Annual Report 2019 The ROSSETI Group is the backbone power grid company of the country www.rosseti.ru/eng/ Report Approval Information The Annual Report received prior approval from the Annual General The reliability of information contained in this Report was confirmed Meeting of Shareholders of ROSSETI on June 1, 2020 (Minutes of the by the Internal Audit Commission of the Company (Minutes of the Meeting № n/n of June 1, 2020). Meeting No. 5 of April 16, 2020). The Annual Report received prior approval from the Board of Directors of ROSSETI on April 30, 2020 (Minutes of the Meeting No. 410 of April 30, 2020). Brief Information on the Report This Annual Report includes a review of the operating results and Until 2024"1 and under the Development Strategy 2030 approved by highlights of Public Joint Stock Company ROSSETI and its subsidiaries the Board of Directors of ROSSETI in late 2019, the Annual Report dis- (collectively, the ROSSETI Group) for 2019. closes the Company’s goals and priorities, operational performance Subject to the President’s Decree "On the National Goals and Strategic in the reporting year in comparison with prior periods, corporate Objectives of Development of the Russian Federation for the Period governance and risk management, and sustainable management ap- proaches consistent with implementing digital transformation. This Annual Report was prepared in accordance with: → Federal Law No. 208-FZ of December 26, 1995, "On Joint-Stock Managing Joint-Stock Companies Whose Shares Are Federally Companies"; Owned and Federal State Unitary Enterprises"; → Regulations for the Disclosure of Information by Issuers of Is- → Corporate Governance Code recommended by the Bank of Rus- sue-Grade Securities (approved by the Bank of Russia on Decem- sia’s letter No. 06-52/2463 of April 10, 2014 for use by joint-stock ber 30, 2014, under No. 454-P); companies whose securities are admitted to organized trading; → Resolution of the Government of the Russian Federation No. 1214 → requirements of the majority shareholder; of December 31, 2010, "On the Improvement of the Procedure for → global best practices related to disclosures. Disclaimer The Annual Report of PJSC ROSSETI for 2019 contains management’s The Company shall not be liable for any losses that may be incurred forward-looking statements regarding business operations, plans, by any individuals or corporate entities relying upon forward-looking projections, and expected results.The Company makes no warran- statements. ties with respect to the achievement of the results described in the Except where otherwise specifically provided for in law, the Company forward-looking statements and warns that the actual results may shall not be obligated to publish any updates on or changes in for- differ from what is expressed, whether directly or indirectly, in the ward-looking statements based on new information or subsequent forward-looking statements and estimates. events. Scope of the Report This Annual Report uses such terms as PJSC ROSSETI (ROSSETI, the The preparation of the Report used: Company) and the ROSSETI Group (ROSSETI and its subsidiaries and → IFRS consolidated financial statements of the ROSSETI Group dependent companies). for 2019; This Report presents the strategic goals of development, the target → RAS accounting statements of ROSSETI for 2019; model of operation, and growth prospects from the perspective of → management reporting; ROSSETI, the management company of the country’s electric grid sector. → publicly available information. The key operating, financial, and investment information and the indi- cators calculated on the basis thereof are presented as consolidated figures relating to ROSSETI’s subsidiaries engaged in electricity trans- mission and distribution and providing network connection services. 1 From July 05, 2018 No. 204. THE ROSSETI GROUP IS ONE OF THE WORLD LEADERS 1 2 IN THE ELECTRIC POWER INDUSTRY ABOUT THE COMPANY 7 STRATEGIC REPORT 51 Corporate History 22 Industry Review 52 Highlights in the Reporting Year 24 Strategy 57 Transition to the ROSSETI Group’s Uniform Capital Investment Program 65 Brand Architecture 28 Risks 68 Message from the Chairman of the Board of Directors 30 KPI System 76 Message from the Director General 33 THE DEVELOPMENT Geography of Operations 42 STRATEGY UNTIL The ROSSETI Group Structure 46 The ROSSETI Group's Position SOLID FINANCIAL PERFORMANCE THROUGH in the Industry 47 2030 A PREDICTABLE FINANCIAL POLICY Business Model 48 OF THE ROSSETI GROUP WAS APPROVED, ENVISAGING TRANSITION TO THE BUSINESS MODEL OF MODERN TECHNOLOGICAL AND INNOVATION INFRASTRUCTURE IMPROVING THE TRANSPARENCY OF THE CORPORATE GOVERNANCE SYSTEM, USING THE BEST RUSSIAN AND INTERNATIONAL PRACTICES 78% OF THE ELECTRICITY GENERATED