OREANDA-NEWS. July 5, 2007.  Joint-Stock Company “Interregional Distribution Grid Company of the Center and North Caucasus” was established in the course of restructuring the power industry of Russia in order to create a system of effective management of  regional distribution grid companies by using modern achievements in management and industrial production technologies.

The establishment of the company and transferring certain corporative management functions of the regional distribution grid companies was the first stage in the course of merging the regional distribution grid assets into a unified interregional company/holding. This stage helped to unify the corporative procedures in the dependent companies and establish common objective approaches for an activity efficiency evaluation.

2006 saw a continuation of the activities aimed at improving the system of  DGC management. A new stage in the process of interregional merging was reached by transferring the powers of the sole executive bodies of the regional distribution grid companies to the Company. The mentioned resolution made it possible to enhance the  reforms by  reducing  non-production time and  material expenses on conciliatory procedures and address the issue of a direct operative management mechanism. 10 companies transferred their powers of  DGC sole executive bodies by late 2006, the remaining DGCs completed the process in early 2007.

The dependent distribution grid companies showed the following financial results in 2006:
The joint net profit amounted to 2 billion 344 million rubles, which exceeded the planned one by 394.1 million rubles.
The ROE weighted average value (profitability of the owned capital) amounted to 3.03% , which actually exceeded the planned one by 0.5%.
The joint owned capital of the DGCs, subordinated to the Company, amounted to 77 billion 396 million rubles, showing an increase of 13 billion 222 million rubles against 2005.
The share of financing investment programs by  attracting long-term loans was increased, thus the share of long-term credits in the DGC balance structure increased on average by 149%.
The growth of  DGC business efficiency resulted in increasing volumes of  investment, received as revenue from technological connections of  customers. In 2006 the cash assets, received as a result of changing the tariff regulations, amounted to 1.658 billion rubles.
  
As a result of  campaigning for fixing  electric energy transmission tariffs for 2007, carried out in 2006, the average tariff in the DGCs amounted to 48.5 kop/kWh (a 19% growth).
Apart from good financial results the Company’s management bodies also paid considerable attention to increasing the reliability of the distribution grid complex operation, as well as  the quality of the services offered, health & safety issues at work.  
Last year the Company made great efforts for providing safety of the technological processes and a due level of labor protection. Joint expenses on labor protection in the JSC “IDGC of the Center and North Caucasus” operation area in 2006 against the results of the same period in 2005 grew by 59%. The joint number of  injuries in 2006 dropped by 45%.
More than 3.588 billion rubles were transferred to the scheduled repairs of power units of the DGCs in the Company’s operation area in 2006.

In order to improve the reliability of the electric grid complex operation the year of 2006 was announced in the Company the “Year of Clearing the Air Electric Line Routes”. The plan of clearing the 35-110 kV air electric line routes was exceeded by 24% (12,913.57 hectares were cleared).  Clearing the 6-10 kV air electric line routes amounted to 14,457.54 hectares - 130% against the plan. The regional grid companies paid  280.32 million rubles for that purpose.
The positive dynamics of  actual distribution in the DGCs of the Company’s operation area in 2005-2006 amounted to 5 billion kWh which is a 3.53% growth. The actual losses in the DGC grids in the 12 months of 2006 against the results of the same period in 2005 were reduced by 0.63% which is 646.28 million kWh. The accident rate in 2006 was reduced by 2.2%.

In 2006 the Company paid special attention to the process of improving  operative and control management in dependent DGCs. JSC “IDGC of the Center and North Caucasus” carried out  certain organizational activities to establish  Grid Management Centers (GMCs) in the DGCs, which helped to provide  closer control of  DGC equipment condition, the optimal operation modes, and improve the business processes of  grid services, regarding electric power transmission.

In order to improve the electric power quality the DGCs of the JSC “IDGC of the Center and North Caucasus” operation area underwent an electric power certification procedure, which included identifying the feed centers for obligatory certification, drawing up plans and graphs for carrying out activities concerning  certification and their approval by the certifying authorities, accredited by the Federal Agency of Technical Regulations and Metrology as well as the Federal Service of  Ecological, Technological and Atomic Inspection. In 2006 all DGCs underwent  certification procedures and were awarded electric power quality management certificates. In 2006 the Company achieved significant positive results in improving  corporative management. Such important documents as the Corporative Management Code, the Regulations on the Information Policy, the Regulations on the Corporative Secretary, the Business Planning Standard and the Mid-Term Financial Plan for 2007-2009 were drawn up, approved by the Board of Directors of the Company and the dependent DGCs and put into force.

In order to  meet   the procedure requirements, guaranteeing the realization of the rights and interests of its shareholders, as well as providing rights for regular and due receiving of  complete and true information on the Company, the Company introduced the position of Corporative Secretary in  the Company and each of its subordinated DGCs.
 
The Company’s efforts, aimed at improving corporative management quality, resulted in awarding the JSC “IDGC of the Center and North Caucasus” a “B++” rating by the Consortium of the Russian Institute of Directors and the “Expert RA” rating agency (“RID – RA Expert”). Together with the Company itself, twenty two DGCs of the JSC “IDGC of the Center and North Caucasus” operation area were awarded the “B++” corporative management rating by the Consortium of the Russian  Institute of Directors and the “Expert RA” rating agency (“RID – RA Expert”).

The Company’s Board of Directors and the management were instrumental in achieving  the mentioned results in 2006. 13 meetings of the Board of Directors were carried out in 2006, where more than 70 important issues concerning the Company’s activities were considered.

A significant contribution to passing resolutions on such items as working out the Company’s Development Strategy, the evaluation of compliance of activities of the executive bodies with the approved strategy and other important issues, involving shareholders’ interests, was made by the Company’s independent directors. The presence of the independent directors as members of the Board of Directors  helped the Board  to form an objective opinion on all items under  consideration, which finally added to increasing the investors’ confidence in the Company.

The Company’s efforts in 2007 shall  focus on the preparation and realization of the procedures of establishing an operational company. Special attention shall be paid to the process of liaising with shareholders and investors and increasing  DGC capitalization. In the course of implementing the JSC “UESR” policy in labor protection, 2007 was announced in JSC “IDGC of the Center and North Caucasus” the “Year of Labor Protection and Safety Practices” for the maximal use of the practices and previous experiences in the field of increasing the production safety level. The implementation of the investment program will help to  considerably upgrade the main DGC assets in order to increase reliability and reduce the prime cost of the services. The launching of Customer Service Centers in 2007 in all DGCs will significantly contribute to achieving the main strategic goal –the establishment of a customer-oriented company.

One of the main objectives of the Board of Directors and the management will be keeping to the approved course of  constant development of the joint-stock company as a stable, socially oriented company with a high level of responsibility. Avoiding the unjustified risks, maintaining  long-term economic development, meeting the positive expectations of all  corporative parties and forming  customer loyalty – these are the long-term interests of the Company’s business, which will allow the development of the Company and the regions.

The annual report of the JSC “IDGC of the Center and North Caucasus” is placed on the Company’s web-site /stockholder/inform/annual_report