Denis Fedorov
Chairman of the OGK-2 Board of Directors
Address of the Chairman of the Board of Directors of OJSC OGK-2, Director General of Gazprom Energoholding LLC

Dear shareholders,

OJSC OGK-2 implementing the Strategy of Gazprom PJSC in the electric power industry for 2018–2027 is one of the most successfully developing companies in the sector in the country. The Company provides a high level of reliability of power supply to consumers and achieves improved financial and economic performance indicators.

In 2019, Gazprom Energoholding Group fully completed the fulfillment of its obligations to build generating capacities under the program of capacity supply agreements (CSA) at OJSC OGK-2. The final object of the large-scale program was the second power unit of the Groznenskaya TPP, introduced at the annual General Meeting of Shareholders of Gazprom PJSC.

In total, 36 energy facilities with a total capacity of about 9 GW, of which almost half – 4.4 GW – are accounted for by OJSC OGK-2, were built and modernized within Gazprom Energoholding under the CSA. According to the results of 2019, the growth in electricity generation at the power units of the CSA of the Company amounted to 26.5%, and the volume reached 14.5 billion kWh, having increased by three percentage points.

During the implementation of the CSA program, OJSC OGK-2 gained extensive experience in the construction and operation of modern power units, in cooperation with domestic developers and manufacturers of the latest equipment of various kinds. This builds confidence in the success of our next projects. The construction of a new facility, which will be managed by OGK-2, Svobodnenskaya TPP, designed to supply the Amur Gas Processing Plant, one of the largest projects of the Gazprom Group, is near completion, which will ensure the effect of corporate synergy. With the prompt commissioning of this power plant, OGK-2 will expand the geography of its activities to the Far East. In the period until 2026, the Company is waiting for a new stage in updating the fleet of existing production assets. Projects for the modernization of generating equipment at the Kirishskaya GRES with a capacity of 190 MW and the Surgutskaya GRES-1 at 405 MW are included in the corresponding government program of competitive selection of power for modernization.

In 2019, OJSC OGK-2 showed positive financial results. With a 4.7% decrease in revenue to 134 billion 247 million rubles, due in many respects to ongoing measures to optimize production activities, cost of sales was reduced by 6.8% to 109 billion 123 million rubles, EBITDA increased by 4.8% to 28 billion 944 million rubles, and net profit increased by 6.3% to 11 billion 852 million rubles. Such record figures put OGK-2 at the maximum amount of dividend payment in the entire history of the Company. In addition, OGK-2 joined the Gazprom Group's centralized cash flow and liquidity management system in December 2019. Integration into the system will create an additional financial support tool, and will increase the efficiency of liquidity management.

The reliability and stability of OJSC OGK-2 in the market is confirmed by leading credit rating agencies. In particular, the Expert RA Rating Agency assigned the Company a ruAA+ rating with a Stable outlook.

An important component in the Company’s policy is the permanent improvement of the environmental indicators of energy facilities in all regions of presence. In this direction, we have also achieved positive results. Greenhouse gas emissions were reduced by 9%, which was mainly due to a reduction in the amount of fuel burned and a decrease in the share of coal and liquid fuel in the fuel balance. The amount of coal burned was reduced by 14.5%, by 33.1% of fuel oil, by 5.8% of gas.

The Company's management continues implementing a strategy to reduce the generation of electricity by inefficient equipment and to ensure optimal loading of power units. Last year, the thermomechanical equipment of the first stage of the Serovskaya GRES was decommissioned.

In 2019, OGK-2 concluded one of the largest transactions in the industry – the Krasnoyarskaya GRES-2 was implemented in favor of the SUEK Group. This transaction was conducted on favorable terms and allowed to reduce the share of coal capacity in the generation structure of the Company.

In addition, OJSC OGK-2 expects the development of cooperation aimed at further improving efficiency with Russian equipment manufacturers, in particular with REP Holding, which joined the Gazprom Energoholding Group in 2019.

