Management Report of PJSC ROSSETI Table of contents COMPANY OVERVIEW 3 HISTORICAL BACKGROUND 3 ROSSETI GROUP STRUCTURE (AS OF DECEMBER 31, 2019) 4 ROSSETI GROUP 5 CONSOLIDATION OF ELECTRIC GRID ASSETS 5 OPERATING INDICATORS 5 KEY EVENTS IN 2019 6 EVENTS AFTER THE REPORTING PERIOD 7 RESULTS IN 2019 8 OPERATING ACTIVITIES 8 FINANCIAL AND ECONOMIC PERFORMANCE 14 CAPITAL INVESTMENT PROGRAM 27 INTRODUCTION OF NEW TECHNOLOGIES 29 PREDICTIVE ANALYTICS 31 STRATEGY FOR DEVELOPMENT OF THE ELECTRIC GRID SECTOR OF THE RUSSIAN FEDERATION 31 CORPORATE GOVERNANCE 33 CORPORATE GOVERNANCE MODEL 33 CORPORATE GOVERNANCE SYSTEM DEVELOPMENT IN 2019 33 GENERAL MEETING OF SHAREHOLDERS 35 BOARD OF DIRECTORS 37 COMMITTEES OF THE BOARD OF DIRECTORS 52 ROSSETI EXECUTIVE BODIES 53 CORPORATE SECRETARY 58 SHARES AND SHARE MARKET 59 RISK MANAGEMENT SYSTEM AND INTERNAL CONTROL 62 ROSSETI GROUP STRUCTURE 79 RESPONSIBILITY STATEMENT 80 GLOSSARY 81 CONTACT INFORMATION 83 APPENDIX 84 2 Company Overview In accordance with Decree of the President of the Russian Federation No. 1567 of November 22, 2012, “On Joint Stock Company ROSSETI” and pursuant to the Strategy for Development of the Electric Grid Sector approved by Ordinance of the Government of the Russian Federation No. 511-r of April 3, 2013, ROSSETI: Performs strategic functions Performs coordinating functions Performs controlling functions Accomplishes institutional goals faced by the entire industry Participates in the consolidation of territorial grid organizations in order to ensure the necessary level of power supply reliability and quality Historical background The implementation of Rosseti Establishment of Completed Group's digital transformation Interregional Consolidation Renaming of programme has been started. Distribution Grid corporate Reform of the of electricity the legal form Companies formation of Rosseti Group's development Russian transmission of ROSSETI Holding (MRSK ROSSETI as strategy until 2030 was electricity and as a public Holding) through an open joint- approved. industry distribution joint-stock a spin-off from stock RAO UES of grids company A new brand architecture of Russia company the energy holding company was presented early 2008 2012 2013 2015 2019 2000s 3 ROSSETI Group Structure (as of December 31, 2019) 4 ROSSETI Group Industry: electric power Controlling shareholder: Status: natural monopoly The controlling shareholder is the Government, represented by the Federal Agency for State Property Geographic presence: 80 Russian regions Management and holding an 88.04% stake Services: - electricity transmission and distribution - network connection Largest electric utility and mainstay of the electric grid sector Structure: - 26 grid companies - 9 retail companies Assets of the Group: - 5 R&D and testing companies - 2.37 million kilometers of power lines - 27 service, maintenance, and repair companies - 517 thousand substations - 2 construction and procurement companies - 217 thousand employees - 15 other companies The ROSSETI Group has an absolute monopoly on electricity transmission and distribution. The market share controlled by the companies of Rosseti Group amounts to 73.3%. Consolidation of Electric Grid Assets1 To gain control of electric grid assets that are not part of or controlled by the ROSSETI Group, the Company works toward asset consolidation. Acquired electric grid facilities Leased electric grid facilities 56,683 22,912 49,441 42,282 24,813 21,406 15,923 5,618 3,602 3,093 1,031 570 2017 2018 2019 2017 2018 2019 Transformer capacity, MVA Power lines, km Transformer capacity, MVA Power lines, km Operating Indicators Indicator 2017 2018 2019 1 In the corresponding period. 5 Length of power lines, mn km 2.34 2.35 2.37 Number of substations, thsd units 502 507 517 Transformer capacity of substations, GVA 781 792 802 Connected capacity of customers’ power- 15,201 13,905 11,945 receiving equipment, MW Electric grid SDCs’ staff on the payroll, thsd 215 217 217 people Key Events in 2019 Finance February Moody’s Investors Service upgrades the long-term global scale credit rating of ROSSETI to investment grade (Baa3, stable outlook). February The Analytical Credit Rating Agency (ACRA) reaffirms the national scale credit rating of ROSSETI (AAA(RU), stable outlook). June The Company signs a memorandum of cooperation with Gazprombank to use digitalization for the treasury function. Operating and March A 220 kV substation, Port, which is strategically important for regional investment investing potential, begins operation in the Krasnodar Territory. activities September A 220 kV substation, Prompark, providing an external electricity supply for an advanced development zone, is put into operation in the Far East. September Phase 1 of a 110 kV substation, Plievo