The Annual Report 2017 on Kubanenergo Progress for the Annual General Meeting of Shareholders
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Kuban Power and Electrification Public Joint-Stock Company (Kubanenergo) Approved: By the decision of the Board of Directors Kubanenergo (minutes No.306/2018 dd. April 20, 2018) By the decision of the annual General Meeting of Shareholders of Kubanenergo (minutes No. 40 dd. the May 28 , 2018) Reliability of data contained in the present report is confirmed by the Audit Committee of Kubanenergo of the __ of May, 2017 (minutes No. ___ of the __ of May, 2017) The Annual Report 2017 on Kubanenergo Progress for the Annual General Meeting of Shareholders General Director of Kubanenergo A.I. Gavrilov Chief Accountant I.V. Skiba and Head of Financial Records, Accounts and Tax Returns Department First Deputy Director General, E.G. Armaganyan Director of Sochi Electric Grids Branch, Deputy Director General for Service Sales Deputy Director General for Economics and Finance O.V. Ocheredko Deputy Director General I.V. Ivanova for Corporate Management Deputy Director General I.N. Shishigin for Technical Issues, Chief Engineer Deputy Director General V.Yu. Kostetsky for Development and Technological Connection Deputy Director General A.V. Golov for Investment Deputy Director General, L.A. Golovakha Head of Office Acting First Deputy Director General for Safety S.A. Lozovoy Deputy Director General for Controlling I.V. Shmakov Head of Department for Personnel Management V.A. Belik and Organization Design Head of Public Affairs Department V.A. Sadym Krasnodar, 2018 1 This annual report includes the results of activities of Kuban power and electrification public joint stock company for the year 2017, as well as certain important developments in the Company’s affairs, which took place after the reporting date, in the period from January 1, 2018 to the preliminary approval of this Annual Report by Kubanenergo Board of Directors on May 11, 2018. For the purposes of this document, Kuban power and electrification public joint stock company is referred to as Kubanenergo, the Company. Rosseti PJSC (before April 4, 2013 known as IDGC Holding OJSC, and during the period from April 4, 2013 to July 17, 2015 known as Rosseti OJSC) and other legal entities are referred to in the form relevant for the period (event) stated in the text. Disclaimer This annual report (hereinafter the “Annual Report”) has been prepared with the use of information available to Kubanenergo and its subsidiaries at the time of its drafting. The Annual Report also includes information related to production and economic activities of the Company in the future based on estimates and forecasts of the Company’s management, and on the current situation. Due to various objective factors, the actual results of the activities may differ from these forecasts and assessments. The Annual Report contains certain forecasting statements in relation to economic activity, economic performance and financial status of the Company and its plans, projects and expected results. The Annual Report may also contain evaluations of trends regarding prices for services/products, volumes of production and consumption, costs, estimated expenditure, development prospects and other similar factors, as well as forecasts in respect of the development of the industry and markets, start and end dates of certain projects for the Company’s activities. Words such as “intends”, “seeks”, “designs”, “expects”, “estimates”, “plans”, “considers”, “supposes”, “may”, “should”, “will”, “will continue” and other similar words and words derived from them usually indicate the forecasting nature of a statement. Forecasting statements, by their nature, are connected to inherent risks and uncertainties, both general and specific. There is a risk of forecasts, projects and other such statements not coming to true. In the light of these risks, uncertainties and assumptions, the Company warns that the actual results may significantly differ from the values, whether explicit or implicit in forecasting statements, valid only at the time of drafting the Annual Report. The Company does not definitely state and does not guarantee that the results indicated in the forecasting statements will be achieved. The Company does not take any responsibility for any damages that may be incurred by physical or legal persons who relied on such statements. In each particular case, such forecasting statements constitute only one of the many ways events can develop, and should not be seen as the most likely ones. Except as expressly prescribed by the law, the Company is not obligated to publish updates and changes in such statements, either on the basis of new information, or on the basis of subsequent events. 2 Contents Key Performance Indicators ....................................................................................................................... 6 Chairman of the Board of Directors Address ........................................................................................ 9 About the Company ...................................................................................................................................... 12 Kubanenergo Profile & Market Position ........................................................................................................... 12 Setup of Company’s Business Operations ........................................................................................................ 13 Corporate Structure ................................................................................................................................................. 16 History of Origin and Development of Kuban Power System and Kubanenergo ............................... 18 Company Risk Management System ................................................................................................................... 19 Company’s Policy for Anti-Corruption and Resolution of Conflict of Interests .................................. 23 Company’s Code of Corporate Ethics and Norms of Conduct for Employees ....................................... 24 Key Company .............................................................................................................................................................. 24 Events in 2017 and in the beginning of 2018 .................................................................................................. 25 Strategic Benchmark .................................................................................................................................... 30 Company Strategic Goals and Priorities ........................................................................................................... 30 Long-Term Development of Company’s Power Grid Within Operation Area ...................................... 34 Integrated Management System of the Company .......................................................................................... 34 Company’s Innovative Development ................................................................................................................. 36 Innovative Development Program .................................................................................................................................... 36 R&D Execution .......................................................................................................................................................................... 37 Technical Policy and Regulatory and Technical Provision ..................................................................................... 38 Consolidation of Power Supply Assets ............................................................................................................... 39 Results of Operating Activities ................................................................................................................. 41 Electric Energy Transmission ............................................................................................................................... 41 Key Indicators ........................................................................................................................................................................... 41 Measures to Reduce Power Losses ................................................................................................................................... 41 Electric Power Fiscal Accounting ...................................................................................................................................... 42 Implementing Automated Electric Power Control and Accounting Systems (AEPCAS) ............................ 42 Technological Connection to Electric Grids of Kubanenergo .................................................................... 44 Implementation of Agreements on Technological Connection of Customers ................................................ 44 Volume of Customer Demand for Technological Connection in 2017 ............................................................... 46 Volume of Resulting Revenue and Collected Funds .................................................................................................. 46 Technological Connection of Generating Facilities .................................................................................................... 47 Reliable and Effective Operation of Electrical Power Systems ................................................................. 48 Ensuring Quality, Reliable and Uninterrupted Electric Power Supply to Customers .................................