Distribution Grid Complex Reforming

New IDGC configuration was approved by the Interdepartmental Commission on Electric Power Industry Reforming under presidency of the Minister of the Industry and Power of the Russian Federation Victor Khristenko on 27 December 2006. On 27 April 2007 the configuration was approved by the Board of Directors of JSC RAO UES of Russia.

The new Configuration is based on the principles of territorial associativity and similarity of asset balance cost of DGC included in the corresponding IDGC.

The number of interregional distribution grid companies (IDGC) increased from 4 to 11 (not counting IDGC of Far East). The new configuration of the inter-regional distribution grid companies was the following:

PJSC IDGC of Center includes the following DGC: JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Lipetskenergo, JSC Orelenergo, JSC Tambovenergo, JSC Smolenskenergo, JSC Twerenergo, JSC Yarenergo;

North-West IDGC includes the following DGC: JSC Arkhenergo, JSC Vologdaenergo, JSC Karelenergo, JSC Kolenergo, JSC  Komienergo Power Joint-Stock Company, JSC Novgorodenergo, JSC Pskovenergo;

JSC Center and Volga Region IDGC includes the following DGC: JSC Vladimirenergo, JSC Ivenergo, JSC Kalugaenergo, JSC Kirovenergo, JSC Marienergo, JSC Nizhnovenergo, JSC Ryazanenergo, JSC Tulenergo, JSC Udmurtenergo;

JSC Siberia IDGC includes the following DGC: JSC Altaienergo, JSC Buryatenergo, JSC Krasnoyarskenergo, JSC Kuzbassenergo Regional Grid Company, JSC Omskenergo joint-stock , JSC TDC ( Tomsk Distribution Company), JSC Tyvaenergo, JSC Khakasenergo, JSC Chitaenergo;

JSC South IDGC includes the following DGC: JSC Astrakhanenergo, JSC Vologdaenergo, JSC Kubanenergo, JSC Rostovenergo, JSC Kalmenergo;

JSC North Caucasus IDGC includes the following DGC: JSC Dagenergo, JSC Caucasus Power Managing Company (CPMC), JSC Nurenergo, JSC Stavropolenergo;

JSC Volga IDC includes the following DGC: JSC Mordovenergo, JSC Orenburgenergo, JSC Penzaenergo, JSC Volga Interregional Distribution Company, JSC Chuvashenergo;

JSC Urals IDGC includes the following DGC: JSC Kuraenergo, JSC Permenergo, JSC Sverdlovenergo, JSC Chelyabenergo;
JSC Tyumenenergo;

JSC Lenenergo.

The Board of Directors considered as unreasonable formation of the inter-regional distribution grid company (IDGC) on the basis of grid assets of Moscow and the Moscow Region. It is provided by the Agreement on interaction of the Moscow Government, JSC RAO UES of Russia, and Gazprom regarding consolidation of assets of the grid economy on the territory of the Moscow Region, signed on 27 July 2007. Thus, on the basis of grid assets of MUGC, MCGC and Moscow city a separate IDGC will be established. It is planned that this process will be completed in 2009. On 26 October 2007 the Board of Directors of JSC RAO UES of Russia also decided to transfer JSC Yantarenergo's shares into JSC IDGC-Holding under the separation balance sheet in connection with inexpediency of inclusion of Kaliningrad Power Supply System into the configuration of one of the operating IDGC.

Logic of construction of the configuration from eleven IDGC similar in the number of assets:
Necessary condition of control over natural monopolies is possibility for regulatory bodies to compare their activity by efficiency, reliability and quality of service. 11 operating IDGC is enough for completeness of the statistical sample.
According to investment banks, IDGC with asset cost of about RUR 25-30 bn correspond to the investors' expectations on the investment appeal, especially taking into account their perspective investment programs. In the new configuration IDGC's asset cost is about RUR 30 bn (except for Moscow IDGC and North Caucasus IDGC).
IDGC should become operating (industrial, not holding) companies that have maximum responsibility for consumer service reliability and efficiency and more effective controllability.

