Russian Transmission Grid: Present and Future

Deputy Chairman

of the Management Board

Andrey Kazachenkov

7 February 2012, Italy

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50 000

100 000

150 000

200 000

250 000

300 000

350 000

0 25 000 50 000 75 000 100 000 125 000

Length of transmission lines, km

Tra

nsfo

rme

r

Cap

acity,

MV

A

Terna

RED Electrica

FINGRID

2

Federal Grid Company: Company Profile

Indicator

Length of transmission lines 124,000 km

Transformer capacity 312,000 MVA

Number of substations 802

Electric energy output 471 billion kWh

Number of employees 23,200

Servicing area 13.6 million km2

MES East

MES Volga

MES Siberia

MES West

Siberia

MES Urals

MES South

MES North West

MES Center

Federal Grid

Company

Réseau de Transport

d'Électricité

Comparison of Federal Grid Company with

Leading European Grid Companies

Federal Grid Company

has a natural monopoly

status, owns and provides

electricity transmission

services through

the Unified National

Electric Grid

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3

Track record of substantial growth (2009 – 2010

revenue increased by 29%)

Rigorous programme of efficiency savings

Focus on capital structure optimization

Ability to obtain one of the lowest debt interest rates

among Russian companies

Why Federal Grid is a Good Investment Case?

Scale of Business Growth Prospects

Supportive Regulatory Regime Strong Financials

Anticipated electricity demand 2010 – 2020

CAGR of 2.4%

System upgrade focused on improving efficiency

and reliability of the transmission network;

development of the smart grid model

Largest publicly traded electricity transmission

company in the World (1) with over 120,000 km of

transmission lines with total capacity of over

300,000 MVA

Leading Russian blue chip company and the largest

Russian utility company by market capitalization

Unique natural monopoly position on the Russia’s

high-voltage electricity transmission market,

operating in 73 out of 83 Russian regions

Source Company data; IFRS financials; Energy Forecasting Agency

(1) By length of transmission lines and transformer capacity

Business regulation based on 5-year Regulatory

Asset Base (RAB) model

Guaranteed return on new invested capital

11% in 2010 – 2012 and 10% in 2013 – 2014)

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

Investments in R&D until 2014: RUB 19 billion

Innovation program until 2020

Stable electric energy supply and reliable grid operations

all over the territory of Russia

Volume of transmitted electric energy amounts to 50%

of the aggregate electric energy consumption, given 6-7% share

in the end-cinsumer tariff

Ensuring social and economic stability in Russian regions

4

Regions where Federal Grid operates

Development of infrastructure for national economic growth

Proactive participation in the Government’s infrastructure projects

(Sochi-2014, East Siberia Pacific Ocean oil pipeline, the APEC Summit, Skolkovo, etc.)

Switch to long-term planning and tariff regulation in 2010

Contribution to Russian regional development via building infrastructure

Strategic Priorities

4

Delivering market value to shareholders & investors

Transparency and commitment to “best practice” corporate governance

Greater liquidity on the MICEX and the London Stock Exchange

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25 June 2002

Federal Grid Company

was founded on 25

June, 2002

1 January 2006

Electric grid

facilities of 56

regional electricity

transmission grid

companies were

transferred to

Federal Grid

Company

1 July 2008

Federal Grid

Company was

reorganized

through integration

of RAO UES

of Russia, MSKs

and MMSKs

16 July 2008

Federal Grid

shares started

trading on RTS

and MICEX

1 January 2010

Transition to

RAB regulation

7 April 2011

Board of Directors

adopts the

Company’s

Innovation Policy

5

Board of Directors

approved the new

Technical Policy

2 February 2011

Company Development

5

Technical

Policy

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Tariff regulation

Tariff regulation based on Costs Plus methodology

Lack of stimulus for cost reduction, as the regulator

establishes a tariff on the basis of planned expenses

High interest rates, difficulty in forecasting cash flows

Lack of clear Financial Strategy

The Company is perceived in the financial markets

as a “closed” company without public story

The Company is practically unknown in the international

capital markets

Lack of a long-term debt strategy

Incompliance with IFRS

Untimely disclosure of the Company’s results for financial

markets

Existence of qualifications in the audit reports

Lack of IFRS specialization among the Company’s own

employees

Federal Grid Company (2003-2009) Federal Grid Company (2010- the present)

