SECURITIES PROSPECTUS

subsequently revised several times and the current estimate of the Russian FederationGovernment for 2008 is 12% or 13%.Higher price growth rates can cause the growth of the issuer’s costs (due to product and serviceprice growth), an increase in the cost of borrowings and the reduction of profitability indicators.Therefore, if actual inflation indicators considerably exceed the forecasts of the RussianFederation Government, the issuer plans to take proper measures, namely:– mitigate cost growth,– reduce accounts receivable and its average maturity;– increase accounts payable to the optimal level;– exclude excess cash.However, it is not possible to predict the critical inflation rate for JSC IDGC Holdingsince consideration should be given not only to consumer price level but also to changes in theactual purchasing power of the ruble, situation in the electricity markets and future governmentpolicy in respect of electricity tariffs.Effect of financial markets on the indicators of financial statementsInflation processes, leading to the growing prices of materials, raw materials and servicesused by the Company in its activities, can affect balance sheet total.The issuer believes that it is the Company’s net profit that can be most affected by theinflation processes in the economy of the Russian Federation. This is due to the fact that theopportunities of the companies whose shares are owned by the Company to raise the prices ofelectric power transportation services are restricted by government regulation, i.e. can not bechanged by companies depending on changes in inflation rates and at the same time the costs ofthe companies whose shares are owned by the Company (which are mostly denominated inrubles) change in line with inflation rates. Therefore, inflation processes can cause drop in netprofit of the companies whose shares are owned by the Company, which, in its turn, will lead tothe reduction of net profit used for the payment of dividend received by the Company.The Company assesses the financial risks described above (sharp changes in foreignexchange rates, inflation, interest rate growth) in the near future as highly likely. These risks canresult in the growth of the issuer’s costs and profit reduction, which can be offset by the growingtariffs of the companies whose shares are owned by the Company and the decreasing amount ofraised borrowings.3.5.4. Legal RisksThe issuer notifies that if one or more risks listed below occurs the issuer will make everypossible effort within the issuer’s power to eliminate and/or minimize the risk(s) and will take allnecessary measures to eliminate or mitigate its/their implications.Legal risks associated with of issuer’s activities:Legal risks, including risks associated with ambiguous interpretations of legislation, cancause incorrect tax calculation and payment. To mitigate these risks, the accounting department ofthe issuer performs ongoing work aimed at legitimate improvement of tax base calculationmethodology for different taxes and controls compliance with the applicable laws.There are risks of losses associated with changes in legislation and incorrect legal executionof documents and support for the issuer’s activities. To minimize such risks, almost all operationsof the issuer undergo mandatory prior legal review.The issuer (and all joint-stock companies operating in the Russian Federation) incur the riskof changes in legislation (federal laws and by-laws) governing joint-stock and corporaterelationship.As the parent company of all constituent IDGCs, the issuer incurs the risks of appeal of majortransactions and related-party transactions by the shareholders of the IDGCs concerned (when such23