Russian Transmission Grid:

Present and Future

Deputy Chairman of the Management Board Andrey Kazachenkov
7 February 2012, Italy

Federal Grid Company: Company Profile

Indicator
Length of transmission lines
MES East MES Urals MES South MES Volga MES Siberia

MES North West

MES West Siberia

124,000 km 312,000 MVA 802 471 billion kWh 23,200 13.6 million km2

MES Center

Transformer capacity Number of substations Electric energy output Number of employees Servicing area

Comparison of Federal Grid Company with Leading European Grid Companies Transformer Capacity, MVA 350 000 300 000 250 000 200 000 150 000 100 000 50 000 0 0 25 000 50 000 75 000 100 000 125 000
FINGRID
Federal Grid Company

Terna

Rseau de Transport d'lectricit

Federal Grid Company has a natural monopoly status, owns and provides electricity transmission services through the Unified National Electric Grid

RED Electrica

Length of transmission lines, km

Why Federal Grid is a Good Investment Case?

Scale of Business
Largest publicly traded electricity transmission company in the World (1) with over 120,000 km of transmission lines with total capacity of over 300,000 MVA Leading Russian blue chip company and the largest Russian utility company by market capitalization Unique natural monopoly position on the Russias high-voltage electricity transmission market, operating in 73 out of 83 Russian regions

Growth Prospects
Anticipated electricity demand 2010 2020 CAGR of 2.4% System upgrade focused on improving efficiency and reliability of the transmission network; development of the smart grid model

Supportive Regulatory Regime

Strong Financials
Track record of substantial growth (2009 2010 revenue increased by 29%) Rigorous programme of efficiency savings Focus on capital structure optimization Ability to obtain one of the lowest debt interest rates among Russian companies

Business regulation based on 5-year Regulatory Asset Base (RAB) model Guaranteed return on new invested capital 11% in 2010 2012 and 10% in 2013 2014)

Source Company data; IFRS financials; Energy Forecasting Agency (1) By length of transmission lines and transformer capacity

Strategic Priorities

Stable electric energy supply and reliable grid operations all over the territory of Russia

Volume of transmitted electric energy amounts to 50%

of the aggregate electric energy consumption, given 6-7% share in the end-cinsumer tariff Ensuring social and economic stability in Russian regions

Development of infrastructure for national economic growth

Proactive participation in the Governments infrastructure projects

(Sochi-2014, East Siberia Pacific Ocean oil pipeline, the APEC Summit, Skolkovo, etc.) Switch to long-term planning and tariff regulation in 2010 Regions where Federal Grid operates Contribution to Russian regional development via building infrastructure

Innovations and energy efficiency to provide future reliability and safety of National Electric Grid

Investments in R&D until 2014: RUB 19 billion Innovation program until 2020
Delivering market value to shareholders & investors

Transparency and commitment to best practice corporate governance Greater liquidity on the MICEX and the London Stock Exchange
4 4

Company Development
7 April 2011 2 February 2011
Board of Directors approved the new Technical Policy Board of Directors adopts the Companys Innovation Policy

1 January 2010 16 July 2008

Federal Grid shares started trading on RTS and MICEX Transition to RAB regulation Technical Policy

1 July 2008
1 January 2006 25 June 2002
Federal Grid Company was founded on 25 June, 2002 Electric grid facilities of 56 regional electricity transmission grid companies were transferred to Federal Grid Company

Federal Grid Company was reorganized through integration of RAO UES of Russia, MSKs and MMSKs

Introduction of New Standards

Federal Grid Company (2003-2009)

Tariff regulation
Tariff regulation based on Costs Plus methodology Lack of stimulus for cost reduction, as the regulator establishes a tariff on the basis of planned expenses High interest rates, difficulty in forecasting cash flows

Federal Grid Company (2010- the present)

Tariff regulation
Tariff regulation based on Regulatory Asset Base system (RAB) The Company is focused on cost reduction and motivated for a greater cost efficiency

Lack of clear Financial Strategy

The Company is perceived in the financial markets as a closed company without public story The Company is practically unknown in the international capital markets Lack of a long-term debt strategy

