Federal Grid Company

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Federal Grid Company

May 11th, 2011Moscow, Russia

Capital Markets Day: Presentation of 2010 Results

Andrey Kazachenkov Deputy Chairman of the Management Board

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Disclaimer

The materials comprising this Presentation have been prepared by the Company solely for use by the Company’s management at investor meetings with a limited number of institutional investors who have agreed to attend such meetings and to be subject to obligations to maintain the confidentiality of this Presentation.

This Presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This Presentation does not constitute a recommendation regarding the securities of the Company.

This Presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

The forward-looking statements in this Presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. These assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control and it may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements include the achievement of the anticipated levels of profitability, growth, cost and its recent acquisitions, the timely development of new projects, the impact of competitive pricing, the ability to obtain necessary regulatory approvals, and the impact of general business and global economic conditions. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance.

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2010 Results and the Latest 2011 News (1)

RAB – Regulation

Dividend Policy Approval

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Depository Receipts Listing on London Stock Exchange

Investment Program Approval

Largest in Russian Market History Bond Public Issue

Launch of the Option Program

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2010 Results and the Latest 2011 News (2)

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Transfer of the Company’s and Power Industry Index – Federal Grid Company’s assets in exchange for

INTER RAO UES’ shares

Successful delivery on the2010 Business Plan

Preparation of Financial Statements

Cost Reduction Program

Investment Program

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Key messages

The largest publicly traded electricity transmission company in the world (based on the length of transmission lines and transformer capacity);

A leading Russian blue chip company and the largest Russian utility company (based on market capitalization);

Guaranteed return on investment following the transition to the Regulatory Asset Base (RAB) tariff system;

Realization of an ambitious investment program focused on grid infrastructure development;

Developing and implementing elements of the smart grid, applying innovative technologies to realize investment projects;

Focusing on greater operational efficiency and capital structure optimization.

Market Capitalization: USD 16.8 bln (as of 10.05.2011)Market Capitalization: USD 16.8 bln (as of 10.05.2011)

Regions of operations

Russian Federation: 79.48%

Free Float : 20.52%

Shareholders Structure:

Key Indicators 2010 2009

Revenues, RUR mln 113,330 87,580

Adj. EBITDA*, RUR mln 67,717 42,619

Adj. profit*, RUR mln 27,910 17,160

Total volume of electricity transmitted, bln kWh 486 466

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* Including the reversal of impairment provisions for property, plant and equipment and other non-cash items

Company at a Glance

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Q2-Q4 2011 2012 2013 2014

Required Revenue (RR), RUR mln. 118,509 147,906 186,768 235,862

Committed Capacity, MW 88,948 88,948 88,948 88,948

Average Tariff, RUR/MW per month 111,083 140,416 177,311 223,919

Average Tariff Increase, % 26.4 26.4 26.3 26.3

Controllable Costs, RUR mln 27,817 29,798 31,224 32,621

Non-Controllable Costs, RUR mln 16,217 16,568 21,973 29,733

Electricity transmission tariff (grid maintenance), effective as of 01.04.2011

2010-2012 RAB tariff parameters for Federal Grid Company were approved on January 1, 2010

As of April 1st, 2011, the Russian FTS determined RAB-regulation parameters for the Q2-Q4

2011–2014 period, including the application of a tariff smoothing mechanism.

RAB-regulation Transitioning

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RAB-regulation timeline

201051.1%

tariff growth

Return on initially invested capital: 3.9%

Return on new invested capital: 11% p.a.

5-year regulatory period*

Return on new invested capital: 10% p.a.

201126.4% **

tariff growth

201326.3%

tariff growth

201426.3%

tariff growth

As of January 1st, 2010, the initial base of invested capital was RUR 647.6 bln;

Regulatory rate of operating costs decrease set by FTS is 2% p.a.

