Obtaining a certificate of readiness for operation for the autumn and winter period

In connection with realising a range of programmes and other events aimed at improving production efficiency, reliability and safety a Commission chaired by the Ministry for Energy of Russia carried out an inspection from 9 to 11 November 2011 of Kubanenergo’s readiness for operations in the autumn and winter period 2011/2012, and in accordance with the results of this the Company was given a certificate of readiness for operations in the autumn and winter period.

More information about preparations for operations in the autumn and winter period 2011/2012 can be found in the section titled Operating Result/ Reliable and effective operation of electrical power systems/ Repairs and Operation.

Bringing electricity production facilities into operation

During the accounting year the Company successfully dealt with the task of improving the system for off-site electricity supply to companies by new construction work, renovation and technical refitting of the 110 kilovolt distribution network.

The increase in capacity at Kubanenergo resulting from bringing into operation electricity production facilities in the accounting year totalled:

• 258.119 MVA — power transformer capacity;
• 239.879 kilometers — total length of overhead and underground electricity lines.

More information on bringing energy production facilities into operation can be found at Results of the Company’s activities/Investment activity/Areas and structure of capital investment/Implementation of capital investment.

Exceeding the target for technological connection to the Company’s electricity networks

The total capacity of electrical plants of customers connected to Kubanenergo electricity networks in 2011 totalled 310.5 megawatts, exceeding the planned volume by 39% and doubling the analogous indicator for 2010.

More information about technological connection can be found in the section titled Operating Result/ Reliable and effective operation of electrical power systems/ Technical Connection to Kubanenergo Electricity Networks.

Lowering tariffs for power transmission services

In December 2010 the Regional Energy Commission Department for Prices and Tariffs of Krasnodar Region approved long term tariffs for 2011–2015 for Kubanenergo for electricity transmission services, calculated using the Regulatory Asset Base method.

However, in May 2011 in compliance with article 9 of the Decree of the Government of the Russian Federation of 27.12.2010 № 1172 On Approving the Rules for the Wholesale Market in Electrical Energy and Capacity and on Making Amendments to Various Acts of the Government of the Russian Federation on Questions of Organising the Functioning of the Wholesale Market in Electrical Energy and Capacity, the Regional Energy Commission Department for Prices and Tariffs of Krasnodar Region took a decision on lowering tariffs for electricity transmission services from 1 January 2011. The new uniform boiler tariffs for electricity transmission services were set 17% lower those previously approved in December 2010, which led to a decrease in the required gross boiler receipts in 2011 of 5.7 billion rubles.

Given that electricity transmission services make up the main part of the Company’s income (more than 95% in the accounting year) this lowering of tariffs led to a significant shortage of resources for financing operational and investment activity and the a corresponding re-examination of previously prepared plans, in particular the investment programme.

More information about tariffs for the Company’s services can be found in the section titled Operating Result/ Reliable and effective operation of electrical power systems/ Tariffs for Services.

Additional share issues

Realisation of large scale projects in construction and renovation of Federally significant electricity network distribution facilities, including ensuring the functioning of the infrastructure for the 2014 Winter Olympic Games, requires appropriate investment to be attracted. To achieve this, since 2009 the Company has been offering additional share issues.

In the accounting year Kubanenergo completed the second additional share issue, started in 2010, as a result of which 3.37 billion rubles of investment was attracted.

On 23 November 2011 an extraordinary general shareholders meeting took a decision to offer a third additional share issue. The resources received as a result of further issues of shares in the Company¹, will be directed to the following works:

• realisation of projects in construction, renovation and technical refitting of Kubanenergo electricity network distribution facilities, including Olympic electricity facilities;
• reducing the Company’s loan portfolio.

More information about additional share issues can be found in Shares and dividends/Equity capital/Additional share issues in 2011.

Approving amendments to the business plan

In the accounting year the Board of Directors at the Company approved the business plan for 2011 and the forecast plan for 2012–2015.

Results for 2011 show that the set business plan and the actions in the Programme to improve the net profit (loss) indicator by realising a range of actions as part of the programme to manage expenditure, making it possible to optimise the Company’s manageable costs.

More information about financial and operating activity indicators can be found in the section titled Operating Result/ Financial Results/ Financial Analysis.

1. 1.

   Largest possible volume of monies which could be raised from all shares in the additional issue: 10 083.2 million rubles.