Annual Report
Public Joint-Stock Company
“Federal Grid Company
of Unified Energy System”
2016
The Annual Report was approved by the Annual
General Meeting of Shareholders on 29 June 2016
(Minutes No.18 of 03.07. 2017)
preliminarily approved by the Board of Directors of
Federal Grid Company as of 29.05.2017
(Minutes No.367 of 29.05. 2017)
Chairman of the Management Board
of Federal Grid Company A. Murov
Annual Report
Public Joint-Stock Company
“Federal Grid Company
of Unified Energy System”
15 YEARS
TOGETHER WITH RUSSIA
2016
Public Joint Stock Company Federal Grid Company of Unified Energy System
is a unique infrastructure company that provides reliable and uninterrupted electricity
transmission via backbone electric grids in the Russian Federation. Management
of the Unified National (all-Russian) Electric Grid (UNEG) is our key area of focus.
About the Report
The Annual Report highlights the successful
operations of FGC UES over the course of fifteen
years, contributing both to the Company's standing
and to the domestic economy in general. The
development of backbone electric grids has reflected
the needs of the Russian economy and the Company's
customers. By providing electricity transmission
services via backbone grids to 77 regions in Russia,
the Company creates opportunities for economic
growth and offers solutions for major social and
economic challenges.
The individual parts of the Annual Report cover
systemically significant projects that have been
implemented by the Company over the years, such as:
— Improving the reliability of electricity supply to the
regions,
— Participating in the implementation of power
generation schemes for nuclear, heat and
hydroelectric power plants,
— Technological connection of major enterprises of
leading industries: oil and gas fields, mining and
processing enterprises, iron and steel plants,
mechanic engineering facilities, airports, large
agricultural enterprises and others.
The Annual Report includes the Company's data,
open-source information and data from a stakeholder
survey (questionnaire) conducted by the Company.
In the text of this Annual Report, the Public Joint
Stock Company Federal Grid Company of Unified
Energy System is also referred to as: PJSC FGC UES,
JSC FGC UES (the former name used before 07 July
2015), FGC, FGC UES, Federal Grid Company, Federal
Grid Company of Unified Energy System or the
Company.
Corporate Website:
www.fsk-ees.ru/eng/
Interactive
Version
Contents
Strategic
Priorities
Strategic Report
Reliability
Reliability
of electricity supply
to our consumers.
UNEG development
Development
and functionality
of the Unified National
(all-Russian) Electric
Grid adequate to the
needs of the national
economy and its
citizens.
Economic
efficiency
Economic
efficiency
and financial
sustainability
Corporate Governance
Report
Financial
Statements
Additional
Information
In Brief
Statement from the Chairman of the Board of Directors
Interview with the Chairman of the Management Board
Key Events of the Year
Geography
Business Model
Market Review
Development Strategy
Key Performance Indicators (KPI)
Risk Management
Operating Performance
Investing Activities
Innovative Development
Analysis of Financial Performance
Sustainability Results
General Information on the Company's Corporate
Governance
General Meeting of Shareholders
Report of the Company's Board of Directors
Board Committees
Corporate Secretary
Executive Governance Bodies
Remuneration System for Governance Bodies
Risk Management, Internal Control and Internal Audit
Audit Commission
External Auditor
Conflicts of Interest
Anti-Corruption Policy and Economic Security
Share Capital, Securities Trading
Dividend Policy and Profit Distribution
Information Disclosure and Communication
with Investors and Shareholders
2
8
10
14
16
18
24
32
33
38
40
46
52
55
63
72
80
81
92
104
104
110
112
120
121
122
126
129
133
133
RAS Annual Financial Statements
of Federal Grin Company for 2016
IFRS Consolidated Financial Statements of Federal Grid
Company for 2016
138
148
Disclaimer
Glossary
Contacts
List of Information Attached in the Appendices
to the Annual Report
157
157
159
160
Appendices are available in electronic format and on our
corporate website at www.fsk-ees.ru/eng/
Annual Report 2016
1
Strategic Report
IN BRIEF
Strategic Report
Who We Are and What We Do
Federal Grid Company is a Russian energy company that provides
electricity transmission services through the Unified National Electric
Grid. The Company is a natural monopolist in the sector.
The Company is included in a list of systemically important organisations of strategic
importance to Russia.
Assets under our
management
924
931
FGC revenue structure
in 2016
939
21%
1%
140.3
138.8
139.1
PTL length including leased, th. km
Assets according to the production
annual report
2014
2015
2016
35–1,150 kV substations, pc.
857
861
870
Length of 0.4-1,150 kV power
transmission lines along the route,
thousand km
131.5
133.1
134.0
78%
The operations of FGC UES
Key operations
We provide:
The bulk of our revenue
The operations of Federal Grid
Company are characterised as a
low-risk business, steadily developing
due to the consistent implementation
of strategic priorities, effective
management and professional work
of its employees.
— managing the Unified National Electric
Grid;
— providing electricity transmission and
technological connection services
to Wholesale Electricity and Capacity
Market participants;
— investing activities in the area
of UNEG development.
— electricity transmission via backbone
grids to 77 regions in Russia,
addressing most the important issues
of social and economic development
of our country;
— transiting electricity over the borders of
11 foreign states, collecting and
processing information on electricity
transmission via 134 cross-border
electricity transmission lines.
The bulk of our revenue is generated
through tariffs for electricity
transmission approved by the Federal
Anti-Monopoly Service.
Regional distribution companies, retail
suppliers and major industrial
enterprises are among our largest
consumers.
Assets under our management:
substations
thousand km of transmission lines
along the route
2
PJSC FGC UES
Annual Report 2016
3
Energy transmissionTechnological connectionOther revenueNumber of substations, units Strategic Report
IN BRIEF
Who We Work For
The scope of the Company's operations requires us to meet the
interests and expectations of a wide range of stakeholders:
We satisfy the demand for electricity
transmission and technological connection,
ensuring the reliability and quality of service as
well as providing technological infrastructure of
the wholesale electricity and capacity market
Consumers
and customers
We create a transparent
competitive environment and fulfil
our contractual obligations
Business partners,
suppliers
and contractors
Company's
personnel
We guarantee fair remuneration
for work, provide opportunities
for training, professional growth and
the realisation of creativity; we also
provide safe working conditions and
high social guarantees
The whole
Company
We ensure the financial stability and growth
of the Company's value, as well as a high
level of openness and transparency of the
information on the Company’s financial
and production activities
Shareholders
and investors
Regional
communities
and population
We contribute to the development of
infrastructure, create jobs and implement
social programmes, reduce the negative
impact on the environment
We implement projects to develop grid
infrastructure in areas of potential economic
development, and provide the required balance
of consumption and electricity resources; we are
currently implementing an import substitution
programme, which contributes to the
development of the domestic electro-technical
industry
Understanding its responsibility, Federal Grid
Company seeks open and mutually beneficial
cooperation with all of its stakeholders, taking into
account their opinion, interests and feedback.
For more information on
the Company's
communication with the
stakeholders, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability.
1
2
3
4
5
How We Work
Our Operation Principles
Results of 2016
Focus on Customers
We maintain high standards of customer
service, providing about half of the total
energy consumption in Russia
Reliability
We provide reliable and uninterrupted
electricity transmission via backbone
electric grids
Responsibility
Communication with stakeholders to
maintain sustainability in the long-term
Innovation
We invest in upgrading and expanding the
electric power infrastructure and apply
advanced innovative technologies
540.5
bln kWh
2016
0.8 th. km
of electricity transmission lines
commissioned
8.8 th. MVA
of transformer capacity
commissioned
1.34
2016
194
2016
0.0091
2016
0.41
2016
Economic Efficiency
and Investment Attractiveness
We optimise business processes to improve
financial results, and maintain the balance
of interests of our shareholders and the
Company's needs for development
+239 p.p. by 2015
billion RUB
+2.9 times by 2015
4
PJSC FGC UES
1
Net profit secured by cash funds (adjusted for the balance of accrual recovery of bad debt provisions
and the revaluation of fixed assets and financial investments).
Annual Report 2016
5
20122014Electric power supply to consumers from UNEG2012201320142015Specific accident rate2012201420122014Environmental expensesand investments, million RUB Industrial accident rate2012201320142015R&D financing, billion RUB Adjusted net profit1 Total shareholder return (TSR) Development of backbone grids.
The Company's participation in the largest
infrastructure projects
Construction of electricity supply facilities of the
Valaam Archipelago (2008–2015)
p. 13
Construction of power output grids at Boguchanskaya HPP
(2008–2014)
Power supply for the sports facilities of the 2014
Olympic Games, including the construction and
reconstruction of 36 electric grid facilities
(2009–2013) p. 37
с.24
Construction of electricity supply facilities for the Eastern
Siberia – Pacific Ocean (ESPO) pipeline system
(2009–2014)
Construction of OHL 220 kV Neryungrinskaya GRES – Nizhny
Kuranakh – Tommot-Maya with SS 220 kV Tommot and SS
220 kV Maya for power supply to the regions of South Yakutia
(2009–2017)
Construction of a power bridge for the OHL 500 kV Zeyskaya
HPP – Amurskaya – State Border (2010-2013)
Construction of OHL 500 kV Krasnoarmeyskaya – Gazovaya
with expansion of the SS 500 kV to provide power supply for
large industrial enterprises (2011–2015)
Specification of the priorities for the
electricity industry development.
Optimisation of the Company's activities
Reconstruction of SS 220 kV Ledyanaya for power
supply to The Vostochny Cosmodrome
(2014) p. 125
Construction of facilities for power output to BNPP-2
(Beloyarsk Nuclear Power Plant) (2014–2015)
Commissioning of electricity supply facilities at the
Vankor field (2014–2016)
p. 91
Construction of the SS 750 kV Gribovo
for capacity output of the 4th power unit
of Kalinin NPP (2012–2013) p. 23
Connection to the backbone grids of the
offshore oil loading port of Kozmino (2015)
p. 125
Construction of the first underground power
facilities in Russia for electricity supply to the
Skolkovo Innovation Centre
(2012–2013) p. 23
Commissioning of 501 MVA of transformer capacity in the
context of recovery from an accident and to increase
reliability at Sayano-Shushenskaya HPP (2013–2015)
Electricity supply to the Kuyumba-Taishet
oil pipeline
Connection of the Antipinsky refinery to the new FGC UES
220 kV substation – Gubernskaya
Upgrading and commissioning of the 500 kV
Kuibyshevskaya substation, covering over
70% of electricity needs in the Samara region
p. 49
History
Commencement of reforming Unified Energy
System of Russia. The Company's development
Elimination of electric power deficiency in the
Primorsky Territory, and the development of
Vladivostok (2002–2006) p. 125
Commissioning of facilities for power output at
Bureyskaya HPP (2004–2005) p. 125
Commissioning of facilities for power output of the
3rd power unit of Kalinin NPP; improvement of the
reliability of the power supply to the Cherepovets
industrial hub (2004) p. 23
Continuation of reforming Unified Energy
System of Russia.
Consolidation of the Company’s key assets
Construction of the 500 kV Aluminievaya
substation for electricity supply of the
Khakassky aluminium plant (2006) p. 103
Commissioning of facilities to increase the capacity of the
Kolenergo–Karelenergo–Lenenergo transit
(2007, 2009)
Commissioning of the 500 kV Emelino
substation in the Sverdlovsk Region, and the
connection of new capacities of large pipe
plants (2008) p. 71
Reconstruction of the Ochakovo substation,
and the Moscow Ring 500 kV (2008) p. 23
Reconstruction and construction of several substations
and St. Petersburg Power Ring 330 kV (2007–2013)
2002 2003 2004 2005 2006 2007 2008
2009 2010 2011 2012 2013 2014 2015 2016 2017
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6
State registration
of JSC FGC UES
Inclusion of the Company
in the Register of Natural
Monopoly Entities in the Fuel
and Energy Complex, as well
as in the list of commercial
organisations and entities on
the Federal Wholesale
Electricity and Power Market
A large-scale reform of the electric grid complex was
carried out; as a result, the ownership and management
of the backbone grids of JSC RAO UES of Russia were
handed over to JSC FGC UES.
The number of FGC's
shareholders
exceeded 470
thousand
The reorganisation of JSC FGC UES was completed in the
form of merging 56 backbone grid companies,
JSC RAO UES of Russia, JSC State Holding and
JSC Minority Holding FGC UES
Listing on the RTS
and MICEX
exchanges.
Launch of the GDR
programme
Approval of the FTS
parameters for the
Company's transition to
RAB-regulation for
2010–2012.
Inclusion of the Company's
shares into the calculation
of the stock indexes of
MSCI Russia and MSCI
Emerging Markets
Listing of depositary
receipts of JSC FGC UES
on the primary exchange
of the LSE
JSC Rosseti,
a state-owned company,
becomes the major
shareholder, owning
80.6% of ordinary shares
of JSC FGC UES
The endorsement of the
Long-Term
Development
Programme of the
Company for
2015–2019, with an
outlook for 2030, by the
Government of the
Russian Federation.
Bringing the Company's corporate
governance system and practices
in line with the key recommenda-
tions of the Corporate Governance
Code of the Russian Federation and
the listing rules of the Moscow
Stock Exchange, including the
approval of a new version of key
internal documents.
PJSC FGC UES
Annual Report 2016
7
Strategic Report
Statement from the Chairman
of the Board of Directors
Dear shareholders, customers, partners,
employees and all other parties somehow
related to the activities of Federal Grid
Company of Unified Energy System!
In 2017, FGC celebrates its 15th anniversary. The
year 2002 marked a new stage in the development of
Russian electric grid industry, which continues to the
present day. Today, Federal Grid Company meets the
global standards of the industry in terms of major indi-
cators, and in some indicators, we are ahead of foreign
companies.
Development of the Unified Nation-
al (all-Russian) Electric Grid
The Company is successfully carrying out the construc-
tion of electric grid infrastructure, thus contributing to
the social and economic development of the regions of
our country and providing a reliable electricity supply to
consumers.
In the course of business opeartions, we have been
implementing a number of significant projects of
regional and national importance for the construction
of new and the reconstruction of existing backbone grid
facilities.
We continue to develop the Unified National (all-Rus-
sian) Electric Grid taking into account the changing
economic environment.
Grid Reliability
Not only are we constructing and reconstructing elec-
tric grid facilities, but, from year to year, the profession-
als of Federal Grid Company make efforts to ensure the
reliability of power supply to our consumers, by carrying
out diagnostic studies, performing a large-scale repair
programme and preparing for the peaks of load. All of
these operations are performed countrywide on a very
large scale, considering that FGC is one of the largest
electric grid companies in the world.
Economic Efficiency
and Financial Sustainability
Our key strategic task is managing costs in order
to maintain increasing economic efficiency. Capital
investment management is performed in line with
the investment programme, which has been adopt-
ed for a five-year period, by taking into account the
long-term development plans of the domestic electric
power industry and compliance with the principles
of technical and economic feasibility in terms of
regulated tariffs.
Company's revenue, billion RUB
2016
2003
17.2
218.4
The unity of our strategic priorities – the reliability
of energy supply to consumers, the development
of backbone grids, as well as economic efficiency
and financial stability of the company – shall be the
cornerstone of our success.
Oleg Budargin
Chairman of the Board of Directors
of Federal Grid Company
The Company’s operating expenses are successfully
controlled by the management by optimising the
structure of the personnel, managing procurement
activities and implementing the long-term import
substitution programme.
Sustainability
Our priorities in this area remain unchanged. Paying
close attention to the Company’s operating and finan-
cial performance, we understand the importance of
maintaining a sustainable attitude to the issues of envi-
ronmental protection and the social sphere, as well as
simultaneously developing and maintaining an effective
dialogue with all categories of stakeholders.
Our personnel is one of the core assets of the Compa-
ny. Therefore, the KPI system of Federal Grid Company
includes such indicators as “Growth of Labour Produc-
tivity” and “Absence of Increase in the Number Injured
in Accidents.”
Company's average headcount,
thousand employees
2016
2003
9.8
22.2
Corporate Governance
The Company follows the basic principles of corporate
governance that are stated in the Corporate Govern-
ance Code of the Bank of Russia. We work hard to
improve the corporate governance of our subsidiaries,
including the development of internal documents to
meet the Company’s high standards.
The Company’s highly professional management
team and qualified personnel contribute greatly to the
realisation of our long-term strategy. We have estab-
lished efficient communication between the Board of
Directors and management officers, so we are able to
succeed in making approved decisions in the shortest
time possible.
For shareholders, the results of our operations are
expressed in the growing value of shares and dividends
payments. Upon the results of the reporting year, FGC’s
shares took the lead, in terms of TSR, among the most
liquid shares in both the electric power sector and on
the Russian market as a whole.
TSR upon results
of 2016
The Company’s shares are still undervalued from a
fundamental point of view and are traded at a high
discount compared to analogues on emerging mar-
kets. The growing value of FGC’s shares on the stock
exchanges demonstrates a positive assessment of the
Company’s prospects by investors.
In 2016, Federal Grid Company maintained its produc-
tion indicators at a high level and significantly improved
its financial performance in the context of contradictory
trends in the domestic economy.
The mission of Federal Grid Company, the leading
subsidiary of PJSC Rosseti, is to continuously provide
reliable and safe energy supply to consumers, and
increase efficiency of our core opeartions.
The results of the past year la y a solid foundation for
the further activities in the priority areas.
8
9
PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
Strategic Report
The company shows stable positive
dynamics of the main idicators
Chairman of the Management Board of PJSC FGC UES Andrey Murov Answers Ques-
tions About the Company’s Main Outcomes
in 2016 and Prospects for the Future
Tell us about the Company’s production indi-
cators in 2016. To what extent have
you managed to achieve the planned
results?
First of all, I would like to thank all FGC’s employees for
their work in 2016. Their professionalism has enabled
the Company to show high performance every year.
The accident rate is a significant indicator of our opera-
tions. It has been declining for several years in a row.
-45%
Accident rate reduction
in 2012–2016
Record revenue in the amount of RUB 45.5 billion has
been obtained from technological connection, a growth
of over three and a half times more compared to 2015.
The Company’s adjusted net profit (without taking into
account the revaluation of financial investments and
reserves) has increased nearly thrice compared to the
previous year, exceeding RUB 59 billion.
“The solid results of FGC at the end of the year
demonstrate the stable position of the Company
on the electricity market.”
In the reporting year, electric power supply from UNEG
to the consumers of FGC services increased by 2.8%
and amounted to 540.5 billion kWh. Today we are man-
aging 140.3 thousand km of power transmission lines
and 939 substations with a total capacity of 336.4 GVA.
Our customers should be glad to know that the Compa-
ny maintained its key indicators in relation to the terms
and quality of technological connection.
How would you comment on the financial
and economic results of the Company’s oper-
ations in 2016?
The financial results of the year for FGC can be recog-
nised as quite strong. The Company’s revenue under
RAS exceeded RUB 218 billion, having increased by
26%. The adjusted EBITDA amounted to RUB 120 billion
– a growth of more than 15%.
In 2016, FGC became one of the leaders by quotation
growth on the Russian stock market. The Company’s
capitalisation has increased almost thrice over the year –
a significant indicator of growth in investor credibility.
The total shareholder return (TSR) exceeded our target
value. Foreign investors have significantly increased their
presence in the Company’s share capital.
Our financial stustainability is confirmed by credit
ratings of the international agencies, maintaining at the
level of the sovereign rating of the Russian Federation.
What kinds of measures on financial adminis-
tration were taken in 2016?
In 2016, we continued to optimise costs. With an in-
crease in the amount of equipment under maintenance
due to the implementation of a large-scale investment
programme, we managed to substantially reduce the
costs of materials and services by 5%.
“The management of our capital and operating ex-
penses is the basis of FGC’s financial sustainability”
We have managed to overfulfill the targettarget costs
optimisation: at present, net investment costs are by
30% below the level of 2012, and operating costs – by
46%. Investors especially highlighted our management
of expenses during regular meetings with the invest-
ment community organized by the Company.
One of key factors that is important for us and has an
impact on our financial results is the increase in the
payment collection rate for electricity transmission.
What can you say about the Company’s divi-
dend policy? Should shareholders expect the
same high returns as in 2015?
In 2016, the Company paid dividends in the amount of
RUB 17 billion as a result of activities in 2015, which
corresponds to 95% of the profit under RAS.
“Payments of dividends in 2016 were a record high
in the history of the Company”
The General Meeting of the Shareholders will take a
decision on the dividend payment for 2016 based on
the recommendations of the Board of Directors, given
with account of the current normative legal acts and
the financial performance of the Company.
Tell us more about the results of the Compa-
ny’s investment activities in 2016 and for the
near future.
At the end of the year, the Ministry of Energy of the
Russian Federation approved the amendments to the
investment programme for 2016–20201. The extent of
the Programme’s financing for 2016 amounted to RUB
99 billion; the total amount for the five-year programme
is RUB 482 billion.
The key parameters of the Programme were approved
by the federal executive authorities and our major
shareholder PJSC Rosseti.
In 2016, capacity in the amount of 8.8 MVA and about
827 kilometres of grids were commissioned. In 2017,
in accordance with the adjustment of the investment
programme for 2016 -2020, the planned volume of fi-
nancing for FGC’s investment programme will be about
RUB 105 billion, and transformer capacity in the amount
of 13.2 thousand MVA are to be commissioned and 2.3
thousand kilometres of power transmission lines are to
be built.
What amount of funds were allocated to
finance the repair programme?
In 2016, total investment in maintenance and repairs
amounted to RUB 10.6 billion. The repair campaign of
FGC UES is 100% completed.
“The right balance between the implemen-
tation of the repair programme and the
construction of new electric grid facilities
guarantees a reliable energy supply to our
consumers”
How do you assess the role of management
in achieving top results?
Consistent work of our team and commitment to the
chosen way of the Company’s development are at the
heart of our current achievements.
We demonstrate obvious improvements: growing rev-
enues from the provision of technological connection
services, transfer of electricity to direct consumers, and
decreasing costs. The macroeconomic situation did not
affect FGC’s financial sustainability, and the amount of
debt remains at a comfortable level.
At the same time, in terms of reliability indicators, the
Company is comparable to the best foreign counter-
parts.
As the Head of the Company, what do you
expect from 2017?
By no means, FGC will keep on maintaining a reasonable
balance between development, reliability and economic
efficiency.
I repeat, the quality of services provided to consumers is
definitely globally competitive. Our minimum goal is not
to allow any decrease.
We have a lot of interesting projects to be implement-
ed in future. In 2017, three substations in the Moscow
Region shall be commissioned upon renovation, power
transmission schemes for Rostov and Leningrad NPPs
are being implemented. All the major titles to strengthen
the links between UES of the Central Region and UES of
Northwestern Region are being completed.
Activities under macro-projects of state importance will
be continued: external electricity supply of Baikal-Amur
and Trans-Siberian railways, ESPO pipeline systems, and
the Power of Siberia project.
In 2017, FGC UES celebrates its 15-year anniversary. We
cross this boundary as a stable, reliable company that is
consistent in its actions and attractive for investors.
10
11
1 The Order No. 1432 of The Ministry of Energy of the Russian Federation on 28 December 2016.
PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
4
2
3
Backbone electric grids of the Northwest
(MES Northwest)
FGC BRANCH
SERVICE AREA
11 entities of the Russian Federation in the
North-West Federal district, with a population of
more than 14 million people.
PERSONNEL
More than 2.3 thousand people
АSSETS 1
HVTL 13.3 thousand km
99 substations of 35-750 kV
(in addition to 330 kV SS, Sovetsk, (402 MVA),
leased by JSC Yantar'jenergo)
41 TSS, 6-10 kV
Capacity — about 39.5 thousand MVA
OPERATIONS
Electricity transmission. The branch provides
electricity connection of UES of Northwest to the
power systems of the Central Region of Russia,
Belarus, as well as electricity transmission to
Finland, Estonia, and Latvia.
12
12
1 according to annual performance reports
1
Key infrastructure projects
2005–2019
St. Petersburg Energy Ring, 330 kV
Renovation and construction of substations: 330 kV
Vostochnaya, 330 kV Volkhov–Severnaya, 330 kV Zavod Ilyich,
330 kV Severnaya, 330 kV Vasileostrovskaya
Improving the reliability of the electricity supply to the metropolis and minimizing the
likelihood of major contingencies.
2010–2019
Capacity output of Pecherskaya SDPP. 220 kV HVTL,
Pecherskaya SDPP – Ukhta-Mikun'
Improvement of reliability of electricity supply to the consumers in the southern part of
the Komi Republic, as well as reliability of electricity transfer to Vologda power system.
2010–2016
Power generation of Leningradskaya NPP. Construction of 330
kV HVTL, Gatchina–LNPP. Approach lines of 330 kV HVTL,
Leningradskaya-Balti to SS Kingiseppskaya
Improvement of reliability of Leningradskaya power system, ensuring the power output
of unit 1 of Leningradskaya NPP.
2008–2013
External electricity supply to the Valaam island
Construction of a new 35 kV Valaam substation, a 35 kV aerial
cable line with the total length of 50 km, and reconstruction
of a 220 kV Lyaskel substation.
Ensuring reliable electricity supply to the Valaam archipelago.
PHOTOS:
St. Petersburg
Valaam
330 kV SS Vasileostrovskaya
330 kV SS Vostochnaya,
1
2
3
4
Annual Report 2016
13
13
PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Strategic Report
KEY EVENTS OF THE YEAR
Key Events of the Year
FGC connected the Oil Loading Seaport Kozmino to the backbone electric grids. The power volume to the consumer
is 28.6 MW. Two 220 kV transmission lines have been constructed, which connect through permanent lines the
substation of the Oil Loading Seaport to the working substation of FGC 500 kV "Lozovaya."
January
01
The works on the first facility were completed within the
activities aimed at strengthening the ties between the
power systems of the Northwest and the Centre. The 330
kV Kingiseppskaya substation was connected to 330 kV
Leningradskaya-Balti OHL. The first stage of the total
reconstruction of the substation was completed.
The long-term credit rating of Federal Grid Company
according to the National Scale of Moody's Interfax
Rating Agency was withdrawn on the initiative of the
rating agency due to the termination of assigning the
National Scale ratings by the agency. The decision to
withdraw the agency's National Scale ratings will not
affect their assignment on the Global Scale.
March
03
FGC connected the Antipinsky Oil Refinery to the grids
in the Tyumen Region. The consumer received 60 MW
of power. Electricity to the refinery is supplied by the
new substation of FGC UES– 220 kV Gubernskaya.
The international rating agency Moody's confirmed the
Company's global rating according to the global scale
at Ba1, which corresponds to the value of the sovereign
rating of the Russian Federation.
April
04
The annual General Meeting of Shareholders of PJSC
FGC UES was held. New members of the Board of
Directors and the Audit Commission were elected, new
versions of the Articles of Association and the
Regulations on the Board of Directors were approved;
the annual report, annual financial statements, the
auditor of PJSC FGC UES was approved; the decision
on the distribution of profits based on the results of
2015 and the payment of dividends was taken.
FGC provided electricity for the Kuyumba – Taishet oil
trunk pipeline. Due to connection to the UNEG, the oil
pumping stations received 19.1 MW of electric power.
PJSC FGC UES and the JSC Corporation for Developing
Small and Medium Business (SME Corporation) signed
an agreement on cooperation. The document provides
a set of measures aimed at expanding of the
availability of the Company’s purchases for small and
medium-sized businesses.
June
06
The Board of Directors of PJSC FGC UES approved the
updated Innovation Development Programme of the
Company for 2016–2020 with an outlook up to 2025.
The programme is updated in accordance with the
instructions of the Government of the Russian
Federation.
July
07
FGC and a Chinese manufacturer of equipment, Huaming Power Equipment, signed a memorandum
on cooperation related to the development of innovative electrical equipment, as well as the promotion
of localisation of production in the Russian Federation.
The International rating agency Standard & Poor's revised the forecast for the change in FGC’s credit quality,
according to the global scale, from negative to stable in the course of a similar rating event in relation to the
Russian Federation. The level of the International rating of the Company remained at the same level of BB +
(the least speculative category) and corresponds to the value of the Russian sovereign rating.
August
08
September
09
14
15
PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendixFGC was awarded the Crystal Pyramid–2016 grand prize in the category of Best Corporate University for its special contribution in human capital management. The awarding ceremony was held during the XVII Summit of HR Directors of Russia and CIS Countries. The International rating agency Fitch Ratings has changed the rating forecast for the Company from negative to stable. The level of credit quality, according to the International scale, was confirmed at the same level as the BBB- (investment category), which is equivalent to the credit quality of the Russian Federation.October FGC placed exchange-traded Series BO-02 bonds for RUB 10 billion with a 5-year maturity before the formal offer. The coupon rate is set at 9.35% per annum. The funds received from the placement of bonds will be used for the implementation of the investment programme. FGC confirmed the compliance of the environmental management system with the requirements of the International standard ISO 14001: 2004; the validity of the certificate was extended by the certification authority until the next compliance audit. NovemberAfter a major modernisation, FGC commissioned the 500 kV Kuibyshevskaya substation, which covers more than 70% of the energy needs in the Samara region.FGC completed the reconstruction of one of its key facilities of the UES Northwest – the 330 kV Kolpino substation in St. Petersburg. As a result of this reconstruction, the reliability of the power supply in St. Petersburg has increased and the operating costs have been reduced. The delivery of 79.4 MVA capacity to the Izhora Pipe Mill and Rolling Mill No. 3 was provided.The Ministry of Energy of the Russian Federation approved the adjustment of the Company's investment program for the period of 2016-2020. The document takes into account the results of public discussions and interaction with the expert community. Financing of the investment program is planned in the amount of RUB 482.28 billion. The International rating agency, Moody’s, changed the forecast for FGC credit quality from negative to stable after a similar rating event in relation to the Russian Federation.The national long-term rating of PJSC FGC UES according to the Fitch Ratings metric was withdrawn on the initiative of the rating agency due to to the termination of assigning the National Scale ratings in the Russian Federation by the agency. The decision is taken upon introduction of new regulatory requirements for the operations of credit rating agencies in Russia. The decision to withdraw the agency's National Scale ratings will not affect their assignment on the Global Scale.DecemberThe 220 kV transmission line Shakhty - Donetskaya has been built. New PTL will expand the power supply layout in the North of the Rostov region and will establish the energy ring 220 kV "Shakhty–500 – Donetsk –Pogorelovo –B–10 –Shakhty–500."Main Events After the Reporting Date January2017The International rating agency Standard and Poor’s changed the forecast for FGC’s credit quality from stable to positive after a similar rating event in relation to the Russian Federation.March 2017February 2017101112Corporate GovernanceInvestment ProgrammeFinanceSustanabilityInnovations Strategic Report
GEOGRAPHY
Geography
Our Company operates in 77 Russian regions covering an area of more than 15.1 million sq. km.
The territory in which the Company’s facilities are located is divided into zones of responsibility
for the corporate branches – backbone electrical grids (MES), and their local enterprises (PMES).
Sparsely populated territories with no large customers – such as Chukotka, Kamchatka,
Magadan Oblast, Sakhalin, the Nenets Autonomous Okrug and the Altai Republic – are not
integrated into the UNEG because they do not have the economic conditions necessary
for laying electricity transmission lines and establishing large substations.
PMES
Bryanskoye
Karelskoye
Leningradskoye
Novgorodskoye
Severnoye
PMES
Vostochnoye
Tsentralnoye
Yuzhnoye
Yamal-Nenetskoye
MES Siberia
PMES
Zabaikalskoye
Western
Siberia
Krasnoyarskoye
Kuzbasskoye
Khakasskoye
Information on a number of the substations and the length of the PJSC FGC UES
power transmission lines is based on the state registration of the ownership rights
of PJSC FGC UES and other proprietors:
power transmission lines (PTL)
of up to 1,150 kV capacity
substations (SS) of up
to 1,150 kV capacity2
140.3 th. km
336,356 MVA
Information on the number of substations and the length of the PTL of PJSC FGC
UES according to the data of the annual operation report:
134.0 th. km
870
the length of the PTL of PJSC FGC
UES along the route
substations with a voltage
class of 35-1,150 kV
and installed capacity
of 341,658.8 MVA
277
6-10/0.4 kV TSS (DSS)
of total and installed
capacity of 470.8 MVA
PMES
Amurskoye
Primorskoye
Khabarovskoye
MES East
134
interstate power
transmission lines
Management of the cross-border
interstate power transmission lines
FGC facilitates the transit of electric
power at the border of 11 foreign
states and performs the collection and
processing of data on power exchange
via 134 interstate power transmission
lines.
Further details on the Company's international operations, as well as on the electric energy
export and import pursuant to the contracts of PJSC Inter RAO, are available
in the Appendix 1 hereto.
2 including 0.4-110 kV voltage class facilities, but not including power lines and substations of 10 kV and lower voltage class,
accepted by PJSC FGC UES for free use and operating in the territory of the Krasnodar Krai.
PMES
Valdaiskoye
Verkhne-Donskoye
Volga-Donskoye
Vologodskoye
Moskovskoye
Priokskoye
Chernozemnoye
Mes South
MES Centre
MES North-West
MES Volga
MES Urals
MES Western Siberia
Unified National Electrical Grid
PMES
Nizhegorodskoye
Nizhne-Volzhskoye
Samarskoye
Sredne-Volzhskoye
PMES
Orenburgskoye
Permskoye
Sverdlovskoye
Yuzhno-Uralskoye
MES Siberia
PMES
Kaspiiskoye
Kubanskoye
Rostovskoye
Sochinskoye
Stavropolskoye
PMES
Zabaikalskoye
Western
Siberia
Krasnoyarskoye
Kuzbasskoye
Khakasskoye
51regional
branches
8 backbone electrical grids
(MES)
41 backbone electrical grid
enterprises (PMES)
1 Technical supervision centre1
1 Special purpose production centre —
Bely Rast
24
Subsidiaries
and Associated
Companies
PJSC FGC UES participates
in 24 business entities that
operate in different industries,
including those that support
electrical grid facilities
Detailed data on FGC’s branches is available on the site www.fsk-ees.ru
in the section About the Company / Branches
Further details on PJSC FGC UES subsidiaries and associates
are available in the Appendix 7 hereto.
1 Liquidated on 3 February 2017
16
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PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Strategic Report
BUSINESS MODEL
Business Model
FGC UES manages the Unified National Electrical Grid, ensures electricity transmission
via backbone lines and provides services for technological connection to electrical
grids. To ensure reliable, quality and safe power supply to consumers, we implement
projects for the construction of new and the renovation of existing electrical grid
facilities, in addition to introducing modern and effective technology and implementing
measures for environment protection and energy saving.
We utilise various "capitals" as resources, namely
financial and production capital, human resource
potential, innovative technology, experience in
constructing and operating the electrical grids and
environmentally responsible solutions.
The bulk of our revenue is generated through tariffs
for electricity transmission that are approved by the
Federal Anti-Monopoly Service. Our major customers
are regional distribution companies, retail suppliers
and large industrial enterprises.
What differentiates FGC from other companies
FGC is the monopoly operator for managing
and developing the Unified National Electric
Grid
It is a unique infrastructure company that
provides reliable and uninterrupted
electricity transmission via backbone
electrical grids in the Russian Federation
The Company is a number one in the world
in terms of the length of the power
transmission lines and the transformer
capacity
Continuous investments are made into the
modernisation and construction of the
electric energy infrastructure
More than a half of all energy consumption in
Russia is electricity transmitted via FGC’s grids
Our focus on innovative development and
advanced technology
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HPP
NPP
Construction and
reconstruction of
UNEG facilities
Technological
connection
Electricity transmission
via backbone grids
CHPs
Alternative
sources
System operator
Dispatch control
Industrial
consumers
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Maintenance
and repairs
Inter-regional
distribution
companies
Industrial
consumers
Households
Trade system
administrator
Market
balancing
Electricity transmission
to foreign countries
18
18
PJSC FGC UES
Annual Report 2016
19
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PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
Strategic Report
BUSINESS MODEL
Capitals
Strategy
Risks
Risk
management
Active interaction with investors and
market, diversification of sources of
financing, increasing transparency and
business predictability to reduce the risk
premium as part of the cost of debt
Preparing economically justified proposals
on tariff regulation
Lack or increase in cost of
attracted borrowed capital
Risk of unbalanced tariff
decisions
Increase of return on
financial capital and
maintenance of financial
sustainability
Page 55
Economic
efficiency
Investments to electric grid
infrastructure development
and operating assets
renovation
Page 46
UNEG development
Decrease in return on capital:
Cost overrun and failure to meet
eadlines
Electric mains interruption
(failure)
Excess/lack of power
Innovations and planning of the structure
of network assets
Selection of contractors on competitive basis,
control of construction schedules
Reconstruction of electric grid facilities
Forecasting of grid load
Development of research
and innovative potential
and implementation
of new technologies
Risks related to innovative
technology implementation
Infringement of intellectual
property rights
Improvement of planning and acceptance
of R&D works
Skill improvement
Improvement of contractual activities
Page 52
UNEG development
Social support of the
employees, focus on
development and training
of the personnel
Reduction in qualification level of
operation personnel
Recruitment of personnel with
insufficient qualification
Meeting the deadlines for operation
personnel mandatory trainings
Selection and recruitment of skilled
personnel
Page 65
Reduction of the adverse
impact on environment,
improvement of energy
efficiency
Page 66
Environmental risks
(environmental pollution risks)
Environmental policy
implementation
Implementation of
environmentalactivities
RUB 987 billion
of equity capital
RUB 262 billion
of liabilities
870 substations
35—1100 kV1
134 thousand km
of electricity
transmission lines1
RUB 3.3 billion
of intangible assets
RUB 414 million
of R&D financing
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N
22.2 thousand
employees
63.5% with professional
education
84.3% operating
employees
901 thousand
cubic metres
of water consumption
933.6 million kW.h
electricity consumption
for substations’ own needs
Created
value
FOR SHAREHOLDERS
267% TSR
for 2016
RUB 17 billion
dividend payment for 2015
FOR THE STATE
RUB 29.2 billion
of tax payments
FOR CONSUMERS
827 km of electricity transmission
lines commissioned
540.5 billion kW.h
net electricity supply
481 contracts for technological
connection as of the end of 2016
FOR EMPLOYEES
18 thousand jobs
RUB 69.8 thousand
average salary
Number of industrial accidents
reduced by 40%
FOR SOCIETY AS A WHOLE
RUB 194 million was allocated
for environmental protection
The volume of production wastes
reduced by 4%
RUB 21 million were allocated
for the development of regions
in the form of contributions
RUB 152 million financing
of sponsorship contracts
20
20
PJSC FGC UES
1 According to the annual production report
Annual Report 2016
21
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PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
4
2
3
Backbone electric grid of the Centre
(MES Centre)
FGC BRANCH
1
Key infrastructure projects
SERVICE AREA
19 constituent territories of the Russian
Federation on the territory of the Central,
Northwestern and Southern federal districts
with a population over 40 million people.
PERSONNEL
About 4.8 thousand people
АSSETS 1
HVTL 28.3 thousand km
196 substations, 35-750 kV
1 TSS Belovezhskaya
Capacity — about 98 thousand MVA
OPERATIONS
Electricity transmission. The affiliate provides
electricity connection of UES of Centre with
power systems of the South, Northwest, Volga,
Ukraine, and Kazakhstan.
2004
Construction of 750 kV HVTL, Kalininskaya NPS — Belozerskaya,
with 750 kV SS, Belozerskaya
Power supply of the third power station of Kalininskaya NPS, capacity of 1,000 MW, to
Vologda power system;
Improvement of reliability of the electricity supply to the enterprises of the Cherepovets
industrial cluster – Severstal, Azot, AMOFOS.
2008
Comprehensive reconstruction and technical reequipment of 500
kV SS, Ochakovo
Reconstruction of one of the largest facilities of the Moscow power system, improvement
of operation reliability of the backbone grid of Moscow (500 kV Moscow ring)
2012–2014
Construction of 750 kV HVTL, Kalininskaya NPS – Gribovo, 500 kV
HVTL, Gribovo-Dorokhovo, 220 kV ACL, Dorokhovo–Sloboda, 750
kV SS, Gribovo, 500 kV SS, Dorokhovo, expansion of 750 kV SS,
Belozerskaya
Power supply of the fourth power station of Kalininskaya NPS, capacity of 1000 MW, to
Moscow and Vologda power systems.
2012–2014
Construction of 220 kV SS, Skolkovo, and 220 kV SS, Soyuz
Creation of electricity supply scheme for the Skolkovo Innovation Centre. Construction
of the first underground power units in Russia, voltage of 220 kV.
PHOTOS:
Moscow
500 kV SS Ochakovo
220 kV SS Skolkovo
Skolkovo
1
2
3
4
22
22
1 according to annual performance reports
Annual Report 2016
23
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PJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix MARKET REVIEW
Market Review
Macroeconomics
The key Russian macroeconomic indicators changed
slightly in 2016. The GDP decreased by 0.2%, the
industrial production index increased by 1.13%, and
investments reduced by 2.3%.
The volume of electric energy consumption in the
UES was 1026 billion kWh in 2016 and compared
to 2015, increased by 1.7%. There has been a trend
towards demand stabilisation in recent years, which
will probably remain in the near future. The forecasted
annual average growth of demand for electric energy
across the UES of Russia is a maximum of 0.81%
for the period of 2016-20221. The optimisation of
consumption modes by consumers and the possibility
to use distributed sources of generation are expected
to restrain the growth of the volume of FGC’s grid
services.
Forecast of demand for electric energy
in Russian Federation, billion kW.h
2022
2021
2020
2019
2018
2017
2016
1,067
1,062
1,056
1,049
1,041
1,033
1,026
Industry Market
PJSC FGC UES transmits electricity via backbone
grids and provides technological connection to the
grid. Electricity transmission via backbone grids is a
naturally monopolistic type of operation.
According to Russian Federation legislation, PJSC FGC
UES purchases electricity and capacity in the wholesale
electricity and capacity market (WECM) in order to
compensate for the actual losses in the UNEG, with
the exception of the losses accounted for and paid
by the WECM’s participants in market-clearing prices.
The purchase occurs in the territory of the Russian
Federation’s constituents, united into pricing and non-
pricing zones.
Markets for goods and services that relate to a natural
monopoly depend to a significant extent on the general
economic conditions of the country. The service
volume of a backbone electrical grid is determined by
the volume of capacity provided to the consumers of
transmission services, in addition to the capacity value
of the energy receiving devices connected to the grid.
In 2016, the average annual inflation rate amounted to
7.1%, showing a significant decline compared to 15.5%
in 2015. Decline of the inflation rate positively impacted
the Company’s operations as it led to reduction of the
FGC debt cost, a large part of which had been placed at
a floating interest rate.
The growth of tariffs for FGC’s services is established
by the FAS of Russia: as of 1 July 2017, they will
increase by 5.5% which, taking into account the
change of the capacity, corresponds to the increase
of required gross revenues (RGR) by 3%, according
to the socioeconomic status (SES). Furthermore, the
tariff growth is also lagging behind the forecasted
inflation rate and corresponds to the forecast of the
social and economic development of the Russian
Federation in 2017 and for the planned period of 2018
and 2019. Determining tariff dynamics for the long term
allows the Company to conduct financial planning and
activities to increase its efficiency more accurately and
with reduced risks.
The key interest rate of the Bank of Russia was
decreased in 2016 to 10%; at the same time, this
decrease did not significantly improve the borrowing
conditions in the Russian financial market for the
majority of investors, nor was there a significant change
in the dynamics of industrial capital investments.
Market of the Electricity Transmission Services
Capacity Paid by Consumers of Transmission
Services to PJSC FGC UES, GW
2016
2015
2014
2013
2012
88.3
87.8
90.9
91.4
90.5
For further details
on electric power
transmission, see in
the Strategic Report –
Operating Performance –
Electric Power
Transmission section.
In the reporting year, the value
of paid capacity was 88.3 GW
on average; the growth of paid
capacity at the end of 2016 in
comparison with 2015 was 0.5 GW.
For further details on
technological connection,
see the Strategic
Report – Operating
Performance –
Technological
Connection section.
Market of Technological Connection
Services
Physical volume of technological connection
services, MW1
2016
2015
2014
2013
2012
5,635
8,185
5,537
5,350
4,569
1
The maximum capacity under technological connection
agreements. 2013: specification of the maximum capacity for the
executed TC agreements in accordance with the accounting
statements
There has been no clear trend in the dynamics of the
physical volume of technological connection services
(consumers and generation) in the past years. This has
been determined, to a great extent, by the demand in
grid capacity for investment projects for consumers
and electricity producers.
In terms of investment activity, the economic decline
continues to impact the volume of technological
connection to the grids. The significant growth of
physical volume in 2015 was a result of the completion
of a number of large-scale technological connection
projects. In 2016, the physical volume of technological
connection services stabilised and did not show any
trends toward growth.
Electric power cross-border turnover did not have any
evident impact on the volume of FGC’s paid export/
import grid services in 2016.
What is PJSC FGC UES’s Response to the Market Trends?