The Company has a strong market position, competing confidently with the country's largest energy holdings. Together, we will achieve new successes, increase profits and the shareholder value of OJSC OGK-2.

Artyom Semikolenov
Managing Director of OJSC OGK-2
Address of the Managing Director of OJSC OGK-2

Dear shareholders,

This year, OJSC OGK-2 celebrates a significant anniversary date – the Company turns 15, and the results achieved to date are impressive! Much has been done in 2019!

The Company has completed a large-scale program for the construction and modernization of capacities under capacity supply agreements (CSA) – the second power unit of the Groznenskaya TPP was successfully launched into the wholesale electricity and capacity market. The new power plant allowed to significantly increase the reliability of power supply not only in the Chechen Republic, but also in the entire power system of the North Caucasus Federal District.

Over the period of formation and development, the Company’s production assets have more than doubled, and in the near future another new facility – the Svobodnenskaya TPP – will be commissioned. A number of the Company’s facilities are included in the new government program of competitive selection of capacities for modernization. The renewal of generating capacities will take place until 2026 at the Kirishskaya GRES and the Surgutskaya GRES-1. Prospects make it possible to look with confidence into the future, to concentrate efforts on ensuring the reliability of energy supply, increasing profitability and investment attractiveness. The financial results achieved by the Company in 2019 show a record result, which will positively affect the payment of dividends to our shareholders.

In 2019, the Company continued to pay special attention to environmental issues. Environmental protection costs increased by 31.1% compared to the previous period. The increase in this indicator is connected, inter alia, with a set of environmental measures aimed at maintaining and developing water and biological resources. One of the results of this work was a 24% reduction in fees for negative environmental impacts, which generally indicates the effectiveness of the measures taken in the regions where OGK-2 is present. As part of the investment project for the construction of power unit No. 10 STU-660, a modern desulfurization complex was put into operation at the Troitskaya GRES. The new complex provides flue gas cleaning at a higher level than current environmental legislation requires.

In the reporting period, OGK-2 actively implemented programs aimed at improving the efficiency of production management, reducing costs, and re-equipping. Thus, in 2019, the generating equipment of OJSC OGK-2 generated 54.7 billion kWh, which is 7% less than in 2018 (58.9 billion kWh). The decrease in production volumes is due to the optimization of production activities. The Company will continue implementing a strategy to reduce electricity generation by inefficient equipment that has exhausted its park resource.

In 2019, our Company reaffirmed its status as socially oriented. In a number of regions, inclusive projects have been implemented aimed at the adaptation and socialization of children with disabilities in the modern world. In 2020, the Company will continue developing social guidelines.

I note that OGK-2 was among the best industry enterprises in 2019 in terms of popularizing the fuel and energy complex, energy conservation and engineering education. The Company showed a high result in organizing and attracting young professionals, students and schoolchildren to events. Starting work with youth today, we can be sure that they will form a pool of promising graduates who want to work at our energy facilities in a few years.

A key factor of the successful activity is the high qualification of our team. Last year, we again conducted a staff engagement survey. The level was 54% – the indicator is included in the neutral zone of the involvement scale, which includes steadily developing organizations that have already achieved some success in this direction. This suggests that there is significant potential for development, using which we can achieve even more. Mutual respect, teamwork, trust and cooperation contribute to the effective solution of the tasks set by the Board of Directors of OJSC OGK-2 and Gazprom Energoholding LLC, the managing Company.

Due to the professionalism of OJSC OGK-2 staff, as well as the constructive dialogue between shareholders, the Board of Directors and the Management of the Company, the tasks set for 2020 will be successfully resolved and the Company will be able to stay a reliable support for the development of the energy industry in the regions. Difficult but interesting work is ahead, which, I am sure, will lead to the successful and effective implementation of the Gazprom Group Strategy in the electric power industry, approved before 2027.