Corporate Administration of Subsidiaries

As of December 31, 2012, the Company was a shareholder of 42 open joint-stock companies and a member of one limited liability company and five not-for-profit organizations (nonprofit partnerships). Out of the 42 joint-stock companies, 41 joint-stock companies are subsidiaries of the Company, and the Company has a stake of over 20% in each of them.

The Company employs corporate methods to influence the decisions made by subsidiaries’ management bodies in accordance with best practices and standards in corporate governance and considers it necessary for attaining the effectiveness and success of the financial and economic activities of the Company and its subsidiaries and making them more attractive to investors as part of exercising subsidiaries’ shareholder rights in compliance with the procedures set forth in the applicable laws and the articles of association and corporate documents of subsidiaries.

The key mechanisms and principles that underlie the corporate administration of subsidiaries are defined by the Articles of Association of the Company, the Procedure for Interaction of the Company with the Economic Entities Whose Shares (Equities) Are Owned by the Company, and internal documents.

The corporate administration of subsidiaries is effected through the Company’s representatives in management bodies (boards of directors and general meetings of shareholders) and control bodies (internal audit commissions) of subsidiaries. The Company’s representatives at general meetings of shareholders of subsidiaries are the persons, irrespective of whether they are employees of the Company or not, authorized to represent the Company under powers of attorney at general meetings of shareholders of subsidiaries.

The main functions of the representatives include taking part in the work of boards of directors of subsidiaries, ensuring the protection of the Company’s interests when boards of directors of subsidiaries make decisions, providing the Company with information about the work of boards of directors of subsidiaries, etc. The representatives’ participation in the work of boards of directors of subsidiaries is governed by the requirements of the applicable laws, the provisions of the articles of association and internal documents of subsidiaries, and the Company’s Final Instructions. The Final Instructions are prepared in accordance with the procedure set forth in regulations and orders of the Company. During the course of preparing the Final Instructions, divisions of the executive arm form the Company’s joint position on the issues addressed by boards of directors of subsidiaries.

The Articles of Association of the Company (paragraph 11.1.22 and subparagraph 5 of paragraph 13.2) and the Procedure for interaction of the Company with the economic entities whose shares (equities) are owned by the Company (paragraph 2.3) define the list of the most important agenda items of general meetings of shareholders and meetings of boards of directors of subsidiaries, which agenda items require decisions of the Company’s Board of Directors.

Specifically, such key agenda items include:

• Defining agendas of general meetings of shareholders (members) of subsidiaries;
• Reorganizing or liquidating subsidiaries;
• Determining the number of members of boards of directors of subsidiaries, nominating and electing such members, and deciding on early termination of their powers;
• Others.

The issues specified above must be addressed by boards of directors or general meetings of shareholders of subsidiaries only after the position of the Company (or the Company’s representatives) is defined.

For the purposes of controlling financial and economic activities of subsidiaries and complying with corporate governance procedures, the Company’s representatives also take part in the work of internal audit commissions of subsidiaries.

Therefore, the Company’s interests in subsidiaries’ operations materialize in the development and implementation of uniform corporate administration standards. The uniform corporate administration standards make it possible to create an integrated legal environment in the Company, achieve common strategic goals, and contribute to streamlining the work of management and control bodies of all of the Company’s entities and reducing general administration costs.

The Company, together with subsidiaries, continues to constantly improve the corporate governance system based on Russian and international standards and best practices in building corporate relations.