Continuation of the Restrictive Tariff Policy
with Transition to Establishing Grid Tariffs
on the «Inflation Minus» Principle
The Company’s tariff growth for 2017–2019
corresponds to the social economic development
forecast of the Russian Federation for 2017 and for
the planned period from 2018 to 2019. The Company
is implementing measures aimed at improving the
efficiency of the Company’s operations and investments,
and at the consistent implementation of the approved
parameters of RAB regulation, as well as at drawing
up well-balanced and economically justified proposals
about how to adjust and set these parameters.
Inflation forecast in Russian Federation, %
Capacity tariff growth, %
4
4
4.7
7.1
2019
2018
2017
2016
3
3
5.5
7.5
For further details, see
the Strategic Report –
Analysis of the Financial
Performance Results
section
For further details, see
the Analysis of the
Financial Performance
Results section
Repair and Execution of Commitments to
Pay for the Technological Connection of
Generation Facilities to Backbone Grids
There is a big gap between the technological
connection work completed and paid for by applicants
that amounts to tens of billions of rubles. Starting from
2015, there was certain positive progress in solving
this issue after the regulating authorities had approved
payment amounts in relation to several projects, and
in 2016, the Russian Government adopted a resolution
(No. 1265 on 30 November 2016) that established
the rules for instalment payments for technological
connection.
Low Capacity Utilisation
Low capacity utilisation during peak periods is one of
FGC’s key issues. It reflects the principles that have
been forming for decades of designing and planning
the UNEG, methods of providing reliability and it is not
subject to rapid changes. The Company counts on
fruitful cooperation with the System Operator and the
Ministry of Energy of Russia in developing the proposal
for enhancing the long-term planning and design of
electric power systems, investment planning and the
selection of principles for investment projects.
1 According to the Scheme and Development Programme for the UES of Russia for 2016-2022, approved by the Order of the
Russian Ministry of Energy No. 147 on 3 March 2016.
24
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix DEVELOPMENT STRATEGY
Development Strategy
FGC’s mission is to ensure the reliable operation and development of the UNEG
adequate to economic growth, and to demonstrate high economic efficiency and cost
minimisation.
FGC’s strategic plans allow the Company to follow its
mission steadily while simultaneously responding to
such modern technological and economical challenges
as the state of backbone grid, the demand volume, the
possibility to satisfy the demand, and others.
— Programme of import substitution of equipment,
technologies, materials and systems
— Energy saving and energy efficiency programme
— Operational efficiency improvement programme
The Company’s strategic objectives are achieved
through adopting and implementing a number of
programmes, which include the following:
— Long-term Development Programme
— Investment Programme
— Innovative development programme
— Unified technical policy
— Environmental policy and implementation
programme
The Company performs the task of backbone grid
development by observing technical and economical
expediency principles. In the conditions of tariff
restrictions, we minimise investments and at the
same time the key projects of national significance are
implemented according to the established schedule.
For further details, on the
Investment Programme,
see in the Strategic
Report – Investing
Activities section.
A list of other
programmes in
the framework of
implementing the
strategic development
plans and the Company’s
Long-Term Development
Programme is provided
in Appendix 1.
Long-Term Development Programme
The independent auditor compared the targeted and
achieved KPI values in 2016 and analysed the causes
of any detected deviations.
In addition to an external audit, FGC also carries out
internal monitoring of the implementation of measures
determined in the Long-Term Development Programme.
At the present time, the Company is developing a
Long-Term Development Programme for the period of
2018—2022 and for the short-term outlook.
The key objectives of the Company’s strategic
development are outlined in the Long-Term
Development Programme (LDP), which was approved1
in 2014.
The Programme is consistent with the targets and
provisions of the Development Strategy for the
Electrical Grid Complex of the Russian Federation2
and the Methodological Guidelines on the Drafting of
Long-Term Development Programmes of the Russian
Ministry of Economic Development, approved by the
respective federal executive authorities and by the
government of the Russian Federation.
The Long-Term Programme takes into consideration
any risks that may affect the achievement of FGC’s
strategic objectives and includes measures for risk
minimisation.
An audit, initiated by FGC, was carried out in 2017
in order to monitor the implementation of measures
and achievement of objectives set in the Long-Term
Development Programme (the findings of which are
provided in the audit report on 16 May 2017).
QUESTION & ANSWER
Alexander Zaragatsky
First Deputy Chairman of the
Management Board, Member
of the Management Board
PJSC FGC UES is a strategic joint stock company that is obliged by the State to develop a Long-Term
Development Programme according to the template established as of 2014. How has the concept of strategic
operation planning been developed at the Company?
The key objectives of the Company’s strategic
development are provided in the Long-Term
Development Programme (LDP) for the period of 2015-
2019, which was approved in 2014. The LDP and the
strategic objectives that it contains has become the
top-level document that all of FGC’s other programme
documents are coordinated with. The Company is
expanding the horizons of strategic planning and is
currently developing a new strategic document –
a long-term development programme for 2018-2022
and the short-term outlook. Within, FGC establishes
new strategic objectives that have been formed by
taking into account analysis of the implementation
of the LDP for the past 3 years, the changing
socioeconomic and market situation, as well as the
shareholders and management’s viewpoints in terms of
the Company’s further development paths.
At present, the government of the Russian Federation is paying special attention to the disposal of non-core
assets by companies of which the State is a shareholder. Tell us about the results that FGC achieved in this
term in 2016.
PJSC FGC UES has been taking actions to identify
and dispose of non-core assets since 2012. In 2016,
the programme for the disposal of non-core assets
was updated based on the directives of the Russian
government and in accordance with the guidelines
on the identification and disposal of non-core assets
developed by the Ministry of Economic Development and
the Federal Property Management Agency. Registers of
non-core assets are modified and approved by the Board
of Directors of PJSC FGC UES annually.
In 2016, the approved Business Plan of PJSC FGC UES
for 2016 was achieved, in terms of the management of
non-core assets, as follows:
— in terms of revenue – approximately 95% of the
approved business plan (some RUB 1.9 billion);
— in terms of profit – approximately 104% of the
approved business plan.
1 Approved by the resolution of the Board of Directors, minutes No. 243, on 22 December 2014.
2 Approved by Russian Federation Government Resolution No. 511-r on 3 April 2013.
26
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
DEVELOPMENT STRATEGY
Strategic Priorities and Objectives
Reliability of Electricity Supply to Consumers
Strategic Objective
KPI
2016 Results
Plans
To maintain a high reliability level
of electric power transmission
and grid safety, and to reduce the
undersupply of electric power
Absence of any increase
in major accidents
Achieving the required
reliability level of services
provided
Absence of any increase in the
number injured in accidents
For further details on KPIs,
see the Strategic Report –
Market Review, Strategy and
Key Performance Indicators
section
The specific accident rate decreased
by 1.3%
The undersupply of electricity to
consumers decreased by 20%
compared to 2015 (according to
accident investigation data)
The duration of the suspension of
electric power supply to consumers
was reduced
Scheduled repair and maintenance
measures were fully accomplished
Development and Functionality of UNEG to Meet the
Needs of the National Economy and Population
Reduction in the share of overage
equipment is provided as a result of
implementing renovation projects,
modernising and the technical upgrade of
fixed assets as part of the Investment
Programme of PJSC FGC UES.
Development of an effective system of
operation management for UNEG that
provides improvement in the observability
of the electrical grid facilities
Risks Impacting the
Achievement of Objectives
Relevance Assessment
by the Stakeholders1
Operational and technological risks
Relevance assessment: High
Environmental risks
Risks related to the geographical
characteristics of a country or a region,
including the increased risk of natural
disasters, and the possible termination
of transport communication
Assessment of the Company’s
performance in the priority area:
Positive in all aspects –
89%
For further details on
reliability improvement,
see the Strategic Report –
Operating Performance
Results section
Strategic Objective
KPI
2016 Results
Plans
Risks Impacting the
Achievement of Objectives
Relevance Assessment
by the Stakeholders
1. To implement the Investment
Programme in the context of tariff
restrictions with a reduction of unit
investment costs by 30% by 2017
as compared to 2012
2. To ensure the implementation of
investment projects that are of
national significance in due time
3. To ensure adherence to the
principles of technical and
economic expediency when
decisions are taken on the scheme
of backbone grid development
Reduction of the unit
investment costs
Accomplishment of the facility
commissioning schedule
Meeting the deadlines for
technological connections
The unit investment costs were reduced
by 30% compared to 2012.
Facility commissioning schedule was
accomplished
Investment projects of national
significance were implemented
according to the established schedule
Volumes of constructing new and
increasing the capacity of existing
electrical grid facilities were reduced
Enhancing control over the planning and
business process of investment projects
Carrying out a price and technological
audit of large investment projects with
costs of above RUB 1.5 billion
Investment risks
Financial risks
Risks related to federal regulation
of tariffs
Relevance assessment: High
Assessment of the Company’s
performance in the priority area:
Positive in all aspects –
74%
For further details on risks,
see the Strategic Report –
Risk Management section
and Appendix 1 hereto
For further details on
UNEG development, see
the Strategic Report –
Investing Activities section
28
29
1 Hereinafter, the relevance assessment is determined on the basis of the stakeholders' questionnaire (including investors, analysts, customers, consumers).
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix DEVELOPMENT STRATEGY
Strategic Objective
KPI
2016 Results
Plans
Reduction of the total cost of
implementing activities for S&DP1
2016-2022 was 28% when compared to
S&DP 2015-2021 (RUB 509.6 billion vs.
RUB 706.2 billion)
Approved modification of the Investment
Programme for 2016-2020 was
optimised by taking into account the
balance of the need to improve
operational reliability of the backbone
electrical grid system and the need to
accomplish the construction of electrical
grid facilities that had started in earlier
periods and the possibility to provide
financing
4. To develop a programme of
phased consolidation for
electrical grid facilities that are
part of the UNEG and meet its
eligibility criteria, including the
signing of agreements with other
owners of UNEG facilities on the
procedures of using, acquiring
and/or the lease of such facilities
5. To optimise the utilisation of
the existing electrical grid’s
capacities
Economic Efficiency
and Financial Sustainability
Risks Impacting the
Achievement of Objectives
Relevance Assessment
by the Stakeholders
Risks related to the political and
economic situation of the country and
region
Strategic Objective
KPI
2016 Results
Plans
1. To integrate an economic
model of technological
connection based on a balance
of interests and equitable risk
sharing between the applicant
and the backbone grid company
2. To reduce unit operating
expenses by 30% compared to
2012’s baseline by 2017 while
maintaining reliability and
avoiding an increase of costs in
the upcoming periods
3. To maintain the Company’s
credit rating at the level of the
sovereign credit rating
Meeting the deadlines for
technological connections
The quality level of technological
connection to the grid provided is
maintained stable and high:
Reduction of unit (operation)
costs
Labour productivity
improvement
2015 – 1.0236
2016 – 1.02522.
The unit operating expenses reduced by
46% compared to 2012
The comparative analysis of PMES
operation costs was accomplished
A project for increasing the labour
productivity of industrial operation
personnel was started
The target values of the import
substitution programme were fully met
The Company's credit rating was
maintained during 2016 at the same
level (BBB-) and not lower than the
sovereign rating
1 S&DP – the Scheme and Development Programme for the UES of Russia developed in cooperation with the System operator.
2 Indicatord are given according to the statements approved by PJSC Rosseti
Implementation of the project for the
increase of labour productivity of
industrial operation personnel:
— identification and reduction of
industrial personnel work time losses;
— consolidation of business units, and
expansion of service zones;
— optimisation of the personnel
workload;
— increase in the quality of repair work
planning;
— implementation of standard schemes
of service.
Carrying out comparative analysis
(benchmarking) of operation costs
between the PMES aimed at the
identification of cost reduction potential;
Development of software and hardware
systems to decide on the impact (in
terms of M&R and renovation) on
electrical grid facilities when taking into
account their technical condition and
relevance index while using modern
diagnostics and data processing
methods
Risks Impacting the
Achievement of Objectives
Relevance Assessment
by the Stakeholders
Financial risks
Investment risks
Operational and technological risks
Technological connection
risks
Risk of not implementing the Import
substitution programme
Relevance assessment:
High (for the investors and analysts)
Moderate (for the customers and
consumers)
Assessment of the Company’s
performance in the priority area:
Positive in all aspects –
81%
For further details on
financial performance
results, see the Strategic
Report – Analysis of the
Financial Performance
Results section
30
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix KEY PERFORMANCE INDICATORS (KPI)
Sustainable Development Strategy
The key principle for setting objectives in the area of
sustainable development and social responsibility is
observing the balance between economic expediency and
solving social and environmental issues. Special attention
is paid to aspects that are top priority for the Company’s
stakeholders.
PJSC FGC UES has set the following strategic priorities in
the area of sustainable development:
— Development of procedures and practices for the
synchronisation of the plans of the stakeholders;
— Import substitution in order to reduce political and
financial risks;
— The introduction of innovations and new technology
with an assessment of their long-term economic
efficiency;
Corporate Governance Strategy
— The creation of a talent pool with a competency level
corresponding to energy sector development trends;
— Establishment of responsible personnel
management practices;
— Improvement of the performance of the electrical
grid’s energy efficiency;
— The introduction of environment protection activates
aimed at minimising the impact on the environment;
— The fair distribution of created economic value and
the integration of the social responsibility strategy
across all operation areas.
The Company’s activity in the area of sustainable
development enables us to define and adjust the
Company’s strategic priorities, targets and objectives more
accurately and to improve the effectiveness of achieving
our set targets.
The Company is constantly enhancing its Corporate
Governance System and considers the effective
functioning of its Corporate Governance System as
the foundation of Company’s reliable and profitable
operation.
PJSC FGC UES has set the following strategic
objectives in this area:
— Assessment of the corporate governance of the
subsidiaries by applying self-evaluation methods that
have been approved by the Company’s Management
Board;
— Development of enhancement plans for the
subsidiaries’ corporate governance, including the
development of standard internal documentation on
corporate governance issues for the subsidiaries;
— An update of the Company’s documentation in the
area of corporate governance as a result of the
analysis carried out in 2016, as well as in relation to
changes in the Russian Federation’s legislation.
Key Performance
Indicators (KPI)
In order to achieve strategic objectives, there is an end-
to-end multilevel system of key performance indicators
available at PJSC FGC UES: the Company level (senior
management KPIs), the level of the executive office of the
Company, and the level of PJSC FGC UES subsidiaries.
The KPIs of each management level are set at the superior
management level, which allows for the implementation of
an end-to-end control procedure.
In 2016, the quarterly and annual bonus system continued
to function at the Company based on a methodology of
calculating and evaluating the achievement of quarterly
and annual KPIs for the senior management of PJSC FGC
UES and was approved by the Board of Directors1.
Key changes made to the senior management KPI system
in 2016, compared to the previous year, include the
following:
— In accordance with the Directives of the Russian
Government No. 2303p-P13 on 16 April 2015, No.
2073p-P13 on 29 March 2016 and No. 4750p-P13 on
4 July 2016, the Resolution of the Board of Directors
included a condition for annual bonuses into the
annual KPIs – the achievement of the objective on
the reduction of operating expenses (costs).
— In accordance with the Directive of the Russian
Government No. 1472p-P13 on 3 March 2016, the
Resolution of the Board of Directors included an
indicator for the efficiency of innovation activity into
annual the KPIs.
— In pursuance of the Russian Government Resolution
No. 1352 on 11 December 2014 “On the specific
aspects of the participation of small and medium-
sized enterprises in procurement of goods, work,
services by certain types of legal entities”, the annual
KPIs included the indicator the share of procurement
from small and medium-sized enterprises. In 2016,
this indicator was indicative and was not part
of the bonus system for the Company’s senior
management.
— An integrated quarterly indicator for financial stability
and a liquidity indicator, instead of financial stability
1 The Methodology for the calculation of KPI and the achievement evaluation of quarterly objectives for senior management of PJSC FGC
UES is approved by the RESOLUTION of the Board of Directors (Minutes No. 325 on 17 June 2016); the Methodology for KPI calculation and
the achievement evaluation of annual objectives for senior management of PJSC FGC UES is approved by the Resolution of the Board of
Directors (Minutes No. 354 on 9 February 2017).
indicator for the financial leverage ratio, were
introduced.
— The target values of the number of indicators were
increased: the reduction of unit investment costs, the
electricity loss level and the improvement of labour
productivity.
In order to cascade the key performance indicators
of the PJSC FGC UES senior management that were
set by the Company’s Board of Directors from the the
subordinate management levels and to motivate deputies
of the Chairman of the Management Board, Executive
Office directors, and the heads of the structural units
of the Executive Office and branches of PJSC FGC UES,
the Methodology for KPI calculation and the target
achievement evaluation for branch heads, the heads of the
Executive Office and subdivisions of the PJSC FGC UES
branches was approved2.
Cascading PJSC FGC UES KPIs from the Senior Management
Down to Subordinate Management Levels
Objective Setting
The Company's development strategy as
defined in the PJSC FGC UES Long-Term
Development Programme
Goals and objectives of the functional
units set in the Company's executive
documentation
The branches’ goals and
objectives set in the executive
documentation of the
Company and Company’s
branches
PJSC FGC UES’s management is
responsible for the achievement
of objectives and KPIs
Chairman of the Management
Board, Members of the
Management Board
Deputies of the Chairman of the
Management Board, Directors
of the Executive Office of the
PJSC FGC UES Management
Board
Department Heads, Heads of
the Executive Office
directorates
GDs of the MES
branches, PMES
directors, the
functional deputies of
MES GDs (PMES
directors)
Heads of the
services and
departments of
the MES,
PMES
branches
KPI
top
managers
PJSC FGC UES
KPI
heads of
executive office
KPI
heads
structural units of
executive office
KPI
heads of branches
PJSC FGC UES
KPI
heads of branches
subdivisions
PJSC FGC UES
2 The Methodology for KPI calculation and target achievement evaluation of PJSC FGC UES’s branch heads was approved by the order
of PJSC FGC UES No. 143 on 26 April 2016; the Methodology For KPI calculation and target achievement evaluation of the heads of the
Executive Office and subdivisions of PJSC FGC UES branches is approved by the order of PJSC FGC UES No. 145 on 29 April 2016.
32
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
KEY PERFORMANCE INDICATORS (KPI)
Structure of Indicators Linked to the Company’s Strategic Objectives,
Target and Actual Indicator Values
Strategic Objective
KPI
2015
Actual KPI Values
Reliability
of the electricity
supply to consumers
Absence of increase in major accidents
Q 1, 2, 3, 4 – absence of increase
Absence of increase
in the number injured
in accidents
Q 1, 2, 3, 4 – absence of increase
The Company’s
governance
efficiency
Infrastructure
development
and execution
of macro projects
Achieving the required reliability level
of the provided services
0.3
Reduction of operating expenses
(costs)
24.2% (vs. 2012)
Reduction of unit investment costs
18.3% (vs. 2012)
Electricity loss level
Labour productivity improvement
4.09%
21.5% (vs. 2012)
Accomplishment of the facility
commissioning
schedule
Innovation activity efficiency
Share of the procurement from small
and medium-sized enterprises
115.5%
—
—
Maintenance
of financial stability
Return on invested capital
(ROIC)
1.8
Financial leverage ration
Total shareholder return
(TSR)
Financial stability
and liquidity indicator
Consolidated net cash flow
Consolidated earnings from operating activities
(EBITDA)
Consolidated net debt/EBITDA
Execution of an action plan on the reduction
of receivables
Meeting the deadlines for technological
connections
Increase in capacity utilisation of power grid
equipment
Q1 – 0.43; Q2 – 0.46;
Q3 – 0.44; Q4 – 0.43
28.0%
—
—
—
—
—
1.0236
—
Effective engagement
with customers
2016
Target KPI Values
Absence of increase
Absence of increase
≤ 1
≥ 10%
≤ 1
≤ 4.13%
≥ 3,869 RUB/man-hour
≥ 95%
≥ 90%
Achievement Evaluation of
the KPI (Achieved/Not Achieved)
2017
Target KPI Values
Q 1, 2, 3, 4 – achieved
Absence of increase
Q1 – not achieved 1;
Q2 – not achieved 2;
Q3, Q4 – achieved;
Absence of increase
Achieved
Achieved
Achieved
Achieved
Achieved
≥ 10% for the share of procurement in which only small
and medium size businesses participate, and
Achieved
≥18% for the share of procurement from small and
medium size businesses (including contracts which are
executed by small and medium size businesses as
subcontractors/associate contractors)
≥ of target value, as calculated in accordance with the
PJSC FGC UES forecasted indicators, set in accordance
with the business plan, developed based on the
principles of the consolidated financial reporting (IFRS)
Achieved
—
—
> MOEX RCI (Regulated Companies Index) change for
the reporting period + 0.01 percentage points
Achieved
Equity/Debt ratio ≥ 0.67 or the value set in the Business
Plan and the modified current liquidity ratio (MCLR) ≥ 1
or the value set in the Business Plan
Q1, Q2, Q3, Q4 – achieved;
—
—
—
—
≤ 1.1
—
—
—
—
—
Achieved
—
≥ - RUB 8,252 million
Q1, H1 and 9 months of the reporting
period ≥ 0; annual value ≥ 5.3%
Q1, Q2, Q3, Q4 ≤ 3.0
≥100.0%
≤ 1.1
Achieved
≤ 1
≥ 3%
≤ 1
4.12%
≥ 5.90%
≥ 90%
≥ 90%
—
—
—
—
—
—
The achieved annual KPI results reflected for 2016 are based on a preliminary evaluation.
Comparison of the achieved values of the current year with previous years is not carried out due to changes in the methods
for calculating and evaluating the performance of KPIs.
1 Fatal accident (failure of employees to perform their duties) on March 30, 2016 in FGC branch Sredne-Volzhskoye PMES (Act No. 1 on occupational accidents
of May 18, 2016).
2 Fatal accident (failure of employees to perform their duties) on April 11, 2016 in FGC branch Rostov PMES (Act No. 3 on occupational accidents of May 12, 2016).
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix 4
2
3
Backbone electric grids of South
(MES South)
FGC BRANCH
SERVICE AREA
11 constituent territories of the Russian
Federation in the territory of Southern and
North Caucasian federal districts with a
population of more than 19 million people.
PERSONNEL
More than 2.3 thousand people
АSSETS 1
HVTL 12.874 thousand km
87 substations, 110-500 kV
229 TSS, 6-10 kV
Capacity — about 29.6 thousand MVA
OPERATIONS
Electricity transmission. The branch provides
electricity connection of UES of South with the
power systems of the Central Region of Russia,
Ukraine, Georgia, Azerbaijan, and through them –
electricity transmission to Turkey and Iran.
1 according to annual performance reports
36
36
PHOTOS:
1, 2
Adler
3
4
500 kV HVTL Rostov NPP –
Tikhoretsk circuit 2.
330 kV HVTL
Nalchik–Vladikavkaz-2
1
Key infrastructure projects
2010–2013
Power output of the Adler TPP
Control of power shortages in Sochi;
Second power source for the Olympic Park facilities.
2009–2013
330 kV HVTL, Mozdok-Artem
Improvement of reliability of electricity supply scheme for Dagestan and Severnaya, as
well as for large consumers in the region (JSC Hasavjurt Instrument-Making Plant, JSC
Dagelektroavtomat, JSC Mozdok Cannery, Khasavyurt railway station, etc.).
500 kV SS, Nevinnomyssk, 500 kV HVTL, Rostov NPS –
Nevinnomyssk. 500 kV HVTL, Rostov NPP –Tikhoretsk circuit 2.
Power output of Rostov NPP, Units 2 and 3.
330 kV HVTL, Nalchik–Vladikavkaz-2
Increase of reliability of electricity supply to the North Caucasus power system.
Annual Report 2016
37
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix RISK MANAGEMENT
Risk Management
The risk management system that exists at the Company makes it possible to identify,
assess and effectively manage risks in due time
The Company’s General Approach to Risk Management
The stable continuous functioning and development
of the Company requires the timely identification,
assessment and the effective management of any risks
that are a threat to its operation and reputation, to the
health of the employees, the environment, as well as
property interests of the shareholders and investors.
The FGC Regulations on Risk Management was
developed by taking into account advanced Russian
and international standards, including:
— Guidelines for drafting regulations on a risk
management system that were approved by the
government of the Russian Federation;
Advanced Standards of Risk Management
The Risk Management System of PJSC FGC UES
was established based on the generally accepted
conceptual frameworks for risk management, COSO
ERM Enterprise Risk Management – Integrated
Framework, developed by the Committee of Sponsoring
Organisations of the Treadway Commission.
— Russian Corporate Governance Code;
— Listing Rules of the Moscow Exchange;
— International Standards ISO73:2009, 31000:2010 and
31010:2011 in the area of risk management;
— Risk management standards of the Federation of
European Risk Management Associations (FERMA).
Relevance and Dynamics of Key Risks
FGC identifies the risks that significantly impact the Company’s operation and are subject to priority management.
Level of Risk Relevance
Relevance of the Company’s Key Risks in 2016
(Risk Map)
For further details on
the risk management
system and internal
control system,
see the Corporate
Governance Report/Risk
Management, Internal
Control and Internal
Audit section
The FGC Regulation on
the risk management
system in force1 is
available on the corporate
site at www.fsk-ees.ru/
eng/ in the Investors /
Corporate Governance /
Corporate Documents
section
Critical
Significant
Moderate
Dynamics of Risk Relevance
in the Reporting Year
Growth of risk relevance
Reduction of risk relevance
Risk relevance did not change
Operational and
technological risk
The risk of implementing
the Import Substitution
Programme
Environmental
risks
Strategic risk
Risks related
to state tariff
regulation
Critical
Signific
a
n
t
M oder
a
t
e
Risks of technological
connection
Risks of the growth of late
and non-collectable
receivables
Risks related to the political
and economic situation in
the country and the region
Risks related to the geographical
characteristics of a country
or a region
Risk of loss of business
reputation
Legal risks
Financial risk
Strategic Priority:
Reliability
Economic
efficiency
UNEG development
1 Approved by the Resolution of the Board of Directors on 16 November 2015 (Minutes No. 291 on 19 November 2015).
Updated by the resolution of the Board of Directors on 12 December 2016 (Minutes No. 347 on 13 December 2016).
Risk Assessment and
Changes in Risk
Relevance in 2015.
Risk Assessment and
Changes in Risk
Relevance in 2016.
Link to Strategic
Priorities
Risk Name
Industry Risks
Risks related to the state regulation
of tariffs
Technological connection risks
Risks related to the increase of overdue
and bad debts
Country and Regional Risks
Risks related to the political and economic situation
of the country and region
Political factors
Economic factors
Risks related to the geographical characteristics of a
country or a region, including the increased risk of
natural disasters, and the possible termination of
transport communication
Financial Risks2
Risk of an interest rate change
Risk of an exchange rate change
Inflationary risk
Legal Risks
Risks related to changes in the legislation and
regulations in the areas of Company’s operation3
Risks related to public legal relations
Reputation Risk
Risk of business reputation loss
Strategic Risk
Strategic Risk
Risks Related to the Company’s Operations
Environmental risks
Risks relating to failure to comply with the
requirements of the environmental
legislation of the Russian Federation
Risks relating to failure to achieve the target
indicators of the Programme for the
Implementation of the Environmental Policy.
Risk of implementing the Import substitution
programme4
Operational and technological risk
For further details on the
key risk factors and activity
on their management, see
the Appendix 1 hereto
10%
There are no Company
investments with an
expected level of income
of more than 10% annually.
RUB 5.15 bln
The total number of claims
on unfinished litigations in
which FGC acts as a
defendant stands at RUB
5.15 billion as of 31
December 2016.
RUB 1.65 bln
The total number of claims
on unfinished litigations in
which FGC acts as a
respondent stands at RUB
1.65 billion as of 31
December 2016.
2 A reduction in the relevance of financial risks is due to the fact that the level of inflation in 2016 demonstrated a downward trend and
reached 5.4% by the end of the year (the average annual value is 7.1%). The policy of the Russian Government and the Central Bank of
Russia that is aimed at reducing inflationary risks allows us to assess this risk as stabilising.
3 The reduction of risk relevance related to changes in legislation was the result of the approval of new regulatory documents by the
government of the Russian Federation.
4 The reduction of risk relevance for the implementation of Import Substitution Programme is due to the fact that by the end of 2016,
manufacturers of electrical equipment have worked out alternative logistics routes and established contacts with the suppliers of the
required components from APEC. This generally mitigated the risk of tightening sanctions by the USA and EU countries.
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
OPERATING PERFORMANCE
Operating Performance
Electricity Transmission
FGC for the State and the Entire Society:
PROVIDES MORE THAN A HALF OF TOTAL
ENERGY CONSUMPTION IN RUSSIA
Strategic Priority
Reliability
FGC operates the Unified national (all-Russian)
electrical grid (UNEG) and provides the services
of electric power transmission via the UNEG to
consumers. Such services are considered a monopoly
operation and are regulated by the State. Payment for
electric power transmission services is a major revenue
source for the Company (about 80% of total revenue).
The price of the power transmission services is
determined by tariffs that are calculated by the
commercial operator of the wholesale electricity
market (JSC ATS) and set by the Russian Federal Anti-
Monopoly Service (FAS of Russia).
Shares of the Largest Service Consumers
in FGC’s Sales Revenue from Power
Transmission Services in 2016
9 10
8
1
7
6
5
4
3
2
1
2
3
4
5
6
7
8
9
JSC Tyumenenergo
PJSC MOESK
PJSC IDGC of Centre
JSC IDGC
Ural-Sverdlovenergo
PJSC Lenenergo
JSC IDGC
Ural-Chelyabenergo
PJSC Kubanenergo
JSC DRSK
JSC RUSAL Krasnoyarsk
10
PJSC IDGC of Centre and
Privolzhie-Nizhnovenergo
%
10
10
9
4
4
3
3
3
2
2
OBJECTIVE 2016
ACHIEVEMENT 2016
OBECTIVE 2017
Electric power supply to
consumers, million kW.h
Electric power losses in the
UNEG, million kW.h
527,719
540,540
533,753
24,756
25,033
24,890
The main consumers of FGC’s electric power
transmission services are regional distribution
companies, retail suppliers and large industrial
enterprises.
At the end of 2016, the total number of
the Company’s counterparts in electric
power transmission service agreements
increased to 481.
In 2016, electric power supply to consumers of the
FGC grid increased by 2.8% compared to the previous
year and amounted to 540.5 billion kW.h. The long-
term indicator dynamics demonstrate a growing
trend –a growth of 4.5% for 2012—2016.
For further information
on the tariffs for electric
power transmission
services, see the
Strategic Report/
Analysis of the Financial
Performance Results
section
For further information
on export and import of
electric power pursuant
to PJSC InterRAO
contracts, see the
Appendix 1 hereto
Number of the Company’s Counterparts in Electric
Power Transmission Service Agreements
Electric Power Supply From the UNEG to Consumers,
billion kW.h
481
473
416
292
207
2016
2015
2014
2013
2012
540.5
525.8
515.3
520.0
517.1
Measures to reduce electric power losses for the
reporting period as part of the Programme for Energy
Saving and Energy Efficiency of PJSC FGC UES were
implemented in three key areas:
— construction, reconstruction and development of
electrical grids, and commissioning of energy-saving
equipment (loss reduction has had a concurrent
effect).
— optimisation of circuit and mode parameters in the
process of operation and control of the electrical
grids;
— reduction of electric power consumption for auxiliary
supply of the substations;
As a result of implementing the above measures,
electric power losses were reduced in 2016 by 58.3
million kW.h.
Strategic Priority
Technological Connection
UNEG
development
FGC for Consumers:
A CUSTOMER FOCUSED APPROACH
OBJECTIVE 2016
ACHIEVEMENT 2016
OBECTIVE 2017
Average level of customer
satisfaction with technological
connection service, points
1.1
1.0252
1.1
QUESTION & ANSWER
Aleksey Molsky
Deputy Chairman of the Management Board,
Member of the Management Board
What were FGC’s largest projects of connecting electric power generation facilities and power plants to
consumers and grids in 2016?
Measures were taken to connect such generation
facilities as Huadian-Teninskaya CHP (450 MW);
Chelyabinskaya GRES, CCGT-1, CCGT-3 (2x247.5 MW);
Zelenchukskaya HPP-PSPP (2x70/82.2 MW) and others
were successfully and timely implemented.
A large project in the port of Kozmino was
implemented. The contractual obligations of
connecting such consumers as PJSC Rosseti IDGC
(110 kV SS Vorsh, SS IndustrPark SOKOL, etc.), JSC
Tyumenenergo (110 kV SS Kechimovskaya, 110 kV SS
Rosa), FSI Cosmodrome Vostocny directorate (220 kV
SS MSDS 2), PJSC NK Rosneft (500 kV SS Svyatogor,
220 kV SS Vektor), the Zvezda shipbuilding and ship
repair centre (220 kV SS Zvezda), the CJSC Antipinsky
refinery and many others were executed.
What factors will determine the dynamics of the technological connection of consumers to the grids of PJSC
FGC UES in the near future?
The key factor that will determine the dynamics
of technological connection is bringing to life the
forecast of the socioeconomic development of
Russia, which implies the creation of power-intensive
production enterprises and the implementation of large
infrastructure projects in the regions of Russia.
What possibility does the Company see in terms of improving the quality of its technological connection services?
We are striving to improve the quality of our customer
consumers to apply for technological connection and
service by providing customers with more convenient
submit the required documentation (according to the
and efficient ways of interacting with the Company.
rules of technological connection) in an electronic
There is a new section under development in the
format confirmed by a qualified digital signature.
technological connection portal that will allow
40
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
OPERATING PERFORMANCE
The Company provides an integrated service of
the technological connection of energy receiving
devices, power generating facilities and electrical
grid facilities to FGC’s electrical grids. This service
includes the application for technological connection,
the development of technical requirements, the signing
of a contract, obtaining permission from the federal
body of the state energy supervision for the applicant’s
facilities, and the issuance of a connection report.
Categories of Consumers of Technological
Connection
Technological Connection
Service Portal
5 1
2
3
4
1
2
3
4
5
up to 15 kW inclusively
over 15 and up to 150 kW
over 150 kW and up to
670 kW
over 670 kW
electric power generation
facilities
%
1
3
7
84
5
Technological connection service is provided at locations of the PJSC
FGC UES branch offices – MES. Via the Technological Connection
Service Internet Portal – http://portaltp.fsk-ees.ru/ – consumers
have online access to up-to-date information on the state of
FGC’s feeding centres, the load level of their equipment, as well as
information on the implementation progress of their application for
technological connection to the Company’s electrical grid.
The payment amount for technological connection is
calculated based on the maximum capacity value of
connected energy receiving devices while applying
the standardised tariff rate established by the FAS
of Russia to a corresponding regulation period. The
payment amount for technological connection under an
individual project is approved separately by the FAS of
Russia for each applicant.
FGC provides services of technological connection
to both new and existing consumers, if they need to
modify the parameters of energy facility operation.
The Company signs direct contracts with service
consumers in all the constituent of the Russian
Federation where FGC’s grid facilities are located,
taking into account the restrictions set by Federal Law
No. 35-FZ of March 26, 2003, «On the Electric Power
Industry» and the rules of technological connection.
Structure of Consumers of the Company's
Technological Connection Services
(According to Contracts Signed in 2016)
5 1 1
2
3
3
308
contracts
2
4
1
2
3
Generating Companies
Grid Company
Consumers
%
7
46
47
Dynamics of Connecting the FGC’s Consumer
Capacities and Electric Power Generation
Facilities1, MW
2016
2015
2014
2013
2012
2,982
5,419
1,769
1,401
1,657
2,653
2,766
3,768
3,949
2,912
Electricity generation
facilities
Consumers
and grid companies
In 2016, FGC signed 308 contracts for providing
technological connection with total connection
capacity of 6.7 GW. The total capacity of technological
connections implemented in the reporting year
amounted to 5.6 GW.
The significant growth of technological connection
in 2015 and its following decline in 2016 is explained
by the completion of a number of large-scale
technological connection projects at the generating
plants of Rosenergoatom in 2015.
OPINION OF THE STAKEHOLDERS According to the Consumer Questionnaire Results
80%
are completely satisfied with the Company’s activity in terms
of technological connection
The most important aspects
Aspects that require additional attention
— Ensuring the publicity of a contractual relationship
— Ensuring the consideration of service consumers’
with service consumers
— Increasing the transparency of performing
technological connection
applications for signing the corresponding contracts
within the deadlines and in line with the procedure
established by legislation
— Increasing the transparency of performing
technological connection
1 The data of consumer technological connection in 2013 was adjusted by taking into account the re-distribution capacity in the consumer
category.
For further information
on the tariffs for
technological connection
services, see the
Strategic Report/
Analysis of Financial
Performance Results
section
For more information on
the largest technological
connection projects in
2016, see the Appendix
1 hereto
For more information
on the dynamics of
other key indicators
of technological
connection and
large technological
connection projects in
2016, see the Appendix
1 hereto
For information on the
risk of the untimely
execution of contractual
obligations for
technological connection
contracts, see the
Strategic Report/Risk
Management section
42
Strategic Priority
Increasing the UNEG’s Reliability
Reliability
FGC for Consumers:
RELIABLE ELECTRIC POWER SUPPLY
OBJECTIVE 2016
ACHIEVEMENT 2016
OBECTIVE 2017
Specific accident rate,
units/1000 c.u.
1.35
1.34
1.34
QUESTION & ANSWER
Vladimir Dikoy
Deputy Chairman of the Management Board –
Chief Engineer, (Advisor to the Chairman since April
2017), Member of the Management Board
Have the planned for 2016 measures on increasing grid reliability been accomplished? What are their results?
The planned execution volume for the physical
maintenance and repair work of PJSC FGC UES for
2016 for the main spectrum has been accomplished
more than 100%. The actual cost for maintenance and
repair at the end of 2016 amounted to RUB 10.6 billion;
The share of works performed in-house (without
subcontractors) has increased, a growth of labour
productivity of repair personnel was ensured, and its
workload efficiency was improved.
How successful has the Company been in terms of increasing the reliability and improving
the quality of its repair work?
In 2016, we were able to maintain our achieved
reliability level, and the number of accidents at the
Company’s facilities decreased from 1,879 to 1,848 –
a 2% decrease compared to the previous year (when
taking into account the data of JSC SO UES).
In order to increase quality and decrease cost of
repair, centralisation of the procurement of the main
range of spare parts and materials was carried out,
and the list of parts provided was expanded.
Multilevel preparation of the Company’s facilities for
thunderstorms, fire hazards, floods and fall-winter
season conditions ensure the reliable operation of
the UNEG facilities during specific climatic periods
throughout the entire year. The Company obtained
a certificate of readiness for the fall-winter season
2016/2017 from the Ministry of Energy of the RF,
without any special opinions or special permissions
of the commission members. A high level of
readiness for emergency recovery work was also
ensured. A variety of measures aimed at increasing
reliability in regions with high risks of power supply
interruption were also accomplished.
The main technical areas for increasing the reliability
and efficiency of the operation of FGC’s electrical grid
system are set in the Unified Technical Policy that has
been in force at the Company since 2013.
The reliability of the Company’s grids increases
every year. In 2016, thanks to the introduction of
new equipment, the improvement of the servicing
personnel’s skills and expertise and other such
activities, the specific accident rate2 at FGC’s facilities
declined by 1.3%. At the same time, the amount of
equipment serviced increased by 0.8%.
The indicator for the undersupply of electric power3
to consumers is currently at a stable low level and
shows a downward trend. In 2016, this indicator value
decreased to 1,397 MW.h, or by 20%, compared to
2015.
For provision on the
Unified Technical Policy,
see the website at www.
fsk-ees.ru in the About
the Company/Technical
Policy section
2 The specific accident rate is a ratio of the number of accidents to the servicing volume. The servicing volume means the man-hours
required for servicing equipment (man/hour).
3 The undersupply of electric power is the volume of electric energy that has not yet been supplied to the consumer because of interruption
or restriction of the electric power supply as related to the regular mode disturbance (according to data from accident investigation
reports).
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
OPERATING PERFORMANCE
Number of Accidents Dynamics
at FGC’s Facilities
Specific Accident Rate Dynamics
at FGC’s Facilities (Number of Accidents
per 1,000 Conventional Units)
Dynamics of Power Energy
Undersupply by FGC, MW.h (According
to Data from Accident Investigation Reports)
2016
2015
2014
2013
2012
1,606
1,616
1,954
2.43
-15%
2.08
-17%
2,280
2,596
2012 2013 2014 2015 2016
1.72
-21%
1.35
1.34
-1%
2016
2015
2014
2013
2012
1,397
1,747
3,548
2,768
3,090
Renovation, Modernisation and Technical Upgrade
of Fixed Assets
Investment projects for renovation, modernisation
and technical upgrade have been included into
the adjustment of the PJSC FGC UES Investment
Programme for 2016-2020.1
The renovation, modernisation and technical upgrade
projects for 2016-2020 aim to achieve:
— Total commissioning capacity – 11,964 MVA;
— Renovation of 401.96 km of power transmission
lines.
Repair Programme
The Company performs maintenance and repair of
its energy facilities in order to keep the equipment of
substations and high-voltage lines in good working
condition.
In 2016, the Company accomplished its planned
activities for repair and maintenance in full.
Financing for the renovation, modernisation and
technical upgrade projects amounts to RUB 117,177
million for the period of 2016—2017.
The commission of a 2,627 MVA capacity
is planned as part of the renovation,
modernisation and technical upgrade
projects for 2017, of which the financing
will amount to RUB 21.9 billion.
Information on
operational and
technological risks,
including risks related
to wear and tear and
the obsolescence of
the electrical grid’s
assets, is available in the
Strategic Report/Risk
Management section
In 2017, FGC plans to invest around
RUB 11 billion into repair works at the
grids.
More information on
the implementation
results of the 2016 repair
programme is available
in the Appendix 1 hereto
Operational Process Control and Situational Management
Operational process control is a system of measures
carried out to ensure the reliable operation of the
UNEG’s facilities and to comply with operational
process modes set by the dispatch centres of the
System Operator.
Situational management is a system of measures taken
in correspondence to a contingency or emergency
situation on the electrical grid system via the analysis
and assessment of situation occurrence risks and their
consequences, followed by taking and implementing
the appropriate management decisions.
In the framework of the Company’s operational process
control, situational management tasks are carried out.
Operation During Specific Periods
Weather and climatic conditions have a significant
impact on the Company’s operations. We ensure the
preparation of electrical grid equipment, buildings
and structures in advance for their operation during
specific seasonal periods: the fall-winter season (low
temperatures and high load conditions), as well as for
floods, fire hazards and thunderstorm periods (natural
anomaly conditions).
In 2016, the UNEG operated in the standard mode
during the specific periods as well. 46 duty teams,
which ensured the facility’s reliable operation in the
conditions of an emergency or contingency occurrence,
operated continuously at the Company. There are 561
standby power supply sources with a total capacity of
167.3 MW at the Company’s disposal.
More information on the
activities of operational
process control and
situational management,
as well as the dynamics
of efficiency indicators
for the control of
operational process and
situational management,
is available in the
Appendix 1 hereto
More information on the
Company’s operation
during special periods in
2016 is available in the
Appendix 1 hereto
On 10 November 2016, the commission of
the Ministry of Russia issued a certificate
of readiness to the Company for operation
during the fall-winter season of 2016-2017.
OPINION OF THE STAKEHOLDERS
According to the Consumer Questionnaire Results
100%
are completely satisfied with the
Company’s operation on ensuring the
reliability of the electric power supply
The most important aspects
— accident rate reduction at the Company facilities
— rapid elimination of the consequences from
emergency and natural disasters
— observance of the schedule of repair works related
to electrical grid facilities power outages
Information on
risks related to the
geographical specifics
of the country or region,
including the risk of
the increased hazard
of natural disasters,
is available in the
Strategic Report/Risk
Management section
Development of Communication Networks
and IT systems
FGC for Consumers, Suppliers
and Company Employees:
MANAGEMENT BASED ON MODERN
IT-SYSTEMS
More information on the
IT systems operating at
the Company is available
in the Appendix 1 hereto
The operational reliability of the electrical grid
infrastructure, the innovative development of the UNEG
and of FGC’s efficient business control all require the
use of advanced telecommunication and information
technologies.
The automatic process control system (APCS), the
corporate information management system (CIMS),
and the telecommunication infrastructure of the
Energy System’s Unified Process Communications
Network (ESUPCN), based on advanced information
technologies, are being created and developed at the
Company.
Development of the Energy System’s Unified Process
Communications Network
The telecommunication infrastructure that the
Company has created enables the effective operational
control and dispatch processes of electric power
transmission and distribution.
transition from an analogue to a digital communication
method) and the intelligence of the network that is
achieved via its wide introduction to electrical grid
facilities of modern equipment and a new generation of
communication network technologies.
The general scheme of the creation and development of
the Energy System’s Unified Process Communications
Network (ESUPCN)2 plans for the digitalisation (the
ESUPCN Structural Component
Development Priority
2016 Results
Share of Domestic
Equipment Use
Fibre-optical communication
network
Basis for the technological
communication network using
fibre-optical cables placed on
overhead power transmission
lines.
