September 4, 2012, Ufa (Russian Federation, Republic of Bashkortostan) – Bashkirenergo OJSC (MICEX, RTS: BEGY, ISIN: RU0009044242) publishes consolidated financial statements for 6M 2012 prepared in accordance with IFRS.

For the purpose of complying with Russian legislation, on June 27, 2012 the Extraordinary General Meeting of Shareholders of Bashkirenergo OJSC made a decision concerning the company’s reorganization in the form of a spin-off, resulting in the establishment of two companies: a generating company called Bashenergoactiv Open Joint Stock Company (Bashenergoactiv JSC) –which will obtain the shares of Bashkir Generation Company LLC, Bashkir Heat Distribution Grid LLC, and CCGT CHPP-5 LLC – and a power grid company called Bashkirian Power Grid Company Joint Stock Company (BPGC JSC). As a result of this reorganization, all of the property, rights and duties of Bashkirenergo OJSC will be transferred to Bashenergoactiv JSC and BPGC JSC in accordance with the dividing balance sheet. All organizational arrangements and corporate actions related to the company’s reorganization should be executed by the end of 2012.

In connection with this development and in accordance with the rules of IFRS compilation, the financial results of the generating sector for the first six months of 2012 were presented separately as a result of the discontinuing operation.

KEY FINANCIAL RESULTS FOR THE FIRST SIX MONTHS OF 2012:

· The revenue from continuing operations (without accounting for the results of the generating sector) for 6M 2012 declined by 4.88% compared to the similar period of the previous year, and amounted to RUB 5,672 million. The revenue for Q2 2012 amounted to RUB 2,767 million, down 0.65% QoQ.

· Operating profit (without accounting for the results of the generating sector) for 6M 2012 grew 31.76% as compared to 6M 2011, reaching RUB 1,539 million. Q2 2012 operating profit increased by 27.35% YoY to RUB 908 million.

· OIBDA from continuing operations (without accounting for the results of the generating sector) for 6M 2012 was RUB 2,218 million, or 26% higher than the similar figure of the previous year. The Q2 2012 OIBDA amounted to RUB 1,245 million, up 23% YoY.

Profitfrom continuing operations (without accounting for the results of the generating sector) for 6M 2012grew 30% versus 6M 2011, reaching RUB 1,216 million. At the same time, profit during Q2 2012 amounted to RUB.

The OIBDA margin (without accounting for the results of the generating sector) for 6M 2012 grew from 30% to 39% YoY.

Profit and comprehensive income,representing the financial results of both the generating and grid segments for 6M 2012, decreased by 49% YoY, amounting to RUB 1,706 million.

As of June 30, 2012, the financial debt of the generating business amounted to RUB 2,268 mln. The total of the company’s debt/OIBDA ratio was 0.6.

KEY OPERATING RESULTS FOR THE FIRST SIX MONTHS OF 2012:

The total power generationof Bashkirenergo OJSC for 6M 2012 fell by 4% compared with the similar figure of the previous year, to 11,012 mln kWh.

The capacity factorof Bashkirenergo OJSC’s power stations was 59.49% (a decrease of 2.52 p.p. compared to 6M 2011).

The heat outputof the company amounted to 13,217 thousand Gcal for 6M 2012, down by 5.3% YoY.

The specific consumptionof equivalent fuel for 6M 2012 decreased by 0.1 g/kWh for electricity generation to 316.6 g/kWh, and by 1 kg/Gcal for heat output  to 141.8 kg/Gcal, compared to the similar period of the previous year.

The transmitted electricity losses in the transmission grids fell to 1.46% versus 1.49% for 6M 2012, while distribution grid losses were reduced from 9.47% to 8.45% YoY.

