which were paid by money was: 81,347,707 and 4/100. The number of placed shares of additional issue which were paid by property was: 152,819,828. The placement of the equity shares of additional issue of JSC “LENENERGO” was over on 24.10.2008. On December 12, 2008 the Federal Agency for Financial Markets of the Russian Federation registered the Report on the results of the additional issue of registered uncertified ordinary shares of JSC “LENENERGO”.

2.7.3.3. Bonds

1. On April 19, 2007, the Company redeemed non-convertible certified interest 01 series bonds payable to bearer with mandatory centralized deposit General Information on Redeemed Bonds Nominal State Type, category, Number Date of Term of value registration Series form (items) registration redemption (RUR) number bonds payable to 3,000,000 1,000.00 30.03.2004 4-01-00073-А 01 19.04.2007 bearer, certified

The bonds were redeemed by the Company by involving a Payment Agent (National Depositary Center), on the instructions and at the expense of the Company. The bonds were redeemed in Russian rubles by bank transfer to the persons who are entitled to the redemption of their bonds. The redemption of the bonds of JSC “LENENERGO” was performed on the basis of the listings of the owners or nominal holders by the NDC. The redemption of the bonds was performed in favor of the owners of the bonds as of the end of the operational day of the NDC immediately prior to the sixth business day before the date of the redemption of bonds.

2. Non-convertible certified interest 02 series bonds payable to bearer with mandatory centralized deposit, with redemption on the 1,820th day since placement

State Type, category, Number Nominal value Date of Term of registration Series form (items) (RUR) registration redemption number bonds payable to 3,000,000 1,000.00 14.11.2006 4-02-00073-А 02 27.01.2012 bearer, certified

Placement of Securities The placement of securities was performed by the companies which provided the services on the placement of bonds to the Company, on the instructions and at the expense of JSC “LENENERGO”: ALPHA-BANK and VTB (Vneshtorgbank), Organizers of the bonded debt of the JSC “LENENERGO”. The placement of securities began on February 02, 2007. The placement of securities was performed via the Organizer of the trade, MICEX. The bonds of the issue should be mandatorily kept in a centralized depository. Rights of the Owner of Each Issued Security The owner of the bond for 27.01.2012 is entitled to receive its nominal value, which is RUR 1,000. The owner of the bond is entitled to the interest income on the nominal value of the bond (coupon income) of 42.58 rubles (8.54 per cent annually) for each of the ten coupons of each bond. The owner of the bond is entitled to receive the nominal value of the bond in the event that the Company is liquidated in the sequence as provided by Art. 64 of the Civil Code of the Russian Federation. In the event of non-compliance or partial compliance of the Issuer with his bond obligations, the owner of the bond is entitled to apply to the guarantor of the bonds. Interest Rate on Coupons: 1) The interest rate on the first coupon was determined by a competition among potential buyers of the bonds on the date when the bonds are placed and set at 8.54 per cent annually which corresponds to RUR 42.58 for each bond. 2) The interest rates on the second, third, fourth, fifth, sixth, seventh, eighth, ninth, and tenth coupons is equal to the interest rate on the first coupon, in accordance with the Decision on the Issue and Prospectus of Securities. 3) The owners of the bonds shall receive interest income in the form of interest coupon income on each of the ten coupons within stipulated terms: 1st coupon: August 03, 2007; 2nd coupon: February 01, 2008; 3rd coupon: August 01, 2008; 4th coupon: January 31, 2009; 5th coupon: July 31, 2009; 6th coupon: January 29, 2010; 7th coupon: July 30, 2010; 8th coupon: January 28, 2011; 9th coupon: July 29, 2011; 10th coupon: January 27, 2012. In the event that the day of payment for coupon income on any of the six coupons is a weekend, state holiday, or a day off work for bank operations, the due sum shall be paid on the next business day upon that day. The owner of the obligation shall not be entitled to claim any additional interest or any other compensation for such delay of payment. Conditions of the Redemption and Payment of Interest on the Bonds: The bonds shall be redeemed by the Payment Agent: Non-Commercial Partnership National Depositary Center (hereinafter referred to as NDC) on the instructions and at the expense of the Company. The bonds shall be redeemed in the national currency of the Russian Federation by bank transfer to the persons entitled to the redemption of their bonds. The redemption of the bonds is performed on the basis of the list of owners and/or nominal holders of the NDC (hereinafter referred to as Owners and/or Nominal Holders). 63

The redemption of the bonds was performed in favor of the owners of the bonds as of the end of the operational day of the NDC immediately prior to the sixth business day before the date of the redemption of bonds. The fulfillment of obligations towards the owners who are on the List of the Owners and/or Nominal Holders of the bonds, shall be mandatory even in the event that the bonds are alienated after the date on which the List of the Owners and/or Nominal Holders of the bonds is drafted. Guarantee for the issue: The issue is guaranteed by suretyship. The surety of the issue is the SEVZAPLEASING Limited Company.

3. Non-convertible certified interest 02 series bonds payable to bearer with mandatory centralized deposit, with redemption on the 1,820th day since placement State Type, category, Number Nominal Date of Term of registration Series form (items) value (RUR) registration redemption number bonds payable to 3,000,000 1,000.00 27.03.2007 4-03-00073-А 03 18.04.2012 bearer, certified

7th coupon: October 20, 2010; 8th coupon: April 20, 2011; 9th coupon: October 19, 2011; 10th coupon: April 18, 2012. Conditions of the Redemption and Payment of Interest on the Bonds: The bonds shall be redeemed by the Payment Agent: Non-Commercial Partnership National Depositary Center (hereinafter referred to as NDC) on the instructions and at the expense of the Company. The bonds shall be redeemed in the national currency of the Russian Federation by bank transfer to the persons entitled to the redemption of their bonds. The redemption of the bonds is performed on the basis of the list of owners and/or nominal holders of the NDC (hereinafter referred to as Owners and/or Nominal Holders). The redemption of the bonds was performed in favor of the owners of the bonds as of the end of the operational day of the NDC immediately prior to the sixth business day before the date of the redemption of bonds. The fulfillment of obligations towards the owners who are on the List of the Owners and/or Nominal Holders of the bonds, shall be mandatory even in the event that the bonds are alienated after the date on which the List of the Owners and/or Nominal Holders of the bonds is drafted. Guarantee for the issue: The issue is guaranteed by suretyship. The surety of the issue is the Saint Petersburg Center for the Assessment of Property Limited Company.

Depositary Responsible for the Centralized Depositing of the Issues of 02 series and 03 Bonds

Full name: National Depositary Center Non-Commercial Partnership Abbreviated name: NDC Location: Moscow, Sredniy Kislovskiy Pereulok 1/13, bldg. 4 License number: 177-03431-000100 Date of issue: 04.12.2000 Period of license: permanent license Government body which has issued a license Federal Committee for Securities of the of a professional participant of the securities Russian Federation market for depositary activities

Trading Volume of the bonds of JSC “LENENERGO” on the MICEX Stock Exchange in 2008

02 series 03 series Trading volume, RUR 744,722,000 1,191,868,777 Trading volume, shares 887,544 1,616,129 Number of transactions 646 601

2.7.4. Codes of the JSC “LENENERGO” securities

Security of JSC Code of the Security at the Code of the Security at “LENENERGO” MICEX Stock Exchange the RTS Global Equity LSNG LSNG, LSNGG Privileged share LSNGP LSNGP, LSNGPG Bond 02 series RU000A0JNZ60 LSNG02 Bond 03 series RU000A0JP6L5 LSNG03

SECTION 3. OPERATIONAL ACTIVITY

3.1. Key Operation Indicators 3.1.1. Volume of Electric Power Transmitted through Power Networks over the last 3 years Volumes of the provided services of electric power transfer through power networks of JSC “LENENERGO” with regard to constituent territories of the Russian Federation (Saint Petersburg and the Leningrad Region) in trend for the period 2006-2008 are specified in the table below:

2006 2007 2008 Power distribution network Volume of Volume of Volume of Supply to Losses Supply to Losses Supply to Losses company rendered rendered rendered network network network services services services Tsd.kWh % Tsd.kWh % Tsd.kWh % 12345678910111213 Saint-Petersburg 19203375,0 16507226,5 2696148,4 14,0 19882124,5 17413858,7 2468265,8 12,4 20311737,7 17991170,8 2098893,7 10,3 Leningrad region 10339677,1 8876398,3 1463278,8 14,2 10748615,0 9135178,54 1237629,8 11,5 12042173,2 10447914,9 1126828,9 9,4 TOTAL JSC "LENENERGO" 29543052,1 25383624,8 4159427,2 14,1 30630739,5 26549037,3 3705895,6 12,1 32353910,9 28439085,7 3225722,6 10,0 Translator’s note: in this table comma is a decimal separator.

Detailed trend of JSC “LENENERGO” activity indicators for provision of electric power transfer services is presented in the diagrams below with regard to Saint-Petersburg, the Leningrad Region and JSC “LENENERGO” in whole.

Saint-Petersburg

25 20,3 19,2 19,9 20 17,4 18,0 16,5 14,0 2006 15 12,4 10,3 2007 10 2008

5 2,7 2,5 2,1

0 Supply to network, Volume of rendered Losses, bln.kWh Losses, % bln.kWh services, bln.kWh

Translator’s note: in this diagram comma is a decimal separator.

Leningrad Region

16 14,2 14 12,0 11,5 12 10,3 10,7 10,4 9 10 8,9 9,1 8 6 4 1,5 2 1,2 1,1 0 Translator’s note: in this diagram comma is a decimal separator.

Translator’s note: in this diagram comma is a decimal separator.

In 2008 the volume of electric power distribution to network of JSC “LENENERGO” amounted to 32,353.9 mln. kWh, including Saint-Petersburg – 20,311.7 mln. kWh and the Leningrad Region – 12,042.2 mln. kWh. The volume of provided services of electric power transfer by JSC “LENENERGO” networks amounted to 28,439.1 mln. kWh., including Saint Petersburg – 17,991.2 mln.kWh and the Leningrad Region – 10,447.9 mln.kWh. For 2008 electric power losses in the networks of JSC “LENENERGO” amounted to 9.97 % considering the specified losses plan 12.07 %, including Saint Petersburg 12.16% and the Leningrad Region 11.91%. Losses reduction plan for 2008 of JSC “LENENERGO” is fulfilled. The cost of the rendered services of electric power transfer by JSC “LENENERGO” with regard to Saint Petersburg and the Leningrad Region for the period 2006-2008 is displayed in the table below:

mln.RUR JSC "LENENERGO" 2006 2007 2008 Saint-Petersburg 4867,82 6137,52 8864,22 Leningrad Region 3489,04 5468,33 6199,83 JSC "LENENERGO" 8356,86 11605,86 15064,06 Translator’s note: in this table comma is a decimal separator.

Cost of services, mln.RUR

16 000 15064,06

14 000 11605,86 12 000

10 000 8864,22 8356,86 2006

8 000 6137,52 2007 6199,83 5468,33 6 000 4867,82 2008 3489,04 4 000

2 000

0 Saint-Petersburg Leningrad Region JSC "LENENERGO"

Translator’s note: in this diagram comma is a decimal separator. Growth of services cost for 2008 in comparison with 2007 by RUR 3,458 mln. is determined by the growth of rate for transmission services and amounts to 76.1 % from the gross growth as well as by the growth of the volume of productive power supply which amounts to 23.9 % from the gross growth of commercial output.

3.1.2. Trend of Electric Power Losses over the last 3 years. Part of Commercial Losses

Electric power consumption for its transfer through power networks for 2008 amounted to 3,225.7 mln. kWh (9.97 % from the electrical supply to network), including Saint Petersburg 2,098.9 mln. kWh (10.3%) and the Leningrad Region – 1,126.8 (9.4%). The structure of electric power losses of JSC “LENENERGO” with regard to Saint Petersburg and the Leningrad Region is displayed in the table below:

Leningrad Saint-Petersburg JSC "LENENERGO" Electric power losses Region mln.kWh 2696,1 1463,3 4159,4 2006 Total % 14,0 14,2 14,1 mln.kWh 2468,3 1237,6 3705,9 2007 Total % 12,4 11,5 12,1 mln.kWh 2098,9 1126,8 3225,7 2008 Total % 10,3 9,4 10,0 Translator’s note: in this table comma is a decimal separator.

Electric power losses of JSC "LENENERGO" (mln.kWh)

4 500,0 4 159,4 4 000,0 3 705,9

3 500,0 3 225,7 3 000,0 2 696,1 2 500,0 2 468,3 2 098,9 2 000,0 1 463,3

1 500,0 1 237,6 1 126,8 1 000,0 500,0 0,0 2006г.2007г.2008г.2006г.2007г.2008г.2006г.2007г.2008г.

Saint-Petersburg Leningrad Region JSC "LENENERGO"

Translator’s note: in this diagram comma is a decimal separator.

3.1.3. Activities for Reduction of Electric Power Losses and their Efficiency Reduction of electric power losses in JSC “LENENERGO” networks occurred due to execution of several administrative and technical activities: Settlement of relations with allied power supply companies with regard to coordination of procedures for determination of electric power losses in power supply companies’ networks.; Arrangement of monthly metering of billing devices which participate in determination of cross-flows volumes between JSC “LENENERGO”, wholesale market entities and allied retail power market network companies.; Equipping of power consumers with rated capacity of 750 kVA and more with interval accounting; Remote collection of billing data with the use of data acquisition and processing center of the automated information and measuring system for power billing (hereinafter referred to as DAPC AIMSPB of JSC “LENENERGO”). The data is acquired from accounting points of allied power distribution network companies, sales companies and large consumers – wholesale and retail electric power markets entities; Equipping of accounting points for electric power supply based on power facilities of JSC “LENENERGO” within the scheme JSC “LENENERGO” - allied network companies with interval accounting; Administrative and technical activities for optimization of network equipment operation; Adjustment of design factors and billing devices connection diagrams according to the results of the performed technical audit.

3.1.4. Status of Electric Power Accounting, Integration of the Automated Information and Measuring System for Power Billing In 2008 the works for arrangement of electric power accounting systems and facilities of JSC “LENENERGO” were performed in two directions. The first one – works within the frames of “The program of electric power billing organization on wholesale power market” and the second one – improvement of billing systems on retail power market.

Within the frames of “The program of electric power billing organization on wholesale power market” the obligatory rules of procedure for reliability, protection, functional completeness and degree of automation technical requirements to automated information and measuring system for power billing on wholesale power market. Creation/modernization of automated information and measuring system for power billing is divided into three stages: Stage 1: equipping of design accounting points with interval billing devices. Time of performance - 01.09.2007. Stage 2: automation of billing procedure. Time of performance - 01.09.2008. Stage 3: adjustment of the accuracy class of instrument current transformers and voltage measuring transformers to the required level. Time of performance - 01.09.2010. In 2008 within the program of electric power billing organization on wholesale power market of JSC “LENENERGO” the requirements under Stages 1 and 2 have been fulfilled in full scale, i.e. there have been installed 43 accounting devices and 16 cabinets with data acquisition and communication devices, as well as modernization of accounting instrument channels for an overall amount of RUR 5.5 mln.. Within the frames of the second stage works (creation of automated information and measuring system for power billing on wholesale power market) there has been established an information exchange with allied wholesale power market entities in the form of XML-type files in accordance with the agreement of information exchange with the allied wholesale power market entities.. In December 2008 there has been an adjustment of the program of electric power billing organization on wholesale power market with regard to modernization of instrument channels and reception of certificate of conformity on control connections with regard to the scheme JSC “LENENERGO” – wholesale power market entities”. In 2008 on the basis of “The overall program of the company’s electric power losses reduction for the midrange period till 2010” pursuant to the resolution of RAO UES of Russia and FGC UES # 34r/469r dated 28.12.2007 there has been developed a program of advanced development of power accounting systems on retail market in the networks of JSC “LENENERGO” for 2009- 2012. In accordance with the “Strategy of creation/modernization of power accounting systems on retail power markets in the networks of power distribution network companies”, approved by FGC UES, the major trend of accounting devices modernization on retail power market in 2008 was equipping of priority connections which had attached direct consumers (rated capacity over 750 kVA) with interval accounting devices. In total there have been 1420 accounting devices installed. 280 cabinets with data acquisition and communication devices have been installed on JSC “LENENERGO” feeding centers for arrangement of automated scanning. The total amount of disbursement for retail power market reached RUR 436.7 mln.

Table - Equipping of commercial connections on 110/35/10(6) kV substations of JSC “LENENERGO” subsidiaries with interval electric power meters

Equipping with Name of Number of % of connections interval electric Equipping with interval connected connections on equipped with power meters in electric power meters in 2008 power stations substation interval meters 2007

Gatchina Power Distribution Networks 1,555 338 253 38.0 Suburban Power Distribution Networks 3,992 738 513 31.3 Luzhskie Power Distribution Networks 342 196 146 100.0 Lodeynoye Pole Power Distribution Networks 244 110 111 90.6 Novoladozhskie Power Distribution Networks 365 148 80 62.5 Tikhvin Power Distribution Networks 487 162 141 62.2 Vyborg Power Distribution Networks 633 269 119 61.3 Kingisepp Power Distribution Networks 398 92 57 37.4 Cable Network 20 Total: 8,016 2,053 1,420 43.3

As regard to data acquisition and processing center of the automated information and measuring system for power billing JSC “LENENERGO” has performed works to organize information interaction process of data acquisition and processing center of the automated information and measuring system for power billing of JSC “LENENERGO” and allied power distribution network companies, sales companies and large consumers – wholesale and retail power market entities. Data from automated information and measuring systems of wholesale and retail power market entities is delivered to data acquisition and processing center of the automated information and measuring system for power billing of JSC “LENENERGO”. The data is received from over 5400 electric power meters, among which: - Automated remote scanning of electric power meters installed on power objects of JSC “LENENERGO” is performed from 1049 control points; - Commercial information on consumption/transfer of electric power energy is delivered from 1688 control points to data acquisition and processing center of the automated 72

information and measuring system for power billing of JSC “LENENERGO” in the approved format on the basis of the agreement on information exchange between JSC “LENENERGO” and wholesale power market entities; - From 2420 control points at the present time the experts of Energobalans-Severo-Zapad are performing pickup of readings from interval electric power meters installed on JSC “LENENERGO” objects with the use of portable automated working stations. All received data is delivered to data acquisition and processing center of the automated information and measuring system for power billing and technical metering of JSC “LENENERGO” and processed by experts of development and operation of automated information and measuring system.

3.1.5. Organization of Grid connection Process

3.1.5.1. Legal framework The Civil code of the Russian Federation (article 426, articles 779-783 of the Civil code); Federal law dated 26.03.2003 # 35-FЗ “Regarding electric power industry” (with amendments dated 14.07.2008, 25.12.2008); Federal Law dated 14.04.1995 # 41-FZ “Regarding governmental regulation of electric power and thermal energy rates in the Russian Federation” (with amendments dated 25.12.2008); Regulation of the Russian Federation government dated 26.02.2004 # 109 “Regarding price formation in respect of electric power and thermal energy in the Russian Federation” with amendments introduced by the Regulation of the Russian Federation government # 459 dated 18.06.2008; Regulation of the Federal tariff service dated 23.10.2007 # 277-e/7 “Regarding affirmation of practical guidelines for specification of amount of charge for grid connection” (registered in the Ministry of justice of the Russian Federation on 28.11.2007 # 10556) (with amendments dated 07.10.2008); Minutes of the meeting of the Management Board of RAO UES dated 17.09.2007 # 1737pr «Regarding procedure, conditions and quality of consumer service by power energy companies and pilot projects of comprehensive service centers for clients”; Agreement on interaction of RAO UES of Russia with Saint-Petersburg dated 01.08.2006 # 25-с; Regulation # 861 dated 27.12.2004 "Regarding affirmation of the Rules for non- discriminatory access to electric power transfer services and provision of such services, Rules for non-discriminatory access to operational dispatch management services in electric power industry and provision of such services, Rules for non-discriminatory access to services of system operator of wholesale market trade system and provision of such services and Rules for grid connection of power consuming devices (energy plants) of legal entities and natural person"; Regulation of the government of the Russian Federation #83 dated 13.02.2006 «Regarding affirmation of rules for specification and provision of technical conditions for connection of a capital construction object to engineering support networks and rules for connection of a capital construction object to engineering support networks”; Regulation of the tariff committee of Saint-Petersburg administration dated 07.12.2007 # 153-r «Regarding arrangement of payment for grid connection of JSC “LENENERGO” on the territory of Saint-Petersburg for 2008”; Regulation of the committee on tariffs and price policy of Saint-Petersburg administration dated 31.08.2007 # 72-p "Regarding arrangement of payment rates for

grid connection of JSC “LENENERGO” on the territory of the Leningrad Region" (with amendments dated 14.05.2008, 19.05.2008г.).

3.1.5.2. Information on implementation of customer service standards For the purpose of client-oriented policy and “single window” principle the General Director of JSC “LENENERGO” has signed the regulation # 182-r dated 13.10.2008 regarding organization of customer service centers in the subsidiaries along with allocation of space and staff recruiting. The Regulation # 390 dated 16.10.2008 has specified the network schedule chart of opening of customer service centers in the subsidiaries.

3.1.5.3. Information on rates for grid connection in 2008 and approval of rates for 2009. JSC “LENENERGO” rates for grid connection in 2008 are regulated: - by the Resolution of the Tariff Committee of Saint-Petersburg Administration dated 07.12.2007 # 153-r “Regarding arrangement of payment for grid connection of JSC “LENENERGO” on the territory of Saint-Petersburg for 2008”. - The Regulation of the Tariff Committee of Saint-Petersburg Administration # 69-p dated 17.08.2007 specifies the limits of territorial areas of JSC “LENENERGO” operation for application of payment rates for grid connection of power consuming devices. The Regulation # 67-p dated 17.08.2007 specified the coefficients of business activity of municipal entities of the Leningrad Region for calculation of payment for grid connection which is defined by multiplication of payment rates for these coefficients.

Leningrad Region JSC “LENENERGO”, the Leningrad Region

2008 2009

Voltage level Volume of capacity Declared Settled Declared Settled Power range, in the Volume of in payment for payment for payment for payment kW connection capacity in calculatin grid grid grid for grid point, kV calculating g of connection, connection, connection, connection, of payment payment RUR/kW, RUR/kW, RUR/kW, RUR/kW, for grid for grid VAT not VAT not VAT not VAT not connection connectio included included included included n, kW 2 3 4 5 6 7 8 9 230,214 28,553 181,786 28,553

0.4 kV, natural RUR 550 with VAT Up to 15 kW person for RUR 550 with VAT included 320 199 included for one inclusively public living for one connection connection needs

Up to 30 kW 1,180 37,989 21,715 5,091 37,989 21,715 inclusively From 30 to 100 1,667 28,948 21,600 5,316 28,948 21,600 kW inclusively

Over 100 to 750 0.4 kV 26,568 29,767 21,500 21,000 29,767 21,500 kW inclusively

Over 750 kW 0 0 21,500 0 0 21,500

Up to 100 kW 0 29,610 17,200 10,280 29,610 17,200 inclusively

6-10 kV Over 100 to 750 8,331 29,610 17,200 19,338 29,610 17,200 kW inclusively

Over 750 kW 192,148 26,462 16,570 120,563 26,462 16,570

The volumes and rates for grid connection declared to rates regulatory body in the accounting 2008 and for 2009 and rates for grid connection specified by the regulatory body.

Saint-Petersburg JSC “LENENERGO”, Saint-Petersburg 2008 2009 Voltage Declared Declared Settled level in Volume of Settled payment Volume of payment payment the capacity in payment for Power range, kW for grid capacity in for grid for grid connectio calculating grid connection calculating of connection connection n point, of payment connection, , payment for , , kV for grid RUR/kW, RUR/kW, grid RUR/kW, RUR/kW, connection, VAT not VAT not connection VAT not VAT not kW included included included included 1 2 3 4 5 6 7 8 9

1 JSC “LENENERGO” 400,417 40,758 382,629 71,107 0.4 kV, natural RUR 550 with VAT RUR 550 with VAT person for Up to 15 kW inclusively 3,135 included for one 1,187 included for one public connection connection living needs Up to 30 kW inclusively 11,409 104,996

From 30 to 100 kW inclusively 13,284 108,118 0.4 kV Over 100 to 750 kW inclusively 257,636 77,699

Over 750 kW 0 0

Up to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 6-10 kV 1,531 55,891

Over 750 kW 97,582 44,528 2 Zone 1 327 32 937 19,000 17,012

Up to 30 kW inclusively 26,582 0 0 18,781

From 30 to 100 kW inclusively 36,765 0 0 37,563 0.4 kV Over 100 to 750 kW inclusively 36,582 19,000 17,012 37,376

Over 750 kW 36,582 0 0 37,376

Up to 100 kW inclusively 29,265 0 0 29,901

Over 100 to 750 kW inclusively 6-10 kV 29,265 0 0 29,901

Over 750 kW 27,437 0 0 28,032

3 Zone 2 16,818 34,816 8,323 26,419

Up to 30 kW inclusively 29,327 0 0 17,729

From 30 to 100 kW inclusively 39,523 0 0 35,457 0.4 kV Over 100 to 750 kW inclusively 39,327 8,323 26,419 35,281

Over 750 kW 39,327 0 0 35,281

Up to 100 kW inclusively 31,462 0 0 28,225

Over 100 to 750 kW inclusively 6-10 kV 31,462 0 0 28,225

Over 750 kW 29,495 0 0 26,461

4 Zone 3 1,977 32,978 16,418 76,070 Up to 30 kW inclusively 0.4 kV 27,122 261 82,613 18,637 76

From 30 to 100 kW inclusively 37,308 538 78,271 37,273

Over 100 to 750 kW inclusively 37,122 6,729 76,050 37,088

Over 750 kW 37,122 0 0 37,088 Up to 100 kW inclusively 29,698 0 0 29,670

Over 100 to 750 kW inclusively 6-10 kV 29,698 670 75,873 29,670

Over 750 kW 27,842 8,220 75,750 27,816

5 Zone 4 36,947 35,045 17,809 141,860 Up to 30 kW inclusively 29,024 348 149,425 19,233 From 30 to 100 kW inclusively 39,219 811 145,269 38,467 0.4 kV Over 100 to 750 kW inclusively 39,024 10,480 141,847 38,275

Over 750 kW 39,024 0 0 38,275 Up to 100 kW inclusively 31,219 0 0 30,620

Over 100 to 750 kW inclusively 6-10 kV 31,219 0 0 30,620

Over 750 kW 29,268 6,170 141,007 28,706

6 Zone 5 60,718 42,288 6,046 18,061 Up to 30 kW inclusively 39,274 0 0 17,504 From 30 to 100 kW inclusively 40,475 0 0 35,009 0.4 kV Over 100 to 750 kW inclusively 40,274 6,046 18,061 34,834

Over 750 kW 40,274 0 0 34,834 Up to 100 kW inclusively 32,219 0 0 27,868

Over 100 to 750 kW inclusively 6-10 kV 32,219 0 0 27,868

Over 750 kW 30,206 0 0 26,126

7 Zone 6 243 35,018 1,067 16,441 Up to 30 kW inclusively 25,581 50 25,652 20,536 From 30 to 100 kW inclusively 35,759 60 19,731 41,071 0.4 kV Over 100 to 750 kW inclusively 35,581 0 0 40,867

Over 750 kW 35,581 0 0 40,867 Up to 100 kW inclusively 28,465 0 0 32,694

Over 100 to 750 kW inclusively 6-10 kV 28,465 0 0 32,694

Over 750 kW 26,686 957 15,754 30,650

8 Zone 7 43,564 46,313 10,764 17,663 Up to 30 kW inclusively 42,002 865 23,747 19,018 From 30 to 100 kW inclusively 43,217 673 18,640 38,036 0.4 kV Over 100 to 750 kW inclusively 43,002 7,519 17,138 37,847

Over 750 kW 43,002 0 0 37,847 Up to 100 kW inclusively 34,402 0 0 30,277

Over 100 to 750 kW inclusively 6-10 kV 34,402 0 0 30,277

Over 750 kW 32,252 1,707 16,507 28,385

9 Zone 8 13,938 35,334 18,885 43, 614 Up to 30 kW inclusively 31, 823 420 53, 006 18, 131 0.4 kV From 30 to 100 kW inclusively 40, 022 471 46, 411 38, 261

Over 100 to 750 kW inclusively 39, 823 1, 494 43, 614 38, 071

Over 750 kW 39, 823 0 0 38, 071 Up to 100 kW inclusively 31, 858 0 0 30, 457

Over 100 to 750 kW inclusively 6-10 kV 31, 858 0 0 30, 457

Over 750 kW 29, 867 16, 500 43, 295 28, 553

10 Zone 9 27, 644 43, 143 13, 609 18, 413 Up to 30 kW inclusively 39, 059 119 28, 278 21, 050 From 30 to 100 kW inclusively 40, 259 0 0 42, 100 0.4 kV Over 100 to 750 kW inclusively 40, 059 190 24, 164 41, 891

Over 750 kW 40, 059 0 0 41, 891 Up to 100 kW inclusively 32, 047 0 0 33, 513

Over 100 to 750 kW inclusively 6-10 kV 32, 047 0 0 33, 513

Over 750 kW 30, 044 13, 300 18, 142 31, 418

11 Zone 10 55 233 47 474 13 547 92 472 Up to 30 kW inclusively 43, 080 1, 191 99, 098 20, 538 From 30 to 100 kW inclusively 44,300 964 93,836 41,075 0.4 kV Over 100 to 750 kW inclusively 44,080 11,392 91,663 40,871

Over 750 kW 44,080 0 0 40,871 Up to 100 kW inclusively 35,264 0 0 32,697

Over 100 to 750 kW inclusively 6-10 kV 35,264 0 0 32,697

Over 750 kW 33,060 0 0 30, 653

12 Zone 11 33,651 46,317 11,182 97,534 Up to 30 kW inclusively 42,006 491 105,572 18,443 From 30 to 100 kW inclusively 43,221 775 99,232 36,887 0.4 kV Over 100 to 750 kW inclusively 43,006 6,666 97,337 36,703

Over 750 kW 43,006 0 0 36,703 Up to 100 kW inclusively 34,405 0 0 29,362

Over 100 to 750 kW inclusively 6-10 kV 34,405 0 0 29,362

Over 750 kW 32,255 3,250 96,320 27,527

13 Zone 12 1,351 35,000 3,603 19,633 Up to 30 kW inclusively 28,619 152 28,282 19,000 From 30 to 100 kW inclusively 38,812 0 0 38,001 0.4 kV Over 100 to 750 kW inclusively 38,619 451 22,550 37,812

Over 750 kW 38,619 0 0 37,812 Up to 100 kW inclusively 30,895 0 0 30,249

Over 100 to 750 kW inclusively 6-10 kV 30,895 0 0 30,249

Over 750 kW 28,964 3,000 18,755 28,359 14 Zone 13 43,621 36,018 21,940 58, 632 Up to 30 kW inclusively 29,786 692 67,195 18,609 From 30 to 100 kW inclusively 39,985 424 61,425 37,218 0.4 kV Over 100 to 750 kW inclusively 39,786 11,782 58,621 37,033

Over 750 kW 39,786 0 0 37,033 78

Up to 100 kW inclusively 31,829 0 0 29,626

Over 100 to 750 kW inclusively 6-10 kV 31,829 400 58,303 29,626

Over 750 kW 29,840 8,642 57,840 27,775

15 Zone 14 15,410 35,010 9,816 105,727 Up to 30 kW inclusively 28,966 409 113,773 19,006 From 30 to 100 kW inclusively 39,161 889 107,947 38,011 0.4 kV Over 100 to 750 kW inclusively 38,966 5,218 105,349 37,822

Over 750 kW 38,966 0 0 37,822 Up to 100 kW inclusively 31,173 0 0 30,258

Over 100 to 750 kW inclusively 6-10 kV 31,173 0 0 30,258

Over 750 kW 29,225 3,300 104,730 28,367

16 Zone 15 21,860 35,017 13,379 16,441 Up to 30 kW inclusively 29,797 238 24,741 18,785 From 30 to 100 kW inclusively 39,996 295 19,344 37,569 0.4 kV Over 100 to 750 kW inclusively 39,797 2,596 16,365 37,382

Over 750 kW 39,797 0 0 37,382 Up to 100 kW inclusively 31,838 0 0 29,906

Over 100 to 750 kW inclusively 6-10 kV 31,838 0 0 29,906

Over 750 kW 28,848 10, 250 16,184 28,037

17 Zone 16 22,038 35,001 15,854 23, 557 Up to 30 kW inclusively 29,334 286 32,769 20,535 From 30 to 100 kW inclusively 39,531 216 26,623 41,069 0.4 kV Over 100 to 750 kW inclusively 39,334 14,032 23,437 40,865

Over 750 kW 39,334 0 0 40,865 Up to 100 kW inclusively 31,467 0 0 32,692

Over 100 to 750 kW inclusively 6-10 kV 31,467 0 0 32,692

Over 750 kW 29,501 1,320 22,580 30,649

18 Zone 17 472 35,000 380 16,441 Up to 30 kW inclusively 30,000 0 0 20,536 From 30 to 100 kW inclusively 40,200 0 0 41,071 0.4 kV Over 100 to 750 kW inclusively 40,000 380 16,441 40,867

Over 750 kW 40,000 0 0 40,867 Up to 100 kW inclusively 32,000 0 0 32,694

Over 100 to 750 kW inclusively 6-10 kV 32,000 0 0 32,694

Over 750 kW 30,000 0 0 30,650

19 Zone 18 "Admiralteiskaia" 270 42,400 21,627 54,093 Up to 30 kW inclusively 42,000 0 0 20,161 From 30 to 100 kW inclusively 43,215 0 0 40,322 0.4 kV Over 100 to 750 kW inclusively 43,000 21,627 54,093 40,121

Over 750 kW 43,000 0 0 40,121 Up to 100 kW inclusively 6-10 kV 34,400 0 0 32,097

Over 100 to 750 kW inclusively 34,400 0 0 32,097

Over 750 kW 32,250 0 0 30,091

20 Zone 19 "Badaevskaia" 1,200 46,010 3,000 26,060 Up to 30 kW inclusively 36,064 101 35,589 18,609 From 30 to 100 kW inclusively 37,249 166 30,030 37,218 0.4 kV Over 100 to 750 kW inclusively 37,064 2,272 25,614 37,033

Over 750 kW 37,064 0 0 37,033 Up to 100 kW inclusively 29,651 0 0 29,626

Over 100 to 750 kW inclusively 6-10 kV 29,651 461 24,747 29,626

Over 750 kW 27,798 0 0 27, 775

21 Zone 20 "Mitrofanievskaia" 0 0 Up to 30 kW inclusively 0 0 19,000 From 30 to 100 kW inclusively 0 0 38,001 0.4 kV Over 100 to 750 kW inclusively 0 0 37,812

Over 750 kW 0 0 37,812 Up to 100 kW inclusively 0 0 30,249

Over 100 to 750 kW inclusively 6-10 kV 0 0 30,249

Over 750 kW 0 0 28,359 22 Zone 22 "Tsentralnaia" 63,000 131,518 Up to 30 kW inclusively 3,511 155,983 20,161 From 30 to 100 kW inclusively 5,306 138,081 40,322 0.4 kV Over 100 to 750 kW inclusively 54,183 129,290 40,121

Over 750 kW 0 0 40,121 Up to 100 kW inclusively 0 0 32,097

Over 100 to 750 kW inclusively 6-10 kV 0 0 32,097

Over 750 kW 0 0 30,091 23 Zone 23 "Kollontai" 0 0 Up to 30 kW inclusively 0 0 19,131 From 30 to 100 kW inclusively 0 0 38,261 0.4 kV Over 100 to 750 kW inclusively 0 0 38,071

Over 750 kW 0 0 38,071 Up to 100 kW inclusively 0 0 30,457

Over 100 to 750 kW inclusively 6-10 kV 0 0 30,457

Over 750 kW 0 0 28,553 24 Zone 31 "Sinopskaia" 28,000 151,218 Up to 30 kW inclusively 1,859 174,627 21,050 From 30 to 100 kW inclusively 956 170,813 42,100 0.4 kV Over 100 to 750 kW inclusively 25,185 148,747 41,891

Over 750 kW 0 0 41,891 Up to 100 kW inclusively 0 0 33,513

Over 100 to 750 kW inclusively 6-10 kV 0 0 33,513

Over 750 kW 0 0 31,418 80

25 Zone 38 "Kurortnaia" 13,960 49,462 Up to 30 kW inclusively 286 59,283 0 From 30 to 100 kW inclusively 461 51,445 0 0.4 kV Over 100 to 750 kW inclusively 13,213 48,863 0

Over 750 kW 0 0 0 Up to 100 kW inclusively 0 0 10,747

Over 100 to 750 kW inclusively 6-10 kV 0 0 10,747

Over 750 kW 0 0 10,747 26 Zone 39 "Tsarskoselskaia" 16,024 68,564 Up to 30 kW inclusively 50 79,091 0 From 30 to 100 kW inclusively 179 72,970 0 0.4 kV Over 100 to 750 kW inclusively 14,295 68,564 0

Over 750 kW 0 0 0 Up to 100 kW inclusively 0 0 10,747

Over 100 to 750 kW inclusively 6-10 kV 0 0 10,747

Over 750 kW 1,500 67,687 10,747 27 Zone 29 "Pulkovo" 9,741 16,441 Up to 30 kW inclusively 0 0 From 30 to 100 kW inclusively 0 0 0.4 kV Over 100 to 750 kW inclusively 2,141 16,687

Over 750 kW 0 0 Up to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 6-10 kV 0 0

Over 750 kW 7,600 16,372 28 Zone 28 "Petrodvortsovaia" 4,174 22,746 Up to 30 kW inclusively 65 35,904 From 30 to 100 kW inclusively 0 0 0.4 kV Over 100 to 750 kW inclusively 109 31,816

Over 750 kW 0 0 Up to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 6-10 kV 0 0

Over 750 kW 4,000 22,286 30 Zone "Shushari-Pulkovo" 19,859 16,441 Up to 30 kW inclusively 15 26,090 From 30 to 100 kW inclusively 100 21,704 0.4 kV Over 100 to 750 kW inclusively 11,878 16,495

Over 750 kW 0 0 Up to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 6-10 kV 0 0

Over 750 kW 7,866 16,274 Zone 18 at the request of JSC 435 16,441 31 “LENENERGO” Up to 30 kW inclusively 0.4 kV 0 0 81

From 30 to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 435 16,441

Over 750 kW 0 0 Up to 100 kW inclusively 0 0

Over 100 to 750 kW inclusively 6-10 kV 0 0

Over 750 kW 0 0

Rate requisition for connection to power distribution networks of JSC “LENENERGO” of 2009 for Saint Petersburg has been sent with no account of cross-subsidization between JSC “LENENERGO” rate areas.