Logic of the proposed IDGC's configuration:
Crossing IDGC with TGC's territories was reduced to minimum in order to reduce the power companies' influence on each other's activity. Thus, this excludes possible attempts of incorporation of enterprises of these kinds of activity, and provides non-discriminatory access to networks.
The regions requiring special control were included in separate IDGC: Moscow and the Moscow Region, the St.-Petersburg and Leningrad Regions, the Tyumen Region, the North Caucasus.
The given configuration was mainly backed by minority shareholders of regional network companies at the moment of change of the configuration.
New configuration of IDGC is constructed with regard of the international experience. To avoid risks of the network companies’ backward vertical integration or interim consolidation of IDGC legislative measures should be stipulated. So in the UK the antimonopoly law forbids to change the legal status of the operating distribution network companies (their quantity is invariable - 14), and also limits quantity of the companies that may be owned by the sole proprietor, and that provides quasi-competitive environment and transparency of the monopolies' regulation and public control activity.

31 July 2008 the Federal Financial Markets Service of Russia made a decision to cancel individual numbers (codes) of issues of securities of IDGC of Centre, JSC (from 001D with a state registration number 1-01-10214-A-001D to 021D with a state registration number 1-01-10214-A-021D as of 20.03.2008) assigned to additional issues of ordinary nominal uncertified shares of "Interregional Distribution Grid Company of Centre" Joint-Stock Company. 

1 July 2008, according to the decision of an extraordinary general meeting of shareholders of JSC RAO UES of Russia as of 26 October, 2007, a newly established company of the target power industry structure - JSC IDGC Holding -  spun off from JSC RAO UES of Russia.

21 May 2008 the tendering in IDGC of Centre's shares started at Moscow Interbank Stock Exchange and Russian Trading System Stock Exchange.

Codes of shares at the stock exchanges:

29 April the Federal Financial Markets Service (FSFR) of Russia made a decision to register reports on results of additional issues of ordinary registered uncertified shares of "Interregional Distribution Grid Company of Centre" joint-stock company (Moscow).

Shares are placed by converting at reorganization in the form of consolidation of JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Lipetskenergo, JSC Orelenergo, JSC Smolenskenergo, JSC Tambovenergo, JSC Tverenergo, and JSC Yarenergo with IDGC of Centre, JSC.

The shares were placed by way of conversion at restructuring in the form of joining of JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Orelenergo, JSC Smolenskenergo, JSC Tambovenergo, JSC Tverenergo, JSC Yarenergo and JSC Lipetskenergo to IDGC of Centre, JSC.

31 March 2008 Interdistrict Inspection FTS No. 46 of Moscow made changes to the Uniform State Register of Legal Entities about the termination of DGC activity as a result of their merger with IDGC. According to the Federal Law "On the state registration of legal entities in the USRLE", an entry was made on reorganization of "Interregional Distribution Grid Company of Centre", Joint-Stock Company in the form of a merger.

IDGC of Centre merged Belgorodenergo, Bryanskenergo, Voronezhenergo, Kurskenergo, Kostromaenergo, Lipetskenergo, Tverenergo, Smolenskenergo, Orelenergo, Tambovenergo and Yarenergo.

Let us remind that consolidation with IDGC of Centre of the above named companies and their transition to the uniform share completes formation of the target structure of IDGC of Centre, JSC.

From 31 March 2008, all managing directors of grid companies were transferred to IDGC of Centre as deputies general director - directors of IDGC branches:

20  March 2008 at its session the Federal Financial Markets Service of Russia registered additional issues and a prospectus of ordinary nominal uncertified shares of IDGC of Centre, JSC .

11 February 2008 IDGC of Centre, JSC Board of Directors approved 21 decision on additional issue of nominal ordinary uncertified shares of IDGC of Centre, JSC with a face-value of ten kopecks each and also approved the Prospectus of securities of IDGC of Centre, JSC, placed through conversion.

The total number of additionally issued shares is 42,118,200,000 (forty two billion one hundred and eighteen million two hundred one thousand) pieces. According to the specified decisions on the additional share issue, IDGC of Centre, JSC plans to place its additionally issued shares through conversion into DGCs' shares (shares of the distribution grid companies) of IDGC of Centre, JSC footprint. 

17-21 January 2008 participants extraordinary general meetings of shareholders of eleven DGCs of IDGC of Centre, JSC footprint made decisions of reorganisation of DGCs in the form of joining to IDGC of Centre, JSC, including the contract on joining of DGCs to IDGC of Centre, JSC, containing data on the order and conditions of the merger and also the order of conversion of shares of the merged DGCs to IDGC of Centre, JSC shares, and  conversion ratios of DGCs' shares.

