SECURITIES PROSPECTUS

above-mentioned factors on the issuer’s activities, it is planned to reduce debt funding foroperating activities.It should also be noted that an important part of the current government policy iselectricity industry reform, which is currently being completed. The likelihood of change indomestic policy and changes in electricity industry regulation principles and priorities canadversely affect the plans of attracting strategic investments in further industry development andsignificantly slow down or suspend further market transformations in the industry. In particular,the results of electric power industry reform and electricity market liberalization can besuspended or debated.However, the issuer believes that this risk is unlikely to be incurred.Regional risksRegional risks in the operations of IDGCs are primarily associated with partial noninclusionof declared economically feasible expenses in the tariff by the duly authorizedgovernment tariff-setting body. This circumstance can considerably impact the implementationof the investment program of IDGCs. For the purpose of mitigating the effect of regional risks oninvestment program implementation, IDGCs on an ongoing basis interact with governmentauthorities in respect of their actions related to investment projects.Negative changes in the situation of the regions in which IDGCs operate which canadversely affect its activities and economic status are not expected in the near future.Expected behavior of the issuer in the event of adverse effect of changes in thesituation in the country (countries) and region on its activitiesMost of these risks can not be controlled by IDGCs and the issuer itself due to theirscope. In the event of destabilization of political and economic situation in Russia or any givenregion, which can adversely affect the activities of the issuer’s SDCs, the situation will beanalyzed on a case-by-case basis and a number of crisis management measures will be taken tominimize adverse effects, namely: minimize expenses and limit investment plans.Risks associated with possible military conflicts, imposition of the state of emergency andstrikes in the country (countries) and regionMilitary conflicts and the imposition of the state of emergency in the country and regionsin which the issuer operates are unlikely to happen. In the event of possible military conflicts oracts of terror, the SDCs of the issuer can incur the risks of deactivation of their fixed assets.Risks associated with the geographical characteristics of the country (countries) andregion, including high likelihood of natural disasters, possible interruption of transportationdue to remoteness and/or inaccessibility, etcSince the SDCs of the issuer operate almost throughout the Russian Federation, weatherconditions vary greatly. Electric grids exist in different and incomparable geographical zones.Therefore, emergencies are likely to be caused by hurricanes, heavy rains with squallwind and hail, high water and floods, snow drifts, causing possible financial damage tohouseholds, public and social utilities, interrupting car and rail service, heat and electricitysupply to customers. For the purposes of reimbursing for damage caused by emergenciesresulting from natural disasters, etc, IDGCs enter into property insurance agreements.To minimize risks associated with the threat of natural disasters and negative effects ofweather conditions (especially in autumn and winter), grid companies take preparatory measures,establish emergency reserves of material and equipment, train emergency repair teams. Anotherpossible measure is the development of special crisis management programs providing for thejoint action of power engineers, authorities, EMERCOM, the Ministry of Defense and FederalEnvironmental, Engineering and Nuclear Supervision Agency.Risks associated with high likelihood of natural disasters are assessed by the issuer asminimal.21