Development of fibre-optical
communication lines (FOCL). FOCL inputs
will allow us to improve the efficiency of
process control for electrical grid facilities
and the reliability of the power supply to
consumers in the regions where
respective projects are implemented.
In 2016, more than 3.7 thousand km of
FOCL were built along power
transmission lines, including the areas of
MES East, MES Siberia, MES Volga, and
the MES South branches.
36%*
* Including cable
communication lines.
Total length of FOCL, th. km
FGC utilises resources from the leading
telecommunication operators on the
basis of long-term mutual lease relations.
2016
2015
2014
70.5
66.8
63.1
1 Adjustment of the PJSC FGC UES Investment Programme for 2016-2017 is approved by the directive of the Ministry of Energy of
Russia No. 1432 as of 28 December 2016.
2 Approved by the PJSC FGC UES Board of Directors on 14 December 2015 (Minutes No. 1352 on 15 December 2015).
44
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
INVESTMENT ACTIVITIES
ESUPCN Structural Component
Development Priority
2016 Results
Share of Domestic
Equipment Use
Carrier network along
overhead lines
Modernisation and decommissioning
of carrier network equipment because
of the commissioning of FOCL.
Dynamics of input of carrier network
along overhead lines, pcs.
78%
Special types of communication
where phase conductors and
overhead power transmission
line cables are used as a
signal-transmitting medium.
Telephone network
Built on a point-to-point principle
and providing interaction with
the technological network of the
System Operator and other
participants of the wholesale
electricity market.
Digitalisation of the network, the
introduction of VoIP – voice (speech)
transmission – over a packet switching
network (IP networks) in addition to the
conventional services.
2016
2015
2014
212
393
367
52%
47 digital PABX, as well as systems for
recording the operation of personnel
communication, DECT wireless
communications systems, as well as
loudspeaker and radio searching
communications systems, were
introduced in 2016.
Dynamics of input of telephone network,
units
2016
2015
2014
47
50
113
Investment Activities
The Company performs the construction of new and
the reconstruction of existing electrical grid facilities.
We pay special attention to the modernisation and
increase of the operational reliability of the unified
power system in order to ensure an uninterrupted
power supply to our consumers.
Strategic Priority
Investments into developing the electrical grid
infrastructure are the foundation of a reliable
power supply and one of the important factors
for economic growth
Commissioning value,
RUB billion
Commissioning capacity,
MVA
Commissioning of power
transmission lines, km
2016 ACHIEVEMENT
2017 OBJECTIVE
103.7
8,772
827
137.3
13,226
2,303
Investment Programme
Accomplishment for 2016
Dynamics of the ammount of investment financing,
billion rubles
2016
2015
2014
2013
2012
90.7
85.9
90.9
149.7
179.9
Dynamics of Commissioning Capacity
(setting for voltage)
0.42
The structure of capital investments (for financing)
in 2016
0.66
2016
2015
2014
2013
2012
5.69
2.32
9.52
10.79
17.83
3.12
3.69
3.64
Transformer Capacity, th. MVA
2
Power transmission lines, th. km
3
1
billion rubles
1
2
3
Technical
re-equipment
and reconstruction
New construction
Other
24.49
58.99
7.21
OPINION OF THE STAKEHOLDERS According to the Consumer and Investor Questionnaire
74%
are completely satisfied with the Company’s operation
in the investment activity area
The most important aspects
Aspects that require additional attention
— transparency of the formation of the Investment
— transparency of the formation of the Investment
Programme
Programme
— reduction of the unit investment costs
QUESTION & ANSWER
Roman Filimonov
First Deputy Chairman of the Management Board,
Member of the Management Board
We strive to make investments that will increase the
Company’s competitiveness and provide growth in the
return on capital, which in turn raises the value of FGC’s
shares. These objectives require the search for and the
selection of efficient investment solutions (projects).
In 2016, the Board of Directors approved the
regulation on investing and operating efficiency and
cost reduction1, including a system of measures for
increasing the efficiency of investing activities.
This system of measures is aimed at ensuring
the maximum efficiency of the pricing policy,
which requires a reduction of per unit indicators in
construction, the development of standard design
solutions, and enhancing the project control system
in order to achieve the set objectives by investing less
time and finances.
Achieving good levels of economic indicators is often
connected to the optimisation of financing sources.
Currently, we are counter balancing the structure of the
sources for the Investment Programme’s financing with
PJSC FGC UES’s own funds, bonded loans, loans from
organisations and federal funds. The breakthrough
in this aspect was achieved thanks to the Russian
Government’s Decree No. 1265 on 30 November 2016,
which was developed in close cooperation with PJSC
FGC UES and allows us to ensure an alternative source
of financing for the project of power infrastructure
development in area of Baikal-Amur and the Trans-
Siberian railways without the attraction of financing
from the National Wealth Fund (NWF). Additional funds
generated from instalment payments for connection
may be fully directed to the financing of this project
(thus budget support in form of NWF financing will not
be required and PJSC FGC UES’s financial situation will
not worsen).
1 Minutes No. 312 of the Board of Directors on 28 March 2016.
UNEG
development
How does the Company’s management increase its value for shareholders (based on examples of
implementing the efficiency of its investment projects)?
46
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Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
4
2
3
Backbone electric grids of the Volga
Region (MES Volga)
FGC BRANCH
Key infrastructure projects
2008–2016
1
Commissioning of 500 kV SS, Kuibyshevskaya, (Samara Region)
upon comprehensive reconstruction
Energy supply to more than 70% of the region's area, including the region's major
industrial centres: Samara, Novokuibyshevsk, and Chapayevsk. The substation is
involved in the power output scheme of the most important generation facilities of the
Volga Region: Balakovo NPP, Zhigulevskaya HPP, Zainskaya SDPP.
PHOTOS:
1
2
3
4
500 kV SS Krasnoarmeyskaya
Nizhny Novgorod
500 kV HVTL,
Krasnoarmeyskaya — Gazovaya
500 kV SS, Kuibyshevskaya
SERVICE AREA
8 constituent territories of the Russian
Federation in the Middle Volga Region and the
Nizhny Novgorod Region with a population
over 17 million people.
PERSONNEL
About 2 thousand people
АSSETS 1
HVTL 12 thousand km
87 substations, 220-500 kV
Capacity – about 32 thousand MVA
OPERATIONS
Electricity transmission. The branch provides
electricity connection between UES of Volga
and power systems of the Central Region of
Russia and the Urals.
2011–2015
Construction and commissioning of 500 kV HVTL,
Krasnoarmeyskaya — Gazovaya
Improvement of reliability of communications between the Ural and the Middle Volga
power systems and ensuring the capacity output of the Balakovo NPP;
Electricity supply to railway facilities, the towns of Mednogorsk and Kuvandyk, as well as
to large industrial enterprises in the region: Mednogorsk copper-sulphur plant, Ural Steel
plant, gas production enterprises of JSC Gazprom.
To ensure the technological connection of the integrated enterprise
Rusvinyl LLC engaged in PVC production (joint venture of Sibur and
Belgian SolVin).
Construction of 220 kV switching substation (SSS), Zeletsino, reconstruction of OSG 220
kV at Kud'ma substation, installation of new relay protection and automatic equipment at
500 kV Nizhny Novgorod and 220 kV Kud'ma substations, construction of 220 kV power
transmission lines, Nizhny Novgorod-Zeletsino and Zeletsino-Kud'ma.
2013
Provision of technological connection of power plants of
metallurgical production enterprise, Severstal — Long-rolling plant
Balakovo
An enterprise with the capacity of 1 million tonnes of rolled metal per year ensured some
800 jobs for the inhabitants of Saratov Region.
48
48
1 according to annual performance reports
Annual Reoprt 2016
49
49
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix INVESTMENT ACTIVITIES
Long-Term Investment Programme
The Company’s Investment Programme
for the period of 2016-2020 was
approved in 20151 and was adjusted in
20162.
Key Objectives of FGC’s Investment
Programme
— Maintenance of the operational reliability of
Unified Energy System that is necessary for the
uninterrupted power supply to consumers
— Ensuring power supply to facilities of significant
nation-wide importance
— Providing quality and the availability of power
transmission service and connection for consumers
to electrical grids
— Improvement of the operational efficiency of
backbone grids via cost reduction and the
implementation of energy efficiency programmes
— Synchronisation of development programmes with
generation facilities and distribution networks
— Development of an effective system for the UNEG’s
operational management, and the improvement of
observability of electrical grid facilities
— Providing uninterrupted power supply while
maintaining the separate operation of UES of Russia
and the UPS of Ukraine
— Providing an external power supply to the facilities of
the Power of Siberia of PJSC Gazprom
The previously approved Investment Programme for
2016-2020 was adjusted in terms of financing for the
facilities aimed at the development of electrical grid
infrastructure in the territory of the Eastern Siberia and
the Far East of Russia, including financing related to the
expansion of the traffic capacity of Baikal-Amur and
the Trans-Siberian railways. The amount of financing
for the projects that provide an external power supply
to the facilities of PJSC Gazprom in the framework of
constructing gas, transporting gas and gas processing
capacities in the Far Eastern federal district (the Power
of Siberia system project) has also changed.
Key Parameters of the Approved Adjustment to the PJSC FGC UES Investment
Programme for the 2016—2020 Period
Planned amount of financing, RUB billion
Planned commissioning capacity, thousand MVA
2020
2019
2018
2017
2016
75.3
98.1
104.2
105.6
99.1
2020
2019
2018
2017
2016
5.7
8.5
8.5
8.8
13.2
Planned commissioning transmission lines,
thousand km
The planned volume of capital investments
development (without the VAT), RUB billion
2020
2019
2018
2017
2016
1.6
2.3
1.2
3.1
3.3
2020
2019
2018
2017
2016
44.5
77.2
80.5
114.2
138.0
The planned commissioning of fixed assets of grid
capacity in 2016-2020, RUB billion
2020
2019
2018
2017
2016
72.1
116.3
137.1
137.3
100.3
The Company’s Investment Programme requires the
commissioning of the Company’s fixed assets of 44.7
thousand MVA of capacity and 11.4 thousand km
of power transmission lines in 2016-2020. The total
value planned for investment is RUB 482.28 billion.
The financing of the Investment Programme for this
period is planned with PJSC FGC UES’s own funds,
bonded loans, in addition to loans from organisations
and federal funds. The Programme provides the even
distribution of investment costs over a five-year period,
which will allow the Company to a keep balanced
structure of financing sources.
Key Investment Projects for the 2016—2020 Period
Key Investment Projects
Socio-Economic Significance
Development of
power infrastructure
for the ESPO – I, II oil
transporting system
Compensatory
measures for the
separate operation of
the UES of Russia and
the IPS of Ukraine
Improvement of the
availability of the
Krasnodar Territory’s
electrical grid
infrastructure
Design and exploration work on the facilities of external power supply to
eight booster stations was performed in order to ensure the pumping of
oil through the ESPO-I pipeline system of up to 80 million tonnes a year,
which will be performed in the framework of inter-state agreements with
the People’s Republic of China.
To ensure a reliable power supply to the Northwest part of the Rostov
energy system, the installation of a 125 MVA autotransformer on the
Pogorelovo substation and the construction of a power transmission line
between the cities of Shakhty and Donetsk (in the Rostov Oblast), with
length of 80 km, was performed. Commissioning of the facilities was
completed in 2016.
To ensure the possibility of technological connection for consumers
in the city of Krasnodar, including a large-scale housing construction
project, construction of the Vostochnaya Promzona substation was
provided. The commissioning of 560 MVA capacity and 16 km of
overhead lines has been planned for 2017.
PJSC FGC UES is also implementing, in the framework of the measures
of technological connection of JSC Oboronenergo, a project for
the construction of 220 kV SS Novo-Labinskaya with 220 kV OHL
connections, with a capacity of 250 MVA, to be commissioned in 2017.
Providing the capacity
delivery of generating
facilities
Work is being performed to implement the capacity delivery circuits of
Novovoronezhskaya NPP-2, Leningradskaya NPP-2, Rostovskaya NPP,
Nizhnebureyskaya HPP, Zagorskaya PSPP-2, and Zaramagskaya HPP.
To ensure station capacity delivery, the commissioning of 901.6 km
of lines, as well as 1,002 MVA of transformer and 560 MVAr of reactor
capacities, has been planned for the period of 2017—2022.
Developing energy
infrastructure in the
area of Baikal-Amur
and the Trans-Siberian
railways
Developing an electric
power infrastructure for
the gas transportation
system – the Power of
Siberia
In order to ensure the potential loads of the Eastern ground of JSC RZD,
PJSC FGC UES is implementing the Integrated investment project –
a power infrastructure development in the area of Baikal-Amur and the
Trans-Siberian railways. The project will allow the provision of facilities to
the Eastern ground of JSC RZD with infrastructure. There will be positive
effect achieved for the large potential consumers (PJSC Transneft –
MPL ESPO-1, PJSC Polus, the LLC Baikal mining company – and the
Udokan deposit ore processing plant) and for existing consumers in the
territories of the project’s implementation (improvement of the power
supply thanks to the commissioning of new and the reconstruction of
existing transformer capacities and OHL).
The applications for the technological connection of a number of
compressor stations for Chayadinsky OGCF’s crude oil delivery and the
acceptance point for crude handling and metering, as well as for the HPP
Power of Siberia, were accepted in order to provide energy supply to the
gas extracting centres of the Republic of Sakha (Yakutia) and the Irkutsk
Oblast, as well as the provision of a gas transportation through these
stations to Khabarovsk, Vladivostok and the People’s Republic of China.
The technical specifications were developed and coordinated with JSC
SO UES and the design requirements and specifications were approved;
the bidding procedures for design and exploration works were started
based on these applications.
For further details on
the main parameters
of PJSC FGC UES’s key
investment projects, see
the Appendix 1 hereto
1 Order of the Ministry of Energy of Russia No. 980 on 18 December 2015.
2 Order of the Ministry of Energy of Russia No. 1432 on 28 December 2016.
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INNOVATIVE DEVELOPMENT
QUESTION & ANSWER
Dmitry Parishkura
Director of Investments – Head of the Investment
Planning and Reporting Department
What areas will the Company’s Investment Programme focus on after 2020? What will be its average annual
monetary value?
The Investment Programme of PJSC FGC UES (IPR)
is developed in strict compliance with the Russian
Government Resolution No. 977, which defines the
IPR development period as 2016-2020. Currently,
the investment volumes and sources of financing
for 2021 and onwards have not been approved, and
consequently, the volume and sources for financing the
IPR titles have not been defined for this period.
In spite of this, we expect that key areas for the IPR
after 2020 to be:
— Ensuring the reliability and safety of electric power
and capacity transmission,
— Executing of the Company’s obligations in terms
of technological connection of consumers and
generation facilities to grids
— Implementing schemes and programmes for the
development of the UNEG – the increasing the
subjects of reliability and developing the backbone
grids,
— Implementing programmes that are of significance
to the State (according to the instructions of the
President the RF, the Russian Government, and the
federal executive authorities).
Key Objectives of FGC’s Innovative Development Programme
— Achieving global average indicators of the
innovation tools
reliability, safety, quality, efficiency and availability
of the energy supply to consumers thanks to the
introduction of new equipment, technology and
practices
— Improving the Company’s customer focus via the
enhancement of existing and developing new
services, including high-tech services
— Developing and introducing (rolling out) innovative
equipment and practices
— Transitioning to the adopter model of innovative
solutions and technologies offered by the market,
including through the development of open
— Improving interaction with the subjects of the
innovative industry ecosystem
— Enhancing of the innovative activity of the
management system
— Creating a talent pool with advanced competencies
for innovative development
— Creating conditions for the development of
promising scientific research, process operations
and advanced production in the territory of the
Russian Federation
For further details on the
priority areas of PJSC
FGC UES’s innovative
development, see the
Appendix 1 hereto
By taking into account the performed analysis on
FGC’s technological and innovative level, as well as the
assessment of the market and technology development
forecasts, the Innovative Development Programme
has set the following priority (base) areas for the
Company’s innovative development:
— Digital substation;
— Energy efficiency and loss reduction;
— Digital designing;
— The quality of electric power;
— Reliability and management of assets;
— Composite materials and superconductivity;
— Remote control and safety.
QUESTION & ANSWER
Innovative Development
Pavel Korsunov
Deputy Chairman of the Management Board
Innovative development is a driving force
for the improvement of the Company’s efficiency
and the advancement of industrial science
Strategic Priority
Reliability
We aim to increase the reliability, quality and efficiency
of the power supply to our consumers by renovating
existing electrical grids and by following the innovative
development programme. The Company’s innovative
activities also contribute to the development of modern
industrial science and education as well.
The Company is focused on the creation of an
extensive infrastructure partnership, built on a model
of open innovation and aimed at engagement with
development institutions, research institutes, higher
education institutions, small and medium-sized
businesses, foundations, and foreign partners.
The application of the principles of this concept
allows each entity to leverage the strengths of their
counterparts, as well as to select the best projects and
technologies in the external innovation marketplace,
when the most risky stages of the innovation process
(fundamental research, early product and service
development stages, etc.) are implemented by external
organisations.
Innovative Development Programme
The Company’s innovation priorities are defined in the
PJSC FGC UES Innovative Development Programme for
2016-2020 with an outlook for 20251.
1 Approved on 27 June 2016 by the resolution of the Board of Directors of PJSC FGC UES, Minutes No. 328 on 28 June 2016.
The PJSC FGC UES
Innovative Development
Programme is available
on the Company website
at www.fsk-ees.ru in the
Innovations/Innovative
Development/Innovative
Development Programme
section
The PJSC FGC UES Innovative Development Programme for 2016-2020, with an outlook for 2025, was
approved at the Company in 2016. What are the specifics of this Programme?
The PJSC FGC UES Innovative Development
Programme for 2016-2020 is developed on the basis
of a number of programmes and strategic, regulating
and legislative, documents including the new governing
documents on the enhancement of innovative activities
for companies of which the State is a shareholder.
The Programme provides the details for the goals,
objectives and areas of the Company’s innovative
development. In order to improve the quality of planning
and the implementation of R&D activity, PJSC FGC
UES uses the project management principle when
developing the Programme with maximum focus on
the most advanced and critical areas for innovative
activity. At the same time deadlines and the desired
outcomes of the Programme’s projects and activities
are set, and the qualitative and quantitative impacts
of the implementation of key projects and activities
are assessed. The new Programme requires further
updates of the «open innovation» tools for working with
partners in the area FGC’s innovative development.
What processes of the Company’s operation do the activities of the Innovative Development Programme cover?
The Innovative Development Programme includes a
system of measures that determine all the life cycle
stages of technology and product innovation (general
development, testing of new products and processes;
the regulatory and technical provision of implementing
the projects, the development of new services, etc.),
as well as organisational and process innovations
(improvement of the business processes of design,
construction, operation; management of intangible
assets; the monetisation of new technologies;
development of innovative infrastructure, including
interaction with higher education institutions and
development institutions).
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INNOVATIVE DEVELOPMENT
R&D Programme
R&D investments, RUB million
Intellectual Property Objects Registered
by the Company at Rospatent in 2016
OBJECTIVE
2016
ACHIEVEMENT
2016
GOAL
2017
593.93
414.4
656.3
The research and development programme for the
experimental development and technology works (R&D)
of PJSC FGC UES for 2015-20171 is one of FGC’s tools
for the implementation of the Innovative Development
Programme.
In order to comply with the Investment Programme, the
Company spent RUB 414.4 million on implementing the
R&D programme in 2016, which amounts to a fraction
0.2% of FGC’s revenue.
4
patents for
inventions
3
certificates
for computer
software
Value Dynamics of R&D Financing in 2012—2016,
RUB billion
0.41
0.48
0.42
2016
2015
2014
2013
2012
1.7
2.9
Intelligent Power System Concept
The potential result of the Innovative Development
Programme’s implementation shall be creation of an
electric power system with an intelligent grid, which
differs from the existing grid by the presence of certain
innovative components: automatic systems for electric
power transmission control, active grid elements with
variable parameters, a system for monitoring the current
grid state, automated real time systems of maintaining
the power system’s operation within the set parameters
as part of the unified analysis and decision making
system. The basis principles for building the intelligent
grid and power system control and the priorities for the
system’s factors and conditions are the reliability and
efficiency of the entire system.
Intelligent Grid Circuit
Generation and alternative energy
sources
Microturbines
and storages
PTL
Consumers
Intelligent grid
Intelligent grid element
Industrial plants
Energy transmission and storage
Analysis of Financial
Performance
Strategic Priority
The analysis is prepared on the basis of PJSC FGC
UES’s annual accounting indicators for 2016 according
to RAS. Individual indicators are provided in accordance
with IFRS Consolidated Financial Statements and are
accompanied by a corresponding note.
Economic
efficiency
FGC’s efficiency:
SUPERIOR FINANCIAL PERFORMANCE
OBJECTIVE 2016
ACHIEVEMENT 2016
GOAL 2017
Adjusted EBITDA,
RUB million
Efficiency of implementing
the cost management
programme vs. 2012
QUESTION & ANSWER
100,696
–41%
119,662
110,2602
–46%
–45%
Sergey Terebulin
Deputy Chairman of the Management Board,
Member of the Management Board
In 2016, changes were introduced to the acts of the Government of the Russian Federation in terms of
establishing the price level for technological connection, in particular, by providing the possibility of making
payments in instalments for technological connection over a period of 10 years. How will these changes
impact the financial reporting of PJSC FGC UES?
Regardless of payments in instalments, the Company’s
revenue is recognised at the moment of signing the
acts on the provision of technological connection.
Monetary claims to generating companies that have
an instalment plan will appear in accounts receivable
with a corresponding priority rank. Interest paid
on instalment plans from the counterparts will be
recognised within the revenue as it comes in.
At the year-end of 2015, the debt ratio of the fixed interest rate to the floating interest rate within the PJSC
FGC UES’s credit portfolio was 1:1. How will this ratio change in the future? Is there an objective to change the
current ratio by some deadline?
The majority of the debt, which is served with a floating
rate (CPI+1%), consists of revenue yielding bonds that
are issued in favour of Vneshekonombank, which are
invested in such a way that pension savings that are
under its administration. This is long-term debt of which
repayment falls in the period of 2045-2048; there is
no alternative on the market for such funding at the
moment.
The formulated debt structure is balanced as it provides
very comfortable borrowing terms (with the average give
time of 17.2 years) with a low interest rate of 7.84% per
annum as of 31 December 2016.
1 Approved by the PJSC FGC UES Order No. 133 on 19 March 2015.
2 The indicator decline in 2017, compared to 2016, is the result of a receipt of lump-sum income in 2016, including penalties
claimed for the improper execution of the contractual obligations, by the subcontractors.
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ANALYSIS OF FINANCIAL PERFORMANCE
QUESTION & ANSWER
What possibilities does the Company have left to reduce its operating costs, and what measures have been
taken?
A system of measures to improve efficiency has been
developed and implemented at PJSC FGC UES that
covers all key aspects of the Company’s operation. The
following can be emphasised among the key measures:
— Introduction of an integrated asset management
system that includes an automated control system
for the processes of repair planning, diagnostics and
the assessment of operating conditions;
— A project for improving labour productivity;
— Identification of potential efficiency improvement and
best practices by comparing the branches to each
other;
— Development of a standard design, and the repetitive
use of design documentation;
— Reduction of operating costs per servicing unit for
electric equipment by updating the operation process
flow chart;
— Improvement of the management efficiency of
accounts payable and accounts receivable, including
improvement of the IT systems for accounts
receivable;
— Centralisation of the individual support functions.
Does the Company have scenarios for the minimum and maximum expected tariff growth rates in 2017?
The 2017 tariff growth has already been set – it will
increase by 5.5% as of 1 July 2017, which takes into
account capacity changes and corresponds to RGR
growth by 3%, according to SES.
Financial Ratios Describing the Efficiency of the Company’s Financial Policy
%
69.21
Sales margin, %
62.38
61.51
1.97
1.58
60.14
1.85
64.44
1.95
2.44
6.43
59.43
2.70
6.48
1.70
60.66
3.24
1.94
1.53
2012 2013 2014 2015 Target 2016 Target
2017
2016
1.60
2.34
EBITDA profitability*
Return on invested capital***
Return on equity**
* When calculating the indicator, the revenue of the Company is
adopted excluding the provision of services for technological
connection to the grid (in order to make it comparable with EBITDA
indicator).
** The indicator is calculated based on the adjusted net profit of the
Company (excluding the accruals and recovery of the bad debts,
and the appreciation of financial investments) and the
corresponding adjustment of equity capital value.
*** The indicator is calculated basing on the adjusted indicator of
EBIT according to RSA reporting data (excluding the accruals and
recovery of the bad debts, the appreciation of financial investments
and technological connection revenue).
Target 2017
2016
Target 2016
2015
2014
2013
2012
20.62
32.19
32.98
17.59
16.98
14.42
16.08
In 2016, the sales margin stood at 32.2%, which is
less than the target indicator due to the extension
of deadlines for the acceptance of technological
connection services to 2017 and onwards by taking
into account the actual deadlines of technological
connection that are required for the consumer. The
decline in the planned sales margin for 2017 when
compared to 2016 was caused by the planned
decrease of technological connection revenue, the
increase of depreciation (the commissioning of new
facilities as fixed assets) and by expenditures that
are beyond Company’s control (a phased cancellation
of the property tax privilege, the purchase of electric
power losses, etc.). The return on equity for 2016
increased to 6.5% because of the recognition of
technological connection service revenues (in a
number of large-scale projects for technological
connection at Rosenergoatom generating stations).
2.43
2.39
2.56
2.22 2.12
2.43
1.92
1.87
1.64
1.35
1.53
1.03
1.02
0.98
0.4
0.39
0.37
0.38
0.330.37
0.29
The debt to equity ratio is at a level that is comfortable
for FGC. The indicator declined according to the results
of 2016 by 0.04% compared to 2015. A slight growth
of the indicator is planned in 2017, although it will not
exceed the level of the previous periods.
The debt to EBITDA ratio corresponds to restrictions
set by the credit policy of FGC (that is, not more than
3). According to the results of 2016, the decline of
this indicator was observed. The forecasted ratio
value for 2017 is similar to the previous periods but
slightly higher than the value in 2016. At the same time,
the indicator will remain significantly lower than the
maximum values set by the FGC’s Board of Directors.
2012 2013 2014 2015 Target 2016 Target
2017
2016
Debt to equity ratio
Debt to equity ratio
Сurrent liquidity ratio
Сurrent liquidity ratio
Net debt to EBITDA ratio
Net debt to EBITDA ratio
Interest cover ratio
Target 2017
2016
Target 2016
2015
2014
2013
2012
3.22
3.39
5.41
4.32
4.46
5.59
7.11
The interest cover ratio demonstrates uneven
dynamics, which is caused by the fact that the majority
of the credit portfolio consists of floating bonds with
interest calculated on the basis of the inflation index
(CPI). The growth of inflation in 2014—2015 impacted
the interest payments. As of 2016, the cover ratio
increases as the interest payments of the Company
decrease.
FGC’s credit policy provides the level of debt and its
servicing cost that is comfortable for the Company.
Dynamics of Key Financial Indicators
In 2016, the financial performance indicators affirm the
increase in FGC’s performance efficiency that is a result
of both revenue growth and cost optimisation during
the restriction of tariff growth.
mln RUB
2012
2013
2014
2015
2016
Objective
2016
Actual
2016/2015
Change, %
2017
Objective
Revenue
138,836
155,352
168,941
173,266
228,994 218,366
26%
201,857
Cost of sales and
administrative cost*
116,510
132,948
140,259
142,789
153,479 148,071
4%
160,227
Net profit
-24,532
-25,898
5,137
17,870
55,021 106,071
494%
26,498
Adjusted EBITDA**
82,847
96,297
99,603
103,667
100,696 119,662
15%
110,260
Net debt
174,368
230,580
221,146
220,288
257,796 229,906
4,37%
244,599
* Taking into account the retrospective changes of the indicators.
** Excluding the accruals and recovery of the bad debts, the appreciation of financial investments and technological connection revenue.
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The revenue of PJSC FGC UES increased by 26% in
2016 compared to 2015. The main growth factors
were the recognition of revenue from the technological
connection of Rosenergoatom’s facilities and the
indexation of the power transmission tariff.
Revenue
Revenue structure, billion RUB
2016
2015
2014
171.1
159.0
159.9
45.5
1.8
12.4
7.0
1.9
2.1
+26%
Revenue from
electricity
transmission
Revenue from
technological
connection
Revenue
from other
operations
Costs
The total cost (including production and administrative
costs) increased by RUB 5.3 billion in 2016 compared
to 2015.
Cost of Sales
which was caused by the commissioning of
new fixed asset facilities in the framework of
implementation of the large-scale Investment
Programme, as well as by the appreciation of the
facilities.
The main factors that caused a change in the cost of
sales in 2016 compared to the 2015 level are:
Administrative Costs
— Increase of property tax expenses by RUB 1.6
billion (+22.5%), which was caused by the phased
cancellation of the property tax privilege as of
1 January 2013 for property relating to power
transmission lines;
— Depreciation increase by RUB 4.2 billion (+5.6%),
The increase of administrative costs was only 2.3%
(RUB 182 million) in 2016 compared to 2015, which
is significantly less than the inflation rate (7.1%) and
affirms the effectiveness of the measures aimed
at controlling the growth rate of administrative and
management costs.
Full cost dynamics, RUB billion
Full cost structure
2016
2015
2014
2013
2012
148.1
142.8
140.3
132.9
116.5
11
1
2
5
7
10
9
3
4
6
8
RUB billion
1
2
3
4
5
6
7
8
9
10
11
Electric power cost
Labour and social
charges
Maintenance and repair
Raw and other materials
Property insurance
Rent
Property security
Electricity transmission services
Other production costs
Аdministrative costs
Depreciation and property tax
(for productive assets)
14.7
20.6
2.7
2.8
0.6
1.2
1.4
2.5
5.1
8.0
88.5
Cost Optimisation.
The decrease in operating expenses compared to 2012
was 46.03%. The cumulative effect of this decrease in
operating expenses was RUB 17.3 billion.
The above results were achieved thanks to a decrease
in procurement value, cost reduction in long-term
contracts, and cost reductions in contracts for guarding
facilities, IT services costs, and also as a result of
headcount optimisation.
Cost Reduction
Reduction of unit operating expenses
vs. the 2012 level*, %
Х
–8.4%
–22.8%
–39.9%
–46.0%
More information on cost
reduction is available in
the Appendix 1 hereto
2012
2013
2014
2015
2016
* The effect indicated takes into account the retrospective change in the quantity of served equipment, and has been calculated in
accordance with new regulations on SF6 equipment and 330 kV, 500 kV cable lines (in accordance with PJSC FGC UES Order No. 482 on 3
December 2015 “On approval of Guidelines on calculation of the PJSC FGC UES service volume in conditional units”).
EBITDA and profit
Profit generation, RUB million
Adjusted EBITDA
Amortisation
Interest payable
Reserve balance
Revaluation of financial investments (Inter RAO)
Balance revaluation of fixed assets
Write-off of overdue accounts payable
TSS revenue
Earnings before tax
Profit tax
Net profit
EBITDA
119,662
-81,490
The adjusted profit before interest, profit tax and
depreciation (EBITDA) increased by almost RUB 16
billion (15.4%) compared to the same period in 2015
and amounted to RUB 119.7 billion.
-6,231
8,606
39,770
-1,476
45,479
-0.9
124,320
-18,249
106,071
Net Profit (Loss)
As a result of 2016, the net profit of PJSC FGC UES
amounted to RUB 106.1 billion, which was 5.9 times
(or RUB 88.2 billion) higher compared to 2015. The
major factors for this increase were mainly the result
of other revenues (from the revaluation of PJSC Inter
RAO’s share value that was caused by the growth of
their market quotations and an increase in the recovery
amount of bad debts) and revenue growth from
services of technological connection to the grid.
Information on the
major sources that
make up the cash
flow is available in the
Appendix 1 hereto
Information on accounts
receivable and accounts
payable, the net assets
of the Company, and the
dynamics and capital
structure is available in
the Appendix 1 hereto
Cash Flow
Cash Flow in 2016, RUB billion
Dynamics of cash flow from major operations,
RUB billion
Сash flows from current
transactions
Сash flows from investment
transactions
Net cash flows from financial
operations
Cash flow
balance
-30.0
14.0
99.2
-55.2
2016
2015
2014
2013
2012
99.2
99.1
101.0
100.5
86.7
Liabilities
As of the end of 2016, the value of the debt portfolio
of PJSC FGC UES» (principal debt, excluding interest
accrued as of the balance sheet date) was RUB 261.65
million, which decreased by RUB 13 billion, or 5%,
compared to the previous year, RUB 261.39 billion
of which are loans based on bonds with an average
interest rate of 7.84%.
The structure of the credit portfolio is optimally
balanced in terms of instruments, cost and currency.
The debt portfolio is represented by mostly by long-
term instruments; the interest rates are fixed for 2/5
of the portfolio and variable for 3/5 of the portfolio
(slightly more than half of the debt consists of revenue
yielding bonds with a floating coupon rate linked to
inflation). The currency risk is totally absent, as all of
the bonds are in rubles.
The Company follows a moderately conservative policy
that allows it to maintain the status of a highly reliable
borrower, complying with its commitments in terms
of the implementation the large-scale Investment
Programme, its liabilities and dividend payments. To
achieve these objectives, the Company clearly complies
with the following target indicators in terms the debt
burden:
— Debt cover limit (net finance debt/EBITDA) of not
more than 3;
— Limit for debt service cover (net debt service cost/
EBITDA) of not more than 0.25.
Bond portfolio structure, RUB billion*
2016
2015
2014
2013
2012
103.9
117.1
140.3
164.9
150
140
140
100
100
17.5
17.5
17.5
17.5
17.5
Bonded loans
Infrastructure bonds
Eurobonds
*Principal debt, excluding interest accrued as of the
balance sheet date
In 2016, the Company executed all of its obligations on
servicing the debt portfolio and debt repayment on time
and in full, including:
— an offer made in April for the bonds of the 12 series
(of which the outstanding amount was RUB 10
billion), with buy-back from the investors amounting
to 99.5% of the placed bonds;
— an offer made in October for the bonds of the 25
series (of which the outstanding amount was RUB 15
billion), with buy-back from the investors amounting
to 88% of the placed bonds.
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In November, we placed Series BO-02 exchange bonds
to the total amount of RUB 10 billion with a coupon rate
of 9.35% and an offer in 5 years.
In order to finance the Investment Programme for
2017-2020 and refinance existing debt, the Company
will consider the use of the bonds, Eurobonds and bank
credits in the future. Amounts of attracted financing
and the section on specific instruments will depend on
the 2017-2020-business plan and market conditions.
Bond offers with total amount of RUB 25 billion
are planned in 2017. When the Company executes
obligations in terms of the offers, the source of cash
will be defined based on the financial conditions, as
well as by taking into account the Company’s current
liquidity on the date of the offer. The Company’s own
funds, as well as borrowed funds, may be used as a
source.
Further details on the
outstanding bond issues
of PJSC FGC UES are
available in Appendix 1
hereto
Credit Ratings
As of the end of 2016, the Company’s international
credit ratings (assigned by Moody’s, Standard & Poor’s,
and the Fitch ratings agencies) remain at the sovereign
level, the same as in the previous year on the rating
scale of Fitch in the investment category, and on the
rating scale of Standard & Poor’s and Moody’s in the
category of the least speculative shares, which is the
evidence of the Company’s status of a highly reliable
borrower, as well as the high level of the Company’s
solvency.
Information on Credit Ratings as of 31 December 2016
Rating Agency
Standard & Poor’s
Moody’s
Fitch Ratings Ltd
Rating Value
International Scale
ВВ+
Outlook Stable1
Ва1
Outlook Negative2
ВВВ-
Outlook Stable
National Scale
ruAA+
Withdrawn3
AAA (rus)
Mid-Term Outlook of the Company’s Financial Performance
and Financial Position
Outlook for Key Financial Indicators, RUB million
Revenue
Cost of sales
Net profit
2017
2018
2019
2020
201,857
199,416
198,657
198,489
151,808
159,047
167,134
171,588
26,498
19,221
11,624
7,521
Adjusted EBITDA
110,260
112,384
112,808
115,621
Net debt
CAPEX*
244,599
242,350
235,484
207,070
105,587
104,208
98,137
75,269
* The financing plan for the PJSC FGC UES Investment Programme (the investment plan adjustment was approved by the Order of the
Russian Ministry of Energy No. 1432 on 28 December 2016).
The list of main standard
legislative acts that
regulate the issues
of tariff formation for
activity on electric power
transmission via the
UNEG is available in the
Appendix 1 hereto
Information on the main
long-term regulation
parameters for the
services of electric
power transmission via
the UNEG set by the FST
of Russia, as well as the
adjustment introduced
to the set tariffs and the
regulation parameters in
2016, is available in the
Appendix 1 hereto
Tariff Regulation
Electric power transmission via the UNEG and
technological connection tariffs are approved by the
federal executive body in the area of tariff regulation,
the functions of which have been transferred to the
Federal Anti-Monopoly Service (FAS of Russia) since
20154 .
The Company’s activity on providing the services of
electric power transmission via distribution grids is
regulated at the regional level by the executive bodies
of the constituents of the Russian Federation.
Tariffs for Services of Electric Power Transmission via the UNEG
In order to set the tariffs for each year of the regulated
period, the required gross revenue (RGR) is determined
by summing up the values of return, invested capital
income and the expenses required for the provision
of electric power transmission services via the
UNEG. To prevent a sharp increase of the tariff, the
RAB-regulation methodology provides an evening
mechanism that redistributes the required gross
revenue over the entire long-term period of regulation.
In 2014, the FST of Russia approved the regulation
parameters and tariffs for the services of electric power
transmission via the UNEG for the second long-term
regulation period of 2015-20196.
The tariff rate to pay for standard technological losses
of electric power when transmitted via the UNEG is
determined according to a formula7.
Tariffs for services of electric power transmission via
the UNEG are set on the basis of the return on invested
capital method (RAB regulation).
Tariffs Set for Services of Electric Power
Transmission via UNEG provided by PJSC FGC UES
for 2015—20195, RUB/MW.month
01.07.2019—
31.12.2019
01.07.2018—
30.06.2019
01.07.2017—
30.06.2018
01.07.2016—
30.06.2017
01.07.2015—
30.06.2016
01.01.2015—
30.06.2015
174,073.60
+3.0%
169,011.36
+3.0%
164,095.64
+5.5%
68,317.72
66,330.96
64,401.72
155,541.58
+7.5%
144,686.52 +7.5%
134,589.17
61,137.82
56,868.70
52,923.13
For the constituents of the Russian Federation
being a part of the North Caucasian Federal District
Tariffs for Services for technological connection to the UNEG
The FAS of Russia defines two payment methods
for technological connection to the UNEG facilities:
the approval of an individual payment for a specific
applicant (in case construction of electrical grid
facilities is required) and the approval of a payment per
formula using the standard tariff C1 rate.
Dynamics of the Standard C1 Rate,
RUB/kW (excl. VAT)
2017
2016
2015
2014
2013
23.64
25.16
28.61
27.56
27.56
The 2017 standard tariff rate for PJSC FGC UES was
approved in the amount of 23.64 RUB/kW (excl. VAT)
divided by the activity. The decrease in the tariff rate
by 6.04% for 2016 is a result of a decrease in FGC’s
headcount in the activity of technological connection.
The standard C1 rate is set for FGC is at the same level
as the rate for consumers of all constituents of the
Russian Federation, regardless of the electric power
supply category, the range of the connected capacity or
voltage level of the applicants. The only exception is for
consumers connected at less than 150 kW. In that case,
the C1 rate does not include expenses for the presence
of a Rostekhnadzor official during examination. The
2017 rate for this consumer category is set in the
amount of 23.15 RUB/kW.
Starting from 2013, the payment for the technological
connection of generating facilities to the UNEG, in
addition to expenses for new construction of «last mile»
electrical grid facilities, includes the cost of investment
for developing the existing grid infrastructure in order to
provide the delivery of capacity, regardless of the type
of generation – HPP, NPP, or CHP.
1 The outlook for the rating was changed to positive on 21 March 2017.
2 The outlook for the rating was changed to stable on 21 February 2017.
3 This rating action is related to the termination of the agency’s rating activity in the Russian Federation at the national scale due to new
regulatory requirements introduced for credit rating agencies in Russia. The decision to withdraw the rating at the national scale will not
affect the rating according to the international scale.
60
4 Decree of the Russian President No. 373 on 21 July 2015 “On some issues of the state’s control and monitoring in the area of anti-
monopoly and tariff regulation.”
5 Order of the FST of Russia No. 297-e/3 on 9 December 2014.
6 Taking into account the adjustments introduced by the Order of the FAS of Russia No. 1892/16 on 27 December 2016.
7 Resolution of the Russian Government No. 458 on 11 May 2015.
8 Order of the FAS of Russia No. 1830/16 on 23 December 2016.
61
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix ANALYSIS OF FINANCIAL PERFORMANCE
Dynamics of the Approved Total Payment Amount
for Technological Connection, RUB billion
37.38
22.38
34.48
2016
2015
2014
2013
2012
2011
2010
1.43
1.39
1.25
6.15
In 2016, the payment for technological connection by an individual
project was set for 9 consumers with a total amount of RUB 37.3
billion (excl. VAT). The applicants with the highest payment amount
include:
RUB 32.3 billion JSC Kontsern Rosenergoatom – Kalininskaya NPP
RUB 1.9 billion PJSC RusHydro – Zelenchukskaya HPP
RUB 1.3 billion LLC Huadian-Teninskaya CHP
RUB 1.0 billion
JSC Eniseyskaya Territorial Generating Company –
Krasnoyarskaya CHP-3
Government Support
PJSC FGC UES did not receive any government support,
including subsidies, in the reporting period. At the same
time, the Russian Federation Government decided to
allocate budget investments in the amount of RUB
1.6 billion for the construction of 500 kV SS Ust-Kut
in Irkutsk Region, which were previously saved by the
Company.
Consolidated Information on the Financial Performance in IFRS
(RUB million, except ratios and the
indicators provided in %)
2012
2013
2014
2015
2016
Consolidated Statement Indicators of Profit and Loss
and Other Comprehensive Income
Revenues
140,313
157,970
175,968
187,041
255,603
Other operating income
3,543
6,155
5 618
4,001
6,039
Operating expenses
(110,031)
(133,811)
(126,137)
(130,963)
(155,508)
Profit / (loss) for the year
7,238
(234,771)
(20,601)
44,098
68,382
Financial Information Not Regulated by IFRS
EBITDA 1
49,978
(234,196)
25 804
98,149
120,347
Adjusted EBITDA 2
82,732
92,551
107,676
104,338
116,660
Adjusted profit for the period 3
30,150
23,405
40,841
46,378
86,645
1 EBITDA is a profit / (loss) for the period before any taxes, interest, depreciation or amortisation.
The adjusted EBITDA for 2015-2016 is calculated as EBITDA minus the net loss from the depreciation and revaluation of the assets,
gains on the de-recognition of a subsidiary (only until 2016), revenue from technological connection, the cost of the provision of doubtful
debts (excluding the amount of receivables impairment reserve calculated as a difference between the book value of the accounts
receivable and the present value of the estimated future cash flows), and by taking financial income into account;
The adjusted EBITDA for 2012-2014 is calculated as EBITDA minus the net loss from the depreciation and revaluation of fixed assets, the
devaluation of financial investments available for sale, the devaluation of the short-term notes, the reversal of impairment loss from the
devaluation of investments into associated companies, and by taking financial income into account .
2 The adjusted profit for 2015-2016 is calculated as profit for the period minus the net loss from the depreciation and revaluation of fixed
assets, gains on the de-recognition of a subsidiary (only until 2016), including respective deferred income tax;
3 The adjusted profit for 2012-2014 is calculated as profit/loss for the period minus the depreciation of fixed assets, loss from the
revaluation of the fixed assets, gains on the de-recognition of a subsidiary (only until 2016), the devaluation of financial investments
available for sale, reversal of impairment loss from the devaluation of investments into associated companies, the impairment of short-
term notes, including respective deferred income tax;
(RUB million, except ratios and the
indicators provided in %)
Ratios and Other Indicators
Return on assets 4
Return on equity 5
Current liquidity ratio 6
Aggregate capital / aggregate assets
Gross debt
Floating debt
Long-term debt
Net debt 7
2012
2013
2014
2015
2016
2.5%
3.3%
1.36
0.72
2.1%
3.2%
1.22
0.60
4.4%
7.3%
0.93
0.61
4.8%
7.8%
1.22
0.62
8.3%
12.9%
1.19
0.66
216,418
287,588
262,977
281,542
266,614
23,218
29,624
29,686
31,466
29,660
193,200
257,964
233,291
250,076
236,954
168,002
223,995
220,099
222,903
221,750
Net debt/adjusted EBITDA
2.0
2.4
2.0
2.1
1.9
Cash flow from operating activity
70,306
78,792
93,013
98,023
111,476
4 Return on assets is calculated as adjusted profit for the period divided by the average value of aggregate assets for the period;
5 Return on equity is calculated as adjusted profit for the period divided by the average equity value for the corresponding period.