Commenting on the company’s results for the first six months and the second quarter of 2012, Andrey Makarov, the General Director of Bashkirenergo OJSC, noted:

The first half of 2012 was a pretty tough period for the power sector, which faced a number of unfavorable factors. A postponed tariff escalation from January to June, a decrease in prices on the wholesale market, a warmer winter and early termination of the heating season in some regions brought the indicators of the sector and Bashkirenergo OJSC in particular under pressure. Nevertheless, the company continues to work on improvements to its business efficiency. The company terminated servicing the rented heat network and other equipment located in Ufa, Sterlimak and Kumertau during the second quarter. The implementation of projects aimed at modernization and an improvement in the efficiency of the company’s assets continued, as well as work on such common sector issues as the collection of debts for heat and hot water. At the same time, Bashkirenergo OJSC expended efforts to settle corporate issues related to the reorganization for the purpose of complying with legal requirements, as well as the preparation and holding of the general meetings of shareholders. The company has managed to carry out its assigned tasks. The Annual General Meeting of Shareholders took place on June 20, at which time the company’s annual report was approved and new membership to the Board of Directors was elected. Also, on July 27 the Extraordinary General Meeting of Shareholders made a decision concerning the company’s reorganization. Activities carried out in regards to the company’s reorganization are already reflected in the IFRS report for the first six months of 2012. As a result, the financial results of the generating sector are represented separately as a discontinuing operation.

RESULTS OVERVIEW

In Q2 2012, the company’s power plants produced 7.8% less electric power than during the similar period of the previous year due to a decrease in prices on the wholesale market and a lower inflow of water to the water storage reservoirs of the HPP. The 6M 2012 power output was 11,012.57 mln kWh, or 4% less than the similar figure for the previous year.

The total power output in Russia since the beginning of 2012 was 533.4bln kWh, or 1.6% more than from January to June of 2011, and for the Urals United Power System, increased by 1.3% to total 129.9 bln kWh in H1 2012. Thus, the share of Bashkirenergo’s output was 8.47% in the Urals UPS and 2.06% in Russia as a whole.

Heat output in Q2 2012was reduced by 16.3% compared to the similar period of the previous year to 3,522 Gcal. Warm weather made it possible to terminate the heating season ahead of schedule. The reduction in heat output was also conditioned by the termination of servicing for rented property by BashRES LLC, a decline in demand from a large customer, and a decline in the output of heat and hot water due to weather warmer than the previous year. The company’s total heat output for H1 2012 was 13,217.75, or 5.3% less than the similar indicator of the previous year.

Key Financial Performance Indicators,in mln RUR

In accordance with the rules of IFRS compilation, the financial results of the generating sector for the first six months of 2012 are presented separately as the results of a discontinuing operation.

Key Operating Results

REVENUE

Revenue for Q2 2012 amounted to RUB 2,767 million, remaining nearly the same as the similar results of the previous year (down 0.65% from RUB 2,785 million). It should be noted that in the published IFRS report, the revenue represents the results of the grid segment, while the results of the generating segment are accounted for in the separate line, “Profit from the discontinuing operation”.

OPERATING EXPENSES

The structure of operating expenses in the Q2 2012 IFRS report do not include power generating activity due to the fact that the results of this segment are accounted for in the separate line, “Profit from the discontinuing operation”.

Staff costs, the largest item of fixed costs (37% of total operating expenses), rose 1% to 1,540 mln RUR against the first six months of 2011.

Subsequent to the deconsolidation of the guaranteeing supplier (retail company) ESKB LLC in 2011, BashRES LLC and BSK LLC (the subsidiaries of Bashkirenergo OJSC) do not account for normative losses in their operating expenses in such an amount, as the guaranteeing supplier ESKB LLC does not include them in its sales amounts for the purpose of complying with wholesale market rules. Due to this fact, the compensation of losses to a guaranteeing supplier, representing a major item of expenses, was reduced by 28% YoY, and amounted to RUB 1,093 million.

The total operating expenses for 6M 2012 decreased by 13.8% YoY to RUB 4,133 million, supporting a 31.76% growth in operating profit YoY to RUB 1,539 million.

PROFIT FROM DISCONTINUING OPERATION

Profit from the discontinuing operation, representing the results of power generation for 6M 2012, was RUB 490 million. Losses, amounting to RUB 336 million for Q2 2012, were caused by price cutting on the wholesale market for electricity and power, on the back of high prices for energy carriers, a decline in heat output related to the higher temperature of the outside air, and by customers’ weak payment disciplines.

