www.fsk-ees.ru 20 15 Annual Report Annual Report 2015 Federal Grid Company is a Russian energy company that provides electricity transmission services through the Unified National Electric Grid. In this type of business, the Company is a natural monopoly. The bulk of our revenue is generated through tariffs for electricity transmission that are approved by the Federal Anti-Monopoly Service. Our major consumers are regional distribution companies, sales companies and large industrial enterprises. The Annual Report has been preliminary approved by the Board of Directors of Federal Grid Company, Minutes No. 322 dated 27 May 2016 CHANGE OF COMPANY NAME On June 26 2015, the Annual General Meeting of Federal Grid Company resolved to approve a revised version of the Articles of Association, according to which Open Joint-Stock Company ‘Federal Grid Company of Unified Energy System’ has been renamed into Public Joint-Stock Company ‘Federal Grid Company of Unified Energy System’. In the text of this Annual Report, Public Joint-Stock Company ‘Federal Grid Company of Unified Energy Chairman of the Management Board A. Murov System’ is also referred to as: PJSC FGC UES, JSC FGC UES (former name until 07 July 2015), Federal Grid Company, Federal Grid, the Company. OUR MISSION About the concept of the Annual Report To ensure reliable operation and development of UNEG that will be While implementing its strategic priority – providing reliable, adequate to economic growth, and demonstrate high economic quality and secure energy supply for customers, Federal Grid efficiency and cost minimisation Company is taking proactive efforts to improve openness and transparency of its business, implementing the most effective management tools, maintaining a constant dialogue with all stakeholders. While providing electricity transmission via backbone grids in 77 regions of Russia, we are involved in addressing the most important issues of social and economic development of our country. Therefore, along with objectives to deliver capitalisation Core businesses growth and an increase in dividend payout to shareholders, we do our best to enhance our contribution to the regional economy development, encourage growth of domestic manufacturing of electrical equipment, create new and maintain existing jobs, Managing the Unified National Electric Grid (UNEG) support educational programmes and be actively engaged Providing the electricity transmission and technological in environmental protection. connection services to Wholesale Electricity and Capacity This approach allows us to follow the trajectory of sustainable Market participants development and build the future today – for Federal Grid, for Investing activities in the area of UNEG development the economy, and for society as a whole. The core topics of our 2015 Annual Report are the implementation of the ‘road map’ for introducing key provisions of the new Russian Corporate Governance Code in the Federal Grid’s practice and the delivery of the Long-Tern Development Programme. The implementation of the Code provisions is aimed at increasing the openness of our Company for all stakeholders and widening the coverage of its activities. Lighting up the present Building the future KEY ACHIEVEMENTS OF THE YEAR ↓ ↓ * million ↓ by 22% ↓ by 51.5 % to 75% by almost 3.5 times RUB1,284 33% The accident rate Undersupply of electricity The share of domestic Net profit for 2015 increased million of dividends for 2014 of economic value added at the Federal Grid’s to consumers was reduced products in Federal Grid’s FOR SHAREHOLDERS facilities was reduced purchases of main electrical AND INVESTORS equipment increased * including dividends for 1Q 2014 MOST IMPORTANT EVENTS OF THE YEAR The Ministry of Energy of The Russian Federation approved the Federal Grid’s billion thousand thousand kWh MVA Investment Programme for the period of 2016–2020 in the amount of RUB471.1 billion 525.8 1.1km 7.58 The Board of Directors approved a revised Corporate Governance Code of Federal of electricity supplied of transmission lines of transformer capacity Grid Company FOR CONSUMERS to customers commissioned commissioned Revenue, RUB mln Adjusted EBITDA, Net profit (loss), RUB mln RUB mln. 168,941 173,266 billion 155,352 103,667 96,297 99,603 17,870 RUB142.6 5,137 247.9% FOR SUPPLIERS allocated for procurement of 2013 equipment, work and services 2.6% 4.1% AND CONTRACTORS 2014 2015 2013 2014 2015 2013 2014 2015 –25,898 More than Length of electricity Number of substations, Transformer capacity of 23,899 15,000 transmission lines, thousand units substations, including leased workplaces created** employees trained during the year km substations, MVA FOR EMPLOYEES ** Сorresponds to average headcount as at the end of 2015. 