2006 Social Responsibility and Corporate Sustainability Report (стр. 2 )

A lioness warms up her lion cub with the heat of her own body – the nights in savanna are cool enough.

The body temperature of the cat’s family representatives is about 380C.

The temperature of water transmitted to the central heating system is about 800C.

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THE COMPANY’S ROLE IN THE REGION

The major effect of the JSC “Yenisei ТGC (ТGC-13)” on the social and economic state of the regions is apparent in the following:

-  The Company provides energy for a significant part of consumers.

-  The Company is a major taxpayer, thus ensuring the fulfillment of the region’s social functions.

-  The Company is a major employer.

-  The Company is a major consumer of raw materials, goods and services.

The JSC “Yenisei ТGC (ТGC-13)” is one of the largest taxpayers in the budgets of the regions of its presence. Significant amounts of tax deductions in the regional and local budgets promote effective implementation of the social and economic policy of the regions of the Company’s presence.

The total amount of the Company’s tax payments in various budgets in 2006 made more than 1179 million rubles.

Table 1. Tax payments of the Company by a type of budget, million rbl.

Budget	Total on the Company	Krasnoyarsk Generation	Khakass Generation Company	ТGC-13 (Governing company)
Federal budget	662,9	562,1	63,7	37,1
Regional budget	406,6	333,1	57,5	16,0
Local budget	109,7	102,4	0	7,3
TOTAL	1179,2	997,7	121,2	60,3

Distribution of profits also reflects the Company’s role in the region economy. The greatest part of finances is being spent on payments to fuel, raw materials and materials suppliers and on payments to the contractors performing repair and reconstruction of the equipment. The finances directed to wages and deductions (Uniform Social Tax - UST) make 16 %.

Structure of the Company’s costs in 2006

Fuel 32%

Wages and UST 16%

Investments 13%

Services payment 10%

Tax payments 8%

Equipment capital repair 7%

Purchased electricity 7%

Raw materials and materials 4%

Other 3%

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Territory of service

-  Krasnoyarsk CHP-1 provides heat for more than 400 thousand residents of the right bank part of Krasnoyarsk and supplies big industrial enterprises of Krasnoyarsk with thermal power and steam.

-  Krasnoyarsk CHP-2 provides hot water for heating and hot water supply of enterprises and houses of Sverdlovsky, Central, Zheleznodorozhny and Oktiabrsky districts of Krasnoyarsk.

-  Krasnoyarsk CHP-3 provides heat for the industrial enterprises, housing and utilities sector of the left bank districts of Krasnoyarsk – microdistricts “Severny”, “Vzletka”, “Zelenaya Roscha”.

-  Minusinsk CHP supplies thermal power for the town of Minusinsk, townships Ilyichevo, Shushenskoye and Tes.

-  Nazarovo CHP provides electricity for industry, transport, agriculture, enterprises of housing and utilities sector of the town of Nazarovo. It also provides heat for the industrial enterprises and houses of the town.

-  Sosnovoborsk CHP. The plant is being constructed missioning date is to be 2007, date of completion – 2010. Sosnovoborsk CHP shall be a source of power for 2 towns – Zheleznogorsk and Sosnovoborsk.

-  Kansk CHP is the main source of heat supply of the town of Kansk and provides energy for 75% of the town population and also for the industrial enterprises of the town.

-  Abakan CHP covers about 90% of needs in heat of Abakan.

Shares of thermal power principal suppliers

in 2006

Supplier

2006 volume thousand cal.

Yenisei TGC 72%

Krasnoyarsk SDPP-2 10% -Yenisei TGC –

Berezovskaya SDPP 3% - Krasnoyarsk SDPP-

Other suppliers 15% - Berezovskaya SDPP - 631

- Other suppliers - 2929

The Yenisei TGC thermal power market share for 2006 made about 72 % totally in the region, in Krasnoyarsk - about 80 %. As a result of the investment program implementation the efficient delivery gain (with allowance for electric boiler-houses replacement) for 2010 will make about 2320 thousand Gcal.

Thus, the market share of the JSC “Yenisei TGC (TGC-13)” for 2010 totally in the region will make not less than 75 %.

The major consumer of the Yenisei TGC thermal power is the population getting services through public utilities or directly.

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Share of settlements in the Yenisei TGC

heat delivery in 2006 (>1%) Settlement

Efficient delivery in 2006, thousand Gcal.

