1.2 General Information

Open Joint-Stock Company of Power Industry and Electrification "Lenenergo" is one of the largest distribution grid companies in Russia.

JSC "Lenenergo" was founded according to the Decrees of the President of the Russian Federation No.992 (as of August 14, 1992), No.923 (as of August 15, 1992), and No.1334 (dated November 05,1992), and registered by Decision of the Registration Chamber of the Administration of St. Petersburg dated January 22, 1993 No.2518. The Company is the legal successor of the State Enterprise of Power Industry and Electrification "Lenenergo".

Main types of activity:

• rendering services of electric power transmission and other services related to electric power supply to consumers;
• technological connection to power consumption equipment (power stations) of legal entities and individuals to electric networks.

Tariffs for services rendered by the Company are established by State or regional regulators within the frameworks of the decision approved by the Federal Tariff Service.

According to the Resolution of the Federal Energy Commission of Russia dated December 19, 1997 No.127/8 JSC "Lenenergo" is included in the Register of Subjects of Natural Economy regulated and controlled by the Government under Section I "Electric and (or) heat power transmission services".

The management bodies of the Company are comprised of the General Meeting of Shareholders, the Board of Directors, the Management Board, and the Director General.

The Audit Commission and the Auditor perform control over the Company’s financial and economic activity.

The amount of payment of the Company’s Auditor for conducting the audit of the accounting reporting of the Company for 2010 is determined by Decision of the Board of Directors of the Company (Minutes No.1 dated July 20, 2010) and constitutes RUR 2,200,000, including VAT (18 %) —RUR 335,593.

The Auditor did not render any non-audit services to the Company in the reporting year.

As of December 31, 2010 JSC "Lenenergo" Group of Companies comprises the following branches and legal entities:

The organizational structure of JSC "Lenenergo" as of December 31, 2010 is given in Appendix 14.16.

At present, JSC "Lenenergo" serves a capacious market – the territory of St. -Petersburg and the Leningrad Region with a total area of 86,739 sq. km inhabited by 6,251 thousand people (4.4% of the total Russian population).

Along with JSC "Lenenergo", the following companies perform activity for electric power transmission and connection of consumers on the territory of St. Petersburg and the Leningrad region:

• JSC "St. Petersburg Electric Networks";
• JSC "Leningrad Regional Managing Electro Network Company" (JSC "LOESK");
• JSC "Power Managing Company";
• MES of the North-West - a branch of JSC "FGC UES";
• A number of adjacent network companies whose spheres of responsibility are fixed by resolutions of the governments of the corresponding constituent entities of the Russian Federation: JSC "Lenteplosnab", JSC "Petrodvortsovaya Electric Network", etc.

Short history of the Company

JSC "Lenenergo" was founded in the 19^th century. On July 16, 1886, Emperor Alexander III approved the Charter of the Electric Lighting Company, founded by Karl Siemens. This day is considered the beginning of the "electric" era, the foundation date of JSC "Lenenergo".

On December 29 (December 16^th in the 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 the Electrotok trust. In 1932 it was renamed Lenenergo, which has been the Company’s name ever since.

JSC "Lenenergo" has always been one of the country’s most progressive power companies. In 1897–1898 Russia’s first stationary power stations appeared in St. Petersburg on the Obvodnoy Canal (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). 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 No.3 on the Fontanka Embankment to a residential house, which gave the start to construction of heating networks across the country. December 19, 1926 saw the commissioning of Volkhovskaya Hydroelectric Plant, the country’s first and then most powerful. In those years, Lenenergo created the first 110 kV power line in the USSR. In early 1929, Elektrotok’s Management moved to the former Pavlovsky regiment barracks, where the first control room of the Leningrad power system was installed. On December 19, 1933, the Nizhne-Svirskaya hydroelectric plant, the world’s first power plant 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 an 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 km 220 kV power line, the first in the USSR. 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, the system of 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 megawatts, and energy output of more than 30 mln kWh. During World War II Lenenergo suffered significant damage and lost two thirds of its power system capacities. On September 8, 1941, Leningrad fell under blockade. However, thanks in no small part to the selfless labor and courage of Leningrad’s power engineers, the city withstood it. In the winter of 1942 Lenenergo proposed to restore and partially reconstruct the Volkhov 110 kV and 35 kV power lines, and to lay a 10 kV four-wire cable on the bottom of Lake Ladoga. Stretching for more than 100 km, that cable was assembled by hand. The unique technical solution helped to break the power blockade in September 1942. Leningrad endured.

The power network of the Leningrad Region was substantially reorganized in 1964. A total of 28 regional agriculture energy operation divisions were liquidated to be reorganized into 8 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 the general population of Leningrad region. A total of 53,098 km of 10 kV and 6 kV overhead power lines and 31,822 km of 0.5 kV networks were constructed over the first 20 years, which doubled the spread of networks received from 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 create the main 330 kV power network. Vostochnaya, Chudovo, and Yuzhnaya substations with 330 kV lines were commissioned, providing for the connection of the Lenenergo power system to the United Central Power System. Developments included construction of a 750 kV high-voltage line, adoption of 10 kV and 220 kV oil-filled cables, construction of 1,400 mm heating lines, complex automation of production processes, adoption of management telemechanics and many other things.

In 1980, a unique transformation complex comprising a transformation substation and two 400 kV lines was built in Vyborg to increase power export to Finland. The unique project allowed transmission of up to 4 bln kW/h annually for 10 years with primary power of 600 megawatt, the highest in Europe at that time.

In 1992, the Company was privatized to become Open Joint-Stock Company of Power Industry and Electrification "Lenenergo", successor to the Leningrad Power Industry and Electrification Production Association "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 dramatically affected the industry.

The year 2000 was a critical year for the Company. From 2000 up to 2005, 5 new major 110 kV substations were constructed, and more than 120 kilometers of heating lines and dozens of kilometers of power networks were reconstructed in St. Petersburg.

On April 08, 2005 an extraordinary General Meeting of Shareholders of JSC "Lenenergo" resolved to reorganize JSC "Lenenergo" by separating the following companies:

• JSC "Petersburg Generating Company",
• JSC "North-West Power Management Company",
• JSC "Petersburg Power Sales Company",
• JSC "Petersburg Power Transmission Networks".

The distribution grid company kept the "Lenenergo" brand.

In 2007, JSC "Lenenergo" received the status of an independent IDGC within the frameworks of activities for change of configuration of the interregional distribution grid companies (IDGCs).

In 2008, the authorized capital of JSC "Lenenergo" was increased from RUR 785 mln to RUR 1,019 mln at the expense of carrying out an additional issue in favor of the city of St. Petersburg, represented by the State Property Management Committee. As a result, the city of St. Petersburg acquired a blocking stake in the Company’s authorized capital.

1.3 Mission and Strategy

The development strategy of JSC "Lenenergo" is aimed at securing reliable and stable electric power supply to consumers on the servicing area of St. Petersburg and the Leningrad Region.

In 2009, the Government of the Russian Federation approved Russia’s Power Development Strategy for the period until 2030, on which the following strategic goals of the electricity distribution grid complex and JSC "IDGC Holding" are based:

• increase in reliability and quality of services implemented;
• increase in operating and investment efficiency;
• increase in investment appeal;
• increase in power efficiency and provision of innovative development;
• increase in the availability of power network infrastructure;
• development of human capital.

1.4 Important Milestones in 2010

JANUARY 2010

Power engineering specialists celebrated the 66^th anniversary of the date of the complete lift of the blockade of Leningrad on January 28, 2010.

Thousands carnations, candles of memory, words of gratitude and pride in the heroism of the favorite city were demonstrated. Employees of JSC "Lenenergo" and veterans of the Company laid wreaths and flowers at the "Motherland" monument and the memorial to power engineering specialists at the Piskarevsky cemetery. The memorable action of JSC "Lenenergo" is a tribute to all inhabitants of the blockade city. In 1942, the power blockade of Leningrad was broken, and Leningrad survived in many respects thanks to the feats of power engineering specialists. The besieged city was supplied with electricity via the "Cable of Life", which had been laid on the bottom of Lake Ladoga.

FEBRUARY 2010

JSC "Lenenergo" conducted a course on accident-free emergency driving in the Center of higher driver's skill. Safety was the main criterion to be met by the Company’s staff while driving vehicles.

Drivers of JSC "Lenenergo" received unique experience. A real ice rink was filled in the airport "Rzhevka". Drivers improved their skills in drifts and rotation. Drivers also improved their skills at braking on ice and use of automatic systems: anti-side slip, traction control systems and engine additional breaking systems. It was impossible to simulate such situations in usual conditions. This experience allowed the Company’s drivers to improve their skills of emergency control of vehicles in critical situations under winter conditions and also to systematize already available knowledge, and to rethink this knowledge taking into account the received information and to start development of a new car driving style – individual, safe and effective.

A modern supervisory console was opened in JSC "Lenenergo" branch "Tikhvin Power Distribution Networks".

The new supervisory console was opened at substation No. 143. All changes in the network are displayed on the electronic panel in real time mode. In the area of coverage of the branch – the Tikhvin and Boksitogorsk areas of the Leningrad region - there are 36 substations. Almost all of them are tele-mechanized. Operative communication with the personnel on duty and operative-exit crews is organized from a supervisory console.

The committee of the Board of Directors on strategy and development of the Company recommended to the Board of Directors to consider the possibility of placing Company’s securities through an additional issue.

The Committee meeting was held by Deputy Director General on Economy and Finance of JSC "IDGC Holding" Alexey Demidov. The Deputy Chairman of the Committee on Energy and Engineering of St. Petersburg, Andrey Sorochinskiy, and the member of the Board of Directors of the Company, Remes Seppo Juha, also took part in the Committee's work. Participants of the meeting discussed the parameters of the issue of the Company’s securities. The Committee recommended to the Board of Directors of the Company to consider placing the Company’s securities through an additional issue.

National Team of JSC "Lenenergo" took part in final competitions of the Second All-Russia winter sports festival of the power distribution grid complex of the country.

The sports festival was organized by JSC "IDGC Holding". This event rightly acquired the status of "all-Russian", as it brought together 13 teams and 200 athletes from the leading operating companies and the executive office of JSC "IDGC Holding". The venue of the event, as per tradition, was the "Zarya" pension in the Moscow region where, in February last year, the first National Winter Games were hosted. During the event competitions were held for cross country skiing (men - 10 km, women - 5 km), swimming (men - 100 m, women - 50 m), table tennis and chess. The Company was represented by a team of 15 people. The Company’s team won 11^th place.

MARCH 2010

The Annual Day of the Donor took place on March 17, 2010 in JSC "Lenenergo". Nearly fifty employees of the Company joined the Blood Bank of St. Petersburg.

The exit station of blood transfusion worked at the building of the Executive Office of JSC "Lenenergo" in St. Petersburg at Constitution Square for 3 hours. Each employee of the Company had the possibility to become a donor. The principal condition was good health of participants. Out of 50 staff members of the Company, two had the rare IV blood type, and two others — a rare negative rhesus factor.

JSC "Lenenergo" took part in the X St. Petersburg International Energy Forum. This is one of the most respected federal industry events, which is organized annually on the eve of the St. Petersburg Economic Forum.

At the conference "Energy of the metropolis: the development of energy complex of large and medium-sized cities on the basis of energy-efficient technologies and advanced engineering decisions" Technical Director of JSC "IDGC Holding" Pavel Okley and Director for Technical Development of JSC "Lenenergo" Maxim Artemyev represented the Company and JSC "IDGC Holding" and reported as speakers. They observed that achieving the enormous tasks of complex interregional distribution network modernization and development could not have been done without considerable investments.

On March 25, 2010 the Board of Directors of JSC "Lenenergo" confirmed the Business plan of the Company for 2010. The meeting of the Board of Directors of JSC "Lenenergo" passed under the chairmanship of Nikolay Shvets - Director General of JSC "IDGC Holding".

APRIL 2010

JSC "Lenenergo" connected the European sulfuric terminal in the Kingisepp area of the Leningrad Region. The multifunctional complex of technical sulfur overload JSC "European sulfuric terminal", located in the commercial sea port "Ust'-Luga", was provided the necessary power of 7,370 kVa.

The power supply for the European sulfuric terminal is substation № 549 "Port". During the construction of transformer substations necessary for joining the terminal, Lenenergo used the latest relay protection and automatic vacuum-and gas-insulated type that allows for maximum security of supply. To power the facility, cables with XLPE insulation were used. To provide the necessary power for the terminal the Company installed an additional 16 cells of 10 kV and reconstructed substation № 549 "Port". Technological connection of the European sulfuric terminal opened up new opportunities for the development of the transport cluster in the region.

JSC "Lenenergo" top management answered questions of investment analysts. The heads of JSC "Lenenergo" held a meeting with representatives of the investment community where they discussed preliminary results and plans for the Company’s transition to RAB-regulation.

Among analysts who took part in the meeting were the leading experts of the largest investment funds: Troika Dialogue AM, IG "Energocapital", KIT Fortis Investments, Alpha Bank and others. Analysts highly appreciated management activity on an OPEX decrease. Technological losses were decreased as the result of the Company’s grid modernization; commercial losses were reduced as the result of implementation and development of the commercial metering system of electric power. The metering system development and grid modernization were the basic tools of the Company’s performance increase.

JSC "Lenenergo" connected 27 new houses to the power grid in which apartments for veterans of the Great Patriotic War were allocated. These objects are under special control of power engineering specialists. The company executed all obligations.

Apartments for veterans were acquired by the Property Fund of St. Petersburg according to the Decree of the President № 714 "Providing housing to veterans of the Great Patriotic War of 1941-1945". Under JSC "Lenenergo" control, 2 blocks of buildings in Krasnoe Selo and 22 apartment houses (27 objects in total) were connected. Connection of the 20 buildings from the list the Company had been completely implemented back in 2009. On other objects, external power supply circuit was completed in 2010. The total volume of the associated power exceeds 19 MVA. Creation of external schemes of electricity supply included use of cables produced using the newest technologies with XLPE insulation which provide durability of networks and the maximum reliability of power supply.

JSC "Lenenergo" received the Certificate of compliance of its system of quality management to the International Standard ISO 9001:2008.

The Company introduced an integrated management system that optimizes business processes, reduces production costs, and discovers hidden resource development. An independent audit was done by the Certification Association "Russian Register". As a result, the quality management system of JSC"Lenenergo" was recognized to conform to the requirements of International Standard ISO 9001:2008 (ISO 9001-2008).

JSC "Lenenergo" developed standard requirements for electricity metering devices for various variants of the power connection point and voltage levels.

Adopted in late 2009, the Law on energy saving and energy efficiency (261-FL) requires energy consumers and producers to conduct the mandatory energy audits, installation of metering devices, introduction of a system of monitoring compliance with new requirements. The Company developed standard requirements for electricity metering devices for individuals, legal entities and individual entrepreneurs in accordance with paragraph 25 of the Rules of non-discriminatory access to electricity transmission and delivery of these services. Documents were posted on the official website of JSC "Lenenergo" in the subsection "Clients" - "Commercial metering of electricity".

MAY 2010

On May 20, 2010 St. Petersburg Governor Valentina Matvienko, Director General of JSC "IDC Holding" Nikolai Shvets and Director General of the Company Dmitry Ryabov signed an agreement on cooperation in the implementation of measures to ensure reliable electricity supply and creating the conditions for connection of consumers to electric networks.

On the official site of JSC "Lenenergo" (www.lenenergo.ru) the new service "Private office" – system of remote servicing, was created, which allows getting access to information on the status of technological connection agreement signing.

"Private office" is an effective tool for improving the transparency of the Company, which gives the chance to work with a power supply system at any time, in any place through a reliable, protected connection. Information on the computer screen is displayed in the mode of real time. For security purposes, data input into the system is possible only with a password - a secret set of characters. To obtain the necessary information about the stage of a technological connection agreement, a customer should enter the application number and personal password, which the customer can get in the Customer Service Centre of JSC "Lenenergo". After entering the registration data, the system shows what steps of the document signing have already been completed and when.

The Board of Directors of JSC "Lenenergo" decided to recommend to the Annual General Meeting of shareholders to pay dividends on preferred shares of the Company following 2009 results at a rate of RUR 3.4933366 per one preferred share.

The Board of Directors approved the agenda of the Annual General Meeting of Shareholders of JSC "Lenenergo":

1. Approval of the annual report, annual financial statements, including the profit and loss account, as well as the distribution of income (including dividends) and losses on the results of the 2009 fiscal year.
2. Election of members of the Board of Directors of the Company.
3. Election of members of the Internal Audit Commission.
4. Approval of the auditor of the Company.
5. Approval of the Charter in the new edition.

Veterans of JSC "Lenenergo" noted the 65^th anniversary of the Great Victory. Power engineering specialists honored the memory of colleagues who protected Leningrad during the Great Patriotic War and provided the blockaded city with energy.

On May 07, 2010, at the Piskarevsky cemetery in St. Petersburg, power engineering specialists laid flowers to the monument "Motherland" and honored victims with a minute's silence in memory of the fallen during the War. The solemn ceremony was held under the Banner of Victory. The exact copy of the flag 150th of the Order of Kutuzov of II degree Idritskoy Infantry Division erected by M.A. Egorov and M.V. Kantaria on the Reichstag building in Berlin was taken to St. Petersburg from Moscow. The relay of the Banner of the Victory was launched at the initiative of veterans of the electricity distribution complex of Russia. On May 13, 2010, a memorial monument in JSC "Lenenergo" with the names of power engineering specialists fallen in the siege of Leningrad and the Great Patriotic War of 1941 – 1945 was erected. More than 180 power engineering specialists were killed, who provided electricity to the besieged city, taking part in defensive battles.

JSC "Lenenergo" connected JSC "North-Western investment" to the power grids in the Gatchina District of the Leningrad Region.

The venture for the manufacture of plastic packaging for beverage and household products was given the necessary power of 2,500 KVA. The connection to power networks allowed taking a positive decision on the deployment of "North-Western Investments" in Gatchina to start six production lines. Because of this daily average production, units increased by several times and reached two million. The possibility of obtaining additional capacity resulted in higher tax payments and creation of an additional 100 new job places in the Gatchina District. To provide the necessary electricity capacity to the industrial complex, the Company installed two modern generators to lay new feeder cable lines with XLPE insulation - the most reliable modern material, which is produced only abroad. The source of power for the complex is a substation № 224.

JSC "Lenenergo" summed up results of the autumn-winter period of 2009-2010. The Company provided a reliable electricity supply, despite the abnormal winter weather conditions.

The Company, despite adverse weather conditions, successfully passed the autumn and winter of 2009-2010. From November 15, 2009 to April 15, 2010, the Center for Hydrometeorology warned the Company of adverse weather conditions 54 times. The average air temperature in winter was two times higher than the average values over the past four years and amounted to -8.5 degrees C. In addition, the winter was abnormally snowy. Snow cover reached a peak of 54 centimeters. Records of daily consumption of electricity were registered four times only for the January 2010.

The Audit Committee of JSC Lenenergo, the largest distribution and networking company of the North-Western Federal District, approved the financial statements for 2009 prepared in accordance with International Financial Reporting Standards (IFRS), the consolidated financial statements and auditor's report were placed on the corporate website JSC "Lenenergo" (www.lenenergo.ru)

On the conclusion of the auditor: "Consolidated financial statements, in all material respects, the financial position dated December 31, 2009, as well as its financial performance and cash flows for the year ended were prepared in accordance with International Financial Reporting Standards". Key performance indicators of the Company for the period showed a positive trend. As of December 31, 2009 the Company's assets amounted to RUR 88,325,285 thousand, showing a 6% increase compared to the previous year. Long-term assets gained a dominant position in the assets’ structure - 89%. EBITDA for 2009 amounted to RUR 7,147,968, which is 32.8% higher than in 2008. This growth rate is associated with the growth of net profit of the Company. EBITDA margin also showed growth at the level of 31.4%.

JUNE 2010

JSC "Lenenergo" was recognized the as the best taxpayer in St. Petersburg. On June 04, 2010, at Smolny, the Governor of St. Petersburg Valentina Matvienko awarded diplomas to twenty heads of the companies – leaders on tax payments in the region budget.

The amount of the Company’s tax payments in the city budget in 2009 amounted to RUR 522,295 million. A certificate of the best taxpayer is a sign of quality of the Company that also express a special degree of trust to the enterprises which carried out their obligations to the state in a full degree" – Valentina Matvienko said.

JSC "Lenenergo" was a participant of the XIV St. Petersburg International Economic Forum. Power engineering specialists not only took part in the Forum, but also provided power safety in the regions of the Company’s operational activity.

During the XIV International Economic Forum in St. Petersburg, JSC "Lenenergo" worked in the emergency mode. The cities of Pushkin, Pavlovsk, and Petrodvorets were taken under intensive supervision. A central subject is FGU GC "Palace of Congresses" (Konstantinovsky Palace), the official residence of the President of the Russian Federation. Operative and repair crews of JSC "Lenenergo" were set on round-the-clock mode. Power engineering specialists worked without failures.

On June 21, 2010, the Annual General Meeting of Shareholders of JSC "Lenenergo" decided to pay dividends on preferred shares of the Company following the results of 2009, and elected the new composition of the Company Board of Directors.

The meeting confirmed the annual statement and the annual accounting reporting of the Company for 2009, including the profits and losses statement. Shareholders decided to pay dividends on preferred shares at a rate of RUR 3.4933366 per one preferred share as well. The Company Internal Audit Commission was elected, and the auditor of the Company JSC "HLB Vneshaudit" was approved. JSC "Lenenergo" Charter was also approved in new wording.

On June 25, 2010 JSC "IDGC Holding", JSC "Lenenergo" and the Government of the Leningrad Region signed the tripartite Cooperation agreement at implementation of measures to ensure reliable electrical supply and creation of conditions for connecting consumers to electric networks. This document determines development of electric grids of the region until 2015.

The Agreement is directed to ensure reliable and uninterrupted power supply, connection of new consumers and the efficient development of power grid facilities in the Leningrad Region. The estimated amount of investment in construction of power objects is over RUR 19 billion. Sources of funding are the tariff for electricity transmission based on long-term parameters using the method of return on invested capital (the RAB method of tariff regulation) and payment for technological connection. Program implementation of priority actions of Lenenergo in the Leningrad Region for the period 2010-2015 envisages the construction of six new substations 35 - 110 kV, upgrading more than 22 energy sources, as well as updating existing and installing new overhead and cable lines (110-35 kV).

JSC "Lenenergo" approved the environmental policy with the main principle of "Baltika – an environmental comfort zone".

The environmental policy of the Company was developed in line with the government strategy in the field of environmental security and regional environmental protection programs. Its purpose is to structure work to ensure environmental safety. The Company recognizes the priority of environmental security as an integral part of national security and takes responsibility for ensuring environmental protection during the operation and development of power generation facilities in St. Petersburg and the Leningrad Region.

JULY 2010

The Board of Directors of the Company elected the Director General of JSC "IDGC Holding" Nikolay SHVETS, the Chairman of the Board of Directors, and the Vice-governor of St. Petersburg, Alexey SERGEEV, the Deputy Chairman of the Board of Directors of the Company.

The structure of Committees and chairpersons as well as members of the Committees of the Board of Directors of the Company was approved. The Committee for Strategy and Development was headed by Deputy Director General for Economy and Finance of JSC "IDGC Holding" Alexey Demidov. Pavel Okley, Deputy General Director - Technical Director of JSC "IDGC Holding", was elected as chairman of the Reliability Committee.. The Committee on HR and Remuneration will be chaired by Deputy Director General - Executive personnel manager of JSC "IDGC Holding" Alexander Popov. Remes Seppo Juha, Director General of LLC "Kiuru", was approved as Chairman of the Audit Committee , while the Committee on technological connection to power grids was headed by the Director of the M&A Department of JSC "IES", Mikhail Azovtsev.

Andrey Sorochinskiy, earlier holding of the post of the Deputy Chairman of the Committee on power and engineering of St. Petersburg, was elected as the new Director General of JSC "Lenenergo".

Andrey Sorochinskiy was elected by decision of the Board of Directors of the Company. From July, 2004 until July, 2010, he held the post of Deputy Chairman of the Committee on power and engineering of the Government of St. Petersburg (PhD in Economics). In 2001, he defended a dissertation on the theme "Investment crisis in modern Russia and the role of fuel and energy complex in its overcoming", which was awarded by certificates of honor of the Ministry of Regional Development of the Russian Federation and letters of commendation by the Governor of St. Petersburg.

AUGUST 2010

Andrey Sorochinskiy, the general director of JSC "Lenenergo", presented vectors the Company’s development. A qualitative "reboot" of business processes was started in the Company.

JSC "Lenenergo" tightened its control over the work of contractors to maximize the fulfillment of obligations on technological connection to power grids. The company continued to set measures for quality improvement of operational maintenance and overhaul equipment maintenance to reduce technological incidents in the networks of 6 - 110 kV.

JSC "Lenenergo" proceeded with electric network assets consolidation. On August 16, 2010, the Company acquired 96.95% of the share capital of JSC "Tsarskoselskaya Power Company" and 98.13% of share capital of JSC "Kurortenergo".

The Board of Directors approved the decision (Minutes No.3 of 02.08.2010) to acquire shares of JSC "Tsarskoselskaya Power Company" through the acquisition of 8,501 (eight thousand five hundred and one) shares on July 30, 2010, representing 96.95% of the share capital of the Company (ordinary shares after the acquisition - 98.93%) and participation of JSC "Lenenergo" in JSC "Kurortenergo" through purchasing 1676 (one thousand six hundred and seventy-six) shares, representing 98.13% of the share capital of JSC "Kurortenergo" (share of common stock after the purchase - 99.75%).

JSC "Lenenergo" fully restored electricity in the Leningrad Region after a series of powerful hurricanes. Power engineering specialists carried out a tremendous amount of work that is comparable in scale to the annual investment program: they restored 1,121 miles of OTL 6 / 110 kV.

