Appendix No. ro ress Report on the on term De e opment ro ram of RusHydro roup for
Progress Report on RusHydro Group’s Long-term Development Program for 2020
132 1 2 1. GENERAL INFORMATION RusHydro's Long-term Development Program (LTDP) for 2020–2024 is prepared in accordance with the instructions of the President of the Russian Federation (No. Pr- 3086 dated December 27, 2013) and the Russian Government (Minutes No. 3 dated January 30, 2014, Decrees No. 4955p-P13 dated July 17, 2014) and approved by the Board of Directors of the Company1. RusHydro Group's LTDP sets out the main principles and activities for the Company's rapid growth, seeking to ensure efficient use of water resources, sustainability of Russia’s Unified Energy System, as well as to promote social and economic development of the Far Eastern regions by providing its existing and prospective consumers with access to energy infrastructure. Pursuant to the Russian Government’s Directive No. 4955p-P13 dated July 17, 2014, progress against the LTDP is audited on an annual basis in accordance with the LTDP Audit Standard2 and the Terms of Reference for auditing the progress against the LTDP2. In 2020, there were events beyond the control of the Group's activities: the spread of a new coronavirus infection (COVID-19). Despite the fact that RusHydro is taking a set of measures to prevent the spread of coronavirus infection among employees and reduce the risks to the Group's operations, the impact of all the consequences of these events cannot be fully predicted. The Group continues to show strong operating results and implement its main investment projects. 2. PERFORMANCE AGAINST PLANNED AND ESTIMATED TARGETS BASED ON RUSHYDRO GROUP’S CONSOLIDATED BUSINESS PLAN The key element of economic planning in RusHydro Group is a medium-term business plan. The Company's Board of Directors resolved to approve the Regulation on the Business Planning System (Minutes No. 273 dated June 27, 2018), which envisages that the Consolidated Business Plan of RusHydro Group should be IFRS-compliant3. The LTDP covers a period of 2020-2024 and is based on the data of the consolidated business plan of RusHydro Group approved by the Company's Board of Directors on December 24, 2019 (Minutes No. 301 dated December 26, 2019)4, the data
1 Minutes of the Board of Directors No. 312 dated August 24, 2020 (with amendments approved by the Board of Directors – Minutes No. 316 dated October 01, 2020). 2 Minutes of the Board of Directors No. 316 dated October 01, 2020. The current LTDP Audit Standard and the Terms of Reference for auditing the progress against the LTDP were developed in accordance with the Typical Standard for Evaluating the Implementation of Long-term Development Programs and the Achievement of Key Performance Indicators (Order of the Government of the Russian Federation No. SA-P13-10176 dated November 21, 2019), in compliance with the directives of the Government of the Russian Federation No. 6739p-P13 dated July 30, 2020. 3 Hereinafter referred to as the International Financial Reporting Standards. 4 RusHydro Group’s Consolidated Business Plan for 2020-2024 was prepared on the basis of business plan forms of RusHydro and companies (directly and indirectly) owned by RusHydro, as well as transformational and consolidation amendments incorporated to bring the information in compliance with IFRS.
133 2 3 of which is used to analyze the progress against the LTDP for 2020 and is presented in the analytical tables of the LTDP progress report as the "Plan". The information on actual performance against the LTDP for 2020 is sourced from the IFRS audited consolidated financial statements of RusHydro Group as at and for the year ended December 31, 2020. The consolidated business plan progress report of RusHydro Group for 2020 was approved by the decision of the Company's Management Board (Minutes No. 1315pr dated March 24, 2021) and recommended for approval by the meeting of the Investment Committee under the Company's Board of Directors (minutes No. 130 dated April 01, 2021). According to the consolidated financial statements of RusHydro Group under IFRS, the authorized capital of the Company as of December 31, 2020 is RUB 439,288.9 mn, the share of the Russian Federation in the authorized capital of RusHydro is 61.73%. On September 14, 2020, the Bank of Russia made a resolution on state registration of the Report on the results of the additional issue of shares of PJSC RusHydro, the corresponding amendments to the Charter of PJSC RusHydro were made on November 12, 2020. Earlier, in accordance with the instructions of the President of the Russian Federation Vladimir Putin No. Pr-2097 dated November 01, 2016, No. Pr-1150 dated June 11, 2016, No. Pr-1898 dated September 18, 2015 and pursuant to the decisions of the Board of Directors of PJSC RusHydro (minutes No. 244 dated November 23, 2016, No. 246 dated December 27, 2016, No. 248 dated February 27, 2017), measures were implemented in 2017 to refinance the loan debt of RAO ES East Holding organizations by selling 40 billion shares of additional issue in favor of VTB Bank (PJSC) (hereinafter also the Bank) and 15 billion treasury shares of PJSC RusHydro with a total value of RUB 55 bn. The Bank acquired 55 billion shares, which is 12.52% of the current authorized capital. The state's share in the authorized capital of PJSC RusHydro after the transaction amounted to 60.56% (the current share of the Russian Federation is 61.73%), which ensured compliance with the requirements of the Decree of the President of the Russian Federation No. 362 dated May 23, 2014. The funds in the amount of RUB 55 bn raised from VTB Bank were fully translated into the operating companies of RAO ES East Holding in accordance with the loan agreements and were used in 2017 to repay the debt on bank loans. Also, PJSC RusHydro and VTB Bank (PJSC) signed a settlement non-deliverable forward contract, the final settlement under which is expected at the end of the 8-year period; the forward rate is formed as the key rate of the Bank of Russia plus a margin (1%)5. At the end of the term of the forward contract (2025), one of the parties to the transaction pays the other party the difference between the value of the sale of the stake in PJSC RusHydro and the nominal value of the forward. With that, PJSC RusHydro has no obligations to the Bank to buy back its shares (there is no put option). In turn,
5 Taking into account the signed additional agreements dated May 24, 2018, November 21, 2019 and December 02, 2020.
134 3 4 forward payments are reduced by the amount of dividends paid to the Bank during the term of the forward contract. As far as the economic consequences for RusHydro is concerned, this fund- raising scheme in the language of the effective interest rate is more effective than the existing credit mechanisms. The forward rate is linked to the key rate of the Bank of Russia, which, with respect to the current government policy aimed at key rate progressive reduction, means the depreciation of attracted forward financing for PJSC RusHydro (savings over the entire life of the instrument due to a reduction in the key rate is estimated at about RUB 18.8 bn). The forward rate for the entire term of the instrument, starting from 2017 (the key rate at the time of the transaction was 10%) due to its reduction in actual and planned dividends (excluding the cost of selling a stake in RusHydro at the end of the forward term) is 4.18%. At the same time, the forward rate for the remaining term of the instrument (2021-2025), with allowances made for the current value of the key rate of the Bank of Russia (4.5%), is estimated at less than 2.1%. Income The analysis of RusHydro Group’s data for 2020 shows a 1% decrease in actual income against the target. Income structure in 2020, RUB mn Target/actual Item 2020 target 2020 actual deviation Abs. Rel. Sales of electricity and capacity6 305,870 311,773 5,903 2% Heat and hot water sales 44,504 41,242 -3,262 -7% Government grants 50,188 46,748 - 3,440 -7% Power grid transmission of electricity 14,616 15,540 924 6% Grid connection services 5,644 5,070 - 574 -10% Other revenue 11,215 9,220 - 1,995 - 18% Other operating income 2,526 1,151 - 1,375 -54% Total 434,563 430,744 -3,819 -1% Revenue from sales of electricity and capacity accounts for the largest part of proceeds (72% of total income). The operating results of companies belonging to the generation segments of RusHydro, the Energy Companies of the Far Eastern Federal District, and Sales
6 In the "Income" section of the explanatory note to the consolidated business plan of RusHydro Group for 2020 approved by the Board of Directors of PJSC RusHydro (Minutes No. 301 dated December 26, 2019) as planned for 2020 under the item "Sale of electricity (capacity)", the target is RUB 308,939 mn. For the purpose of data comparability in the report, targets were aligned with the IFRS 15 requirements. The revenue from compensation for losses in the transmission of electricity and expenses for services of grid organizations for the transmission of electricity under contracts with grid companies are offset in the amount of RUB 3,069 mn. The same amount is excluded from operating expenses in the item “Infrastructure payments related to the sales of electricity heat”. The "Actual" column for the item "Sale of electricity and capacity" includes the actual results for the items "Sale of electricity and capacity in the retail market" in the amount of RUB 155,394 mn, "Sale of electricity in the wholesale market" in the amount of RUB 95,964 mn and "Sale of capacity in the wholesale market" in the amount of RUB 60,415 mn according to Note 23 to the consolidated financial statements of RusHydro Group prepared under IFRS for the year ended December 31, 2020 and as of that date.
135 4 5 influence the overall increase in revenue from the sale of electricity and capacity. The key contributor to the revenue from the sale of electricity and capacity is RusHydro Generation segment, where PJSC RusHydro provides about 40% of all revenue from the sales of electricity and capacity of RusHydro Group. The decrease in revenue from the sales of heat and hot water by RUB 3,262 mn (or -7 %) resulted from a reduced net heat delivered due to changes in the target time to start the autumn-winter period in 2020-2021; outdoor air temperature in the Khabarovsk, Primorsky, Kamchatka Territories, the Republic of Sakha (Yakutia); as well as the impact of adverse weather events in Vladivostok in November 2020, which led to massive cut of heating and hot water. Almost 100% of revenue from the sales of heat and hot water was collected from the segment of the Energy Companies of the Far Eastern Federal District. The level of income under the item "Government grants" is below the targets by RUB 3,440 mn (or -7%). During the year ended 31 December 2020, RusHydro Group received government grants in the amount of RUB 46,748 mn. Grants were received by the following regions: the Kamchatka Territory, the Republic of Sakha (Yakutia), the Magadan Region, the Chukotka Autonomous District and other regions of the Far East. This type of income is provided by the segments of the Energy Companies of the Far Eastern Federal District and Sales. The higher revenue from the transmission of electricity through the power grid by RUB 924 mn (or +6 %) relative to the targets was driven up by a larger volume of services provided for the transmission of electric energy in the territories of the Amur Region, the Jewish Autonomous Area and the South of Yakutia (JSC DRSK), by an increased net delivery of PJSC Magadanenergo on the back of increased net delivery of JSC Polyus Magadan and a rise in the tariff. The decrease in revenue for grid connection services amounted to RUB 574 mn (or -10%). This type of revenue is mainly collected from the entities of the segment the Energy Companies of the Far Eastern Federal District and the lower revenue is attributable to the deferral of the timeline of grid connection of facilities to 2021 or the termination of contracts. This type of revenue is irregular and depends on the needs for grid connection of third-party companies. Income under the item "Other revenue" is reduced by RUB 1,995 mn (or -18%). The anticipated income under this item includes revenue received by the companies of RusHydro Group from various activities that are not related to the core business activity, for example, construction, repair services, lease, transport services and others. The decline is also due to the stagnation of the market amid sanitary and epidemiological restrictions and due to the growth of the share of intra-group revenue. This type of income is not significant in the Group's income structure and in fact accounts for only 2%. Income under the item "Other operating income" was received for the awarded sanctions in the amount of RUB 170 mn, income from the disposal of controlled
136 5 6 companies in the amount of RUB 476 mn and the outcome of an asset exchange transaction7 with LLC MK Donalink in the amount of RUB 505 mn. The income of JSC DGK related to the compensation of losses received as a result of the shortfall in revenue arising under tariff regulation, which did not occur, was included in the 2020 plan under other operating income. Expenses In 2020, actual expenses in RusHydro Group decreased by RUB 24,037 mn (or 7%) against the targets. The greatest decline in expenses is observed in the items “Depreciation of property, plant and equipment and amortization of intangible assets”, “Third party services”, “Purchased energy (power)” and “Other expenses”. Structure of operating expenses in 2020, RUB mn Target/actual 2020 Item 2020 target deviation actual Abs. Rel. Fuel expenses 69,968 67,846 -2,122 -3% Depreciation of PPE and amortization of intangible assets 35,586 28,902 -6,684 -19% Payroll, employee benefits and payroll taxes, contributions to non-state pension provision 78,603 80,182 1,579 2% Taxes other than income tax 15,218 13,252 -1,966 -13% Third party services 31,837 25,776 -6,061 -19%
Water consumption expenses 4,738 5,113 376 8%
Acquisition Costs of Other Materials8 14,122 12,805 -1,317 -9% Infrastructure payments related to the sales of electricity and heat9 43,216 44,330 1,114 3% Purchased energy (capacity) 61,221 56,036 -5,185 -8%
7 Further to the decision of the Board of Directors of PJSC RusHydro No. 296 dated September 25, 2019, measures were approved for the implementation of the asset exchange transaction with the SUEK Group (JSC LUR and LLC Primorskaya GRES) and the capital replenishment of JSC DGK in the amount of RUB 40.5 bn. The Plan for 2020 did not cover this transaction, as it was expected to be completed by the end of 2019. 8 The "Act." column under the item "Acquisition Costs of Other Materials" include actual results in the items “Other materials” in the amount of RUB 12,062 mn and “Purchase of oil products for sale” in the amount of RUB 743 mn in accordance with Note 25 to RusHydro Group’s IFRS consolidated financial statements as at and for the year ended December 31, 2020. 9 In the "Expenses" section of the explanatory note to the consolidated business plan of RusHydro Group for 2020 approved by the Board of Directors of PJSC RusHydro (Minutes No. 301 dated December 26, 2019) as planned for 2020 under the item "Infrastructure payments related to the sales of electricity and heat", the target is RUB 46,285 mn. For the purpose of data comparability in the report, targets were aligned with the IFRS 15 requirements. The revenue from compensation for losses in the transmission of electricity and expenses for services of grid organizations for the transmission of electricity under contracts with grid companies are offset in the amount of RUB 3,069 mn. The same amount is excluded from revenue under the item “Sale of electricity (capacity)”. The "Act." column includes actual results in the items “Grid companies services on electricity distribution” in the amount of RUB 36,754 mn, “Support of electricity and capacity market operation” in the amount of RUB 4,330 mn, and “Purchase and transportation of heat power” in the amount of RUB 3,246 mn in accordance with Note 25 to RusHydro Group’s IFRS consolidated financial statements as at and for the year ended December 31, 2020.
