Annual Report of the Open Joint-Stock Company «Yenisei Territorial Generation Company (ТGC-13)»” for 2006 (стр. 1 )

Annual Report of OJSC «Yenisei ТGC (ТGC-13)»” 2006

Annual Report

Of the Open Joint-Stock Company

«Yenisei Territorial Generation Company (ТGC-13)»” for 2006

Director General

O. I.Salkov

Chief Accountant

M. V.Bazhenova

__________________2007

THE CONTENTS

To Shareholders	2
GENERAL INFORMATION ON THE COMPANY	4
Geographical Position	5
Short History of the Company	5
Industrial Structure	6
Competitive Environment and Competitive Advantages of the Company	7
Organizational Structure	9
CORPORATE GOVERNANCE	12
Principles of the Corporate Governance	12
Information Policy	14
Internal Local Documents of the Company	15
Control of Financial and Economic Activity	15
Information on Members of Management and Control Bodies of the Company	16
Board of Directors	16
Management Board of the Company	19
Director General	21
Auditing Commission	21
Information on the Authorized Capital of the Company	22
Information on the Company’s Issued Securities	22
Structure of the Company’s Share Capital	23
Information on Circulation of the Company’s Shares on Stock Exchanges	24
Affiliated and Dependent Companies	25
BASIC INDUSTRIAL INDICATORS	26
BASIC INDICATORS OF ACCOUNTING AND FINANCIAL REPORTING	28
PROFIT DISTRIBUTION AND DIVIDEND POLICY	35
INVESTMENT ACTIVITY	36
MODERNIZATION OF THE COMPANY	43
COMMUNICATION NETWORK AND INTERNET TECHNOLOGY DEVELOPMENT	46
PURCHASING ACTIVITY	48
ENVIRONMENTAL PROTECTION	50
PERSONNEL AND SOCIAL POLICY	52
DEVELOPMENT PROSPECTS	55
INFORMATION FOR SHAREHOLDERS	59
Appendix 1. AUDIT REPORT	60
Appendix 2. GENERATING CAPACITIES	64
Appendix 3. STATEMENT OF OPINION OF THE AUDITING COMMISSION ON RELIABILITY
OF THE DATA CONTAINED IN THE ANNUAL REPORT FOR 2006	68

To Shareholders 2

TO SHAREHOLDERS

THE CHAIRMAN OF THE BOARD OF DIRECTORS

AND DIRECTOR GENERAL OF THE COMPANY

The Chairman of the Board of Directors

YURY PAVLOVICH MAKUSHIN

Dear shareholders!

The Reform of the Russian power industry in the past 2006 year has reached its final stage. Global transformations occurring in the power industry have affected Eastern Siberia to the full extent.

The results of the “Yenisei ТGC (ТGC-13)” work for 2006 can be considered successful without exaggeration: on December, 31st corporate ­procedures on formation of the incorporated generating company on the basis of OJSC “ТGC-13”, OJSC “Krasnoyarsk Generation”, OJSC “Khakass Generation Company” were completed­.

OAO RAO “UES of Russia” Board of Directors by its decision #200 dated 29.07.2005 approved the scheme of formation of OJSC "ТGC-13", providing ­three scenarios.

•  Establishment of the merged company on the basis of OJSC «Krasnoyarsk Generation».

•  Establishment of the merged company on the basis of OJSC «Khakass Generation Company».

•  Realization of the project of creation of OJSC «TGC - 13 » as a Holding in case if the decision on reorganization of the generating companies in the form of joining with OJSC “Krasnoyarsk Generation” or OJSC “Khakass Generation Company” will not be accepted.

On the meetings of shareholders of the companies on August, 18th and 28th, 2006 ­ by the majority of votes the scheme of reorganization of OJSC “Krasnoyarsk Generation” and OJSC "ТGC-13" in the form of joining with OJSC “Khakass Generation Company” was accepted.

In December, 2006 the decision on ­renaming of OJSC “Khakass Generation Company” into JSC “Yenisei ТGC (ТGC-13)” was accepted­.

On December, 31st, 2006 JSC “Yenisei ТGC (ТGC - 13)” began its activity as the uniform operational company. The main goal of inter-regional ­integration of generating assets was creation of competitive, attractive for investors ­company with dynamically growing level of capitalization.

