JSC Inter RAO 2013 Annual Report Chairman of the Management Board Boris Yu. Kovalchuk Approved by The Annual General Meeting of Shareholders on May 25, 2014 (Minutes dated May 25, 2014 No. 14) Chief Accountant Alexandra O. Chesnokova
TABLE OF CONTENTS
1. ABOUT THE REPORT______3 7. THE COMPANY IN THE CAPITAL MARKETS______131
2. GENERAL INFORMATION ON INTER RAO GROUP______5 8. CORPORATE SOCIAL RESPONSIBILITY______137 2.1. About Inter RAO Group______5 8.1. Approach to Sustainability______137 2.2. The Group’s key indicators______9 8.2. Human Resources Management______138 2.3. Key events______10 8.3. Occupational Health and Safety______149 8.4. Contribution to the development of the regions of the Group’s operation______154 3. STATEMENT FOR JSC INTER RAO SHAREHOLDERS AND OTHER STAKEHOLDERS______15 8.5. Environmental Policy______163 8.6. Asset security______171 4. CORPORATE DEVELOPMENT STRATEGY______19 4.1. Strategy of the Company______19 9. RISK MANAGEMENT______175 4.2. Business model______23 4.3. Investment and innovation______24 10. PROCUREMENT______183
5. OPERATING ACTIVITY OF INTER RAO GROUP______35 11. FINANCIAL RESULTS______189 5.1. Segment information______35 11.1. Total debt load______189 5.2. Group performance results______38 11.2. Cash flows______190 5.3. Generation in the Russian Federation______40 11.3. Key indicators of financial and economic condition______191 5.4. Supply in the Russian Federation______48 5.5. Trading in the Russian Federation and Europe______55 12. SUPPLEMENTS______193 5.6. Engineering in the Russian Federation______62 12.1. Statement of the Revision Commission______193 5.7. Georgia ______68 12.2. IFRS reports______194 5.8. Armenia ______74 12.3. RAS statements______200 5.9. Moldova______79 12.4. GRI Content Index______205 5.10. Turkey______82 12.5. Information on Compliance with Corporate Governance Code ______226 5.11. Kazakhstan______84 12.6. Major Transactions and Related Party Transactions ______226 12.7. Participation in other companies______226 6. CORPORATE GOVERNANCE______87 12.8. In-house regulations valid in the Company______241 6.1. Corporate Governance System and Principles______87 12.9. Information on fulfilling the orders of the President and the Russian Federation 6.2. JSC Inter RAO Governance Bodies______89 aimed at improving the economic activities of JSC Inter RAO______244 6.3. General Meeting of Shareholders______89 12.10. Government support______244 6.4. Board of Directors______93 12.11. Information on material litigation______246 6.5. Management Board______113 12.12. Glossary______247 6.6. Corporate Control______123 6.7. Information Disclosure and External Communications______126 13. CONTACT DETAILS______249
1. ABOUT THE REPORT
1. ABOUT THE REPORT THE REPORTABOUT
The JSC Inter RAO 2013 Annual Report differs from the Group’s The Group followed the GRI Guidelines' principles to define the previous reports. Prior to 2013, Inter RAO Group published its annual Report content: materiality, stakeholder inclusiveness, sustainability BOUNDARY OF THE REPORT reports separately from non-financial reports (reports on sustainable context, and completeness. Disclosures were selected on the basis development and environmental responsibility) each year. Based of the following methods: on the results of the analysis of stakeholders’ opinions, as well as The basis for inclusion of subsidiaries of JSC Inter RAO in the Report international corporate reporting development trends, a decision ►► analysis of legislation of the Russian Federation; rests on the principles for the inclusion of companies in consolidated was made to prepare an annual report of Inter RAO Group for 2013 reports compiled per IFRS 10 Consolidated financial reports, unless (hereinafter the Report) that includes a comprehensive description of ►► review of in-house regulations; specified otherwise. financial and non-financial results for the reporting period. ►► expert assessment of materiality; When the information relating to HR management, occupational The main objective of the Report is to inform the stakeholders health and safety, and environmental management is disclosed, the about all material aspects of the activities of Inter RAO Group ►► review of stakeholder engagement in 2013; Report boundaries may not correspond to those provided by IFRS, and properly disclose information in accordance with the following and may contain information relating to significant subsidiaries of recommendations and regulatory requirements: ►► analysis of the media; JSC Inter RAO.
►► “On improvement of the procedure for management of open ►► analysis of reports of peer companies; joint-stock companies with shares in federal ownership and federal state unitary enterprises”, Decree of the Russian ►► analysis of the results of the public assurance of the FEEDBACK Government dated December 31, 2010 No. 1214; Sustainability and Environmental Responsibility Report for 2012, including disclosure recommendations for future reporting In accordance with the best practices, the reports on the Group’s ►► The Regulation on Information Disclosure by Securities Issuers, periods. sustainable development and environmental responsibility approved by the Order of the Federal Financial Markets underwent a process of public assurance by internal and external Service of the Russian Federation dated October 4, 2011 To ensure Report quality the Group applied the principles of balance, stakeholders. No. 11-46/pz-n; comparability, accuracy, timeliness, clarity, and reliability established by the GRI Guidelines. Aiming to improve the quality of the reporting and increase the ►► The Disclosure & Transparency Rules approved by the Regulator number of received comments, the public assurance of the 2013 in the United Kingdom (FSA); The Report complies with application level A of the GRI Sustainability Report will occur in electronic form. The analysis of the received Reporting Guidelines. feedback will allow the Group to determine areas of improving the ►► The Sustainability Reporting Guidelines of the Global Reporting reporting, as well as to determine areas to be explored in subsequent Initiative, version 3.0 (hereinafter the GRI Guidelines), and reporting periods. Electric Utilities Sector Supplement thereto.
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2. GENERAL INFORMATION ON INTER RAO GROUP
2. GENERAL INFORMATION ON INTER RAO GROUP ON INTER RAO GROUP INFORMATIONGENERAL
2.1. ABOUT INTER RAO GROUP
Inter RAO Group is a diversified energy holding that operates in various segments of the power sector in Russia and abroad. The Company holds leading positions in Russia in the area of electricity export and import, is dynamically expanding its activities in the segments of electricity and heat generation and electricity supply, and developing new lines of business.
Inter RAO Group is one of the largest players in the electricity and capacity market in Russia and abroad.
The Group's assets include: These assets are located in Russia, Kazakhstan, Georgia, Armenia, Lithuania, Moldovan Republic of Transnistria, and Turkey. GENERATION ▻▻ 46 thermal power plants (TPPs) ▻▻ 12 hydropower plants (HPPs) As of the end of 2013 the total installed electric capacity of the assets was ▻▻ 2 wind parks 33,587 MW, and installed heat capacity was 25,377 Gcal/h.
The geographical supply area covers 13 countries, including Finland, Norway, The Company is the leading Russian electric Belarus, Latvia, Estonia, Lithuania, Ukraine, Georgia, Azerbaijan, South Ossetia, TRADING energy export-import operator. Inter RAO Kazakhstan, China, and Mongolia. Group The Group owns and manages 10 energy SUPPLY supply companies, including electricity suppliers The market share of the Group’s energy supply companies in Russia totalled 15.2%. for large industrial consumers. The Group's assets are represented by two DISTRIBUTION power grid companies: Telasi and Electric The Group’s transmission lines span over 35,000 km. Networks of Armenia. As a new line of business, the Group offers ENGINEERING full-cycle engineering services: from design to 2013 revenue for the Engineering segment amounted to RUR 2.712 bn. turn-key construction of generating facilities.
5 JSC Inter RAO / ANNUAL REPORT / 2013
The history of Inter RAO Group goes back to 1997, when the Company was established as a subsidiary of RAO UES of Russia, specialising in international electricity trading. By purchasing a range of assets in the area of electricity and heat generation and electricity supply, Inter RAO Group expanded its presence in key competitive segments of the power sector.
