N. Shvets

"Organizational development of the Company was performed within the limits of strategic administrative decisions of JSC "IDGC Holding" on provision of a reliable and uninterrupted electrical supply of consumers"

Dear Shareholders!

The last year was one of major transformations for JSC "Lenenergo". A new administrative team was formed, and the qualitative "reboot" of business processes was directed, first of all, at increasing the overall performance of the Company, radical renovation of capacities, and developing client services.

The organizational development of the Company was performed within the limits of strategic administrative decisions of JSC "IDGC Holding" on providing a reliable and uninterrupted electrical supply to consumers in 69 regions of the Russian Federation. St. Petersburg and Leningrad Region, with a population exceeding six mln people, are the major zones of responsibility of IDGC Holding, demanding effective investments, technologies and management methods.

JSC "IDGC Holding", the Government of St. Petersburg, and JSC "Lenenergo" signed a tripartite Agreement "On cooperation in the implementation of measures to ensure reliable electricity supplies and creation of conditions for connection of consumers to the electricity network" on May 20, 2010. A similar Agreement was signed between JSC "IDGC Holding", the Government of the Leningrad Region, and JSC "Lenenergo" on June 25, 2010. Under the conditions of these agreements, investments at the rate of RUR 101.5 bln (net after VAT) shall be provided for the electricity network infrastructure of JSC "Lenenergo" up to 2015.

A program for renovation of the cable network of JSC "Lenenergo" in St. Petersburg has been developed as well. This program assumes considerable capital investments at replacing cable lines, including at the expense of federal budget funds. Investments of RUR 9.063 bln (net after VAT) are planned in the first stage of the program.

JSC "Lenenergo" is continuing integration of its electricity network assets. The Company acquired 96.97% of the shares of JSC "Tsarskoye Selo Power Company" on August 16, 2010, and 98.13% of the shares of JSC "Kurortenergo". The given events were conducted in the framework of the policy of consolidation of IDGC Holding, directed at creating operative dispatching management of electricity distribution networks in the regions of responsibility of the unified centre. Radical steps at enhancing the technique of technological connection of consumers and transformation of JSC "Lenenergo" into a unified centre of responsibility have been undertaken. All this has positively influenced the stability of the power supply system of the Northern capital of Russia, and has made it possible to lower general costs and optimize the use of resources.

JSC "Lenenergo" continues to improve its quality of corporate governance. A total of 22 meetings of the Board of Directors were conducted in 2010, including two full-time meetings, two full-time and absentee meetings, and eighteen absentee meetings, at which 183 questions were considered. The Board of Directors of the Company is comprised of thirteen persons: seven representatives from JSC "IDGC Holding" the major shareholder of JSC "Lenenergo", two representatives from minority shareholders, three representatives from the Government of St. Petersburg, and one representative from the Leningrad Region. There Company approved the decision to change the Company registrar. Reports of the Director General on the principal activities of the Company were considered on a regular basis.

Special attention was paid in 2010 to the transition to regulation of tariffs for services on electric power transmission using the method of return on investment capital (RAB). As a result, JSC "Lenenergo" has been working in accordance with a new tariff method since January 01, 2011. The work of JSC "Lenenergo" management was concentrated around a number of basic documents, among which there are the investment program of the Company and the business plan for 2011-2015, the Program of perspective development of the billing system of electric power on the retail market, plans on fulfilling liabilities for technological connection, as well as regulating procedures for risk management and internal control. One of the priority activities has been to increase the level of antiterrorist and anti-subversive security of objects of the power network infrastructure of the Company.

On behalf of the Board of Directors of JSC "Lenenergo", I express my sincere gratitude to the members of the Board of Directors and the Companys management for their harmonious and effective work directed at providing for the Companys interests. My words of special gratitude are directed to the Administrations of St. Petersburg and the Leningrad Region for constructive cooperation and a systematic approach to developing electricity network infrastructure in the interests of a qualitative and reliable electrical supply for consumers. I sincerely thank all of the Companys employees, whose professional and productive work contributes to stability and reliability of the functioning of all electricity network infrastructure of JSC "Lenenergo".

I am positive that by the 125-year anniversary of the Company in 2011 the staff will provide the further growth of production indicators and make a worthy contribution to the forward development of Russian electric grids.make aworthy contribution tothe forward development ofRussian electric grids.

Chairman ofthe Board ofDirectors
ofJSC Lenenergo

Nikolay N. Shvets