25 December 2007 participants of an extraordinary general meeting of shareholders of IDGC of Centre, JSC made a decision on restructuring of IDGC of Centre, JSC in the form of merger in it of eleven DGCs of its footprint; including approval of the contract on merger of DGCs and IDGC of Centre, JSC, containing information on the order and terms of the merger, and also the order of conversion of the merged DGCs into IDGC of Centre, JSC shares and conversion ratios of DGCs' shares.  Besides, they made a decision on placing of additional shares of IDGC of Centre, JSC through  closed subscription in favour of JSC RAO UES of Russia with payment by shares belonging to eleven DGCs of IDGC of Centre, JSC footprint.

Reforming of JSC IDGC of Centre - reorganisation in the form of joining to it of 11 DGC in the configuration defined on 27 April 2007 by resolution of JSC RAO UES of Russia's  Board of Directors  №250, is planned to be completed by 01 April 2008, at making a record in the Uniform State Register of Legal Entities on termination of DGC's activity  as a result of their joining to JSC IDGC of Centre.

The following configuration of JSC IDGC of Centre was approved:

JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Lipetskenergo, JSC Orelenergo, JSC Tambovenergo, JSC Smolenskenergo, JSC Twerenergo, JSC Yarenergo.

Principles of IDGC-1's configuration:

• territorial contingence of DGC;
• similar total extent of the lines on DGC's balance;
• presence of  transport infrastructure;
• presence of developed information and communications infrastructure;
• financial position and technical condition of distribution networks of regional Energo joint-stock companies.

During the transition period till the moment of creation of the uniform operating company  IDGC of Centre, JSC  continues to execute powers of the sole executive body o the specified DGC as the operating organisation.

Performance of activities on IDGC of Centre, JSC 's reforming

18 July 2007 - the Extraordinary General Meeting of Shareholders passed the resolution to rename JSC IDGC of Centre  and North Caucasus into IDGC of Centre, JSC.

16-17 July 2007 - in IDGC of Centre and eleven DGCs of its configurations meetings of the Boards of Directors were held which considered the issue on definition of priority directions of the companies' activity:

- On approval of the action plan on reorganisation in the form of joining to IDGC of Centre, JSC  of the distribution network companies.

18 July 2007 - the Extraordinary General Meeting of Shareholders of IDGC of Centre, JSC  considered the issue of renaming JSC IDGC of Centre and North Caucasus as IDGC of Centre, JSC.

13-15 August 2007 - The Boards of Directors of DGCs of IDGC of Centre, JSC 's zone of responsibility approved the structure of the independent estimated organisation:  Ernst and Young, NP Consult, International Valuation Center for share estimation for the purpose of definition of the repurchase price.

31 August 2007 -  inventory of property, rights and financial obligations of IDGC of Centre, JSC  and it DGCs (as of 30 June 2007) was completed.

14 September 2007 -  DGCs of IDGC of Centre's fooprint passed a new check point of the Action Plan on IDGC of Centre's reforming - drafts of transfer acts were made on the basis of the results of DGCs’ right and financial obligations inventory as of  30 June 2007.

1 October 2007 - documents were sent to registering bodies for state registration of DGC’s not registered real estate(including incomplete building).

30 November 2007 - RAO UES of Russia's Board of Directors approved additional issue of 42 118 200 000 ordinary shares of JSC IDGC of Centre, and also factors of DGC's share convertion into IDGC of Centre's supplement shares.

19 December 2007 the RF Government approved Order № 1857, which replaced Order of the RF Government dated 26 January 2006 № 77, defining IDGC’s formation on the basis of DGC's shares in order to deliver control of the Russian Federation over activity of the territorial network organisations.

3-6 December 2007 - meetings of the Boards of Directors of DGC (which are included into IDGC of Centre) considered a number of issues connected with DGC's reorganisation, particularly it defined:

- Dates of DGC's Extraordinary General Meetings of Shareholders  in the form of correspondence voting  which pass the resolution on reorganisation in the form of joining of DGC to IDGC of Centre, on approval of the contract on joining and the transfer act;
- Price of repurchase of shares from DGC's shareholders who voted against resolution on DGC's reorganisation or did not take part in voting on DGC's reorganisation.

25 December 2007 - the Extraordinary General Meeting of Shareholders of IDGC of Centre the passed the resolution on IDGC of Centre's reorganisation  in the form of joining to it of 11 DGC of its configurations, including the contract on joining of DGC to IDGC of Centre, containing data on the order and terms of joining, and also the order of conversion of shares of the attached DGC into  IDGC of Centre's shares, and factors of DGC's share conversion. Also the meeting approved the resolution on definition of the limiting size of IDGC of Centre's declared shares and on making respective amendments to IDGC of Centre's articles of association. Besides, the Board of Directors decided to place more shares of IDGC through private offering mostly to RAO UES of Russia and payment by its treasury shares of 11 DGC of IDGC of Centre's structure.