137 6 7 Other expenses10 9,518 5,748 -3,770 -40% Total 364,027 339,990 -24,037 -7% The decrease in fuel expenses by RUB 2,122 mn (or -3%) is attributable to change in the production program, a decrease in the actual weighted average write-off price for fuel oil and coal, as well as a decrease in fuel consumption due to a reduced net heat delivered. This type of expenses is formed in the segment of the Energy Companies of the Far Eastern Federal District, the bulk of expenses falls on JSC DGK. The decrease in the line “Depreciation of property, plant and equipment and amortization of intangible assets” is attributable to the rescheduling of PPE commissioning and different approaches to depreciation planning in the subsidiaries’ business plans and financial statements as regards asset valuation methodologies. The rescheduling of PPE commissioning drove down expenses in the lines “Taxes other than on income”, “Third party services” and “Acquisition Costs of Other Materials”. Actual expenses under the item "Payroll, employee benefits and payroll taxes, contributions to non-state pension provision" amounted to RUB 80,182 mn, which is RUB 1,579 mn (or +2%) above the targets. The growth of this type of expenses is mainly observed in JSC DGK (due to the postponement of the transfer of repair personnel to JSC KhRMK and the phased transfer of personnel to JSC RusHydro OTsO) and JSC LUR (due to the fact that the business plan of JSC LUR was not taken into account in the consolidated business plan). Expenses under the item "Third party services" decreased by RUB 6,061 mn (or -19%). Significant deviations are observed in the expenses of other third-party services, lease, repair and maintenance, as well as consulting, legal and information services. The decrease in expenses under the item "Acquisition Costs of Other Materials" was mainly influenced by the results of JSC DGK, since at a time of planning, the expenses for the purchase of fuel for Vostochnaya CHPP were recorded as the acquisition of other materials, and in fact they are classified as fuel expenses. The deviation of -RUB 5,185 mn (or -8%) under the item "Purchased energy (capacity)" vs the targets mainly relates to a decrease in the price and volume of purchases. The decrease in expenses by RUB 3,770 mn (or -40%) in the item “Other expenses” is primarily attributable to the decrease in social charges and extraordinary expenses, losses on disposal of property, plant and equipment and other expenses against the set targets. “Other expenses” account for an insignificant part of actual operating expenses (around 2%). RusHydro Group’s financial results
10 The "Act." column under the item "Other expenses" includes actual results in the item “Loss on disposal of property, plant and equipment, net” in the amount of RUB 1,469 mn, “Social charges” in the amount of RUB 1,119 mn, “Travel expenses” in the amount of RUB 680 mn, and “Other expenses” in the amount of RUB 2,480 mn in accordance with Note 25 to RusHydro Group’s IFRS consolidated financial statements as at and for the year ended on December 31, 2020.
138 7 8 Income Statement for 2020, RUB mn Target/actual 2020 Items 2020 target deviation actual Abs. Rel. Revenue 381,849 382,845 996 0% Government grants 50,188 46,748 -3,440 -7% Other operating income 2,526 1,151 -1,375 -54% Operating expenses11 -364,027 -339,990 24,037 -7% Impairment loss on property, plant and equipment -21,859 -26,605 -4,746 22% Impairment loss of financial assets, net -3,076 -4,979 -1,903 62% Profit from operating activities 45,601 59,170 13,569 30% Finance income/(expenses), net -15,288 6,499 21,787 -143% Profits of joint ventures and associates 3,137 144 -2,993 -95% Profit before tax 33,450 65,813 32,363 97% Income tax expense -11,850 -19,206 -7,356 62% Profit for the period 21,601 46,607 25,006 116% Analysis of the Income Statement shows that RusHydro Group’s profit for 2020 exceeds the target by RUB 25,006 mn. Key financial and economic performance data of RusHydro Group for 2020, RUB mn Actual/target Indicators Target Actual deviation Abs. Rel., % EBITDA 107,153 120,268 13,115 12% Debt 253,553 221,015 -32,538 -13% Borrowed funds of RusHydro Group12 229,307 205,990 -23,317 -10% including lease obligations 7,139 9,250 2,111 30% Non-deliverable equity forward obligations 24,246 15,025 -9,221 -38% DEBT/EBITDA 2.4 1.8 -0.5 -22% As at the end of 2020, the debt burden of RusHydro Group decreased relative to the target due to the repayment of obligations and a decrease in the cost of the non- deliverable forward obligation. The results of RusHydro Group in 2020 are significantly affected by the recognition of impairment of property, plant and equipment. By Resolution No. 287 dated April 22, 2019, the Company’s Board of Directors approved the Regulations on the Dividend Policy of PJSC RusHydro. In order to enhance the transparency and predictability of dividend payouts, the updated version of the Regulations sets out 50% of RusHydro Group’s IFRS net profit for the respective
11 The form of the Consolidated Income Statement to the consolidated business plan of RusHydro Group for 2020 approved by the Board of Directors of PJSC RusHydro (minutes No. 301 dated December 26, 2019) as per the plan for 2020 contains the value of RUB 384,918 mn rubles under the item "Revenue" and the value of RUB 367,096 mn under item "Operating expenses". For the purpose of data comparability in the report, targets were aligned with the IFRS 15 requirements. The revenue from compensation for losses in the transmission of electricity and expenses for services of grid organizations for the transmission of electricity under contracts with grid companies for PJSC DEK are offset in the amount of RUB 3,069 mn. This transaction has no impact on the financial result of RusHydro Group. 12 For the target of the indicator: the sum of the lines of the Balance Sheet form "Long-term borrowings" and "Short-term borrowings and current portion of long-term borrowings". For the actual value of the indicator: the sum of the lines "Long- term borrowings" and "Short-term borrowings and current portion of long-term borrowings" of the Consolidated Statement of Financial Position of the consolidated financial statements of RusHydro Group prepared under IFRS as at and for the year ended December 31, 2020.
139 8 9 reporting period as the base rate for calculating dividends. Additionally, the minimum dividend payout (lower threshold) is set at the level of the average dividend paid for the previous three years. In 2020, based on the results of 2019, the amount of profit allocated to dividends amounted to RUB 15,674 mn, which is the average value based on the results of dividend payouts for the three previous years, since the value of 50% of the profit for the year of RusHydro Group (RUB 643 mn), as defined in the consolidated financial statements prepared under IFRS for the year ended December 31, 2019, is RUB 321.5 mn, which is less than the average value declared for the three previous periods. 3. INITIATIVES ENVISAGED BY RUSHYDRO GROUP’S PROGRAMS 3.1. RusHydro Group’s Investment Program The approved LTDP takes into account the financing of investment projects of RusHydro Group for the period of 2020-2024 in the amount of RUB 347,650.39 mn (including in the Far East in the amount of RUB 183,550.78 mn), of which in 2020 – RUB 98,170.65 mn (including in the Far East – RUB 58,273.46 mn), which corresponds to the parameters of the consolidated investment program of RusHydro Group for 2020-202413. In the reporting year, the consolidated investment program of RusHydro Group absorbed RUB 74,275.94 mn, or 75.7% of the target volume, including RUB 41,638.31 mn, or 71.5% of the annual plan, in the Far East. The budgeting of RusHydro Group's TR&M program in the reporting period actually amounted to RUB 31,628.61 mn14, or 80.4 % of the annual target. Funding from the federal budget resources in the reporting period amounted to RUB 2,488.59 mn, including the construction of a thermal power plant in Sovetskaya Gavan in the amount of RUB 452.37 mn and the construction of two single- circuit 110 kV Pevek-Bilibino overhead lines (construction stage No. 1) in the amount of RUB 2,036.22 mn. Structure of RusHydro Group’s investment financing in 2020 Financing target Actual Delivery of Focus area for 2020, financing for the annual RUB mn 2020, RUB mn target, % RusHydro Group’s core companies 96,589.22 72,542.16 75.1% TR&M 38,884.22 31,538.17 81.1% New construction 44,708.62 27,879.94 62.4% Grid connection 7,154.98 7,569.81 105.8%
13 The consolidated investment program of RusHydro Group for 2020-2024 was approved as part of the consolidated business plan by the decision of the Company's Board of Directors dated December 24, 2019 (Minutes No. 301 dated December 26, 2019). 14 Including TR&M programs of RusHydro’s other subsidiaries where actual financing stood at RUB 90.44 mn vs the annual target of RUB 448.34 mn
140 9 10 Financing target Actual Delivery of Focus area for 2020, financing for the annual RUB mn 2020, RUB mn target, % Others 5,841.40 5,554.24 95.1%
RusHydro Group’s non-core companies 1,581.43 1,733.78 109.6%
Total for Consolidated Investment Program 98,170.65 74,275.94 75.7% including in the Far East 58,273.46 41,638.31 71.5% For RusHydro Group, the schedule for 2020 includes the commissioning of a new electric capacity of 172.05 MW and the commissioning of a new thermal capacity of 207.17 Gcal/h. As of January 01, 2021, the commissioning of additional capacity was 180.75 MW and 203.77 Gcal/h, including: CHPP in Sovetskaya Gavan – 126 MW and 200 Gcal/h; Ust-Dzhegutinskaya SHPP – 5.6 MW; Barsuchkovskaya SHPP – 5.25 MW; Verkhnebalkarskaya SHPP – 10 MW; JSC Sakhaenergo – 7.34 MW; JSC Chukotenergo – 0.55 MW; PJSC Peredvizhnaya Energetika – 0.36 MW; JSC Teploenergoservis – 0.86 Gcal/h; JSC UESK – 2.91 Gcal/h; under TR&M projects – 25.65 MW15. The most essential factors of deviation of the actual volumes of financing of the consolidated investment program from the targets in 2020: 1. Postponement of the construction of the investment project "Construction of two single-circuit 110 kV Pevek-Bilibino overhead lines (construction stage No. 1) (- RUB 9.7 bn). The late issuance of the decree of the Government of the Russian Federation No. 1509-r dated June 06, 2020 on the designation of JSC CIUS UES (a 100% subsidiary of PJSC FGC UES) as the sole contractor led to non-compliance with deadlines of the planned organizational and technical measures to commission the facility in 2023. The delivery of the material and technical resources necessary for construction during the navigation period of 2020 along the Northern Sea Route was underachieved. Preparatory work has just begun in 2020. The main works on construction of the facility can be arranged in the Q3-Q4 2021 after the delivery of the necessary amount of material and technical resources in the navigation period of 2021. 2. Updates on the work schedules for retrofitting and reconstruction, with the reasons including more time required for contractors to complete their assignments and reductions in project costs following approval of design documentation (-RUB 7.7 bn); 3. After the completion of construction and commissioning of the Zaramagskiye HPPs, savings were reflected in accordance with the construction completion certificate (-RUB 1.5 bn). 4. Updates on the financing schedule for the construction project of the Ust- Srednekanskaya HPP (-RUB 1.1 bn), Zagorskaya PSP-2 (-RUB 1.0 bn). 3.2. RusHydro’s Production Program
15 Including: PJSC RusHydro – 25 MW, PJSC Kamchatskenergo – 0.4 MW, JSC UESK – 0.25 MW.
141 10 11 The approved Long-term Development Program accommodates the costs for production programs for 2020-202416: – RUB 16,213.45 mn for the repairs program, including RUB 3,134.05 mn in 2020; – RUB 6,634.48 mn for the maintenance program, including RUB 1,174.36 mn in 2020; – RUB 3,944.08 mn for the R&D program, including RUB 749.86 mn in 2020. Adjusted amounts to be spent on production programs in 2020–2024 are as follows17: – RUB 16,340.99 mn for the repairs program, including RUB 3,134.05 mn in 2020; – RUB 6,809.31 mn for the maintenance program, including RUB 1,174.36 mn in 2020; – RUB 3,961.37 mn for the R&D program, including RUB 749.86 mn in 2020. Progress against the programs in 2020 Target Actual Delivery of Disbursement Disbursement Progress by programs18 the annual for 2020, RUB for 2020 plan, % mn RUB mn Repairs program 3,134.05 3,050.00 97.3% Maintenance program 1,174.36 1,085.41 92.4% R&D program 749.86 613.52 81.8% The spending target under RusHydro’s repairs program for 2020 was exceeded by 97.3%: actual spending amounted to RUB 3,050.00 mn vs the initial target of RUB 3,134.05 mn. The failure to meet the targets in 2020 was caused by savings following the outcome of procurement procedures, changes in the accounting procedure for the repair of hoisting mechanisms19. The spending target under RusHydro’s maintenance program for 2020 was met by 92.4 %: actual spending amounted to RUB 1,085.41 mn vs the initial target of RUB 1,174.36 mn. The failure to meet the targets in 2020 was caused by savings
16 The volumes were formed in line with the Production Program of repairs, maintenance, research and development of PJSC RusHydro for the period of 2020-2025 approved by the decision of the Company's Management Board (minutes No. 1245pr dated April 07, 2020), the expenses – until 2024. The baseline is the amount of expenses (excluding VAT). The expenses for 2020-2024 for the forecast price situation was calculated in keeping with the basic version of the deflator indices of industrial products of the Unified Scenario Conditions of RusHydro Group approved by the Company's order No. 12 dated January 15, 2020. The main parameters of the production program of PJSC RusHydro correspond to the consolidated business plan of RusHydro Group approved by the decision of the Company's Board of Directors (Minutes No. 301 dated December 26, 2019). 17 The expenses for 2021-2024 for the forecast price situation were recalculated in keeping with the basic ("optimistic") version of the indices of the Unified Scenario Conditions of RusHydro Group approved by the Company's order No. 23 dated January 22, 2021. 18 For more details on progress against the TR&M program in terms of financing, see the section on RusHydro Group’s Investment Program. 19 At the stage of making the production program of PJSC RusHydro, the expenses for Repair, Maintenance, and R&D of hoisting equipment are included within the Repair, Maintenance, and R&D programs. During the implementation of the programs in 2020, a decision was made to hand over the hoisting equipment to operation of JSC Gidroremont-VCC. As a result, the actual expenses for hoisting equipment are reflected in the "operation" section.