6 The current liquidity ratio is calculated as the ratio of consolidated current assets to consolidated current liabilities (net of accounts
payable to FGC shareholders).
7 Net debt is calculated as long-term and floating debt minus cash and equivalents, short term bank deposits and short-term notes.
Sustainability Results
The development of human capital, social responsibility and environmental safety,
along with economic efficiency, remain unalterable priorities for our Company
For more information on
the Company’s strategic
goals in the area of
sustainability, please see
the Strategic Report –
Market Review, Strategy
and KPIs/Sustainability
Strategy section
Labour productivity
Accident frequency
rate
Environmental protection costs
and investments
The share of procurements of Russian main
electrical equipment
OBJECTIVE 2016
FACT 2016
GOAL 2017
≥ 3,869
RUB/man hour
4,264
RUB/man hour
growth ≥ 5.9%
compared to 2016
<0.221
per 1,000 persons
0.137
per 1,000 persons
<0.137
per 1,000 persons
242.9
RUB mln
51%
193.98
RUB mln
70%
253.78
RUB mln
54%
62
63
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
SUSTAINABILITY RESULTS
The development of human capital, social
responsibility and environmental safety,
along with economic efficiency, remain
unalterable priorities for our Company
We consider the retention of the levels of reliability and
technological progress achieved over the years of large-
scale investments to be one of the main development
tasks for PJSC FGC UES for 2015—2019.
The main principle of the Company’s sustainability
policy is to maintain the balance of implementing the
social and economic interests of our activities and
to focus on sustainability aspects that are of primary
importance for our stakeholders.
Every year when preparing the Report on social
responsibility and corporate sustainability, FGC UES
holds a questionnaire in order to determine the priority
aspects of our Company and interested parties.
The most important sustainability aspects for our stakeholders are
— Economic performance results
— Power
— Employment
— Ecology
— Relationships between employees and
management
— Occupational health and safety
— Fighting corruption
— Non-prevention of competition
— Compliance with legal requirements
— Consumer health and safety
— Compliance with product liability
requirements
Regular and open communication with interested
parties provides a better understanding of their
expectations and gives the Company a chance to use
a targeted approach in preparing the corporate social
responsibility agenda. Participation in congresses
and exhibition arrangements, multilateral discussions,
raising awareness through mass media – the Company
regularly uses all of these communication channels and
they provide us with the possibility for dialogue with
reference audiences.
HR and Social Policy
The HR and Social Policy of FGC UES represents a
unified human resources management system oriented
at the achieving a balance between the optimal use of
the employees’ professional results, the achievement
of the Company’s strategic goals and the provision of
social benefits and guarantees that meet the needs and
expectations of the employees.
HR Policy
The main targets of the Company’s HR Policy are as
follows:
— control of staff efficiency;
— headcount control;
— staff development control.
The Company uses different mechanisms to establish
professional and career growth conditions for its
employees, as well as the efficient motivation and
strengthening of a unified corporate culture with
consideration for the social and economic development
and specifics of regions where the Company has
a presence.
Average Headcount in PJSC FGC UES, employees
2016
2015
2014
2013
2012
-5%
22,150
-4%
23,358
-3%
24,362
3%
25,123
24,460
Average salary of the Company’s personnel, RUB
The Company’s employee turnover rate, %
For a list of FGC UES’s
stakeholders and an
understanding of the
Company’s responsibility
to them, please see the
Strategic Report/ In Brief
For more information on
social responsibility and
sustainability principles,
basic and specific
business directions
in the sustainability
area, interaction with
interested parties, and
the Company’s key
performance results in
the area of sustainability
for 2016, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability
For information on the
participation of PJSC
FGC UES in congresses
and exhibitions, please
see Appendix 1 hereto
For more information
on the Company’s staff,
please see the respective
sections of the Report on
Social Responsibility and
Corporate Sustainability
69,835
66,573
64,091
62,042
58,032
2016
2015
2014
2013
2012
4.92
8.66
6.50
7.80
6.30
For additional
information on the
Company’s awards
policy, please see the
Appendix 1 hereto
2016
2015
2014
2013
2012
64
QUESTION & ANSWER
Natalia Ozhegina
Deputy Chairman of the Management Board
Which policy does the Company follow in order to optimise the composition of its staff and what are its results?
The Company pays special attention to raising the
labour productivity of its employees in compliance
with the requirements for the reliable operation of
the electric grid complex, as well as the optimisation
of staff composition by reducing the quantity of
administrative and managerial staff.
We continued to optimise the staff structure and
centralisation of the managerial functions of
management units at MES and PMES branches in
2016. In addition to that, the new organisational and
functional structure of the Company’s executive
office was approved in 2016, which enabled the
reduction operational costs, and established clear
and transparent functional management verticals
that expand the span of control and increases the
efficiency of the Company’s performance in general.
As a result, the average headcount was reduced and
labour productivity increased in terms of value. The
number of management levels was optimised; the
share of administrative and managerial staff in the total
headcount was reduced from 19% to 16% in 2016.
A high level of staffing was achieved.
Which modern professional standards has PJSC FGC UES introduced into its activities?
We perform systemic analysis and efficiency
assessment of organisational and functional
structures at all management levels (the Executive
Office, MES and PMES), in addition to introducing a
unified production unit methodology and management
structure based on best industry practices.
Moreover, the Company executes the complex
introduction of professional standards in accordance
with the requirements of the Federal Law No.122-FZ
as of 02 May 2015 “On Amending the Labour Code of
the Russian Federation” and Articles 11 and 73 of the
Federal Law on Education in the Russian Federation.
In order to strengthen the staff’s potential and establish
an optimal professional and qualified staff structure,
the Youth Succession Pool, the Succession Pool for
the Technical Facilities and the Managerial Succession
Pool have been established and successfully operate
within the Company. There is a system for attracting
and retaining of young professionals with a profile in
electrical education, and those future professionals
who will implement all of UNEG’s modernisation and
innovative development programmes that we have
planned today.
For more information
on the Company’s
social and youth policy,
effective employee
support programmes
and corporate events
held in 2016, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability
Social Policy
The Company’s benefits package is a tool for employee
motivation and their social security; it includes
voluntary medical insurance, accident insurance, a
non-governmental pension, financial assistance to
employees in need (concerning marriage, childbirth,
etc.) and a wage/salary advance.
In order to ensure commitment to the Company’s
corporate values and promote a healthy lifestyle,
different corporate events are held every year, including
sporting events, “open doors” days, events for power
sector veterans, painting competitions for children and
many others.
The Company runs different programmes for employee
support.
65
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix SUSTAINABILITY RESULTS
Charity
The Company provides charity support to individuals
and companies in different directions, including support
for education, science, culture, art, public awareness,
physical culture and sport; support for low-income
and disabled persons, for the protection of facilities
of historical, cultural or environmental importance;
support for orphaned children; assistance for those
who have suffered from natural disasters and other
catastrophes, the victims of repression, refugees
and forced migrants; and support for individuals who
require medical treatment of a serious disease.
The Company initiated sponsorship contracts in the
following directions in 2016:
— support for professional and amateur sports;
— support for events of social and economic
importance;
— promotion of projects for the popularisation of
energy efficiency and energy saving.
21
RUB mln
The Company spent
on charity in 2016
152
RUB mln
The total financing amount of
sponsorship contracts in 2016
For more information on
the Company’s charity
activities, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability
For more information
on the implementation
of the Energy Saving
and Energy Efficiency
Programme, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability
Energy Saving and Energy Efficiency
In 2016, the Company continued to implement the Energy Saving and Energy Efficiency
Programme of PJSC FGC UES for 2015-2019.1
Goals of the Energy Saving and Energy Efficiency Programme
— To ensure the saving and rational use of
fuel and energy resources and reduce the
consumption of electricity for corporate
needs during electricity transmission
via UNEG grids by improving the energy
efficiency of the Company’s facilities and
equipment
— To put in a system in place for electric
power management and the certification
of operations based on the requirements
of the ISO 50001:2011 energy
management systems requirements with
a guide for use
— To improve the energy efficiency of the
Company’s electric grid facilities and
equipment
Industrial Safety
Our health and safety measures are aimed at the
elimination of workplace injuries and occupational
diseases, the promotion of safe conduct and the
development of accident-prevention skills among the
employees, as well as at the improvement of working
conditions.
The Company has regulations on health and safety
management that define the health and safety
policy and operational order of the health and safety
management system.
Environmental Safety
The Company’s environmental policy is guided by
principles established by the state environmental
development policy of the Russian Federation and the
Energy Strategy of Russia for the period until 2030.
The environmental policy of FGC UES is aimed at
minimising any adverse impact on environment in the
course of electricity transmission and distribution.
The main targets of the Company for environmental
protection and environmental management are as
follows:
Accident frequency rate
2016
2015
2014
2013
2012
0.137
0.221
0.125
0.315
0.284
For more information
on industrial health and
safety, please see the
respective sections of
the Report on Social
Responsibility and
Corporate Sustainability
— Compliance with the environmental protection law
and reduction of the adverse impact on environment;
— Efficient operation of the environmental management
system;
— Minimisation of any adverse impact on environment
by the application of innovative solutions and the
introduction of the best available technologies.
Costs and investments for environment protection,
RUB million
Payments for adverse environmental impacts,
RUB million
2016
2015
2014
2013
2012
194
248
129
136
142
2016
2015
2014
2013
2012
3.10
3.94
4.27
4.77
4.23
1.35
2.58
2.55
2.77
2.89
For more information
on the Company’s
environmental
responsibility, please see
the respective sections
of the Report on Social
Responsibility and
Corporate Sustainability
Within the limits
Above-limit payments
For information on the
use of energy resources
by FGC UES in 2016,
please see the Appendix
hereto
7,560
tonnes of
equivalent fuel
Operational benefit of
measures of reducing energy/
fuel consumption in 2016.
Economic benefit of measures
of reducing energy/fuel
consumption
75
RUB mln ex
VAT
Procurement Activities
The Company carries out procurement aimed at purchasing the necessary equipment
and services on the competitive market within its Investment Programme, and at
fulfilling its annual repairs and target programmes.
Principles and Main Tasks of the Company’s Procurement Activities
OPENNESS
Optimise the procurement management system on the basis of best practices
COMPETITIVENESS
Reduce the Company’s expenses by cutting the cost of procured goods, works and
services and minimising intermediary services
JUSTIFICATION
Provide goods, works and services of high quality at minimum cost and in a timely
manner
Following the Company’s procurement results for 2016,
procurements were made in the amount of RUB 109.2
bn. The share of procurement procedures executed on
a competitive basis accounted for RUB 101.3 bn, or
92.7%, of total procurements. The economic effect of
procurement activities amounted to RUB 2.7 bn.
7,500
suppliers
The Company attracted for the purchase
of goods, works and services in 2016
66
67
1 A new version of the Programme was developed in accordance with requirements of the order of the FTS of Russia No.525-e as of 26
March 2015 and the order of the Ministry of Energy of Russia No.398 as of 30 June 2014 and was approved by the resolution of the
Company’s Management Board on 31 July 2015 (Minutes No.1326 of 04 August 2015).
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix SUSTAINABILITY RESULTS
QUESTION&ANSWER
Procurements from Small And Medium-Sized Enterprises
Anastasia Tselovalnikova
Procurement Director and Head of the
Consolidated Planning and Procurement
Department
Does the trend for localising the production of your main suppliers (import substitution) impact the quality of
the products procured?
The import substitution policy is mainly targeted at the
production and application of domestic products with
their respective (or higher quality) import analogues.
The foreign capital is capable of increasing the
technical level and production efficiency by means of
new technologies and the replacement of out-dated
equipment.
lines and the introduction of modern production
technologies that enable the solving of tasks for the
development promotion of domestic power engineering
and adjacent industries obviously result in a higher
quality of manufactured products and improved
technical parameters.
The increased localisation of electrical equipment
production that is manufactured by domestic
companies under the licenses of foreign producers,
or in the framework of joint ventures with foreign
participation, leads to the modernisation of the
technological park. The launch of new technological
It should be additionally noted that all equipment and
materials, including the ones localised on the territory
of the Russian Federation, undergo a standard product
quality inspection procedure for compliance with the
technical requirements of PJSC FGC UES when it is
supplied to the UNEG’s facilities.
What was the share of small and medium-sized enterprises as part of the Company’s total procurement volume
in 2016?
In 2016, the Company signed more than 7,200
contracts with small and medium-sized enterprises
with a total amount of some RUB 30 bn, which
accounted for 27% of all completed procurement
procedures. Information on the number and the total
cost of contracts signed by FGC UES following the
results of procurements from SME is shared on the
website of the Unified Procurement Information System
(www.zakupki.gov.ru).
Procurement Chain
Main procured goods, Works and services in RUB
billion (% of the total procurement amount)
Work package, including the design
documents and specifications,
construction and installation
RUB 67.4 bn (61.7%)
Equipment and materials
RUB 15.8 bn (14.5%)
Design
RUB 3.3 bn (3.0%)
Repair and maintenance
RUB 9.4 bn (8.6%)
Financial, legal, IT, communication
and insurance services
RUB 5.1 bn (4.7%)
Other procurements
RUB 8.2 bn (7.5%)
68
Construction
and reconstruction
Electricity
transmission
Consumers
Repairs
Technological
connection
Electricity transmission and
technological connection services
Consumers
The Partnership Programme between PJSC FGC UES
and small and medium-sized enterprises has been
approved by PJSC FGC UES and a register of small and
medium-sized enterprises that joined the Partnership
Programme is being kept. An advisory body to improve
the efficiency of procurements made by PJSC FGC UES,
including the procurements from small and medium-
sized enterprises, was established at the Company.
The «Road map for cooperation with small and medium-sized
enterprises» section was developed on the Company’s official
website: www.fsk-ees.ru/suppliers/
dorozhnaya_karta_po_sotrudnichestvu_s_msp/
The list of goods, works and services planned
for purchase from only small and medium-sized
enterprises was expanded at the end of 2015.
Moreover, the composition of the advisory body was
broadened to include the representatives of: PJSC
Rosseti, the Chamber of Commerce and Industry of
the Russian Federation, the Association of Energy
Constructing Enterprises, the Compliance Assessment
and Monitoring Directorate of JSC Federal Corporation
for the Development of Small and Medium-Sized
Enterprises, the Innovations Committee of the National
Association of Procurement Institutions, the Procurement
and Sales Management Institution named after A.B.
Solovyev of the National Research University – Higher
School of Economics, the Energy Committee of the
All-Russian Public Organisation of SME OPORA ROSSII,
and LLC RUSENERGOSBYT.
7,219
contractsa
The number of contracts
signed with SME
in 2016.
29.7
RUB bn
including VAT
The cost of contracts
with SME
in 2016.
For more information on
the main parameters of
the import substitution
programme, please see
the website at www.
fsk-ees.ru in the About
Company/Import
Substitution section
Import Substitution Programme
PJSC FGC UES carries out its activities related to import
substitution in accordance with the Import Substitution
Programme for Equipment and Materials and Systems
Technologies for 2015—20193.
70%
The share of domestic products
in the procurement of main
electrical equipment by FGC UES
in 2016.
The main assessment criterion for the implementation
efficiency of the Import Substitution Programme is the
growth of the share of domestic electrical equipment
procurements made by FGC UES consisting of 9 groups
of main electrical equipment with voltage classes 110-
750 kW, of which the purchases depended on import to
a large extent.
Share of domestic electric equipment in procurements
made by FGC UES
(actual values), %
2016 actual
2015 actual
2014 actual
70%
75
44.5
Share of domestic electric equipment in procurements
made by FGC UES
(target values), %
2019 target
2018 target
2017 target
2016 target
2015 target
60
57
54
51%
48
FGC UES continues to implement the series of its long-
term supply contracts with the leading manufacturers
of electrical equipment and plans for the localisation
of its production within the territory of the Russian
Federation. The Company promotes the establishment
of cooperative relationships between electrical
product manufacturers and domestic producers of
units, materials and components that are capable of
providing quality in line with international standards.
The launch of domestic electrical products into
international markets is actively supported.
The import substitution actions planned for 2016 and
included in the Long-Term Development Programme of
PJSC FGC UES were fully completed.
For information on
actions taken in the
framework of the
Company’s import
substitution activities,
please see the Appendix
1 hereto
For more information
on the Company’s
procurement activities,
please see the respective
sections of the Report on
Social Responsibility and
Corporate Sustainability
1 As part of implementing the Russian Federation Government Resolution No. 867-r of 29 May 2013, as of now, the resolution has been
fulfilled.
2 In accordance with the Russian Federation Government Resolution No.1352 as of 11 December 2014.
3 Approved by the order of PJSC FGC UES No.455 on10 October 2014.
69
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix 4
2
3
3
Backbone electric grids of the Urals
(MES Urals)
FGC BRANCH
SERVICE AREA
7 constituent territories of the Russian
Federation in the Urals and Volga Federal
Districts with a population about 17 million
people.
PERSONNEL
About 2.5 thousand people
АSSETS 1
HVTL 16.943 thousand km
106 substations, 35-500 kV
Capacity — about 42.949 thousand MVA
OPERATIONS
Electricity transmission. The branch maintains
electricity connection between UES of Urals
and the power systems of the central regions
of Russia, Western Siberia, the Middle Volga
Region, and Kazakhstan.
PHOTOS:
500 kV aerial line
Severnaya–BAZ
CJSC Mikheevsky GOK
500 kV substation Emelino
500 kV aerial line
Severnaya–BAZ
1
2
3
4
Key infrastructure projects
1
2008
2013
500 kV substation Emelino in Sverdlovsk Region
Ensuring that new loads of industrial consumers can be connected to the power system
(Seversky Pipe Plant, Pervouralsk New Pipe Plant, Sredneuralsky Copper Smelting Plant,
Revdinsky Metalware and Metallurgical Plant).
Improvement of reliability of electricity supply to the Yekaterinburg–Pervouralsk power
area of Sverdlovsk Region in terms of power shortages, ensuring uninterrupted
sustainable electricity supply to the consumers.
Construction of 500 kV aerial line Severnaya–BAZ, with expansion
of 500 kV BAZ substation
Strengthening of 500 kV backbone grid of UES of Urals, as well as increasing the
reliability of power supply to consumers in the Berezniki–Solikamsky district of the
Perm Territory and the Serovo–Bogoslovsk District of Sverdlovsk Region;
Connection of the new consumers to the power centres of FGC UES in the Perm
Territory and Sverdlovsk Regions.
2014—2015
Construction of complex electric grid facilities of UNEG for capacity
output of BNPP-2
Control of power shortages in Sverdlovsk and Chelyabinsk Regions;
Construction of new electric grid facilities, 220 kV and 500 kV, of UNEG, linking them to
the existing power system of the Urals;
Construction of a new 500 kV substation Kurchatovskaya on the territory of the BNPP-2.
Ensuring the technological connection of CJSC Mikheevsky GOK to
the grids of FGC UES
Reconstruction of 220 kV Kartaly substation, with a 220 kV line cell
to connect 220 kV technological substation Mikheevsky GOK, with 220 kV HVTL,
Mikheevsky GOK – Kartaly, 25 km long.
70
70
1 according to annual performance reports
Annual Report 2016
71
71
Strategic ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Corporate Governance Report
GENERAL INFORMATION ON THE COMPANY'S
CORPORATE GOVERNANCE
Corporate
Governance
Report
The development of a corporate governance system to improve
the confidence of shareholders and investors
General Information on the Company's
Corporate Governance
The Russian Corporate Governance
Code defines the Corporate Governance
as a system of interactions between
the Company's executive authorities,
the Board of Directors, its shareholders
and other interested parties. Corporate
Governance is a tool that the Company’s
uses to set objectives and a means for
achieving these objectives. Furthermore,
it also ensures that the shareholders and
other interested parties have efficient
control over the Company's operations.
The Company's Corporate Governance, which is
based on the principles of accountability, fairness,
transparency, and responsibility, is aimed at
maintaining:
— Equal conditions for shareholders in exercising
their rights related to participation in the Company's
activities;
— The Board of Directors' strategic management of
the Company, as well as efficient supervision and
control over the activities of the Company's executive
authorities;
— The accountability of the Board of Directors' to the
General Meeting of Shareholders;
— The required efficiency, professionalism and
independence of the Board of Directors in order
to meet the interests of the shareholders and the
Company;
— The Company's executive authorities ability to
manage the Company's day-to-day operations
reasonably and in good faith and that they are held
accountable to the Company's Board of Directors and
to the General Meeting of Shareholders;
— The timely disclosure of the Company's information,
including the Company's financial situation,
economic indicators, ownership and governance
structure;
— Efficient operation of the internal control and risk
management systems to ensure supervision and
control over the Company's financial and operating
activities, and reasonable confidence in the
achievement of the Company's objectives;
— The independence of the assessment of risk
management and internal control systems, as well
as the corporate governance practices, during the
course of the Company's internal audit.
Further details on the
key elements of FGC's
corporate governance
system are available in
the charter and by-laws
of FGC UES published in
the Investors / Corporate
Governance / Corporate
Documents section on
the corporate website at
www.fsk-ees.ru/eng/
Statement from the Chairman
of the Board of Directors
Dear shareholders and investors,
The Company's Corporate Governance system
meets the requirements of the Russian legislation,
the rules of the Moscow Stock Exchange listing,
the key recommendations of the Russian Corporate
Governance Code, international corporate governance
and business ethics standards and practices and
openness and transparency principles.
In 2016, the Company actively continued to improve
the corporate governance system, deploying the
recommendations introduced in line with the Russian
Corporate Governance Code, by revising certain clauses
of the by-laws and quickly reacting to changes of the
external market situation.
In 2015-2016, in addition to the "road map" for the
introduction of the main principles of the Corporate
Governance Code into FGC UES's corporate governance
system, the Company's Board of Directors approved the
Plan of Activities for FGC UES's corporate governance
development for 2016.
The implementation of this plan was a good starting
point for defining a direction for further improvement
to corporate governance, including an extension of the
Company's principles to its subsidiaries.
FGC UES is continuously monitoring the applicability
and relevance of by-laws and executive directives and
their improvement in compliance with the Company's
requirements and needs related to corporate
governance practices.
Moreover, several internal instruments related to
corporate governance were approved and certain
documents were revised in 2016. Much attention was
paid to the internal control, risk management, and
openness and transparency of the activities of the
Company and Board of Directors, as well as to the
development of the corporate governance system in
order to meet the interests of the Company and its
stakeholders.
In general, the Company's activities related to improving
the corporate governance system received high marks
from experts, in particular from the Russian Institute
of Directors that have been monitoring the Company's
corporate governance practices within the framework
of the National Corporate Governance Rating since
2012.
Based on the new methodology of the National
Corporate Governance Rating, the Company received a
corporate governance rating of 7++ for Well-Developed
Corporate Governance Practice.
As a result, FGC UES's Board of Directors has every
reason to declare the high level of the Company's
corporate governance and compliance with the
key recommendations of the Russian Corporate
Governance Code.
Oleg Budargin
Chairman of FGC UES's Board
of Directors
72
73
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix ASSESSMENT OF THE QUALITY
OF CORPORATE GOVERNANCE
Assessment of the Quality
of Corporate Governance
Independent Assessment Made by the Russian Institute of Directors
In October 2016, proceeding from results of the
assessment of the quality of corporate governance
by using a new methodology, the Russian Institute
of Directors granted FGC US the national corporate
governance rating at a level of 7++. This rating confirms
that the Company meets the requirements of Russian
legislation on corporate governance and generally
follows the recommendations of the Russian Corporate
Governance Code. The owners’ risk of loss related to the
corporate governance quality is assessed as being quite
low.
The Russian Institute of Directors granted FGC UES
a corporate governance rating level of
Well-Developed Corporate
Governance Practice
Assessment of the Elements of Corporate Governance Practice
Shareholders' Rights
Activities of Supervision
and Control Authorities
Information
Disclosure
Corporate Social Responsibility
and Sustainable Development
GOOD
GOOD
HIGH
HIGH
Assessment of the Quality of Corporate Governance
In April 2016, the Company's Board of Directors
approved guidelines for the self-assessment of the
corporate governance. This document was developed
on the basis of methods approved by the order of
Rosimuschesvo No. 306 of 22 August 2014 for the self-
evaluation of corporate governance at companies with
state participation in order to ensure the comparability
of the annual evaluation performed by the Company.
The structure of the document comprises the
assessment of corporate governance quality,
in particular compliance with principles and
recommendations of the Corporate Governance Code
as approved by the Bank of Russia. This document
proposes certain assumptions related to the
Company's activities.
Results of self-assessment of the corporate
governance level by component*, %
Shareholders' rights
Board of Directors
Executive management
Transparency and disclosures
of information
Risk management,
internal control and internal
audit
Corporate Social Responsibility
and business ethics
87
74
83
-4%
89
94
94
* The Company's self-assessment of the corporate governance
level was made in the 1st quarter of 2017.
The Company achieved a compliance
level of 84% with the guidelines for the
self-assessment of corporate governance,
which affirms a high level of corporate
governance quality.
Assessment of Compliance with the Principles of the Corporate
Governance Code
In 2016, as a result of implementing the "road map"
for the introduction of the Corporate Governance Code
as approved in 2015, the share of principles in the
Corporate Governance Code that FGC UES followed
increased from 65% in 2015 to 78% in 2016.
1 Minutes No. 318 on 28 April 2016.
74
A full report on
compliance with
the principles and
recommendation of the
Corporate Governance
Code and a report on
compliance with the
key principles of the UK
Corporate Governance
Code are shown in
Appendix 3 hereto
Results of the Self-Assessment of Corporate Governance Practices for
Compliance with Principles and Recommendations from the Russian
Corporate Governance Code2
2015
2016
-
d
n
e
m
m
o
c
e
R
s
e
p
c
n
i
r
P
i
l
e
d
o
C
e
h
t
y
b
d
e
Corporate Governance Principles
Rights of shareholders and equal
opportunities for shareholders to
exercise their rights
t
n
a
i
l
p
m
o
c
-
n
o
N
t
n
a
i
l
p
m
o
C
y
l
l
a
i
t
r
a
P
t
n
a
i
l
p
m
o
c
13
8
3
The Board of Directors
36
20
13
Corporate Secretary of the Company
System of remuneration to the Board
members and senior management of
the Company
Risk management and internal control
system
The Company's information disclosure
Significant corporate activities
2
9
6
7
5
2
8
6
5
2
—
—
—
2
3
OVERALL ASSESSMENT
78
51
21
t
n
a
i
l
p
m
o
C
y
l
l
a
i
t
r
a
P
9
28
2
8
6
5
3
t
n
a
i
l
p
m
o
c
3
6
—
—
—
2
2
61
13
2
3
—
1
—
—
—
6
t
n
a
i
l
p
m
o
c
-
n
o
N
1
2
—
1
—
—
—
4
100%
65%
27%
8%
78%
17%
5%
The wording of Clause 4.2.2. of the Corporate Governance Code does no apply to the Company's operations since FGC's existing
policies do not specify the provision of the Company's shares to Board members.
Since the Company's global depositary receipts
are traded at the London Stock Exchange, FGC is
committed to meeting high international corporate
governance standards, including the UK Corporate
Governance Code.
Improvement of the Corporate Governance System
Within the development of the action plan (“road map”)
related to introducing the provisions of the Corporate
Governance Code, the Company created and the
Board of Directors approved2 an action plan aimed at
developing FGC UES's corporate governance for 2016.
The plan determined a number of key activities for the
reporting period, including an analysis of the necessity
to update internal documents issued by the Company
and standard documents issued for the needs of its
subsidiaries. Additionally, the following documents
have been planned for development: guidelines for
the corporate governance assessment of FGC UES
and its subsidiaries, provisions on the assessment
of the activities of the Company's Board of Directors,
and the priority activities of the Board of Directors
and its Committees for the next corporate year and a
submission for their approval to the Board of Directors.
Analysis of corporate governance practice based on
the implementation of the “road map” was declared
as the key priority of the plan. The Company has fully
completed all of the activities defined in the plan.
Having achieved significant results in this field,
the Company continues to develop its corporate
governance practices. Further improvements take any
amendments to the legislation, the expertise of Russian
and international organisations and recommendations
from independent consultants into consideration.
2 Statistics are provided based on the Report on the compliance with the principles and recommendations of the Corporate Governance Code
compiled in accordance with the Recommendations of the Bank of Russia No. IN-06-52/8 as of 17 February 2016.
3 Minutes No. 318 of 25 April 2016.
75
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
ASSESSMENT OF THE QUALITY
OF CORPORATE GOVERNANCE
QUESTION & ANSWER
The Company's Management Authorities
Management
Authority
Competences
Regulatory Documents
Frequency of Activities
Maria Tikhonova
Deputy Chairman of the Management Board,
Member of the Management Board
The Board of
Directors
In 2015, the Company developed and approved a plan of action (a "road map") for the introduction of the
key provisions of the new Russian Corporate Governance Code. The Company has actively introduced
recommendations of the Corporate Governance Code into its activities. How would you describe the results of
the Company's operations in this field proceeding from the results of 2016?
In fact, we started to implement the "road map" in 2015.
We made amendments to the Articles of Association
and certain key internal documents and we approached
the year 2016 with a fully completed plan. We did not
stop at the formal achievement of the set objectives,
understanding that we have reserves required for
future development. Proceeding from results of 2015,
we made an analysis and assessed our perspectives
with consideration to external situation changes and
continued developing to develop in this direction based
on the results of self-analysis and the assessment of
external experts.
We continued to develop practices for the assessment
for the activities of the Company's Board of Directors,
and developed provisions for the assessment for the
activities of FGC UES's Board of Directors. It helped
us to formalise the process and to define the main
assessment requirements made by an independent
institution. Particular attention was paid to internal
control and risk management. The Board of Directors
approved the amendments to the Provision on the Risk
Management System of FGC UES and reviewed the
issues of assessing the efficiency of the internal control
system and the other key aspects.
As a result, in 2016 the Company's activities in this
field were positively assessed by external experts.
The Russian Institute of Directors granted FGC
UES a corporate governance rating at a level of 7++
Well-Developed Practice of Corporate Governance,
and the Expert Council of the Russian Government
announced positive dynamics proceeding from
results of monitoring over the introduction of the
Corporate Governance Code to companies with a state
participation, ranking the Company in the fifth place for
this rating.
Of course, the Company is not only governed by
external evaluation results, but also by an internal
self-assessment, which was first introduced in 2016
proceeding from the results of 2015. During the
reporting period, we developed our own methodology
of self-assessment based on the recommendations
of Rosimuschestvo. The results affirm a high level of
corporate governance quality.
What are the Company's plans for improving the corporate governance in 2017?
In 2017, we have set two key priorities. First of all,
with consideration of the corporate governance
development priorities set by the Russian Government
and amendments to Russian legislation, we plan
to amend our internal documents on the procedure
for interested party transactions, large transactions,
and information disclosure; we also plan to revise
the Company's Corporate Governance Code by
incorporating a provision on the activities of the Board
of Directors and the General Meeting of Shareholders.
Furthermore, the development of corporate governance
at our subsidiaries with an introduction of the
Company's corporate governance principles is one of
our key priorities for the year.v
Russian Legislation
The Company's Articles
of Association
Provisions on the
procedure for preparing
and holding the FGC
UES' General Meeting of
Shareholders
Russian Legislation
The Company's Articles
of Association
Provisions on the Board
of Directors of Federal
Grid Company
The Annual General
Meeting of Shareholders
is held once a year.
Extraordinary General
Meeting of Shareholderss
are held upon the
decision of the Board of
Directors. In 2012-2016,
Extraordinary General
Meeting of Shareholderss
were held twice.
The Board of Directors
holds about 8-10 joint
presence meetings per
annum.
In 2016, 48 meetings of
the Board of Directors
was held, including 9 joint
presence meetings.
General Meeting of
the Shareholders
The supreme governing body of the Company. It
is entitled to resolve the most important issues,
including:
— The approval of annual reports and annual
accounting (financial) statements,
— The election of members to the Board of Directors
and the Audit Commission,
— Taking decisions on dividend payments,
— Selecting an external auditor.
FGC UES's Board of Directors performs the general
strategic management of the Company and plays a
key role in the Federal Grid's corporate governance
system. It is entitled to take decisions on general
issues concerning the Company's management,
including:
— Shaping the Company’s strategy and monitoring
its implementation;
— Ensuring the exercise and protection of the
rights and legal interests of the Federal Grid’s
shareholders and protecting the Company’s
assets;
— Ensuring control over the activities of the
Company's executive authorities and introducing
an efficient stimulation system;
— Ensuring the establishment and maintenance of
a sound internal control and risk management
system;
— Monitoring the Company’s corporate governance
practice.
Board Committees Special-purpose advisory bodies to the Board of
Russian Legislation
Directors. They provide preliminary consideration on
matters and recommendations for the Board.
Management
Board
Collective executive body. The functions comprise
the Company's day-to-day operations management
based on the Articles of Association, decisions of
the General Meeting of Shareholders and the Board
of Directors.
Chairman of the
Management
Board
The sole executive body. He is responsible for
all aspects related to the Company's day-to-day
operational management, except for the issues
belonging to the competence of the General Meeting
of Shareholders, the Board of Directors and the
Management Board.
The Company's Articles
of Association
Provisions on the Board
of Directors of Federal
Grid Company
Provisions on
Committees Held by the
Board of Directors
Russian Legislation
The Company's Articles
of Association
Provision on the
Management Board of
Federal Grid Company
The frequency and
format of the meetings
of the Board Committees
depends on the functions
of each Committee.
The meetings of the
Management Board are
held either in absentia
or in person. In 2016,
82 meetings of the
Management Board were
held.
—
76
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
ASSESSMENT OF THE QUALITY
OF CORPORATE GOVERNANCE
Corporate Governance Scheme
of FGC UES
Minority
shareholders
19.28%
voting shares
Election
Findings
Shareholders’
agreement
Rosimuschestvo
0.59%*
voting shares
PJSC Rosseti
80.13%
voting shares
General
Meeting
of Shareholders
Audit
Commission
Election
Reports
and recommendations
Election
Findings
Effective work
assistance
Company's
Corporate
Secretary
Findings
Election
Findings
Approval of candidates
and signing of the contract
Board of Directors
Election
Election
of the Management Board
and control
Reports
Chairman of the
Management Board,
the Management Board
Reports and
recommendations
Election of the
Chairman of the
Company's
Management
Board
Findings
Approval
*
As of 31 December 2016, the Russian Federation, represented by the Federal Agency of State Property Management
(Rosimuschestvo), owned 0.59% of FGC UES’s shares. In this context, an agreement has been signed between the
Company’s major shareholders ROSSETI and Rosimuschestvo regarding management and voting at Federal Grid Company.
The above agreement regulates the shareholder’s relationship with regard to the implementation of their rights with respect
to Federal Grid Company for the purposes set forth in the Decree of the Russian President No. 1567 on 22 November 2012.
The Company’s interaction with the State as a shareholder has a specific procedural character that is determined by the
regulatory acts of the President and the Government of the Russian Federation. In particular, the State representatives
within the Company’s governing bodies are required to vote on certain matters as instructed by the Government.
Reports and
recommendations
External independent
auditor
Approval of the Head
Findings
Committees of the
Board of Directors
Findings
— Audit Committee
— HR and Remuneration
Committee
— Strategy Committee
— Investments Committee
Findings
Reports
Directorate
of Internal
Control
and Risk
Management
Head
Internal
Audit
Department
78
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
GENERAL MEETING OF SHAREHOLDERS
General Meeting of Shareholders
The General Meeting of Shareholders is the supreme governing body of the Company.
The Company is committed to creating the most
favourable conditions for its shareholders in order to
enable them to participate in the General Meeting and
to develop sound positions on the items in its agenda,
as well as to provide them with the opportunity to
coordinate their actions and express opinions on the
items discussed.
Federal Grid Company defined a list of additional
materials to be provided to shareholders when
preparing for a general meeting to enable them to take
well-founded decisions. Such materials include, among
other things, the positions of the Board of Directors
regarding all items on the meeting agenda, extended
information about the candidates for governing and
control bodies, tables comparing amendments to be
made to the Company’s Articles of Association and
internal documents with existing versions. All materials
are disclosed on the Company’s website, in both
English and Russian, not later than 30 days prior to the
date of the General Meeting of Shareholders.
Federal Grid Company’s Regulations on the General
Meeting of Shareholders provide clear procedures
for holding the GSM, including an opportunity for
shareholders to ask questions on items in the agenda.
Shareholders are able to put questions directly to the
members of governing and control bodies, the Chief
Accountant and the Company’s auditors, who shall be
mandatory invited to attend the meeting.
In 2016, a live video broadcasting system of the
General Meeting of Shareholderss was introduced on
the Company's website.
Annual General Meeting of Shareholders
The Annual General Meeting of Shareholders of
Federal Grid Company was held on 29 June 2016. In
accordance with the AGM agenda, the shareholders
decided on the following:
— To approve the Company’s annual report and
annual financial statements, including the Profit
and Loss Account of Federal Grid Company for
2015;
— To pay dividends to the Company's shareholders
proceeding from the results of the 2015 fiscal
year;
— To pay remuneration to the members of the
Board of Directors of Federal Grid Company;
— To elect members to the Company's Board of
Directors and Audit Commission;
— To approve the external auditor for 2016;
— To approve a new version of the thr Federal
Grid Company’s Articles of Association and the
Provision on the Board of Directors.
The minutes of the AGM
are available on the
website www.fsk-ees.ru/
eng/ in the Investors /
Corporate Governance /
Shareholders Meeting
section
Report of the Company's Board
of Directors
The Board of Directors of FGC UES performs the
general strategic management of the Company and
plays a key role in Federal Grid Company's corporate
governance system.
The activities of Federal Grid Company’s Board of
Directors are governed by the Company's Articles of
Association, the Regulations on the Board of Directors
of Federal Grid Company1, and the Federal Grid's
Corporate Governance Code.
Activities for Improving the Company's Corporate
Governance System
As a key governing body of the Company that is
responsible for creation and development of the
Company's corporate governance system, in 2016 the
Board of Directors paid close attention to the general
issues of developing the corporate governance system,
to improving internal control and risk management
procedures, and defining remuneration to members of
the Company's governing bodies.
Aspect of the Corporate
Governance System
Items Considered
Improving the corporate
governance system and
practices of the Board of
Directors’ activities
To exercise internal control
and risk management
— Consideration of the evaluation results on the efficiency of the Board of Directors and the self-
assessment of FGC’s corporate governance quality.
— Approval of the Regulations on the protection of FGC’s insider information and the
Regulations on the consideration and settlement of disputes and conflicts of interests in the
Rosseti Group.
— About the Corporate Secretary of Federal Grid Company
— The arrangement of the activities of FCG’s Board of Directors.
— The creation of Board Committees and a plan of action for FGC’s Board of Directors.
— Making amendments to the Provisions on the HR and Remuneration Committee of FGC’s
Board of Directors.
— Approval of the Regulations on the assessment the efficiency of FGC's internal control and
risk management.
— Consideration of the report on FGC’s key risks for 2015.
— Consideration of the 2015 report of the Chairman of the Management Board and the
members of FGC’s Management Board on the operation of the risk management and internal
control system.
— Consideration of the results of FGC’s anti-corruption monitoring for 2015 and for the first six
months of 2016.
— Approval of the "road map" for arranging the risk management and internal control
procedures to prevent and fight against corruption.
Internal audit
— Approval of the plan of activities and the budget of the Internal Audit Department for 2016.
— Consideration of the report on the execution of the plan of activities for FGC’s Internal Audit
Remuneration to the
members of governing
bodies
Department for 2015.
— Consideration of the report from FGC’s internal auditor on the efficiency of the Company’s
internal control and risk management system proceeding from the results of 2015.
— Consideration of the results of the audit of the following business processes: Procurement
Activities, Project Management, and Capital Construction.
— Approval of the guidelines on the calculation and assessment of implementing quarterly KPIs
by FGC’s senior management.
— Inclusion of an indicator for the reduction of operating costs (expenses) into the list of KPIs
for the management to be taken in consideration for the definition of remuneration.
— Approval of the report on the implementation of KPIs by the Company's senior management.
— Making amendments to the FGC’s Long-Term Development and to the guidelines on the
calculation and assessment of the implementation of KPIs by the Company’s senior
management.
1 In the revision that was approved by the decision of the General Meeting of Shareholders of Federal Grid Company on 29 June 2016
(Minutes No. 17 of 04 July 2016).
80
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Corporate Governance Report
REPORT OF THE COMPANY'S BOARD OF DIRECTORS
Assessment of the Activities of the Board of Directors
for the Reporting Year
At the beginning of 2017, the independent company
VTB Registrator conducted an assessment of the
Board of Directors’ activities for 2016. The assessment
procedure includes the assessment of activities of the
Board of Directors as a whole, the assessment of each
committee and the assessment of the individual work
of each member of the Board of Directors.
The assessment was conducted by the use of
questionnaires that were filled out by the members of
the Board of Directors and its committees and by the
members of the Company's Management Board and by
interviewing certain members of the Board of Directors,
the Board Committees and the Corporate Secretary of
the Company.
4.8
of 5
5
of 5
The quantitative assessment of the operating efficiency of the Board of Directors
as a governing body
The quantitative assessment of the activities of the Chairman of the Board
of Directors
93% The participation amount of Board members in meetings1
84% The presence of Board members at joint presence meetings2
Report of the Board of Directors on the Results of the
Company’s Development in Priority Business Directions
During the reporting period, Federal Grid Company's
Board of Directors regularly considered items on
the maintenance and development of the UNEG’s
infrastructure, improving the efficiency of the
Company’s management and the Company’s
sustainable development in the long run. 48 meetings
were held, including 9 in person meetings and 39
in absentia meetings. The total number of items
considered amounted to 482, two-thirds of which were
transaction approval items.
Number of meetings of the Board of Directors
2016
2015
2014
9
10
8
39
49
28
48
59
36
In-person meetings
Meetings in absentia
Items considered by the Board
of Directors
Number of items considered
by the Board of Directors
2016
2015
2014
482
751
429
7
1
2
3
4
5
1
2
3
4
5
6
7
Strategy and priority
development
Surveillance and accountability
Corporate governance
Management of subsidiaries
HR and Remuneration
38
7.9%
35
16
31
18
7.3%
3.3%
6.4%
3.8%
Approval of the transaction
313
64.9%
Other items
31
6.4%
1 From 29 June 2016 until 29 December 2016.
2 From 29 June 2016 until 29 December 2016.
6
82
Further details from
the minutes of the Board
meetings are available
in the Appendix 1 hereto
In 2016, the Board of Directors considered a range of key items concerning priority
directions for the Company's operations:
Strategic Objective
Key Items Considered by the Board of Directors in 2016
— Definition of the priority directions for the Company's operations: checking the quality of the
Company’s equipment, materials and systems.
— Implementation of the requirements of normative regulations to ensure the safe and
sufficient anti-terrorism security of power facilities.
— Consideration of the plan and status of the implementation of activities for the Company's
automated electricity control and the accounting system’s compliance with the technical
requirements of the wholesale electricity and capacity market.
— Introducing professional standards and practices within the Company's operations.
— Consideration of the report on handling applications for the technical connection and
execution of contracts for process connection to the Company's electric grid facilities.
— Approval of the Regulations on improving the Company’s investment and operating
efficiency and cost reduction.
— Development (upgrading) the plans (programmes) for operating cost reduction by 10%.
— Consideration of the consolidated business plan (RAS) and the consolidated business plan
(IFRS) for the Federal Grid Group for 2016 and the forecasts for 2017-2020.
— Management of interest and currency risks, including the usage of derivative financial
instruments.
— Approval of Federal Grid Company's Investment Programme for 2016-2020.
— Consideration of the draft version of revised Federal Grid's Investment Programme for 2016-
2020.
— Consideration of a plan of activities up to 2019 to reduce the volume of construction in
progress in line with the annual reduction rate.
— Consideration of the annual report on the technological and price audit of the Company's
investment projects in 2015.
Reliability
Reliability of electricity
supply to consumers
Economic
Economic efficiency
efficiency
and financial
sustainability
UNEG
Development and
development
functioning of the UNEG to
meet the needs of national
economy and population
Membership of the Board of Directors3
In accordance with Federal Grid Company’s Articles of
Association, the Board should include 11 members. The
membership of the Board of Directors is well-balanced
and corresponds to the scale of the Company's
operations, the interests of its shareholders and the
requirements of Russian legislation and the listing
rules of the Moscow Stock Exchange. Candidates
for the Company's Board of Directors are elected
based on their personal and professional skills and in
accordance with the independent criteria specified by
the listing rules of the Moscow Stock Exchange. As of
31 December 2016, the Board of Directors comprised
3 independent directors (27% of the total number of
Board members).
— The members of the Company's Board of Directors
shall meet the requirements with respect to their
skills, experience, knowledge and business qualities;
— The election to the Company's Board of Directors
of at least three independent directors4 and one
representative from the Non-profit Partnership
Market Council;
— Executive directors may not constitute more than
25% of the composition of the Company's Board of
Directors.