In the epicenter of hurricanes the wind velocity is comparable to that of American tornadoes, with wind speed of 60-100 m/sec. At such wind speed, wooden and reinforced concrete support of transmission lines, designed to sustain storms (25 m/sec), break like a match. A considerable part of overhead lines of 6-10 kV were completely destroyed. Thousand of pylons were tumbled down. If we connect all the wires torn by the hurricane, their length shall exceed 600 km.

The headquarters for emergency response of the Government of the Leningrad Region was in control at eliminating the consequences of hurricanes. The Company’s maintenance team worked in a round-the-clock mode for prompt restoration of the power supply system to other power companies of the Northwest. As a result, JSC "Lenenergo" recovered 2,131 pylons in the shortest possible term, as well as 2,900 km of wires, which is the distance from St. Petersburg to Chelyabinsk. JSC "Lenenergo" re-established 60 transformer substations of 35 - 110 kV, and renewed work of 4,141 substations of 6-10 kV. Thanks to the operative actions of power engineering specialists electric power was provided to 1,074 settlements with a population of 293,806 people. Experts noted that the Company regained power in the Leningrad Region in the shortest possible time. A significant part of electrical networks were virtually rebuilt.

A satellite system for monitoring the Company’s vehicle location became the most innovative exhibit at the St. Petersburg show of special equipment. This system allows the dispatcher to find out vehicles position with several meters accuracy.

JSC "Lenenergo" implemented navigation modules for machines operational outreach. Now the route, fuel consumption, report on the stops and even information about the speeding effect is delivered on the control monitor. The company also showed an emergency repair car GAZ - 3309, truck tractor with semi-heavy trucks, an excavator - loader JCB 3SH Super, crane-based vehicle-terrain Ural - 4320 and an electrical engineering laboratory. The Company has 1,098 vehicles at its disposal and machines for operational activity and the emergency situation support. Since 2007, the Company’s transport stock was updated by 30 percent. Each year, the company gets from 80 to 100 transport units to enhance the Company’s provision with modern vehicles.

SEPTEMBER 2010

Company’s team participated in the All-Russian competition for professional skills teams servicing high-voltage power lines.

Power engineering specialists from Volgograd, Syktyvkar, St. Petersburg, Perm, Kaliningrad, Moscow, Kuzbass, Udmurtia, Smolensk, Stavropol, Surgut, and Samara replaced garlands of porcelain insulators on the glass, put together 12 pieces of torn wire of pylon on air lines of 110 kV, put out the "fire" at the site 36 times, and answered nearly 2,000 questions on computer tests. They took more than a dozen foreign objects with wires, and "Gosha", the victim of electrocution, was saved four times in the one day competition. Oleg Mizinin, an electrician maintenance power specialist of transmission lines of 5 OL electrical network affiliate of Lenenergo - "Regional Power Grids", was recognized by the judicial team as the best participant.

JSC "Lenenergo" implemented new methods of wooden pylon diagnostics. These new methods will considerably increase the speed of elimination of technological failures in networks of the power complex.

The Company’s specialist tested devices based on an acoustic method for determining the status and quality of wood. The device is called a linear state-meter Universal or PIM-U.

Andrey Sorochinskiy, Director General of JSC "Lenenergo", conducted a number of meetings with the heads of contracts organizations. New principles of interaction were proclaimed: rigid control, timely obligation fulfillment.

Encouraging competition in all phases of construction, repair, maintenance and power distribution networks became one of the main Company management principles in relationships with contractors. Determining the timeliness of execution is a contractor of its obligations to build the distribution network in accordance with the parameters of the Company’s business plan, which affects the quality of work on technological connection.

JSC "Lenenergo" revives the tradition of mentoring. The company will pay for training promising students of profile colleges and universities. In addition, a "reboot" of the overall human resources policy was started.

JSC "Lenenergo" is reviving the practice of professional coaching. The return of this tradition is intended to address a number of strategic goals. Nowadays the number of young professionals under the age of 25 years is 9.2% of the total number of Company staff. Communication between generations and the transfer of skills should bring a qualitatively new level of rationalization and innovative activity, technological innovations and implementation of advanced technologies as well.

JSC "Lenenergo" proposed developing temporary rules for cutting down trees near power lines.

The Company’s top management initiated the development of the Provisional Rules for design work on the clearing of timber land in protected areas of overhead power lines, cutting down trees that threaten power lines to fall from the forest outside of protected areas. The Company’s Director General Andrey Sorochinskiy acted with such a proposal at a meeting of the Leningrad Region Government.

Cutting down trees within the protected zones of overhead lines, not only within the project rides, will significantly increase the reliability of electricity supply.

JSC "Lenenergo" developed an extensive program of tele-mechanization of substations. Within a year and a half emergency repair teams should be able to start the location process of possible failures in the network remotely with the use of laptops.

The program will provide the opportunity to respond quickly to emergency situations that will allow considerably reducing the time of removal technology failures in the network. The Company’s program involved the installation of tele-mechanization systems - 21 substations of the Leningrad Region, the modernization of the operational and information management systems (OIMS), and the organization of 221 communication channels.

OCTOBER 2010

JSC "Lenenergo" plans to enter 100% electric power accounting. The basic theses of the program of power savings and increase of power efficiency of the Company were sounded at the First inter-regional conference “Power efficiency in the industry»”.

The program of power savings and increase of power efficiency of JSC "Lenenergo" for the period 2010 - 2015 provided the introduction of Smart Grid modern technologies, application of intellectual systems of accounting of power resources - Smart metering, increase of efficiency, reliability and adaptability of work of electric networks of JSC "Lenenergo" and stimulation of end users to power savings. The Company plans to modernize and establish 466,350 complexes of commercial accounting in 2010-2015. This will make it possible not only to receive trustworthy information about the volumes of transferred electric power, but also to lower commercial losses in networks.

The Company’s Board of Directors formed a new composition of the Board.

Four new board members were elected to the Board of Directors. They are the deputy general directors Grigory Kharenko, Vladimir Khrenov, Artem Petrov and Maxim Artemyev.

JSC "Lenenergo" held the Second St. Petersburg power forum "Technological connection: modern aspects" from October 25-27, 2010, a professional platform for power engineering specialists supported by JSC "IDGC Holding" and the Committee on Power and Engineering of St. Petersburg.

Gennady Binko, Deputy Director General of JSC "IDGC Holding", Andrey Sorochinskiy the Director General of JSC "Lenenergo", Sergey Podkolzin, Head of the Department of Ministry of Energy of Russia for NWFD, , Alexander Kukhmaj, Director General of JSC "Northwest IDGC", , Michael Kolesnikov, Member of the Presidium of the all-Russian public organization of small and medium business SUPPORT of Russia, and others took part in the plenary session of the Forum.

JSC "Lenenergo" launched the "Neva DSK" substation after reconstruction.

On October 21, 2010 the Governor of St. Petersburg, Valentina Matvienko, and the General Director of JSC "Lenenergo" opened the renewed power source of the Frunze area – substation 110 kV "Neva DSK" No.145. The substation has been almost newly constructed. Modern methods of design and substation equipment using highly effective equipment made it possible to increase the capacity of the power source more than in 4 times, and also considerably improved the reliability of the power supply of consumers providing accomplishment of modern rates on labor safety, raising efficiency of management of the substation in various operating modes. Substation № 145 was completely automated. Among its consumers there are a number of large city industrial enterprises, such as JSC "Obuhovsky Factory", State Unitary Enterprise "Vodokanal" branch, JSC "LEMZ-OBUHOVO", and JSC "Zapstroykomplekt". The total cost of the project totaled RUR 776 mln.

JSC "Lenenergo" presented the GIS system - the electronic atlas of all Petersburg communications with tight coupling to districts.

The geo-information system was developed in the Company based on a database grid infrastructure of St. Petersburg. With this system, new schematics are displayed in "real time" on an electronic map. Also, the system can calculate network modes i.e., it can make the best choice of equipment for technological and technical parameters.

JSC "Lenenergo" Board of Directors approved the corrected business plan of JSC "Lenenergo" for 2010. The target for the Company’s net income for 2010 was increased by 78%. As a part of the Company’s business plan the investment program for 2010 with adjustments was also approved.

Financing of the Company’s investment program was increased by RUR 2,796 mln and totaled RUR 15,183 mln, which is 22% higher than the previously planned target. Accomplishment of the Company’s investment program was also increased up to RUR 3.21 mln with 22.6% growth. This was the main cause of the Company's BP adjustments.

NOVEMBER 2010

JSC "Lenenergo" connected a sandpit of the "Cement" factory in the Slantsy District of the Leningrad Region. The power supply is 110/10 kV substation No. 209 "Rodina".

The factory Cement already extracted limestone for cement production. It equipped the crushing-sorting complex, pumping stations and mechanical repair area. The Company developed a specification for the factory technological connection. To create an external power supply scheme a new power supply line 10 kV from a new cell switchgear 110/10 kV "Rodina" was installed to the transformer substation. The Company provided for a sandpit area of more than 100 hectares 800 kVa. The mineral deposit "Duboyem" is located 16 km to the north-east of the city Slantsy and 1.5 km to the south of the railway station Vervenka in the direction of St. Petersburg - Gdov (Pskov region).

JSC "Lenenergo" participated in the IV Annual international conference "Best practices of Investor Relations".

The conference “Best practices of Investor Relations” is an international platform which annually collects specialists and experts in the IR-area, where forecasts of development of an economic situation, experience of modernization of the investment concept (investment story), modern practice of information disclosure, and advantages and disadvantages of M&A of public companies are discussed.

On November 09, 2010 a conference call of the Company’s top management with investment analysts took place. Adjustments to the Company's Business Plan, such as the investment program revision and net profit increase of 78% were discussed via the conference call.

JSC "Lenenergo" received a passport of readiness for the autumn-winter period 2010-2011. The document officially confirmed that the Company was ready for the winter period. For power engineering specialists this event is a kind of annual examination of the quality of carrying out the maintenance program as well.

Network-wide response exercises were held in all Company’s branches. Successfully completed joint exercises were held with the Ministry of Emergency Measures, the municipal administrations, Leningrad RDO, including JSC "Northwest MES", and generating companies. The Company repaired more than 4,000 km of overhead lines 110-0,4 kV and nearly 3,000 110-0.4 kV cables, replaced more than 22,000 insulators on overhead lines 110-0,4 kV transformer substations rehabilitated in 1525 and almost 700 switches 6 - 110 kV over 10 months. In order to be able to quickly find the damaged power lines, a contract for helicopter over flights of IL 35 - 110 kV was signed. Thus, in 2010, using laser aero-scanning, a helicopter surveyed nearly 200 kilometers of overhead lines 35 - 110 kV.

To support the operation of electrical networks in emergency situations, schemes of diesel generators use were developed. The Company’s balance has 15 such plants with a total capacity of 3.9 MW. The emergency stock of materials is formed at 100%.

The Governor of St. Petersburg, Valentina Matvienko, handed over to Andrey Sorochinskiy, Director General of JSC "Lenenergo", the diploma of the winner of the Competition "Made in St. Petersburg-2010".

The Company proposed a new method for determining the state of the cable line. Previously the Company used the easiest way - high voltage cable test DC, since only the estimated state of isolation. The draft of JSC "Lenenergo" features the assessment of technical condition of cable lines with advanced technology: the method of partial discharge is the reverse voltage. According to the results of such measurements, one can predict the state of the cable line (CL) for a certain period of time.

RTS stock exchange awarded JSC "Lenenergo" for information disclosure.

The results of the XIII Competition of Annual Reports organized by the RTS Stock Exchange were tallied on November 19, 2010. JSC "Lenenergo" won first place in the nomination for the best disclosure of information in the Annual Report among companies with capitalization from RUR 10 to 100 bln".

A record quantity of Russian and foreign companies, 138, participated in the Competition of Annual Reports in 2010, from practically all sectors of economy: oil-extracting, metallurgy, financial, telecommunications, FMCG and others. The Competition organizers made special mention of the grid network (IDGC) companies as the basic driver in the field of information disclosure increase by Russian public companies.

The Vice-governor of St. Petersburg, Alexey Sergeev, and Director General of JSC "Lenenergo", Andrey Sorochinskiy opened the renewed power source of the Vyborg area – 110 kV substation "Parnas-Communal" No. 89 on November 25, 2010.

Works at the substation were conducted in three phases. In 2007, the open distribution system of 110 kV was reconstructed using modern high-voltage equipment produced by ABB. In 2008-2009, power cable 110 kV fiber-optic line was laid, a new control building was built – a management point which has equipment installation DC, relay protection and automation, energy metering, telemetry, and communications. In 2010, the power engineering specialists control management point enclosed to Switchgear 10 kV to accommodate cells of complete switchgear 10 kV, to reschedule existing building control equipment installation of automated process control systems (APCS). The project cost totaled RUR 710 mln.

JSC "Lenenergo" published consolidated results under international standards of financial reporting (IFRS) for the first half of the year 2010.

The financial report of JSC "Lenenergo" for the 1st half-year of 2010 was prepared according to IFRS standards, and checked by the independent auditor company Ernst&Young, and was considered by the Company’s Audit Committee on November 23, 2010.

The profit on ordinary shares – base and diluted – increased to RUR 0.23 (following the results of the 1^st half-year 2009) to RUR 2.54 (the data following the results of 1^st half-year 2010). For the first half of the year 2010, sales revenue grew by RUR 3,251,778 thousand, or by 32% in comparison with the similar period of 2009, and totaled RUR 13,285,112 thousand.

The size of shareholders profit of the parent company for six months as of June 30, 2010 reached a peak of RUR 2,586,336 thousand, which is RUR 2,348,108 thousand, or 985.6% more than for the similar period of 2009.

DECEMBER 2010

JSC “Lenenergo” and a branch of JSC "UES FGC" MES North-West agreed to synchronize investment programs. The agreement was signed at a meeting of the Governor of St. Petersburg with JSC "Lenenergo".

The Company General Director Andrey Sorochinskiy and Director General of JSC "FGC UES" MEA Northwest Valery Ageyev signed a five-year agreement of cooperation. The document provided for the synchronization of investment programs in order to improve operational control and development of power grid facilities of St. Petersburg until 2015.

The JSC "Lenenergo" Board of Directors approved the Business plan on December 27, 2010, including the investment program of the Company for 2011.

The planned operational revenue for 2011, according to the Business plan, edged up RUR 42,475 mln, which is 29% higher than the similar indicator for 2010. As a result of such growth, JSC "Lenenergo" should get total profit about RUR 8,058 mln, which is higher than 2010 data by 56%. The investment program for 2011 picked up by RUR 22,662 mln.

On December 28, 2010 FTS of Russia approved JSC "Lenenergo" transition (including the St. Petersburg and the Leningrad Region) to the new method of tariff regulation (RAB) from January 01, 2011.

JSC "Lenenergo" started reconstruction of substation 110 kV № 720 in the settlement Mga. The project will be finished by the end of 2011.

Reconstruction of 110 kV substation № 720 "Mga" will take place in two stages. The first - the installation of the transformer capacity of 16 MVA - ends in July 2011. Implementation of the project will be completed by the end of 2011. Power engineering specialists will install a second transformer capacity of 16 MVA to increase the total capacity of 12.6 MVA substations to 32 MVA. This greatly improves the quality of electricity supply and enables the connection of new consumers. Also in the second half of 2011 on the reconstructed energy sources switchgear KRUN 10 kV should be completely replaced, introductory high-voltage equipment, installing modern gas-insulated breakers 35 kV device telemetry, communications, and RZA on the basis of microprocessor protection. The final goal is to provide residents of Mga with a new source of energy.

Substation № 720 is completely automated and does not require the constant presence of staff. Control and management is carried out remotely using equipment automated process control systems and transmission of telemetry data in the Network Center of the Company.

JSC "Lenenergo" connected the new station of the St. Petersburg underground "Obvodnoy Canal" to electric networks.

The power supply for the new station is substation 110 kV № 542 "Borovaja". The allocated capacity is 2850 kVa. For creation of the external scheme of an electrical supply of power established modern vacuum switches in several cells of substation № 542, on the basis of digital relays adjusted relay protection and automatics, equipped counters of accounting of the electric power. A distribution transformer substation (RTP) was built as well as two cable line 10 kV on the embankment "Obvodnoy Canal", laid from the power supply to the new RTP according to technical specifications.

The Minister of Energy of the Russian Federation, Sergey Shmatko, awarded the General Director of JSC "Lenenergo" Andrey Sorochinskiy with the government award.

The Department of Energy of the Russian Federation noted General Director of JSC "Lenenergo" Andrey Sorochinskiy with the "Rising star". The award was handed over by the Minister of Energy Sergey Shmatko in Moscow at a ceremony devoted to the Day of power engineering specialists and the 90th anniversary of creation of the GOERLO Plan.

JSC "Lenenergo" developed special regulations on technological connection to electric networks in the Leningrad Region.

JSC "Lenenergo" modernized the mechanism of technological joining to electric networks – the special regulations on technological connection in the Leningrad Region were developed. The process of connection to electric networks of JSC "Lenenergo" became more transparent and effective. The regulations on technological connection, which accurately structured all stages of this process, were brought into accordance with the existing legislation.

JANUARY 2011

Starting from January 01, 2011 JSC "Lenenergo" works according to a new method of tariffs regulation (RAB regulation).

Taking into account that the tariff was established for five years, JSC "Lenenergo" can predict both its expenses and incomes for some years forward. Transition to RAB first of all allowed implementing the investment program for St. Petersburg and the Leningrad Region necessary for development in a total amount of more than RUR 100 bln, which will raise the reliability and quality of electricity supplies to consumers. Borrowed funds with low interest rates and profit which was accounted in tariffs are the sources of financing for implementation of the investment program.

JSC "Lenenergo" completed technological connection of the "Cement" plant in the Slantsy area of the Leningrad Region.

Power supply source for the new plant became 110/10 kV substation No.219 "Slantsy-Cement". The Company provided 50,000 kVa to the whole plant. The Company developed a specification for connecting to the power grids of the plant. To create an external power supply scheme, a new substation "Slantsy-Cement" was constructed, with total capacity of 126 MVA 110/10 kV voltage.

Modern relay protection and automation at the new substation was executed on a microprocessor-bases. In addition, power sources were installed sensors and telemetry was the transfer of data to the regional dispatching power systems of St. Petersburg and the Leningrad Region. For reference - in November 2010 the Company connected the "Cement" quarry plant, located on the limestone deposits "Duboem".

A telephone conference of JSC "Lenenergo" top-management with investment analysts took place on January 26, 2011.

FEBRUARY 2011

JSC "Lenenergo" took part in the Forum "Russia-2011" on February 02-04, 2011.

This annual event of the investment society of Russia and the CIS countries was set as a meeting place of leaders of business community, investors, heads of official bodies and the ministries, and well-known experts and scientists.

Among speakers were the Vice-president of the Government, Minister of Finance of the Russian Federation, Alexey Kudrin, the assistant to the President of the Russian Federation, Arcady Dvorkovich, Mayor of Moscow, Sergey Sobjanin, Chairman of the Board of Sberbank of Russia Herman Gref, Deputy Director General on finance and investments of JSC "Aeroflot" Shamil Kurmashov.

The Company was represented by General director Andrey Sorochinsky, Deputy Director General on corporate governance Grigory Kharenko, Director on Economy Tatyana Sudakova and Director on Finance Victor Punov.

On February, 3^rd, 2011 the Company’s top management carried out one-on-one meetings with representatives of Uralsib Asset Management, Prosperity AM, Troika Dialogue, Templton AM, Vermut AM, SPRING, and East Capital and discussed forecasts for the Company’s development and additional issue of ordinary shares in 2011-2013 as well. The management highlighted key drivers of Company’s value growth in 2011.

The Forum’s primary subject was changing the paradigm of world and Russian economy. The Forum organizer was Troika Dialogue investment company .

JSC "Lenenergo" started reconstruction of substation №719 "Shapki" in the Tosno area of the Leningrad Region.

JSC "Lenenergo" tripled the capacity of substation 35/10 kV "Shapki" in the Tosno area of the Leningrad Region. Reconstruction was started; the project will be finished by the end of 2011.

JSC "Lenenergo" declared the winners of the inter-regional competition in journalism "Energy of the word".

More than 30 nominees (about 60 publications) who are journalists of St. Petersburg and the Leningrad Region participated. "The best publication on the theme of technological connection" (technological connection to electric networks of JSC "Lenenergo") was won by correspondent Olga Loskutova who presented materials published in the magazines "Prigorod" and "Federal infrastructure and economy".

In the nomination "Dynamical economy" (financial and economic news about JSC "Lenenergo") there were two winners: Andrey Zhukov, the editor-in-chief of RBC daily St. Petersburg, and Mikhail Muravev, correspondent of "Interfax" news agency.

JSC "Lenenergo" started building a new distribution network in the Osmino settlement of the Leningrad Region.

JSC "Lenenergo" started construction of a new distribution electric network in the Osmino settlement in the Luga area of the Leningrad Region. Power engineering specialists established 372 ferro-concrete pylons and paved more than 10 kilometers of air-lines of 0.4 kV. Another two kilometers will be paved by the project end.

Reconstruction of networks of 0.4 kV was continued in the Luga district of the Leningrad Region. In the Osmino village specialists of the Company’s business unit "Luga PDN" implemented an additional transformer substation kiosk type and two transformer substations (TS) were modernized. As a result, the total capacity of power sources doubled and reached 1.7 MVA. By the summer of 2011, two complete TP will be constructed in the village, and the total capacity will reach a peak of 2 MVA. The updated electrical network provides uninterrupted power supply for 2,000 inhabitants of the village and allows providing connection to new consumers. It also boasts several socially important objects: the House of Sisterly Living, first aid station, and Recreation Centre.

On February 18, 2011 St. Petersburg and Leningrad region recorded a new high of daily current consumption in 2011. JSC "Lenenergo" fixed a new maximum indicator – 7,469 MW.

The previous record had been established on January 28, 2010 – 7,402 MW. In general, in January 2010, the Leningrad power supply system beat the record of daily consumption with a mark of 7,135 MW. The electrical supply to consumers was carried out without serious technology failures and outages.

MARCH 2011

Lenenergo and Social Council for Small Business Development under the Governor of St. Petersburg opened a public reception at the St. Petersburg "House of the Entrepreneur".

Every Thursday at the House of the Entrepreneur the leaders of energy companies meet with representatives of small businesses. The Company organized the so-called "remote workplace" - access to the customer base of the Company, which allows solving problematic issues of technological connection of small businesses to the power grids in on-line mode.

2. Position of the Company in the Industry

After the long period of stable economic growth, the regions of the Company’s activity faced the challenges of the global world financial and economic crisis. Despite the depth of the negative effects and speed of propagation of the crisis, Governments of the regions managed to perform the transition from the management of "economies of growth" to the organization of anti-recessionary management, and in the future, in the process of stabilization of the economic situation, to re-start a gradual transition to the actions stimulating economic development of federal regions.

Since the prospects of JSC "Lenenergo" are direct related to the situation in the country's economy as a whole, and in the regions of the Company activity, in particular, the monitoring and considering of the situation in the regional economy is an indivisible element of its strategic development.

2.1 Region Included in the Company Area of Service – St. St. Petersburg

Despite deterioration in the Russian economy in comparison with the pre-crisis period, the development of the St. Petersburg economy in 2010 was performed according to the main principles provided by the Concept of its social and economic development⁵. Diversified structure, high level of development of financial and bank infrastructure, availability of modern trade networks and a capacious consumer market, as well as a high level of competitiveness of a number of manufactures are still among the strengths of the region’s economy.

The diversified structure of the city economy combined with a high rate of institutional and structural reforms in the Russian Federation, giving St. Petersburg one of the leading positions in the country in terms of competitiveness, and creates preconditions for attraction of investments and successful development of perspective industries of the city economy. At the same time, there can be noted an insufficiently high export-oriented economy, and considerable depreciation of basic production assets.

The social sphere was among main priorities for the Government of St. Petersburg in 2010. Great attention was given to health services and education. Improvement of demographic indicators was recorded in the region: birth rate growth has proceeded, whereas the death rate has decreased.

In general, with respect to the key regional macroeconomic indicators, the following can be noted: the value of the consumer price index for St. Petersburg in 2010 constituted 109.4 % which is slightly (0.9 percentage points) above the level of the previous year, and exceeds the all-Russian CPI following the results of 2009 (108.8%). Growth of the industrial production index, the volume of investments into fixed capital, and growth of balanced financial result of the enterprises was thus observed. Industry, which is the leading sector of the city economy, developed intensively. In 2010, the dynamics of industrial production advanced faster than the average Russian indicators. The situation in the construction industry has improved. In addition, there was growth of foreign trade turnover accompanied by an increase of export and import, although the trade balance remains negative.

Improvement on a number of indicators of social and economic development of the region shows signs of stabilization of the economic situation in comparison with the last reporting year.

Actions of the Government of St. Petersburg in 2010 were directed not only at economic restoration, but also at quickening positive tendencies of its development, which has found reflection in "the Basic events of activity of the City government on stabilization of the economy and provision of steady social and economic development of St. Petersburg for 2010".

The basic priorities of the Government of St. Petersburg in the reporting year were as follows:

• support of social and economic stability and provision of stability of economic development;
• stimulation of economic growth (assistance at employment of the population, provision of effective social protection, support of the real sector of economy, development of housing construction and road and transport infrastructure);
• economic modernization (increasing investment activity of the enterprises of St. Petersburg, support of innovative-active business).

Creation of conditions and preconditions for the most efficient control of budgetary funds according to the state policy priorities has proceeded on a continuous basis.

⁵ The concept of social and economic development of Saint Petersburg for the period till 2025 was approved by the Governmental order of Saint Petersburg as of July 20, 2007 No.884

2.2 Region Included in the Company Area of Service – Leningrad Region

In comparison with the majority of Russian regions, the Leningrad Region shows a higher degree of resistance to current economic conditions, thanks to its favorable geographical position near St. Petersburg and on the basic transit routes between Russia and EU.