As the assignee of all rights and responsibilities of OJSC "ТGC-13" since December, 31st, 2006 the Company acts as the accredited manager of OJSC "Khakassenergosbyt" shares.

During 2006, 22 meetings of the Board of Directors were held on which 124 questions, related, first of all, to reforming and other priority directions of the Company’s activity, had been considered­­­.

For the purpose of realization of financial and economic policy of the Company, development of decisions on ­ major issues of its current economic activities and coordination of work of its ­divisions, increase of efficiency ­of internal control systems and monitoring of risks, the joint executive body Management Board of the Company, comprising 7 persons, was established.

In 2007 for maintenance of effective ­fulfilment by the Board of Directors of its functions on general management of the Company’s activities it is planned to create committees at the Board of Directors on strategy, personnel and compensations, audit,

To Shareholders 3

reliability, estimation including ­representatives of minor shareholders, top-­managers of the Company, representatives of OJSC RAO "UES of Russia".

(PICTURE) Director General

OLEG IVANOVICH SALKOV

Priority targets for 2007 are:

•  reduction of expenditures;

•  increase in a share of profitable sales by realization of measures directed at cost-saving and optimization of loading modes of the equipment;

•  economically reasonable restraint ­of growth of the company’s own tariffs for the purpose of consolidating ­of already occupied market share and expansion of a zone of influence.

A special role in 2007 will be assigned ­to the investment program on attraction of funds for the completion of generating sets № 1 and № 2 of ­Krasnoyarsk CHP-3 branch of JSC «Yenisei ТGC (ТGC-13)» through issue of additional shares.

One of the basic directions of the development of our company, and, the industry as a whole in 2007 is ­the further liberalization of electric power industry,­ increase in a share of the competitive market ­of the electric power and stage-by-stage transition to the competitive market of an electrical power. Consolidation of financial and generating assets ­ of Krasnoyarsk region and Khakass Republic ­has raised investment appeal of JSC "Yenisei ТGC (ТGC-13)", has made it ­more stable and reliable. Already now our company is participating in all WEM sectors as ­the uniform independent subject of the market.

In 2006 the company has presented to shareholders and investors the first report on social responsibility and corporate stability ­of the Company where our principles of ecological, personnel and social policy, analysis of charities­ for the expired year were reflected. It should be specially noted that the Company shares the principles of social responsibility and tries to implement them in practice in all spheres of business. One of the major ­principles is constant interaction with stakeholders of the organisation.

The important feature of JSC “Yenisei ТGC (ТGC-13)” from the point of view of non-finance risks management and mutual relations with influence groups (stakeholders) is actually the monopoly position of the Company regarding ­provision of the region with thermal energy. And that means, that JSC “Yenisei ТGC (ТGC-13)” is responsible for providing conditions of stable ­regional development.

The Company plans to continue to practice on ­preparation of non-financial reports. The 2006 report will reflect the activities of OJSC "TGC-13", OJSC «Krasnoyarsk Generation» and JSC «Yenisei ТGC (ТGC-13)» .

In summary, we would like to mention, that consolidation of assets of OJSC "ТGC-13", OJSC “Krasnoyarsk Generation” and JSC “Yenisei ТGC (ТGC - 13)” shall lead to capitalization growth, increase of liquidity of shares of the company and higher ­ financial effects.

General Information on the Company 4

GENERAL INFORMATION ON THE COMPANY

Open Joint-Stock Company “Yenisei Territorial Generating Company (TGC-13)” is a merged company created as a result of joining of OJSC «Krasnoyarsk Generation» and OJSC "ТGC-13" with OJSC “Khakass Generation Company” which on December, 21st, 2006 was renamed into JSC ”Yenisei ТGC (ТGC-13)”. On December, 31st, 2006 transition to the uniform share took place and OJSC “Krasnoyarsk Generation” and OJSC "ТGC-13" ceased their activity.

JSC “Yenisei ТGC (ТGC-13)” is one of the largest generating companies of Siberia.

The main activity of JSC “Yenisei ТGC (ТGC-13)” is generation and realization of thermal and electric energy.

Territory of Activity

The territory of service of JSC “Yenisei ТGC (ТGC-13)” - 2 subjects of the Russian Federation: Krasnoyarsk region and Khakass Republic.