The company also strives to ensure that the Board
of Directors includes representatives of minority
shareholders in order to maintain a balance of the best
interests of all of the Company’s existing shareholders
within the Board.
The main requirements for the composition of the
Company's Board of Directors are as follows:
3 Here and elsewhere, personal information about the members of the Federal Grid Company’s governing and control bodies has been
disclosed with their consent.
4 The independent criteria are defined in accordance with the recommendations of the Russian Corporate Governance Code and the listing
rules of the Moscow Stock Exchange.
83
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
Corporate Governance Report
REPORT OF THE COMPANY'S BOARD OF DIRECTORS
Executive
director
1
Independent
directors
3
7
Non-executive
director
<1 year
From 1 to 6 years
>6 years
2
5
4
Length of service in the electric power sector
< 5 years
From 5 to 15 years
3
6
> 15 years
2
Board Members
Board Members
Compliance
)
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Oleg Budargin
Chairman of the Board
of Directors
6 years
7 years
Pavel Grachev
Independent Director
3 years
3 years
Andrey Dyomin
Non-Executive Director
3 years
18 years
Sergey Mironosetsky
Non-Executive Director
2.5 years
17 years
Andrey Murov
Executive Director
2.5 years
4 years
Egor Prokhorov
Non-Executive Director
8 months
7 years
Nikolai Roshchenko
Non-Executive Director
8 months
8 years
Sergey Sergeyev
Non-Executive Director
8 months
8 years
Igor Kamenskoy
Independent Director
8 months
8 months
Ernesto Ferlenghi
Independent Director
6 years
8 years
Pavel Snikkars
Non-Executive Director
8 months
12 years
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Attendance of Board Members at Board Meetings and Committee Meetings in 2016
The Board of Directors
IC
SK
HR&RC
AC
Active members of the Board of Directors during the entire year of 2016
Oleg Budargin
47*/48 98%
Pavel Grachev
47*/48 98%
100%
89%
Andrey Dyomin
47*/48 98%
83%
Sergey Mironosetsky
38*/48 79%
50%
100%
100%
Andrey Murov
46*/48 96%
Members who left the Board of Directors as of 29 June 2016
Mikhail Kolesnikov
24*/25 96%
100%
100%
Vyacheslav Kravchenko
22*/25 88%
100%
Nikolay Shulginov
24*/25 96%
Maxim Bystrov
20*/25 80%
Boris Kovalchuk
20*/25 80%
Sergey Shmatko
23*/25 92%
100%
100%
Members elected to the Board of Directors as of 29 June 2016
Igor Kamenskoy
23/23 100%
100%
100%
100%
Egor Prokhorov
23/23 100%
Nikolai Roshchenko
19/23 83%
Sergey Sergeyev
23/23 100%
86%
Pavel Snikkars
21/23 91%
100%
Ernesto Ferlenghi
23/23 100%
100%
100%
75%
The Company strives to provide its Board members, especially its new
members, with every opportunity to collect all the information required to
execute their duties. For that purpose, information meetings are held with
the participation of the members of the Management Board and the new
members of the Company's Board of Directors.
* One meeting (4 April 2016) was not taken into account. Pursuant to article 68 of Federal Law No. 208-FZ of 26 December 1995 and
clause 18.12, article 18 of the Articles of Association of PJSC FGC UES, the meeting was recognized as invalid due to the lack of quorum.
84
PJSC FGC UES
Annual Report 2016
85
REPORT OF THE COMPANY'S BOARD OF DIRECTORS
Independent Directors
Independent directors provide the independent
evaluation of the Board’s activities based on their own
knowledge, experience and skills. The fairness of the
independent directors and their justified criticisms
are very valuable to the Board of Directors and to the
whole Company.
Our experience of cooperating with these independent
directors proves that they demonstrate high levels
of professionalism when issuing independent
statements and voting independently on agenda
items. Independent directors contribute to the taking
of decisions in the interests of the stakeholders’
various groups and to improving the quality of
managerial decisions.
Independent directors play a major role in definition
of the Company's strategy development and the
monitoring of its execution, the evaluation of the
activities of executive bodies, the assessment of the
efficiency of the risk management, internal control,
and internal audit systems, and also in the evaluation
of the activities of the Board and its committees.
As of the end of 2016, the Board of Directors
consisted of 3 independent directors, and the Audit
Committee and HR and Remuneration Committee
consisted of only independent directors. It is a
sufficient amount for the significant impact that they
have on the decision making process.
The Company highly appreciates the contribution
of independent directors to the improvement of the
efficiency of the Board of Directors.
Biographies of the Board Members
Personal information about the members of Federal Grid Company’s governing bodies has been disclosed
with their consent.
Oleg Budargin
Chairman of the Board
of Directors1
Non-Executive Director
Board Member since 2010
Born in 1960
Graduated from Norilsk Industrial Institute with an honours degree in Industrial
and Civil Engineering and a PhD in Economics.
Experience:
Since 2013 - General Director of Rosseti; Chairman of the Management Board,
and Board Member
Since 2012 - Member of the Presidential Commission for the Strategic
Development of the Fuel and Energy Sector and Environmental Security
External appointments: Member of the Supervisory Board of JSC Russian
Regional Development Bank, FSAEI for Higher Professional Education North-
Caucasus Federal University, the Chairman of the Supervisory Board of Non-
Profit Partnership Association of Solar Energy Enterprises, the Chairman of
the Board of Directors of PJSC Moscow United Electric Grid Company, PJSC
of Energy and Electrification – Lenenergo, Member of the Board of Trustees
and Board of Academics of FSAEI for Higher Professional Education National
Research University: the Moscow Power Engineering Institute, Member of the
Board of Trustees of the State Academic Mariinsky Theatre. Primorsky Stage,
Vice-chairman, Senior Advisor, responsible for the regional development of the
World Energy Council, member of the Council, Vice-president for ecology of the
Interregional Public Organisation - Association of Polar Explorers.
Participation share in the share of the Company’s capital: 0.0006403563%
Pavel Grachev
Independent Director
Member of the Audit Committee
Member of HR and
Remuneration Committee
Board Member from 2013—2014,
and again since 2015
Born in 1973
Graduated from Saint Petersburg State University and the University of Trieste
(Italy) with degrees in law.
Experience:
2010–2013 – Chief Executive Officer of JSC Uralkaly and of the Far East and Baikal
Region Development Fund.
2011–2013 – Head of the representative office of Alpina Capital, A.C.L. Ltd.
2013 – General Director of the JSC Far East and Baikal Region Development Fund
2013–2014 – Acting Senior Executive Director of Polyus Gold International Limited
2014–2016 – President of JSC Polyus
2014–2016 – Senior Executive Director of Polyus Gold International Limited,
Andrey Dyomin
Non-Executive Director
Member of the Strategy
Committee
Board member since 2014
Since 2016 – General Director of LLC UC Polyus
Since 2016 – General Director of PJSC Polyus
External Appointments: Board Member of Polyus Gold International Limited, PJSC
Polyus and PJSC RusHydro.
No participation share in the share of the Company’s capital.
Born in 1974
Graduated from Zaporozhye State University, majoring in Applied Mathematics
and from the Zaporozhye Institute of Economics and Information Technologies
with a degree in Finance.
Experience:
2007–2010 – Deputy Chairman, Member of the Management Board of Federal
Grid Company
2010–2012 – Advisor to the General Director on Strategic Development, LLC
Mezhregionsbyt
2013–2015 – First Deputy Director General for the Economic Affairs and
Finance of PJSC Rosseti
Since 2013 – Member of the Management Board of PJSC Rosseti
External Appointments: Member of the Board of Directors of PJSC Moscow
United Electric Grid Company.
No participation share in the share of the Company’s capital.
Igor Kamenskoy
Independent Director
Chairman of the Audit
Committee2
Chairman of the Investment
Committee
Member of HR and
Remuneration Committee
Board Member since 2016
Born in 1968
Graduated from the Moscow State Pedagogical Institute with a degree in
Russian Language and Literature.
Experience:
2009–2015 – Managing Director of LLC Renaissance Capital - Financial
Consultant
Since 2015 – Managing director of LLC Renaissance Capital Broker
External appointments: Board Member of PJSC Open Investments, Insurance
Company Soglasie LLC, PJSC Aeroflot – Russian airlines, and PJSC Corporation
VSMPO-AVISMA.
No participation share in the share of the Company’s capital.
Sergey Mironosetsky
Non-Executive Director
Member of Investment
Committee
Board Member since 2014
Born in 1965
Graduated from Novosibirsk State University with a degree in Economic
Cybernetics.
Experience:
2005–2011 – Deputy Director General, Member of the Management Board of
JSC SUEK
2009–2013 – General Director, Chairman of the Management Board of JSC
SUEK (since 07 September 2011 – LLC Siberian Generating Company)
External Appointments: Board Member of the LLC Siberian Generating Company
No participation share in the share of the Company’s capital.
1 Decision taken by the Board of Directors as of 19 August 2016 (Minutes No. 335 of 22 August 2016).
2 Decision of the Board of Directors of 12 July 2016 (Minutes No. 331 of 15 July 2016)
3 Decision of the Board of Directors of 12 July 2016 (Minutes No. 331 of 15 July 2016)
86
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Andrey Murov
Executive Director
Board Member since 2013
REPORT OF THE COMPANY'S BOARD OF DIRECTORS
Born in 1970
Graduated from St. Petersburg State University majoring in Jurisprudence;
underwent a retraining programme in Financial Management at the Inter-
disciplinary Institute of Executive Staff Refresher Training and Retraining;
graduated from the State University of Civil Aviation majoring in "Organisation of
transportations and management on transport (air transport)"; PhD in Economic
Experience:
2007–2012 – General Director of JSC Airport Pulkovo
2012–2013 – Deputy General Director, Acting General Director, Executive
Director, and Member of the Management Board of JSC Holding of Interregional
Distribution Grid Companies (since 04 April 2013 - JSC Rosseti)
Since 2013 – Chairman of the Management Board of PJSC FGC UES
Since 2015 – Chairman of the Russian National Committee of CIGRE Non-Profit
Partnership (RNC CIGRE).
External appointments: Member of the Board of Directors of PJSC Rosseti,
PJSC Inter RAO, JSC SO UES, Member of the Board of Trustees of the National
Research University: the Moscow Power Engineering Institute, Saint Petersburg
State University, Saint Petersburg State University of Economics, Member of the
Supervisory Board of the Non-Profit Partnership Global Energy.
No participation share in the share of the Company’s capital.
Egor Prokhorov
Non-Executive Director
Board Member since 2016
Born in 1982
Graduated from Saint Petersburg State University majoring in Mathematical
Methods in Economics. Ph.D. in Economics.
Experience:
2009–2012 - Head of Corporate Finance of PJSC FGC UES
2011–2013 - General Director of the LLC Index of Energy – FGC UES
(concurrently)
2011–2013 - Finance Director of JSC IDGC Holding (concurrently)
2012–2013 - Finance Director of PJSC FGC UES
2013 – Finance Director of PJSC Rosseti
Since 2013 – Deputy General Director for Finance of PJSC Rosseti
External Appointments: Member of the Boards of Directors of PJSC Lenenergo,
JSC RDC UES, PJSC IDGC of Siberia.
No participation share in the share of the Company’s capital.
Nikolai Roshchenko
Non-Executive Director
Board Member since 2016
Born in 1981.
Graduated from the Tax Academy of the Russian Federation majoring in
Jurisprudence.
Experience:
Since 2008 – Head of the Legal Department, Member of the Management Board,
and Head of the Legal Department of the Market Council Non-profit Partnership
External Appointments: Board Member of JSC TSA.
No participation share in the share of the Company’s capital.
Sergey Sergeyev
Non-Executive Director
Member of the Investment
Committee
Born in 1976
Graduated with distinction from the Novocherkassk State Polytechnic University
majoring in Industrial and Civil Construction.
Experience:
Board Member since 2016
2009–2013 – Deputy Chairman of the Management Board of FGC UES
2012–2013 – General Director of JSC CECM UES
Since 2013 – Deputy CEO for Capital Construction of PJSC Rosseti
External Appointments: Board member of PJSC Lenenergo, Chairman of the
Board of Directors of NIIC MRSK.
No participation share in the share of the Company’s capital.
Pavel Snikkars
Non-Executive Director
Chairman of the Strategy
Committee1
Board Member since 2016
Born in 1978
Graduated from the Siberian Academy of Public Service majoring in Public and
Municipal Administration and the Siberian University of Consumer Cooperation
majoring in Jurisprudence. Ph.D. in Economics
Experience:
2010–2012 – Deputy Director General for Development and Deputy Director
General for Market Operations at JSC United Energy Retailing Company.
2012–2013 – Vice Chairman of the Management Board of the Non-Profit
Partnership Market Council
Since 2013 – Director of the Electric Power Industry Development Department
of the Ministry of Energy of Russia
External Appointments: Board Member of JSC Institute ENERGOSET PROJECT,
PJSC Lenenergo, PJSC Inter RAO UES, JSC IDGC of Ural, PJSC TDC; Chairman of
the Board of Directors of JSC Financial Settlements Centre.
No participation share in the share of the Company’s capital.
In 2016, no
transactions
with any of FGC
UES's shares
were made
by any Board
Members.
Ernesto Ferlenghi
Independent Director
Chairman of HR and
Remuneration Committee2
Member of the Audit Committee
Member of the Strategy
Committee
Born in 1968
Graduated from the University of Rome Tor Vergata in the Faculty of
Mathematics, Physics and Natural Sciences.
Experience:
2005–2014 – Head of the Representative Office of Eni in Russia, since 2009 –
Vice-President of Eni
2010–2014 – Deputy General Director of the JSC Arctic Gas Company
Board Member from 2008–2014.
Elected to the Board in 2016.
2014–2014 – Advisor to the Chairman of the Management Board of the Renova
Group
2014–2015 – Advisor for the business development of Tecnimont S.p.A.
Since 2013 – President of Confindustria Russia: Association of Italian
Entrepreneurs in Russia
Since 2014 – Senior Advisor of the ENI Group in Russia
Since 2015 – Senior Advisor for the business development of Saipem S.p.A.
Since 2015 – Consultant of SIIRTEC NIGI Spa
Since 2016 – Consultant of LLC SIAD RUS
Since 2016 – Senior Advisor of Snap S.p.A (oil servicing company)
No participation share in the share of the Company’s capital.
1 Decision taken by the Board of Directors on12 July 2016 (Minutes No. 331 of 15 July 2016).
2 Decision taken by the Board of Directors on 12 July 2016 (Minutes No. 331 of 15 July 2016).
88
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2
3
Backbone electric grids of Western Siberia
(MES Western Siberia)
1
FGC BRANCH
SERVICE AREA
3 constituent territories of the Russian
Federation in the Ural Federal District with
a population over 3.5 million people.
PERSONNEL
About 2 thousand people
АSSETS 1
HVTL 12.747 thousand km
86 substations, 220-500 kV
Capacity — about 38.716 thousand MVA
OPERATIONS
Electricity transmission. The branch provides
electricity connection between UES of Siberia
and UES of Urals.
90
90
1 according to annual performance reports
Key infrastructure projects
2011
500 kV SS Peresvet
Reduction of grid restrictions and enabling new Yugra consumers to connect to the power
system;
Increase of output capacity of Surgut power unit – an important segment of Tyumen power
system.
2014–2016
220 kV SS Mangazeya with 220 kV HVTL, Urengoy HEPP –
Mangazeya
Ensuring the development of critical infrastructure projects – permanent electricity supply
to Vankor oil and gas field of PJSC Rosneft, implementation of the next stage of Urengoy
SDPP's capacity output scheme;
Control of power shortages in Tazovsky and Krasnoselkupsky districts, elimination of grid
restrictions.
2016
2012
500 kV SS Svyatogor with 500 and 220 kV HVTL feeders
Control of the shortage of autotransformer capacities in the Nefteyugansk power area,
development and reclamation the Malobalyksk and Prirazlomnoye fields of PJSC Rosneft,
Vadelypsk and Salym clusters of oil fields of Salym Petroleum Development oil company;
Provision of the possibility of additional power take-off and technological connection to the
energy system of power receiving devices required for the development of the social and
utility sector of Nefteyugansk district.
500 kV HVTL, Il'kovo – Njagan'sk SDPP and Njagan'sk SDPP –
Lugovaya; 220 kV HVTL, Il'kovo-Njagan'sk SDPP and Njagan'sk
SDPP – Krasnoleninsky GPP
Arrangement of electric grid infrastructure for Nyagan SDPP's capacity output scheme
prevented growing power shortages in the Khanty-Mansiysk Autonomous District–Yugra,
increased reliability of Urajsk–Njagan' power unit and allowed for intense industrial
development in the region.
PHOTOS:
1
2
3
4
Vankor oil and gas field
220 kV HVTL, Urengoy HEPP –
Mangazeya
500 kV SS Peresvet
Njagan'sk SDPP
Annual Report 2016
91
91
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix BOARD COMMITTEES
Board Committees
At the end of 2016, the four Board Committees that worked to increase the
effectiveness of the resolutions taken by the Board of Directors by providing preliminary
consideration of the most important issues and by preparing recommendations for the
Board, included:
Audit Committee
Strategy Committee
HR and Remuneration
Committee
Investment Committee
The key role of each Committee is to provide
preliminary consideration of the most important
issues reserved for the Board, and to develop
recommendations that the Board follows when taking
resolutions on relevant issues.
The Committees are completely subordinate to the
Company's Board of Directors. The Committees are
made up of Board Members and persons suggested
by the Board Members whose competence and
experience are essential to the work of the Committees.
In accordance with best practices and the requirements
of the listing rules of the Moscow Exchange, only
independent directors can be nominated to the
Audit Committee and to the HR and Remuneration
Committee. This ensures objective and balanced
recommendations.
In 2016, the Company introduced the practice of
engaging independent consultants to work with
the Audit Committee and Investment Committee
of the Board. Thus, corresponding regulations were
prepared and approved that are now being tested for
possible implementation into the work of the other
committees. In addition, some updates were made
to the Regulations for the HR and Remuneration
Committee, the Investment Committee and the Strategy
Committee.
Statistics of the work of the Board Committees
Issues considered by the Commitees in 2016
For details on the
minutes of the
Committees Meetings,
see the Appendix 1
hereto.
4
4
Strategy Committee
Audit Committee
HR and Remuneration
Committee
Investment Committee
43
48
20
82
2016
SC
AC
HR&RC
IC
2015
SC
AC
HR&RC
IC
2014
SC
AC
HR&RC
IC
8
4
12
5
2
6
3
1
1
1 1
5
4
8
5
10
3
8
3
Board meetings
Meetings in absentia
Audit Committee
The role of the Audit Committee is to assist the Board of Directors in providing efficient
control over the Company’s financial and business operations.
The key functions of the Committee are:
— controlling the completeness, accuracy, and fairness
of the accounting (financial) statements;
— controlling the reliability and effectiveness of the
risk management and internal control system and
of the corporate governance system, including
an assessment of their effectiveness and
recommendations on for how they can improve;
— ensuring the independence and objectivity of the
Company’s internal audit
— assessing the independence of external auditors,
their objectivity and the absence of any conflicts of
interest, to evaluate candidates for the Company’s
external auditors, to make recommendations to the
Board of Directors regarding their appointment and
remuneration, and to control the quality of the audit
and the auditors' report;
— controlling the efficiency of the potential fraud
reporting system on the part of the Company’s
employees and third parties, as well as any other
violations, at the Company.
The Committee’s activities are governed by the
Regulations on the Audit Committee of the Board
of Directors of PJSC FGC UES, a revised version of
which was approved by the Board of Directors on 16
November 2015 (Minutes No. 291 of 19 November
2015).
Elected by the Board of Directors on
12 July 2016 (Minutes No. 331 of 15
July 2016)
Elected by the Board of Directors on
21 July 2015 (Minutes No. 279 of 24
July 2015)
Committee Members in 2016
(Positions as of the Date
of Election)
I. A. Kamenskoy – Chairman,
Independent Director
E. Ferlenghi – Independent Director
P.S. Grachev – Independent Director
S.N. Mironosetsky – Chairman,
Independent Director
M.A. Kolesnikov – Non-Executive
Director
Structure of issues considered
by the Audit Committee in 2016
6
1
5
48
issues
4
2
3
1
2
3
4
5
6
Accounting (Financial)
Statements
Risk Management, Internal
Control and Corporate
Governance
External Audit
Internal Audit
Preventing Fraud of the
Company's Employees and
Third Parties
Organisational issues of the
Committee
5
8
4
20
3
8
In the reporting period, the Audit
Committee considered 48 issues
and gave the corresponding
recommendations to the Board of
Directors.
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The key issues:
Accounting (Financial) Statements
— Preliminary approval of the accounting statements
for 2015 by the Board of Directors.
system of monitoring and control of the contractors'
financial stability.
— Recommendations on the Report by the Internal
Audit Commission of PJSC FGC UES based on
the results of the audit of financial and business
operations for 2015.
— Review of the plan of measures to improve the actual
— Review of IFRS’s financial statements for 2015 and
the subsequent auditor's report.
Risk Management, Internal Control and Corporate Governance
— Review of the Report on the Company’s key
— Review of the report on the Company's key
operational risks for 2015.
operational risks for H1, 2016.
— Review of the Report on the risk management and
— Recommendations on the approval of the Company's
internal control system for 2015.
— Approval of the “road map” for arranging the risk
management and internal control procedures to
prevent and fight corruption.
External Audit
internal document “Regulations on The Internal
Control System of PJSC FGC UES”
— Review of the external auditor's report on the
Company's statements and the audit’s results
Company's auditor
— Recommendations on the auditor's remuneration in
— Assessment of the effectiveness of the external audit
2016.
of the Company's accounting statements
— Recommendations on the candidate for the
Internal Audit
— Review of the internal auditor's reports on the
— Review of the reports by the Company's Internal Audit
effectiveness of the Company's internal control
and risk management system and of its corporate
governance in 2015.
— Recommendations on the approval for the
arrangement policy of the Group's internal audit
function (system)
— Review of the results of the audit of the Company's
functional areas:
— Major construction
— Managing the projects financed from technological
connection funds
— Procurement activities
Department
— Recommendations on a candidate for the Head of
the Company's Internal Audit Department
— Approval of criteria for the assessment of the
effectiveness of the Internal Audit Department in
2016
— Recommendations on the approval of the budget for
the Internal Audit Department for 2017
— Recommendations on remuneration to the Head of
the Company's Internal Audit Department for 2016
Preventing Fraud on the Part of the Company's Employees and Third Parties
— Review of the results of the Company's anti-
Company's Code of Corporate Ethics
corruption monitoring in 2015.
— Recommendations on the approval of the list and
— Recommendations on the results of the Company's
map of the Company's corruption risks
anti-corruption monitoring for H1, 2016.
— Recommendations on a new version of the
In March 2017, the work of the Audit Committee
was assessed by the independent company JSC
VTB Registrator as part of the Board’s activities
assessment. The assessment was conducted by the
use of questionnaires that were filled out by members
of the Board of Directors and its Committees, and
by members of the Company's Management Board,
as well as by interviewing certain members of the
Board of Directors, Board Committees and the
Corporate Secretary of the Company. The work and
characteristics of the Audit Committee’s members
receive the highest grades. However, it should be noted
that the Committee is quite objective in its ability to see
opportunities to further improve its work.
Internal Audit Assessment
In the reporting period, the Committee often
considered the performance of the Company's Internal
Audit Department, the methodological support for
evaluating its performance, as well as the reports on its
performance, in particular.
As a result, the Audit Committee (Minutes No. 47 of 20
April 2016) recommended that the Company's Board
recognise that the performance of the internal audit
met the requirements of the Corporate Governance
Code and the methodological recommendations on the
organisation of the work of internal audits at joint-stock
companies with state participation.1
For more details on
the assessment of the
external audit of the
Audit Committee, see
the Management
Report – the External
Auditor section
Strategy Committee
The role of the Strategy Committee is to assist the Board of Directors in improving the
Company's performance efficiency for the long term.
The Committee's key responsibilities include the
preliminary consideration, analysis and elaboration of
recommendations to the Company's Board of Directors
on the following items:
— determining the Company’s business priorities;
— developing recommendations for the determination
of the Company's dividend policy;
— evaluating the Company's performance efficiency for
— approving the business plan (the adjusted business
the long term;
plan);
— approving the Company’s Long-Term Development
Programme, making amendments thereto and
reviewing its progress reports;
— setting out strategic objectives, monitoring the
delivery of the Company’s strategy and adjusting the
exiting development strategy;
The Committee’s activities are governed by the
Regulations on the Strategy Committee of the Board
of Directors of PJSC FGC UES, a revised version of
which was approved by the Board of Directors of PJSC
FGC UES on 12 July 2016 (Minutes No. 331 of 15 July
2016).
Committee Members in 2016
(Positions as of the Date
of Election)
Elected by the Board
of Directors on 12 July
2016 (Minutes No.
331 of 15 July 2016)
Elected by the Board
of Directors
on 20 August 2015
(Minutes No. 280 of
24 August 2015)
P.N. Snikkars – Chairman, Member of PJSC FGC UES Board of Directors
2
D.S. Bulgakov – Deputy Head of the Department Expert Centre in the
Fuel and Energy Industry of the FSBO Russian Energy Agency (Analytical
Centre in the Fuel and Energy Industry)
A.E. Vikhansky –Director of the Department for the Natural Monopoly
Relations of LLC MC Polyus
A.A. Germanovich – Advisor to the General Director of CJSC Investment
Management
A.A. Demin – Member of PJSC FGC UES Board of Directors, and Member
of the Management Board of PJSC Rosseti
1 Order No. 249 by Rosimuschestvo dated 4 July 2014.
2 Was not the Chairman of the Strategy Committee before 12 July 2016.
94
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Elected by the Board
of Directors on 12
July 2016 (Minutes
No. 331 of 15 July
2016)
Elected by the
Board of Directors
on 20 August 2015
(Minutes No. 280
of 24 August 2015)
O.Yu. Isaev – General Director of PJSC IDGC of Centre
S.Yu. Lebedev – Director of the Strategic Development Department of PJSC
Rosseti
E.A. Olkhovitch – Deputy Director of the Department of State Regulation
of Tariffs, Infrastructure Reforms and Energy Efficiency of the Russian
Federation’s Ministry of Economic Development and Trade
M.G. Tikhonova – Deputy Chairman of the Management Board of PJSC FGC
UES, Member of the Management Board of PJSC FGC UES*
M.V. Rusakov – Member of the Management Board, Head of the Department
for the Competitive Pricing of Non-Profit Partnership Market Council
O.V. Shatokhina – Deputy General Director for Economic Affairs of PJSC
Rosseti
A.A. Erdyniev – Deputy Director of the Electric Power Industry Development
Department, Ministry of Energy of Russia
E. Pherlengi - Independent Director
V.K. Yavorsky – General Director of LLC Tori – Audit
M.S. Bystrov – Chairman, Member of the Board of Directors of PJSC FGC UES
N.G. Shulginov – Independent Director
A.M. Borisov – General Director of LLC SIP-Energo
S.I. Zhuravlev – Vice-President for the Government Relations of JSC Polyus
E.N. Miroshnichenko – Director for the Strategic Development of the Strategy
and Investment Block of PJSC Inter RAO
A.N. Kharin – Deputy Director of the Department for Corporate Governance,
Pricing Environment and Auditing of the Fuel and Energy Industries of the
Russian Ministry of Energy
P.V. Shpilevoy – Director for the Strategic Development of PJSC FGC UES, Head of
the Strategic Development Department of PJSC FGC UES
In the reporting period, the Strategy
Committee considered 43 issues and
gave corresponding recommendations
to the Board of Directors.
Structure of issues considered
by the Strategy Committee in 2016
9
8
1
7
6
5
43
issues
4
2
3
1
2
3
4
5
6
7
8
9
Determining Business
Priorities
Determining the Long-Term
Development Programme
The Company's Business Planning
Management of Subsidiaries
and Associates
Ensuring the Company's participation in
other organisations
Determining the Company's Policy
for Transactions with Derivatives and
Dividend Policy
Non-Core Assets Management and
Transactioning
International and Other Cooperation
Agreements Not Related to the
Company’s Standard Business Operations
Organisational issues of the Strategy
Committee
7
3
11
4
4
2
6
1
5
* Elected by the Board of Directors on 24 November 2016 (Minutes No. 346 of 28 November 2016).
The key issues:
Determining Business Priorities
— Standard scenarios for financial and economic
interaction with investors in the framework of
implementing the investment project on co-financing
principles
— Developing (upgrading) the plans (programmes) for
reducing operating costs by 10 per cent, including for
2016-2020.
— Amending the terms of contracts for technological
connection of electricity generation facilities to
electric grids
— Report of PJSC FGC UES on the results of work on
capital markets and interaction with rating agencies
for 2015
— Sponsorship Fund and Charity Fund of PJSC FGC
UES
Determining the Long-Term Development Programme
— Amending the Company's LDP
2019 and the forecast until 2030
— Audit results in 2015 of the Company's LDP for 2015-
The Company's Business Planning
— Business Planning Standard of PJSC FGC UES
— Scenario conditions for the preparation and approval
of the Company's business plan for 2017 and
forecasts for 2018-2021
— Reports on the implementation of the Company's
business plan in 2015 for the first quarter of 2016
— Approving the consolidated business plan (RAS) and
the consolidated business plan (IFRS) for the Group
of Companies FGC UES for 2016 and the forecasts
for 2017-2020
— Reports on the implementation of the consolidated
business plan (RAS) and the consolidated business
plan (IFRS) for the Group of Companies FGC UES for
various time periods
Management of Subsidiaries and Associates
— Determining the Company's position on items
for the Meeting of the Board of Directors of JSC
Elektrosetservis UNEG
— The new version of the restructuring concept of JSC
(representatives of PJSC FGC UES) on items for the
meeting of the Board of Directors and the General
Meeting of Shareholders of JSC R&D Centre of FGC
UES
Kuban Trunk Grids and JSC Tomsk Trunk Grids
— Participation of PJSC FGC UES in JSC R&D Centre
— Determining the position of PJSC FGC UES
of FGC UES
Determining the Company's Policy for Transactions with Derivatives and Dividend
Policy
— Determining Interest and currency risk management
actions, including the usage of derivative financial
instruments
— Approving the new version of the Regulation on the
dividend policy of PJSC FGC UES
Non-Core Assets Management
— Approving the updated Management Programme for
Non-Core Assets of PJSC FGC UES (hereinafter as
NCA) and the register of non-core assets updated in
accordance with NCA (the new version);
— The report on NCA progress and the results for the
period of 2013-2014 and 9 months of 2015;
— The report on NCA progress and the results for 2015;
— Issues on termination of PJSC FGC UES’s
participation in JSC Stend, JSC Centrenergoholding,
CJSC EnergoRynok and JSC Energotekhkomplekt;
— Approving the Non-Core Assets Disposal Programme
of PJSC FGC UES and its Subsidiaries and the
updated register (implementation plan) of non-core
assets of PJSC FGC UES
International and Other Cooperation Agreements Not Related to the Company’s
Standard Business Operations
— The report of PJSC FGC UES on applying of the
results of the comparative analysis report of the
Company’s key performance indicators for UNEG’s
management with the largest foreign electric grid
companies in operation of PJSC FGC UES
96
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HR and Remuneration Committee
The HR and Remuneration Committee assists PJSC FGC UES’s Board of Directors
with the development of an efficient and transparent remuneration system and the
development of HR and succession policies, in addition to carrying out preliminary
consideration of issues related to HR planning (succession planning) and the
professional composition and efficiency of the Board of Directors.
The HR and Remuneration Committee’s activities
are governed by the Regulations on the HR and
Remuneration Committee of the Board of Directors
of PJSC FGC UES, a revised version of which was
approved by the Board of Directors of PJSC FGC UES
on 03 October 2016 (Minutes No. 341 of 05 October
2016). Amendments made to the last version brought
the document in compliance with the Corporate
Management Code.
Elected by the Board
of Directors on 12 July
2016 (Minutes No.
331 of 15 July 2016)
Elected by the Board
of Directors
on 21 July 2015
(Minutes No. 279 of
24 July 2015)
Committee Members in 2016
(Positions as of the Date
of Election)
E. Pherlengi – Chairman, Independent Director
I.A. Kamenskoy – Independent Director
S.N. Mironosetsky – Chairman, Independent Director
M.A. Kolesnikov – Non-executive Director
P.S. Grachev – Independent Director
Structure of issues considered
by the HR & Remuneration Committee in 2016
1
4
3
20
issues
2
1
2
3
4
Remuneration Payable to Members
of the Company's Management and
Control Bodies
HR Issues
Improvement of the Corporate
Management System and Practices
Organisational issues
of the Committee
7
6
2
5
In the reporting period, the HR and
Remuneration Committee considered
20 issues and gave the corresponding
recommendations to the Board of
Directors.
The key issues are shown in the table
below:
Remuneration Payable to Members of the Company's Management and Control Bodies
— Recommended approval of the Report on KPI
— Recommended approval and introduction of
implementation by the senior management of PJSC
FGC UES for 2015
— Recommended approval of the Reports on KPI
implementation by the senior management of PJSC
FGC UES for the first, second and third quarters of
2016
— Recommended consideration of the results of the
evaluation of the Board of Directors’ efficiency and
the self-assessment of the Company's corporate
governance quality
methods for the calculation and evaluation of
the implementation of quarterly KPIs by senior
management
— Recommended amendments to the Company's LDP
— Recommended amendments to the Methods for the
calculation and evaluation of the implementation of
KPIs by senior management
— Recommended approval of the Regulation on the
performance assessment of the Company's Board of
Directors
HR Issues
— Recommended consideration of the issue on the
— Recommended election of a person authorised
Company's Management Board and the approval of
candidates for positions in the Company's executive
office
— Recommended approval of the candidate for the
position of Deputy Chairman of the Management
Board of PJSC FGC UES
— Recommended consideration of the issue on
candidates for nomination to the management and
control bodies of PJSC FGC UES in the framework of
implementing the Russian Federation Government
Order No. ISh-P13-7597 of 29 October 2011
to approve labour contract conditions, to sign the
labour contract, as well as any amendments and
supplements to the labour contract, on behalf of
the Company together with the Chairman of the
Management Board
— Recommended introduction of professional
standards and practices into the Company's
operations
— Recommended approval of the organisational
structure of the Company's executive office
Improvement of the Corporate Management System and Practices
— Recommended amendments to the Regulation on
the HR and Remuneration Committee
Investment Committee
The role of the Investment Committee is to assist the Board of Directors in improving
and developing the Company's investment policy.
The Committee's key responsibilities include the
preliminary consideration, analysis and elaboration
of recommendations for the Company's Board of
Directors on the following items:
— approving the Company's investment programme,
including its adjustment, and reviewing progress
reports on its implementation;
of FGC UES, including the R&D programme, and
reviewing progress reports on its implementation;
— determining the Company's procurement policy;
— considering the schemes and development
programmes for UES of Russia;
— considering issues related to technological
— considering internal documents on investment
connections to electric grids.
activities, including the standards of the
technological and price audit of investment projects;
— reviewing the progress of the Company's specific
investment projects;
— approving the innovative development programme
The Committee’s activities are governed by the
Regulations on the Investment Committee of the Board
of Directors of PJSC FGC UES, a revised version of
which was approved by the Board of Directors on 12
July 2016 (Minutes No. 331 of 15 July 2016).
Elected by the Board
of Directors on 12 July
2016 (Minutes No.
331 of 15 July 2016)
Elected by the Board
of Directors
on 20 August 2015
(Minutes No. 280 of
24 August 2015)
1
Committee Members in 2016
(Positions as of the Date
of Election)
I.A. Kamenskoy – Chairman, Board member of PJSC FGC UES,
Independent Director
S.A. Balaeva – Deputy General Director for Investments of PJSC Rosseti
V. Gritsenko F. – Member of the Presidium of NP OPORA ROSSII
V.A. Domnich – Head of the Department of the State Regulation of
Tariffs, Infrastructure Reforms and Energy Efficiency of the Ministry of
Economic Development and Trade of the Russian Federation
S.I. Zhuravlev – Vice-President for Government Relations of JSC MC
Polyus
A. Ilienko B. – Member of the Management Board of JSC SO UES,
Director for UES Development of JSC SO UES
1 Was not the Chairman of the Strategy Committee before 12 July 2016.
98
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BOARD COMMITTEES
Elected by the Board
of Directors on 12 July
2016 (Minutes No.
331 of 15 July 2016)
Elected by the Board
of Directors
on 20 August 2015
(Minutes No. 280 of
24 August 2015)
V.N. Kisilev – Chairman of the Consumer Council of the Government
Commission for the Electricity Industry
R.R. Magadeev – Deputy Chief Engineer of PJSC Rosseti
S.N. Mironosetsky ¬– Board member of PJSC FGC UES
I.A. Selivakhin – Financial Director of JSC TSA, Advisor of the Chairman
of the Management Board of the Non-Profit Partnership Market Council
S.A. Semerikov – Deputy General Director for the Development and
Services of PJSC Rosseti
S.V. Sergeev – Board Member of PJSC FGC UES, Deputy General Director
for Capital Construction of PJSC Rosseti
V.C. Skulkin – Deputy Director of the Electric Power Industry
Development Department, Ministry of Energy of Russia
R.E. Filimonov – First Deputy Chairman, Member of the Management
Board of PJSC FGC UES
V.M. Kravchenko – Chairman of the Committee, Chairman of the Board
of Directors
A.E. Vikhansky – Director of the Department for the Natural Monopoly
Relations of LLC MC Polyus
V.A. Goncharov – First Deputy Chairman, Member of the Management
Board of PJSC FGC UES
I.I. Mirsiyapov – Member of the Management Board, Head of the Strategy
and Investment Unit of PJSC Inter RAO
E.A. Olkhovitch – Deputy Director of the Department for State Regulation
of Tariffs, Infrastructure Reforms and Energy Efficiency of the Russian
Ministry of Economic Development and Trade
P.N. Snikkars – Deputy Chairman of the Committee, Director of the
Electric Power Industry Development Department, Ministry of Energy
of Russia
V.K. Yavorsky – General Director of LLC Tori – Audit
In the reporting period, the Investment
Committee considered 82 issues and
gave corresponding recommendations
to the Board of Directors.
Structure of issues considered
by the Investment Committee in 2016
10
1
82
issues
9
8
7
6
5
4
3
2
1
2
3
4
5
6
7
8
9
10
Approving and Adjusting the Investment
Programme
Implementing Separate Investment
Projects
Determining the Procurement Policy
Approving the Innovative Development
Programme
Considering Internal Documents
on Investment Activities, including
the Standards for the Technological
and Price Audits of Investment
Projects
Corporate Management
Developing the Asset Management
System
Developing Automated Electricity
Metering Systems
Executing Technological Connections
to Electric Grids
Practical arrangements and activities
of the Investment Committee
9
37
5
3
13
2
3
2
3
5
The key issues:
Approving and Adjusting the Investment Programme
— Approving the Long-Term Investment Programme of
— Reviewing the reports of the Company's management
PJSC FGC UES for 2016-2020
— Approving the adjustment of the Company's
Investment Programmes for 2015 and for 2016-2020
on the approval of the adjusted Investment
Programmes for 2015 and for 2016-2020
Implementing Separate Investment Projects
— Reviewing the progress of certain investment projects
— Considering the results of on-site audits by the
Ministry of Energy of Russia
— Reviewing the reports of the Company's management
on the commissioning of facilities
— Considering the quarterly reports of PJSC FGC UES on
the implementation of the investment programme
— Considering information on the organisation of work
with accounts receivable and accounts payable, as
well as with bank guarantees in the framework of
implementing the Company's Investment Programme
Determining the Procurement Policy
— Approving the Regulations on procurement of goods,
works, services for the Company’s own needs and
introducing amendments and supplements thereto
Approving the Innovative Development Programme
— Approving the Company's Innovative Development
— Reviewing the annual report for 2015 on the
Programme for 2016-2020 with an outlook for 2025
and introducing adjustments thereto
implementation of the Innovative Development
Programme
Considering Internal Documents on Investment Activities, including the Standards for the
Technological and Price Audits of Investment Projects
— Approving Scenario Conditions for the preparation of
the Company's investment programme
— Approving the Regulations on the investment activities
of PJSC FGC UES
— Approving the registration procedure of the investment
projects included in the list of investment projects for
2013-2017 with an outlook for 2020
— Approving the Standard of Public Technological and
Price Audits of the Company's investment projects
— Approving the list of investment projects of PJSC FGC
UES subject to technological and price audits in 2016
Developing the Asset Management System
— Approving the Annual Report on the technological and
price audits of the Company's investment projects in
2015
— Considering the necessity to update other executive
documentation of PJSC FGC UES regulating the
preparation and implementation of Investment
Programmes and projects
— Reviewing the audit results of business processes:
Procurement Activities, Project Management, and
Capital Construction
— Approving the Action Plan until 2019 for reducing the
— Considering the execution of the resolution of the
amount of construction in progress
— Approving the Development Plan of PJSC FGC UES’s
Company's Board of Directors on the participation of
PJSC FGC UES in CJSC Phoenix Energo
productive asset management
— Restructuring of the JSC Kuban Trunk Grids and the JSC
— Approving the Report on the compliance of PJSC FGC
UES with the Procedure for the operational acceptance
of completed construction facilities of PJSC FGC UES
Tomsk Trunk Grids
Developing Automated Electricity Metering Systems
— Considering implementing actions to bring the
automated information and measurement system
of electricity fiscal metering of PJSC FGC UES in
compliance with the technical requirements of the
wholesale electricity and capacity market
Executing Technological Connections to Electric Grids
— Considering and approving reports on the
consideration of applications for technological
connection and the implementation of contracts for
technological connection
100
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2
3
Backbone electric grids of Siberia
(MES Siberia)
FGC BRANCH
SERVICE AREA
10 constituent territories of the Russian
Federation on the territory of Siberian Federal
District with a population over 19 million
people.
PERSONNEL
More than 3.3 thousand people
АSSETS 1
HVTL 21.855 thousand km
118 substations, 35—1150 kV
3 TSS, 6-10 kV
Capacity — about 44.194 thousand MVA
OPERATIONS
Electricity transmission. The branch provides
inter-state transmission of electricity to
Kazakhstan and Mongolia.
PHOTOS:
Krasnoyarsk
Krasnoyarskaya HPP
500 kV substation Enisey
500 kV substation Enisey
1
2
3
4
1
Key infrastructure projects
2008
Power line 500 kV, Zarya – Barabinskaya – Tavricheskaya
Integration of Omsk power system with UNEG in the territory of Russia. In the process of
the line construction, a complicated transition across the Irtysh Waterway of 1985 metres
long has been performed.
2015—2017
500 kV substation Enisey
Control of electricity shortage in the city of Krasnoyarsk;
Ensuring a high level of power security in the region during peak load periods.
2006
Construction of 500 kV SS Aluminievaya
Durability of equipment and buildings of the substation is designed to survive eight-points
earthquakes on the Richter scale. The substation has high voltage electric equipment from
leading world producers.
Power supply of Khakas aluminium plant;
Improvement of power supply reliability of the Siberian power system.
2006
Technology connection of 110 kV SS Universitet
Development of the Siberian Federal University with over 40,000 students. 220 kV SS
Oktyabrskaya, capacity of 400 MBA, supplying electricity to residents of the Oktyabrsky
district of Krasnoyarsk, including the student quarter of SFU, became the power centre
of the new facility.
102
102
1 according to annual performance reports
Annual Report 2016
103
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Corporate Secretary
In the framework of implementing the "road map" for introducing the provisions of the
Corporate Governance Code into the Company's practice in 2015, the position of the
Corporate Secretary was established in the corporate management system of PJSC
FGC UES.
The Corporate Secretary’s activities are subject to
the provisions of the Regulations on the Corporate
Secretary of PJSC FGC UES1. The Corporate Secretary
is functionally subordinate to the Board of Directors
and is administratively subordinate to the Chairman
of the Management Board ensuring his/her sufficient
independence from the Company’s management.
Responsibilities of the Corporate Secretary:
— Participating in implementing the procedures related
to operation of the General Meeting of Shareholders,
including control of their implementation;
— Ensuring the efficient performance of the Board of
Directors and assisting in organising the operation of
the Board of Directors and its Committees, as well as
coordinating the exchange of information between
them;
— Participating in improving the Company's corporate
management system and practices;
Alexey Ozherelyev
Born in 1986
— Participating in implementing the Company's
information disclosure policy, including control of the
information shared on the Company’s official website
on corporate management and its interaction with
shareholders and investors;
— Arranging the Company's interaction with its
shareholders, in particular, by participating in the
organisation of timely consideration of shareholder
statements by the Company's bodies and structural
units, in case of the receipt of respective statements
to the address of the Corporate Secretary.
Alexey Ozherelyev has been performing the functions
of the Company's Corporate Secretary since July 2016.
Corporate Secetary
of PJSC FGC UES
Graduated from the Moscow State University of Economics, Statistics and
Informatics (MESI) in 2006 with a degree in Finance and Credit.