In general, the year 2010 became successful for the Leningrad Region⁶ in all industries of the economy and in the social sphere. The growth of GRP unlike many other regions of the Russian Federation, the index of industrial production, essentially exceeding the average Russian indicator⁷ , and the volume of investments into fixed capital were noted. The level of incomes on the consolidated budget, which is yet remaining social-focused, was exceeded. Also, in 2010, a bonded loan issued by the Government of the region made in 2003 was successfully repaid, which confirmed the reliability of the region as a business partner confidently coping with its commitments.

Throughout the long period the Leningrad Region has been one of the most rapidly developing regions of Russia with great investment potential. According to the Ministry of Regional Development, the region takes second place in investment appeal among all subjects of the Russian Federation after the Tyumen Region. There are more than forty projects with a volume of investments exceeding USD 100 mln in the investment portfolio of the region. In parallel with work to attract major investors, a series of measures to support entrepreneurship and the development of small and medium-sized business was implemented. Taking into account the interests of development of the regional economy, among the most perspective spheres of capital investments are the fuel-energy complex and the development of power-consuming industries, high-tech technologies, tourism and tourist infrastructure, and a number of others.

As a whole, there is improvement in a number of indicators of development of regional economy relative to the previous reporting year, although the Leningrad region failed to reach the pre-crisis level of economical development to the full in the reporting year. The growth of trade turnover was observed in the region (thus, trading balance is positive). The change of real monetary incomes is also positive.

The Leningrad Region went on with intensive industrial development in 2010: the basic direction of the economy, which is the key source of filling the regional budget. The index of industrial production exceeded the level of the last reporting year. Processes of re-structuring of industrial enterprises through various funding mechanisms and sources, including a line of credit of the International Bank for Reconstruction and Development to the Government of the Russian Federation (total USD 85 mln) have proceeded.

In addition, there have been good results in the construction industry of the Leningrad Region. Rates of house building in the region for 2010 increased by 1%, which testifies that the industry overcame the negative consequences of the financial and economic crisis. On the indicator of commissioning of general floor space put in operation in the North-West Federal District, the Leningrad Region is in second place among the subjects of the NWFD. Stable rates of development in 2010 were also kept by agriculture.

Among the main negative trends in the economy of the region is the growth of consumer price index. Its value has reached 111.1%, which exceeds both the level of the last reporting year (by 1 percentage point), and the nationwide CPI (by 2.3 percentage points).

Actions of the Government of the Leningrad Region, aimed at further development of the regional economy and overcoming the consequences of the financial and economic crisis in 2010, were reflected in the Program of competition development in the Leningrad Region in 2010-2012. The program includes a range of activities designed to be an effective tool for improving the competitive environment in all fields of activity of economic entities in the region. It aims to develop the regional competitive environment, the stabilization of prices for socially significant goods and services, increase competitiveness of economic entities in the Leningrad Region, provision of food safety, the prevention and elimination of consequences of the crisis on key commodity markets, support of socially vulnerable population and increase of the public welfare level.

⁶ According to materials of the official representative of the Leningrad Region

⁷ The industrial production index of the Russian Federation for 2010 constituted 108.2%

2.3 Competitive Environment

JSC "Lenenergo" is a regional distribution grid company, and it performs its activity on electric power transmission on the territory of two constituent entities of the Russian Federation with separate tariff regulation: St. Petersburg and the Leningrad Region. Each of the two regions sets its own tariffs for the services on electric power transmission.

The position of the grid company in the market of electric power transmission is primarily determined by the composition of power network facilities and its location on the territory of the region. For now, JSC "Lenenergo" is the largest network company in the region. In 2010, the share of electric power market in part of electric power transmission directly to consumers connected to the Company’s networks was estimated at 73.7% in St. Petersburg, and 64.4% in the Leningrad Region, considering those consumers connected to the networks of JSC "Lenenergo" indirectly through power installation of generating companies.

Currently, there exist three levels of grid companies in Russia, which were created following technological and administrative-territorial indications:

Level 1: federal grid company, which owns lines of 220 kV and higher. The company performs its activity on the whole territory of the Russian Federation, its branches are located in all regions of Russia.

Level 2: interregional distribution and other grid companies, which were formed following the reorganization of RAO UES. These companies own 110-0.4 kV networks and render services on electricity transmission on the territory of the region of their location.

Level 3: local grid companies, which own mainly 0.4-10 kV networks. These companies were mostly founded on the basis of wholesale entities – resellers or large industrial trades of consumers, which allocated electric power transmission into a separate type of activity.

JSC "Lenenergo" is among distribution companies of the second level, in other words a network company performing activity for electric power transmission via its own networks in territory of only two regions: St. Petersburg and Leningrad region.

Along with JSC "Lenenergo", activities at connecting consumers on the territory of St. Petersburg and the Leningrad Region are performed by:

• JSC "St. Petersburg Electric Networks",
• MES of the North-West - branch of JSC "FGC UES",
• JSC "Leningrad Regional Managing Electro Network Company" (JSC "LOESK"),
• A number of adjacent network companies, whose spheres of responsibility are fixed by resolutions of the governments of the corresponding regions of the Russian Federation.

Regarding activity on technological connection, the competitive environment of JSC "Lenenergo" includes:

• JSC "St. Petersburg Electric Networks" - on the territory of St. Petersburg,
• JSC "Leningrad Regional Managing Electro Network Company" - on the territory of St. Petersburg.

The territorial borders of JSC "St. Petersburg electric networks" include not only the substations financed from the budget of St. Petersburg and put on the balance of JSC "SPEN", but also networks of JSC "Lenenergo". A similar situation has developed on territory of Leningrad region.

At present, competition between the grid companies of the region is practically absent. The competition between the grid companies is possible if several grid organizations in the region own the networks of the same voltage level on the same territory. For now, regional and local grid organizations own 0.4-10 kV networks, but the competition in the given segment of the market of services in electric power transmission is practically absent, as, basically, consumers at the given voltage level is the population and budgetary consumers, the cost of servicing which exceed the revenue received from rendering of services to the given consumers. However in the future, due to approval of some political decisions, competition may appear.

It is possible to refer to such political decisions the one considering approval by regulation authorities in 2010 of the method of "boiler" tariffs for electric power transmission in such a manner that JSC "Lenenergo" is "a uniform window" ("the holder of the boiler") on the conclusion of contracts for electric power transmission with consumers of services – sales companies (Warranting suppliers), and directly with consumers. This decision does not provide almost any advantages to JSC "Lenenergo" as JSC "Lenenergo" involves services of the adjacent network organizations (ANO) and pays for services of electric power transmission to JSC "FGC UES". Thus, the costs for services in electric power transmission over the networks of ANO and JSC "FGC UES" in revenues for electric power transmission of JSC "Lenenergo" amounted to 44% in 2010. Therefore, significant costs for services of ANO and JSC "FGC UES" in the required gross revenue of JSC "Lenenergo" limit own required gross revenue of the Company.

In 2010, the tendency to reduce the volumes of rendered services of electric power transmission to the consumers connected to JSC "Lenenergo" networks through "last mile" objects was observed. In particular, the consumer "Syassky CBK" legally signed the contract for services on electric power transmission directly with JSC "FGC UES" in quarter 4, 2010. As a result, the volume of the services rendered by JSC "Lenenergo" was reduced, and the revenues from transmission decreased by RUR 39.2 mln.

This problem is system-wide in nature and is primarily caused by imperfection of the current legislation of the Russian Federation regarding the use of the Unified Energy System objects. During the subsequent periods, there remains the risk of transition of consumers to direct relations with JSC "FGC UES", as well as a decrease in volumes of electric power transmission services rendered by JSC "Lenenergo".

3 Corporate Governance and Securities of the Company

3.1 Principles of Corporate Governance

JSC "Lenenergo" understands corporate governance to be a set of processes providing management and control of its activity and comprising relations between shareholders, the Board of Directors and the executive bodies of the Company in the interests of shareholders. The company considers corporate governance to be a means of increasing the efficiency of the Company’s activity, strengthening its reputation and decrease costs for attracting capital.

Corporate governance in the Company is based on the following principles:

Accountability. The accountability of the Company’s Board of Directors to all shareholders according to the applicable laws provides guidance to the Board of Directors in the course of development of strategy and performing management and control over the activity of executive bodies of JSC "Lenenergo".

Constitutional and legal and organizational documents of the Company accurately regulate mutual relations of JSC "Lenenergo" and shareholders, the submission to control of the Board of Directors and executive bodies to the General Meeting of Shareholders is provided, and competence between the Meeting of Shareholders, the Board of Directors and the executive bodies is differentiated.

The General Meeting of Shareholders elects an Audit commission that performs the internal financial and economic control of activity of the Board of Directors, control bodies and officials of the Company for conformity to the legislation of the Russian Federation, the Charter and internal documents of JSC "Lenenergo".

The Company annually approves the business plan and the investment program, which allow for effectively performing constant control of financial and economic activity.

For audit and approval of the annual accounting reporting of JSC "Lenenergo", the General Meeting of Shareholders annually approves an Auditor, who performs the audit of financial and economic activity of the Company according to requirements of the legislation of the Russian Federation and on the basis of the concluded agreement.

There is an Internal Control and Audit Department within JSC "Lenenergo" which functions on the basis of:

• Regulations on procedures of internal control of JSC "Lenenergo" approved by the Board of Directors on 09.12.2008 (Minutes No.6 dated December 9, 2008), which defines the internal control procedures to check the financial and economic activities of the Company. The Internal Control Department controls compliance with the procedures.
• Policy of risk management in JSC "Lenenergo", approved by the Board of Directors on 18.06.2010 (Minutes No.22 dated June 18, 2010) which determines main principles of the organization, implementation, and control of risk management processes in JSC "Lenenergo", as well as prime actions on forming of the risk management system.
• Policy of internal control in JSC "Lenenergo", approved by the Board of Directors on 18.06.2010 (Minutes No.22 dated June 18, 2010) which determines the main principles of the organization of the internal control system of JSC "Lenenergo" obligatory for observance, and establishing a uniform approach to implementation of the processes of internal control in the Company.

Fairness. The Company undertakes to protect the rights of shareholders and to ensure the equal treatment of all shareholders. The Board of Directors provides all shareholders with the possibility of getting effective protection in case of infringement of their rights.

Shareholders are entitled to participate in management of the joint-stock company by decision-making on the most important issues of activity of JSC "Lenenergo" at the General Meeting of Shareholders.

The notice of carrying out the General Meeting of Shareholders is directed to persons entitled to participation no later than 30 days prior to the date of carrying out of the General Meeting of Shareholders.

The shareholder (shareholders) who owns (own) not less than 1 (one) percent of voting shares of the Company has (have) the possibility to get familiar with the list of the persons entitled to participate in the General meeting of shareholders.

Shareholders are provided with accounting of ownership rights on the shares according to the applicable laws. The register of shareholders of JSC "Lenenergo" on the basis of the decision of the Board of Directors is transferred to the Registrar — JSC "Central Moscow Depositary" (up to 14.12.2010), and JSC "R.O.S.T. Registrar" (from 15.12.2010).

The place and time for carrying out the General meetings of shareholders is determined providing that shareholders have a real and convenient possibility to take part in them, that each shareholder has the possibility to implement his (her) voting power by the method most simple and convenient for him (her). According to item 10 of the Charter of the Company, the General meeting of shareholders can be conducted at the JSC "Lenenergo" location (St. Petersburg), or in Moscow.

The Company provides regular and timely granting to shareholders of complete and trustworthy information about JSC "Lenenergo". This right is implemented by the following ways:

• Granting to shareholders of exhaustive information on each issue on the agenda during preparation of the General meeting of shareholders;
• Inclusions in the Annual report, given to shareholders, of the necessary information, allowing to estimate the results of activity of JSC "Lenenergo" for the year;
• Entering the post of the corporate secretary, whose tasks comprise organization of events for preparation and carrying out of the General meeting of shareholders, meetings of the Board of Directors within the limits of his (her) competence.

Transparency. The Company provides in due time disclosure of trustworthy information on all material facts concerning its activity, including on its financial position, social and environmental performance, results of its operating performance, structure of ownership and management of JSC "Lenenergo", as well as an accessible approach to such information of all stakeholders.

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 line of the Interfax news agency as well as on the Company’s website on the Internet at www.lenenergo.ru.

The Company discloses information as follows:

• information which is disclosed while issuing securities;
• prospectus of the stock issue;
• quarterly report;
• information on material 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 Charter and other internal enactments which regulate the activities of the Company, including changes and amendments;
• information on the Company’s affiliates;
• 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;
• and others.

The disclosure and use of the information within the Company is regulated by the documents as follows:

• Memorandum of Corporate Governance of JSC "Lenenergo" (approved by the Board of Directors of JSC "Lenenergo" on 04.07.2000);
• Regulations on the Insider information of JSC "Lenenergo" (approved by the Board of Directors of JSC "Lenenergo" on 28.02.2006);
• Regulations on the Information policy of JSC "Lenenergo" (approved by the Board of Directors of JSC "Lenenergo" on 09.12.2008);
• Corporate Governance Code of JSC "Lenenergo" (the new edition was approved by the Board of Directors of JSC "Lenenergo" on 16.12.2008).

Responsibility. The Company acknowledges the rights of all stakeholders, 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, the Management Board, Director General, Acting Director General, and the managing organization (managing director) bear responsibility towards JSC "Lenenergo" for the losses to the Company caused by their actions (or failure to act) (item 15.4. of Article 15, item 21.23. of Article 21 of the Charter of JSC "Lenenergo").

The following internal documents within the Company regulate the activities of the management and control bodies of the Company:

• Regulations on the procedure of preparation and arrangement of the General Meeting of Shareholders (Minutes No.1 dated 26.06.2006 of GMS);
• Regulations on the procedure of convocation and arrangement of meetings of the Board of Directors (Minutes No.1 dated 26.06.2006 of GMS);
• Regulations on the procedure of convocation and arrangement of meetings of the Management Board (Minutes No.1 dated 30.05.2008 of GMS);
• Regulations on the Internal Audit Commission (Minutes No.1 dated 23.05.2002 of GMS);
• Regulations on the procedures of internal control of the Company (Minutes No.6 dated 09.12.2008 of the meeting of the Board of Directors);
• Regulations on payment of remuneration and compensation to the members of the Board of Directors (Minutes No.1 dated 30.05.2008 of GMS);
• Regulations on payment of remuneration and compensation to the members of the Internal Audit Commission (Minutes No.1 dated 30.05.2008 of GMS).
• Regulations on the activities of the Committees under the Board of Directors.
• Regulations on the activities of the Councils under the Management Board.

Compliance with the Corporate Behavior Code 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 Corporate Behavior Code, which was approved at the Meeting of the Government of the Russian Federation on 28.11.2002 (Minutes No.49) and recommended for use by joint-stock companies by the Order of FCSM No.421/r dated 04.04.2002, and the Corporate Governance Code which was approved by the Company’s Board of Directors on 26.12.2008 (Minutes No. 7 dated 29.12.2008).

Complete information concerning the compliance of JSC "Lenenergo" with the provisions of the Corporate Behavior Code and the Code of Corporate Governance Code is given in Appendices 12.5 and 12.6 to the present report.

Following the results of every half-year, the Board of Directors considers a report on fulfillment of the Corporate Governance Code with its subsequent publishing on the website of JSC "Lenenergo".

Information on major transactions, interested-party transactions, and other significant transactions performed by the Company in 2010

The Company did not perform any transactions this year which can be categorized as major transactions in accordance with the Federal Law "On Joint-Stock Companies".

Information on interested-party transactions categorized in accordance with the Federal Law "On Joint-Stock Companies" and performed by the Company in 2010 is given in Appendix 12.8 to the present report.

3.2 Information on the Executive Bodies

In accordance with item 9.1 of Article 9 of the Charter of JSC "Lenenergo", the following bodies pertain to the executive bodies of the Company:

• General Meeting of Shareholders;
• Board of Directors;
• Management Board (Collegial executive body);
• Director General (Sole executive body).

General Meeting of Shareholders

The General Meeting of Shareholders is the supreme managing body of JSC "Lenenergo".

Pursuant to the Company’s Charter and Federal Law No.208-FZ dated December 26, 1995 "On Joint-Stock Companies", the following issues pertain to the competence of the General Meeting of Shareholders:

1. Amendment of the Company’s Charter, or approval of the Company’s Charter, with the exception of cases stipulated by the Federal Law “On Joint-Stock Companies”, and issues, which concern the creation, reorganization, termination, and activities of the Company’s branches and representative offices;
2. Reorganization of the Company;
3. Termination of the Company, appointment of the liquidation Committee, approval of the intermediate and final termination balances;
4. Election of the members of the Board of Directors and early termination of their powers;
5. Decisions on the number, par value, categories (types) of authorized shares and the rights secured by those shares;
6. Increase in the Company’s authorized capital by increasing the par value of the shares or by floating additional shares;
7. Reduction of the Company’s authorized capital by decreasing the par value of the shares, by purchasing part of the shares by the Company in order to reduce their total quantity, and by redeeming the shares purchased or bought back by the Company;
8. Election of the members of the Internal Audit Commission and early termination of their powers;
9. Approval of the Company’s auditor;
10. Determining the procedure for the conduction of the General Meeting of Shareholders ;
11. Approval of annual reports, annual accounting statements, including profit and loss statement of the Company, as well as the distribution of profits, including the payment (announcement) of dividends, with the exception of profit which was distributed as dividends after the first quarter, half-year, or nine months of the fiscal year, and losses upon the results of the fiscal year;
12. Payment (announcement) of dividends upon the results of the first quarter, half-year, or nine months of the fiscal year;
13. Fragmentation and consolidation of the Company’s shares;
14. Decisions on the floatation of the Company’s obligations convertible into shares, and other securities convertible into shares;
15. Decisions on the approval of transactions pursuant to Article 83 of Federal Law No.83 "On Joint-Stock Companies";
16. Decisions on the approval of large-scale transactions in the cases envisaged by Article 79 of the Federal Law "On Joint-Stock Companies";
17. Decisions on the participation in financial or industrial groups, associations, or other corporate membership organizations;
18. Approval of internal documents regulating the Company’s activities;
19. Decisions on the payment of remuneration and/or compensation to the members of the Internal Audit Commission;
20. Decisions on the payment of remuneration and/or compensation to the members of the Board of Directors;
21. Decisions on other issues envisaged by the Company’s Charter and the Federal Law "On Joint-Stock Companies".

The General Meeting of Shareholders is not entitled to consider or decide on issues which do not pertain to its competence pursuant to the Company’s Charter and the Federal Law "On Joint-Stock Companies".

The proposals of the shareholders to include different issues into the agenda of the Annual General Meeting of Shareholders of the Company, as well as recommendations for candidates for election into the managing and controlling bodies of the Company, were discussed by the Board of Directors within the term stipulated by the current legislation of the Russian Federation and the Company’s Charter (Resolution of the Board of Directors dated 05.03.2010, Minutes No.11 dated 05.03.2010).

The Annual General Meeting of Shareholders of JSC "Lenenergo" was held on 21.06.2010 (Minutes No.1/2010 dated 21.06.2010), with the agenda as follows:

1. Approval of the annual report, the annual accounting statements, including profit and loss statement of the Company, and distribution of profit (including payment of dividends) and losses of the Company on results of 2009;
2. Election of the members of the Board of Directors of the Company;
3. Election of the members of the Internal Audit Commission of the Company;
4. Approval of the Auditor of the Company;
5. Approval of the Charter of the Company in the new edition.

The General Meeting of Shareholders 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 Meeting of Shareholders, the Company’s Charter, and Regulations on the procedure of preparation and arrangement of the General Meeting of Shareholders of JSC "Lenenergo".

The results of the voting on all issues on the agenda were announced at the meeting after summing up its results in accordance with Article 62 of the Federal Law "On Joint-Stock Companies".

Extraordinary General Shareholders Meetings

The Company did not hold any Extraordinary General Shareholder Meetings in 2010.

Board of Directors

The Board of Directors is the managing body of JSC "Lenenergo", which provides overall management of the company, and supervises the implementation of decisions of the General Meeting of Shareholders of JSC "Lenenergo" in accordance with the legislation of the Russian Federation.

The main goals and objectives of the Company’s Board of Directors are as follows:

• determine the key directions and development strategy for the Company aimed at enhancing its market capitalization and investment appeal, attaining maximum profits and augmenting the assets of the Company;
• protect the rights and legitimate 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 stakeholders;
• create an 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 right of shareholders to participate in the management of the Company and to obtain 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.

Main issues which pertain to the competence of the Board of Directors:

1. Determining priority activities and development strategy for the Company;
2. Approval of the Company’s business plan and investment program;
3. Approval of the target values of the Company’s key performance indicators (KPI);
4. Determining the Company’s credit policy;
5. Approval of the Company’s transactions, which may entail foreign currency obligations for the Company;
6. Approval of the Company’s transactions, which may be associated with gratuitous transfer of the Company’s property;
7. Determining the Company’s procurement policy and other issues pursuant to the Company’s Charter and the legislation of the Russian Federation.

The issues which pertain to the competence of the Company’s Board of Directors may not be transferred to the Company’s executive body for consideration.

The Company’s Board of Directors played an important part in the promotion of shareholders’ interests, including decision-making on strategic issues, which the Company faced in 2010. The Board of Directors determines the priority spheres of the Company’s activities for the current year and sets the guidelines for the corporate activities for the long-term perspective.

In accordance with item 16.1 of Article 16 of the JSC "Lenenergo" Charter, the Board of Directors shall comprise 13 (thirteen) members. The members shall be elected by cumulative voting.

According to the decision of the Board of Directors dated 20.07.2010, Nikolay Nikolayevich Shvets, Director General of JSC "IDGC Holding", was elected Chairman of the JSC "Lenenergo" Board of Directors. Alexey Ivanovich Sergeev, Vice Governor of St. Petersburg, was elected Deputy Chairman of the Company’s Board of Directors. Andrey Sergeevich Smolnikov, Head of the Corporate Governance 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 Meeting of Shareholders of the Company on 21.06.2010.

	Chairman  of the Board of Directors Nikolay Nikolayevich Shvets
Birth year. Nationality	1956. Russian Federation
ducation	Higher: Military Academy of the General Staff of Russian Armed Forces, 1997 Military Air Defense Command Red Banner Academy named for SU Marshal G.K. Zhukov, 1991 All-Union Correspondence Polytechnic Institute, 1983 Military Electrical Technician, Secondary Military School at the Pushkin Higher Military Engineering Construction College, 1980
Positions within 5 last years	Period: 2009 – present Company: JSC "IDGC Holding" Position: Director General, Chairman of the Management Board Period: 2008 – 2009 Legislature of Amur region Position: Chairman Far Eastern State Agrarian University Position: Professor, Management, Marketing and Law department (second job) Period: 2007 – 2008 Government of Amur Region Position: First Deputy Chairman Period: 2001 – 2007 Company: FSUE "Rosoboronexport" Position: Managing Director, Assistant to First Deputy Director General
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "IDGC of North-West" JSC "Moscow United Electric Grid Company (Moscow UEGC)" JSC "IDGC of Urals" JSC "IDGC of Center and Volga region" JSC "Tyumenenergo" JSC "Yantarenergo" Member of the Supervisory Board: General Meeting of the Non-Commercial Partnership "Scientific-Technical Board of the Unified Energy System" Member of Central Bureau: LLC "Russian Engineering Union"

	Deputy Chairman of the Board of Directors Alexey Ivanovich Sergeev
Birth year. Nationality	1954. Russian Federation
Education	Higher: Leningrad Polytechnic Institute, 1978 Higher: Northwest Academy of State Service, 2006
Positions within 5 last years	Period: 2009 – present Government of St. Petersburg Position: Vice-governor Period: 2006-2009 Committee of economic development, industrial policy and trade of the Government of St. Petersburg Position: Chairman Period: 2004-2006 Administration of Kalinin District of St. Petersburg Position: Head of Administration
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "TGC-1" JSC "St. Petersburg Power Networks" JSC "South-west Heat Station" JSC "Lenexpo" LLC "Petersburg Gas"

	Members of the Board of Directors Alexey Vladimirovich Demidov
Birth year. Nationality	1976. Russian Federation
Education	Higher: St. Petersburg Trade-Economic Institute
Positions within 5 last years	Period: 2009 – present Company: JSC "IDGC Holding" Position: Member of the Management Board, Deputy General Director for Economy and Finances Period: 2006 – 2009 Company: JSC OC "Rosneft" Position: First Deputy Financial Director Period: 2006 Company: JSC "Gazprom" Position: Advisor of Deputy Chairman of the Management Board Period: 2003 – 2006 Company: CJSC "Sevmorneftegaz" Position: First Deputy General Director
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "Tyumenenergo" JSC "IDGC of North-West" JSC "IDGC of Urals" JSC "IDGC of Siberia" JSC "IDGC of North Caucasian region" JSC "IDGC of Center and Volga region" JSC "Moscow UEGC"

	Members of the Board of Directors Mikhail Eduardovich Oseevskiy
Birth year. Nationality	1960. Russian Federation
Education	Higher: Leningrad Polytechnic Kalinin Institute, 1983, PhD of Economics
Positions within 5 last years	Period: 2010 – present Administration of the Governor of St. Petersburg Position: Head of Administration of the Governor of St. Petersburg Period: November 2003 - present St. Petersburg Government Position: Vice-Governor
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "St. Petersburg Power Networks" JSC "Okhta Business Centre" JSC "Klimov" JSC "South-West Heat Station" Chairman of JSC "Technopark of St. Petersburg" Member of the Supervisory Board: JSC "Petersburg Currency Stock Exchange"

	Members of the Board of Directors Remes Seppo Juha
Birth year. Nationality	1955. Finland
Education	Higher: Oulu City University 1984 Higher school of economy and business management of Turku, PhD in Economics, 1994
Positions within 5 last years	Period: 2008 – present Company: LLC "Kiuru" Position: Director General Period: 2007 – present Company: "EOS Russia" Position: Chairman of the Board of Directors Period: 2004 – 2007 Company: JSC "FIM Investment Bank" Position: Senior Adviser
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "Sollers" JSC "OMZ" Ponsse Oyj Association for Investor Protection JSC "SIBUR Holding" JSC "IDGC Holding" EOS Russia JSC "Institute ENERGOSETPROJECT" JSC "IDGC of North-West"