HISTORY OF INTER RAO GROUP
1997–2002 2003–2006 2007–2011 2012–2013
International electricity trading Development of electric energy and heat generation Active growth Consolidation of assets
▻▻ projects relating to the electricity trading ▻▻ electricity generation with the use of a leased ▻▻ merger of the Group’s generating assets: Severo-Zapadnaya TPP, ▻▻ reorganisation is completed and, as a of non-Russian origin in foreign markets generating unit at Iriklinskaya TPP commences Ivanovskiye CPP, Kaliningradskaya TPP-2 and Sochinskaya TPP result, the Russian generating assets of are launched ▻▻ active purchase of power assets in Russia and ▻▻ acquisition of the status of a majority shareholder of OGK-1, OGK- OGK-1 and OGK-3 are transferred under ▻▻ first subsidiaries active in foreign abroad 3, TGK-11, as well as five energy supply companies, including 100% control of Inter RAO - Electric Power Plants electricity and capacity markets are ▻▻ consolidation of Russian and foreign assets, Mosenergosbyt (Moscow Power Supply Company), St. Petersburg established including Ekibastuz TPP-2 (Kazakhstan), Moldova Power Supply Company, Altayenergosbyt, etc. ▻▻ purchase of a range of promising assets, ▻▻ independent export of electricity from TPP (Moldova), Severo-Zapadnaya TPP (Russia), ▻▻ reorganisation of Inter RAO into an Open Joint Stock Company including those of Bashkirenergo Group, Russia commences and TGR Enerji (Turkey) Trakya Elektrik A.S. in Turkey, and ▻▻ public share placement on the MICEX and RTS stock exchanges Tomskenergosbyt (Tomsk Power Supply ▻▻ Inter RAO’s Global Depository Receipts are listed on the London Stock Company) Exchange’s International Order Book (IOB) platform
Currently, Inter RAO Group is one GW Gazprom Energoholding 38.2 of the largest public energy holdings RusHydro 37.5 in the Russian Federation and the third Inter RAO Group 33.6 largest power company in Russia Rosatom 25.2 1 in terms of installed capacity EuroSibEnergo 19.5 IES 14.3 E.ON Russia 10.3 Enel OGK-5 9.7
1 As of December 31, 2013.
6 2. GENERAL INFORMATION ON INTER RAO GROUP
The long-term objective of Inter RAO Group is to become one of the key players in the international electricity and capacity market –
a global company included in the Top Ten power companies by volume of installed capacity and company revenues. By 2020 Inter ON INTER RAO GROUP INFORMATIONGENERAL RAO strives to become an equal partner of the largest power companies in the world that will be managing a diversified portfolio of assets thus implementing the objectives of shareholders and Russia’s energy policy.
Inter RAO Group has solid presence in the markets where it operates. Today, the Group’s geographic reach covers 25 cities in the Russian Federation and 15 foreign countries.
INTER RAO GROUP’S GEOGRAPHIC REACH
SWEDEN
FINLAND ESTONIA
St. Petersburg Kaliningrad LATVIA LITHUANIA
MOSCOW Syktyvkar RUSSIAN Kostroma Novy Urengoy Ivanovo MOLDOVA Tula Oryol FEDERATION Perm Nizhnevartovsk Tambov Ufa Ekaterinburg Saratov Chelyabinsk Orenburg Sochi Omsk Tomsk Blagoveschensk Novosibirsk TURKEY Chita Barnaul Ulan-Ude GEORGIA Gorno-Altaysk ARMENIA KAZAKHSTAN Generation Supply Engineering
Trading Grids
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The Group is managed by its parent company, JSC Inter RAO. Since 2010, JSC Inter RAO has been included in the List of Strategic Enterprises and Strategic Joint-Stock Companies of the Russian Federation2.
KEY COMPANIES OF INTER RAO GROUP AS OF END OF 2013, BY TYPES OF ACTIVITIES Inter RAO Group
GENERATION SUPPLY TRADING FOREIGN ASSETS
GUARANTEEING SUPPLIERS MOLDOVA KAZAKHSTAN LLC Inter RAO - Management of TGK-11 (100%) JSC Mosenergosbyt (50.92%) CJSC Moldova TPP (100%) JSC Ekibastuz TPP-2 (50%) 2,520 MW 1,000 MW Electric Power Plants (2,003 MW) RAO Nordic Oy (100%) JSC PSK (St. Petersburg Power (Finland) (100%) Omskaya CHPP-3 (387 MW) Supply Company) (100%) GEORGIA ARMENIA Omskaya CHPP-4 (435 MW) JSC Inter RAO – LLC Mtkvari Energy (100%) – 600 MW JSC HrazTES (JSC Hrazdan Power Company) Electric Power Plants Omskaya CHPP-5 (695 MW) Tomskaya CHPP-1 (15 MW) JSC Saratovenergo (Saratov Power JSC Khramhesi I (100%) – 112.8 MW (100%) – 1,110 MW (100%) Supply Company) (56.97%) AB Inter RAO Lietuva SC Khramhesi II (100%) – 114.4 MW CJSC Electric Networks of Armenia (100%) Tomskaya CHPP-3 (140 MW) JSC Telasi (75%) (19,792 MW) Tomskaya CHPP-2 (331 MW) (Lithuania) (51%) JSC Altayenergosbyt (Altay Power Kostromskaya TPP - 3,600 MW Supply Company) (100%) LITHUANIA TURKEY Iriklinskaya TPP* - 2,430 MW Permskaya TPP – 2,400 MW LLC Bashkir Generation Company UAB Vydmantai Wind Park (51%) Trakya Elektrik A.S. (100%) Kashirskaya TPP - 1,910 MW JSC Tambov Power Supply Company SIA Inter RAO Latvia 30 MW 478 MW (100%) (Latvia) (51%) Verkhnetagilskaya TPP – 1,497 MW (4,203 MW) (59.38%) Cherepetskaya TPP – 1,285 MW Gusinoozyorskaya TPP – 1,130 MW Karmanovskaya TPP – 1,831 MW JSC Inter RAO – Oryol Energy Sales Pechorskaya TPP – 1,060 MW 10 TPP – 2,137 MW Company (100%) ENGINEERING Severo-Zapadnaya TPP - 900 MW Gas turbine generator package and Inter RAO Eesti OÜ Yuzhnouralskaya TPP - 882 MW turbine-generator unit - 21 MW (Estonia) (51%) LLC Inter RAO Invest – Engineering LLC Quartz Group Kaliningradskaya TPP-2 - 875 MW JSC Tomskenergosbyt (Tomsk Power (100%) (100%) 9 HPP (incl. 7 small HPP) - 212 MW Supply Company) (59.18%)** Kharanorskaya TPP - 655 MW 1 wind park – 2 MW Ivanovskiye CPP - 325 MW LLC Quartz – New Technologies LLC Inter RAO Export Urengoyskaya TPP - 484 MW Inter Green NON-REGULATED ENERGY (50.1%) (100%) Sochinskaya TPP - 158 MW Renewables SUPPLY COMPANY Dzhubginskaya TPP - 201 MW and Trading AB (75%) LLC BashRTS LLC RN-Energo (100%) Nizhnevartovskaya TPP (24 MW) INNOVATION AND ENERGY EFFICIENCY (75%) (1,600 MW) JSC Promyshlennaya Energetika (51%) JSC Eastern Energy Company (100%) Non-for-profit Fund Energy LLC Inter RAO UES Power Efficiency beyond borders (100%) Centre (50%) * Iriklinskaya TPP includes Iriklinskaya HPP (30 MW). LLC RT – Energotrade (50%) ** Including 24.8% of shares sold under a REPO agreement.
