Federal Grid Companyof Unified Energy System
Russia One-on-One Conference27-28 January, 2010
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Disclaimer
The information contained herein has been prepared by the Company. The opinions presented herein are based on generalinformation gathered at the time of writing and are subject to change without notice. The Company relies on information obtainedfrom sources believed to be reliable but does not guarantee its accuracy or completeness.
These materials contain statements about future events and expectations that are forward‐looking statements. Any statement in thesematerials that is not a statement of historical fact is a forward‐looking statement that involves known and unknown risks, uncertaintiesand other factors which may cause our actual results, performance or achievements to be materially different from any future results,performance or achievements expressed or implied by such forward‐looking statements. We assume no obligations to update theforward‐looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting thesestatements.
This presentation does not constitute an offer or invitation to sell, or any solicitation of any offer to subscribe for or purchase anysecurities and nothing contained herein shall form the basis of any contract or commitment whatsoever. No reliance may be placed forany purposes whatsoever on the information contained in this presentation or on its completeness, accuracy or fairness. Theinformation in this presentation is subject to verification, completion and change. The contents of this presentation have not beenverified by the Company. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of theCompany or any of its shareholders, directors, officers or employees or any other person as to the accuracy, completeness or fairness ofthe information or opinions contained in this presentation. None of the Company nor any of its shareholders, directors, officers oremployees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or itscontents or otherwise arising in connection therewith.
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Number of staff 22,500
Market cap RUR 390 bn (January ’2010)
The largest publicly traded electricity transmission company in the world*
Occupies an exclusive and unique market position in Russia. Competition‐free operation
Guaranteed return on investment due to the introduction of the new asset‐based tariff regulation (RAB)
Unique proposition for a lower risk investment in Russia
Outstanding growth opportunities through a RUR 519bn investment programme**
Considerable scope for management to enhance performance through greater operational and cost efficiency
Federal Grid Company Today
* By length of transmission lines and transformer capacity with the wattage of 220kW or higher. ** Investment program 2010‐2012
Who we are
Russian Federation 79.11%
Free Float: 20.89%
Regions covered by FGC
Key Financial Indicators (RAS) 2008 1H 2009
Revenue (RUR) m 68,485 41,209
EBITDA (RUR) m 29,412 24,804
Loans and credits (RUR) m 32,980 17,980
Overall length of lines, thousand km 118 118
Energy supply, KWh mln 472 219
Number of substations 757 757
Installed transformer capacity, MVA 286,185 296,404
Shareholding
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Leading Russian Blue-chip Company
Shares traded in Russia on MICEX and RTS, under the ticker FEES
GDRs traded internationally OTC (Over The Counter)
International listing on a major European stock exchange is currently being considered
Participant in MSCI Emerging Markets and MSCI Russia
12‐month share‐price performance to 21 Jan 2010 Source: MICEX, CB of Russia
Why Federal Grid Company?
Most liquid stock in the Russian electricity sector
Significant scope for revenue growth with the introduction of RAB regulation
Stable, guaranteed financial return
Good record of corporate governance
Company* Listing Market Cap ($bn) P/BV
FGC Moscow 12.8 0.56
RusHydroMoscow, London
10.8 0.72
Holding MRSK
Moscow 5.7 1.97
OGK-4 Moscow 3.8 1.41
Enel OGK-5 Moscow 3.0 1.34
3 * As of 21th January 2010
0,000
0,002
0,004
0,006
0,008
0,010
0,012
0,014
0,016
Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 Dec 22 Jan 22
0.000
0.002
0.004
0.006
0.008
0.010
0.012
0.014
0.016
Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Oct 22 Nov 22 Dec 22 Jan 22
Last Price 0.0111High on 11/18/09 0.0138Average 0.0081Low on 02/05/09 0.00229
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Upgrading existing facilities, further improving equipment reliabilityReduction of energy loss in transmission system through the introduction of innovative technologiesStaff training
Transition to RAB tariff systemImprovement in operational efficiency Commitment to pay dividend
2010‐2012 Investment Programme, including construction of additional 8,419 km of transmission lines and 28,933 MVA of installed transformer capacity
Strategy