142 11 12 following the outcome of procurement procedures, changes in the accounting procedure of expenses for maintenance of hoisting mechanisms19. The spending target under RusHydro’s R&D program for 2020 was met by 81.8%: actual spending amounted to RUB 613.52 mn vs the initial target of RUB 749.86 mn. The failure to meet the targets in 2020 was caused by savings following the outcome of procurement procedures, non-fulfillment of the terms of contracts by contractors, changes in the accounting procedure for expenses on R&D of hoisting mechanisms19. Highlights for 2020: – hydropower units (hydro turbine and hydrogenerator) No. 14 and No. 18 were replaced at the Volzhskaya HPP; – water turbine No. 5 was replaced at the Saratovskaya HPP; – reconstruction of the hydropower unit (hydro turbine and hydrogenerator) No. 3 of the Votkinskaya HPP was completed, and a new 1T power transformer was put into operation; – new local control cubicles (6 kV, 35 kV) were put into operation and the equipment providing power output at 35 kV and 6 kV at HPP-3 of Cascade of Kubanskiye HPPs was completely updated. Two auto-type transformers at HPP-2, two transformers at HPP-3 and two auto-type transformers at HPP-4 of the Cascade of Kubanskiye HPPs were installed; – 110 kV open switchgear (ORU-110) at the Novosibirskaya HPP were updated; – a modern automated system for diagnostic monitoring of hydraulic structures was put into operation at the Cheboksary HPP with the reconstruction and additional instrumentation. The upgraded hydrogenerator No. 4 with an updated stator was also put into operation; – The "Reconstruction of 500/220 outdoor switchgear" project was completed at the Zeyskaya HPP. Two VL-502 and VL-203 transmission lines were put into operation. The implementation of the production program of PJSC RusHydro in the reporting year resulted in additional capacity increase of 25 MW, including due to the increased capacity of the Rybinskaya HPP (10.0 MW), Votkinskaya HPP (15.0 MW). 3.3. Production Program of RAO ES East The Long-term Development Program reflects the cost of the Production Program of repairs of RAO ES East Holding for 2020-2024 20in the amount of RUB 87,663.28 mn21, of which RUB 17,499.06 mn for 2020.
20 Duly reviewed and approved by the governance bodies of RusHydro’s subsidiaries. The key metric assumed for calculation purposes is the amount to be spent (excluding VAT) rather than the financing volumes. 21 Repair programs for 2020-2025 were approved by the decisions of the Management Board of PJSC RusHydro (minutes No. 1249pr dated May 12, 2020, minutes No. 1269pr dated July 27, 2020), the amount of costs - until 2024.
143 12 13 In 2020, amendments were made to the target volumes of the Production Program of repairs of RAO ES East Holding, the adjusted volume of costs for 2020-2024 is RUB 88,530.2 mn, with RUB 18,365.98 mn for 202022. Progress against the Program in 2020 Delivery of Spending target Actual spending Progress by focus areas23 the annual for 2020, RUB mn for 2020, RUB mn target, % Repairs program 18,365.98 17,209.41 93.7% The spending target under the repairs program of RAO ES East for 2020 was met by 93.7 %: actual spending amounted to RUB 17,209.41 mn vs the initial target of RUB 18,365.98 mn. As for the production programs of repairs for the following controlled companies, the largest non-fulfillment: PJSC Kamchatskenergo – RUB 252.47 mn, PJSC Magadanenergo – RUB 89.62 mn, PJSC Sakhalinenergo – RUB 447.89 mn, PJSC Yakutskenergo – RUB 651.37 mn, JSC Sakhaenergo – RUB 32.51 mn. Resulting from the emergency response and remedial actions after "ice rain" and "Maysak" and "Haishen" typhoons on the territory of the Primorskiye Energy Systems branch, as well as additional preparations for the heating season of 2020-2021, the amount of deviation for JSC DRSK amounted to (+)RUB 119.93 mn. Unscheduled expenses for JSC Chukotenergo amounted to (+)RUB 150.58 mn, which are attributable to the replacement of storm water pipes, filter FIPaIII-2.0-0.6, repair of equipment for the boiler shop of the Anadyrskaya CHPP, as well as repair of gas engine turbocharger cartridges in the service workshop and the major repairs of the GGU of stations No. 1, 2, 3, 4, 5 of Anadyrskaya gas motor CHPP. The reasons for the deviation from the targets in 2020 are as follows: – significant savings during trade and procurement procedures in the amount of more than RUB 700 mn; – adjustment of work deadlines during the coronavirus pandemic and deferment of workscope to future periods; – extension of the delivery time of material and technical resources during the coronovirus pandemic for the following Contractors: LLC Compania Ladoga, LLC SIBIRSPETSSNAB+, LLC TEVEK and LLC Mirovaya tekhnika Ural. Highlights of RAO ES East’s Production Program in 2020: For TR&M program: – modernization of the boiler unit of station No. 8 BKZ-220-100 of the Khabarovsk CHPP-1 of JSC DGK;
22 Adjustments to the repairs production programs included in the subsidiaries’ business plans for 2020 were duly reviewed and approved by the governance bodies of RusHydro’s subsidiaries. Decisions of the Boards of Directors (minutes): PJSC Kamchatskenergo - No. 5 dated September 18, 2020, JSC DGK - No. 10 dated September 25, 2020. 23 For more details on progress against the Production Program as regards financing of the TR&M Program, see the section on RusHydro Group’s Investment Program.
144 13 14 – modernization of air heaters of boiler units of JV Khabarovskaya CHPP-1 - KA- 1, 6, 7, 9,12, 13, 14, 15; 16 of JSC DGK; – reconstruction of the power unit of the station No. 1 of the Neryungrinskaya GRES of JSC DGK; – modernization of boilers of station No. 1 with replacement of VZPI st.24, VZPII st. of OP Yuzhno-Sakhalinskaya CHPP-1 of PJSC Sakhalinenergo; – reconstruction of relay protection of high-frequency channels of emergency shutdown controls of the 110 kV mains to accelerate the backup protection of the 110 kV overhead line for high-frequency channels of emergency shutdown controls of the power facilities shop of PJSC Kamchatskenergo; – modernization of the power unit of station No. 1 of Khabarovskaya CHPP-3 of JSC DGK; – gasification of hot-water peaking boiler plant at Khabarovskaya CHPP-3 (JSC DGK), with the PTVM-180 boiler No. 1 to be converted to natural gas combustion; – gasification of Anadyrskaya CHPP (JSC Chukotenergo), with boiler No. 1 to be converted to combined combustion of coal and natural gas (partly completed); – rehabilitation of substations and transmission lines to ensure stable power supply for existing consumers and new customers; – rehabilitation of heat supply networks in the run-up to the heating season. As for the repair program: major and medium repairs were carried out: 24 turbine units (with a target of 24); 27 boilers (with a target of 27); 57 generators (with a target of 57); 66 transformers25 (with a target of 66), including: major repairs of the power unit of station No. 1 of the Neryungrinskaya GRES; major repairs of turbine units: station No. 1 of the Blagoveshchenskaya CHPP, station No. 7 of the Raichikhinskaya GRES, station No. 1 of the Kamchatskaya CHPP-2, station No. 2 of the Yakutskaya CHPP, station No. 7 of the Cascade of Vilyuyskiye HPPs; major repairs of boiler units: station No. 6 of the Nikolaevskaya CHPP, stations No. 2.6 of the Vladivostokskaya CHPP-2, stations Nos. 8,12 of Artemovskaya CHPP, station No. 2 of Blagoveshchenskaya CHPP, stations Nos. 2,5 of Partizanskaya GRES, station No. 7 of Raichikhinskaya GRES, Station No. 7 of Magadanskaya CHPP, station No. 3 of Yuzhno-Sakhalinskaya CHPP-1, station No. 2 of Chaugnskaya CHPP. In the reporting period, 4,573 km of electrical and 67.3 km of heating networks were repaired. The following measures were taken within the repair program to improve the efficiency and reliability of equipment26: JSC DGK – RUB 368.3 mn, PJSC Yakutskenergo – RUB 242.1 mn, JSC Chukotenergo – RUB 229.5 mn, PJSC Kamchatskenergo – RUB 164.5 mn, JSC DRSK – RUB 111.7 mn, PJSC
24 Air heater. 25 Only 35-220 kV transformers are included. 26 Including equipment for power stations, electrical networks, and heating networks.
145 14 15 Magadanenergo – RUB 3.9 mn, JSC Sakhaenergo – RUB 8.3 mn, PJSC Sakhalinenergo – RUB 45.9 mn, JSC Teploenergoservis – RUB 7.1 mn, JSC UESK – RUB 30.4 mn. Efforts to reduce the wear and tear of production assets: Heat networks: RAO ES East Holding operates 4,008.5 km of heat networks. As at the end of 2020, the wear and tear of heat networks is 54 % vs their service life. With the current replacement of 67.3 km, the length of the heat networks with a service life of more than 25 years as of December 31, 2020 is 2,157.8 km (53% of the total length). Electric networks: RAO ES East operates 22,224 transformer substations with voltage of 10 (6)-220 kV and 105,500 km of transmission power lines. As at December 31, 2020, equipment health indices27 were as follows: 77.3% for transmission lines with voltage of 110 kV and higher and 86.2%28 for transformer substations with voltage of 110 kV and higher. Generating facilities: RAO ES East Holding operates: 97 turbine units, equipment health index as of December 31, 2020 is 82%27; 138 boiler units, equipment health index as of December 31, 2020 is 72%27. 3.4. RusHydro Group’s Innovative Development Program In line with the RusHydro Group's Innovation Development Program for 2020- 2024 with an outlook until 2029 (hereinafter referred to as RusHydro Group's IDP), the planned funding for RusHydro Group's IDP activities for the period of 2020-2024 envisaged by the approved LTDP amounts to RUB 15,875.4 mn29, among which – RUB 3,570.0 mn for 2020, including in the following areas: 1. Innovative projects and activities, R&D – in the amount of RUB 3,470.1 mn: – R&D (research and development) – RUB 811.7 mn; – innovative projects and digital transformation measures – RUB 487.2 mn; other innovative projects and measures – RUB 2,171.2 mn. 2. Development of the innovation management system and innovation infrastructure, interaction with third-party organizations – RUB 99.9 mn.
27 Calculated based on the Russian Government's Resolution No. 1401 On Comprehensive Assessment of Power Facilities’ Engineering and Economic Health, Including Determination of Power Grid Facilities’ Physical Wear and Energy Efficiency, and Procedure to Monitor their Health Indicators dated December 19, 2016 and Order of the Russian Ministry of Energy No. 676 On Approval of Engineering Health Assessment Guidelines for Process Equipment and Transmission Lines of Power Plants and Electric Power Grids dated July 26, 2017 (as amended by the Order of the Ministry of Energy of the Russian Federation No. 192 dated March 17, 2020). 28 In the framework of the order of the Ministry of Energy of the Russian Federation No. 192 dated March 17, 2020, the methodology for calculating the equipment health indices of power transmission lines and equipment of heat networks as to the list, composition and weight coefficients of functional units and segments was updated. 29RusHydro Group's innovative development program for the period 2020-2024 with an outlook of until 2029 was approved by the decision of the Company's Board of Directors – Minutes No. 312 dated August 24, 2020. The medium- term plan for the implementation of RusHydro Group's Innovation Development Program for 2020–2024 accommodates an adjusted amount of funding of RUB 15,875.4 mn for activities for 2020-2024.
146 15 16 Actual financing under RusHydro Group’s IDP action plan in 2020 amounted to RUB 3,001.7 mn30, or 84.1% of the annual target. Below is the breakdown of financing by target initiatives: 1. Innovative projects and activities, R&D in the amount of RUB 2,893.4 mn, or 83.4 % of the annual target: – R&D (research and development) – RUB 607.1 mn, or 74.8 % of the annual target; – innovative projects and digital transformation measures in the amount of RUB 294.4 mn, or 60.4 % of the annual target; – other innovative projects and activities in the amount of RUB 1,991.9 mn, or 91.7 % of the annual target. 2. Development of the innovation management system and innovation infrastructure, interaction with third-party organizations in the amount of RUB 108.3 mn, or 108.4 % of the annual target. The actual amount of funding for RusHydro Group's IDP activities was pushed down by a decrease in the cost of activities and adjustments to the financing schedule on the back of competitive procedures, as well as the postponement of funding for some workscope to 2021 due to the spread of coronavirus infection and the restrictions imposed therewith. The most significant projects of RusHydro Group in 202031: the project of hybrid energy complexes with the use of renewables and the use of an automated generation management system in the decentralized energy supply sector of the Far Eastern Federal District in the Arctic village of Tiksi, Bulunsky District (JSC Sakhaenergo); the technology of the gravity-type energy storage driven by solid loads – solid-state storage power plant (hereinafter – SSPP) including development of prototypes of mechanic arms required for the SSPP’s construction (PJSC RusHydro); measures for the use of 6FA gas turbine units in the construction of new thermal generation facilities at Khabarovskaya CHPP-4 and Yakutskaya GRES-2 (second stage) (JSC DGK; PJSC Yakutskenergo); an information system to support the activities of the Situation Analysis Center (PJSC RusHydro); a solar generation project at the site of JSC Nizhne-Bureyskaya HPP (PJSC RusHydro). The quality assessment of RusHydro Group's IDP according to the decision of the Interdepartmental Working Group on Technological Development under the Government Commission for Economic Modernization and Innovative Development of
30Preliminary data. The final figures for the report on the Innovative Development Program will be approved by the Board of Directors before May 01, 2020. 31 These activities qualify as key ones under the RusHydro Group's Innovative Development Program for the period of 2020-2024 with an outlook until 2029 approved by the decision of the Company's Board of Directors – Minutes No. 312 dated August 24, 2020.
