Kubanenergo recognises the importance of constantly improving corporate management practice and aims to adopt new standards aims at improving management effectiveness and openness, strengthening trusts in relations with shareholders, investors and other interested parties.

Innovations in the accounting year touched all the main aspects of corporate management practice at the Company.

The Charter and the Statement on the order of convening and holding meetings of the Board of Directors of the company stipulate the frequency of meetings by the management body — not less than once every six weeks.

This amendment complies with the Russian Rules for Corporate Management.

A Board of Directors Committee for Technological Connection has been set up.

Providing quality electricity supplies and a high level of service for customers is one of the Company’s strategic priorities. To achieve maximum effectiveness of the work of the Board of Directors on questions to do with this field a corresponding Committee was set up. The main task of the Committee for Technological Connection was set by recommendations developed by the Board of Directors on questions of ensuring operational openness and undiscriminating access to technological connection services by consumers to Kubanenergo electricity networks.

Active work by Board of Directors’ Committees.

Committees of the Board of Directors (for reliability, auditing, strategy, development, investment and reform, personnel and reward) continue to ensure the effectiveness of the Company’s work. During 2011 members of the Board of Directors received timely recommendations from the Committees on all questions included in the agendas of Board of Directors meetings, which made it possible for them to considered and well founded decisions.

Improving risk management.

Taking into account the recommendations of the Audit Committee the Board of Directors approved Statements on the control environment and the risks of a range of business processes in the Company’s activities. These statements include detailed descriptions of the business processes, the risks associated with them and a list of control procedures — actions making it possible to avoid (reduce) the likelihood of the risk occurring or to avert their consequences.

Developing practices in working with investors.

To organise constant dialogue with investors and financial analysts in the corporate management department and work with shareholders Kubanenergo has created a position for a person responsible for carrying out Investor Relations functions.

In 2011 the Expert RA ratings agency analysed the quality of management at the Company and the results meant that Kubanenergo was awarded a Level 7 rating for management quality (developed corporate management practice). Factors having a positive effect on the Company’s rating were the high level of observance of shareholder rights and organisation of the work of executive bodies, as well as the high level of organisation of control systems for financial and operating activity. Factors limiting the rating were identified by the agency’s analysts to include a medium low level of observance of shareholders rights in receiving dividends, an acceptable level of organisation and work of the Board of Directors, as well as a medium low level of organisation of corporate and social responsibility.

In the future the Company will continue work aimed at raising its corporate management level.