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201226.4%

tariff growth





* Approved by the Government of the Russian Federation

** 32.91% for Q1 2011, 26.4% for Q2-Q4 2011

Source: The Russian Federal Tariff Service

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Indicator (RUR mln) 31.12.2010 31.12.2009 (re-stated)

Change, %

Transmission fee 109,371 80,242 36.3%

Electricity sales 3,070 3,348 (8.3)%

Others 889 3,990 (77.7)%

Total Revenues 113,330 87,580 29.4%

Indicator (RUR mln) 31.12.2010 31.12.2009 (re-stated)

Change, %

Depreciation of property, plant and equipment and amortization of intangible assets

31,054 17,670 75.7%

Employee benefit expenses and payroll taxes 20,114 15,904 26.5%

Purchased electricity 15,942 15,431 3.3%

Repair and maintenance services from third parties 5,023 6,933 (27.5)%

Reversal/ (accrual) of allowance for doubtful debtors (2,164) 5,527 (139.2)%

Other expenses 17,904 16,751 6.9%

Total operating expenses (excl. PPE and IA depreciation) 87,873 78,216 12.3%

Revenue breakdown and rate of growth

Operating cost structure and change

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Indicator, (RUR mln)31.12.2010 31.12.2009

(re-stated)

Cash and cash equivalents as the beginning of the reporting period 33,699 15,685

Net cash flow generated by operating activities 53,449 32,455

Net cash flow used in investing activities (127,043) (32,473)

Net cash flow generated by financing activities 53,468 18,032

Net (decrease)/ increase in cash flow (20,126) 18,014

Cash and cash equivalents, as of the end of the reporting period 13,573 33,699

Cash Flows

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2009-2010 Financial Performance

Profitability rates

P&L Indicators, RUR mln

29.4%

58.9%

62.6%

17,169

Adj. EBITDA margin Adj. profit margin Adj. assets margin

Revenues Adj. EBITDA Adj. profit

ratios

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Key 2010 Results of the Company Costs Reduction Program:

•Activities carried out within the Costs Reduction Program enabled Federal Grid Company to reduce grid complex operating costs by RUR 2.6 bln (100%);

•The Company accomplished measures to reduce losses in the UNEG in full;

•The 2010 total energy saving effect: 291.64 mln kWh.

Cost Optimization

Cost saving based on the results of Costs Reduction Program in 2010

Stock optimization, 0.5%

General and administrative expenses, 45%

Reduction of energy losses in

the UNEG, 5%

Raw materials

and fuel, 9%

Repairs, 40%

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Bond Issue

RUR mln Interest rate,% Maturity Date

Series 4 6,000 7.3 06.10.2011

Series 6 10,000 7.15 26.09.2013

Series 7 5,000 7.5 27.10.2015

Series 8 10,000 7.15 26.09.2013

Series 9 5,000 7.99 24.10.2017

Series 10 10,000 7.75 24.09.2015

Series 11 10,000 7.99 24.10.2017

Total 56,000

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Bond Portfolio

Credit Portfolio and Liquidity

Debt/ Adjusted EBITDA = 0.85

Credit Rating

Credit Potential

• Untapped credit lines total RUR 65 bln

•On 28.04.2011, the Company’s Board of Directors decided to offer bond issues up to RUR 125 bln

2009 2008 2007 2006 2005 2004

BBB BB+ BB+ B+ B+ B

Baa2 Baa2 Baa2 Baa2

2010

BBB

Baa2

Bank-Creditor Amount Due Date

Alfa-bank RUR 15 bln Jan-2013 Sberbank of Russia RUR 15 bln Feb-2012 Gazprombank RUR 25 bln May-2018 Raiffeisenbank RUR 10 bln May-2016

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2010 Investment Program Implementation

Target value:Not less than

90%2,806 km11,835 MVA

Финансирование инвестиций (с учетом НДС)

45,8

26,8

39,7 37,3

66,7

29,2 24,9

35,6 35,9

70,6

0

15

30

45

60

75

90

4 кв. 2009 1 кв. 2010 2 кв. 2010 3 кв. 2010 4 кв. 2010 2010

млр

д. р

уб.