147 16 17 Russia stood at 94.3% (minutes No. 17-D01 dated September 17, 2020). 4. ON PERFORMANCE OF FAR EASTERN ASSETS 4.1. Tariff regulation and improvement of the regulatory framework in the energy sector of the Far Eastern Federal District In order to enhance the performance of RusHydro Group’s Far Eastern assets, the Company is making efforts to introduce long-term tariff regulation methods. The Company contributes to the regulatory process aimed at implementation of such methods through intense cooperation with federal executive authorities (hereinafter, FEAs), NP Market Council, and other agencies. Taking into account the proposals of PJSC RusHydro, the relevant FEAs developed, initiated their duly introduction and ensured the approval of the Decree of the Government of the Russian Federation No. 837 dated June 29, 2019 "On Amendments to the Pricing Principles in the field of Regulated Prices (tariffs) in the electric power industry" (for the non-price zone of the wholesale market of electricity and capacity). This regulation ensures the introduction of long-term tariff regulation in the non- price zone of the wholesale electricity and capacity market. The Federal Antimonopoly Service of Russia issued Order of No. 330/20 dated March 27, 2020 "On Approval of Guidelines for Calculation of Regulated Electricity (Capacity) Prices (Tariffs) for Wholesale Market Suppliers That Own or Otherwise Control Thermal Power Plants Operating in Non-price Zones of Wholesale Electricity and Capacity Market Where Tariffs are Established Through Long-term Indexation of Required Gross Revenue", which establishes the procedure and method for calculating prices (tariffs) established for generating companies that supply electricity (capacity) in non-price zones, using the method of long-term indexation of the required gross revenue. The Decree of the Government of the Russian Federation No. 970 dated June 30, 2020 "On Amendments to para. 3 of the Decree of the Government of the Russian Federation No. 837 dated June 29, 2019" extended the deadlines of re-regulation of tariffs for suppliers of the non-price zone of the WECM of the Far East from July 01, 2020 to January 01, 2021. The Decree of the Government of the Russian Federation No. 2077 dated December 11, 2020 "On amendments to the Principles of Pricing in the Field of Regulated Prices (Tariffs) in the Electric Power Industry through the method of long- term indexation of the required gross revenue in the calculation of regulated prices (tariffs)" made changes that allow, when re-regulating through the new method, to register fuel expenses in line with the actual prices that were not taken into account when the method of tariff indexation was in effect. Tariffs for 2021 for generating facilities in the non-price zone of the WECM are established through the method of long-term indexation of the required gross revenue,
148 17 18 with account taken of the return of portion of the shortfall in fuel expenses incurred during the periods when the tariff indexation method was in effect. As a follow-up to this order, the FAS of Russia, by Order No. 1273/20 dated December 25, 2020, approved long-term regulatory parameters and prices (tariffs) for 2021-2025 for controlled companies of PJSC RusHydro operating in the generation and sale of electric energy (capacity) in non-price zones of the wholesale market, using the method of long-term indexation of the required gross revenue, taking into account the return of portion of the shortfall in fuel expenses incurred during the periods when the tariff indexation method was in effect. In addition, the decree of the Government of the Russian Federation No. 43 dated January 25, 2019 "On the Selection of Projects for the Modernization of Generating Facilities of Thermal Power Plants" was approved, which involves the fundamental introduction of a return on investment mechanism similar to the capacity supply agreements for the list of facilities approved by the Decree of the Government of the Russian Federation No. 1544-r dated July 15, 2019. The development of this mechanism included the adoption of Federal Law No. 480-FZ dated December 29, 2020 "On Amendments to the Federal Law "On Electric Power Industry", which introduced a surcharge to reimburse part of the cost of power supplied using generating facilities of thermal power plants that were modernized, upgraded and (or) built on the territories of non-price zones of the wholesale market. This will prevent excessive price development for consumers in the non-price zone of the WECM in the Far East. Currently, a draft decree of the Government of the Russian Federation is underway; it will offer the rules for calculating prices for electric energy and capacity, taking into account the return of and on capital investment, as well as the procedure for their application in the WECM. This law also extended until 2028 the period for applying the premium to the price of capacity introduced to bring regulated prices (tariffs) for electricity (capacity) in the territories of the Far Eastern Federal District to the basic levels of prices (tariffs) planned for the next regulatory period. The Federal Antimonopoly Service of Russia also issued Order No. 837/20 dated September 14, 2020 "On Approval of Guidelines for the Calculation of Regulated Prices (Tariffs) for Electricity Energy (Capacity) produced by Electricity (Capacity) Producers in Retail Markets in the Territories United in Non-Price Zones of the Wholesale Market and Purchased by the Guaranteeing Supplier", which establishes the procedure and methodology for calculating prices (tariffs) set for generating companies that supply electricity (capacity) in retail markets in non-price zones purchased by the guaranteeing supplier. Efforts to improve regulation and introduce elements of free pricing brought about Resolution No. 1947 issued by the Government of the Russian Federation dated December 31, 2019 "On Amendments to Certain Acts of the Government of the Russian
149 18 19 Federation", which establishes the essential terms of bilateral contracts for the purchase and sale of electric energy concluded in retail markets by electricity producers who own generating facilities located in technologically isolated territorial electric power systems with consumers in respect of utility connections put into operation after July 01, 2017, as well as the procedure of pricing for such contracts (hereinafter – Resolution No. 1947). In furtherance of Resolution No. 1947, the Federal Antimonopoly Service of Russia issued Order No. 347/20 dated April 01, 2020 "On Amendments to the Guidelines for Calculating Regulated Prices (Tariffs) for Electricity (Capacity) Supplied in Technologically Isolated Territorial Electric Power Systems and in Territories Technologically Unrelated to the Unified Energy System of Russia and Technologically Isolated Territorial Electric Power Systems, except for Electricity (Capacity) produced at Qualified Generating Facilities approved by Order No. 686/19 of the Federal Antimonopoly Service of Russia dated May 29, 2019". 4.2. Fuel cost optimization In 2020, RAO ES East continued to streamline its fuel supply system in the following focus areas: 1) Prevention of risks of fuel insecurity of generation facilities on the territory of the Far Eastern Federal District (including the Kamchatka Territory, the Republic of Sakha (Yakutia), loss in the value of the transport component. Kamchatskenergo’s energy facilities currently require about 395 mn m3 of natural gas annually. However, only 308.4 mn m3 was supplied in 2020, and a further decrease to 189.0 mn m3 is expected by 203532, so that the natural gas will have to be substituted by heating oil, which is a higher-cost alternative. Given the reduced gas supplies to Kamchatka's CHPP-1 and CHPP-2 from Gazprom Mezhregiongaz Far East, Kamchatskenergo replaced them by increasing heating oil purchases by 51,200 tonnes vs. 2019, so the actual amount procured in the reporting year reached 167,300 tonnes. The increase in cargo traffic in Q4 2020 challenged the implementation of the delivery schedule of heating oil, due to interruptions in the shipment and longer period of shipment of energy resources by the manufacturer of JSC Angarsk Petrochemical Company (part of Rosneft Group of companies) to Kamchatskenergo. To stabilize the situation and ensure timely delivery, PJSC RusHydro sent an appeal to the Chief Executive Officer of Rosneft, I. Sechin No. 7216.VH dated November 23, 2020, with a request to prioritize the allocation of fuel oil for the needs of energy enterprises of the Kamchatka Territory. With the measures taken, the situation was stabilized through the provision of fuel for thermal generation facilities of the Kamchatka Territory in the autumn-winter period of 2020-2021. 2) Loss in the value of the transport component in the reporting period.
32 According to the draft General Scheme for the development of the Russian gas industry until 2035.
150 19 20 The Company continued supplying fuel to Yakutian utility companies using the Northern Sea Route and transhipping it through the various ports located in the North- Western Federal District. During 2020, this route was used to ship about 34,500 tonnes of diesel fuel to Yakutia’s northernmost areas and about 27,200 tonnes to heat and enerdy generators in the Ust-Yansky District. The logistics route used can significantly reduce the risk of fuel undershipment compared to the route involving the supply of fuel along the Lena River due to periodic shallowing of the upper reaches of the river and provides, among other things, cost savings by reducing transport costs. In order to increase the reliability of the supply of fuel imported through the waters of the Northern Sea Route, a route for the delivery of coal with simultaneous transshipment in two ports (Arkhangelsk and Kandalaksha) was used in the 2020 navigation, which allowed reducing the time of coal processing in the ports of shipment and ensuring timely delivery of the entire volume to the transshipment point (Nizhneyansk) for subsequent river transportation to the final points. 3) Demonopolizing the Far Eastern energy market, enhancing competition, and diversifying fuel supplies towards non-standard coal grades. In 2020, experimental combustion of non-standard hard coal was carried out at the stations of JSC DGK and permits were obtained for industrial use of: non-standard hard coal-charge of the Elginsky deposit at the boilers of the Artemovskaya CHPP; non- standard hard coal of the Tugnuysky section at the boilers of the Komsomolskaya CHPP-2, Amurskaya CHPP-1, and Birobidzhanskaya CHPP. This experimental combustion of non-standard coal of SS grade ( JSC Chernigovets) and coal charge of the Elginsky deposit did non prove it good for further use in the boilers of the Partizanskaya GRES. 4) Negotiation of long-term coal supply contracts (for at least three years) that include pricing provisions for each subsequent calendar year based on the market environment. A contract for the supply of coal from the local field with LLC Severovostokugol for the period of 2020-202333 for the needs of the Arkagalinskaya GRES branch of Magadanenergo, a contract for the supply of long- range coal with CJSC Vertical for the period of 2020-2022 34for the Magadanskaya CHPP branch of Magadanenergo, a contract for the supply of brown coal with JSC Russkiy Ugol for the period of 2020-2022 35for the needs of the Amur Generation branch of JSC DGK. 5) New fuel supply contracts negotiated with RAO ES East provide for reduction of the coal prices in day-to-day deliveries and deviations from the contractual terms
33 Agreement No. 766/12-2020 dated July 22, 2020. 34 Agreement No. 452/13-2020 dated April 08, 2020. 35 Agreement No. 46/83-220 dated January 24, 2020.
151 20 21 depending on the coal properties (humidity, ash content, calorific value). Savings on the payment of current coal supplies for 2020 amounted to RUB 945 mn. 6) To purchase fuel on the spot market, based on the lowest bid price of the participants, framework agreements were concluded in 2020: for the supply of coal for the superbalanced demand of the stations of JSC DGK – 16 agreements; for the supply of petroleum products (diesel fuel, fuel oil) for the needs of the stations of JSC DGK – 16 agreements, for the needs of the stations of JSC UESK – 8 agreements. Purchases of coal for the needs of JSC DGK (the largest coal consumer in RAO ES East Holding) in 2020 for the first time allowed for variability in the duration of deferred payment, which contributed to the expansion of the range of participants and the formation of a competitive environment. At the same time, the duration of the deferred payment specified in the participant's bid was covered in the Bid Evaluation Criteria and Procedure. As a result of the procurement procedures, some contracts for the coal supply in 2021 were concluded on deferred terms of 105 calendar days36. 4.3. Receivables management Accounts receivable for electricity and heat in the retail markets of the controlled organizations of PJSC RusHydro in the Far Eastern Federal District37 as of December 31, 2020 is RUB 36,140.5 mn38, including overdue – RUB 25,178.5 mn39. The debt growth for 2020 amounted to RUB 1,037.7 mn, or 2.9%, including overdue – RUB 1,009.9 mn, or 4.2%: Electric energy Accounts receivable for electricity amounted to RUB 16,238.6 mn, including overdue – RUB 9,870.5 mn40. The debt growth for the reporting period amounted to RUB 720.6 mn, including overdue – RUB 693.8 mn. The electric energy payment rate in the reporting year was 99.2%41, which is 0.04% above last year's level. Heat energy Accounts receivable for heat energy amounted to RUB 19,901.8 mn, including overdue – RUB 15,308.0 mn42. The debt growth for the reporting period amounted to RUB 317.1 mn, including overdue – RUB 316.1 mn.The heat energy payment rate in the reporting year was 97.6%43, which is 0.95% above last year's level. The main defaulters on electric and heat energy: 1. A significant share of the debt is covered by intermediaries for the supply of energy for the needs of the Russian Ministry of Defense and organizations subordinate to the Russian Ministry of Defense. PJSC RusHydro has repeatedly called attention to the need to address the issue of repayment of overdue debts for enterprises that stopped
36 Agreement No. 1459/83-20 dated December 08, 2020. 37 The control covers PJSC DEK, JSC DGK, PJSC Yakutskenergo, PJSC Kamchatskenergo, PJSC Magadanenergo, PJSC Sakhalinenergo, JSC Chukotenergo, JSC UESK, JSC Sakhaenergo, JSC Teploenergoservis, and PJSC Mobile Energy (Peredvizhnaya Energetika). 38 According to the consolidated data of the sales units of RusHydro’s Far Eastern subsidiaries. 39 Overdue accounts receivable as of December 31, 2019 amounted to RUB 24,168.6 mn. 40 Overdue accounts receivable as of December 31, 2019 amounted to RUB 9,176.7 mn. 41 The electric energy payment rate for 2019 was 99.15%. 42 Overdue accounts receivable as of December 31, 2019 amounted to RUB 14,989.9 mn. 43 The heat energy payment rate for 2019 was 96.7%.
152 21 22 payments for electric and thermal energy to PJSC RusHydro – JSC Oboronenergosbyt, JSC RUE, JSC Slavyanka, LLC GU ZHF, JSC GU ZhKKh, whose debt as of December 31, 2020 was RUB 1,539.6 mn, including for electricity – RUB 1,101.4 mn, for thermal energy – RUB 438.2 mn. 2. Arrears for heat energy in the Chukotka Autonomous District. For two years, there has been difficult situation with the settlements of heat supply organizations, consumers of JSC Chukotenergo, which are municipal (dependent on the state budget) enterprises: ME Gorodskoye Kommunalnoye Khozyaistvo (Anadyr), ME Chaunskoye Rayonnoye Kommunalnoye Khozyaistvo ( Pevek), MUE housing and utility services "Iultinskoe". Despite the decrease in debt for the reporting year by RUB 287.6 mn, the accounts receivable of local grid companies as of December 31, 2020 was RUB 878.4 mn. 3. The Decree of the Government of the Russian Federation No. 42444 dated April 02, 2020 introduced a ban on restrictions on non-paying consumers, the termination of penalty accrual, the restriction of the work of full-time customer service offices, which affected the growth of debt for electricity and heat for the households and for utility service providers for most companies of the Far Eastern Federal District, including: In the Kamchatka Territory, the debt of the utility service providers as of December 31, 2020 amounted to RUB 2,152.7 mn, of which the debt of management companies in the bankruptcy stage – RUB 1,078.9 mn. The entire debt is covered by lawsuits. The debt of the households and utility service providers in the Republic of Sakha (Yakutia) as of December 31, 2020 for the consumed energy resources in the territory is RUB 3,585.0 mn (64% of the debt across this territory), including the households – RUB 2,399.9 mn. Only 34% of the debt is covered by lawsuits. 4. Separate allocation is made for the debt arising from the improper provision of subsidies to compensate for the difference in tariffs to energy companies from regional budgets (Magadan region, Republic of Sakha (Yakutia), Jewish Autonomous Area, Khabarovsk Territory). The debt to PJSC Magadanenergo under the agreements on the allocation of subsidies, due to the shortfall in revenue, as of December 31, 2020 is RUB 2,893.7 mn45; to PJSC Yakutskenergo, JSC Teploenergoservis and JSC Sakhaenergo – RUB 1,816.4 mn46; to JSC DGK – RUB 415.5 mn47. Regional debt for electricity and heat: The largest share in the structure of accounts receivable for electric and thermal energy is taken by the Khabarovsk Territory – RUB 9,189.7 mn. The main share in
44 Resolution of the Government of the Russian Federation No. 424 dated April 02, 2020 "On the Specifics of Providing Utilities to Owners and Users of Premises in Apartment Buildings and Residential Buildings". 45 Accounts receivable as of December 31, 2020 amounted to RUB 2,427.6 mn. 46 Accounts receivable as of December 31, 2020 amounted to RUB 1,280.9 mn. 47 Accounts receivable as of December 31, 2020 amounted to RUB 377.8 mn.