Krasnoyarsk 73% Divnogorsk 1% Sosnovoborsk 2% Nazarovo 4% Kansk 4% Mniusinsk 4% Shushenskoye 1% Abakan 11%

-Krasnoyarsk – 9 866 -Divnogorsk – 193 -Sosnovoborsk – 308 - Nazarovo – 558 - Kansk – 605 - Minusinsk – 553 - Ilyichevo – 13 - Tes – 24 - Shushenskoye – 185 - Abakan – 1 488

Heat consumption structure in 2006

Industrial consumers 15%

Housing and Utilities 62%

Population 6%

Other 17%

Consumption, *****bles	Total	Industrial consumers	Housing and Utilities	Population	Other
2004	12 254	1 798	7 602	694	2 159
2005	12 391	1 800	7 733	748	2 111
2006	12 575	1 864	7 826	754	2 131

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DEVELOPMENT STRATEGY OF THE COMPANY

The Company’s mission is conducting effective, profitable business, attractive to investors. Reliable and uninterrupted providing population and business community with qualitative and ecologically pure energy.

The strategy of the Company is presented by three principle directions.

-  Increase of capitalization of the Company. To achieve this, a set of measures for the increase of operational efficiency, corporate governance development, ensuring leading position in the branch examination need to be implemented.

-  Cash flow increase. Regular and sufficient cash flow is necessary to serve the obligations of the Company and to increase financial soundness of business. Within the framework of this direction activities on cost price reduction, expansion of sales volumes and increase of work productivity in the wholesale electric power market will be carried out.

-  Expansion of plant facilities and heating system infrastructure for satisfaction of the growing demands of the region in heat and electricity. Within the framework of this direction it is supposed to complete the construction of Krasnoyarsk CHP-3 and in addition to develop thermal networks needed for the output of the station and for providing an overflow of thermal power from redundant to deficient areas of Krasnoyarsk. To attract necessary investment resources it is planned to place additional share issues of the Company.

Within the framework of the strategy modernization of the existing stations’ equipment for the purpose of increasing their efficiency, reliability and ecological compatibility is also planned.

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ACTIVITIES ON CAPITALIZATION INCREASE

	INCREASE OF THE COMPANY’S CAPITALIZATION – UP TO 70 MLRD RBL.
CASH FLOW INCREASE		INVESTMENT PROGRAM IMPLEMENTATION
		LEADERSHIP IN THE BRANCH EXAMINATION
ENHANCE THE CORPORATE GOVERNANCE QUALITY	EFFECTIVE COMMUNICATION WITH INVESTORS	RELIABILITY INCREASE

-Efficient dividend policy -Elaboration of the Corporate Behavior Code -Ensuring property structure transparency -Forming annual and interim reports in accordance with ISFR -Establishment of committees under the BD -Absence of restrictions on share circulation -Development of optional management programs -Attraction of independent directors to the BD - Getting a corporate governance rating

-Optimization of communication process of cooperation with the investors -Development of shareholders and investors’ informing policy - Getting a credit rating -Ensuring analytical cover of shares -Including in the international MSCI indices -Listing on the international stock exchanges

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In winter bees “heat” their beehive. They gather in a big buzzing ball which is warmed up by their own vibration.

The frequency of bee wings’ vibration at buzzing changes from 200 to 250 Hz.

The frequency of voltage in the alternative current networks generated by the Yenisei TGC plants is 50Hz.

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ACTIVITIES FOR CASH FLOW INCREASE

Cash flow increase

	Profit increase	Development of the effective system of personnel motivation	Cost reduction
Acquisition of assets/getting control in heat generation and transmittance	Increase in production volumes	Reduction of production costs	Development of information technologies
Sharing in the companies rendering housing and utilities services to the population	Erection of new facilities (CHP-3 completion)	Increase in volumes of the combined generation	Replacement of the Yenisei ТGC (ТGC-13) boiler-houses of Krasnoyarsk
Maximization of financial effect from the work in the WEM	Replacement of outer heat sources (municipal boiler-houses of Krasnoyarsk and Abakan)	Implementation of cost reduction program	Reduction of specific fuel costs by ~8 %	Optimization of the loading capacities modes
	Reduction of specific expenses for repairs	Reduction of ecological payments
Working out market behavior strategy	Joining with municipal heating systems	Attraction of investment resources	Implementation of modernization and technical re-equipment program

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INVESTMENT PROGRAM OF THE COMPANY FOR

Within the framework of the Company’s strategy implementation over 10 billion rubles are to be attracted to carry out the investment program. The following possibilities of attracting investment resources are being considered:

-  Placement of additional issue of share - about 7 billion rubles;

-  Attraction of money loans (credits and loans, debt liabilities) - about 5 billion rubles.

Table 3. Priority investment projects of the Company.

