Risk management
With a view to secure sustainable faultless operations and evolution of the Company we have implemented the risk management system that identifies, evaluates and effectively manages risks threatening Company’s reputation and operations, health of employees, environment and ownership interests of stockholders and investors. To develop the RMS the Company’s Board of Directors has adopted the Risk Management Policy[93].
The following entities participate in the risk management:
Board of Directors- Answering for timely exposure and/or minimization of risks, timely and duly execution of activities focusing on risk management.
- Adoption of the risk management policy.
- Examination of reports of the Company’s executive bodies with regard to roll-out, functioning and efficiency of the risk management system, evaluation of its performance and preparation of recommendations to improve the system.
- Examination of outcomes of external independent evaluation of the risk management system efficiency.
- Oversight of the efficiency of procedures related to risk management and evaluation of the efficiency of activities related to risk management and RMS improvement.
- Evaluation of the efficiency of activities related to risk management and RMS improvement.
- Preliminary examination of reports of Company’s executive bodies with regard to the roll-out and functioning of the risk management system prior to filing with the Board of Directors.
- Analysis of proposals related to improvement of the risk management system, covering risk identification and risk parameters revision.
- Preliminary examination, prior to filing with the Board of Directors, of Company’s bylaws regulating roll-out and functioning of the risk management system, Risk Management Policies and their revisions.
- Preliminary examination, prior to filing with the Board of Directors, of an annual report section and preparation of an opinion with regard to it.
- Enforcement of build-up and maintenance of the efficient risk management system, based on common approaches and standards, developed and adopted for PAO Rosseti Group of Companies.
- Guarantee of execution of Board of Directors resolutions with regard to the roll-out and functioning of the risk management system.
- Setting of requirements to the format and adequacy of Company’s risks disclosures.
- Build-up of plans for the RMS development and improvement.
- Analysis of the risk portfolio and development of measures related to risk response strategy and resource reallocation.
- Preparation of an annual progress report with regard to the roll-out, functioning and efficiency of the Company’s risk management system and proposals related to the RMS development and improvement to be filed with the Board of Directors for examination.
- Examination of the progress report of the risk management unit with regard to risk management and evaluation of the RMS efficiency.
- Examination of the outcomes of an internal evaluation of the RMS efficiency.
- Enforcement of the efficient risk management in day-to-day operations.
- Adoption of the Company’s regulatory and methodological instruments related to the roll-out and functioning of the risk management system, with the exception of bylaws falling under the Board of Directors purview.
- Filing of an annual progress report with regard to the roll-out, functioning and efficiency of the Company’s risk management system and proposals related to the RMS development and improvement with the Board of Directors for examination.
- Answering for timely exposure and evaluation of risks, selection of risk responses, timely generation and conduct of risk management activities, regular risk monitoring.
- Guarantee of timely distribution of information on the progress related to risk management among the Company’s executive bodies.
- Enforcement of efficient cooperation with the risk management unit on documentation and reporting, generated in the course of the risk management activities.
- Answering for timely exposure and/or minimization of risks, timely and duly execution of activities focusing on risk management.
- General coordination of risk management processes.
- Conduct of internal independent evaluation of the risk management system efficiency and preparation of recommendations related to the enhancement of RMS efficiency and performance.
Core risk factors
The section discloses evaluation of risk materiality and dynamics, factoring in risk ID and expert evaluations. Risk materiality is a combination of risk occurrence possibility and value of consequences in money and other terms.