Experience:
2009–2011 – worked at the Ministry of Energy of Russia and occupied the
positions of the Advisor, Deputy Division Head, Division Head of the Department
for Economic Regulation and Property Relations in the Fuel and Energy Complex.
2011–2013 – worked at PJSC FGC UES in the position of Deputy Head of the
Corporate Management Department.
2013–2016 – worked at PJSC Rosseti in the position of the Head of the
Department for Operation Organisation of Management Bodies.
Since 09 January 2017 until the present, has been working at PJSC Rosseti
in the position of the Head of the Performance Organisation Department of
Management Bodies, the Board of Directors and interaction with shareholders
and investors.
Executive Governance
Bodies
The Company's day-to-day operations are managed by both collective and single
executive bodies, the Management Board and the Chairman of the Management Board
of PJSC FGC UES, which ensures the effective implementation of the Company's tasks
and its development strategy.
The executive bodies are entitled to take decisions on
all matters of the Company's day-to-day operations,
except in matters related to the competence of the
General Meeting of Shareholders and the Board of
Directors.
1 Approved by the Board of Directors, Minutes No. 279 of 27 July 2015, and Minutes No. 330 of 08 July 2016.
Key Matters Reserved for the Management Board
— Developing and submitting the Company’s
business priorities and Long-Term plans for their
implementation for the Board’s consideration
— Preparing the report on implementing the resolutions
of the Company’s General Meeting of Shareholders
and the Board of Directors
— Exercising the powers of the General Meetings of
Shareholders (participants) of the Company’s wholly-
owned subsidiaries
— Submitting business and financial performance
reports of the Company’s subsidiaries and
associates, as well as information on other
enterprises that the Company participates in, for the
Board’s consideration
— Addressing other issues of managing the Company’s
day-to-day operations in accordance with the
resolutions of the General Meeting of Shareholders,
the Company’s Board of Directors, as well as matters
referred to the Management Board by the Chairman
of the Company's Management Board
Key Matters Reserved for the Chairman of the Management Board
— Disposing the Company's property and making
— Ensuring implementation of the Company's
transactions on behalf of the Company
— HR issues
— Organising accounting and reporting procedures at
the Company
— Publishing and approving the Company’s internal
executive documents on matters related to his/her
competence
work plans required to solve its tasks, as well as
submitting progress reports on the implementation
of the Company's work plans to the Board of
Directors
— Solving other issues of the Company's day-to-day
operations, except for matters falling within the
competence of the General Meeting of Shareholders,
the Board of Directors and the Management Board of
the Company
Interaction Between Executive Bodies and the Board
of Directors
Executive bodies report to the Company’s Board of Directors and the General Meeting
of Shareholders.
The election of the Chairman of the Company's
Management Board and the early termination of his/
her powers falls within the competence of the General
Meeting of Shareholders of the Company.
The Chairman and Members of the Company's
Management Board cooperate closely with the Board
of Directors, including on the submission of regular
reports on their performance results. For subordination
and the efficient monitoring of work of the Company's
executive bodies, in accordance with the Company's
Articles of Association, the following matters related
to the Members and the Chairman of the Management
Board are reserved for the Company's Board of
Directors:
— election of members of the Company's Management
Board (except the Chairman of the Company's
Management Board) and the early termination of their
powers;
— applying disciplinary measures against the Chairman
of the Company's Management Board and incentives
in accordance with the applicable law;
— setting the amount of remuneration and
compensation payable to the Chairman and the
Members of the Company's Management Board;
— coordinating the holding of positions in the
management bodies of other companies, as well as
other paid positions at other companies.
104
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix EXECUTIVE GOVERNANCE BODIES
Performance Results of the Management Board for 2016
In 2016, the Company's Management Board held 82 meetings, in which 747 items
were considered (592 of which were recommendations made to the Company's
Board of Directors).
The number of Board Meetings
The number of issues considered
2016
2015
2014
82
78
65
2016
2015
2014
747
788
752
In the framework of its operation, in the reporting period
the Company's Management Board considered the
following key items:
— a new version of the Set of Activities ensuring Long-
Term financial sustainability and the liquidity of the
Company was approved;
— the report on the implementation of the Action
Programme to ensure financial sustainability and
enhanced economic efficiency of JSC FGC UES for
2014-2015 was considered;
— a consolidated plan for maintenance and repairs for
2017-2021 approved;
— implementation for the concept of the General
Service Centre was approved;
— equipment replacement programmes of PJSC FGC
UES were approved;
— development strategies for a number of the
Company's subsidiaries and associates for 2016-
2020 were approved;
— implementation of the maintenance and repairs
programme, as well as the Company’s non-core
assets management programme, was monitored;
— resolutions on the social security of the Company's
employees and charitable support were made.
Composition and Biographies of the Management Board’s
Members
As of the end of 2016, the Management
Board of PJSC FGC UES consisted of
nine members. All persons comprising
part of the Management Board have the
required experience and competences for
the performance of their functions at the
senior level.
Tenure of the members of the Management
Board
<1 year
From 1 to 3 years
>3 years
3
3
3
Personal information on the members of the
Management Board of PJSC FGC UES has been
disclosed with their consent.
Andrey Murov
Chairman of the Management
Board, Member of the Board of
Directors
Areas of Responsibility:
Management of the Company's
day-to-day operations,
organisation of work of the
Management Board
Management Board Member
since 2012
Born in 1970
Education:
Graduated from the St. Petersburg State University with a major in
Jurisprudence. Underwent a retraining programme in Financial Management
at the Interdisciplinary Institute of Executive Staff Refresher Training and
Retraining. Graduated from the State University of Civil Aviation, majoring in
Organisation of transportations and management on transport (air transport).
PhD in Economics.
Experience:
2007–2012 – General Director of JSC Airport Pulkovo
2012–2013 – Deputy General Director, Acting General Director, Executive
Director, Member of the Management Board of JSC Holding of the Interregional
Distribution Grid Companies (since 04 April 2013 - JSC Rosseti)
Since 2013 – Chairman of the Management Board of PJSC FGC UES
Since 2015 – Chairman of the Non-Profit Partnership Russian National
Committee of CIGRE (RNC CIGRE).
External Appointments: Member of the Board of Directors of PJSC Rosseti,
PJSC Inter RAO, JSC SO UES, Member of the Board of Trustees of the National
Research University: the Moscow Power Engineering Institute, Saint Petersburg
State University, Saint Petersburg State University of Economics, Member of the
Supervisory Board of the Non-Profit Partnership Global Energy.
Does not hold any shares in PJSC FGC UES.
Alexander Vasiliev
Deputy Chairman of the
Management Board
Areas of Responsibility: Security
and Internal Control
Management Board Member
since 2014
Born in 1958
Education:
Graduated from the Leningrad Mechanical Institute with a degree in Mechanical
Engineering. Graduated from the St. Petersburg State University of Economics
and Finance majoring in Economics. Graduated from the St. Petersburg Institute
of Foreign Economic Relations, Economics and Law majoring in Jurisprudence.
Experience:
2011–2014 – Deputy Head of the Federal Customs Service
Since 2014 – Deputy Chairman of the Management Board of PJSC FGC UES
Does not hold any shares in PJSC FGC UES.
Vladimir Dikoy
Deputy Chairman of the
Management Board — Chief
Engineer
Areas of Responsibility:
Maintenance and Repairs
Management Board Member
since 2013
Alexander Zagaratsky
First Deputy Chairman of the
Management Board
Areas of Responsibility:
Legal and general administrative
matters, Staff Management and
Development, Corporate and
Strategic Management
Management Board Member
since 2014
Born in 1954
Education:
Graduated from the Moscow Power Engineering Institute majoring in the Electric
Power Supply of Industrial Enterprises, Cities and Agriculture. PhD in Technical
Sciences.
Experience:
2010–2013 – Deputy Chief Engineer of PJSC FGC UES
2013–2017 – Deputy Chairman of the Management Board - Chief Engineer of
PJSC FGC UES
Since April 2017 – Advisor to the Chairman of the Management Board of FGC UES
Share held in the Company’s ordinary stock – 0.0000219%.
Born in 1976
Education:
Graduated from the St. Petersburg Law Institute of the General Prosecutor Office
with a major in Jurisprudence. Graduated from the St. Petersburg Institute for
Management and Economics, majoring in State and Municipal Management.
Ph.D. in Economics.
Experience:
2007–2013 – Chief of Staff of the Chairman of the St. Petersburg Legislative
Assembly
Since 2013 – Deputy Chairman of the Management Board of PJSC FGC UES
Since 2016 – First Deputy Chairman of the Management Board of PJSC FGC UES
Does not hold any shares in PJSC FGC UES.
106
107
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix Alexey Molskiy
Deputy Chairman of the
Management Board
Areas of Responsibility:
Development and Customer
Relations
Management Board Member
since 2016
Nikolay Pozdnyakov
General Director of the
Subsidiary of JSC CIUS UES that
is of high importance to PJSC
FGC UES
Management Board Member
since 2014
EXECUTIVE GOVERNANCE BODIES
Born in 1980
Education:
Graduated from the Moscow Power Engineering Institute, majoring in Electric
Energy Systems and Grids and Economics and Company Management.
Experience:
2010–2012 – Head of the Reconstruction Department of PJSC FGC UES.
Since 2012 – Deputy Chief Engineer of PJSC FGC UES
Since 2012 – Deputy Chairman of the Management Board of PJSC FGC UES
Since 2016 – Member of the Management Board of PJSC FGC UES.
External Appointments: Member of the Supervisory Board of JSC IPS
SakRusenergo, Non-Profit Partnership Market Council, Chairman of the Board of
Directors of JSC CIUS UES, JSC APBE, JSC Kuban Trunk Grids, JSC Tomsk Trunk
Grids, the Board Member of Non-Profit Union ENERGOSTROY, Member of the
Board of Directors of CJSC TaigaEnergoStroy.
Does not hold any shares in PJSC FGC UES.
Born in 1979
Education:
Graduated from the Moscow State University majoring in Physics. Also holds a
degree in Economics from the Higher School of Economics.
Experience:
2009–2013 – Head of the Investment Programme Monitoring and Support
Division of the Investment Planning and Reporting Department, Head of the
Investment Planning and Reporting Department of PJSC FGC UES
2013–2014 – Deputy General Director for Investments of JSC Rosseti
2014–2016 – Deputy Chairman of the Management Board of PJSC FGC UES
Since 2014 - General Director of JSC CIUS UES
External Appointments: General Director, Member of the Board of Directors of
JSC CIUS UES.
Share held the Company’s ordinary stock – 0.0000938%.
Sergey Terebulin
Deputy Chairman of the
Management Board
Areas of Responsibility:
Economy, finance and
subsidiaries
Born in 1978
Education:
Graduated from the Financial Academy under the Government of the Russian
Federation, majoring in Finance and Credit. Ph.D. in Economics.
Experience:
Management Board Member
since 2016
2006–2014 – Head of the Corporate Finance Department of JSC MC HydroOGK
and JSC RusHydro
2014–2016 – Director of the Corporate Finance Department of PJSC RusHydro
2016 – Advisor to the Chairman of the Management Board of PJSC FGC UES
Since 2016 – Deputy Chairman of the Management Board
External Appointments: Member of the Board of Directors of PJSC RAO Energy
Systems of the East, JSC Power Distributing Company RusHydro, Member of
the Board of Trustees of the GALCHONOK Charity Fund supporting children with
organic lesions of the central nervous system.
Does not hold any shares in PJSC FGC UES.
Members of the
Management
Board did not
make any
transactions
with the shares
of PJSC FGC UES
in 2016.
Maria Tikhonova
Deputy Chairman of the
Management Board
Areas of Responsibility:
Corporate and Strategic
Management
Management Board Member
since 2013
Members of the
Management
Board were not
provided with any
loans (credits)
in 2016.
Roman Filimonov
First Deputy Chairman of the
Management Board
Areas of Responsibility:
Development and
Customer Relations,
Investments and Innovative
Development,IT operation and
development,Procurement
management, and Operational
Control
Management Board Member
since 2016
Born in 1980
Education:
Graduated from the Volga-Vyatka Academy of Public Service, majoring in Public
and Municipal Administration. Holds an MBA in Finance from the Higher School
of Economics. Ph.D. in Economics
Experience:
2008–2012 – Head of the Corporate Management and Economic Analysis
Unit of the Department for Economic Regulation and Property Relations, the
Deputy Director of the Department, the Director of the Department for Economic
Regulation and Property Relations in the Fuel and Energy Complex of the
Russian Ministry of Energy
Since 2013 – Deputy Chairman of the Management Board of PJSC FGC UES
Does not hold any shares in PJSC FGC UES.
Born in 1968
Education:
Graduated from the Military Engineering Institute named after A.F. Mozhayskiy
holding the Order of the Red Banner, with a major in engineering. Received
additional vocational education at the North-Western Academy of State Service,
majoring in State and Municipal Management.
Experience:
2009–2012 – Vice-Governor of St. Petersburg
2012–2013 – Deputy Chairman of Government of the Moscow Region
2013–2015 – Director of the Construction Department of the Russian Ministry
of Defence
2015–2016 – Head of the Central Department for Track Maintenance of JSC
Russian Railways
2016 – Advisor to the Chairman of the Management Board of PJSC FGC UES
Since 2016 – First Deputy Chairman of the Management Board of PJSC FGC
UES
Does not hold any shares in PJSC FGC UES.
In accordance with the Company's Articles of
Association, the labour contract with members of the
Company's Management Board is signed for three
years and the labour contract with the Chairman of the
Management Board on behalf of the Company is signed
for five years.
Changes to the Membership of the Management Board
in 2016
Following the resolution of the Board of Directors on
02 September 2016 (Minutes No. 337 of 05 September
2016), the powers of the following members of the
Company's Management Board were terminated early:
Maria Pichugina, Valery Goncharov, Dmitry Shishkin.
Following the resolution of the Board of Directors on 27
October 2016 (Minutes No. 344 of 31 October 2016),
Roman Filimonov and Alexey Molskiy were elected
as members of the Company's Management Board.
Following the resolution of the Board of Directors on
21 December 2016 (Minutes No. 349 of 23 December
2016), Sergey Terebulin was elected as a member of
the Company's Management Board.
Following the resolution of the Board of Directors on 27
October 2016 (Minutes No. 344 of 31 October 2016),
a labour contract for the new term was signed with
the Company's Management Board Member Maria
Tikhonova.
Following the resolution of the Board of Directors on
02 September 2016 (Minutes No. 337 of 05 September
2016), a labour contract for the new term was signed
with the Company's Management Board Member
Vladimir Dikoy.
108
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix REMUNERATION FOR MEMBERS OF THE BOARD
OF DIRECTORS AND GOVERNING BODIES
Remuneration for Members of the Board
of Directors and Governing Bodies
Remuneration System for Members of the Board of Directors
In accordance with recommendations of the
Corporate Management Code, the Company's policy
for remuneration and the reimbursement of expenses
(compensation) of Board Members is set by the
Regulations on Remuneration and Compensation
Payable to Members of the Board of Directors of PJSC
FGC UES1.
and Remuneration Committee provides increased
efficiency and transparency to the existing policy.
The key aspects of the remuneration system are as
follows:
— Remuneration is paid in a lump-sum payment
following the results of the work of the Company's
Board Members for the corporate year, from their
election until the termination of their powers;
The practices applied in the Company for the
determination of remuneration and compensation
payable to Members of the Board of Directors comply
with the transparency and reporting principles and
consider the roles of the above-stated persons in the
Company’s overall performance. Operation of the HR
Remuneration Calculation. In order to increase the
involvement of the Board members in the Company's
operation and their motivation to achieve the high
financial indicators set by the Company, the amount
of remuneration payable to members of the Board of
Directors depends on the Company's financial results.
Remuneration is calculated on the basis of the basic
part of remuneration (RBAS), which is determined
depending on the Company's revenue2 for the financial
year, and is prior to the year of the remuneration
payment to a Board Member.
— The decision to pay remuneration is made by the
Company's annual General Meeting of Shareholders.
Revenue for the
Financial Year
Amount of the Basic Part
of Remuneration
over RUB 200 bn
RUB 1,000,000
over RUB 30 bn
over RUB 10 bn
over RUB 1 bn
over RUB 600 mln
RUB 900,000
RUB 800,000
RUB 700,000
RUB 600,000
Actual remuneration payable to a Member of the
Company's Board of Directors, following the results of the
corporate year, is calculated by the following formula:
Remuneration Payable to Members of the Board of
Directors for 2016 for Participation in the Operation
of the Board of Directors (RUB thousand)3
RACT = RBAS × 100/130 × (a / b),
in which:
RACT – Actual remuneration;
RBAS – Basic remuneration;
a – The number of meetings of the Board of Directors
(irrespective of their form), in which the Board Member
attended and of which were held in the corporate year;
b – Total number of meetings of the Board of Directors
held in the corporate year.
Remuneration payable to each Member of the Board of
Directors for their participation in one meeting for the
corporate year 2015-2016 amounted to: RACT = 900,000
× 100/130/52 = RUB 13,313.61
Increments. The remuneration of the Chairman of the
Board of Directors increased by 30%. The following
increments were set to be paid to the Members of the
Board of Directors for their work in committees: 20% to
the chairman of the committee, and 10% to members of
the committee. The maximum amount of remuneration
payable to each Member of the Board of Directors, in
consideration of different increments, was set at RUB
900,000. The decision on the payment of remuneration
to the Board Members following the results of 2016
will be made by the Annual General Meeting of
Shareholders.
Oleg Budargin
Maxim Bystrov
Pavel Grachev
Andrey Dyomin
Boris Kovalchuk
Mikhail Kolesnikov
Vyacheslav Kravchenko4
Sergey Mironosetsky
Andrey Murov5
Sergey Shmatko
Nikolay Shulginov
TOTAL
466.0
766.9
814.8
746.9
519.2
814.8
0
858.7
0
612.4
717.6
6,317.3
Remunerations of the members of the Board
of Directors6, RUB thousand
2016
2015
2014
6,317.3
6,541
1 Approved by the Resolution of the Annual General Meeting of Shareholders of PJSC FGC UES on 26 June 2015 (Minutes No. 16 of 30 June 2015).
2 Calculated under RAS.
3 Other types of remuneration, including the reimbursement of expenses, were not paid.
4 Remuneration was not paid due to the fact that this Board Member is a public servant.
5 Remuneration was not paid due to the fact that this Board Member is also the Chairman of the Company's Management Board.
Compensations. Regulation on the payment of
remuneration and compensation to the Board Members
of PJSC FGC UES also includes the payment of any
actual expenses to Board Members, including travel
costs to an from the location of the meeting of the
Board of Directors and committees, accommodation
costs, and any other expenses related to the Company's
operation. No compensations were paid to the Board
Members in 2016.
Remuneration Payable to Certain Committee
Members of the Board of Directors. Regulations on
the payment of remuneration and compensation to
the committee members of the Board of Directors
of PJSC FGC UES that concern remuneration
payments to committee members who are not Board
Members, to persons with whom the Company has
signed employment contracts, and to any persons for
whom the receipt of any payments from commercial
organisations is legally restricted or prohibited, was
approved in 2015.
Remuneration for participation in each meeting is paid
to the stated committee members on a quarterly basis.
The amount of remuneration is equal to three minimum
monthly wage rates for a first category worker as
set by the sectoral tariff agreement of the Russian
Electric Energy Complex on the date of the meeting.
Remuneration to the Committee Chairman increased
by 50%.
The total remuneration paid to committee members of
the Board of Directors of PJSC FGC UES (who are not
simultaneous members of the Board of Directors) for
2016 amounted to RUB 3,728.2 thousand.
Compared to 2015, the significant growth in the
remuneration amount paid to committee members
of the Board of Directors in 2016 was the result of an
increase in the numerical composition of committees
Remunerations of the committee members of the
Board of Directors*, RUB thousand
2016
2015
2014
997.1
810.6
3,728.2
* Who are not simultaneously members of the Board of Directors.
held by the Company's Board of Directors and the
number of committee meetings of more than 1.5
times, as well as the result of the quarterly indexation
of the minimum monthly rate for first category
workers, forming the basis for the calculation of the
remuneration amount.
Remuneration System of the Chairman and Members
of the Management Board
For more information
about KPI system, the
fulfilment of KPIs in the
reported year and the
targets for 2017, please
see the Strategic Report,
Market Review – Key
Performance Indicators
section.
In accordance with the best practice, the remuneration
system for members of the Company's executive bodies
is comprised of both fixed and variable parts that are
related to the fulfilment of top managers' KPIs. Such an
approach motivates the members of the Management
Board to achieve their strategic goals and thus
contribute to the growth of the Company's value.
The remuneration system for the Company's executive
bodies is stipulated by the Provision on Employment
Agreements and the Payment of Remuneration and
Compensation to Senior Management of PJSC FGC
UES.8
The major quarterly KPIs taken into consideration when the amount of
remuneration to the senior management is set include:
KPI
Quarterly KPIs
Absence of increase in major accidents
Absence of increase in the number injured in
accidents
Yearly KPIs
Reduction of operating expenses (costs)
Innovation activity efficiency
Return on invested capital (ROIC)
Total shareholder return (TSR)
Weight
40%
40%
100% (essential condition
for bonus payment)
20%
15%
15%
Remuneration is comprised of both fixed (salary)
and variable (bonuses) parts. The bonus amount
predominantly depends on the top managers'
achievement of KPIs. The variable part is comprised of
quarterly and yearly bonuses (according to the results of
achieved quarterly and yearly KPIs correspondingly). If
any KPI is not achieved, the bonuses of all members of
the Management Board, including that of the Chairman
of the Management Board, are reduced by a certain per
cent depending on the KPI’s weight.
The conditions of the labour contract with the Chairman
of the Management Board, on behalf of the Company,
are established by the person authorised by the Board
of Directors of FGC UES. The conditions of the labour
contracts for Members of the Management Board are
determined on behalf of the Company by the Chairman
of the Management Board, as instructed by the Board of
Directors.
The Board of Directors approves the Company's KPI
targets (adjusted values) and reports on their fulfilment,
on the basis of which bonuses are awarded to the CEO
and Members of the Management Board. In 2016, the
Board of Directors made resolutions on the approval
of the quarterly fulfilment of KPI reports (1st and 2nd
quarters: Minutes No. 342 of 13 October 2016 from
the meeting of 10 October 2016; 3rd quarter: Minutes
No. 350 of 28 December 2016 from the meeting of 26
December 2016).
7 Approved by the Resolution of the Board of Directors, Minutes No. 280 of 24 August 2015.
8 Approved by the Board of Directors, Minutes No. 105 of 17 June 2010.
110
111
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix RISK MANAGEMENT, INTERNAL CONTROL
AND INTERNAL AUDIT
Remuneration of the members of the Management
Board, including the Chairman of the Management
Board1, RUB thousand
2016
2015
2014
105,636 180,385
53,345
110,601 194,291
28,770
93,344
140,152
32,438
Remuneration of the Chairman of the Management
Board, RUB thousand
2016
2015
2014
27,200
46,014
4,039
29,143
51,693
18
26,506
33,724
15,007
Salary Bonuses Other types of remuneration
Salary Bonuses Other types of remuneration
Information on
remuneration to the
members and Chairman
of the Management
Board are disclosed on
the website of PJSC FGC
UES in the Annual Report.
QUESTION & ANSWER
Alexander Zaragatsky
First Deputy Chairman of the
Management Board, Member
of the Management Board
What mechanisms for motivating the management are applied in the Company in order to add to the
Company’s overall value and ensure the Long-Term growth of shareholder value?
We use a management motivation system based on the
achievement of KPIs set by the Board of Directors. It is
worth mentioning that the fulfilment of most indicators
provides an influence on adding to the Company’s
overall value and the Long-Term growth in shareholder
value. However, the most significant indicators in this
direction, with a total weight of 30% of the annual
bonus paid to the Company's management, are the
indicators of Total Shareholder Return (TSR) and Return
On Invested Capital (ROIC).
TSR reflects the relative annual growth of the
weighted average price of the Company's shares, with
dividends accrued on the shares, and exceeds the
amount of change in the MOEX RCI index (the share
index of companies with regulated operations) for
the respective period by a positive amount set by the
Company's Board of Directors.
ROIC reflects the operating profit and return on capital
invested into the Company's core activities (as by
determined by the ratio of the annual operating result to
the amount of equity and non-current borrowings as of
the beginning of the period).
Risk Management, Internal Control
and Internal Audit
The Risk Management and Internal Control System
is an important component of the Company's
corporate management system, including a number of
procedures, methods and mechanisms aimed at the
provision of reasonable guarantees for the achievement
of the Company's goals in the following directions:
— The Company’s compliance with legal requirements
and by-laws;
— Preventing any illegal actions taken by the Company's
employees or third parties in relation to the Company
and its assets;
— The effectiveness and efficiency of activity
— The reliability, completeness and timely preparation
arrangements;
of all types of the Company's statements;
— Achievement of the Company's strategic goals.
1 The information includes the remuneration of all the Board members, taking into account changes in membership of the Management
Board in 2014, 2015, 2016.
112
Risk Management
The Risk Management System is an element of the
Company's risk management and internal control
system. The target of the Risk Management System
is to ensure the Company’s stable and continuous
functioning and its development by means of the timely
identification, assessment and efficient management
of risks that threaten the Company’s efficient business
operation and reputation, employee health, environment
and property interests of shareholders and investors.
The Risk Management System unifies mechanisms
and instruments for the development, introduction,
monitoring, review and continuous improvement of
risk management processes. The activities in this area
are guided by the Regulation on the Risk Management
System2.
Key Principles of Risk Management System:
— continuity and integrity;
— goal orientation;
— integration into management;
— assignment of risk management
responsibilities;
— efficiency;
— balance between risks and earnings;
— cross-functional networking;
— uncertainty;
— consistency;
— information quality;
— involvement and leadership;
— reasonable confidence;
— adaptability;
— continuous improvement.
Organisation of the Risk Management Process at the Company
Fourth Stage:
Information
Interchange and
Consulting
First Stage:
Identification of the Situation
(environmental factors)
Second Stage:
Risk Assessment
1. Risk Identification
2. Risk Analysis
3. Risk Estimation
Third Stage:
Risk Treatment (Response)
Fifth Stage:
Monitoring
2 Approved by the Resolution of the Board of Directors of 16 November 2015 (Minutes No. 291 of 19 November 2015). Changes were
introduced by the Resolution of the Board of Directors of 12 December 2016 (Minutes No. 347 of 13 December 2016).
113
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RISK MANAGEMENT, INTERNAL CONTROL
AND INTERNAL AUDIT
Response to the risks
Risk aversion
Acceptance or
increase of risk to
realise favourable
opportunities
Mitigation or
assignment of risk
The response depends on the relevance of the risk (in accordance with its identified risk priority), the
impact on the likelihood and the effect of a given risk, the costs of risk materialisation, and the benefits
of the risk.
Participants of the Risk Management System
Participant of the Risk
Management System
Their Key Responsibilities in the Risk Management System
The Board of Directors
Determines the principles and approaches to the organisation of the Risk
Management System;
Audit Committee of the
Board of Directors
Chairman of the
Management Board and
the Management Board
Approves the approaches to identifying the risk’s priority, its values and their
review frequency;
Considers matters concerning the operation of the Risk Management System,
including on the basis of the reports: on the operation of the Risk Management
System by the Chairman and Members of the Management Board; on the
assessment results of its actual status, and the reliability and efficiency of the
Risk Management system by the Internal Audit Department.
Considers matters on the operation of the risk management system prior to their
consideration by the Board of Directors.
Ensures the establishment and maintains the sound operation of the Risk
Management System;
Responsible for implementing the resolutions of the Board of Directors on the
Risk Management System;
Submits operation reports on the Risk Management System to the Board of
Directors after their preliminary consideration by the Audit Committee;
Shares responsibility for the particular risk management procedures among the
heads of the Company's structural units.
Internal Control and
Risk Management
Department
Performs the general coordination and operational control of the risk
management processes;
Develops methodology documents and arranges risk management training for
the Company's employees;
Performs analysis of the Company's risk portfolio;
Compiles consolidated reports on risks;
Coordinates risk management to prevent and fight corruption;
Consults executive bodies, the heads of the structural units and the Company’s
employees on the risk management process and anti-corruption matters;
Assists risk owners in the development of internal documents and measures
aimed at preventing and fighting corruption;
Arranges risk management training for the Company's employees.
Internal Audit
Department
Risk Owners
(Heads and
Structural Units)
Performs the regular and independent review of the reliability and effectiveness
of the Risk Management System.
Develop, record, implement, monitor and improve the Risk Management
System, including the identification and assessment of risks and the
development and application of risk response measures;
Report on the operation of the Risk Management System to the Management
Board and its Chairman through the Internal Control and Risk Management
Department.
Development Areas of the Risk Management System
Key Development Activities of the Risk Management System in 2016 Development Plans for the Risk
Management System
— Methodology documents on risk management approved1;
— Guidelines for the planning and implementation of risk
management measures approved2;
— The operational risk register3 was approved; operational risk
management measures were identified, assessed and developed
in accordance with the effective methodology; Summary of
operational risk is considered by the Management Board on a
quarterly basis;
— Standard regulations on the interaction of the Internal Control
and Risk Management Department and the subsidiaries of PJSC
FGC UES for the organisation of the Internal Control and Risk
Management System’s operation were approved;4 Subsidiaries
develop action plans for the Internal Control and Risk Management
System (on a yearly/ quarterly basis).
— Development of the risk management
system at branches and subsidiaries
of the Company;
— Integration of anti-corruption risks
into the Company's Risk Management
System;
— Assessment of risks included into the
Long-Term Development Programme
with the introduction of indicated risks
into the risk register (risk map) of the
Company;
— Training in the operation of the
Risk Management System for the
Company's management.
Internal Control
The Internal Control System is part of the risk
management and internal control system and covers
all of the Company’s business directions. Control
procedures are executed on a regular basis for all of
the Company’s processes (business directions) at all
management levels and are aimed at the provision of
guaranteeing the reasonable achievement of goals in
the following directions:
— Effectiveness and efficiency of the Company's
activities and protecting the Company's assets;
— Compliance with the legal requirements applicable to
the Company and its internal regulations, including for
business facts and accounting purposes;
— Reliability and the timely submission of accounting
(financial) and other statements.
Internal Control System Operation Scheme
Preliminary
(preventive)
control
Monitoring
Follow-up control
Creation of process control environment
including: check of sufficiency of control
procedures for risk prevention or mitigation,
and achievement of objectives of business
processes, development and deployment of
control procedures
The control procedures implementation
that are built in business processes and
aimed at achieving objectives of business
processes
Internal audit, revisional control of
reliability of the reporting, preservation of
assets, compliance-control, external
audit, self-assessment
1 PJSC FGC UES Order No. 86 of 21 March 2016.
2 PJSC FGC UES Order No. 373 of 12 October 2016.
3 PJSC FGC UES Order No. 428 of 24 November 2016.
4 PJSC FGC UES Order No. 300 of 29 August 2016.
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AND INTERNAL AUDIT
Regulation on the Internal Control System of PJSC
FGC UES1 as approved by the Board of Directors is
currently in effect at the Company. The Regulations
on the Internal Control System determines the goals,
operational principles and elements of the Company's
Internal Control System, its main functions and
the responsibility of the Internal Control System’s
participants and the efficiency assessment procedure
for the Internal Control System.
In order to implement the Regulations on the Internal
Control System, a Programme (“road map”) for
improving the quality of the Internal Control System
of PJSC FGC UES until 2018 has been developed and
implemented by the Company2.
Interaction Between the Participants of the Internal Control System
Shareholders
Opinion on the reliability of data
contained in the Annual Report
and the annual accounting
statement
Audit
Commission
Providing
information
Board of Directors
(Committees)
Approving the Regulations
on the Internal Control System
Supervising the Internal Control System,
Making proposals for the Internal Control
System’s improvement
Recommendations for the Internal
Control System’s improvement
Approving by-laws
Ensuring the operation of the
Internal Control System
Submitting reports
Providing information
Preparing recommendations for the
Internal Control System‘s
improvement
Executive
Bodies
Accountability
Preparing recommendations for
the Internal Control System’s
improvement
Accountability
Preparing proposals for the
Internal Control System’s
improvement in relation to preventing
and fighting corruption
Structural Units
Internal Control
and Risk Management
Department
Anti-Corruption and
Economic Security
Department
Internal Audit
Department
Methodological
support
The Company's
Subsidiaries
Interaction between the
Company and its subsidiaries
in the framework
of corporate legislation
The Company's Internal Control System is operated
in accordance within the model of "three defence
lines":
2nd defence line – Consists of risk management,
legal review, economic security, quality control, and
compliance control.
1st defence line – Consists of the management
bodies, the management bodies of branches, the
Company's units and divisions for implementing
control procedures by virtue of their responsibilities
and job duties; the Heads of the Executive Office
and the Company’s branches are responsible for the
achievement of results, the efficiency of the Internal
Control System, their procedures by means of their
proper organisation and the formalisation and
supervision of their implementation by subordinates;
and executors of control procedures who implement
them in accordance with their job descriptions and the
set regulatory documents.
The Company's structural units that perform the
functions of the second defence line exercise additional
control over all structural units of the Company in areas
requiring special attention (that is, those especially
prone to risks).
3d defence line – The Internal Audit, whose function is
to present the Board of Directors and top management
with an independent and objective assessment of the
risk management, internal control and the corporate
management systems using a risk-based approach.
The Internal Audit monitors the activities at the 1st and
2nd defence lines.
QUESTION & ANSWER
For a detailed
description of the key
responsibilities of the
Internal Control System’s
participants, please refer
to the Appendix 1 hereto
Igor Feoktistov
Internal Control Director
Did the assessment carried out in 2016 comply with the standards for assessing the effectiveness of the
Internal Control and Risk Management System approved in the end of 2015? How were the assessment results
used?
The internal auditor carried out the efficiency audit
of the Internal Control and Risk Management System
following the results of 2016. The assessment was
conducted in five components: the control environment,
risk management, control procedures, information and
communication and monitoring procedures.
When developing the action plan aimed at the
development and improvement of the Internal Control
and Risk Management System, the results of the
assessment of the Internal Audit were taken into
consideration; the action plan may be adjusted, if
necessary. Implementation of the plan is monitored on
a monthly basis.
Development Directions for the Internal Control System
The following main development actions for the
Company's internal control system were implemented
in 2016:
Following the results of the independent efficiency
assessment of the Internal Control System for
2016, the maturity level was estimated at 4.3.
An independent internal efficiency assessment of
the Internal Control System was conducted by the
Company's internal auditor and no external independent
assessment was made. The efficiency of the Internal
Control System following the results of 2016 was
considered at the Meeting of the Board of Directors3,
with prior discussion of this item by the Audit
Committee of the Board of Directors4.
The following measures aimed at the improvement
of the Internal Control System have been planned for
further implementation of the Internal Control System
Development Strategy in 2017:
— Approval of the control matrices by all business
processes (business directions) of the Company by
their process owners;
— Approval and introduction of the implementation
procedure for the Regulation on the Company's
Internal Control System;
— Training of the Company's management on building
the Internal Control System.
— Requirements for formalising control over the
Company's business processes were developed;
— Control procedures for the processes of capital
construction, the management of projects
financed by means of technological connection
and procurement activities were developed and
formalised;
— Efficient control procedures over business process
accounting, tax accounting and the preparation of
accounting (financial) statements were implemented;
— An analysis of the core activity and management
processes for their effectiveness and the sufficiency
of their control procedures was started.
The Company performs an internal
efficiency assessment of the Internal
Control System, its conformance with
the target state and maturity levels. The
Company determined six levels of maturity
for the Internal Control System
(from 1 "zero" to 6 "high").
1 Decision of the Audit Committee of the Board of Directors of 08 December 2016 (Minutes No. 52 of 12 December 2016).
2 Approved by the Order No.16 of PJSC FGC UES on 20 January 2016, updated by the Order No. 388 of PJSC FGC UES on 25 October 2016.
3 Minutes No. 362 of 14 April 2017.
4 Minutes No. 58 of 07 April 2017.
116
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RISK MANAGEMENT, INTERNAL CONTROL
AND INTERNAL AUDIT
Internal Audit
The purpose of the Internal Audit is to assist the
Board of Directors and the Company's executive
bodies with increasing the efficiency of the Company's
management, improving its business by means of using
a systemic and sequenced approach to the analysis and
assessment of the risk management, internal control
and corporate management systems as instruments to
ensure reasonable assurance that the Company’s goals
will be achieved.
The Internal Audit Department is a unit responsible for
all internal audit functions at the Company.
The number of employees performing the functions of
the internal audit amounted to 16 persons in 2016.
The Internal Audit Department functionally reports to
the Company's Board of Directors, meaning that the
Board of Directors controls and arranges the operation
of the Internal Audit Department, including the approval
of the Regulation on the Internal Audit, approval of the
work plan and budget for the Internal Audit Department,
the approval of a candidate for the position of Head
of the Internal Audit Department and the termination
of his/her powers, the determination of remuneration
arrangements for the Internal Audit Department Head,
as well as the consideration of significant limitations
that might adversely affect the performance of the
Internal Audit’s function.
QUESTION & ANSWER
Svetlana Kovaleva
Internal Audit Director and Head of the Internal
Audit Department
How is interaction between the Internal Audit Department and the Management Board/Board of Directors
arranged in the Company?
The Internal Audit is an activity for the provision
of independent and objective guarantees and
consultations to the Board of Directors and the
Company's executive bodies aimed at improving the
efficiency of the Company's management.
The powers of the Internal Audit Director – the Head of
the Internal Audit Department for interacting with the
Company's management bodies – are determined in
the Regulation on the Internal Audit of PJSC FGC UES
as approved by the Company's Board of Directors1.
In accordance with the Regulation on the Internal Audit
of PJSC FGC UES, determining the principle goals and
purposes of the Internal Audit and its functional and
administrative subordination were separated to ensure
the independence of the Internal Audit.
Functionally, the Internal Audit Department
reports to the Company's Board of Directors, while
administratively it reports to the Chairman of the
Company's Management Board.
The Company's Board of Directors approves the annual
work plan for the Department and the budget of the
Internal Audit Department, it also appoints a candidate
to the position of the Head of the Internal Audit
Department and the termination of his/her powers,
as well as considers key reports on the results of the
audit performed by the Department.
In order to consider the opinion of the Company's
management, requests for work plan proposals are
sent to the Members of the Company's Management
Board when preparing the draft for the work plan for
the Internal Audit Department. The draft work plan
for the Internal Audit Department is approved by the
Chairman of the Company's Management Board and
considered by the Audit Committee of the Company's
Board of Directors on a preliminary basis and is
approved by the Company's Board of Directors.
For example, in 2016 the Department operated in
accordance with the work plan for 2016, which was
approved by the Board of Directors of PJSC FGC UES
on 03 March 2016 and provided for the execution of 52
audits.
The work plan for the Department for 2017 was
approved by the Board of Directors of PJSC FGC UES
on 20 February 2017 and provided for the execution of
49 audits.
In 2016, the Internal Audit Director attended the
meetings of the Board of Directors, the Audit
Committee of the Board of Directors, and the
Company's Management Board on the Internal Audit,
including the submission of reports following the
results of the performed audit and the submission of
the Company's drafted internal audit documents for
consideration.
Following the results for 2016, a questionnaire survey
among the members of the Audit Committee of the
Board of Directors was held for the first time in order to
assess the Internal Audit’s performance. Following the
results of the questionnaire, the areas for improving
the interaction between the Internal Audit Department
and the Audit Committee of the Company's Board of
Directors were determined.
How often do the Board of Directors and the executive bodies receive Internal Audit reports?
In accordance with the Regulation on the Internal
Audit of PJSC FGC UES, the reports on the results
of the Department's operation are mainly submitted
to the Company's Board of Directors only after their
preliminary consideration by the Audit Committee.
For example, in 2016 the Internal Audit Department
submitted 5 audit works for consideration to the
Board of Directors of PJSC FGC UES, with their prior
consideration by the Audit Committee of the Board of
Directors of PJSC FGC UES.
Apart from that, the reports on the execution of
the work plan and the performance results of the
Internal Audit Department, including, amongst others,
information on execution of the work plan for the
Internal Audit, the most significant violations and
defects revealed by the internal auditor, the execution
of corrective actions for the liquidation of violations
and defects previously revealed and the headcount
and expenses of the Internal Audit Department, are
submitted to the Audit Committee of the Board of
Directors on a quarterly basis.
The report on the execution of the Internal Audit
work plan and its performance results following the
yearly results is considered by the Company's Board
of Directors after its preliminary consideration by the
Audit Committee of the Company's Board of Directors.
In 2016, the Internal Audit Department also
conducted 4 audit works on instructions for the
Company's executive bodies. As the audit information
was initiated by the Chairman of the Company's
Management Board, the audit results were submitted
for the consideration of the Chairman of the
Company's Management Board.
The main documents regulating the function of the Internal
Audit:
— Regulation on the Internal Audit Department of PJSC FGC
UES2;
— Internal Audit Guidelines of PJSC FGC UES3;
— Ethics Code of Internal Auditors of PJSC FGC UES4;
— Regulations on the assessment of the internal control
and risk management efficiency of PJSC FGC UES5;
— Internal Audit Assessment and Quality Improvement
Programme of PJSC FGC UES6.
The internal auditor executed 47 audit works in 2016.
Following the results of these audit works, 138 corrective
actions aimed at the liquidation and future prevention
of violations and defects revealed were instructed for
execution. 58 corrective actions out of 67 actions, with
deadlines for the reported year, were executed.
The execution of corrective actions is controlled by the
Audit Committee of the Board of Directors by hearing
regular reports from the Company's management on
the execution of a corrective action plan to liquidate any
defects revealed by the Company's Audit Commission, the
Company's internal auditor and the external control bodies.
Results of Control Actions executed
by the Internal Audit in 2016
1
47
Control Actions
2
3
4
7
6
1
2
3
4
5
6
Operational audit
Fiscal audit
Сompliance-audit
Info system audit
Revisions
Progress monitoring
of Corrective Action Plan
5
7
Other activities
Number of implemented actions
Actions with deadlines
due
Total number of corrective actions
prescribed
58
67
10
3
1
1
16
1
15
138
1 Minutes No. 291 of 19 November 2015 of the Board of Directors.
2 Approved by the Chairman of the Company's Management Board on 24 October 2016.
3 Approved by the Audit Committee of the Company's Board of Directors (Minutes No. 43 of 02 December 2015).
4 Approved by the Audit Committee of the Company's Board of Directors (Minutes No. 43 of 02 December 2015).
5 Approved by the Company's Board of Directors (Minutes No. 309 of 29 February 2016).
6 Approved by the Audit Committee of the Company's Board of Directors (Minutes No. 40 of 21 September 2015).
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix EXTERNAL AUDITOR
Audit Commission
The Audit Commission is a permanent body that is
elected annually by the General Meeting of Shareholders
and is responsible for exercising control over the
Company’s financial and business operations, governing
bodies and structural units. In its operations, the Audit
Commission is governed by the Company's Articles
of Association and by the Regulations on the Audit
Commission approved by the Annual General Meeting of
Shareholders on 26 June 2015.
— To confirm the reliability of the data in the Company’s
Annual Report, accounting balance sheet and profit
and loss statement;
— To analyse the Company’s financial position,
discover ways for its improvement and develop
recommendations for the governing bodies;
— To organise and perform audits (revisions) of the
Company’s financial and business operations.
The main functions of the Audit Commission are as
follows:
In the reporting year, the Audit Commission held 4
meetings.
Members of the Audit Commission1 of PJSC FGC UES
Educa-
tion
Year
of Birth
Position
Nikolay Pronin
Chairman
of the Audit
Commission
1952
Higher
Head of the Economic Security Division of the Anti-Corruption and
Economic Security Department of PJSC Rosseti
Tatiana Zobkova
1976
Higher
Igor Karpov
1988
Higher
Principal Adviser, Deputy Head of Division and Head of Division
for Corporate Governance, Pricing Environment and Auditing in the
Fuel and Energy Industries of the Russian Ministry of Energy
Deputy Head of the Department for Property Relations and
Privatisation of the Federal Agency of State Property Management
(Rosimuschestvo)
Igor Schmakov
Vladimir Khvorov
1974
1947
Higher
Deputy General Director for the Control of PJSC Kubanenergo
Higher
Leading Expert of the Department of the State Regulation of
Tariffs, Infrastructure Reforms and Energy Efficiency of the Ministry
of Economic Development and Trade
For their participation in the audit of financial and
business operations, each Audit Commission member
is paid a lump-sum remuneration equal to 20 minimum
monthly wages of a first category worker, with this
minimum monthly wage being set by the sectoral
tariff agreement of the electric energy complex of
the Russian Federation for the period of the audit.
The amount of remuneration to the Chairman of the
Company's Audit Commission increased by 50%.
Remuneration Amount Paid to Audit
Commission Members in 20162
Members of the Audit Commission
Remuneration
(RUB)
Denis Kant Mandal, Chairman of the
Audit Commission
—3
Nikolay Varlamov
Marina Lelekova
Roman Litviniov
Marat Izmailov
143,880
143,880
143,880
143,880
External Auditor
The Company annually hires an external auditor to
perform an independent and unbiased assessment of
the quality of its RAS and IFRS accounting (financial)
statements.
