ADDRESS BY CEO

Andrey Petrov,

CEO of Rosenergoatom Concern JSC

Локшин Локшин

At the same time, Rosenergoatom faces a strategic objective of remaining a secure, failsafe and cost-efficient Russian generating company that supplies a customer with power at the lowest price possible.

DEAR PARTNERS,

I am pleased to present you the eighth integrated Rosenergoatom Concern Annual Report prepared in compliance with the best and most recent Russian and international practices, as well as GRI G4 Sustainability Reporting Guidelines and the International Integrated Reporting Framework. The Report describes key operation results achieved by Rosenergoatom Concern in 2015, covers financial, production, social, environmental aspects of activities and sustainable development. The Concern management confess their responsibility for ensuring consistency of the integrated report compiled by a large team of specialists and managers.

We may be proud of the fact that in 2015 Russia's nuclear plants achieved a record high power output of 195.2 bln kWh, which amounts to 108.2% of the production level of 2014. The Federal Tariff Service balance was fulfilled by 103.2%.

It is an undoubted success that the power unit No. 3 at Rostov NPP was put into commercial operation (let me remind its power start-up was in late 2014 ahead of schedule). The Rostov plant team showed the unprecedented results in ensuring the safety of startup and all commissioning operations at low power testing stages.

The power unit No. 4 at Beloyarsk NPP with a fast neutron reactor was powered up in December 2015.

In the reporting year the Concern obtained licenses for extension of the power units operation period at Smolensk, Balakovo and Kursk NPPs. We deployed the Rosatom Production System (RPS). The Balakovo and Smolensk NPPs are successfully implementing a project for transformation into the industry's RPS benchmark companies. The said plants won the RPS Safety Culture nomination

However, despite the achieved results, the Concern is in a troublesome environment today. On one hand — record high output, on the other — extremely tough competition in the power generation market. Due to a drop in the natural gas price, the competition is becoming stronger with combined heat and power generation as well. Therefore, prices in the power market are not growing, and payments for the capacity actually decrease. These factors have adverse effects on the Concern's revenues.

Meanwhile, the power unit No. 4 at the Beloyarsk NPP and the power unit No. 6 at the Novovoronezh NPP have been commissioned behind schedule. As a result, the funds, the Concern was planning to receive under capacity supply agreement in 2015–2016, would only be received starting from January 1, 2017 as in 2016 these power units will be in the low power testing mode.

The Concern's financial and economic situation will be strained at the output level of 199 bln kWh slated for 2016. This is due to the fact, among others, that the second cycle of graphi­te stack repair and maintenance at the first generation RBMK power units will be started in 2016, which will accordingly affect power gene­ration.

At the same time, the Concern faces a strategic objective of remaining a secure, failsafe and cost-efficient Russian generating company that supplies a customer with power at the lowest price possible.

In order to achieve the stated objectives, the Concern, like other divisions of Rosatom, has to implement a large-scale project known as 30 Up — 30 Down during a three year period. This means we need to increase the output, revenues and labor efficiency by 30% meanwhile decreasing costs, including prime cost and inventory, by 30%. The following tools will be used: growth of the aggregate free cash flow, 100% completion of the investment program, enhancement of the output and labor efficiency, and reduction of the semi-fixed costs.

We are taking large-scale efforts not only to improve the efficiency in the traditional business — power generation, but to penetrate new markets. Revenues from new products totaled 5.9 bln rubles in 2015, which is 1.5 times higher than the target value (3.9 bln rubles). Of course, the Concern will endeavor to expand its presence and increase the number of orders abroad.

In each and every activity the Concern will focus on boosting safety and quality, speeding up the processes (primarily, shortening the periods of new power units construction), cutting inventory and costs in 2016. This year will be challenging for the Concern. In addition to important production objectives, we will meet organizational and qualitative transformations. However, as you all know, a difficult situation in the economy and crisis developments are not only a challenge for every company, but a real window of possibilities allowing to bring the Concern to a higher level of efficiency.

I believe we are well placed to do that.