Performance report of the Board of Directors in 2014

The Board of Directors determines the Company’s business priorities and approves its long-term plans and core programmes, including the budgets and investment programme.

In order to implement these functions, the Russian Railways Board of Directors in 2014 tentatively approved an updated long-term development programme for the Russian Railways Group until 2020 (as the first stage of the Russian Railway Group’s Development Strategy until 2030), established the control parameters for the targeted standing of the Russian Railways Group until 2030, approved an adjustment to the investment programme and financial plan for 2014, approved the financial plan of the Company and its S&A, the investment programme for 2015 and the planned period of 2016 and 2017, an updated Innovative Development Programme until 2015 and a report on its implementation in 2013, which was approved by the Russian Railways Board of Directors (Minutes No. 7 dated 24 April 2014). The objective of the updated Innovative Development Programme until 2015 is consistent with the Russian Railways Development Strategy and involves improving the efficiency of operations while continuously enhancing the quality of the services provided along with a high level of innovation and traffic safety. Updates were made taking into account the requirements of the Russian Ministry of Economic Development for the preparation of innovative development programmes for companies with government participation and reporting on their implementation. The results of specific projects of the Innovative Development Programme are described in the section “Modernisation and Innovative Development Projects” of this Report.

In addition, the Board of Directors approved a regulation on the key performance indicators of Russian Railways and key performance indicators to assess the work of Management Board members, which should be taken into account when adopting decisions on remuneration and personnel decisions.

The Board of Directors monitors the project to rebuild and modernise the Baikal-Amur and Trans-Siberian Mainlines. In particular, the Board of Directors has decided to establish the Directorate for the Development of the Railways of the Eastern Operating Domain — branch of Russian Railways, reviewed the results of a competition to select an independent financial consultant and the main provisions of the terms of reference for the preparation of a business plan and financial model for the project, reviewed and took under advisement a report from an independent financial consultant and technology auditor about the results of the preparation of the business plan and financial model for the project.

The Board of Directors determines the Company’s policy for the remuneration of members of the Board of Directors, executive bodies as well as other key executives of the Company.

As part of performing these functions, the Russian Railways Board of Directors prepared recommendations for the Company’s Annual General Meeting of Shareholders on matters concerning the payment of remuneration to members of the Board of Directors and Audit Committee, tentatively approved a draft regulation on remuneration and compensation paid to members of the Russian Railways Board of Directors and approved a draft regulation on remuneration and compensation paid to members of the Russian Railways Audit Committee. As regards remuneration for the executive bodies, the Russian Railways Board of Directors in 2014 decided to pay a bonus to the Company’s president for the work performed in the fourth quarter of 2013 through the third quarter of 2014 and an annual bonus for members of the Russian Railways Management Board and also approved a new Regulation on the Remuneration System for Members of the Russian Railways Management Board.

In accordance with the Company’s Charter, the Board of Directors plays a key role in decision-making with respect to S&A.

The Board of Directors approved the distribution of S&A of the Russian Railways Group by strategic business unit and group in 2014 based on the purposes of Russian Railways’ participation in the charter (contributed) capital of S&A and measures to improve the efficiency of the management system of S&A, approved a forecast plan for the sale of shares and the termination of participation in S&A of Russian Railways in 2014–2016 and reviewed and took under advisement a report on the sales results of competitive bidding for stakes in S&A of Russian Railways in 2011–2014 and on the fulfilment of the competition conditions by the buyers of the stakes of S&A of Russian Railways.

The Board of Directors decided to establish the joint-stock company United Transportation and Logistics Company, reviewed a report from the executive bodies on the results of the integration of GEFCO S.A. into the Russian Railways Group and gave instructions to prepare proposals on options and deadlines for monetising TransTelecom Company shares owned by Russian Railways.

The Russian Railways Board of Directors monitors the corporate governance practice at the Company.

The Board of Directors in 2014 approved new versions of the Regulation on the Strategic Planning Committee, the Regulation on the Audit and Risk Committee and a Regulation on the Personnel and Remuneration Committee taking into account the recommendations of the Corporate Governance Code, which was approved by the Board of Directors of the Bank of Russia on 21 March 2014, and reviewed and took under advisement a report on the results of a compliance analysis of the Russian Railways corporate governance standards with the provisions of the Code and risks related to the introduction of the Code’s provisions at Russian Railways.

Meetings of the Board of Directors, high-quality preparations for such meetings and active participation in such meetings by members of the Board of Directors ensure the Board of Directors functions effectively.