"Recognising its responsibility to shareholders, the Board of Directors sees its main aims in conscientious and competent execution of its responsibilities in strategic management of the Company, growth in its capitalisation, raise the level of openness and trust in relations between Kubanenergo and its shareholders, creditors and potential investors"

Dear shareholders and partners of Kubanenergo.

The development strategy at Kubanenergo is aimed at providing reliable and uninterrupted electricity supplies to consumers, achieving stable performance indicators, introducing innovative technologies in the field of electricity distribution, and ensuring return on investment and high payback on invested capital for shareholders.

The Board of Directors sees long term opportunities opening up before the Company and takes them into account in drawing up new targets and ensures managers develop and execute strategies to achieve them.

The development of Krasnodar Region and the Russian economy as a whole dictate the necessity to Kubanenergo to set itself new tasks and resolve them. The Company has to provide uninterrupted and safe current electricity supplies in the region, but also to create the base for providing the same quality of service in the future. To Kubanenergo this kind of task at present means creating a reliable electricity supply infrastructure within the framework of preparing for the 2014 Winter Olympic Games in Sochi, developing the Tuapse and Novorossiisk industrial zones and Temryuk District, eliminating shortages in capacity in major industrial and residential centres in the Region — Krasnodar, Novorossiisk, Tuapse and Greater Sochi.

In 2011 the Company continued work on practically all Federally important electricity network facilities set out in the Programme from the Government of the Russian Federation on Construction of Olympic Facilities and Development of the City of Sochi as a Mountain Resort. In the accounting year 1.9 billion rubles of capital investment was made in Olympic facilities.

Construction and renovation of Olympic facilities require the appropriate investment be attracted. To finance these investment the Company has been making additional share offerings since 2009. ВIn the accounting year the second additional share offer was completed, as a result of which Kubanenergo’s equity capital grown by 26%. The total volume of monetary assets received by the Company from additional share offerings during the period from 2009 to 2011 totalled more than 11.2 billion rubles, including 1.3 billion rubles in 2011.

The Board of Directors constantly monitors the execution of the schedule for construction of Olympic facilities and expenditure of resources received from additional share offerings. In order to improve the effectiveness of these processes in 2011 the Board of Directors set additional priority areas of activity to be planning the development of the Kubanenergo electricity distribution network and introducing construction management systems in the most important investment projects.

Alongside providing uninterrupted electricity supplies and carrying out investment projects strategic projects at the Company are technical development of the electricity network and improving the level of services to customers.

To set an effective mechanism for realising an innovative cycle which would create favourable conditions for creating and implementing leading technologies in the Company’s distribution network, the Board of Directors approved the Programme for innovative development at Kubanenergo for 2011-2016. In addition, during the accounting year the Programme for energy supply and improving energy efficiency at the Company for 2011-2015 was approved.

The future improvement of services for clients at the Company should be facilited by the Standard approved by the Board of Directors in 2011 — the System for Centralised Operation of Consumer Service and the Programme for long term development of the electricity metering system on the electricity retail market.

2011 was a difficult year for the Company from the point of view of financial results. The reduction in May of previously approved electricity transmission tariffs by 15% compared to the 2010 level manifested itself in many ways. Nevertheless the Board of Directors considers that the low financial results of the accounting year will not be a hindrance to stable development of Kubanenergo in the long term, in as much as the Company has clear priorities and targets for the future, has set ways to achieve them and from year to year is carrying out the strategy selected .

In 2012 the Company faces the task of further progressive development and successful realisation of investment projects. It will be necessary to bring into operation new and renovated facilities in the electricity distribution network infrastructure of the region, raise the effectiveness of basic business processes in the work of Kubanenergo and make it profitable. All necessary resources are in place for this, including the support and trust of the shareholders and the state, a cohesive and professional staff, as well as understandable strategic aims.

I am sure that the forthcoming decisions of the Board of Directors and the actions taken by the management of Kubanenergo will facilitate further development of the electricity distribution infrastructure of the Kuban and Adigeya and provide reliable, safe and guaranteed electricity supplies to consumers.

Chairman of the Board of Directors of Kubanenergo NN Shvets