2 Decree of the President of the Russian Federation No. 1190 dated September 30, 2010.
8 2. GENERAL INFORMATION ON INTER RAO GROUP
2.2. THE GROUP’S KEY INDICATORS ON INTER RAO GROUP INFORMATIONGENERAL
KEY INDICATORS
UOM 2012 2013 2013/2012, %
Revenue RUR bn 556.2 662.3 +19.1 % Net Loss RUR bn –22.3 –24.0 -7.6 % Net Assets RUR bn 353.2 334.6 –5.3 % Intangible assets (net book value as of December 31) RUR bn 8.9 9.8 +10.1 % EBITDA RUR bn 26.6 39.2 +47.4 % EBITDA per 1kWh RUR bn/kWh 0.15 0.23 +53.3 % Installed capacity, total MW 33,501 33,587 +0.3 % including installed capacity in Russia MW 27,535 27,622 +0.3 % Capacity commissioning MW 1,010 544 –46.1 % Electricity generation kWh bn 127,438 147,468 +15.7 % Electricity sales kWh bn 152,957 153,234 +0.2 % Average price of electricity sales RUR/kWh 1.37 1.61 +17.9 % Staffing number as of the end of the year* people 57,069 59,670 +4.6 % Average number of employees per 1 MW of installed capacity (for the Generation in the Russian Federation people/MWh 1.06 1.02 –3.7 % segment) Wages, benefits, and payroll taxes RUR bn 33.7 39.1 +16.0 % Share of young specialists % 6.0 5.4 –0.6 p.p. Average age of Inter RAO Group employees years 41 41 - Investments in personnel training RUR bn 0.24 0.20 –16.7 % Social programmes expenditures RUR bn 3.95 4.69 +18.7 % Occupational injury rate among employees 0.40 0.33 –17.5 %
Specific greenhouse gas emissions per unit of energy produced tonnes of CO2-eq./MWh 0.49 0.50 +2.0 % Environmental spending RUR bn 4.28 1.74 –59.3 % Gross tax inflows to budgets of all levels (in all countries of operation) RUR bn 16.0 10.9 –31.9 % Payments to government RUR bn 49.0 34.4 –29.8 % Charity RUR bn 0.62 0.65 +4.8 % Economic value retained** RUR bn –90.0 –62.8 –30.2 %
* The number of Inter RAO Group employees is calculated within the boundary of JSC Inter RAO’s consolidated financial statements for the year ending on December 31, 2013. ** Economic value retained is a parameter provided by the GRI Sustainability Reporting Guidelines (EC1) and calculated as the difference between the Group’s generated and distributed economic value that shows the amount of funds after material value is generated for stakeholders. 9 JSC Inter RAO / ANNUAL REPORT / 2013
2.3. KEY EVENTS
CAPACITY COMMISSIONED ACQUISITIONS
June 2013. A new generating unit at Omskaya CHPP-3, with an September 2013. Inter RAO Group acquired a large block of installed capacity of 85.2 MW and heat capacity of 50 Gcal/h, Tomskenergosbyt (Tomsk Power Supply Company) shares from CONSTRUCTION was commissioned, increasing the overall capacity of Omsk energy private investment funds. The acquisition of this electricity supply generation to 1,517 MW. Construction was completed over less than asset will allow for a synergistic effect from having the assets of March 2013. Within the framework of the CDA, construction two years, which allowed for the decommissioning of obsolete steam various power energy businesses of the Group located in one region: commenced of the fourth generating unit at Permskaya TPP power plant TPP-3. there is power plant TGK-11 in Tomsk Region, 100% of whose shares (800 MW of installed capacity). The Siemens AG combined cycle are held by Inter RAO Group. equipment complying with the strictest environmental safety October 2013. After reconstruction and modernisation, a generating standards (with an industry-leading efficiency coefficient of 57- unit with a capacity of 210 MW at Gusinoozyorskaya TPP was December 2013. Rosneftegaz purchased a 12.49% share of JSC 58%) will be installed at the new unit. Upon commissioning of the commissioned, which will allow for significantly improved power Inter RAO from the Rosatom State Atomic Energy Corporation. generating unit, Permskaya TPP will become one of the top five supply reliability for consumers of Zabaykalsky Krai, Republic of Based on the results of this transaction, Rosneftegaz Group became biggest thermal power plants in Russia. Buryatia and Irkutsk Region, and will ensure additional demand for the owner of 13.8643% of authorised capital of JSC Inter RAO as of regional coal-mining facilities. December 31, 2013. March 2013. Construction commenced of the fourth generating unit of Verkhnetagilskaya TPP, with installed capacity of 420 October 2013. As a result of implementing a CDA project to MW. Commissioning of the new generating unit will allow for reconstruct a boiler unit at st. 12 type TP-82 at Omskaya CHPP-3 decommissioning of outdated coal-fired equipment without (TGK-11), obsolete equipment was substituted and reconstructed, CAPITAL ATTRACTION decreasing the volume of electricity generation, while boosting the increasing the electric load of turbine-generator unit at st. 12 from plant’s industrial, ecological, and economic efficiency. 50 to 60 MW. November 2013. Inter RAO Group and the European Bank for Reconstruction and Development (EBRD) entered into a complex November 2013. Dzhubginskaya TPP, with overall installed capacity transaction to secure a long-term loan in the amount of RUR 12 bn of 200.7 MW, was commissioned. Dzhubginskaya TPP is to cover for a period of seven years, to finance the construction, equipment the peak load during the 2014 Olympic Games. The station is the purchase, and commissioning of a combined cycle gas turbine key element of the power system that ensures the stable flow of (CCGT) unit with a capacity of 420 MW at Verkhnetagilskaya TPP. The reporting period was significant electricity between the 110 kV and 220 kV networks, which will ensure a reserve for flawless electricity supply to all consumers in December 2013. Inter RAO Group entered into a loan agreement for the Group in terms of the the region in an effective manner. with VTB Group in the amount of RUR 35 bn, with tranche maturity implementation of the investment of up to five years, meant to finance the operating and business activities of the Group’s companies. programme, expansion of electricity supply, and attraction of loan capital CORPORATE GOVERNANCE December 2013. Inter RAO Group entered into a loan agreement with ING Bank (a branch of ING DiBa AG). Securing a long-term to finance growth May-October 2013. As part of implementing the Corporate (10+ years) loan in the amount of EUR 48.4 mn, for refinancing Development Action Plan for 2013-2014, the following fundamental of Siemens equipment supplies, as part of the construction and documents were approved in their amended versions: the Charter, commissioning of generating unit No. 2 at Yuzhnouralskaya TPP-2. Regulations on the Board of Directors, Regulations for the Human The collateral for this loan is an insurance policy of a German export Resources and Remuneration Committee, External Auditor Rotation credit agency (ECA) Euler Hermes Deutschland AG. Policy, etc.
10 2. GENERAL INFORMATION ON INTER RAO GROUP ON INTER RAO GROUP INFORMATIONGENERAL INTERNATIONAL ACTIVITIES SUBSEQUENT EVENTS
July 2013. Inter RAO Group and CELEC, Ecuador’s state power February 2014. According to the Russian Government Decree dated April 2014. Generating unit No. 3 of Nizhnevartovskaya TPP corporation, signed a contract for the expansion of Termogas January 16, 2014 No. 22, Rosneftegaz purchased a 13.76% share of (75%-controlled by Inter RAO Group and 25%-controlled by Rosneft
Machala TPP in Ecuador, including the construction of a gas turbine JSC Inter RAO from the Federal Property Management Agency. The Group,) with a capacity of 410 MW, is commissioned. The project generator package and steam turbine with a capacity of 100 MW. share of Rosneftegaz Group in the authorised capital of JSC Inter was included in the List of power facilities approved by the Russian As a result, the power plant will be the first TPP in Ecuador operating RAO increased to 27.63%. Government to be used for supply of capacity under the CDA. A with the use of a combined (steam-gas) cycle. The cost of the significant feature of the three generating units of Nizhnevartovskaya project is USD 230 mn. February 2014. Inter RAO Group commissioned the first generating TPP is that their main fuel is dry stripped gas, a product of unit of a new power plant, Yuzhnouralskaya TPP-2. Plans for the associated gas processing. Therefore, the new generating unit construction of this 400 MW combined cycle generating unit were does not only solve the problem of electricity deficit in the main oil- included in the List of power facilities approved by the Russian producing region of Russia, but also makes a material contribution to INTERNATIONAL RATINGS Government to be used for supply of capacity under the CDA. the state programme for the effective use of associated gas.
March 2013. The Fitch rating agency confirmed an international February-March 2014. Significant changes in the geographical April 2014. During the unscheduled review of credit ratings of several global-scale credit rating for Inter RAO Group at the BB+ level, with coverage of Inter RAO Group’s power supply business. Starting Russian companies International agency Moody's Investors Service a stable forecast, and a national-scale (rus) rating of AA. February 1, 2014, Inter RAO - Oryol Energy Sales Company became confirmed the immutability of Inter RAO Group corporate credit ratings the only guaranteeing supplier of electricity in Oryol Region. On of Ba1 on a global scale, with a stable forecast, and Aa1.ru on a national November 2013. Moody’s International Agency confirmed a March 1, 2014, St. Petersburg Power Supply Company obtained the scale. corporate global-scale credit rating for Inter RAO Group at the Ba1 status of a guaranteeing supplier in Omsk Region. Thus, the Group’s level with a stable forecast, and a national-scale rating of Aa1.ru. guaranteeing suppliers currently work in 11 regions of the Russian Federation.
March 2014. The Fitch rating agency confirmed an international INVESTMENT AND INNOVATION global-scale credit rating of Inter RAO Group at the BB+ level, with a stable forecast and a national-scale (rus) rating of AA. November 2013. The Assembly Coating Centre, a branch of Inter RAO - Electric Power Plants and the most cutting-edge and well- March 2014. The Board of Directors of JSC Inter RAO approved the equipped specialised centre for the repair and restoration of power updated 2015 Corporate Development Strategy with Outlook 2020. energy equipment and machinery in Russia, was commissioned at Kostromskaya TPP. April 2014. Reorganisation of Energy Holding was completed through merging with St. Petersburg Power Supply Company. November 2013. The Fund Energy Beyond Borders took part in the 2nd International Forum for Energy Efficiency and Energy Saving, ENES 2013, with the “Innovations in the Electric Power Industry” stand devoted to the latest innovative developments and technological solutions in the domestic energy sector.
