1 Contents Address by the Chairman of the Board of Directors 4 Address by General Director 6 Mosenergo Today 8 Company Profile 8 Operational Highlights 10 Financial Highlights 10 Mosenergo's Position in the Power Generation Industry 10 Shareholders Capital 11 Competitive Advantages 12 Major Events of 2009 12 Mosenergo Operations 14 Power Generation 14 Sales 16 Fuel Supply 18 Investment Repair and Maintenance Activities 19 Investment Activities 19 Repairs and Maintenance 20 Efficiency and Safety of Production 22 Power Saving Programme 22 SAP Implementation 23 Analysis of Financial Performance 24 Social Responsibility 26 Human Resources Management and Social Programmes 26 Headcount and Structure of Personnel 26 Staff Motivation System 28 Staff Education and Development 28 Social Programmes 28 Occupational Health and Safety 28 Commitment to Environmental Protection 30 Establishing of the Advanced Health Safety Environmental System 31 Corporate Governance 32 Underlying Principles 32 General Meeting of Shareholders 32 Board of Directors and its Committees 33 Audit Commission 34 Executive Board 34 Remuneration 34 Changes in the Company's Structure 35 Additional Information 36 Mosenergo's History 36 The Structure of the Power Industry in Russia 37 Mosenergo's Positioning in the Generating Power Industry 37 Risks 38 Securities 40 Information about the Members of the Board of Directors, BoD's Committees and the Executive Board 42 Compliance with the Corporate Governance Code of the Federal Financial Markets Service 49 Information on Interest Party Transactions 56 Informational Policy 61 Financial Reports in accordance with the Russian Accounting Standards 63 Glossary 107 Contact Details 108 Address by the Chairman of the Board of Directors Dear Shareholders, OJSC Mosenergo is the largest power generating company in Russia and a major producer of thermal energy in the world. steam-and-gas combined cycle units with an efficiency factor over 50% and to replace worn-out equipment. Such arrangements result in a major upgrade of power units technical characteristics, enhanced fuel consumption efficiency and improvement of the environmental indicators for power plants. Starting from 2007 Mosenergo commissioned three new steam gas power units with total capacity of 1,325 MW. After commissioning of the Combined Cycle Gas Turbine-420 on TPP-26 scheduled for 4Q 2010, Mosenergo will become the first Russian power company to have fully In order to increase performance efficiency in 2009, the Company introduced measures to reduce operational costs, ensure financial stability completed the implementation of the initial stage of the investment programme. and update human recourses management system. Stable operations combined with the investment programme implementation will further support Mosenergo's leading position among Russian generating companies. To summarise Mosenergo's activities in 2009, I should note that the last year was not an easy time for the Russian power generating sector. It was affected by new conditions of electric power generation sector operations in this country as well as global economy situation. The start In 2009 Mosenergo implemented a number of projects to increase efficiency. Reconstruction and commissioning of new equipment, of the year was marked by a considerable drop in energy consumption, which consequentially reflected on generation volumes, as well as maintenance activities, optimisation of load operations allowed to reach a substantial decrease in fuel use, cut down auxiliary power financial results of all energy companies. requirements and achieve a notable economic effect. However, Mosenergo successfully reached all objectives set for 2009. The key priority of the Company's operations is reliable supply of One of the Company's priorities is protection of the environment. Mosenergo completed the implementation of the Environmental Management electricity and heat to the Moscow region: last year, Mosenergo's power plants generated 61.7 bn kWh of electricity - the highest volume System, which complies with the international ISO 14001:2004 standard. Within the Environmental Policy implementation programme among all Russian thermal generating companies. Heat output reached 65.4 mn Gcal, which is 4.7% higher than 2008 results. New generating Mosenergo reconstructed all of the power boilers. Mosenergo power plants follow a system of environmental control and carry out annual capacities made a substantial contribution into overall OJSC Mosenergo operational result. The volume of electricity generated by new power activities to reduce emissions and improve waste water treatment. units in 2009 grew more than two times up to 7.3 bn kWh. I am confident that active cooperation between the Company's Board of