Name of the investment object	Date of construction’s start and completion	Lead-in capacity
Construction of Krasnoyarsk CHP-3 generating set №1		185 MW
Construction of Krasnoyarsk CHP-3 generating set №2		185 MW
Construction of Minusinsk CHP steam turbine PT-30/35-3,4/1		30 MW
Reconstruction of APC (average pressure cylinder) t/u PТ-80/100-130/13 st № 1 of Minusinsk CHP	2008	30 MW
Modernization with replacement of a turbine unit st. № 2 of Kansk CHP	2008	7 MW
Modernization of a turbine unit of Krasnoyarsk CHP-1 st. № 8		5 MW
Construction of heat main №1 of the Krasnoyarsk heating system

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SOCIAL IMPORTANCE OF THE INVESTMENT PROGRAM

The most important for the Company, from the social and economic point of view also, is the Krasnoyarsk CHP-3 project completion. The goal of the project is to meet Krasnoyarsk developmental demands in heat and electricity supply for a long-term missioning of Krasnoyarsk CHP-3 first generating set (2009) makes it possible:

-  To increase the established thermal power rate of the plant by 270 Gcal/h, electrical power - by 185 МW.

-  To liquidate the expected heat deficiency on the left bank of Krasnoyarsk.

-  To improve the ecological situation in the city at the expense of coal boiler-houses closing.

-  To close economically inefficient electric boiler-houses.

-  To organize the most effective regime of operation of the CHP-3 capital equipment - combined development of thermal and electric power in the process of combined heat and electricity production.

-  To raise Krasnoyarsk power safety owing to the formation of reserve connections between heat mains of the Soviet, Central and Zheleznodorozhny districts.

Pursuant to the approved decision № 000 of the Krasnoyarsk administration dated 17.07.2003 the gain of thermal loads of housing and utilities sector is going to be about 515 Gcal/h for a city totally by 2010. Taking into account that as of today the given out permits and technical conditions on heat supply make 449,13 Gcal/h, and in 2003-2Gcal/h heat loads connection was completed, the deficiency of thermal power in the centralized heat supply zone is expected already by 2009.

The predicted gain of heat loads of the housing and utilities sector and the industry of Krasnoyarsk will make 847,6 Gcal/h by 2015. As the major new constructions are located in the left-bank city district, the deficiency of thermal power is expected right there.

Insufficient throughput of the existing main pipelines between the right and the left banks "locked" the reserve heat rates of the right bank heat sources:

-  CHP-1 - the reserve heat rate makes 336 Gcal/h. Considerable expenses for heat transmitting from the right bank to the left are needed (construction of the main pipeline and pumping station). Thus the CHP-1 equipment put into operation in the forties of the last century is subject to stage-by-stage liquidation.

-  CHP-2 - reserve heat rates make 245 Gcal/h. Development of these heat rates is possible only due to burning of expensive fuel - black oil - on two hot-water boilers of PTVM-180 type and considerable expenses for heat transmission from the right bank to the left bank.

-  CHP-3 - reserve heat rates make 5 Gcal/h and they will be exhausted already in 2007/2008 autumn-winter season.

The situation on the transmitting main pipelines of network water between the right and the left bank is as follows - 2 DU 500 pipelines through the communal bridge and 2 DU 800 through the sag pipe have exhausted their capacities, the volume of maximum possible thermal power to be transmitted through the communal bridge makes 203 Gcal/h, through the sag pipe - 250 Gcal/h.

The high cost price of thermal power on the left bank heat sources is an additional burden for the budget and the population of Krasnoyarsk. In accordance with the JSC “Yenisei TGC (TGC-13)”strategic development program

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replacement of the expensive heat sources, in particular, electric boiler-houses with the installed capacity is planned:

-  “Zelenaya” electric boiler-house - 124 G/cаl.

-  “Levoberezhnaya” electric boiler-house - 128 G/cal.

-  “Zapadnaya” electric boiler-house - 164 G/cал.

-  “Vostochnaya” electric boiler-house - 18 G/cal.

Despite the rather low share of heat developed on the electric boiler-houses in the Krasnoyarsk heat balance, they have a material effect on the cost price of the JSC”Yenisei ТGC (ТGC-13)” 1 G/cal production. The situation has especially worsened with the electric power being purchased for industrial needs in the NWEM through a wholesale buyer. In this connection the cost price of the thermal power produced by the electric boiler-houses is 2,7 times as higher than that of the one produced in CHPs, which has a negative impact on the city budget and consumers.

The use of the above stated electric boiler-houses has led to additional charges of budgetary funds on payments for the thermal power consumed by the housing and utilities sector and the organizations of budgetary sphere, to the increase of housing payments by population. This also contradicts the OJSC RAO “UES of Russia” policy regarding the increase in the combined development of thermal and electric power.

Availability of the main pipelines between the right and the left banks at the exhaustion of throughput reserve considerably weakens heating reliability of the left bank consumers. In the case of a failure on any of the pipelines and their switching-off the left bank deficiency in heat will increase up to 514.561 Gcal/h, or will make 42.46 % of the attached loading. Significant negative balance will lead to a disadjustment of the thermal networks of the right bank consumers and further deterioration of the situation with their heating.