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PARTICIPATION OF INTER RAO GROUP PARTICIPATION OF INTER RAO GROUP IN NON-PROFIT ASSOCIATIONS AND PARTNERSHIPS IN 2013 IN NON-PROFIT ASSOCIATIONS AND PARTNERSHIPS IN 2013 Organisation Member companies
JSC Inter RAO Chamber of Commerce and Industry of Russia and its regional branches TGK-11 Altayenergosbyt
JSC Inter RAO The Market council for creating an efficient system of wholesale and retail Inter RAO – Electric Power Plants electricity and capacity trading, a non-profit partnership (NP) TGK-11 Bashkir Generation Company
Mosenergosbyt Guaranteeing Suppliers and Energy Supply Companies, a non-profit St. Petersburg Power Supply Company partnership (NP) Tambov Power Supply Company
JSC Inter RAO The Centre of Innovative Energy Technologies (NP CIET), a non-profit TGK-11 partnership Moldova TPP EEC
Khramhesi I The National Association of Energy and Environment of Georgia Khramhesi II Mtkvari Energy
Inter RAO UES Power Efficiency Centre Mosenergosbyt St. Petersburg Power Supply Company The Guild of Energy Auditors, a self-regulating organisation and non-profit Altayenergosbyt partnership Inter RAO - Orlovsky Energosbyt Tambov Power Supply Company Saratovenergo Omskenergoremont
Inter RAO Invest – Engineering Quartz Group The Association of Primary Contractors in Construction, a self-regulating PermGRESenergremont organisation and non-profit partnership REM InterRAO – WorleyParsons
12 2. GENERAL INFORMATION ON INTER RAO GROUP ON INTER RAO GROUP INFORMATIONGENERAL PARTICIPATION OF INTER RAO GROUP IN NON-PROFIT ASSOCIATIONS AND PARTNERSHIPS IN 2013
Organisation Member companies
TGK-11 Energostroy, a self-regulating organisation Inter RAO UES Power Efficiency Centre
Inter RAO UES Power Efficiency Centre Energoproject, a self-regulating organisation TGK-11
Association of Urban Planning and Design, a self-regulating organisation Quartz Group and non-profit partnership Inter RAO Invest – Engineering
Mosenergosbyt St. Petersburg Power Supply Company Self-regulatory organisation Non-commercial Partnership Expert Petroelektrosbyt organisations of electric power Energy Holding Saratovenergo
TGK-11 Siberian Energy Association Altayenergosbyt Omskenergoremont
Interregional Union of Siberian Designers and Architects, a self-regulating Omskenergoremont organisation and non-profit partnership Energoservis
Omskenergoremont Union of Builders of Omsk Region, a self-regulating organisation and non- Engineering and Construction company profit partnership Energoservis
St. Petersburg Centre for Energy Conservation and Energy Efficiency Energy Holding The PeterburgEnergoAudit, a self-regulating organisation and non-profit Petroelektrosbyt partnership
A self-regulating organisation and non-profit partnership for enhancing the Tomskenergosbyt quality of construction in Tomsk and Tomsk Region Tomskenergobalans
Union of Builders of the Republic of Bashkortostan, a self-regulating Elektroremont organisation of employers and non-profit partnership Energoavtomatika
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3. STATEMENT FOR JSC INTER RAO SHAREHOLDERS AND OTHER STAKEHOLDERS
3. STATEMENT FOR JSC INTER RAO SHAREHOLDERS AND OTHER STAKEHOLDERS AND OTHER STAKEHOLDERS STATEMENT FOR JSC INTER RAO SHAREHOLDERS Dear Shareholders, significantly increasing the efficiency of assets, optimising investment activities, and implementing measures for increasing its shareholder In 2013, Inter RAO Group retained its status as one of the largest value. Russian diversified power holdings, and improved its position in all segments of the business. Growth in production volume, revenue, and EBITDA has exceeded both our expectations and market forecasts. I believe that our results confirm the soundness of the Group’s business In 2014, we can expect peak investments, i.e. in turbulent environment, as well as the management’s focus on achieving strategic goals. we have made our best efforts to commission major construction facilities within the set Power industry is well known as one of the segments that are especially sensitive to a worsening macroeconomic situation. In time frames. 2013 almost all power companies both in Russia and worldwide were exposed to this impact. Therefore, in spite of growth in operating parameters in 2013, the Group has sustained losses. These occurred In 2014, we can expect peak investments, i.e. we have made our first and foremost due to a depreciation of minority stakes owned by best efforts to commission major construction facilities within the the Company. set time frames. The Group managed to shift payments to the last stages of project implementation; thus, unjustified prepayments were Inter RAO Group did not cease implementation of key provisions eliminated. Moreover, the cost reduction programme allowed for of its strategy, striving to be one of the largest international power saving more than RUR 6.5 bn in 2012-2013 on construction of new companies and a performance leader of the country’s electricity generating units. Commissioning of new facilities according to the sector. Currently, we face new challenges, particularly the integration capacity delivery agreements will ensure stable income in the form of of energy systems and energy markets, with a gradual adjustment of higher payments for capacity, which in turn will allow to secure profit prices, and the perspective of withdrawal of a range of governments in future reporting periods. from a mode of operation parallel with UES of Russia. At the same time, there is lingering ambiguity with respect to long-term regulations It’s important to keep in mind that Inter RAO is a highly diversified in the Russian electricity market, as well as the thermal market model. company, which ensures additional possibilities for increasing In 2013, Inter RAO Group retained Power plant and heat network equipment persists in its obsolescence. efficiency via synergies from its activities in various segments. This Furthermore, new construction of the electricity and heat generation is our priority, and we will follow the chosen direction of growth in the its status as one of the largest facilities as well as of the power grid complex is becoming more future. Russian diversified power holdings, expensive, and the efficiency of R&D financing is still at a low level. That is why in the beginning of 2014 the Group’s updated Corporate and improved its position in all Development Strategy with Outlook 2020 has been approved, Chairman of the Board of Directors of JSC Inter RAO segments of the business. providing that Inter RAO will have to respond to these challenges by Igor I. Sechin
15 JSC Inter RAO / ANNUAL REPORT / 2013
Dear Shareholders,
The results of Inter RAO Group in 2013 once again confirm the The reporting year was especially important for the thermal business Company’s soundness and strength in spite of the external of Inter RAO Group. First of all, we felt the first and very important challenges, and are a testament to its continued growth in strict effect from the purchase of the assets of Bashkirenergo in 2012: accordance with the approved Strategy. The year 2013 was certainly heat supply grew by almost 60% compared to the previous period. one of the most difficult years in the history of Inter RAO Group. Second, a large-scale effort was undertaken to shrink accounts We worked under pressure of harsh financial deficit, unstable receivable, which promotes the companies’ financial stability. Third, environment, and general decrease in confidence in the market. at year-end, the Ministry of Energy completed discussions on At the same time, external factors did not force the Company to Russia’s thermal market model. We believe that the chosen model forsake its determined strategic priorities; we continued to grow in will ensure an admissible profitability level for the thermal energy all directions, forming a basis for future growth for the benefit of segment, which in turn will become a driver of Inter RAO’s growth in shareholders and other stakeholders. this segment.
In many respects 2013 became a turning point for Inter RAO Group’s supply segment. We optimised the management structure of the electricity supply assets, and undertook comprehensive measures to increase the efficiency of each enterprise. We have an opportunity In 2013, Inter RAO Group showed growth to receive a synergistic effect from the increased scale of electricity supply in the regions where our electricity-supply and generating in the key operational indicators assets operate. in all business segments.
As a result of a merger of business In 2013, Inter RAO Group showed growth in the key operational indicators in all business segments. First, I would like to highlight the processes, we will considerably shrink successful completion of the key task given us by the government, the companies’ expenses per each i.e. the modernisation and reconstruction of Russia’s generating facilities. consumer.
We commissioned new generating units at Omskaya CHPP-3 and Gusinoozyorskaya TPP, and completed construction of two new power plants in record time. These are Yuzhnouralskaya TPP-2 and As a result of a merger of business processes, we will considerably Dzhubginskaya TPP, where the latter became one of the primary shrink the companies’ expenses per each consumer. Examples of electricity sources for the Sochi 2014 Olympic Games. This is the further activities in this direction were the purchase of a majority first example of constructing this kind of new power plants in the stock interest in Tomskenergosbyt, and obtaining the status of a history of the Group: unique, complex projects that require large- guaranteeing supplier by the Group’s companies in Oryol and Omsk scale investment, professionalism, and commitment. Regions in early 2014.
16 3. STATEMENT FOR JSC INTER RAO SHAREHOLDERS AND OTHER STAKEHOLDERS
In order to increase the Company’s efficiency and improve its financial results we have also undertaken comprehensive internal The main target for 2014 established AND OTHER STAKEHOLDERS STATEMENT FOR JSC INTER RAO SHAREHOLDERS measures. A key event is the updated strategy approval by the Board of Directors in early 2014. by the shareholders and the Board of Directors is to increase shareholder value.