Payment rates for grid connection on the territory of Saint-Petersburg changes depending on the voltage level and point of connection of the customer contract demand on the limit of networks’ balance participation. The payment rates are specified with no VAT included. For natural person with the attached load up to 15 kW the payment rates is settled in the amount of RUR 550 with no VAT included.

3.1.5.4. Demand for Grid Connection (quantity of received inquiries, customer contract demand broken down by consumer groups with regard to power distribution network company). Development of Demand Change

Volume of demand for grid connection and satisfaction of demand on 2008

Munber power distribution Technical network specifications Number of dissolved companies Number of filed issued without Number of contracts for grid Number of connections (complete contracts for grid connection supplied under the inquiries for grid contracts of grid Contracts for grid connection connection under consideration of fulfillment of contracts for grid due to the fault of the client, Number of contracts for grid connection connection concluded in the current period the client connection) including unfilled inquiries connection

Name of Conne connec- c-tion To the To the From the From the Trans- Power tion vol- total total Total Integrated Total Integrated Under the Under the contracts of contracts Total former trans- catego- tage, capacity capacity capacity cost, tsd. capacity cost, tsd. contracts of the contracts of the reporting of previous capacity capaci mission № ries kV Items (N) kW Items (N) kW Items , kW RUR Items , kW RUR reporting year previous years year years Items , kW -ty lines

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

JSC 1 “LENENERGO”

Up to 15 kW – natural 1.1 person 0.4 3,095 18,710 15 57 405 3,455 223 221 1,632 122 105 647 173 1,395 3 30 144 1,569 Up to 30 1.2 kW 0.4 1,453 10,713 142 808 1,038 7,678 288,171 232 8,387 171,883 278 895 516 4,343 5 30 285 3,719 From 30 1.3 kW 0.4 1,266 470,228 661 531,717 552 275,692 9,459,893 223 196,020 5,847,474 43 5,147 382 147,152 7 1,864 150 44,099 Up to 1.4 100 kW 6-10 22 834 - - 18 1,051 21,182 13 505 4,874 5 124 20 723 - - - - from 100 to 1.5 750 kW 6-10 28 7,813 - - 35 12,591 239,993 22 7,140 91,714 9 2,912 48 13,361 1 210 - - Over 1,050,12 12,20 1.6 750 kW 6-10 122 966,770 107 0 21 123,881 1,752,650 23 143,246 2,850,598 3 0 26 90,528 - - 6 46,906 Over 35- 1.7 750 kW 110 17 624,433 10 514,622 4 48,753 202,888 10 140,861 2,415,879 1 4,000 18 93,879 1 880 1 47,708 2,099,50 2,097,32 25,92 1.8 TOTAL 6,005 0 935 4 2,072 473,100 11,965,000 743 497,791 11,382,544 444 5 1,183 351,382 17 3,014 586 144,000

In 2008 6,005 inquiries for new and additional power in the volume of 2,099,500 kW have been submitted to JSC “LENENERGO”. Among them inquiries on the voltage level of 0.4 kV (5,814) prevailed. This amounts to 96.8% from the total number of inquiries. The largest number of inquiries has been received from natural person with the connection power up to 15 kW (3095). On the voltage level of 6-10 kV inquiries with the power of over 750 kW (122) prevailed. Thus amounts to 70.9% from the total number of inquiries on this voltage level. The largest volume of customer contract demand on the voltage level 0.4 kV is specified for the group of claimers up to 30 kW – 470,228 kW, on the voltage level of 6-10 kV for the group of over 750 kW (966,770 kW). The customer contract demand on the voltage level of 35-110 kV – 624,433 kW, amounts to 29.7% from the overall capacity of inquiries for the whole period.

3.1.5.5. The Scope on the Unsatisfied Demand on Transformer Substations (number of concluded contracts, power broken down by customer groups with regard to power distribution network companies). Trend of Demand Satisfaction

In 2008 2072 contracts for grid connection for the overall capacity of 473,100 kW have been concluded. The main part of the concluded contracts is for voltage level of 0.4 kV – 1995, which amounts to 96.3 per cent of the total number of concluded contracts. The largest number of them is for consumers groups of no more than 30 kW - 1038. Volume of power of the contracts concluded in 2008 is distributed in the following way: - 53.8 per cent - contracts for the capacity of more than 30 kW on the voltage level of 0.4 кВ; - 36.5 per cent - for the group of over 750 kW on the voltage level of 6-10 kV и 35-110 kV.

Statistics on contracts and grid connection for 2006, 2007, 2008:

2006 2007 2008 Number of Number of Number of Contracts for grid connections (signed Contracts for grid connections (signed Contracts for grid connections (signed connection acts of grid connection acts of grid connection acts of grid concluded connection) concluded connection) concluded connection)

Name of connection U, kV categories kW kW kW kW kW kW kW kW To the total capacity (N) (N) capacity total To the (N) capacity total To the (N) capacity total To the (N) capacity total To the Items (N) capacity total To the Items (N) capacity total To the Items Items Items Items 1 2 5 6 7 8 11 12 13 14 17 18 19 20 Up to 15 kW – natural person 0.4 116 645 32 772 154 736 6 265 405 3,455 278 2,042 Up to 30 kW 0.4 787 6,297 939 7,019 1,105 8,533 537 3,085 1,038 7,678 794 5,238 From 30 kW 0.4 502 150,542 397 78,676 769 321,578 362 55,013 552 275,692 425 152,299 Up to 100 kW 6-10 125 2,090 51 726 71 1,823 125 2,073 18 1,051 25 847 From 100 to 750 kW 6-10 116 74,107 17 4,108 108 45,671 188 180,942 35 12,591 57 16,273 Over 750 kW 6-10 23 71,926 55 106,965 51 252,272 14 62,113 21 123,881 29 102,728 Over 750 kW 35-110 16 63,090 9 4,543 46 93,357 15 46,233 4 48,753 19 97,879 TOTAL 1,685 368,697 1,500 202,810 2,304 723,970 1,247 349,723 2,072 473,100 1,627 377,306

TSp – technical specifications; CGC – contracts for grid connection;

3.1.5.6 The volume of connected capacity broken down by consumer groups. Trend of connected capacity The performed analysis of the connected capacity for the period 2006-2008 indicates the following: - the largest number of signed acts of grid connection relates to consumers on the voltage level of 0.4 kV. The major part of them relates to contracts of capacity below 30 кВт; - the amount of connected capacity for 2008 has also increased in comparison with 2006 from 202.8 to 377 MW. (see Diagrams)

3.1.5.7 Volume of unsatisfied demand for capacity (refusals) broken down by consumer groups. Change trend of unsatisfied demand, planned and implemented activities of restrictions lifting

Total volume of refusals according to the results of 2008 amounted to 586 items for the total capacity of 144 MW. The largest number of refusals is registered for the consumer group below 30 kW - 285 items. In the total volume of refused capacity the percentage of the abovementioned group amounts to 2.6 %, which exceeds the similar indicator of 2007 – 1.6%. The share of refusals of natural person group in 2008 against 2007 grew from 0.2% to 1.1% in the total volume of refused capacity.

Refused in connection Name of connection (Number of unfilled inquiries) U, kV categories To the total capacity Items (N) kW Up to 15 kW (natural 0.4 144 1,569 person) Up to 30 kW 0.4 285 3,719 From 30 kW 0.4 150 44,099 Up to 100 kW 6-10 - - From 100 to 750 kW 6-10 - - Over 750 kW 6-10 6 46,906 Over 750 kW 35-110 1 47,708 TOTAL 586 144,000

Within implementation of activities for restrictions lifting JSC “LENENERGO” has concluded contracts of grid connection of the objects included into agreements on interaction with administrations of constituent entities of the Federation to the power supply sources of ОАО TGK-1 including substation 110 kV “Obuhovskii zavod”, substation 110 kV "Mega-Ikea Kudrovo”, substation 110 kV “Mega-Ikea Parnas” and others. In addition to that the contracts for connection of substations of JSC “LENENERGO” to main substations of "FGS UES" were concluded including new substation 110 kV #12А, substation 110 kV “Chudtsi” in the Leningrad Region, power transmission line 110 kV and other objects of JSC “LENENERGO” included into the Agreements. In addition to that during accounting period JSC “LENENERGO” has prepared a work plan for fulfillment of obligations of grid connection with regard to Saint-Petersburg and the Leningrad Region as well as the contractual obligations pool, etc. for the purpose of restrictions lifting and provision of clients’ requests processing in accordance with the timeframes defined in the Regulation of the government of the Russian Federation # 861 dated 27.12.2004 (as amended of the Resolution # 168).

3.1.5.8 Impact of the financial crisis on grid connection

The total number of the contracts dissolved at the clients' requests in the letter form amounted to 73 items, including 17 contracts concluded in 2008 for the capacity of 3014 kVA. Total amount of refusals at the clients' requests equals to 231 items. In 2008 JSC “LENENERGO” has performed work to adjust agreements on interaction with administrations of constituent entities of the Federation with account of changing demand for new capacities and facilities. This work was also aimed at satisfaction of demand of the region for connection of new applicants and provision of the required reliability of power supply with account of personal economical interests. Considering the impact of world trends on development of the region as a whole (including possible decrease of financing volumes and direct investments to Saint-Petersburg and the Leningrad Region economy) JSC “LENENERGO” assumes the possible increase of earlier planned dates of own objects commissioning on the part of consumers and decrease of some part of investment programs. The abovementioned circumstance has been considered during the adjustment of Agreements on interaction with administrations of constituent entities of the Federation.

Therefore JSC “LENENERGO” has performed the following activities during the accounting period for the purpose of evaluation of the real decrease of demand for new and additional capacity:  There has been an update of inquiries registration data base with regard to determination of the real demand for connected capacity;  Informational letter have been prepared and sent to applicants of over 1000 kVA regarding confirmation of timeframes and volumes of the requested capacity;  Work groups with participation of large investors and developers of Saint-Petersburg and the Leningrad Region have been organized for evaluation of confirmation of the design capacity dedicated for input.

3.1.5.9 Analysis of inquiries broken down by sectors and types of activity

The share of inquiries (in %) for the new and additional capacity with regard to JSC “LENENERGO” broken down by sectors and types of activity for 2008 is presented at the diagram:

The performed analysis indicates that in the structure of declared capacity for 2008 the main groups of consumers are: housing construction objects ~ 13%; groups: trade, public catering, storage facilities and logistics amount to ~ 18%. The share of subscribed demand of allied network companies and other industry sectors are fixed at the level of 20% and 30% respectively.

3.1.6. Organization of Electric Power Transmission Process 3.1.6.1. Federal and Regional Legal Framework for Electric Power Transmission

Federal law dated 14.04.1995 # 41-FЗ "Regarding governmental regulation of electric power and thermal energy rates in the Russian Federation”; Federal law dated 26.03.2003 # 35-FЗ “Regarding power energy industry”; Regulation of the government of the Russian Federation dated 26.02.2004 # 109 “Regarding price policy with respect to electric power and thermal energy in the Russian Federation"; Regulation of the government of the Russian Federation dated 27.12.2004 # 861 “Regarding affirmation of the Rules for non-discriminatory access to electric power transfer services and provision of such services, Rules for non-discriminatory access to operational dispatch management services in electric power industry and provision of such services, Rules for non-discriminatory access to services of system operator of wholesale market trade system and provision of such services and Rules for grid connection of power consuming devices (energy plants) of legal entities and natural person”; Regulation of the government of the Russian Federation dated 31.08.2006 # 530 “Regarding the Rules for operation of retail power markets during transition period of electric power industry formation". Regulation of the Federal tariff service dated 06.08.2004 # 20-e/2 “Regarding affirmation of practical guidelines for calculation of regulated tariffs and rates for electric power (thermal) energy on retail (consumer) market”; Regulation of the committee on tariffs and price policy of Saint-Petersburg administration dated 28.12.2007 # 151-p "Regarding specification of rates for electric power transmission services for consumers of JSC “LENENERGO” services on the territory of the Leningrad Region for 2008”; Regulation of the tariff committee of Saint-Petersburg administration dated 17.12. 2007 # 178-r “Regarding specification of joint (commingled) rates for electric power transmission services through distribution networks on the territory of Saint-Petersburg for 2008".

3.1.6.2. Information on Rates for Electric Power Transmission

The 2008 rates for electric power transmission services have been approved within the frames of ultimate levels according to commingled principle specified by the Federal tariff service, i.e these rates are unified for the whole territory of the constituent entity of the Russian Federation. On the territory of the Leningrad Region the rates for electric power transmission services have been approved by the Regulation of the committee on tariffs and price policy of Saint-Petersburg dated 28.12.2007 # 151-p (as amended by the Regulations dated 29.12.2007 # 202-p, dated 16.07.2008 # 52-p), as well as by the Regulations on settlement of individual rates used for mutual payments with allied network companies. 2008 2009 Approved Voltage 1st half year 2nd half year level Declared Approved Declared Other Other Population Population consumers consumers Rate for maintenance of networks, RUR/mW month ВН 61,150 282,310 97,130 372,845 76,206 372, 845 278,583 СН1 458,200 353,587 481,200 373,743 76,206 437,550 278,583 СН2 450,880 309,927 669,370 442,171 76,206 442,171 278,583 НН 708,920 305,945 1,034,060 399,410 76,206 671,018 278,583 Rate for losses payment, RUR/mWh ВН 31.00 28.49 39.84 26.66 28.30

2008 2009 Approved Voltage 1st half year 2nd half year level Declared Approved Declared Other Other Population Population consumers consumers СН1 40.06 41.86 76.87 48.12 57.55 СН2 137.96 146.00 169.11 144.74 130.65 НН 337.47 393.50 409.96 385.60 366.44

On the territory of Saint-Petersburg the rates for electric power transmission services have been approved by the Regulations of the tariffs committee of Saint-Petersburg dated 17.12.2007 #178- r, #177-r. 2008 2009 Voltage level Declared Approved Declared Approved Rate for maintenance of networks, RUR/mW month ВН 40,387 196,803 41,630 243,274 СН1 75,325 196,353 129,680 222,603 СН2 293,510 175,138 394,130 229,095 НН 394,842 194,148 541,920 292,552 Rate for losses payment, RUR/mWh ВН 12.81 13.89 12.74 18.47 СН1 22.22 26.07 63.53 66.81 СН2 148.53 140.39 185.97 160.43 НН 339.18 314.99 403.29 362.00

3.1.6.3. Results of Electric Power Transmission Activity

Approved Deviation Units of by regional Indicator Fact measurement power Absolute Relative commission The Leningrad Region Revenue tsd.RUR 6,304,450 6,199,832 -104,618 -1.7% Productive supply of mln.kWh 9,989 10,448 459 4.6% electric power Average supply rate RUR/mWh 631.1 593.4 -37.7 -6.0% Saint-Petersburg Revenue tsd.RUR 8,532,887 8,864,224 331,337 3.9% Productive supply of mln.kWh 17,115 17,991 876 5.1% electric power Average supply rate RUR/mWh 498.6 492.7 -5.9 -1.2% JSC “LENENERGO” as a whole Revenue tsd.RUR 14,837,337 15,064,056 226,719 1.5% Productive supply of mln.kWh 27,104 28,439 1,335 4.9% electric power Average supply rate RUR/mWh 547.4 529.7 -17.7 -3.2%

Excess of actual revenue for electric power transmission over the approved one in the amount of RUR 226.7 mln is the result of the influence of two opposite factors: 1. Excess of actual productive supply of electric power over the approved one caused the growth of revenue by RUR 730.7 mln. 2. Reduction of average actual rate against the approved one (related to deviation of the actual structure of productive supply from the approved one) resulted in reduction of revenue by RUR 504.0 mln.

3.1.7. Repair Activity

3.1.7.1. Target scopes of repair activities specified by the repair program of 2008 have been fulfilled 100% and more.

JSC “LENENERGO” % of Unit of Name implementation of measurement Budget for Actual Figure in 2008 2008 the annual plan Substation 35 - 110 kV Items 17 17 100

Transformer room 10 / 0,4 kV Items 1,488 1,540 103

Oil breaker 35 - 110 kV Items 138 167 121

High voltage line - 110 kV km 750 819 109

High voltage line - 35 kV km 370 380 103

High voltage line - 10 kV km 1,816 1,855 102

High voltage line - 0,4 kV km 1,087 1,110 102

Line clearance ha 3,715 3,940 106

3.1.7.2. Main trends of application of financial means of repair fund: Budget for 2008, tsd. RUR Actual data for 2008, tsd. RUR % of Including Including Name implementation Total Noncontracted Total Noncontracted of the annual Contract Contract method method plan Total of 2008 657,601 201,152 456,450 704,314 224,535 479,779 107 Including Power 366,584 119,996 246,588 381,466 142,230 239,236 104 transmission lines Substation 165,960 64,358 101,602 195,380 61,700 133,680 118 equipment Buildings and 94,930 7,588 87,342 97,903 8,730 89,173 103 structures Other objects 30,128 9,210 20,918 29,566 11,876 17,690 98

800 000 700 000 600 000 Plan of 500 000 2008 400 000 704 314 300 000 657 601 479 779 200 000 456 450 Fact of 100 000 201 152 224 535 2008 0 Noncontractual method Contractual method Total

3.1.7.3. Repair Fund Disbursement

2006 2007 2008 # Indicators (tsd.RUR) (tsd.RUR.) (tsd.RUR) 1 High voltage line 110-0,4 kV 110,069 95,490 109,706 2 Cable line 110-0,4 kV 161,634 193,753 271,759 3 Substation equipment 167,669 163,985 195,380 4 Buildings and structures 63,196 67,302 97,903 5 Other objects 17,083 35,539 29,566 6 Total 519,651 556,069 704,314 7 Including the use of noncontracted method 167,055 191,960 224,535 8 With the use of contract method 352,596 364,110 479,779

Financing of the repair program of 2008 increased by 27% against 2007 and by 36% against 2006 including:  contracting method increased by 32% to 2007 and by 36% to 2006;  noncontracted method increased by 17% to 2007 and by 34% to 2006. The analysis of 2006-2008 repair programs and the general nomenclature show that the essential growth of financing occurred with repair of cable lines of all voltage levels, substations equipment, buildings and structures. Growth of expenses for repair of cable lines is connected with the growth of the scope of development and improvement works (in 2007 the disrupted redevelopment in the Cable network subsidiary was restored for 470 addresses, in 2008 – for 2891 addresses) in the view of the new requirements of the rules of the Saint-Petersburg administration for organization with regard to formalization of necessary approvals and strengthening of requirements for restoration of the disrupted redevelopment. Financing of the repair of substation equipment in 2006-2007 has not been changed essentially and the data of 2008 has increased by 19% against 2007. This is connected with inclusion of the following works into the repair program – repair works of two power transformers in plant environment with replacement of armature winding. Moreover in 2008 the works for specific replacement of oil-filled high-voltage bushing for bushing with solid insulation have been perfromed. Financing of repair program with regard to repair of buildings and structures has increased essentially in 2008: by 45% against 2007 and by 55% against 2006. This is connected with inclusion of buildings and structures repair under the FAÇADE program to the repair program. The FAÇADE program stipulates repair of faces and enclosures of the Company’s buildings which are situated in historical districts of a city and along the governmental highways.. As for 0.4-110 kV high voltage lines and other objects the financing has not changed essentially.

3.1.7.4. Adoption of New Technologies and Equipment for Technical Policy Implementation In order to connect additional capacities to the objects and to increase the consumers’ reliability with regard to unloading of the overloaded equipment, JSC “LENENERGO” has installed and plans to install in 2009 modular mobile substations (hereinafter referred to as MMS). The MMS consists of two modules (110 kV module and 10(6) kV module), rated capacity of MMS transformer is 25 MVA, voltage classes - 110/10(6) kV:

Year of installation 2007 2008 2009 Number of modular mobile 2 4 6 substations (items) Substation # 185, 124 96, 45, 124 369, 155, 103, 525, 92, 29

In 2006 on 10 kV high voltage lines #329-05, #329-03 and #329-04 in the area of excessive thunderstorm activity the subsidiary of JSC “LENENERGO” Tikhvin Power Distribution Networks has put into pilot operation long-spark excess voltage preventer of modular type RDIM- 10-1.5 and RDIM-10-0.4 produced by NPO Streamer and designed for protection from thunderstorm excessive overvoltage of high voltage distribution networks of 10 kV voltage. According to the report of the operating company dated 08.12.2008 there has been no cases of breakdown of the tested excess voltage preventers and damage of the protected equipment. In accordance with the regulation on pilot operation it is planned in 2009 to perform a selective dismantling of excess voltage preventers for the purpose of laboratory testing in NPO Streamer. In 2008 the subsidiary of JSC “LENENERGO” Vyborg Power Distribution Networks has implemented reconstruction of 10 kV high voltage lines #158-02 including replacement of supports, fittings, insulation with the use of protected insulated wire of SIP-70 type with the potential transfer of 10 kV high voltage line #158-02 from the voltage class 10 kV to the voltage class 35 kV after erection of 35 kV substation “Lebyazhe”. During new construction and reconstruction processes it is continued to use high-technology and non-combustible equipment –PASS MO, Secondary Distribution Switchgear modules, SF6 and vacuum circuit-breakers as well as cross-linked polyethylene cables. At the present moment the following types of equipment and new technologies have been adopted in JSC “LENENERGO”: - Secondary Distribution Switchgear-110 kV on substation 110 kV # 140 "Rijskaia", substation 110 kV #65 "Strelna" and on MMS substation #45; - PASS MO on substation 110 kV #161 "Toyota", substation 110 kV #75 "Lahta", substation 110 kV #36, substation 110 kV #212, substation 110 kV #41 an on MMS substation #185, MMS substation #124; - cross-linked polyethylene is used for entry cables to substation 110 kV #75 "Lahta", substation 110 kV # 140 "Rijskaia" and substation 110 kV #161 "Toyota"; - control and monitoring of cable line-110 kV on substation 110 kV #75 "Lahta".

3.1.8. Information on Implemented Activities for Certification of Electric Power in the Reporting Year

Information on the results of electric power certification within the accounting period in JSC “LENENERGO” networks in 2008

Fulfillment of the schedule plan during the accounting Fulfillment of financial obligations period under the certification contracts Total quantity of Name of Quantity of Quantity Quantity of main main of main main Existence certification Quantity Submitted substations substations substation substations Paid in of body, date, of issued for subject to subject to s certified which have the receivables contract # certificate payment in certificatio certification during the not passed current under the s the current n during the accountin the period certificatio period accounting g period certification n contract period 1 2 3 4 5 6 7 8 9 CENTER OF ELECTRIC RUR RUR POWER 35 35 35 0 3 16,493,98 16,493,9 no QUALITY, 1.02 81.02 10.09.2008, # 08-3192

Moreover in 2008 there has been an inspection control of certified electric power for the purpose of affirmation of conformance certificates received during the process of certification of electric power in 2006-2007.

Information on results of inspection control over certified electric power in JSC “LENENERGO” networks in 2008

Fulfillment of the schedule plan during the Fulfillment of financial obligations accounting period under the certification contracts Total quantity of Quantity of Quantity of Quantity of main main main Quantity Name of certification main Submitted Existence of substations substations substations of body, date, contract # substations for Paid in the receivables subject to certified which have issued subject to payment in current under the certification during the not passed certifi- certification the current period certification during the accounting the cates period contract accounting period certification period 1 2 3 4 5 6 7 8 9 ANO (independent nonprofit RUR RUR organization) 387 387 387 - 7 7,642,395. 7,642,395. No Laboratory tests, 02 02 23.054.2008, # 08- 931 RUR RUR Stroygasingineering, 348 348 348 - 4 9,916,944. 9,916, No 23.5.2008, #08-930 60 944.60 RUR RUR Total for JSC 735 735 735 - 11 17,559,339 17,559,339 No “LENENERGO” .62 .62

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SECTION 4. KEY ACCOUNTING AND FINANCIAL INDICATORS

4.1. Main Principles of JSC “LENENERGO” Accounting Policy 4.1.1. General Provisions Accounting policy as a set of principles, organization rules and accounting technique is designed to generate accounts filled with complete, reliable and up-to-date managerial information, taking into account structural and industrial specific features of JSC “LENENERGO”. Financial and tax accounting procedures adopted by JSC “LENENERGO” in 2008 were approved by the order of the General Director and put into practice since January 1, 2008. JSC “LENENERGO” conducts its financial accounting policy in compliance with the Federal Law # 129-FZ of November 21, 1996 “On Accounting”, the Ministry of Finance Order # 67n of July 22, 2003 “On Principles of Financial Accounting”, the Statuary Accounting Regulations, the Chart of Accounts worked-out based on the pattern of standard Chart of Accounts and Instructions to the Chart of Accounts approved by the Ministry of Finance Order # 94n of October 31, 2000. JSC “LENENERGO” calculates and pays taxes centrally in compliance with tax legislation of the Russian Federation, tax legislation of the appropriate Federal Subject, Municipal tax standards and regulations taking into consideration the software used by JCS JSC “LENENERGO” for accounting purposes. JSC “LENENERGO” subsidiaries don’t have final balance and make interim financial statements in compliance with the corporate accounting policy. They are responsible for property accounting and shall follow the general provisions of JSC “LENENERGO” Accounting Policy.

4.1.2. Corporate Aspects in Accounting Policy As of December 31, 2008, JSC “LENENERGO” consists of the Corporate Center and 11 subsidiaries. Subsidiaries get segregated when they have isolated industrial, commercial and economical processes. Management of the subsidiaries is appointed by the General Director of JSC “LENENERGO”. Chief Accountant of JSC “LENENERGO” is responsible for development of accounting policy, financial and tax accounting, timely submission of complete and reliable accounting and tax statements as well as IAS-accounting (international accounting standards). Chief accountant maintains incomes and expenses and is responsible for capital safety and financial liabilities of the Company. Chief Accountant is subordinated to the General Director.

4.1.3. Accounting Procedures Accounting Service of JSC “LENENERGO” comprises accounting offices of subsidiaries headed by chief accountants and accounting office of the Corporate Center. The Service is responsible for financial and tax accounting and generation of accounting and tax statements. Tax Accounting Office supervises tax payments, generation of tax base and tax statements, consolidation of tax accounts submitted by accounting offices of the respective subsidiaries.

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4.1.4. Technical Aspects of Accounting Policy Documents authorizing business transactions involving cash funds (on bank accounts, cash records and under contracts changing financial liabilities of JSC “LENENERGO”) shall be signed by the General Director and Chief Accountant or by a duly authorized officer. The power to sign primary accounting documents is set by the internal order. The head of a structural unit (office, department, service) enjoys power to sign documents according to his/her respective official duties under empowerment given by the General Director of JSC “LENENERGO”. To draw up business transactions, tax accounting and Statutory Accounting Regulation 18/02, for which there are no standard primary accounting documents, JSC “LENENERGO” develops tax registers and documents based on Statuary Accounting Regulation 18/02, methodical guidelines, instructions and valid primary accounting documents, taking into consideration specific features of the power industry described in the accounting policy. Primary documents interchange in JSC “LENENERGO” (generation or receipt from other entities, companies and institutions, interchange between subsidiaries, acceptance for accounting, processing and archiving of such documents) is regulated by the Document Interchange Procedures. Copies of documents confirming expenditure of financial assets and serving as a basis for settlements on liabilities of JSC “LENENERGO” with counterparties (including structural units) shall be handed over to the Treasury of the Corporate Center with filled Payment Order attached. Calculation and accounting is made according to the encoding written on the given blank. Original contracts (and their copies), original acts and invoices related to obligations of the Corporate Center are submitted to the Accounting Office of the Corporate Center, whereas those related to obligations of subsidiaries get submitted to the accounting office of the respective subsidiary. Financial and tax accounting of property (including fixed assets), liabilities and business transactions is kept in RUR. Accounting statements are generated in RUR. Value of assets and liabilities denominated in a foreign currency shall be recalculated in RUR for financial and tax accounting purposes according to Russian Accounting Standard 3/06. Inventory of assets and liabilities for financial and tax accounting purposes is made in compliance with the Methodical Guidelines on Assets and Liabilities Inventory approved by the Ministry of Finance Order # 49 dated June 13, 1995 Mandatory inventory is required: prior to generation of annual accounts (except for assets already subject to inventory after October 1 of the reported year): for fixed and intangible assets – once in 3 years as of November 1, for material assets – annually as of November 1, for off-balance assets and liabilities – annually as of November 1, for financial liabilities – annually as of January 1, for cash desk – monthly as of the last business day of the month, in case of lend-lease, sale or repurchase of assets; when change of the accountable person; in case of theft, misuse destruction of property; 102

in case of natural disasters, fire and other emergency events; in other cases stipulated for by the legislation of the Russian Federation. Alongside with inventory required for accounting purposes, JSC “LENENERGO” conducts inventories to confirm current accounting data and for other purposes. Inventory schedule is approved by the General Director of JSC “LENENERGO” or by authorized heads of subsidiaries for their respective subsidiaries. Property (materials, fixed assets, and etc.) are transferred from one subsidiary to another based on the order of the management through redistribution of assets of one legal entity on the appropriate accounts for intra-corporate settlements in the Chart of Accounts. Control over financial and business transactions of the Company is effected by the Internal Audit Office. Financial statements of JSC “LENENERGO” are generated by the Accounting Office of the Corporate Center based on the aggregate information on assets, liabilities and business results taking into consideration the data submitted by accounting offices of subsidiaries. Annual financial statements of JSC “LENENERGO” are examined and approved by the General Meeting of Shareholders and submitted in due terms and to the due authority specified in Chapter 15 of the Federal Law # 129-FZ “On Accounting” dated November 21, 1996. Breakdown of accounting item is required when the value of the item is essential. An item is deemed essential, when failure to give breakdown for such an item may affect financial decisions taken based on the accounting data by the parties concerned. Level of significance is limited by 5 per cent of the total amount of the appropriate section of the balance sheet. Based on the data submitted by accounting offices of subsidiaries and other services of JSC “LENENERGO”, Tax Accounting Office generates tax statements with respect to taxes to be paid on centralized basis. Interim and annual accounts of JSC “LENENERGO” have been developed based on the patterns recommended by the Ministry of Finance comprising additional indicators introduced by IGDC Holding. Accounting statements get generated based on the data of accounting registers. To ensure solo responsibility of accounting office staff, these registers are printed out and signed by their authors. These officers are responsible for correct entries on business transactions made in such registers. JSC “LENENERGO” applies the chart of accounts for bookkeeping, including control and sub- ledger accounts. The chart has been drawn up based on a standard chart of accounts. The chart of accounts for bookkeeping allows implementing data registration and classification scheme regarding data on business activities, thus, facilitating generation of financial, statistic or tax accounts required. It is designed for harmonization of JSC “LENENERGO” accounting practice.