Industrial branches

JSC “Yenisei ТGC (ТGC-13)” includes 9 branches:

-  Krasnoyarsk CHP-1

-  Krasnoyarsk CHP-2

-  Krasnoyarsk CHP-3

-  Kansk CHP

-  Minusinsk CHP

-  Sosnovoborsk CHP

-  Nazarovo SDPP

-  Krasnoyarsk Heating system

-  Abakan CHP

Key figures and facts

•  The established electrical capacity of the enterprises entering into JSC ”Yenisei TGC ( TGC-13)” makes 2 458 MW.

•  The established heat rate of the stations is 6 113,4 Gcal/h.

•  The total length of the heat systems is 739,4 km.

•  The authorized capital of the Company makes 1 ,98 rubles.

For the most complete informing of shareholders and investors, and also other interested persons the present annual report provides information on industrial, investment and other activity of OJSC “Krasnoyarsk Generation”.

Information on OJSC "ТGC-13" is not cited, as the company did not carry out production activities during 2006, OJSC "ТGC-13" performed functions of an individual executive body of JSC “Yenisei ТGC (ТGC-13)” and OJSC “Krasnoyarsk Generation”.

General Information on the Company 5

Geographical position

The territory of service of JSC “Yenisei ТGC (ТGC-13)” in 2006 was Khakass Republic.

Khakass Republic is situated in the south-western part of Eastern Siberia, in the left-bank part of the Yenisei River basin, on the territory of the Sayano-Altay uplands and the Khakass-Minusinsk hollow. It stretches from north to south for 460 km and from west to east (in the widest part) for 200 km. In ­ the north, in the east and in the south-east Khakassia borders on the Krasnoyarsk region; in the south – on Republic of Tuva, in the south-west it borders on Altai Republic and in the west – on Kemerovo area.

The population of the republic in 2006 was 537,3 thousand people.

Administrative center - Abakan.

Since December, 31st, 2006 Krasnoyarsk region is included into the territory of service of the Company.

Krasnoyarsk region is situated mainly in Eastern Siberia, in the basin of the Yenisei River. The extent of the territory from north to mountain areas of Southern Siberia is almost 3 thousand km. In the east the region borders on Republic of Sakha (Yakutia) and Irkutsk area, in the south - on Republic of Tuva and ­ Khakass Republic, in the west - on Republic of Altai, Kemerovo and Tomsk areas and also on Khanty-Mansiysk and Yamal-Nenets autonomous regions. On the territoty of the region, in the vicinities of Lake Vivi (Evenkia) lays the geographical center of Russia. The region’s structure includes Evenki and Taimyr (Dolgano-Nenets) autonomous regions.

The territory of the region ,7 thousand sq. km.

Population - about 3 million people.

Administrative center - Krasnoyarsk.

Short history of the Company

In accordance with the Decree of the President of the Russian Federation dated 16.09.1992 “On urgent measures on the state support of economy and social sphere development of Khakass Republic in ”, by the order of the State Committee on the Russian Federation State Property Management dated 16.10.1992, an independent state enterprise “Khakassenergo” has been allocated from the structure of “Krasnoyarskenergo” POE and E (industrial association of electric power industry).

On September 8th, 1993, by the order of the Russian Open Joint Stock Company of Power and Electrification (RAO “UES of Russia”), on the basis of the state enterprise "Khakassenergo", an affiliated joint-stock company of the open type with the same name was established; it comprised Abakan CHP as a branch.

OJSC ”Khakass Generation Company” was established on July, 1st, 2005 as a result of reorganisation of OJSC "Khakassenergo" in the form of allocation according to the decision of OJSC RAO “UES of Russia” Management Board, performing functions of the Extraordinary General Meeting of Shareholders of OJSC "Khakassenergo", adopted on February, 22nd, 2005.

By the decision of the Board of Directors of OJSC RAO "UES of Russia" dated 29.07.2005 amendments to the decision dated 26.11.2004 on transfer of functions of the individual executive body of OJSC “Khakass Generation Company” and OJSC “Krasnoyarsk Generation” to OJSC "ТGC-13" were made. On January, 1st, 2006 functions of the individual executive body of OJSC “Khakass Generation Company” were transferred to OJSC "ТGC-13". According to the decision of the Extraordinary General Meeting of Shareholders from December, 6th, 2006, on December, 21st, 2006 OJSC “Khakass Generation Company” was renamed and began to be called as the JSC “Yenisei Territorial Generating Company (ТGC-13)”.