153 22 23 accounts receivable is occupied by consumer groups: "households" – RUB 5,482.1 mn; "industry" – RUB 818.3 mn (including Amurmetall – RUB 567.1 mn), "management companies" – RUB 764.1 mn. Kamchatka Territory – RUB 6,475.6 mn. The main debtors are "management companies", whose debt amounts to RUB 2,152.7 mn. Large debtors-bankrupt: JSC Oboronenergosbyt – RUB 588.6 mn. Primorye Territory – RUB 7,416.7 mn. The main share of accounts receivable is occupied by consumer groups: "households" – RUB 4,080.9 mn; "industry" – RUB 380.0 mn (including LLC Dalnegorsky GOK – RUB 240.5 mn), "housing and utilities enterprises" – RUB 725.1 mn, "management companies" – RUB 422.4 mn. Republic of Sakha (Yakutia) – RUB 5,485.7 mn. The main share in accounts receivable is occupied by consumer groups: "households" – RUB 2,399.9 mn, "management companies" – RUB 1,413.4 mn, "housing and utilities enterprises" – RUB 903.7 mn. For the rest of the regions, accounts receivable as of December 31, 2020 for electric and thermal energy were as follows: Magadan Region – RUB 2,127.2 mn, Amur Region – RUB 1,913.9 mn, Chukotka Autonomous District – RUB 1,023.6 mn, Sakhalin Region – RUB 1,310.1 mn, Jewish Autonomous Area – RUB 1,133.6 mn. RusHydro’s Far Eastern subsidiaries take all measures stipulated by the Russian laws to ensure timely receipt of funds for current payments and repayment of receivables: 1. In 2020, 233,814 claims were filed against non-payers to recover debts for electricity and heat for a total of RUB 10,234.3 mn; 7,209 claims among them for RUB 6,506.4 mn were filed against legal entities, including housing and utilities enterprises and public sector enterprises. 226,605 claims were filed against the households in the amount of RUB 3,727.9 mn. The number of lawsuits against the consumer sector in 2020 was 6,243 greater than in the previous year. 2. The introduction of a ban on restrictions significantly reduced their number compared to last year (by 215 thousand restrictions). In total for 2020, 4,187 restrictions were imposed on legal entities, and 55,290 restrictions were imposed on the households. 3. Working with federal, regional level authorities to assist in the payment of debts of subordinate budget organizations, as well as in the allocation of additional funds to housing and utility enterprises and heat supply organizations for settlements with resource providers. In 2020, 68,388 individuals, including those living in apartment buildings, shifted from management companies to direct settlements with the Company. RusHydro's decision No. 1242pr dated March 27, 2020 laid down a model program for managing the receivables of subsidiaries that operate on retail electricity and heat markets. Pursuant to the program, RusHydro’s subsidiaries introduced and approved their own programs that assign those
154 23 24 responsible for implementing the measures and the respective deadlines. In 2020, each Far Eastern subsidiary of RusHydro submitted their programs progress reports. As part of the efforts to increase the revenues (sales of electricity at above-tariff prices) of JSC DGK, PJSC Yakutskenergo and JSC RAO ES East, bilateral electricity sales contracts were concluded with PJSC Inter RAO, Rusenergosbyt LLC and LLC Transneftenergo in 2020, with the sales amounting to 853.4 mn kWh. In order to reduce the cost of purchased energy from the wholesale market by sales companies, PJSC DEK and RusHydro, PJSC Yakutskenergo and RusHydro signed bilateral agreements in 2020. The volume of electric energy purchased amounted to 248.1 mn kWh. 4.4. Modernization of generating capacities of thermal power plants in line with the needs of socio-economic development of the Far Eastern Federal District In accordance with the Comprehensive Plan for the Modernization and Expansion of the trunk infrastructure until 202448, as well as the Action Plan to accelerate the growth rate of investments in PPE and increase their share in the gross domestic product49 to 25%, PJSC RusHydro is expected to implement the following projects of new construction and modernization of energy facilities in the Far Eastern Federal District aimed at replacing the retiring capacities and covering the prospective demand of the energy systems of the Far Eastern Federal District, approved by Order of the Government of the Russian Federation No. 1544-r dated July 15, 2019: construction of Artemovskaya CHPP-2 (400-450 MW, 450-550 Gcal/h); construction of Khabarovskaya CHPP-4 (320.8 MW, 1,368.3 Gcal/h); construction of the second stage of Yakutskaya GRES-2 (160.4 MW, 200 Gcal/h); reconstruction of Vladivostok CHPP- 2 (electric capacity of the replaced equipment will increase from 283 to 360 MW, thermal capacity – from 506 to 570 Gcal/h). The implementation of these projects will not only provide replacements for the generating facilities that are being decommissioned due to highly deteriorated equipment, but also lay the ground for further social and economic development of the Far Eastern Federal District. The design phase is being completed for all four projects: – the Khabarovsk CHPP-4 received a positive conclusion from FAA Glavgosexpertiza on the design documentation and the results of engineering surveys dated October 22, 2020; – as for the 2nd stage of the Yakutskaya GRES-2, the materials under the design documentation and the results of engineering surveys were handed over to FAA Glavgosexpertiza of Russia on January 29, 2021; – as for Artyomovskaya CHPP-2, according to the instructions of the President of the Russian Federation Vladimir Putin No. Pr-1008 dated June 23, 2020 and the Government of the Russian Federation No. YUB-P9-7894 dated July 14, 2020 on the
48 Approved by Order of the Government of the Russian Federation No. 2101-r dated September 30, 2018. 49 Approved by the Chairman of the Government of the Russian Federation D. Medvedev No. 1315p-P13 dated February 13, 2019.
155 24 25 use of natural gas as the main fuel instead of brown coal, a design and survey contract was concluded with JSC Institute Teploelektroproekt dated November 19, 2020. In addition, the Government Commission for the Development of the Electric Power Industry (minutes No. 2 dated December 21, 2020) supported the proposals of the Ministry of Energy of the Russian Federation on the external power supply scheme of traction substations of the second development stage of the Eastern Polygon of Railways of JSC Russian Railways, including the expansion of the Partizanskaya GRES with an increase in installed capacity by 280-300 MW and the expansion of the Neryungrinskaya GRES with the construction of power units No. 4 and 5 with an installed capacity of 430-450 MW, and also approved the inclusion of facilities in the "Guaranteed provision of affordable electricity" federal project of the Comprehensive Plan for Modernization and Expansion of Trunk Infrastructure for the period up to 2024. Decree of the Government of the Russian Federation No. 430-r dated February 21, 202021 approved amendments to the Comprehensive Plan for the Modernization and Expansion of the Trunk Infrastructure for the period up to 2024. PJSC RusHydro started work on design documentation for both projects. The projects for the expansion of Partizanskaya GRES and Neryungrinskaya GRES are supposed to be funded through the guaranteed return on investment mechanism for the construction (modernization) of generating facilities in non-price zones of the WECM, and therefore it is planned to include these projects in the list of generating facilities subject to modernization or construction in non-price zones of the WECM approved by Order of the Government of the Russian Federation No. 1544-r dated July 15, 2019. 4.5. Development of electric charging infrastructure in the Far Eastern Federal District RusHydro Group is implementing a project to develop a network of electric charging stations for electrical vehicles in the Far Eastern Federal District. The project is aimed at the transport and socio-economic development of the Far Eastern Federal District, as well as the development of an environmentally friendly mode of transport. The Company seeks out to ensure the electric traffic between the subjects of the Russian Federation in the Far Eastern Federal District (Primorye Territory, Amur Region, Khabarovsk Territory, Jewish Autonomous Area), as well as to enable the operation of electric vehicles in the Sakhalin Region and in the Kamchatka Territory. RusHydro supports different types of electric vehicle ports: (DC) 20-50 kW port for Japanese cars, (DC) 20-50 kW port for European cars, Type 1/Type 2 (AC), 7-22 kW port. Most of the electric charging stations can charge two cars at the same time. About 45,000 charging sessions were made since the opening of RusHydro's electric charging stations in 2019. The aggregate charge allowed electric vehicles to travel a total of more than 1,470,000 km, saving more than 145,000 liters of
156 25 26 50 hydrocarbon fuel , which is commensurate with a reduction in CO2 emissions into the atmosphere of about 180,000 kg.51 In 2020, RusHydro Group significantly expanded the presence of electric charging infrastructure in the Far Eastern Federal District to 22 fast charging stations in the Primorye and Khabarovsk Territories, the Amur and Sakhalin Regions, as well as in the Kamchatka Territory. In the future, the company plans to continue the development of the electric charging infrastructure with the target of 150 fast charging stations to be installed by the end of 2022 in order to enable the electric traffic on the Vladivostok- Moscow highway between neighboring cities and to recreation areas, as well as to start the projects of related services, including jointly with Avtodor Group. 4.6. Use and processing of ash and slag waste generated at coal power plants of RusHydro Group In order to reduce the accumulation of ash and slag waste (the volume of accumulation of ash and slag waste is 121.5 mn tonnes), RusHydro developed technical documentation for ash and slag as a by-product of production, which simplifies the further use of ash and slag by consumers, which, in turn, will boost the interest in ash and slag from potential consumers. As further steps to increase the volume of ash utilization, PJSC RusHydro is considering the wider use of ash in the investment projects implemented by RusHydro Group, as well as in definition of projects for the production of construction products from ash, including under modernization process. We are also working with the FEAs to make changes to the regulatory framework for: – provision of state support for the ash and slag waste processing; – preservation of savings in the tariff revenue of energy companies when involving ash and slag waste in economic turnover; – provision of grants to consumers of construction products made of ash and slag waste (for example, to citizens-recipients of the "Far Eastern hectare"); – ensuring the use of ash and slag waste in the municipal and regional projects in the construction of residential and non-residential property, as well as as inert materials in road construction and leveling of territories. 4.7. Development of renewable power generation in the Far Eastern Federal District An increase in the share of renewable power generation is a promising area of RusHydro Group in the Far East. The wind-diesel complex construction project in Tiksi village in the Republic of Sakha (Yakutia), including a new 3 MW diesel power plant, a wind power station and an energy storage system, was completed in 2020. The total capacity of the wind-diesel complex is 3.9 MW. In 2020, the second stage was underway – the construction of a
50 In comparison with petrol cars of "B" class. 51 According to the report of the European Environment Agency (EEA) "Average CO2 emissions from new cars and new vans increased again in 2019" published on June 26, 2020/ https://www.eea.europa.eu/highlights/average-co2-emissions-from-new-cars-vans-2019.