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4.2. JSC “LENENERGO” Balance Sheet on 31.12.2008 thousand RUR ASSETS Indicator At the beginning At the end of Code of reporting year reporting year 1 2 3 4 I. NON-CURRENT ASSETS Intangible assets 110 834 32,566 Fixed asstes 120 36,606,105 46,626,319 Construction in progress 130 7,717,346 12,219,565 Investments in tangible assets 135 Long-term financial assets 140 489,934 278,199 Deferred tax assets 145 138,862 176,225 Other non-current assets 150 TOTAL NON-CURRENT ASSETS 190 44,953,081 59,332,874 II. CURRENT ASSETS Inventory 210 629,681 759,958 thereof: raw materials, supplies and other similar inventory 211 364,693 398,461 rearers and fatteners 212 work in progress 213 finished goods and merchandise 214 dispatched goods 215 prepaid expenses 216 264,988 361,497 other inventory 217 VAT receivable 220 351,334 226,458

Receivables (payments expected beyond 12 months after balance sheet date) 12,773 1,733,660 230 thereof trade receivables 231 Receivables (payments expected within 12 months after balance sheet date) 9,516,007 11,234,509 240 thereof trade receivables 1,929,931 Short-term financial assets 250 1,549,885 Cash 260 5,904,276 1,850,650 Other current assets 270 TOTAL CURRENT ASSETS 290 16,414,071 17,355,120 TOTAL ASSETS 300 61,367,152 76,687,994

LIABILITIES & EQUITY Indicator Code 1 2 III. EQUITY & RESERVES Charter capital 410 785,118 1,019,286 Treasure stock 411 Additional Paid-In Capital 420 34,873,557 40,960,186 Reserve capital 430 134,604 134,604 thereof: reserves according to 431 134,604 134,604

104 the law reserves according to the incorporating documents 432 Retained earnings (uncovered loss) 470 -833,029 3,042,455 TOTAL EQUITY & RESERVES 490 34,960,250 45,156,531 IV. LONG TERM LIABILITIES Loans and borrowings 510 10,900,000 10,900,000 Deferred tax liabilities 515 760,310 852,236 Other long-term liabilities 520 181,180 179,230 TOTAL LONG TERM LIABILITIES 590 11,841,490 11,931,466 V. CURRENT LIABILITIES Loans and borrowings 610 172,094 237,849 Payables 620 14,245,945 19,171,503 thereof: accounts payable 621 3,032,153 3,715,680 wages payable 622 71,531 108,679 payables to state authorities / social security 623 37,058 16,855 taxes payable 624 393,556 614,031 other payables 625 10,711,647 14,716,258

Dividends Payable 630 Deferred income 640 147,373 157,229 Accrued expenses 650 33,416 Other short-term liabilities 660 TOTAL CURRENT LIABILITIES 690 14,565,412 19,599,997 TOTAL EQUITY, RESERVES & LIABILITIES 700 61,367,152 76,687,994

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4.3 JSC “LENENERGO” Profit and Loss Report on 31.12.2008г. thousand RUR Indicator Same period of Reporting period Name Code previous year 1 2 3 4

Income and expenses within ordinary activities

Income (Net) from sold goods, products, labor, services (after VAT, excise taxes and similar mandatory payments) 010 20,827,799 15,265,492 CoS of sold goods, products, labor, services 020 ( 17,680,262 ) ( 13,089,426 ) Gross profit 029 3,147,537 2,176,066 Selling expenses 030 Administrative expenses 040 Profit (loss) on sales 050 3,147,537 2,176,066 Other income and loss Interest income 060 378,499 61,629 Interest expenses 070 ( 721,754 ) ( 461,461 ) 45,401 Income from investments to other legal entities 080 26,365 Other ordinary income 090 426,797 448,854

Other ordinary expenses 100 ( 973,290 ) ( 578,983 ) Profit (loss) before taxes 140 2,284,154 1,691,506 Deferred tax assets 141 37,363 - 16,743 Deferred tax liabilities 142 -91,925 -140,458 Income tax 150 ( 997,567 ) ( 620,275 ) Other similar payments 307,593, 2,037, Net profit (loss) of reporting period 190 1,539,618 916,067 FOR REFERENCE ONLY: Constant tax liabilities (assets) 200 503,932 371,514 Basic earnings (loss) per share 1.6630 1.3241 Diluted earnings per share

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DETAILS ON SOME PROFITS AND LOSSES Indicator Same period of Reporting period previous year

Name Code Profit Loss Profit Loss 1 2 3 4 5 6 Fines, penalties and forfeits either recognized or out of court rulings and awards (arbitration courts) 31,525 39,145 2 47,972 on their recovery Profit (loss) of previous years 21,836 62,561 21,399 16,010

Compensations of damages caused by non- performance or improper performance of obligations Translation differences 89 202 198 220 Revaluation reserve Х Х Written-off receivables and payables with expired claim time limit 3,224 11,150 9,323 4,803

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4.4. Report of Company’s Auditor The General Shareholder Meeting of JSC “LENENERGO” decided on 30.05.2008 to choose Fineart-Audit as the Company’s auditor. Full Name of the Official Auditor Fineart-Audit limited liability company (equals to OOO in Russian)

Abbreviated Name of the Official Auditor OOO Fineart-Audit

Legal Address Russian Federation, 119607, Moscow, ul. Udaltsova 60

Actual Address Russian Federation, 119607, Moscow, ul. Udaltsova 60 Phone +7 495 431-99-70

Certificate of State Registration # 128 series ОB registration number 5128

Entered in the Single state register of Principle State Registration Number (PSRN) legal entities 1024001183898 Certificate series 40 # 000224832

Email: [email protected]; [email protected]

License # Е 006407 (Order # 250 of the Russian Ministry of Finance dated 07.09.2004)

Membership in the Accredited Moscow audit chamber. Member certificate # 1531 Professional Audit Association

The auditor’s liability insurance contract Informstrakh Closed Joint-stock Insurance is signed with the insurance company Company (equals to "ZAO" in Russian) Contract # 18/06-065167 dated 18.10.2006 (cover period: 19.10.2006 – 18.10.2007) Contract # 18/07-081132 dated 03.09.2007 (cover period: 19.10.2007 – 18.10.2008)

The audit report on financial (accounting) reporting of JSC “LENENERGO” for 2008 is given in “Report of Company’s Auditor” Section.

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SECTION 5. PROFIT DISTRIBUTION AND DIVIDEND POLICY

As of 01.01.2008 the Charter Capital of JSC “LENENERGO” totaled in RUR 785,118,455 and included 93,264,311 privileged shares and 691,854,144 ordinary shares. As of 31.12.2008 the Charter Capital of JSC “LENENERGO” equaled RUR 1,019,285,990 and 4/100 (93,264,311 privileged shares and 926,021,679 and 4/100 ordinary shares). The rise in the Charter Capital as of 31.12.2008 against the beginning of the reporting period is accounted for by private placement of supplement shares to the advantage of the city of Saint- Petersburg. The placement of shares ended on October 24, 2008. The state registration of the report on the additional issue of shares is dated December 12, 2008. In total 234,167,535 undivided and 4/100 items of ordinary shares were placed which amount at 97.6 per cent of the total volume of the additional issue. In 2008 the Board of Directors of the Company decided to recommend the General meeting to pay dividends following the results of 2007 in the amount of RUR 0.98 per 1 (one) privileged share. (record of the meeting of the Board of Directors # 23 as of April 25, 2008). The following table shows the profit distribution in accordance with decisions of the General Shareholders Meetings of the Company for the last 3 years:

2006 Annual 2007 Annual 2008 Annual General General General Shareholders’ Shareholders’ Shareholders’ Type of income Meeting Meeting Meeting following the following the following the 2005 results* 2006 results 2007 results

Undistributed profit (RUR thousand) - 493,323 423,970 916,067

Reserve fund (RUR thousand) - 0 0

Accumulation fund (RUR thousand) - 0 824,460

Dividends (RUR thousand) - 42,397 91,607

Other objectives (RUR thousand) - 0 0

* In 2005 the Company’s loss equaled RUR 493,323 thousand.

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Dividends payment by JSC “LENENERGO” In view of zero net profit JSC “LENENERGO” paid no dividends in 1997-2000 and in 2005. Dividend history of the Company over the last 3 years

2006 Annual 2007 Annual 2008 Annual General General General Shareholders’ Shareholders’ Shareholders’ Meeting for Meeting for Meeting for 2005 2006 2007

Per one ordinary share (RUR) - 0 0

Per one privileged share (RUR) - 0.45 0.98

Information on dividends accrued

2006 Annual 2007 Annual 2008 Annual General General General Shareholders’ Shareholders’ Shareholders’ Meeting for Meeting for Meeting for 2005 2006 2007

By ordinary shares (RUR) - 0 0

By privileged shares (RUR) - 42,397,007.78 91,606,679.42

Information on dividends paid

2006 Annual 2007 Annual 2008 Annual General General General Shareholders’ Shareholders’ Shareholders’ Meeting for Meeting for Meeting for 2005 2006 2007

By ordinary shares (RUR) - 0 0

By privileged shares (RUR) - 42,397,007.78 91,606,679.42

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SECTION 6. INVESTMENT ACTIVITY

6.1. Parameters of Investment Activity

Table # 1 (RUR million, km/МVА)

2008

Input into Applicatio Fixed assets Financing Capacity n without Capacity gain without with VAT introduction VAT VAT

RUR RUR RUR km МVА km МVА million million million

JSC “LENENERGO” 11,409.2 7,057.96 13,434.7 356.8 704.79 152.2 442.3

Investments in reconstruction and technical modernization over the last five years

Disbursement of capital investments excl. VAT, Including technical modernization in million RUR and reconstruction, in million RUR

The 2008 investment program of JSC “LENENERGO” was amended and totaled in RUR 9,440 million due to approval in October-November 2008 for adjustments to Agreements with Authorities of Saint-Petersburg and the Leningrad Region. Capital investments application under the 2008 investment program - RUR 11,409.2 million which makes 121 per cent of the plan of the amended investment program. Moreover in accordance with the 2008 plan on the acquisition of property through financial lease agreements the capital investments application reached RUR 290.2 million or 21.62 per cent of

111 the plan (RUR 1,342.5 million). Key reasons for such under-performance are postponed commissioning of the equipment and violation of the property transfer time by suppliers. Against the 2007 investment program the capital investments application topped 130 per cent (in 2007 - RUR 8,779.9 million), by reconstruction and technical modernization the capital investments application hit 161 per cent (in 2007 – RUR 3,029.9 million).

6.2. Patterns and Structure of Capital Investments

2008 witnessed reconstruction of the following substations: Substation 35/6 kV # 40 “Admiralteyskaya” with replacement of T-2 transformer for a transformer with 25 МVА in power capacity. Substation 35/6 kV # 36 “Borodinskaya”, # 18 “Kransy treugolnik”, # 614 with replacement of switchers 35 kV. Reconstruction of substation 110/35/10 kV # 258 “Osmino” with replacement of 1bar section 10 kV is completed. In view of reconstruction and new construction the year 2008 witnessed an increase of the following power capacity: - Up to 126 MVA at substation 110/10 # 145, - Up to 80 MVA at substation 110 # 294 “Koltushi”, - Up to 50 MVA at substation 110/10 # 514. - Up to 20 MVA at substation 35/6 kV #612 “Osinovaya Roscha”, - Up to 12.6 MVA at substation 35/6 kV # 613 and 614. Substation 110 kV # 711 “Pushkin-Severnaya” is equipped with a third t-3 transformer with 40 MVA in power capacity. The throughput capacity is increased of the Roschinsky transmit 110 kV from the entry to substation # 41 to Hydropower Plant -10 (28.33 km in length). The wire replacement is carried out at overhead lines 35 kV “Pushkinskaya-1,2,3”, “Shushary-1,2” (10.7 km in length) by the line of route, 2.3 km of “Michurinskaya-1” overhead kV are reconstructed. With the worn-out production facilities renewal in view the following object were reconstructed and commissioned: . Overhead line 0.4-10 kV with the total length of 178.8 km; o Overhead line with the shielded wire 10 kV in Silino residential settlement in Priozersk Region – 11.57 km; o Overhead line with the shielded wire 10 kV in Kolokoltsevo residential settlement in Priozersky Region – 42.4 km; o Overhead line 10 kV f.48-08 (from 255 to1) in Luga Region – 26.5 km; o Reconstruction of networks 10 kV f-12 “Lopukhinka” substation in Lomonosovsky Region – 10.5 km;

112

o Reconstruction of the insulated overhead line 0.4 kV from Transformer rooms # 229,49,79 in Staraya Siverskaya residential settlement (with the total length of 21.67 km); o Reconstruction of the insulated overhead line 0.4 kV from Transformer room-4307 in Lyuban in Tosnensky Region – 7.5 km; o Reconstruction of the insulated overhead line 0.4 kV from Transformer room-987 in Melnitsa village in Gatchinsky Region – 6.08 km. 2008 witnessed reconstruction of cable lines 0.4 – 10 kV (31.6 km in length) which improves the power supply reliability for customers in Saint-Petersburg. Rechargeable batteries are replaced at 13 substations 110-35 kV in the Leningrad Region and in Saint-Petersburg. 26 reclosers are mounted with distribution networks 6-10 kV. The Company continues to construct: - Master power substations for 110 kV in Tikhvin (Tikhvin – West) and in Vyborg Region (“Pervomayskaya”); - Overhead line 110 kV “Vuoksa 1-5”: 2008 witnessed commissioning of 30.01 km. The total power capacity of transformers commissioned in 2008 at reconstructed and constructed transformer substations reached 704.8 MVA. Commissioned are 356.8 km of power lines for 110- 35-10-0.4 kV.

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Structure of capital investments of JSC “LENENERGO” Table #2 RUR million

2008 JSC “LENENERGO” 2006 2007

Patterns of investment activity – total: 2859.9 8779.9 11409.2

Power network facilities including 2651.1 7940.0 10362.9

Technical modernization and reconstruction 544.5 2267.2 3668.4

New construction and expansion of actual facilities 2077.3 5185.0 6419.9

Other power network facilities (automation, communication) 29.3 487.7 274.6

Power metering and controlling devices including 9.2 10.1 442.1

Automated information and measuring system for power billing of the wholesale market within the investment program 9.2 10.1 5.4

Other power metering and controlling devices

Design and survey for future constructions 83.2 175.7 261.9

Other production and economic facilities 13.5 50.0 110.8

Equipment apart of the cost plan for construction 63.9 256.0 208.4

Non-production facilities 0.4 3.8

Capital investments in intangible assets

Long-term investments

Acquisition of fixed assets 39.1 347.9 19.4

For reference:

Application of capital investments on grid connection of customers 1868.4 3642.5 9266.9

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Structure of capital investments by types of investments of JSC “LENENERGO” over the reporting period in relation to the overall amount of capital investments, % Example 2

Other (transformations)

0.17%

New Construction 57.20%

Technical modernization And reconstruction 42.63%

Trend of fixed assets introduction by JSC “LENENERGO” Table #3 RUR million

2007 2008

Introduced Introduced Power Title of Inter- Power capacity capacity gain regional power Fixed Power capacity gain Fixed Power capacity distribution assets introduced assets introduced network introduct introduc company/ Power ion, Km MVA Km Km tion, Km MVA Км МВА distribution RUR RUR network million million company/affiliate d branch

JSC “LENENERG 4,462.5 246.26 502.3 77.3 238.31 7,057.9 356.8 704.79 152.2 442.3 O”

Introduction of fixed assets in 2008 equaled RUR 7,057.9 million (in 2006 – RUR 1,565 million, in 2007 – RUR 4,462 million). Against the 2007 investment program the fixed assets introduction topped 158 per cent. The total power capacity of transformers commissioned in 2008 at transformer sub-stations equaled 704.8 MVA (in 2006 – 31.1 MVA, in 2007 – 502.3 MVA). 115

Commissioned are overhead power lines 0.4-110 kV with the total length of 265.6 km (in 2007 – 161.8 km), cable power lines 0.4-110 kV with the total length of 91.2 km (in 2007 – 84.4 km). The total length of power lines commissioned in 2008 makes 146 per cent against the parameter of 2007.

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Structure of fixed assets introduction by types of investments of JSC “LENENERGO” over the reporting period in relation to the overall input in fixed assets, %.

Example 3

Other (transformations)

0.36%

New construction 58.40%

Technical modernization And reconstruction 41.24%

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6.3. Financial Structure of the JSC “LENENERGO” Investment Program over the Reported Period in Breakdown by Sources of Financing

Table #4 RUR million

JSC “LENENERGO”

Investment sources, total 11,409.2

Amortization of the reporting year 2,222.2

Unemployed amortization from the previous years 529.4

Unemployed profit from the previous years

Profit of the reporting year to be engaged in the investment program of the

reporting year

Renovation included in the rate

Distribution of core non-current assets

Distribution of non-core non-current asset

Fee for grid connection

Other internal source of financing 2,357.9 Internal sources of financing financing of sources Internal Budget funds (federal, municipal)

Raised funds (borrowed interest-bearing)

Raised funds (additional issue)

6,299.7 Fee for grid connection

Other external source of financing including equity participation in

External sources of financing of External sources construction at the expense of other source

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Distribution of the investment policy in 2009-2011 in comparison with 2008 by the investment pattern by JSC “LENENERGO”

Table #5 RUR million

Title of Power distribution network 2008 actual 2009 plan 2010 plan 2011 plan company

Total by JSC “LENENERGO” 11,409.2 11,189.2 7,905.5 18,336.2

Technical modernization and 4,863.9 4,526.9 4,820.6 11,469.7 reconstruction

New construction 6,525.86 6,658.0 3,084.9 6,866.5

Other 19.44 4.3 0 0

Planned investments in accordance with the investment program for 2009-2011 by JSC “LENENERGO” in comparison with 2008 Example

Million RUR Million 18336 17000

12000 11409 11189

7906 7000 2008 2009 2010 2011

Major sources of financing the capital investments of the investment program of JSC “LENENERGO” in the reported year of 2008 are: amortization and fee for grid connection. The 2009 investment program includes RUR 11,189.2 million including by objects of Agreements the investment program of the Company for 2009 envisages capital investments of RUR 7,283.2 million by Saint-Petersburg and RUR 2,472.8 million by the Leningrad Region, alongside with RUR 1,433.2 million to ensure reliability.

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SECTION 7. PROCUREMENT ACTIVITY

Procurement activity of the Company is organized in accordance with the procurement activity organization standard of RAO UES of Russia (approved by the Resolution of the Management Board of RAO UES of Russia # 1127/2 dated 27.12.2005). Procurement activity of JSC “LENENERGO” regulated by the following documents: Regulations on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO”. Approved by the Resolution of the Board of Directors of the Company on 14.04.2008, minutes of the meeting # 22 dated 18.04.2008; Statute of the Standing Central procurement body of JSC “LENENERGO”. Approved by the Regulation of JSC “LENENERGO” # 152 dated 07.05.2008; Working regulations of the standing Central procurement body of JSC “LENENERGO”. Approved by the Regulation of JSC “LENENERGO” # 152 dated 07.05.2008. In accordance with the abovementioned documents the Annual Overall Procurement Program (hereinafter referred to as AOPP) has been established. This program is based on the Adress, Investment and Production Programs of the Company. The AOPP of JSC “LENENERGO” for 2008 was approved by the Board of Directors of JSC “LENENERGO” on 05.03.2008, minutes of the meeting # 19. The updated AOPP with account of IV quarter procurement for the needs of the Company in 2009 was approved by the Board of Directors of JSC “LENENERGO” on 12.11.2008, minutes of the meeting # 4. Procurement activities in JSC “LENENERGO” lies within the competence of the logistics and purchasing department which consists of the following departments: procurement planning department, tendering process department and supplies approval/control department. Moreover in accordance with the agency contract # 06-2351 dated 03.08.2006 for arrangement and execution of competitive procurement procedures JSC “LENENERGO” attracts a third-party procurement agency – Energostroysnabkomplekt UES (hereinafter referred to as ESSK UES). By order, on behalf and at the expense of JSC “LENENERGO” the abovementioned company performs law and other activities related to tendering process or other regulated out-of-competition activities aimed for selection of vendors and contractors in accordance with the statements which regulate procurement activity and adopted in JSC “LENENERGO”. ESSK UES performs the abovementioned activities for remuneration.

The annual overall procurement program includes all procurement of goods and contractors’ services which cost is more than RUR 500,000 (VAT not included). The form of the program has been approved by the Regulations on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO” and consists of 8 sections: New construction and expansion of power supply network objects, Modernization and technical re-equipment of power supply network objects, Power supply network repair and technical maintenance, IT purchases, Research and development, Consulting services, Estimators’ services, Other purchases

The ways and methods of procurement of goods and contractors’ services for all sections of the program are defined depending on cost value of each procurement and are as follows: Open tender, Open request for proposals, 120

Open request for quotations, Purchase from the single source, Open competitive negotiations.

The structure of the Annual Overall Procurement Program of 2008 by sections in quantitative terms (of purchases)

Total - 909 purchases

489 263 1. New construction and expansion of power supply network objects

2. Modernization and technical re-equipment of power supply network objects 3. Power supply network repair and technical maintenance 31 126 8. Other purchases

The structure of the Annual Overall Procurement Program of 2008 by sections in terms of value (mln. RUR, VAT included) Total -

RUR 22,098 mln..

12 972 1 055 1. New construction and expansion of power supply network objects

2. Modernization and technical re-equipment of power supply network objects 6 748 3. Power supply network 1 323 repair and technical maintenance

8. Other purchases

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The structure of the Annual Overall Procurement Program of 2008 by the ways and methods of procurement in quantitative terms (of purchases) Total - 909 purchases

399 13 Open tender

Open competitive negotiations 411 Open request for proposals

86 Purchases from the single source

The structure of the Annual Overall Procurement Program of 2008 by the ways and methods of procurement in terms of value (mln. RUR, VAT included)

Total -

RUR 22,098 mln.

18 745 Open tender 407 Open competitive negotiations Open request for proposals 693 Purchases from the single 2 253 source

The Regulations on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO” stipulates the following procurement methods:

a) Tender; b) Request for proposals; c) Request for quotations; d) Competitive negotiations; e) Purchase from the single source;

Open competitive methods of selection of Commodities and Materials vendors and contractors (open tenders, open requests for proposals, open competitive negotiations) are used in the

122 purchasing process directly. Purchase from the single source is used to select contractors for elimination of the occured emergency situations provided that the volume of the purchased production is no more than the sufficient one to prevent an emergency situation or eliminate the results of its consequences and if necessary to replenish the specified norms of emergency resources. The method of purchase from the single source is also used when the purchase is done from the organizations which provide their services on the market in a monopolistic way. In the course of tender procedures the applicable methods of procurement are defined in accordance with the Regulations on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO”.: – Procurement method “Open tender”, selection criterion – purchase cost is over RUR 5,000,000, VAT not included.; – Procurement method “Open request for proposals”, selection criterion – purchase cost is less than RUR 5,000,000, VAT not included, or there is no time to hold an “Open tender” or it is unreasonable to hold it due to any other solid reasons. The information on holding of tender procurement procedures is available at 5 public sources: official web-site of JSC “LENENERGO”, section “Procurement” - www.JSC “LENENERGO”.ru, there one find the text of the Statute of the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO” and the Annual Comprehensive Procurement Program for the current year and two preceding years, the official web-site of the third-party procurement agency – Energostroysnabkomplekt UES - www.essk.ru, electronic trading sites - www.tzselektra.ru and www.b2b-energo.ru, as well as at the Delovoi Petersburg newspaper. In accordance with the Regulation on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO”, approved by the Resolution of the Board of Directors dated 14.04.2008, the regulated purchases in 2008 has been performed with the use of e- commerce means notably with the use of electronic trading sites www.b2b-energo.ru and www.tzselektra.ru. The abovementioned sites have been defined: www.b2b-energo.ru – approved by the Board of Directors of the Company, minutes of the meeting # 13 dated 28.02.2006., www.tzselektra.ru – approved by the Regulation of RAO UES of Russia and FGC UES # 131r/131r dated 24.04.2007. “Regarding procurement with the use of the electronic trading site TZS Elektra – approved by the Board of Directors of the Company, minutes of the meeting # 23 dated 06.06.2007, contract # 07-1634 signed on 16.05.2007. All purchases for the needs of JSC “LENENERGO” in 2008, planned to be performed with the use of the Internet technologies and modern communication facilities have been performed with the use of the official web-site of the Company - www.JSC “LENENERGO”.ru, the official website of the separate procurement agency – ESSK UES - www.essk.ru, electronic trading sites - www.tzselektra.ru and www.b2b-energo.ru. 85% of procurement activities have been performed with the use of the Internet sources in 2008. The Annual Overall Procurement Program is prepared and approved on the basis of the “Regulation on approval of the annual comprehensive procurement program”. According to the abovementioned document: The program is prepared on the basis of the programs which define production activity of the Company: production program (including all purchases, which form the estimate of expenditures for manufacture and selling of production (services) from the normal activities provided by the format of the business plan); repair program (plan of repairs); investment program (including technical re-equipment and reconstruction, new construction). Is coordinated in specified timeframes with IDGC ; Is approved by the Board of Directors of the Company.

After approval by the Board of Directors the program is uploaded to the web-site of JSC “LENENERGO” (www.lenenergo.ru), section «Procurement» within 10 days in accordance with 123 the Regulation on the procedure for regulated purchase of goods, works and services for the needs of JSC “LENENERGO”.. The information on inclusion of purchases to the program is delivered to the logistics and purchasing department from the core divisions (centers of financial responsibility) of JSC “LENENERGO” and from 11 subsidiaries of JSC “LENENERGO”. Implementation of the program is done by means of corresponding purchase procedures within the timeframes planned by the given program. During the program implementation it is allowed to do the program adjustment which can be performed:: According to the results of electricity rates defence in the government regulation bodies.; Due to adjustments of the Company’s business plan parameters; According to the results of formation of the Company’s demand for the next year’s production. In order to satisfy this demand it is necessary to conduct tender procedures within 3-4 quarters of the current year. In accordance with the results of procurement activity of the Company the production provision department prepares quarterly reports according to the forms approved by IDGC Holding. The General Director of JSC “LENENERGO” reports on these forms to the Board of Directors of the Company on a quarterly basis and by the results of the year. The following quarterly reports of the General Director were approved by the Board of Directors: for the first quarter of 2008 – minutes of the meeting # 2 dated 22.08.2008, for the II quarter of 2008 – minutes of the meeting # 4 dated 12.11.2008, for the III quarter of 2008 – minutes of the meeting # 7 dated 26.12.2009, for the IV quarter and by the results of 2008 – minutes of the meeting # 11 dated 06.03.2009. The Annual Overall Procurement Program of 2008 has been implemented. 909 purchases to the total amount of RUR 22,098 mln. with VAT included have been planned. Procurement procedures have been started in due time for all planned competitive purchases according to the program. However by the end of the accounting period 31.12.2008 the part of purchases were at the stage of implementation (uploaded to the web-site – IV quarter purchases for the needs of the Company in 2009, starting dates – December 2008) or they have been summarized (work of commission – IV quarter purchases for the needs of the Company in 2009) or there were no proposals during the implementation of these purchases (they will be repeated), or they have been considered as abortive (excluded or the results have been cancelled) according to the results of adjustments of the Investment and Repair programs of the Company. De facto 593 purchases to the amount of of RUR 12,385 mln. with VAT included have been implemented with selection of a winner as of 31.12.2008.

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Implementation of the Annual Overall Procurement Program of 2008 (by sections) Fact Plan (implemented with selection of a winner as of 31.12.2008) Quantity, Cost, mln. Quantity, Cost, mln. purchases RUR purchases RUR 1. New construction and expansion 31 1,323 31 718 2. Modernization and technical re-equipment 489 12,972 340 6,409 3. Power supply network repair and technical 263 1,055 132 466 maintenance 4. IT technologies 5. Research and development 6. Consulting services 7. Estimators’ services 8. Other purchases 126 6,748 90 4,792 TOTAL 909 22,098 593 12,385

Implementation of the Annual Overall Procurement Program of 2008 (by purchase methods)

Fact Plan (implemented with selection of a winner as of 31.12.2008) Quantity, Cost, mln. Quantity, Cost, mln. purchases RUR purchases RUR 1. Open tender 399 18,745 154 9,068 2. Open request for proposals 411 693 279 611 3. Open competitive negotiations 13 407 2 56 4. Single source 86 2,253 158* 2,650 TOTAL 909 22,098 593 12,385 * - including the single source according to the results of tender procedures (only one proposal sent during implementation).

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Competitive procurement procedures allowed to gain an economical effect according to the completed purchases with selection of a winner in the amount of RUR 814 mln. with VAT included which totaled 6,15% of the planned cost.

The overall planned cost of all completed purchases in 2008 with selection of a winner totaled RUR 13,199 mln. with VAT included. The real cost totaled RUR 12,385 mln.

Economical effect – 13 200,00 RUR 814 mln. 6, 15 % 13 000,00

12 800,00 Budgeted cost 12 600,00 of complete purchases - 13,199 mln.RUR 12 400,00 Real cost 12 200,00 of completed purchases - 12,385 mln.RUR 12 000,00

11 800,00 plan / fact

According to the Programs which provide production activity of JSC “LENENERGO” in 2009 the Annual Overall Procurement Program for 2009 (II – IV quarters) which includes 60 purchases to the total amount of RUR 2,139,428 million with VAT included has been prepared.

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Structure of Annual Overall Procurement Program of 2009 in quantitative terms (of purchases)

Всего - 60 закупок

New construction and broadening of 4 1 network units 7 Reconstruction and technical 4 upgrade of electric power units

Energy and repair production, maintenance

IT-procurement

44 Other

Structure of Annual Overall Procurement Program of 2009 in sections and in terms of value (million RUR including VAT) Total amount of 2,132 million

New construction and broadening of network unitsНовое строительство 19 273 и расширение электросетевых 12 объектов Reconstruction and technical upgrade of electric power units 49

Enenrgy and repair, maintenance

1 779 IT-Procurement

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SECTION 8. MARKET SHARE

8.1. Overview of the Market of Services Provided by the COMPANY Saint-Petersburg and the Leningrad Region constitute a dynamic developing region with major power-intensive production facilities, numerous housing and public utilities and extensive infrastructure. The key parameter to manifest rising power consumption in the region was new electrical equipment developed and commissioned. The first 9 months of 2008 observed a substantial rise in power consumption especially with major production facilities in view of reaching the level of power consumption to match the designed capacity. Q4’2008 registered a reverse trend – fall in power consumption - amid worsening economic conditions. Picture 1 shows the overall trend of changing consumption and productive supply of power with networks of JSC “LENENERGO”:

Trend of changing productive supply by JSC "Lenenerg" (million kWh) 29400,0 28698,4

28400,0 28439

27400,0 27111,2

26400,0 26549,0 25879,6 25470,8 25383,6 25400,0 25209 24651,6

24400,0 Productive Supply by JSC 2003г 2004г 2005г 2006г 2007г 2008г

Trend of changing productive supply by JSC “LENENERGO” and overall consumption of the region. Due to JSC “LENENERGO” rearrangement the structure of the electric power overall balance has changed since 01.10.2005 which accounts for some downslide in the power productive supply in 2006 against 2005. In 2008 the power productive supply level reached 28,439.08 million kWh which is by 1,890 million kWh or 7.1 per cent above the level of power productive supply in the previous year. A lift in the power productive supply is accounted for by some production facilities in Saint-Petersburg and the Leningrad Region to have reached the designed capacity and by increased power demand. An increase in productive supply in 2008 against 2007 can be notified by the following entities: by enterprises with direct contracts in the wholesale power market – 646.5 million kWh or 31.4 per cent. The highest rise is witnessed with the following sale companies: - TransNeftService S (by Tikhvinsky ferroalloy plant) by 130.4 million kWh or 29.7%; - Dizazh M by 1.4 million kWh or 7.9 per cent; - RKS-Energo by 129.0 million kWh or 5.9 per cent.

128

8.2. Services in Power Transmission and Distribution by Power Networks In 2008 main customers for power transmission were power supply companies awarded with the status of guaranteed power supplier including Saint-Saint-Petersburg Power Sales Company – the major power supplier in the region, RKS-Energo, RusEnergoSbyit, Energy Holding. Other customers of JSC “LENENERGO” in 2008 included power supply companies acting in the wholesale market: Dizazh M, Kirov Fuel and Energy Company, RusEnergoResurs, TransNeftService, and a consumer – entity of the Baltika wholesale market , as well as a consumer of the retail market – Power supply Company.

Kirov Fuel and Energy TransNeftService Company 2.01% Energy Supply Company 0.81% 0.21% Dizazh M 0.07% RusEnergoResurs 1.44%

RusEnergoSbyt Baltika 0.09% 4.90%

RKS-Energo 8.12%

Energy Holding 15.48% Saint-Petersburg Power Sales Company 66.89%

Since some consumers of supply companies are indirectly connected to the networks of JSC “LENENERGO” through power networks of allied network companies and current agreements for power transmission stipulate the obligation of JSC “LENENERGO” to supply power to end users immediately the Company employed allied network companies. In 2008 JSC “LENENERGO” in accordance with the rate-balance decision of Saint-Petersburg and the Leningrad Region Rate committees was “collective fund holder” that is the Company’s gross revenue included cost of power transmission of allied network companies of Saint-Petersburg and the Leningrad Region. Pursuant to the current legal base JSC “LENENERGO” arranged its relations with 28 network companies by way of concluding agreements to transmit power immediately to the end users. Transmission to the end users by networks of JSC “LENENERGO” accounted for 73.43 per cent in the overall power productive supply in 2008. JSC “LENENERGO” accumulates the customer relation function in Saint-Petersburg and the Leningrad Region in terms of providing reliable and quality power supply which enables later with involvement of EnergoBalance Severo-Zapad as a sub-contractor maintain an accurate database by the customers of the region. Immediate cooperation with consumers resulting in contracts for direct power transmission as well as through power supply companies contributes to the Company’s position in the power retail market.

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8.3. Services on New Consumers Connection to the Power Network Infrastructure of the Company With latest trends in the world economy in the background JSC “LENENERGO” in the reporting period implemented the program to construct new and reconstruct present power network facilities in Saint-Petersburg and the Leningrad Region characterized by high capital intensity and long-term periods of networks construction. To mitigate the impact of factors and conditions affecting the Company in 2008 the management of JSC “LENENERGO” undertook actions to stabilize the position of the Company including:  The management structure rearrangement in the grid connection block;  Task forces establishment with participation of operators (sub-contractors) with the control function over execution of obligations under grid connection agreements;  Launching a pilot project to delegate authorities to conclude contracts for customers grid connection up to 750 kVa to Vyborg Power Networks (a subsidiary of JSC “LENENERGO”);  Phased introduction of the pilot project implementation with all network enterprises of the Leningrad Region;

In 2008 JSC “LENENERGO” effected the grid connection in Saint-Petersburg subject to the fee rates set by Decree of Saint-Petersburg Rate committee # 153-р as of 07.12.2007 “On setting the fee for grid connection of open joint stock company JSC “LENENERGO” in Saint-Petersburg for 2008”. The table cites the maximal and the minimal rate in Saint-Petersburg for 2008 set by Decree # 153-р.

Applicant’s capacity less than 10000 kVA # of the area Voltage level Up to 20 kW 20 - 100 kW More than 100 (including) (including) kW

10 (maximal 1 – 0.4 kV 43,080 44,300 44,080 rate) 6 (minimal rate) 1 – 0.4 kV 25,581 35,759 35,581

Among other legal documents acting in the Leningrad Region the functioning process of JSC “LENENERGO” in 2008 was regulated by Enactment # 72-п as of 31.08.2007 “On setting the fee for grid connection of open joint stock company JSC “LENENERGO” which defines: differentiation factors of the basic fee rate depending on: power reliability category, remoteness from the main substation. Over the reporting period the grid connection activity in Saint-Petersburg along with JSC “LENENERGO” was executed by Saint-Petersburg Power Networks, in the Leningrad Region – by Power Management Company. Thus the functional area of Saint-Petersburg Power Networks hosts not only substations financed out of the budget of Saint-Petersburg and registered in the balance of Saint-Petersburg Power Networks but also networks of JSC “LENENERGO”. The same picture is observed in the Leningrad Region.

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Functional areas of Power Management Company and JSC “LENENERGO” are defined by Enactment of the Rate and Price policy committee # 69-п as of 17.08.2007. Major consumers to have concluded power supply agreements with JSC “LENENERGO” over the reporting period are: in the Leningrad Region - Saint-Petersburg Institute of Nuclear Physics named after B.P. Konstantinov (the Russian Academy of Sciences – 42 MVA, RosTerminalUgol - 8 MVA, in Saint-Petersburg - "Geleand Investment Construction Company" – 8.75 MVA, State Unitary Enterprise Saint-Petersburg Vodokanal Pravoberezhny affiliated branch – 8 МVА. Moreover JSC “LENENERGO” actively participated in the reporting period in power supply of district development objects, residential development, and public welfare facilities (including 15 schools).

Current sales figures in money and item terms for 2008. Cost of the Combined subscription Number power capacity agreement (with of agreements VAT) МVА RUR million items Leningrad Region 178.7 2,671.1 764 Saint-Petersburg 294.4 11,447.6 1,308 Total by JSC 473. 1 14,118.7 2,072 “LENENERGO”

The diagram shows the trend of numbers of concluded agreements for grid connection in 2006-2008.

Trend of Numbers of Concluded Agreements for Grid connection in 2006-2008 2 500 2 304 2 072 2 000 1 685

1 500

1 000

500

0 2006 год 20072007 год 20082008 год

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SECTION 9. PROSPECTS OF THE EQUIPMENT RETOOLING AND COMPANY’S DEVELOPMENT

9.1. Implementation of the New Processes and Company’s Development Trend Pursuant to the Directive # 303-Р of December 18th , 2008 “On introduction of the Murinskaya - 5 OL -110 kV pilot protection system for the trial usage with the new signal transmission equipment (STE) for the fiber-optic link (FOL)” the Murinskaya -5 OL -110 kV pilot protection system with the new signal transmission equipment (STE) for the fiber-optic link (FOL) have been implemented for the trial usage at the Suburban Power Distribution networks – subsidiary of JSC “LENENERGO”. The following test runs of the new equipment samples have been arranged as part of the equipment retooling and renovation of JSC “LENENERGO”: 1. Modular disconnecting link 10 kV of the exterior unit of the “hackle” type RMNZS-2-10/630- 2, (manufactured by the NPO Pribor from Saint-Petersburg), which has an advance reliability and maintainability. The disconnecting link has been installed at the Kingisepp Power Distribution Networks – a subsidiary of JSC “LENENERGO”. Disconnecting links production is scheduled to start in 2009. 2. 10 kv PBA/TEL-10-12,5/630 U1 vacuum recloser (manufactured by TAVRIDA ELECTRIC SPB). Installation of the reclosers on the OL-10 kV allows, in case of emergency, to separate the damaged section without switching the power off for other users. It allows performing timing relay, automatic transfer switch and relay a message to the Dispatch center using GSM- channel. Thus a possibility of diminishing of the power supply is decreased. The time needed to search for the damage and fix it is cut as well. Vacuum reclosers have been installed at the following subsidiaries of JSC “LENENERGO”: Gatchina Power Distribution Networks, Kingisepp Power Distribution Networks, Ladeynopolskie Power Distribution Networks, Novoladozhskie Power Distribution Networks, Suburban Power Distribution Networks, Tikhvin Power Distribution Networks. 3. Constant Voltage regulator CVR-5-63 in the 0,4 kV circuit (manufactured by the "RUSELT" Trade–Manufacturing Group ) allows to stabilize voltage level in the electrical circuit. It is installed at the Kingisepp Power Distribution Networks – a subsidiary of JSC “LENENERGO”. The performance of this equipment is currently monitored. To improve the electrical power quality in the 0,4 kV power distribution network of the Kingisepp Power Distribution Networks – a subsidiary of JSC “LENENERGO” (Pondelovo town) a constant voltage regulator of 63 kVA has been installed pursuant to the calculations. It allows a 20% voltage increase and fixes the phase shift.