The main target for 2014 established by the shareholders and the
Our priorities remain the same, Board of Directors is to increase shareholder value. We will continue i.e. the growth model of Inter RAO our development in accordance with the adopted strategy, and make is the creation of a global diversified our best efforts to ensure growth in financial parameters for the benefit of all shareholders and other stakeholders of JSC Inter RAO. energy holding.
Chairman of the Management Board of JSC Inter RAO Boris Yu. Kovalchuk Our priorities remain the same, i.e. the growth model of Inter RAO is the creation of a global diversified energy holding. At the same time, due to changes in the profitability of business segments, we decided to focus on the most profitable lines of business. This will allow for increased economic efficiency of the Group while minimising dependence on external factors.
17
4. CORPORATE DEVELOPMENT STRATEGY
4. CORPORATE DEVELOPMENT STRATEGY
4.1. STRATEGY OF THE COMPANY CORPORATE DEVELOPMENT STRATEGY
The mission of Inter RAO is to promote The long-term objective of Inter RAO sustainable economic growth in the regions is to become one of the key players on where it operates. We strive to ensure a international electricity and capacity reliable power supply to all consumers, markets. Inter RAO aims to become a peer to create new solutions in the area of to the world’s largest energy companies efficiency, innovation, energy conservation, managing a diversified asset portfolio, and sustainability. We also offer our best working towards shareholder objectives efforts to constantly add value for the and helping to implement Russian energy benefit of our shareholders. policy.
STRATEGIC GOALS OF INTER RAO GROUP
►► Expand operations abroad, promote Russian electric power ►► Become a leading Russian electric power company in terms practice and solutions in global markets. of the efficiency of electric power assets management with an emphasis on innovations and improved energy efficiency. ►► Create conditions conducive to energy security and ensure protection of Russia’s strategic interests. ►► Achieve a sustained growth of the company value.
►► Become a leader in the Russian electric power sector.
19 JSC Inter RAO / ANNUAL REPORT / 2013
THE RESULTS OF STRATEGY IMPLEMENTATION IN 2013
STRATEGIC GOAL: Become a leader in the Russian electric power sector and create conditions conducive to energy security and ensure protection of Russia’s strategic interests
▻▻ Dzhubginskaya TPP, with overall installed capacity of 200.7 MW, was commissioned. ▻▻ Coal-fired generating unit No. 4, with a capacity of 210 MW, was commissioned at Gusinoozyorskaya TPP, increasing the installed capacity of the plant up to 1,130 MW. ▻▻ A combined cycle gas turbine (CCGT) unit, with 85.2 MW of installed capacity, was commissioned at Omskaya CHPP-3 (a branch of TGK-11) to substitute for two outdated steam turbines with an overall capacity of 75 MW. Moreover, a boiler unit of plant No. 12 (TP-82 type) was reconstructed at Omskaya CHPP-3, increasing the capacity of the turbine- generator unit at plant No. 12 from 50 to 60 MW. Development of electricity and heat generation ▻▻ Activities undertaken as part of the Cost Management Programme and the Energy Efficiency and Energy Savings Programme, both approved for 2013, were carried out. ▻▻ A range of proposals was prepared for introduction into a regulatory framework on functioning of wholesale electricity and capacity market. The Ministry of Energy of the Russian Federation, the non-profit partnership Market Council, the non-profit partnership Council of Power Producers, as well as SO UES have been collaborating on this matter. The developed initiatives were partially represented in the relevant regulations and other industry documents adopted in 2013.* ▻▻ Activities implemented regarding the Development of repair and maintenance service project launched in 2012, including the transfer of the Group’s repair and maintenance companies into the ownership of Quartz Group, and the subsequent creation of a single operating company.
▻▻ A target system for Group's thermal energy assets management was developed, and a project was launched to transition to this model. ▻▻ The activities that were planned for 2013 within the framework of the Cost Management Programme and Energy Efficiency and Energy Savings Programme were carried out. Development of the thermal energy business ▻▻ A number of ideas was prepared for introducing into a regulatory framework on the functioning of the thermal markets. Collaboration on this matter among the Ministry of Energy of Russia, the non-profit partnership Council of Power Producers, as well as the FTS of Russia has been ensured. A range of initiatives were documented in regulations and other industry documents was adopted in 2013.**
▻▻ The volume of coal extracted by Ugolny Razrez (a 100%-owned subsidiary of JSC Inter RAO), which develops the Okino-Klyuchevskoe deposit in the Republic of Buryatia, increased. Development of personal coal base The volume of extraction exceeded 1.6 mn tonnes (1.2 mn tonnes in 2012).
▻▻ A large stake of Tomskenergosbyt (Tomsk Power Supply Company) was acquired from private equity funds. ▻▻ A project was launched to switch to the target system for managing Inter RAO Group's electricity supply assets. ▻▻ In order to increase the operational efficiency of the Group's electricity-supply assets, activities provided for by the Cost Management Programme were carried out, efforts were Development of the retail business undertaken to improve the quality of customer support, including the development of communication channels with customers, the structuring and development of additional services. ▻▻ A range of amendments to the regulatory framework for the functioning of retail electricity markets were introduced. There has also been established cooperation with the Ministry of Energy of the Russian Federation on this matter. The initiatives were taken into account while preparing draft law No. 348213-6, which was submitted for consideration to the State Duma in December 2013.***
▻▻ Activities relating to the creation of a joint venture between Inter RAO Group, General Electric, and Russian Technologies were carried out, providing for construction of a plant for the manufacture of 6FA gas turbine generators on the Russian territory. Construction of the plant is to be completed in 2014. It will produce, sell, and maintain highly effective 77 MW, Development of the engineering business low-emission gas turbine generators. ▻▻ Design competencies within the engineering segment have been developed by Teploenergoproekt, the Ivanovo branch of Inter RAO – Engineering, via provision of relevant services to Group companies, and externally.
* Russian Government Decree No. 743, dated August 27, 2013, On Certain Amendments to the Regulations of the Russian Government Concerning Matters Relating to Competitive Capacity Outtake for 2014; the Federal Law dated October 6, 2013, No. 308-FZ, On Amendments to the Federal Law On Power Generation and Article 81 of the Federal Law On Joint-Stock Companies, etc. ** The Russian FTS order dated June 13, 2013, No. 760-e, On Approval of Guidelines for Calculating Regulated Prices (Rates) in the Area of Heat Supply, the Russian Government decree dated November 18, 2013, No. 1034, On Commercial Accounting of Thermal Energy, Thermal Medium. *** The draft Federal Law No. 348213-6 On Amendments of Certain Regulations of the Russian Federation Relating to Strengthening the Payment Discipline of Energy Resources Consumers.
20 4. CORPORATE DEVELOPMENT STRATEGY
THE RESULTS OF STRATEGY IMPLEMENTATION IN 2013 THE RESULTS OF STRATEGY IMPLEMENTATION IN 2013
STRATEGIC GOAL: STRATEGIC GOAL: Expand operations abroad, promote Russian electric power practice and solutions in global markets Become a leading Russian electric power company in terms of the efficiency of electric power assets management with an emphasis on innovations and improved energy efficiency
▻▻ Efficient export and import transactions were provided in ▻▻ Certification has been obtained regarding the compliance key areas: Finland, Lithuania, China, and other. The overall of the energy management system with the ISO 50001 sales volume for JSC Inter RAO, taking into account the international standard - the first similar certification in agency agreements with EEC, amounted to 22.1 bn kWh. Europe for a large electric utilities company. The GUTcert
▻▻ As part of an expansion in international activities, in March certifying entity, part of the AFNOR international group CORPORATE DEVELOPMENT STRATEGY 2013, a Memorandum was signed with the Government of and certified by the unified German accreditation authority Georgia concerning the development of cooperation in the DakkS, has audited the Group’s companies. electricity sector for the period until 2025. ▻▻ Assembly Coating Centre, an innovative enterprise of ▻▻ A contract for construction of a gas turbine generator and Inter RAO Group, was commissioned on the grounds Development of international activities a steam turbine at Termogas Machala TPP was made with of Kostromskaya TPP to provide for the repair and CELEC, Ecuador’s state power corporation. The power plant reconstruction of electric power equipment and machinery. will be the first TPP in Ecuador that operates with the use Innovative technologies, automated facilities and special of a combined cycle; its installed capacity will increase by materials for application on the surface of parts were Development of innovative activities, energy developed within the framework of project implementation, 170 MW. The contract provides for the design, delivery, efficiency, energy saving construction, assembly, and commissioning of an additional which will increase the life span of turbine blades and 6FA-type gas turbine generator and steam turbine with efficiency of electric power plants. a capacity of 100 MW, and the turn-key construction of ▻▻ Inter SMART, an innovative company aimed to set up the a transmission line and expansion of two existing electric high-tech manufacture of Smart Meter the devices for substations. The cost of the project is USD 230 mn. energy accounting based on advanced foreign and Russian technologies, was established in Russia in cooperation with Rosatom. ▻▻ Svetlana-Optoelectronics, a manufacturer of LED light bulbs, implemented a project for use of LED light bulbs at THE RESULTS OF STRATEGY IMPLEMENTATION IN 2013 one of the largest roadway facilities of Saint-Petersburg, a segment of Svetlanovsky Prospect. Modernisation of the lighting system of this segment of the road allows the city STRATEGIC GOAL: to save up to 30% of electricity. Achieve a sustained growth of the company value ▻▻ According to the recommendations of PWC, based on their diagnosis of Inter RAO Group’s corporate governance, activities planned for 2013 were fully carried out. ▻▻ The Moody’s Investors Service and Fitch international ▻▻ A plan for the implementation of Inter RAO Group’s rating agencies confirmed a corporate rating at the global in-house regulations was developed and implemented. scale of Ba1 and BB+ level respectively, and a national- Improvement of the management system ▻▻ Corporate integration into the Group’s assets purchased in scale rating of Aa1.ru and AA (rus) level for Inter RAO 2012 as a result of the reorganisation of Bashenergo was Increase in investment attractiveness Group. carried out. ▻▻ A system for assessing the financial status of the ▻▻ Integration of the Trakya Elektrik (Turkey) generating asset, companies comprising Inter RAO Group based on internal purchased in 2012, into the Group’s corporate framework credit ratings has been set up. has been completed.