157 26 27 diesel station in a modular design with an energy storage system, including design work, delivery of generating equipment, and construction on the foundations of the diesel power plant. The facility was commissioned in December 2020. As part of the Memorandum of Understanding signed in 2017 with Japanese companies on a wind power project in Ust-Kamchatsk village, Kamchatka Territory, the design of the construction of the fourth Komai winterized wind power plant with a single capacity of 300 kW with the modernization of the automated process control system was completed in 2020, with delivery of all equipment needed. The facility is scheduled to be commissioned in 2021. A unique project for the Russian energy industry of hybrid renewable generation as part of a stationary solar power plant and the first floating solar power plant in Russia with a total capacity of 1.3 MW was completed in 2020 at the Nizhne-Bureyskaya HPP (controlled by PJSC RusHydro). The project's aim was to test the renewable technology at hydraulic structures in order to reduce the costs for own needs of the HPP. In accordance with the action plan for the modernization of diesel (coal, fuel oil) generation in remote and isolated areas approved by Deputy Prime Minister of the Russian Federation D.Kozak No. 7456p-P9 dated August 15, 2019, RusHydro Group started competitive selection of modernization renewable projects on the basis of an energy service mechanism. With the energy service tool utilized to implement local generation modernization projects, the emphasis is on the application of unified technical solutions based on hybrid energy complexes using energy sources and energy storage systems, or the conversion of generating equipment to a different type of fuel. Provisions are made for full automation of the power complex and a remote shopfloor monitoring system. In Q2 2020, competitive selections were held for the right to conclude energy service contracts in six localities of the Republic of Sakha (Yakutia). The first energy service contracts with investors were signed in July 2020. Once the projects are completed, about 3 MW of renewable energy generation will be introduced. In Q4 2020, in continuing the implementation of projects for the modernization of inefficient diesel generation in isolated settlements of the Far Eastern Federal District through the conclusion of energy service contracts, RusHydro Group organized competitive selections in subsequent settlements of the Republic of Sakha (Yakutia) and the Kamchatka Territory (a total of 45 settlements). Once the projects are completed, 19 MW of renewable energy generation will be commissioned. RusHydro Group's modernization projects in isolated territories based on automated hybrid power complexes will allow for the commissioning of about 90 MW of new diesel generation and up to 30 MW of renewable energy generation together with energy storage systems. 4.8. Prospective development of the Far Eastern Federal District PJSC RusHydro updated the Program for the Development of the Electric Power Industry to ensure advanced economic growth in the Far Eastern Federal District for the
158 27 28 period 2020-203052 developed on instructions from the Deputy Prime Minister of the Russian Federation – the Plenipotentiary Representative of the President of the Russian Federation in the Far Eastern Federal District, Yu. Trutnev.53 The Program involves the development of generating capacities through the construction of new generating sources to replace obsolete equipment that is being decommissioned and to cover future loads, as well as to modernize existing generating equipment. The program covers measures to ensure the external power supply scheme of the Eastern landfill of JSC Russian Railways within the limits of RusHydro Group's responsibility. In the period until 2030, RusHydro Group schedules to decommission generating equipment of 1,309. 3 MW and commission – 2,247.7 MW. To ensure reliable power supply to existing and prospective consumers, as well as to deliver capacity to power plants, the Program involves the commissioning of power transmission lines with a voltage of 110 kV and higher for the length of 7,347. 3 km. 5. REFINING THE CORPORATE GOVERNANCE SYSTEM In the reporting year, RusHydro ensured the high level of corporate governance: – In September 2020, the Non-profit partnership Russian Institute of Directors confirmed the corporate governance rating of RusHydro at the maximum level for Russian energy companies "8" - "Best Corporate governance practices»; – according to the results of the annual survey "National Corporate Governance Index" conducted by TopCompetence at the end of 2020, PJSC RusHydro entered the top 10 Russian leaders in terms of completeness and quality of disclosed information on the principles of corporate governance. As a result of corporate governance improvement efforts and implementation of the standards set forth in the Code54, RusHydro came to observe 96% of the principles in 2020, compared to 95% in 2019. In addition, according to the results of the annual audit conducted by the Company's Internal Audit Service, corporate governance was rated as "Effective": the overall rating was 94% out of 100% (compared to 92% in 2019). In 2020, RusHydro joined the leaders in the sustainable development indices – "Accountability and transparency" and "Vector of Sustainable Development" – of the Russian Union of Industrialists and Entrepreneurs (RUIE). RusHydro was also awarded the highest level of sustainable development information disclosure following the results of the first rating of the Sustainability Reporting prepared by the AK&M rating agency. RusHydro's annual report for 2019 received the following awards: gold award of the international Spotlight Awards (Global Communications Competition) of League of American Communication Professionals (LACP) and ranking in the "Top 100 best
52 Decision of the Management Board of PJSC RusHydro (Minutes No. 1304pr dated January 18, 2021). 53 Item 2 of the minutes of the meeting No. UT-P9-2454 dated April 25, 2018. 54 The Corporate Governance Code.
159 28 29 reports in the world"; 3 highest (platinum) awards in the MarCom competition; platinum award in the electric power industry in the LACP Vision Awards competition, as well as 33rd place in the top 100 in the world (best from Russia), 7th place in the top 50 in the region (Europe, Middle East and Africa) and place in the top 10 reports in Russia; prizes in the ARC international competition (MercomAwards): gold in the Energy Equipment & Services category, silver in the Integrated AR & CSR: Traditional Format category; a B+ rating in the international Comprand annual report rating (formerly ReportWatch) and entering the TOP 350 annual reports with the highest rating; "5 stars" rating (highest quality) and 3rd place in the category "Best Integrated Annual Report" in the annual competition of annual reports of the RAEX rating agency; winner in the category "Best Corporate Governance Disclosure in the annual report", as well as the winner in the category "Best Quality of Sustainable Development Information Disclosure in the Annual Report" of XXIII annual competition of annual reports of the Moscow Exchange; silver in the category "Best Annual Report" of the National Competition of Media Resources "Silver Threads 2020". RusHydro (including indirectly, through subsidiaries) has stakes in authorized capital of companies engaged in electricity and heat generation and distribution, energy facilities design, construction, repair, maintenance, rehabilitation and modernization, and other activities. The Company's interaction with the controlled companies is aimed at implementing the strategy, ensuring stable economic development and investment attractiveness, as well as protecting the rights and interests of shareholders of both the Company and its controlled companies. During the reporting period, RusHydro ensured that the Company's management bodies made the necessary decisions on operational activities, planning and investments, implementation of the standards and policies in force in the Group, and other significant issues related to the functioning of the Group's companies. In addition, during 2020, the following basic standard documents were implemented (updated) in the controlled companies, which, along with the previously introduced ones, ensure uniform management of business processes in the Group: – the Unified Regulation on the Procurement of Products for RusHydro’s Needs; – Unified Regulation on the Procedure for Initiating Procurement in RusHydro Group; – Regulation on the Management of the Organizational Structure of Subsidiaries; – Regulations on the Procedure for the Acquisition (alienation) or Assignment for Temporary Possession and Use or Temporary Use of Property by PJSC RusHydro's Subsidiaries; – Unified Regulation on Commissions for the Sale of Unclaimed Goods and Materials, Used Oils, Scrap and Waste of Ferrous and Non-Ferrous Metals in Branches of PJSC RusHydro and its Controlled Companies; – Technical policy of RusHydro Group;
160 29 30 – RusHydro Group’s Internal Control and Risk Management Policies; – Regulation on the Internal Control System of RusHydro Group; – Regulation on Risk Management of RusHydro Group; – Regulations on the Audit Commission for the Subsidiaries; – Regulations on the Insurance Protection for the Subsidiaries; – Standard for Managing Non-Core Assets of RusHydro Group's entities. In 2020, the number of controlled companies of the Group was reduced by 14 (by 16%), the Group's structure was optimized by 38% (from 118 to 73 companies) over the past 5 years. In 2020, repair companies were merged with JSC KhRMK, the exchange of assets with SUEK Group was completed, and the sale of shares of CJSC MEK (Armenia) was completed. RusHydro Group makes methodical efforts on the identification and sale of non- core assets, putting a priority on this issue, which help, among other things, to significantly reduce operating costs. The new version of the registers of non-core assets and the action plans for the sale of non-core assets of PJSC RusHydro55 and its controlled companies are approved annually. The progress report on the Action Plan for the Sale of Non-core Assets of PJSC RusHydro is approved quarterly by the Board of Directors of PJSC RusHydro56. Information on the sale of non-core assets is published quarterly on the Interdepartmental Portal of the Federal Property Management Agency and forwarded to the Ministry of Energy and the Federal Property Management Agency. In 2020, RusHydro Group sold 209 non-core assets, which is up 45% year-on- year57; in total, the Group sold 828 non-core assets over the past 5 years. Measures to optimize RusHydro Group's asset holding structure The medium term priority areas as to optimization of the RusHydro Group's asset holding structure are as follows: 1. Optimization of the asset holding structure in the Far Eastern Federal District (asset exchange transaction with SUEK). In June-July 2020, measures were implemented to exchange 100% of shares of LLC Primorskaya GRES and 100% of shares of JSC LUR (supplies coal only to Primorskaya GRES) for 41.9% of the shares of PJSC DEK owned by a company that belongs with the same Group as SUEK. As a result, the total share of RusHydro Group
55 The new version of the Register of Non-core Assets of PJSC RusHydro for 2020 and the Action Plan for the sale of non- core assets of PJSC RusHydro for 2019 (IV quarter) - 2020 were approved by the Company's Board of Directors (Minutes No. 302 dated December 26, 2019), as amended by the decisions of the Company's Board of Directors (Minutes No. 305 dated March 27, 2020, No. 311 dated July 02, 2020, and No. 319 dated December 24, 2020). 56 The progress report on the Action Plan for the Sale of Non-core Assets of PJSC RusHydro for 2020 was approved by the Company's Board of Directors (Minutes of the Board of Directors No. 323 dated March 22, 2021). As part of this report, the Board of Directors took the information on the sale of non-core assets of RusHydro Group in 2020 under advisement. 57 In 2019, 144 non-core assets were sold.
161 30 31 in the authorized capital of PJSC DEK increased to 94.15% (after the purchase of shares from minority shareholders under the mandatory offer – 94.51%). In September 2020, in order to improve the financial health of JSC DGK and stabilize the economic condition of the generating company, in keeping with the directives of the Government of the Russian Federation No. 7728p-P13 dated August 27, 2019, measures were taken to capitalize the intra-group debt of JSC DGK formed under the transfer of funds from the forward transaction with VTB Bank (PJSC) in the amount of RUB 40.5 bn (includes the body of debt – RUB 35.6 bn and accumulated interest for the deferred period). The capitalization of the debt of JSC DGK is enabled through the completion of the exchange transaction with the SUEK Group and the consolidation of the shares of PJSC DEK in the ownership of RusHydro Group (JSC DGK was a subsidiary of PJSC DEK before the capitalization of the intra-group debt). JSC DGK became a direct controlled subsidiary of PJSC RusHydro through the additional issue of shares (the share in the authorized capital was 99.99%). These transactions lessened the debt burden of JSC DGK by more than 50%, creating conditions for the stabilization of the financial and economic condition of the generating company. 2. Consolidation of energy assets of the Sakhalin Region within PJSC Sakhalinenergo. With the consolidation of the energy assets of the Sakhalin region within PJSC Sakhalinenergo, PJSC Sakhalinenergo obtains the ownership of 88.34% of the shares of JSC SEK. The following actions were taken in 2020: – the Government of the Russian Federation gave directives No. 3558p-P13 dated April 24, 2020 and Order of the Government of the Russian Federation No. 353-r dated February 19, 2020 for the acquisition of 7.68% of the shares of JSC SEK by PJSC RusHydro from PJSOC Rosneft and the incorporation of 42.31% of the shares of JSC SEK held by RusHydro Group into the authorized capital of PJSC Sakhalinenergo; – the acquisition of 7.68% of the shares of JSC SEK was approved by the Board of Directors of PJSC RusHydro in June 2020 and closed in August 2020; – in December 2020, 42.31% of the shares of JSC SEK were consolidated on the balance sheet of JSC RAO ES East for subsequent contribution to the authorized capital of PJSC Sakhalinenergo; – in December 2020, an additional issue of shares of PJSC Sakhalinenergo was opened. Thus, PJSC RusHydro finished all preparatory activities for the consolidation of the shares of JSC SEC on the balance sheet of PJSC Sakhalinenergo. 3. Sale of a block of shares of CJSC MEK RusHydro Group acquired 90% of the shares of CJSC MEK in 2011. CJSC MEK owns the Sevan-Hrazdanskiy HPP cascade in Armenia with a total installed capacity of 565 MW. By 2019, an investment program worth more than USD 50 mn
162 31 32 hab been implemented thanks to the financing raised by RusHydro. At the same time, the financial condition of CJSC MEK in recent years has been unstable – due to the high debt burden and a drop in electricity generation (on account of a decrease in permitted passes from Sevan Lake and a natural decrease in the inflow of the Hrazdan River). Given the absence of plans to expand investment activities in the CIS markets and the significant risks of regular additional financing of JSC MEK in the future, the Company made a decision to sell JSC MEK (Asset) and agreed the same with the Government of the Russian Federation. The buyer of the Asset was the Tashir Group, one of the largest players in the electricity market of the Republic of Armenia. The positive outcomes of the transaction closed in March 2020: return of the initial investment in the Asset (90% of the shares were sold for RUB 172.97 mn); reduction of the consolidated debt of RusHydro Group by up to USD 55 mn (the total debt of CJSC MEK on loans from the ADB and the EBRD secured by the guarantee of PJSC RusHydro); elimination of country and currency risks. 4. Consolidation of assets of JSC DVEUK-GeneratsiyaSeti In accordance with the order of the Government of the Russian Federation No. AD-P9-96pr dated September 19, 2017 and the resolution of the Deputy Prime Minister of the Russian Federation, D. Kozak, No. DC-P9-2902 dated April 11, 2019, the reorganization of JSC DVEUK was completed in July 2019 by way of its division into JSC DVEUK-ENES (220 kV electric grid assets in the Republic of Sakha (Yakutia), to be transferred to Rosseti Group) and JSC DVEUK-GeneratsiyaSeti (distribution grid assets and generation on Russky Island, are covered by the responsibility of RusHydro Group). The newly established companies are 100% owned by the state. In 2020, the federal executive authorities agreed on an assets transfer mechanism, which implies contribution of shares of JSC DVEUK-GeneratsiyaSeti to the authorized capital of PJSC RusHydro at market value based on the income method (with the fair value of the asset reflected on the basis of cash flows generated by the company). 5. Consolidation of repair assets in the Far Eastern Federal District In order to optimize the corporate structure of energy repair assets located in the Far East, JSC KhRMK was finally merged through absorption of JSC KhPRK and JSC Neryungrienergoremont in Q1 2020. 6. IMPROVING THE TALENT POOL The following measures were taken in 2020 to enhance the staffing system: – the Method of selection of young professionals at PJSC RusHydro was developed and approved by the order of the Company58; it regulates the rules for applying targeted training in higher educational organizations, the procedure for