план факт

170,

51

167,

03

Plan Actual

Investment Program Financing (VAT incl.)

Transformer capacityTransmission lines

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2010-2014 Investment Program

Total 2010-2014 planned investments: RUR 952.4 bln

Federal Programs(2)

(4,808 km; 4,181 MVA)

Enhancing the reliability of power supply for Moscow, St.

Petersburg and Tyumen(980 km; 17,531 MVA)

Backbone grids development(3)

(5,367 km; 10,890 MVA)

Innovations, energy efficiency and technological management improvement

Fixed assets renovation (10,468 km; 37,866 MVA)

Technological connections (33 km; 2,577 MVA)

Other projects

Joint projects with regional administrations(1)

(5,367 km; 10,890 MVA)

Providing for NPP, HPP and HCP output (5,180 km; 10,936

MVA)

(1) Excluding Moscow, St. Petersburg and Tyumen

(2) East Siberia – Pacific Ocean oil pipeline, Sochi Olympic Games, Vankor, Sayan, etc.

(3) Projects other than joint projects with regional administrations14

127.4 (13.4%)

90.4 (9.5%)

212.8 (22.3%)

65.8 (6.9%)

216.3 (22.7%)

14.7 (1.5%)28.4 (3.0%)

58.7 (6.2%)

137.9 (14.5%)

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Key Investment Projects

Transmission lines (220 kV, 330 kV, 500 kV and750 kV)

Transmission lines and SSes

Underground cable laying

Infrastructure for the 2014 Sochi Olympic Games

Commissioning date – 2012

Infrastructure for the 2012 APEC Summit in Vladivostok


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Capacity provision of Kalininskaya NPP generating unit #4 (1,000 MW)


Capacity provision of Novovoronezhskaya NPP-2 generating unit #1 (1,150 MW)


Underground cabling in Moscow, St. Petersburg, Nizhny Novgorod

Transition from overhead lines to cable and construction of Skolkovo 220 KV substation


Capacity provision of Boguchanskaya HPP start-up complex (1,000 MW)


Construction of electricity supply facilities on Elginskoye coal deposit


Construction of Zeyskaya HPP – Russian-Chinese border transmission line


Electricity supply of East Siberia – Pacific Ocean oil pipeline


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2010-2014 Investment ProgramNew Construction Projects

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2010 2011 2012

26,557

13,047

22,4745,435

3,2933,521

Transmission lines, km

Transformer capacity, MVA

2010-2014 new construction projects

2013 2014

19,000

5,893

8,1022,936

73 new substations with a total transformer capacity of 89,180 MVA

123 new high-voltage transmission lines with a total length of 21,078 km

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Integrating all types of generation (including distributed generation) and all types of consumers (from households to large industrial enterprises) for situational management of demand for their services and active participation in energy system performance;

Real-time changes in parameters and grid topology that prevent accidents from happening in the system;

Enhancing market infrastructure opportunities by rendering a wide range of services (both for market entities and infrastructure);

Minimizing electricity loss, enhancingthe self-diagnostic and self-sealing system that complies with reliability and power quality terms;

Integrating power grid and information infrastructure for all-mode system management, accompanied by full information support.

The smart grid is a leading-edge concept for the electricity grid, based on the desire to save energy and using breakthrough technologies and design.

The smart grid is a leading-edge concept for the electricity grid, based on the desire to save energy and using breakthrough technologies and design.

Smart Grid, the future of Russian Electricity Sector

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Generation and alternative energy sources

Transmission lines

Customers

Power transmission and storage (HCAB)

Industrial plants

Intelligent grid element

Intelligent grid

Micro-turbines and counter tank

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Vyborg Transforming Complex:

Pilot project for the introduction of the static reactive-power compensator (STATCOM) with a capacity of ±50 MVar

Technological value:

•Maximum transferred capacity to Finland increased by 20 MW;

•Reduction in the number of technological failures at the VTC.