IN RUSSIA WAS TRANSMITTED THROUGH THE ROSSETI GROUPS' GRIDS ENSURING RELIABLE AND UNINTERRUPTED POWER SUPPLY TO CONSUMERS OF ONE OF THE LARGEST SYSTEM COMPANIES 4 IN RUSSIA CORPORATE GOVERNANCE REPORT 129 Corporate Governance System 132 General Meeting of Shareholders 140 PROVEN EFFECTIVENESS OF THE RISK Board of Directors 143 MANAGEMENT AND INTERNAL CONTROL 3 Committees of the Board of Directors 158 SYSTEM OPERATIONAL PERFORMANCE 79 Executive Bodies 172 Operational Performance Analysis 82 Remuneration and Bonuses 176 Financial Performance Analysis 98 Risk Management System and Corporate Sustainable Development 110 Control 181 Governance Mechanisms of the ROSSETI DIGITAL Group 192 AT THE END OF 2019 THE ROSSETI GROUP HAS DEMONSTRATED POSITIVE Shareholder Value Creation 195 FINANCIAL AND ECONOMIC RESULT IN CONDITIONS OF FULFILLMENT OF TRANSFORMATION TASKS ON PROVISION OF RELIABILITY, AVAILABILITY OF ENERGY SUPPLY TO CONSUMERS AND LIMITATION OF TARIFFS' GROWTH 2030 IMPLEMENTATION OF THE CONCEPT TO ENSURE THE DEVELOPMENT OF THE ROSSETI GROUP 79% CAPITALIZATION GROWTH FOR THE YEAR PRESENCE OF ROSSETI UN SUSTAINABLE SECURITIES IN RUSSIAN AND 8 DEVELOPMENT GOALS WORLD INDICES GOOD PRACTICES IN ENGAGING WITH ALL STAKEHOLDER GROUPS AND CONTRIBUTING TO THE ACHIEVEMENT OF 8 UN SUSTAINABLE Glossary 201 DEVELOPMENT GOALS Annual report 2019 ABOUT THE COMPANY The ROSSETI Group is the backbone 1power grid company of the country Digital transformation www.rosseti.ru/eng/ Annual report 2019 About the Company Strategic Report Operational Performance Corporate Governance Report ROSSETI Today Strategy 2030 In December 2019, the Board of Directors of ROSSETI approved a new strategy containing the ROSSETI Group’s ROSSETI’s mission is to secure a reliable, high-quality, and affordable power supply by goals and areas of development for the period until 2030. building a maximally efficient infrastructure and introducing modern innovative and digital Indicators of the Strategy 2020–2030 Targets for 2030 technology. Electricity losses, % 7.34 Grid observability, %2 90-100 SAIDI, hours 1,6 SAIFI, outages 0.85 R&D expenses, % of revenue at least 0.25 Our Company The volume of non-tariff revenue from other activities, % at least 20 Workforce productivity growth, %3 by 40 → Russia’s leading electric grid company and 80 323,000 one of the world’s largest electric utilities. OPERATES SHAREHOLDERS IN 80 RUSSIAN → Acts as the Government’s agent for the man- 802 REGIONS agement of the Russian electric grid sector. → One of the most significant infrastructure companies in Russia. 217,500 → Included on the list of strategic joint-stock STAFF ON ELECTRIC companies. GRID SDCS’ PAYROLL 792 Corporate Values Activities 517 → reliability → electricity transmission and distribution → human resources → network connection services → efficiency 507 → safety → social responsibility 781 2.37 Assets 2.35 of the Group 502 Since June 2019, all of the Group’s transmission and TOMSK SOUTH VOLGA TYUMEN CENTRE AND VOLGA REGION distribution companies began to switch over to using in their corporate and marketing communications and corporate 2.34 identity elements new names containing ROSSETI’s brand and FGC UES CENTRE LENENERGO URAL MOSCOW REGION Length of power lines, mn km indicating their geographic presence or functional area. Number of substations and transformer substations, thsd units Introducing a uniform brand architecture involves the phased Transformer capacity of substations change of the companies’ corporate identity elements. YANTAR SIBERIA NORTH-WEST KUBAN NORTHERN CAUCASUS and transformer substations, GVA 2017 2018 2019 2 For grids with voltages of 0.4–20 kV. 3 Compared with the end of 2018. 8 www.rosseti.ru/eng/ 9 Annual report 2019 About the Company Strategic Report Operational Performance Corporate Governance Report Uninterrupted Power Supply for All In the World Bank's Doing business 2019 rating The ROSSETI Group’s entities provide also a whole range of technological connection services for electricity consumers and producers. on the "power supply reliability" Index (SAIDI, SAIFI), ELECTRICITY TRANSMISSION AND DISTRIBUTION SERVICES INDICATORS 9.22 THE ROSSETI GROUP’S ENTITIES ACCOUNT FOR 748 762 763 the Russian Federation confirmed the maximum rating 8.95 78% TRANSMISSION AND DISTRIBUTION FOR ELECTRICITY GENERATED 8 POINTS OUT OF 8 IN RUSSIA 8.57 The Company has contributed to the country obtaining the highest score 2017 2018 2019 annually since the Russian Federation was included in the World Bank’s The volume of transmitted electric Level of electric energy loss,% energy, bn kWh rankings in 2015. CAPACITY OF THE APPLICATIONS RECEIVED AND CONTRACTS CONCLUDED, GW INDICES OF RELIABLE AND UNINTERRUPTED POWER SUPPLY 49 44 2.4 -25% 37 98% THE MAIN VOLUME