A.I. GAVRILOV

GENERAL DIRECTOR OF KUBANENERGO PJSC

DEAR SHAREHOLDERS, PARTNERS AND COLLEAGUES!

The priority of Kubanenergo PJSC activity in 2018 was the fulfillment of the tasks assigned to the Company for reliable and uninterrupted power supply and technological connection of consumers to the Company’s electrical networks.

During the reporting period, the Company demonstrated efficiency, reliability and stability in approaching the business goals.

The main volume of investments planned in the long-term investment program of Kubanenergo PJSC for 2018–2022 (approved by order of the Ministry of Energy of Russia of 12.12.2018, No. 18@) aimed at the technical re-equipment and reconstruction of power grid facilities. At the end of 2018 the Company has spent the capital investments for the amount of 7.7 billion rubles. The amount of financing of design and survey, construction and installation, commissioning, purchase of equipment and materials amounted to 8 billion rubles. The company has commissioned 355 MVA of transformer capacity and 582 km of power lines.

In 2018 there was the most active construction of the national importance facilities, performed as a part of the title of the state project "Creation of the dry-cargo area of the Taman seaport, railway tracks, and development of the existing public railway infrastructure in the direction of the dry cargo seaport of Taman." During the project, a 220 kV Port substation with a capacity of 432 MVA and overhead transmission lines with a total length of 186 km were built.

In 2018, the total connected capacity under the executed grid connection agreements was 723 MW, which is 27% more than the planned amount.

The priority direction of the Company in the field of technological connection is a key part in the project of a national scale to create a modern energy infrastructure on the Taman Peninsula, providing electricity to the dry cargo area of the Taman sea port and transport passage through the Kerch Strait, construction of the substation 110/35/10 "Lesnoy Port" in Novorossiysk for supply of the projected refrigeration sites, meeting the demand for power capacity of the enterprises of the agro-industrial complex of the south of Russia, eliminating the shortage of capacity in large industrial and residential centers of the region — Krasnodar, Novorossiysk, Tuapse.

Electricity supply to the grid throughout the Company amounted to 23.033 billion kW • h. The increase in supply compared with the previous year amounted to 0.4 billion kWh (+ 1.8%). One of the Company’s activities is improving the energy efficiency of the equipment in use. The program of energy saving and energy efficiency is elaborated annually. Its main objectives are to reduce technological losses and reduce the consumption of energy resources for production and economic needs. By the results of the program in 2018, the obtained an effect was expressed in reducing electricity losses by 236 million kWh (634 million rubles).

In 2018 The Company continued the implementation of Innovative Development Program activities for 2016 — 2020, with perspective up to 2025. The Company’s goal within the framework of the implementation of this program is to switch to digital substations of various voltage classes of 35–110 kV, to digital active adaptive networks with distributed intelligent automation and control systems, to the integrated efficiency of business processes and automation of management systems, the use of new technologies and materials in the power industry. The improvement of partnerships with universities, research organizations, small and medium-sized businesses was continued.

Kubanenergo PJSC successfully passed the test of preparation of the electric grid complex for the autumn-winter period, which was conducted by the Ministry of Energy of Russia, and received a readiness passport for work during the autumn-winter period of 2018/2019 on time.

The internal and external Operating Plan has been developed and is being implemented to improve the efficiency of Kubanenergo PJSC and improve its financial and economic condition. This plan is aimed at ensuring financial stability and achieving a stable positive financial performance of the Company

Kubanenergo PJSC, being a part of the single distribution electric grid complex of Russia, seeks to achieve goals defined at the state level, — targets for the electric grid complex established by the Strategic profile of the Electric Grid Complex of the Russian Federation. The key task of the Company in this area is to maintain and develop the management and control system aimed at the efficient and optimal use of the Company’s resources while introducing advanced management technologies and guidance papers. In the period 2016–2018 the Company approved and implemented two system documents, influencing the efficiency and quality of the Company’s activities in a positive way: A set of measures to improve the management system of Kubanenergo PJSC and the Operating Plan for development and improvement of the internal control and risk management systems of Kubanenergo PJSC for 2016–2018.

Kubanenergo PJSC provided break-even activity, according to the results of 2018, net profit amounted to 151 million rubles.

The Company developed and is currently implementing the Program for improving operational efficiency and reducing expenses of Kubanenergo PJSC for the period 2018–2022, which comprises a list of measures ensuring the achievement of the Company’s strategic goals, increasing in-process efficiency and ensuring profitability by optimizing the internal business processes.

The reduction in the specific operating expenses of Kubanenergo PJSC for 2018 is 2% with a target level for reducing specific operating expenses (costs) of at least 2-3% under the Directive of the Government of the Russian Federation No. 2303п-П13 dated 16.04.2015. This positive trend is an inference of the Company’s regular work on the implementation of a set of measures of the Program for increasing operational efficiency and reducing expenses of Kubanenergo PJSC, aimed at optimizing costs, reducing unit costs for operating power equipment, reducing power losses in networks and increasing energy performance.

The company is interested in creating a single center of responsibility for high-quality and reliable power supply to consumers in the Krasnodar Territory and the Republic of Adygea. To increase the share of the electric grid services market in the service area and reduce the number of LGCs, Kubanenergo PJSC is implementing a long-term program for the consolidation of power grid assets.

In 2018, Kubanenergo PJSC continued to develop the asset management system, the electric power transmission management system, and the 1C: Enterprise corporate information system. There were completed works for introducing changes to information systems based upon the results of the revision of procedures for assessing the consequences of refusal and with account for the risks of failure in monetary terms;automation of functional mobile solutions; automation of standard forms of test/measurement protocols for test units, groups, and types of equipment; automation of a prediction model for the probability of failure of production assets; creating a registry subsystem of non-financial capital; there was built a 218.6 km of fiber-optic communication line (FOCL). Communication channels in the direction of the 110 kV "Lazurnaya", "NovoRES", "Shapsug" substations, as well as in the direction of the Takhtamukaysky Power Distribution Zone (PDZ) were made with FOCL.

To improve the quality of service to electricity consumers in 2018, the Company has expanded the functionality of the client’s personal account on the website of Kubanenergo PJSC in part of technological connection and customer service. Further expansion of the Personal Cabinet functionality is planned in terms of submitting an application for capacity redistribution.

Being an environmentally oriented company, Kubanenergo PJSC fulfills the obligations of the Environmental Policy, to comply with the requirements of environmental legislation, to continuously improve the environmental management system and improve its performance, to comply with the established standards for permissible environmental impact.

In 2019, the Company faces the tasks of further development, modernization, and expansion of the region’s electricity infrastructure. The focus will be on the South-Western and Central Energy Regions of the region.

The priority directions in the area of technological connection are the development of the Temryuk district of the Krasnodar Territory, including the power supply of the objects of the transport crossing to the Crimea.

By the results of the year, it may be noted that Kubanenergo PJSC has fulfilled the main task — it provided the reliable, highquality power supply to consumers and strengthened the image of a Company of high importance for the stable socio-economic development of Krasnodar Region and the Republic of Adygea.