Tariff regulation

Tariff regulation based on Regulatory Asset Base system

(RAB)

The Company is focused on cost reduction and motivated

for a greater cost efficiency

Development of Financial Strategy

The Company developed and approved Dividend Policy

and Credit Policy based on RAB principles

The Company is listed on the Main Market of the London

Stock Exchange (28 March, 2011)

Proactive investment marketing — the top management

is involved in IR events (meetings, roadshows, briefings)

The Company accelerates the preparation of IFRS

statements (by 4 months for 2009 FY, by 2.5 months for

2010 FY)

Introduction of New Standards

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RAB Regulation: Transforming Approach to Financing

RAB Regulation

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

Tariff for electricity transmission includes return on invested capital in compliance

with best international practices based on Regulatory Asset Base (RAB)

Regulatory impetuses are established to improve operating efficiency during the regulatory period

Clear planning of long-term investments based on formation of financing sources

Optimization the capital structure through an increase in debt position

2010 2011 2012* 2013* 2014*

Return on initial invested capital 3.9% 5.2% 6.5% 7.8% 9.1%

Return on new invested capital 11% 11% 11% 10% 10%

January 2010

• Switched to 3-year RAB regulation

September 2010

• Regulation period prolonged to 5 years

April 2011

• Tariff growth for 2011 has been smoothed out for 5%; Other potential changes discussed

RAB: Evolution of Approaches

* to be approved by the regulators

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71,21756,565

113,330

87,580

0

50 000

100 000

150 000

2009 2010 1H2010 1H2011

67,717

42,619 32,01945,459

59.8%

48.7%

56.6%63.9%

0

30 000

60 000

90 000

2009 2010 1H2010 1H2011

0%

25%

50%

75%

100%

27,91012,692

17,160

22,810

19,6%

24,6% 22,4%

32,0%

0

20 000

40 000

2009 2010 1H2010 1H2011

0%

10%

20%

30%

40%

Revenue RUR MM

EBITDA adj. (1) and Margin RUR MM %

CAPEX RUR MM

Profit for the period adj. (1) and Margin RUR MM %

EBITDA Margin

Net Income Margin

Strong & Stable Financial Performance

51,994

141,800

90,934

69,581

0

50 000

100 000

150 000

2009 2010 1H2010 1H2011

Source Company IFRS financials

(1) Adjusted for non-specific impairment provision of PP&E, impairment of available-for-sale investments and associates, loss on dilution of share in

associates, revaluation loss on PP&E, loss on re-measurement of assets held-for sale, gain on sale available-for-sale investments

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

General Scheme of Electric Energy Facilities’ Deployment

Approved by Russia’s Ministry of Energy Includes : Electric Grid scheme and development program Renovation program Coordinated plans for construction and operation

of grid infrastructure and generating facilities

Development Scheme of Electric Grid

Federal Grid Company’s Investment Program

Approved by Russia’s Ministry of Energy

Agreed with: Federal Tariff Service, Ministry of Economic

Development, System Operator of UES

Includes:

Register of construction projects’ plans and characteristics

Sources of financing

Approved by: Russia’s region Includes : Plans for putting grid infrastructure

and generating facilities into operation Balance of electric energy production

and consumption

Scheme Development of Russian Energy Sector

Development Scheme of Region’s Power Industry

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Total amount of planned investments for 2010–2014 is RUB 952.4 bn

Grid upgrades under

Federal Programs( (2)

(4,808 km; 4,181 MVA)

Upgrading grid facilities

in Moscow, St. Petersburg,

Tyumen (980 km; 17,531

MVA)

Backbone grids

development(3)

(5,367 km; 10,890 MVA)

Innovations,

energy efficiency,

and technological operations improvement

Fixed asset renewal

(10,468 km; 37,866 MVA)

Technological

connection

(33 km; 2,577 MVA)

Other grid development

projects

Joint projects with

regional authorities (1)

(5,367 km; 10,890 MVA)

Capacity provision

of NPPs, HPPs, TPPs

(5,180 km; 10,936 MVA)

(1) Excluding Moscow, St. Petersburg, and Tyumen

(2) East Siberia: Pacific Ocean oil pipeline, Sochi Olympic Games, Vankor, Sayan, etc.