334,501 135.1 138.8 139.1 931 332,009 332,133 924 919 0.22% 0.75% 0.71% RUB 248 million RUB 23.5 billion FOR THE STATE AND of environmental costs of tax payments and investments 2013 2014 2015 2013 2014 2015 2013 2014 2015 SOCIETY AS A WHOLE Tabulated details on financial and non-financial highlights for 2010–2015 are available in section ADDITIONAL INFORMATION of the Annual Report INVESTMENT HIGHLIGHTS OF FEDERAL GRID COMPANY Federal Grid Company is a monopoly operator for More than a half of all energy consumption in Russia is of Federal Grid is a public company whose securities are • • • Continuous investments in modernisation and expansion • managing and developing the Unified National Electric Grid electricity transmitted via the Company’s grids of the electric energy infrastructure based on advanced traded on Russian and foreign stock markets, including innovative technologies the Moscow Stock Exchange and the London Stock • Federal Grid is a unique infrastructure company that • A customer-oriented approach that ensures high standards provides reliable and uninterrupted electricity transmission of customer services and stakeholder engagement in order Exchange • Federal Grid is included in a list of systemically important through backbone electric grids in the Russian Federation to maintain sustainability of the long-term development organisations of strategic importance to Russia CONTENTS 8 Statement from the Chairman of the Board of Directors CORPORATE GOVERNANCE REPORT 10 Interview with the Chairman of the Management Board GOVERNANCE SYSTEM 142 Corporate governance structure ABOUT FEDERAL GRID COMPANY 144 Board of Directors 14 Key events of the year 164 Management Board 18 Geography 173 Corporate Secretary 20 Structure CONTROL SYSTEM 175 Audit Commission and Auditor 177 Internal control 22 Business model 180 Internal audit GOVERNANCE AND DEVELOPMENT 182 Risk factors 26 Strategic management 200 Security 37 Corporate governance 202 Anti-corruption activities 42 Risk management DISCLOSURE 205 Information policy 47 Financial management 209 Investor relations PERFORMANCE – CAPITAL MANAGEMENT ADDITIONAL INFORMATION Productive capital 212 Key Performance Indicators OPERATING 50 Electricity transmission 214 Disclaimer PERFORMANCE 52 Technological connection 215 Contacts 55 Improving reliability 216 Glossary 60 Development of communication networks and IT systems 64 Procurement 70 Investing activities Our operating results are disclosed in the context of 79 Energy saving and energy efficiency value creation for all stakeholders through consistent Financial capital implementation of our mission and strategy based on the efficient use of various types of capital MANAGEMENT’S DISCUSSION 82 Overall review AND ANALYSIS 89 Cash flow 90 Financial position 93 Tariff Regulation 99 Borrowed Capital 99 Debt portfolio APPENDICES 101 Credit ratings In electronic format and on our website at http://www.fsk-ees.ru/eng/ 102 Share Capital 102 Share capital structure 104 Trading in securities 108 Dividend policy Intellectual capital INNOVATIVE DEVELOPMENT 110 Innovative development programme 113 Smart grid 114 R&D Human capital SOCIAL RESPONSIBILITY 117 HR policy 124 Social policy 130 Health and safety Natural capital ENVIRONMENTAL PROTECTION 134 Environmental impact management system STATEMENT FROM THE Chairman oF ThE BoARD oF DirectoRS Forward Movement towards Vostochny Spaceport, electricity supply to Baikal-Amur the Future and Transsiberian railways, and in many other projects Understanding the that we can call unique without exaggeration. importance of improving corporate governance in The commissioning of power transit via Kurgan- Vityaz-Voskhod that connects UES Siberia and UES order to make the Company Ural deserves particular attention. It was built on more effective and attractive instructions from the Russian Government in order to for investors, we make sure strengthen the integrity of the national energy system. that the best standards are implemented at all levels of Given the volatile market situation and the current management in the Company. trends and challenges, Federal Grid Company benefited from the Long-Term Development Corporate governance in Federal Programme that had been drafted in a timely way Grid Company is based on the and approved by the Government of the Russian principles of transparency, Federation in 2014. The programme helped to identify accountability, fairness and possible impacts of macroeconomic changes on the responsibility Company’s operations in advance, and to adjust the key operational vectors. I would particularly like to highlight the results that we achieved in the first year of our import substitution independent consultant. The new tools should improve 8 programme: the share of procurements from