9.2.Status Report on Implementation of the Program to Enhance Reliability of the Electric Power System Operation (consumers’ power supply). In 2008 JSC “LENENERGO” continued implementation of the program to enhance reliability of the electric power system operation (consumers’ power supply). The following work has been accomplished at various sites from the list of tasks scheduled for implementation: Project task Modernization of the electrical network of 110 kV: - Vyborg Power Distribution Networks – a subsidiary of JSC “LENENERGO” has performed the following tasks : Project task “Enhancement of the transmission capacity of the Roschino transit 110 kV from overhang of TS # 41 to HPP (Hydro Power Plant) -10” - total RUR 2,389,000 of capital investments have been made in this project during 2008 . A separate section of 28,33 km have been made operational ( the total cost is RUR 204,218,000) . Project task “Renovation of the electrical network of 35 kV”:

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- Suburban Power Distribution Networks – subsidiary of JSC “LENENERGO” has performed the following tasks: Project task «HV 35 kV line - "Pushkinskaya -1,2,3", "Shushary-1,2", cable replacement »- in 2008 a section of 10.7 km have been commissioned ( total cost is RUR 12,594,000). Project task “Transformers replacement”: - Vyborg Power Distribution Networks - subsidiary of JSC “LENENERGO” has performed the following work : Project task «Renovation of TS # 375 "Pervomayskaya" 110 kV to hook it up to 35kv network» - in 2008 total RUR 114,645,000 of capital investments have been made. - Suburban Power Distribution Networks – subsidiary of JSC “LENENERGO” has performed the following work : Project task “TS # 711- Transformers and circuit breakers replacement”- in 2008 total RUR 97,600,000 worth of transformers have been put into operation as capital asset, the third 40MVA transformer have been installed; Project task “TS 35 kV # 40 T-2 transformer replacement” – in 2008 total RUR 8,018,000 of capital investments have been made, the 22MVA transformer was replaced with 25MVA transformer (total cost was RUR 33,538,000); Project task “TS 35 kV # 612 35 kV circuit breakers replacement, T-1 and T-2 transformers replacement, installation of the T-3 transformer” –in 2008 two transformers have been replaced (1 ea of 6,3MVA and 1 ea of 3,2MVA) with two transformers of 10MVA each, total commission cost as capital asset was RUR 11,881,000; Project task “TS-35 kV # 614 Transformer replacement and circuit breakers installation of 35 kV” – in 2008 two transformers (2 ea of 3,2МVA) have been replaced with two transformers (2 ea of 6,3МVA), total commission cost as capital assets was RUR 17,954,000. Project task “TS 17 renovation” total capital investments of RUR 133,860,000 have been made, a new 63MW transformer was put into operation, total cost as capital asset was RUR 58,912,000. Project task “Circuit breakers replacement”: Oil circuit breakers of 6-10 kV have been replaced with the vacuum circuit breakers (total 24 ea). The total cost of work was RUR 21,364,000. The circuit breakers of 35-110 kV have been replaced with the gas-insulated(vacuum) circuit breakers ( total 22 ea).The total cost of work was 74 624 000R. Project task “Installation of the automatic section disconnectors ( reclosers) in the 6-10 kV circuits”: The total cost of the work performed to install and commission 26 reclosers at the JSC “LENENERGO” subsidiaries is RUR 18,416,000. Project task “Naked cable replacement with SIW”: Total cost of the work done is 267 370 000R. Reconstruction and 0,6-10 kV OL replacement with 179 km of SIW was performed. Project task “Batteries replacement”: The total cost of work done is RUR 31,370,200.The batteries have been replaced at the following TS: 110 kV TS Suburban Power Distribution Network, TS # 531of the Kingisepp Power Distribution Network, TS “Plamya”, TS ”Lopukhinka”, TS ”Kommunar” of the Gatchina Power Distribution Network. Project task “Installation and modernization of the Relay Protection and Automatic Equipment “: The total cost of work done is RUR 2,648,400. The work was accomplished at the Suburban Power Distribution Network and the Management of projects under construction. The accomplishment of the tasks above allowed doing the following: - “Transformers replacement” - provided regular operation mode of TS 35-110 kV; the old transformers at those stations have been working in the overload mode (N-1); - “Renovation of the electrical network of 35-110 kV» - increased transmission capacity and provided the network operational modes in line with the mode parameters which do not go above the admissible values (removal of the network limitations); 133

- “Replacement of the naked cable with SIW” – decreased a possibility of the power cuts for the domestic and industrial users of 0,4-10 kV in case of emergency or technological problems; - “Installation of the automatic section disconnectors( reclosers) in the 6-10 kV circuits” – allowed to section OL-10 kV to decrease the time of the power switch off for the users and decrease the power volume which is not delivered to the users due to technological problems; - “Batteries replacement” and “Installation and modernization of the Relay Protection and Automatic Equipment” – increased reliability of the electrical circuit operation; decreased a possibility of the equipment breakage during technological break downs; increased job safety level. The 2008 Investment program tasks accomplished in the “Reliability” category allowed to increase the reliability of the power supply to the users, to decrease a possibility of the users’ power cut offs during AWP, to cut the time period of the power cut offs for the users, to decrease the power volume which is not delivered to the users due to technological problems in the network.

9.3. Implementation of the Program to Manage Reactive Power Streams: 1. Issuance of the edicts to draft and implement measures to manage reactive power streams and stabilize the voltage level. Pursuant to edict # 695 of October 05th, 2006 issued by RAO UES of Russia “On the regions with pick loads” JSC “LENENERGO” issued edict# 489 dated December 11th, 2006 “On establishment and operation of the special working group to manage planning and implementation of the measures to compensate reactive power”. The action plan for the organizational and technical measures to manage planning and implementation of the measures to be taken to compensate reactive power has been approved. The following measures have been taken to implement the action plan to manage planning and implementation measures to compensate reactive power stream: - A register log of the metering and control means for the reactive power have been made, i.e. reaction energy\power meters; - The existing means for record keeping and control of the reactive power have been evaluated to determine their actual, physical and moral wear and tear; - The reactive power equipment installed with the users has reviewed; - Review has been performed to determine how compensative equipment is used by the users. It was determined that the power supply for such equipment is provided by the substations which do not satisfy the requirement of N-1.

2. Formation and operation of the working groups Pursuant to edict# 489 dated December 11th, 2006 issued by JSC “LENENERGO” a special working group was formed to manage planning and implementation of the measures to compensate reactive power. The working group have drafted and submitted for approval an action plan for measures to be taken to manage planning and implementation of the actions to be taken to compensate reactive power.

3. Evaluation of the current condition of the stock of means for the reactive power\capacity metering ( filing of the register log, evaluation of the wear and tear levels, audit) As a result of the implementation of the approved action plan in 2008: - total 1420 metering equipment pieces for the record keeping have been replaced with the interval metering units (metering of the active and reactive power\capacity).

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4. Evaluation of the current condition of the equipment to compensate reactive power installed at the substations of the power networks distribution As part of the implementation of the approved action plan an inventory of the reactive power compensation units installed at the JSC “LENENERGO” substations and at the users has been performed.

Total capacity of the Total capacity of the reactive # power\capacity Reactive power\capacity compensation reactive power\capacity compensation units units compensation units installed at the JSC installed at the users “LENENERGO” substations 1. Condenser units upto 1000 watts (automatic regulation) RUR 458,864.55 0 2 Condenser units up to 1000 watts (manual regulation) RUR 577,718.27 0 Aggregated capacity Aggregated capacity of of the reactive # the reactive power/capacity Reactive power/capacity compensation power/capacity compensation units units compensation units installed at the JSC installed at the users “LENENERGO” substations 3. Condenser units of more than 1,000 watts (automatic regulation) RUR 81,807 0 4. Condenser units of more than 1,000 watts RUR 43,608.01 0 5. Synchronous motors of up to 1,000 watts RUR 55,686.18 0 6. Synchronous motors of more than 1,000 watts RUR 360,137.83 0 7. Synchronous capacitor of up to 1,000 watts 0 0 8. Synchronous capacitor of more than 1,000 watts RUR 31,400 0 9. Other 0 0 Total: RUR 1,609,221.84 0

5. Amendments made in the technical tasks to revise\draft programs to develop electrical and network structure with regards to the requirements for compensation of the reactive power. The following requirements to compensation of the reactive power are taken into account in the technical tasks to revise\ draft programs for the development of the electrical and network structure.

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- review necessity for the reactive power compensation units (place of installment, type and parameters to be determined by the project); - Automated Informational –Measuring Systems for the commercial and technical metering of the electric power (AIMS CMEP\TMEP) to be implemented pursuant to Addendum 11.1 “Automated Informational –Measuring Systems for the commercial metering of the electric power\capacity” drafted by ATS noncommercial partnership . Technical requirements to AIMS CMEP\TMEP cover all aspects of the calculated and technical metering of the active and reactive energy to get a full balance of the electrical power at a particular site, including the balances for the power levels.

9.4 Long term Development Procedural Organization. 9.4.1. Information on the Availability of the Agreements Signed with the Administrations of the Constituent entity of the Russian Federation.

As part of the program to enhance reliability of the electric power supply to the users and create conditions to connect new users to the JSC “LENENERGO” networks Programs for the top priority measures to prevent deficit of capacities and increase the users’ electrical supply reliability have been drafted and g Agreements on cooperation have been signed with the long term perspective for development till 2010.

Cooperation agreement RAO UES of Russia and the Government of Saint – Petersburg (registration number #25-с dated August 01st, 2006 ) On July 27th , 2006 the Board Chairman of RAO UES of Russia Mr. Anatiliy Chubais and the Governor of Saint –Petersburg Mrs V. Matvienko signed a Cooperation Agreement between Saint-Petersburg and RAO UES of Russia for implementing measures to provide reliable electric supply and create conditions to connect Saint –Petersburg users to the electrical power networks ( further referred to as Cooperation agreement RAO UES of Russia and the Government of Saint –Petersburg). Cooperation agreement RAO UES of Russia and the Government of Saint –Petersburg includes the following main guidelines of cooperation: 1. To implement the investment program for the priority measures to construct and renovate the power distribution grid sites during 2006-2010. 2. To establish a unified power distribution network company on the basis of the Electrical network structure of JSC “LENENERGO” and the city of Saint- Petersburg.

In 2007 the Board Chairman of RAO UES of Russia Mr. Anatoliy Chubais and the Governor of Saint –Petersburg Mrs V. Matvienko signed the Minutes to make amendments in the Cooperation agreement between Saint –Petersburg and RAO UES of Russia while implementing measures to provide reliable electrical power supply and create conditions to connect Saint –Petersburg users to the electrical power networks ( further referred to as the Minutes to make amendments in the Cooperation agreement between Saint –Petersburg and RAO UES of Russia).As part of the Minutes herein the following amendments have been made: - Clarifications have been provided for charging of the payment for technical inclusion of the sites listed in Addendum 1 to the Minutes herewith; - Commissioning of the sites have been synchronized as far as the deadlines and corrections of the work volumes are concerned. . In December 2008 the Update of the priority measures program by JSC “LENENERGO” pursuant to the Cooperation agreement between IDGC Holding and the Government of Saint – Petersburg have been approved (registration number #25-с dated August 01st, 2006 ). The program update includes postponement of the program implementation deadline from the original 2010 to 2015. It also includes streamlining of the costs for the program implementation. 136

Cooperation agreement RAO UES of Russia and the Government of the Leningrad region In 2007 the Board Chairman of RAO UES of Russia Mr. Anatoliy Chubais and the Governor of the Leningrad region Mr.V. Serdukov signed a Cooperation Agreement between Saint- Petersburg and RAO UES of Russia for implementing measures to provide reliable electric supply and create conditions to connect the Leningrad region users to the power distribution network ( further referred to as Cooperation agreement RAO UES of Russia and the Government of the Leningrad region). Cooperation agreement RAO UES of Russia and the Government of the Leningrad region contains the following major provisions: 1. Implementation of the investment program of the top priority measures to construct and renovate the power distribution grid sites during 2007-2010.

9.4.2. Information on Availability (drafting) of the Long-Term Network Designs Aligned with the Constituent Entities of the Russian Federation. 9.4.2.1. The general design of the power distribution network in Saint-Petersburg until 2015 with the long term prospective till 2025 : - Customer – Government of Saint –Petersburg; - Contractor – SevZap NTZ (with participation of JSC “LENENERGO”); - Approved by Directive # 734 of July 03rd, 2007 by the Government of Saint-Petersburg; - The general design is currently being updated for streamlining and making it current. 9.4.2.2. The general design of the power distribution network development of 6-10 kV in Saint – Petersburg: - Customer – JSC “LENENERGO”; - Contractor – Sibgiprocommuenergo; - The stages from the 1st till the 4th have been designed; -Deadline – 2009 . 9.4.2.3. The design for development, renovation and technical modernization of the power distribution network of 35-110 kV of JSC “LENENERGO” in the Leningrad region for the period till 20101 with the forecast till 2015: - Customer – JSC “LENENERGO”; - Contractor – SevZap NTZ; - Approved by the edict #209 of June 25th, 2008 signed by the General Director of JSC “LENENERGO”; - The development design is currently being updated for streamlining and making it current. 9.4.2.4. The design for development of the power distribution network of 6-10 kV JSC “LENENERGO” in the Leningrad region for the period till 2015: - Customer – JSC “LENENERGO”; - Contractor – SevZap NTZ; - Scheduled for drafting of the development designs for 23 regions of the power distribution zones (PDZ); - Currently the designs for eight PDZ have been drafted; four PDZ designs have been approved; - Deadline – 2009. 9.4.2.5. Calculation of the operational modes of the power distribution network of 110-330 kV for Saint – Petersburg and the Leningrad region, draft of the action plan to decrease the current rates of the short circuit and regulate supply pressure for period until 2015:

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- Customer – JSC “LENENERGO”; - Contractor – SevZap NTZ; - The work is being done per the instructions received from the Operational headquarters of FGS UES as a follow up on implementation of the measures included in the Program to provide reliable power supply to the users in Saint-Petersburg and the Leningrad region( Minutes of the meeting of November 29th, 2007); - Deadline - 2009.

Availability of the Unified national Power Distribution Network sites.

In 2008 total 23 substations of the FGS UES of the Bulk Power Systems of the North –West were located at the territory of Saint-Petersburg and the Leningrad region, including 12 TS located in Saint-Petersburg (in particular TS-220/10 kV # 268 “Primorskaya”, TS-220/110/35/6kv #28 “Kolpinskaya”, TS-330/110/10 kV “Kolpino -6”, TS-220/35/10 kV # 410 “Pargolavskaya- Parnas”, TS-220/35/10/6kv #263 “Poluprovodniki”, TS-330/110/10 kV #9 “Zapadnaya”, TS-330/220/110/10 kV #2 “Juzhnaya”, TS-220/110/35/10/6kv #20 “Chesmenskaya”, TS-220/110/35/6kv # 15 “Zavod Ilicha”, TS-220/110/35/6kv #16 “Volkhov-Severnaya”, TS 330/110 kV “Rzhevskaya”, TS 330/110/10 kV# 4 “Severnaya”). Per the information received from the Bulk Power Systems of the North –West as of January 01st, 2009 the following TS have been closed down for the grid connections : For the power network of 5 kV and lower – 5 substations (including the following : TS 220 kV “Poluprovodniki”, TS 220 kV “Volkhov – Severnaya”, TS 220 kV “Pikalevskaya”, TS 220 “Kolpinskaya”, TS330 kV “Juzhnaya”); For the power network of 35 or 110 kV - 7 sites (including the following: TS 220 kV “Pargolovo”, TS 220 kV “ Zavod Ilicha”, TS 220 kV “Pikalevskaya”, TS 330 kV “Vostochnaya”, TS 330 kV “Kamennogorskaya”, TS 330 kV “Gatchinskaya”, TS 750 kV “Leningradskaya”); In 2008 total 17 sites of the output of TGK-1 are within the operational responsibility of JSC “LENENERGO” : PDN-1, PDN-2, PDN-3of the Central CHP (combined heating and power plant); CHP-5 Pravoberezhnaya; CHP-7 Vasileostrovskaya; CHP-8 Dubrovskaya; CHP-14 Pervomayskaya; CHP-15 Avtovskaya; CHP-17 Vyborgskaya; CHP-21 Severnaya; CHP-22 Yuzhnaya; Cascade of the Vuokosinskih HPP (HPP -10 , HPP - 11); Cascade of the Sivirskih HPP (HPP- 9, HPP - 12); Volkhovskaya HPP-6; Narvskaya HPP-13. Pursuant to the information provided by TGK-1 on January 01st, 2009 there is a possibility of the grid connection to CHP-8 Dubrovskaya ( per power network of 110 kV) and HPP-13 (per power network of 6(10);35 kV).

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9.4.3. Information of the federal target programs of affordable housing and other target programs

1. There are no sites being built in 2008 pursuant to the Federal target program “affordable housing” located in the area of operational responsibility of JSC “LENENERGO”. At the same time JSC “LENENERGO” participated in financing and construction of the power grid sites to provide grid connections of the housing construction sites. Total 3,200,000 sq m of the residential space have been constructed in Saint –Petersburg in 2008. All the commitments made for 51 socially important sites per the Saint Petersburg investment program have been met .Total 12500 kVA of electrical supply were provided for the total cost of 485, 7 MLN R. All the commitments made for total 255 budget construction sites have been met with total 46100 kVA power provided for the total cost of 1 381, 9 MLN R. During reporting period JSC “LENENERGO” have been providing operational approvals and issuance of the documents stipulated by the legislation for the grid connection of the major residential housing construction sites: (construction of the power grid of 10/0.4 kV in the residential quarters #55, 58 in North Maritime District together with the Construction Committee of Saint-Petersburg to provide power supply to the following residential quarters : 56А, 56Б, 59А,59 in North Maritime District, as far as the 10 kV network construction is concerned). 2. There were no connections made to the JSC “LENENERGO” network as part of the implementation of the pilot projects of the development of the construction material companies. 3. Special economic zones located in the area of the operational responsibility of JSC “LENENERGO” are at the territory of the Leningrad region. During the reporting period the work was done to provide power supply to the strategically important portal territories at the Usth-Luga port area (the claimed power needed for the first stage of the territory development is 42 MVA( including 2 MVA of the existing load). The total value of the contract for 40 MVA was 355, 2 MLN R with the commissioning deadline of the end of 2009. Part of the first stage of work was to sign contracts for grid connection with Usth-Luga Company for 6 MVA and Sibur –Portenergo for 3,1 MVA. The second stage of the portal territories development includes connections of 120MVA till 2012. (18 users located at this territory). The work volume for connections foresUES renovation of 110 kV TS (transformer substation) # 549, TS #292, TS #5 Port, and renovation of the Vistinsk transit. The approximate cost of work is 1500 MLN R. Currently we are in process of signing contracts with the users of the 1st and 2nd stages.

9.4.4. Information on connecting of the output sites Status of receiving requests for grid connections to the JSC “LENENERGO” network: Within the framework of implementing measures to connect output sites to JSC “LENENERGO” network during reporting period we continued working to sign contracts for grid connections with TGK-1. There is an approved technical task (dated January 22nd, 2008) to draft power supply designs and the actual power supply design for PDN-1, PDN of the Central CHP and for Pervomayskaya CHP-14, of TGK-1. Approval of the technical task by JSC “LENENERGO”: - On November 19th, 2007 JSC “LENENERGO” approved the technical task (TT) to draft a design of the power supply to the ‘TGK-1 sites (including the list of the power supply designs and their deadlines for the top priority sites); - On March 26th, 2008 JSC “LENENERGO” approved the TT for construction of CL 110 kV CHP-7 – TS#14; - On December 19th, 2008 JSC “LENENERGO” approved the TT for construction of the Switchgear for Secondary Distribution System at the Pervomayskaya CHP-14. 139

Vasileostrovskaya CHP-7 (50 MVA, deadline for commissioning is December 31st, 2008) Pursuant to the contract renovation of TS110 kV #14 (being done by ’JSC “LENENERGO”) and construction of CL-110 kV CHP-7 – TS- 14 (being done by ’TGK-1) are required. In 2007 JSC “LENENERGO” reviewed and approved the design to connect the generator of CHP-17 with capacity of 60 MVA to the 110 kV network. This design of the power supply was aligned with the Leningrad Regional Dispatch Office (see ref # 02-01/60 dated November 20th, 2007). In December 2007 TSp for the grid connection (aligned with the Leningrad Regional Dispatch Office). Pursuant to the Top Priority Program of the Cooperation agreement between RAO UES of Russia and the Government of Saint–Petersburg ‘JSC “LENENERGO”’ plans to do renovation of the Distribution Gear of 110 kV TS #14 for the following purposes: - Provision of power from CHP-7; - Enhancing reliability of the electrical power supply to the users of TS#14; - Connection of TS#13А to the network of 110 kV before commissioning of Vasileostrovskaya TS330 kV. The work distribution is as follows: - JSC “LENENERGO” performs the work under project task “Renovation of TS 100 kV #14” with the budgeted cost of RUR 635 million per the Cooperation agreement updates for St. Petersburg; - TGK-1 performs reconstruction of CHP-7 with installation of the 60MVA generator. - TGK-1 constructs CL 110 kV CHP -7 –TS#14. As of January 01st, 2009 drafting of the letter to align all non-currencies was being finalized.

PDN-1 of the Central CHP, PDN-2 of the Central CHP and Pervomayskaya CHP-14: On Janury 13th , 2009 JSC “LENENERGO” approved the designs to provide power supply PDN - 1 of the Central CHP, PDN-2 of the Central CHP, Pervomaiskaya CHP -14, Avtovskaya CHP-15. TSp have been drafted for grid connection of PDN-1 of the Central CHP, PDN-2 of the Central PDS and the Pervomayskaya CHP-14 to the JSC “LENENERGO” network with the following work volume :

Pervomayskaya CHP-14 (2 ea of 180 MVT, deadline for commissioning: December 31st, 2009, December 31st 2010) Pursuant to TSp, ‘JSC “LENENERGO”’ have to perform the following work to provide grid connection for Pervomayskaya CHP-14: renovation of Distribution Gear-110 kV TS #19 and renovation of Distribution Gear -110 kV TS#195. In addition to the above:  The Kicking coils in 100 kV line of Yuzhnaya -9, Yuzhnaya -10, Moskovskaya-7, Moskovskaya-8 shall be installed at TS 110 kV #195 (this work to be done by JSC “LENENERGO”);  The kicking coils shall also be installed in line 110 kV Yuzhnaya -8, К-142, К-143 at TS 330 kV Zapadnaya (this work is done by subsidiary of FGG UES of the Bulk Power Systems of the North -West).  The kicking coils shall be installed in line 110 kV Yuzhnaya -11 at CHP-14 (this work is done by TGK-1).  The kicking coils shall also be installed in line K-149 at CHP-15(this work is done by TGK-1). Currently the Technical Specifications for the grid connection of Pervomayskaya CHP-14 to the JSC “LENENERGO” power supply grid have been aligned with the Leningrad Regional Dispatch Office and TS have been sent for the contract signing on March 25th, 2009..

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PDN-2 of the Central CHP (2 ea of 50 MVT, deadline for commissioning is December 31st, 2010) Pursuant to the preliminary TSp renovation of Distribution gear – 110 kV at TS 110 kV #184 needed to connect

PDN-2 of the Central CHP (the work being done by JSC “LENENERGO”). To build CL 110 kV heading to TS# 16 – TS “Sinopskaya” at the section from the connecting well to TS “Sinopskaya” with further routing to the Distribution Gear110 kV PDN-2 of the Central CHP (this work is done by JSC “LENENERGO”). To build CL 100 kV heading to PDS-2 of the Central CHP – TS 330 kV Central with approximate length of 4 km.( the work is done by JSC “LENENERGO”). As of January 01st, 2009 the contract is being updated pursuant to the comments received to the contract template for CHP-7.

PDN-1 of the Central CHP (180 MVT; deadline for commissioning is December 31st, 2010.) There is no need to do any electrical networking construction. As of January 01st, 2009 the contract is being updated pursuant to the comments received to the contract template for CHP-7 . There is no need to do any network construction by JSC “LENENERGO” pursuant to the preliminary TSp to connect PDN-1 of the Central CHP . ’TGK-1” shall stipulate two new cells of 110 kV in Distribution gear 110 kV PDN-1 of the Central CHP with re-routing of l.K-112, l.К- 113 into new cells 110 kV and replacement of the given oil filled CL-110 kV with cables with insulation made from the ethylene polymer sewn together. Currently TSp for the grid connection of PDN-1of the Central CHP, PDN-2 of the Central CHP to the JSC “LENENERGO” network are being approved.

Lesogorskaya HPP-10 (4 ea of 29,5 MVT, deadlines fro commissioning are the following : December 31st, 2009, December 31st, 2010, December 31st 2011, December 31st , 2012) Renovation of OL-110 kV Severnaya -10 ( the work is done by JSC “LENENERGO”); As of January 01st, 2009 the contract is being updated pursuant to the comments received to the contract template for CHP-7.

Svetogorskaya HPP-11 (4 ea of 31,5 MVT, deadlines for commissioning are the following : December 31st, 2009, December 31st, 2010, December 31st 2011, December 31st , 2012) Renovation of OL-110 kV Severnaya -10 ( it is done by JSC “LENENERGO”.

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SECTION 10. HR AND SOCIAL POLICY

10.1. The main principals and objectives of the Company’s HR policy The Company’s HR policy is aimed at: providing the Company with personnel meeting its requirements; maintaining the set professional activity efficiency and reliability level; preserving personnel's working capacity; building an organizational structure meeting the Company’s need in efficient management and insuring the Company’s development; improving social and labor relations; establishing and controlling the Company’s social protection means; creating personnel training and development system ensuring Company’s current and strategic task performance; motivating the personnel to work efficiently and qualitatively in the Company.

10.2. Personnel quantity and structure 2006-2008 personnel quantity changes were caused by the Company’s activities aimed at increasing the reliability of efficient services for power distribution networks, providing power supply for Saint Petersburg and surrounding areas of Leningrad region. The activities were a part of the Leningrad region and Saint Petersburg’s agreement with RAO UES of Russia. 2006 2007 2008 persons % persons % persons % Specialists and employees 1,207 24.2 1,362 25.4 1,466 26.4 Managers 766 15.3 850 15.8 899 16.2 Workers 3,022 60.5 3,157 58.8 3,182 57.4 Total average personnel number: 4,995 5,369 5,547

2006-2008 personnel quantity changes

6,000

3,182 4,000 3,022 3,157

2,000 766 850 899 1,207 1,362 1,466 0 persons persons persons

2006 2007 2008

Specialists and employees Managers Workers

10.3. Personnel age structure Within the last 3 years the Company demonstrates a tendency towards increasing the under 35- years-old personnel group. This is the result of an effective personnel policy towards young

142 specialists and a relative reduction in the amount of old age employees. The average age of the Company’s employees in 2008 decreased from 49 to 45.

Age Under 25 25-35 35-45 45 – pension Working age pensioners on 31.12.2006 7.7 16.4 20.2 42.6 13.1 on 31.12.2007 7.9 18.2 20.3 39.8 13.8 on 31.12.2008 8.1 19.1 21.7 38.4 12.7

Personnel age structure, % of total quantity on 31.12.2008

13% 8% 19%

38% 22%

Under 25 25-35 35-45 45 – pension age Working pensioners

10.4. Personnel’s qualification structure In 2008 the tendency of employing young specialists that have one or two higher educations or undergone professional retraining was retained. There is also a tendency to improve personnel’s attributes.

Education Junior Secondary Specialized Higher Two higher secondary education secondary education education, post- education education graduate courses, doctorate on 31.12.2006 5.1 40.3 23.3 30.3 1.0 on 31.12.2007 5.0 37.6 22.8 33.4 1.2 on 31.12.2008 5.1 36.8 22.9 33.9 1.3

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Personnel’s qualification structure, % from the total quantity, on 31.12.2008 1% 5% 34% 37%

23% Junior secondary education Secondary education Specialized secondary education Higher education Two higher education, post-graduate, doctorate

10.5. Personnel training and development information The main principals of the Company’s personnel training organization are given in the JSC “LENENERGO” personnel training provisions.

The main aim of the Company’s employees training is to provide the necessary skill level of personnel members occupying certain positions and thus increasing the employee’s work efficiency.

Additional aim of the training is to orientate employees’ professional and personal development together with raising the job satisfaction rate in the Company.

Due to employees’ professional training and retraining necessity, taking into account industrial interests, JSC “LENENERGO” organized 2008 training in the following areas: 1. Management, operations-dispatch and operations personnel advanced training at Power engineering training center. 2. Management and specialists advanced training at Petersburg power engineering institute of professional development. 3. Management and specialist training, advanced training and knowledge testing, employees retraining and advance training at Institute of industrial safety, protection of labor and social partnership. 4. New employees training, retraining and second profession training, advanced training, employees and workers training and certification in accordance with the norms of Federal service on environmental, technological and nuclear supervision at Institute of industrial safety, protection of labor and social partnership, "Uchebny Kombinat" Training Center and other educational institutions. The number of people that received this type of training is 899. 5. Distribution zones chief engineers training at Personnel preparation center. Training course name: “Management psychology. Team management forms. Manager’s role in creating friendly psychological environment within a team”.

Besides, implementing the Personnel training project JSC “LENENERGO” cooperated with other educational institution and centers of Saint Petersburg and Moscow.

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The Company also continued the program of higher and specialized secondary education provision in the main production and technical professions of industrial power engineering. 30 people entered “Power supply” course in educational institutions of Leningrad region and Saint Petersburg.

 Saint Petersburg branch of Higher School of Economics, Power Engineering Technical Colleague of Saint Petersburg;  State Polytechnical University of Saint Petersburg;  North-west Russian State Technical Correspondence University In 2008 JSC “LENENERGO” provided training and advanced training for 2,295 of its employees. year average number of number of employees per cent rate of employees that received training employees that received training 2006 4,995 1,418 28% 2007 5,369 1,684 31% 2008 5,547 2,295 41%

Together with the total average personnel number increase in the financial year there has also been a 10 per cent increase of the trainUES absolute index in comparison with the year 2007.

Within the personnel training program of the reporting period personnel reserve training was continued according to individual development plans and career cards.

During 2008, the Company was implementing the personnel reserve building and development strategy worked out in 2006. According to the strategy there has been created a Subsidiaries management reserve database (including: directors, chief engineers, deputy directors, chiefs of services and offices) and an Corporate Center management database (including: chiefs of offices, services and departments). According to the approved individual reserve members development plans there have been held trainings and advisory sessions for improving management skills.

During 2008, JSC “LENENERGO” underwent organizational restructuring resulting in new units creation in the Company that are now managed by 55 former reserve members.

10.6. The Company’s social policy

As an employer JSC “LENENERGO” is a socially responsible institution. Obligations defined by labor legislation, Power industry rate agreement, JSC “LENENERGO” collective agreement are fully met. In 2008 5,766 employees clamed benefits and compensations according to JSC “LENENERGO” collective agreement. Within the Company’s social policy JSC “LENENERGO” offers an accident insurance, voluntary and obligatory medical insurances to its employees. The insurance company is chosen annually in accordance with the “Company’s insurance provision” regulation after tender procedures. The tender winner and the Company sign a contract tailored to the functional peculiarities and demands of the customer including amplification of the service scope provided within the obligatory medical insurance policy.

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In accordance with a non-state pensions provision program JSC “LENENERGO” is currently cooperating with the Non-state power industry pension fund and implementing two types of non- state pension provision programs for its workers: 1. Corporative plan uniting pension programs according to which the Company establishes non- state pension funds for separate groups of employees at its own expense. The Company’s employees corporative plan includes the following pension programs designed for certain groups of workers: . Supportive; . Special merits; . Stimulating.

In 2008 133 Company’s employees were granted non-state pensions under Corporative “Supportive” plan. 2. Parity plan is financed by both worker and Company on terms of joint (share) participation. The Company together with the worker finances its employees’ non-state pension provision. During 2008 382 employees joint the program making the total Parity plan participants number 2,232 by December 2008. The Company is engaged in providing its employees with medical care using resources (insurance payments) accumulated under obligatory and voluntary medical insurances polices, including provision of sanatorium-resort treatment on medical authority. Besides it organizes recreational leisure activities for employees and their families. In 2008 sanatorium-resort treatment and recreational leisure activities programs were implemented in cooperation with “Luch” children holiday camp and resorts of Leningrad region. In 2008 the total amount of organized holiday trips for employees and their family members amounted 556 including 245 children’s holiday trips. Social responsibility accepted by the Company according to JSC “LENENERGO” collective agreement for 2007-2008 period also includes financial support for former Company’s employees in the form of jubilee celebrations payments such as The day of Leningrad blockade reversal, Victory Day, Power engineering specialist’s day, payments to veterans-pensioners’ relatives as a ceremonial cervices payment compensation and electricity charge compensations. 1378 people received such payments in 2008. In order to maintain its image status the Company held the following corporate events in 2008: III Sports rally, Second JSC “LENENERGO” tennis cup close tournament “LENENEGO CUP 2”, First Neva football championship. Both Company’s subsidiaries representatives and Corporate Center employees took active part in these sporting events.

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SECTION 11. OPERATION CONTROL AND PROTECTION OF LABOR

11.1. Protection of Labor, Industrial Injuries and Occupational Diseases, Personnel Development 11.1.1. Protection of Labor. Industrial Injuries and Occupational Diseases Rates. Property Damage. Labor Protection Spending.

Protection of labor

In accordance with the “Program of labor protection and industrial injuries prevention activities at JSC “LENENERGO” approved by the JSC “LENENERGO” Board of Directors, organizational, technical, structural and personnel activities aimed at increasing labor protection efficiency were performed in 2008 in the following areas: 1. Improving labor protection, occupational health and security management. 2. Improving the labor protection system methods and norms. 3. Improving technological and material resources of power distribution networks operational-maintenance services for decreasing intensity of work, labor intensiveness and improving conditions of work. 4. Raising the efficiency and skill level of operations, operations and maintenance and maintenance personnel. 5. Introducing intracorporate labor safety and injury decreasing popularization means. 6. Raising efficiency and quality level of psychophysiological, social-psychological and medical personnel support.

All the activity areas were chosen as leading to preparation and introduction of OHSAS 18001 international standard “International occupational health and safety management system”.

“ JSC “LENENERGO” labor protection and injuries prevention activity program” was introduced by the order # 75 of 06.03.2008. The year 2008 was declared “the year of professional safety and health”.

The order of 11.07.2008 # 236 confirmed JSC “LENENERGO” policy in the labor protection area”.

Labor protection matters were considered at the JSC “LENENERGO” Board of Directors Reliability Committee’s meeting.

The Company’s subsidiaries together with trade union organization representatives held quarterly meetings considering the state of labor protection and industrial injuries. Labor protection agents advanced their work.

On the 26-27 of November 2008, JSC “LENENERGO” and trade union organization representatives held a visit meeting of chief engineers, labor protection and branch operation agents, managers and specialist of JSC “LENENERGO” considering labor protection matters, emergency cases and means for increasing JSC “LENENERGO” power distribution networks reliability.