21 JSC Inter RAO / ANNUAL REPORT / 2013
In 2013, Inter RAO Group analysed industry-related trends and the features of its assets, and made a decision to update its development strategy. Among the main risks that affect the Group's assets are the following:
GENERATION TRADING INTERNATIONAL ASSETS
►► Rapid ageing of major equipment of power plants, non-optimal ►► The trend of alignment of electricity prices between the ►► State regulation of Inter RAO Group's foreign assets in the loads for UES of Russia’s generating capacities, insufficient wholesale electricity and capacity market and foreign internal countries of its presence significantly affects the efficiency of development of network infrastructure and the existence of national markets makes the export supply of Russian electricity these assets’ functioning; “locked-up capacities” result in decreased sector efficiency, in less profitable; particular lower economic, environmental, and energy efficiency; ►► The fluctuations of financial markets as a result of the global ►► Limitations imposed by system operators of the Baltic states financial and economic crisis has determined the low rate of ►► The lack of clarity on potential changes in the rules of the on the Nord Pool Spot market have led to decreased electricity growth in the mid-term of a number of economies, and has wholesale electricity and capacity market functioning prevents deliveries from Russia; established certain limits on conducting business; the inflow of long-term private investment in the development of generating assets; ►► Imperfections in the existing mechanisms of responsibility for ►► Further privatisation and liberalisation of electricity markets in non-compliance with planned parameters for international flow a number of European countries may result in changes in the ►► Anticipated growth of fuel prices results in decreased channels in several directions result in financial losses in case of structure of power facilities’ ownership and provide additional profitability for generating companies. significant deviations from actual electricity flow channels. possibilities for the purchase of energy assets with upward price potential;
►► A persistent trend of non-core assets sales by the largest power companies in order to fulfil obligations to financial SALES ENGINEERING organisations, as well as the sale of government share blocks in power companies with the aim of decreasing government debt in ►► Due to ambiguities regarding the long-term model of the retail ►► The price of construction of power and heat generating facilities European countries. electricity market, and taking the existing regulations that and the power grid complex in Russia remains high, which limit the profitability of energy supply companies into account, necessitates stricter control over expenses in the course of diversification of the activities of energy supply companies, construction, the application of advanced technologies, an particularly providing additional paid services, improving the increase in the design quality and technical solutions; customer support system, developing energy services, and other, becomes even more important; ►► Due to the lack of statutory mechanisms of return of investments into construction of new capacities after the end ►► The growth in accrued accounts receivable of electricity supply of the period of capacity delivery agreements and until the companies, along with the lack of efficient mechanisms for the moment of implementation of similar mechanisms, development collection of debts from non-paying consumers, make activities of the heat assets will likely be determined by programs for relating to increased payment discipline in the retail electricity reconstruction and modernisation of the existing capacities; market even more important. ►► Currently, the Russian market for engineering services lacks efficiency, while there is a significant potential for improvements in the competency of Russian engineering enterprises within the sector.
22 4. CORPORATE DEVELOPMENT STRATEGY
4.2. BUSINESS MODEL Increase in the shareholder value of the JSC Inter RAO has travelled a long way from an export and import operator to an integrated power company, executing state energy policy. Group is one of the strategic objectives to be reached through development of Currently, Inter RAO Group is a diversified energy holding operating in various segments of the Russian and foreign electricity sectors, including electricity and heat generation and supply, international trading, design and construction of power and heat generating facilities. business lines at each segment of the value chain, i.e. from design of electricity and heat generating facilities and production of electric power equipment to supplying CORPORATE DEVELOPMENT STRATEGY BUSINESS MODEL OF INTER RAO GROUP electricity to the end consumer.
RETAIL SUPPLY
MANUFACTURE OF EQUIPMENT SALES TO MAJOR CONSUMERS
EXTRACTION GENERATION OF FUEL EXPORTS
DESIGN AND CONSTRUCTION ENERGY EFFICIENCY
23 JSC Inter RAO / ANNUAL REPORT / 2013
4.3. INVESTMENT AND INNOVATION
4.3.1. INVESTMENTS
Inter RAO Group’s Investment Programme is the key instrument in INVESTMENTS IN NEW CONSTRUCTION OF GENERATING FACILITIES IN RUSSIA TOTALLED APPROXIMATELY implementing business strategy in the areas of power generation, as 60% OF THE GROUP’S CAPITAL INVESTMENTS IN 2013, IN RUR MN WITH VAT well as the management of the reliability and safety of the Group's generating assets.
The investment programme is focused on fulfilment of the following Russian generation 41,096 tasks: 17,404 Sales assets 1,755 ►► Commissioning of electricity and heat-generating capacities based on modern, highly effective technologies; Other Russian assets 83 1,192 ►► Ensuring safe and accident-free operation of power-generating Foreign assets 4,030 equipment; 3,786
►► Ensuring the industrial safety of production facilities; New construction Retooling and modernisation ►► Increasing the energy efficiency of the equipment and decreasing the environmental impact;
►► Increasing the competitiveness of the Group’s companies, In 2013, total financing of the Group’s investment programme Implementing investment projects relating to construction of maximising profit, broadening opportunities in system services. amounted to RUR 82,162 mn incl. VAT, including capital investments new generating facilities is the most important priority of Inter RAO of RUR 68,805 mn and financial investments of RUR 13,357 mn.1 Group. Special attention is paid to construction of facilities under Inter RAO Group’s priority is the realisation of the investment capacity delivery agreements (CDA)2. The volume of financing on programme within the scheduled time frame with costs decreasing The main focal points of the Group’s investment programme are: CDA projects in 2013 was RUR 40.047 bn, incl. VAT. via transparent pricing, regulation of the primary components of cost estimates by the customer, as well as justification of expenses. ►► Investment projects relating to construction of new generating facilities; The Group’s investment programme is financed using its own funds and borrowings. In 2013, the ratio was 73% to 27%, respectively. ►► Investment projects aimed at technical retrofitting and reconstruction of power station equipment;
►► Investment in the form of long-term financial investments.
1 Data on the investment programme are submitted in accordance with the Summary 2 The list of facilities is provided by a Russian Government decree dated August Report on implementation of the investment programme and may not be consistent with 11, 2010, No. 1334 (as amended by an Instruction of the Russian Government dated the data provided in JSC Inter RAO’s IFRS consolidated financial statements. September 10, 2012, No. 1637).
24 4. CORPORATE DEVELOPMENT STRATEGY
NEW CONSTRUCTION DURING 2013-2016
Project name Brief description Type Fuel Date of Commissioned Electricity Funded as of commis- capacity, fuel ef- January 01, CORPORATE DEVELOPMENT STRATEGY sioning* MW** ficiency 2014, %
2013
Construction of Dzhubginskaya TPP The investment project Construction of Dzhubginskaya TPP within the Programme of Olympic Venue new gas Q4 2013 200.7 299 90 % (unit No. 1, 2) Construction and Sochi Development (in accordance with the Decree of the Russian Government No. 991 dated December 29, 2007) was completed. The main equipment for Dzhubginskaya TPP was supplied by GE Packaged Power Inc.: two LMS-100 PB-type gas turbines with a capacity of 100 MW each. The facility was commissioned on October 28, 2013.