- Crucial
- Important
- Moderate
- increased materiality of risk
- reduced materiality of risk
- unchanged
Industry risks:
Risk description |
State policy in tariffs lies in inflation control and stipulates revisions of regulated tariffs for 2017-2019 below actual inflation on the back of advanced wholesale price hikes. This creates a risk of regulators’ setting tariffs below economically feasible levels. |
Minimization of consequences: |
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Risk description |
The risk appears as a result of reduced consumption and optimization of external power supply by large consumers. |
Minimization of consequences: |
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Risk description |
The risks derive from possible deficit of resources to fund activities related to execution of connection contracts; filers’ failure to discharge their liabilities related to connection contracts; reduction of maximum capacity in connection requests by filers. These factors may have an adverse impact on connection revenues. |
Minimization of consequences: |
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Risk description |
The risk derives from still evolving mechanisms for stimulation of consumers to pay on time for electricity transmission services and adverse effect of macroeconomic factors (lowered paying capacity of consumers). |
Minimization of consequences: |
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Federal and regional risks:
Risk description |
The risks derive from lowered economic activity of the regions of operation, increased cost of borrowings, impacted, in its turn, by unstable global environment, international sanctions, downgrade of credit ratings and inflation hikes. These factors may have an adverse impact on Company’s revenues and market value. |
Minimization of consequences: |
We take measures to replace imported materials and equipment with domestic ones, expand access for small and medium businesses to procurements in line with the Federal Procurement Law. |
Risk description |
The risks may arise from possible illegal interference into Company’s performance, incl. terrorist attacks (transnational and national terrorism). These attacks may have an adverse effect on the Company’s operations. |
Minimization of consequences: |
If political and economic situation in Russia or any region is unstable and may impact Company’s performance, the Company shall take antirecession measures to reduce this negative impact (cost-cutting and cost optimization, reduction of investment plans, reduction of loans and borrowings to fund operations, well-balanced financial policy). The Company actively collaborates with state agencies and other stakeholders to diminish the influence of these risks. Possibility of a military conflict and announcement of the state of emergency in the country or regions is low. In case of a military conflict the Company may encounter risks when its property, plant and equipment are destroyed. These risks are covered by insurance. |
Risk description |
These risks derive from emergencies as a result of natural disasters (hurricanes, tropical downpours, floods, snow storms, icing, fires, explosions, etc.), disrupting electricity supply and transport connection in the region. Regions of the Company’s service area have a developed transport infrastructure and are not exposed to the risks related to transport connection stoppage due to their remoteness and/or inaccessibility. |
Minimization of consequences: |
The Company prepares for autumn-winter operations, each branch being certified in a proper manner. All branches have a long-term experience of successful quick liquidation of consequences from natural disasters, badly influencing facilities and network infrastructure. |
Financial risks:
Risk description |
An adverse impact on the Company’s performance due to changes of Fx rates. |
Minimization of consequences: |
Borrowings and payments with customers and suppliers are nominated in Russian currency. But still, in light of possible imported components in goods or equipment purchased by OAO IDGC of Urals, the Company realizes its import-substitution policy focusing on project solutions to minimize usage of imported equipment and materials. Optionally, it considers conclusion of long-term contracts with stable equipment prices for projects depending on imported equipment and materials. |
Risk description |
Influence on possible increase of Company’s costs related to capital raising to fund its investment programs. |
Minimization of consequences: |
Improvement of debt structure depending on current credit conditions; oversight of reciprocal discharge of liabilities on credit contracts in force; monitoring of the debt market during debt-attraction arrangements; auctions and contracts with largest Russian banks, able to credit large sums at moderate rates, diversification of credit ceiling portfolio. |
Risk description |
Influence of CPI growth on interest payable, costs, profitability and, as a consequences, financial profile and obligations fulfillment of the Company. |
Minimization of consequences: |
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Legal risks:
Risk description |
Risks related to changes in legislation, court practices on Company’s operations and balance of interests of other energy sector players. |
Minimization of consequences: |
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Risk description |
Risks related to regulator’s sanctions as a result of possible non-compliance of Company’s operations with legislation, local regulatory documents and other enactments, subject to mandatory compliance. |
Minimization of consequences: |
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Reputation risk:
Risk description |
The risk may arise from possible failures to discharge liabilities before customers and contractors. The risk may derive from possible loss of effective communications with various target audiences, incl. as a consequence of failures to execute key production plans and discharge liabilities before customers and contractors in full. |
Minimization of consequences: |
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Strategic risk:
Risk description |
Risk of failure to achieve strategic goals and objectives of the Company due to potential changes in internal and external environment of the Company. |
Minimization of consequences: |
Management of strategic risks is interpreted as a totality of actions aimed at implementation of activities and minimization of risks related to the implementation of the energy sector development strategy in light of regional development strategies. As strategic risks impacts the achievement of goals set by the energy sector development strategy and PAO Rosseti’s long-term development program, covering also Company’s development-related activities, management of the key operating risks and risks of Company’s business processes is one of the elements managing strategic risks under the adopted Risk Management Policy. |
Risks related to Company’s operations:
Risk description |
Deteriorated reliability of energy supply caused by accidents of natural or technogenic character resulting in equipment faults; high level of equipment with excessive service life; failure to comply with requirements in terms of excess of set values of technological exploitation parameters. |
Minimization of consequences: |
The Company takes the following steps:
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Risk description |
Reduction of sources to fund Company’s investment programs if its financial profile is deteriorated and, as a result, reduction of revenues from tariffs on the back of non-execution of investment programs. Violation of deadlines for commissioning of facilities from investment programs due to failures to discharge or discharge on time liabilities by contractors and suppliers. |
Minimization of consequences: |
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