Implementation matters concerning the “Program of labor protection and industrial injuries prevention activities at JSC “LENENERGO” were discussed at quarterly meetings in the presence of subsidiaries chief engineers as a part of production program implementation and preparation for autumn-winter peak loads. 147

For improving information services concerning labor protection matters subsidiaries’ sub-units are equipped with new labor safety rooms, “Labor protection information” and “Protective screen” stands.

Labor safety rooms Labor protection information Protective screen Total Introduced in Total Introduced in Total Introduced in 2008 2008 2008 16 3 122 55 97 79

JSC “LENENERGO” subsidiaries have 22 Maxim, Gosha and ANNA simulators for teaching the personnel theoretical and practical skills on giving first resuscitation aid to industrial accidents victims. In 2008, the Company bought 11 new simulators to replace the existing once.

Demonstrational admissions to main types of work were held during the year. The Company ran system competitions among drivers and electrician teams providing services for 0,4-10-kV power distribution networks.

Necessary medical examinations and vaccinations have been made.

Workers that were not allowed to work according to medical institutions’ opinion due to poor health condition were not enlisted or allowed to work.

In 2008 all subsidiaries carried out 12 “Days of labor protection” together with JSC “LENENERGO” Corporate Center representatives.

Observation of labor protection rules at work on permanent and temporary work places was constantly monitored.

Industrial injuries and occupational diseases rates

Frequency and seriousness coefficients of accidents are given in the table below:

Coefficients 2007 2008 Ff - accidents frequency factor per 1,000 working employees (persons) 1.86 1.08 Fs - accidents seriousness factor (days/persons) 82.2 60.3 Fdaf - deadly accidents frequency factor per 1,000 working employees (persons) 0.37 0.72 Fodof - occupational decease occurrence frequency factor per 1,000 working employees 0 0 (persons)

Property damage Accidental property damage amounted 556 thousand rubles. Including: - accident and occupational disease victims damages reparation from the beginning of the year till the end of the reporting period – 556 thousand rubles; - other expenses incurred from the beginning of the year till the end of the reporting period (spending on new personnel training and existing personnel retraining; lost profit; spending on investigation, examinations and documents preparation; spending on accidents and professional disease additional preventing activities; costs of damaged

148

equipment, materials, toolware, consumables; spending on restoring, buying and producing new equipment and other expenses) – no expenses.

Labor protection spending Table 9.3.1.3.1 # Measurement 2007 2008 +/- Index name units. 1 Labor protection activities spending thousands of 76,805 94,219 +18.5 % RUR including: 2 accidents prevention activities thousands 3,418 3,320 - 2.92% of RUR 3 sanitary activities for disease prevention at thousands work places of RUR 2,149 6,557 + 67.3 % 4 general work conditions improvement thousands 27,896 36,590 + 23.8 % activities of RUR 5 provision of workers with individual protection thousands 43,342 47,752 + 9.3 % means of RUR 6 Spending on providing one worker with RUR/perso individual protection means 8,073 8,610 + 6.2 %. ns

7 Labor protection activities spending per RUR/perso 14,305 16,985 + 15.8% worker ns

Labor protection activities spending decreases and increases happened due to the following factors: 1. lower spending on accidents prevention activities due to the fact that labor safety rooms equipment and labor protection information stands were bought in 2007 but set in operation in 2008; 2. higher spending on sanitary activities for disease prevention at work places due to bigger washing and dry-cleaning loads of working clothes especially suits made of heat-resistant fabric, higher spending on preliminary and periodic medical checks and drinking water supply; 3. higher spending on general work conditions improvement activities due to the Company’s determination to improve work conditions. In 2008 repair works of Company’s buildings, offices and plumbing systems started at some places and finished at others. There has also been higher spending on work places certification and planned post-certification activities; 4. higher spending on provision of workers with individual protection means due to team additional equipping with individual protection ground means in 2008, bigger individual protection means supply volume due to the increase of operative personnel quantity and personnel turnover in the Company’s subsidiaries.

Main Company’s activity areas in improving protection of labor The “Program of labor protection and industrial injuries prevention activities in JSC “LENENERGO” approved by the JSC “LENENERGO” Board of Directors defines the following activity areas: 1. Improving labor protection, occupational health and security management. 2. Improving the labor protection system methods and norms. 3. Improving technological and material resources of power distribution networks operational-maintenance services for decreasing intensity of work, labor intensiveness and improving conditions of work. 4. Raising the efficiency and skill level of operations, operations and maintenance and maintenance personnel. 5. Introducing intracorporate labor safety and injury decreasing popularization means.

149

6. Raising efficiency and quality level of psychophysiological, social-psychological and medical personnel support. All the activity areas were chosen as leading to preparation and introduction of OHSAS 18001 international standard “International occupational health and safety management system”.

11.1.2. Lower Injuries Program Development and Implementation The “Program of labor protection and industrial injuries prevention activities at JSC “LENENERGO” for 2008-2009 period includes 105 planned activities including:  64 performed activities;  34 activities under way;  7 partially performed activities. Within the partially performed activities group there are:

Budgeted Actual Area Activity Performed part thous.RUR. thous.RUR. Work condition Implementation of the program for 8,725 7,121.5 Purchased: improvement and providing Company’s subsidiaries BKM-317 – 1 unit. introduction of work with elevators (towers), bush cutters, safety technology drilling and traversing machines. BM-317 – 1 unit. Bush cutters – 45 units. Implementation of truck crane 12,800 4,272.9 Purchased: 1 provision program for Company’s crane КС-35715 subsidiaries. Improving work Implementation of team automobile 15,070 1,055.56 1 auto purchased conditions and provision program for Company’s personnel subsidiaries. transportation Improving Purchasing mannequin simulators and 558 197.7 - personnel’s first aid a mobile labor protection office. skills Preventing personnel Fire safety program implementation 9,887 2,757.7 - exposure to harmful (automatic fire detecting and and dangerous extinguishing system) factors Preventing personnel Replacing substation accumulator 34,700 25,724 exposure to harmful batteries CК and СН with and dangerous maintenance free batteries factors Using bypassing equipment while 200 Operational performing 0.4-kV fuse replacements testing on 0.4-kV assemblies with no breaking units on branch lines. held Teaching personnel on how to use bypassing equipment in their work.

Partial performance of the activities is mainly due to investment program reconsideration resulting in investment reduction and OHSAS 18001:2007 international standard introduction period reduction in connection with the concluded agreement on advisory services provision for designing, introducing and preparing management integrated system for certification.

150

The results of 2008 policy in injuries reduction, labor protection spending level and efficiency increase generally demonstrate the effectiveness of the chosen activity areas and planned measures to improve labor protection in JSC “LENENERGO”. However such activities need correction in the area of security measures control during work performance in electrical installations while operating vehicles, including security measures control of personnel transportation.

11.1.3. Work places certification. Making work places comply with existing rules and regulations. Providing personnel with toolware, protective means and devices

In 2002 there was conducted a work places conditions certification of 1995 work places. Spending on certification amounted 3,036,825 thousand RUR. Certification was performed by Work Conditions Safety – Audit and Management Company, Saint Petersburg. The Certification revealed a number of cases of non-compliance with the regulatory requirements due to the following reasons and factors: chemical factors, aerosols, vibro-acoustic factors, microclimate (temperature, humidity, air speed, heat radiation), light environment, non-ionizing electromagnetic fields and radiations, aeroion air characteristics, hardness and intensity of workflow. Labor safety work management compliance certification will be held as a part of JSC “LENENERGO” integrated management system introduction. The company thoroughly examines and eliminates the cases of non-compliancerevealed are thoroughly examined and eliminated.

Providing personnel with toolware, protective means and devices Main areas of financing activities aimed at providing personnel with individual protective means: - providing personnel with individual protective means for harmful and/or dangerous industrial factors protection; - providing personnel with electrical protection means for safe work execution. In 2008 the Company purchased: - 1,867 summer and 489 winter working clothes sets providing protection from general industrial pollution; - 1,147 summer and 783 winter working clothes sets for electric arc protection; - 1,712 pares of summer and winter footwear providing protection from general industrial pollution and low temperatures; - 3,579 pares of summer and winter footwear providing high temperatures protection; - 393 respiratory apparatus protection means; - 628 head protection means; - 835 eyes protection means; - 123 ear protection means; - 1,617 falling from height protection means; - 43,810 pairs of hand protection means; - 370 dermatological protection means; - 514 portable grounding; - 619 insulating rods; - 496 individual voltage alarms; - 700 voltage meters and indicators; - 105 devices for safe work execution.

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11.1.4. Providing Workers with Working Clothes and Footwear including that resistant to electric arc Number of Actual Including Including Number of Equipment Summer Winter workers to be number of summer winter workers per cent suits suits provided with workers suits suits lacking rate equipment equipment electric arc provided with summer and per cent per cent thermal effect electric arc winter suits in rate rate resistant suits thermal effect 2008 in 2008 resistant suits in 2008 1 2 3 4 5 6 7 8 1,247 1,247 1,247 1,247 0 100 100 100

11.1.5. Psychophysiological personnel examination 1) Presence of psychophysiological personnel examination rooms at production departments and repairs and building facilities. Personnel number, subordination structure: the Company has no psychophysiological personnel examination rooms. This function is performed by a specialist-psychologist from the personnel recruitment and development office of the Personnel management and organizational designing department. 2) Cooperation with labor protection services – main activity areas: in the area of cooperation with labor protection services work was carried out upon emergency situations occurrence. Specialist held personnel interviews and testing aimed at revealing psychological and psychophysiological reasons for wrong actions and eliminating risk factors in further work of these personnel members. 3) Methods used for psychophysiological personnel examination and their efficiency: The most efficient methods used for personnel examination: 1. simple sensor-motor reaction, 2. complex sensor-motor reaction, 3. tapping test, 4. reaction to a moving object, 5. distribution of attention, 6. stable work capacity test, 7. Amthauer intelligence structure test, 8. Max Lüscher color test, 9. repeated person study method. 4) Testing blue-collar workers (including operations personnel, drivers) decisions taken due to the results: blue-collar workers tests are performed as parts of annual thorough medical examinations. Their results show the current psychophysiological status of workers, risk factors influencing the efficiency of labor and allow giving recommendations for the reviled risk correction. 5) Problems of organizing and conducting psychophysiological personnel examination: regarding the Company’s universal spending optimization tendency the existing form of psychophysiological personnel examination appears to be the most appropriate for the time being.

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11.1.6. Personnel Training. Expenses on Training the Following Personnel Categories: Managers, Specialists, Workers Information on professional training and further training of employees in 2008is given in Section 10.5 of this Annual Report. In 2008 JSC “LENENERGO” spent RUR 18,016,953 on training and advanced training of 2,295 employees.

TOTAL QUANTYTY

QUANTITY AMMOUNT (RUR) (PERSONS)

MANAGERS 746 7,888,573

SPECIALISTS 820 8,071,803

WORKERS 729 2,056,577

TOTAL 2,295 18,016,953

11.1.7. Developing and implementing a fire safety raising and improving program In accordance with JSC “LENENERGO” order # 7 of 15.01.2008 a “ JSC “LENENERGO” objects fire safety raising comprehensive program” for the 2008-2010 period was created and is being implemented.

Working areas, buildings and constructions meet fire safety requirements that were in force at the moment of their designing, construction and reconstruction.

All establishments are 100 per cent equipped with primary fire extinguishing means according to the norms.

The main financing areas in the area of fire safety in 2008 with the indication of objects and spending volume are listed in the table below # Financing area Amount of financing, thousands of RUR. (without VAT) 1 Automatic fire fighting equipment maintenance (11 substations) 1,925.629 2 Automatic fire signalization equipment maintenance (30 establishments including 11 substations and 19 buildings and 1,610.617 constructions) 3 Interior fire prevention water pipelines maintenance (43 393.008 establishments including 22 substations and 21 building) 4 Checking and charging fire extinguishers 261.143

5 Checking fire escapes and roof edge railings 615.750

6 Fire protective treatment of building structures 555.236

7 Purchasing firefighting technical equipment 3,188.900

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TOTAL: 8,550.283

2008 activities performance and 2009 planned activities report # Activities Amount of financing, thousands of RUR. (without VAT) 2008 2009 planned actual planned actual 1 Automatic fire 2,415.950 1,925.629 4,100.0 Source of finance fighting equipment maintenance 2 Automatic fire 1,701.405 1,610.617 2,442.1 Estimate of signalization expenditures, prime equipment cost maintenance 3 Interior fire 399.300 393.008 396.1 Estimate of prevention water expenditures, prime pipelines cost maintenance 4 Checking and 221.345 261.143 348.6 Estimate of charging fire expenditures, prime extinguishers cost 5 Checking fire 517.205 615.750 610.0 Estimate of escapes and roof expenditures, prime edge railings cost 6 Fire protective 680.280 555.236 1,477.0 Estimate of treatment of expenditures, prime building structures cost 7 Purchasing 3,200.000 3,188.900 3,667.0 Estimate of firefighting expenditures, prime technical cost equipment 8 TOTAL 9,135.485 8,550.283 13,040.8

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11.2. Internal technical control system, orders compliance

The following measures were taken to raise the efficiency, reliability and security of subsidiaries’ equipment operation and personnel work, provide the necessary quality of electric-power transmission services in accordance with the direction of FGC UES # 161р/158р of 29.06.2006, JSC “LENENERGO” order # 406 of 18.10.2007:  JSC “LENENERGO” internal technical control structure confirmation;  JSC “LENENERGO” internal technical control system provision” implementation;  JSC “LENENERGO” subsidiary operation control model regulation” implementation;  JSC “LENENERGO” subsidiaries’ main self-control principals” establishment. In accordance with the Provision internal technical control system general management is provided by deputy general director – JSC “LENENERGO” Technical director. Internal technical control system elements' performance indexes in 2008 are given in the table below

Internal technical control system

element subsidiaries Number of of Number checks checks Per cent from total the of checks number The number of activities that need be performed to Per cent from total the amountof activities The number of performed activities Non-performed activities with reason indication Networks management center 12 19.4 17 19.4 17 No

Operation department 4 6.5 24 6.5 24 No

Repairs department, retooling No 15 24.2 19 24.2 19 and modernization

Maintenance department 17 27.4 21 27.4 21 No

Technical development No 2 3.2 6 3.2 6 department

Mechanization and transport 12 19.3 18 19.3 18 - service

TOTAL JSC “LENENERGO” 62 - 105 - 105 No

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Presence of state control institutions’ orders and compliancy with them

Control The number of Activities that The number of Non-performed

institution, activities ordered are to be performed activities with

issuing the order for performance performed in activities reason indication

2008

According to 105 105 105 No

incoming

technical control

system

Technical 2,012 1,661 1,661 No

inspection

department

JSC 2,117 2,117 2,117 No

“LENENERGO”

total amount

156

No orders were received from external control institutions in 2008 Control The number of Activities that The number of Non-performed institution, activities are to be performed activities with issuing the order ordered for performed in activities reason indication

performance 2008

Northwest

Federal District

Interregional

Territorial

Administration 1,021 902 902 No of Russian

Technical

Supervisory

Authority

Administration No of state fire 505 146 146 supervision

TOTAL JSC 1,526 1,048 1,048 No

“LENENERGO”

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SECTION 12. COMPANY’S INFORMATION TECHNOLOGIES

12.1. Company’s Telecommunications Network Development, Information Technologies Introduction and Use Development of information technologies (IT) and automated process management and communication systems (APM and communication) in the Company was given new momentum in 2008. The main IT development areas are connected with the key business processes essential for Company’s work efficiency. The IT task is to provide continuous business activity in the area of IT infrastructure and software-hardware systems. In order to fulfill this task the following activity directions have been chosen: Server infrastructure modernization; Client work places modernization in the sectors of great importance; Uninterrupted and continuous server and internet equipment functioning according to 24*7*365 scheme; Centralization of informational recourses; Structuring software for software systems enlargement; Software platform unification. The following functional areas of the Company were chosen as the priority automation directions: Clients join management; Increasing transparency and accuracy of electric-power transmission; Accounting and tax accounting; Salary calculation and personnel records; Budget planning and forecasting;

In centralizing informational resources a strong emphasis is also put on informational security of application software, protection from unauthorized access to the Company’s enterprise network.

The Company pays special attention to the medium term (3-5 years) IT development. To accomplish the development task there have been worked out a System company automation project defining the scope of work concerning the whole spectrum of IT activities.

The main tasks of APM and communication systems are: To introduce new and modernize existing telemechanics and communication systems; To introduce operative-informational complexes; To provide high reliability of existing systems operation. Setting digital communication and information transfer channels; distribution networks units’ observability and controllability increase programs (for subsidiaries):

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according to work results Index name Measurement units in 2008/ as of 01.01.2009 units 10/48 per cent from the total 5/24 The number of 110 kV (150, 220 kV) substations, amount of substations with digital communication and information 110 (150, 220) kV transfer channels. spending thousand 0/06 RUR units 0/0 per cent from the total 0/0 The number of 35 kV substations, with digital amount of substations communication and information transfer channels. 35 kV spending thousand 0/0 RUR

- distribution networks units’ observability and controllability increase programs (thousands of RUR)

according to work results in 2008/ as of 01.01.2009 Voltage type Index name Substations equipped with Telemechanized substations technological process automatic control systems units 5/9 3/3 Per cent rate from total 2.5 /4.5 1.5/1.5 110 (150, amount of units 220) kV Spending in the reporting 0/0 0/07 period in thousands of RUR units 0/0 0/0 Per cent rate from total 0 /0 0 /0 35 kV amount of units Spending in the reporting 0/0 0/0 period in thousands of RUR - information transfer is being made in international protocols IEC-101 (104) with time indications; - teledata transfer is made by devices with voltage class of 6 kV or higher.

6 Note: In cases of execution without spending indication communication channels and establishments are being built by an external agency. (The administration of Saint-Petersburg, private investors etc.); 7 Note: In cases of execution without spending indication communication channels and establishments are being built by an external agency. (The administration of Saint-Petersburg, private investors etc.); 159

Index name Digital communication center equipment with automated dispatch control system (according to work results in 2008/ as of 01.01.2009 running total according to Company’s work results during the whole period from the start till the creation of the digital communication center) Distributed Control Software (Emergency Radio electronic means System communication panel) units 1/1 0/7 2/13 Per cent rate 100 /100 0 /7 6.6 /43 from the total amount Spending in 86,000/238,492 0/08 8,136/8,136 thousand RUR

Measures Contents of reports on taken measures JSC “LENENERGO” organizational structure and the structure of Digital communication center in Presence of adopted Digital communication particular is coordinated with and approved by the center organizational structure. IDGC Holding.

Personnel quantity according to the list of personnel members/actual quantity: Dispatch service - Digital communication center personnel quantity. 23/23,PLS- 3/3, RPAES – 10/10

The presence of space for locating all Digital 10 rented offices with the total space of 600 square communication center’s departments. meters with furniture and office equipment. Organization of twenty-four-hour Digital The duty is organized with the dispatch personnel communication center’s dispatch personnel duty performing operational functions in the operational performing non-operational functions. area of suburban electrical networks. Creating SCADA based on “Network Manager” system produced by ABB. Contractor: VNIIR, contract number # 02100 chbk- Х06-1067 of December 10th 2006, cost RUR Digital communication center’s Hardware and 67,151,566 VAT included. software complex creation. Construction of JSC “LENENERGO” control point and training center performed by Integris-BC contract number #06-3896 of 23.10.06. Construction to finish in 2009.

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Measures Contents of reports on taken measures 2008 - RUR 51,255,000 Inclusion of Digital communication center’s 2009 – RUR 8,000,000 Hardware and software complex creation 2010 - RUR 76,491,000 spending in the Distributed Control System investment program. The first stage of works was completed according Digital communication center technological to the plan-schedule. 2009 will see the second stage equipment project stage in accordance with the of Digital communication center technological Digital communication center technological equipment works and its putting into operation. equipment plan-schedule. Digital communication center technological The Central dispatch point of the Digital equipment. communication center is equipped with an information collecting, processing and indicating system -"Network Manager" produced by ABB. It is planned to introduce ЕMS distribution networks management subsystem (network optimization, dispatch personnel training, state assessment, flux- distribution assessment, reliability analysis etc.) into the "Network Manager" system. The Central dispatch point is equipped with a collective information indication system consisting of a dot-type dispatcher panel «Tew» made in England, dispatcher panel management system made by “Communication and telemechanics system” and 8 display cubes made by BARCO company. The training center is equipped with 8 BARCO company display cubes. Launch of an uninterruptible power system with diesel generator for emergency control automatic system of the Digital communication center Central dispatch point is scheduled for April 2009. Calculations are made with RASTRWIN software production set modes calculation program produced by Regional public organization “Department’s fund “Automated electrical systems”, TKZ-3000 short-circuit current calculation program produced by Briz Science and technical complex. Setting industrial-engineering telephone Units equipped with communication means – 241 communication of the Digital communication City subscriber telephone network numbers -135 center with Regional dispatch offices, adjacent (155 more needed) Digital communication centers of other power JSC “LENENERGO” telephone network numbers - engineering companies, Digital communication 64 (81 more needed) centers of main electrical networks companies, Mobile numbers – 48(52 more needed) mobile electric power stations, substations, Direct connection lines - 173 (184 more needed) maintenance crews for performing non- operational functions (done with the help of existing communication cannels and equipment). 2008 investment project includes spending on developing ICTS modernization and amplification technical project at the Corporate Center. It also Creating information collection and transfer includes provision of dispatch communication system (ICTS). channels with SNPDN (Unified National Power Distribution Network) and PDNC (Power distribution network company) setting the spending

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Measures Contents of reports on taken measures limit of 10,000 thousand RUR.

ICTS total spending amount is RUR 10,000,000. Inclusion of ICTS modernization and 2009 mastering investment plan – RUR 10,000,000. amplification spending in the Company’s 2008 Project implementation in 2010-2012 period – RUR investment project, setting digital communication 150,000,000. channels and telemechanics with PDNC units.

Communication networks age granted to third party operators. There has been held an ICTS designing tender. ICTS project implementation stage. Central purchasing authority report of 15.01.2009, the tender winner is PSIenergo, the agreement is in the conclusion stage. Telemechanic equipment - RTU 560 produced by ABB company, Channel-М2 produced by CCT company. The communication equipment will be Setting digital communication channels and defined in the project, it will presumably be telemechanic connecting Digital communication FG155A, FOM16L produced by Nateks company, center with control units. MP-2, МК-8 produced by Supertel Company. The number of establishments for providing connection with - 96, connection type - digital.

12.2. Information technologies and telecommunication

Reporting institutions equipment with computer techniques, telecommunication means and software (software products).

Computer techniques equipment table Quantity The number of those that Computer techniques 2008 2008 Comply with technical Need Need Beginning End requirements modification replacement

PCs and workstations 1,749 2,210 852 824 534 Peripheral devices 1,134 1,463 630 0 833 Active internet equipment 39 42 42 0 0 Server equipment 33 55 40 15 0

Telecommunication means and communication cannels are provided and maintained by contracting organizations in accordance with concluded agreements.

12.3. General description of hardware and software complex of used computer techniques:

In compliance with the “Main provisions of JSC “LENENERGO” technical policy in the area of information technologies” regulating general approaches and principals of hardware-software complex construction that are used in the IT area the Company uses server equipment produced by HP and IBM companies and internet equipment produced by Cisco company.

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Specialized Microsoft, HP and IBM software is used for hardware and software complexes monitoring. Server complex monitoring is based on CiscoWorks LAN Management Solution software.

Newly purchased and introduced systems are configured according to the principals given in the “Main provisions of JSC “LENENERGO” technical policy in the area of information technologies” and based on unification of IT solutions which predetermines lower purchase spending, introduction and operation of IT infrastructure elements.

For higher electrical grid complex infrastructure management reliability IT technologies are used together with fault tolerance technologies providing stable operation of the most vulnerable services on HP EVA 4000 platform, HP MSL 6000 tape library data backup, ESX Server 3.5 system environment virtualization.

12.4. Organization-methodic work to construct and operate IT resources and communicational means:

The main document defining IT resources and communicational means construction and operation principals is the “Main provisions of JSC “LENENERGO” technical policy in the area of information technologies”. List of most significant achievements in 2008. New server facilities in the amount of 22 IBM servers installed, adjusted and placed in operation; 390 new HP workstations placed in operation; For Company’s subsidiaries - Novoladozhskie Power Distribution Networks, Luzhskie Power Distribution Networks, Management of projects under construction and Social infrastructure and service connected to the enterprise network; Uninterrupted power supply system of the whole server and active server equipment of the Corporate Center placed in operation; KISU-Purchase Automatic purchasing system placed in operation; 1C accounts department platform upgrade from 1С 8.0 to 1C 8.1; Reference-information system for NormaCS normative documents introduced; SPRUT.NET software complex (registering, analyzing and drawing reports on power grid facilities technological malfunctions) placed in industrial operation; Management documents circulation automated system is placed in industrial operation; TopPlan geo information system introduced; Information analysis system for forming and representing current and reporting information on system disturbances, fires, accidents in distributional internetwork placed in industrial operation ("КUBZ - Holding"); As technological joining optimization procedure for faster conclusion of technological joining agreements there took place a pilot modernization of KIDO information system at Vyborg Power Distribution Networks connected with passing joining agreement conclusion functions to remote subsidiaries; Corporative antivirus protection policy chosen, Kaspersky antivirus selected;

Corporative antivirus protection policy elaborated on the basis of Kaspersky antivirus program.

The results of “Federal projects” implementation in 2008: System project sent for confirmation to the Information technologies committee of IDGC Holding ;

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Management documents circulation automated system project placed in industrial operation.

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SECTION 13. ENVIRONMENT PROTECTION

13.1. Providing Water and Air Resources Protection, Performing Land Rational Use and Protection Actions, Reducing Environment Damage Caused by Physical Factors (electric field, magnetic field, acoustic noise)

Air protection Cable Network, a JSC “LENENERGO” subsidiary, performed noise measurements upon population’s complaints. 20 shock absorbers were installed for lowering the reveled equipment noise level. Suburban Power Distribution Networks, a JSC “LENENERGO” subsidiary, developed noise pollution protection project for Substation 11 and Substation 34. In accordance with the conclusion of Russian Federal Consumer Rights Protection and Human Health Control Service a Substation 34 industrial control program of quarterly noise measurements and air pollution has been worked out. All measurements planned in 2008 were performed. Besides noise measurements have been made in Base distribution substation – III and Kirishi power distribution zone together with annual noise measurement of Substation 11.

Water protection and rational use In order to decrease water pollution in 2008, Suburban Power Distribution Networks, a subsidiary of JSC “LENENERGO”, based in Vsevolzhsk Region Networks situated at the address: Leningrad region, Vsevolzhsk, Oktyabrsky prospekt 102 put into operation local purification facilities. Local purification facilities’ productivity is 5 cubic meters/ hour. Local purification facilities’ operation is necessary due to the lack of a storm water sewer in Vsevolzhsk city.

Land rational use and protection After cable lines repairs in Cable Network and Suburban Power Distribution Networks, subsidiaries of JSC “LENENERGO”, in 2008 land improvement activities have been performed (asphalt coat and lawns restoration). With the resources of Pushkinskoye Saint-Petersburg State Unitary Park and Garden Enterprise, Yuzhnoye Saint-Petersburg State Unitary Park and Garden Enterprise and others 61,209.3 m² of lawns and asphalt coat have been restored with the total cost of RUR 80,736,700.

Technical activities To avoid land pollution with machine oils and decrease environment pollution during the reconstruction of power facilities oil circuit breakers are being replaced by new generation breakers (vacuum and gas-insulated). 100 oil circuit breakers were replaced with new generation breakers in 2008 with total activity cost of RUR 202,749,120.

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13.1.1. JSC “LENENERGO” General Environment Pollution Payment Trend in 2006, 2007, 2008 2008 environment pollution payment trands in comparison with 2006 and 2007 are given in the table 9.5.4.1 Table 9.5.4.1

Payment periods Payment type 2006 2007 2008

Environment pollution payment in thousand RUR 1,734.7 1,371.1 1,510.0 including:

- air pollution 15.5 42.7 16.0 - water pollution - - 517.7 - toxic waists disposal 1,719.2 1,328.4 976.3

2008 environment pollution payment decreased in comparison with 2006 and 2007 as JSC “LENENERGO” subsidiaries were given wastes disposal limits and consequently decreased over limit payments.

13.1.1.2. Industrial Wastes Generation Rate in 2006, 2007, 2008 with the Indication of their Environment Pollution Rate

JSC “LENENERGO” industrial wastes generation rate (indicated in tons)

Pollution rate 2006 2007 2008 1 class 0.99 1.6 1.24 2 class 2.59 9.4 9.41 3 class 10.51 14.59 37.85 4 class 3,187.71 3,010.74 2,972.2 5 class 507.57 162.42 540.1

13.1.1.3. A list of the Most Significant 2008 Environment Protection In 2008 Suburban Power Distribution Networks, a subsidiary of JSC “LENENERGO”, based in Vsevolzhsk Region Networks located at: Leningrad region, Vsevolzhsk, Oktyabrsky prospekt 102 put into operation local purification facilities. The expenses occurring in connection with putting the purification facilities into operation amount RUR 14,902.74 thousand. Capacity of the purification facilities equals to 4 cubic m per hour. Local purification facilities’ operation is required due to the lack of a storm water sewer in Vsevolzhsk city.

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13.1.1.4. JSC “LENENERGO” General Environment Expense Trend (direct and indirect) in 2006, 2007 and 2008 (in thousand RUR) Direct environment expense trend in 2006-2008 is given in the table 9.5.6.1

Table 9.5.6.1 Payment periods List of direct environment spending 2006 2007 2008

Current payments for water resources protection and rational 1,768.9 3,244.8 6,050.5 use (water use and discharge)

Current payments for air protection 851.2 1,676.6 5,241.7

Current payments for environment protection from industrial and 5,094.6 6,105.5 6,878.6 consumption wastes (waste disposal)

Wastewater purification facilities construction 432.54 660.2 1,174.8 *

Noise measurements (According to noise pollution protection - 39.3 82.67 project)

Noise measurements upon population’s - 80.3 129.2 complaints

Note: *Purification facilities introduced in Base distribution substation -3 Suburban Power Distribution Networks, a JSC “LENENERGO” subsidiary. Total JSC “LENENERGO” direct environment expenses in 2008 amounted RUR 19,557.470.

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Indirect environment expense trend in 2006-2008 is given in the table 9.5.6.2 Table 9.5.6.2 Payment periods List of indirect environment expenses 2006 2007 2008

Project documentation development 5,170.4 6,845.1 7,795.3

Personnel training expenses 22.3 453.997 324.0

Environment pollution payment 1,734.7 1,239.6 1,343.1

Total JSC “LENENERGO” indirect environment expenses in 2008 amounted RUR 9,462.400.

13.2. Using Advanced Technologies (eclogue-wise) for Electric Power Transportation and Distribution Trend of expenses on oil circuit breakers replacement with new generation breakers in 2006-2008 is given in the table 9.5.7.1 Table 9.5.7.1 Reporting periods Breakers information 2006 2007 2008

Number of breakers replaced 24 143 100

Spending on breakers replacement in thousand 20,014.55 302,653.37 202,749.12 RUR

13.3. Ecologists Qualification JSC “LENENERGO” has no environmental service. JSC “LENENERGO” environmental activities are coordinated by two operation control service specialists of JSC “LENENERGO” Corporate Center’s safety and operation control department. These specialists received additional training attending an advanced training course for Industrial environment protection engineers (ecologists) in accordance with the article 73 of the Environment Protection Federal Law.

In JSC “LENENERGO” subsidiaries ecologists’ functions are performed by engineering and technical personnel of Industrial technical departments in addition to their principal duties.

13.4. Environment Protection Training Information In 2008 the following JSC “LENENERGO” specialists received training at a Environmental Training Center (License А # 101881 of February 11th 2008):

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 12 employees of JSC “LENENERGO” Corporate Center and subsidiaries attended 112 hours advanced training course on “Organization of work with dangerous wastes”;  1 employee(chief engineer) of Suburban Power Distribution Networks, a JSC “LENENERGO” subsidiary, attended a 72 hours environmental management training course in accordance with the article 73 of the Environment Protection Federal Law;  1 Corporate Center employee and 1 employee Suburban Power Distribution Networks, a JSC “LENENERGO” subsidiary, attended an advanced training course for industrial environment protection engineers (ecologists). Spending on environmental personnel training in 2008 amounted RUR 324,000.

13.5. Company’s Environmental Audit Information. Type of Auditing – Using Trained Personnel or Services of an Outside Company. Expenses Suffered. Executor according to the Contract. Time of execution. Audit results There was no environmental auditing of JSC “LENENERGO” in 2008 because of the decision to introduce integrated management system including environmental management.

13.6. Environmental Management System Development, Introduction and Certification against International Standard 14001 The decision to introduce integrated management system in JSC “LENENERGO” is officially stated in the JSC “LENENERGO” order # 299 of 21.08.2008. The integrated management system introduction project is supposed to be implemented in two stages: 1. Development and introduction of integrated management system in the Corporate Center and two pilot subsidiaries, Cable Network and Suburban Power Distribution Networks, within approximately 1-1.5 year. After the system development and introduction is over it will be presented for certification and ISO 9000, 14000 and OHSAS 18000 compliance testing. 2. Introduction of tested design concepts in the other Company’s subsidiaries (replication) with certification pending. Approximate implementation period 1-1.5 years from the moment of first stage completion. JSC “LENENERGO” integrated management system development, introduction and certification project is designed for 3-years implementation period.

13.7. 2009 High Priority Objectives of the Power Company and Strategic Environmental Objectives in 2009-2012 including those Corresponding with the Environmental Policy of the Company, Main Areas of the Company’s 2009-2015 Environmental Policy and Company’s 2009-2012 Environmental Policy Program The strategy of JSC “LENENERGO” is to achieve stable development, continuously improving its financial performance, increasing capital construction volume, technical modernization and reconstruction of power facilities observing economical, social and other interests of its personnel and population.

To successfully implement the strategy JSC “LENENERGO” Board of directors defined the priority activity areas of the Company including environmental management introduction in JSC “LENENERGO”.

In 2009 within the “Environmental management system development, introduction and certification” project JSC “LENENERGO” will be working out and introducing its policy and objectives in the area of environmental management in accordance with requirements of GOST R

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ISO 14001-2007 standard as applied to electric power transmission and distribution activities and technological joining.

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SECTION 14 ANALITICAL SUMMARY OF THE COMPANY’S MANAGEMENT

14.1. Financial Analysis Property Status When estimating property status and financial results of the Company in both 2008 and 2007, it is necessary to take into account the results of asset revaluation. According to Statutory Accounting Regulation 6/01 “Asset accounting”, asset revaluation results shall not be included in accounting data of the previous reporting year and are accounted when generation of balance sheet as of the beginning of the reported year. Revaluation of fixed assets resulted in adjustment of opening balance of the Company’s balance sheets as of 01.01.2007 and 01.01.2008. Thus, increase in value of fixed assets was added to the additional capital, whereas write-down on fixed assets was accounted as uncovered loss of previous years. Revaluation of fixed assets was effected: - under RAO UES of Russia Order #615 dated 05.09.2006 “On asset revaluation of RAO UES of Russia Group according to Russian accounting standards and International accounting standards”, as of 01.01.2007. -under RAO UES of Russia Order #99 dated 06.03.2008 “On asset revaluation of the power distribution network company according to Russian accounting standards aimed at switchover to RAB-based rate policy”, as of 01.01.2008. Aggregate impact of asset revaluation on the appropriate assets and liabilities items of the Balance Sheet both in 2007 and 2008 is given in the following table.