58 Approved by Order No. 1035 of PJSC RusHydro dated December 07, 2020.
163 32 33 assigning benefits and compensations to children of employees of branches of PJSC RusHydro who are trained in specialized areas, as well as the procedure for employing young specialists at the Company's facilities; – 24 graduates of partner universities were employed in the entities of RusHydro Group; together with the Department of Corporate Communications, RusHydro brand zones were opened in partner universities – NRU MGSU and Peter the Great SPbPU; – the Student Energy School of PJSC RusHydro – 2020 was held at the Federal State Educational Budgetary Institution of Higher Education "Moscow Power Engineering Institute" with the use of remote educational technologies in the format of a Hackathon of student projects. The participants were 120 people: students of the Company-relevant areas of training at the Moscow Power Engineering Institute, as well as the winners of the "Energy of Development" competition from other partner universities; – PJSC RusHydro became a partner of the Student League of the VIII International Engineering Championship "CASE-IN "in the area of "Electric Power Industry"; – RusHydro still contributed actively in the development of the national qualification system in 2020. Forty-two (42) professional qualifications for hydro and thermal power, wind and solar power were developed with the participation of experts from RusHydro Group and approved by the Council for Professional Qualifications in the Electric Power Industry, and then submitted for approval to the National Agency for the Development of Qualifications. Twenty (20) new advanced training and professional retraining programs were developed for the Company's employees; – more than 54.3 thousand training courses for employees of RusHydro Group were given, and career guidance is offered as well; – given the restrictions associated with the pandemic, an online competition was held for the position of First Deputy Director – Chief Engineer of PJSC RusHydro branch. A total of 191 employees of branches and controlled companies of PJSC RusHydro took part therein. Finally, there were three reserve groups consisting of 54 employees; – the 2st Corporate Engineering Case Championship of Innovation and Work Improvement Proposals “RATSENERGY” was held in online format. The total number of participants is 168 employees of 22 enterprises of RusHydro Group. The results of the winning team were presented at the XIII All-Russian Scientific and Technical Conference "Hydropower. Hydraulic engineering. New Developments and Technologies"; – the following events within the Youth Program were held: the 3rd annual meeting of the SMR participants within the corporate stream at the X Forum of Young Professionals' Communities "Acceleration", which was attended by 120 young employees of RusHydro Group; the participation of young employees of RusHydro
164 33 34 Group in the activities of the working groups of the Coordinating Council for the Development of Young Professionals' Communities at the Public Chamber of the Russian Federation; the participation of young employees in the All-Russian Youth Educational Far Eastern Forum "East", the VIII All-Russian Forum of Working Youth, the Youth Day of the XIII scientific and technical conference "Hydropower. Hydraulic engineering. New Developments and Technologies", in the All-Russian competition "New Idea", the conference of the community "Young Engineers of the Energy Sector" under the auspices of the Youth Day #ВместеЯрче with the International Forum "Russian Energy Week" 2020; – in order to develop the educational infrastructure for high-quality training of the Group's personnel, the following work was carried out in 2020: the modernization of the training ground of JSC DRSK; the modernization and redevelopment of the premises of the Volga Training Center (new training facilities, including training classes and laboratories, were prepared); – the corporate simulator of power switching in electrical installations, control of hydro-turbine and hydro-mechanical equipment was finished and updated. New simulators were created for the P. S. Neporozhny Sayano-Shushenskaya HPP, Irganayskaya HPP, Zelenchukskaya HPP, Miatlinskaya HPP, Zaramagskaya HPP-1, and Nizhne-Bureyskaya HPP. Simulators for Zhigulevskaya HPP and Kamskay HPP were updated. The RusHydro digitalization program initiated work on creating a simulator for HPP operational personnel with the use of VR-technologies; – the Branch Olympiad of PJSC RusHydro in physics "Energy of Education" was organized and conducted for students of 7-11 grades in the 2019-2020 academic year; the total number of students registered was 1,108, and 508 of them successfully passed test tasks; – the activities of the energy and technology classes of PJSC RusHydro were organized in 11 regions of RusHydro Group's operation, particularly: the energy class in Petropavlovsk-Kamchatsky and the technoclass on the basis of MBOU GES in Ilyinskoye, Sakhalin Region were opened; – in cooperation with the All-Russian educational center "Sirius" in 2020, the employees of PJSC RusHydro acted as experts in evaluating the work of the participants of the selection round "Big Challenges". A series of mini-lectures of RusHydro Group was given under the "Sirius project. Summer" organized within the concept of "Smart Recreation" that was announced at a meeting with the President of Russia on May 21, 2020; – RusHydro Group held profile shifts in All-Russian children's and educational centers on the basis of All-Russia Child Centers "Ocean" and "Smena". PJSC RusHydro became a partner of the All-Russian Forum of Scientific Youth "Step into the Future" organized by the Bauman Moscow State Technical University and Russian Youth Polytechnic Society;
165 34 35 – through the Charity Program, RusHydro Group offered support to partner universities that implement popular educational programs. Awards of PJSC RusHydro as an employer in 2020: Diploma of the winner of the corporate communications award "InterComm 2020": the project "Corporate engineering case-championship for innovation and rationalization "RATSENERGY" won in the category "Point of Growth" among personnel training projects. HR Award "Crystal Pyramid-2020". Diploma of the winner of the III degree for the project "Corporate Engineering case-championship for innovation and rationalization in the category "Corporate Training of the Year". Competition of the Ministry of Energy of the Russian Federation for the best socially oriented company in the energy sector in 2020. Diploma of the winner in the category "Youth policy. Companies with more than 50 thousand employees", a diploma and a special competition badge for the best project. All-Russian competition of mass media and press services of fuel and energy companies and regional administrations "MediaTek 2020". The career guidance project "# Find yourself in RusHydro" was awarded the first place in the nomination "Popularization of the profession". 7. IMPROVING ANTI-TERRORISTIC, ECONOMIC, AND INFORMATION SECURITY SYSTEM The following set of measures was taken in 2020 to improve the Company’s security system: – as specified by the Federal Law of the Russian Federation No. 256-FZ dated July 21, 2011 "On the Safety of Fuel and Energy Facilities", surveys of the Company's energy facilities were conducted, the procedure for building a physical protection system was clarified, and their anti-terrorist protection and security was organized. According to the anti-terrorist training plan, 124 drills were held in PJSC RusHydro to improve skills in detecting and suppressing acts of illegal interference in the operation of energy facilities; - in order to improve the counter-terrorism security system of RusHydro Group’s facilities, the next scheduled stage of modernization of the security systems of the Company’s facilities was delivered in line with the requirements of the Russian Government’s Decrees No. 458 dated May 5, 2012 and No. 993 dated September 19, 2015. In 2020, 122 KITSO security systems were upgraded, 45 security systems were upgraded at the uncategorized facilities of RusHydro Group; – based on the analysis of the practice of the structural security units of RusHydro Group's entities, proposals were developed and sent to the Ministry of Energy of the Russian Federation by letter No. 72 dated December 02, 2020 to amend the Rules for the Security and Anti-terrorist Protection of Fuel and Energy Facilities approved by the Decree of the Government of the Russian Federation No. 458 dated May 05, 2012;
166 35 36 – because of the reorganization of the Federal State Unitary Enterprise "Okhrana (guard forces)" of Rosgvardiya in the form of joining the Federal State Unitary Enterprise "Departmental Security Service" of the Ministry of Energy of the Russian Federation, the local regulations that govern the activities on the security and anti- terrorist protection of energy facilities were updated and revised with the monitoring of the performance of contractual obligations for the provision of security services for the facilities of RusHydro Group; – additional training was given for the heads of structural security divisions of the Company's branches and controlled companies on vulnerability assessment, categorization and certification of fuel and energy facilities in order to improve the security efficiency of RusHydro Group's facilities; Economic security of the Company was promoted by a set of appropriate measures to timely identify, prevent and suppress risks and threats to the interests of RusHydro Group. In order to manage the risks of insider information misuse, the Company issued Order No. 310 dated April 17, 202020 to develop and approve a Methodology for PJSC RusHydro's insider information protection against misuse. The key efforts aimed at information security of the Company in the reporting period were focused on compliance with the Federal Law in the area of critical information infrastructure security, and on development and improvement of information protection systems: 1. The facilities of the critical information infrastructure of PJSC RusHydro (hereinafter – CII) were categorized. The Company initialed efforts to create a security system for CII's significant facilities of RusHydro. 2. The Company's structural division – the Corporate Center for Detection, Prevention of and Response to Computer Attacks was launched into commercial operation: – CII' significant facilities of RusHydro were connected to the technical infrastructure of the Corporate Center for Detection, Prevention of and Response to Computer Attacks. Arrangements were made to monitor the state of information security of the CII's connected objects by the Corporate Center for Detection, Prevention of and Response to Computer Attacks; – an agreement was signed between PJSC RusHydro and the National Coordination Center for Computer Incidents in the field of detection, prevention of and response to computer attacks. 8. IMPROVING THE ENVIRONMENTAL PROTECTION MANAGEMENT SYSTEM
167 36 37 RusHydro Group’s environmental protection and environmental management activities are aligned with RusHydro Group’s59 approved Environmental Policy, which defines a list of key tasks aimed at improving the environmental management system: • Increasing the installed capacity of low-carbon generation in RusHydro Group’s energy balance; • Reducing direct and specific greenhouse gas emissions at RusHydro Group’s facilities; • Conserving the biological diversity; • Taking measures aimed at finding and using the best available technical solutions and technologies to reduce the negative impact on the environment and to minimize the environmental risks of RusHydro Group's activities; • Reducing the oil content in switch-over units at RusHydro Group’s facilities; • Introducing corporate standards in the area of RusHydro Group’s environmental activities. In 2019, the Company approved a Program of initiatives to ensure the Environmental Policy of RusHydro Group, which contains a list of initiatives implemented by the executive office, branches and controlled companies. The Program covers the three-year period of 2019-202160. In order to ensure environmental safety of RusHydro Group’s facilities in the reporting year, the following initiatives of the Environmental Protection Program were taken: replacement of oil-filled electrical equipment with vacuum or SF6 gas equipment, which contains no oil, or with equipment with lower oil content; rehabilitation, modernization and repair of power generation facilities; rehabilitation and repair of hydraulic structures to maintain proper condition of water protection zones; setting up of automated systems for monitoring pollutant emissions into the air; carrying out environmental monitoring; reparation of damages to aquatic biological resources; measures for biodiversity conservation. Moreover, in the reporting year the Company undertook the following activities aimed at reducing the negative impact on the environment: construction of sites for the accumulation, production and consumption of waste; reconstruction of sewage systems and wastewater treatment plants; collection of floating debris from water areas and its transfer to waste disposal facilities; landscaping and gardening; repair of ash and slag waste storage facilities. In 2020, the volume of greenhouse gas emissions 61decreased by 14.6%62, including the total amount of greenhouse gas emissions from solid-fuel combustion – by 63 21.2%. There was also a significant reduction in N2O emissions – by 20.4% and CH4 –
59Approved by the decision of the Company’s Board of Directors (Minutes No. 275 dated August 9, 2018). 60 Approved by the Company Management Board's Minutes No. 1204 pr. dated September 26, 2019. 61 CO2 emissions are recorded at the facilities of RAO ES East Subgroup that use carbon raw materials in their operation. The amount of greenhouse gas emissions is derived from data on a specific facility, based on its fuel balance. 62 Preliminary data. 63 Preliminary data.
168 37 38 by 19.3%. Such a significant reduction in greenhouse gas emissions is mainly attributable to the withdrawal of LuTEK branch (Primorskaya GRES) from JSC DGK into an independent legal entity, LLC Primorskaya GRES. LLC Primorskaya GRES has been operating independently since 2020. 9. INTRODUCING INTELLIGENT SYSTEMS AND DIGITAL TECHNOLOGIES In the course of rolling-out intelligent systems and digital technology, RusHydro Group is committed to projects aimed at adjustment and improvement of internal technological and operational processes facilitating the use of modern, cost-effective and fast-operating technology, improving key business parameters. In 2020, the Company was dealing with projects outlined in the Digitalization Program64, including in the following areas: – application of digital models/digital twins of facilities; – implementation of remote control technologies for power facilities; – application of cloud technologies; – application of artificial intelligence technologies; – predictive analytics. In compliance with the directives of the Government of the Russian Federation No. 10068p-P13 dated December 06, 2018, the Company's 65Board of Directors approved the updated "Action Plan for the period 2020-2021 for the increased reliance of PJSC RusHydro on domestic software"(hereinafter referred to as the Plan)66, according to which the following measures were implemented in the reporting year: additional analysis of the existing information technology infrastructure of PJSC RusHydro, update of the Technical Policy67 regarding IT requirements, a conceptual development of a project for the transition of the Company's information systems to the use of operating systems, DBMS and business analysis systems (BI), final modernization of the user support system on the domestic NAUMEN software, the further transfer of the procurement management system to the domestic platform (two modules of the system are in commercial operation), further work on the creation of the Unified Treasury system of RusHydro Group on the domestic platform (the first stage of the system was put into trial operation), upgrade of information security systems on domestic platforms. The 2020 Plan set a performance indicator “Percentage of procurement of software included in the unified register of the Russian software, as well as the
64 Approved by the decision of the Company's IT Coordination Committee No. 12 dated October 02, 2020. 65Including “The Guidelines for increased reliance of State-owned companies on domestic software, including office software” approved by the Russian Ministry of Communications’ Order No. 486 dated September 20, 2018. 66 Approved by the decision of the Company's Board of Directors (Minutes of the Board of Directors No. 311 dated July 02, 2020). As specified by the directives of the Government of the Russian Federation No. 10068p-P13 dated December 06, 2018. 67 RusHydro’s Technical Policy was approved by the Resolution of the Company’s Board of Directors (Minutes No. 307 dated April 10, 2020).
169 38 39 software-related works and services, in the total procurement volume of finished software, as well as the software-related works and services (in money terms)” with a target value of at least 60%. The target of 61% was achieved in 2020. 10. RUSHYDRO GROUP’S RISK MANAGEMENT The main document defining the goals, objectives and principles of functioning of the corporate system of internal control and risk management of RusHydro Group (hereinafter referred to as the CSICRM) is the Internal Control and Risk Management Policy of RusHydro Group (hereinafter referred to as the Policy)68. In 2020, RusHydro Group implemented a set of key initiatives listed below to improve its internal control and risk management system. 1. The Company's auditors conducted an independent assessment of RusHydro Group's internal control and risk management system for 2019. The resultant report was reviewed and approved by the Company's Board of Directors in August 202069. In December 2020, the Company's auditors conducted an interim independent assessment of RusHydro Group's CSICRM for the nine months of 2020. 2. In 2020, RusHydro updated/developed by-laws that regulate the CSICRM and the interaction of the Control and Risk Management Department with the subsidiaries, including the development and approval of RusHydro Group's Risk Management Regulations70. In order to promote a unified approach to the CSICRM, all controlled companies adopted the by-laws of the Company and apply them whenever addressing the CSICRM issues. 3. The Company annually updates and ranks RusHydro Group's register of strategic risks and business process risks71, monitors the implementation of risk management initiatives, and maintains an up-to-date database of realized risks72. 4. The Company has put into operation an automated risk management system (ARMS), which implements all risk management processes based on unified reference books, including RusHydro Group's Risk Classifier (Standard Risk database). 5. The controlled companies held regular events to discuss and review software risks as part of the preparation of risk management action plans for 2021, conducted regular monitoring of the actual progress of risk management initiatives for 2020, with annual review of reports at meetings of the Boards of Directors of the respective companies. 6. The Group annually updates strategic risks, which are a summary of the risks of business processes at the top level, taking into account their impact on the
68 Approved by the decision of the Company’s Board of Directors (Minutes No. 291 dated June 21, 2019). 69 Minutes No. 312 of the Resolution of the Company’s Board of Directors dated August 24, 2020. 70 The Risk Management Regulation was approved by Order of PJSC RusHydro No. 251 dated March 27, 2020. 71 RusHydro Group's Strategic Risk Register for 2020 was reviewed by the Management Board (Minutes No. 1206pr dated October 07, 2019 and revised as part of the report on the functioning and results of the internal assessment of the corporate internal control and risk management system by the Board of Directors (minutes of the decision of the Company's Board of Directors No. 312 dated August 24, 2020). 72RusHydro Group's Business Process Risk Management Plan for 2020 was approved by Order of PJSC RusHydro No. 64 dated January 30, 2020 and updated (Order No. 544 dated July 10, 2020).