17-21 January 2008 Extraordinary General Meetings of  Shareholders of 11 DGC of IDGC of Centre's configuration, passed resolutions on reorganisation of DGC in the form of joining to IDGC of Centre, including the contract on joining of DGC to IDGC of Centre, containing data on the order and terms of joining, and also the order of conversion of shares of the attached DGC into  IDGC of Centre’s shares, and factors of DGC’s share conversion.

Documents of Extraordinary General Meetings of DGC's Shareholders are available on the web sites of corresponding DGC.

At joining shares of the joined DGC will be converted into supplement shares of IDGC of Centre.

11 February 2008 - IDGC of Centre's Board of Directors approved 21 resolution on additional issue of nominal ordinary uncertificated shares of IDGC of Centre with a face-value of 10 (ten) kopecks each, and also approved  the Prospectus of IDGC of Centre's securities placed by conversion. The total amount of additionally issued shares is 42 118 200 000 (forty two billion one hundred and eighteen million two hundred thousand) pieces. According to the specified resolutions on issue of more shares, IDGC of Centre plans to place its additionally issued shares by conversion in them of DGC's shares (distribution network companies) of IDGC of Centre's zone of responsibility.

20 March 2008 the Federal Financial Markets Service of Russia registered additional issues and prospectus of ordinary registered uncertificated shares of IDGC of Centre, JSC. Additional issue of shares is placed by converting at consolidation of JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Lipetskenergo, JSC Orelenergo, JSC Smolenskenergo, JSC Tambovenergo, JSC Tverenergo, and JSC Yarenergo.

31 March 2008 Interdistrict Inspection FTS No. 46 of Moscow made changes to the Uniform state register of legal entnities about the termination of DGC activity as a result of their consolidation with IDGC. According to the Federal Law "On the state registration of legal entities in the USRLE", an entry was made reorganization of "Interregional Distribution Grid Company of Centre", Joint-Stock Company in the form of consolidation.

IDGC of Centre consolidated Belgorodenergo, Bryanskenergo, Voronezhenergo, Kurskenergo, Kostromaenergo, Lipetskenergo, Tverenergo, Smolenskenergo, Orelenergo, Tambovenergo, and Yarenergo.

From 31 March 2008, all managing directors of grid companies are translated to IDGC of Centre as deputies general director - directors of IDGC branches:

Deputy General Director - Director of Belgorodenergo branch of IDGC of Centre, JSC - Filatov Victor Ivanovich.
Deputy General Director - Director of Bryanskenergo branch of IDGC of Centre, JSC - Burenok Nikolay Vasilievich.
Deputy General Director - Director of Voronezhenergo branch of IDGC of Centre, JSC - Pyatigor Viktor Ivanovich.
Deputy General Director - Director of Kostromaenergo branch of IDGC of Centre, JSC - Glebov Alexander Sergeevich.
Deputy General Director - Director of Kurskenergo branch of IDGC of Centre, JSC - Pilyugin Alexander Viktorovich.
Deputy General Director - Director of Lipetskenego branch of IDGC of Centre, JSC - Konanykhin Alexander Nikolaevich.
Deputy General Director - Director of Orelenergo branch of IDGC of Centre, JSC - Zorin Sergey Viktorovich.
Deputy General Director - Director of Smolenskenergo branch of IDGC of Centre, JSC - Arkhipov Sergey Aleksandrovich.
Deputy General Director - Director of Tambovenergo branch of IDGC of Centre, JSC - Kholoptsov Vladimir Fedorovich.
Deputy General Director - Director of Tverenergo branch of IDGC of Centre - Elkin Sergey Vasilievich.
Deputy General Director - Director of Yarenergo branch of IDGC of Centre, JSC - Solonikov Igor Vitalievich.

29 April the Federal Financial Markets Service (FSFR) of Russia made a decision to register reports on results of additional issues of ordinary registered uncertificated shares of "Interregional Distribution Grid Company of Centre" joint-stock company (Moscow).

Shares are placed by converting at reorganization in the form of consolidation of JSC Belgorodenergo, JSC Bryanskenergo, JSC Voronezhenergo, JSC Kostromaenergo, JSC Kurskenergo, JSC Lipetskenergo, JSC Orelenergo, JSC Smolenskenergo, JSC Tambovenergo, JSC Tverenergo, and JSC Yarenergo with IDGC of Centre, JSC.