Asset revaluation impact on assets and liabilities items of the Balance Sheet in 2007 and 2008 million RUR

Aggregate Total Total impact of impact of Balance impact of asset Balance Balance asset Balance sheet as asset revaluation Balance sheet as of sheet as of revaluation sheet as of of revaluation (in 2007 sheet items 31.12.06 01.01.07 (in 2007) 31.12.07 01.01.08 (in 2008) and 2008)

Assets

Fixed assets 18,584 31,231 12,647 33,672 36,606 2,934 15,581

Liabilities

Additional capital 17,710 31,804 14,094 31,992 34,874 2,882 16,976

Uncovered loss of previous years -769 -2,216 -1,447 -1,801 -1,749 52 -1,395

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Total Liabilities 16,941 29,588 12,647 30,191 33,124 2,934 15,581

As of the end of 2008, the balance-sheet total (i.e. the amount of assets owned by JSC “LENENERGO”) made up RUR 76 688 million. Compared to balance sheet as of 31.12.2007, total amount of JSC “LENENERGO” assets and sources of its generation has increased by RUR 18,225 million. Major reasons for change in the balance sheet are as follows: implementation of JSC “LENENERGO” investment program, accounting of results of additional issue (RUR 5,721 million growth of assets), as well as adjustment of assets and liabilities items for the amount of fixed assets revaluation (RUR 2,934 million). When estimation of JSC “LENENERGO” financial status following the results of the year 2008, it is necessary to take into account specific character of JSC “LENENERGO” as a power industry company, whose core business implies transmission of electric power via power networks and grid connection of new customers to the power network infrastructure. Since JSC “LENENERGO” is a company of the capital-intensive industry, structure of liabilities in the Balance Sheet shows high volume of borrowed funds, while structure of assets witnesses predominance of non-current assets. Key characteristics of JSC “LENENERGO” Balance Sheet as of the end of the reporting period: High share of fixed assets – 77.4 per cent (the share has increased compared to both 71.9 per cent in 2007 and 77.2 per cent in 2006 (data for 2006 and 2007 are given prior to the fixed assets revaluation)); Increased share of receivables equal to 16.9 per cent of the balance-sheet total or 74.7 per cent of the current assets; Substantial volume of loans and borrowings. As of 31.12.2008 loans and borrowings made up 35.5 per cent of aggregate liabilities of the Company or 14.5 per cent of the balance- sheet total. The following table shows trends of aggregate balance sheets for the period of 2006-2008.

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Balance Sheets for 2006-2008 Million RUR

Changes Deviations from compared to Plan 2008 (+,-) 2006 2007 2008 2008 31.12.07 (+,-) Item Line actual actual planned actual amoun % amount % t

NON-CURRENT ASSETS

Intangible assets 110 1.04 0.83 0.83 32.57 31.73 3804.8% 31.73 3804.8%

Fixed assets 120 18,584 33,672 46,631 46,626 12,954 38.5% -5 0.0%

Construction in progress 130 3.422 7,717 10,311 12,220 4,502 58.3% 1,909 18.5%

Long-term financial assets 140 222 490 595 278 -212 -43.2% -317 -53.3%

Deferred tax assets 145 156 139 152 176 37 26.9% 24 15.9%

Total Non-Current Assets 190 22,385 42,019 57,690 59,333 17,314 41.2% 1,643 2.8%

CURRENT ASSETS

Inventory 210 339 630 733 760 130 20.7% 27 3.6%

Value Added Tax 220 297 351 223 226 -125 -35.5% 3 1.5%

Receivables (payments expected beyond 12 months after balance 13472.8 sheet date) 230 7 13 114 1,734 1,721 % 1,619 1418.6%

Receivables (payments expected within 12 months after balance sheet date) 240 4,890 9,516 12,804 11,235 1,719 18.1% -1,570 -12.3%

Short-term financial assets 250 0 0 980 1,550 1,550 - 570 58.2%

Cash 260 1,084 5,904 496 1,851 -4,054 -68.7% 1,355 273.4%

Total Current Assets 290 6,617 16,414 15,351 17,355 941 5.7% 2,005 13.1%

Total Assets 300 29,002 58,433 73,041 76,688 18,255 31.2% 3,647 5.0%

LIABILITIES

EQUITY AND RESERVES

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Changes Deviations from compared to Plan 2008 (+,-) 2006 2007 2008 2008 31.12.07 (+,-) Item Line actual actual planned actual amoun % amount % t

Charter capital 410 785 785 1,019 1,019 234 29.8% 0 0.0%

Additional paid-in capital 420 17,710 31,992 43,378 40,960 8,969 28.0% -2,418 -5.6%

Reserve capital 430 135 135 135 135 0 0.0% 0 0.0%

Retained earnings of past years 460 0 1,503 2,579 2,344 842 56.0% -235 -9.1%

Uncovered loss of past years 465 -1,193 -3,304 -3,252 -841 2,462 -74.5% 2 410 -74.1%

Retained earnings of the reported year 470 424 916 767 1,540 624 68.1% 772 100.7%

Uncovered loss of the reported year 475 0 0 0 0 0 - 0 -

Total Equity and Reserves 490 17,861 32,026 44,626 45,157 13,130 41.0% 530 1.2%

LONG-TERM LIABILITIES

Loans and Borrowings 510 0 10,900 10,900 10,900 0 0.0% 0 0.0%

Deferred tax liabilities 515 620 760 826 852 92 12.1% 26 3.1%

Other long-term liabilities 520 183 181 179 179 -2 -1.1% 0 -0.1%

Total Long-Term Liabilities 590 803 11,841 11,906 11,931 90 0.8% 26 0.2%

SHORT-TERM LIABILITIES

Loans and Borrowings 610 4,564 172 240 238 66 38.2% -2 -1.0%

Payables: payables and wayges payable 620 5,610 14,246 16,127 19,172 4,926 34.6% 3,045 18.9%

Deferred income 640 164 147 141 157 10 6.7% 16 11.1%

Accrued expenses 650 0 0 0 33 33 - 33 -

Total Short-Term Liabilities 690 10,338 14,565 16,508 19,600 5,035 34.6% 3,092 18.7%

TOTAL EQUITY, RESERVES & LIABILITIES 700 29,002 58,433 73,041 76,688 18,255 31.2% 3,647 5.0%

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General structure of JSC “LENENERGO” balance-sheet assets and liabilities following the results of 2008 is also given in the following diagrams.

Structure of Assets Structure of Liabilities 100% 100% 21.0% 22.6% 22.8% 28.1% 24.9% 22.6% 25.6% 35.6% 80% 80% 20.3% 16.3% 2.8% 15.6% 60% 60%

40% 77.2% 71.9% 79.0% 77.4% 40% 61.6% 54.8% 61.1% 58.9% 20% 20%

0% 0% 2006 2007 2008 2008 2006 2007 2008 2008 actual actual planned actual actual actual planned actual Capital and reserves Long-term liabilities Non-current assets Current assets Short-term liabilities

Net Assets Total net assets of JSC “LENENERGO” (assets free from any liabilities towards third parties) significantly exceed the charter capital and guarantee secure liabilities towards creditors. RUR 13,140 million growth in net assets for the reported period compared to the appropriate item in the Balance Sheet as of 31.12.2007 is mainly due to additional issues, revaluation of fixed assets as well as net profit of the Company. Substantial surplus of net assets over charter capital over the last three years, including business results of JSC “LENENERGO” in 2008, equal to RUR 44,295 million (44.5 times more) may be considered as a key indicator of sound financial status of the Company for now and for the future. Million RUR

Indicators 31.12.05 31.12.07 31.12.08 31.12.08 actual actual expected actual

Net assets 18,025 32,174 44,768 45,314

Aggregate assets 29,002 58,433 73,041 76,688

Charter capital 785 785 1,019 1,019

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Trend of Net to Aggregate Assets Ratio

90,000 73,041 76,688 80,000 70,000 58,433 60,000 44,768 45,314 50,000

Million RUR 40,000 29,002 32,174 30,000 18,025 20,000 10,000 785 785 1,019 1,019 0 31.12.2006 31.12.2007 31.12.2008 31.12.2008 actual actual planned actual Net assets Aggregate assets Charter capital

Non-Current Assets Amount of non-current assets made up RUR 59,333 million (77.4 per cent of all assets) at the end of 2008. Compared to the Balance Sheet as of 31.12.2007 the total amount of non-current assets has increased by RUR 17,314 million and its share has increased by 5.5 per cent. At the same time, deviation of the actual amount form the planned value is non-essential and equals to 2.8 per cent or RUR 1,643 million. Following the results of the reported year, the most significant growth is due to the following items of the Balance Sheet: “Fixed assets” and “Construction in progress”. “Long-term financial assets” demonstrated the most considerable reduction following the results of the year 2008.

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Fixed Assets Fixed to total assets ratio is denominated as a ratio of actual cost of property, which indicates share of means of production in property cost and defines level of productive potential of the company, as well as whether available means of production are enough for the production process. As of the end of 2008 value of this ration for JSC “LENENERGO” equals to 0.61 (norm is 0.5) and the ratio has been above the standard for the last three years. Absolute value of fixed assets as of 31.12.2008 has run up to RUR 46,626 million, which is RUR 12,954 million more than in the Balance Sheet as of 31.12.2007. Increase of this indicator is mainly caused by start-up of fixed assets within implementation of JSC “LENENERGO” investment programs, where the most considerable growth is due to start-up of fixed capital stock. Compared to the previous year, the year 2008 showed decrease in share of fixed assets in the amount of non-current assets. At the end of reporting period value of this indicator amounted 78.6 per cent against 80/1 per cent in 2007.

Construction in Progress As of the end of 2008, Amount of construction in progress equals to RUR 12,220 million, i.e. 15.9 per cent of all assets or 20.6 per cent of fixed and non-current assets. There was a RUR 4,502 million increase in investment into construction in progress due to expansion of JSC “LENENERGO” investment program in 2008. In 2009, JSC “LENENERGO” is to finish construction of Substation 160A in Saint-Petersburg and Substation 185 in Pushkin. Reconstruction of Substations #89, #14, and #145 will be over. Works on Tikhvin-Western Substation will be finished in Leningrad Region.

Long-Term Financial assets As of 31.12.2008, the following shareholdings are accounted in JSC “LENENERGO” Balance Sheet: shares of Saint-Petersburg Power Sales Company, North-West Power Management Company, Federal Grid Company of United Energy Systems and other units. In fourth quarter of 2008, there were changes in the portfolio of long-term financial assets of the company caused by reorganization of Petersburg Trunk Grids in the form of merger with Federal Grid Company of United Energy Systems accompanied by conversion of Petersburg Trunk Grids shares into securities of Federal Grid Company of United Energy Systems. The reporting period demonstrated sharp decrease in market value of shares of Federal Grid Company of United Energy Systems as well as those of Saint-Petersburg Power Sales Company, North-West Power Managing Company. Thus, the amount of long-term financial assets fell by RUR 278 million in 2008 compared to the appropriate item at the beginning of the reported period, and the deviation from the planned value made up RUR 317 million. As a result, long- term financial assets in the reported year are equal to RUR 278 million and the share of this item in the balance-sheet total amounts to 0.4 per cent (or 0.5 per cent of non-current assets of the Company).

Current Assets As of the end of 2008, current assets of the Company are equal to RUR 17,355 million, or 22.6 per cent of the balance-sheet total.

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Share of stocks in current assets has increased to 4.4 per cent as of the end of 2008 compared to 2007 (at the end of 2007 and 2006 value of this indicator made up 3.8 and 5.1 per cent respectively). Low level of stocks is due to the specific features of JSC “LENENERGO” core activities after the reform, such as power transmission and grid connection of customers, which do not require fuel stock. As of the end of 2008, cash funds of the Company make up RUR 1,851 million (10.7 per cent of current assets, or 2.4 per cent of assets) and decreased by RUR 4,054 million compared to 31.12.2007. Such substantial decrease is due to the fact that at the end of the previous reported period item “Cash” of the balance sheet comprised cash balance of a syndicated loan taken by the Company at the fourth quarter and cash received from the additional issue. As of the end of 2008, receivables are equal to RUR 12,968 million, which is by RUR 3,439 million more than in the Balance Sheet dated 31.12.2007. As of the end of 2008, share of receivables in the aggregate assets of the Company makes up 16.9 per cent, and in the current assets total it is equal to 74.7 per cent. At the same time, share of receivables in the current assets total has reached the maximum value for the last three years exceeding the appropriate indicators in 2007 (58.1 per cent) and 2006 (74.0 per cent). Trend and structure of receivables for the period of 2006-2008 are given in the diagram below:

Receivables Structure and Trend

7,405 7,000

6,000 5,630 5,449

4,789 R 5,000

3,866 4,000 Million RU Million 2,810 3,000 2,591

1,930 1,840 1,697 2,000 1,242 1,065 1,000

0 2006 actual 2007 actual 2008planned 2008 actual Debts of buyers and customers advances Other debtors

As of 31.12.2008, receivables of the Company comprise: Total amount of advances given equals to RUR 7,405 million and predominated in the structure of receivables. As of the end of 2008, it has grown by RUR 2,616 million compared to 31.12.2007, and its share in the total amount of receivables has increased from 50.3 to 57.1 per cent.

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Advances under leasing agreement make considerable share in the structure of advances given and amount to RUR 1,635 million or 12.8 per cent of the aggregate receivables of the Company (accounted in the long-term receivables). Other advances (RUR 5,753 million or 44.4 per cent of receivables) are accounted in the short-term receivables. The key role in the advances structure play advances given to construction companies in the amount of RUR 4,794 or 64.7 per cent (37.0 per cent of receivables) which is mainly caused by implementation of investment program by JSC “LENENERGO”. At the same time growth of long-term receivables compared to 2007 and the planned value is due to change in accounting treatment for advances under leasing agreement prior to beginning of equipment delivery. Debts of buyers and customers equal to RUR 1,697 million or 13.1 per cent of the total amount of receivables which is less than value of the appropriate item as of 31.12.2007 (20.3 per cent). This debt comprises among others the following items: debts under Services Provision Agreements on Electric power Transmission via JSC “LENENERGO” Networks; debts of Saint- Petersburg and Leningrad Region budgets with respect to compensation of expenses arising from social benefits decreasing payment for electric power; debts of other buyers and customers related to grid connection. Debt related to social benefits has appeared in the period of 01.01.2002 – 30.09.2005. This debt is the subject of legal proceedings and is currently under review of the Arbitral Tribunal. The Company attempts to reimburse these expenses. In the fourth quarter of 2008 the debts of Saint- Petersburg and Leningrad Region budgets with respect to social benefits were partially paid in the amount of RUR 296.8 million. Thus, the debt has decreased more than twice compared to the beginning of the reported year. Debt of other debtors in the amount of RUR 3,866 million or 29.8 per cent of the total amount of receivables, including VAT on advances (RUR 2,269 million), debts under leasing agreements (RUR 403 million) and the amount of tax overpayment (RUR 758 million). The reported period showed growth of debts of other debtors by RUR 1,056 million mainly due to the increase of VAT on advances. Short-term financial assets of the Company made up RUR 1,550 million (2.0 per cent of the balance-sheet total) as of the end of 2008. At the beginning of the year, there were no short-term financial assets in the Balance Sheet of the Company. As of 31.12.2008, a loan provided to JSC “LENENERGO” affiliate – Lenenergospezremont in the amount of RUR 890 million as well as short-term bank loans in the amount of RUR 660 million are accounted as short-term financial assets in the Balance Sheet dated 31.12.2008. As a result of JSC “LENENERGO” performance in 2008, current to fixed assets ratio has changed by 5.5 per cent decreasing the share of current assets in the structure of assets compared to 31.12.2007. Thus, it affects liquidity and solvency of the Company.

Equity and Reserves Own sources (equity and reserves) have the most essential share among sources of assets generation of the Company and equal to 58.9 per cent of the balance-sheet total. As of the end of 2008, amount of equity and reserves has grown by RUR 13,130 million (41.0 per cent) compared to 31.12.2007. Thus, deviation of the actual amount form the expected value is non-essential and equals to 1.2 per cent only. Share of additional capital among own sources is the largest and equals to 90.7 per cent of the total amount. Compared to 31.12.2007, amount of additional capital has increased by RUR 8,969 million. The growth is caused by the revaluation of fixed assets as of 01.01.2008;thus, revaluation

179 surplus has been added to additional capital of the company, and write-down amount has been accounted in uncovered loss of past years; as well as by paid-in capital from additional issue. Charter capital of the Company has increased in 2008 due to additional issue of shares and makes up RUR 1,019 million. Decision to increase charter capital through private offering of additional equity shares in favour of Saint-Petersburg was adopted on August 23, 2007 at the special general meeting of shareholders. The additional issue was registered by the Federal Financial Markets Service of Russia on 25.10.2007 accompanied by assignment of state registration number 1-01-00073-А- 001D. The securities were actually offered on November 14, 2007. Date of actual withdrawal is October 24, 2008. Report on results of additional issue was registered on December 12, 2008. Quantity of the shares offered amounts to 234 167 535 and 4/100 units with face value equal to RUR 1 per unit. As of 01.01.2009, as a result of additional issue, Committee for City Property Management on behalf of Saint-Petersburg as a subject of the Russian Federation is the owner of 22.85 per cent of shares in the charter capital (232 948 033 equity shares) of JSC “LENENERGO” or 25.16 per cent of voting shares. Though charter capital of the Company has increased in absolute figures, its share in the balance- sheet total compared to 2007 remains the same and makes up 1.3 per cent. However, compared to 2007, the share of charter capital in the section total has insignificantly decreased from 2.5 in 2007 to 2.3 per cent of own sources in 2008. This is due to the faster growth of equity capital by 41.0 per cent as of 31,12,2008 compared to the previous reported year and less significant increase of the charter capital (by 29.8 per cent).

Liabilities Liabilities of JSC “LENENERGO” (Sections 4 and 5 of the Balance Sheet minus deferred tax liabilities, deferred income and accrued expenses) made up RUR 30,489 million as of 31.12.2008, including: - long-term payables (to suppliers and contractors) equal to RUR 179 million, or 0.6 per cent of total liabilities of the Company; - long-term loans and borrowings equal to RUR 10,900 million (35.8 per cent); - short-term liabilities (minus deferred income and accrued expenses) equal to RUR 19,410 million or 63.6 per cent of total liabilities of the Company. Short-term liabilities are the second major source of property generation and makes up 25.6 per cent of the balance-sheet total (RUR 19,600 million). In 2006 and 2007 their share was 35.6 and 24.9 per cent respectively. The higher share of short-term liabilities in 2006 compared to the same item in 2007 and 2008 is due to the fact that 01 series bond issue of 2004 in the amount of RUR 2,999.8 million was transferred to short-term liabilities in the second quarter of 2006 because of upcoming redemption in the second quarter of 2007. As a result of 2006, share of long-term liabilities equals to 15.6 per cent of the balance-sheet total (RUR 11,931 million). However, in the year 2007 share of long-term liabilities exceeded the reported year and was equal to 20.3 per cent of the balance-sheet total. The structure of long-term borrowings and liabilities comprises bond issues of 02 and 03 series offered in February and April 2007 (RUR 6,000 million) with redemption period in 2012, and the syndicated loan attracted by JSC “LENENERGO” in the fourth quarter of 2007 (RUR 4,900 million) with redemption period in 2010.

180

In 2008 the Company attracted neither short-term nor long-term borrowings and loans. JSC “LENENERGO” only accrued and paid interests under the valid loan agreements. Payables have the largest share in short-term liabilities and makes up 97.8 per cent of short-term liabilities or 25.0 per cent of all sources of funds. Share of “Short-term borrowings and liabilities” item of the Balance Sheet (RUR 238 million) equals only to 0.3 per cent of all sources, since all loans and borrowings accounted in the balance sheet of the Company as of 2008 belong to long- term liabilities. Thus, short-term borrowings and liabilities comprise only interests accrued on such borrowings and loans. As of the end of 2008, long-term borrowings and loans in the amount of RUR 10,900 million make up 14.2 per cent of all sources. Decrease of share of long-term borrowings and loans in the total amount of liabilities of the Company may be considered as a factor affecting its financial status. Amount of short-term payables has increased by RUR 4,926 million compared to 31.12.2007 and its share in short-term liabilities has also changed. Trend and structure of payables of JSC “LENENERGO” are given in the diagram below:

Payables Structure and Trend 14,581 15,000 13,635 14,000 13,000 12,000 11,000 10,000 9,000 R 8,000 7,560 7,000 6,000 5,000 3,895 3,551 3,654 4,000 3,213 Million RU 3,000 2,288 1,379 2,000 864 875 1,000 383 0 2006 actual 2007 actual 2008 planned 2008 actual

Payables to suppliers and contractors Advances Other payables

As of the end of 2008, payables of the Company comprise: Advances received in the amount of RUR 14,581 million (19 per cent of all liabilities or 75.3 per cent of receivables). In the year 2008 the amount has increased by RUR 7,021 million. This growth is due to the terms and conditions of payment for connection to JSC “LENENERGO” networks by the counterparties. Payment for these services is effected on the basis of full or partial advance payment. Amount of advances received under Grid connection Agreements made up RUR 14,557 million as of the end of 2008; Payables to suppliers and contractors make RUR 3,895 million (5.0 per cent of all liabilities or 20.1 per cent of the aggregate payables). Compared to 31.12.2007 amount of

181 payables has increased by RUR 682 million mainly due to growth in the volume of settlements with construction companies within implementation of investment program of the Company; Other payables in the amount of RUR 875 million (1.1 per cent of all liabilities or 4.5 per cent of the aggregate payables) comprise wages payable (RUR 109 million), taxes payable (RUR 614 million), and payables to other creditors in the amount of RUR 136 million. As of the end of the reported year, other payables decreased by RUR 2,779 million (by 76 per cent), since at the beginning of the year this item had comprised funds received as payment for additional issue in the amount of RUR 3,046 million. Following the results of the year 2008, this indebtedness has been transferred into increase of charter capital and additional capital of the Company. Key factors caused deviation of the actual payables from the planned value are as follows: - actual value of disbursement of capital investment in 2008 exceeded the planned value, whereas financing volume (in cash and non-monetary assets) showed lower growth; - increase in advances received for grid connection due to excess of inpayments over proceeds from grid connection services provided. One of the most important structural relations of the Balance Sheet is a receivables-to-payables ratio reflecting degree of loans given by the Company to its customers and those given by suppliers to the Company. The receivables-to-payables ratio defines balance of receivables and payables. If payables exceed receivables, it gives the Company an opportunity to use free loan, however it is also a threat for financial status of the company. When receivables substantially exceed payables, the Company gives free loans to other customers accompanied by increased risk of allocation of its own current assets for these purposes. The receivables-to-payables ratio of the Company is given in the table below:

Items 31.12.06 31.12.07 31.12.08 31.12.08 actual actual planned actual

Payables 5,793 14,427 16,306 19,351

Receivables 4,897 9,529 12,919 12,968

Deviation, +/- 896 4,898 3,387 6,383

Receivables-to-Payables Ratio 0.85 0.66 0.79 0.67

Normal value of the receivables-to-payables ratio is about 1.2-1.5. The year 2008 demonstrated non-essential increase of the indicator reflecting the receivables-to-payables ratio. This non- essential improvement of the indicator is due to outstripping growth of receivables (36.1 per cent) compared to increase in payables (34.1 per cent). The Company failed to reach the normal value of the indicator in 2008 as well as in 2007 and 2006. In general, trend of this indicator may be defined as unsatisfactory. As for JSC “LENENERGO”, when analyzing the receivables-to-payables ratio, including its trend, it is necessary to take into account specific features of JSC “LENENERGO” business connected with implementation of investment programs and payment for grid connection. The receivables-to-payables ratio of the Company is given in the diagram below:

182

Receivables-to-Payables Ratio

25,000

19,351 20,000 16,306

14,427 R 15,000 12,919 12,968

9,529 10,000 Million RU 5,793 4,897 5,000

0 31.12.06 actual 31.12.07 actual 31.12.08 planned 31.12.08 actual

Payables Receivables

183

14.2. Financial Performance Profit and Loss Account Financial performance of the Company over the last three years is shown in the table below:

Profit and Loss Accounts for the period of 2006-2008 Million RUR.

Deviation 2006 2007 2008 2008 from plan Item actual actual planned actual 2008

Net revenue 10,510 15,265 20,535 20,828 293

Cost of goods, products, works and services sold -9,555 -13,089 -18,363 -17,680 682

Sales profit (loss) 955 2,176 2,172 3,148 975

Interest receivable 7 62 357 378 21

Interest payable -491 -461 -739 -722 17

Revenue from share in other entities 17 45 26 26 0

Other revenues 4,206 449 378 427 49

Other expenses -3,140 -579 -718 -973 -255

Pre-tax profit (loss) 1,555 1,692 1,477 2,284 807

Deferred tax assets 43 -17 0 37 37

Deferred tax liabilities -112 -140 0 -92 -92

Current profit tax -567 -620 -710 -998 -288

Other similar payments -494 2 0 308 308

Profit tax and other payments -1,131 -775 -710 -745 -35

Allocated funds 0 0 0 0 0

Extra revenue 0 0 0 0 0

Extra expenses 0 0 0 0 0

Diluted earnings (loss) 424 916 767 1,540 772

184

Net revenue Net revenue of the Company from sales of goods, products, works and services increased in 2008 by RUR 5,562 million or by 36.4 per cent compared to 2007 and made up RUR 20,828 million. Composition and structure of revenue of JSC “LENENERGO” for the period of 2006-2008 are shown in the table below: Million RUR

2006 Share in 2007 Share in 2008 Share in 2008 Share revenue revenue planne net in actual actual actual Item d revenue revenue

Revenue 10,510 100%15,265 100% 20,535 100% 20,828 100%

Network services 8,357 79.51% 11,606 76.03% 15,154 73.80% 15,064 72.33%

Grid connection services 1,997 19.00% 3,494 22.89% 5,194 25.29% 5,572 26.75%

Other core products (services) 132 1.26%139 0.91% 159 0.78% 1640.79%

Non-core products (services) 24 0.23%27 0.18% 27 0.13% 280.13%

Items of core business revenue in 2008: revenue from electric power transmission amounted RUR 15,064 million (72.33 per cent of the aggregate revenue) in 2008; revenue from grid connection services amounted RUR 5,572 million (26.75 per cent of the aggregate revenue);

Revenue from other activities (RUR 192 million or 0.92 per cent) is a total of the following items: revenue from sales of other core business products (services) made up RUR 164 million (0.79 per cent of the aggregate revenue). Other products (services) of JSC “LENENERGO” core business are works and services of industrial type provided to legal entities and individuals under contracts to the benefit of JSC “LENENERGO”, provided that works on core business are made with high quality and in due terms. In 2008 revenue from repair and maintenance of electricity installations of other consumers in he amount of RUR 109.5 million (0.67 per cent) prevails in the revenue from other products. Share of other activities in the aggregate revenue from other products makes up 33 per cent (or RUR 53.9 thousand). revenue from non-core activities generated based on incomes from maintenance of social infrastructure made up RUR 28 million (0,13 per cent of the aggregate revenue) in 2008. Revenue from non-core activities in the reported year is mainly due to sale of vouchers to “Luch” children recreation camp located in Serovo village (55 per cent of the aggregate revenue from non-core activities), and from residential rent (45 per cent of the aggregate revenue from non-core activities). 185

The revenue structure is given in the diagram below:

Sales in 2006-2008

5,572 2008 15,064 192 166 2007 11,606 3,494

2006 8,357 1,997 157

0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 18 000 19 000 20 000 21 000 Million10 000 11 000 RU12 000 R13 000 14 000 15 000 16 000 17 000 Power transmission Grid connection Other activities

Growth of revenue in 2008 was accompanied by increase in its components (i.e. in revenue from power transmission, grid connection, and other activities) and simultaneous decrease of share of the revenue from power transmission and other activities compared to 2007 (by 3.7 and 0.17 per cent respectively) and increase of share of revenue from grid connection received by of JSC “LENENERGO” (by 3.86 per cent).

Net Cost Net cost of products, works, services sold in 2008 made up RUR 17,680 million. Net cost structure and trend of for the period of 2007-2008 are given in the table and diagram below:

Share Share Plan 2008 in in implem 2007 Share in planne total, 2008 total, entation Net cost of core products actual total, % d % actual % , %

Material costs 3,401 26.0% 4,383 23.9% 3,790 21.4% 86.5%

Production works and services 4,512 34.5% 6,996 38.1% 6,999 39.6%100.0%

Wages and social costs 1,933 14.8% 2,313 12.6% 2,291 13.0% 99.0%

Depreciation 1,980 15.1% 2,525 13.8% 2,560 14.5% 101.4%

Other costs 1,264 9.7% 2,145 11.7% 2,041 11.5% 95.1%

Total 13,089 100.0% 18,363 100.0% 17,680 100.0% 96.3%

186

Structure in 2007 Structure in 2008

15% 10% 14% 12% 26% 21% 15% 13%

34% 40%

Material costs Material costs Production works and services Production works and services Wages and social costs Wages and social costs Depreciation Depreciation Other costs Other costs Cost of production and sale of network services in 2008 made up RUR 17,469 million, that of other products (services) of core activities made up RUR 106 million, and of non-core products (services) made up RUR 105 million. Million RUR

Share Share Plan 2008 in in impleme Cost of production and 2007 Share in planne total, 2008 total, ntation, sales, total actual total,% d % actual % %

Network services 12,823 98.0% 18,133 98.8% 17,469 98.8% 96.3%

Other products (services) of core activities 164 1.3% 130 0.7% 106 0.6% 81.7%

Non-core products (services) 102 0.8% 100 0.5% 105 0.6% 105.7%

Total 13,089 100.0% 18,363 100.0% 17,680 100.0% 96.3%

Share of “Material Costs” item drop down from 26 per cent in 2007 to 21.4 per cent in 2008. At the same time, share of “Production works and services” item increased from 34.5 percent in 2007 to 39.6 per cent in 2008. In general, decrease in share items “Material costs”, “Wages and social costs”, “Depreciation” in the aggregate costs of production and sales of products (services) was accompanied by simultaneous growth of items “Production works and services” and “Other costs”.

Other Revenues and Costs Interest payable by JSC “LENENERGO” increased in 2008 by RUR 260 million compared to 2007 and made up RUR 721 million in the reported year. Interests were accrued on loans already attracted in 2007, such as bonded debts of 02 series and 03 and the syndicated loan.

187

Interest receivable in favour of JSC “LENENERGO” demonstrated 6.1 times growth and made up RUR 378 million due to increase of interest accrued on the account balance. In 2008, the Company revenue from share in other entities decreased by 41.9 per cent compared to the same item in 2007 and made up RUR 26 million. JSC “LENENERGO” received dividends on shares of Energouchet, Saint-Petersburg Power Sales Company, North-West Power Managing Company. In 2008, other revenues decreased by RUR 22 million, whereas amount of other expenses of the Company increased by RUR 394 million. At the end of reported year, amount of other revenues made up RUR 427 million and other expenses amounted to RUR 973 million. Information on sale of shares of Saint-Petersburg Generating Company is accounted under other revenues and costs item in 2006. Thus, amount of other revenues in 2007 and 2008 is considerably lower than in 2006. Growth of balance deficit of other revenues and costs of the Company is caused by decrease in market value of shares of Federal Grid Company of United Energy Systems, as well as Saint- Petersburg Power Sales Company and North-West Power Managing Company.

Pre-Tax Profit, Income Tax Growth of sales profit by RUR 971 million in 2008 compared to 2007 compensated increase in balance deficit of other revenues and costs (including interests) in the amount of RUR 379 million. Thus, pre-tax profit made up RUR 2,284 million in 2008 against RUR 1,691 million in 2007 and RUR 1,554 million in 2006. Positive deviation of pre-tax profit by RUR 807 million from the planned value is due to essential excess of actual amount of gross profit over planned profit (by RUR 975 million) and outstripping growth of balance deficit of other revenues and costs (by RUR 168 million). Income tax and other similar mandatory payments made up RUR 745 million in 2008, which is by RUR 31 million less than in 2007. Amount of the current income tax equals to RUR 998 million. Income tax in 2008 was calculated in compliance with the Tax Code of the Russian Federation, Article 25, and Statuary accounting regulations 18/02 “Accounting of Income Tax Calculations”. Amount of income tax was influenced by the revaluation of fixed assets made in 2007-2008. As for accounting, revaluation leads to change in cost of fixed assets (items 14 and 15, Statuary accounting regulations 6/01), as for tax accounting, revaluation does not change cost of fixed assets (Tax Code of the Russian Federation, Article 257 i.1). Thus, it leads to a permanent difference causing permanent tax liabilities (according to item 18/02 of the Statuary accounting regulations). The difference appears when accrual of depreciation and equals to the amount of increase multiplied by the monthly depreciation rate. Permanent tax liabilities in the amount of RUR 504 million are accounted as income tax.

Net Profit Net profit of JSC “LENENERGO” in 2008 adjusted for income tax accrued and other similar mandatory payments has increased by RUR 624 million and made up RUR 1,540 million against RUR 916 million in 2007 and RUR 424 million earned by the Company in 2006.

188

Trend of Sales Profit, Pre-Tax Profit and Net Profit

3,500 3,000 3,148 2,500 2,176 2,284 R 2,000 1,555 1 692 1,500 1,540 1,000 955 916 500 Million RU 424 0 -500 2006 2007 2008 sales profit pre-tax profit net profit

Indicators of sales profit, pre-tax profit and net profit showed upcoming trend in 2006-2008. Growth of net profit in 2008 is mainly caused by increase in the Company’s proceeds against the previous reporting period.

Profitability Return indicators demonstrate economic efficiency of the Company and profitability of different activities. They give better and more complete information on business results than profit, since their values indicate return on available or consumed resources. Profitability indicators of JSC “LENENERGO” calculated based on the accounting data are given in the table below:

Formula 2006 2007 2008 2008 Return indicator actual actual planned actual

Return on sales 050 (F.2)/010 (F.2) 9.09% 14.25% 10.58% 15.11%

190 (F.2)/(300start+300 Return on assets final)*0,5 (F.1) 1.50% 2.10% 1.17% 2.28%

Return on equity (ROE) 190 (F.2)/ 490(F.1) 2.37% 3.74% 1.61% 4.35%

Return on sales witnesses that for the period from 2006 to 2008 the Company has got 9.09, 14.25 and 15.11 per cent of profit per ruble of sales proceeds respectively. Increase of return on sales in

 Calculation of planned and actual ROE values as of 2008 has been made in compliance with the method regulated by Business Planning Standard of the Company. Adjusted net profit is used to calculate ROE. 189

2008 (by 0.86 per cent) is due to the fact that profit on sales grows faster than net profit. Profit on sales in the reported period has increased by 44.6 per cent against 36.4 per cent growth of net profit. Return on assets demonstrates the profit received by the Company per rouble invested in assets. In 2008 return on profit made up 2.28 per cent which is 1.1 times more than the value calculated based on the results in 2007. Thus, JSC “LENENERGO” gains 2 kopecks per ruble invested in assets. One of the most important objectives of the Company is to increase amount of equity capital accompanied by growth of its profitability. Return on equity (ROE) is one of the key indicators of economic efficiency of the Company. Return on equity shows profit per rouble invested in the Company by its owners. In 2008 ROE made up 4.35 per cent. In 2006 and 2007 return on equity was equal to 2.37 and 3.74 per cent respectively. Actual value of the indicator in 2008 is 1.2 times more than its value in 2007. ROE of the Company shows growth trend and is a positive sign. In 2008 the return indicators of the Company exceeded the appropriate values of the previous reporting year. In general, the return indicators in 2008 demonstrated 3-years maximum and exceeded pre-reform level. Increase of the return indicators of the Company in 2008 can be explained by 1.36 times growth of net revenue in the reported period and by the fact that net profit of JSC “LENENERGO” in 2008 exceeded 1.68 times value of net profit received in 2007. Thus, staring from 2006, return on sales, return on assets and return on equity capital demonstrate growth trend confirming right policy of JSC “LENENERGO” management aimed at achievement of positive business results. In the current context, the policy implies:

1. Implementation of cost reduction program; 2. Divestiture of non-core assets; 3. Implementation of economically reasonable rate politics.

