Memorandum of the controlling shareholder – PJSC Rosseti regarding controlled electric grid companies

Ownership purpose and plans for controlled blocks of shares

PJSC Rosseti is a public holding company with the state’s share in the authorized capital of 88.04 %, created in accordance with Decree of the President of the Russian Federation of 22 November 2012 No. 1567 to increase the efficiency and development of the electric grid complex of the Russian Federation, as well as coordinate work on management of this complex through subsidiaries and affiliates.

PJSC Rosseti owns a controlling stake in 14 key distribution electric grid companies¹ (PJSC Rosseti Kuban, PJSC Rosseti Lenenergo, PJSC Rosseti Moscow Region, PJSC Rosseti Volga, PJSC Rosseti North-West, PJSC Rosseti Northern Caucasus, PJSC Rosseti Siberia, JSC IDGC of Urals,Rosseti Centre, PJSC, Rosseti Centre and Volga region, PJSC, PJSC Rosseti South, PJSC TRK, JSC Rosseti Tyumen, JSC Yantarenergo) and 1 transmission electric grid company (PJSC FGC UES).

PJSC Rosseti considers the specified controlled blocks of shares as strategic assets, the disposal of which is not planned.

Key tasks regarding the assets

The key task of PJSC Rosseti in the field of management of these subsidiaries, in accordance with the Development Strategy of Rosseti’s Group of Companies for the period up to 2030, approved by the Board of Directors of PJSC Rosseti (Minutes # 388 dated 26 December 2019) is the development of the electric grid complex based on advanced innovative technologies to meet the needs of consumers and the Russian economy.

PJSC Rosseti determined the strategic priorities for the development of the Group of Companies:

• ensuring reliable, high-quality and affordable power supply, as well as promoting the energy security of the Russian Federation;
• ensuring further improvement in the efficiency of the core business, including through the implementation of digital technologies and innovations;
• development of new areas of activity (non-tariff services and consumer services) through digital transformation to ensure the company’s resilience to changes in the industry;
• implementation of sustainable development principles.

Corporate governance principles

PJSC Rosseti manages the companies of the group in accordance with common corporate standards aimed at ensuring the efficiency of business processes, controlling their quality, minimizing all types of corporate risks.

PJSC Rosseti, as the controlling shareholder, is fully aware of the importance of improving corporate governance in the companies of the group, strives to ensure disclosure and transparency of their activities, as well as to implement the recommendations of the Corporate Governance Code in their business practices.

Following the best corporate governance practices, PJSC Rosseti annually ensures the presence of independent directors on the Boards of Directors of Rosseti’s Group of Companies, whose shares are traded through on-exchange trading, in an amount sufficient to comply with the listing rules and corporate governance principles. To ensure the independence and objectivity of the work of the Boards of Directors of Rosseti’s Group of Companies, it is planned to maintain the number of independent directors in their composition at a level not fewer than the current one.

Representatives of PJSC Rosseti also take part in annual general meetings of shareholders of the group’s companies to build a dialogue with minority shareholders on prospects for the company’s development.

PJSC Rosseti guarantees adherence to market principles in the conduct of financial and economic activities by the companies of the group.

PJSC Rosseti, as the controlling shareholder, supports initiatives of the group’s companies to protect the rights and interests of minority shareholders.

PJSC Rosseti pursuant to Order of the Government of the Russian Federation dated 29 May 2017 No. 1094-r undertakes to ensure that no less than 50 % of net profit, determined according to data of financial statements, including consolidated ones, compiled in accordance with International Financial Reporting Standards, taking into account the adjustment of the net profit provided for by the specified Order of the Government of the Russian Federation, to be allocated to pay dividends on shares of the group’s companies.