Development of Financial Strategy

The Company developed and approved Dividend Policy and Credit Policy based on RAB principles The Company is listed on the Main Market of the London Stock Exchange (28 March, 2011) Proactive investment marketing the top management is involved in IR events (meetings, roadshows, briefings) The Company accelerates the preparation of IFRS statements (by 4 months for 2009 FY, by 2.5 months for 2010 FY)

Incompliance with IFRS

Untimely disclosure of the Companys results for financial markets Existence of qualifications in the audit reports Lack of IFRS specialization among the Companys own employees

RAB Regulation: Transforming Approach to Financing

RAB Regulation
Since 1 January, 2010 Federal Grid Company operates on the basis of RAB regulation

Tariff for electricity transmission includes return on invested with best international practices based on Regulatory Asset Base (RAB)

capital

in

compliance

Regulatory impetuses are established to improve operating efficiency during the regulatory period Clear planning of long-term investments based on formation of financing sources Optimization the capital structure through an increase in debt position

RAB: Evolution of Approaches

January 2010 Switched to 3-year RAB regulation September 2010 Regulation period prolonged to 5 years April 2011 Tariff growth for 2011 has been smoothed out for 5%; Other potential changes discussed

2010 Return on initial invested capital Return on new invested capital 3.9% 11%

2011 5.2% 11%

2012* 6.5% 11%

2013* 7.8% 10%

2014* 9.1% 10%

* to be approved by the regulators

Strong & Stable Financial Performance

Revenue
RUR MM

EBITDA adj. (1) and Margin

RUR MM
90 000
113,330

%
100% 67,717 32,019 59.8% 56.6% 45,459 63.9% 75% 50% 25% 0% 2009 2010 EBITDA
(1)

150 000 100 000 50 000 0 2009 2010 1H2010 1H2011 87,580 56,565 71,217

60 000 30 000 0

42,619 48.7%

1H2010 Margin

1H2011

CAPEX
RUR MM

Profit for the period adj.

RUR MM
40 000

and Margin
%
40% 30% 20% 10% 0%

150 000 100 000 50 000 0 2009 90,934

141,800

22,810 27,910 17,160 12,692 24,6% 19,6% 22,4% 32,0%

69,581 51,994

20 000

0
2010 1H2010 1H2011

2009

2010

1H2010

1H2011

Net Income
Source Company IFRS financials (1) Adjusted for non-specific impairment provision of PP&E, impairment of available-for-sale investments and associates, loss on dilution of share in associates, revaluation loss on PP&E, loss on re-measurement of assets held-for sale, gain on sale available-for-sale investments

Margin

Scheme Development of Russian Energy Sector

General Scheme of Electric Energy Facilities Deployment Approved by Government of the Russian Federation Includes: Objectives and development priorities for 15 years Electric energy consumption forecast Deployment plan for electric energy facilities

Development Scheme of Electric Grid

Approved by Russias Ministry of Energy Includes : Electric Grid scheme and development program Renovation program Coordinated plans for construction and operation of grid infrastructure and generating facilities

Development Scheme of Regions Power Industry

Approved by: Russias region Includes : Plans for putting grid infrastructure and generating facilities into operation Balance of electric energy production and consumption

Federal Grid Companys Investment Program

Approved by Russias Ministry of Energy Agreed with: Federal Tariff Service, Ministry of Economic Development, System Operator of UES Includes: Register of construction projects plans and characteristics Sources of financing

Investment Program for 2010-2014

Total amount of planned investments for 20102014 is RUB 952.4 bn

Capacity provision of NPPs, HPPs, TPPs (5,180 km; 10,936 MVA)
Joint projects with regional authorities (1) (5,367 km; 10,890 MVA) Grid upgrades under Federal Programs( (2) (4,808 km; 4,181 MVA)

127.4 (13.4%) 137.9 (14.5%)

Other grid development projects

58.7 (6.2%) 28.4 (3.0%) 14.7 (1.5%)

90.4 (9.5%)