External auditors are hired based on tenders providing an
objective selection. As per the Resolution by the Board
of Directors of PJSC FGC UES “On determining a tender
procedure for the selection of auditing organisations
to perform a statutory audit of PJSC FGC UES for
2015-2017,” a centralised procurement of services
on performing a statutory audit of PJSC FGC UES’s
statements for 2015–2017 was conducted by PJSC
Rosseti.
The Annual General Meetings of Shareholders dated 27
June 2014, 26 June 2015, and 29 June 2016 approved
LLC RSM RUS as the selected auditor for PJSC FGC UES.
The Annual General Meetings of Shareholders decided on
the auditor's remuneration for the audit of the Company's
statements for 2016 in the amount of RUB 24,682,983.68,
including VAT.
Selected Auditor of the Company's Statements
for 2016
Full name: RSM RUS Limited Liability Company
Address: 4 Pudovkina str., Moscow, 119285
INN (Taxpayer No.): 7722020834 OGRN (Principal State
Registration Number): 1027700257540
Telephone: (495) 363-2848
Fax: (495) 981-4121
E-mail: mail@rsmrus.ru
Data on membership of the auditor in self-regulatory
organisations of auditors: Self-Regulatory Organisation
of Auditors “Association Sodruzhestvo” (address: 21
Michurinsky Avenue, Bldg. 4, Moscow, Russia, 119192)
In May 2016, the Board’s Audit Committee discussed
the assessment of the external auditor’s performance
with regard to the audit of the Company’s statements.
As per the opinion of the Committee, the audit was in
accordance with the key terms and conditions of the
contract. Based on the opinion of the Audit Committee,
the external audit procedure was generally performed in
accordance with the main requirements.
Conflicts of Interest
Preventing Conflicts of Interest of the Board Members
The Board Members shall take reasonable and efficient
actions, in particular by taking decisions in consideration of
all the information available, in the absence of any conflicts
of interest and by treating the Company’s shareholders
equally, assuming standard levels of risk.
The Company has a comprehensive system for dealing
with any conflicts of interest between the Board Members
by providing reasonable assurance that any conflict
situation will be settled at an early stage and that the
Company's interests will not be infringed upon.
As per the Regulations on the Board of Directors, a Board
Member must inform the Company's Board and the
Corporate Secretary on any potential conflicts of interest
and their reason for doing so, including their own interest in
the Company’s transactions.
In addition, a Board Member must promptly disclose
any information on their holding of any securities in the
Company, in its subsidiaries or in controlling companies,
as well as on the sale and/or purchase thereof, in addition
to holding any positions in other companies or accepting
invitations to become a candidate for the Board of
Directors (a supervisory board) of any other company or
on any change of their permanent (primary) place of work
(service, entrepreneurial activity, etc.)
With the goal of detecting any conflicts of interest early
on, the Company has developed a questionnaire for its
Board Members that contributes to the requirements
of the legislation, both in terms of the completeness
of information disclosure and in relation to changes to
the Federal Law On Joint-Stock Companies. Every three
months, Board Members must complete the questionnaire
and provide any required information that may reveal any
conflicts of interest.
1 Formed by the annual General Meeting of Shareholders of PJSC FGC UES on 29 June 2016. Positions of the Audit Commission members
are stated at the time of election. None of the Audit Commission members holds any shares in PJSC FGC UES nor do they hold any
positions in its governing bodies.
2 In 2016, remuneration was paid to the members of the Audit Commission, elected by the Annual General Meeting of Shareholders on 26
June 2015, acting for 2015-2016 corporate year.
120
3 The Chairman of the Audit Commission, Denis Kant Mandal, sent a refusal for remuneration for his participation in the work of the
Company's Audit Commission.
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix ANTI-CORRUPTION POLICY
AND ECONOMIC SECURITY
Dealing with Conflicts Of Interest of the Executives
The Company strives to prevent and minimise any
consequences of possible conflicts of interest among its
executives. The Company has a comprehensive system
of dealing with conflicts of interest among executives
that is aimed at preventing any potential conflicts of
interest and minimising their negative consequences to
the interests of PJSC FGC UES.
With the aim of preventing any conflicts of interest, the
Members of the Management Board must refrain from
actions that will or may potentially lead to a conflict
between their interests and the Company's interests, as
well as refraining from discussing and voting on matters
in which they have a conflict of interest.
As per the Regulations on the Management Board of
PJSC FGC UES, Management Board Members must
inform the Board of Directors, the Audit Commission,
the Auditor and the Secretary of the Management Board
about the following:
— His\her affiliation;
— Potential conflicts of interest, including any interest
in the Company’s transactions;
— The holding of any securities in the Company, as well
as the sale and/or purchase thereof.
In addition, all external appointments of Members to the
Management Board are subject to the consent of the
Company’s Board of Directors.
With the goal of detecting any conflicts of interest early
on, the Company has developed a questionnaire for
the Members of the Management Board. Every three
months, the Members of the Management Board must
complete a questionnaire and provide all the required
information that may reveal any conflict of interest, in
particular for the transactions of interested parties.
Anti-Corruption Policy
and Economic Security
The Anti-Corruption Policy is an element of the
Company’s Internal Control and Risk Management
System and provides a set of measures aimed at
preventing corruption, reducing reputation risks and
the risks of imposing penalties and sanctions on the
Company as a consequence of the bribery of officials.
In 2012, the Company initiated its Anti-Corruption
Policy, which describes a set of interrelated
procedures and specific measures to prevent and fight
corruption within the Company and which is aimed at
implementing the recommendations of paragraph 260
of the Corporate Governance Code, in which measures
have been determined to develop the elements
of the Company’s corporate culture, as well as its
organisational structure, rules and procedures, that
ensure the prevention of corruption.
On 24 August 2012, the Board of Directors approved
a new version of the Anti-Corruption Policy of PJSC
FGC UES with the purpose to improve the Company’s
Anti-Corruption System and create a unified document
providing a set of interrelated principles, procedures
and specific measures aimed at preventing and fighting
corruption.
In 2017, the Anti-Corruption Policy of PJSC FGC UES
was updated and approved in a new version (Minutes
No. 357 of the Meeting of the Board of Directors
of PJSC FGC UES dated 13 March 2017) in order
to exercise a risk-based approach to implementing
the Anti-Corruption Policy of PJSC FGC UES and in
accordance with the guidelines of Rosimushchestvo on
risk management and internal control in preventing and
fighting corruption in joint-stock companies with the
state participation of the Russian Federation (Order No.
80 by Rosimushchestvo of 2 March 2016).
The implementation of the Company's Anti-Corruption
Policy is based on the following principles:
— Compliance of the Anti-Corruption Policy with the
applicable laws and generally accepted standards;
— Observance of the rights and legitimate interests of
the Company’s employees, partners, contractors and
other parties, as well as keeping commercial secrets in
implementing anti-corruption measures;
— “Tone at the Top,” set by senior executives to foster
intolerance towards corruption and to develop the
internal system to prevent and fight corruption;
— Employee involvement: the Company’s employees
shall be informed about the provisions of anti-
corruption legislation and shall participate in creating
and implementing anti-corruption standards and
procedures;
— Proportionality of the anti-corruption procedures to the
potential damage and corruption risks;
— Effectiveness of anti-corruption procedures: anti-
corruption measures that are easy to implement and
bring significant results;
— Liability for corruption and the inevitability of
punishment for all employees, irrespective of their
position, length of service or other conditions, in the
case of corruption while performing their functions;
— Transparency in business: informing the Company’s
partners, contractors and the public on the anti-
corruption standards of business that are implemented;
— Continuous control over and regular monitoring of
the effectiveness of anti-corruption standards and
procedures, as well as control over their observance.
— To set requirements and restrictions for interacting
with the state authorities whose competence include
combating corruption;
The main tasks of the Company’s Anti-Corruption Policy
are:
— To determine the key directions to ensure compliance
with the requirements of Article 13.3. of the Anti-
Corruption Law;
— To establish an effective mechanism for implementing
measures to prevent and fight corruption (including the
Anti-Corruption Policy);
— To prevent corruption and other offences and to provide
for the liability of said offences;
— To show the Company's strong intolerance towards
corruption in all its forms and manifestations to its
shareholders, partners, contractors and members of
executive and control bodies;
— To minimise the risk of the Company’s involvement in
corruption.
Key Results of the Company's Anti-Corruption Activity in 2016:
Direction
Key Achievements
Improving the Company’s
Regulatory Standards
The following internal regulations were approved:
— methodology documents on the risk management of corruption;
— the action plan (“road map”) for implementing the risk management and internal
control procedures of preventing and fighting corruption;
a new version of the Anti-Corruption Policy of PJSC FGC UES was developed and
approved (Minutes No. 357 of the meeting of the Board of Directors of PJSC FGC UES
dated 13 March 2017);
a list and map of the Company's corruption risks were developed and approved (Minutes
No. 357 of the meeting of the Board of Directors of
PJSC FGC UES dated 13 March 2017).
Identification and Settlement
of Conflicts Of Interest
the Company ordered to declare any conflicts of interest. Over 5 thousand declarations
were collected and checked, and the information declared was analysed. The Company's
corresponding subdivisions considered any potential conflict situations;
the declared information was analysed. Commissions on Corporate Ethics and Conflicts
of Interest at the Company's affiliates examined the potential conflict situations and
submitted them to the Company’s Central Commission on Corporate Ethics and Conflicts
of Interest. Decisions were taken based on the examination of the results (Minutes No 6
of the meeting of the Central Commission dated 14 November 2016).
Anti-Corruption Control in
Relations with Partners and
Contracting Parties
monitoring transactions for any conflicts of interest, the timely receipt of information on
changes to the shareholders of contracting parties, as well as the inclusion of an anti-
corruption clause and other mandatory clauses, into contracts;
review of the documents and control of the funds for charitable assistance.
Identification of Potential
Corruption in the Abuse Of
Power
Participation in Working
Groups and Collective
Initiatives on Preventing and
Fighting Corruption
Evaluation of the Anti-
Corruption Policy’s
Effectiveness
anti-corruption review of 255 executive documents (about 24 per cent of the total number
of the executive documents issued by the executives for the reporting period);
collection and analysis of information on the income, expenses, property and property-
related obligations of employees whose positions are subject to the above procedures.
submission of a monthly report containing information on contracts signed, including the
entire chain of the shareholders of contracting parties, to the Russian Ministry of Energy,
the Federal Financial Monitoring Service (Rosfinmonitoring) and the Federal Tax Service
of Russia.
anonymous questionnaire survey was held among employees.
122
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix 4
2
3
Backbone electric grids of the East
(MES East)
FGC BRANCH
1
Key infrastructure projects
SERVICE AREA
5 constituent territories of the Russian
Federation in the Far East Federal district,
with a population over 5 million people.
PERSONNEL
About 2 thousand people
АSSETS 1
HVTL 15.8 thousand km
91 substations, 220-500 kV
3 TSS, 6-10 kV
Capacity — about 15.2 thousand MVA
OPERATIONS
Electricity transmission.
The branch provides electric connection of
UES of East with the power system of Siberia,
and exports electricity to China.
2003–2012
Control of electric power capacity shortages in the Primorsk
Territory
Elimination of rolling outages;
Creation of conditions for developing economic potential of the southern region;
Development of Vladivostok as a centre of international cooperation in the Asia-Pacific
Region.
2004–2005
Power supply of units 3 and 4 of the Bureysk HPP in UES of East
Reduction of dependence on fuel supply of power systems in 3 Far East regions;
Renewal of TPP equipment resources;
Creation of conditions for developing the Far East region.
2014
Power supply of Vostochny Cosmodrome
Creation of conditions for power supply of Vostochny Cosmodrome and the future
science city – the city of Tsiolkovsky.
2009–2015
Electricity supply to the infrastructure of the Eastern Siberia –
Pacific Ocean pipeline system
Construction of facilities to supply electricity to the SS of the Eastern Siberia – Pacific
Ocean pipeline system (up to 50 million tonnes of oil for the Asia–Pacific market);
Connection of Kozmino offshore oil loading port, the end point of the Eastern Siberia –
Pacific Ocean pipeline system.
PHOTOS:
1
2
3
4
Vostochny Cosmodrome
Vladivostok
Bureysk HPP
Kozmino offshore oil loading
port
124
124
1 according to annual performance reports
Annual Report 2016
125
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix SHARE CAPITAL, SECURITIES TRADING
Monitoring Anti-Corruption Awareness
In 2016, the Company held an anonymous
questionnaire survey among its employees to assess
the effectiveness of its anti-corruption activities.
The results showed a 3% increase in the number of
employees who assessed the Anti-Corruption Policy as
effective and a 2% increase in the number of employees
who are ready to report on corruption as compared
to the previous year (a 7 % increase in both figures in
the Executive office). There was a 9% increase in the
awareness of where to report in case an employee
becomes aware of possible acts of corruption.
Share Capital,
Securities Trading
As of 31 December 2016, the share capital of PJSC
FGC UES stood at RUB 637,332,661,531.50, divided
into 1,274,665,323,063 ordinary registered uncertified
shares with a nominal value of RUB 0.50 each. No
preferred shares have been placed as of the date
above.
In accordance with the Company’s Articles of
Association, the number of authorised shares amounts
to 72,140,500,768 ordinary registered shares with a
nominal value of RUB 0.50 each and a total nominal
value of RUB 36,070,250,384. Authorised ordinary
shares offer the same rights as outstanding ordinary
shares.
In 2016, there were no issues of additional shares of
PJSC FGC UES.
Share Capital Structure
The total number of the Company's shareholders is
over 400 thousand. As of 31 December 2016, the
Shareholder Register included:
— 406,994 individuals;
— 1,434 legal entities (including 43 nominees and 3
trustees).
In 2016, there were no significant changes to the
Company’s share capital structure.
PJSC Rosseti is the largest shareholder of PJSC FGC
UES (holding 80.13% of the share capital). The State
(the Russian Federation), represented by Federal
Property Management Agency (Rosimuschestvo),
holds 0.59% of the Company's share capital. The
government has no special right to participate in the
Company's management (golden share).
Shareholders' Agreement
In June 2013, PJSC Rosseti and Rosimushchestvo
signed a shareholders’ agreement regarding managing
and voting in PJSC FGC UES. The parties have signed
the agreement with respect to all, present and future,
voting shares in PJSC FGC UES.
The Company's Share Capital Structure
as of 31 December 2016
3
2
%
80.13
5.34
14.53
1
2
3
PJSC Rosseti
Shareholders with
ownership from 0.5%
to 2% of the authorized
capital of the Company
Shareholders with
ownership less than
0.5% of the authorized
capital of the Company
1
As of 31 December 2016, 1.077% of the Company's
shares were in a cross holding owned by LLC FGC –
Asset Management.
Free-float
As at the end of 2016, the percentage of the free float
shares of PJSC FGC UES comprised 18.2%1.
The Company performs an annual analysis of the
shareholder register to identify the key groups of the
holders of ordinary shares and depository receipts.
For more details on
protecting against
terrorism and crime
on economic and
information security and
on managing integrated
security, see the
Appendix 1 hereto
Information on the
Company’s share capital
history can be found on
our corporate website
at www.fsk-ees.ru/eng/
in the Investors / Share
Information / Share
Capital History section.
For further details on the
Company’s share issues,
please see Appendix 1
hereto
For more details on the
Company's minority
shareholders, please see
the Management Report/
Information Disclosure
and Communication
with Investors and
Shareholders/
Communication
with Investors and
Shareholders section.
The Company's Securities on the Stock Market
244% Capitalisation increase in 2016
Total Shareholder
Return (TSR)
2016 OBJECTIVE
Higher than the change value of the
MOEX RCI2 (Regulated Companies
Index) by a positive value set by the
Board of Directors
2016
ACHIEVEMENT
267%
(MOEX RCI
index value:
44%)
2017 OBJECTIVE
Higher than the change value
of the MOEX RCI (Regulated
Companies Index) by a positive
value set by the Board of Directors
QUESTION & ANSWER
Maria Tikhonova
Deputy Chairman of the Management Board,
Member of the Management Board
What is the reason of such a rapid increase in the Company's shares value?
Until March 2016, the Company's stock quotes were
sideways, awaiting news on further growth or decline.
At that stage, many investors removed the Company's
shares from their investment portfolio. These factors,
as well as the purchase of shares by Long-Term
investors who are focused on undervalued assets, led
to a powerful move of the quotations in the second half
of 2016.
In 2013-2014, the Company's shares and depositary
receipts were very undervalued by the market and were
bought by investors who are focused on Value Strategy:
a strategy for buying undervalued assets and waiting
for the return of their fair valuation by the market.
Other positive signals for growth included the
Company’s good financial results in 2015 (which
attracted investors focused on investing in assets with
good growth prospects), as well as an initiative by the
Russian government to increase the minimal dividends
of state companies from 25% to 50% of the net profit
for 2015. This positive market trend was increased in
April 2016 by the decree No. 705-r “On the amount of
dividends paid by companies with state participation
in 2015.”
What is the Company's investment attractiveness in the management's opinion?
Federal Grid Company is a low-risk, government-
regulated business focused on increasing shareholder
welfare through dividend payments and increasing
the value of its assets. The Company is focused on
fulfilment of the public task of the UNEG development
based on the technical and economic optimisation of
backbone electrical grids.
1 Free-float is calculated as the percentage of the Company's shares which are in free circulation as at the end of 2016, excluding shares
owned by PJSC Rosseti, the State (Government), municipalities and 'quasi-treasury' shares.
2 MOEX RCI is the index of the regulated companies of the Moscow exchange.
126
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix SHARE CAPITAL, SECURITIES TRADING
TSR of Russian Electric Grid Companies As Per the Results of 2016, %
FGC
RCI index
INTER RAO
Mosenergo
Rosseti
RusHydro
Unipro
Most capitalized
and liquid shares,
included in
MicexPWR
For latest information on
the GDR program, please
see the official London
Stock Exchange website at
www.londonstockexchange.
com under the Company's
ticker symbol – FEES.
0%
100
200
300
Price increase
Dividends
As per TSR dynamics in 2016, the Company's shares became the leaders among the
most liquid share, both in the electric energy sector and in the Russian market in total.
Shares of Federal Grid Company are traded on the
Level 1 quotation list of the MOEX and are included in
the list of securities traded on the St. Petersburg Stock
Exchange.
Outside of Russia, the Company's shares are traded as
global depositary receipts (GDR) on the London Stock
Exchange. The GDR programme’s depository bank is
the Bank of New York Mellon (BNY Mellon). As of 31
December 2016, the GDR programme represented
0.164% of the Company’s total share capital.
The Company's shares are included in the index
calculation base of key Russian and foreign indices.
General Information on the Shares of PJSC FGC UES
Weight In Indices, %, as of 31 December 2016
Category of Shares
Ordinary Registered
Uncertified Shares
Nominal value
RUB 0.50
MICEX Index
0.52
Broad Market Index (MICEX BMI)
0.51
MICEX Ticker
SPBEX Ticker
LSE Ticker
FEES
FEES
FEES
RTSI
MICEX PWR
ISIN
RU000A0JPNN9
Bloomberg Code
FEES RX
The RTX Energy (Vienna Stock
Exchange)
0.52
14.86
16.85
For more information on
the Company’s trading
shares, please see the
website at www.fsk-ees.
ru/eng/ in the Investors /
Share information /
Interactive Stock Chart
section.
For more information on
DR trading, please see the
website at www.fsk-ees.
ru/eng/ in the Investors /
Share information / GDR
Program section.
Key Parameters of Share and DR Trading
The Company's Shares on MOEX
2014
2015
2016
Trading Volume
RUB bn
65.3
28.9
Low
High
Year End
RUB
RUB
RUB
The Company's DR at the London Stock Exchange
Trading Volume
USD bn
Low
High
Year End
USD
USD
USD
0.02900
0.0440
0.0939
0.0804
0.04569
0.0594
1.4
0.55
1.50
0.79
0.7
0.36
0.80
0.36
90.4
0.0539
0.2097
0.2032
7.0
0.30
1.65
1.64
In 2016, the performance of the MICEX PWR Sector
Index was significantly higher than the performance
of the MICEX Index. The main factor contributing to
this stable increase in MICEX PWR after the decrease
of 2011-2015 was the rise in the financial standing
of power companies due to the end of the tariff
restrictions period (for electric grid companies) and a
decrease in investment expenses (for power generation
companies), which contributed to the improved
investment attractiveness of power companies.
In the reporting period, the Company’s shares were
significantly higher than both the MICEX and MICEX
PWR indices. Throughout the year, the Company’s share
price increased by 242% (from RUB 0,059 at the end of
2015 to RUB 0,203 at the end of 2016) compared to the
increase of 27% and 110% demonstrated by the MICEX
Index and MICEX PWR respectively. At the end of 2016,
the Company's market capitalisation was RUB 257.6
billion.
Dynamics of the Company's Ordinary Share Value Compared to MICEX Index and PWR Index in 2016
%
200
100
0
FGC
242.1%
-
MicexPWR
110.1%
-
MICEX
26.8%
30.12.2015
29.02.2016
29.04.2016
30.06.2016
31.08.2016
31.10.2016
30.12.2016
The growth of the Company's share value was due to
the following factors:
— The Russian government made it obligatory for state
— Improvement of the attitude of international investors
towards Russian assets in general, towards their
strong dividend histories in particular;
owned companies to increase its dividends from 2015
to 50% of the net profit and considered the possibility
to use such measures for 2017-2019;
— Upturn of the Russian economy, stabilisation of the
ruble, the decline in interest rates by the Central Bank
of Russia and a decline in inflation.
— The Company showed good financial results, with
effective optimization of the Investment Programme
and operating costs;
128
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Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix SHARE CAPITAL, SECURITIES TRADING
Trading Volume, the Minimal and Maximal Price of the Company's Shares per Month, and Main Event
Drivers of the Growth in Share Value for 2016
2015 IFRS: profit RUB 44.1
bn (compared to 2014 loss)
Q1 2016 IFRS: profit RUB 16.4
bn (+80% YoY)
The Ministry of Finance suggested
extending the practice of the 50% dividend
policy for state owned companies in
2017—2019
RUB
0.2
0.15
0.1
0.05
.
3
6
1
.
7
8
2
.
6
7
4
.
4
4
7
.
4
0
8
.
1
9
0
1
.
4
7
7
.
2
5
5
.
4
8
4
.
4
5
2
.
7
9
4
.
4
0
5
01
02
03
04
05
06
07
08
09
10
11
12.2016
The government made it obligatory for
state owned companies to increase their
dividends from 2015 to 50% of the net
profit.
H1 2016 IFRS: profit RUB
44.9 bn (+160% YoY)
Q3 2016 IFRS: profit RUB
59.2 bn (+86% YoY)
The significant increase in the Company's share
value in 2016 was accompanied by the improvement
of recommendations by energy market analysts. At
the end of 2015, none of the energy market analysts
recommended buying the Company's shares, whereas
in December 2016, 29% of analysts recommended
buying the Company’s shares.
Volume,
bn pcs
Max price
Min price
Recommendations of Analysts on the Company's
Shares,%
4Q2016
3Q2016
2Q2016
1Q2016
4Q2015
29 43 29
67 33
67 33
67 33
33 67
Buy Hold Sell
Source: the Company's own data.
Company's Shares Price and Volume Dynamics on the MOEX
30
20
10
0
06.01.14
06.11.14
06.05.15
06.11.15
06.05.16
06.11.16
Trading volume, bn pcs
Price of the shares, kop.
20
15
10
5
0
130
GDR Price and Volume Dynamics on the LSE
pcs.
4,000,000
3,000,000
2,000,000
1,000,000
0
04.01.16
30.03.16
08.06.16
01.09.16
30.12.16
Trading Volume,
DR pcs.
DR price on LSE,
USD
The given DR price at the end of trading
on the Moscow Stock Exchange1
USD
1.6
1.2
0.8
0.4
0
Dividend Policy
and Profit Distribution
When shaping our Dividend Policy, we are guided not only by the strict observance of
legal requirements, but also by the necessity to provide an optimal balance between the
shareholders’ interests, the Company’s business needs and the need to enhance the
Company’s investment attractiveness and capitalisation.
The principles of the Dividend Policy are set in the Regulations on Dividend Policy of PJSC FGC UES as approved by
the Board of Directors.
The full text of the
Regulations on Dividend
Policy is available on
the corporate website at
www.fsk-ees.ru/eng/ in
the Investors section.
In April 2016, the Russian government issued
a decree2 according to which the amount of
dividends shall not be less than the larger of 2
amounts – either 50% of the net profit of the
company (excluding income and expenses from
the revaluation of traded shares of its subsidiaries
and related income tax) according to accounting
(financial) statements, or 50% of the net profit
according to the consolidated financial statements
of the company.
1 The given DR price is an evaluation of the 1GDR price using the share price at the end of trading on the Moscow Stock
Exchange (arbitrage of the receipt price). Calculation as per the formula: Price per 1 share on the MOEX / The CB of
Russia’s exchange rate in $ to RUB * 500 (the number of shares in 1 GDR).
2 Decree No. 705-r of the Russian Government dated 18 April 2016.
131
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
Corporate Governance Report
DIVIDEND POLICY AND PROFIT DISTRIBUTION
The General Meeting of Shareholders
decides on dividend payments based on
recommendations made by the Board of
Directors. The recommended dividend amount
is determined based on the Company’s
Federal Law No. 208-FZ of December 26,
1995, "On Joint Stock Companies", and the
decree No. 774-r of the Russian Government
dated 29 May 2006, and other legal acts of the
Russian Federation.
Dividend History of PJSC FGC UES
Despite the challenging market and
economic situation in 2016, the Company
paid dividends for 2015 in the amount of
was a record event in the Company's
dividend history.
2011
(for 2010)
2012–2014
(for 2011–
2013)
2014
(for the 1st
Quarter of 2014)
2015
(for 2014)
2016
(for 2015)
2,577.7
436.8
847.4
16,976.6
Total amount of
Dividends Declared, RUB
mln
Dividend per Share, RUB
0.0020524
0.0003427
0.0006647883
0.0133185
as per RAS)
4.44%
36%
25%2
95%
No dividends
were declared
for 2011, 2012
and 2013
Date of Declaration
29 June 2011
Date of Actual Payment
Balance of Unpaid
Dividends5 (as of 31
December 2016), RUB
mln
29 August
2011
Dividend payment
obligation
cancelled due
to end of the
dividend request
period
27.06.2014
26.06.2015
29.06.2016
25.07.20143
20.08.20144
30.07.20153
20.08.20154
25.07.20163
15.08.20164
1.6
3.4
67.4
RUB 100,037,019.63
was transferred
as dividends
to the Federal
Budget.
Retained pr
for the reporting period,
incl.:
Reserve Fund
Development
Dividend payment
Cover for losses of
previous periods
2012
(for 2011)
2013
(for 2012)
2014
2015
(for 2013)
(for 2014 )
2016
(for 2015 )
- 2,468,359
- 24,501,917
- 25,897,521
4,699,940
17,870,137
–
–
–
–
–
–
–
–
–
–
–
–
256,837
893,507
–
–
847,383
16,976,630
3,595,720
2 Including dividends for the 1st quarter of 2014.
3 To nominees and trustees.
4 To other persons registered in the Company's Shareholder Register.
5 Dividends are paid in full to all persons registered in the Company's Shareholder Register, except for those who had not promptly
informed the register keeper of changes in their data, and whose dividend payment details are incorrect.
and dividends paid is presented in
accordance with the resolutions
of the Annual General Meetings
of Shareholders (GMS):
GMS 2011 (for the year 2010) -
Minutes No. 11 dated 4 July 2011.
GMS 2012 (for the year 2011) -
Minutes No. 12 dated 2 July 2012.
GMS 2013 (for the year 2012) -
Minutes No. 13 dated 2 July 2013.
–
GMS 2014 (for the year 2013) -
Minutes No. 15 dated 30 June
2014.
GMS 2015 (for the year 2014) -
Minutes No. 16 dated 30 June
2015.
GMS 2016 (for the year 2015) -
Minutes No. 17 dated 4 July 2016.
Information Disclosure
and Communication with Investors
and Shareholders
Information Disclosure System
QUESTION & ANSWER
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
R
e
p
o
r
t
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
A
p
p
e
n
d
x
i
Georgy Reshetnikov
Interim Head of External
Communications and Government
Relations Department
It's important for our stakeholders to have reliable information on the Company's performance. What does the
Company’s do to provide this?
have. This rule works in most cases and we try to
follow it. Traditionally, Federal Grid Company gives the
stakeholders a lot of information about its activities,
attention is surely paid to our work with the media. FGC
UES not only processes 100% of incoming information
requests, but also provides a constant flow of outgoing
messages on its performance in order to give journalists
an opportunity for direct communication with the
Company’s executives. During the past three years, the
Company has been one of the top three industry leaders
by number of hits in the media.
However, it is impossible to have one disclosure
channel for work across all audience groups.
Various departments are responsible for providing
information to the consumers, the government,
suppliers, contractors, public organisations and
others. It's important to note that all of these audience
groups receive consistent and uniform information.
This is achieved through the implementation of the
Company's Information Policy that was developed
in 2008 and updated in 2015 in accordance with the
recommendations of the Russian Corporate Governance
Code. In addition, the Regulations on implementing
the Information Policy were developed in 2016 and
approved by the Board of Directors in the beginning
of 2017, which allowed to us formalise and arrange
coordination with JSC Rosseti and the Company's
subsidiaries.
Finally, the last block is aimed at identifying any
reputation risks and inaccurate information in the
information space is organised and the data thereof is
promptly sent to the Company's management.
The Information Policy of Federal Grid Company is
aimed at ensuring the Company’s effective interaction
with shareholders, investors and other stakeholders
and achieving the full realisation of their rights in order
to receive the relevant and reliable information required
for investment and management decisions.
132
PJSC FGC UES
Annual Report 2016
133
The full text of the
Regulations on the
Information Policy
of PJSC FGC UES is
available at the website
at www.fsk-ees.ru/
eng/ in the Investors /
Corporate governance /
Corporate documents
section.
For details on the
Company’s compliance
with the Information
Policy, please see
paragraphs 6.2 and 6.3
of the Report on the
Company’s compliance
with principles and
recommendations of the
Corporate Governance
Code in Appendix 3
hereto.
INFORMATION DISCLOSURE AND COMMUNICATION
WITH INVESTORS AND SHAREHOLDERS
The Company’s Disclosure Principles
— Regularity
— Consistency
— Timeliness
— Availability, Reliability,
Completeness and Comparability
of Disclosures
The Company avoids a formal approach to disclosure
and goes beyond strict compliance with the applicable
legislative requirements. The Company strives to
promptly inform its stakeholders on all the significant
facts and events related to its activities through various
media outlets and channels, primarily electronic media.
When providing information, the Company maintains a
reasonable balance between its own interests and the
interests of stakeholders, in particular with regard to
restrictions on the access to insider information and
commercial secrets.
The Regulations were developed based on
recommendations of the Russian Corporate Governance
Code. These Regulations determine the information
policy to ensure the effective disclosure of statutory
and additional information contributing to the increase
of information openness and transparency of relations
between the Company and its shareholders, creditors,
potential investors, professional participants of
securities market, state bodies, the media and other
stakeholders.
The Regulations provide a list of additional information
that the Company undertakes to disclose beyond what
is statutorily required. This includes information on the
corporate governance system, the work of the governing
bodies, the Company’s capital structure, financial
activities and financial position.
The Chairman of the Company’s Management Board
is responsible for the completeness and accuracy of
the information on the Company and its performance.
He ensures the procedures of preparation, approval,
control of content and deadlines for information
disclosure, an appropriate document storage system
and the functionality and safety of information
resources. The Board of Directors is responsible for
monitoring compliance with the Company’s Information
Policy.
The Corporate and Strategic Management
Department analysed the information disclosed
by the Company in 2016 in accordance with
the Regulations on the Company’s Information
Policy and prepared the report on the Company’s
observance of the Information Policy.
The report on the Company’s observance of
Information Policy is submitted for review to the
Company's Board of Directors.
Disclosure Channels
Federal Grid Company uses various disclosure
channels, primarily electronic, which ensure the free,
easy and indiscriminate access of information to all of
its stakeholders.
We regularly update our corporate website,
www.fsk-ees.ru/eng/, whose sections contain both
mandatory and voluntary disclosures on all areas of
the Company’s business, information for shareholders
and investors, customers, suppliers and employees,
the latest news and press releases, financial
statements, annual reports and reports on sustainable
development. We ensure that the structure of our
website and its interactive tools provide quick and easy
access of to all the necessary information.
In addition to publishing information on its website,
the Company discloses information on the websites
of the Interfax agency, the Moscow Exchange, the
London Stock Exchange and in the printed version
of Rossiyskaya Gazeta, in addition to posting price-
sensitive information on the RNS international
information portal.
The Company pays special attention to important tools
for communication with its shareholders, investors
and other stakeholders such as the annual and social
reports. We strive to constantly improve the quality of
our corporate reports, combining clear structure and
logic with the brevity and depth of the statements.
The XIX Annual Report Competition organised by the Moscow Exchange:
— Best Information Disclosure on Corporate Governance in the Annual Report;
— Best Information Disclosure on the Corporate Website.
RECOGNITION
Expert Community
Evaluation of 2015 the
Annual Report
of PJSC FGC UES
For information on the
participation of PJSC
FGC UES in congresses
and exhibitions, please
see Appendix 1 hereto
Public Relations
Federal Grid Company maintains close and constant
interaction with its stakeholders, including the
government authorities, public organisations and the
mass media. To implement the Company’s policy in
this area, a Department of External Communications
and Government Relations has been created and
operates actively in different spheres, including
communication with mass media and stakeholders,
the organisation of various sector events and projects
aimed at promoting the activities of the backbone grid
complex. The Company's PR projects are organised
within the framework of the Unified Information Policy
of PJSC Rosseti.
Interactions with Investors and Shareholders
The key objectives of the Company's IR Team are to
raise awareness about the Company in the investment
community and to provide effective interaction
therewith in order to enhance investor confidence and
increase the demand for the Company’s shares.
We consider an active dialogue with the investment
community to be an important tool for obtaining
feedback from this audience in order to understand
how certain decisions may impact the investors’
assessment of the Company.
The Corporate and Strategic Management Department
is responsible for close interaction with the investment
community.
Information on Minority Shareholders
The Company’s key minority shareholders main comprise
institutional investors, with retail investors accounting
for 3%.
In 2016, the largest foreign shareholders of the
Company are the investment funds and mandates under
management of Prosperity Capital Management Ltd –
2.1% collectively.
List of Foreign Shareholders Collectively Holding
about 5% of the Company's Outstanding Shares
Name
Prosperity Capital
Management
Country
Cayman
islands
State Street Bank and
Trust Company
USA
Kopernik Global All-Cap
Fund
USA
Polunin Developing
Countries Fund
USA
Norges Bank
Norway
Vanguard International
Equity Index Funds
USA
Type of
Investor
Funds and
Managing
companies
Banks and
Trusts
Funds and
Managing
companies
Funds and
Managing
companies
Sovereign
Wealth
Funds
Funds and
Managing
companies
The share of foreign institutional investors,
including major international funds whose
assets under management exceed
USD 1 billion, such as the Kopernik Global
All-Cap Fund, the Vanguard International
Equity Index Fund, BlackRock funds and
the investment funds of some countries, in
particular that of Norway and the United Arab
Emirates, comprises 67% of the free float.
7
6
2
5
Foreign Investor Breakdown by Region
10 11
9
8
1
6
5
7
4
3
2
1
2
3
4
5
6
7
8
9
10
11
USA
Cyprus
Cayman Islands
Luxembourg
Great Britain
Netherlands
Norway
Ireland
British Virgin
Islands
UAE
Other
%
36
18
9
7
6
5
4
4
3
3
5
134
135
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix INFORMATION DISCLOSURE AND COMMUNICATION
WITH INVESTORS AND SHAREHOLDERS
The majority of the Company's shares held by foreign
investors belongs to US companies – 36%.
Over 50% of the Company's shares held by non-
residents belong to funds and managing companies.
"Meetings in such format have become a tradition that enable
the Company’s management to get direct feedback from market
experts, thus improving the quality and efficiency of management
decisions."
Andrey Murov, the Chairman of the Company's Management Board
Most investors consider the Company's shares as
an undervalued asset (Value) or an asset with good
prospects for value growth (Growth); an intermediate
position between these two approaches is a style of
investing called GARP (Growth At Reasonable Price).
The "By Market" group consists of short-term investors
who focus on the current situation of the market –
including brokers and hedge funds. The objectives for
the Index Investor Group are various index solutions.
The Investor Calendar
is constantly updated
and available on the
Company website at
www.fsk-ees.ru/eng/ in
the Investors / Investor
Calendar section.
Foreign Investor Breakdown by Investment Type
6
1
5
2
3
4
1
2
3
4
5
6
Banks and trusts
Brokers
Other
Pension and insurance
companies
Sovereign wealth
funds
Funds and Managing
companies
%
19
8
4
7
10
52
Foreign Investor Breakdown by Investment Style
6
1
5
4
IR Events
2
3
1
2
3
4
5
6
By market
GARP
Growth
Index
Value
Others
%
11
8
30
9
37
5
The Company's policy to increase investment
attractiveness for stock market participants includes
a series of events. In 2016, such events included the
following:
— the Company’s IFRS financial results for 2015 were
presented by the Head of the Financial Unit via
conference call;
— the Company's executives held one-on-one meetings
with representatives of Russian and foreign
investment companies in the framework of the VTB
Capital Investment Forum “RUSSIA CALLING”;
— regular communication by the Corporate and
Strategic Management Department with the analysts
of investment banks in order to give them information
to update of the Company's investment models;
— letters and emails with answers to investors’ and
shareholders’ questions;
— regular monitoring of the Company's share capital,
which allows the organisation of the main groups
and types of investors in order to develop an optimal
mechanism of interaction with them;
— actions to engage minority shareholders in voting
on items for the preparation for the Annual General
Meeting of Shareholders;
— an annual business lunch of the Chairman of the
Management Board with the representatives and
analysts of the investment community.
In December, the Chairman of the Company's Management Board, Andrey Murov, and the heads of the
Company’s key units, held a business lunch with the representatives of the investment community and business
analysts to discuss the Company’s performance in 2016, as well as its mid-term plans. This was the fourth
meeting held in such format. As a result, it was agreed to continue an active dialogue with the purpose of
informing investors on the Company's performance and in order to obtain feedback from industry experts.
For details on the
Company's IR events,
please see the website
at www.fsk-ees.ru/eng/
in the Investors / IR
releases section.
A list of investment
analysts monitoring the
Company’s performance
is available on the
website at www.fsk-ees.
ru/eng/ in the Investors /
Analysts Coverage
section.
2017 Investor Calendar
Date Event/Location
February 28th 2016 Annual Results (RAS)
March 23rd FY 2016 Financial Results (IFRS)
On or prior to
April 28th
On or prior to
April 28th
On or prior to
May 30th
On or prior to
June 30th
On or prior to
July 28th
On or prior to
August 29th
Annual Financial Results as per requirements of Financial Conduct Authority (United
Kingdom)
Q1 2016 Financial Results (RAS)
Q1 2017 Financial Results (IFRS)
Annual General Meeting of Shareholders
H1 2017 Financial Results (RAS)
H1 2017 Financial Results (IFRS)
October VTB Capital Investment Forum RUSSIA CALLING (Moscow)
On or prior to
October 30th
On or prior to
November 30th
Q3 2017 Financial Results (RAS)
Q3 2017 Financial Results (IFRS)
December
Annual Meeting of the Company's executives with the investment community
(Moscow)
IR Team Contacts
Telephone: 8 (800) 200-18-81
Fax: +7 (495) 710-96-41
Egor Toropov
Alexey Novikov
Telephone: 8 (800) 200-1881 extension 22-75
Telephone: 8 (800) 200-18-81 extension 21-43
E-mail: toropov-ev@fsk-ees.ru
E-mail: novikov-as@fsk-ees.ru
136
137
Corporate Governance ReportPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix
We believe that the audit evidence obtained in the course of the audit provides sufficient basis to express our opinion on
the reliability of the accounting statements.
Opinion
In our opinion, the accounting statements fairly present, in all material respects, the financial standing of FGC UES, PJSC
as of December 31, 2016, its financial performance and its cash flows for the year 2016 in accordance with the Russian
Accounting Standards.
Chairman of the Management Board
Auditor qualification certificate No. 05-000015 issued
pursuant to resolution No. 24 of the Self-Regulatory
Organization of Auditors Non-Commercial Partnership
“Russian Collegium of Auditors” (dated November 15,
2011) for an indefinite period of time.
Audit Leader
Auditor qualification certificate No. 05-000030 is issued
pursuant to the resolution (minutes No. 25) of the Self-
Regulatory Organization of Auditors Non-Commercial
Partnership “Russian Collegium of Auditors” (dated
November 30, 2011) for an indefinite period of time.
PREN in the register of auditors and audit
organizations – 21706004215.
PREN in the register of auditors and audit
organizations – 21706004441.
N.A. Dantser
N.N. Usanova
RSM RUS LTD
4 Pudovkina street.
Moscow, 119285, Russia
T: +7 495 363 2848
F: +7 495 9814121
E: mail@rsmrus.ru
www.rsmrus.ru
20.02.2017 № РСМ-1115
Independent Auditor’s Report on the Accounting
Statements for 2016
to the Shareholders of FGC UES, PJSC
Audited entity:
Federal Grid Company of Unified Energy System,
PUBLIC JOINT-STOCK COMPANY (short name –
FGC UES, PJSC).
Place of business: 5a Akademika Chelomeya St.,
Moscow, Russia, 117630
Principal State Registration Number – 1024701893336.
Auditor:
Limited Liability Company RSM RUS.
Place of business: 4 Pudovkina St., Moscow, Russia,
119285
Telephone: (495) 363-28-48; fax: (495) 981-41-21;
Principal State Registration Number – 1027700257540.
Limited Liability Company RSM RUS is a member of the Self-Regulatory Organization of Auditors “Association
Sodruzhestvo” (membership certificate No. 6938, Principal Number of Registration Entry (PREN) – 11306030308),
place of business: 21 Michurinsky Avenue, Bldg. 4, Moscow, Russia, 119192
We have conducted an audit of the enclosed accounting statements of FGC UES, PJSC, consisting of the Balance
Sheet as of December 31, 2016, the Profit and Loss Statement, the Statement of Changes in Equity, and the Cash Flow
Statement for 2016, written appendices to the annual accounting statements.
Responsibility of the audited entity for the accounting statements
Management of FGC UES, PJSC is responsible for the preparation and fair presentation of these accounting statements
in accordance with the Russian Accounting Standards and for designing, implementing and maintaining internal controls
relevant to the preparation and fair presentation of accounting statements which are free from material misstatement,
whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on the reliability of these accounting statements based on our audit. We
conducted the audit in accordance with the federal auditing standards. These standards require that we comply with
applicable ethical norms and plan and perform an audit in such a manner as to obtain reasonable assurance whether the
accounting statements are free of any material misrepresentation.
Our audit involved performance of auditing procedures aimed at obtaining audit evidence about the amounts and
disclosures in the accounting statements. The selected auditing procedures are a matter of our judgment, which is
founded on the assessment of the risk of material misrepresentation due to malpractice or error. In the course of
assessment of this risk, we reviewed the internal control system ensuring the preparation and reliability of the accounting
statements in order to select appropriate auditing procedures but not to state our opinion regarding the efficiency of the
internal control system.
The audit also included evaluation of the appropriateness of the existing accounting policies and the reasonableness of
accounting estimates made by the management of the audited entity, as well as evaluation of the overall presentation of
the accounting statements.
RSM RUS LLC is a member of the RSM network and operates as RSM. RSM is a trademark used by members of the RSM network. The
RSM network consists of independent accounting and consulting companies, performing independent activities. The RSM network itself
does not constitute a separate legal entity in any jurisdiction.