On December, 31st, 2006 the corporate procedures related to joining of OJSC “Krasnoyarsk Generation” and OJSC “Territorial Generation Company №13” with the already renamed JSC “Yenisei ТGC (ТGC-13)” had been completed.

General Information on the Company 6

Industrial structure

Krasnoyarsk Krasnoyarsk CHP-1 Nel plant = 506 MW Qh plant = 1785 Gcal/hour Krasnoyarsk CHP-2 Nel plant = 465 MW Qh plant = 1405 Gcal/hour Krasnoyarsk CHP-3 Qh plant = 442 Gcal/hour Krasnoyarsk Heating system Qh plant = 837 Gcal/hour Sosnovoborsk Sosnovoborsk CHP Qh plant = 460 Gcal/hour Nazarovo Nazarovo SDPP Nel plant = 1120 MW Qh plant = 870 Gcal/hour

Abakan Abakan CHP Nel plant = 270 MW Qh plant = 481 Gcal/hour Kansk Kansk CHP Nel plant = 17 MW Qh plant = 337,4 Gcal/hour Minusinsk Minusinsk CHP Nel plant = 80 MW Qh plant = 333 Gcal/hour 3 electric boiler-houses Qh plant = 141 Gcal/hour

General Information on the Company 7

Competitive environment

and competitive advantages of the Company

In the regions of activity of JSC “Yenisei ТGC (ТGC-13)” are located the largest hydro and ­ thermal power plants: Krasnoyarsk HPP (available capacity 3000 МW), Sayano-Shushenskaya HPP (available capacity 4000 МW), Krasnoyarsk SDPP-2 (1250 МW) and Berezovskaya SDPP (1440 МW).

Because of the great volume of hydrogeneration in the region, the efficiency of operation of the Company depends on the season. During spring and summer period thermal generation, as a rule, is unloaded to a technological minimum in view of the intense inflow into reservoirs of the Yenisei cascade of HPP. During the freshet period or the period of threat ­ of single dumps the share of HPP generation in the market can reach ­ 80 % from the volume of the electric power realization in free trade sector.

Quite an opposite situation is during autumn and winter period, when at freesing-over and introduction ­ of restrictions because of ice conditions, low inflow into HPP reservoirs the demand for thermal generation is increasing, and its share in the market can reach 80 %.

The risks accompanying realization of the electric power ­ in the wholesale market consist in not optimum ­ formation of a portfolio of agreements and low prices of competitors. Nevertheless, the Federal Legislation, rules of work in the wholesale market of the electric power (capacity), regulations of infrastructural organisations give the Company a variety of possibilities for similar risk management.

In particular, the market participant has the right to reject RDD(regulated bilateral agreements) package and to sell the whole volume of the electric power ­ in the competitive sector of the wholesale market. ­ Besides plants with the combined power development have the guaranteed scope of electric power delivery in the volume of thermal power generation.

Tariffs for 2007, established by the RF FTS for JSC “Yenisei ТGC (ТGC-13)”, are ­ competitive in comparison with the tariffs ­ of other stations of Siberia and testify to high efficiency of energy production process by the Company’s stations.

JSC “Yenisei ТGC (ТGC-13)” sources of heat have the lowest cost price of thermal energy production.

In view of the highest entry barriers the market of the region of JSC “Yenisei ТGC (ТGC-13)” activity is secured for the Company.

The market of thermal energy of the region is characterised ­ as dynamically growing, first of all, for the account of the housing construction rise in ­ Krasnoyarsk (the expansion in consumption forecast makes + 3 % per a year). The volume of effective thermal energy output of JSC “Yenisei ТGC (ТGC-13)” shall be growing by the rates outstripping the general growth rates ­ of the market. Such situation is predicted at the expense of closing of low-efficient municipal ­ boiler-houses with transmission of load to JSC “Yenisei ТGC (ТGC-13)”thermal power sources in the cities of Krasnoyarsks,­ Kansk, Abakan. On other local markets of heat where the JSC “Yenisei ТGC (ТGC-13)” is present, reduction of heat consumption volumes is not expected either.

Working in the local markets of heat ­ independent subjects of thermal business - manufacturers ­of thermal energy and transmitting thermal networks of municipal units, enterprises and organisations of various forms of ownership - do not have much effect on monopolistic position of JSC “Yenisei ТGC (ТGC-13)” and either do not increase, or reduce their local market shares. The sector of independent heating ­ is insignificant and is presented basically in the areas where there is no central heating system.

Having secured and amplifying positions in the heat market, JSC “Yenisei ТGC (ТGC-13)”, through extending volumes of effective outptut of thermal energy insures its positions in the electric power market, increasing ­ volume ­ of electric power production in a condensation mode.

Thus, the risks connected with production ­ and realisation of thermal energy, are minimum,­ as:

•  The combined development of electric ­ and thermal energy at the plants of JSC “Yenisei ­ТGC (ТGC-13)” has high economic efficiency. The Company’s tariffs are the lowest ­ among the suppliers of thermal energy. ­The process of transition of consumers from low-effective thermal energy sources to JSC “Yenisei ТGC (ТGC-13) "heating sources is being carried out successively­.

•  The industry entry and exit barriers are extremely high, that interferes­ with penetration of competitors into the region. Activity on thermal energy production and transportation is monopolistic.

General Information on the Company 8

The basic competitive advantages of JSC “Yenisei ТGC (ТGC-13)”

•  Favourable location - the center of Russia, crossing of the basic highways. In the regions of the Company’s operation the powerful and competitive industrial,­ agricultural, scientific and technical potential is concentrated­. Availability of free capacities and ­ a competent manpower creates a large potential for the development of new enterprises.

•  Territorial proximity of large coal cuts to thermal stations and sufficiently developed infrastructure of the region.

•  Presence of large energy consumers (KrAZ, KraMZ, etc.) in the region.

•  Absence of the competitive enterprises producing thermal energy in the combined way.

•  Low cost price of thermal energy produced by CHPs, in comparison with competitors.

•  Increase of thermal and electric power consumption in the region due to intensive construction and comissioning ­ of new objects of social and housing sphere.

•  Stabilisation of consumption of thermal energy by the industrial consumers and the tendency to its increase.

General Information on the Company 9

Organizational structure

The structure of the corporate governance of JSC “Yenisei ТGC (ТGC-13)” as of December, 31st, 2006:

General Meeting of Shareholders Auditing Commission

Board of Directors

Management Board

Director General

General Information on the Company 10

Director
Deputy Director on Strategy and Development	First Deputy Director on Finance and Economics	Deputy Director General-Director on IT	Deputy Director General-Chief Engineer
Director on Investments – Head of the Department	Director on Economics-Head of the Department	Department of Informational Technologies	CIS Department	Deputy Chief Engineer on Exploitation	Deputy Chief Engineer on Repair and TPiR (Modernization and Reconstruction)
Investment Department	Economic Department	Division for Engineering Support of Users	Division for Development and Implementation of CIS (Customers’ Service)	Exploitation Department	TPiR and Repair Department
Division for Investment Projects	Division for Planning and Costs Calculation	Servises and Engineering Division	Division of Applied Software	Division for Heating Systems and Electric Boiler-houses Exploitation	Project and Design Service
Division for Investment Projects Implementation	Division for Tariff Policy		Division of Technological Problems	Division for TES Exploitation	Division for Repair of electric-engineering equipment
Strategy and IR Sector	Division for Analysis and Business Planning			Division for Exploitation of Hydraulic engineering constructions	Division for Buildings and Constructions Repair
	Division for Management of Works and Salary			Department for Water Preparation and Chemical Control	TPiR Division
	Director on Finance-Head of the Deartment			Division for Analytical Control	Division for Estimate Control and Repair works Analysis
	Department of Finance			Sector for Exploitation and Repair of water preparatory settings and water and chemical regime	Deputy Chief Engineer on NTB
	Division of Budgets			RZA Services (relay protection and automatics)	Industrial Safety Service
	Division of Tax Payments			Department of AIIS and communication	Engineering Audit and Quality Management Service
	Treasury			Division of Energy Calculation Automated Systems	Industrial and Engineering Division
	Department of Audit			ASUTP Division (Automated System of Technological Process Operation)	Department for Energy Regimes, Balance and Summary Accounts
	Division of Audit			Metrology Division	Dispatching Service
	Control of Document Execution sector			Heat Control Device Laboratory	Division for Planning, Analysis and work in the WEPM (Wholesale Electricity and Power Market)
				Communication Service

General Information on the Company 11