"We guarantee reliable, safe and quality electricity supplies to consumers in the Kuban and Adigeya. This is what our future steps are aimed at in the area of modernising and developing the electricity distribution infrastructure in the region on the basis of large scale innovative renovation, execution of the investment programme on constructing new energy facilities and renovating existing ones, and introducting energy saving and energy efficient technologies"

Dear shareholders, clients, partners and employees of Kubanenergo

In 2011 Kubanenergo demonstrated overall a positive movement in production indicators, providing reliable electricity supplies to consumers and subsequently meeting current and strategic targets.

The volume of the Company’s services in electricity transmission according to the results for 2011 totalled 15.7 billion kilowatt hours, an increase compared to the previous year of 3.4%.

Actual losses of electricity totalled 2.8 billion kilowatt hours or 13.9% of output to the network, which is explained by a significant increase in volumes of electricity received into the grid and the work of the Company’s electricity networks in maintenance schedules in view of large scale construction and renovation of electricity facilities, especially in the Sochi energy district.

During the accounting year our Company provided uninterrupted electricity supplies to consumers. The total undersupply of electricity to consumers was reduced in comparison with the previous year by 18.7% and totalled 6 017 600 kilowatt hours in 2011. The average length of disruption to electricity supply for one disturbance was reduced in comparison with the previous year by 24% and amounted to 5.17 hours.

Kubanenergo’s revenue from electricity transmission services increased compared to 2010 by 18.2% and totalled 27.5 billion rubles in the accounting year. For technological connection services for consumers the revenue reached 1.1 billion rubles, which is 11% higher than planned. The volume of connected capacity more than doubled compared with the previous year and amounted to 310.47 megawatts in 2011.

The Company continues to progressively reduce losses. Thanks to growth in revenue and optimisation of expenditure of the programme for financial recovery of the Company for 2010-2012 approved by the Board of Directors at Kubanenergo, actual losses for 2011 were reduced compared with the previous year by 28% and totalled 1.9 billion rubles. Reaching a breakeven level of operating activity remains our strategic financial aim for the near future.

Acting as set out in an Order by the Government of the Russian Federation On Schedules and Programmes for Long Term Development of Electricity Production, in 2011 the Company took a direct part in developing a master plan and a programme for long term development of electricity production in Krasnodar Region for the period 2012-2016.

The main aim of strategic development of the Company is to modernise and expand its electricity production infrastructure, which will make it possible to eliminate the existing shortfall of electrical capacity and build the foundation for stable development in the long term.

During the accounting year the Company dealt successfully with the task of improving external electricity supply circuits: as a result of realising all the projects for renovation, technical refitting and new construction fixed assets to the value of 2.5 billion rubles have been added. 258.1 MVA of transformer capacity at substations and 239.9 kilometres of power lines of all tensions have been brought into operation

Construction and renovation of Federally significant electricity grid distribution facilities stipulated by the Olympic programme is continuing. The value of capital investment in Olympic facilities in 2011 totalled to 1.9 billion rubles.

Realising the Programme for Energy Saving and Improving Energy Efficiency at Kubanenergo in 2011 made it possible for our Company to save 75.8 million kilowatt hours. In 2012 within this programme it is planned to carry out energy inspections of equipment in network distribution of all our divisions and draw up an energy certificate for the Company overall and present it to the Ministry of Energy of Russia.

To improve the quality of services provided in the sphere of working with clients, customer service centres were set up in all Kubanenergo branches in 2011.

Guided by the principles of responsibility, professionalism and mutual trust in building relations among the employees at our Company, as well in interacting with its customers, partners, shareholders, potential investors and other stakeholders, we can ensure the successful and stable development of Kubanenergo in the long term.

General Director of Kubanenergo GA Sultanov