138
139
Financial Statements Annual Report 2016BASIC FORMS OF ANNUAL ACCOUNTING STATEMENTS OF FEDERAL GRID COMPANYStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
Indicator
code
2
As of December
31, 2016
3
As of December
31, 2015
4
As of December
31, 2014
5
S.3.12 of Annexes**
BALANCE SHEET
as of December 31, 2016
Annex to Order of the Russian Ministry of Finance No. 66n
dated July 2, 2010 (as revised by Order of the Russian
Ministry of Finance No. 124n dated October 5, 2011)
Organization Public Joint-Stock Company “Federal Grid Company
of Unified Energy System”
Tax identification code
Activity power transmission
Form of corporate entity’s incorporation/ form of ownership public joint-stock
company/mixed Russian assets with a federal share
Unit: RUB thousand
Location (address) 5A Akademika Chelomeya Street, Moscow, Russia, 117630
CODES
0710001
31.12.2016
56947007
4716016979
35.12
47/41
384
OKUD Form No. 1
Date (year, month, day)
as per OKPO
INN
as per OKVED
as per OKOPF/OKFS
as per OKEI
Approval date
Mailing (acceptance) date
Notes
S.1 of Notes*
S.3.2 of Annexes**
S.1 of Notes*
S.3.6 of Annexes**
S.2 of Notes*
S.3.3 of Annexes**
ASSET
1
I. NON-CURRENT ASSETS
Intangible assets
Research and development results
Fixed assets,
including:
land plots and natural resources
buildings, machinery and equipment, structures
other fixed assets
Income-bearing investments in tangible assets
Financial investments
Deferred tax assets
Other non-current assets,
including:
investments into non-current assets
other non-current assets
advances against non-current assets
equipment for installation
TOTAL for Section I
II. CURRENT ASSETS
Inventory,
including:
raw materials, materials and other similar assets
finished goods and goods for sale
Value added tax on purchased
assets
Accounts receivable,
including:
Accounts receivable (payments are expected over more than
12 months upon the balance sheet date),
including:
customers and consumers
advance payments made
other debtors
Accounts receivable (payments are expected within 12 months
from the balance sheet date),
including:
customers and consumers
amounts owed by members (founders) as share capital
payments
advance payments made
other debtors
Financial investments
(except cash equivalents)
Cash and cash equivalents
Other current assets
TOTAL for Section II
S.3 of Notes*
S.3.7 of Annexes**
S.2 of Notes*
S.3.4 of Annexes**
S.5.1 of Notes*
S.3.9 of Annexes**
S.3.11 of Annexes**
S.4 of Notes*
S.3.10 of Annexes**
S.5 of Notes*
S.3.9 of Annexes**
S.3 of Notes*
S.3.8 of Annexes**
S.3.19 of Annexes**
S.3.11 of Annexes**
1110
1120
1130
1131
1132
1133
1140
1150
1160
1170
1171
1172
1173
1174
1100
1210
1211
1212
1220
1230
1231
1232
1233
1234
1235
1236
1237
1238
1239
1240
1250
1260
1200
3,326,907
163,047
3,494,151
243,651
3,265,522
324,255
857,440,111
823,624,985
788,861,095
1,721,968
852,356,759
3,361,384
—
71,824,222
—
250,509,851
1,698,972
817,957,414
3,968,599
—
32,339,155
—
264,636,543
1,631,794
782,636,932
4,592,369
—
25,764,856
—
299,704,867
33,328,127
191,073,182
25,790,087
318,455
1,183,264,138
33,850,277
209,738,793
20,854,723
192,750
1,124,338,485
33,218,459
226,376,514
39,761,614
348,280
1,117,920,595
9,108,558
9,108,558
—
493,970
12,632,339
9,635,100
12,632,325
14
881,583
9,635,083
17
1,146,693
135,201,277
69,491,215
60,162,888
11,327,562
10,485,059
—
842,503
9,503,739
1,110,748
8,654,597
—
849,142
4,877
—
1,105,871
123,873,715
59,987,476
59,052,140
89,976,088
—
515,934
33,381,693
2,067,318
36,007,838
30,698
182,909,659
39,753,400
—
766,050
19,468,026
38,893,489
37,501,050
—
1,559,543
19,991,547
2,762,466
21,977,333
87,002
143,962,961
39,480,358
108,866
113,296,371
Notes
S.3.1 of Annexes**
S.3.1 of Annexes**
LIABILITY
1
III. CAPITAL and RESERVES
Share capital (contributed capital, authorized fund,
contributions of partners)
Shares repurchased
Revaluation of non-current assets
Additional capital (without revaluation)
Reserve capital
Undistributed profit (uncovered loss),
including:
Undistributed profit of past years
Undistributed profit of the reporting year
Uncovered loss of the reporting year
Uncovered loss of past years
TOTAL for Section III
IV. LONG-TERM LIABILITIES
Borrowings and loans
Deferred tax liabilities
Estimated liabilities
Other liabilities
TOTAL for Section IV
V. SHORT-TERM LIABILITIES
Borrowings and loans
Accounts payable, including:
suppliers and contractors
payables to employees
payables to state non-budgetary funds
taxes and fees payable
advances received
other creditors
payables to members (founders)
S.5.3 of Notes*
S.3.13 of Annexes**
S.7 of Notes*
Deferred income
Estimated liabilities
Other liabilities
TOTAL for Section V
BALANCE
* — Notes to the Balance Sheet and Statement of Financial Performance for 2016.
** — Annexes to the annual 2016 Financial Statements.
Indicator
code
2
As of December
31, 2016
3
As of December
31, 2015
4
As of December
31, 2014
5
1310
1320
1340
1350
1360
1370
1371
1372
1373
1374
1300
1410
1420
1430
1450
1400
1510
1520
1521
1522
1523
1524
1525
1526
1527
1530
1540
1550
1500
637,332,662
637,332,662
637,332,662
—
258,523,592
31,867,163
14,188,807
45,088,345
(60,982,566)
—
106,070,911
—
987,000,569
236,653,463
49,658,250
—
512,667
286,824,380
29,195,354
60,031,744
31,047,890
21,370
555
16,731,083
8,171,878
3,984,504
74,464
694,921
2,426,829
—
92,348,848
—
246,420,309
31,867,163
13,295,300
(43,529,255)
(43,529,255)
—
—
—
885,386,179
249,660,368
44,035,756
—
462,788
294,158,912
31,361,933
54,748,132
42,279,852
18,486
310,101
4,062,955
6,129,644
1,939,360
7,734
740,903
1,905,387
—
88,756,355
—
235,563,921
31,867,163
13,038,463
(63,312,639)
(63,312,639)
—
—
—
854,489,570
232,771,196
34,211,465
—
453,029
267,435,690
29,544,812
77,550,930
67,205,391
221,038
84,162
1,326,189
6,085,001
2,619,738
9,411
760,936
1,435,028
—
109,291,706
1700
1,366,173,797
1,268,301,446
1,231,216,966
Chief Executive
A.E. Murov
Chief Accountant
A.P. Noskov
(signature)
(print full name)
(signature)
(print full name)
20 February 2017
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
BALANCE
1600
1,366,173,797
1,268,301,446
1,231,216,966
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
140
141
Financial Statements Annual Report 2016BASIC FORMS OF ANNUAL ACCOUNTING STATEMENTS OF FEDERAL GRID COMPANYStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
STATEMENT OF FINANCIAL RESULTS
for 2016
Annex to Order of the Russian Ministry of Finance No. 66n
dated July 2, 2010 (as revised by Order of the Russian
Ministry of Finance No. 124n dated October 5, 2011)
Organization Public Joint-Stock Company “Federal Grid Company
of Unified Energy System”
Tax identification code
Activity power transmission
Form of corporate entity’s incorporation/ form of ownership public joint-stock
company/mixed Russian assets with a federal share
Unit: RUB thousand
Notes
Indicator
Description
1
General income and expenses
Revenue from sale of goods, products and services
(net of VAT, excise duties and other
similar mandatory payments),
including:
services for electric power transmission
other activity
S.6 of Notes*
Production cost of goods, products and services sold,
including:
S.6 of Notes*
S.3.15 of Annexes**
S.3.15 of Annexes**
S.3.5 of Annexes**
S.3.5 of Annexes**
S.3.5 of Annexes**
services for electric power transmission
other activity
Gross profit (2110 + 2120)
Commercial expenses
Administrative expenses
Profit (loss) from sales (2100 + 2210 + 2220)
Income from participation in other companies
Interest income
Interest expenses
Other income
Other expenses
Profit (loss) before tax (2200 +2310 + 2320 +
2330 + 2340 + 2350)
Current income tax,
including:
permanent tax liabilities
Change in deferred tax liabilities
Change in deferred tax assets
Other, including:
Other similar mandatory payments
Income tax adjustment for the previous periods
Net profit (loss) for the reporting period
OKUD Form No. 2
Date (year, month, day)
as per OKPO
CODES
0710002
31.12.2016
56947007
INN
4716016979
as per OKVED
as per OKOPF/OKFS
as per OKEI
35.12
47/41
384
For the repor-
ting period
For the same
period of the last
year
3
4
Code
2
Notes
Indicator name
S.3.3 of Annexes**
S.3.16 of Annexes**
FOR REFERENCE
Result of the fixed assets revaluation, not included in the net
profit (loss) for the period
Gain or loss from other operations not included in the net
profit for the period
Total financial result for the period
Basic earnings (loss) per share
Diluted earnings (loss) per share
* — Notes to the Balance Sheet and Statement of Financial Performance for 2016.
** — Annexes to the annual 2016 Financial Statements.
Form 0710002 p. 2
As of December
2016
As of December
2015
12,520,106
13,866,221
118,591,017
0.0832
31,736,358
0.01402
Chief Executive
A.E. Murov
Chief Accountant
A.P. Noskov
(signature)
(print full name)
(signature)
(print full name)
2110
218,366,451
173,266,394
20 February 2017
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
2111
2112
2120
2121
2122
2100
2210
2220
2200
2310
2320
2330
2340
2350
2300
2410
2411
2430
2450
2460
2461
2462
2400
171,133,002
47,233,449
(140,037,974)
(138,756,529)
(1,281,445)
78,328,477
—
(8,032,766)
70,295,711
260,824
7,807,492
(6,230,558)
72,954,542
(20,767,964)
124,320,047
158,986,316
14,280,078
(134,938,305)
(133,534,773)
(1,403,532)
38,328,089
—
(7,850,741)
30,477,348
100,849
8,211,453
(8,464,150)
23,540,512
(25,981,751)
27,884,261
(12,568,840)
(69,822)
6,672,675
(5,851,047)
228,553
(57,802)
(6,843)
(50,959)
106,070,911
(4,317,261)
(9,530,440)
(293,851)
(120,011)
(120,011)
(—)
17,870,137
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
142
143
Financial Statements Annual Report 2016BASIC FORMS OF ANNUAL ACCOUNTING STATEMENTS OF FEDERAL GRID COMPANYStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
STATEMENT OF CHANGES IN EQUITY
for 2016
Annex to Order of the Russian Ministry
of Finance No. 66n dated July 2, 2010
(as revised by Order of the Russian Ministry
of Finance No. 124n dated October 5, 2011)
Organization Public Joint-Stock Company “Federal Grid Company
of Unified Energy System”
Tax identification code
Activity power transmission
Form of corporate entity’s incorporation/ form of ownership public joint-stock
company/mixed Russian assets with a federal share
Unit: thousand RUR (million RUR)
OKUD Form No. 2
Date (year, month, day)
as per OKPO
CODES
0710003
31.12.2016
56947007
INN
4716016979
as per OKVED
as per OKOPF/OKFS
as per OKEI
35.12
47/41
384
Indicator name
Capital value
as of December 31, 20 141
For 2015 г.2
Increase in capital value — total:
including:
net profit
property revaluation
income relating directly
to the increase
in capital value
additional issue
of shares
increase of share
denomination
reorganization
of legal entity
other
Indicator name
Reduction of capital value — total:
including:
loss
property revaluation
expenses relating directly
to the reduction of capital
value
decrease of share
denomination
reduction of shares quantity
reorganization of legal entity
dividends
Changes in the additional capital
Changes in the reserve capital
Capital value as of December 31, 2015
1. Changes in equity
Code
Authorized
capital
Treasury shares
repurchased
from
shareholders
Additional
capital
Reserve
capital
Undistributed
profits (uncov-
ered loss)
Total
3100
637,332,662
—
267,431,084
13,038,463
(63,312,639)
854,489,570
3210
3211
3212
3213
3214
3215
3216
3217
Code
3220
3221
3222
3223
3224
3225
3226
3227
3230
3240
3200
—
х
х
х
—
—
—
—
—
13,866,221
—
17,870,137
31,736,358
х
х
х
—
—
—
—
х
13,866,221
—
—
—
—
—
х
х
х
х
х
—
—
17,870,137
—
—
17,870,137
13,866,221
—
х
—
—
—
—
х
—
—
Form 0710023 p. 2
Treasury shares
repurchased
from
shareholders
Authorized
capital
Additional
capital
Reserve
capital
Undistributed
profits (uncov-
ered loss)
Total
—
( 839,749)
( 839,749)
—
х
х
х
—
—
—
х
х
х
637,332,662
—
х
х
х
—
—
—
х
х
х
—
—
х
—
—
—
х
х
х
х
—
—
—
—
—
—
х
(3,009,833)
х
278,287,472
х
—
х
—
256,837
13,295,300
—
—
( 839,749)
3,009,833
(256,837 )
(43,529,255)
—
—
—
—
—
—
( 839,749)
х
х
885,386,179
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
Code
Authorized
capital
Treasury shares
repurchased
from
shareholders
Additional
capital
Reserve
capital
Undistributed
profits (uncov-
ered loss)
Total
Indicator name
For 2016 г.3
Increase in capital value — total:
including:
net profit
property revaluation
income relating directly to the increase
in capital value
additional issue of shares
increase of share
denomination
reorganization of legal entity
Reduction of capital value — total:
including:
loss
property revaluation
expenses relating directly
to the reduction of capital
value
decrease of share
denomination
reduction of shares quantity
reorganization of legal entity
dividends
other
Changes in the additional capital
Changes in the reserve capital
Capital value as of December 31, 20163
3310
3311
3312
3313
3314
3315
3316
3320
3321
3322
3323
3324
3325
3326
3327
3328
3330
3340
3300
—
х
х
х
—
—
—
—
х
х
х
—
—
—
х
—
х
х
637,332,662
—
12,520,106
—
106,070,911
118,591,017
х
х
х
—
—
—
—
х
х
х
—
—
—
х
—
х
х
—
х
12,520,106
—
—
—
—
—
х
—
—
—
х
х
х
х
х
—
—
х
х
х
х
—
—
х
—
(416,823 )
х
290,390,755
х
—
х
—
—
893,507
14,188,807
106,070,911
—
—
х
—
—
106,070,911
12,520,106
—
—
х
—
( 16,976,627)
(16,976,627)
—
—
—
—
—
—
—
—
—
—
—
—
(16,976,627)
(16,976,627)
—
416,823
( 893,507 )
45,088,345
—
х
х
987,000,569
Form 0710023 p. 3
2. Corrections due to changes in the accounting policy and errors elimination
Changes in equity for 20152
Indicator name
Equity — total
before corrections
correction due to:
changes in the accounting policy
errors elimination
after corrections
including:
retained earnings
(uncovered loss):
before corrections
correction due to:
changes in the accounting policy
errors elimination
after corrections
other capital items
subject to corrections:
(per items)
before corrections
correction due to:
changes in the accounting policy
errors elimination
after corrections
Indicator name
Net assets
As of December
31, 20141
Code
due to net profit
(loss)
due to other
factors
As of December
31, 20152
3400
3410
3420
3500
3401
3411
3421
3501
3402
3412
3422
3502
Code
3600
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3. Net assets
As of December
31, 20163
987,695,490
As of December 31,
20152
As of December 31,
20141
886,127,082
855,250,506
Chief Executive
A.E. Murov
Chief Accountant
A.P. Noskov
(signature)
(print full name)
(signature)
(print full name)
20 February 2017
Notes 1. The year preceding the previous year is indicated. 2. The previous year is indicated. 3. The reporting year is indicated.
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
144
145
Financial Statements Annual Report 2016BASIC FORMS OF ANNUAL ACCOUNTING STATEMENTS OF FEDERAL GRID COMPANYStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
CASH FLOW STATEMENT
for 2016
Annex to Order of the Russian Ministry
of Finance No. 66n dated July 2, 2010
(as revised by Order of the Russian Ministry
of Finance No. 124n dated October 5, 2011)
Organization Public Joint-Stock Company “Federal Grid Company
of Unified Energy System”
Tax identification code
Activity power transmission
Form of corporate entity’s incorporation/ form of ownership public joint-stock
company/mixed Russian assets with a federal share
Unit: RUB thousand
Indicator name
1
Cash flows from current transactions
Receipts — total
including:
from sale of products, goods, work and serviceslease payments, license fees,
royalties,commission charges and other similar payments
from resale of financial investments
other receipts
Payments — total, including:
to suppliers (contractors) for raw materials, materials, work and services
remuneration of labor
debenture interest
corporate tax
other payments
Balance of cash flows from current transactions
Cash flows from investment transactions
Receipts — total, including:
from sale of fixed assets (except financial investments)
from sale of other companies’ shares (participatory interest)
from repayment of granted loans, from sale of debt securities (claims
for cash against third parties)
dividends, interest on debt financial investments and other similar income
from participatory interest in other companies
budget subsidy
other receipts
Payments — total, including:
payments associated with the acquisition, establishment, upgrading,
reconstruction and preparation for the use of fixed assets
from purchase of other companies’ shares (participatory interest)
from purchase of debt securities (claims for cash against third parties),
granting loans to third parties
debenture interest included in the investment
asset value
from budget subsidy
other payments
Balance of cash flows from investment transactions
OKUD Form No.
Date (year, month, day)
as per OKPO
CODES
0710004
31.12.2016
56947007
INN
4716016979
as per OKVED
as per OKOPF/OKFS
35.12
47/41
as per OKEI
384
Code
2
4110
4111
4112
4113
4119
4120
4121
4122
4123
4124
4129
4100
4210
4211
4212
4213
4214
4218
4219
4220
4221
4222
4223
4224
4228
4229
4200
For 2016
3
186,808,522
177,950,601
866,454
—
7,991,467
(87,611,024)
(33,971,675)
(16,006,034)
(8,395,873)
(5,032,447)
(24,204,995)
99,197,498
53,710,709
1,135,169
8,625
47,478,220
5,088,695
—
—
(108,892,895)
(79,203,529)
(—)
(10,355,719)
(19,333,517)
—
(130)
(55,182,186)
For 2015
4
173,692,115
160,139,058
972,286
—
12,580,771
(74,602,597)
(33,403,893)
(16,197,793)
(6,645,116)
1,164,771
(19,520,566)
99,089,518
10,357,241
1,337,320
568,000
5,988,017
2,463,904
—
—
(142,986,572)
(75,449,636)
(192,192)
(43,416,320)
(23,926,874)
—
(1,550)
(132,629,331)
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
Indicator name
1
Cash flows from financial transactions
Receipts — total, including:
obtaining of credits and loans
monetary contributions of owners (members)
from issue of shares, participatory interest increase
from issue of bonds, promissory notes and other debt securities
other receipts
Payments — total, including:
to owners (members) due to repurchase of shares (participatory interest) of
their organization or their cessation of membership
for payment of dividends and other distribution payments
profit to owners (members)
due to the payment of promissory notes and other debt securities, repayment
of credits and loan
other payments
Cash flow balance from financial operations
Cash flow balance for the reporting period
Cash and cash equivalents balance as of the beginning
of the reporting year
Cash and cash equivalents balance as of the end
of the reporting year
Influence of foreign currency change versus RUR
For 2016
3
10,163,523
164,771
—
—
9,998,750
2
(40,148,306)
—
For 2015
4
40,094,200
99,200
—
—
39,995,000
—
(24,057,411)
—
(16,976,630)
(847,383)
(23,171,676)
(23,210,028)
—
(29,984,783)
14,030,529
21,977,309
—
16,036,789
(17,503,024)
39,480,333
36,007,838
21,977,309
Code
2
4310
4311
4312
4313
4314
4319
4320
4321
4322
4323
4329
4300
4400
4450
4500
4490
Chief Executive
A.E. Murov
Chief Accountant
A.P. Noskov
(signature)
(print full name)
(signature)
(print full name)
20 February 2017
Full version of annual accounting statements of Federal Grid Company for 2016 is provided in Appendix 13.
146
147
Financial Statements Annual Report 2016BASIC FORMS OF ANNUAL ACCOUNTING STATEMENTS OF FEDERAL GRID COMPANYStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
RSM RUS LTD
4 Pudovkina street.
Moscow, 119285, Russia
T: +7 495 363 2848
F: +7 495 9814121
E: mail@rsmrus.ru
www.rsmrus.ru
21.03.2017 № РСМ-1810
Independent Auditor’s Report
To: the Shareholders of PJSC «FGC UES»
Audited entity:
Public Joint-Stock Company “Federal Grid Company
of Unified Energy System” (abbreviated name (“FGC
UES”).
Location: 5A Akademika Chelomeya Street, Moscow
117630, Russian Federation;
Primary state registration number – 1024701893336.
Auditor:
RSM RUS Ltd.
Location: 4, Pudovkina Str., Moscow, 119285;
Tel.: (495) 363-28-48; Fax: (495) 981-41-21;
Primary state registration number – 1027700257540;
RSM RUS Ltd. is a member of Self-regulatory organization of auditors Association “Sodruzhestvo” (membership
certificate # 6938, ORNZ 11306030308), location: 21, Michurinsky Ave., bldg. 4, Moscow, 119192.
Opinion
We have audited the consolidated financial statements of PJSC “FGC UES” and its subsidiaries (the Group),
which comprise the Consolidated Statement of Financial Position as of 31 December 2016, and the Consolidated
Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity and
Consolidated Statement of Cash Flows for the year then ended and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the con-
solidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and
its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards
(IFRSs).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial
Statements section of our report. We are independent of the Group in accordance with the International Ethics
Standards Board for Accountants` Code of Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the consolidated financial statements in Russian Federation,
and we have fulfilled our other ethical responsibilities in accordance with these requirements and IESBA Code. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit
of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters
RSM RUS LLC is a member of the RSM network and operates as RSM. RSM is a trademark used by members of the RSM network. The
RSM network consists of independent accounting and consulting companies, performing independent activities. The RSM network itself
does not constitute a separate legal entity in any jurisdiction.
Revaluation and impairment of property, plant and equipment
In our opinion, this matter was one of most significance in our audit due to a significant share of property, plant and
equipment in total assets of the Group, high level of subjectivity of assumptions used to determine the fair value as
well as materiality of judgments and estimates made by the management in determining the replacement cost of
property, plant and equipment.
The majority of the Group’s property, plant and equipment is specialized in nature and is rarely sold on the open mar-
ket other than as part of a continuing business, making it impossible to use market-based approaches for determin-
ing its fair value. Consequently the fair value of such items is primarily determined by the Group using depreciated
replacement cost valuation method.
We have performed procedures of analysis and testing of the model used in making the estimates, assessment of
adequacy of assumptions underlying the estimates, including assumptions in respect of projected revenue, tariffs
decisions, discount rates etc.
We have also reviewed the relevant controls in respect of the estimates, consideration by management of estima-
tion uncertainty and changes in approaches as compared to the previous period. We have reviewed the actual out-
comes of the use of the model to obtain sufficient and appropriate audit evidence about whether the management
in making the estimates complied with IFRS requirements, the methods used in estimates of tests are appropriate
and are applied consistently and the changes in estimates are reasonable based on information available at the date
of preparation of the accounts.
For testing the model of estimate and underlying assumptions, we have engaged an expert in accordance with the
procedure established by ISA.
We have evaluated the accuracy and sufficiency of information disclosure in the consolidated financial statements
o about determination of the fair value of property, plant and equipment, including information about uncertainties
taken into consideration when making the estimates.
Information about the manner of determining the fair value of the Group’s property, plant and equipment is provided
in Note 6 “Property, plant and equipment” to the consolidated financial statements.
Impairment of accounts receivable
In our opinion, this matter was one of most significance in our audit due to significant balances of accounts receiva-
ble as at 31 December 2016. The management estimate of recoverability of accounts receivable is complex, largely
subjective and based on the assumptions, in particular, forecasting financial solvency of the Group’s counterparties.
We have performed procedures of evaluation of the adequacy of the Group’s policy on reviewing accounts receiv-
able and determining if allowance for impairment should be accrued, as well as procedures of confirming the rea-
sonableness of the estimates made by the management of the Group, including specific characteristics of specific
clients, their financial solvency, dynamics of collection of accounts receivable, payments and arrangements after the
balance-sheet date, as well as review of expected future cash flows.
Accrued allowance for impairment of accounts receivable is disclosed by the Group in Notes 6, 10 and 13 to the
consolidated financial statements.
Assessment of control and significant influence
in respect of the Group entities
In our opinion, this matter was one of most significance in our audit of the consolidated financial statements
because in July, 2016 the Group lost control over the subsidiary OJSC “Nurenergo” following the court ruling. As a
result, gain from loss of control in the amount of RUB 11,868 mln. was recognized in the accounts. In January, 2017
following the ruling of the court of appeal, the previous court decision was revoked, as a result, the Group again
obtained control over OJSC “Nurenergo”.
We have performed procedures of evaluation of completeness and accuracy of recognition of transactions related
to loss of control in the consolidated financial statements, as well as subsequent disclosures of post-balance-sheet
events related to regaining control.
Information about changes in the Group is provided in Notes 2 and 30 to the consolidated financial statements.
148
149
Financial Statements Annual Report 2016BASIC FORMS OF CONSOLIDATED FINANCIAL STATEMENTS OF FGC UES GROUPStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
— Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible for
the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee of the Board of Directors regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We also provide the Audit Committee of the Board of Directors with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Audit Committee of the Board of Directors, we determine those matters
that were of most significance in the audit of the consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
Management Board Chairperson
Audit Certificate No. 05-000015. Issued following
Resolution of self-regulatory organization Not-for-Profit
Partnership “Russian Collegium of Auditors” dated 15
November 2011 No. 24. Permanent award.
Manager responsible for the audit
Audit Certificate No. 05-000030. Issued following
Resolution of self-regulatory organization Not-for-Profit
Partnership “Russian Collegium of Auditors” dated 30
November 2011 No. 25. Permanent award.
ORNZ in the Register of auditors and audit
organizations – 21706004215
ORNZ in the Register of auditors and audit
organizations – 21706004441
N.A. Dantser
N.N.Usanova
Recognition of income from revaluation of available-for-sale
financial investments
In our opinion, this matter was one of most significance in our audit of the consolidated financial statements be-
cause a significant income from revaluation of available-for-sale financial investments in the amount of RUB 53,040
mln. is recognized in the consolidated financial statements. This income was formed as result of significant growth
of quotations of the Group’s financial investments in shares of PJSC “Inter RAO”.
We have performed procedures of evaluation of completeness and accuracy of recognition of income from revalu-
ation of financial investments in the consolidated financial statements, analyzed if there were fundamental factors
of the growth of the market value of shares of PJSC “Inter RAO” and reviewed the completeness of disclosure in the
consolidated financial statements.
Information about changes in quotations of shares is provided by the Group in Note 9 to the consolidated financial
statements.
Responsibilities of Management and the Audit Committee of the Board
of Directors for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in ac-
cordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstate-
ment, whether due to fraud or error.
In preparing the consolidated financial statement, management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going con-
cern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
The Audit Committee of the Board of Directors is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepti-
cism throughout the audit. We also:
— Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
— Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
— Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
— Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
— Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation;
150
151
Financial Statements Annual Report 2016BASIC FORMS OF CONSOLIDATED FINANCIAL STATEMENTS OF FGC UES GROUPStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
PJSC “FGC UES”
Consolidated Statement of Financial Position
(in millions of Russian Rouble unless otherwise stated)
Notes
31 December
2016
31 December
2015
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Investments in associates and joint ventures
Available-for-sale investments
Deferred income tax assets
Long-term accounts receivable
Other non-current assets
Total non-current assets
Current assets
Cash and cash equivalents
Bank deposits
Accounts receivable and prepayments
Income tax prepayments
Inventories
Other current assets
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Share capital: Ordinary shares
Treasury shares
Share premium
Reserves
Accumulated deficit
Equity attributable to shareholders of FGC UES
Non-controlling interest
Total equity
Non-current liabilities
Deferred income tax liabilities
Non-current debt
Deferred income
Retirement benefit
obligations
Total non-current liabilities
Current liabilities
Accounts payable to shareholders of FGC UES
Current debt and current portion
of non-current debt
Accounts payable and accrued charges
Income tax payable
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
6
7
8
9
16
10
10
11
12
13
14
15
15
15
16
17
18
17, 19
20
846,695
7,320
1,160
76,537
14
45,145
1,853
978,724
44,404
450
58,187
305
14,900
140
118,386
1,097,110
637,333
(4,719)
10,501
281,759
(198,273)
726,601
1,816
728,417
25,433
236,954
919
5,959
269,265
73
29,660
62,059
7,636
99,428
368,693
1,097,110
821,114
7,752
1,691
22,271
260
15,180
1,799
870,067
28,176
30,269
50,043
432
16,063
278
125,261
995,328
637,333
(4,719)
10,501
229,578
(252,980)
619,713
(75)
619,638
14,589
250,076
1,105
7,357
273,127
6
31,466
71,036
55
102,563
375,690
995,328
Authorised for issue and signed on behalf of the Management Board:
21 March 2017
Chairman of the Management Board
Head of Accounting and Financial Reporting – Chief Accountant
A.E. Murov
A.P. Noskov
The accompanying notes are an integral part of these Consolidated Financial Statements.
Full version of consolidated financial statements of FGC UES Group for 2016 is provided in Appendix 14.
PJSC “FGC UES”
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
(in millions of Russian Rouble unless otherwise stated)
Year ended
31 December 2016
Revenues
Other operating income
Operating expenses
Gain on derecognition of subsidiary
Impairment and revaluation loss on property, plant and equipment, net
Operating profit
Finance income
Finance costs
Share of loss of associates
and joint ventures
Profit before income tax
Income tax expense
Profit for the period
Other comprehensive income / (loss)
Items that will not be reclassified subsequently
to profit or loss
Change in revaluation reserve for property, plant and equipment
Remeasurements of retirement benefit
obligations
Income tax relating to items
that will not be reclassified
Total items that will not be reclassified
to profit or loss
Items that are or may be reclassified subsequently
to profit or loss
Change in fair value of available-for-sale
investments
Foreign currency translation difference
Income tax relating to items that may
be reclassified
Total items that are or may be reclassified
to profit or loss
Other comprehensive income for the period,
net of income tax
Total comprehensive income for the period
Profit / (loss) attributable to:
Shareholders of FGC UES
Non-controlling interest
Total comprehensive income / (loss) attributable to:
Shareholders of FGC UES
Non-controlling interest
Earnings per ordinary share for profit attributable to shareholders
of FGC UES – basic and diluted (in Russian Rouble)
Notes
21
21
22
30
6
23
24
8
16
6
18
16
9
8
16
25
25
The accompanying notes are an integral part of these Consolidated Financial Statements.
Full version of consolidated financial statements of FGC UES Group for 2016 is provided in Appendix 14.
Year ended
31 December 2015
187,041
4,001
(130,963)
—
(2,850)
57,229
8,701
(9,635)
(8)
56,287
(12,189)
44,098
117
(3,005)
570
(2,318)
7,776
(152)
(1,556)
6,068
3,750
47,848
44,768
(670)
48,499
(651)
0.036
255,603
6,039
(155,508)
11,868
(38,155)
79,847
6,974
(8,010)
(327)
78,484
(10,102)
68,382
14,280
1,500
(2,948)
12,832
54,266
(204)
(10,853)
43,209
56,041
124,423
68,159
223
123,705
718
0.054
152
153
Financial Statements Annual Report 2016BASIC FORMS OF CONSOLIDATED FINANCIAL STATEMENTS OF FGC UES GROUPStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
PJSC “FGC UES”
Consolidated Statement of Changes in Equity
(in millions of Russian Rouble unless otherwise stated)
Attributable to shareholders of FGC UES
Notes
Share
capital
Share
premium
Treasury
shares
Reserves
Accumu-
lated
deficit
Non-
controlling
interest
Total
equity
Total
10,501
637,333
—
—
—
—
15
6, 15
9, 15
As at 1 January 2016
Total comprehensive income for the period
Profit for the period
Other comprehensive income / (loss), net of related income tax
Derecognition of revaluation
reserve on disposed property,
plant and
equipment
Change in revaluation reserve for property,
plant and equipment
Change in fair value
of available-for-sale
investments
Remeasurements
of retirement benefit
obligations
Foreign currency translation
difference
Total other comprehensive income
Total comprehensive income for the period
Transactions with shareholders of FGC UES recorded directly in equity
Dividends declared
Total transactions
with shareholders of FGC UES
Changes
in ownership
Derecognition of subsidiary
Total changes
in ownership
As at 31 December 2016
—
—
—
15, 18
8, 15
—
—
—
—
—
637,333
—
—
—
—
—
—
—
—
—
—
—
—
10,501
(4,719)
229,578
(252,980)
619,713
(75)
619,638
—
—
—
—
—
—
—
—
—
—
—
—
—
68,159
68,159
223
68,382
(3,365)
3,365
—
—
—
10,929
43,413
1,408
—
—
—
10,929
43,413
1,408
(204)
52,181
52,181
—
3,365
71,524
(204)
55,546
123,705
495
11,424
—
43,413
—
—
495
718
1,408
(204)
56,041
124,423
—
—
—
—
(16,817)
(16,817)
(16,817)
(16,817)
(1)
(1)
(16,818)
(16,818)
—
—
—
—
1,174
1,174
1,174
1,174
(4,719)
281,759
(198,273)
726,701
1,816
728,417
The accompanying notes are an integral part of these Consolidated Financial Statements.
Full version of consolidated financial statements of FGC UES Group for 2016 is provided in Appendix 14.
PJSC “FGC UES”
Consolidated Statement of Cash Flows
(in millions of Russian Rouble unless otherwise stated)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Profit before income tax
Adjustments to reconcile profit
before income tax to net cash provided by operations
Depreciation of property, plant and equipment
(Gain) / loss on disposal of property, plant and equipment
Amortisation of intangible assets
Impairment and revaluation loss of property, plant and equipment, net
Gain on derecognition of subsidiary
Share of result
of associates
Accrual of allowance for doubtful debtors
Accrual of other provision for liabilities and charges
Finance income
Finance costs
Other non-cash operating income
Operating cash flows before working capital changes
and income tax paid
Working capital changes:
Increase in accounts receivable and prepayments
Decrease / (increase) in inventories
(Increase) / decrease in other non-current assets
Increase in accounts payable and accrued charges
Decrease in retirement benefit
obligations
Income tax (paid) / received
Net cash generated
by operating activities
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Redemption of promissory notes
Investment in bank deposits
Redemption of bank deposits
Dividends received
Loans given
Purchase of subsidiary
Sale of subsidiary
Interest received
Net cash used in investing
activities
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from non-current borrowings
Proceeds from current borrowings
Repayment of current and non-current borrowings
Repayment of lease
Dividends paid
Interest paid
Net cash used in financing
activities
Net increase / (decrease)
in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Notes
Year ended
31 December 2016
Year ended
31 December 2015
78,484
56,287
22
22
22
6
30
8
22
20
23
24
11
11
39,397
(72)
1,330
38,155
(11,868)
327
2,666
2,502
(6,974)
8,010
(39)
151,918
(43,273)
1,144
(69)
7,375
(511)
(5,108)
111,476
(78,872)
4,864
(898)
206
(5,257)
35,085
353
(18)
(4)
14
6,569
(37,958)
10,165
350
(23,172)
(150)
(16,751)
(27,732)
(57,290)
16,228
28,176
44,404
39,447
3,699
1,481
2,850
—
8
7,063
434
(8,701)
9,635
(74)
112,129
(12,824)
(5,607)
387
5,865
(2,833)
906
98,023
(75,604)
1,980
(948)
667
(30,422)
337
21
(1,000)
(293)
568
7,452
(97,242)
40,099
—
(23,210)
(150)
(840)
(30,572)
(14,673)
(13,892)
42,068
28,176
The accompanying notes are an integral part of these Consolidated Financial Statements.
Full version of consolidated financial statements of FGC UES Group for 2016 is provided in Appendix 14.
154
155
Financial Statements Annual Report 2016BASIC FORMS OF CONSOLIDATED FINANCIAL STATEMENTS OF FGC UES GROUPStrategic ReportCorporate Governance ReportFinancial StatementsAppendixPJSC FGC UES
Financial Statements
BASIC FORMS OF CONSOLIDATED FINANCIAL
STATEMENTS OF FGC UES GROUP
PJSC “FGC UES”
Consolidated Statement of Changes in Equity
(in millions of Russian Rouble unless otherwise stated)
Attributable to shareholders of FGC UES
Notes
Share
capital
Share
premium
Treasury
shares
Reserves
Accumu-
lated
deficit
Total
Non-con-
trolling
interest
Total
equity
10,501
—
—
—
15
9, 15
15, 18
637,333
As at 1 January 2015
Total comprehensive income for the period
Profit for the period
Other comprehensive income / (loss), net of related income tax
Change in revaluation reserve for property,
plant and equipment
Change in fair value
of available-for-sale
investments
Remeasurements
of retirement benefit
obligations
Foreign currency translation
difference
Total other comprehensive income
Total comprehensive income for the period
Transactions with shareholders of FGC UES recorded directly in equity
Dividends declared
Total transactions with shareholders
of FGC UES
Changes
in ownership
Acquisition of subsidiary
Disposal of subsidiary
Total changes
in ownership
As at 31 December 2015
637,333
8, 15
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,501
(4,719)
226,382
(297,237)
572,260
971
573,231
—
—
—
—
—
—
—
—
—
—
—
—
44,768
44,768
(670)
44,098
75
6,221
(2,413)
(152)
3,731
3,731
—
—
—
—
75
19
94
6,221
(2,413)
(152)
—
—
—
6,221
(2,413)
(152)
—
44,768
3,731
48,499
19
(651)
3,750
47,848
—
—
(832)
(832)
(832)
(832)
(1)
(1)
(833)
(833)
—
(535)
(535)
(214)
535
(214)
—
58
(452)
(156)
(452)
321
(214)
(394)
(608)
(4,719)
229,578
(252,980)
619,713
(75)
619,638
The accompanying notes are an integral part of these Consolidated Financial Statements.
Full version of consolidated financial statements of FGC UES Group for 2016 is provided in Appendix 14.
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Disclaimer
This Annual Report includes, among other things,
statements regarding the Company’s future operations
based on management’s current forecasts and
assessments. There are a number of objective factors
that could cause the actual results to differ from the
above forecasts and assessments.
The Annual Report contains certain forward-looking
statements regarding the Company’s business
By their nature, forward-looking statements involve
which may cause the relevant assumptions, forecasts,
projections and other forward-looking statements to not
materialise. In view of the above risks, uncertainties and
assumptions, the Company warns that the actual results
may differ materially from those expressed or implied,
and such forward-looking statements are true only as of
the date of the Annual Report’s publication.
as its business plans, projects and expectations. In
addition, this Annual Report may include estimates of
price changes, production and consumption volumes,
costs, expenses, development prospects and other
similar factors, as well as forecasts on industry and
market development, and start and end dates of certain
projects of the Company.
The Company neither promises nor guarantees that the
above results will be achieved. The Company shall not
be held liable for any losses incurred by legal entities or
individuals who relied on forward-looking statements.
Such forward-looking statements represent, in each
case, only one of many possible scenarios and should
not be viewed as the most likely scenario.
use of such terminology as “intend,” “strive,” “project,”
“expect,” “estimate,” “plan,” “anticipate,” “assume,” “may,”
“could be,” “will be,” “continue,” or similar words and
expressions or variations thereof.
Except as required by the applicable legislation,
the Company does not undertake any obligation to
publicly release any updates or revisions of such
forward-looking statements, whether as a result of new
information or future events.
Glossary
Abbreviations
ADCS
Automated Dispatch Control System
APCS
CBETL
CHP
CIMS
CIS
CIUS UES
DECT
EBITDA
ESUPCN
FFMS
FOCL
FTP
Automated Process Control System
Cross-Border Electricity Transmission Line
Combined Heat and Power
Corporate Information Management System
The Commonwealth of Independent States
Digital European Cordless Telecommunications
Earnings before Interest, Taxation, Depreciation & Amortisation
Federal Financial Market Service
Fiber-Optical Communication Line
Federal Targeted Programme
FTS of Russia
Federal Tariff Service of Russia
GDR
GDP
Global Depository Receipt
Gross Domestic Product
156
PJSC FGC UES
Annual Report 2016
157
GLOSSARY
GMS
GRES
HPP
HR
HVL
IFRS
IDGC
ICS
IPS
ISIN
IT
JSC
KPI
LLC
MES
MICEX
NPP
OHL
OHTL
OSG
PABX
General Meeting of Shareholders
State District Power Plant
Hydro Power Plant
Human Resources
High Voltage Line
International Financial Reporting Standards
Inter-regional Distribution Grid Company
Internal Control System
Integrated Power System
International Securities Identification Number
Information Technology
Joint Stock Company
Key Performance Indicator
Limited Liability Company
Backbone Electric Grid
Moscow Interbank Currency Exchange
Nuclear Power Plant
Overhead Line
Overhead Transmission Line
Outdoor Switchgear
Private Automated Branch Exchange
PJSC FGC UES
Public Joint Stock Company Federal Grid Company of Unified Energy System
PMES
PSPP
PTL
R&D
RAS
RAB
Rosstat
SS
Backbone Electric Grid Enterprise
Pumped Storage Power Plant
Power Transmission Line
Research and Development
Russian Accounting Standards
Regulatory Asset Base
Federal State Statistics Service
Substation
UES of Russia
Unified Energy System of Russia
UNEG
VAT
WECM
Unified National (all-Russian) Electric Grid
Value Added Tax
Wholesale Electricity and Capacity Market
Units of measure
bn
billion
сub. m
cubic metre
Gcal
GW
h
km
kV
kW
kWh
m
gigacalorie
gigawatt
hour
kilometer
kilovolt
kilowatt
Kilowatt-hour
metre
Contacts
State Registration:
Primary State Registration:
State Registration Number: 00/03124
Date of registration: 25 June 2002
Name of Registering Authority: Leningrad Oblast
Registration Chamber
Information on Legal Entity Registration:
Primary State Registration Number of Legal Entity:
1024701893336
Date of Entry into the Unified State Register of Legal
Entities (Registered Prior to 1 July 2002): 20 August
2002
Name of Registering Authority: Inspectorate of the
Ministry of Taxes in the Tosnensky district of the
Leningrad Oblast
Business Address and Correspondence Address: 5A
Academica Chelomeya St., Moscow 117630, Russia
Call Centre: 8 800 200 1881
Foreign Calls: +7 (495) 710 9333
Fax: +7 495 710 9655
E-mail: info@fsk-ees.ru
Website: http://fsk-ees.ru/eng/
For Shareholders: 8 800 200 1881
Fax: +7 (495) 710 9641
mln
MVA
MVAr
MW
MWh
pcs
p.p.
RUB
sq. m
t
million
megavolt-ampere
megavolt-ampere reactive
megawatt
Megawatt-hour
pieces
Percentage point
Russian rouble
square metre
ton
Company Registrar:
A Company/An individual that keeps the Shareholders’
Register:
Joint-Stock Company Registrar Society STATUS (JSC
STATUS)
Address: building 1, 32 Novorogozhskaya St., Moscow
109544, Russia
Tel: +7 495 974 8350
Fax: +7 495 678 7110
E-mail: info@rostatus.ru
License Number: 10-000-1-00304
Issue Date: 12 March 2004
Expiry Date: Non-expiry
Issuing Authority: FFMS of Russia
Depository
Information on the depository where all the securities
are kept:
Non-Banking Credit Organisation Closed Joint-Stock
Company National Settlement Depository (CJSC NSD)
Address: building 12, Spartakovskaya St., 105066
Tel: +7 495 234 9960
E-mail: sales@nsd.ru
License Number: 177-12042-000100
Issue Date: 19 February 2009
Expiry Date: Non-expiry
Issuing Authority: FFMS of Russia
158
159
AppendixPJSC FGC UESAnnual Report 2016Strategic ReportCorporate Governance ReportFinancial StatementsAppendix APPENDICES
Appendices
The following Appendices are available on the official Company’s website at
http://www.fsk-ees.ru/eng/investors/company_reports/ or in the electronic version of the Annual Report of PJSC
FGC UES for 2016:
Appendix 1. Additional Information on the Sections of the Annual Report
Appendix 2. Audit Commission’s Report
Appendix 3. Report on Compliance with the Russian Corporate Governance Code and Report on Compliance with
Main Principles of the UK Corporate Governance Code
Appendix 4. Information on Major Transactions and on Transactions by PJSC FGC UES in
2016, Classified Under the laws of the Russian Federation as Related Party Transactions Subject To Approval by
the Company’s Authorised Governing Bodies
Appendix 5. Information on Material Transactions made by PJSC FGC UES and Entities Controlled Thereby
Appendix 6. Information on the Actual Execution of Instructions of the President and the Government of the
Russian Federation
Appendix 7. Information on the Participation of PJSC FGC UES in commercial and non-commercial organizations
in 2016
Appendix 8. Information on the Debt Recovery Claims in which PJSC FGC UES Participates
Appendix 9. Information on Concluded Purchase Agreements of Shares, Stocks, Equity Interest of Business
Partnerships and Business Entities, including Information on Parties, Subject, Price, and Other Terms
of the Agreements
Appendix 10. Information About the Structure of the Property Portfolio of PJSC FGC UES
Appendix 11. Information on Land Plots of PJSC FGC UES
Appendix 12. Information on the Disposal of Non-Core Assets in 2016
Appendix 13. Annual Financial Statements of PJSC FGC UES for 2016 Under RAS
Appendix 14. Consolidated Financial Statements of PJSC FGC UES for 2016 Under IFRS
160
AppendixPJSC FGC UES