Novaya, is put into operation to ensure the creation of a grid of nine power lines in Ingushetia, North Ossetia, and Chechnya, which considerably improves the reliability of the North Caucasian energy system as a whole. October The largest substation, Khovanskaya, with installed transformer capacity of 700 MVA begins operation in Moscow’s Troitsk and Novomoskovsky Administrative Districts. October A new 110 kV substation, Kuzemkino, is put into operation to provide an external electricity supply for Nord Stream 2 facilities located in the Leningrad Region. November ROSSETI approves the Regulations “On the Uniform Technical Policy in the Electric Grid Sector.” November A 110 kV substation, Industrialnaya, is put into operation to supply smart energy to the biggest industrial park in the Kaliningrad Region. December ROSSETI organizes the “Power Grids 2019” International Forum, a large sectoral event aimed at discussing and resolving the most important issues of electricity industry development. December The ROSSETI Group puts into operation several modern power facilities in the Irkutsk and Tyumen Regions, which considerably improve electricity supply system reliability for several regions and ensure that sufficient transformer capacity is available for future regional development. December New electric grid facilities—substations, network control centers, and customer service centers—begin operation in nine Russian regions. The new substations use digital technology. December The Development Strategy of Public Joint Stock Company ROSSETI and Its Subsidiaries and Dependent Companies (ROSSETI Group) Until 2030 receives approval. The key difference from the previous version is the transition to a business model of modern innovative infrastructure. International January A Russia-Serbia cooperation memorandum is signed to develop innovations in activities the electricity industry. June A memorandum was signed with French company EDF to implement joint projects on the territory of third countries and to cooperate in creating digital distribution networks in Russia as well as in developing intelligent metering systems. June The agreement on implementation of projects on the construction and upgrade of the power grid complex facilities on the territory of third countries was signed with Chinese company China Energy Engineering Corporation. 6 June A cooperation agreement was signed with Chinese company NARI Group Corporation to create digital electrical grids and localise the production of equipment necessary for the creation of digital grids. September The Company signs three-year memorandum with Mongolia’s largest state- owned enterprise Erdenes Mongol to develop the energy interconnection system covering Northeast Asia. October A memorandum was signed with Mozambican company Electricidade de Mocambique to cooperate in designing and constructing new facilities and upgrading the existing ones, part of the electric grid complex in the Republic of Mozambique, as well as in supplying electric energy equipment. December A memorandum was signed with Belgian organisation PRIME ALLIANCE AIBSL to cooperate in creating digital electric grids and introducing intelligent metering systems. December A memorandum was signed with Union Electrica of the Republic of Cuba in order to develop the power grid infrastructure of the Republic of Cuba, including the feasibility study of constructing new facilities and upgrading the existing ones of the main distribution electric grid complex in the Republic of Cuba. Corporate June Shareholders approve the payment of more than 5 billion rubles as dividends for governance the first quarter of 2019. July Approval is given to a restated version of the Regulations for Insider Information in line with legislative changes. December The Russian Institute of Directors reaffirms ROSSETI’s corporate governance rating at 7++ “Developed practice of corporate governance.” December Amendments to the Articles of Association of ROSSETI Tyumen are registered as related to the changed corporate name. Sustainable April In order to demonstrate and test equipment used for projects related to the development industry’s digital transformation and to strengthen and expand relations with suppliers, ROSSETI organizes the “Partnership Days” Forum for Russian and foreign manufacturers of electrical products. April The Board of Directors approves the Uniform Corporate Identity Standard of the ROSSETI Group. ROSSETI presents the Group’s new, uniform brand architecture in June. August With support from the Russia – a Country of Opportunities platform, ROSSETI holds a contest, Energy Leaders, to select the most skilled and motivated industry executives for its personnel reserve. October Major network connections reforms carried