(3) Excluding joint projects with regional authorities

127.4 (13.4%)

90.4 (9.5%)

212.8 (22.3%)

65.8 (6.9%)

216.3 (22.7%)

14.7 (1.5%)28.4 (3.0%)

58.7 (6.2%)

137.9 (14.5%)

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Investment Program for 2010-2014

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Construction of electricity supply

facilities on Elginskoye coal deposit

Start Date: 2011

Due Date: 2013

Capacity provision of Kalininskaya

NPP generating unit #4 (1 000 MW)

Start Date: 2009

Due Date: 2012

Underground cabling in Moscow,

St. Petersburg

Start Date: 2011

Due Date: 2015

Infrastructure for Sochi Olympic

Games 2014

Start Date: 2008

Due Date: 2012

Transition from overhead lines to

cable and construction of Skolkovo

220 KV substation

Start Date: 2010

Due Date: 2012

Capacity provision of

Boguchanskaya HPP start-up

complex (1 000 MW)

Start Date: 2012

Due Date: 2014

Infrastructure for APEC summit in

Vladivostok in 2012

Start Date: 2008

Due Date: 2011

Construction of Zeyskaya HPP—

Russian-Chinese border

transmission line

Start Date: 2010

Due Date: 2013

Electricity supply of East Siberia

Pacific Ocean oil pipeline

Start Date: 2011

Due Date: 2016

Key Investment Projects

Source Company Data

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Integrating all types of generation (including small generators) and all types of consumers (from households to large industries) for the situational management of demand for their services and active participation in energy system operation

Changing real-time parameters and grid topology, in accordance with current mode conditions, excluding the origination and development of emergencies

Ensuring the broadening of market opportunities for the infrastructure through the mutual provision of a broad range of services for market and infrastructure subjects

Minimizing losses, developing self-diagnosis and self-recovery systems by observing reliability conditions and electric energy quality

Integrating the electric grid and information infrastructure to create an all-mode management system with full-scale information support

Smart Grid is a brand-new state of the grids based on new principles

and technologies related to electric energy transmission

and transformation, which allows for:

Generation

and alternative

sources of energy

Transmission lines

Microturbines

and accumulators

Consumers

Smart Grid

Smart grid

element

Industrial facilities Energy transmission and storage (High-Capacity Storage Batteries)

Smart Grid — New Quality of Russian Energy Industry

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South

Urals

East

North-West

Siberia

Smart Grid of the North-West

Vladivostok

St. Petersburg

Moscow

Khabarovsk

Volga

Center

Pilot projects of the North-West are focused on:

Ensuring required reliability of energy supply to urban

consumers

Building efficient grids

Providing electricity exchange

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

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Smart Grid of the East

Pilot projects of the East provide for:

High-quality energy supply for natural

resources deposits

Additional efficient capacity

Reliable electric energy supply in the

southern part of the Primorye territory

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Услуги

UES of North-West

UES of Urals UES of

Volga

UES of East UES of Siberia

UES of South

UES of Center

Export/import

to/from Norway

Integration of Urals

and Siberia energy

systems

Export/import

to/from Finland

Moscow St. Petersburg

Tomsk

Export to China Export

to South

Korea

Integration of Siberia

and East energy systems

West-East Energy

Bridge

Center-Urals

Energy Bridge

Export to

Azerbaijan

and Georgia

Export to China

Export/import

to/from

Kazakhstan Export to

Mongolia

Existing export/import Building connections

Export to

Turkey

Prospects for Energy Bridge Development in Russia

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Integration into the International Community

• Direct dialogue and involving are important for

regulators and regulated energy companies

• Cooperation considerably expands the range

of discussed issues and contributes to the

general development of the regulatory system;

• One way to achieve this interaction is to

organize direct professional dialogue between

Federal Grid Company and foreign grid

companies.

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Thank you!