O.A. SERGEEVA

CHAIRMAN OF THE BOARD OF DIRECTORS KUBANENERGO PJSC

DEAR SHAREHOLDERS OF KUBANENERGO PJSC!

The activities of the Board of Directors in the reporting year were aimed at ensuring the interests of shareholders of Kubanenergo PJSC, improving its financial and economic condition, and increasing the level of trust in the Company on the part of shareholders, creditors, and investors. In the reporting year, the Board of Directors paid most attention to the approval of strategic plans and internal documents, regular control over the work of the Company’s management in various aspects of the Company’s financial and business activities, as well as implementation of decisions of the Board of Directors, preparation and holding of the General Meeting of Shareholders.

In the reporting year, to improve the level of corporate governance of Kubanenergo PJSC, at the suggestion of the Board of Directors, the General Meeting of Shareholders has approved the Company’s Charter, Regulations for the Board of Directors, Management Board, and remuneration to members of the Auditing Commission in the new edition.

The approval of the Company’s long-term programs to reduce electricity losses, modernization (renovation) of power grid facilities, programs for decommissioning equipment containing polychlorinated biphenyls, business case conditions for the formation of the investment program — are among the most important decisions of the Board of Directors for the reporting year. The policy in the field of information technology, automation, and telecommunications, uniform for the Rosseti Group of Companies and a uniform procurement standard have been approved for use as the Company’s internal documents. The new edition contains the approved Internal Regulations for the Company on Dividend Policy, information policy, insider information, the procedure for organizing the sale of non-core assets, guidelines for determining power reserves at the power centers of Kubanenergo PJSC.

In 2018, Kubanenergo held 34 meetings of the Board of Directors, decisions were made on all 147 issues considered.

To develop control functions, the Board of Directors determined the improvement of the risk management, internal (compliance) control, internal audit systems as priority areas of the Company’s activities.

Completed in part of 2018 Tthe plan of actions for the development and improvement of the internal control and risk management systems of Kubanenergo PJSC for 2016–2018 . The implementation of plan allows focusing on improvement of the efficiency and effectiveness of the Company’s activities, ensuring the safety of the Company’s assets, reliability of accounting (financial) and other statements, compliance with the requirements of the legislation of the Russian Federation and local regulatory documents of the Company and ultimately contributes to achieving the goals and objectives set for the Company.

In order to increase the effectiveness and improve the financial and economic condition of Kubanenergo PJSC, to guarantee financial stability and achieve a stable positive financial performance, the Company has developed and is implementing a program to increase the operating efficiency and reduce costs of Kubanenergo PJSC for the period 2018- 2022, which includes a list of measures for achievement of the Company’s strategic goals and increase of internal efficiency.

The Company share in the regional market for electricity transmission services (from the necessary gross revenue of the region) amounted to 75.5% in 2018. The high rates of reconstruction and renewal of power grid facilities of the Company, the same as dynamic growth of technological connection volumes, let to conclude that the Company will retain a dominant position in the regional market for electricity transmission services in the future.

In 2018 Kubanenergo PJSC continued the implementation of several large investment projects. The main attention was paid to the development of the electric grid infrastructure of the Central Energy District. In particular, for the regional capital — the city of Krasnodar, the Black Sea coast of the Krasnodar Territory and the Taman Peninsula.

In view of the dynamic development of the Kuban territory, the timely and affordable technological connection of new consumers to the power grid remains a key activity of Kubanenergo PJSC. In 2018 The Company concluded 28.1 thousand contracts for technological connection with a total capacity of 1,091 MW.

During the reporting period, electrical installations of such large connection applicants as Tander JSC (11 MW), NCSP PJSC (9 MW), were connected to the Company’s power grids. JSC “Krasnodar International Airport” (5 MW), Federal State Institution “2nd Center of the CustomerDeveloper of Internal Troops of the Ministry of Internal Affairs of the Russian Federation” (2 MW), JSC Pension Primorye (3 MW).

As a part of the energy efficiency program, Kubanenergo PJSC continued implementing the innovative projects to reach a higher quality of electricity transmission and metering at the expense of proprietary resources of the Company, and by attracting investors.

Kubanenergo PJSC has attracted private capital for development and improvement of electric power metering. At the moment, the Company has entered into 27 energy service contracts for a total investment of more than 5.1 billion rubles with covering of more than 156 thousand metering points. By the end of 2018, the loss reduction has been achieved more than 181 million kW • h.

The main production objectives of Kubanenergo PJSC for 2019 are the safe passage of peak seasons, timely receipt of a readiness certificate for work during the autumn-winter period, implementation of investment and maintenance programs, minimization of excess losses. Addressing the issues of increasing the availability and transparency of technological connection, the quality and efficiency of service provision, taking into account the increase in demand for electricity and the growth of loads, is no less significant.

Kubanenergo PJSC also aims to continuously improve financial and economic indicators, increase investment attractiveness, availability, and transparency of activities to maximize the interests of shareholders and other interested parties.