1. Background

(a) The Group and its operations

Joint-Stock Company “IDGC of Centre” (hereafter, the “Company”) and its subsidiaries (together referred to as the “Group”) comprise Russian open joint stock companies as defined in the Civil Code of the Russian Federation. The Company was set up on 17 December 2004 based on Resolution no. 154р of 9 December 2004 and pursuant to the Board of Directors’ decision (board of directors’ meeting minutes no. 178 of 1 October 2004) and Management Board decision (Management Board minute no. 1102 of 15 November 2004) of the Russian Open Joint-Stock Company RAO “United Energy Systems of Russia” (hereafter, “RAO UES”).

The Company’s registered office is 4/2, Glukharev Lane, Moscow, 129090, Russia.

The Company’s de facto address is 2nd, Yamskaya, 4, Moscow, 127018, Russia.

The Group’s principal activity is the transmission of electricity and the connection of customers to the electricity grid.

The Group consists of JSC “IDGC of Centre” and its subsidiaries, presented in Note 5.

As at 31 December 2011, the Government of the Russian Federation owned 53.69% shares of JSC IDGC Holding (at 31 December 2010 – 52.68%), which in turn owned 50.23% of the Company.

The Government of the Russian Federation influences the Group’s activities through setting transmission tariffs.

(b) Russian business environment

The Group’s operations are primarily located in the Russian Federation. Consequently, the Group is exposed to the economic and financial markets of the Russian Federation which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian Federation. The consolidated financial statements reflect management’s assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future business environment may differ from management’s assessment.

Return to Notes to the Consolidated Financial Statements for the year ended 31 December 2011