170 39 40 achievement of strategic goals and their relationship with risk appetite indicators. Risk appetite statements73 reflect the position of RusHydro Group regarding the level of acceptable operational risk in the implementation of the development strategy and long- term development program, and are taken into account in decision-making regarding the activities of RusHydro Group. In 2020, the indicators reflecting the retention of risk appetite in the acceptable range of values did not exceed the permissible deviations as per the risk appetite statements. RusHydro Group's strategic risk register in 2020 included 9 risks. Strategic risk assessments were reviewed during 2020 due to the spread of coronavirus infection (COVID-19). The strategic risks monitoring results are presented in the table: Name of risk Monitoring results for 2020 o Risk of non-adherence to the capacity In 2020, these risks were still the most critical for commissioning schedules, funding and significant construction projects. spending plan During 2020, these risks were reduced to an acceptable level by special initiatives. This helped to prevent the investment activity risks from happening, and the planned completion dates for construction in 2020 were met across all key construction projects. o EBITDA downside risk In 2020, financial risks were within the planned range o Risk of adverse financial changes of the corresponding financial targets. o Low liquidity risk o Risk of industrial safety violations In 2020, non-financial risks were within the planned o Risk of negative environmental impact range of the corresponding targets used to assess the on production activities materialization of the risk. o Risk of poor resource management o Reputational risk o Corruption risk/Risk of unfair actions
11. IMPLEMENTING RUSHYDRO GROUP’S LONG-TERM DEVELOPMENT PROGRAM INITIATIVES ENVISAGED BY THE DIRECTIVES OF THE GOVERNMENT OF THE RUSSIAN FEDERATION On demand for labor resources, including engineering occupations (No. 7439p-P13 dated November 5, 2014) Key parameters of the demand for labor resources of RusHydro Group74 are determined with due account to the time employees reach retirement age, as well as the possibility of internal relocation of workers with appropriate recommendations based on the employee rating, talent pool, and candidate database. The demand for engineering
73 In accordance with the Annexes to RusHydro Group's Risk Appetite Methodology approved by the decision of the Company's Board of Directors in June 2019 (Minutes of the Company's Board of Directors No. 291 dated June 21, 2019). 74 PJSC RusHydro, PJSC DEK, PJSC Yakutskenergo, PJSC Kamchatskenergo, JSC UESK, PJSC Magadanenergo, PJSC Sakhalinenergo, JSC DGK, JSC DRSK, PJSC Mobile Energy, JSC Chukotenergo, JSC Sakhaenergo, JSC Teploenergoservis, JSC ESC RusHydro, PJSC Krasnoyarskenergosbyt, PJSC RESK, JSC Chuvashskaya Electricity Sales Company, JSС Kolymaenergo, PJSC Boguchanskaya HPP.
171 40 41 and technical professionals also includes worker job vacancies that require a level of professional training no lower than a bachelor’s degree from a technical educational establishment. This approach is brought forth by the process of operating, repairing, and maintaining core equipment at HPP/PSPs. Progress against the key parameters of RusHydro Group’s demand for labor resources, including engineering and technical professionals based on the results of 2020 Actual value Indicator 2020 target for 2020 Total number of planned vacancies: 1,532 1,394 including engineering and technical jobs 942 731
On scheduled step-by-step substitution of imported products with those of Russian origin having similar specifications and usability and used in investment projects and day-to-day operations (No. 1346p-P13 dated March 5, 2015) The Program of Comprehensive Modernization of Generating Facilities of PJSC RusHydro and new construction projects, rehabilitation and upgrades in the controlled companies of RAO ES East Holding boost the deliveries of products of domestic machine builders, among other thing through the localization of production of certain types of equipment and components in Russia. In the reporting year, the following measures were implemented under the approved Corporate Plan for Import Substitution of RusHydro Group: – Technical Policy of RusHydro Group75 was amended to include the requirements for increased reliance on domestic solutions starting from the design phase; – Amendments were made to the Company's local regulatory acts regulating the preparation of products procurement technical requirements as specified by RusHydro Group's Technical Policy and the Regulations on the Procurement of Products for the needs of RusHydro Group; – The 2019-2021 Action Plan for the Company's transition to the preferential use of Russian software was updated76. In keeping with Order of PJSC RusHydro No. 41 dated January 24, 2019, the pilot operation of prototype equipment of domestic make was continued at the digital test site of microprocessor relay protection, controls, automation and measurement devices compliant with IEC 61850-9.2 protocol, based on optical current transformers and electronic voltage transformers, for the purpose of additional function check of relay protection and automation devices of the Nizhegorodskaya HPP; the trial
75 RusHydro’s Technical Policy was approved by the Resolution of the Company’s Board of Directors (Minutes No. 307 dated April 10, 2020). 76 "The action plan for the period 2019-2021 for the transition of PJSC RusHydro to the preferential use of domestic software" was approved by the Company's Board of Directors (Minutes No. 285 dated March 29, 2019, with adjustments – Minutes No. 311 dated July 02, 2020).
172 41 42 operation period was extended until March 01, 2022 (order of PJSC RusHydro RusHydro No. 33 dated January 27, 2021). The Company's Management Board approved the adjustment to the Import Substitution Corporate Plan and Roadmap (decision of the Management Board of PJSC RusHydro No. 1246pr dated April 17, 2020). In 2020, RusHydro reduced the share of imported equipment for its operations so that foreign goods, works and services are gradually phased out and replaced by local goods, works and services with similar specifications and usability: Share of imported equipment Actual value for 2020 target77 202078 Share of imported equipment, % 24 23.8 The Company makes the following import substitution efforts: – cooperation with the Industrial Development Fund of the Ministry of Industry and Trade of the Russian Federation on the implementation of the roadmap for the diversification of defense industry enterprises in the interests of the fuel and energy sector using the State Industrial Information System (SIIS): the State Industrial Information System (GISP) was filled with procurement plans for 2020; – cooperation with the Russian Energy Agency of the Ministry of Energy of the Russian Federation in order to liaison on import substitution with defense industry enterprises: civil production proposals were sent, 36 enterprises showed interest in cooperation with the Company, 28 enterprises sent their proposals; – a meeting of the working group "Renewable and alternative energy, small and distributed generation" of the Interdepartmental Coordinating Council for the Development of Power Engineering, Electrical and Cable Industry (the Ministry of Industry and Trade of the Russian Federation and the Ministry of Energy of the Russian Federation) was held on February 12, 2020; promising areas for the development of production of import-substituting products were outlined. On the Company’s increased reliance on domestically developed software (No. 10068p-P13 dated December 6, 2018) In pursuance of directives of the Russian Government No. 10068p-P13 dated December 6, 2018 On Increased Reliance on Domestically Developed Software, the Long-Term Development Program was amended in the Intelligent Systems and Digital Technology Roll-out section as approved by resolution of the Company’s Board of Directors (Minutes No. 294 of August 29, 2019, Minutes No. 312 dated August 24, 2020).
77 The previous value is 18 %. 78 including 10.3% – the share of imports, 13.5% - the share of imports under review (delivery of turbine equipment to the Saratovskaya HPP).
173 42 43 On aligning the Long-Term Development Program with goals set forth by Decree of the Russian President No. 204 dated May 7, 2024 On National Goals and Strategic Objectives of the Russian Federation through to 2024 In order to align the Long-Term Development Program with the Russian President’s Decree No. 204 dated May 7, 2018 On National Goals and Strategic Objectives of the Russian Federation through to 2024, the Program was amended by resolution of the Company’s Board of Directors (Minutes No. 279 of October 26, 2018) to reflect measures being taken by RusHydro Group to improve efficiency of investments in fixed assets in line with clause 5.3.3 on attracting investments in the modernization of thermal and electricity power generation facilities (in pursuance of the Russian President’s list of instructions No. Pr-2530 dated December 12, 2017) of the Action Plan to Accelerate Investments in Fixed Assets and Increase Their Share in the Gross Domestic Product to 25%, approved by Chairman of the Russian Government, No. 1315p-P13 dated February 13, 2019. The Company’s Board of Directors resolved (Minutes No. 285 dated March 29, 2019) to classify the instruction set forth by directives of the Russian Government No. 276p-P13 dated January 17, 2019 as successfully executed. 12. ACHIEVING KEY PERFORMANCE INDICATORS OF RUSHYDRO GROUP’S LONG-TERM DEVELOPMENT PROGRAM AS AT 2020 YEAR- END The Long-Term Development Program has the following key performance indicators79 (hereinafter referred to as KPIs): – short-term KPIs (annual KPIs set for members of the Company's Management Board):
Actual value Achievement No. Metric 2020 target for 2020 evaluation
1. Prevention of accidents exceeding the Achieved Achieved limit number of accidents:
Achieved - Number of production-related ≤ average for 5 0 accidents; years80 - Number of major accidents. 0 0 2. 19.24% 22.93% Achieved Return on equity (ROE) 3. Profit before deduction (RUB mn) 181,282 191,720 Achieved
20% 68% 4. Share of procurement from small and Achieved medium enterprises, including through 39%
79 If the KPI of the Management Board members or KPI of the Long-Term Incentive Plan are amended or updated and approved by the Company’s Board of Directors, progress against the KPI of the Long-Term Development Program is assessed using the updated KPI of the Management Board's members and KPI of the Long-Term Incentive Plan. 80The average number of production-related accidents over 5 years (2015-2019) is 0.
174 43 44
Actual value Achievement No. Metric 2020 target for 2020 evaluation
contracts allocated for SME bidders 18% only81 Adherence to the capacity 5. commissioning schedules, funding and 85% 89.6% Achieved spending plan82 6. Labour productivity 5% 17.31% Achieved Reduction of operating expenses 7. (costs) for the purchase of goods 2% 4.67% Achieved (works, services) per unit of production
– medium-term KPIs (KPIs of the Company's Long-term Motivation Program):
Second cycle 2018-2020 No. Metric Achievement Target Actual evaluation 1. Integrated innovative KPI 85% 97% Achieved 2. Total shareholder return (TSR) 100% 0 Not achieved 3. Free cash flow (FCF), RUB mn -117,064 12,719 Achieved Earnings per share (EPS), 4. 0.84 0.94 Achieved RUB/share
13. LIST OF LEGISLATIVE, REGULATORY LEGAL ACTS, OTHER ACTS AND DOCUMENTS RELATED TO THE DEVELOPMENT, APPROVAL AND IMPLEMENTATION OF THE LONG-TERM DEVELOPMENT PROGRAM – Order of the President of the Russian Federation No. Pr-3086 dated December 27, 2013; – Order of the Government of the Russian Federation (Minutes No. 3 dated January 30, 2014); – Directive of the Government of the Russian Federation No. 4955p-P13 dated July 17, 2014; – Directives on demand for labor resources, including engineering occupations (No. 7439p-P13 dated November 5, 2014); – Directives on improvement of the efficiency and transparency of the Company's activities (No. 7558p-P13 dated November 12, 2014); – Directives on scheduled step-by-step substitution of imported products with those of Russian origin having similar specifications and usability and used in investment projects and day-to-day operations (No. 1346p-P13 dated March 5, 2015);
81 For PJSC RusHydro. 82 The capacity commissioning schedule and the funding and spending plan are determined based on planned data on facilities the Company is investing in and on new construction facilities of subsidiaries duly approved as part (adjusted if any) of the Business Plan by the Company’s Board of Directors.
175 44 45 – Directives on changing the structure of the company's annual report and on submitting progress reports on long-term development programs and on the achievement of approved key performance indicators (No. 2007p-P13 dated April 06, 2015); – Directives on reducing operating expenses (costs) by at least 2-3% annually (No. 2303p-P13 dated April 16, 2015); – Directives on the application of methodological guidelines for the development of internal regulations on the company's activities (No. 3984p-P13 dated June 24, 2015); – Directives on innovative development (No. 1472p-P13 dated March 03, 2016); – Directives on the application of the "Return on Investment of Shareholders" (TSR) indicator in the system of key performance indicators (No. 3035p-P13 dated April 29, 2016); – Directives on the priority of financing the development of the energy complex in the Far Eastern Federal District (No. 4531p-P13 dated June 28, 2016); – Directives on approval of the procedure for agreement of investment programs and other infrastructure development plans implemented in the Far Eastern Federal District with the Ministry of the Russian Federation for the Development of the Far East (No. 3538p-P13 dated May 25, 2017); – Directives on the Company’s increased reliance on domestically developed software (No. 10068p-P13 dated December 6, 2018); – Directives on aligning the Long-Term Development Program with goals set forth by Decree of the Russian President No. 204 dated May 7, 2024 On National Goals and Strategic Objectives of the Russian Federation through to 2024 (No. 276п-П13 dated January 17, 2019); – Directives on improving labor productivity ( No. 12153p-P13 dated December 25, 2019); – Directives on the evaluation of the implementation of long-term development programs and the achievement of the Company's key performance indicators (No. 6739p-P13 dated July 30, 2020).
176 45 R R R ethodo o y for a cu ation and a uation of ey erformance Indicators of Rushydro roup s on erm De e opment ro ram . enera information RusHydro Group’s Long Term Development Program (the “Methodology”) was developed in
Group’s Long PJSC RusHydro (the “Company”); ’s Long Company’s Board of Directors.