А.В. Сорочинский

"A program for renovation of the cable network of JSC "Lenenergo" in St. Petersburg has been developed as well"

Dear Shareholders!

JSC "Lenenergo", being an interregional distribution grid company servicing St. Petersburg and the Leningrad Region, has set itself two general goals: reliable and qualitative power supply to consumers, and operative, non-discriminatory technological connection to networks.

Our main production objectives comprise improving the quality of operative, repair and overhaul servicing of equipment, a decrease in technological accidents in 6–110 kV networks, and a reduction in average duration of liquidation of technological infringements. The intellectual and technological potential of the Company allows intensifying the application of new technologies and technical solutions in the operation of production equipment, including the use of modern diagnostic tools.

Enhancement of corporate governance, business planning and budgeting, and accomplishing the tasks set by the Board of Directors all allowed the Company to achieve positive results in 2010. Net profit of JSC "Lenenergo" amounted to RUR 3,805,591 thousand in 2010, which is 1.2 times greater than the indicator for 2009 (RUR 3,258,036 thousand). Furthermore, the volume of useful electricity output into JSC "Lenenergo" networks constituted 33,495 mln kWh 2010, including 21,244 mln kWh in St. Petersburg and 12,251 mln kWh in the Leningrad Region.

The total volume of trading of JSC "Lenenergo" shares on the MICEX stock exchange in 2010 amounted to RUR 458.951 mln, which is 211.62% greater than the indicator for 2009 (RUR 147.282 mln). The total volume of trading of JSC "Lenenergo" shares on the RTS stock exchange in 2010 constituted RUR 209.960 mln, which is 64.04% greater than the indicator for 2009 (RUR 127.993 mln).

The Company’s capitalization following 2010 results amounted to RUR 27,372 mln / USD 902 mln, which is 7.1% higher than in 2009 (RUR 25,571 mln / USD 845 mln).

JSC "Lenenergo" plans to invest over RUR 100 bln in the development of electric grids in the Northern capital and the Leningrad Region in 2011-2015. The investment program of the Company for 2011-2015 was developed in accordance with the Agreements between JSC "IDGC Holding", JSC "Lenenergo" and the Governments of St. Petersburg and the Leningrad Region on cooperation at implementing measures to ensure reliable electrical supply and create conditions for connection of consumers to electric networks.

JSC "Lenenergo" plans to construct fourteen new 110 kV substations in St. Petersburg, and to upgrade almost twenty power-suppliers by 2015, among which there are the 110 kV substation No.17 "Volkhov-Yuzhnaya", substation No.46 "Novorzhevskaya", substation No.195А, substation No.185 "Pushkin-Yuzhnaya", substation No.29 "Sosnovskaya", substation No.621А "Solnechnaya", substation No.13А, and substation No.11А. Implementation of these projects will enhance the reliability of electrical supply to consumers in the Northern capital, and will increase network capacity. We shall pay very special attention to reconstruction and renovation of cable lines to enhance reliability and to ensure the connection of new consumers. JSC "Lenenergo" will introduce over 2,650 km of transmission lines in St. Petersburg by 2015.

Implementation of the Program of prime measures of JSC "Lenenergo" in the Leningrad Region for 2011-2015 envisages construction of six new 35-110 kV substations, upgrading more than twenty-two power-suppliers, as well as renovating existing overhead and cable lines (110-35 kV) and lining new ones. We plan to introduce 267 МVА of transformer capacity in 2011 and over 580 km of transmission lines in the Leningrad Region. We are planning works under the new investment projects as follows: building the "Taitsy" substation (110 kV) in the Gatchina area, reconstruction of the "Manushkino" substation No.244 (110 kV) in the Vsevolzhsk area, "Ulyanovka" substation No.724 (35 kV) in the Tosno area and "Ryabovo" substation No.484 (110 kV) in Lomonosov. Furthermore, we plan to expand the glades of overhead transmission lines in the Gatchina, Vyborg, Lodeynoye Pole, Luga, Novaya Ladoga, Kingisepp, Vsevolzhsk and Tikhvin areas of the Leningrad Region. The programs of prime measures for preventing power shortages and increasing the reliability of power supply in the Leningrad Region will enhance stability of operations of the power system and reliability of the power supply of consumers.

The key challenge of the Company is to meet obligations for technological connections to power networks on time. In 2010, JSC "Lenenergo" concluded 11,159 contracts for technological connection and issued 4,173 acts of technological connection (net of connection of generating capacities). For the first time in many years, the Company completely fulfilled its obligations for connection of budgetary objects provided for commissioning in 2010, the customer of which is the Construction Committee of St. Petersburg. On the basis of the geo-information system which is already functioning in the branch of JSC "Lenenergo" - "Cable network", it is planned to conduct automation of business processes for technological connection.

The system of long-term tariff regulation (RAB-regulation) to which the Company shifted on January 01, 2011, allows implementing a large-scale investment program which is extremely necessary for provision of a reliable and qualitative power supply to the region and connection of new consumers. The tariff for JSC "Lenenergo" is set for the period from 2011 up to 2015, thus enabling the Company to predict costs and revenues for several years ahead.

The Company will actively pursue, together with our major shareholder JSC "IDGC Holding" a search of ways to attract non-tariff sources of funding. Improving the efficiency of financial and economic activity of the Company will be conducted by implementing more efficient use of resources. A modern Company should be focused on minimum economically reasonable costs. Protected items of expenses should include wage costs, depreciation, repairs and taxes.

Resolving these tasks will allow JSC "Lenenergo" to become one of the most effective and strongest regional grid companies of Russia.

Director General of JSC "Lenenergo"

Andrey V. Sorochinskiy