FINANCIAL POSITION

As of the balance sheet date, the total assets of Bashkirenergo OJSC amounted to

RUB 69,590 million, increasing by 7% from the beginning of the year. Power generating assets were recorded in a separate line, “Assets from discontinuing operation”, which influenced the structure of assets in the H1 2012 IFRS report.

The share of non-current assets comprised 26% of the total assets and amounted to RUB 18,267 million, while the share of current assets was 74%, or RUB 51,323 million.

Capital and reserves as of June 30, 2012 comprise 83% of the total equity and liabilities, amounting to RUB 57,420 million. The liabilities of the discontinuing operation became the largest liability, along with deferred tax liabilities and trade and other payables, comprising 12%, 1.3% and 1% of capital and liabilities, respectively.

CAPITAL EXPENDITURE

The investment program of H1 2012 amounted to RUB 1,433 million.

Bashkir Electricity Distribution Grid LLC (BashRES LLL – a subsidiary of Bashkirenergo OJSC) commissioned a new 110 kV Sipaylovo-Ishimskaya cable line in Ufa city in Q2 2012. The line was constructed by applying cable with insulation made of cross-linked polyethylene (CLP), and has a total two-way length of 4,926 meters. The new line lies at a safe depth underground. The investment value of the Sipaylovo-Ishimskaya cable line construction amounted to RUB 340 mln.

Bashkirenergo OJSC started reconstruction of equipment at the largest boiler house in Ufa city, BH-1. During the course of modernization, the present pipeline, with a diameter of 700 mm, will be replaced by a modern pipeline with a diameter of 800 mm. Isolation valves, a mud filter and other equipment necessary for the operation of the modernized pipeline will also be replaced. The estimated cost for the pipeline’s diameter enlargement is RUB 7 million.

Replacement of the 110 kV oil break switches with electro gas at the substations of the Bashkir grid company continues as part of the program of modernization of BSK OJSC’s switching equipment, scheduled until 2016. By the end of 2012, a total of 15 oil break switchers will be replaced by five electro gas switchers at five substations. It is planned to install 189 switchers of 6/10kV, 26 switchers of 35kV and 47 switchers of 110kV at the facilities of BashRES LLC this year.

The construction of CCGT CHPP-5, with a capacity of 440 MW and 290 Gcal/h, remains one of the largest projects. The expected term for putting CHPP-5 into operation is during 2014.

EVENTS AFTER THE REPORTING DATE

The Extraordinary General Meeting of Shareholders of Bashkirenergo OJSC took place on June 27, 2012. A decision was adopted at the meeting concerning the company’s reorganization in the form of a spin-off resulting in the establishment of two companies: a generating company called Bashenergoactiv Open Joint Stock Company (Bashenergoactiv JSC), and a power grid company called Bashkirian Power Grid Company Joint Stock Company (BPGC JSC).

As a result of this reorganization, all of the property, rights and duties of Bashkirenergo OJSC will be transferred to Bashenergoactiv JSC and BPGC JSC in accordance with the dividing balance sheet.

OUTLOOKS UNTIL THE END OF 2012

A readjustment of tariffs started from July 1, 2012. The Federal Tariff Service stipulated a 6% growth in tariffs for the population (or a 3% yearly average) and 15% for other consumers (or a 7.5% yearly average). This rise in tariffs should support power sector indicators in H2 2012.

It is expected that revenue will decline in 2012 against target indicators due to the retirement of property rented by BashRTS LLC, as well as to changes in the regulations governing the wholesale market. At the same time, this should positively impact the profitability of the company’s generating business.

BASHKIRENERGO OJSC AND SUBSIDARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 2012 AND DECEMBER 31, 2011 (UNAUDITED)
in millions of Russian rubles

BASHKIRENERGO OJSC AND SUBSIDARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE FIRST SIX months and second quarter ENDING JUNE 30, 2012 and 2011 (UNAUDITED)

in millions of Russian rubles

BASHKIRENERGO OJSC AND SUBSIDARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIRST SIX months ENDING june 30, 2012 and 2011 (UNAUDITED)
in millions of Russian rubles