JSC Russian Grids – 2012 Management Report Disclaimer This

Transcription

JSC Russian Grids – 2012 Management Report
Disclaimer
This document contains forward looking statements with respect to Joint Stock Company “Russian Grids”
(formerly JSC IDGC Holding, MRSK Holding) (Russian Grids or the “Company”) and its subsidiaries (the
“Group”) financial condition, results of operation, strategy, plans and objectives. These statements include
those that express forecasts, projections and expectations. Although Russian Grids believes that the
expectations reflected in forward looking statements are reasonable, these statements do not guarantee
future performance, are subject to risks, uncertainties and other factors, some of which are beyond control of
the Company and could cause actual results to differ materially from those expressed or implied. Information
on significant risks and uncertainties associated with Company’s business is presented in this document in
“Risk management” section.
1
Table of Contents
1.
2.
3.
4.
Business Overview................................................................................................................................................................ 3
1.1.
Principal Operations .......................................................................................................................... 3
1.2.
Mission and Strategy ......................................................................................................................... 5
1.3.
Structure .......................................................................................................................................... 7
Corporate Governance Report ............................................................................................................................................. 9
2.1.
Principles and Structure of the Corporate Governance System.............................................................. 9
2.2.
General Meeting of Shareholders ..................................................................................................... 11
2.3.
Board of Directors ........................................................................................................................... 13
2.4.
Committees of the Board of Directors................................................................................................ 26
2.5.
Management Board ........................................................................................................................ 34
2.6.
Remuneration ................................................................................................................................. 40
2.7.
Significant events after the end of reporting period ............................................................................. 42
Operating Performance Review of 2012 ............................................................................................................................ 43
3.1.
Major Operating Results .................................................................................................................. 43
3.2.
Capital Investment .......................................................................................................................... 53
3.3.
Research and Innovation ................................................................................................................. 62
3.4.
Reliability and Safety ....................................................................................................................... 64
3.5.
Human Capital and Social Responsibility .......................................................................................... 66
Financial Performance Review of 2012 ............................................................................................................................. 69
4.1.
Profitability ..................................................................................................................................... 69
1.2.
Capital Structure and Off-Balance-Sheet Arrangements ..................................................................... 76
4.3.
Liquidity ......................................................................................................................................... 79
4.4.
Cash Flow ...................................................................................................................................... 82
4.5.
Dividends and Acquisition of Own Shares ......................................................................................... 83
5.
Risk management ................................................................................................................................................................ 84
6.
Outlook for 2013 .................................................................................................................................................................. 94
7.
Responsibility Statement.................................................................................................................................................... 97
8.
Independent Auditor’s Report ............................................................................................................................................ 98
9.
Consolidated Financial Statements for 2012 .................................................................................................................. 100
2
1. Business Overview
1.1.
Principal Operations
Russian Grids is one of the largest electricity distribution companies in the world by the number of customers
and the length of its grid.
The Company is one of the most important infrastructural companies in Russia, controlled by the
Government and acts as the Government’s agent to manage the Russian electricity distribution grid sector.
Company's structure comprises 97 branches rendering power distribution services in 69 of Russia’s 83
regions.
What is Russian Grids?
For the investor
community
For customers
For FGC UES
For the regions and local
government authorities
For its staff
An effective instrument for investment, ensuring the reliability and liquidity of
invested capital, and striving to deliver competitive return
A company striving to provide services of high quality: a high-grade and
reliable electricity supply and timely and transparent electricity network
connection at affordable prices
A reliable partner ensuring the coordinated development of the country’s
electric grid sector and implementing a uniform technical policy
A company working to satisfy the economy’s demand for distribution capacity,
acting as a reliable partner of Russian regional executive authorities in
planning and carrying out regional development programs, and being a bona
fide taxpayer and employer
An efficiently organized company that has a transparent and comprehensible
corporate governance system and offers opportunities for personnel to realize
their full potential
In managing its electric grid subsidiaries, Company pursues a uniform policy on electricity distribution
services, including innovation, energy conservation and energy efficiency, and the formulation and
implementation of the uniform development strategy for the whole electricity distribution grid sector of the
Russian Federation.
Key Operating Indicators of the Distribution Grid Sector (all subsidiaries)
Indicator
Unit
2012
2012 on 2011, %
MVA
403,651
102.5
Length of overhead power lines, 35 kV and above
kilometers
417,687
101.7
Length of overhead power lines, 0.4-20 kV
kilometers
1,546,275
103.0
Installed capacity of substations
3
Staff on the payroll
Average tariff growth
Electricity network losses
Capital investment
thousand persons
188.8
100.9
kopecks/kWh
96
98.9
%
8.11
96.5
million rubles
143,672
110.4
4
1.2.
Mission and Strategy
The mission of Russian Grids is to secure a reliable and efficient electric power supply satisfying the growing
demand of the Russian economy and social sector at service prices affordable for customers. To accomplish
its mission, the Company carries out a comprehensive program of measures in accordance with its Strategy
for Development Until 2015 with Long-Term Plans Until 2020. The program includes the following three
areas:
1. Enhancing the Quality and Reliability of the Electricity Supply for Ultimate Customers
Enhancing the reliability of the electricity supply for ultimate customers and improving the quality of services
provided by the Company's subsidiaries and dependent companies are among the priorities defined in the
Strategy. For this purpose, the following measures are specified in the Strategy:




Create a system for the accurate measurement of electricity supply quality and reliability based on
world standards and use it while formulating investment and repair programs.
Raise the responsibility of the technical, financial and economic, and investment divisions of Russian
Grids and all subsidiaries, and (as part of the regulation system) all grid organizations for achieving
quality and reliability targets.
Implement a system for assessing customer satisfaction with respect to services provided by
subsidiaries.
Organize and develop the Company's subsidiaries’ call centers and face-to-face customer service
infrastructure (a network of customer service centers) and online service centers.
2. Maintaining the Tariff-Based Sources of Investment
The measures taken by the Company to maintain the tariff-based sources of investment in the renewal and
development of networks include:


Keeping the RAB system with adjusted parameters and enhancing the transparency of tariff design
and investment programs of all grid organizations;
Forming the government’s position on the necessity of decreasing the number of territorial grid
organizations by means of establishing and gradually raising the minimum requirements applicable
to them to be followed by their consolidation.
3. Improving Operating and Investment Efficiency
In this area, the Company works to improve the efficiency of its operating and investment expenses by
raising workforce productivity, prioritizing and cutting the specific costs of work, using technical solutions with
higher cost effectiveness, and reducing losses. Measures to improve operating and investment efficiency are
as follows:
5







Optimizing per-customer expenses related to repair, operation, dispatching, and support functions by
means of implementing an asset administration program, enhancing the effectiveness of prioritizing
work, and raising workforce productivity;
Introducing high-accuracy automated system measurement of the volume and cost of commercial
and technical electricity losses and implementing programs to reduce electricity losses;
Achieving an optimal utilization rate of commissioned facilities by means of improving the quality of
demand planning, revising the criteria for closing down main substations, introducing multistage
construction practices, and raising the responsibility of various divisions of Russian Grids and its
subsidiaries. Raising the responsibility of regional authorities and investors for the utilization of
constructed facilities, including by means of switching to a two-rate tariff and the take-or-pay
principle for new connections;
Increasing the effectiveness of investment in the existing grid by means of efficiently ranking and
selecting projects and tracking achieved results;
Reducing the specific costs of construction by means of implementing model solutions and
enhancing the transparency of specific costs;
Improving the quality of project implementation by means of introducing the principles of project
management;
Developing personnel, including training and exchange of knowledge, a stronger orientation toward
the achievement of key performance indicators and professional advancement, and the promotion of
the best employees and the attrition of weaker employees.
In order to ensure a uniform approach to implementing the technical policy and the principles of managing
Russia’s electric grid sector and pursue uniform investment, financial and economic, and personnel policies,
pursuant to Directive of the Government of the Russian Federation, the powers of the Company’s sole
executive body were transferred to FGC UES.
6
1.3.
Structure
Operating structure
As of December 31, 2012, the Company had shareholdings in eleven interregional distribution grid
companies (IDGCs), five distribution grid companies, seven sales companies, eight R&D and design
companies, four service and construction organizations, eight real estate owners and one company without
operations.
Shareholding structure
As of the end of 2012 registered capital was 49 946 843 800 rubles, divided for 49 946 843 800 shares
(nominal value - 1 ruble), including 47 871 694 416 common shares and 2 075 149 384 preferred shares.
Quantity of the Company’s shares owned by the government:
As of December 31, 2012
Federal Agency for State
Property Management
Quantity of Shares
Ordinary Shares
Preference Shares
27,083,623,028
145,523,224
Percentage of
Share Capital, %
54.52
Principal Shareholders of the Company (as of December 31, 2012):
Percentage of Share
Capital, %
The Russian Federation represented by the Federal Agency for State Property
Management
National Settlement Depository (nominee shareholder)
Depository and Corporate Technologies (nominee shareholder)
54.52
17.03
15.79
Shareholders owning more than 5% of ordinary shares in the Company (as of December 31, 2012):
Type*
The Russian Federation represented by the Federal Agency for
State Property Management
National Settlement Depository
Depository and Corporate Technologies
Percentage
of
Registered
Ordinary Shares, %
56.58
NS
NS
16.19
14.58
7
including: Gazprom Energoholding
O
4.10
ING BANK (EURASIA)
* “NS” means a nominee shareholder; “O” means an owner
NS
5.04
Shareholders owning more than 2% of ordinary shares in the Company (as of October 8, 2012):
Name
Federal property
Gazprom Finance B.V.
Gazprom Energoholding
Rusenergo Fund Limited
Index of Energy – FGC UES
Neft-Aktiv
MMC Norilsk Nickel
Percentage of
Share Capital
54.52
5.13
3.93
4.18
2.77
3.18
3.04
Resident and nonresident shareholders of the Company (as of October 8, 2012):
Federal property
Corporate entities
Individuals
Residents
Percentage
Qty
of Share
Capital
54.52%
1,767
19.24%
317,012
4.173%
Nonresidents
Qty
Percentage of
Share Capital
486
396
22.06%
0.007%
Shares in Russian Grids are included in the calculation of the main Russian stock market indices:
1.
2.
3.
4.
MICEX Index;
MICEX Power Index;
MICEX Mid Cap Index;
RTS Index;
Shares in Russian Grids are included by MSCI Barra in the calculation of the MSCI Russia Indices:
1. MSCI Russia Standard Index;
2. MSCI Russia Mid Cap Index;
3. MSCI Russia IMI.
8
2.
Corporate Governance Report
2.1.
Principles and Structure of the Corporate Governance System
The Company’s corporate governance conforms to the applicable Russian laws, the Articles of Association
of the Company, and internal documents of the Company and is based on the principles of accountability,
fairness, transparency, and responsibility.
The management and control bodies of the Company include the following:

General Meeting of Shareholders;

Board of Directors;

Management Board (collegial executive body);

Sole executive body;

Internal Audit Commission.
The Company’s highest management body is the General Meeting of Shareholders that enables
shareholders to exercise their rights to participate in running the Company’s business. The General Meeting
of Shareholders adopts decisions on issues of utmost importance to the Company’s operations.
The Board of Directors of the Company formulates the Company’s strategy, is in charge of the general
management of the Company’s activities, and controls the work of the Company’s executive bodies. In order
for the Board of Directors to perform its functions in the most effective way and with the aim of preliminarily
considering the most important issues falling within the competence of Board of Directors, the Board of
Directors of the Company has its specialized committees.
With a view to achieving the goals of the Company and implementing its strategy, the Company’s day-to-day
activities are managed by a collegial executive body, the Management Board of the Company, and the sole
executive body of the Company. The sole executive body and the Management Board are accountable to the
Board of Directors of the Company. As specified in Articles of Association of the Company, the members of
the Management Board are elected by the Board of Directors of the Company. The Management Board is
chaired by the Chairman of the Management Board.
The sole executive body is in charge of the Company’s day-to-day activities, dealing with issues except
those falling within the competence of the General Meeting of Shareholders, the Board of Directors, and the
Management Board of the Company.
9
On June 30, 2012, the Annual General Meeting of Shareholders resolved to transfer the powers of the
Company’s sole executive body to a management organization, Open Joint-Stock Company Federal Grid
Company of Unified Energy System (FGC UES). Before that, the functions of the Company’s sole executive
body were performed by the Director General of the Company, who also was the Chairman of the
Company’s Management Board.
In order to control its financial and economic activities, the Company annually elects the Internal Audit
Commission, consisting of five members. The competence of the Internal Audit Commission includes
carrying out audits (inspections) of the financial and economic activities of the Company and validating the
information contained in the Company’s Annual Report and annual accounting statements that should be
approved by the Annual General Meeting of Shareholders. The Internal Audit Commission is accountable to
the General Meeting of Shareholders of the Company.
Therefore, the existing corporate governance system of Russian Grids complies with the applicable Russian
laws and aims to ensure the management and control of the Company’s activities and enable shareholders
to exercise their rights.
10
2.2.
General Meeting of Shareholders
The Company’s highest management body is the General Meeting of Shareholders. The procedure for
convening, preparing, holding, and summarizing the results of the General Meeting of Shareholders is
defined by the Regulations for the Preparation and Holding Procedure for the General Meeting of
Shareholders of the Company approved by the Annual General Meeting of Shareholders on June 22, 2011.
In 2012, the Company held three General Meetings of Shareholders. On January 14, 2012, the Extraordinary
General Meeting of Shareholders discussed the early termination of the powers of the Company’s Board of
Directors and elected the following members of the Company's Board of Directors:
1
Georgy Valentinovich Boos
2
Nikolay Nikolayevich Shvets
3
Denis Vladimirovich Fedorov
4
Seppo Juha Remes
5
Vladimir Vasilyevich Kolmogorov
6
Vladimir Vitalyevich Tatsiy
7
Thomas Hendel
8
Sergey Vladimirovich Serebryannikov
9
Vyacheslav Mikhailovich Kravchenko
10
Andrey Removich Bokarev
11. Georgy Petrovich Kutovoy
12. Viktor Vasilyevich Kudryavy
13. Pavel Andreyevich Borodin
14. Sergey Renatovich Borisov
15. Igor Vladimirovich Khvalin
The Annual General Meeting of Shareholders took place on June 30, 2012. The goal of the Annual General
Meeting of Shareholders was to consider the Company’s performance results for 2011. The principal
decision made by the AGM concerned the transfer of the powers of the Company’s sole executive body to a
management organization, Open Joint-Stock Company Federal Grid Company of Unified Energy System
(FGC UES).
The Annual General Meeting of Shareholders of the Company resolved to pay dividends on the Company’s
preference shares out of undistributed profits of prior years in the amount of 0.07 ruble per preference share.
11
On October 8, 2012, the Board of Directors resolved to convene the Extraordinary General Meeting of
Shareholders to consider an increase in the authorized capital of the Company. The Extraordinary General
Meeting of Shareholders took place in absentia on November 13, 2012. The EGM decided to increase the
authorized capital of the Company by means of issuing 16,885,114,442 additional ordinary shares to be
placed through a public offering at 2.16 rubles per ordinary share.
12
2.3.
Board of Directors
The Board of Directors of the Company is the collegial body in charge of the general management of the
Company’s activities.
The Board of Directors acts in accordance with the laws of the Russian Federation, the Articles of
Association of the Company, the Corporate Governance Code, and the Regulations for the Convening and
Holding Procedure for Meetings of the Board of Directors of the Company.
The principal objectives and tasks of the activities of the Board of Directors are as follows:





define the Company’s development strategy aiming to enhance its market capitalization and appeal
to investors, achieve the maximum profit, and increase the Company’s assets;
ensure the exercise and protection of the rights and lawful interests of the Company’s shareholders
and contribute to resolving corporate conflicts;
ensure that the information about the Company disclosed to shareholders and other stakeholders
is complete, reliable, and unbiased;
create efficient internal control mechanisms;
evaluate the performance of the Company’s executive bodies on a regular basis.
The work of the Board of Directors is organized by the Chairman of the Board of Directors who is a member
of the Board of Directors and is elected by the members of the Board of Directors at the first meeting of the
new members. Meetings of the Board of Directors are held in accordance with the approved Action Plan for
the Board of Directors and as and when necessary, but at least once every six weeks.
If necessary, the Chairman of the Board of Directors may decide to hold an unscheduled meeting of the
Board of Directors or reschedule a scheduled meeting of the Board of Directors. Meetings of the Board of
Directors may also be convened by the Chairman of the Board of Directors at the written request of any
member of the Board of Directors, the Internal Audit Commission of the Company, the sole executive body of
the Company, or the Auditor of the Company.
The Board of Directors of the Company consists of 15 members elected by the General Meeting of
Shareholders. Before January 14, 2012, the Board of Directors of the Company was composed of the
following members elected by the Annual General Meeting of Shareholders on June 22, 2011:
Full Name
Sergey Renatovich Borisov
Pavel Andreyevich Borodin
Valery Alekseyevich Gulyaev
Position (as of the time of nomination)
Chairman of the Board of Directors, JSC CC
Kuzbassrazrezugol and CJSC Transmashholding
President, OPORA RUSSIA All-Russian Public
Organization of Small and Medium Business and
Association of Entrepreneurial Organizations of
Russia (OPORA) Nonprofit Partnership
Vice President, OJSC VimpelCom
Deputy General Director for Procurement and
Logistics and Member of the Management Board,
13
Viktor Vasilyevich Kudryavy
Georgy Petrovich Kutovoy
Sergey Vladimirovich Maslov
Seppo Juha Remes
Igor Vladimirovich Khvalin
Thomas Hendel
OAO OGK-6
Director General, OAO United Energy Sales
Company
Advisor to President, EUROCEMENT Group ZAO
Advisor to President on Energy, United Metallurgical
Company
President, Saint Petersburg International Mercantile
Exchange
Director General, OOO Kiuru
Rector, Moscow Power Engineering Institute
(Technical University)
First Vice President, Gazprombank (Open JointStock Company)
Director General, OOO Gazprom Energoholding
Executive Director, ZAO Volga Engineering Group
General Director, Russian-German Energy Agency
(rudea) OOO
Director General, MRSK Holding
On January 14, 2012, the powers of the Board of Directors were terminated earlier by the Extraordinary
General Meeting of Shareholders of the Company; the following new members of the Board of Directors of
the Company were elected:
Full Name
Seppo Juha Remes
President, Boos Lighting Group Management
Company
Advisor to General Director, MMC Norilsk Nickel
Director General, OAO United Energy Sales
Company
Advisor to President on Energy, United Metallurgical
Company
(Technical University)
Division Manager, Development of the Electric
Power Sector and Marketing in the Electric Power
14
Industry, OAO Gazprom;
Director General, OAO Tsentrenergokholding;
Director General, OOO Gazprom Energoholding;
Thomas Hendel
Director General, OOO Gazprom Energoholding
Executive Director, ZAO Volga Engineering Group
(rudea) OOO
On June 30, 2012, the Annual General Meeting of Shareholders of the Company elected the following
members of the Board of Directors:
Full Name
Boris Gennadyevich Zingarevich
Seppo Juha Remes
Elena Borisovna Titova
Thomas Hendel
Pavel Olegovich Shatsky
President, Boos Lighting Group Management
Company
Member of the Board of Directors, Ilim Group
Chairman of the Board, Nonprofit Partnership
Council for Organizing Efficient System of Trading
at Wholesale and Retail Electricity and Capacity
Market (Market Council)
(National Research University)
President and Chairperson of the Executive Board,
OOO Morgan Stanley Bank
Director General, OAO Tsentrenergokholding and
OOO Gazprom Energoholding
(rudea) OOO
First Deputy Director General, OOO Gazprom
Energoholding
15
From the time of the Annual General Meeting of Shareholders of the Company to the end of 2012, the Board
of Directors was not changed:
Year of Birth: 1963
Education: higher education, Candidate of Science (Engineering)
Chairman of the Board of Directors of the Company from 2012 to the present
From 2010 to the present, President of Boos Lighting Group Management Company. From 2005 to 2010,
Governor of the Kaliningrad Region.
No stake/ordinary shares held in the authorized capital of the issuer
Stakes held by the individual in the authorized (share) capital (unit trust) of the subsidiaries and dependent
companies of the issuer: none
No transactions involving the acquisition or transfer of title to shares
Year of Birth: 1966
Education: higher education
Member of the Board of Directors of the Company from 2011 to the present
President, Transmashholding. Member of the Board of Directors, Ural Mining and Metallurgical Company.
Chairman of the Board of Directors, CC Kuzbassrazrezugol. Head of the Regional Office, RSPP Regional
Office in the Kemerovo Region. Chairman of the Coordinating Board, RSPP Associations in the Siberian
Federal District. Member of the Bureau of the Board of Directors, Russian Union of Industrialists and
Entrepreneurs (RSPP). Member of the Bureau of the Board of Directors, Russian Union of Industrialists and
Entrepreneurs Russian Association of Employers.
16
Year of Birth: 1953
Education: higher education, Candidate of Science (Economics), Doctor of Philosophy
Member of the Supervisory Board, Russian Bank for Development. Member of the Supervisory Board,
Rosbusinessbank. President, Association of Entrepreneurial Organizations of Russia (OPORA). President,
OPORA RUSSIA All-Russian Public Organization of Small and Medium Business. Chief Executive Officer,
Russian Fuel Union from 1998 to 2009.
Year of Birth: 1971
Education: higher education, Candidate of Science (History)
Vice President, Operator Activity Support and Government Relations, VimpelCom. Member of the Board of
Directors, All-Russian Exhibition Center. Member of the Presidium, Chairman of the International
Cooperation Commission, Association of Lawyers of Russia. From 2008 to 2010, Deputy Director General,
Russian Housing Development Foundation. From 2004 to 2008, Deputy Director of the Regional Monitoring
Department and, then, Deputy Director of the Regional Development and Agriculture Department,
Government of the Russian Federation. From 2008 to 2011, member of the Central Election Commission of
the Russian Federation with a consultative voice on behalf of Dmitry Medvedev. From 2004 to 2008, member
of the Central Election Commission of the Russian Federation with a consultative voice on behalf of Vladimir
Putin.
17
Boris Gennadyevich Zingarevich
Year of Birth: 1959
From 2008, member of the Coordinating Innovation Board, Ilim Timber.
Year of Birth: 1967
Chief Executive Officer, United Energy Sales Company. Chief Executive Officer, RN-Energo. Member of the
Boards of Directors: Petersburg Power Sales Company, Altaienergosbyt, Okha CHPP, Financial Settling
Center, INTER RAO UES, TSA. From 2008, member of the Supervisory Board, Market Council. From 2009
to 2011, member of the Boards of Directors: Tomskelektrosetremont, Tomskenergoremont, Tomsk
Transmission Networks, Tomskenergosbyt, Kuban Generation Company, Kuban Transmission Networks,
Kubanenergosbyt. From 2010 to 2011, member of the Board of Directors, RRDB. At certain times from 2008
to 2011, member of the Board of Directors: TDC, Kubanenergo, TGK-11, Irkutskenergo, Rostopprom,
Rosgazifikatsiya, Energosetproekt Institute.
From August 2008 to December 2008, Chairman of the Board of Directors, MRSK Holding.
Before that, Deputy Director of the Department for Structural and Investment Policy and Energy and, then,
Director of the Electricity Industry Department, Ministry of Industry and Energy of the Russian Federation.
18
Year of Birth: 1937
Education: higher education, Doctor of Science (Engineering)
Member of the Board of Directors, RusHydro. Advisor to President, EUROCEMENT Group ZAO. From 2005
to 2008, Vice President, EUROCEMENT Group OAO. Chief Scientific Officer, Department of Automated
Systems, Moscow Power Engineering Institute. From 1996 to 2004, Deputy Minister of Fuel and Energy of
the Russian Federation (on May 17, 2000, transformed into the Ministry of Energy of the Russian
Federation).
Stake held by the individual in the authorized capital of the issuer (%): 0.0008
Percentage of ordinary shares held by the individual in the issuer (%): 0.0009
companies of the issuer:
Full corporate name: Interregional Distribution Grid Company of North-West, Joint Stock Company
INN (Taxpayer Identification Number): 7802312751
OGRN (Principal State Registration Number): 1047855175785
Stake held by the individual in the authorized capital of the entity (%): 0.0001
Percentage of ordinary shares held by the individual in the entity (%): 0.0001
Full corporate name: Joint-Stock Company Moscow United Electric Grid Company
INN (Taxpayer Identification Number): 5036065113
OGRN (Principal State Registration Number): 1057746555811
Stake held by the individual in the authorized capital of the entity (%): 0.01
Percentage of ordinary shares held by the individual in the entity (%): 0.01
Transactions involving the acquisition or transfer of title to shares:
As of December 31, 2011, as a result of a transaction involving the acquisition of ordinary shares in the
Company, the stake held by member of the Board of Directors Viktor Kudryavy in the authorized capital of
the Company increased from 0.00001% to 0.0009% and the percentage of ordinary shares held by him in
the Company increased from 0.00001% to 0.0010%.
19
Seppo Juha Remes
Year of Birth: 1955
Education: higher education, Ph.D. in Economics
Member of the Board of Directors from 2008. Chairman of the Audit Committee, member of the Strategy
Committee, member of the Valuation Committee. Director General, Kiuru. Chairman of the Board of
Directors, EOS Russia. Member of the Boards of Directors: Energosetproekt Institute, LENENERGO, IDGC
of North-West, SIBUR Holding, Sollers, OMZ. Member of the Investment Policy Committee of the
Supervisory Board, Russian Corporation of Nanotechnologies (since March 2011, RUSNANO). In recent
years, member of the Boards of Directors: FGC UES, IDGC of Volga, SO UPS, IDGC of Center and Volga
Region, RusHydro, OGK-6, PONSSE, RAO UES of Russia.
Year of Birth: 1952
Education: higher education, Doctor of Science (Engineering)
Rector, Professor, Moscow Power Engineering Institute (Technical University). From 2008 to 2010, member
of the Board of Directors, RusHydro.
20
Year of Birth: 1960
Education: higher education, Candidate of Science (Economics)
Chairman of the Board of Directors, Saint Petersburg International Mercantile Exchange. Chairman of the
Board of Directors, Depository Clearing Company. First Vice President, Gazprombank. Member of the
Boards of Directors: RusHydro, MICEX Stock Exchange, Financial Settling Center, National Association of
Securities Market Participants, TSA, Regional Investment Company. Member of the Board of Trustees,
Moscow Power Engineering Institute (Technical University). Member of the Supervisory Board, National
Settlement Depository (NSD) (formerly, NDC and MICEX SH). From 2009 to 2010, member of the Boards of
Directors: United Energy Sales Company, RRDB. From 2008 to 2010, member of the Boards of Directors:
FGC UES, RusHydro, RAO Energy System of East. For several years, Head of the Depository Center,
Gazprombank. Formerly, member of the Boards of Directors: National Depository Center, INFINITUM
Specialized Depository.
Elena Borisovna Titova
Year of Birth: 1967
Education: higher education, MBA
Currently, member of the Board of Directors, FGC UES, and President, Russian Regional Development
Bank. In several recent years, member of the Boards of Directors: Sovcomflot, Morgan Stanley Bank, City
Mortgage Bank. From 2009 to 2012, President, Chairperson of the Executive Board, Morgan Stanley Bank.
From 2006 to 2009, Head of the Investment Banking Department, First Deputy Chairperson of the Executive
Board, Morgan Stanley Bank.
21
Year of Birth: 1978
Education: higher education, Candidate of Science (Economics)
Chairman of the Boards of Directors: Mezhregionenergostroy, Tyumen Power Sales Company, Mosenergo
Thermal Power Company, OGK-6, OGK-2. Director General, Tsentrenergokholding. Director General,
Gazprom Energoholding. Division Manager, Gazprom. Member of the Management Boards: Kauno elektrine
AB; Kaunas Thermofication Plant; Nadezhda Foundation for Education, Science and Engineering
Development; Fortis Energy. Member of the Boards of Directors: FGC UES, INTER RAO UES, TGK-1,
Mosenergo. Member of the Supervisory Board, Council of Power Producers. Formerly, member of the
Boards of Directors: MTenergosbyt, RAO Energy System of East, Gazenergoprombank, IDGC of Volga,
Tyumenenergo. From 2006 to 2008 almost simultaneously, Director General, Mezhregionenergosbyt;
Advisor to Director General, Mezhregiongaz; Division Head, Gazenergoprom Corporation. From 2002 to
2006, Division Manager, EuroSibPower-Engineering.
Thomas Hendel
Year of Birth: 1967
General Director, Industrial Energy Company. General Director, rudea. From 2004 to 2010, General Director,
THU Trading GmbH + Co. KG, Germany. In 2012, Chief Project Engineer (part-time), Russian Technologies
State Corporation. Currently, Head of the Procurement Department, Rosneft, and member of the Investment
Committee, Russian Grids.
22
Pavel Olegovich Shatsky
Year of Birth: 1972
Currently, member of the Boards of Directors: Mezhregionenergostroy Shtokman, Mezhregion-energostroy,
Heat Sales Company, RAO Energy System of East, Tsentrenergokholding, OGK-2. From 2011 to 2012,
member of the Board of Directors, Mosenergo Thermal Power Company. From 2009 to 2010, member of the
Board of Directors, Volzhskaya TGK. From 2009 to 2011, member of the Boards of Directors: OGK-6, MRSK
Holding. Current First Deputy Director General, Gazprom Energoholding. From 2005 to 2008, Director of the
Department for Energy Sector Strategy and, from 2006, Deputy Director for Energy, Mergers and
Acquisitions, SUEK.
Stake held by the individual in the authorized capital of the issuer (%): 0.00002
Percentage of ordinary shares held by the individual in the issuer (%): 0.000004
Year of Birth: 1956
Education: higher education, Doctor of Science (Economics), Associate Professor, Associate Member of the
Academy of Military Sciences
23
Member of the Board of Directors from 2009. Chairman of the Boards of Directors: IDGC of Northern
Caucasus, Kubanenergo, Yantarenergo, Tyumenenergo, LENENERGO, MOESK. Member of the
Supervisory Board, Scientific and Technical Council of Unified Energy System. Vice President, member of
the Management Board, member of the Management Board Bureau, Russian Engineering Union All-Russia
Industry Association of Employers. From 2010 to 2011, Chairman of the Boards of Directors: IDGC of South,
IDGC of Centre; member of the Boards of Directors: Energy Forecasting Agency, RRDB. From 2009 to 2010,
Chairman of the Boards of Directors: IDGC of Urals, IDGC of North-West, IDGC of Center and Volga Region.
Before joining MRSK Holding, Chairman of the Amur Region Legislative Assembly; Professor, Far East State
Agrarian University. From 2007 to 2008, First Deputy Chairman of the Amur Region Government. From 2006
to 2008, member of the Board of Directors, Sarapul Electric Generators. From 2004 to 2007, Assistant to the
Director General, Rosoboronexport State Corporation.
In 2012, the Board of Directors of the Company held 32 meetings (12 in person and 20 in absentia) dealing
with over 200 issues. The following most important issues were addressed by the Board of Directors in 2012:
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Review of the consolidated investment program of the Company for 2012–2017 as amended due
to transition to regulation based on the return on invested capital method;
Review of the report on the implementation of the consolidated investment program of the
Company for the 4th quarter of 2011 and 2011; review of the report on the implementation of the
consolidated investment program of the Company for the 1st, 2nd, and 3rd quarters of 2012;
Approval of the Innovative Development Program of the Company adjusted and synchronized for
the period 2012–2016 with the Consolidated Investment Program of the Company for 2012–2017,
with such Innovative Development Program to incorporate certain measures for 2012 in relation to
payment under donation agreements as a contribution to the Endowment Fund of the Skolkovo
Institute of Science and Technology;
Approval of the Annual Comprehensive Procurement Program for Goods, Work, and Services for
the Company for 2012;
Approval of the comparative analysis (benchmarking) report on operations conducted by the
Company’s distribution grid companies, including the approval of the comparative analysis
methods;
Consideration of proposals for the procedure for implementing voluntary mechanisms of the
Company’s environmental responsibility and for the compulsory regular publication of the
Company’s non-financial sustainability reports including information on environmental
responsibility;
Approval of the agreement for the transfer of the powers of the sole executive body of JSC
Interregional Distribution Grid Companies Holding to be entered into by and between MRSK
Holding and FGC UES, which is a related party transaction;
24
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Approval of other related party transactions (a list of the approved related party transactions is
attached as an annex to this Annual Report);
Convocation of the Annual and Extraordinary General Meetings of Shareholders of the Company;
Increase in the authorized capital of the Company by means of the placement of additional shares;
Acquisition by the Company of additional uncertificated registered ordinary shares in
LENENERGO;
Acquisition by the Company of additional uncertificated registered ordinary shares in IDGC of
Northern Caucasus;
Acquisition by the Company of additional shares in Kubanenergo;
Measures to ensure the mandatory application of long-term direct contracts for the supply of metal
products with a price formula taking account of the recommended guidelines;
Defining the principal areas of cooperation between the Company and the Moscow Power
Engineering Institute (National Research University);
Amendments to the Regulations for the Procedure for Regulated Procurements of Goods, Work,
Services for the Needs of the Company approved by the decision adopted by the Board of
Directors on December 29, 2011 (Minutes of the Meeting No. 72);
Review of internal regulatory documents aimed at improving the efforts to combat insider
information misuse.
25
2.4.
Committees of the Board of Directors
Investment, Technical Policy, Reliability, Energy Efficiency, and Innovation Committee
The goal of the Committee is to assist the Board of Directors of the Company in performing its functions
related to ensuring the implementation of the investment and technical policies, reliability assurance, energy
efficiency, and innovative development of the Company.
The principal objectives of the Committee include:

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Analyzing proposals and formulating recommendations for the Company’s Board of Directors with
respect to the implementation of the investment and technical policies, reliability assurance, energy
efficiency, and innovative development of the Company;
Monitoring the implementation of the consolidated investment program of the Company, the Annual
Comprehensive Procurement Program of its subsidiaries with respect to large investees, the
Consolidated Energy Conservation and Energy Efficiency Enhancement Program of the Company,
the Innovative Development Program of the Company, and the Regulations for the Uniform
Technical Policy of the Company in the Distribution Grid Sector;
Analyzing proposals and formulating recommendations for the Company’s Board of Directors with
respect to the preparation of and amendments to internal corporate documents in relation to the
investment and technical activities, reliability assurance, energy efficiency, and innovative
development of the Company;
Analyzing applicable regulatory documents and formulating recommendations for the Company’s
Board of Directors with respect to the implementation of the investment and technical policies,
reliability assurance, energy efficiency, and innovative development of the Company.
On February 17, 2012, the Board of Directors of the Company renamed the Investment Committee the
Investment, Technical Policy, Reliability, Energy Efficiency, and Innovation Committee. The members of the
Committee were elected three times in the reporting period.
In the reporting period, the Investment, Technical Policy, Reliability, Energy Efficiency, and Innovation
Committee of the Company held 16 meetings (15 in person/in absentia, one in absentia, and three in
person/in absentia jointly with the Audit Committee) dealing with more than 50 issues. The most important of
them are as follows:



Amendments to the Regulations for the Procedure for Regulated Procurements of Goods, Work,
Services for the Needs of the Company;
Approval of the Innovative Development Program of the Company adjusted and synchronized for the
period 2012–2016 with the Consolidated Investment Program of MRSK Holding for 2012–2017, with
such Innovative Development Program to incorporate certain measures for 2012 in relation to
payment under donation agreements as a contribution to the Endowment Fund of the Skolkovo
Institute of Science and Technology and the review of the report on the implementation of the
Innovative Development Program of the Company;
Review of the reports on the implementation of the consolidated investment program of the
Company for 2011 and for the 1st quarter, 2nd quarter, 1st half, and 9 months of 2012;
26
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Review of the consolidated investment program for 2012–2017;
Review of the Technique for the Quarterly Monitoring of Unit Construction Costs of Investment
Projects as Part of the Benchmarking and Comparative Analysis of Unit Construction Cost Indicators
of the Company’s subsidiaries and their branches and the review of the monitoring report for the 9
months of 2012;
Review of the Model Regulations for the Investing Activities of Subsidiaries of the Company
(including the Model Schedule of Investment Program Formulation and Adjustment and the
Preparation of Investment Program Implementation Reports of Subsidiaries of the Company);
Measures to ensure the mandatory application of long-term direct contracts for the supply of metal
products with a price formula taking account of the recommended guidelines approved by Order No.
1243 of December 20, 2010, of the Ministry of Industry and Trade of the Russian Federation;
Review of the general form and draft of the model long-term contract for the supply of electrical
products;
Approval of the Annual Comprehensive Procurement Program for 2012 and 2013;
Review of the performance report on the procurement activities of the Company’s subsidiaries with
respect to large investees under the 2012 program according to the performance results in the 1st
half of 2012 and in the 9 months of 2012;
Review of the report on progress in the implementation by IDGC of Northern Caucasus of the
Comprehensive Program of Measures to Reduce Above-standard Electricity Losses in Distribution
Networks of IDGC of Northern Caucasus and the action plan to eliminate the existing delay in
implementing the Comprehensive Program;
Review of the report on progress in the implementation by LENENERGO of the Program to Renew
Cable Lines of 6–110 kV and the action plan to eliminate the existing delay in LENENERGO’s
implementing the Program;
Review of the report on the implementation by Kubanenergo of the investment program as related to
the Program for the Development of the Sochi Region’s Electricity Networks for the Period until
2008–2014 to Ensure the Functioning of Olympic Sports Facilities in the first half of 2012;
Consideration of proposals for streamlining the management and control system for the business
process “Implementing the Programs Financed from Federal Budget Funds” for the purposes of the
performance of the agreements with the Ministry of Energy of the Russian Federation for the
provision of budget investments, including ensuring the proper and efficient use of federal budget
funds (including routine control procedures as part of procurement operations) and organizing
construction supervision;
Review of the proposals to delegate authority by corporate governance level: the Board of Directors
of the Company, the executive bodies of the Company, and the executive bodies of subsidiaries;
Acquisition by Kuzbassenergo-RES, a branch of IDGC of Siberia, of the 110/10kV power line with
the associated plot of land located in the Krapivinsky District, Kemerovo Region, and the 110kV
Temirtau–Kondoma overhead power line located in Tashtagol, Kemerovo Region;
Study “Integration Problems of the Natural Gas and Electric Power Markets in the US Economy”
conducted by the Center for Energy Research, Institute of World Economy and International
Relations, Russian Academy of Sciences.
27
Audit Committee
The principal goal of the Audit Committee is to ensure effective participation of the Board of Directors in
exercising control of the financial and economic activities of the Company.
The most important objective of the Audit Committee is to prepare and submit recommendations to the
Board of Directors concerning control over:
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the preparation process and procedures for financial (accounting) statements, including reviewing
financial (accounting) statements;
the efficiency of the internal control and risk management systems;
the selection of the independent external auditor and the evaluation of its performance;
the activities of the Company’s internal control/audit function;
the Company’s compliance with Russian laws, industry standards, and its internal regulatory
documents.
In the reporting year, the Audit Committee held 12 meetings (three in person, six in absentia, and three
jointly with the Investment, Technical Policy, Reliability, Energy Efficiency, and Innovation Committee of the
Board of Directors of the Company) dealing with more than 40 issues. The most important of them are as
follows:
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Draft of the financial statements of the Company in accordance with Russian Accounting Standards
for 2011;
Draft of the consolidated financial statements of the Group for the year ended December 31, 2011, in
accordance with International Financial Reporting Standards;
Terms and conditions of a public bidding procedure for the right to enter into the agreement to
mandatorily audit the financial (accounting) statements of the Company in accordance with Russian
Accounting Standards for 2012;
Determination of the fee for the services provided by the Auditor of the Company;
Nominees for the auditor qualifying for agreements to provide services in relation to the audit of the
IFRS consolidated financial statements of the Company’s subsidiaries for 2011;
Assessment of the auditors’ report on the accounting (financial) statements of the Company for 2011
by the Audit Committee;
Review of a restated version of the Regulations for the Internal Audit and Risk Management
Department of the Company;
Review of the action plan of the Internal Audit and Risk Management Department of the Company
for 2012;
Review of the performance report of the Internal Audit and Risk Management Department for 2011
and the consolidated performance report of internal audit and risk management divisions of the
Company’s subsidiaries for 2011;
Review of the report of the Internal Audit and Risk Management Department on the audit of the
control and monitoring functions performed by the executive arm of the Company in relation to the
construction of Olympic Games facilities and on the evaluation of the efficiency of organizational
measures;
28
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Consideration of the results of control measures taken by the Internal Audit and Risk Management
Department to analyze the efficiency of and the organization of supervising procurement of the
Company and its subsidiaries in 2010–2011;
Consideration of the results of control measures taken by the Internal Audit and Risk Management
Department to assess the efficiency of the executive arm’s activities as related to organizing and
supervising investing activities of the Company and its subsidiaries in 2010–2011;
Consideration of the results of the inspection of the implementation by the Company and its
subsidiaries of Russia’s Energy Conservation And Energy Efficiency Enhancement Governmental
Program;
Review of the reports on the audits (inspections) conducted by the internal audit commissions in
relation to the financial and economic activities of Yantarenergo for the period from August 1, 2007,
to and including August 1, 2012, and IDGC of Centre for the period from January 1, 2011, to and
including August 1, 2012;
Review of the report of the Director General of the Company to the Board of Directors on the
implementation of the Company’s local regulatory documents related to improving and developing
internal control, risk management, and internal audit for 2011;
Review of internal regulatory documents aimed at improving the efforts to combat insider information
misuse;
Review of internal regulatory documents aimed at improving the efficiency and transparency of
operations conducted by the Company and its subsidiaries (including their financial and economic
activities and anti-corrupt practices);
Review of the report on the implementation of the consolidated investment program of the Company
for the 1st quarter of 2012 and the preliminary results for the 1st half of 2012;
Progress in the implementation by IDGC of Northern Caucasus of the Comprehensive Program of
Measures to Reduce Above-standard Electricity Losses in Distribution Networks of IDGC of Northern
Caucasus and progress in the implementation by LENENERGO of the Program to Renew Cable
Lines of 6–110 kV;
Review of the report on the implementation by Kubanenergo of the investment program as related to
the Program for the Development of the Sochi Region’s Electricity Networks for the Period until
2008–2014 to Ensure the Functioning of Olympic Sports Facilities in the first half of 2012.
Nomination and Remuneration Committee
The goal of establishing the Nomination and Remuneration Committee of the Board of Directors of the
Company is to preliminarily consider and formulate proposals to be submitted to the Board of Directors of the
Company in addressing the issues falling within its jurisdiction. Principal objectives of the Committee are as
follows:
29
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Defining selection criteria for nominees for members of the Board of Directors, members of the
Management Board, and the Director General the Company and preliminarily evaluating such
nominees.
developing proposals to define material terms and conditions of employment contracts with
members of the Board of Directors, members of the Management Board, and the Director General
the Company.
Developing principles and criteria of remuneration for members of the Board of Directors, members
of the Management Board, the Director General the Company, the management company or the
manager.
Regularly evaluating the activities of the Director General (the management company or the
manager) and members of the Management Board and preparing proposals to the Board of
Directors as to whether they can be reappointed.
Developing principles and criteria related to remuneration for the Chairman and members of the
Internal Audit Committee of the Company.
Formulating recommendations for the formation of the personnel reserve of the Company and its
subsidiaries.
The most important of the issues addressed by the Committee in 2012 include as follows:

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Material terms and conditions of the Agreement for the Transfer of the Powers of MRSK Holding’s
Sole Executive Body to be entered into by and between the Company and FGC UES, which is a
related party transaction;
Priority established for the Company’s activities: changes to the system of key performance
indicators for the directors general and senior managers of subsidiaries and dependent companies
of the Company;
Approval of Addendum No. 1 to Agreement for the Transfer of the Powers of the Company’s Sole
Executive Body No. 1007 of July 10, 2012, which is a related party transaction.
Society, Customer, and Government Relations and Information Policy Committee
The principal goal of the Society, Customer, and Government Relations and Information Policy Committee is
to formulate recommendations for the Board of Directors of the Company for the improvement of the
Company’s activities in relations with governmental and municipal authorities, the enhancement of the quality
and reliability of customer service, and the implementation of the Company’s uniform information policy.
The principal objectives of the Society, Customer, and Government Relations and Information Policy
Committee are to provide the Board of Directors of the Company with recommendations for:
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implementing the Company’s internal and external information policies;
maintaining relations with governmental agencies and local government authorities;
maintaining relations across a broad spectrum with civil society (including public organizations and
movements, labor unions, and environmentalist associations);
30
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improving customer service quality;
implementing the government’s policy on the satisfaction of households’ socially important needs
and interests.
In 2012, the Society, Customer, and Government Relations and Information Policy Committee held one
meeting, deciding on the following issues:
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Election of the Deputy Chairman of the Society, Customer, and Government Relations and
Information Policy Committee of the Board of Directors of the Company;
Election of the Secretary of the Society, Customer, and Government Relations and Information
Policy Committee of the Board of Directors of the Company;
Review of the Regulations for the Society, Customer, and Government Relations and Information
Policy Committee of the Board of Directors of the Company;
Review of proposals to organize the work of the Society, Customer, and Government Relations and
Information Policy Committee of the Board of Directors of the Company;
Review of the Information Policy Strategy of the Company.
Information on the Valuation Committee
The goal of the Valuation Committee is to assist the Board of Directors of the Company in fulfilling its duties
for developing the procedure and control (in accordance with the developed procedure) of assessment of
asset value and business for the Company, its subsidiaries, as well as newly established companies and
other business entities, participating in transactions.
The principal objectives of the Valuation Committee include:
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
Supervising activities related to the appraisal of assets for the Company and its subsidiaries;
Engaging independent experts to advise on the issues falling within the competence of the
Committee.
In the reporting year, the Valuation Committee held 16 meetings (five in person and 11 in absentia) dealing
with 38 issues. The following most important issues were addressed:

For asset acquisition:
 Market value appraisal of the real property and movable property of the electric grid facilities
municipally owned by the Stary Oskol Urban District, Belgorod Region;
 Market value appraisal of electric grid facilities owned by Saint Petersburg by virtue of
ownership;
 Market value appraisal of a shareholding in TDC;
 Market value appraisal of a shareholding in Kubanenergo;
31
 Market value appraisal of the 110kV Temirtau–Kondoma overhead power line located at:
Kemerovo Region, Tashtagol, ul. Sovetskaya, 104 meters northwest of Office Building No.
159;
 Market value appraisal of property owned by Kizlyar City Electricity Networks.

For asset swap:
 Market value appraisal of the real property located at: Samara, ul. Samarskaya, 203b, and
owned by Volga Power Engineering Center Real Estate, and the real property located at:
Samara, ul. Avrory, 148, and owned by the Samara Region Arbitration Court;
 Market value appraisal of property owned by Kubanenergo and Kubanenergosbyt;
 Appraisal of 1 ordinary share and 1 preference share in LENENERGO contained in a 10–15%
shareholding in the authorized capital.
 Value appraisal of shares in Kurganenergo and EnergoKurgan;
 Appraisal of 1 ordinary share contained in a 49% shareholding in the authorized capital of
Kurganenergo;
 Market value appraisal of property, namely the related real property and movable property
located at: Yekaterinburg, ul. Chistopolskaya (formerly, Granitny proezd), 4, and owned by
IDGC of Urals, and the detached building, letter designation: 3, designated purpose:
nonresidential building, total area: 2,655.8 square meters, located at: Yekaterinburg, ul.
Shefskaya, 3a, and owned by Sverdlovenergosbyt.

For asset sale:
 Value appraisal of the property located at: Krasnodar Territory, Krasnodar, Karasunsky
District, ul. Demusa, 50, and owned by Kubanenergo;
 Market value appraisal of the electric grid facilities owned by IDGC of North-West and located
on the island of Valaam.
Strategy Committee
The Strategy Committee of the Board of Directors of the Company analyzes and prepares for the Board of
Directors recommendations and proposals concerning the Company’s strategic development and the
formulation of development planning standards for the Company's subsidiaries and monitors the
implementation of approved decisions. In accordance with the Regulations for the Strategy Committee, its
principal objectives include:


reviewing proposals and formulating recommendations for the Board of Directors of the Company
to prepare, change, supplement, and implement efforts aimed at the Company’s development in
the key areas;
monitoring the implementation of efforts aimed at the Company’s development in the key areas
approved by the Board of Directors;
32

reviewing proposals and formulating recommendations for the Board of Directors of the Company
to prepare development planning standards for its subsidiaries.
The following most important issues were addressed by the Committee in 2012:
 Proposals for the consolidation of electric grid assets of the Company’s dependent company in the
Kurgan Region;
 Acquisition by the Company of shares in Kubanenergo;
 Acquisition by the Company of shares in TDC;
 Progress in preparing the draft of the Strategy of the Electricity Distribution Grid Sector of the
Russian Federation Until 2020;
 Strategy of the Company and Subsidiaries on Information Technology, Automation and
Telecommunications Until 2016;
 Material terms and conditions of the Agreement for the Transfer of the Powers of MRSK Holding’s
Sole Executive Body to be entered into by and between the Company and FGC UES, which is a
related party transaction;
 Priority established for the Company’s activities: changes to the system of key performance
indicators for the directors general and senior managers of its subsidiaries;
 Defining of the position of the Company (representatives of the Company) on the item on the
agenda of the meeting of the Board of Directors of IDGC of Urals: “Termination of the Company’s
holding a stake in Kurganenergo by means of transferring title to its shares and the Company’s
holding a stake in LENENERGO by means of acquiring its shares”;
 Priorities established for the Company’s activities: the organization of measures to reduce
receivables for electricity distribution services provided by the Company’s subsidiaries engaged in
electricity distribution;
 Approval of the system of key performance indicators (KPIs) of FGC UES, as the management
organization, developed by meetings of the working group headed by Chairman of the Board of
Directors of the Company G. V. Boos;
 Approval of the comparative analysis (benchmarking) report on operations conducted by the
Company’s distribution grid companies, including the approval of the comparative analysis
(benchmarking) methods;
 Approval of the Company's Budget for 2013;
 The Company’s membership in G3-PLC Alliance;
 Priorities established for the Company’s activities: the approval of the strategy of the Company for
improving the efficiency of measures to reduce receivables for electricity distribution services;
 Review of the Implementation Plan for the Comparative Analysis (Benchmarking) Technique for
Operations of the Company's-Controlled Distribution Grid Companies.
33
2.5. Management Board
The Management Board of the Company is a collegial executive body in charge of all of the Company’s dayto-day activities. The number of members of the Management Board is determined by and its members are
appointed by the Board of Directors. The Management Board performs the functions specified in the Articles
of Association of the Company and acts in accordance with the Regulations for the Management Board of
MRSK Holding approved by the Extraordinary General Meeting of Shareholders of the Company on
December 30, 2008.
Until October 5, 2012, the Management Board of the Company was composed of the following members:
Full Name
Aleksey Vladimirovich Demidov
Mikhail Yuryevich Kurbatov
Aleksey Yurievich Perepyolkin
Sergey Vyacheslavovich Vasilyev
Position1
Director General, Chairman of the Management Board
Deputy Director General for Economic Affairs and Finance,
member of the Management Board
Deputy Director General, member of the Management Board
Deputy Director General for Corporate Governance and
Property, member of the Management Board
Director for Legal Affairs and Relations with Electricity Market
Entities, member of the Management Board
The Board of Directors of the Company decided on October 5, 2012, to terminate the powers of the following
members of the Management Board: Mikhail Yuryevich Kurbatov, Aleksey Yurievich Perepyolkin, and Sergey
Vyacheslavovich Vasilyev.
On October 5 2012, the Board of Directors elected the following members of the Management Board of the
Company:
Oleg Mikhailovich Budargin
Year of Birth: 1960
Chairman of the Management Board of the Company from 2012 to the present (Chairman of the
Management Board of FGC UES)
Chairman of the Boards of Directors: IDGC of Siberia, MOESK, Kubanenergo. Member of the Boards of
Directors: INTER RAO UES, FGC UES, Energy Forecasting Agency. Chairman of the Supervisory Board,
Association of Solar Energy Enterprises Nonprofit Partnership. From 2009, Chairman of the Management
Board, FGC UES. From 2007 to 2009, Assistant Plenipotentiary of the President of the Russian Federation
in the Siberian Federal District.
1
The positions specified are as of the time of nomination.
34
No transactions involving the acquisition or transfer of title to share
Andrey Yevgenyevich Murov
Year of Birth: 1970
Education: higher education, Doctor of Science (Economics)
Member of the Management Board of the Company from 2012 to the present, Executive Director
From 2012, member of the Management Board of FGC UES, Chairman of the Board of Directors:
LENENERGO, IDGC of Centre, IDGC of North-West, IDGC of Volga. Member of the Board of Directors:
MOESK, Kubanenergo. In 2012, member of the Board of Directors: IDGC of Urals. First Deputy Chairman of
the Management Board, FGC UES. From 2012, Executive Director, the Company. In July 2012, Acting
Director General, the Company. Also in 2012, Deputy Director General, the Company. From 2007 to 2012,
Director General, Pulkovo Airport.
Roman Nikolaevich Berdnikov
Year of Birth: 1973
Member of the Management Board of the Company from 2012 to the present, First Deputy Executive
Director
Member of the Boards of Directors: IDGC of Northern Caucasus, IDGC of Urals, Tyumenenergo,
EnergoRynok, ENIN. From July to October 2012, First Deputy Executive Director, MRSK Holding. Member of
the Supervisory Board, Market Council. Member of the Supervisory Board, GruzRosenergo. From 2012, First
Deputy Chairman of the Management Board, FGC UES. From 2009, member of the Management Board,
FGC UES. From 2010 to 2012, Deputy Chairman of the Management Board, FGC UES. From 2003 to 2010,
35
Deputy Head of the Strategic Planning Department, Head of the Strategic Planning Department, Head of the
Customer and Market Relations Department, Development and Customer Relations Director, FGC UES.
Aleksey Vladimirovich Demidov
Year of Birth: 1976
Member of the Management Board of the Company from 2009 to the present, Deputy Executive Director for
Economic Affairs and Finance
Director General, IDGC of Northern Caucasus. Chairman of the Boards of Directors: IDGC of North-West,
IDGC of Siberia. Member of the Boards of Directors: Kubanenergo, LENENERGO, IDGC of Northern
Caucasus. From 2010 to 2011, member of the Board of Directors, Center for UPS Settlements Optimization.
From 2009 to 2010, member of the Boards of Directors: Tyumenenergo, MOESK, IDGC of Center and Volga
Region, IDGC of North-West. From 2009 to 2011, Chairman of the Board of Directors, IDGC of Urals. Before
joining the Company, First Deputy Chief Financial Officer, Rosneft. In 2006, Advisor to the Deputy Chairman
of the Management Board, Gazprom. From 2003 to 2006, First Deputy Director General, Sevmorneftegaz.
Year of Birth: 1974
Education: higher education, Candidate of Science (History)
Member of the Management Board of the Company from 2012 to the present, Deputy Executive Director for
Strategy
Member of the Board of Directors from 2010. Chairman of the Board of Directors, Volga Engineering Group.
Member of the Board of Directors, FGC UES. Member of the Working Group for Energy Efficiency of the
36
Presidential Commission for Modernization of Russia’s Economy. From 2009 to 2010, Director General,
Volga Engineering Group. From 2008 to 2009, Chairman of the Board of Directors, VPEC. Before that,
Chairman of the Board of Directors, Krona Kholding. From 2007 to 2009, member of the Forestry Sector
Development Council, Government of the Russian Federation.
The Company’s Articles of Association specify that the Management Board is in charge of the Company’s
day-to-day activities, develops and submits for consideration by the Board of Directors the priority areas of
the Company’s activities and long-term implementation plans, and addresses other issues related to the
Company’s operations.
In the reporting period, the Management Board of the Company held 38 meetings (10 in person and 18 in
absentia) dealing with 221 issues. The most important of the addressed issues are as follows:











Standard temporary technique for assessing the energy efficiency indicators of investment projects
in formulating investment programs of the Company's subsidiaries;
Progress in the implementation of the Comprehensive Program of Measures to Reduce Abovestandard Electricity Losses in Distribution Networks in the North Caucasus in 2011;
Purchases for the implementation of the long-term development programs for electricity metering
systems in the retail electricity markets in the Company's subsidiaries;
Agreement on the principal areas of selling power sales companies of subsidiaries and development
companies and subsidiary subsidiaries of the Company;
Program to improve the payment discipline in the retail and wholesale electricity markets with
respect to suppliers of last resort that are the Company's subsidiaries and operate in constituent
entities of the Russian Federation in the North Caucasian Federal District;
Report on the implementation of the Innovative Development Program of the Company Until 2016 for
the 3rd and 4th quarters of 2011;
Methodology for calculating the energy audit of the Company's subsidiaries providing electricity
distribution services;
Report on the implementation of the Plan for Implementing the Strategy for Development of the
Company Until 2015 with Long-Term Plans Until 2020;
Performance results of LENENERGO as related to the implementation of the Program to Renew
Cable Lines of 6–110 kV in Saint Petersburg and the implementation of the work schedule;
Progress in carrying out the critical task of implementing the Smart Metering project for the
integrated electricity metering system;
Report on operational risks of the Company's subsidiaries;
37






















Model structure of the energy conservation and energy efficiency enhancement programs of the
Company's subsidiaries;
Approval of the scenario conditions for formulating the capital investment programs of the
subsidiaries;
Report on the status of occupational injuries at subsidiaries in 2011; report on work to reduce
occupational injury risks at the Company's subsidiaries and implement the Injury Risk Mitigation
Program for 2012–2013;
Progress in organizing compulsory energy audits of subsidiaries;
Issue of exchange-traded bonds of the Company's subsidiaries;
Model list of measures related to energy conservation and energy efficiency enhancement of the
Company's subsidiaries;
Strategy of the Company's Subsidiaries on Information Technology, Automation and
Telecommunications Until 2016;
Performance results of Kubanenergo as related to implementing the Program of the Construction of
Olympic Games Sites and the Development of Sochi as a Mountain Climate Resort in 2011 and
complying with the Olympstroy State Corporation schedule in the 1st half of 2012;
Plan of the Company's rule-making activities in energy conservation and energy efficiency
enhancement and relations between the Company's subsidiaries and participants infrastructural
entities in the wholesale and retail electricity and capacity markets;
Analysis of the maximum utilization rate of the Company's subsidiaries’ main substations in 2011
and the expected utilization rate of the main substations as of January 1, 2013, with due
consideration to the implementation of the 2012–2017 capital investment programs;
Consolidated investment program of the Company for 2012–2017, including 2012;
Principal areas of activities of the Company and its subsidiaries in energy conservation and energy
efficiency enhancement;
Report on the completion of introducing the Olympic Games Site construction management system
into Kubanenergo;
Progress in the implementation of the Consolidated Energy Conservation and Energy Efficiency
Enhancement Program of the Company;
Approval of a restated version of the model internal control policy of the Company's subsidiaries
engaged in electricity distribution;
Results of preparations for the 2012/13 heat deficit period;
Approval of the Model Regulations for the Investing Activities of Subsidiaries of the Company;
Results of the inspection of the financial and economic activities of the Company;
Report on the progress in the implementation of the Plan for Implementing the Strategy for
Development of the Company'Until 2015 with Long-Term Plans Until 2020;
Approval of the Program to Improve the Reliability of the Resort Town of Sochi for 2013–2016;
Methods for consolidating the territorial grid organizations located in the North Caucasian Federal
District within IDGC of Northern Caucasus;
Progress in the Company's subsidiaries’ selling noncore assets.
38
Internal Audit Commission
Members of the Internal Audit Commission of the Company elected by the Annual General Meeting of
Shareholders on June 30, 2012:
No.
Full Name
1.
Anna Valeryevna Drokova
2.
Valeria Dmitryevna Kuvaeva
3.
Oleg Anatolyevich Oreshkin
4.
Sergey Aleksandrovich Pakhomov
5.
Pavel Viktorovich Shpilevoy
Deputy Division Head, Federal Agency for State Property
Management of the Russian Federation
Division Advisor, Ministry of Energy of the Russian
Federation
Division Head, Federal Agency for State Property
Deputy Division Head, Federal Agency for State Property
Deputy Division Director, Ministry of Economic
Development of the Russian Federation
39
2.6.
Remuneration
The remuneration paid in 2012 to the members of the Board of Directors for the period from June 22, 2011,
to June 30, 2012, is 6 636,53 thousand rubles.
Remuneration
No.
Full Name
(rubles in thousands)
1.
N/A
2.
201,90
3.
516,92
4.
490,00
5.
Valery Alekseyevich Gulyaev
414,62
6.
7.
516,92
8.
560,00
9.
484,62
10.
Sergey Vladimirovich Maslov
269,23
11.
Seppo Juha Remes
603,08
12.
473,85
13.
560,00
14.
15.
16.
17.
Thomas Martin Hendel
N/A
Total:
452,31
689,23
403,85
N/A
6 636,53
The remuneration paid in 2012 to the members of the Internal Audit Commission is 222,03 thousand rubles.
Remuneration
No.
Full Name
1.
2.
Aleksey Aleksandrovich Ozherelyev
Sergey Aleksandrovich Pakhomov
3.
Alexander Mikhailovich Kuryanov
4.
5.
Oleg Anatolyevich Oreshkin
Pavel Viktorovich Shpilevoy
(rubles in thousands)
222,03
N/A
N/A
Total:
N/A
N/A
222,03
40
The remuneration paid in 2012 to the management organization, FGC UES, under the agreement for the
transfer of the powers of the issuer's sole executive body (Agreement No. 1007 of July 10, 2012) is
15 541,94 thousand rubles.
41
2.7.
Significant events after the end of reporting period
Issuance of additional shares
On 4 March 2013 the placement of the additional share issue of the Company was completed.
9,375,608,049 shares were placed for the amount of RUB 20,251 million paid in cash.
On 5 April 2013 the Board of Directors of the Company recommended the General Shareholders Meeting to
increase the Company’s charter capital through issuance of 161,066,440,775 additional ordinary shares with
a par value of 1 rouble each under an open subscription. The offering price was determined at 2.79 roubles
per share.
Managing company
On 5 April 2013 the Board of Directors of the Company recommended the General Shareholders Meeting to
early terminate an agreement signed between JSC “IDGC Holding” and Open Joint Stock company “Federal
Grid Company of Unified Energy System” (hereinafter referred to as JSC “FGC UES”) by which the powers
of the sole executive body of JSC “IDGC Holding” were transferred to JSC “FGC UES”.
Status of electricity supplier
From February 2013, pursuant to orders of the Russian Ministry of Energy, "On the transfer of the functions
of electricity supplier" JSC IDGC of Siberia, JSC IDGC of North-West, JSC IDGC of Centre, JSC IDGC of
Centre and Volga Region, JSC IDGC of Volga undertook the functions of electricity supplier in Bryansk,
Oryol, Kursk, Omsk, Novgorod, Ivanovo, Tula, Penza regions and Karelia republic. Hence, in addition to
performing power transmission services, the group subsidiaries commenced performing a whole range of
power distribution services: purchasing electricity on the wholesale market and selling it on the retail market,
and entering into power purchase agreements with all customers, including householders. The functions of
the electricity supplier will be undertaken by these subsidiaries until the effective date of the decision to
provide the tender winner with the electricity supplier status in the abovementioned operating areas, but for
not more than 12 months.
42
3.
Operating Performance Review of 2012
3.1.
Major Operating Results
Electricity Transmission
The Company’s total electricity delivery to customers and allied territorial grid organizations in 2012 was
597,249.4 million kWh, or 1.25% more than in 2011 (589,870.9 million kWh).
Operating Results in 2012
Delivery to
Networks
Subsidiary
million kWh
IDGC of Centre
Delivery from
Networks to
Customers and Allied
Territorial Grid
Organizations, million
kWh
Electricity Losses
million kWh
%
63,968.46
57,870.52
6,097.94
9.53
59,682.91
54,539.09
5,143.83
8.62
61,365.83
57,462.18
3,903.64
6.36
IDGC of North-West
43,239.29
40,467.64
2,771.65
6.41
IDGC of Siberia
80,568.06
74,004.80
6,563.25
8.15
TDC
IDGC of Urals
IDGC of South
IDGC of
Northern
Caucasus
Kubanenergo
MOESK
LENENERGO
6,629.49
76,065.29
30,176.60
6,039.37
70,080.89
27,262.39
590.12
5,984.40
2,914.20
8.90
7.87
9.66
11,131.78
9,561.53
1,570.25
14.11
20,767.39
86,915.65
34,513.04
18,092.61
78,546.10
30,934.64
2,674.78
8,369.55
3,578.41
12.88
9.63
10.37
Tyumenenergo
70,870.03
69,061.22
1,808.81
2.55
Yantarenergo
Total
4,052.48
649,946.28
3,326.42
597,249.40
726.06
52,696.87
17.92
8.11
IDGC of Center and
Volga Region
IDGC of Volga
43
Changes in Electricity Delivery from Networks in 2011–2012
Electricity Delivery to Customers and Allied Territorial
Grid Organizations, million kWh
Subsidiary
Change
2011
2012
million kWh
%
IDGC of Centre
56,667.42
57,870.52
1,203.10
2.12
IDGC of Center and Volga Region
54,298.85
54,539.09
240.24
0.44
IDGC of Volga
57,622.80
57,462.18
-160.61
-0.28
IDGC of North-West
40,243.69
40,467.64
223.94
0.56
IDGC of Siberia
TDC
IDGC of Urals
72,079.23
6,074.54
71,576.96
74,004.80
6,039.37
70,080.89
1,925.57
-35.17
-1,496.07
2.67
-0.58
-2.09
IDGC of South
27,172.38
27,262.39
90.01
0.33
IDGC of Northern Caucasus
9,477.77
9,561.53
83.76
0.88
Kubanenergo
MOESK
17,197.98
75,469.67
18,092.61
78,546.10
894.63
3,076.44
5.20
4.08
LENENERGO
29,913.93
30,934.64
1,020.70
3.41
Tyumenenergo
Yantarenergo
Total
68,881.62
3,194.07
589,870.91
69,061.22
3,326.42
597,249.40
179.60
132.35
7,378.49
0.26
4.14
1.25
Changes in Electricity Delivery from Networks in 2011–2012 on a Comparable Basis (i.e. inclusive of
electricity delivered to last mile customers in 2012)
Electricity Delivery to Customers and Allied Territorial
Grid Organizations (on a Basis Comparable with 2012),
million kWh
Subsidiary
Change
2011
2012
million kWh
%
44
IDGC of Centre
56,667.42
58,033.62
1,366.20
2.41
54,298.85
54,604.67
305.82
0.56
IDGC of Volga
57,622.80
58,272.15
649.35
1.13
IDGC of North-West
40,243.69
40,636.90
393.21
0.98
IDGC of Siberia
TDC
IDGC of Urals
72,079.23
6,074.54
71,576.96
74,680.51
6,271.87
72,013.43
2,601.28
197.33
436.47
3.61
3.25
0.61
IDGC of South
27,172.38
27,306.72
134.33
0.49
9,477.77
9,564.61
86.84
0.92
Kubanenergo
MOESK
17,197.98
75,469.67
18,092.61
78,546.10
894.63
3,076.44
5.20
4.08
LENENERGO
29,913.93
30,934.64
1,020.70
3.41
Tyumenenergo
Yantarenergo
Total
68,881.62
3,194.07
589,870.91
69,061.22
3,326.42
601,345.47
179.60
132.35
11,474.56
0.26
4.14
1.95
Excluding the portion of electricity redistributed to FGC UES in 2012 and delivered to customers connected
to electric grid facilities that are part of the Unified National (All-Russian) Electric Grid (so-called last mile
customers), electricity delivery showed a 1.95% increase.
Actual Electricity Losses in 2010–2011
Electricity Losses
2011 Actual
Subsidiary
2012 Actual
Change
million kWh
%
%*
million
kWh
%
million
kWh
%
IDGC of Centre
6,247.24
9.93
9.96
6,097.94
9.53
-149.30
-0.42
IDGC of Center and Volga
Region
5,353.71
8.97
8.98
5,143.83
8.62
-209.89
-0.37
45
IDGC of Volga
4,207.47
6.80
6.90
3,903.64
6.36
-303.83
-0.53
IDGC of North-West
IDGC of Siberia
TDC
2,747.06
6,875.86
576.08
6.39
8.71
8.66
6.42
8.78
8.98
2,771.65
6,563.25
590.12
6.41
8.15
8.90
24.59
-312.60
14.04
-0.01
-0.64
-0.07
IDGC of Urals
6,179.42
7.95
8.15
5,984.40
7.87
-195.03
-0.28
IDGC of South
2,842.21
9.47
9.48
2,914.20
9.66
72.00
0.17
Kubanenergo
1,589.63
2,783.71
14.36
13.93
14.37
13.93
1,570.25
2,674.78
14.11
12.88
-19.38
-108.94
-0.26
-1.05
MOESK
8,695.59
10.33
10.33
8,369.55
9.63
-326.04
-0.70
LENENERGO
Tyumenenergo
Yantarenergo
Total
3,546.44
1,789.69
667.90
54,102.03
10.60
2.53
17.29
8.40
10.60
2.53
17.29
8.46
3,578.41
1,808.81
726.06
52,696.87
10.37
2.55
17.92
8.11
31.96
19.11
58.15
-1,405.16
-0.23
0.02
0.62
-0.35
* Electricity losses in 2011 are calculated on a basis comparable with 2012
Total actual electricity losses were 52,696.9 million kWh, or 8.11% of electricity delivered to networks. With
electricity delivery to networks increased by 1.57% on 2011 (on a basis comparable with 2012), electricity
losses in 2012 fell by 1,405.2 million kWh, or 0.35% against 2011 on a comparable basis. The reduction in
electricity losses was due primarily to the measures implemented under the Consolidated Energy
Conservation and Energy Efficiency Enhancement Program for the Company's Subsidiaries for 2012–2017
approved by the Company’s Board of Directors.
Changes in Revenues from Electricity Distribution Services in 2010–2011
Subsidiary
IDGC of Centre
Revenues from Electricity Distribution Services, million rubles
(exclusive of VAT)
Change
2011
2012
million rubles
%
65,670.57
67,486.83
1,816.26
2.77
63,248.81
58,375.41
-4,873.39
-7.71
47,222.12
45,124.13
-2,097.98
-4.44
IDGC of North-West
29,486.28
29,276.40
-209.88
-0.71
IDGC of Siberia
50,359.83
48,305.79
-2,054.04
-4.08
TDC
IDGC of Urals
IDGC of South
6,501.48
52,866.14
22,688.10
6,327.67
49,691.28
21,362.64
-173.81
-3,174.87
-1,325.46
-2.67
-6.01
-5.84
IDGC of Center and
Volga Region
IDGC of Volga
46
IDGC of
Northern
Caucasus
Kubanenergo
MOESK
LENENERGO
10,235.30
9,982.58
-252.72
-2.47
27,535.50
106,993.82
28,526.19
27,194.31
100,280.18
28,815.86
-341.20
-6,713.64
289.67
-1.24
-6.27
1.02
Tyumenenergo
45,764.03
45,259.84
-504.19
-1.10
Yantarenergo
Total
7,569.46
564,667.63
3,207.41
540,690.32
-4,362.05
-23,977.31
-57.63
-4.25
Total revenues from electricity distribution services in 2012 reached 540,690.3 million rubles (exclusive of
VAT), which is a 4.25% decrease as compared with 2011. Revenues from electricity distribution services
went down mainly due to:





Lower electricity distribution tariffs of Nizhnovenergo, a branch of IDGC of Center and Volga
Region, and Orenburgenergo, a branch of IDGC of Volga, because of changes in the mechanism
for returning cross-subsidies to suppliers of last resort;
A reduction in the average electricity distribution tariff of Buryatenergo, a branch of IDGC of
Siberia. This was caused by the fact that the volume of electricity distribution services used to
calculate electricity distribution tariffs for 2012 included the last mile volume (in accordance with
Order No. 374 of August 25, 2011, of the Ministry of Energy of the Russian Federation). In 2010–
2011, the last mile volume was not included in the planned volume of electricity distribution
services used to calculate tariffs.
Customers’ refusal to accept electricity distribution services provided by the Company's
subsidiaries using last mile facilities as ordered by courts to force FGC UES to enter into direct
electricity distribution services agreements with these customers (IDGC of Siberia, TDC, IDGC of
Urals, and IDGC of North-West);
Changes in Moscow’s tariff and contract model;
The separation of retail operations from Yantarenergo’s business (in 2011, revenues were based
on electricity tariffs whereas, in 2012, revenues came from tariffs of electricity distribution services).
Provision of Network Connection Services
Network connection is comprehensive services designed to make it technically feasible to supply electricity
to customers. These services include the actual connection of power-receiving equipment of electricity
consumers, power generation facilities, and electric grid facilities owned by grid organizations and other
persons to networks of grid organizations. Network connection services are provided for applicants if:



Power-receiving equipment is put into operation for the first time;
The connected capacity of previously connected power-receiving equipment under rehabilitation is
increased;
The electricity supply reliability categories, connection points, or production operation type of
previously connected power-receiving equipment are changed without involving any revision of its
47
connected capacity value, but the external electricity supply of such power-receiving equipment is
implemented in a different manner.
Network Connection Tariffs
The connection fee amount is determined by executive authorities of constituent entities of the Russian
Federation in charge of government regulation of tariffs..
Structure of Fee Rates Charged by the Company’s SDCs as
of December 31, 2012
Free Rate, rubles/kW
6
10
Standardized Free Rate,
rubles/kilometer
12
72
Free Rate, rubles/kW +
Standardized Free Rate,
rubles/kilometer
Individual Tariff,
rubles/connection
Payment under network connection contracts is made on a one-shot basis, and it can be agreed that
payment is made for separate network connection operations.
The connection fee for power-receiving equipment rated 15 kW or below (including any power-receiving
equipment previously connected to a given connection point) is not in excess of 550 rubles, provided that
the distance between the requesting entity’s site boundary to electric grid facilities having the voltage class
necessary for the requesting entity and operated by the grid organization receiving the request is not in
excess of 300 meters in urban areas and urban-type settlements or 500 meters in rural areas.
Monitoring of Network Connections
In 2012, the Group received 414,849 network connection requests for total capacity of 27,457 MW and
entered into 333,675 network connection contracts for total capacity of 11,875 MW. The number of actually
signed network connection certificates was 210,237 for total capacity of 6,098 MW.
48
Monitoring of Network Connections in 2012*
Number of Connections
Subsidiary
1
IDGC of Centre
LENENERGO
MOESK
IDGC of Volga
Yantarenergo
IDGC of South
Kubanenergo
Tyumenenergo
IDGC of Siberia
TDC
IDGC of North-West
IDGC of Urals
Region
The Company’s SDCs
Other companies**
The Company’s SDCs,
including other companies
Number of Network
Connection
Requests
Signed Network
Connection
Contracts
(Signed Network
Connection
Certificates)
connectio
MW
ns
6
7
36,555
813
6,949
523
16,904
1,021
12,210
301
1,809
90
15,926
380
16,484
380
5,521
109
3,473
337
21,953
565
2,718
41
16,701
340
18,305
472
3
2,692
2,484
6,761
1,659
354
2,206
1,910
234
810
2,383
67
1,256
2,051
contract
s
4
52,853
20,159
37,505
16,375
3,865
16,435
21,852
5,910
5,444
37,102
2,991
25,078
29,583
5
1,313
960
2,594
595
119
466
524
166
583
1,194
56
526
1,159
56,287
404,300
10,549
2,061
26,928
528
49,110
324,262
9,413
1,429
11,682
193
28,393
203,901
6,336
613
5,982
115
414,849
27,457
333,675
11,875
210,237
6,098
requests
MW
2
63,427
29,831
53,159
18,004
6,463
23,957
26,900
6,371
5,874
43,418
3,582
31,116
35,911
MW
* Data excludes information on power generation facilities.
**include Yargorelektroset, Tsarskoye Selo Electric Grid Company, Kurortenergo, Dagenergoset,
NURENERGO, Ingushenergoset, Tyvaenergo, and ENCE.
The share of completed connections in total demand for capacity in 2012 is 22% in physical terms (MW)
and 51% in quantitative terms (the number of connections). The share of signed network connection
contracts in total demand for capacity is 43% in physical terms (MW) and 80% in quantitative terms (the
number of connections).
49
The Company’s Changes in the Number of Submitted Network Connection
Requests and Signed Network Connection Certificates for 2010–2012 (pcs.)
pcs.
500 000
414 849
400 000
278 429
227 802
300 000
331 570
272 587
134 471
168 499
12 months of 2010
12 months of 2011
200 000
333 675
210 237
100 000
0
12 months of 2012
Number of network connection requests
Number of signed network connection contrancts
number of completed network connection contracts
The Company’s Changes in the Total Capacity Covered by Submitted
Network Connection Requests and Signed Network Connection Certificates
for 2010–2012 (MW)
27 457
30 000
MW
25 000
20 000
15 000
10 000
5 000
0
20 144
21 274
7 624
4 199
8 737
4 576
12 months of 2010
12 months of2011
11 875
6 098
12 months of2012
Capacity covered by network connection requests
Capacity covered by signed network connection contracts
Capacity covered by completed network connection contracts
In 2012, the Company's subsidiaries received 414,849 network connection requests, totaling 27,457 MW.
The number of submitted network connection requests for the 12 months of 2012 increased by 25% on the
12 months of 2011, while the capacity covered by network connection requests for the 12 months of 2012
grew by 30% as compared with the 12 months of 2011.
The Company's subsidiaries signed 333,675 network connection contracts for the 12 months of 2012,
totaling 11,875 MW. The number of signed network connection contracts and the capacity covered by
50
these contracts for the 12 months of 2012 increased by 22% and 36% respectively on the 12 months of
2011.
The number of actually signed network connection certificates was 210,237, totaling 6,098 MW. The
number of completed network connection contracts for the 12 months of 2012 grew by 25% against the 12
months of 2011. The rise in capacity (MW) reached 33%.
Monitoring of Network Connections in 2012 for Power Generation Facilities
Number of Connections
Subsidiary
1
IDGC of Centre
LENENERGO
MOESK
IDGC of Volga
Yantarenergo
IDGC of South
Kubanenergo
Tyumenenergo
IDGC of Siberia
TDC
IDGC of North-West
IDGC of Urals
Region
Other companies*
The Company’s SDCs,
including other companies
Number of Network
Connection
Requests
Signed Network
Connection
Contracts
(Signed Network
Connection
Certificates)
connections
MW
6
7
3
41
0
0
1
400
1
225
0
0
3
22
1
180
0
0
8
212
1
23
1
16
1
110
2
0
requests
2
11
1
4
0
0
13
6
13
0
7
1
5
3
MW
3
409
450
1,410
0
0
352
566
182
0
216
16
36
480
contracts
4
5
1
1
0
0
6
1
2
0
8
1
0
1
MW
5
24
450
10
0
0
275
367
3
0
231
16
0
248
6
225
3
92
2
85
70
2
4,343
13
29
2
1,716
13
24
0
1,313
0
72
4,355
31
1,728
24
1,313
* include Yargorelektroset, Tsarskoye Selo Electric Grid Company, Kurortenergo, Dagenergoset,
For the 12 months of 2012, subsidiaries received 72 network connection requests, totaling 4,355 MW;
entered into 31 network connection contracts, totaling 1,728 MW; and actually signed 24 network
connection certificates, totaling 1,313 MW.
51
Revenues from Network Connection Services
In 2012, with the planned target of 35,933 million rubles, exclusive of VAT, the Group’s actual revenues
from network connection services totaled 37,604 million rubles, exclusive of VAT, or 105% of the plan.
Revenues from Network Connection Services in 2012
Subsidiary
1
IDGC of Centre
LENENERGO
MOESK
IDGC of Volga
Yantarenergo
IDGC of South
Kubanenergo
Tyumenenergo
IDGC of Siberia
TDC
IDGC of North-West
IDGC of Urals
Other companies*
The Company’s SDCs, including other
companies
Planned Revenues from
Network Connection
Services
million rubles, exclusive of
VAT
2
987
7,928
17,303
299
193
1,852
785
1,107
974
655
18
774
1,269
1,164
35,308
625
Actual (Registered)
Revenues from Network
Connection Services
million rubles, exclusive of
VAT
3
1,178
7,282
17,386
416
220
1,954
843
1,119
1,231
1,291
41
1,412
1,268
1,220
36,862
743
35,933
37,604
*include Yargorelektroset, Tsarskoye Selo Electric Grid Company, Kurortenergo, Dagenergoset,
52
3.2.
Capital Investment
The 2012 consolidated investment program takes account of the Company's subsidiaries’ current capex
programs approved in accordance with Resolution of the Government of the Russian Federation No. 977 of
December 1, 2009, including with respect to the facilities necessary for power supply for preparations for
and holding of the 2014 Winter Olympics in Sochi.
The capex programs of the Company's subsidiaries take into consideration the following principal
requirements:








Compliance of investment projects with the models and programs of electricity industry
development of the of the constituent entities of the Russian Federation (prepared and approved
in accordance with Resolution of the Government of the Russian Federation No. 823 of January
17, 2009) or the models of 0.38–20 kV electric grid facility development (if available);
Inclusion of the facilities initiated in the previous years;
Inclusion of the facilities intended for preventing (reducing) long-lasting power outages that affect
socially important facilities and vital infrastructure;
Inclusion of the facilities in an unsatisfactory technical condition, whose routine maintenance and
repair are economically and technically infeasible;
Inclusion of the facilities from target-oriented programs;
Ensuring that metering instruments close boundaries with large customers, including the 100%
closing of boundaries with consumers of over 750 kVA and allied grid organizations (TGOs);
Implementation of measures to build/modernize the Automated Information System of Electricity
Billing Metering of the Retail Electricity Market at metering points;
Inclusion of the facilities necessary to perform obligations under network connection contracts;
inclusion of the facilities ensuring that generators deliver capacity under capacity supply
agreements.
Furthermore, the consolidated investment program contains the facilities ensuring the implementation of
the following programs:




Energy conservation and energy efficiency enhancement;
Creation of the system of automated emergency and process control equipment;
Implementation of programs for creating the telecontrol and communication system;
Installation of voltage regulators and reactive power compensators.
The Company's subsidiaries’ capital investment is the capital expenditures that include expenses related to
new construction; rehabilitation, expansion, and technical upgrading of production and non-production
facilities; acquisition of buildings, structures, equipment, land, and facilities intended for the use of natural
resources; acquisition and creation of intangible assets; and other capital investment expenses; and equity
investments in electric grid companies.
In 2012, the amount of invested funds was 143,672 million rubles (exclusive of VAT), with financing of
156,084 million rubles (inclusive of VAT), while commissioned fixed assets totaled 137,320 million rubles.
Commissioned capacity in 2012 reached 14,147 MVA and 29,112 kilometers.
53
Key Indicators of the Consolidated Investment Program in 2012
Subsidiary
IDGC of Siberia
TDC
Tyumenenergo
IDGC of Urals
IDGC of Volga
IDGC of South
Kubanenergo
IDGC of Northern
Caucasus
NURENERGO
IDGC of Center and
Volga Region
IDGC of North-West
LENENERGO
Yantarenergo
IDGC of Centre
MOESK
Tyvaenergo
ENCE
Total
Financing
(million
rubles,
inclusive of
VAT)
5,430
397
15,799
8,981
9,246
5,095
8,523
5,867
551
14,188
9,842
11,089
5,223
9,826
Commissione
d Fixed
Assets
(million
rubles,
exclusive of
VAT)
6,372
401
11,417
6,863
8,741
3,439
4,587
5,475
5,830
3,186
242
1,471
243
339
177
31
178
9,458
10,873
10,049
693
3,603
6,792
14,891
420
15,847
36,095
108
872
143,672
8,157
16,000
517
19,193
37,425
71
1,095
156,084
6,277
16,075
434
17,036
39,095
69
3,101
137,320
469
1,911
23
1,545
4,792
5
553
14,147
1,836
1,581
105
8,345
4,320
34
90
29,112
Capital
Investment
(million
rubles,
exclusive of
VAT)
Commissione
d Fixed
Assets (MVA)
Commissione
d Fixed
Assets
(kilometers)
633
115
865
621
780
203
666
1,487
793
716
1,242
1,753
1,316
241
Changes in Commissioned Capacity Under the Consolidated Investment Program for 2010–2012
Subsidiary
IDGC of Siberia
TDC
Tyumenenergo
IDGC of Urals
IDGC of Volga
IDGC of South
Kubanenergo
IDGC of Northern
2010
MVA
424
85
741
669
520
296
265
216
kilometers
1,060
627
256
1,670
1,144
467
166
600
2011
MVA
349
5
624
424
700
408
258
316
kilometers
1548
43
166
1169
1544
1185
240
845
2012
MVA
633
115
865
621
780
203
666
242
kilometers
1,487
793
716
1,242
1,753
1,316
241
1,471
54
Changes in Commissioned Capacity Under the Consolidated Investment Program for 2010–2012
Subsidiary
Caucasus
NURENERGO
IDGC of Center and
Volga Region
IDGC of North-West
LENENERGO
Yantarenergo
IDGC of Centre
MOESK
Tyvaenergo
ENCE
Total
2010
2011
2012
MVA
kilometers
MVA
kilometers
MVA
kilometers
64
49
41
200
31
178
711
2,226
1264
3086
693
3,603
299
932
126
1,050
2,276
0
95
8,770
897
1,508
64
4,155
2,005
0
22
16,915
540
996
118
1490
1597
9
166
9,304
1485
1713
154
4630
2726
61
52
20,848
469
1,911
23
1,545
4,792
5
553
14,147
1,836
1,581
105
8,345
4,320
34
90
29,112
Changes in Capital Investment Under the Consolidated Investment
Program for 2010–2012 (rubles in millions, exclusive of VAT)
160 000
140 000
120 000
100 000
80 000
60 000
40 000
20 000
0
130 156
143 672
87 023
2010
2011
2012
55
Changes in Commissioned Capacity Under the Consolidated Investment
Program for 2010–2012 (MVA and kilometers)
16 000
14 000
12 000
10 000
8 000
30 000
25 000
20 848
16 915
20 000
14 147
9 304
6 000
4 000
35 000
29 112
15 000
10 000
8 770
5 000
2 000
0
0
2010
2011
MBA
2012
Км
The fact that some of the Company’s subsidiaries began to employ the return on invested capital method
(RAB) for tariff regulation was the main contributor to increased capital investment, which enabled
subsidiaries and dependent companies to raise the value of their capex programs and expand their network
connection services, including for customers qualifying for preferential terms. Capital investment in 2012
grew by 10.4% on 2011.
Breakdown of Financing Sources for the Investment Program in 2010–2012, (rubles in
millions, inclusive of VAT)
Source
2010
2011
2012
Tariff-based revenues
38,759
41.5%
59,728
45.9%
58,764
37.6%
Borrowed funds
15,929
17.1%
37,116
28.5%
38,642
24.8%
Connection fees and other
sources
37,213
39.9%
26,533
20.4%
48,978
31.4%
Additionally issued shares
1,450
1.6%
6,779
5.2%
9,700
6.2%
Financing (million rubles,
inclusive of VAT)
93,351
100%
130,156
100%
156,084
100%
The principal financing sources for the 2012 investment program were tariff-based revenues (37.6%),
borrowed funds (24.8%), additionally issued shares (6.2%), connection fees and other sources (31.4%).
Areas and Structure of Capital Investment Under the Consolidated Investment Program, (rubles
in millions, exclusive of VAT)
56
Areas of Capital
Investment
2010
2011
2012
1.
Technical upgrading
and rehabilitation
44,947
51.6%
76,015
58.4%
74,985
52.2%
2.
New construction
37,162
42.7%
50,664
38.9%
54,497
37.9%
3.
Other
4,915
5.6%
3,476
2.7%
14,190
9.9%
Total
87,023
100%
130,156
100%
143,672
100%
Breakdown of Capital Investment Under the Consolidated Investment
Program in 2012
9,9%
37,9%
Technical upgrading anf
rehabilitation
New construction
52,2%
Other
In 2012, the principal areas of capital investment were technical upgrading and rehabilitation (52.2%) and
new construction (37.9%).
Results of Investing Activities
2012 witnessed the commissioning of 50 significant electric grid facilities. In 2012, the Company also
implemented certain measures that were of substantial importance to passing the 2012/13 heat deficit
period.
The following facilities were completed in 2012: Vologda CHPP, Livny CHPP, Urengoy TPP,
Novokuybyshevsk CHPP-1, and Nyagan TPP. Work on the other facilities was performed in accordance
with the 2012 investment program.
Pursuant to Resolution of the Management Board, the boards of directors of the Company's subsidiaries
determined that implementing the Construction Management System for Major Investment Projects (CMS)
was a priority for their operations.
57
The principal goals of implementing the CMS are as follows:
 Ensure the attainment of targets contained in the capital investment programs of subsidiaries;
 Improve construction management efficiency for major investment projects as related to construction
periods, costs, and quality;
 Enhance the transparency of the investment process;
 Optimize the decision-making mechanism for investment project implementation management as
related to raising the quality and speed of making decisions on any occurring deviations;
 Standardize the management of specific projects and cut labor costs associated with working out
The APMS includes scheduling and network planning, estimate data integration, and data portal modules.
The Data Portal Module ensures the most effective management of communications in projects, including
arranging meetings and monitoring the implementation of project-related instructions, preparing reports and
downloading project-related documents, viewing network schedules and monitoring the performance of
project-related work by means of online photo and video reports.
Out of the 55 pilot projects, 15 were put into operation in 2012, the commissioning of the other facilities is
scheduled for later dates.
58
Federal Target-oriented Programs
The programs that involve financing from federal budget funds are carried out, coordinated, and supervised
by the Department for Implementation of Federal Target-oriented Program Projects. The Company's SDCs
implemented the following programs in 2012:
Kubanenergo
The Program of the Construction of Olympic Games Sites and the Development of Sochi as a Mountain
Climate Resort. Kubanenergo is responsible for the construction and rehabilitation of 16 facilities included
in the Program of the Construction of Olympic Games Sites and the Development of Sochi as a Mountain
Climate Resort.
The results achieved in 2012 are as follows:
Program
Construction
of Olympic
Games Sites
Capital
Investment,
million rubles
Plan
Actual
6,611.7
6,314.1
Commissioned
Fixed Assets,
million rubles
Plan
Actual
2012
Financing,
million rubles,
inclusive of VAT
Plan
Actual
Plan
Actual
2,130
5,847.6
212
219.25 89.7
1,990.3
5,835.7
MVA
Kilometers
Plan Actual
86.9
In accordance with the limits allocated for the 2013 capital investment program of Kubanenergo, it is
planned to finance 16,059 million rubles, inclusive of VAT, of investments, including 16,265 million rubles,
inclusive of VAT, from federal budget funds. It is planned to utilize investments of 13,206 million rubles.
The Program of the Construction of Olympic Games Sites and the Development of Sochi as a Mountain
Climate Resort is scheduled for completion in 2013. It is planned that the facilities will finally be put into
operation in or before October 2013.
LENENERGO
The Program to renew Cable Lines of 6–110 kV in Saint Petersburg in order to enhance the operating
reliability of the cable network and secure an uninterrupted electricity supply for the city’s districts. The
program involves making investments in the replacement of cable lines in Saint Petersburg and Kronshtadt,
including out of federal budget funds. This program is developed and carried out to provide customers with
a more reliable electricity supply and prevent any possible severe process failures.
The results achieved in 2012 are as follows:
Program
Capital Investment,
2012
Commissioned
Financing, million
Kilometers
59
million rubles
Renewal of
Cable
Lines of 6–
110 kV
Plan
Actual
1,840
1,083
Fixed Assets, million rubles, inclusive of VAT
rubles
Plan
Actual
Plan
Actual
Plan
635
608
2,310
1,116
9.4
Actual
8.3
The utilization and financing of investments were 59% and 48% respectively; commissioned fixed assets
were 96%; commissioned cable lines in physical terms were 88%.
The failure to attain the targets of the program in 2012 is due to a number of objective factors, namely: the
necessity of changing technical solutions in the course of work; difficulty in obtaining the warrant for
planned work; the lengthy obtainment from the federal agency in charge of state expert reviews,
Glavgosekspertiza of Russia, of a positive opinion on facilities covered by the program; and the failure by
contractors to perform their contractual obligations.
IDGC of Siberia
The Investment Project of Implementing the External Electricity Supply to the Raspadskaya Mine and
Enhancing the Reliability of Electricity Supply to the Mezhdurechensk District, Kemerovo Region. The
project involves the construction of five electric grid facilities: three SS 110 kV Raspadskaya-4,
Raspadskaya-5, and Raspadskaya-6 with total capacity of 192 MVA, and two OL 110 kV Tom-Usinskaya
TPP–Raspadskaya-5-1 and Tom-Usinskaya TPP–Raspadskaya-5-2 with a total length of 104 kilometers.
The financing and utilization of investments in 2012 were 263 million rubles, inclusive of VAT, and 275
million rubles, exclusive of VAT, respectively.
The Comprehensive Program of Measures to Reduce Above-standard Electricity Losses in Distribution
Networks in the Republic of Dagestan, the Republic of Ingushetia, and the Chechen Republic. The
Comprehensive Program specifies measures to organize, modernize, and automate metering procedures
for all billing metering points and for the key main substations that require electricity metering.
Based on the planned targets of the capital investment program of IDGC of Northern Caucasus 2,549
million rubles, inclusive of VAT, or 86%, was actually financed, including 2,406 million rubles, inclusive of
VAT, from federal budget funds. The amount of utilized investments covered by work completion
certificates was 2,284 million rubles, inclusive of VAT, or 87% of the plan.
60
The project implementation in 2012 involved certain delays necessitating the postponement of the
program’s completion to 2013.
61
3.3. Research and Innovation
The Company’s innovation activities are aimed at developing and creating advanced technologies and
promoting their use by the Company on a constantly renewable basis.
The Board of Directors approved the Innovative Development Program covering the period until 2016
(“Program”). The Program received approval from the Working Group on Public-Private Partnership
Development in Innovation under the Governmental Commission on High Technologies and Innovations.
The Program was adjusted in November 2012.
The Company defined the main areas of innovative development listed below:








Introducing high-technology equipment and advanced technologies;
Improving business processes and the innovation process management system;
Enhancing energy conservation and energy efficiency;
Raising environmental friendliness;
Improving the quality control system;
Developing and implementing innovative services and products to be promoted in existing and new
markets;
Cooperating with higher education institutions and scientific organizations;
Cooperating with innovative small and medium-sized businesses.
Due to the transfer of the powers of MRSK Holding’s sole executive body to FGC UES in July 2012, it was
decided to consolidate both companies’ innovative development programs and formulate a common R&D
plan in order to avoid the overlapping of activities and measures.
The 4th quarter of 2012 saw the completion of the preparatory stage of carrying out the Program, focusing
on the implementation and validation of the necessary regulatory framework that had previously been
developed to govern the innovation activities of the Company and its subsidiaries, innovation project
management, and the creation of an environment for the implementation of the R&D plan.
During 2012, contracts were awarded for 60 R&D assignments. In the reporting period, 112 assignments
were in the implementation phase (out of the planned 159 assignments) and received 729.56 million rubles
of financing, or 46% of the planned financing for SDCs’ own R&D programs for 2012.
The year 2012 witnessed the completion of 31 R&D assignments with the contract value totaling 212.36
million rubles.
As part of collaborating with research centers, the Company and the Skolkovo Institute of Science and
Technology (Skoltech) signed an agreement in December 2012. Skoltech is a graduate research university
aimed at educating global leaders in innovation, advancing scientific knowledge, and fostering new
technologies to ensure the accelerated growth and competitiveness of the Russian economy.
On a regular basis, the Company and its SDCs cooperate with educational institutions that provide training
in energy. Under agreements, educational establishments organize training sessions on specific subjects,
62
arrange study tours of training grounds, and hold open house events. Additionally, representatives of the
Company and its SDCs take part in meetings of certification commissions evaluating graduation projects,
while researches and teachers of higher education institutions are engaged to conduct studies as part of
efforts to carry out SDCs’ R&D plans. Measures are taken to provide target-oriented personnel training at
higher education institutions on a systematic basis and under programs of extended occupational
education and advanced training.
Engaged by SDCs, higher education institutions carried out 14 R&D assignments in the reporting year with
the contract value totaling 70,213.8 thousand rubles and the actual financing reaching 24,185.39 thousand
rubles.
As related to improving business processes and developing information technology, the reporting year’s
efforts aimed to methodologically prepare an environment for introducing the Integrated Production Asset
Administration System into the Company’s SDCs engaged in electricity distribution. For instance, the
Company formulated and approved the Model Standard for Production Asset Administration for its
subsidiaries and dependent companies. In addition, the Company devised the Concept of Building the
Unified Referenced Data System of the Company and its SDCs in Technical Operation and Maintenance
Management. The Company also prepared basic reference books with a view to compiling equipment
records, such as a uniform equipment classifier, a classifier of equipment status parameters and attributes,
an equipment model register, a standard value register for equipment models, and a configuration and
template register for standard functional locations.
63
3.4.
Reliability and Safety
The Company continued working in 2012 to organize and conduct technical audits aimed at enhancing the
operating reliability and safety of equipment and reducing the risks of process failures and occupational
injuries in the electric grid sector.
The development of technical audits in the common internal technical control system of the Company and
its subsidiaries aims to improve control procedures in order to obtain complete and reliable information from
audits, promptly respond to any negative trends and risks, and take corrective and preventive actions.
With the involvement of technical inspection units of its subsidiaries and dependent companies, the
Company carried out 1,237 scheduled audits in 2012. These included 58 comprehensive audits, 595 audits
on specific subjects, and 584 purpose-oriented inspections audits. In total, subsidiaries and dependent
companies and their branches and divisions conducted 16,208 audits within the internal technical control
system, including inspections of preparations for the heat deficit period and for special working conditions
of electric grid facilities (freshets, thunderstorms, and fire hazards).
Breakdown of Nonconformities Found by Audits
Operational process control
1,69%
11,91%
Engineering certification of
equipment, building and structures
11,93%
3,02%
Fire safety
Construction and regabilitation
11,44%
12,24%
3,57%
12,91%
26%
5,46%
Personnnel training
Industrial safety
Maintenance and repair
Safe performance of work
Safe operation of equipment
Environmental issues
Based subsidiaries’ and dependent companies’ audit results showed a positive trend in dealing with the
issues of production asset administration as related to the organization of maintenance and repair and to
64
measures to keep equipment in good working order. Overall, the number of deviations found at subsidiaries
in this area in 2012 decreased 1.2-fold in the total number of nonconformities.
The Company monitored and evaluated the operation of the internal technical control system. Audit
opinions contain measures to modify local regulatory documents related to the internal technical control
system, improve the quality of audits at all levels, enhance the training of responsible personnel involved in
the internal technical control system and their ability to find and identify any existing production risks, and
develop and carry out organizational and technical measures to eliminate such risks or reduce them to an
acceptable level.
65
3.5.
Human Capital and Social Responsibility
A key area of the Company’s personnel policy is to retain, replenish, and develop the human assets of
distribution grid companies with due consideration to the development prospects of the electric grid sector
and the priority given to a reliable power supply for customers.
Electric grid companies are the industry’s largest employer with a total staff of about 190 thousand.
Treating our employees as human resources rather than labor resources is more than simply a declaration;
it is a principle embodied in our consistent human resources policy.
The goal of investing in human resources is to raise the market capitalization of the companies and make
them more attractive to investors. The human resources policy is based on partner relationships with
employees, our commitment to fulfill social and occupational safety obligations, investment in personnel
development, and equal opportunities for career development.
The staff on the payroll of the Company's subsidiaries in 2012 was 188.8 thousand people, or 1.7 thousand
more than in 2011, with the staff on the payroll of the management company being 344 people.
Staff on the payroll of the Companies, persons
29 938
22 228
IDGC of Volga
21 371
IDGC of Siberia
21 258
MOESK
15 215
IDGC of North-West
14 798
IDGC of South
14 035
IDGC of Urals
12 882
12 812
Kubanenergo
7 593
Tyumenenergo
7 222
LENENERGO
6 007
Yantarenergo
1 867
TDC
1 596
0
5 000 10 000 15 000 20 000 25 000 30 000 35 000
The quality of the workforce potential of electricity distribution grid companies are demonstrated by a high
supply of labor (97% of the required number of employees in recent years) and low personnel turnover
(subsidiaries’ average ratio between voluntary resignations and the staff on the payroll was 6% in 2012).
66
An analysis of qualitative characteristics of personnel proves the effectiveness of measures taken under the
uniform human resources policy. The educational level of employees becomes higher in both managed
entities and the management company:
Personnel Structure evolution by educational level, %
100%
2,2%
2,5%
2,7%
34,1%
35,2%
36,2%
63,6%
62,3%
61,1%
90%
80%
34,5%
35,3%
34,2%
60,8%
61,0%
63,2%
4,8%
3,6%
2,6%
2010
2011
2012
70%
60%
50%
40%
30%
20%
10%
0%
2010
2011
2012
The Company's subsidiaries
secondary/secondary professional education
The Company
higher education
acdemic dagree, two higher education degree
As at the end of 2012, 97.4% of the Company employees had higher education, with 9% of them holding
candidate of science or doctor of science degrees.
Subsidiaries succeeded in continuing to demonstrate a trend in having increasing numbers of employees
with higher education even though some companies took on the functions that had previously been
outsourced— maintenance and transportation services—with a small share of employees having higher
education. Such a high percentage of employees having secondary and secondary professional education
is due to the fact that blue-collar jobs account for a large share in the electricity distribution sector’s
occupations (54% as at the end of 2012).
Subsidiaries give much attention to the training, retraining, and advance training of personnel. In 2012,
87.8% of the staff on the payroll completed training courses (87.6% in 2011). Training encompasses a wide
range of programs—from compulsory training programs for operational personnel in accordance with rules
for personnel relations to programs aimed at developing professional and managerial competencies of the
employees included in the personnel reserve of the companies.
67
Special attention is paid to the training of personnel responsible for ensuring the reliable operation of
electric grid and substation equipment. This section of training measures not only aims to raise the
professional level of employees but also provides training under programs designed to reduce the
occupational injury risk and prevent accidents from occurring through the fault of personnel.
In this area of personnel training, the companies cooperated closely in 2012 with the Training Center of the
Federal Service for Environmental, Technological and Nuclear Supervision of the Russian Federation.
Training was provided under the programs adapted for electricity distribution grid companies.
Twenty regional licensed training centers founded by interregional distribution grid companies work to
satisfy the main demand for operational personnel training. About 29.5 thousand employees of the
companies were provided with training under the training centers’ programs in 2012. In cooperation with
their founders, the training centers regularly update the lists and contents of their training programs in line
with electricity distribution grid companies’ needs, renew their teaching aids, and adopt new training
techniques using up-to-date multimedia systems.
The companies cooperate closely with domestic and foreign educational centers that provide training on
the subjects essential for electricity distribution grid companies.
Extensive efforts to recruit young employees contribute to subsidiaries retaining and, in some instances,
improving the age characteristics of personnel. A third of electricity distribution grid companies’ employees
is young people aged 35 or below.
Social Responsibility
The Company has high standards of social responsibility to its employees. All of the Company’s entities are
members of the All-Russia Trade Association of Employers in the Power Industry (RaEl Association),
which, together with the All-Russian Electrounion, is a party to the social partnership at federal industry
level.
Collective bargaining agreements are based on the Sectoral Wage Rate Agreement in the Russian
electricity sector for 2009–2011, which is the main legal instrument that governs social and labor relations
in electric utilities.
Taking account of accumulated practical experience and regional employment market conditions, the
collective bargaining agreements set forth the employer’s obligations with respect to working hours and rest
periods, salaries and wages, and additional benefits, guarantees, and compensation, as well as the
obligations of primary labor union organizations. In 2012, the Company’s entities fulfilled all of the
obligations contained in the Sectoral Wage Rate Agreement and collective bargaining agreements.
68
4.
Financial Performance Review of 2012
4.1.
Profitability
Tariff Campaign Results
The Company tariff policy, as a group of tariff calculation principles and methods, is shaped by the Russian
tariff regulation laws. The legislative acts underlying the regulation of electricity distribution services were
revised in 2012:



Resolution of the Government of the Russian Federation No. 1178 of December 29, 2011, “On
Pricing in the Area of Regulated Prices (Tariffs) in the Electric Power Industry” approved:
 the fundamentals of in the area of regulated prices (tariffs) in the electric power industry;
 the rules for the government regulation (revision, application) of prices (tariffs) in the
electric power industry;
Order of the Federal Tariff Service of the Russian Federation No. 98-e of February 17, 2012,
approved the Guidelines for Calculating Electricity Transmission and Distribution Tariffs Set by the
Long-Term Minimum Regulated Revenue Indexation Method;
Order of the Federal Tariff Service of the Russian Federation No. 228-e of March 30, 2012,
approved the Guidelines on Tariff Regulation Applying the Return on Invested Capital Method.
In addition, Order of the Federal Tariff Service of the Russian Federation No. 121-э of February 28, 2012,
amended and supplemented the procedure applicable to the Federal Tariff Service’s giving its consent to
proposals made by Russian regional executive authorities for tariff regulation with respect to the transition
to the return on invested capital method and applicable to decisions to extend the long-term regulation
period.
The goal of the 2012 tariff campaign was to change the long-term parameters of RAB regulation and
approve the long-term tariff decisions, effective from July 1, 2012, for 2012−2017.
These efforts resulted in mapping out the plan of the transition to tariff regulation using the return on
invested capital method (Regulatory Asset Base, RAB) for 44 branches of subsidiaries for the period until
2017. As of January 1, 2013, RAB regulation was applied by 68% of the branches as compared with 85%
as of January 1, 2012 (see Fig. 1). In 2012, the cost-plus pricing method ceased to be applied to regulation.
69
Evolution of the Implementation of Long-Term Tariff Regulation
12%
12%
26%
32%
85%
88%
74%
2009
68%
3%
2011
2010
Cost-plus pricing
RAB regulation
2012
Long-term indexation
Changes in electricity distribution tariffs in line with Russia’s socioeconomic policy ensure the
implementation of programs to maintain a reliable power supply and develop the distribution grid sector.
Changes in the weighted average tariff of electricity distribution
services as at July 1, 2012
120
kopecks/kWh
100
80
60
40
20
0
2006
2007
2008
2009
2010
2011
2012
Weighted average tariff of electricity distribution services
The tariff of electricity distribution is an aggregate of expenses related to payments for services provided by
FGC UES, expenses related to electricity purchased to compensate for electricity network losses,
70
expenses related to payments for services provided by other local grid organizations, and revenues
received by the Company-managed companies. The breakdown of the electricity distribution tariff existing
as at July 1, 2012, was as follows:




Revenues received by its subsidiaries, 43.5%;
Electricity purchased to compensate for electricity losses, 14.5%;
Payments for services provided by FGC UES, 22.5%;
Payments for services provided by territorial grid organizations, 19.5%.
Distribution of costs in the distribution tariff
700
584
600
bln RUB
500
400
300
200
100
436
343
67
51
62
162
0
+27%
+8%
+38%
+24%
72
71
77
+31%
102
+15%
128
+9%
+7%
2009
111
-8%
86
116
+4%
+4%
133
258
251
230
216
93
593
+26%
+32%
+33%
2008
+9%
502 +16%
78 +20%
92
+21%
+2%
2010
SDCs' Minimum Regulated Revenue
FGC UES
Territorial grid organizations
Losses
+3%
2011
2012
Revenue
The Company’s revenue is principally derived from electricity distribution services that account for 84.72%
of total reported revenue in 2012. Other major revenue sources include connection services and electricity
sales. Government subsidies come in the form of compensation for low electricity tariffs in some of the
regions where the Company operates, and represent a very small portion of total reported revenue (0.03%
in 2012). For 2012, revenue can be analyzed as follows:
Electricity transmission
Technological connection services
Electricity sales
Other revenues
Government subsidies
2012
RUB million % of total
526 656
84,72%
44 592
7,17%
39 690
6,38%
10 535
1,69%
621 473
99,97%
160
0,03%
621 633
100,00%
2011
552 634
87,08%
40 099
6,32%
31 794
5,01%
9 838
1,55%
634 365
99,96%
243
0,04%
634 608
100,00%
71
Electricity transmission revenue decreased by 4.70% in 2012 compared to 2011, and total reported
revenue and government subsidies decreased by 34.16%. Total revenue decreased by 2.04%, as
government subsidies were compensated by increase of revenues from Technological connection services,
Electricity sales and other revenue.
Operating Results
Operating expenses arise primarily from expenses on electricity transmission, electricity purchase for
compensation of technological losses, personnel costs, and depreciation and amortization costs. The share
of costs of electricity transmission and personnel costs remained almost the same as a proportion of total
operating expenses in 2011, while purchased electricity for compensation of technological losses
decreased in 2012 in both absolute terms and as a percentage share of total operating expenses.
Operating expenses can be analyzed as follows:
2012
214 475
108 496
% of total
37,35%
18,90%
2011
220 969
104 615
% of total
38,28%
18,12%
74 300
12,94%
94 663
16,40%
61 499
22 797
17 393
10,71%
3,97%
3,03%
54 075
17 525
15 905
9,37%
3,04%
2,76%
13 251
2,31%
14 902
2,58%
Provisions
9 194
1,60%
4 750
0,82%
Impairment of trade and other receivables
6 913
1,20%
7 668
1,33%
Rent
5 256
0,92%
6 087
1,05%
Consulting, legal and audit services
5 243
0,91%
4 712
0,82%
Impairment of property, plant and equipment
Taxes other than income tax
Utilities
Other expenses
4 626
3 130
2 875
24 749
0,81%
0,55%
0,50%
4,31%
100,00%
2 683
3 098
25 562
0,46%
0,54%
4,43%
100,00%
Electricity transmission
Personnel costs
Purchased electricity for compensation of
technological losses
Depreciation and amortization
Purchased electricity for resale
Raw materials and supplies
Repairs, maintenance and installation services
574 197
577 214
Electricity transmission costs decreased by 2.94% in 2012 compared to 2011.
Depreciation and amortization costs increased by 13.73%, from RUB 54,075 million in 2011 to RUB 61,499
million in 2012.
Personnel costs are up by 3.71%. The increase is largely driven by growth in wages in salaries and social
security contribution (up by 3.76% and 3.81% respectively). Expense on the post-employment defined
benefit plan and expense in respect on long-term service benefits provided decreased by 33.68% an
72
110.76% respectively.
Total operating expenses decreased only by 0.52% to RUB 574,197 million and thus remained
approximately on the level with the amount of 2011.
In discussing the operating results of business, the Company focuses on financial measures referred to as
EBIT and EBITDA. EBIT represents “Results from operating activities” in the statement of comprehensive
income. EBITDA is the key measure that the Company uses to assess the performance of the business
and operational management, and excludes operational expenses such as depreciation and amortization
that management has no operational control over. EBITDA enhances the comparability of the measure
from period to period and provides clarity into the underlying performance of the Company’s operations.
In 2012, EBIT decreased by 16.14%, from RUB 59,254 million in 2011 to RUB 49,688 million in 2011. EBIT
margin decreased from 9.34% in 2011 to 7.99% in 2012, primarily due to the increase in depreciation and
amortization expenses (13.73%) and electricity transmission costs.
EBITDA for 2012 was RUB 105,578 million, compared to RUB 106,908 million in previous year, which
represents a decrease of 1.24%. EBITDA margin remained stable at 16.98%.
EBIT margin
EBITDA margin
16,98%
18,00%
16,85%
16,00%
14,00%
12,00%
10,00%
8,00%
9,34%
7,99%
6,00%
4,00%
2,00%
0,00%
2012
2011
Financing costs and EBT
Net finance costs decreased to RUB 5,641 million in 2011 from RUB 5,843 million in the corresponding
period (-3,46%). This was primarily driven by a 53.24% decrease in financial leasing costs. Total finance
income increased by 89.96% to RUB 6,128 million, mostly represented by interest income on loans, bank
deposits, and promissory notes.
73
EBT decreased in 2012 to RUB 44,117 million from RUB 53 655 million last year (-17.78%). EBT
decreased in 2012 approximately at the same rate as EBIT. Pretax margin in 2012 was 7.10% (compared
to 8.45% in 2011).
EBT margin
9,00%
8,45%
8,50%
8,00%
7,50%
7,10%
7,00%
6,50%
6,00%
2012
2011
Taxation
The total income tax expense for 2012 of RUB 12 463 million represents a decreased of 15.15% compared
to the previous year (RUB 14,689 million). Total income tax expenses comprises current tax expense of
RUB 9,377 million and a deferred tax expense of RUB 3,086 million. Current tax expense in 2012
decreased by 9.04% compared to 2011 and deferred tax expense went down by 29.54% compared to the
previous year.
Profit for the year and earnings per share
In 2012, net profit for the year decreased by 18.77% to RUB 31,654 million compared to RUB 38,966
million in 2011. Net profit margin in 2012 was 5.09%, which is less than in 2011 (6.14%).
74
Net profit margin
7,00%
6,00%
5,00%
6,14%
5,09%
4,00%
3,00%
2,00%
1,00%
0,00%
2012
2011
Profit attributable to ordinary shareholders decreased in 2012 to RUB 16,621 million from RUB 22,348
million in 2011 (a decrease of 25.63%). Basic earnings per share (EPS) are based on the profit attributable
to ordinary shareholders and a weighted average number of shares outstanding, which increased from
42,528 million shared in 2011 to 47,015 million shared in 2012. As a result, basic EPS decreased by
33.96% from RUB 0.53 in 2011 to RUB 0.35 in 2012. The company has no dilutive instruments, so basic
EPS and diluted EPS are equal.
ROA and ROE
Return on assets (ROA) in 2012 was 5.13%, more than in the 2011 - 4.73%. Return on equity (ROE)
decreased in 2012 and amounted to 6.75% compared to 9.28% in 2011.
75
4.2 Capital Structure and Off-Balance-Sheet Settlements
Assets.
During the year, total assets increased by 10.65% from RUB 879,077 million in 2011 to RUB 972,736
million in 2012. Non-current assets increased by 9.62% from RUB 722,391 million in 2011 to RUB 791,849
million.
Structure of Assets (%)
3,71%
9,70%
1,43%
1,05%
Property, plant and equipment
Non-current accounts receivable
3,65%
Other investments and financial assets
(non-current assets)
1,30%
Inventories
(current assets)
Trade and other receivables
79,16%
Cash and cash equivalents
The diagram below represents percentage shares of distribution grid subsidiaries non-current assets in the
Company’s aggregate non-current assets.
76
Share of Distribution Grid Subsidiaries' Non-Current Assets, %
30,0%
25,0%
20,0%
15,0%
10,0%
5,0%
0,0%
Value of non-current assets, 2010
The Company’s total equity increased by 11.45%, from RUB 443,877 million in 2011 to RUB 494,686
million in 2012, primarily on the back of reserve for prepayment for shares in the amount of RUB 19,751
million (+ 110.52% in 2012) and share premium in the amount of RUB 16,244 million (+ 169,12% in 2012).
Total liabilities increased by 9.85% from RUB 435,200 million in 2011 to RUB 478,050 million in 2012.
Percentage share of non-current in total liability structure experienced a small decrease from 55.39% in
2011 to 53.18% in 2012. In absolute terms, non-current liabilities were RUB 254,214 million in 2012, a
5.46% increase compared to RUB 241,050 million in 2011.
Structure of Equity and Liabilities, %
23%
Equity
51%
26%
Non-current liabilities
Current liabilities
Financial leverage remained stable over 2012. When measured as the ratio of average total assets for the
year to average total equity, it decreased to 1.97 in 2012 from 1.98 in 2011. Other measures of long-term
financial solvency as of year end are presented below and also illustrate the Company’s financial stability:
77
Ratio
Total debt to total assets
Long term debt (LTD) to total equity
Total debt to total equity
2012
0,24
0,38
0,46
2011
0,23
0,38
0,45
Change
4,56%
0,32%
3,82%
The maturity profile of the Company’s debt obligations are set forth in the diagrams below:
Debt breakdown by maturity, %
100%
6%
6%
7%
76%
77%
79%
18%
17%
14%
2012
2011
2010
80%
60%
40%
20%
0%
Less than 1 year
1 to 5 years
More than 5 years
The Company’s ability to repay debt obligations as measured by coverage ratios remains strong. Interest
coverage ratio, calculated as EBIT to annual interest payments, decreased from 8.69 in 2011 to 4.64 in
2012.
78
4.3.
Liquidity
Total current assets represented 18.60% of total assets in 2012, a slight increase compared to the 17.82%
share of current assets in the total asset base in 2011. In absolute terms, current assets increased from
RUB 156,686 million in 2011 to RUB 180,887 million in 2012, a 15.45% increase.
Current assets structure can be analyzed as follows:
Component
Inventories
Current tax assets
Trade and other receivables
Cash and cash equivalents
Total current assets
2011
RUB million
% of total
13 742
7,60%
2010
RUB million
% of total
12 907
8,24%
35 105
19,41%
8 728
5,57%
3 156
1,74%
4 516
2,88%
93 193
51,52%
81 682
52,13%
35 691
19,73%
48 853
31,18%
180 887
100,00%
156 686
100,00%
A major trend in current asset structure is an increase in other investments and financial assets, which
increased by 302.21% compared to the previous year.
Changes in percentage shares of each distribution grid subsidiary’s contribution to the aggregate amount of
accounts receivable is represented in the diagram below:
79
Changes in % Shares of Distribution Grid Companies’ Accounts
Receivable in the Company's Aggregate Accounts Receivable
20,0%
MOESK accounts for
37.6% in 2010, 36.2% in
2011, and 37,9% in 2012
17,5%
15,0%
12,5%
10,0%
7,5%
5,0%
2,5%
Accounts receivable in 2012
Yantarenergo
Tyumenenergo
TDC
IDGC of South
IDGC of Centre
IDGC of Urals
IDGC of Siberia
IDGC of North-West
IDGC of Volga
MOESK
LENENERGO
Kubanenergo
0,0%
The percentage share of current liabilities in total liabilities structure increased from 44.61% in 2011 to
46.82% in 2012 and it was primarily due to an increase in provisions and current tax liabilities. An increase
of 15.29% was observed in absolute terms, from RUB 194,150 million in 2011 to RUB 223,836 million in
2012.
Current liabilities structure can be analyzed as follows:
Component
Loans and borrowings
Trade and other payables
2011
RUB million
% of total
40 098
17,91%
168 263
75,17%
2010
28 965
14,92%
158 689
81,74%
80
Provisions
Current tax liabilities
Total current liabilities
14 106
6,30%
5 977
3,08%
1 369
0,61%
519
0,27%
223 836
100.00%
194 150
100.00%
As demonstrated in the table above, current liabilities structure remained quite stable.
The working capital remained negative and changed from minus RUB 37,464 million to minus RUB 42,949
million.
81
4.4.
Cash Flow
Net cash flow from operating activities decreased by 0.58%, from RUB 89,338 million in 2011 to RUB
88,823 million in 2012.
Net cash flow used in investing activities in absolute terms increased by 25,56% from RUB 121,818 million
in 2011 to RUB 152,952 million in 2012.
Net cash flow used in financing activities decreased by 9.70% from RUB 56,443 million in 2011 to RUB
50,967 million in 2012.
In 2012 net decrease in cash and cash equivalents was RUB 13 165 million compared to the previous year
increase of RUB 23,963 million.
Cash Flow Dinamics, 2011 - 2012
150 000
100 000
88 823
89 338
50 967
50 000
56 443
0
-50 000
Cash flow from operating Cash flow from investing Cash flow from financing
activities
activities
activities
-100 000
-150 000
-200 000
-121 818
-152 952
2012
2011
82
4.5.
Dividends and Acquisition of Own Shares
The Company
The Company’s dividend policy is pursued in accordance with the Regulations for Dividend Policy approved
by the Board of Directors of the Company on September 8, 2010 (Minutes No. 43).
These regulations guarantee that any shareholder is entitled to minimum dividends of 5% of net profits, less
asset revaluation, net of mandatory reserves. In addition, dividends may be increased to exceed the
minimum amount if any net profits are in excess of what is needed to make investments and cover losses.
The Annual General Meeting of Shareholders of the Company decided on June 30, 2012, to pay dividends
on preference shares out of undistributed profits of prior years in the amount of 0.07 ruble per preference
share in cash.
Subsidiaries
In defining its position on the payment of dividends by the Company's subsidiaries, the Company’s
management, as a shareholder of SDCs, relies on the regulations for dividend policy approved by the
boards of directors of SDCs. The regulations for dividend policy of SDCs are based on the principles
approved by the Board of Directors (Minutes No. 38 of June 22, 2010).
Following the approved principles of their dividend policies, SDCs pay dividends out of the remaining net
profits, net of financial investment revaluation, after they are distributed to mandatory reserves, investment
programs, and the settlement of operating losses of prior years. Furthermore, there are basic conditions
that should all be fulfilled to allow a dividend payment decision to be adopted: net profits, net of financial
investment revaluation; the debt to EBITDA ratio (as at the year end) of at most three; attained service
reliability and quality indicators.
Since the inception of the Company, SDCs have shown an upward change in dividend payment.
Specifically, the dividends payable by SDCs to the Company for 2008, 2009, and 2010 totaled 165,148
thousand, 728,950 thousand, and 1,623,659 thousand rubles respectively (exclusive of tax).
In 2012, the Company received 1,627,971 thousand rubles of dividends (exclusive of tax) for 2011 on
SDCs’ shares held by the Company.
83
5.
Risk management
5.1.
Internal Control and Risk Management System Overview
The internal control and risk management system (“IC&RM”) of the Company and its SDCs is a component
of their corporate governance. IC&RM includes a full range of control procedures, methods, and
mechanisms created by the Board of Directors and executive bodies of the Company and its subsidiaries to
efficiently control the Company’s financial and economic activities.
In order for the Company’s IC&RM to develop, the Board of Directors approved the following regulatory
documents:






Concept of Developing and Improving the Internal Control and Risk Management System;
Internal Control Policy;
Risk Management Policy;
Guidelines for Organizing Internal Control and Risk Management;
Recommended Guidelines for Risk Management;
Code of Corporate Ethics.
Key Risk Factors
The performance of the Company’s SDCs may be affected by risks that should be taken by investors into
account. The key risk factors described below are currently considered by the Company to be the most
important.
Country and Regional Risks
Country and regional risks are determined primarily by macroeconomic factors existing globally,
nationwide, and at regional level. These factors may impair the Company’s and SDCs’ possibilities for
borrowing and adversely impact their liquidity, investment and operating efficiency, and, eventually,
shareholder value. Additionally, the global economic crisis has a harmful effect on industrial production and
electricity consumption, which reduces revenues of the Company and SDCs.
The primary factors of macroeconomic risks are the continuing global financial crisis affecting the key
indicators of commodity and financial markets: prices of crude oil and other commodities, the cost of
capital, world currency exchange rates, and inflation.
As is the case with the other BRICS countries, Russia is a leading emerging economy and is sensitive to
global recessionary pressures. This is due to the economy’s dependence on energy prices, the immaturity
and volatility of the Russian financial market, and the transitional state of the national banking system.
With the aim of mitigating the macroeconomic risk, the Company and SDCs take comprehensive measures
to decrease the share of borrowings in their total capital, take out fixed interest rate loans, and enhance the
efficiency of operating and investment expenses of the Company and SDCs.
84
Industry Risks
The core activities of the Company’s SDCs, the provision of electricity distribution and network connection
services, are subject to regulation by the government. The tariff regulation policy is aimed at keeping down
electricity tariffs, which may lead to limiting the tariff-based sources of financing SDCs’ investing and
operating activities. To minimize these risk factors, the Company and SDCs pursue a balanced policy on
improving the efficiency of investing and operating activities, aimed at reducing costs and optimally
planning the structure of the financing sources.
One of the regulatory risk factors is imperfect operation mechanisms of the retail electricity market, which
entails disagreements between electric grid companies and retail companies over the volume of consumed
electricity and capacity used in tariff calculations. This leads to contested and overdue receivables related
to electricity distribution services provided by SDCs, impairing the liquidity and financial stability of the
Company’s SDCs. The Company and SDCs take measures to eliminate the causes of disagreements with
customers, reduce contested and overdue receivables for their services provided, cooperate with federal
governmental authorities in preparing amendments to the rules for the operation of the retail market, form
judicial practice, and set positive precedents. In addition, the Company’s SDCs implement the Long-Term
Development Programs for Electricity Metering Systems in the Retail Electricity Market in Distribution Grids
of MRSK Holding’s SDCs approved by their boards of directors.
A substantial risk factor is also the cross-subsidy mechanism at the expense of large industrial customers
in favor of other customer categories, including households. Several large industrial customers that are
directly connected to networks of the Unified National (All-Russian) Electric Grid (UNEG) pay for SDCs’
electricity distribution services at the electricity distribution tariffs if, under the last mile agreements between
the Company’s SDCs and FGC UES, the electric grid facilities are leased to the Company’s SDCs. Since
there were no laws specifically governing the last mile agreements, some large industrial customers
switched in 2010–2013 to direct agreements with FGC UES by recourse to court action. As estimated by
the Company, the termination of the last mile agreements decreased SDCs’ revenues by 12.7 billion rubles
in 2012 and may bring about lost income of 9.3 billion rubles in 2013.
In accordance with paragraph 5 of Article 8 of Federal Law No. 35-FZ of March 26, 2003, “On the Electric
Power Industry,” the organization responsible for the management of the Unified National (All-Russian)
Electric Grid may lease electric grid facilities to territorial grid organizations upon agreement with the
authorized federal executive agencies by January 1, 2014. Resolution of the Government of the Russian
Federation No. 1173 of December 27, 2010, “On the Procedure for Leasing Electric Grid Facilities Included
in the Unified National (All-Russian) Electric Grid to Territorial Grid Organizations” approved the rules for
agreeing with the Ministry of Energy of the Russian Federation upon leasing UNEG facilities to territorial
grid organizations. Starting from the beginning of 2011, agreeing upon the composition of UNEG facilities
leased to territorial grid organizations takes into consideration the opinion of Russia’s authorized regional
executive agencies.
Nevertheless, the Resolution states that agreement upon leasing UNEG facilities to territorial grid
organizations is dependent on the fact that that the direct electricity distribution agreements between FGC
UES and electricity consumers have been terminated and that the head of a constituent entity of the
Russian Federation has applied therefor in writing. The Ministry of Energy of the Russian Federation
approved Order No. 403 of August 24, 2012, whereby the Company’s SDCs and FGC UES entered into
85
lease agreements for UNEG facilities (last mile agreements) for 2013. Electricity distribution using specific
UNEG facilities leased by the Company under the last mile agreements is included by federal and regional
regulators in the planned volume of electricity distribution services for 2013. In 2012, the President and the
Government of the Russian Federation emphasized the importance of tackling the problem of crosssubsidies in the electric power industry. The Ministry of Energy of the Russian Federation was instructed to
work out the mechanisms for eliminating cross-subsidy practices. The Company plans to take an active
part in discussing this problem at the level of federal governmental authorities.
The transition of SDCs to regulation based on the return on invested capital method (Regulatory Asset
Base, RAB) involves several risks. The most important of them are as follows:



The value of the initial invested capital base appraised by independent appraisers may be disputed
by regulators;
Losses may be incurred due to an unreliably predicted breakdown of electricity distribution by
voltage and the overestimated volume of declared capacity as compared with actual capacity used
for making tariff and balancing decisions;
Some income may be lost due to putting it aside in implementing the income-equalizing
mechanism: in planning the calculation of RAB-based tariffs.
In order to mitigate these risks, SDCs cooperate with regional regulators in defining the amount and
sources of financing their investing activities under long-term regional development programs. This work
aims to eliminate any subjectivity in making tariff and balancing decisions by formulating and carrying out
the cost management program, including as part of implementing the Russian President’s instructions to
attain an at least 10 percent annual reduction of per-unit purchase costs related to goods (work, services)
within three years in real terms in 2010 prices. In addition, the Company plans to develop and implement in
the future the regulatory contracts enabling tariffs to be set subject to the quality of services provided.
These contracts should also provide for reciprocal obligations, on the one hand, of grid companies for the
quality of services provided (as clearly specified in the contract) and, on the other hand, of regulatory
authorities for adjustments to tariff decisions during the long-term period of regulation.
Another regulatory risk incurred by the Company is the risk of a decrease in the demand for network
connection and electricity distribution services as compared with the planned volume used by regulators to
make tariff and balancing decisions. In order to reduce this risk, the Company continues work on the
monitoring network connection requests and, on the basis of monitoring, predicting the net delivery of
electricity, the demand for network connection services for the following year, and an increase in
applications submitted to regulatory authorities to set network connection fees for individual projects. At the
same time, due to a great number of network connection requests, the Company is not always able to fully
satisfy them, which may adversely affect revenues because of the loss of potential customers and lead to a
violation of antimonopoly laws as related to electricity distribution and network connection services. To deal
with this issue, the Company improves the business process of processing customers’ network connection
requests. Simultaneously, the Company explains to customers the process of providing network connection
services, including by publishing information on the provision of services and setting up customer service
centers.
Due to the enactment of regulatory documents in late 2012 to simplify the procedure for depriving retail
companies of the supplier of last resort status, some of the Company’s SDCs incur the risks associated
86
with the necessity of assuming the powers and duties of suppliers of last resort that are lost by retail
companies. The most important of these risks are as follows:




Risks associated with a rise in receivables of ultimate customers and the writing-off of accumulated
receivables under electricity distribution services agreements between retail companies and
distribution grid companies;
Risks associated with the performance of the supplier of last resort functions in the wholesale
electricity and capacity market;
Risks involved in an increase in SDCs’ expenses related to the performance of the supplier of last
resort functions in excess of the minimum regulated revenue used for the calculation of retail
markups;
Organizational risks associated with the loss of competencies and customer databases and with
erroneous payments for consumed electricity.
With a view to minimizing these risks, the Company and SDCs take measures to cooperate with federal
and regional governmental authorities, the mass media, infrastructural organizations of the wholesale
electricity market, law enforcement agencies, and organizations deprived of the supplier of last resort status
in the performance of the supplier of last resort functions and the settlement of debts. Additionally, the
Company formulates legislative initiatives to streamline the procedure for changing the supplier of last
resort.
Financial Risk
In their planned financial and economic model, the Company and SDCs are exposed to factors that may
result in a shortage of funds to finance their investing and operating activities. The most significant financial
risk factors are associated with imperfect operation mechanisms of the retail electricity market and
disclosed in the “Regulatory (Industry) Risks” section. However, there are some risk factors that may also
affect the results of financial and economic activities.
Inflation Risks
The adverse impacts of inflation on financial and economic activities of SDCs and the Company can be
connected with loss of the actual value of receivables, an increase in loan interest, and higher construction
costs related to the capital investment program’s facilities. The current inflation rate does not have a
material effect on the Company’s financial condition. In accordance with the plans of the Bank of Russia to
curb inflation and the inflation forecasts for the near future, it is unlikely that inflation will substantially affect
the financial results of SDCs and the Company.
Currency Risks
An adverse change in foreign exchange rates may affect the indicators of the operating and investment
efficiency of the Company and its SDCs. Currency risks do not have substantial impacts on the Company
and its SDCs because settlements with counterparties are entirely denominated in the currency of the
Russian Federation. Nevertheless, given that the goods and equipment bought by the Company contain
87
imported components, a considerable increase in foreign exchange rates may lead to higher prices of
purchased products. In this connection, the Company pursues a policy aimed at import substitution and
entering into long-term contracts that do not specify any increase in prices of purchased products.
Interest Rate Risks
Changes in the refinancing rate of the Bank of Russia reflect the macroeconomic situation and affects
borrowing costs. A rise in loan interest rates may result in an unplanned increase in debt service expenses
incurred by the Company and SDCs. To reduce the interest rate risk, the Company pursues a balanced
borrowing policy aiming to streamline the loan portfolio structure and minimize debt service expenses.
Liquidity Risks
The activities of the Company’s SDCs are exposed to the risk factors that may impair the liquidity and
financial stability of the Company and SDCs. The most important factors are cross-subsidies of customer
groups and low payment discipline in the retail electricity market.
Total cross-subsidies of all the COmpany’s SDCs in 2012 reached at least 200 billion rubles, which is due
to the regional government policy aimed at keeping down tariffs for certain customer groups (households,
agricultural and state-financed customers, etc.). The most significant component of cross-subsidies is the
mechanism for entering into last mile agreements (disclosed in the “Regulatory (Industry) Risks” section).
The lost income of the Company’s SDCs due to interrupted electricity consumption in 2010–2012 as a
result of large industrial customers switching over to direct agreements with FGC UES is at least 30 billion
rubles and is expected to continue to grow in 2013.
Total receivables of all of the Company’s SDCs in 2012 increased by 28% to 71 billion rubles. Overdue
receivables totaled 24 billion rubles at the end of the year and grew by 70% on the previous year. The main
factors in the low payment discipline leading to a considerable increase in receivables are the absence of
effective mechanisms for dealing with nonpayers, the improper use of money received for delivered
electricity by retailers deprived of the supplier of last resort status, and disagreements over declared
capacity in settlements with retail companies.
If these risk factors materialize, the Company’s SDCs may find themselves incapable of fulfilling financial
and other restrictive conditions (covenants) contained in loan agreements, specifically total debt to EBITDA,
debt to equity, current ratio, and net asset value. In order to minimize this risk factor, the Company monitors
SDCs’ capital structure, defines the optimum parameters for borrowings, and carries out measures to
reduce cross-subsidies and streamline the working capital structure.
Operational Risk
Activities of the Company’s SDCs cover a wide geography, SDCs operating in areas with different climates.
There is likelihood of emergencies caused by natural disasters (hurricanes, heavy and freezing rain,
freshets and floods, snowdrifts, etc.), which may result in system-wide failures of the operability and
88
performance of electric grid equipment and in power outages suffered by customers of the Company’s
SDCs.
Operational and technological risks affecting power supply reliability are associated primarily with the high
physical deterioration and obsolescence of electric grid assets, failure to conform to operation conditions
and operation modes of electric grid equipment, and failure to implement the required repair program. In
addition, operational and technological risks may materialize because of the following factors:


Natural and anthropogenic emergencies;
A less efficient management system of assets of MRSK Holding’s SDCs (changed priorities in
ensuring the reliability of network operation, incorrect ranking of facilities that should be repaired);
Factors related to equipment operation, including extreme deviations from regulatory and technical
requirements, failure by the process parameters of electric grid equipment’s operation to conform to
permissible values, mistakes made by operating personnel, and failure to comply with operational
discipline.
If these risks materialize, this may have material economic and reputational consequences. In addition,
these risk factors affect the volume of electricity network losses, increasing expenses incurred by SDCs in
relation to the purchase of electricity to compensate for losses.
In order to reduce the probability that operational and technological risks occur, the Company and SDCs
take measures to make the power supply more reliable and prevent process failure risks. The most
important of these measures include:













Clearing and expanding the pathways of overhead lines rated 0.4–220 kV;
Rehabilitating electric grid facilities;
Expanding the stock of reserve power supply equipment and the stock of vehicles and special
equipment for accident recovery work;
Carrying out the comprehensive program to modernize (renew) electric grid assets;
Modernizing switching equipment;
Modernizing and creating automated process control systems;
Improving data exchange systems, analyzing process failures, and forecasting the consequences
of process failures, including the implementation of the Automated Management System for
Distributed Resources for Accident Recovery Work;
Improving the emergency reserve management system;
Increasing the number of mobile accident recovery crews and improving the quality of their
personnel;
Carrying out the program to reduce injury risks of electric grid facilities;
Ensuring the training, control, and certification of personnel operating process equipment;
Carrying out the insurance program;
Implementing energy conservation and energy efficiency enhancement program.
With the purpose of mitigating operational and technological risks, the Board of Directors of the Company
resolved (Minutes of the Meeting No. 64 of October 7, 2011) to approve the Regulations for the Uniform
Technical Policy of MRSK Holding in the Distribution Grid Sector. Furthermore, SDCs are in the process of
89
implementing the production asset administration system based on the actual condition index for
equipment.
Project Risk
The Company’s SDCs take an active part in investment aiming to renew and expand grid infrastructure,
which brings about risks associated with the decreasing efficiency and value of investments over the
course of implementing investment, innovative development, and R&D programs.
The increasing scope of SDCs’ investment programs makes it necessary to mobilize both internal and
borrowed considerable financial resources conforming to the RAB regulation parameters, which is an
investment risk factor. Additionally, some SDCs carry out socially important investment projects that are
often unprofitable.
Even if financial resources are sufficient for investment program implementation, there is some likelihood of
failure to spend investment-related funds on schedule and of the delayed commissioning of facilities
covered by SDCs’ investment programs, including due to nonperformance or delayed performance by our
contractors and suppliers of their obligations.
Resolution of the Government of the Russian Federation No. 159 of February 27, 2013, “On Amendments
to the Rules for Approving the Investment Programs of Electric Power Industry Entities Whose Stakes Are
Held by the Government and of Grid Organizations” specifies the facilities not included in territorial planning
documents should be excluded from the investment program of the Company’s SDCs. There is a risk that
construction in progress may grow due to excluding such construction-in-progress facilities from the capital
investment program as not included in territorial planning documents.
In order to mitigate the investment risk, the Company and SDCs plan their capital investment programs
taking account of the following key efficiency criteria: raising the affordability of the grid infrastructure,
reducing the physical deterioration of electric grid facilities and modernizing them, and achieving a high
utilization rate of commissioned facilities. A precondition for including investment projects in the capital
investment program is that they should be linked to territorial and regional development plans. In addition,
the Company and SDCs monitor the implementation of SDCs’ investment programs and their financing and
analyze the reasons behind any deviations of the actual results of investment program implementation from
the plans. SDCs adopt investment project management procedures, which include investment project risk
management. The Company takes measures to improve the quality of project implementation, raise the
effectiveness of investments in the existing grid, cut specific construction costs, achieve high utilization
rates of new facilities, develop and implement a benchmarking system for specific costs of construction and
installation and materials, build an innovation management system, and automate the investment
management system.
90
Compliance Risk
Frequent changes in the laws of the Russian Federation under conditions where the industry is subject to
governmental regulation, together with a wide range of regulatory requirements and restrictions, are
sources of the risk associated with the failure by the Company and SDCs to comply with laws and other
legal regulations, or the requirements established by regulators and supervisors and set forth in internal
documents of the Company and its SDCs that determine internal policies, rules, and procedures.
Activities of the Company and SDCs are governed and overseen by Russian authorities and agencies,
such as the Federal Antimonopoly Service, Federal Tariff Service, Federal Financial Markets Service,
Federal Taxation Service, Ministry of Energy, Federal Service for Fiscal Monitoring of the Russian
Federation, and the Accounts Chamber. Furthermore, as government-linked companies, the Company and
SDCs carry out instructions issued by the Russian President and Government. In this connection, the
compliance risk factors are of special significance.
As natural monopoly entities, the Company’s SDCs are exposed to the risks involved in their being held to
be in violation of antimonopoly laws as related to their provision of network connection services, disclosure
of information concerning their services, and procurement operations. In order to reduce this risk, SDCs
monitor how promptly customers’ requests and appeals are handled, clearly regulate and monitor the
disclosures required under Russian laws.
The Federal Financial Markets Service governs and supervises activities of the Company and SDCs as
related to complying with Russian securities laws, including the disclosure of material facts that can
substantially affect the value of securities, and combating insider information misuse.
As provided for in law, the Accounts Chamber is responsible for organizing and overseeing the timely
implementation of the federal budget and establishing whether federal budget funds are spent and federal
property is used efficiently and reasonably.
Amendments to tax law that involve raised tax rates or changed tax assessment procedures may impair the
profitability of the Company and SDCs and increase their tax burden.
SDCs are in possession of, have the leasehold of, or have the perpetual right to use most plots of land
where their distribution assets are located. Nevertheless, some of the plots lack the registration required
under law. In addition, laws specify that the deadline for reregistering the perpetual right to use into
ownership or leasehold is January 1, 2015. In order to mitigate this factor, SDCs are in the process of
carrying out the program to obtain the reregistration of the perpetual right to use.
With the aim of minimizing the above-mentioned risk factors, the Company and its SDCs take measures to
improve compliance control. In 2012, the Board of Directors of the Company approved local documents
designed to enhance the efficiency and transparency of financial and economic activities of the Company
and SDCs and combat corruption. The Company monitors changes in current laws that affect various
aspects of financial and economic activities of the Company and SDCs.
91
Corporate Risk
As part of its efforts to pursue the Strategy for Development of the Company Until 2015 with Long-Term
Plans Until 2020, the Company does not miss the opportunities of managing the future growth and
profitability of SDCs. The shareholder value of the Company and its SDCs is influenced by numerous
factors of the internal and external environments.
Almost all SDCs are included on the register of natural monopolies subject to governmental regulation in
accordance with Russian laws. In this connection, federal and regional tariff regulation agencies set and
regulate tariffs of services provided by SDCs.
For the purpose of keeping down electricity tariffs for ultimate customers, the government is able to limit the
tariff growth parameters and, consequently, the profitability indicators of SDCs’ services. Although the
transition to RAB regulation reduces the shareholder value risk by mitigating the influence of subjective
factors on tariff decisions, this does not eliminates these risk factors completely. To achieve the long-term
targets of RAB regulations (including the investment rate of return prescribed by the regulator) is an
essential prerequisite for attaining shareholder goals. With the aim of minimizing this factor, the Company
and SDCs carry out cost management programs, ensure the well-balanced planning of operations in
accordance with approved tariff and balancing decisions, supervise the implementation of the approved
business plans of SDCs, and cooperate with local government authorities in formulating territorial
development programs coordinated with SDCs’ investments programs in terms of the amount and sources
of financing.
In addition, a substantial risk factor is competition for tariff-based revenues on the part of regional territorial
grid organizations in each constituent entity of the Russian Federation. With a view to minimizing this risk
factor, the Company plans measures to shrink the existing tariff disparities leading to a disproportionate
increase in revenues of regional territorial grid organizations.
Another substantial risk factor is that SDCs may be held to be in breach of antimonopoly laws. Network
connection services provided by SDCs are exposed to antimonopoly regulation risks to the largest extent.
Appeals filed by customers with territorial offices of the Federal Antimonopoly Service and followed by
proceedings initiated by the antimonopoly authority against the Company with respect to failure to comply
with network connection laws may be caused by consumer right violations. Specifically, this may result from
refused network connection requests, noncompliance with the statutorily set deadlines for network
connections, and a number of other factors. An additional negative factor is that the applicable laws
empower the Federal Antimonopoly Service to apply broad interpretations to the notion of product market
borders. For instance, a justifiable complaint may lead to a turnover-based penalty calculated on the basis
of the total revenues received in the region where a SDC has a presence but not limited to the region
where a specific branch of this SDC operates.
In order to mitigate the above-mentioned risk factors, SDCs improve their network connection business
processes by simplifying their internal procedures and adopting new approaches to customer service, for
example, online service techniques.
As the principal shareholder, the Russian Federation controls decision making with respect to most issues
and has influence over the strategies of the Company and its SDCs. Decisions driven by the economic and
92
social interests of the government may be inconsistent with the interest of other shareholders. Among other
things, such decisions can concern dividend policies, mergers and acquisitions, and privatization issues of
the Company’s SDCs. Additionally, as the principal shareholder of SDCs, the Company may make
decisions that will not be regarded by minority shareholders of such SDCs as consistent with their interests.
This may result in minority shareholders’ going to court and their contesting decisions adopted by the
executive bodies of SDCs.
With the aim of minimizing these risks and in compliance with the provisions of the Corporate Governance
Code approved by the Board of Directors of the Company, the Company works to maintain the balance of
shareholder interests, including respecting and protecting the rights guaranteed to all shareholders under
the laws of the Russian Federation.
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6.
Outlook for 2013
In order to further the development of the Russian electric grid sector and coordinate work on its
management, Russian President Vladimir Putin signed on November 22, 2012, Decree No. 1567 “On Joint
Stock Company Russian Grids.” The Decree specifies that MRSK Holding will be renamed Joint Stock
Company Russian Grids (Russian Grids) and that governmentally owned 79.55% of shares in FGC UES
will be used as a contribution to the authorized capital of Russian Grids. In accordance with the Decree,
these measures must be complete before June 30, 2013.
Additionally, pursuant to the Decree, it is necessary to prepare the Strategy for Development of Russian
Grids within one month after its issuance and develop and approve the Strategy for Development of the
Electric Grid Sector of the Russian Federation in the 1st quarter of 2013. The draft of the Strategy for
Development of Russian Grids was reviewed by a meeting of the Government Commission on the
Development of the Electric Power Industry on December 20, 2012.
The goal of the structural transformations aimed at the consolidation of electricity transmission and
distribution grids is to create a single center of responsibility to the shareholders for transmission and
distribution operations, coordinate work on improving the economic efficiency of investing activities,
develop uniform quality standards and indicators, and enhance the operating efficiency of transmission and
distribution grid companies.
Russian Grids will be one of Russia’s most significant infrastructural companies controlled by the
government and the world’s largest electric grid company in terms of the number of customers and the
length of power lines. At the same time, the strategic goals and areas of Russian Grids’s development will
be made specific after the Strategy for Development of the Electric Grid Sector of the Russian Federation
has been approved in the 1st quarter of 2013 as instructed by the Russian President.
In 2013 the Company continues to maintain dialog with already-existing and potential investors and expand
analytical coverage and IR instruments. Full range of IR events is below:
Investor Calendar 2013
Date
Event / Organizer
Event location
February
Russian investor conference /UBS
New York
April
The Russia Forum 2013/ Sberbank CIB
Moscow
April
Annual investor conference / Morgan Stanley
London, New York
April
Investor conference /VTB Capital
New York
94
April
IR release announcing the publication of the 2012 IFRS
financial statements
Moscow
April
Publication of the Management Report on the London Stock
Exchange
London
April
Conference call following up the publication of the 2012 IFRS
financial statements
Moscow
April - May
Meeting with the investor community to present the Russian
Grids development strategy
Moscow, London
May - June
Group meetings with minority shareholders to deal with the
issues related to an additional issue of shares in IDGC Holding
and contributing shares in FGC UES to the authorized capital
of IDGC Holding
Moscow
June
Investor conference /Renaissance Capital
Moscow
July
Annual conference for IR divisions /London Stock Exchange
London, Moscow
July–
September
Russian Grids’s Investor Day
Moscow
August
Conference call on the publication of the 1H13 IFRS financial
statements
Moscow
September
Annual one-on-one investor conference /Deutsche Bank
New York
September
Global energy one-on-one conference /Morgan Stanley
London
September
Annual one-on-one conference /VTB Capital
London
September–
October
On-site meeting between analysts and top management of
subsidiaries and dependent companies
To be determined (one of the
cities where interregional
distribution grid companies
operate)
October
RUSSIA CALLING! Investment Forum / VTB Capital
Moscow
95
October–
November
Annual IR seminar for subsidiaries and dependent companies
on the improvement of the shareholder/investor relations
policy of distribution grid companies
Moscow
October–
November
Annual conference for IR departments /IR-magazine
Moscow
November
Annual conference for IR departments /Bank of New York
Mellon
Moscow
November
One-on-one investor conference /Merrill Lynch
London–New York
November
Annual energy one-on-one conference /Goldman Sachs
London
96
7.
Responsibility Statement
The Management Board confirms that to the best of their knowledge:
1. The financial statements, prepared in accordance with International Financial Reporting Standards, give
a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole; and
2. The management report includes a fair review of the development and performance of the business and
the position of the Company and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that it faces.
By order of the Management Board,
__________________
Chairman of the Management Board
Oleg Budargin
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8.
Independent Auditor’s Report
98
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9.
Consolidated Financial Statements for 2012
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103
104
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106
107
108
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116
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JSC Russian Grids – 2012 Management Report Disclaimer This

Transcription

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