The electricity grid provides lifeblood to our society and economy. Federal Grid Company plays a vital role in ensuring the development and reliability of this system. We operate in a modern, regulated market environment, and are committed to delivering value to our shareholders and investors
MISSION
Focus on development
Ensuring seamless operations
Delivering value to shareholders
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Significant need for investment in the upgrading of Russia’s national power gridNew investment‐friendly regulatory frameworkTransmission accounts for only 5.5% of the price paid by consumer Comparatively low electricity prices in Russia
New Tariff Regulation: How The System Will Change
Operating expenses
Asset depreciation
CAPEX
Taxes and charges
Operating costs
Controlled by the Company
1 January 2010
Net Profit
Reserved for reinvestment and dividend
Depreciation of initial invested capital
Depreciation of newly invested capital
Controlled by Regulator
Return on initial invested capital
Return on newly invested capital
Compensates Operator for the incurred costs
Composition of the tariff‐based revenue:
Stimulates investment and operating efficiency
Composition of the tariff‐based revenue:
New Tariff System«RAB»
Regulatory Asset Base
Old Tariff System«Costs +»
Scope for increase intariff-based revenues
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Investment Program: Finance
From Government subsidies to market finance
Use of Government investment and proceeds from the sale of RAO UES assets for financing the investment program will be gradually phased out by 2012
The share of borrowing in the finance for the investment program will increase. This will take form of bonds and bank loans
Over the period 2010 – 2012 Federal Grid Company intends to borrow RUR 147bn which represents investment program
Investment Schedule
171186.3
162.1
Sources of Finance (2010-2012)
RUR Billion
Borrowing
Other sources
Subsidies v BorrowingRUR Billion
Source: The Company’s Data
Government funds + proceeds from RAO UES asset sale
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Transition To The RAB Tariff Regulation
2008 2009 2010 2011 2012 2013‐2018
3-year transitional period 5-year regulatory period
Regulator approves the RAB tariff
Return on initial invested capital: 3.9%
Return on initial invested capital: 5.2%
Return on initial invested capital: 6.5%
Return on newly invested capital: 11% p.a.
Initial invested capital for 2010 (initial RAB) – RUR 647.6bnAnnual regulatory rate of decrease in costs controlled by operator: 2.5%Period of return: 35 years
Return and costs to be agreed in 2012
Transition to RAB regulation approved by the Government
Federal Grid submits its tariff
proposals Transition to RAB
begins
Estimated 2010 tariff increase:
52.4%
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Investment Program: Where the money goes
Joint projects with regional governments
RUR 519bnTotal Investment Program 2010-2012
Federal program -Development of Technological and Information management
Provisions forthe capacity
of nuclear, hydro and thermal plants
77.7 71.530.9
29.817.9
15.386.3
2.6
105.8
81.5Upgrading grid facilities
in Moscow,St. Petersburgand Tyumen
Renewal of fixed assets – 105.8
Renewal of fixes assets
Other investmentprojects
Development of gridsnot participating in
Agreement with regional governments
Federal Developmentprogramme for the Sochi
Olympic Games
Technological connection
Investment Programto develop Russian Far East
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Investment Program: Scope and Scale
New major construction projects
Transmission lines (220kW, 330kW, 500kW, 750kW)
Transmission lines and substations
Connecting power unit № 2 (1000 MVt) of VolgodonskNuclear Power Plant to the grid
Completion in 2010To support infrastructure for increasing active power flow between UES Centre and North Caucasus
Connecting start-up facility (1000 MVt) of BoguchanskHydro Power Plant to the grid
Completion in 2010To support reliability of UES Siberia since Sayano‐Shushenskaya Hydro Power Plant is not operational
Supporting infrastructure for the Sochy 2012 Olympic Games
Completion by 2010‐12
Substation City2Completion in 2014To support infrastructure of Moscow International Business Centre “Moscow‐City”
Connecting power unit № 4 (1000 MVt) ofKalinin Nuclear Power Plant to the grid
Completion by 2012To support construction of Moscow’s 2nd “transport ring”Cover shortage of power supply in North West of Moscow region
Grid construction on the route Neryungrinskiy Hydro Power Plant -Nizhniy Kuranah - Tommot - Maiya
Completion in 2013Developing power supply in Yakutia region, support of “West Siberia‐Pacific Ocean” pipeline infrastructure (Transneft’s project)
Grid construction on the route Zeysk Hydro Power Plant –Russian State border with China
Completion in 2013Supporting energy transmission to China
Supporting infrastructure of 2012 APEC Summit in Vladivostok