Reconstruction and restoration Restoration of Gusinoozyorskaya TPP up to the nominal-rated state was completed. Installation of modernisation coal Q4 2013 210 347 97 % of generating unit st. No. 4 of missing equipment and substitution of outdated and worn-out equipment was completed. The facility was Gusinoozyorskaya TPP commissioned on October 31, 2013.
Construction of CCGT-90 at Omskaya Installation of new equipment with the use of highly effective gas-burning technologies under the CCGT new gas Q2 2013 85.2*** 245 99 % CHPP-3 scheme was completed. The facility was commissioned on June 12, 2013.
Reconstruction of the steam turbine An investment project for technical retrofitting of the turbine No. 12 at Omskaya CHPP-3, increasing capacity modernisation gas, fuel Q3 2013 60/10**** 320 100 % with generator No. 12 at Omskaya from 50 MW to 60 MW, was completed. As a result, an electric pump and modular circuit breaker were oil CHPP-3 installed, start-up work was completed, the turbine was re-rated from PT-50 to PT-60, and a capacity qualification was performed.
2014
Construction of unit No. 8 at Construction of two generating units with an overall capacity of 450 MW continued at the site of Cherepets- new coal Q2 2014 213.75 317 Cherepetskaya TPP kaya TPP (Suvorov, Tula Region). The commissioning of the block was shifted from Q4 2013 to Q2 2014 on account of the contractor’s insufficient funds. To decrease the delay, stricter control was imposed over the 83% Construction of unit No. 9 at progress of construction, and the number of contractors was increased. new coal Q4 2014 213.75 317 Cherepetskaya TPP
Construction of unit No. 1 at Generating unit No. 1: construction of the main building was completed, assembly of major equipment is 100% new gas Q1 2014 400 229 86% Yuzhnouralskaya TPP-2 complete. As of December 31, 2013, generating unit No. 1 is ready to be commissioned, and comprehensive testing is being prepared. Construction of unit No. 2 at Generating unit No. 2: the power island equipment was delivered. The metal structures, steam turbine, and gas new gas Q4 2014 400 229 57% Yuzhnouralskaya TPP-2 turbine plants, as well as the recycling boiler, are being assembled.
* Scheduled date of commissioning. ** Capacities under CDA projects at the construction stage are provided by actually commissioned facilities and by actually commissioned capacity in accordance with capacity connecting agreements. *** From January 1, 2014, including re-qualification of actual power plant parameters. **** 60/10 to be read as follows: 60 MW - capacity commissioning, 10 MW - growth in capacity as a result of turbine modernisation. Other parameters provided in the table in a similar format are based on this approach.
25 JSC Inter RAO / ANNUAL REPORT / 2013
NEW CONSTRUCTION DURING 2013-2016
Project name Brief description Type Fuel Date of Commissioned Electricity Funded as of commis- capacity, fuel ef- January 01, sioning* MW** ficiency 2014, %
Reconstruction of the steam turbine Equipment was delivered, incoming control and pre-assembly completed. All activities are performed according modernisation gas, fuel Q3 2014 60/10 320 36% with generator, No. 13, at Omskaya to schedule. oil CHPP-3
Reconstruction of steam turbine No. 1 Project documentation relating to the pipe modernisation project focused on increase in electricity and heat modernisation coal Q4 2014 98/18 325 9% at Omskaya CHPP-5 capacity of the turbine PT-80-130, while operating with limited (switched-off) steam extraction for industrial needs was developed. All activities are performed according to the schedule.
Construction of generating unit No. 3 Primary construction and assembly work are completed, primary block equipment is delivered: steam turbine new gas Q2 2014 410 225 96% at Nizhnevartovskaya TPP at 80%, recycling boiler and gas turbine at 100%. Commissioning took place in April 2014.
2015–2016
Construction of CCGT-800 at The first shipment of major and auxiliary equipment (Siemens), including two gas turbines and two generators, new gas Q4 2015 800 216 29% Permskaya TPP was delivered. Approval of a state testing commission was received. The plot is currently being prepared for construction.
Construction of CCGT-420 at The contract for performance of the duties of a general designer was signed; tender procedures for the new gas Q4 2015 420 224 5% Verkhnetagilskaya TPP (unit No. 12) selection of a recycling-boiler vendor as well as a construction subcontractor who would prepare the site for construction were performed. Everything is completed according to the schedule.
Reconstruction of steam turbine No. 2 The main objective of turbine modernisation project is substitution and reconstruction of obsolete and worn- modernisation coal Q4 2015 98/18 325 0% at Omskaya CHPP-5 out equipment, and an increase in the electrical load of turbine-generator unit No. 2 by 18 MW. All activities are completed according to the schedule.
Installation of T-120 turbine in place of The investment project involves disassembly of the existing turbine PT-50-130 st. No. 10, its foundation modernisation gas, fuel Q4 2016 120 293 4% PT-50-130 at Omskaya CHPP-3 and supplementary equipment, and installation of the T-120-12.8 turbine-generator unit in the existing cell. oil In 2013, the project documentation was developed, survey work and examination of the existing structures and equipment in the cell were performed, and working documentation relating to the preparatory work was delivered. All activities are completed according to the schedule.
Outside the CDA
Construction of the CCGT-TPP-5 in At the moment, contracts for major equipment supplies are in effect with the following companies: new gas 2015 440 262 47 % the Ufimsky district of the Republic of Energopromspetsservis, Silovye mashiny, Lonastekhnologiya, Elektrotekhnicheskaya kompaniya. A positive Bashkortostan*** opinion of the Glavgosekspertiza Rossii Federal Autonomous Agency is obtained.
Ekibastuz TPP-2 is expanded and A positive opinion regarding the project from the Gosekspertiza Republic State Enterprise was obtained, orders new coal Q4 2015 600–630 n/a 30 % reconstructed, and unit No. 3 is were placed with the manufacturers of the equipment, and partial prepayment for the equipment was made. installed (Kazakhstan) Anchor bolts and metal structures have been partially delivered to the construction site.
*** Decision on completion of the generating unit will be made further.
26 4. CORPORATE DEVELOPMENT STRATEGY
The mid-term investment programme of Inter RAO Group provides for performance of activities relating The following activities were performed in 2013 within the long-term financial investments area: to technical retrofitting and reconstruction of the power plant equipment to ensure the safe operation of the equipment, heat grids, buildings and structures, and also to maintain the operating condition of the ►► Reorganisation of Bashkirenergo; ►► Purchase of assets of repair and service equipment at a level sufficient for the reliable and uninterrupted supply of electricity and heat. companies of TGK-11 (ISKOM, PRP, ►► Purchase of shares of St. Petersburg Power Omskenergoremont, Energoservis), Remservis Supply Company from Inter RAO Capital; KGRES, Energoremont, and Energoavtomatika by Quartz Group. CORPORATE DEVELOPMENT STRATEGY
4.3.2. INNOVATIONS
The main priorities for the innovative growth of Inter RAO Group are to achieve technological leadership To achieve the set goals, the Group implements a complex Innovative Development Programme to 2017 in the electricity industry and to ensure sustainable growth in asset value and maintain long-term with an outlook to 2021, approved by the Board of Directors of JSC Inter RAO in accordance with the competitiveness. The objectives of the Group in this area are: Resolution of the Governmental Commission on High Technologies and Innovations under the President of the Russian Federation. ►► Improving the technical level of reliability, ►► Saving energy resources; security, and efficiency of generating assets to The Innovative Development Programme established a range of target indicators and provides for the level of the best international and domestic ►► Increasing the quality of energy-supply and the implementation of comprehensive measures in the areas of new construction, retrofitting and peers; engineering services; reconstruction, increase in energy efficiency of the existing production facilities, environmental safety, HR development, and R&D. ►► Increasing the environmental safety of electricity ►► Formation of a scientific, engineering, and and heat generation; manufacturing base for developing innovation in In 2012, the Innovative Development Programme covered the following subsidiaries and affiliates: Inter the Group and in the Russian power industry. RAO - Electric Power Plants, TGK-11 and energy supply companies. In 2013, the Innovative Development ►► Decreasing the cost of electricity and capacity, Programme was joined by Bashkir Generation Company, BashRTS, Ekibastuz TPP-2, Moldova TPP, as well as services that increase the overall engineering companies, the Group’s heat network, hydrogeneration and new power supply assets. reliability of energy supply and engineering Moreover, the relevant planned target parameters for indicators specified by the Innovative Development services; Programme for 2014 and subsequent years were updated. Approved parameters for indicators set forth by the Programme for 2013 remained the same.