190

14.3. Evaluation of Liquidity, Financial Soundness and Business Activity 14.3.1. Liquidity and Additional Financing Sources Analysis of accounting liquidity implies comparison of assets classified by degree of liquidity with liabilities classified by redemption period. As of the end of 2006, 2007 and 2008, balance of JSC “LENENERGO” is not perfectly liquid. Perfectly liquid balance implies: liquid assets shall exceed liabilities with the earliest redemption date; quick assets shall exceed short-term liabilities; Hard-marketable assets shall exceed long-term liabilities; permanent liabilities shall exceed sticky assets. Satisfaction of the first three items is mandatory to achieve perfect liquidity, whereas the forth condition has balancing character and witnesses that a company possesses own working capital. JSC “LENENERGO” meets only one item of perfect liquidity. Quick assets of the Company (receivables within 12 month after balance sheet date) exceed short-term liabilities (borrowing and loans, dividends payable, other short-term liabilities). Satisfaction of this condition witnesses solvency of the Company in the nearest future. Amount of liabilities with the earliest redemption date and short-term liabilities has increased by 34.6 per cent in 2008 compared to the previous reporting year. Share of these items in aggregate liabilities has increased by 0.6 per cent. At the same time, amount of liquid and quick assets has decreased by 5.1 per cent and their share in the structure of assets has drop down by 7.3 per cent. Amount of hard-marketable and sticky assets as well as amount of long-term and permanent liabilities demonstrated growth trend both in absolute figures and percentage (by 44.3 per cent and 30.1 per cent). Share of amount of long-term and permanent liabilities in the balance–sheet total has decreased by 0.6 per cent. And share of hard-marketable and sticky assets in aggregate assets has increased by 7.3 per cent. Such structural changes in balance of assets and liabilities in 2008 may affect liquidity and solvency of the Company. General classification of assets by degree of liquidity and classification of liabilities by redemption period are given in the table below.

191

Million RUR

2006 2007 2008 2008 Item Designation Formula actual actual planned actual

Liquid assets А1 250+260 1,084 5,904 1,476 3,401

Quick assets А2 240+270 4,890 9,516 12,804 11,235

Hard-marketable assets А3 210+220+230 643 994 1,071 2,720

Sticky assets А4 190 22,385 42,019 57,690 59,333

Liabilities with the earliest redemption date L1 620 5,610 14,246 16,127 19,172

Short-term liabilities L2 610+630+660 4,564 172 240 238

Long-term liabilities L3 590+640+650 967 11,989 12,047 12,122

Permanent liabilities L4 490 17,861 32,026 44,626 45,157

А1>=L1 А1-L1 -4,526 -8,342 -14,651 -15,771

А2>=L2 А2-L2 326 9,344 12,564 10,997 Conditions for perfect liquid balance А3>=L3 А3-L3 -324 -10,995 -10,977 -9,402

А4<=L4 L4-А4 -4,524 -9,993 -13,064 -14,176

Hard-marketable (i.e. non-current) assets took the largest share in the Company’s assets structure in 2007-2008 (77.4 per cent in 2008). Major share in the structure of liabilities belongs to permanent liabilities (58.9 per cent). When estimating liquidity, it is necessary to take into account that advances received from customers under Grid connection Agreement (an essential part of short-term payables given in item 620 of the balance sheet) are in fact a long-term source, since it is connected with implementation of long-term investment program by the Company. As of 31.12.2008, amount of advances received from customers as payment for connection to power networks of the Company made up RUR 14,557 million, i.e. 99.8 per cent of all advances or 75.9 per cent of short-term payables. To properly assess the financial status of the Company along with absolute figures of the balance sheet liquidity it is reasonable to define certain financial factors. Calculated solvency ratios of the Company are given in the table below.

192

Solvency ratio Formula 31.12.06 31.12.07 31.12.08 31.12.08 actual actual actual planned

Absolute liquidity ratio А1/(L1+L2) 0.11 0.41 0.09 0.18

Acid test ratio (А1+А2)/ (L1+L2) 0.59 1.07 0.87 0.75

Current liquidity ratio (А1+А2+А3)/(L1+L2) 0.65 1.14 0.94 0.89

Share of current assets in the (А1+А2+А3)/Balance overall assets sheet 0.23 0.28 0.210.23

Equity ratio (L4-А4)/ (А1+А2+А3) -0.68 -0.61 -0.85 -0.82

Calculation and assessment of liquidity factors enables to set the level of security through most liquid means. Every one of them is a trend indicator to feature the Company’s solvency for the upcoming period in accordance with liquidity of assets included in the numerator of the figure and liabilities maturity included in the denominator. Following the 2008 results the factor of the absolute liquidity of the Company is at the standard level (0.15-0.5). This factor shows that share of the short-term debt which can be repaid by JSC “LENENERGO” in the nearest future equals 18 per cent (as of 31.12.2008). The Company however may be solvent even with a small value of the ratio if it manages to balance and synchronize the cash inflow and outflow by amount and time. The acid test ratio shows which part of current liabilities can be covered by most liquid part of current assets. In 2008 the Company can repay 75 per cent of its current liabilities with the help of funds available and short-term financial investments, provided the receivables are collected. With this, the ratio went down compared to 2007. JSC “LENENERGO” didn’t achieve the optimal value of the acid test ratio (equal to or more than 0.95) in 2008. A fall in the current liquidity ratio at the end of the reporting year (the value made up 0.89) featuring the overall security of the company with current assets to pursue the business activities and to promptly repay time (current) liabilities manifests worsening structure of the Company’s balance sheet and a lower capacity of the Company to settle its current liabilities. Although the target value of the current liquidity ratio is equal to or more than 2, the ratio falling within the 1-2 range is a good benchmark for the future. As of 31.12.2008, the current liquidity ratio of JSC “LENENERGO” is close to one but still falls short of it. The current liquidity ratio is seriously impacted by payables in terms of “advance payments received” which is connected with some specific character of the Company’s activity (most payments for connection to networks of JSC “LENENERGO” are advance payments at the stage of connection agreement conclusion which can be related to long-term liabilities). 2008 demonstrated a downslide of the share of current assets in the overall assets compared to 2007. The share of current assets made up 0.23 in the reported period against 0.28 in the previous reporting period. The solvency trend of the Company in 2006 – 2008 can be controversially evaluated. In 2008 the factors of absolute, time and current liquidity are below the level of 2007 but above the figures obtained from the balance sheet of the Company as of 31.12.2006. High values of the Company’s

193 liquidity in 2007 were mainly accounted for by substantial cash balance fed by payments from additional issue of shares and the long-term loan in late 2007. The rate of liquidity of the Company in 2008 went down in comparison with both the previous reporting period and the plan in terms of factors of time and current liquidity. These liquidity factors of the Company in 2008 are below the plan mainly through the outrunning increase (in comparison with the plan) in the actual short-term liabilities net of the income received in advance and reserves for future expenses (that is amounts of liabilities with the earliest redemption date and short-term liabilities) by RUR 3,043 million or by 18.6 per cent over the current assets’ amount (that is amount of most liquid, quick and hard-marketable assets) by RUR 2,005 million or 13.1per cent. All in all, the liquidity figures deviation from the plan was prompted by higher payables to suppliers and contractors as well as rising debt on advance payments received from subscribers for the grid connection. Since the Company faces deficit of own sources of financing (the 4th condition of the perfectly liquid balance sheet is not met) the equity ratio value is negative and equals “-“ 0.82. Better figures in liquidity of the Company can be achieved in future through a balance provision between the amount of current assets and short-term liabilities. In particular through putting down advance payments received for execution of obligations towards subscribers, i.e. higher revenue from grid connection services.

14.3.2. Financial Stability Financial stability of the Company rests on both optimal structure of capital sources (debt to equity ratio) and optimal structure of assets of the Company. To review the structure of capital sources of the Company and evaluate the financial stability some factors are calculated as it is shown in trend in the following table for 2006-2008.

Financial stability Formula 31.12.06 31.12.07 31.12.08 31.12.08 actual planned actual indicators actual

(590+690)/ Capitalization factor 490 0.62 0.82 0.64 0.70

Financial independence factor 490/700 0.62 0.55 0.61 0.59

(490+590)/ Financial stability factor 300 0.64 0.75 0.77 0.74

Financial independence factor (490- in terms of stocking 190)/210 -13.35 -15.87 -17.81 -18.65

Since equity capital makes a base for independence of the company and features higher financial stability and lower bankruptcy risk, substantial equity amount on the balance of the Company proves its sufficient independence. With this, the debt to equity ratio in assets generation of the Company depends on specific features of the industry. To define optimal factors one shall proceed from the actual structure of assets and current approaches to their financing. As of late 2008, the equity percentage equals 58.9 per cent of the balance-sheet total, i.e. the company is at or above the level recommended (50 per cent). Against 2007 one detects a rise in the financial independence factor by 0.04 point which reflects the given correlation and is 194 accounted for by the outrunning growth of equity of the Company (section III of the balance sheet “Capital and reserves”) (by 1.4 times) over the growth of the balance-sheet total (by 1.3 times). An equity lift is based on the positive financial result (net profit) obtained by JSC “LENENERGO” in 2008 and on the growth of the charter capital through additional issue of shares. With this, 2008 witnessed a decline in ratios of capitalization, financial stability and financial independence in terms of stocking. The capitalization factor is below the identity element as of 31.12.2008 that is the amount of debt and borrowed funds does not exceed the equity amount of the Company. A fall in this factor is defined by the outrunning growth of capital and reserves against the growth of long-term and short-term liabilities of the Company compared to 31.12.2007. A shift in the liabilities’ structure with rising short-term liabilities and falling long-term liabilities affects the financial stability factor. A decline of the factor by 0.01 points manifests a worsening structure of property (assets) generation sources since sources of raised funds in the form of payables can be on short notice called up by lenders. Since the equity does not cover the non-current assets the Company lacks equity in the turnover which results in a negative financial independence factor in terms of stocking. The further decline of the factor is mainly accounted for by wider gap between the amount of capital and reserves and the non-current assets. To keep figures of financial stability within tolerable limits and to ensure their uplift in future one can: - Increase the equity of the Company through rising revenue and net profit including by the grid connection which will put down the debt on advance payments received; - Prevent an excessive rise in payables and examine a possibility to replace the payables for more reliable and long-term liabilities – raised funds and equity.

14.3.3. Turnover Figures Relative efficiency ratios describe efficiency of the Company’s resources (property) employment. They can be depicted as a system of financial factors – turnover figures. 2008 witnessed down-sliding turnover figures against 2007 with no substantial discrepancy between the actual value and the planned figure. The trend of the turnover figures of the Company which reflect the speed of turnover of the whole advance capital (assets), receivables and payables as well as current assets and stocks in 2006- 2008 is shown in the table below.

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2006 2007 2008 2008 Turnover Figures actual actual planned actual

Overall turnover 0.37 0.35 0.31 0.31

Receivables turnover 2.6 2.1 1.8 1.9

Payables turnover 2.0 1.5 1.3 1.2

Current assets turnover 1.9 1.3 1.3 1.2

Stocks turnover 37.0 31.5 30.1 30.0

Compared to 2007 the year 2008 witnessed the actual revenue growth in the midst of more radical changes to the turnover figures of annual average receivable and payables, stocks and current assets used for calculation. It resulted in higher duration of the turnover of receivables and payables as well as current assets and stocks. Since slower turnover prompts additional employment of current assets into the business activities of the Company, these changes can be considered as negative. Slower turnover in receivables and current assets is mainly provoked by rising advance payments to construction companies as well as advance payments issued under lease agreements. Receivables will decline prompting accordingly smaller assets turnover as the investment program gets implemented, suppliers and contractors deliver on their obligations, and lease agreements’ terms are followed.

As of 31.12.2008 the financial situation with the Company cannot be termed as stable according to formal features. In comparison with 2007 the trend of many financial figures with JSC “LENENERGO” is negative (liquidity figures; turnover figures which reflect the receivables to payables ratio and their trend; some figures of the financial stability). On the other hand the reporting year highlighted a profound uplift in profitability figures of JSC “LENENERGO” topping an unprecedented high level over the last three years, the financial independence of the Company improved. The revenue of the Company also rose considerably, compared to 2007 the net profit went up by 1.68 times. The overall review of JSC “LENENERGO” figures trend in 2006 – 2008 prompts higher productivity achieved by the Company after the rearrangement undertaken. However in view of the world trends and the financial crunch seems appropriate further optimization of the enterprise management to improve the financial condition of JSC “LENENERGO”.

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14.4. Risk Management 14.4.1. Financial Risks 14.4.1.1. Inflation Risk Taking into consideration world economic indicators and global trends, as well as negative impact of the credit crunch and Russian political and economic factors one cannot predict stability of the Russian economy and guarantee against inflation risks. The home economy depends on import and the gradual rouble devaluation will also provoke inflation. Inflationary expectations, devaluation and increase in rates for services provided by monopolies will be key inflation factors. Since the Company earns incomes in RUR, in case of inflation it will have to face devaluation of real value of expected incomes. All assets of the Company are subject to inflation risk. As for JSC “LENENERGO”, negative impact of inflation on the Company’s business is illustrated in the following risks: - risk of losses related to decrease in real value of receivables in case of late payment; - risk of increase in the interest payable on loans; - risk of increase in cost of goods, products, works, services caused by indexation of rates for purchase of electric power, wage indexation, and etc Forecasted inflation rate including that set by the Government of the Russian Federation for the purposes of its economic policy, are growing and the actual inflation rate exceeds the expected one. At the same time, according to major principles of state monetary policy for 2009, 2010 and 2011, its main objective for the upcoming three years is gradual decrease of inflation. On the other hand, JSC “LENENERGO” Management takes all steps to justify growth of rates in the Tariff Committee of Saint-Petersburg and in the Committee on Tariffs and Price Policy of the Leningrad Region. Moreover, inflation processes, available statistic data and position of the Government are taken into consideration in business planning of the Company. Thus, inflation risks for JSC “LENENERGO” are under control and can be estimated as moderate. The Company takes the following measures to ensure positive net profit and business efficiency: - Annual Purchasing Program implies competition of suppliers to ensure optimization of expenses on acquisition of commodities and materials; - alongside with acquisition of commodities and materials, competition basis is also applied to contractors and providers of services; - optimization of expenses is ensured by development and implementation of the cost management program; - leasing schemes are used to implement investment projects. It allows write-off of the part of indebtedness and reduce expenses of the Company on purchase of required assets.

14.4.1.2. Currency Risk Currency risk is the risk of losses caused by unfavourable change of foreign currency rates affecting foreign exchange positions. JSC “LENENERGO” doesn’t conduct foreign economic activities after the reform. Besides, JSC “LENENERGO” does not plan to conduct foreign economic activities in the future. Financial status of JSC “LENENERGO” and its liquidity, financing sources, business results do not depend 197 on change in foreign currency rates, since the way of making business implies denomination of assets and liabilities in RUR. Thus, direct impact of USD/RUR exchange rate or exchange rates of other currencies will not put great influence on financial status of the Company. Thus, JSC “LENENERGO” enjoys low currency risks, despite negative trend of RUR exchange rate due to the credit crunch. However, in case of negative impact of currency raters the Company plans to analyze the risks and make relevant decisions on a case-by-case basis.

14.4.1.3. Rate Risk Rate risk means the risk of losses caused by unfavourable change in interest rates on financial market. Amid negative impact of the world financial crisis, management of this risk becomes a burning issue for the Company. 2008 witnessed increase in refinancing rate of the Bank of Russia affecting cost of debt capital.

Period %

December 1, 2008 – 13.0

November 12, 2008 – November 30, 12.0 2008.

July 14, 2008. – November 11, 2008. 11.0

June 10, 2008. – July 13, 2008. 10.75

April 29, 2008. – June 9, 2008. 10.5

February 4, 2008. – April 28, 2008. 10.25

June 19, 2007. – February 3, 2008. 10

JSC “LENENERGO” raises various borrowed funds in compliance with its financial policy. Therefore, rate risk can affect loan policy and other financial transactions of the Company. JSC “LENENERGO” is subject to the risk of unfavourable change in interest rates on liabilities, since expenses on loans may increase with interest rates growth. JSC “LENENERGO” will also have to attract more expensive loans to finance its investment program and business. JSC “LENENERGO” risk management in this aspect implies permanent monitoring of the debt capital market aimed at debt restructuring accompanied by replacement of expensive sources by cheaper loans. JSC “LENENERGO” can take following measures in case of negative impact caused by change in percentage rates: Further optimization of the loan portfolio taking into consideration changed market indicators. For example, JSC “LENENERGO” may attract only long-term loans and borrowings in the future in order to mitigate negative impact of short-term fluctuations of interest rates. The Company may also reduce the in share of borrowings and loans in the current assets; Monitoring of loan resources market seeking more favourable loans;

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Increase in share of instruments with flat rate up to the level acceptable for the issuer; Expand number of partner banks attracting loan institutions less affected by the current credit crunch.

14.4.2. Regulatory Risks JSC “LENENERGO” core activities regulated by the government are transmission of electric power and provision of grid connection. The major risk in this regard is adoption by regulatory authorities of a decision, which contradicts to the current macroeconomic atmosphere. Deviations are due to both performance indicators (productive supply, electric loss, value of load and etc.) and with economical and financial figures (price for commodities and volume of services provided). Moreover, there is risk of change in the current regulatory environment of JSC “LENENERGO” business, which has not been taken into consideration while generating rates, but forces the Company to bear additional expenses. To minimize the risk, JSC “LENENERGO” conducts rate policy in compliance with energy legislation to bridge the gap between rate decisions and plans of the Company.

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SECTION 15. THE COMPANY’S OBJECTIVES, PROSPECTS AND STRATEGIC TASKS FOR THE NEXT YEAR

15.1. Improvement of Management and Corporate Procedures. JSC “LENENERGO” business implies a high degree of responsibility to its shareholders, investors, employees, consumers and suppliers, as well as to the government. Taking into account the responsibility, and admitting the importance of professional corporate governance to ensure successful performance and mutual understanding between the parties concerned, in 2009 JSC “LENENERGO” intends to continue enhancement of corporate governance and ensure compliance with the Code of Corporate Conduct. The company plans to increase number of meetings of the Board of Directors' Committees and issues examined by these Committees. Thus, it will help to essentially increase importance of such Committees in performance of the Board of Directors as well as to ensure efficient decision- making by the Board of Directors with respect to strategic issues ensuring effective business and development of JSC “LENENERGO”. The Company intends to keep on the active work of the Management which is a collegial executive body of the Company. Its main objective is to manage current business of the Company, work-out and presentation of perspective development plans for JSC “LENENERGO” to the Board of Directors. The Company aims to support the liquidity of JSC “LENENERGO” securities. At the same time, the Company conducts the policy of maximum transparency and openness to investors and professional participants of the securities market. These measures are expected to boost the interest of potential investors to the Company’s securities and raise additional investments. The Company permanently applies effort to improve corporate governance quality and information transparency, which has an overall positive impact on the Company value.

15.2. Resilience Control In 2008 the economy of the region serviced by JSC “LENENERGO” showed active growth. Rapid industrial development in Saint Petersburg and the Leningrad Region, active housing development (up to forth quarter of 2008), growth of natural load are the factors that lead to increased power consumption. Today, the main factor limiting sales (grid connection of power facilities) is the absence of capacity reserves in many power facilities, in particular, in Saint- Petersburg and the proximal territories of the Leningrad Region. Along with connecting new consumers, another priority of JSC “LENENERGO” in 2008 was improving the resilience of the electronic network system. New organizational and technological measures aimed at risk mitigation were developed in 2008 to improve stability of power supply. This implied determination of the scope of work for replacing switch devices, installing reclosers, restoring ground wire, and replacing bare cable with self-supporting insulated conductors until 2015. Stage one of designing the development scheme for 6-10 kilovolt electric distribution network in the Leningrad Region has been completed. Stage two is scheduled for 2009. The concept provisions for developing schematic solutions for power networks are being used in practice while implementing Agreements on Cooperation between the Administration of Saint- Petersburg, the Leningrad Region Administration the RAO UES of Russia. In order to improve stability of power supply to JSC “LENENERGO” consumers while constructing new and reconstructing the existing power network objects, state-of-the-art achievements of electric equipment manufacturers are employed. Russian enterprises producing top quality standard equipment have been gaining an increasing share in JSC “LENENERGO” investment program lately. This includes power facilities of all voltage classes, cables, equipment and materials for upgrading 0.4-10 kilovolt distribution networks, relay protection, automatic devices, and SCADA systems.

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Further objects upgrade, scheduled for 2009, is aimed at improving the stability of power supply. It includes, in particular, works on activating the transit between Severnaya 110 kilovolt substation and 90 substation (L.Lht-3, Lht-8), cable replacement on the transit between Leningradskaya 110 kilovolt substation and 28 substation with AC-300mm2 cable, reconstruction of 110 kilovolt Sosnovoborskaya-5 overhead line. 110 kilovolt Pervomayskaya # 375 , Zaporozhskaya # 304, and Tikhvin-Zapadnaya substations will be brought into service as net operating assets. The latter is expected to enhance the stability of power supply to the town of Tikhvin, which is a neighborhood center. Long-term target program to renew 35-110 kilovolt oil-filled cable lines has been developed. Its implementation will begin in 2009. Target programs to replace naked cables with self-supporting insulated conductors, install automated sectionalization points (reclosers), replace oil circuit breakers with vacuum and SF6 circuit breakers, and upgrade relay protection and automation systems, will be continued. The implementation of these and other projects in the framework of JSC “LENENERGO” investment program in 2009 is expected to enhance stability of power supply to all consumer groups, reduce the number of disturbances in power networks of all voltage classes, and create favorable conditions for further industrial and economic development of Saint-Petersburg and the Leningrad Region.

15.3. Main Economic Development Objectives JSC “LENENERGO” is a leading power industry enterprise in the North-West of Russia in terms of transmitted power and connection of new consumers to the power network infrastructure. In general, the main objectives of JSC “LENENERGO” are as follows: break-even operation and maximizing the Company’s profits; high quality, continuous power supply to consumers; unlimited connection of new consumers and power capacities to the Company’s power network infrastructure; increasing the market value of the Company (i.e. increasing its capital); enhancing the efficiency of the Company’s activity; minimization of the adverse impact of the global financial crisis on the Company’s activity; observance of all rights and lawful interests of the Company’s shareholders; setting long-term break-even power transmission rates. In order to achieve break-even operation and maximize the Company’s profits, and taking into account the impact of the global financial crisis on the activity of Russian enterprises in general, measures aimed at cutting costs and augmenting profits, developed and implemented by the Company’s management is becoming increasingly important for JSC “LENENERGO”. JSC “LENENERGO” carries out a number of various measures aimed at registering positive net profit and profit margin. The Company’s current business plan includes only minimal economically feasible expenses. Budget objectives have been set for each Financial Responsibility Centers. They are being monitored in accordance with the Company’s applicable Regulations. The performance on a budget objective influences the monthly remuneration. Further cost-cutting measures are planned in different business lines: optimizing the Company’s corporate structure; optimizing the headcount of the Corporate Center; reducing supplementary payments; cutting consulting costs; cutting corporate expenses;

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implementing the losses mitigation program adopted by the JSC “LENENERGO” Board of Directors (organization of commercial bookkeeping, identification of power thefts, replacement and reconstruction of obsolete network equipment). In accordance with the Company’s approved business plan, net profit growth is expected in 2009 against the actual figures for 2008. Cost cutting measures also contribute to the profit growth. It is noteworthy that the aforementioned cost cutting measures are realistic and do not affect the amount of provided services or resilience of power supply. Accordingly, risks from such cost cutting measures are minimal. In 2008, JSC “LENENERGO” management took best efforts to switch to long-term regulation of activities on power energy transmission using Return on Regulatory Asset Base (RAB) method implying fair (market) return on the capital employed. This regulatory system aims at definition of long-term regulating parameters, thus, facilitating the Company to attract long-term (loan and equity) capital to implement investment program under more profitable conditions than under the current regulatory system “Expenses-plus”. Valid restrictions on increase of rates for power transmission did not allow the Company to switch to the new rates regulation system in 2009. However, JSC “LENENERGO” management plans to continue cooperation with the regional regulatory bodies and with the Company's shareholders in order to speed up switch to the long- term (3-5 years) regulation according to the methods approved by the Federation Tariff Service of Russia dated June 26, 2008 # 231-e. Achievement of this strategically important task is required for successful implementation of long-term development plans of the Company as well as to meet its obligations to ensure reliable and high-quality power supply to the customers.

15.4. Quality Management System. The strategy of JSC “LENENERGO” is to be a steadily developing company that permanently improves its financial performance, increases volumes of major construction, technical upgrades and reconstruction of power facilities with regard to economic, social and other interests of its employees and population. To ensure the successful accomplishment of its strategy, in 2008 JSC “LENENERGO” Board of Directors defined the Company’s priorities, including the implementation of ISO 9000:2008 Quality Management System, ISO 14001:2004 Environmental Management System, and OHSAS 18001:200 Occupational Health and Safety Management System. The following sites have been selected as the basis (pilot) sites for implementation of the Integrated Management System: JSC “LENENERGO” Corporate Center Cable Network – a subsidiary of JSC “LENENERGO” Suburban Power Distribution Networks – a subsidiary of JSC “LENENERGO”. The aim of implementing the Integrated Management System in JSC “LENENERGO” is to improve financial performance, augment investment to power facilities with regard to economic, social and other interests of the Company, enhance process management system, and improve occupational and environmental safety. The order # 299 dated 21.08.2008 approved the implementation of the Integrated Management System in JSC “LENENERGO”. Along with the adoption and registration of the decision on development and implementation of the Integrated Management System (“On the Implementation of the Integrated Management System”) competitive purchasing procedures were initiated in accordance with the Company’s applicable Regulation on the Procedure of Authorized Purchase of Goods, Works and Services for JSC “LENENERGO” Needs. The tender for consultation services allowed the Company to select an optimal contractor (based on the price/quality ratio). The planned term of provision consulting services is until April 2011. The Integrated Management System will be implemented in two phases: 1. Development and implementation of Integrated Management System in the Corporate Center and two pilot subsidiaries: Cable Network and Suburban Power Distribution 202

Networks. Based on the results – submission of the implemented system to certification under ISO 9000, ISO 14000 and OHSAS 18000. 2. Implementation of approved design solutions in the other subsidiaries of the Company (replicating), followed by their certification. In 2009 JSC “LENENERGO” intends to continue improving corporate governance, technical policy, investment activities and resolution of strategic tasks to achieve: Enhanced stability and strength of the Company’s business; Enhanced liquidity of the Company’s business; Enhanced efficiency of the Company’s strategic management; Enhanced performance of the Company; Enhanced technical reliability of the Company; Enhanced investment appeal of the Company; Reduced risks of the Company’s operations.

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SECTION 16. CONTACTS

General Information on JSC “LENENERGO”: Full Name JSC “LENENERGO” open joint-stock company of power industry and electrification

Abbreviated Name JSC “LENENERGO”

Location ploshchad Konstitutsii 1, Saint-Petersburg, 196247, Russian Federation Individual Tax Number (INN) 7803002209 / 78345001 / Record validity Code (KPP)

Principle State Registration 1027809170300 Number (OGRN)

Bank Details Acc.. 40702810468000006106, correspondent bank acc.: 30101810200000000791 ОАО Bank VTB North-West Saint-Petersburg, BIC: 044030791 E-mail: [email protected]

Internet www.lenenergo.ru

General Director (CEO) Dmitry Vladislavovich Ryabov Reception: Phone: +7 812 331-87-95, fax: +7 812 331-87-96

Chief Accountant Galina Vladimirovna Kuznetcova phone +7 812 595-86-78; fax: +7 812 224-81-67 Corporate Secretary of the Andrey Sergeyevich Smolnikov Company Phone/fax: +7 812 595-31-76 E-mail: [email protected]

Shareholders Office Svetlana Yuryevna Morozova Phone: +7 812 494-39-09; fax: +7 812 494-33-05 E-mail: [email protected]

Investor Relations Office (IR) Artyom Victorovich Ivanov Phone: +7 812 494-74-35, fax: +7 812 595-31-76 E-mail: [email protected] [email protected] Head of Government, Public Elena Alexandrovna Mavrina Organization and Mass Media Phone: +7 812 494-39-12, fax: +7 812 494-39-12 Relations Service E-mail: [email protected]

Head of Tender Office Tatiana Grigorievna Victorova Phone: +7 812 595-33-47, fax> +7 812 493-90-08 E-mail: [email protected]

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Hot Line Phone: +7 812 595-86-62, fax: +7 812 595-86-26

General Information on the Company’s Auditor: Full Name of the Official Auditor Fineart-Audit limited liability company (equals to OOO in Russian)

Abbreviated Name of the Official Auditor OOO Fineart-Audit

Legal Address Russian Federation, 119607, Moscow, ul. Udaltsova 60

Actual Address Russian Federation, 119607, Moscow, ul. Udaltsova 60 Phone +7 495 431-99-70

Certificate of State Registration # 128 series ОB registration number 5128

Entered in the Single state register of Principle State Registration Number (PSRN) legal entities 1024001183898 Certificate series 40 # 000224832

Email: [email protected]; [email protected]

License # Е 006407 (Order # 250 of the Russian Ministry of Finance dated 07.09.2004)

Membership in the Accredited Moscow audit chamber. Member certificate # 1531 Professional Audit Association

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The opinion of the JSC “LENENERGO” Internal Audit Commission according to the results of 2008

Moscow April 10, 2009

In accordance with the decision of the Internal Audit Commission (the minutes of the meeting dated 16.02.2009 #4) the commission consisting of: Irina Vasilievna Mihno, the chairman of the Internal Audit Commission, and the members of the Internal Audit Commission Ms. Lelekova M.A., Shelkoviy V.V. and Korepanova N.V. has conducted the audit of the financial and business activities of JSC “LENENERGO” according to the results of 2008. The auditor of JSC “LENENERGO” is Fineart-Audit", chosen by the General Shareholders Meeting (the minutes of the meeting dated 09.06.08 #01/08), has conducted the audit of the accounting reports of the Company for the period from January 1, 2008 to December 31, 2008 (audit report dated February 22, 2009). According to the auditor, the accounting reports of JSC “LENENERGO” reflects accurately and in all material respects the financial status as of December 31, 2008 and the results of the financial and business activities for the period from January 1, 2008 to December 31, 2008 inclusively in accordance with the requirements of the Russian Federation legislation as related to preparation of the accounting reports. The audit was conducted from March 25 to April 5, 2009. The audit of the provided original documents has been conducted with the use of the sampling method. For 2008 the Company has acquired the revenue from realization of goods and services in the amount of RUR 20,828 mln., including the revenue from transmission of electric power – RUR 15,064 mln. The prime cost of the realized goods, works and services amounted to RUR 17,680 mln., particularly: transportation of electric power – RUR 16,611 mln. The sales profit of the accounting period amounted to RUR 3,148 mln. The other expenses amounted to RUR 1,695 mln., the other revenues amounted to RUR 832 mln. With account of tax liabilities the net profit of the Company for 2008 amounted to RUR 1,540 mln. As of 01.01.2009 the total amount of the accounts receivable in comparison with the beginning of the year has been increased for RUR 3,440 mln. and amounted to RUR 12,968 mln., which includes: - advances made (repayment date is more than in 12 months) – RUR 1,734 mln.: - advances made (repayment date is within 12 months from the accounting date) – RUR 5,753 mln.: - buyers and customers – RUR 1,697 mln.; - other receivables – RUR 1,550 mln.. As of 01.01.2009 the accounts payable in comparison with the beginning of 2008 has been increased for RUR 49,266 mln. and amounts to RUR 19,172 mln., which includes: - debt to vendors and contractors – RUR 3,716 mln.: - advances received – RUR 14,581 mln. The debt under long-term liabilities of the Company has been increased for RUR 90 mln. and amounts to RUR 11,932 mln. consisting of: credits in the amount of RUR 4,900 mln. and loans in the amount of RUR 6000 mln. The debt under the short-term loans and credits has been increased for RUR 66 mln. and amounts to RUR 11,932 mln. Balance sheet assets of the Company as of December 31, 2008 amounted to RUR 76,688 mln. The analysis of financial condition of the Company as of 01.01.2009 indicates deterioration of the general financial indicators and financial condition in whole. The financial condition of the Company is unsatisfactory.

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On the basis of the performed audit and with account of the opinion of the Company’s auditor the Internal Audit Commission has sufficient reasons for confirmation of data reliability, which contains in the Annual Report of the Company and annual accounting reports.

The Chairman of the Internal Audit Commission JSC “LENENERGO” I.V. Mihno

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Report of the Company's Auditor

Fineart-Audit ______

Audit report on financial (accounting) reporting of JSC “LENENERGO” according to the results of 2008

1. We have performed the audit of the provided financial (accounting) reporting of JSC “LENENERGO” for the period from January 1 to December 31, 2008 inclusively. The financial reporting consists of the following items:

 Balance sheet (form #1);  Profits and losses report (form #2);  Statement of changes in equity (form #3);  Statement of cash receipts and disbursements (form #4);  Attachments to the balance sheet (form #5);  Explanatory notes.

The abovementioned reporting has been prepared by the management of JSC “LENENERGO” in accordance with the norms and regulations, established by the Federal law dated 21.11.1996 # 129-F3 “Regarding accounting”, provisions for accounting, regulation of the Ministry of finance of the Russian Federation dated 22.07.2003 # 67n “Regarding the forms of the companies’ accounting reporting” and other statutory acts of the Russian Federation which regulate the procedure of accounting and drafting of the accounting reporting.

2. The responsibility for drafting and provision of the abovementioned accounting reporting lies with the Corporate Center of JSC “LENENERGO”. Our responsibility is to express our opinion regarding reliability with regard to all essential items of the present reporting and conformity of the procedure of accounting with the legislation of the Russian Federation on the basis of the performed audit.

3. We have performed the audit in accordance with the Federal law dated 30.12.2008 # 307-F3 “Regarding audit business”, Federal rules (standards) of audit business, approved by the Regulation of the government of the Russian Federation dated 23.09.2002 # 696 (as amended and updated further); internal rules (standards) of the accredited professional audit association of the Moscow audit chamber, and internal standards of the audit company. It has been planned to conduct the audit in such a way which would help to be reasonably confident that the financial (accounting) reporting does not contain substantial distortions. The audit has been performed according to the abovementioned plan. The audit has been performed with the use of the sampling method and included examination on the basis of testing of the evidences which confirm numerical indices, disclosure of information on financial and business activities in the financial (accounting) reporting, evaluation of observance of the accounting rules and regulations which are used for drafting of the financial (accounting) reporting, review of the major evaluating indices received by the management of the auditee as well as the evaluation of the financial (accounting) reporting provision. We believe that the performed audit will provide sufficient grounds to express our opinion regarding reliability of the financial (accounting) reporting.

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Appendix # 1 to the Annual Report of the JSC “LENENERGO” for 2008

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Appendix # 2 to the Annual Report of the JSC “LENENERGO” for 2008

INFORMATION ON THE COMPANY’S COMPLIANCE WITH THE CORPORATE BEHAVIOR CODE

Provision Observed or # Comments of the Corporate Behavior Code not observed Shareholders Meeting 1. The shareholders should be notified on a coming observed In accordance with Item 11.5 of Art. 11 general shareholders meeting no later than 30 of the Company’s Bylaw, the days before its start, regardless of the issues announcement on the coming General included into its agenda, in the event that the law Shareholders Meeting shall be sent or does not provide for a greater term. handed to each person listed as entitled to participate in the General Shareholders Meeting, published by the Company in the Nevskoye Vremya newspaper, and placed on the website of the Company no later than 30 days before its date. In the event that the agenda of the coming extraordinary General Shareholders Meeting includes the election of the members of the Board of Directors, the announcement on the coming extraordinary General Shareholders Meeting should be made no later than 70 days before its date (Item 11.5 of Art. 11, Subitem 14.7.4 of Item 14.7 of Art. 14 of the Company’s Bylaw).

2. The shareholders should have full access to the observed Neither the Company’s Bylaw nor its list of persons who are entitled to participate in internal documents restrict the access of the general shareholders meeting, starting from the shareholders to the list of persons the date of announcement on the coming meeting entitled to participate in the General and until the closing date of the meeting, or in Shareholders Meeting. the event of a meeting in absentia, until the date In accordance with Item 4 of Art. 51 of when voting ballots are no longer accepted. the Federal Law “On Joint-Stock Companies”, “The list of persons entitled to participate in the General Shareholders Meeting, shall be provided by the company to the persons listed in it and having no less than 1 per cent of the votes, at their request”. This requirement is observed by the Company.