Completion in 2011
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Investment Program: Scope and Scale
2006 2007 2008 2009 2010 2011 2012
637.5
3498
5921,047
8,0607,4167,94610,314
6351
13,457
1,387
3,556
3,043
1,820
Investment Programme 2010 - 2012New transmission lines, km
New transformer capacity, MVA
59 new substations with the total capacity of 28,933 MVA
Construction of 70 new high‐voltage power lines with a total length of 9,800 kilometres
Increase grid capacity by circa 10%
3 years plans:
Construction of new transmission capacity
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Projected growth in cost efficiency
Split of projected cost reductions in 2010
Emphasis on cost efficiency
Source: The Company’s Data
RAB tariff agreement for 2010‐2012 sets up a target of 2.5% annual rate of reduction in operational costs controlled by the Company
Management Board of FGC has approved the General Programme for Efficiency Improvement, which includes the following key objectives:
Reduction in administrative, non‐operational and overhead costs, including transport, communication, rent, staffing level, etc)
Reduction in operational costs due to lower contractor fees and increased share of competitive procedures in the Company’s procurement
In the first 9 months 2009 the Company’s costs were reduced by RUR1,1 bn (2.4%) against the costs planned for the period
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Credit rating history
Leverage
2004 2005 2006 2007 2008 2009
B B+ B+ BB+ BB+ BBB
Baa2
Baa2
Baa2
Baa2
Projected increase in borrowing
Source: The Company’s Data
Federal Grid Company’s Net Debt is set to grow from RUR 18bn in 2009 to up to RUR 180bn by the end of 2012
This will lead to an increase in leverage as a proportion of the Company’s total capital from 2.5% (2009) to up to 25% (2012)
The Company has placed considerable emphasis on reducing its cost of borrowing. There has been considerable improvement in the Company’s credit rating over the past few years
A RUR 50bn bond issue has been approved by the Board of Directors in 2009. It will cover the debt portion of the financing of the investment programme in 2010 and into 2011
X10
RUR‐denominated debtBonds are included in the Russian Central Bank’s Lombard List
Outstanding bond issuesAs of December 2009
Maturity RUR m
Series 02 bonds 22.06.2010 7,000
Series 04 bonds 05.10.2011 6,000
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Management Board Includes 12 senior executives
Corporate Governance and Management
Sergei Shmatko
Chairman of theBoard of Directors
Energy Minister of the Russian Federation since May 2008.
Prior to that Mr. Shmatko was President of Atomstroyexport in 2005‐2008 and Chairman of the State Foundation for Conversion in 2002‐2005. Mr. Shmatko graduated from Marburg University with MSc in Economics and the High Academic Course of the Military Academy.
Oleg Budargin
Chief Executive Officer
Previous positions included Governor of Taimyr Autonomous District, Mayor of Norilsk and Deputy General Director of
Norilsk Metallurgy Plant. Mr. Budargin, born in 1960, graduated from Norilsk Industrial Institute.
Dmitry Troshenkov
Chief Financial Officer
Before joining the Company in September 2009 was Vice President of TNK‐BP since 2006. Prior to that Mr. Troshenkov held
senior management positions at OGK‐1, Lenenergo and Petroelectrosbyt. He graduated from St. Petersburg University.
Valeriy Chistyakov
Chief Operating Officer
Over 10 years high‐level experience in the Russian power sector. Most recent roles included Deputy Head of UES Engineering Centre
and CEO of Lenenergo. Mr. Chistyakov holds an MBA in business management from the State University of Management.
Shareholder meetings
Board of Directors12 members, including 4
independent directors
Service Reliability
Committee
Personnel and Remuneration
Committee
Audit Committee
Strategy Committee
Investment Committee
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Summary
Leading Russian Blue-chip Company
Unique position in the Russian market, largest Russian utility company by market cap
Guaranteed return on investment
Introduction of the new RAB tariff system which stimulates investment and efficiency
Significant growth prospects
RUR 519bn investment programme
Sound financial position
Strong growth in revenue and earnings coupled with balance sheet strength
Corporate governance
Transparency and commitment to “best practice” corporate governance
Scope to expand investor base
Plans for a GDR listing on a major European stock exchange
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Contacts
Federal Grid Company of Unified Energy System5A, Akademika Chelomeya Str., Moscow, Russia, 117630
Andrey GabovDirector for Corporate Governance
Alexander Duzhinov Head of Investor RelationsTel.: +7 495 710 90 64Mob.: +7 906 077 38 90
E‐mail: ir@fsk‐ees.ru
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