On 21 May 2008 the tendering in IDGC of Centre's shares started at the Moscow Interbank Stock Exchange and Russian Trading System Stock Exchange.

1 July 2008, according to the decision of an extraordinary general meeting of shareholders of JSC RAO UES of Russia as of 26 October, 2007, a newly established company of the target power industry structure - JSC IDGC Holding -  spun off from JSC RAO UES of Russia.

31 July 2008 the Federal Financial Markets Service of Russia made a decision to cancel individual numbers (codes) of issues of securities of IDGC of Centre, JSC (from 001D with a state registration number 1-01-10214-A-001D to 021D with a state registration number 1-01-10214-A-021D as of 20.03.2008) assigned to additional issues of ordinary nominal uncertified shares of "Interregional Distribution Grid Company of Centre" Joint-Stock Company. 

Approved
by the resolution of the Board of Directors
of IDGC of Centre
as at 16 July 2007
Minutes № 06/07

Action Plan on IDGC of Centre’s reforming

Prospects of creation of the uniform inter-regional operating company

• Increase of scale and efficiency → cost growth
• Increase of securities liquidity  and capitalisation growth
• Attraction of financing under more favourable conditions
• Introduction of IDGC's securities on all trading platforms of the Russian Federation till July 2008
• Formation of an effective system of communication (IR) with more than 18 thousand shareholders.

Prospects of creation of the Uniform Interregional Operating Company

One of strategic goals of IDGC of Centre is establishment of a public company, i.e. Company that develops due to attraction of financial support of an unlimited number of investors.

Reforming of the network complex is approaching its active phase. Integration of small (by standards of the financial market) regional DGC into large inter-regional companies (IDGC) will allow to make the business "interesting" for institutional investors, to involve financing under more favourable conditions, and also to receive extra benefits from the scale effect.

Corporate governance of IDGC of the Center is at a high level and is constructed for delivery of management of the large operating company. The tenders on IDGC of the Center's securities will be held on the leading stock exchanges of the country. One of the tasks that the company's management sets is to generate a liquid security market.

The important result of joining for minority shareholders will be increase of liquidity and market cost of assets belonging to them in regional DGC which will take place as a result of diversification of the share capital.

What are the advantages of exchange of DGC's shares for IDGC's shares for shareholders?

Formation of IDGC as operating companies means new possibilities and serious potential for business cost growth. United in IDGC, DGC are attractive for the majority of investors who never thought of investing their money in the securities of regional network companies because of their small size. As a result of particular attention of investors, shareholders can count on cost increase of their shares.

Besides, unification of assets of several companies will allow to involve additional financial resources at a lower cost by way of appearance on the market of public loans (the bonded market). This, in its turn, will make possible to raise business efficiency and profitability without substantial transfer tariff growth, i.e. due to decrease in expenses.

Spread on DGC of the advanced management techniques provides investors with business transparency and increase of   efficiency of resource management within the limits of the uniform operating company. Planning of industrial activity based on use of business procedures typical for all DGC will be supported by uniform ERP-system. It will lead to decrease in expenses and improvement of quality of services offered to by IDGC to its customers.

The main activity of the Uniform Operating Company will be electric power transmission and connection of new consumers to the networks of Kostroma, Yaroslavl, Bryansk, Smolensk, Twer, Kursk, Belgorod, Lipetsk, Tambov, Voronezh and Orel Regions. The service territory will equal 379076,4 km.

In 2008 IDGC of Centre plans to transfer through networks 56,691,000,000 kW/hour of electric power. Including through 110 kW and higher capacity networks - 38,598,000,000 kW/hour (68 % of the total amount), through 35 kW networks - 4,246,000,000 (7 %), through 1-20 kW networks - 6,187,000,000 (11 %), through 0.4 kW networks - 7,660,000,000  (14 %).

IDGC of Centre's expected profit in 2008 will equal RUR 42,227,000,000.

3-6 December 2007 the meetings of the Boards of Directors of DGC included in IDGC of Centre's configuration with the account of the independent appraiser's report - a consortium of the independent estimated organisations (Ernst and Young, NP Consult, International Valuation Center) determined redemption price of DGC's shares from the shareholders who voted against resolution on DGC's reorganisation or did not take part in the voting on DGC's reorganisation.

Price of redemption of DGC's shares from the shareholders who voted against resolution on DGC's reorganisation or did not take part in the voting on DGC's reorganisation: