Investor presentation 29 02 2012

Investor Presentation

February 2012

2

EN

D C

ON

SU

ME

R

GenerationElectricity and Heat

Production

Thermal Power Plants

TGKs(Produce Heat and

Electricity)

OGKs(Produce Electricity)

Hydro Power Plants

RusHydro

Nuclear Power Plants

Rosatom

SupplyElectricity Trading

DistributionLow Voltage Grids

Holding IDGC (MRSK)

Local IDGCs (MRSKs)

TransmissionHigh Voltage Grids

Share in Tariff (1)

50–60%

4–8%25–35%6–7%

Federal Grid Company

(1) Company estimates

Source Company data

The Russian Power Sector

3

Track record of substantial growth (2009 – 2010 revenue increased by 29%)

Rigorous programme of efficiency savings(c. RUR 2.6 Bn of savings in 2010(2))

Low leverage and ability to obtain one of the lowest debt interest rates among Russian companies

Investment grade credit ratings (S&P - BBB/Stable; Moody’s - Baa2/Stable)

Why is Federal Grid a Good Investment Opportunity?

Scale of Business Growth Prospects

Supportive Regulatory Regime Strong Financials

Anticipated electricity demand 2010 – 2020 CAGR of 2.4%

System upgrade focused on improving efficiency and reliability of the transmission network; development of smart grid model

Largest publicly traded electricity transmission company in the World (1) with over 120,000 km of transmission lines with total capacity of over 300,000 MVA

Leading Russian blue chip company and the largest Russian utility company by market capitalization

Unique natural monopoly position in Russia’s high-voltage electricity transmission market, operating in 73 out of 83 Russian regions

Source Company data; IFRS financials; Energy Forecasting Agency(1) By length of transmission lines and transformer capacity(2) Under RAS according to cost cutting programm

Business regulation based on 5-year Regulatory Asset Base (RAB) model

Guaranteed return on new invested capital 11% in 2010 – 2012 and 10% in 2013 – 2014

4

Commitment to the Best in Class Corporate Governance

There are 11 persons in the Company’s Board of Directors, 4 of them are independent directors (at least 6 members of the Board of Directors must be representatives of Russian state authorities)

On 16 December 2010 Federal Grid Company’s Board of Directors approved a new dividend policy Dividends equal to at least 10% of net income (based on Russian Accounting Standards) supported by cash flow In 2011 the Company made its first dividend payments to shareholders since 2008

Composition of the Board of Directors

Board of Directors consists of 11 members Independent Members of the Board of Directors

Ernesto Ferlenghi, Chairman of the Board of Directors Elected the Chairman of the Board of Directors on 1 August 2011 First ever foreign Chairman of a Russian State-owned company Member of the Board of Directors since 2008 Head of the Representative Office of Eni Russia and CIS Graduated from the Tor Vergata University of Rome Igor Khvalin, Deputy Chairman Member of the Board of Directors since 2010 General Director of Volga Engineering Group Member of the Board of Directors of MRSK Holding

Kirill Levin, Director Member of the Board of Directors since 2010 Deputy Chairman of the Management Board of Russian Agricultural Bank

Rashid Shapirov, Director Member of the Board of Directors since 2008 Deputy General Director of KFK-Consult

Source Company data

Independent: 4 directors

Non-independent: 7 directors

5

Source Company data; Bloomberg

Federal Grid Company History – Key MilestonesIncorporated in 2002

Shareholder StructureAs of January 2012

Share InformationAs of 27 January 2012

(1)

(1) Other shareholders include Gazprom, Norilsk Nickel and other

Number of shares outstanding: 1,255,948 MM Share price (MICEX)

Current: RUR 0.34 12 month low: RUR 0.21 12 month high: RUR 0.48

Market Cap: RUR 427 Bn Free Float: 20.52% Approved plan for the privatization of an additional

4.11% stake owned by the government

2009 20102008 2011

January 2010• Change from “cost plus” to

RAB regulation

February 2009• Inclusion of Federal Grid in

MSCI Russia and MSCI Emerging Markets Indices April 2011

• Approval of RUB 125 Bn bond placement program

May 2011• Deal with InterRAO

March 2011• LSE listing

December 2010• New dividend policy

August 2008• RTS and MICEX include

FSK in their indices

June 2008• Federal Grid shares listed

on RTS and MICEX

Company Development

6

2010 2011 2012 2013 2014

Return on initial invested capital 3.9% 5.2% 6.5% 7.8% 9.1%

Return on new invested capital 11% 11% 11% 10% 10%

Required Gross

RevenueYear’s Expenses RAB · [rRAB ] CAPEX · [rCAPEX ]

RAB____________

Payback PeriodCAPEX Return

Net Working

Capital · [rCAPEX ]Adjustments+= + + + + +

Include operating expenses, cost of services, etc.

Operating costs reduction - 2%

RAB = Initial base of invested capital at the beginning of the year

rRAB = existing capital return

Both are set by the regulator

The payback period on initial capital equals to 21 years

CAPEX = Cumulative sum investments from the beginning of the regulatory period

rCAPEX = Return on new investments (set by regulator)

Cumulative sum of investments made from the beginning of the regulatory period divided by the payback period of 35 years

If net working capital is more than 8% of previous years’ revenue, WC = 8% of revenue is used; if less than 4%, WC = 4% of revenue is used

Adjustments are made based on changes in amount/quality of services provided, changes in legislation, etc.

January 2010

• Switched to 3-year RAB regulation

September 2010

• Regulation period prolonged to 5 years

April 2011

• Tariff growth for 2011 has been smoothed out to 5%; Other potential changes discussed

Source Company data

Permitted Revenue Calculation Formula

RAB Return Calculation

RAB Regulation

7

Construction of electricity supply

facilities on Elginskoye coal deposit

Start Date: 2011

Due Date: 2013

Capacity provision of Kalininskaya

NPP generating unit #4 (1,000 MW)

Start Date: 2009

Due Date: 2012

Underground cabling in Moscow,

St. Petersburg

Start Date: 2011

Due Date: 2015

Infrastructure for Sochi Olympic

Games 2014

Start Date: 2008

Due Date: 2012

Transition from overhead lines to

cable and construction of Skolkovo

220 KV substation

Start Date: 2010

Due Date: 2012

Capacity provision of

Boguchanskaya HPP start-up

complex (1,000 MW)

Start Date: 2012

Due Date: 2014

Infrastructure for APEC summit in

Vladivostok in 2012

Start Date: 2008

Due Date: 2011

Construction of Zeyskaya HPP —

Russian-Chinese border

transmission line

Start Date: 2010

Due Date: 2013

Electricity supply of East Siberia

Pacific Ocean oil pipeline

Start Date: 2011

Due Date: 2016

Key Investment Projects

Source Company Data

Source Company data

8

Purpose: to support infrastructure and provide electricity for the APEC

Summit scheduled to take place in the Russian Far East city of

Vladivostok in 2012 New capacity and grids are aimed at strengthening existing

infrastructure in Vladivostok as well as providing electricity

to Russkiy island (where the APEC Summit will take place) Vladivostok’s Airport will also be supported by the newly

built electricity infrastructure Scope:

Overall 8 sub-projects including over 160 km of new electric

grids and substation capacity with overall capacity in excess

of 420 MVA Work status as of September 2011:

2 sub-projects are commissioned 4 sub-projects are finished and being tested 2 remaining sub-projects are scheduled to be finished by

the end of 2011

Purpose: to support infrastructure and provide electricity for the 2014

Winter Olympics in Sochi Scope:

10 substations with overall capacity of

1,762 MVA 15 new grids with the total length of 320 km, including

105 km of cable lines (10 – 110 kV) Work finished by 2010:

5 substations (782 MVA) 2 grids (29.4 km)

Work plan for 2011: 5 substations (700 MVA) 5 grids (119.3 km)

Project is on track and should be finished by the end of 2012 Construction is aimed at reducing environmental impact and

preserving the natural landscape by using substations of compact

configurations and other innovative solutions

Update on Key Investment Projects

Sochi Olympic Games 2014 APEC Summit in Vladivostok in 2012

71,21756,565

113,330

87,580

0

50,000

100,000

150,000

2009 2010 1H2010 1H2011

67,717

42,619 32,01945,459

59.8%

48.7%

56.6%63.9%

0

30,000

60,000

90,000

2009 2010 1H2010 1H2011

0%

25%

50%

75%

100%

27,91012,692

17,160

22,810

19.6%

24.6% 22.4%

32.0%

0

20,000

40,000

2009 2010 1H2010 1H2011

0%

10%

20%

30%

40%

Growth: 29%

Growth: 56%

Growth: 59%

Growth: 63%

RevenueRUR MM

EBITDA adj. (1) and MarginRUR MM %

CAPEXRUR MM

Profit for the period adj. (1) and MarginRUR MM %

EBITDA Margin

Net Income Margin

Financial Performance (IFRS)

Growth: 26%Growth: 42%

Growth: 80%

Growth: 34%

51,994

141,800

90,93469,581

0

50,000

100,000

150,000

2009 2010 1H2010 1H2011

Source Company IFRS financials(1) Adjusted for non-specific impairment provision of PP&E, impairment of available-for-sale investments and associates, loss on dilution of share in

associates, revaluation loss on PP&E, loss on re-measurement of assets held-for sale, gain on sale available-for-sale investments

9

10

311

17.5306 311

328.5

250

300

350

2009 2010 1H2011

In Operations To be Commissioned by the end of 2011

Total Transformer CapacityThousand MVA

Electricity TransmissionBn kWh

239 246

487467

0

200

400

600

2009 2010 1H2010 1H2011

Operational Overview

Transmission Grid LengthThousand km

122.3

3.2

125.5 121.7 121.1

100

110

120

130

2009 2010 1H2011

In Operations To be Commissioned by the end of 2011

Source Company data

0

0

Source Company data; IFRS financials; Bond portfolio structure and Credit potential shown as of 27 January 2012(1) Adjusted for reversal of impairment provision of PP&E, loss on re-measurement of assets held-for sale, revaluation loss on

PP&E and impairment of available-for-sale investments and associates

7,545 7,497 7,5526,000

50,000 50,815

13,545

57,497 58,367

0

10,000

20,000

30,000

40,000

50,000

60,000

2009 2010 1H2011

ST Debt LT Debt

11

Capital Structure

S&P Outlook

Moody’sOutlook

Debt Profile Evolution RUR MM

Federal Grid Ratings

Series 7 5,000 7.50 27 October 2015

Series 8 10,000 7.15 26 September 2013

Series 9 5,000 7.99 24 October 2017

Series 10 10,000 7.75 24 September 2015

Series 11 10,000 7.99 24 October 2017

Series 13 10,000 8.50 22 June 2021

Series 18 15,000 09 June 2014

Total 130,000

Series 6 10,000 7.15 26 September 2013

Average debt maturity of 4.8 years Weighted average cost of debt financing is 8.3%

Debt/Capital 2% 6%

Total Equity/Total Assets 0.82x 0.81x

Adjusted EBITDA (1) (RUR MM) 42,619 67,717

Total Debt/Adjusted EBITDA (2) 0.32x 0.85x

Key Ratios 2009 2010

Same as Sovereign: BBBStable

One Notch Below Sovereign: Baa2Stable

Credit Potential

Total amount of untapped credit lines: RUR 111.5 Bn

Credit Portfolio

Interest Rate, % Maturity/Put date Bond issue RUR MM

Series 15 10,000 8.75 23 October 2014

Maturity date Credit line RUR MM

Gazprombank 15,000 October 2014

Series 19 20,000 7.95 18 July 2018

8,50

Gazprombank 10,000 November 2014

12

Recent Developments

16 December 2010: Board of Directors of Federal Grid approved RUR 952.4 Bn investment program for 2010 - 2014

Investment Program

Federal Grid Company successfully issued bonds totaling RUR 55 Bn in 2011 Average interest rate: 8.35% Average maturity: 5.4 years Total demand on average exceeded the nominal volume being issued by 2.5 times

Bond Offerings

Federal Grid made the decision to pay out a dividend on the Company’s common stock for the year 2010 in the amount of 10% of net income (by RAS), excluding financial results from re-valuation of securities and build-up of unfunded provisions

Dividends

28 March 2011: Federal Grid successfully listed its GDRs on the Main Market of the London Stock ExchangeListing

8 February 2011: Board of Directors approved the Company’s option programOption Program

All generating assets held by Federal Grid and its subsidiaries were transferred to INTER RAO UES in exchange for its shares

As a result of the deal Federal Grid holds a 19.95% stake in INTER RAO UES

Assets Transfer

RAB Regulation 28 December 2010: Federal Tariff Service (FTS) approved RAB tariffs for the five year period (2010 - 2014) 13 April 2011: FTS adjusted the tariffs for 2-4Q2011 - 2014 to redistribute gross revenues of regulated

businesses between years within a single regulatory period

Source Company data

13

Transmission Fees Electricity SalesOther Revenues

D&A Personnel Expenses (2)

Purchased Electricity (1) Repair and Maintenance

Other (3)

Growth: 29% Growth: 12%

Revenue StructureRUR MM

Cost StructureRUR MM

Revenue and Cost Structure

Growth: 26%

Growth: 3%

Source Company IFRS financials(1) Federal Grid purchases electricity to cover electricity transmission losses in its grid(2) Including payroll taxes(3) Includes change in allowance for doubtful debtors and other items

14

Change in EBITDA

45,4597191,030

(277)

1,140

(2,893)

(931)

14,652

32,019

15,000

25,000

35,000

45,000

55,000

EBITDA1H2010

RevenueIncrease

FinanceIncome

PersonnelExpenses

PurchasedElectricity

Repair andMaintenance

Impairments Other EBITDA1H2011

RUR MM

13,440(+42%)

Source Company IFRS financials

15

Free Cash Flow

Source Company IFRS financials

Cash and cash equivalents at the end of the period

Net cash generated by operating activities

Cash and cash equivalents at the beginning of the period

Net cash used in investing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

13,573

(2,102)

2,894

16,467

36,275

(31,279)

45,459

(1,051) (49) (8,084)

36,275

(69,581) (2,102) (35,408)

(100,000)

(50,000)

0

50,000

EBITDA1H2011

Reconciliationadjustments

Changes inWC

Profit tax Operating CF Capex Interest paid FCF

RUR MM

16

Step 1

Established RAB Period of returnx

Amount of return=

Step 3 Amount of return

Taxes+ Total Required Gross Revenue=

OperatingExpenses +

Step 4 Total Required Gross Revenue

Declared Network Capacity

Calculated Tariff=÷

Tariff Calculation (1)

Source Company Data(1) Simplified for illustrative purposes

= RAB amortization

Rate of returnEstablished RAB x

Step 2

+RAB amortization

Услуги

UES of North-West

UES of UralsUES of Volga

UES of EastUES of Siberia

UES of South

UES of Center

Export/import to/from Norway

Export/import to/from Norway

Integration of Urals and Siberia energy systems

Integration of Urals and Siberia energy systems

Export/import to/from Finland

Export/import to/from Finland

MoscowMoscowSt. PetersburgSt. Petersburg

TomskTomsk

Export to China

Export to China

Export to South Korea

Export to South Korea

Integration of Siberia and East energy

systems

Integration of Siberia and East energy

systems

West-East Energy Bridge

West-East Energy Bridge

Center-Urals Energy Bridge

Center-Urals Energy Bridge

Export to Azerbaijan and Georgia

Export to Azerbaijan and Georgia

Export to China

Export to China

Export/import to/from

Kazakhstan

Export/import to/from

KazakhstanExport to Mongolia

Export to Mongolia

Existing export/import Under construction

Export to Turkey

Export to Turkey

Prospects for Energy Bridge Development in Russia

17

18

Head of Investor Relations Alexander Duzhinov

Tel: +7 495 710 9064 Mob: +7 916 041 8053 Fax: +7 495 710 9641 E-mail: [email protected]

IR Contacts

Contacts for Institutional Investors and Analysts

Investor Relations Vladimir Baklanov

Tel: +7 495 710 9333 ext.2926 Fax: +7 495 710 9641 E-mail: [email protected]

Investor Relations

Nadezhda Sukhova

Tel: +7 495 710 9541 Fax: +7 495 710 9641 E-mail: [email protected]

Investor Relations Egor Toropov

Tel: +7 495 710 9333 ext.2275 Fax: +7 495 710 9641 E-mail: [email protected]

19

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.

Disclaimer