Vyborg Transforming Complex:

Pilot project for the introduction of the static reactive-power compensator (STATCOM) with a capacity of ±50 MVar


•Maximum transferred capacity to Finland increased by 20 MW;

•Reduction in the number of technological failures at the VTC.

The first stage of the Experimental Digital Substation put into pilot production at The Centre for Science and Technology of the Electricity Sector.Primary purpose is the development of innovative technologies for their further deployment at electricity grid facilities.


•The automated process reduces the risk of human failure on grid operations, and increases its reliability;

•Advantages include: cost cutting, reduction in maintenance requirements and operating costs;

• Deployment of this type of substations will significantly improve the reliability of power supply for the customers.

The first stage of the Experimental Digital Substation put into pilot production at The Centre for Science and Technology of the Electricity Sector.Primary purpose is the development of innovative technologies for their further deployment at electricity grid facilities.


•The automated process reduces the risk of human failure on grid operations, and increases its reliability;

•Advantages include: cost cutting, reduction in maintenance requirements and operating costs;

• Deployment of this type of substations will significantly improve the reliability of power supply for the customers.

500 kV Beskudnikovo Substation:

Pilot project for the introduction of the synchronized synchronous compensator (ASC)

±100 MVar.


• Ensuring reliable operation of TPP 22 and TPP 27 generators under SC in JSC Mosenergo’s 220 kV grid;

• Stabilizing the voltage level at the 500 kV Beskudnikovo Substation.

500 kV Beskudnikovo Substation:

Pilot project for the introduction of the synchronized synchronous compensator (ASC)

±100 MVar.


• Ensuring reliable operation of TPP 22 and TPP 27 generators under SC in JSC Mosenergo’s 220 kV grid;

• Stabilizing the voltage level at the 500 kV Beskudnikovo Substation.

Development of advanced technologies and equipment

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Multi-chamber discharge insulator for overhead transmission lines:

This piece of equipment will help to increase reliability of power supply by reducing effects of lightning on the system, remove the need for lightning protection cables and reduce the cost of construction and maintenance of transmission lines.

Multi-chamber discharge insulator for overhead transmission lines:

This piece of equipment will help to increase reliability of power supply by reducing effects of lightning on the system, remove the need for lightning protection cables and reduce the cost of construction and maintenance of transmission lines.

Explosion-proof oil-immersed electrical equipment:

Technological value:• Reduces the damage to substations from

fire caused by transformers;• Improves life expectancy of substations;• Helps to minimise financial losses from

equipment and communication damage;• Helps to avoide the possibility of fire

spreading to other buildings.

Explosion-proof oil-immersed electrical equipment:

Technological value:• Reduces the damage to substations from

fire caused by transformers;• Improves life expectancy of substations;• Helps to minimise financial losses from

equipment and communication damage;• Helps to avoide the possibility of fire

spreading to other buildings.

New methods of crashing ice deposits and ice cover on wires and lightning protection cables for overhead transmission lines:

The principal achieved effect was upgrading overhead transmission line reliability in areas of ice deposits and ice coating events. This will reduce outages 25% (the volume of non-transmitted electricity equals approximately 3,000 MWh for the UES).

New methods of crashing ice deposits and ice cover on wires and lightning protection cables for overhead transmission lines:

The principal achieved effect was upgrading overhead transmission line reliability in areas of ice deposits and ice coating events. This will reduce outages 25% (the volume of non-transmitted electricity equals approximately 3,000 MWh for the UES).

Mobile test complex based on magnetic explosion generators for testing the electric grid for lightning resistance.

Key purpose – testing overhead transmission line facilities and SSes for lightning protection

The development of overhead transmission line and SS lighting protection design will reduce the construction cost for lightning protection systems.