3. The shareholders should have full access to the observed In accordance with Item 11.7 of Art. 11 information which needs to be provided to them of the Company’s Bylaw, the for the preparation for a general shareholders information (documents) on the issues meeting, by means of electronic communication listed in the agenda shall be accessible to facilities, including the Internet. the persons entitled to participate in the

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General Shareholders Meeting, in the building of the Corporate Center body of the company, or other places indicated in the announcement on the coming General Shareholders Meeting, no later than 20 days before the General Shareholders Meeting, or, in the event that the reorganization of the Company shall be discussed, no later than 30 days before the General Shareholders Meeting. Information and documents concerning the agenda of the General Shareholders Meeting shall be placed on the website of the Company no later than 10 days before the General Shareholders Meeting.

4. An individual shareholder should have an observed In accordance with Item 13.2 of Art. 13 opportunity to bring an issue to the agenda of a of the Company’s Bylaw, proposals to general shareholders meeting, or claim for a include issues into the agenda of the general shareholders meeting without presenting General Shareholders Meeting, and an extract from the register of shareholders, in proposals on candidates shall be made in the event that his rights for shares are stipulated writing and contain the name of the in the register of shareholders; in the event that shareholder/shareholders who his rights for shares are registered for a custody makes/make the proposal, amount and account, an extract from the custody account type of the shares they own, and signed would be sufficient for the implementation of the by the shareholder/shareholders. above mentioned right. Proposals to include issues into the agenda of the General Shareholders Meeting should contain the wording of each proposed issue, and proposals on candidates should contain the name of each candidate, and the body to which he or she is proposed. Proposals to include issues into the agenda of the General Shareholders Meeting may also contain a decision to every suggested issue. The company shall verify the information on the shares which belong to the shareholder, which is contained in the register of the Company’s shareholders. In the event that his rights for the shares are registered at a custody account, he should provide an extract from the custody account.

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5. The bylaw or internal documents of the joint- not observed Neither the Bylaw nor internal stock company should require that the General documents of the Company require the Director, members of the Management Board, presence of the said persons at the members of the Board of Directors, members of General Shareholders Meetings of the the Internal Audit Commission, and the Auditor Company. of the company should be mandatorily present at The General Director of the Company is the general shareholders meetings. always present at the General Shareholders Meetings of the Company. Other persons are normally also present at the General Shareholders Meetings of the Company.

6. The candidates for the Board of Directors, not observed Neither the Bylaw nor internal General Director, Management Board, Internal documents of the Company require the Audit Commission, Auditor of the joint-stock mandatory presence of the candidates at company should be mandatorily present at the the election of the members of the Board elections for the appropriate positions. of Directors, members of the Internal Audit Commission, or at the endorsement of the Auditor of the Company. In accordance with Subitem 41 of Item 15.1 of Art. 15 of the Company’s Bylaw, the election of the General Director and early termination of his employment contract pertains to the competence of the Board of Directors of the Company. In accordance with Subitem 49 of Item 15.1 of Art. 15 of the Company’s Bylaw, decisions on the composition of the Management Board, election of its members and early termination of their employment contracts pertain to the competence of the Board of Directors of the Company.

7. The internal documents of the joint-stock observed The persons who are entitled to company should provide for the registration participate in the General Shareholders procedure of the participants of the general Meeting are registered in accordance shareholders meeting. with Item 5.1 of the Provision on the Preparation for the General Shareholders Meeting of JSC “LENENERGO”. Board of Directors 8. The bylaw of the joint-stock company should observed In accordance with Subitem 17 of Item entitle the Board of Directors to endorse the 15.1 of Art. 15 of the Company’s Bylaw, annual financial and economic plan of the the competence of the Board of company. Directors includes the endorsement of business plan (amended business plan) and the report on its fulfillment.

9. The company should have a risk management not observed None of the internal documents of the procedure endorsed by the Board of Directors. Company contains provisions on the procedure of risk management. In 2008, the Company developed the Standard of Estimation for different groups of risks. The Standard is planned for endorsement

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by the Board of Directors in 2009.

10. The bylaw of the joint-stock company should not applicable In accordance with Subitem 41 of Item entitle the Board of Directors to carry out a 15.1 of Art. 15 of the Company’s Bylaw, decision to suspend the authority of the Director the election of the General Director of General who was appointed by the general the Company and early termination of shareholders meeting. his employment contract pertains to the competence of the Board of Directors of the Company.

11. The bylaw of the joint-stock company should observed The criteria and amount of compensation entitle the Board of Directors to stipulate the to the General Director are stipulated by requirements to the proficiency and the appropriate employment contract and compensation of the General Director, members the Provision on the Monetary of the Management Board, managers of the main Stimulation which was endorsed by the structural units of the joint-stock company. Company’s Board of Directors. The employment contract with the General Director is signed in the name of the Company by the Chairman of the Board of Directors or another person authorized by the Board of Directors. The conditions of the employment contract are determined by the Board of Directors or another person entitled to sign the employment contract by the Board of Directors (Item 21.13, Item 21.14 of Art. 21 of the Company’s Bylaws). The General Director of the Company shall be awarded depending on compliance with the key performance index for report periods (quarter and year).

The employment contract with the members of the Management Board is signed in the name of the Company by the Chairman of the Board of Directors or another person authorized by the Board of Directors. The conditions of the employment contract are determined by the Board of Directors or another person entitled to sign the employment contract by the Board of Directors (Item 21.13, Item 21.14 of Art. 21 of the Company’s Bylaws). By the decision of the Board of Directors of August 22, 2008, the Chairman of the Board of Directors of JSC “LENENERGO” is entitled to determine the size and payment procedures of the remuneration and compensation to the members of the Management Board of the Company.

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12. The bylaw of the Company should entitle the observed In accordance with Item 21.14 of Art. 21 Board of Directors to endorse the conditions of of the Company’s Bylaw, the conditions the contracts with the General Director and of the employment contract with the members of the Management Board. General Director and the members of the Management Board, including the terms of offices, are determined by the Board of Directors or the person entitled to sign employment contracts by the Board of Directors.

13. The bylaw or internal documents of the joint- not observed These requirements are not envisaged by stock company should contain a requirement that the bylaw or internal documents of the the votes of those members of the Board of Company. Directors who are simultaneously the General Director and members of the Management Board, shall not be counted when voting on the conditions of the contract with the General Director (or the management company, or general manager). 14. The Board of Directors should include no less observed All members of the Board of Directors than three independent directors who comply comply with the requirements of the with the requirements of the Code of Corporate Code of Corporate Behavior. Behavior. 15. The Board of Directors should not include any observed There are no such members in the Board members who have been found guilty of of Directors. economic crimes, state crimes, crimes against state or municipal authorities, or violations in the spheres of entrepreneurship or finance, taxes and dues, securities market.

16. The Board of Directors should not include any observed There are no such members in the Board members who are participants, General Directors of Directors. (general managers), members of the Corporate Center body, or employees of a legal entity which is a competitor of the joint-stock company. 17. The bylaw of the joint-stock company should observed In accordance with Item 16.3 of Art. 16 stipulate that the Board of Directors shall be of the bylaw of the Company, the elected by cumulative voting. members of the Board of Directors are elected by cumulative voting. 18. The internal documents of the joint-stock observed In accordance with Item 15.3 of Art. 15 company should contain a provision which of the Company’s Bylaw, and Item 3.5 obliges the members of the Board of Directors to of the Provision on the Summoning and abstain from any activities which could Conduction of the meetings of the Board potentially lead to a conflict between their of Directors of JSC “LENENERGO”, interests and the interests of the company, and in the members of the Board of Directors the event that such conflict has occurred, they should act in the interests of the would be obliged to disclose the information on Company when performing their this conflict to the Board of Directors. activities; they should implement their rights and perform their duties with regard to the Company conscientiously and sensibly.

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19. The internal documents of the joint-stock not observed This requirement is not envisaged by the company should stipulate that the members of internal documents of the Company. the company’s Board of Directors are obliged to However, the Company requests the notify the Board of Directors on their intention to information on the members of the perform transactions with the securities of this Board of Directors every quarter, joint-stock company, or its subsidiaries, and including information on transactions disclose information on the transactions with with the securities of the joint-stock such securities which they have already company, in which they act as members performed. of the Board of Directors, or its subsidiaries or dependent companies, and disclose the information on transactions with such securities. In accordance with Item 4.2 of Art. 4 of the Provision on Internal Information, the insiders are obliged to provide a written declaration of their transactions with the securities of the Company or its subsidiaries or dependent companies for the report month, into the structural unit which controls the use of internal information.

20. The internal documents of the joint-stock not observed In accordance with Item 18.1 of Art. 18 company should contain the requirement to hold of the Bylaw of the Company, and Item a meeting of the Board of Directors at least once 5.1 of the Provision on the Summoning in every six weeks. and Conduction of the meetings of the Board of Directors of JSC “LENENERGO”: the meetings of the Board of Directors are held as necessary, but at least once every quarter.

21. The meetings of the Board of Directors of the observed Sixteen meetings of the Board of joint-stock company should be held at least once Directors were held in the report year. in every six weeks within the year of the annual The meetings of the Company’s board of report. Directors are held at least once every month.

22. The internal documents of the joint-stock observed The conduction procedure for the company should stipulate the procedure of the meetings of the Board of Directors is meetings of the Board of Directors. stipulated in Art. 18 of the Bylaw of the Company, and in the Provision on the Summoning and Conduction of the Board of Directors of JSC “LENENERGO”.

23. The internal documents of the joint-stock observed In accordance with Subitem “a” of company should require that the Board of Subitem 35 of Item15.1 of Art. 15 of the Directors must mandatorily endorse transactions Company’s Bylaw, the competence of performed by the joint-stock company for a sum the Board of Directors includes the of 10 or more per cent of the value of the preliminary endorsement of decisions on company’s assets except for the transactions the transactions performed by the performed as part of the company’s normal Company which involve non-circulating economic activities. assets of the Company of 10 or more per cent of the book value of the non- circulating assets of the Company as of the date on which the decision on the

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transaction is made.

In accordance with Subitem 7 of Item 21.6 of Art. 21 of the Company’s Bylaw, the competence of the Management Board includes preliminary endorsement of decisions on the transactions performed by the Company, which can be valued between 5 and 25 per cent of the book value of the Company’s assets, as of the date on which the decision on the transaction is made.

24. The internal documents of the joint-stock partially In accordance with Subitem 1 of Item company should entitle the members of the observed 3.1, Item 3.2 of Art. 3 of the Provision Board of Directors to receive the information on the Summoning and Conduction of necessary for them to perform their duties, from the meetings of the Board of Directors of the Corporate Center bodies and heads of the JSC “LENENERGO”, the members of company’s main structural units, and the Board of Directors are entitled to: responsibility for non-provision of this information. receive information on the activities of the Company, including commercial secrets of the Company, have access to the articles of association as well as all accounting, legal, report, contract, and other documents of the company in compliance with Russia’s legislation and internal documents of the Company;

However, none of the internal documents of the Company provides for the liability of the Corporate Center bodies or heads of the main structural units for non-provision of information to the members of the Board of Directors of the Company.

25. There Committee for Strategic Planning of the observed The functions of the Committee for Board of Directors should be created; the Strategic Planning of the Board of functions of this committee could be Directors are performed by the alternatively fulfilled by a different committee Committee for Strategy and (except for the Auditing Committee and the Development of the Board of Directors Committee for HR and Remuneration). of JSC “LENENERGO”. 26. The Auditing Committee of the Board of observed The Auditing Committee of the Board of Directors should be created, which would Directors of JSC “LENENERGO” was recommend candidates for the Auditor of the created by the decision of the Board of joint-stock company to the Board of Directors Directors (Record # 2 of 27.08.2008). and cooperate with the Board of Directors and the Internal Audit Commission of the company. 27. The Auditing Committee should only include observed All members of the Auditing Committee independent non-Corporate Center directors. of JSC “LENENERGO” are independent non-Corporate Center directors. 28. The Auditing Committee should be headed by an observed The Chairman of the Auditing independent director. Committee of JSC “LENENERGO”’s Board of Directors is an independent

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non-Corporate Center director.

29. The internal documents of the joint-stock observed In accordance with Subitem 2 of Item company should entitle all members of the 4.1 of Art. 4 of the Provision on the Auditing Committee to access all documents and Auditing Committee of the Board of information of the company on the condition that Directors of JSC “LENENERGO”, all they observe the secrecy of confidential members of the Committee are entitled information. to request and receive the information and documents , which are necessary for them to perform their duties, from the General Director and functionaries of the Company. In accordance with Item 12.1 of Art. 12 of the Provision of the Auditing Committee of the Board of Directors of JSC “LENENERGO”, the members of the Committee and third persons, who are involved in its activities, must observe the secrecy of confidential information during their employment in the Committee, and within one year after their dismissal with regard to the information which they obtain in connection with their duties, and which does not pertain to public access. 30. The Committee for HR and Remuneration of the observed The Committee for HR and Board of Directors should be created, which Remuneration of the Board of Directors would define the criteria to select the candidates of JSC “LENENERGO” was created by for the Board of Directors, and draw up the the decision of the Board of Directors policies of the company with regard to (Record # 2 of 27.08.2008). remuneration and compensation. 31. The Committee for HR and Remuneration observed The Chairman of the Committee for HR should be headed by an independent director. and Remuneration of JSC “LENENERGO”’s Board of Directors is an independent director. 32. The Committee for HR and Remuneration observed The Committee for HR and should not include any functionaries of the joint- Remuneration of the Board of Directors stock company. of JSC “LENENERGO” does not include any functionaries of the Company. The Committee is exclusively comprised of the members of the Company’s Board of Directors.

33. The Committee of the Board of Directors for not observed The Committee of the Board of Risk Management should be created; the Directors for the Risk Management in functions of this committee could alternatively the Company has not been created. be performed by a different committee (except for the Auditing Committee and the Committee for HR and Remuneration).

34. The Committee of the Board of Directors for the not observed The Committee of the Board of Settlement of Corporate Disputes should be Directors for the Settlement of Corporate created; the functions of this committee could Disputes has not been created. alternatively be performed by a different committee (except for the Auditing Committee and the Committee for HR and Remuneration).

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35. The Committee for the Settlement of Corporate not applicable The Committee of the Board of Disputes should not include any functionaries of Directors for the Settlement of Corporate the joint-stock company. Disputes has not been created.

36. The Committee for the Settlement of Corporate not applicable The Committee of the Board of Disputes should be headed by an independent Directors for the Settlement of Corporate director. Disputes has not been created.

37. The Board of Directors should endorse internal observed The main provisions which regulate the documents which would provide for the formation and functioning of the formation and functioning of the committees of Committees of the Board of Directors the Board of Directors. are stipulated in Art. 19 of the Company’s Bylaw. These main provisions are: - Provision on the Committee for Strategy and Development of the Board of Directors of JSC “LENENERGO”; - Provision on the Committee for HR and Remuneration of the Board of Directors of JSC “LENENERGO”; - Provision on the Auditing Committee of the Board of Directors of JSC “LENENERGO”; - Provision on the Committee for Reliability of the Board of Directors of JSC “LENENERGO”; - Provision on the Committee for Grid Connection of the Board of Directors of JSC “LENENERGO”.

38. The bylaw of the joint-stock company should not observed In accordance with Item 18.9 of Art. 18 stipulate how the quorum of the Board of of the Company’s Bylaw, and Item 7.3 Directors could be defined, which would make it of Art. 7 of the Provision on Summoning possible to guarantee the mandatory participation and Conduction of the Meetings of the of independent directors in the meetings of the Board of Directors of JSC Board of Directors. “LENENERGO”, the quorum for a meeting of the Board of Directors shall be no less than a half of the elected members of the Board of Directors. All members of the Board of Directors comply with the independence requirement.

Corporate Center Bodies 39. The joint-stock company should have a observed Item 9.1 of Art. 9, Art. 21 of the Bylaw collective Corporate Center body. provide for a collective Corporate Center body, the Management Board.

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40. The bylaw of the joint-stock company should observed In accordance with Subitem 8 of Item contain a provision stipulating that the 21.6 of Art. 21 of the Company’s Bylaw, Management Board must endorse all transactions the endorsement of such transactions with real property, loans, in the event that these may be brought for discussion into the transactions are not large-scale transactions, and Management Board by the General they do not pertain to the regular economic Director of the Company. activities of the joint-stock company. In accordance with Subitem 7 of Item 21.6 of Art. 21 of the Company’s Bylaw, the Management Board is entitled to decide on the transactions which include property or services valued at a price between 5 and 25 per cent of the book value of the Company’s assets, taken as of the date on which the decision on the transaction was made.

41. The internal documents of the joint-stock not observed The internal documents of the Company company should regulate the procedure of do not regulate the procedure of endorsement for the operations which are not endorsement for the operations which listed in the business plan of the joint-stock are not listed in the business plan of the company. joint-stock company. However, in accordance with the Company’s internal regulations, the General Director must report on the compliance with the Company’s business plan and the plan for cash transfer, investment program, on the use of the money which was received for grid connection, and on the fulfillment of the decisions made by the Board of Directors and the General Shareholders Meeting. 42. The Corporate Center bodies of the company observed The General Director and the members should not include any members who are of the Management Board of the participants, General Directors (general Company are not members of the managers), members of the Corporate Center Corporate Center body, or employees of body, or employees of a legal entity which is a a legal entity which is a competitor of competitor of the joint-stock company. the joint-stock company. Neither the Bylaw nor internal documents of the Company contain such requirements to the General Director and members of the Management Board of the Company.

43. The Corporate Center bodies of the company observed Neither the General Director nor the should not include any members who have been members of the Management Board have found guilty of economic crimes, state crimes, been found guilty of economic crimes, crimes against state or municipal authorities, or state crimes, crimes against state or violations in the spheres of entrepreneurship or municipal authorities, or violations in the finance, taxes and dues, securities market. In the spheres of entrepreneurship or finance, event that the functions of the management body taxes and dues, securities market. are performed by a management company, the General Director and the members of the Management Board of the management company should comply with the same requirements which are mandatory for the General Director

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and members of the Management Board of the joint-stock company.

44. The bylaw or internal documents of the company not observed Neither the Bylaw nor internal should contain a prohibition for the management documents of the Company contain such company (general manager) to perform similar requirements to the management duties in a competitive company, or enter into company or general manager of the any relationships with the joint stock companies Company. other than external management services. The functions of the Corporate Center body of the Company have never been transferred to another company or an external general manager. 45. The internal documents of the joint-stock not observed Neither the Bylaw nor internal company should contain a provision which documents of the Company contain such obliges the members of the Corporate Center requirements to the General Director and bodies to abstain from any activities which could members of the Management Board of potentially lead to a conflict between their the Company. interests and the interests of the company, and in However, in accordance with Items the event that such conflict has occurred, they 21.22, 21.23 of Art. 21 of the Bylaw of would be obliged to disclose the information on the Company: this conflict to the Board of Directors. The General Director, Acting General Director, members of the Management Board, and the management company (general manager) should act in the interests of the Company when performing their activities; they should implement their rights and perform their duties with regard to the Company conscientiously and sensibly. The General Director, Acting General Director, members of the Management Board, and the management company (general manager) shall be liable towards the Company for the losses caused by their culpable activities (inactivity), in the event that another responsibility is not envisaged by federal laws.

46. The bylaw or internal documents of the joint- observed The criteria for selecting a management stock company should stipulate the criteria for company (general manager) are listed in the selection of the management company Art. 10 of the Provision on the (general manager). Summoning and Conduction of the Meetings of the Board of Directors of LENENENRGO. The functions of the Company’s Corporate Center body have never been transferred to a management company or a general manager.

47. The Corporate Center bodies of the company not observed The General Director reports to the should provide monthly reports on their Board of Directors on the economic and performance to the Board of Directors. financial activities of the Company every quarter.

48. The contracts which regulate the relationships observed In accordance with Item 21.23 of Art. 21 between the joint-stock company and the of the Company’s Bylaw, The General

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General Director (management company, general Director, Acting General Director, manager) should envisage responsibility for members of the Management Board, and violations of the use of confidential and the management company (general restricted information. manager) shall be liable towards the Company for the losses caused by their culpable activities (inactivity), in the event that another responsibility is not envisaged by federal laws.

In accordance with Item 5.1 of Art. 5 of the Provision on Internal Information of JSC “LENENERGO”, unlawful spreading or use of internal information shall entail disciplinary or civil liability in compliance with the conditions of the appropriate employment contracts with the Company and the current legislation, or civil or criminal liability in compliance with the current legislation.

These provisions are also contained in the employment contracts with the General Director and members of the Management Board of the Company. Company’s secretary 49. The joint-stock company should have a special observed The Company has a Corporate Secretary functionary (company’s secretary) who would be who guarantees the observance of the obliged to guarantee the observance of procedures of the preparation and procedures and requirements by the bodies and conduction of General Shareholders functionaries of the company, as well as the Meetings, activities of the Board of lawful interests of the company’s shareholders. Directors of the Company. In accordance with Item 20.1 of Art. 20 of the Bylaw, “the Corporate Secretary can be elected who shall guarantee the observance of the procedures of the preparation and conduction of General Shareholders Meetings, activities of the Board of Directors of the Company”. The Provision on the Corporate Secretary of the Board of Directors was endorsed by the decision of the Board of Directors of the Company (Record # 22 of 21.05.2007).

50. The bylaw or internal documents of the joint- observed Items 20.1 and 20.5 of Art. 20 of the stock company should contain regulations on the Bylaw of the Company, Art. 3 of the appointment (election) procedure for the Provision on the Corporate Secretary of company’s secretary, and the duties of the the Board of Directors, Art. 4 of the company’s secretary. Provision on the Summoning and Conduction of the meetings of the Board of Directors. 51. The bylaw of the company should contain not observed The Bylaw and internal documents of requirements to the candidates for the company’s the Company do not stipulate any secretary. requirements to the candidates for the position of Corporate Secretary.

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Essential Corporate Activities 52. The bylaw or internal documents of the joint- observed Item 10.1 of Art. 10 and Subitem 23 of stock company should require that major Item 15.1 of Art. 15 of the Bylaw of the transactions should be endorsed before they are Company effected.

53. The bylaw or internal documents of the joint- observed Subitem 37 of Item 15.1 of Art. 15 of the stock company should require that an Bylaw of the Company independent valuer should be mandatorily employed to determine the market value of the property which is subject to a large transaction.

54. The bylaw of the joint-stock company should not observed This prohibition is not envisaged by the prohibit any activities aimed at protecting the Bylaw of the Company. interests of the Corporate Center bodies (or members of these bodies) and members of the Board of Directors of the joint-stock company, as well as any activities which may worsen the state of the shareholders in comparison with their current state (in particular, the Board of Directors should not be entitled to issue additional securities convertible into shares or securities, which entitle the holder to purchase the shares of the company, before the end of the suggested term for purchasing the shares, even if the bylaw of the company allows for this), when purchasing large holdings of shares of the joint- stock company (takeover).

55. The bylaw or internal documents of the joint- not observed The shares of the Company have stock company should require that an undergone the listing procedure and are independent valuer should be mandatorily included in the quoted list B of Russia’s employed to determine the current market value FB MMVB stock exchange, and in the of the company’s shares and possible changes to quoted list A level 2 of the RTS stock this value after the takeover. exchange, where their current market value is determined. 56. The bylaw of the joint-stock company should not observed This requirement is not envisaged by the exempt the purchaser from the obligation to Bylaw of the Company. enable the shareholders to sell their ordinary shares of the company (or securities convertible into ordinary shares) in the event of a takeover.

57. The bylaw or internal documents of the joint- observed Subitem 37 of Item 15.1 of Art. 15 of the stock company should require that an Bylaw of the Company independent valuer should be mandatorily employed to determine the conversion rate of the shares after the reorganization.

Disclosure of Information 58. The Board of Directors should endorse an observed The Board of Directors endorsed the internal document which regulates the approach Provision on the Information Policies of of the joint-stock company to the disclosure of JSC “LENENERGO” (Record # 6 of information (Provision on the Information 09.12.2008). Policies).

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59. The internal documents of the joint-stock not observed This requirement is not envisaged by the company should contain a requirement to internal documents of the Company. disclose the information on the aims of the placement of shares, on the persons who intend to purchase the placed shares, including large holdings of shares, and whether the supreme functionaries of the joint-stock company will participate in the purchasing of the placed shares of the company.

60. The internal documents of the joint-stock not observed The Bylaw of the Company does not company should contain a list of information contain a list of such information. which is deemed necessary for the shareholders The list of information, documents and to decide on the issues brought for discussion at materials which are to be provided to the a general shareholders meeting. shareholders for their decisions on the issues which are brought for discussion at a general shareholders meeting, shall be determined and endorsed by the Board of Directors of the Company. In accordance with Item 11.7 of the Bylaw of the Company, this information shall be accessible to the persons entitled to participate in the General Shareholders Meeting, in the building of the Corporate Center body of the company, or other places indicated in the announcement on the coming General Shareholders Meeting, no later than 20 days before the General Shareholders Meeting, or, in the event that the reorganization of the Company shall be discussed, no later than 30 days before the General Shareholders Meeting. Information and documents concerning the agenda of the General Shareholders Meeting shall be placed on the website of the Company no later than 10 days before the General Shareholders Meeting.

61. The joint-stock company should have a website observed The website of the Company is located on which the information on the joint-stock at: www.lenenergo.ru. Company should be regularly published. The information on the Company shall be placed on the website of the Company in accordance with Items 11.5, 11.7 of Art. 11 of the Bylaw of the Company, in accordance with Items 5.1.2, 5.2.2 of Art. 5 of the Provision on the Information Policies of JSC “LENENERGO”.

62. The internal documents of the joint-stock not observed This requirement is not envisaged by the company should require that the information on internal documents of the Company. the transactions between the joint-stock company and the persons who, in accordance with the bylaw, pertain to the supreme functionaries of

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the company, as well as on the transactions between the company and the entities, in which the supreme functionaries own 20 or more per cent of the joint-stock company’s charter capital, and which may be substantially influenced by such persons.

63. The internal documents of the joint-stock observed Subitem 4.3.7 of Item 4.3 of Art. 4 of the company should mandate the disclosure of Provision on the Information Policies of information on all transactions which may JSC “LENENERGO”. influence the market value of the joint-stock company’s shares. 64. The Board of Directors should endorse an observed The Company has a Provision on internal document which shall regulate the use of Internal Information which was endorsed substantial information on the functioning of the by the decision of the Board of Directors joint-stock company, shares and other securities (Record # 13 of 28.02.2006). of the company and transactions with these shares and securities, which is not accessible to general public, and the disclosure of which may substantially influence the value of the shares and other securities of the joint-stock company.

Control over Financial and Economic Activities 65. The Board of Directors should endorse the observed The Company has a Internal Control and procedures of internal control over the financial Audit Service which functions on the and economic activities of the joint-stock basis of the Provision on the Procedures company. of Internal Control of JSC “LENENERGO” which was endorsed by the Company’s Board of Directors on 09.12.2008. (Record # 6 of December 9th, 2008). In accordance with Art. 22 of the Bylaw of the Company, the control over the financial and economic activities of the Company is implemented by the Internal Audit Commission of the Company and the Auditor of the Company.

66. The joint-stock company should have a special observed The Company has a Internal Control and subdivision which controls the observance of the Audit Service which functions on the procedures of internal control (Internal Control basis of the Provision on the Procedures and Audit Service). of Internal Control of JSC “LENENERGO” which was endorsed by the Company’s Board of Directors on 09.12.2008. (Record # 6 of December 9th, 2008).

67. The internal documents of the joint-stock not observed These requirements are not stipulated by company should require that the structure and the bylaw or internal documents of the composition of the Internal Control and Audit Company. Service is determined by the Board of Directors.

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68. The Internal Control and Audit Service of the observed The Company has a Internal Control and company should not include any members who Audit Service. Its employees comply have been found guilty of economic crimes, state with these requirements. crimes, crimes against state or municipal authorities, or violations in the spheres of entrepreneurship or finance, taxes and dues, securities market.

69. The Internal Control and Audit Service should observed The Company has a Internal Control and not include any members who are participants, Audit Service. Its employees comply General Directors (general managers), members with these requirements. of the Corporate Center body, or employees of a legal entity which is a competitor of the joint- stock company.

70. The internal documents of the joint-stock partially In accordance with Subitem 6.1.2 of company should entitle the members of the observed Item 6.1 of Art. 6 of the Provision on the Department of Internal Control and Audit to Procedures of Internal Control of JSC receive the information necessary for them to “LENENERGO”, the necessary evaluate the financial or economic operation, documents shall be submitted by the from the Corporate Center bodies and heads of heads of the Company’s divisions, the company’s main structural units, and branches and representation offices responsibility for non-provision of this within 3 days upon request of the information. Department of Internal Control and Audit. In accordance with the annual/quarterly plan, the General Director, or the person authorized by the General Director, shall issue an internal order on the coming inspection by the Department of Internal Control and Audit. As a rule, the terms of providing the necessary information are also stipulated by the Order.

71. The internal documents of the joint-stock observed Subitem 6.1.4 of Item 6.1 of Art. 6 of the company should oblige the Control Auditing Provision on the Procedures of Internal Service to report violations to the Auditing Control. Committee, or, in the event that such committee is nonexistent, to the Board of Directors of the company.

72. The bylaw of the joint-stock company should not observed This requirement is not stipulated by the require that the Internal Control and Audit bylaw or internal documents of the Service performs a preliminary audit of the Company. operations which are not envisaged by the business plan of the joint-stock company (nonstandard operations).

73. The internal documents of the joint-stock not observed This requirement is not stipulated by the company should contain regulations on the bylaw or internal documents of the endorsement of nonstandard operations with the Company. Board of Directors.

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74. The Board of Directors should endorse an observed The Company has a Provision on the internal document which provides for the audit Auditing Committee of JSC of the company’s financial and economic “LENENERGO” (Endorsed by the activities by the Internal Audit Commission. Annual General Shareholders Meeting of JSC “LENENERGO”, Record # 1 of May 23, 2002).

75. The Auditing Committee should verify the observed Item 10.7 of Art. 10 of the Provision on auditor’s report before it is presented to the the Auditing Committee of the Board of shareholders at the General Shareholders Directors of JSC “LENENERGO”. Meeting.

Dividends 76. There should be an internal document endorsed not observed There is no internal document in the by the Board of Directors which would be used Company which provides for the by the Board of Directors when adopting procedures of decision-making and recommendations on the rate of dividends payment of dividends (Provision on (Provision on Dividend Policies). Dividend Policies).

77. The Provision on dividend policies should not applicable There is no provision concerning contain regulations concerning the minimum dividend policies within the Company. share of the company’s pure income aimed at the In accordance with Item 7.3 of Art. 7 of payment of dividends, and conditions on which the bylaw of JSC “LENENERGO”, the dividends on privileged shares, which are total amount paid in dividends on each stipulated by the bylaw, shall not be paid or shall privileged share, is set at 10 (ten) per be paid only partially. cent of the pure income of the Company in the last financial year, taken in proportion to the number of sold type A privileged shares.

78. Information on the dividend policies of the observed There’s no provision concerning company and changes to these policies should be dividend policies in the Company. published in mass media which are envisaged for Information on the dividends paid by the the publication of announcements on the coming Company and the procedure of their general shareholders meetings by the bylaw of payment is placed by the Company in the joint-stock company; this information should the annual report, quarterly reports, and also be placed on the website of the company. on the website of the Company.

Note: The terms “observed”/“not observed” used in the present report mean compliance/non-compliance of the Company with the substantial part of the recommendations in view of the requirements of the current bylaw and internal documents of the Company.

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Appendix # 3 to the Annual Report of the JSC “LENENERGO” for 2008

List of Interested Party Transactions of the Company in 2008

Тыс. рублей # Counterparty Essentials Contract Record of Interested Party Notes Amount, Board of (Contract RUR Directors Expiration) 1 Scientific and technical council Assistance in building a Record # 4 «IDGC Until membership of Unified Energy System of scientifically grounded technical dated Holding» termination in Russia Non-Commercial policy in the Unified Energy 12.11.2008 Scientific and partnership System of Russia technical council of Entrance fee – Unified Energy 1,573,000 System of Russia

Non-Commercial partnership (not planed)

2 «IDGC of the North-West» Repair and reconstruction contract Record #7 «IDGC Valid until 31.01.09. No greater than – dated Holding» 693,527 26.12.2008 3 Lenenergospezremont Loan contract for purchasing Record # 1 от JSC Valid until 01.08.09. Zarskoye Selo Power Company 11.07.08. “LENENERGO” 980,000,000 and Kurortenergo

4 North-western power Sublease contract for commercial Monthly rent per 1 Record # 24 RAO UES of The contract enters management company premises located at: 191186, Saint- sq. m - 1,148 (one dated Russia until into force upon Petersburg, Marsovo pole 1 thousand one 12.05.2008 01.07.08. signature of both 228

# Counterparty Essentials Contract Record of Interested Party Notes Amount, Board of (Contract RUR Directors Expiration) hundred forty С 02.07.08. – parties and is valid eight) rubles 88 «IDGC Holding» until 30.11.2008. kopeks including 18% VAT - 175 (one hundred seventy five) rubles 25 kopeks 5 Corporate Management Service contract Record # 24 RAO UES of Contract closed on Institute Annual report generation dated Russia until 01.09.08. 12.05.2008 01.07.08 2,250,000 V.N.Chistyakov – an interested director 6 Corporate Management Consultancy contract for Record # 25 RAO UES of The contract was Institute development and implementation dated Russia until not concluded. of quality management system.9 29.05.2008 01.07.08 3,348,200 V.N.Chistyakov – an interested director 7 Saint-Saint-Petersburg Power Real estate lease contract Record # 17 RAO UES of The current contract Sales Company (Tikhvin) dated Russia until enters into force 06.02.2008 01.07.08 upon signature and is 119,637.63 valid until 30.11.2008.

8 Saint-Saint-Petersburg Power Real estate lease contract Record # 17 RAO UES of The current contract 11,592.55 Sales Company (Volkhovskiy district) dated Russia until enters into force

9 The contract was not concluded with the counterparty. 229

# Counterparty Essentials Contract Record of Interested Party Notes Amount, Board of (Contract RUR Directors Expiration) 06.02.2008 01.07.08 upon signature and is valid until 30.11.2008.

9 Saint-Saint-Petersburg Power Real estate lease contract Record # 17 RAO UES of The current contract Sales Company (Lodeynoye pole) dated Russia until enters into force 06.02.2008 01.07.08 upon signature and is 2,792.40 valid until 30.11.2008.

10 Saint-Saint-Petersburg Power Real estate lease contract Record # 17 RAO UES of The current contract Sales Company (Priozersk) dated Russia until enters into force 06.02.2008 01.07.08 upon signature and is 13,618.20 valid until 30.11.2008.

11 Saint-Saint-Petersburg Power Real estate lease contract Record # 17 RAO UES of The current contract Sales Company (Krasnoye selo) dated Russia until enters into force 06.02.2008 01.07.08 upon signature and is 73,563.64 valid until 30.11.2008.

12 FGC UES Sublease contract for premises Fix rent set by the Record #19 RAO UES of The contract was (66.09 sq. m) in addition to useful parties - dated Russia until not concluded. Building space (6,152.43 sq. m) 366,471.69 05.03.2008 01.07.08 - The payments for A.N.Chistyakov utility services and Building maintenance 230

# Counterparty Essentials Contract Record of Interested Party Notes Amount, Board of (Contract RUR Directors Expiration) (building with leased premises) shall be calculated according to following formula:

Aрcalculated  Зutility * К , where

Зutility - total monthly Landlord’s costs for utility services and Building maintenance (building with leased premises); К – correction factor that equals to the amount of subleased space

13 North-western Power Engineering contract for “110-kV Record #19 RAO UES of Contract time: from Engineering Center substation in Luga-Yuzhnaya dated Russia 14.04.08. until instead of 35-kV substation # 36 05.03.2008 14.02.09., the 18,424,603 in Luga-Yuzhnaya with 110-kV activities are closed line approaches” in November 2008.

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