Minutes No.24 of the Meeting of Audit Committee attached to “IDGC of the South”, JSC Board of Directors

Minutes No.24 of the Meeting of Audit Committee attached to “IDGC of the South”, JSC Board of Directors

Date of holding:	29.08.2013
Form of holding:	absentee voting
Place of voting results summarizing:	20, Daev lane, Moscow
Start of the meeting	5 p. m. 29.08.2013
Minutes drawing date:	29.08.2013

Board Audit Committee Members: 7 persons.

Members of the Committee that participated in the meeting: Shatokhina O. V. (chairperson of the Committee), Gurevich D. M., Korsunov P. Yu., Solod A. V., Repin I. N., Shevchyuk A. V., Filkin R. A.

Members of the Committee that did not participate in the meeting: none.

In accordance with paragraph 6.2 of Article 6 of Regulation on audit of “IDGC of the South” JSC Board of Directors (adopted by Company’s BoD dd. 23.08.2012) the decision of Committee is consider as valid (quorum is present) if in meeting took part no less than half of its members from total number of Committee’s members.

The quorum is present.

Agenda:

1.  On electing the deputy Chairperson of Committee on audit of “IDGC of the South” JSC Board of Directors.

2.  On electing the secretary of Committee on audit of “IDGC of the South” JSC Board of Directors.

3.  On inviting the expert for participating in activity of Committee on audit of “IDGC of the South” JSC Board of Directors.

4.  On taking into consideration the report on results of implementation of events on compliance with legal requirements on control of insider information in Company in 1st half-year of 2013.

5.  On taking into consideration the Events plan on correction of violations on results of audit, conducted by department of internal control and risks management in 2012.

6.  On determining the amount of remuneration of auditor of “IDGC of the South” JSC.

7.  On taking into consideration the report No. 64/2 dd. 03.06.2013 of independent organization of appraisers “Company VEAKON - ArsGor” on estimation of the market value of the property located at: premises 81, lit. A, 12 Botvin street, Astrakhan, Astrakhan district.

8.  On taking into consideration the project of consolidated financial report of the Company prepared in accordance with IFRS for 6 months of 2013.

Item 1: On electing the deputy Chairperson of Committee on audit of “IDGC of the South” JSC Board of Directors.

DECISION:

To elect Shevcyuk Aleksandr Viktorovich, deputy executive director of non-profit organization Investor Protection Association for the position of deputy Chairperson of Committee on audit of “IDGC of the South” JSC Board of Directors.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the first item was unanimously adopted by members of Audit Committee.

Item 2: On electing the secretary of Committee on audit of “IDGC of the South” JSC Board of Directors.

DECISION:

To elect Ruzavin Aleksei Petrovich, assistant of Director General and Corporate secretary of “IDGC of the South” JSC for the position of secretary of Audit Committee of “IDGC of the South” JSC Board of Directors.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the second item was unanimously adopted by members of Audit Committee.

Item 3: On inviting the expert for participating in activity of Committee on audit of “IDGC of the South” JSC Board of Directors.

DECISION:

To approve the expert Lelekova Marina Alekseevna, director of department of internal audit and control for participating in activity of Committee on audit of “IDGC of the South” JSC Board of Directors

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the third item was unanimously adopted by members of Audit Committee.

Item 4: On taking into consideration the report on results of implementation of events on compliance with legal requirements on control of insider information in Company in 1st half-year of 2013.

DECISION:

1.  To approve the “Report on results of implementation of events on compliance with legal requirements on control of insider information in Company in 1st half-year of 2013”.

2.  To recommend “IDGC of the South” JSC Board of Directors to approve “The report on results of implementation of events on compliance with legal requirements on control of insider information in Company in 1st half-year of 2013”.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the forth item was unanimously adopted by members of Audit Committee.

Item 5: On taking into consideration the Events plan on correction of violations on results of audit, conducted by department of internal control and risks management in 2012.

DECISION:

1.  To take into consideration failure to comply within the prescribed period the instruction of Audit Committee on submitting to members of Audit Committee the Events plan on correction of violations on results of audit, conducted by department of internal control and risks management in 2012.

2.  To instruct Director General of “IDGC of the South” JSC:

- to approve the provided on taking into consideration of Audit Committee of Company’s BoD the project of Events plan on correction of violations on results of audit, conducted by department of internal control and risks management in 2012 and to provide its implementation;

- to propose for consideration of Audit Committee of Company’s BoD by October 30, 2013 the report on implementation of Events plan on correction of violations on results of audit, conducted by department of internal control and risks management in 2012 with the relevant supporting documents approving the implementation of measures.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the fifth item was unanimously adopted by members of Audit Committee.

Shevchyuk Aleksandr Viktorovich, member of Audit Committee of “IDGC of the South” JSC Board of Directors expressed special opinion on this item (is attached to the minutes of meeting).

Item 6: On determining the amount of remuneration of auditor of “IDGC of the South” JSC.

DECISION:

To instruct Company’s BoD to adopt the following decision:

1.  To define the amount of remuneration of auditor of “IDGC of the South” JSC – “KPMG” CJSC under the contract on the provision of audit services to audit of the consolidated financial report of “IDGC of the South” JSC made in accordance with IFRS for 2013 (examination period from 01 January 2013 to 31 December 2013) in amount of 3 868 217.00 (three million eight hundred sixty eight two hundred seventeen) rubles, including VAT (18%).

2.  To define the amount of remuneration of auditor of “IDGC of the South” JSC – “KPMG” CJSC under the contract on the provision of audit services to audit of the consolidated financial report of “IDGC of the South” JSC made in accordance with RAS for 2013 (examination period from 01 January 2013 to 31 December 2013) in amount of 1 558 780.00 (one million five hundred fifty eight thousand seven hundred eighty) rubles, including VAT (18%).

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the sixth item was unanimously adopted by members of Audit Committee.

Item 7: On taking into consideration the report No. 64/2 dd. 03.06.2013 of independent organization of appraisers “Company VEAKON - ArsGor” on estimation of the market value of the property located at: premises 81, lit. A, 12 Botvin street, Astrakhan, Astrakhan district.

DECISION:

To approve the using of results of evaluation of the market value of the property located at: premises 81, lit. A, 12 Botvin street, Astrakhan, Astrakhan district in accordance with report of independent organization of appraisers “Company VEAKON - ArsGor” dd. 03.06.2013 No. 64/2 “On the determination of the market value of non-residential premises – store with total square 1037.8 sq. m located at: premises 81, lit. A, 12 Botvin street, Astrakhan, Astrakhan district”.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the seventh item was unanimously adopted by members of Audit Committee.

Item 8: On taking into consideration the project of consolidated financial report of the Company prepared in accordance with IFRS for 6 months of 2013.

DECISION:

1. To note the following main trends in the changes of the consolidated financial statements prepared in accordance with IFRS for the 6 months of 2013:

1.1.The total assets and liabilities of the company increased by 2 219 million rubles or 5.9 %, and as of 30.06.2013 and amounted tomillion rubles.

1.2The main factors of the growth of assets were:

-  increase in trade and other receivables (54 % of the total growth of total assets)

-  increase in fixed assets (22% of the overall growth of total assets);

-  increase in cash balance (12 % of the total growth of total assets ).

1.3. The main factors in the growth of capital and liabilities were as follows:

-  increase in trade and other payables (87% of the total growth equity capital and liabilities);

-  increase of debts on loans and credits (38% of the total growth of equity and liabilities) ;

-  reduction in employee benefits (-12% of overall growth equity and liabilities);

-  increase in loss during the reporting period (9% of overall growth equity and liabilities);

-  decrease in reserves (-5 % of the total growth in equity and liabilities).

1.4. The company's revenue compared to the same period in 2012 decreased by 451 million rubles or 3.7% and amounts in the 1st half of 2million. The main factors in decreasing of revenue were:

- decrease in revenue from the provision of services for technological connection to power grids (67% of overall reduction of revenue) ;

- decrease in revenue from the provision of services for the transmission of electricity (30% of the total growth in revenue ) .

1.5. Operating expenses compared to the same period of the previous year increased by 887 million rubles or 8.6 %. The main drivers of growth in operating expenses were as follows:

- increased costs for the transmission of electricity grid companies (54% of general growth in operating expenses);

- increase in the cost of purchasing electricity to compensate for process losses (42% of the total increase in operating costs);

1.6. The company's loss amounted to 189 million rubles, while profit for the same period in 2012 was 1 096 million rubles.

2. To note negative fact of reduce in revenue by 3.7 % with an increase relative to the corresponding period of 2012 operating expenses by 8.6%, as well as advancing the pace of growth in accounts receivable ( 25.8 %) as compared to the growth rates of receivables ( 18.1 %). During the 1st half of 2013 trade and other payables increased by 929 million rubles. The major share of the trade payables is arrears grid companies for transportation of electricity. Accounts receivable increased by 1 247 million rubles, mainly due to non-fulfillment of contractual obligations of contractors. Provision for doubtful debts on 30.06.2013 amounted to 3 690 million rubles.

3. To recommend the Company's management to:

- take measures to improve the efficiency of cost control, effectiveness of work with accounts receivable, timely repayment of indebtedness,

- by 31 October 2013 to prepare and present to members of the Audit Committee the report with an explanation of the reasons for the negative trends and planned activities to change the situation.

4. Secretary of the Audit Committee should provide information to the Board of Directors of IDGC of the South on the main trends in the changes of the consolidated financial statements of the Company prepared in accordance with IFRS for the 6 months of 2013.

Voting results:

Shatokhina O. V.	-	FOR		Repin I. N.	-	FOR
Gurevich D. M.	-	FOR		Filkin R. A.	-	FOR
Solod A. V.	-	FOR		Shevchyuk A. V.	-	FOR
Korsunov P. Yu.	-	FOR

Thus, the decision on the eighth item was unanimously adopted by members of Audit Committee.

Deputy Chairman of the Committee	Shevchyuk A. V.
Secretary of the Committee	Ruzavin A. P.