Directors, the Management and shareholders will ensure successful The key objective for the Company is to implement the most innovative technology in the electric power sector, namely to commission highly-efficient achievement of current objectives and realisation of our development plans in the future. Member of Gazprom Executive Board, Chairman of the Board of Directors of OJSC Mosenergo Kirill Seleznev 4 5 functions. Last year, the Company outsourced cleaning, catering, employee medical and social services, as well as a part of telecommunication Address by General Director services. The Management estimates annual savings of fixed costs at 250 mn roubles. The Company carried out a full-scale operation to reorganise the non-core assets management system, namely, the liquidation of several non- core assets or the reduction of the service costs on such assets; monitoring and property control tools were implemented followed by an increase of property lease revenue. The Company used the cash flow from the sale of a cluster of buildings on the Raushskaya Embankment in Moscow, as well as other properties, to finance our new construction programme, technical upgrade and reconstruction. Investment Projects The key investment project for the Company in 2009 was the construction of combined cycle gas turbine (CCGT) No.8 at TPP-26. Last year, the Company successfully changed its approach to project management due to the creation of 'TEK Mosenergo', which was based on the liquidated branches of the Company (Mosenergoproekt, Mosenergospetsremont and the Pilot Plant for Automation and Instruments). We introduced fundamental changes to the agreement with the EPC-contractor; these changes allow us to define obligations of the parties and outline clear terms of the unit commissioning. The construction is due to be completed by October 31, 2010. The Company carried out several measures to enhance the safety of main and accessory equipment within the technical upgrade and reconstruction programme. Increase of Financial Stability Dear Shareholders, Our efforts to achieve financial stability allowed the Company to successfully overcome the shortage of liquidity in mid-2009. According to 2009 results, cash inflow from operations exceeded the level registered in 2008. In 2009, the Company successfully executed an offer on a bond loan In 2009, Mosenergo successfully achieved its key objective to ensure uninterrupted power supply to the region and to guarantee stable output of of 4.6 bn roubles, as well as carrying out an initial bond issue of 2 bn roubles and a 5-year corporate bond issue of 5 bn roubles. The Company electricity and heat. significantly increased the long-term exposure of the credit portfolio (up to 90% of the portfolio), as well as decreased the total debt volume by 2.8 bn roubles. Company's EBITDA increased by 120% year-on-year and amounted to 17.8 bn roubles in accordance with 2009 results; net profit totalled 4.5 bn roubles, which was 3.2 times higher than 2008 results. Mosenergo considerably changed its credit portfolio structure by replacing secured strict covenant loans with unsecured loans. Successful operating activities in 2009 had a positive effect on Mosenergo's capitalisation growth. The Company's market capitalisation grew by Objectives for 2010 91.8 bn roubles (330%) and reached 131.3 bn roubles, which exceeds capitalisation growth rates of other Russian electricity and heat generating companies. The Company's Management considers the following objectives as top priority for 2010: 1. Capital employed efficiency growth. In particular, the efforts will be focused on: The Company successfully achieved all of the 2009 objectives. • The implementation of high-return investment projects (the completion of Unit 8 of CCGTe-420, the preparation and drafting of three new units of CCGT-420, as well as other projects). Cost and Business Process Optimisation • Efficient use of existing capacities (primarily, ensuring availability of high-performing equipment). • Sale of non-core assets. • Detection of low capital efficiency assets and undertaking measures to either increase efficiency or to sell such assets. In 2009 Mosenergo successfully carried out integrated measures to cut down administrative and business expenditure, as well as overall fixed 2. Increasing safety of the Company's operations and achieving new standards in occupational health and safety. Within the framework of this costs. The implemented initiatives had a positive effect on our financial indicators: the rate of revenue growth (+18%) considerably exceeded the objective, the Company is planning to: growth of fixed costs (+4%). The implementation of new large-scale projects aimed at increasing production and labour efficiency resulted in an • Design