Upgrading grid facilities in Moscow, St. Petersburg, Tyumen (980 km; 17,531 MVA)

Technological connection (33 km; 2,577 MVA)

216.3 (22.7%)

212.8 (22.3%)

Backbone grids development(3) (5,367 km; 10,890 MVA)

65.8 (6.9%)

Fixed asset renewal (10,468 km; 37,866 MVA)

(1) Excluding Moscow, St. Petersburg, and Tyumen (2) East Siberia: Pacific Ocean oil pipeline, Sochi Olympic Games, Vankor, Sayan, etc. (3) Excluding joint projects with regional authorities

Innovations, energy efficiency, and technological operations improvement

10

10

Key Investment Projects

Capacity provision of Kalininskaya NPP generating unit #4 (1 000 MW) Start Date: Due Date: 2009 2012

Electricity supply of East Siberia Pacific Ocean oil pipeline Start Date: Due Date: 2011 2016

Underground cabling in Moscow,

St. Petersburg Start Date: Due Date: 2011 2015

Construction of Zeyskaya HPP

Russian-Chinese border transmission line Start Date: Due Date: 2010 2013

Infrastructure for Sochi Olympic Games 2014 Start Date: Due Date: 2008 2012 Infrastructure for APEC summit in Vladivostok in 2012 Start Date: Due Date: 2008 2011

Transition from overhead lines to cable and construction of Skolkovo 220 KV substation Start Date: Due Date: 2010 2012

Capacity provision of Boguchanskaya HPP start-up complex (1 000 MW) Start Date: Due Date: 2012 2014 Construction of electricity supply facilities on Elginskoye coal deposit Start Date: Due Date: 2011 2013

Source Company Data

11

Smart Grid New Quality of Russian Energy Industry

Smart Grid is a brand-new state of the grids based on new principles and technologies related to electric energy transmission and transformation, which allows for:
Microturbines and accumulators

Integrating all types of generation (including small generators) and all types of consumers (from households to large industries) for the situational management of demand for their services and active participation in energy system operation Changing real-time parameters and grid topology, in accordance with current mode conditions, excluding the origination and development of emergencies

Transmission lines Generation and alternative sources of energy

Consumers

Ensuring the broadening of market opportunities for the infrastructure through the mutual provision of a broad range of services for market and infrastructure subjects Minimizing losses, developing selfdiagnosis and self-recovery systems by observing reliability conditions and electric energy quality Integrating the electric grid and information infrastructure to create an all-mode management system with full-scale information support

Smart grid element

Smart Grid

Industrial facilities

Energy transmission and storage (High-Capacity Storage Batteries)

12

12

Smart Grid: Pilot Projects of North-West and the East

Smart Grid
of the North-West

St. Petersburg North-West Moscow Center East Volga South Siberia Khabarovsk Urals

Smart Grid
of the East

Vladivostok

Pilot projects of the North-West are focused on:

Ensuring required reliability of energy supply to urban consumers Building efficient grids Providing electricity exchange

Pilot projects of the East provide for:

High-quality energy supply for natural resources deposits Additional efficient capacity Reliable electric energy supply in the southern part of the Primorye territory

13

Prospects for Energy Bridge Development in Russia

Export/import to/from Norway Export/import to/from Finland

St. Petersburg

Moscow

West-East Energy Bridge

UES of North-West UES of Center UES of Volga UES of Urals UES of Siberia UES of East

UES of South

Export to China Center-Urals Energy Bridge Export/import to/from Kazakhstan

Integration of Siberia and East energy systems

Integration of Urals and Siberia energy systems Tomsk Export to China Export to Mongolia Export to South Korea

Export to Turkey

Export to Azerbaijan and Georgia

Existing export/import

Building connections

14

Integration into the International Community

Direct dialogue and involving are important for regulators and regulated energy companies Cooperation considerably expands the range of discussed issues and contributes to the general development of the regulatory system; One way to achieve this interaction is to organize direct professional dialogue between Federal Grid Company and foreign grid companies.

15

Thank you!

16