Re-Equipment of Generating Facilities
The electricity consumption increase in the regions of the TGC-1 presence will continue in the years to come despite the global tendency of introduction of energy-efficient technologies. Alongside with that, there are no grounds for a surge in demand in this business segment so far. There is a surplus of generating capacities in the region now. Accordingly, the basic trend in the Company’s development in the energy generation sector is the removal of outdated assets from service and the refurbishment of equipment.

In prospect till 2015, the volume of electricity proposal of the generation market participants is limited by Power Purchase Agreements (PPA). In accordance with the Company’s plans, power generating units of all CHPPs will be replaced till 2013. Highperformance state-of-the-art combined cycle power plants (CCPP) will be put in operation instead of the existing equipment, which will provide the 1,600MW capacity increase.

New CCPPs generating heat and electricity will start up at Yuzhnaya and Pervomayskaya CHPPs in 2011 already. The similar equipment is planned to be built in Pravoberezhnaya CHPP by the end of 2012. The project involves establishment of a joint special-purpose vehicle (SPV) on a parity basis with Leader Management Company and placement of the SPV’s bonded loan.

Upgrading of Grid-Related Business
Changes will bear on the heating grid business of the Company in the years to come. Thermal capacities are in urgent need of upgrading. Heat consumption will meanwhile inevitably fall following the development of the city programmes for optimization and heat efficiency. In order to compensate a fall in demand, the Company is going to optimize expenditures, attract external investors, and enhance operating efficiency of the heating grids.

Restructuring of the heat business in Saint Petersburg shall become a benchmark for other heat assets of the Company. The establishment of JSC Saint Petersburg Heating Grid will be continued in 2011; TEC SPb together with JSC TGC-1 will join the structure of shareholders of this company. A new business unit will be engaged in heat deliveries to end consumers in all districts of the Company’s presence in Petersburg. The market structure of JSC Saint Petersburg Heating Grid will allow attracting investments, including same by means of the RAB-regulation. The sales market expansion will ensure an optimum work load of the Company’s capacities, and consumers will receive reliable and cost effective heat supply.

Construction of the Apatitskaya CHPP heating main will be started at the expense of the project financing funds in 2011. Renovation of the CHPP facilities will be performed in the current year already. Later, a new main line will connect it with Kirovsk, where a new heating station will provide the CHPP connection to the heating and hot water supply system. Heat supply will start up from the autumn of 2013. The project is implemented by JSC Khibins Heat-Generating Company belonging to JSC TGC-1 and JSC Apatit in the equal shares at the expense of the investments in the authorized capital and the borrowed assets of JSC Khibins Heat-Generating Company. The annual additional heat generation of Apatitskaya CHPP after the refurbishment will make over 650 thousand Gcal.