	Members of the Board of Directors Oleg Borisovich Trishkin
Birth year. Nationality	1964. Russian Federation
Education	Higher: Leningrad Polytechnic institute
Positions within 5 last years	Period: 2008 – present Committee on Energy and Engineering Support of the Government of St. Petersburg Position: Committee Chairman Period: 2004 – 2008 Regional Energy Commission of St. Petersburg Position: Deputy Chairman, Acting Chairman, Chairman
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "TGC-1" LLC "Petersburg Gas" JSC "Petergof Power Network" JSC "St. Petersburg Grid" JSC "South-West Heat Station"

	Members of the Board of Directors Nikolay Grigoryevich Shulginov
Birth year. Nationality	1951. Russian Federation
Education	Higher: Novocherkassk Polytechnic Institute, 2007, PhD in technical sciences
Positions within 5 last years	Period: 2009 – present Company: JSC "System Operator of the Unified Energy System" Position: First Deputy Chairman of the Management Board Period: 2004 - 2009 Company: JSC "System Operator – Central Dispatch Office of the Unified Energy System" (from February 6, 2008 – JSC "SO UES") Position: Deputy Chairman of the Management Board Period: 2002 - 2004 Company: JSC "System Operator – Central Dispatch Office of the Unified Energy System" Position: Member of the Management Board, Director for Technical Audit
Share in the authorized capital of the Company	None
Positions in other organizations	First Deputy Chairman of the Management Board: JSC "SO UES" Member of the Board of Directors: JSC "OGC-1" JSC "Moscow UEGC" JSC "Mosenergo"

	Members of the Board of Directors Alexey Valeryevich Kurochkin
Birth year. Nationality	1973. Russian Federation
Education	Higher: Ural State Law Academy, 1995
Positions within 5 last years	Period: 2008 – present Company: JSC "IDGC Holding" Position: Head of the Department of Corporate Governance and Interaction with Shareholders, Director for Corporate Policy Period: 2005-2008 Company: JSC "Federal Network Company of the Uniform Power System" Position: Deputy Head of Control Centre of Interregional Distribution Grid Complexes
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "Tyumenenergo" JSC "Yekaterinburg Power Network Company" JSC "IDGC of Volga"

	Members of the Board of Directors Alexander Albertovich Popov
Birth year. Nationality	1955. Russian Federation
Education	Zhitomir Higher Command School of Radio Electronics of Air Defense, 1976 Higher: Military Command Krasnoznamennaya Academy of Air Defense, Officer with higher military education, 1991 Higher: Russian Academy of State Service, 2000
Positions within 5 last years	Period: 2009 – present Company: JSC "IDGC Holding" Position: Deputy Director General - Head of Office Period: 2007 - 2008 Representation of the Amur Region under the President of the Russian Federation and the Government of the Russian Federation Position: Head of Office of the Governor of the region and the Region Government Period: 2007 Company: Representation of Amur region under the President of the Russian Federation and the Government of the Russian Federation Position: Chief of HR department Period: 2007 Company: LLC "Avtovaz Group" Position: Chief specialist of OAU service of the Vice-president - Director for safety Period: 1972-2007 Armed forces and Federal Security Service of the Russian Federation Position: various
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "Moscow UEGC " JSC "IDGC of Siberia" JSC " IDGC of Center and Volga region"

	Members of the Board of Directors Grigory Mikhailovich Kharenko
Birth year. Nationality	1975. Russian Federation
Education	Higher: St. Petersburg Trade and Economic Institute, 1997 Higher: St. Petersburg Institute of Foreign Economic Relations of Economics and Law, 1999 Postgraduate study, St. Petersburg Trade and Economic Institute, 2000, PhD in Economics
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Deputy Director General for Corporate Governance Period: 2010 Company: JSC "IDGC Holding" Position: Deputy Head of the Center for Strategy and Development Period: 2007 - 2010 Company: St. Petersburg State University, Faculty of Economics Position: Senior Teacher of Statistics, Accounting and Audit department Period: 2006 Company: JSC "BC "Baltika" Position: Manager of Shareholder and Investor Relations Period: 2005 – 2006 Company: JSC "TGC-1" Position: Deputy Head of the Department for Share Capital Management
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "Kubanenergo" JSC "IDGC of North Caucases Region" JSC "TsPC" JSC "Kurortenergo"

	Members of the Board of Directors Mikhail Viktorovich Azovtsev
Birth year. Nationality	1966. Russian Federation
Education	Higher: St. Petersburg Trade and Economic Institute, 1997 Higher: Higher: Moscow State University, 1994
Positions within 5 last years	Period: 2009 – present Company: JSC "IDGC Holding" Position: Financial Director Period: 2008-2009 Company: JSC "Almaz press" Position: Deputy Director General on Economy and Finance Period: 2005 - 2008 Company: JSC "Ship-building plant "Northern Shipyard" Position: Director of Economy and Finance
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "IDGC of South"

	Members of the Board of Directors Sergey Evgenyevich Yurchuk
Birth year. Nationality	1966. Russian Federation
Education	Higher: Moscow State University, 1994
Positions within 5 last years	Period: 2009 – present Company: JSC "IDGC Holding" Position: Financial Director Period: 2008-2009 Company: JSC "Almaz press" Position: Deputy Director General on Economy and Finance Period: 2005 - 2008 Company: JSC "Ship-building plant "Northern Shipyard" Position: Director of Economy and Finance
Share in the authorized capital of the Company	None
Positions in other organizations	Member of the Board of Directors: JSC "IDGC of South"

	Members of the Board of Directors Grigory Viktorovich Dvas
Birth year. Nationality	1965. Russian Federation
Education	Higher: Leningrad Polytechnic Institute, 1987
Positions within 5 last years	Period: 1999 – present Government of Leningrad region Position: Vice-governor
Share in the authorized capital of the Company	None
Positions in other organizations	—

The Company’s Board of Directors held 22 meetings in 2010 (including 2 on-site meetings, 2 combined on-site and off-site meetings, and 18 off-site meetings), during which over 180 issues were considered.

The most important issues considered at the meetings of the Board of Directors are as follows:

1. Approval of application by JSC "Lenenergo" of the electronic trading platform of JSC "IDGC Holding" www.b2b-mrsk.ru (Meeting as of 18.02.2010, Minutes No.13 dated 19.02.2010).
2. Approval of the Company's business plan for 2010 (including the investment program, Meeting dated 25.03.2010, Minutes No.16 dated 26.03.2010).
3. Approval of the Program of insurance protection of JSC "Lenenergo" for 2010 (Meeting as of 23.04.2010, Minutes No.17 dated 26.04.2010).
4. Preliminary approval of prolongation of the Collective agreement of JSC "Lenenergo" for 2007-2008 up to December 31, 2010 (Meeting as of 23.04.2010, Minutes No.17 dated 26.04.2010).
5. Convocation of the Annual General Meeting of Shareholders of the Company and definition of the procedure to hold the Meeting (Meeting as of 05.05.2010, Minutes No.18 dated 06.05.2010).
6. Approval of the Program of maintenance and development of HR potential of JSC "Lenenergo" (Meeting as of 02.06.2010, Minutes No.21 dated 02.06.2010).
7. Approval of the internal documents:
   • Policy of risk management of JSC "Lenenergo";
   • Policy of internal control of JSC "Lenenergo" (Meeting as of 18.06.2010, Minutes No.22 dated 18.6.2010).
8. Approval of the Regulations on the Committee for HR and Remuneration under the Board of Directors of JSC "Lenenergo" in the new edition; Regulations on Audit Committee under the Board of Directors of JSC "Lenenergo" in the new edition (Meeting as of 18.06.2010, Minutes No.22 dated 18.06.2010).
9. Election of the Director General of the Company (Meeting as of 30.07.2010, Minutes No.2 dated 30.07.2010).
10. Participation of JSC "Lenenergo" in JSC "Tsarskoselskaya Power Company" and JSC "Kurortenergo" (Meeting as of 30.07.2010, Minutes No.3 dated 02.08.2010).
11. Approval of the Program of perspective development of the billing system of electric power in the retail market in distribution networks of JSC "Lenenergo" for 2010 – 2015 (Meeting as of 31.08.2010, Minutes No.4 dated 31.08.2010).
12. Determination of priority activities of the Company: "On measures on increasing the level of antiterrorist and anti-subversive security of objects of the power network infrastructure of the Company" (Meeting as of 31.08.2010, Minutes No. 4 dated 31.08.2010).
13. Cancellation of the contract with the Registrar performing conducting of the register of owners of nominal securities of the Company (Meeting as of 31.08.2010, Minutes No.4 dated 31.08.2010); Approval of the Registrar of the Company and terms of the contract (Meeting as of 25.11.2010, Minutes No.10 dated 29.11.2010).
14. Approval of the Report on results of financial and technological examination and auditor check of the activity of JSC "Lenenergo" on performing of technological connection (Meeting as of 03.09.2010, Minutes No.5 dated 06.09.2010).
15. Approval of the Plan of prime actions for an increase in antiterrorist and anti-subversive security of objects of power network infrastructure of the Company (Meeting as of 21.09.2010, Minutes No.6 dated 21.09.2010).
16. Approval of the adjusted business plan (including the investment program) of JSC "Lenenergo" for 2010 (Meeting as of 27.10.2010, Minutes No.8 dated 27.10.2010).
17. On priority activities: work on registration of ownership rights for immovable property objects, on registration/renewal of rights of use of land plots for 2011-2014 taking into account accomplishment of works on preparation of information on the borders of security zones of objects of the power network infrastructure (Meeting as of 25.11.2010, Minutes No.10 dated 29.11.2010).
18. Consideration of the Report of the Director General about readiness of the Company for the 2010/2011 autumn-winter period (Meeting as of 25.11.2010, Minutes No.10 dated 29.11.2010).
19. Approval of the Business plan of the Company (including the investment program) for 2011 (Meeting as of 27.12.2010, Minutes No.11 dated 30.12.2010).
20. Consideration of the Concept of fulfillment of overdue and accrued obligations of JSC "Lenenergo" for technological connection towards applicants of St. Petersburg (Meeting as of 27.12.2010, Minutes No.11 dated 30.12.2010).

The Company’s Board of Directors performed all of its activities in 2010 in full compliance with the current legislation of the Russian Federation, the Company’s Charter, and the Regulations on the procedure of convocation and conduction of the meetings of the Board of Directors of JSC "Lenenergo" (approved by the Annual General Meeting of Shareholders on 26.06.2006, Minutes No.1 as of 11.07.2006).

Information on remuneration and compensation to the members of the Board of Directors

The Regulations on the Payment of Remuneration and Compensation to the Members of the Board of Directors was approved by the Annual General Meeting of Shareholders (Minutes No. 1 dated 09.06.2008). It stipulates the amount of remuneration paid to the members of the Company’s Board of Directors for the period during which they perform their duties.

In accordance with the Regulations, remuneration and compensation are paid:

• for participation in the meetings of the Board of Directors in absentia (by filling out a questionnaire), a member of the Company’s Board of Directors receives the sum equivalent to four minimum monthly wages of a first-category worker as stipulated by the branch wages agreement within the electric power industry of Russia;
• for participation in the meetings of the Board of Directors, conducted in the form of a joint presence, a member of the Company’s Board of Directors receives a sum equivalent to eight minimum monthly wages of a first-category worker as stipulated by the branch wages agreement within the electric power industry of Russia.

The amount of remuneration paid to the Chairman (Deputy Chairman) for each meeting at which he acted as Chairman of the Board of Directors (hereinafter referred to as “acting as Chairman”), shall be increased by 50%.

• The members of the Board of Directors receive additional compensation for the net profit of the Company depending on the results of the annual accounting as approved by the General Meeting of Shareholders 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 compensation for their expenses during business trips to the facilities of JSC "Lenenergo", which will include meetings with shareholders and investors, participation in General Meetings of Shareholders 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 2010 constituted RUR 18,127.6 thousand, including taxes.

No transactions were effected between the members of the Board of Directors and JSC "Lenenergo" in 2010. No lawsuits were brought by the Company against the members of the Board of Directors.

Committees of the Board of Directors

The main tasks of all Committees include preliminary discussion of the most important issues on the agenda scheduled for the meeting of the Board of Directors, leveling out of discrepancies between shareholders before the meeting, development of deliberate recommendations to the Board of Directors, and provision of effective performance of functions by the Board of Directors regarding the overall management of the Company.

Committee on Strategy and Development

According to decision of the Board of Directors as of 08.09.2009 (Minutes No.4 dated 09.09.2009), the Regulations on the Committee on Strategy and Development of the Board of Directors of JSC "Lenenergo" were approved in the new edition.

The committee is urged to play a dominant role in the definition of strategic targets of activity of the Company, development of priority directions of its activity, estimation of efficiency of activity of the Company in long-term prospect and development of recommendations to the Company Board of Directors on adjustment of the existing development strategy of the Company.

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:

• 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 adjustment of the Company’s investment program;
• definition and enhancement of the Company’s policy concerning business planning;
• definition and enhancement of the Company’s policy concerning finance and budgeting of the Company;
• formation, implementation, and adjustment 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.

According to the decision of the Board of Directors as of 20.07.2010 (Minutes No.1 dated 20.07.2010), current members of the Committee were elected.

According to the decision of the Board of Directors as of 19.10.2010 (Minutes No. 7 dated 19.10.2010), the composition of the Committee was changed.

Current members of the Committee on Strategy and Development of the Board of Directors of JSC "Lenenergo" are as follows:

Period from 01.01.2010 up to 20.07.2010*		Period from 20.07.2010 up to 31.12.2010
Full Name	Position	Full Name	Position
Alexey Vladimirovich DEMIDOV	CHAIRMAN, Deputy Director General on Economy and Finance of JSC "IDGC Holding"	Alexey Vladimirovich DEMIDOV	CHAIRMAN, Deputy Director General on Economy and Finance of JSC "IDGC Holding"
Pavel Mikhailovich BEREZOVSKIY	Chairman of the Committee on Tariffs and Price Policy of the Leningrad Region	Pavel Mikhailovich BEREZOVSKIY	Chairman of the Committee on Tariffs and Price Policy of the Leningrad region
Sergey Nikolayevich IVANOV	First Deputy Chairman of the Management Board of JSC "FGC UES"	Gennady Feliksovich BINKO	Deputy Director General of JSC "IDGC Holding"
Vyacheslav Olegovich KOZLOV	Head of the Department of economic analysis and tariff policy of the Committee on Power and Engineering of the Government of St. Petersburg	Alexey Yuryevich EVSTRATOV (from 19.10.2011)	Deputy Chairman of the Committee on Power and Engineering of the Government of St. Petersburg
Alexey Yuryevich PEREPELKIN	Director for corporate governance of JSC "IDGC Holding"	Vyacheslav Olegovich KOZLOV	Head of the Department of economic analysis and tariff policy of the Committee on Power and Engineering of the Government of St. Petersburg
Remes Seppo Juha	Director General of LLC "Kiuru"	Mikhail Yuryevich KURBATOV	Deputy Director General of JSC "IDGC Holding"
Andrey Valentinovich SOROCHINSKIY	Deputy Chairman of the Committee on Power and Engineering of the Government of St. Petersburg	Sergey Nikolayevich LAPIN	First Deputy of the Head of Center for strategy and development of JSC "IDGC Holding"
Timur Khyzyrovich TAMBIEV	Head of Division of Analysis and Estimation of the Department of Investments of JSC "IDGC Holding"	Alexey Yuryevich PEREPELKIN	Deputy Director General for corporate governance and property of JSC "IDGC Holding"
Maria Gennadyevna TIKHONOVA	Deputy Director of the Department for economic regulation and property relations in the fuel-energy complex of the Ministry of Energy of Russia	Remes Seppo Juha	Director General of LLC "Kiuru"
Konstantin Vladimirovich SHEVCHENKO	Director of the Moscow representative office "EDM Electricity Distribution Management (Cyprus) Limited"	Timur Khyzyrovich TAMBIEV	Head of Division of Analysis and Estimation of Department of investments of JSC "IDGC Holding"
Nikolay Grigoryevich SHULGINOV	First Deputy Chairman of the Management Board of JSC "SO UES"	Dmitry Sergeevich FEDOROV	Investment analyst of LLC "Leader Infrastructure"
Sergey Evgenyevich YURCHUK	Financial Director of JSC "IDGC Holding"	Grigory Mikhailovich KHARENKO	Deputy Director General for corporate governance of JSC "Lenenergo"
Sergey Nikolayevich LAPIN	First Deputy of Head of the Center for Strategy and Development of JSC "IDGC Holding"	Nikolay Grigoryevich SHULGINOV	First Deputy Chairman of the Management Board of JSC "SO UES"

^* specified at the moment of election

In 2010, 14 meetings of the Committee were carried out, including 4 real-time meetings, and 10 meetings in absentia. No transactions were effected between the members of the Committee and the Company. No lawsuits were brought by the Company against the members of the Committee.

Committee on Reliability

According to the decision of the Board of Directors as of 28.03.2008 (Minutes No.13 dated 28.03.2008), the Regulations on the Committee on Reliability under the Board of Directors of JSC "Lenenergo" were approved.

The decision of the Board of Directors as of 10.07.2009 approved changes in the Regulations on the Committee (Minutes No.1 dated 13.07.2009).

The main assignment of the Committee is to develop and present recommendations (evaluations) to the Board of Directors and the Executive body 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 of plans on repair of power objects, analysis of their feasibility in view of overall reliability;
• assessment of measures introduced after accidents and major technological infringements, and control of their implementation;
• control and evaluation of the activities on the technical services of the Company pertaining to:
  • guaranteeing the reliability of network equipment and facilities;
  • guaranteeing the normal state of fixed assets 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.

According to the decision of the Board of Directors as of 20.07.2010 (Minutes No.1 dated 20.07.2010), current members of the Committee were elected.

According to the decision of the Board of Directors as of 19.10.2010 (Minutes No. 7 dated 19.10.2010), personal and quantitative composition of the Committee was changed.

Current members of the Committee on Reliability of the Board of Directors of JSC "Lenenergo" are as follows:

Period from 01.01.2010 up to 20.07.2010 *		Period from 20.07.2010 up to 31.12.2010
Full Name	Position	Full Name	Position
Pavel Ivanovich OKLEY	CHAIRMAN Deputy Director General – Technical director of JSC "IDGC Holding"	Pavel Vladilenovich GOLUBEV	CHAIRMAN Head of the Department for organization of maintenance and repair of JSC "IDGC Holding"
Pavel Mikhailovich BEREZOVSKIY	Chairman of the Committee on Tariffs and Price Policy of Leningrad region	Andrey Klavdievich MAMONTOV	Director for maintenance and repair of JSC "Lenenergo"
Dmitry Anatolyevich KORYAKIN	Head of Department for Operatively-Technological Management of JSC "IDGC Holding"	Ilya Vladimirovich KRAVCHENKO	Chief dispatcher of JSC "SO UES" branch "Leningrad RDM"
Igor Aleksandrovich KURILKIN	Director of JSC "SO UES" branch "Leningrad RDM"	Sergey Borisovich MYAKOV	Chairman of the Committee on energy and energy complex and housing and communal services of the Government of Leningrad region
Sergey Valeryevich NIKOLAEV	Deputy Director General on Economy and Finance of JSC "Lenenergo"	Valery Evgenyevich USKOV (from 19.10.2011)	Head of Division of perspective development of power complex of the Committee on power and engineering of the Government of St. Petersburg
Vladimir Evgenyevich FARAFONOV	Deputy Director General – Technical director of JSC "Lenenergo"	Vladimir Evgenyevich FARAFONOV	Deputy Director General – Technical director of JSC "Lenenergo"
Valery Mukhamedovich SHOGENOV	Deputy Director of Department for economic regulation and property relations in fuel and energy complex of the Ministry of Energy of Russia	Dmitry Sergeevich FEDOROV	Investment analyst of LLC "Leader Infrastructure"
Nikolay Grigoryevich SHULGINOV	First Deputy Chairman of the Management Board of JSC "SO UES"
Marina Evgenyevna SHVEDKO	Deputy Head of the Department for capital construction of JSC "IDGC Holding"
Alexander Nikolayevich FEDOROV	Head of the Division of perspective development of the power complex of the Committee on Power and Engineering of the Government of St. Petersburg

* specified at the moment of election

In 2010, 5 meetings of the Committee were carried out, one of them was in presence, and it considered over 20 issues. No transactions were effected between the members of the Committee and JSC "Lenenergo". No lawsuits were brought by the Company against the members of the Committee.

Audit Committee

According to the decision of the Board of Directors as of 22.06.2010 (Minutes No.22 dated 18.06.2010), the Regulations on the Audit Committee under the Board of Directors of JSC "Lenenergo" were approved in the new edition.

The main assignment of the Committee is to develop and present recommendations (evaluations) to the Board of Directors and the Executive Body of the Company on all aspects of the Company’s activities in the sphere of audit and accounting:

• control over the annual independent audit of the consolidated financial reporting and accounting statements 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 development of 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 an 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; improving proposals in this sphere to the Company’s Board of Directors;
• other issues pertaining to the audit of the Company on the orders of the Board of Directors.

According to the decision of the Board of Directors as of 20.07.2010 (Minutes No.1 dated 20.07.2010), current members of the Committee were elected.

According to the decision of the Board of Directors as of 29.10.2010 (Minutes No. 9 dated 29.10.2010), the personal and quantitative composition of the Committee was changed.

Current members of the Audit Committee of the Board of Directors of JSC "Lenenergo" are as follows:

Period from 01.01.2010 up to 20.07.2010 *		Period from 20.07.2010 up to 31.12.2010
Full Name	Position	Full Name	Position
Remes Seppo Juha	CHAIRMAN, Director General of LLC "Kiuru"	Remes Seppo Juha	CHAIRMAN, Director General of LLC "Kiuru"
Alexey Vladimirovich DEMIDOV	Deputy Director General on Economy and Finance of JSC "IDGC Holding"	Mikhail Viktorovich AZOVTSEV	Head of M&A Department of JSC "Integrated Energy Systems"
Pavel Ivanovich OKLEY	Deputy Director General –Technical director of JSC "IDGC Holding"	Grigory Viktorovich DVAS	Vice-Governor of Leningrad region – Chairman of the Committee for Economic Development and Investment Activity
Oleg Borisovich TRISHKIN	Chairman of the Committee on Power and Engineering of the Government of St. Petersburg	Alexey Vladimirovich DEMIDOV	Deputy Director General on Economy and Finance of JSC "IDGC Holding"
Nikolay Grigoryevich SHULGINOV	First Deputy Chairman of the Management Board of JSC "SO UES"	Alexey Valeryevich KUROCHKIN	Head of Department for corporate governance and interaction with shareholders of JSC "IDGC Holding"
		Alexander Albertovich POPOV	Deputy Director General - Head of the Office of JSC "IDGC Holding"
		Oleg Borisovich TRISHKIN	Chairman of the Committee on Power and Engineering of the Government of St. Petersburg
		Sergey Evgenyevich YURCHUK	Financial Director of JSC "IDGC Holding"

^* specified at the moment of election

In 2010, 9 meetings of the Committee were carried out, 2 of them were in presence, and they considered over 25 issues. No transactions were effected between the members of the Committee and the Company. No lawsuits were brought by the Company against the members of the Committee.

Committee on HR and remuneration

According to the decision of the Board of Directors as of 22.06.2010 (Minutes No.22 dated 18.06.2010), the Regulations on the Committee on HR and Remuneration under the Board of Directors of JSC "Lenenergo" were approved in the new edition.

The main assignment of the Committee is to develop and present recommendations (evaluations) to the Board of Directors and the Executive Body 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 collegial executive body, and the entity which performs the functions of the sole executive body of the Company, including a managing organization or an external manager;
• definition of the substantial provisions of contracts with the members of the collegial executive body and the person who performs the functions of the sole executive body of the Company;
• development of criteria for choosing candidates for the Company’s Board of Directors, members of the collegial executive body of the Company, for the position of the sole executive body of the Company, and a tentative estimation of the specified candidates;
• regular evaluation of the performance of the sole executive body (managing organization, external manager) and the members of the collegial executive body of the Company, and preparation for the Board of Directors of offers whenever possible of their repeated appointment.

According to the decision of the Board of Directors as of 20.07.2010 (Minutes No.1 dated 20.07.2010), current members of the Committee were elected.

Current members of the Committee on HR and Remuneration of the Board of Directors of JSC "Lenenergo" are as follows:

Period from 01.01.2010 up to 20.07.2010 *		Period from 20.07.2010 up to 31.12.2010
Full Name	Position	Full Name	Position
Alexey Vladimirovich DEMIDOV	CHAIRMAN, Deputy Director General on Economy and Finance of JSC "IDGC Holding"	Alexander Albertovich POPOV	CHAIRMAN, Deputy Director General – Head of Office of JSC "IDGC Holding"
Sergey Nikolayevich IVANOV	First Deputy Chairman of the Management Board of JSC "FGC UES"	Alexey Vladimirovich DEMIDOV	Deputy Director General on Economy and Finance of JSC "IDGC Holding"
Pavel Ivanovich OKLEY	Deputy Director General –Technical director of JSC "IDGC Holding"	Alexey Valeryevich KUROCHKIN	Head of Department for corporate governance and interaction with shareholders of JSC "IDGC Holding"
Nikolay Grigoryevich SHULGINOV	First Deputy Chairman of the Management Board of JSC "SO UES"	Sergey Evgenyevich YURCHUK	Financial Director of JSC "IDGC Holding"
Oleg Borisovich TRISHKIN	Chairman of the Committee on Power and Engineering of the Government of St. Petersburg	Oleg Borisovich TRISHKIN	Chairman of the Committee on Power and Engineering of the Government of St. Petersburg
Konstantin Vladimirovich SHEVCHENKO	Director of Moscow representative office "EDM Electricity Distribution Management (Cyprus) Limited"	Grigory Viktorovich DVAS	Vice-governor of the Leningrad region – Chairman of the Committee for Economic Development and Investment activity
		Mikhail Viktorovich AZOVTSEV	Head of the M&A Department of JSC "Integrated Energy Systems"

^* specified at the moment of election

In 2010, 5 remote meetings of the Committee were carried out, during which 8 issues were considered. No transactions were effected between the members of the Committee and the Company. No lawsuits were brought by the Company against the members of the Committee.