Mobile test complex based on magnetic explosion generators for testing the electric grid for lightning resistance.

Key purpose – testing overhead transmission line facilities and SSes for lightning protection

The development of overhead transmission line and SS lighting protection design will reduce the construction cost for lightning protection systems.

Introduction of advanced technologies

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Key Elements of the Company’s Financial Strategy

Формирование единой информационной управленческой среды

Повышение акционерной стоимости Компании для формирования долгосрочного экономического потенциала

реализации стратегических целей

Соблюдение параметров тарифного регулирования

Реализация стабильной политики в области тарифообразования

Внедрение комплексной системы управления

издержками

Повышение эффективности использования ресурсов и

активов

Налоговое управление

Совершенствование системы управления ликвидностью

Внедрение новых финансовых инструментов

Максимизация денежных потоков ФСК от ДЗО и прочей деятельности

Повышение публичности на международных финансовых

рынках

Совершенствование системы планирования

Оптимизация процессов учета и отчетности

Усиление системы внутреннего контроля

Внедрение комплексной системы управления

рисками

Разработка стратегии взаимодействия с

инвест.сообществом

Повышение ликвидности рынка акций

и депозитарных расписок

Реализация дивидендной политики

Реализация кредитной политики

Оптимизация структуры капитала

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Improving shareholder value

Meeting tariff regulation parameters

Efficiently enhancing resource and asset use

Enhanced transparency on international financial

markets

Forming a common information management environment

Planning system improvement

Optimizing accounting and reporting processes

Reinforcing the Internal control system

Implementing a complex risk management system

Tax management

Realization of stable tariff setting policy

Implementation of a complex costs management system

Upgrading the liquidity management system

Implementation of new financial instruments

Maximizing FGC UES cash flow from subsidiary and affiliated companies and

other activities

Developing IR strategy

Upgrading shares and GDR markets liquidity

Realization of the Company’s dividend policy

Realization of the corporate credit policy

Capital structure optimization

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Federal Grid Company: a Russian Blue Chip

Source: MICEX, MSCI Barra

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Unique position in the Russian energy sectorLeading public Russian company:

Market capitalization – USD 16.8 bln (as of 10.05.2011)Free float – 20.52 %Included in MICEX, MICEX Large Cap & RTS indices

Foreign capital markets presence and potential investor base expansion:

Included in MSCI EM and MSCI Russia indicesGDR listing on the LSE (March 28th, 2011)

Significant potential revenue growth:Transition to RAB regulation -> stable business modelApproved tariff growth: 2010 – 51%; 2011 – 26.4%; 2012 – 26.4%; 2013 – 26.3%; 2014 – 26.3%Focus on reducing the cost of capitalReturn on new invested capital 2010-2012 -11%; 2013-2014 – 10%Significant potential for credit portfolio increase -> further reduction in the weighted average cost of capital (WACC)

Fundamental growth potential - EV/RAB does not exceed 0.7

Developed markets

Emerging markets

Source: Bloomberg, Thomson Reuters

Company Country EV/EBITDA(2011E)

EV/Sales(2011E) EV /RAB

ELIA Belgium 9.4 3.3 1.13

Terna S.p.A. Italy 9.7 7.2 1.34

REN Portugal 7.6 4.8 1.26

Red Electrica Spain 9.4 6.8 n/a

National Grid UK 8.6 2.8 1.47

ITC Holdings USA 11.8 7.7 n/a

Power Grid India 11.2 9.4 n/a

CTEEP Brazil 6.4 5.1 n/a

Transener SA Argentina 4.1 1.6 n/a

Transelectrica Romania 5.9 0.9 0.89

Federal Grid Company Russia 5.3 3.0 0.62

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Contacts:Federal Grid Company5A Akademika Chelomeya Street, Moscow, Russia, 117630

Investor RelationsE-mail: [email protected]

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