Dear shareholders!

Federal Grid Company was created in 2002 as part of the reform of RAO UES of Russia. Since its creation the Company has achieved a lot and today we are the foundation of Russia’s energy complex and one of the country’s most important infrastructure companies. During the reporting year, the Company recorded significant production results and strengthened its financial position, which was possible due to effective work of our management team, intensive application of new equipment and technologies, and active cooperation between the Company and state officers.

Continuous improvement of national economy is directly connected to power industry development, which remains one of the most challenging branches in the Russian fuel and energy complex (particularly in terms of modernization). Energy companies are focused on removing outdated run-down equipment from operation and replacing it with new energy efficient equipment. In connection with this, the Government intends to launch a state policy to stimulate power industry innovation and undertake measures to upgrade energy saving and efficiency.

Another very important objective for development of the power industry today is increasing the sector’s attractiveness for investors. In the end of September 2010 the Russian Government allowed electric grid companies to use a five-year regulation. As part of this transition, Federal Grid Company developed a 2010-2014 investment program with a total volume of RUR952.4 billion. On 12 November, 2010, this investment program was adopted by Russia's Ministry of Energy. The program calls for large scale construction and electric grid network rehabilitation and the removal of connection limitations for new consumers, ensuring power output schemes from newly constructed power plants to Russia’s Unified Energy System (UES).

It should be noted that our investment program will be primarily financed with the Company’s own funds and borrowings and to a significantly lesser degree with federal budget funds. This is the result of transitioning to RAB regulation, which calls for tariff formation based on the principle of returns on invested capital. The new tariff estimation methodology makes the Company’s business more understandable and attractive for investors. In autumn 2010 Federal Grid Company successfully placed bonds with a total value of RUR50 billion, which tells about the trust that Russian and foreign investors have in the Company and the Government’s policy of electric grid complex development.

Federal Grid Company’s investment program calls for supporting both existing assets and future corporate development, including implementing nationally important large-scale investment projects. These projects include ensuring stable and reliable power supply for the Sochi Olympics, the APEC Summit in Vladivostok and the ESPO. The program also provides for carrying out modernization of the UNEG on an innovative technological basis.

Federal Grid Company faces tremendous challenges responding to which in many respects will determine the level and dynamics of Russian economic development. We truly believe that our Company will be able to successfully overcome all the difficulties and will continue to work effectively for the benefit of both Russia and our shareholders.

Sergey Shmatko

Chairman of the Board of Directors, Federal Grid Company, Minister of Energy of the Russian Federation