Committee on Technological Connection to Electric Networks

According to the decision of the Board of Directors as of 09.02.2009 (Minutes No.8 dated 10.02.2009), the Regulations on the Committee on Technological Connection to Electric Networks under the Board of Directors of JSC "Lenenergo" were approved.

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 technological connection of end users to the power networks of the Company.

The main assignment of the Committee is to develop and present recommendations (evaluations) to the Board of Directors and the executive body of the Company on the following aspects of the Company’s activities:

• suggestions on the improvement of 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.

According to the decision of the Board of Directors as of 20.07.2010 (Minutes No.1 dated 20.07.2010), the current members of the Committee were elected.

According to the decision of the Board of Directors as of 29.10.2010 (Minutes No. 7 dated 29.10.2010), the personal and quantitative composition of the Committee was changed.

Current members of the Committee on Technological Connection to Electric Networks of the Board of Directors of JSC "Lenenergo" are as follows:

Period from 01.01.2010 up to 20.07.2010 *		Period from 20.07.2010 up to 31.12.2010
Full Name	Position	Full Name	Position
Dmitry Valeryevich PONOMAREV	CHAIRMAN Chairman of the Management Board of JSC "Administrator of Trading System"	Mikhail Viktorovich AZOVTSEV	CHAIRMAN Head of M&A Department of JSC "Integrated Energy Systems"
Gennady Feliksovich BINKO	Deputy Director General of JSC "IDGC Holding"	Mikhail Sergeevich ARTEMYEV (from 19.10.2011)	Deputy Director General on Sales of Services of JSC "Lenenergo"
Alexey Yuryevich BUSHUEV	Director for technological connection on St. Petersburg of JSC "Lenenergo"	Gennady Feliksovich BINKO	Deputy Director General of JSC "IDGC Holding"
Khasan Mushtafaevich LIKHOV	Adviser of Division for corporate governance of Department of economic regulation and property relations in fuel and energy complex of the Ministry of Energy of Russia	Andrey Vladimirovich ZYKOV (from 19.10.2011)	Director for Technological Connection in St. Petersburg of JSC "Lenenergo"
Stanislava Viktorovna MIKHAILOVA	Head of Department of accounting and economic analysis of JSC "Lenenergo"	Mikhail Viktorovich KULAKOV (from 19.10.2011)	Head of the Customer Department of the Leningrad Region of JSC "Lenenergo"
Elena Aleksandrovna MOROZOVA	Deputy Director General on Corporate Governance of JSC "Lenenergo"	Igor Aleksandrovich KURILKIN	Director of JSC "SO UES" branch "Leningrad RDM"
Sergey Georgievich PAPAFANASOPULO	Director for development of technologies of dispatching management of Branch of JSC "SO UES" Northwest RDM	Alexander Antonovich PLAVSKIY	Director for Technological Connection in the Leningrad Region of JSC "Lenenergo"
Tatyana Julevna PCHITSKAYA	Head of the Law Department of JSC "Lenenergo"	Grigory Mikhailovich KHARENKO (from 19.10.2011)	The assistant to the Director General of JSC "Lenenergo" for corporate governance
Tatyana Gennadyevna SUDAKOVA	The Director for Economy of JSC "Lenenergo"	Valery Evgenyevich USKOV (from 19.10.2011)	Head of Division of perspective development of power complex of the Committee on power and engineering of the Government of St. Petersburg
Dmitry Sergeevich FEDOROV	Investment analyst of the Moscow representative office of EDM Electricity Distribution Management (Cyprus) Limited	Dmitry Sergeevich FEDOROV	Investment analyst of LLC "Leader Infrastructure"
Alexander Nikolayevich FEDOROV	Head of the Division of perspective development of the power complex of the Committee on Power and Engineering of the Government of St. Petersburg	Natalia Aleksandrovna SHUTOVA	Deputy Chairman of the Committee on the power complex and housing and communal services of the Government of the Leningrad Region
Nikolay Nikolayevich CHUCHALOV	Deputy Director General on Sales of services of JSC "Lenenergo"
Natalia Aleksandrovna SHUTOVA	Deputy Chairman of the Committee on the power complex and housing and communal services of the Government of the Leningrad Region

* specified at the moment of election

In 2010, 5 meetings of the Committee were carried out, 2 of them were in presence, during which 10 issues were considered. No transactions were effected between the members of the Committee and the Company. No lawsuits were brought by the Company against the members of the Committee.

Information on remuneration to the members of the Committees of the Board of Directors

The Board of Directors can decide on remuneration for the job done within the Committees. In 2010, the Board of Directors did not take any decisions on remuneration for the Committee members.

Management Board

JSC "Lenenergo" Management Board is the collegial executive body of the Company performing powers from 11.07.2008 according to the Federal Law "On Joint-Stock Companies", the Company's Charter, and Regulations on the procedure for convocation and carrying out of the meetings of the Management Board of JSC "Lenenergo". The competence of the Management Board includes the following issues:

1. Development and presentation of perspective plans regarding implementation of core activities of the Company to the Board of Directors;
2. Preparation of the Report on implementation by the Management Board of decisions of the General Meeting of Shareholders and the Company Board of Directors;
3. Revision of reports on execution of approved plans, programs, instructions, consideration of reports, documents, and other information on activity of the Company submitted by Deputy Directors and Heads of structural divisions of the Company;
4. Establishment of social benefits and guarantees for employees of the Company;
5. Decisions on the issues carried to the competence of the supreme bodies of management of economic entities, 100% of the authorized capital of which belong to the Company;
6. Preparation and submitting for consideration of the Board of Directors of reports on financial and economic activity of economic entities, 100% of the authorized capital of which belong to the Company;
7. Decisions on major trades in the amount of 5 to 25 percent of balance value of assets of the Company;
8. Resolution of other issues of management of current activity of the Company according to decisions of the General Meeting of Shareholders, the Company Board of Directors, and also the issues submitted for consideration to the Management Board by the Director General of the Company.

The current members of the Management Board were elected by the Board of Directors of JSC "Lenenergo" on 11.07.2008 considering the re-election of 23.11.2009 and 19.10.2010.

According to the decision of the Board of Directors as of 11.07.2008 (Minutes No.1 dated 11.07.2008) the quantitative membership of the Management Board constitutes 7 (Seven) persons.

	Chairman of the Management Board Andrey Valentinovich Sorochinskiy
Position	Director General
Birth year. Nationality	1975. Russian Federation
Education	Higher: St. Petersburg State University, 1997 North-West Academy of State Service, 2007 PhD in Economics
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Director General Period: 2004 – 2010 Committee on power and engineering of the Government of St. Petersburg Position: Deputy Chairman
Share in the authorized capital of the Company	None

	Deputy Chairman of the Management Board Grigory Mikhailovich Kharenko
Position	Deputy Director General on Corporate Governance
Birth year. Nationality	1975. Russian Federation
Education	Higher: St. Petersburg Trade and Economic Institute, 1997 Higher: St. Petersburg Institute of Foreign Economic Relations of Economics and Law, 1999 Postgraduate study, St. Petersburg Trade and Economic Institute, 2000, PhD in Economics
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Deputy Director General on Corporate Governance Period: 2010 Company: JSC "IDGC Holding" Position: Deputy Head of the Center for Strategy and Development Period: 2007 - 2010 Company: St. Petersburg State University, Faculty of Economics Position: Senior Teacher of Statistics, Accounting and Audit department Period: 2006 Company: JSC "BC "Baltika" Position: Manager of Shareholder and Investor Relations Period: 2005 – 2006 Company: JSC "TGC-1" Position: Deputy Head of the Department for Share Capital Management
Share in the authorized capital of the Company	None

	Members of the Management Board Vladimir Evgenyevich Farafonov
Position	Deputy Director General – Technical Director
Birth year. Nationality	1950. Russian Federation
Education	Higher: Novgorod Polytechnic Institute, 1981 Russian Academy of State Service under the President of the Russian Federation, North-West Academy of State Service, 1998
Positions within 5 last years	Period: 2006 – present Company: JSC "Lenenergo" Position: Deputy Director General – Technical Director Period: 2003 – 2006 Company: Branch of JSC "FGC UES" - Regional centre of technical inspection of the Northwest Position: Director
Share in the authorized capital of the Company	0.00006

	Members of the Management Board Sergey Valeryevich Nikolaev
Position	Deputy Director General on Economy and Finance
Birth year. Nationality	1974. Russian Federation
Education	Higher: St. Petersburg University of Economy and Finance, 1996
Positions within 5 last years	Period: 2009 – present Company: JSC "Lenenergo" Position: Deputy Director General on Economy and Finance Period: 2008 – 2009 Company: LLC "Petersburg Building Company" Position: Financial director Period: 2003 – 2008 Company: Open Company "BTL Marketing" Position: Financial director
Share in the authorized capital of the Company	None

	Members of the Management Board Artem Yuryevich Petrov
Position	Deputy Director General on Capital Construction and Logistics
Birth year. Nationality	1962. Russian Federation
Education	Higher: Leningrad Polytechnic Institute, 1985 Stockholm School of Economics in Russia, MBA, 2001
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Deputy Director General of Capital Construction and Logistics Period: 2010 Company: JSC "Lenenergo" Position: Adviser to the Director General Period: 2008 - 2010 Company: LLC "Stroykom" Position: Director General Period: 2002 – 2008 Company: JSC "Intech" Position: Executive Director
Share in the authorized capital of the Company	None

	Members of the Management Board Maksim Sergeevich Artemyev
Position	Deputy Director General on Sales of Services
Birth year. Nationality	1977. Russian Federation
Education	Higher: Ivanovo State Power University, 1999 Higher: National State University of Physical Training, Sports and Health, 2010
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Deputy Director General on Sales of Services Period: 2008 – 2010 Company: JSC "Lenenergo" Position: Director for technical development Period: 2008 Company: Branch of JSC "SO-CDB UES" "Leningrad RDM" Position: Deputy Chief Dispatcher on modes Period: 2007 – 2008 Company: Branch of JSC "SO-CDB UES" "Leningrad RDM" Position: Chief of Service for electric modes The period: 2006 – 2006 Company: Branch of JSC "SO-CDB UES" "Leningrad RDM" Position: Deputy Chief of Operatively-dispatching service The period: 2003 – 2006 Company: Branch of JSC "SO-CDB UES" "Leningrad RDM" Position: Dispatcher, Senior dispatcher of Operatively-dispatching service
Share in the authorized capital of the Company	None

	Members of the Management Board Vladimir Ivanovich Khrenov
Position	Deputy Director General on HR and organizational planning
Birth year. Nationality	1956. Russian Federation
Education	Higher: St. Petersburg State Architect and Building University, 1998
Positions within 5 last years	Period: 2010 – present Company: JSC "Lenenergo" Position: Deputy Director General on HR and organizational planning Period: 2010 Company: JSC "Lenenergo" Position: Adviser to of the Director General Period: 2010 Company: JSC "FGC UES" Position: Head of Management of special projects Period: 2006 – 2010 Company: JSC "Moscow investment-building company" Position: First Deputy Director General Period: 2003 – 2006 Administration of the Nevsky District of St. Petersburg Position: Head of Administration
Share in the authorized capital of the Company	None

The work of the Management Board is organized by the Chairman of the Management Board - the Director General of the Company. During the period from the moment of election on 15.04.2008, the Director General of JSC "Lenenergo" Dmitry Vladislavovich Ryabov headed the Company Management Board.

From the moment of election on 31.07.2010, the Director General of JSC "Lenenergo", Andrey Valentinovich Sorochinskiy, heads the Company Management Board.

In 2010, 18 meetings of the Management Board of JSC "Lenenergo" were held, of which 5 meetings were conducted in the internal form, and 13 – in absentia, during which over 60 issues were considered.

In the framework of the priority activity of the Company - the creation of the unified power grid company in St. Petersburg – the Management Board of JSC "Lenenergo" also considers the major issues of financial and economic activity of JSC "TsPC" and JSC "Kurortenergo. In accordance with the Charter of JSC "LESR", 100 percent of authorized capital of which belongs to the Company, the Management Board performs the functions of the General Meeting of Shareholders of JSC "LESR".

Data on remuneration to the members of the Management Board

The total volume of remuneration and compensation paid to the members of the Management Board of the Company in 2010 constituted RUR 1,187.9 thousand, including taxes.

Councils of the Management Board

Councils were formed for the purpose of preliminary consideration of the most important issues of the competence of the Management Board, development reasonable recommendations to the Management Board and provisions of effective accomplishment by the Management Board of the Company of the functions of operative management of the Company’s activity.

IT Council of the Management Board

According to the decision of the Management Board as of 16.09.2010 (Minutes No.36 dated 16.09.2010), the Regulations on the IT Council of the Management Board of JSC "Lenenergo" were approved.

The main aim of the Council is the provision and increase in overall performance of the Company by means of introduction of modern information technology.

The main assignment of the Council is to develop and present recommendations (evaluations) to the Management Board on the following aspects of the Company’s activities:

• Choice of a concept of development of long-term target programs in the field of communication, information technology and automated means of technological management;
• Forming a strategy of IT development of the Company;
• Forming and approval of the System Project of Automation of the Company;
• Provision of conditions for implementation of the strategy of IT development and the System Project of Automation of the Company;
• Reduction of IT in conformity with requirements of business and reception of the maximum return from used resources;
• Increase of reliability of electricity supply of consumers by means of development of the Automated Technological Management Systems (ATMS);
• Forming the program of development of telecommunications infrastructure of the Company and provision of conditions of its implementation;
• Forming the program of development of the Company corporate network on the basis of the fiber-optic communication lines (FOCL) and provision of conditions for its implementation.
• Other issues on the instructions of the Company Management Board.

According to the decision of the Management Board as of 16.09.2010 (Minutes No.36 as of 16.09.2010), the current members of the Council were elected.

According to the decision of the Management Board as of 23.12.2010 (Minutes No.39 as of 23.12.2010), the personal and quantitative composition of the Council was changed.

Current members of the IT Council of the Management Board of JSC "Lenenergo" are as follows:

Full Name	Position
Yury Dmitrievich TSVETKOV	CHAIRMAN, IT Director of JSC "Lenenergo"
Maksim Sergeevich ARTEMYEV	Deputy Director General on Sales of Services of JSC "Lenenergo"
Oleg Borisovich TSYPLAKOV	Head of Department for Provision of Economic Safety and Control of JSC "Lenenergo"
Ramil Ahatovich ZAYNULLIN	Head of the Division on Feasibility of Investment Activity of JSC "Lenenergo"
Tatyana Julevna PCHITSKAYA	Head of Law Department of JSC "Lenenergo"
Victor Valeryevich PUNOV	Financial Director of JSC "Lenenergo"
Tatyana Gennadyevna SUDAKOVA	Director on Economics of JSC "Lenenergo"
Alexey Ivanovich SEMCHAK	Head of the PR department of JSC "Lenenergo"
Igor Anatolyevich KUZMIN	Director for Operatively-Technological Management – Head of Centre for Networks Management of JSC "Lenenergo"

Strategy Council of the Management Board

According to the decision of the Management Board as of 12.11.2010 (Minutes No.37 as of 12.11.2010), the Regulations on Strategy Council of the Management Board of JSC "Lenenergo" were approved.

The main aim of the Council is the introduction of principles of strategic management in JSC "Lenenergo" and subsidiaries and dependent companies.

The main assignment of the Council is to develop and present recommendations (evaluations) to the Management Board on the following aspects of the Company’s activities:

• Elaboration of development strategy of the Company and management strategy of Subsidiaries and Dependent companies, including:
• Development of mechanisms of accomplishment of strategic targets in the Company and its Subsidiaries and Dependent companies;
• Arrangement of priorities of implementation of plans for development of the Company and its Subsidiaries and Dependent companies, their analysis and adjustment;
• Organizational and methodological support of the cycle of strategic management in the Company and its Subsidiaries and Dependent companies;
• Economic, technological and legal analysis of offers on implementation of plans for development of the Company and its Subsidiaries and Dependent companies on key activities;
• Forming priority directions of development of business on the basis of an analysis of the external and internal environment;
• Preparation of offers on optimization of business processes in the Company and its Subsidiaries and Dependent companies;
• Other issues on the instructions of the Company Management Board.

According to the decision of the Management Board as of 12.11.2010 (Minutes No.37 as of 12.11.2010), the current members of the Council were elected.

Current members of the Strategy Council of the Management Board of JSC "Lenenergo" are as follows:

Full Name	Position
Grigory Mikhailovich Kharenko	CHAIRMAN, Deputy Director General on Corporate Governance of JSC "Lenenergo"
Elena Nikolaevna BURYGINA	Deputy Director for Investment Projects of JSC "Lenenergo"
Andrey Vladimirovich ZYKOV	Director for Technological Connection on St. Petersburg of JSC "Lenenergo"
Anna Vladislavovna PIGOLITSINA	Director for HR and organizational planning of JSC "Lenenergo"
Tatyana Gennadyevna SUDAKOVA	Director on Economics of JSC "Lenenergo"
Yury Dmitrievich TSVETKOV	IT Director of JSC "Lenenergo"
Victor Valeryanovich CHERNETSOV	Head of Department of Operations of JSC "Lenenergo"

Director General of the Company

The management of Company’s current activities is performed by the Sole Executive Body, i.e. the Director General.

In accordance with the Company’s Charter, Federal Law "On Joint-Stock Companies" as of 26.12.1995 No.208-FZ, the competence of the General Director of the Company includes all issues related to the management of the Company’s current activities, except for any issues falling within the competence of the General Meeting of Shareholders, the Board of Directors, or the Management Board of the Company:

1. ensure the implementation of the Company’s action plans necessary to attain its objectives;
2. arrange for keeping the Company’s records and accounts;
3. dispose of the Company’s property, enter into transactions on behalf of the Company, issue powers of attorney, and open the Company’s settlement and other accounts with banks and other credit institutions (and, as provided for in law, with organizations that are professional participants of the securities market);
4. issue Orders, approve (accept) directives, local regulatory documents, and other internal documents of the Company, give instructions, which shall be binding upon all employees of the Company;
5. approve the Regulations for the Company’s branch offices and representative offices;
6. approve the Regulation on bonus payments for employees of the Company;
7. approve the staffing table and official salaries of the Company’s employees in accordance with the organizational structure of the Company’s executive staff;
8. exercise the rights and perform the obligations of an employer in relation to the Company’s employees as provided for in labor law;
9. distribute duties among Deputies of the Company’s General Director;
10. issue the business plan (adjustment of the business plan) and the report on results of its performance, and approve and correct cash flow in accordance with the list and values of control indicators of cash flows of the Company approved by the Board of Directors with further compulsory submission to the Board of Directors;
11. submit for review by the Company’s Board of Directors the reports on financial and economic activities of the Company, on performance of decisions of the General Meeting and the Board of Directors;
12. not later than 45 (forty-five) days before the date of the Annual General Meeting of Shareholders of the Company, submit for review by the Company’s Board of Directors the annual report, annual accounting statements, profit and loss account, and the distribution of the Company’s profits and losses;
13. submit for review by the Company’s Board of Directors the reports on financial and economic activities of the Subsidiaries and Dependent companies whose shares and equities are owned by the Company, and information on other entities whose shares are owned by the Company;
14. bear responsibility for arranging work with the National Security Information and also for creating the conditions to protect State Secrets;
15. deal with other matters related to the Company’s current activities, except for any issues falling within the competence of the General Meeting of Shareholders, the Board of Directors, or the Management Board of the Company;
16. perform the functions of the Chairman of the Company’s Management Board.

The Director General is elected by the Company’s Board of Directors. The decision of the Board of Directors as of 30.07.2010 (Minutes No.2 as of 30.07.2010) terminated the powers of the Director General of JSC "Lenenergo" Dmitry Vladislavovich Ryabov, and elected Andrey Valentinovich Sorochinskiy as Director General of the Company.

	General information on the Director General of JSC "Lenenergo" Andrey Valentinovich Sorochinskiy
Birth year. Nationality	1975. Russian Federation
Education	Higher: St. Petersburg State University, 1997 North-West Academy of State Service, 2007 PhD in Economics Positions within 5 last years Period: 2010 – present Company: JSC "Lenenergo" Position: Director General Period: 2004 – 2010 Committee on P and Engineering of the Government of St. Petersburg Position: Deputy Chairman
Share in the authorized capital of the Company	None
Positions in other organizations	Chairman of the Board of Directors : JSC "Tsarskoselskaya Power Company" JSC "Kurortenergo"

The compensation to the General Director is defined by the Employment Contract and the Regulations on financial stimulation approved by the Company’s Board of Directors (Minutes No.21 of 11.04.2008).

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).

3.3 Information on the Controlling Bodies

According to item 9.2 of Article 9 of the Charter of JSC "Lenenergo", the body of the control of financial and economic activity of the Company is the Internal Audit Commission.

Internal Audit Commission of the Company

The Internal Audit Commission of JSC "Lenenergo" is a constantly acting 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 Charter and the Regulations on the Internal Audit Commission of JSC "Lenenergo" approved by the General Meeting of Shareholders of the Company on 23.05.2002 (Minutes No. 1).

According to the Charter of the Company, the Internal Audit Commission is elected by the General Meeting of Shareholders in the number of 5 (five) persons for the term of one year (before the date of the next Annual General Meeting of Shareholders).

In accordance with the Company’s Charter, the frame of competence of the Audit Commission includes:

• verification of the data contained in the Annual Report, annual accounting statements, balance sheet, and profit and loss statement of the Company;
• 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;
• 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 Charter, and other internal documents of the Company;
  • control over the use of fixed assets;
  • control over 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), associated with checking financial and economic activities of the Company.

Composition of the Internal Audit Commission

The current members of the Internal Audit Commission were elected on 21.06.2009 by the decision of the Annual General Meeting of Shareholders (Minutes No. 1/2010 as of 21.06.2010).

Information on 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 Regulations on the Payment of Remuneration and Compensation to the members of the Internal Audit Commission of JSC "Lenenergo" approved by the Annual General Meeting of Shareholders on 30.05.2008. Payment is performed by the Company in 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-category 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 (non-members of the said Commission) shall be performed on the basis of the contracts which they have signed with the Company. The provisions of such contracts shall be approved 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, and 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 reporting year. No lawsuits were brought by the Company against the members of the Audit Commission.

The total amount of compensation and remuneration paid to the members of the Internal Audit Commission including involved specialists in 2010 amounted to RUR 632.6 thousand including taxes.

3.4 Subsidiaries and Dependent Companies

JSC "Tsarskoselskaya Power Company" started its history in 1887, when there was constructed the first in a Russia city power station near the Ekaterina Palace in Tsarskoye Selo. For these years, having kept the traditions of Russian engineers, continuously developing and mastering new kinds of activity, the organization turned from the highly specialized enterprise of Pushkin electric networks into a diversified company.

For 82 years, the company has been successfully maintaining the city electric networks of 10–0.4 kV, providing electricity supply and street illumination in the territory of Pushkin and Pavlovsk areas.

JSC "Tsarskoselskaya Power Company" services the networks of electricity supply and outdoor illumination of Pushkin, Pavlovsk, and adjoining settlements (Tyarlevo, Aleksandrovskaya, Gummolosary, Grachevka, Pyazelevo, and Dinamo), as well as networks of outdoor illumination of Shushary, Detskoselsky and Lensovetovsky sovkhoz.

The history of JSC "Kurortenergo" started on October 23, 1928 when the Sestroretsk Department of Lenselelectro was founded. After the war, it was actively extended, and changed its name.

In 1955, it was renamed "Sestroretsk power network office", in 1981 – "the Enterprise of Sestroretsk electric networks". Since 1996 it has carried the name of JSC "Kurortenergo" (Closed Joint-Stock Company "Kurortenergo" since 25.06.2009).

JSC "Kurortenergo" is a distribution grid company in the Northwest, serving the territory of the cities of Sestroretsk, Zelenogorsk, and the settlements Razliv, Tarhovka, Aleksandrovskaya, Gorskaya, Lisiy Nos, Olgino, Lakhta, Beloostrov, Solnechnoe, Repino, Komarovo, Serovo, Smolyachkovo, Molodezhnoe, Dibuny, Pesochny, Levashovo, Pargolovo, Torfyanoe, Osinovaya Roscha.

Since 1993, JSC "Energouchet" has been an active participant of the electro technical goods market, and specializes in deciding tasks on the organization of electric power accounting at all levels of its distribution from non-industrial and household consumers to AIMS CAEP (Automated Information-Measuring System of Commercial Accounting of Electric Power) of power supply systems and intersystem overflows.

Membership of JSC "Lenenergo" in non-profit organizations

3.5 Authorized Capital. Structure of Share Capital

The Company’s Authorized capital is RUR 1,019,285,990.04 as of 31.12.2010, and is divided into 926,021,679.04 ordinary shares with a par value of RUR 1 each and 93,264,311 preferred shares with a par value of RUR 1 each.

3.6 Securities. Capitalization. Indicators for 2010

JSC "Lenenergo" shares were admitted for trade at the RTS and MICEX Stock Exchanges without a listing procedure up to December 2007.

JSC "Lenenergo" was the first among Russian electric grid companies with its shares to be included into Quotation List A2.

With a view of compliance with the requirements of stock exchanges on maintenance of shares in Quotation lists B and A2, JSC "Lenenergo" constantly performs monitoring of trades of the Company’s shares at stock exchanges, interaction with the Market-maker of the Company, RTS and MICEX Stock Exchanges.

Global Depositary Receipts

Depositary bank – The Bank of New York Mellon

Bonds

3.7 Profit Distribution and Dividend Policy

As of 31.12.2010 JSC "Lenenergo" authorized capital amounted to RUR 1,019,285,990.04 (93,264,311 preferred shares and 926 021 679.04 ordinary shares). There were no changes in the authorized capital in 2010.

The Company’s authorized capital was increased upon the results of the year 2008 due to the private placement floatation of additional shares in behalf of the city of St. Petersburg. ¹⁸ The floatation of the shares was completed on October 24, 2008. The official report on the results of the additional issue of shares was registered on December 12, 2008. A total of 234,167,535 and 4/100 ordinary shares were placed, which is equal to 97.6 per cent of the total volume of the additional issue.

The profit distribution in accordance with the decisions of the General Shareholder Meetings over the past three years is given in the table below:

Payment of dividends by JSC "Lenenergo"

When accruing and executing payment of dividends, JSC "Lenenergo" fulfills the requirements of the Federal Law "On Joint-Stock Companies" and the Charter of the Company.

Due to the absence of any net profit, JSC "Lenenergo" did not pay any dividends between 1997 and 2000 and on 2005 results.

The Company’s dividend history for the past three years is given in the tables below.

The dividend policy of JSC "Lenenergo" is determined by the Regulations on dividend policy, approved by the Board of Directors of the Company on 31.08.2010 (Minutes No.4), which are developed according to the current legislation, the JSC "Lenenergo" Charter, recommendations of the Corporate Governance Code of JSC "Lenenergo", and other internal documents. The Regulations specify general principles of the dividend policy of JSC "Lenenergo", the terms and size of dividend payment, sources of funds directed on dividend payment, the order of decision-making on payment of dividends, the list of persons entitled to receive dividends, the procedure, terms and form of dividend payment, disclosure of information on the dividend policy, and responsibility of the Company for nonpayment of dividends.

The dividend policy of JSC "Lenenergo" is a set of principles used by the Company, and methods to determine proportions between the capitalized part of the Company's profit and a part of profit paid as dividends, as well as the system of relations and principles to determine the procedure and terms of dividend payment, and to establish the responsibility of the Company for non-execution of its obligations on dividend payment. It is based on the balance of interests of the Company and its shareholders at determining the size of dividend payments, on the respect and strict observance of the rights of shareholders provided by the current legislation of the Russian Federation, the Charter, and the internal documents of the Company. Furthermore, it is directed at growth of investment appeal of the Company and its market capitalization.

Provisions of the Charter of the Company determining the procedure for announcement and payment of dividends:

• The Company is entitled by results of the first quarter, half-year, nine months of a fiscal year and (or) by results of a fiscal year to make decisions (to declare) on payment of dividends under the placed shares. The decision on payment (announcement) of dividends by the results of the first quarter, half-year and nine months of a fiscal year can be approved within three months following the termination of the corresponding period;
• Decisions on payment (announcement) of dividends, including decisions on the size of the dividend and the form of its payment under shares of each category (type), are approved by the General Meeting of Shareholders of the Company;
• Terms of payment of dividends are determined by the General Meeting of Shareholders of the Company, but not later than 60 (Sixty) days following the decision-making on their payment.

The dividend policy of JSC "Lenenergo" is based on the following principles:

• Calculation of dividends is based on use of profit without influence of revaluation of financial investments;
• Necessity of maintenance of the required level of the financial and technical condition of the Company (accomplishment of the investment program), provision of prospects of development of the Company;
• Conformity of the practice of accrual approved by the Company and payment of dividends to the legislation of the Russian Federation and to the best standards of corporate behavior;
• Optimal combination of interests of the Company and the Company's shareholders;
• Necessity of an increase in investment appeal of the Company and its capitalization;
• Provision of transparency (clearness) of the mechanism for determination of the size of dividends and their payment;
• Dividends on ordinary shares are paid only in case of complete payment of dividends on preferred shares according to the Charter of the Company (in case of placing of preferred shares of the Company).

The recommended sum of dividend payments is determined by the Board of Directors based on the financial performance of the Company, thus the Board of Directors aspires to provide positive dynamics of the size of dividend payments to shareholders from year to year.

The Company provides disclosure of information on dividend policy by publishing the Regulations on the dividend policy of JSC "Lenenergo" and all amendments on the Company’s website at http:// www.lenenergo.ru/ru/vnutrenniedokume/.

¹⁸ As of 01.01.2008 JSC "Lenenergo" authorized capital amounted to RUR 785,118,455, and consisted of 93,264,311 preferred shares and 691,854,144 ordinary shares

4 Internal Control and Risk Management System

Provision of efficiency and constant enhancement of the internal control and risk managements system is one of the most priority directions of JSC "Lenenergo" activity. Development of internal control and risk management is generally directed on the provision of reasonable confidence in the achievement of strategic targets of JSC "Lenenergo" by the most effective way, provision of safety of assets and investment appeal, maintenance of the management efficiency and ensuring uninterrupted power supply of consumers and power efficiency.

4.1 Main Documents Regulating the Internal Control and Risk Management System

In 2010, the Board of Directors of JSC "Lenenergo" approved a number of the basic internal local documents aimed at enhancement and development of internal control, audit and risk management in the Company:

• Risk management policy of JSC "Lenenergo", approved by the Board of Directors of the Company on 18.06.2010 (Minutes No.22 as of June 18, 2010) which defines the key principles of organization, realization and control of the risk management processes in JSC "Lenenergo", as well as prime actions on forming the risk management system.
• Internal control policy of JSC "Lenenergo", approved by the Board of Directors of the Company on 18.06.2010 (Minutes No.22 as of June 18, 2010) which defines the key principles of the organization of internal control system of JSC "Lenenergo" obligatory to observance and forming of the uniform approach to implementation of internal control processes in the Company.
• New edition of the Regulations on the Audit Committee of the Board of Directors of JSC "Lenenergo", approved by the Board of Directors of the Company on 18.06.2010 (Minutes No.22 as of June 18, 2010).

4.2 Participants of the Internal Control and Risk Management System. Delineation of Responsibilities

Participants of the internal control and risk management system and the distribution of responsibilities between them are specified in the internal control policy of JSC "Lenenergo" and in the risk management policy of JSC "Lenenergo". Roles and responsibility are allocated as follows:

• The Board of Directors of the Company approves the internal control policy and states the estimation of its efficiency; it is responsible for approval and periodic revision of the general strategy of internal control.
• The Audit Committee (the Board of Directors), performs a general estimation of efficiency of internal control procedures in the Company (including, on the basis of messages and reports of Department for the internal control, audit and risk management).
• The Director General of the Company bears responsibility for realization of the present Policy approved by the Board of Directors, and for functioning and efficiency of internal control procedures in the Company. Responsibility for functioning and efficiency of internal control procedures at lower levels of management of the Company bear the directors of branches.
• The division of internal audit of the Company states a direct estimation of adequacy, sufficiency and efficiency of control procedures, and performs an estimation of observance of control procedures by participants of business processes of the corresponding levels of management. Furthermore, it states a general system appraisal of the internal control system, the degree of its standardization and optimization at all levels of management.
• The divisions which are carrying out functions on risk managements and the organization of the internal control of the Company (Coordinators of the internal control and risk management system), bear responsibility for the organization and standardization of business processes and methodical support of process of the establishment of control procedures, and perform interaction with the system coordinators in branches.
• Heads of structural divisions and other employees of the Company, according to the functional obligations, perform internal control through formalized standards and regulating documents. Structural divisions of the Company carry out monitoring and bear responsibility for execution of control procedures according to the standards.
• Heads of structural divisions and other employees of branches are responsible for the establishment and accomplishment of control procedures, and perform their own estimation of efficiency and enhancement of control procedures.

4.3 Enhancement of the Internal Control and Risk Management System

For the purpose of enhancement of the internal control and risk management system (ICRMS) processes, the Company organized activity on development of the ICRMS aimed at standardization of the control environment and risks of key business processes of the Company in 2010, as well as at enhancement of the risk management processes. The basic direction of the ICRMS development was designated as the transition from exclusively auditing (detecting) the character of control procedures to the combination of three types of control: auditing (subsequent), current and preventive (preliminary). Following the results of the given activity, the Regulations on the control environment and risks of the basic business processes of the Company were worked out, as well as the register of key risks. In the future, it is planned to continue the activity in the field of the ICRMS enhancement with transition from "standardized" to "optimized" level of the ICRMS maturity, as well as to the automation of control procedures and risk management processes.

4.4 Key Risks and Actions for their Minimization

As JSC "Lenenergo" activity is influenced by a considerable quantity of factors, the primary goals of the integrated system of internal control and risk management are identification, estimation and risk management of financial and economic activity, as well as provision of information on risks when approving administrative decisions.

Strategic risks

Country and regional risks

JSC "Lenenergo" performs its activity in the territory of two subjects of the Russian Federation (the city of St. Petersburg and the Leningrad Region) which are among the most developed regions of the country. The considerable quantity of industrial enterprises of St. Petersburg and agricultural enterprises of the Leningrad Region stimulates steady growth of electricity consumption in the regions of activity of JSC "Lenenergo". Despite the financial crisis of 2008-2009 and the short-term decline in industrial and agricultural production, volumes of output remain steady, which is a factor of stability of power consumption. Nevertheless, in case of slow recovery of the Russian economy after the crisis of 2008-2009, or in case of repeating the crisis, JSC "Lenenergo" can face lower effective demand for its services rendered that will finally affect the financial results and lead to the lower revenue growth rates of the Company. In case of these scenarios, the Company will undertake a number of measures for anti-recessionary management in order to minimize the negative influence on the financial and economic activity of the Company.

Geographical and climatic features of the region located in the Northwest of the Russian Federation, carry the risks of occurrence of accidents on power installations due to adverse natural events (hurricane winds, heavy snow, ice, extreme low temperatures in winter, abnormal summer heat, etc.). For minimization of the given risks, the Company designs power facilities allowing for the regional climate and geography, and implements the insurance program of protection of the power distribution facilities from natural disasters.

To reduce the risks associated with force-majeure circumstances: political instability, strikes, natural disasters, and state of emergency, JSC "Lenenergo" leads its contractual activity taking into account such events. JSC "Lenenergo" contracts contain the clauses "Force majeure" reducing financial losses of the Company upon the occurrence of the described events.

In general, in the medium-term JSC "Lenenergo" considers the possibility of considerable negative impact of country and regional risks on its activity and execution of its obligations to be improbable.

Industry risks

In recent years the electric power industry has undergone significant changes. The reforming of the industry, which started after 2000, bears a number of uncertainties in terms of which the distribution grid complex of the Russian Federation functions.

The major risk factor is the lack of elaboration of mechanisms of functioning of the retail electricity market, including risks associated with disagreements between power network and retail companies concerning the volumes of current electricity consumption, the growth of receivables and the low payment discipline of consumers. To minimize these risks, JSC "Lenenergo" takes steps for elimination of the reasons of conflict with customers to reduce receivables for electricity transmission services, as well as accumulating court practice, and creates positive precedents in cases when the consumer wrongfully disputes the ownership of delivery points.

A no less significant factor is unsettlement at the legislative level relations between distribution grid companies and JSC "FGC UES" regarding "last mile" lease contracts. Despite the legislatively enforceable right to conclude lease contracts of objects of power network economy of JSC "FGC UES" with territorial grid companies, there is no procedure for approving such contracts with the Ministry of Energy of the Russian Federation. Besides, the existing court practice of undertaking direct contracts between consumers and JSC "FGC UES" increases the risk of losses associated with termination of "last mile" contracts between JSC "FGC UES" and JSC "Lenenergo".

To minimize this risk, the Company monitors the compliance with contractual terms with JSC "FGC UES", as well as the timely provision of documentation for the prolongation on "last mile" lease contracts.

Regulatory risks

The Company receives basic incomes from rendering of services on electric power transmission, which are related to the sector of services subject to state regulation and approval in regional executive authorities. The Order of the Government of the Russian Federation as of 19.01.2010 No.30-r establishes the transition from 01.01.2011 on regulation of price control (tariffs) for services in the electric power transmission, rendered by JSC "Lenenergo" in the form of establishment of long-term parameters of regulation of its activity with application of the method of return on investment capital. The specified method of regulation means provision of return on investments, sufficient for servicing of obligations and receiving profit, and stimulates JSC "Lenenergo" to decrease its costs, as the saved funds remain in the Company unlike the method "costs plus" applied earlier. The change of regulation method bears a number of risks associated with non-recognition in full by regional bodies of components, constituting the tariff for services in electric power transmission. It can be associated with restriction of growth of the marginal levels of tariffs on electric power, established on the federal level. The given risk can cause the impossibility of complete compensation of economically reasonable expenses of JSC "Lenenergo", and limit volumes of investments of own funds in the development of the power network complex. For the purpose of minimization of the given risk, the Company performs interaction with regional regulatory bodies for the purpose of establishment of economically reasonable tariffs compensating all costs of the Company and providing realization of the investment program in the necessary volume, and performs a weighed policy on forming of costs.

The Company, being the subject of a natural monopoly, is subject to risks of acknowledgement of antitrust violations in the part of rendering of services in electric power transmission and technological connection. To decrease the given risk, the Company timely handles requests and traces applications of consumers. Besides, JSC "Lenenergo" accurately regulates and traces timely disclosing of information according to the legislation of the Russian Federation.

Financial risks

Risks of a change in interest rates on attraction of borrowed funds

Considering that JSC "Lenenergo" performs attraction of borrowings to implement its primary activity, there are risks of change of interest rates under credits.

The management of the given type of risk consists in monitoring the debt capital market, and in reasonable and economically proved use of borrowings in terms of interest rates and terms of use.

Among expected actions of the Company in case of negative influence on its activity of interest rates change, the following can be identified: optimization of its loan portfolio taking into account the changed market conditions; monitoring of the market of credit resources for the purpose of revealing more favorable credit terms; increase in the share of tools with a fixed rate at the level acceptable for the Company; and possible expansion of banks-partners.

Inflationary risks
Under the conditions of inflation the Company can face depreciation of the real value of expected incomes. Inflationary risks are generally caused by Company possibilities of broadcasting an increase in costs, in case of excess inflation rates, on the price of services in electric power transmission limited by the tariff level established by the regulatory body for a year. The negative influence of inflation on financial and economic activity of the Company can be expressed in debt receivable depreciation at an essential delay or a payment delay, and increase in the cost price of services. As the events are directed at decreased influence of inflationary risk, JSC "Lenenergo" estimates inflationary risks at representation of economically reasonable costs within the limits of the statement by a regulator of tariff-balance decisions, and conducts optimization of costs by means of development and realization of the program of costs management. At increase in inflation rates, the Company will take measures for optimization of management by debt receivable and costs, and increase of turnover of current assets.

Risks of default on obligations on commissioning of objects of investments
The Company performs investments into fixed capital in the form of capital investments including costs for new building, expansion, reconstruction, modernization, etc. The volume of investments increases annually. The risk of non-observance of terms of development of capital investments confirmed by the regulator at accepting BRT, becomes significant both from the point of view of development of sources of financing, and from the point of view of the terms of commissioning of objects of investment building. The basic current events for management of the given risk are: redistribution of the means received from the economy by results of competitive procedures on other objects of the investment program; the control of timeliness of repeatedly carrying out competitive procedures on objects of the investment program on which competitive procedures have not taken place; the control of a building course; the control of adherence to deadlines of the conclusion of contracts, terms of carrying out purchasing procedures; Carrying out of checks of volumes of capital investments which are subject to execution.

Presently the probability of realization of the given risk is insignificant.

Operational and technological risks

Operational risks
An increase in the quantity of incidents and emergencies in the power network distribution complex is significant for the Company, and is associated with ageing of equipment and depreciation of fixed assets, and the possibility of negative changes in the industry.

Production and technical risks
These risks arise from equipment operation. They are connected with possible transition to work in the conditions of forced (emergency admissible), overflow and actual sharp increase in loading over planned on the basis of requests of consumers. Technical risks are associated with equipment operation. They are caused by such factors as possible operation of the equipment with maximum deviations from normative and technical requirements, errors of operation personnel, infringement of the dispatching schedule and discipline.

JSC "Lenenergo" bears the risks associated with the seasonal nature of consumption of electric energy. The consumption peak is necessary for the autumn-winter period, and in this connection the Company has risks of an overload of networks.

To decrease the influence of operational and technological risks the Company carries out reconstruction of acting network facilities and building of new network facilities, modernization of fixed assets, and development of networks for an increase of possibilities for reservation during system accidents. The Company implements the program of insurance protection: property, dangerous production facilities, vehicles, civil responsibility, insurance of personnel upon accidents and illnesses.

Legal risks

The Company performs constant monitoring of changes in the legislation and does not see prospects of the origin in the financial and economic activities of any essential risks associated with changes in the tax and civil legislation in the short term.

Changes in the branch legislation entered last two years the regulating activity on technological connection of power accepting devices and other objects of applicants, activity on preparation to the statement and the reporting on execution of investment programs, and create risks of the origin of disputes with consumers, federal and regional enforcement authorities, and sanctions from supervising bodies.

The risks associated with imperfection of the legislation and acting regulatory legal acts, including, in the field of technological connection, are overcome by forming of JSC "Lenenergo" activity, based on observance and system application of rates of the current legislation, forecasting of legal risks, and protection of the rights and legitimate interests in courts, and forming, thus, of the practice corresponding to the legal court one.

Existing legal procedures in which JSC "Lenenergo" participates do not bear any risks for its normal activity and functioning.

4.5 Organization of Internal Control and Risk Management

Data on results of control events

In 2010, internal audit checks of branches of JSC "Lenenergo" were conducted:

• Accounting of fixed assets and other assets, shortages, losses and plunders
• Accounting of calculations with suppliers and contractors
• Accounting of profits and losses
• Accounting of write-off and use of petroleum products; , losses and plunders
• Accounting of cash operations
• Accounting of calculations under VAT
• Registrations of primary registration documents on accounting of work and its payment

Based on the results of the audit plans have been developed on the elimination of the remarks in the branches of the Company.

5 Financial Results Overview

With a view to forming an opinion on results of financial and economic activity of JSC "Lenenergo" in 2010 and drawing up of forecasts of development of the Company for the subsequent periods, it is necessary to consider and estimate the changes which occurred in the structure of assets and liabilities of the balance sheet, to carry out a complex analysis of financial performance and to estimate the changes of such indicators as liquidity, profitability and financial stability.

5.1 Key Financial Indicators of the Company

The key financial and economic indicators of JSC "Lenenergo" in dynamics for the three years from 2008 up to 2010 are given in the diagram:

Key financial and economic indicators of the Company for 2008-2010

Financial and economic performance of JSC "Lenenergo" for 2010 as compared to 2009 is characterized by the following trends:

• increase in sales volumes;
• increase in profit on sales;
• increase in net profit.

5.2 Tariff Policy

On performing regulated activity in the subordinated territories, the Company applies the following normative base:

• The Federal Law as of 26.03.2003 No.35-FZ "On the electric power industry";
• The Order of the Government of the Russian Federation as of 26.02.2004 No.109 "On pricing concerning electric and thermal power in the Russian Federation";
• The Order of the Government of the Russian Federation as of 27.12.2004 No.861 "On approval of the Rules of non-discriminatory access to services in electric power transmission and rendering of these services, Rules of non-discriminatory access to services in operative-dispatching management in the electric power industry and rendering of these services, Rules of non-discriminatory access to services of the system operator of trading system of the wholesale market and rendering of these services, and Rules of technological connection of power accepting devices (power installations) of legal entities and individuals to electric networks";
• The Order of the Government of the Russian Federation as of 31.08.2006 No.530 "On approval of the Rules of functioning of retail markets of electric power in the transition period of reforming of the electric power industry";
• The Order of the Government of the Russian Federation as of 31.12.2009 No.1220 "On determination of indicators of reliability and quality of the delivered goods and rendered services applied during the establishment of long-term tariffs";
• The Order of the Ministry of Energy of the Russian Federation as of 29.06.2010 No.296 "On approval of Methodical instructions on calculation of the level of reliability and quality of the delivered goods and rendered services for the organization on the management of a uniform national (all-Russian) electric network and the territorial grid companies";
• The Order of the FTS of Russia as of 06.08.2004 No.20-e/2 "On approval of Methodical instructions on calculation of regulated tariffs and prices for electric (thermal) power in the retail (consumer) market";
• The Order of the FTS of Russia as of 30.11.2010 No.365-e/5 "On approval of Methodical instructions on determination of payment rates for technological connection to electric networks".
• The Order of the FTS of Russia as of 08.04.2005 No.130-e "On approval of Regulations of disposal of legal proceeding about the establishment of tariffs and (or) their marginal levels on electric (thermal) power (capacity) and on the services rendered on wholesale and retail markets of electric (thermal) power (capacity)".

Tariffs set by regulatory bodies for electric power transmission

For 2010, the tariffs for electric power transmission were approved within the limits of marginal levels following the boiler principle established by the Federal Tariff Service of Russia, i.e. uniform in the territory of the whole subject of the Russian Federation.

Since 2008, there have been approved uniform “boiler" tariffs for electric power transmission similar to all consumers irrespective of a connection point to distribution networks in the region (item 42 of the Rules of non-discriminatory access to services in electric power transmission and rendering of these services as of 27.12.2004 No.861), and individual tariffs for electricity transmission for calculations between grid companies.

Transmission tariffs across both the Leningrad Region and St. Petersburg are approved under the "boiler-from above" scheme. In the given scheme the payments collected by the sales companies arrive in the higher territorial grid organization – JSC "Lenenergo" which settles payments with the subordinate territorial grid companies. Besides JSC "Lenenergo", about 20 territorial grid companies in the territory of the Leningrad Region and about 22 companies in the territory of St. Petersburg perform activity on electric power transmission

In the territory of the Leningrad Region tariffs for electric power transmission for 2010 are approved by the Order of LenRTC as of 29.12.2009 No.312-p (in the version of the Order as of 20.08.2010 No.103-p), and by Orders on the establishment of individual tariffs which are used for mutual settlements with adjacent grid companies.

In the territory of St. Petersburg, tariffs for electric power transmission for 2010 were approved by the Order of the Committee on Tariffs of St. Petersburg as of 28.12.2009 No.250-r. Following the results of consideration of disagreements of the FTS of Russia by the Committee on Tariffs of St. Petersburg from 01.10.2010 tariffs for electric power transmission were changed (the Order as of 30.08.2010 No. 137-r).

The increase in the actual revenue from electric power transmission as compared to the approved on St. Petersburg constituted RUR 294.8 mln due to the excess of actual productive supply of electric power over the approved one by 237 mln kWh.

The decrease in the actual revenue from electric power transmission in the Leningrad Region by RUR 563.4 mln is caused by the transition of three sales companies of Leningrad Region to calculations on one-rate tariff while tariff decisions were accepted proceeding from calculations of all sales companies on two-rates tariffs.

Rates of charge for technological connection set by regulatory bodies

JSC "Lenenergo" annually directs the requests for the establishment of charge rates for technological connection to the electric networks of JSC "Lenenergo" to regional regulatory bodies.

Following the results of the tariff campaign for 2010, the Committee on tariffs of St. Petersburg by the Order as of 28.12.2009 No.249-r approved charge rates with differentiation by territorial zones. In addition (as compared to 2009), charge rates were allocated for technological connection to the main switchboard. Operating borders of JSC "Lenenergo" were expanded on 14 new zones.

There are no charge rates at the voltage level of 35/110 kV and capacities exceeding 10,000 kVa in the tariff menu for 2010. In comparison with 2009, the Committee on tariffs of St. Petersburg made the following changes in the tariff decision for 2010:

• there are no coefficients for calculation of the size of the charge rate for technological connection to distribution electric networks in cases of change of reliability category of electric power supply in relation to earlier connected devices;
• charge rates for technological connection to the main switchboard to the extent of the charge rates for connection to ТP (RTP) increased by 10% are approved.

In 2011, charge rates for technological connection to electric networks of JSC "Lenenergo" were approved by the Order of the Committee on tariffs of St. Petersburg as of 29.12.2010 No.384-r across 39 territorial zones. In comparison with 2010, during the approval of the charge rates the following changes were made:

• in the tariff menu there were no charge rates at the voltage level of 6-10 kV on cable tips of CL in switchgear cells;
• charge rates were established for applicants on the third category of electricity supply reliability; charge rates for connection on the second category were determined as the doubled rates for the third category of electricity supply reliability.

The Committee on tariffs and price policy of the Leningrad Region (LenRTC) did not review the previously existing rates, and the charge rates approved by the Order of LenRTC as of 31.08.2007 No.72-p were applied.

Charge rates for technological connection were approved taking into account coefficients of differentiation of the base rate on:

• Reliability category;
• Remoteness from power centers;
• Business activity.

In 2011, charge rates for technological connection to the electric networks of JSC "Lenenergo" were approved by the Order of the Committee on Tariffs and Price Policy as of 25.02.2011 No.22-p depending on voltage levels and capacity of power installations of the applicant in 17 municipal areas of the Leningrad Region.

According to the Rules of technological connection approved by the Governmental order of the Russian Federation as of 27.12.2004 No.861 (further Rules), the payment for technological connection to electric networks for applicants – legal entities and individual entrepreneurs applying for technological connection of power receivers by the maximum connected capacity, not exceeding 15 kW inclusively (taking into account the previously connected capacity in the given point of connection), is set in a size not exceeding RUR 550, provided that the distance from borders of a site of the applicant to the power facilities of the voltage level necessary for the applicant constitutes no more than 300 meters in cities and settlements of a city type, and no more than 500 meters in countryside. Lost incomes from connection of such applicants are included in the tariff for electric power transmission.

In the case of failing to comply with one of the conditions listed in item 28 of the Rules, technological connection is performed under the individual project according to section III of the Rules.

According to the legislation, since January 01, 2011, the payment for technological connection does not include expenses associated with the development of existing infrastructure except for expenses on construction of power network facilities (from existing up to connected ones). The costs for development of the existing infrastructure should be considered in the planned investment program, and should be included in the structure of tariffs for electric power transmission.

This caused revision of tariffs for 2011 across St. Petersburg and the Leningrad Region, which were reduced relative to the previously existing charge rates by the regulatory bodies in the course of their approval.

Parameters of RAB-regulation for 2011-2015

The legal and regulatory base in part of regulation of the activity on electric power transmission under the method of return on investment capital:

• Order of the FTS of Russia as of 26.06.2008 No.231/e "On approval of Methodical instructions on regulation of tariffs of the companies rendering services in electric power transmission, with application of the method of return on investment capital";
• Order of the FTS of Russia as of 18.08.2008 No.183-e/1 "On approval of the Order of endorsement by the Federal Tariff Service of the offers of executive authorities of subjects of the Russian Federation in the field of tariff regulation, concerning transition to regulation of tariffs with application of the method of return on investment capital, and decisions on prolongation of the validity period of the first three-year long-term period of regulation".

Definition and advantages of the method of return on investment capital

RAB (Regulatory Asset Base) is a system of long-term tariff setting whose main objective is the attraction of investments aimed at expansion and modernization of infrastructure.

Advantages of the method of return on investment capital are as follows:

• Stimulation of attracting of investments;
• Increase of capitalization of the regulated organizations;
• Improvement of quality of strategic planning of activity of the organizations;
• Possibility to smooth tariff consequences of implementation of investment programs for consumers of services;
• Creation of economic motivation on decrease in costs, increase of reliability and quality of rendered services;
• Absence of the "item-by-item" control of expenses by regulatory bodies.

According to the Federal law of the Russian Federation as of 23.11.2009 No.261-FZ "On energy saving and on power efficiency increase, and on modification of separate legal acts of the Russian Federation" and the Order of the Government of the Russian Federation as of 19.01.2010 No.30-r, JSC "Lenenergo" after the endorsement of the Federal Tariff Service, performed the transition to regulation of tariffs for electric power transmission in the form of establishment of long-term tariffs on the basis of the method of return on investment capital from 01.01.2011 (the Order of the FTS of Russia No.487-e/4 as of 28.12.2010).

The regional tariff regulatory bodies established long-term parameters of RAB-regulation for 2011-2015 for JSC "Lenenergo" (the Order of the Committee on Tariffs of St. Petersburg as of 29.12.2010 No.377-r in the version of Orders of CT SPB as of 04.02.2011, the Order of the Committee on Tariffs and Price Policy of the Leningrad Region as of 28.12.2010 No.291-p).

5.3 Financial Performance

Balance sheet

Balance currency (i.e. the sum of assets at the Company’s disposal) at the end of 2010 constituted RUR 88,700 mln. In comparison with the balance sheet as of 31.12.2009, the total sum of property of the Company and sources of its forming increased by RUR 5,916 mln (7.1%). The principal causes of changes in the balance sheet are as follows:

• Accomplishment of the investment program of the Company;
• Reception of JSC "Lenenergo" following the results of 2010 of net profit.

As JSC "Lenenergo" is an enterprise related to capital-intensive industry, the structure of liabilities of the balance sheet of the Company is characterized by a great volume of borrowed funds, and non-current assets prevail in the asset structure.

As of 31.12.2010, the balance sheet of the Company is characterized by the following peculiarities:

• High share of non-current assets – 87.3% of balance currency;
• High share of accounts receivable – 10.8% of balance currency, or 85.0% of current assets;
• Considerable volume of loans and credits – 16.6% of balance currency, 39.9% of total liabilities of the Company.

The growth of net assets in the reporting period by RUR 3,406 mln in comparison with the balance sheet data as of 31.12.2009 is mainly caused by reception of net profit by JSC "Lenenergo" following the results of the fiscal year. Essential (in 51 times) excess of net assets over authorized capital completely meets the requirements of normative acts¹⁹ to the size of net assets of the organization, and it can be regarded as a major factor of stability of the financial position of the Company under modern conditions and in the future.

Non-current assets

As of 31.12.2010, non-current assets amounted to RUR 77,398 mln, which exceeded the level of 2009 by RUR 10,951 mln. The share of non-current assets in the structure of the Company’s assets was equal to 87.3%, thus fixed assets amounted to 69.5% of total assets, or RUR 61,616 mln.

In comparison with 2009, the cost of fixed assets increased by RUR 8,499 mln. The increase was associated with the commissioning of fixed assets in the course of implementation of the investment program of the Company, and the greatest growth occurred thanks to commissioning fixed production assets.

Furthermore, in 2010 a number of substations were commissioned – among them 110/10 kV substation "Cement" (capacity of 126 MVA) in Slantsy; 35/10 kV substation "TsRP" No.40; 110 kV substation No.539; 110/35/10 kV substation "Tikhvin-city" No.143; 110 kV substation "Parnas-Communal" No.89; 110 kV substation "Neva DSK" No.145.

The sum of assets in construction in progress on the end of 2010 reached RUR 14,484 mln, or 18.7% of non-current assets. Growth of investments in construction in progress (by RUR 2,001 mln, or 16.0%) was caused by expansion of the investment program of JSC "Lenenergo" in 2010. Accomplishment of the investment program of the Company allows raising the reliability of electric power supply of consumers.

Long-term financial investments as of 31.12.2010 constituted RUR 946 mln, thus the share of the given line in non-current assets reached 1.2%. As a part of long-term financial investments the cost of shares of JSC "Northwest power management company", JSC "Lenenergospetsremont", JSC "Kurortenergo", JSC "Tsarskoselskaya Power Company", and some other companies is considered.

Relative to the beginnings of the year, the sum of long-term financial investments of JSC "Lenenergo" increased by RUR 367 mln at the expense of a:

• Decrease in their size by RUR 522 mln as a result of sales of shares of JSC "FGC UES" and JSC "Petersburg sales company" in the 1^st half of 2010 according to decisions of the Boards of

  Directors (Minutes No.10 as of 03.12.2009; No.20 as of 25.05.2010)²⁰;

• Growth of the sum of long-term financial investments in the 3^rd quarter of 2010 by RUR 889.5 mln in connection with the purchase of shares of JSC "Tsarskoselskaya Power Company" ("TsPC") and JSC "Kurortenergo" by offset of the counter homogeneous requirements between JSC "Lenenergo" and JSC "Lenenergospetsremont" ("LESR") under purchase and sale contracts of shares of both JSC "TsPC" and JSC "Kurortenergo" and under the loan contract with JSC "LESR" (the decision of the Board of Directors on purchase of shares from July 30, 2010 (Minutes No. 3).

Purchase in 2010 by JSC "Lenenergo" of shares of JSC "TsPC" and JSC "Kurortenergo" was the continuation of implementation by the Company of a policy of creation of a uniform power network company on the territory of St. Petersburg. The main objective of consolidation of power network assets is carrying out of a uniform technical policy in distribution networks, including creation of the uniform centre of operatively dispatching management by networks, and creation of the uniform centre of responsibility for realization of technological connections. In general, creation of a uniform network company raises the controllability of networks and the reliability of the electric power supply. Consolidation of the program of perspective development of electric networks will essentially raise further stability of the power supply system of St. Petersburg.

Revaluation and other adjustments of the cost of financial investments in 2010 were not produced.

Current assets

As of the end of 2010, current assets of the Company constituted RUR 11,303 mln, or 12.7% of balance currency, and decreased by RUR 5,034 mln (or 30.8%) relative to 2009.

The main share in the structure of current assets was taken by accounts receivable – 85.0%, or RUR 9,610 mln. In the structure of current assets there are also included inventories (9.8%, or RUR 1,108 mln), VAT on purchased values (2.3%, or RUR 256 mln), monetary funds (2.9%, or RUR 329 mln). For the reporting date, short-term financial investments of the Company were absent.

The decrease in current assets following the results of 2010 was caused by a reduction in all components (inventories, VAT, receivables, short-term financial investments, monetary funds). Thus, the most essential decrease in absolute terms takes place on the sum of receivables and monetary funds.

The total accounts receivable at the end of the fiscal year constituted RUR 9,610 mln, which is RUR 2,453 mln (20.3%) less than in the balance sheet as of 31.12.2009.

"Advances paid" make up a considerable sum in the structure of accounts receivable. As of 31.12.2010, their size reached 34.1% of the total accounts receivable of the Company. Advances paid to building organizations have the greatest weight (RUR 2,029 mln, which constitutes 21.1% of receivables and 61.8% of paid advances). It is generally associated with implementation of the investment program of JSC "Lenenergo". The advances paid under lease contracts in the amount of RUR 1,018 mln, had 31.0% of the total sum of paid advances (considered in the long-term receivables).

Buyers and Customers receivables are equal to 19.2% of the receivables. The receivables comprise: debts under agreements of electric power transmission through JSC "Lenenergo" power networks; buyers and customers debts for technological connection, etc. The growth of indebtedness following the results of the year is caused by increase in volumes of rendered services.

Other receivables are equal to 46.7% of the aggregate receivables of the Company and comprise receivables of other debtors in the amount of RUR 4,487 million, including leasing receivables equal to RUR 1,015 million, VAT on advance payments (RUR 2,708 mln), tax overpayments (RUR 429 mln), and other indebtedness.

One of the major factors which caused the considerable reduction of receivables following the results of 2010 is carrying out by the Company of work on a decrease in their level, namely, control strengthening over the advances given out that, in general, made it possible to lower the sum of the paid advances concerning the last fiscal year. Thus, the most essential decrease in an absolute expression takes place on the sum of the advances which were paid to constructing organizations (by RUR 1,535 mln).

Furthermore, in connection with the term approach in the reporting year, the indebtedness of affiliated and dependent companies, namely, the sum of the loan given to the affiliated Company of JSC "Lenenergo" - JSC "Lenenergospetsremont" at the rate of RUR 907 mln (including on RUR 889 mln by shares of JSC "Tsarskoselskaya Power Company" and JSC "Kurortenergo" – on RUR 18 mln by money resources) was extinguished.

The cash balance decreased from the beginning of the year by RUR 2,154 mln, cash were used for financing of the Company activities.

Capital and reserves

The share of own sources has the greatest value among sources of forming of property of the Company and constitutes 58.4% from balance currency, or RUR 51,759 mln. Additional capital has the main share among own sources and constitutes 78.2% from their total sum, while authorized capital constitutes 2.0%.

The size of reserve capital of JSC "Lenenergo" constitutes 15% of authorized capital. Changes in the amount of reserve capital in 2010 are absent.

In general, growth of the sum of capital and reserves following the results of 2010 by RUR 3,415 mln (by 7.1%) is mainly caused by reception of net profit by JSC "Lenenergo" following the results of the fiscal year.

Liabilities

JSC "Lenenergo" liabilities (sections 4 and 5 of the balance sheet minus deferred tax liabilities, incomes of future periods and reserves of forthcoming expenses) as of 31.12.2010 constituted RUR 35,718 mln, including:

• Long-term accounts payable – RUR 149 mln, or 0.4% of the total sum of liabilities of the Company;
• Long-term credits and loans – RUR 13,562 mln (38.0%);
• Short-term credits and loans – RUR 1,172 mln (3.3%), including indebtedness on accrued, but not paid interest at the rate of RUR 172 mln;
• Other short-term liabilities (minus incomes of future periods and reserves of forthcoming expenses) constitute RUR 20,836 mln (58.3%).

Short-term liabilities act as the second important source of forming property of the Company and constitute 25% of balance currency (RUR 22,181 mln).

The share of long-term liabilities following the results of 2010 is 16.6% of the currency of balance (RUR 14,760 mln). Long-term liabilities are formed at 91.9% at the expense of long-term credits and loans at the rate of RUR 13,562 mln.

Long-term loans and credits as of 31.12.2010 comprise liabilities under bonded loans of 02 and 03 series, placed in February and April, 2007 (RUR 6 bln) with a repayment term in 2012, as well as liabilities under long-term credits at the rate of RUR 7 562 mln, borrowed in 2010.

In the reporting year, JSC "Lenenergo" borrowed and repaid its short-term credits for a sum of RUR 2,328 mln. The borrowing of long-term credits at a rate of RUR 8,562 mln was performed. The repayment of long-term credits was performed for the sum of RUR 7,900 mln, including the syndicated credit of Barclays Bank PLC at a rate of RUR 4,900 mln. As a result, the indicator of payments covering servicing of the debts, which reflects the capability of the Company to pay its liabilities at the expense of profit and funds equal to it, following the results of 2010 decreased to 68.7%, which is 4 times below the level of the last fiscal year (by 204.1 percentage points), basically due to repayment of credits in 2010 at a volume exceeding that of the last fiscal year.

Accounts payable possess the major share in the structure of short-term liabilities, which constitutes 93.9% of short-term liabilities and 23.5% of all sources.

In the line "Short-term credits and loans" as of 31.12.2010 (5.3% of all sources) there are reflected the sums of accrued, but not paid interest credits and loans (RUR 172 mln), and the sum of the borrowed credit in 2009 at a rate of RUR 1,000 mln transferred according to the accounting requirements into the structure of short-term liabilities due to the forthcoming repayment in 2011.

In comparison with 31.12.2009, the sum of short-term accounts payable increased by RUR 1,703 mln, or 0.2% in relative terms – mainly at the expense of growth in liabilities on advances received (by RUR 1, 783 mln, or 11.6%).

Advances received prevail in the structure of total (long-term and short-term) accounts payable (81.6%) and are almost completely formed at the expense of advances on technological connection.

This is associated with the repayment terms of counterparts for the services on connection to electric networks of JSC "Lenenergo" (payment of the given services is produced via complete or partial advancing). As of 31.12.2010, the sum of advances received under contracts for services on technological connection increased in comparison with the end of the previous year, and reached RUR 17,108 mln.

Accounts payable towards suppliers and contractors in the total sum of accounts payable constitute 16.1%, and are generally represented by current liabilities towards network and building organizations.

The share of other payables constitutes only 2.4% (including current wage liabilities towards personnel in the sum of RUR 119 mln (0.6%), tax liabilities in the sum of RUR 121 mln (0.6 %), liabilities towards state off-budget funds in the sum of RUR 43 mln (0.2%), and liabilities towards other creditors in the sum of RUR 211 mln (1.0%).

Following the results of 2010 there was a change in the structure of liabilities of the Company – the growth of the share in the most urgent liabilities, under a simultaneous decrease in the share of long-term liabilities. This is associated with a multidirectional change of long-term (insignificant decrease) and short-term liabilities (growth at the expense of an increase in accounts payable and short-term liabilities under credits and loans – due to the transfer into its structure of liabilities under long-term credit in a sum of RUR 1 bln before the repayment date, for which there remain less than 12 months).

As a result, there was an insignificant deterioration in the structure of the borrowed sources of forming of property of JSC "Lenenergo". This is caused by the fact that creditors may claim the sources of borrowed funds in the form of accounts payable urgently; therefore, they are not reliable enough. While long-term sources of forming of property, including long-term credits and loans, are more preferable from the position of provision of financial stability of the Company.

Payables/receivables ratio reflects the degree of crediting by the Company of buyers, and of itself – by sellers, and it is considered normal at the level of 1.2-1.5.

In terms of multidirectional changes in the sums of accounts receivable (decrease) and accounts payable (growth) following the results of 2010, there occurred some decrease in the indicator reflecting their ratio.

In the course of analysis of payables/receivables ratio, including in a dynamic aspect, features of financial and economic activity of JSC "Lenenergo" associated with accomplishment of the investment program and fees on technological connection should be considered.

Indicators of the Profit and Loss Statement

Following the results of financial and economic activity of JSC "Lenenergo" in 2010 the following financial results were reached:

Revenue

JSC "Lenenergo" revenue in 2010 constituted RUR 34,201 mln (the growth of 31.1% to the level of 2009).

Receipts of revenue from primary activity for 2010 were formed in the following directions:

• revenue from electric power transmission following the results of 2010 constituted RUR 23,873 mln (69.8 % of total revenue);
• revenue from technological connection reached RUR 10,164 mln (29.7% of total revenue);
• revenue from rendering of other services constituted RUR 164 mln (0.5%).

Other activities of JSC "Lenenergo" comprise work and services of industrial character rendered to legal entities and individuals under the contracts concluded in the interests of JSC "Lenenergo", on the condition of timely and qualitative execution of works on primary activity. The list of services and their cost is determined by the Price list, which is annually approved by Director General.

The decrease in revenue on other services in 2010 in comparison with 2009 occurred due to the transfer of non-core assets to municipalities in 2009.

Growth in sales revenue following the results of 2010 was accompanied by growth in its components (revenue from electric power transmission, from technological connection).

Cost of goods sold (COGS)

Cost of goods sold of JSC "Lenenergo" in 2010 constituted RUR 27,488 mln (+32.1% to the level of 2009).

The structure and dynamics of total cost of goods sold of JSC "Lenenergo" for 2009 and 2010 is presented in the table and charts:

Following the results of 2010, the most essential changes in the structure of COGS occurred concerning the growth in material costs share and the decrease in the share of wage payments (with social deductions).

Thus, in absolute terms the most considerable growth (by 33.6%, or RUR 2,844 mln) was noted under the line "Works and services of production character" at the expense of growth of costs for services of network companies on electric power transmission – tariffs for these services are established by regulatory bodies. The growth in the size of depreciation charges (by 24.2%, or RUR 804 mln) occurred at the expense of growth in fixed assets - at the expense of commissioning of fixed assets as a result of execution of the investment program.

The increase in sales profit is associated with more considerable growth in revenue of the Company over the COGS increase in absolute terms.

Miscellaneous incomes and expenses

Interest payments of JSC "Lenenergo" in 2010 increased by RUR 165 mln relative to 2009, and amounted to RUR 938 mln in the reporting year. Interests were calculated under credits and loans borrowed in 2007 (bonded loan of 02 and 03 series, syndicated credit), and under new credits borrowed by the Company in 2009-2010. The growth of interest payments was generally caused by the increase in the sum of the basic debt on which the interest charge in the reporting year was performed.

In 2010, there was an increase (1.8 times) in interest payments for the benefit of JSC "Lenenergo", which reached RUR 63 mln. The specified incomes depended on cash balances on settlement accounts of the Company within the year.

Incomes of the Company from participation in other organizations increased by 56.1% in comparison with the similar indicator of 2009, and constituted RUR 25 mln. Dividends in 2010 were received under shares belonging to JSC "Lenenergo" from JSC "Petersburg Sales Company", JSC "Northwest Power Management Company", and JSC "Energouchet".

The decrease in comparison with the last fiscal year of absolute values of indicators of miscellaneous incomes (by RUR 434 mln) and expenses (by RUR 318 mln) is appreciably caused by the decrease in the volumes of calculations by bills with suppliers and contractors in 2010.

Thus, in general relative to 2009, there was an increase in the negative balance of miscellaneous incomes and expenses (excluding interest receivable and payable, and incomes on participation in other organizations) by RUR 115 mln (24.7%).

Profit before taxation, profit tax

The increase in sales profit in 2010 relative to 2009 exceeded the growth of negative balance of miscellaneous incomes and expenses (excluding interest and incomes on participation in other organizations). As a result, profit before taxation increased by RUR 1,196 mln.

Profit tax and other similar obligatory payments following the results of 2010 reached RUR 1,477 mln. The sum of the current profit tax constituted RUR 1,270 mln.

Net profit

The net profit of JSC "Lenenergo" following the results of 2010 increased by RUR 548 mln and reached RUR 3,806 mln.

Since 2008, the indicators of sales profit, profit before taxation, and net profit have demonstrated a growth tendency that promotes provision of stability of the financial condition of the Company.

The increase in net profit following the results of 2010 was caused by the growth in revenue of the Company relative to the previous reporting period.

¹⁹ Item 35 of the Federal Law “On joint stock companies” as of 26.12.1995 No.208-FZ.

²⁰ The decision on sale in quarter 1, 2010 of shares of JSC “FGC UES”, belonging to the Company (583,195,165 pieces of ordinary shares) was approved by the Board of Directors (Minutes No.10 as of 03.12.2009.). The decision on the termination of participation of JSC "Lenenergo" in JSC “Petersburg sales company” by sale of shares of JSC "PSC" it was approved by JSC "Lenenergo" Board of Directors (Minutes No.20 as of 25.05.2010). Sales of shares of JSC "PSC" was actually performed in quarter 2, 2010.

5.4 Financial Analysis

Profitability indicators

Profitability indicators of JSC "Lenenergo" in 2010 were positive as a result of profitability of the Company’s activity.

Return on sales is an indicator that characterizes the efficiency of production activity, and shows that in 2010 the Company received from each ruble of sales a profit at the rate of 19.63 %. Some decrease in ROS following the results of 2010 (by 0.58 percentage points) is associated with the fact that the rates of increase in revenue in 2010 are slightly lower than the rates of increase in costs.

Return on total assets shows that on each ruble invested in assets, JSC "Lenenergo" received 4.29 kopecks of profit in 2010. The growth of ROTA by 0.35 percentage points in comparison with 2009 testifies to an increase in the efficiency of property use belonging to the Company.

Return on equity is one of the key indicators reflecting efficiency of functioning of the Company and the size of profit received from each ruble, invested in the Company by its proprietors. The growth of ROE in comparison with 2009 is associated with an increase in net profit of JSC "Lenenergo".

Following the results of activity for 2010, the majority of profitability indicators reached their maximum for the past three years. This in general testifies to the rather high efficiency of financial and economic activity of JSC "Lenenergo", and can be a sign of carrying out competent policy by the management aimed at achievement of positive results following the results of operational activity.

In the present conditions, this policy assumes:

• implementation of program on a cost decrease;
• withdrawal from the Company of non-core assets;
• performing economically reasonable tariff policy;
• fulfillment of the Company’s obligations on technological connection of subscribers.

Liquidity and solvency indicators

The generalized grouping of assets of the Company on the degree of liquidity and liabilities - on the degree of promptness of repayment is resulted in the table:

The balance of JSC "Lenenergo" at the end of 2010 is not liquid. The conditions of liquid balance are observed only regarding the increase of quick sold assets over short-term liabilities, which testifies to preserving of solvency of the Company in the near future.

Calculation and estimation of liquidity coefficients allows establishing the degree of security of liabilities by the most liquid funds:

Optimum values in liquidity ratios of JSC "Lenenergo" following the results of 2010 were not reached, thus in comparison with the last fiscal year their decrease may be observed.

Deterioration of liquidity indicators was caused by multi-directional changes in the sums of current assets (decrease) and short-term liabilities (growth). The lowering influence on the ratios was associated with the performing by the Company of actions aimed at a decrease in the level of accounts receivable, namely the strengthening of control over advances paid that resulted in an essential decrease in the sum of advances paid in relation to the beginning of the year.

Thus, the basic negative influence on liquidity indicators was rendered by a great sum of liabilities on advances received from subscribers under the contracts on technological connection (constituting the considerable share of short-term accounts payable reflected in line 620 of the balance sheet – 82.1% as of 31.12.2010) which is associated with the particularity of the Company’s activity.

In most cases payments for services on connection to JSC "Lenenergo" networks were advances which were paid at the stage of signing of the contract, and which are actually long-term sources of funds as they are associated with implementation by the Company of a long-term investment program. The specified liabilities do not demand security by current assets since they are sources of forming of non-current assets of the Company to be repaid on rendering of services on technological connection. Improvement of liquidity indicators of the Company can be reached at the expense of a decrease in the sum of advances received by JSC "Lenenergo" on fulfilling of its obligations towards subscribers, i.e. increase in revenues from rendering of services on technological connection. As a result, liquidity indicators will be adjusted towards an increase.

Financial stability

The stability of the financial condition of the Company depends both on the optimality of structure of capital sources (ratio of equity and liabilities), and on the optimality of assets structure of the Company.

As equity is the basis for independence of the Company, a considerable share of equity on the balance of the Company testifies to its sufficient financial independence. As of the end of 2010, the share of equity constituted 58.4% of the currency of balance of JSC "Lenenergo", i.e. was at a level not below the recommended one (50%), which is regarded positively.

In general, values of equity ratio, financial stability ratio, as well as indicators reflecting the relation of borrowed funds to capital and reserves, and the ratio of equity to borrowed funds following the results of 2010 were within the frameworks of standard restrictions. Changes of indicators concerning the last fiscal year were practically absent, and fluctuations of values of indicators from 2008 to 2010 were insignificant.

Turnover indicators

Relative indicators of business activity characterize the efficiency of use of resources (property) of the Company. They can be presented in the form of a system of financial ratios – turnover indicators.

Concerning the last fiscal year, growth of turnover indicators of JSC "Lenenergo" was observed. Positive dynamics of indicators was caused by the growth in revenue relative to the last fiscal year, thus the Company’s revenue was growing at rates exceeding total assets, and the sum of current assets was decreasing. Considerable growth of receivables turnover was affected by optimization in the size of advances paid to building organizations.

As the economic result of the turnover acceleration is the additional release of current assets in the economic circulation of the Company, the given changes can be regarded positively from the position of estimation of the Company’s financial condition.

In general, there remained the tendency of improvement of the majority of profitability indicators that was accompanied by an increase in net profit of JSC "Lenenergo" (by 1.2 times) and in revenues (in 1.3 times) in the reporting year in comparison with 2009. Values of turnover indicators that testify to the increase in efficiency of the use of resources by the Company also increased. The growth of net assets was steady. The level of financial independence of the Company was in limits of legislative values and concerning the last fiscal year practically has not changed. At the same time, in comparison with 2009, dynamics of some financial indicators of JSC "Lenenergo" had a negative character. Therefore, liquidity indicators, and the indicator reflecting the ratio of accounts receivable and payable, deteriorated.

The analysis of dynamics of the indicators of activity of JSC "Lenenergo", In general, testifies to the high enough level of efficiency of activity of the Company. However, considering the influence of financial crisis on economical conditions of the Company’s operating, the further optimization of the Company’s governance aimed at improvement of its financial condition remains important.

Credit portfolio

Changes in the credit portfolio of JSC "Lenenergo" in 2010 resulted in the table:

As of 31.12.2010, liabilities on borrowed funds constituted RUR 14,734 mln, including:

• RUR 14,562 mln on the sum of the main debt;
• RUR 172 mln of interest accrued, but not paid.

Within 2010, there was no infringement of terms of repayment of liabilities on the main debt and payment of interest for using borrowed funds. As of 31.12.2010, JSC "Lenenergo" had no overdue liabilities on repayment of main debt, interest and payments on servicing of credit resources.

Flow on credit resources in 2010:

• RUR 10,890 mln borrowed,
• RUR 10,228 mln repaid

The key banks – partners of JSC "Lenenergo" are as follows:

JSC "Sberbank of Russia"
JSC "Bank VTB Northwest"
JSC AKB "Svyaz-Bank"
JSC "AB "RUSSIA"
JSC "Alfa-Bank"

5.5 Financial Plans up to 2015

The key forecasted financial indicators of JSC "Lenenergo" in compliance with the Business plan of the Company ²² for 2011-2015 resulted in the following table.

The transition of JSC "Lenenergo" to RAB-regulation becomes the basic catalyst of considerable improvement of the Company’s financial and economic condition and growth of value.

RAB-regulation will allow the Company to borrow long-term capital in the necessary volume for financing the scale investment program developed for complex renovation and modernization of network facilities.

For the first five years period of RAB-regulation (2011-2015), JSC "Lenenergo" plans to considerably improve the financial condition, which is testified to by the positive dynamics of the majority of key forecasted indicators of the Company’s performance.

Revenue growth in 2015 in comparison with 2011 is expected at a level of 101.1%, which essentially advances the increase rate of COGS (50.4%). The essential increase in revenues from electric power transmission for 2011-2015 is thus forecasted, at a simultaneous decrease in revenues from technological connection.

The revenues from technological connection are specified for 2011-2015 under condition of implementation of the strategy on liquidation of accumulated and overdue liabilities, and accomplishment of current obligations in the terms established by the legislation. For 2011-2015, the share of services on technological connection in revenue is supposed to decrease to 2.7 % in 2015.

This is associated with the fact that RAB-regulation allows passing from volatile incomes on technological connection to the more stable model at which the basic profit is formed at the expense of electric power transmission.

Growth of EBITDA for 5 years is forecasted at the level of +241.6% followed by growth of EBITDA margin to 48.8% in the end of the first period of regulation (in 2015) that, in general, is regarded positively. Thus, the share of net profit in the structure of EBITDA increases, and in the end of 2015 exceeds 50%.

A considerable increase in net profit (+434.6%) for 2011-2015 is caused by essential growth of the Company’s revenue from electricity transmission services. Within the five years, equity of the Company will also increase (+101.1%), and ROE will reach its maximum of 24.87% in 2015

In terms of the advancing growth rates of equity in relation to cumulative liabilities of the Company, the dynamics of the ratio of its equity and borrowed funds is also characterized by a growth tendency.

Until 2014, the part of borrowed funds is attracted by the Company for refinancing of credits and loans repaid in compliance with the terms of contracts. Starting from 2015, the gradual repayment of accumulated liabilities under credits and loans begins, and credits borrowed for financing of operational activity are repaid first.

Accordingly, the net debt of the Company increases from 2011 to 2014, and by the end of the regulated period it starts to decrease.

During the complete regulated period (2011-2015), DEBT/EBITDA does not exceed the level of 3.0, and it decreases within the five years, reaching the ratio of 0.21 in 2015. The low value of the indicator testifies that the generated cash flow will completely cover the Company’s current short-term liabilities. Besides the growth of EBITDA, the decrease in DEBT/EBITDA will be affected by accounts payable reduction on the advances received from subscribers on technological connection owing to execution by the Company of its obligations.

The growth of leverage until 2012 is associated with the considerable borrowing of extra funds and the advancing growth of the sum of liabilities in relation to the increase in equity. By the end of the five years' period of regulation, leverage reaches the recommended value (<30%).

Throughout 2011-2015, net assets remain within the limits of recommended legislative values, at a level considerably exceeding the size of authorized capital of the Company.

In general, following the results of the first period of RAB-regulation the financial condition of JSC "Lenenergo" will improve as compared to 31.12.2010.

6 Investment Activity

6.1 Investment Program Parameters

Actual disbursement of capital investments for the reporting period amounted to RUR 15,813 mln.

In comparison with 2009, the volume of capital investments in 2010 increased by RUR 5,479 mln, with growth amounting to 53%.

The increase in parameters of the investment program of 2010 in relation to 2009 is associated:

• with implementation of the program of connection of objects of JSC "Gazprom Invest West" by RUR 1,288 mln;
• with the increase in works on technological connection of subscribers to distribution networks of 0.4-10 kV by RUR 1,006 mln;
• with the increase in volumes under property contracts on technological connection by RUR 1,916 mln;
• with the redemption of shares of JSC "Kurortenergo" and "Tsarskoselskaya Power Company" by RUR 890 mln;
• withdrawal of equipment from leasing by RUR 376,5 mln.

The investment program provides the growth of commissioning of fixed assets both in money and physical terms under an increase in disbursement of capital investments.

The volume of commissioning of fixed assets for the whole Company constituted RUR 13,750 mln, 932 MVA of transformer capacity and 1,508 km of transmission lines were commissioned.

The increase in parameters of commissioning of fixed assets in 2010 across St. Petersburg relative to 2009 is associated with:

• increase in volumes of work on building and reconstruction of 0.4-10 kV distribution networks on connection of consumers and statement on the balance of the works performed till 2010 (the fact of 2009 constituted RUR 2,104 mln, 262 km, gain of 222 km, the fact of 2010 constituted RUR 3,216 mln, 378 km, gain of 349 km).
• • statement on the balance of objects under property contracts. The sum of excess from 2009 constitutes RUR 2,275 mln, which in physical terms corresponds to 543 km, and 344 MVA.

The increase in disbursement of capital investments on the objects of the Leningrad Region is associated with the implementation of the program of connection of objects of JSC "Gazprom Invest West" by RUR 1,288 mln. The decrease in commissioning of fixed assets in 2010 is associated with building and reconstruction of objects of JSC "Gazprom Invest West", the commissioning of which is planned for 2011, and the delay in registration of title documents on the land plot of the "Kudrovo" substation, which has not allowed to enter into fixed assets the sum of RUR 131 mln on the substation put in operation.

Sources of funding of the investment program

Key sources of funding of capital investments of the Investment program of JSC "Lenenergo" in 2010 were as follows: depreciation, charges for technological connection, and borrowed funds (credits).

The analysis of structure of the investment program shows an increase in capital investments directed to both new construction and reconstruction of existing objects of power network economy of the Company. Considerable excess on new construction is associated with the increase in volumes under property contracts on technological connection.

The increase in other capital investments is associated with acquisition of shares of JSC "Kurortenergo" and "Tsarskoselskaya Power Company".

Within the framework of implementation of the investment program, the following tasks were solved:

• Maintenance in operational readiness of the equipment necessary for reliable, uninterrupted and qualitative power supply to consumers;
• Carrying out of actions for a decrease in production costs, including at the expense of an increase of overall performance of the equipment, development of systems of accounting of consumed energy supply;
• Modernization of fixed assets;
• Ensuring safety work of equipment and personnel;
• Provision of capacity of electric networks for steady functioning of the electric power industry and provision of connection of consumers;
• Increase of anti-diversionary and anti-terrorist security of power objects;
• Development of communication systems, telemechanics and data transmission for the purpose of an increase of controllability of networks and a decrease in the time of reaction to emergency situations;
• Carrying out of the events directed on innovative development of industry.

Endorsement of the investment program for 2010 with executive authorities

Executive authorities of the subjects of the Russian Federation approved the initial investment program for 2010 on 15.02.2010. The adjustment of the investment program for 2010 was conducted and approved by the following representatives of executive authorities:

D.V. Koptin - the Chairman of the Committee on Tariffs of St. Petersburg, on 29.09.2010

V.P. Serdyukov - the Governor of the Leningrad Region, on 06.10.2010

The Board of Directors of JSC "Lenenergo" approved the adjusted investment program for 2010 on 21.10.2010.

6.2 Key Investment Projects of 2010

With a view of implementation of events for provision of reliable electrical supply and creation of conditions on connection of consumers to electric networks, the Agreement on interaction between the Leningrad region, JSC "IDGC Holding" and JSC "Lenenergo" was concluded on 25.06.2010, and on 20.05.2010 - the Agreement on interaction between St. Petersburg, JSC "IDGC Holding" and JSC "Lenenergo" where there was defined the list of power supply network facilities of JSC "Lenenergo" subject to building and reconstruction in 2011-2015.

The volume of disbursement of capital investments according to the Agreements with the Administrations of St. Petersburg and the Leningrad Region constituted RUR 12,939 mln. There was commissioned RUR 13,664 mln of fixed assets, or 643 МVА of transformer capacity, and 1,268 km of transmission lines.

The largest investment projects of the Investment program for 2010 for St. Petersburg:

The Company performed works on the following objects within the program of technical upgrade and retrofit:

• For possibility of connection of new consumers in the Vyborg district of St. Petersburg on substation No.190 the replacement of the transformer of 16 МVА on 40 МVА was executed.
• For strengthening of the existing network of 0.4-10 kV in St. Petersburg the lining of 0.4-10 kV cable lines of the total of 43.2 km was performed.
• Reconstruction of 110 kV substation No.89 with cutting of the existing OTL 110 kV (building of CSW-10 kV, ODO, SB, ATMS, APCS and AFAD), which allowed providing reliable electrical supply of enterprises and population of northern areas of St. Petersburg was executed (including connection to power networks of "MEGA-Parnas" trading-commercial centre) was completed.
• Reconstruction of SS No.319 (ТМ and ATMS works), which improved reliable electrical supply of consumers of the Krasnogvardeyskiy district of St. Petersburg was completed.
• Works on reconstruction of SWG 110 kV SS No.14 (telemechanics equipment, RPAE, communications and AIMSPB were established) were completed.
• Reconstruction of SS 110 kV No.145 and transfer of SS from LR-1/2 for the supply from LR-3/4 (work on building of ODO combined with CSG 10 kV, installation and adjustment of ATMS, AIMSPB, communication equipment, RPAE) was completed that will provide possibility of connection of new loadings and raise reliability of electrical supply of consumers in the Frunze District of St. Petersburg.
• Development, production and installation of modular mobile substations of 110/10/6 kV of 25 MVA on SS No.90 - 1 piece, on SS No.92 - 1 piece for enhancement of reliability of electrical supply of consumers of the Vyborg and Krasnogvardeyskiy districts of St. Petersburg was performed.
• On SS 35/10 kV No.621 reconstruction with replacement of two transformers of a total capacity of 32 MVA for reliability enhancement and connection of new consumers of the actively developing infrastructure of the Kurort area was completed.

The Company proceeds with works on reconstruction of the objects in St. Petersburg, including the most significant ones:

• On SS 110 kV No.17 works on installation of RPAE panels, and repair of the roof of building were performed. The complete reconstruction of SS No.17 is expected in 2012.
• On SS 110 kV No.185 "Pushkin-Yuzhnaya" there were executed BAW and DSW of the 2^nd stage: there was commissioned T-1 transformer of the capacity 80 MVA, 5 cells of GISWG 110 kV, 4 sections of 6 kV and 4 sections of 10 kV, 2 current-limiting reactors of 10 kV and 2 current-limiting reactors of 6 kV, ATMS, AFED, external drainage, and load transfer crosspiece. The complete reconstruction of SS No.185 is expected in December, 2011.
• On SS No.223 construction works were executed, works on installation of equipment came to an end. Commissioning of the object input is expected in quarter 3, 2011.

In 2010, the Company launched design works on reconstruction of 110 kV substation No. 321 with the replacement of power transformers of T-1 and Т-2.

The largest investment projects of the Investment program for 2010 in the Leningrad Region:

The Company performed the works on the following facilities within the program of technical upgrade and retrofit:

• Pre-schedule commissioning in FA of SS 35/10kV No.40 "CRP" Kirishi after reconstruction, which improved electrical supply of consumers of the Volkhov and Kirishi areas of the Leningrad Region was performed.
• Reconstruction of SS 110 kV No.539 with input of transformer capacity of 25 MVA, providing improvement of electrical supply of consumers of Gatchina, Tosno, and Lomonosov areas of the Leningrad Region was completed.
• Reconstruction of SS 110/35/10 kV No.143 "Tikhvin-city", which allowed raising electrical supply of consumers of Tikhvin and Boksitogorsk areas of the Leningrad Region, was completed.
• Installation and connection of MMS 110 kV of 25 MVA on SS 110 kV No.525, caused by necessity of connection of new consumers and increases of reliability of electrical supply of existing consumers of Vsevolozhsk area of the Leningrad Region was executed.
• Pre-schedule reconstruction of OTL-110 kV HPP-10-HPP-11 (Severnaya-10) of 4.6 km which resulted in increase of capacity of electric power transit, and increase in reliability of electricity supply of consumers of Vyborg area.
• Reconstruction of SS-201 "Podporozhskaya", which allowed improving electrical supply of consumers of Podporozhsky area of the Leningrad Region, was completed.

The following facilities on new construction were commissioned into fixed assets:

• In the city of Slantsy there was commissioned SS 110/10 kV "Cement" of 126 MVA, which resulted in the possibility of connection of electric loadings of the "Cement" plant. Reliability of the electrical supply of the existing consumers of electric energy was improved, and there appeared the possibility of connection of new consumers of electric power in the Slantsy area and the city of Slantsy.
• The second CL 110 kV (K-157) of 0.79 km was laid on SS 110 kV "Kudrovo", which allowed implementing projects on building "KudrovoGrad", social facilities, facilities of small and medium-sized businesses and connecting LLC "IKEA Kudrovo".

The Company proceeds with the works on reconstruction and building of facilities in the Leningrad Region, including the most significant ones:

• Objects of technological connection of LLC "Gazprom Invest West":
  • Building of new OTL 110 kV from SS 110/35/10 kV No.26 to the projected SS "Portovaya" and reconstruction of SS No.26 (on OTL 110 kV there were installed 194 pylons out of 225, wires of 38 km out of 57 km were suspended. On SS No.26 there was installed a cell of 35 kV.
  • Building of OTL 35 kV SS No.603 - SS "Elizavetinskaya" and SS "Elizavetinskaya" - SS No.604 (there was constructed OTL 35 kV SS No.604 – SS " Elizavetinskaya " (167 pylons, 37 km), on OTL 35 kV SS No.603 – SS " Elizavetinskaya " there were installed 43 pylons out of 65. On SS No. 603 there was installed a cell of 35 kV).
  • Reconstruction of SS 110/10kV "Gazokompressornaya" with OTL 110kV, (there was installed the transformer of 6.3 MVA, ODO premises were constructed, there were installed the following equipment: OSG 110 kV, GISWG 10 kV).
  • Reconstruction of SS 110 kV "Berezhki" with OTL 110 kV (there was installed the transformer of 6.3 MVA, ODO premises were constructed, there were installed the following equipment: OSG 110 kV, GISWG 10 kV).
• Building of SS 110/10 kV "Leninskoe" with OTL-110kV (2 transformers of 40 MVA were installed, the building was constructed and the following equipment was mounted: OSG 110 kV, ODO 10 kV, and CSG 10 kV.
• SS 110kV "MEGA-Parnas" with setting of OTL 110kV (installed one transformer (temporary) of 25 MVA and one transformer of 63 MVA, the premises of SS were constructed, and the following equipment installed: CSG 110 kV, CSG 10 kV, constructed OTL 110 kV 2x0.5 km. The substation is supplied by one OTL 110 kV, connected by a tap to OTL 110kV "Pargolovskaja-2".)

In 2010, for provision of electricity supply of passenger high-speed movement on the direction of St. Petersburg – Vyborg – State border, JSC "Lenenergo" concluded contracts on technological connection of JSC "RZhD" objects, and launched pre-design and design works on the following facilities:

• OTL-110 kV "Kolpino-2". Reconstruction of sites (2^nd stage) – the agreement was concluded, the initial data for designing was given out;
• Installation of 2 cells of 35 kV on SS-110 kV No.159 – the project is executed, and is passing coordination;
• Installation of semi-complete sets of RPAE OTL-110 kV "Rocshinskaya" 1/4 on SS-110 kV No.56 and No.375 – contract draught coordination, issue of the initial data to the design organization.

The increase in commissioning of capital investments into fixed assets in relation to the fact of 2009 constituted 137% in 2010, which is associated with the statement on the balance of works executed within 2010 on o.4-10 kV distribution network on connection of consumers in the volume of RUR 3,657 mln, in 2009 – RUR 2,187 mln. The growth constituted RUR 1,470 mln. Besides, there were put on the balance the facilities under property contracts for a sum of RUR 5,477 mln, which exceeds the indicator of 2009 by RUR 2,565 mln.

The structure of the investment program changed with a growth tendency in all focus areas of capital investments that is associated with the increase in volumes of the investment program in general. Essential growth of capital investments on new construction is associated with the increase in reception of property under technological connection contracts, the increase in amounts of works on construction and reconstruction of 0.4-10 kV distribution network on connection of consumers.

6.3 Investment Activities up to 2015

The investment program of the Company for 2011-2015 was formed taking into account the receipt of federal funds in accordance with the RF Government Decree as of 01.12.2009 No. 977 "On investment programs of subjects of electric power industry" and approved by executive authorities of subjects of the Russian Federation:

• St. Petersburg – on 14.08.2010
• The Leningrad Region – on 31.08.2010

The investment program for 2011-2015 was formed in the amount of disbursement of capital investments of RUR 102.8 bln, and commissioning of fixed assets – in the amount of RUR 108.6 bln that constitutes 5,923 МVА of transformer capacity and 4,885 km of transmission lines in physical terms.

The company developed the plan of actions providing for the stage-by-stage modernization and replacement of the equipment, and revealed "bottlenecks" (overhang of crowns of trees on OTL-6-110 kV wires, discrepancy of 6-110 kV switches to SC currents, overload of power transformers and OTL-6-110 kV, emergency condition of AB, insufficient quantity of measuring devices and devices for electric power billing), liquidation of which will raise stability of work of the power supply system and reliability of power supply of consumers.

The largest and significant investment projects planned for implementation in 2011-2015:

- Objects of technological connection of LLC "Gazprom Invest West":

• Building of new OTL 110 kV from SS 110/35/10 kV No.26 to the projected SS "Portovaya" and reconstruction of SS No.26 with commissioning of 70 km of overhead transmission lines.
• Building of OTL 35 kV SS No.603 - SS "Elizavetinskaya" and SS "Elizavetinskaya" - SS No.604 with commissioning of 47 km of overhead transmission lines
• Reconstruction of SS 110 kV "Berezhki" with OTL 110 kV in the Volkhov area with installation of transformers of the total capacity of 12.6 MVA;
• Reconstruction of SS 110/10kV "Gazokompressornaya" with OTL 110kV, in Tikhvin area with installation of transformers of the total capacity of 12,6 MVA.

The investment program for 2011-2015 is focused on implementation of goals and objectives of the Unified technical policy in the electricity distribution complex. Following the results of execution of the Investment Program for 2011-2015, the increase in fixed assets will amount to RUR 108.6 bln, additional transformer capacity of 4,197 MVA will be commissioned, the length of transmission lines will be increased by 1,725 km, which will influence the increase in the capacity, reduction of accidents, and improvement of reliability of the power supply system.

Long-term plans of development of St. Petersburg and the Leningrad region

In accordance with the RF Government Decree № 823 as of 17.10.2009, the Company is implementing a set of programs to develop the electric power industry of St. Petersburg and the Leningrad Region.

Commissioned by the Government of St. Petersburg, in December 2010 there was completed the third adjustment of the "General Scheme for power supply of the city of St. Petersburg for the period up to 2015 with the perspective up to 2025". On the basis of this study commissioned by the Government of St. Petersburg in accordance with the Government Decree № 823 as of 17.10.2009, there is performed the work "Electric power industry development program of St. Petersburg" with the date of termination in July, 2011.

In the Leningrad region, the scheme of development of 35-110 kV networks was commissioned by JSC "Lenenergo" in 2007 for the period up to 2010. Commissioned by the Government of the Leningrad Region in accordance with Government Decree № 823 as of 17.10.2009, there is performed the work "Scheme and program of development of the electric power industry of the Leningrad Region for five years" with a date of termination in April, 2011.

Capacity shortage of the existing supply centers of 35 kV and above, with limitation of TC at the beginning of the year and up to the implementation of the investment program for the period of 2010-2015 in part of reconstruction of 35-110 kV substation was designed for the regime "N-1" with regard to the existing contracts on network connection with the term of capacity commissioning in 2010 and taking into account the long-term permissible loading of transformers by 105%.

Data on commissioning of 35-110 kV substations after reconstruction with increase in transformer capacity is cited.

Insufficient funding caused restrictions following the results of implementation of the investment program for the period of 2010-2015.

Implementable regional (federal) target programs

In 2010 JSC "Lenenergo" implemented the address program of the Committee on Construction of St. Petersburg "Capital repairs of educational institutions of St. Petersburg" within the frameworks of which there were connected and reconstructed 14 objects with the addition of capacity.

7 Review of Production Activity

7.1 Key Operating Performance Indicators

Key operational performance indicators on electric power supply to the network, the volume of services on electricity transmission and electric power losses in JSC "Lenenergo" networks for 2008-2010 are presented in the table:

Dynamics of indicators on electric power transmission over JSC "Lenenergo" networks

Following the results of JSC "Lenenergo" in 2010, the volume of services in electric power transmission amounted to 29,908.9 mln kWh, which exceeds the indicators:

• of 2008 (28,850.7 mln kWh) by 1,058.3 mln kWh, or by 3.7%;
• of 2009 (28,429.1 mln kWh) by 1,479.8 mln kWh, or by 5.2%.

7.2 Dynamics of Electric Power Losses

The level of electric power losses for 2010 approved in the business plan by the Board of Directors of the Company for 2010, totaled 3,570 mln kWh, or 10.72% from supply to the network. Following the results of 2010, actual electric power losses were below the indicators approved by the business plan by 4.4 mln kWh, or 0.01%.

Key measures aimed at decrease of electric power losses

JSC "Lenenergo" on the priority basis implements comprehensive measures aimed at optimizing (reducing) the level of losses.

Through the implementation of the complex of measures on optimization of losses in 2010, the total effect was 359.3 million kWh.

Following the results of implementation of measures aimed at reducing commercial losses, the effect totaled 349.8 million kWh, the reduction of technical losses through the implementation of the organizational measures amounted to 7.6 million kWh and technical measures - 1.8 million kWh. The total economic benefit of the programs totaled RUR 299.0 mln, the costs amounted to RUR 80.5 mln without taking into account the cost under the reconstruction and modernization program.

Within 2010, commercial losses of electric power of JSC "Lenenergo" were lowered by 345.8 mln kWh. The given decrease in electric power losses was reached thanks to accomplishment of the program of events for modernization of complexes of electric power metering and accomplishment of tasks under the contracts on transmission services.

• Accomplishment of the Program of perspective development of billing systems of the retail market of electric power. .The program was agreed by JSC "IDGC Holding", and approved by the Board of Directors. For 2010, over 1.8 thousand of commercial billing devices were installed and replaced, which allowed increasing the considered volume of the rendered services in power transmission on the average by 0.1%. As a result decrease in losses of electric power from decrease in a regular tool error of "out-of-date" park of settlement billing devices following the results of 2009 constituted 4.0 mln kWh.
• Replacement of branches of OTL 0.4 kV to buildings Within the reporting year there were replaced 1,691 thousand pieces of branches of OTL 0.4 kV to the buildings, executed by a naked wire with the isolated self-supporting insulating wire (SSIW). Such events were carried out together with carrying out of billing devices on facades of buildings and allow to exclude possibility non-billed current consumption, unauthorized access to chains of billing, external influence on correctness of work of the counter, short of supply by the personnel of the network company and the power sales company for removal of indications at household consumers, and etc. The analysis of the given technical events showed that at their complex accomplishment, the billed (under indications of counters, but not paid) productive supply of electric power increased in comparison with the similar period of the last year by 0.1%. By the results of accomplishment of the given event in 2010, under the estimate data, decrease in electric losses in comparison with 2009 amounted to 0.04 mln kWh.
• Technical check of the billing complexes of electric power Within 2010 there were conducted the technical (tool) checks on 50.2 thousand of billing complexes of electric power. Following the results of the given events infringements in the billing complexes allowing to reduce losses to 349.8 mln kWh were revealed and eliminated, there were revealed of non-billed (non-contractual and not-accounted) consumption of 349.8 mln kWh. Calculation of not-billed power under acts of additional accruals was performed according to the regulatory legal acts of the Russian Federation from the moment of last technical check, or on term of limitation of actions (no more than 3 years). I.e. productive supply of electric power for 2010 comprised kWh "lost" in previous years.
• Reading out of control indicators from metering complexes of electricity billing. JSC "Lenenergo" personnel for the purpose of determination of volumes of the rendered service in electric power transmission monthly conducted bypasses of household consumers and performed control reading out of indicators from the metering devices of billing installed by legal entities. In total in the area of operational activity of JSC "Lenenergo" were over 1.9 mln points of delivery to household consumers and 0.12 mln points of delivery to legal entities (including in the network of adjacent territorial network organizations). Within 2010 JSC "Lenenergo" performed events for reading out of indicators with the following periodicity: on household consumers – 1 time per quarter (over 0.6 mln points of billing per month); on legal entities – on the billing devices installed on objects of JSC "Lenenergo" – monthly (over 5.5 thousand points of billing per month), on objects of the consumers – 1 time per quarter (over 35 thousand points of billing per month). There were conducted over 7.2 mln checks of correctness of reading out and reliability of the granting information on indicators of the billing devices.