27 JSC Inter RAO / ANNUAL REPORT / 2013
TARGET PARAMETERS FOR INDICATORS SET FORTH BY THE INNOVATIVE DEVELOPMENT PROGRAMME
Indicators Units of 2013 2013 2014 2015 2016 2017 2021 measurement planned* actual
CO2 emissions per unit of generated electricity gCO2/kWh 587 581.2 604.30 603.01 598.33 591.93 553.22 Fuel equivalent efficiency for electricity generation g/kWh 317.8 319.8 319.3 315.89 305.97 303.00 294.00 Fuel equivalent efficiency for heat generation kg/Gcal 148.8 149.0 145.5 144.11 143.34 142.94 142.94 Share of fulfilled projects recommended for implementation at Group facilities %, no less than 60 90 65 70 75 75 80 Number of intellectual property rights registered based on the discoveries made during the implementation of units, no less than 8 8 12 10 10 8 6 innovation projects Number of applications submitted by outside contractors for R&D projects units 188 193 150 200 220 230 400 Number of employees per 1 MW of installed capacity people/MWh 0.86 0.82 0.81 0.79 0.78 0.77 0.74 Revenues from sale of additional paid services in the retail market %, (ths RUR) 0.59** 0.60** 230,000 292,000 376,000 437,000 685,000 Percentage of R&D expenditures as part of total revenue of the Group’s generating assets % 1.4 0.34 1.4 1.4 1.4 1.4 1.4 Group revenues per employee ths RUR/year 20,033 19,729*** 17,548 19,702 21,993 24,111 27,200 Average operating efficiency % 38.65 38.42 38.48 38.89 40.15 40.54 41.79 Percentage of new advanced technologies as part of the Group’s total TPP capacity % 13.46 13.64 12.17 13.84 16.59 19.23 23.54
* Parameters for 2013 were determined in accordance with JSC Inter RAO’s Innovative Development Programme to 2016 with an outlook to 2020. ** The existing value of the indicator “Share of revenue from provision of additional services on the retail market”, %, is provided. *** The indicator is calculated without data from the St. Petersburg Power Supply Company.
RESEARCH, DEVELOPMENT AND ENGINEERING (R&D) Actual financing of the Group’s R&D is done via the Energy Beyond Borders Fund, in accordance with JSC Inter RAO’s mid-term R&D Programme, aimed at a five-year period and annually approved by a resolution One of the most important components of Inter RAO Group’s innovative development is R&D and the of the Management Board of JSC Inter RAO. related synergistic effects, including the higher efficiency, reliability and security of the Group's assets, ensuring leading positions in Russia’s electricity industry and development of the domestic power Prior to consideration by the Management Board of JSC Inter RAO, all R&D activities undergo expert industry’s scientific potential in the long-term. The objectives of the Group in this area are to be achieved assessment, with the participation of the Science and Technology Council of JSC Inter RAO. through implementation of a mid-term R&D Programme of JSC Inter RAO for 2014-2018 that creates tools for coordination and monitoring of various directions of research.
R&D is financed mainly via the Group’s deductions as well as external financing, including participation in FINANCING OF ACTIVITIES BY R&D AREAS OF INTER RAO GROUP government programmes. R&D area Scope of financing, RUR mn The government, the major shareholder of JSC Inter RAO, suggested that the Group’s target parameter for 2013 2014 2015–2018 TOTAL R&D financing be set at 1.4% of the revenue from generating assets.
Total for current projects 597.4 531.2 114.5 1,486.8 Total for new projects 0 70.5 26.0 96.5 TOTAL 597.4 601.7 140.5 1,583.3
28 4. CORPORATE DEVELOPMENT STRATEGY
ENERGY BEYOND BORDERS FUND Assembly Coating Centre To fulfil the R&D tasks successfully, in 2011 JSC Inter RAO established the Energy Beyond Borders Fund. The Fund’s main areas of activity are: The most important result of the Fund’s activities in 2013 was the commissioning of the Assembly Coating Centre on the territory of Kostromskaya TPP, a branch of Inter RAO - Electric Power ►► Development of advanced energy technologies that ensure modern scientific and technological Plants. advances in the industry
►► Operative administration of the activities provided for by the R&D Programme of the Group; CORPORATE DEVELOPMENT STRATEGY
►► Attraction of additional external financing for implementation of R&D projects, being a priority for the Russian economy
►► Development of international and cross-sectoral cooperation.
In 2013 within the framework of fulfilment of the Targeted R&D Programme, 20 activities were carried out, following which 5 activities were carried out at the Group’s companies and 13 innovative technological solutions were recommended for implementation.
Based on the results of 2013, the Fund obtained two utility model patents and one certificate for software; moreover, there were 12 applications for issuance of patents for a utility model and 15 applications for issuance of patents for an invention.
The R&D works being carried out by the Energy Beyond Borders Fund are related to both generating The creation of the Centre was preceded by long-term R&D efforts resulting in new unique and power supply assets of Inter RAO Group. One of the most important indicators of the Innovative materials and innovative methods of application, including the method of HVOF and laser surface Development Programme is the revenue from sales of additional paid services at the retail market. This coating, as well as the method of gas-thermal evaporation. indicator is planned for growth from RUR 230 mn in 2014 to RUR 630 mn in 2021,3 including through the implementation of the R&D project “Research of the revenue diversification, development and creation By the end of the reporting period, automated facilities for application of coatings were created, of standard additional paid services of the electricity supply companies for provision to the customers. technologies were developed, personnel was trained, and industrial use commenced. The project provides for both regional marketing research, related to the possible areas of development of additional services applicable to each power supply company, and pilot launch of the most prospective The Centre’s technologies will be used for restoration of wheel spaces, isolation valves, stator projects for further replication. turbine items, turbine blades and other components of the hot gas path by the repair services of power plants at Inter RAO Group and other generating companies.
3 In accordance with the Innovative Development Programme to 2017 with an outlook to 2021 approved by the Board of JSC Inter RAO.
29 JSC Inter RAO / ANNUAL REPORT / 2013
MAIN R&D PROJECTS IMPLEMENTED IN 2013 Participation of the Energy Beyond Borders Fund in the ENES Activity Result of implementation Use 2013 exhibition
Development A decrease in costs of repairing and Coatings and coating-application In November 2013, the Energy Beyond Borders Fund, in cooperation with the Ministry of Energy of amorphous, restoration of the components of turbines technologies used in the Assembly of the Russian Federation, presented the Innovations in the Electric Power Industry stand at the nanostructured, thermal, by the repair services of power plants of Coating Centre, created in 2013. ENES 2013 exhibition. The stand was devoted to the most recent innovative developments and wearable/protective Inter RAO Group Technologies and equipment used technological solutions in the domestic energy industry. Among the results presented were such coatings (5 projects) for repair and modernisation of major important Inter RAO Group R&D projects as: equipment of Inter RAO Group, and on external orders ►► innovative equipment of the Assembly Coating Centre, a specialised facility for repair and Development of A decrease in the cost of construction and Developed standard technical solutions restoration of energy equipment components; comprehensive solutions design (28 options in total), standard for power plants based on A decrease in the terms for project justifications of investment by option the 6FA local gas turbine and universal financial and economic ►► a model of an all-regime CCGT with a capacity of 20-25 MW, developed by the All-Russian implementation (standardisation, decrease Thermal Engineering Institute with the financial support of the Fund; with the use of advanced in the time frame for manufacturing of the model of TPP based on gas turbine domestic equipment equipment) generator package 6FA, to be applied at this stage to the Group’s engineering ►► materials illustrating comprehensive solutions based on the 6FA local gas turbine plant in A decrease in the costs related to the use, activities linked to implementation and the area of distributed and municipal power and heat generation. service, and maintenance of standard development of the programme for equipment construction of TPP based on gas- turbine generator package 6FA and related engineering business processes
The development of new- An increase in the efficiency of coal-fired The developed technical solutions form generation coal-fired, TPP in condensing mode up to ~39% the basis for further design studies high-performance thermal (net), decrease in air emissions up to the related to the new-generation coal-fired power stations (100-120 European standards heating unit for manufacturers, design, MW of capacity) for future An increase of electric/heat output ratio and engineering organisations replacement of existing equipment, or for new construction
Modernisation of coal- Achievement of maximum possible The technology is recommended fired boilers with the use furnace-chamber energy efficiency in the for modernisation of boiler No. 7 at of vortex technology for course of burning solid fuel Kumertau TPP of Bashkir Generation fuel combustion Ensuring fulfilment of environmental Company. The preliminary feasibility is requirements related to air pollutant being developed, the project is to be emissions implemented in 2014-2015
The research of ways Ensuring consumption savings while using The experimental burning of enriched to use enriched coal at fuel (coal) with various characteristics coal at Kashirskaya TPP and power plants An increase in efficiency and reliability of Cherepetskaya TPP in 2014 proved equipment successful Diversification of fuels and suppliers
The stand of the Energy Beyond Borders Fund was attended by the Russian governmental delegation, headed by the Prime Minister, Dmitry Medvedev. Management Board member of JSC Inter RAO, Head of Innovations, Investments and Costs Unit, Valery Murgulets, presented innovative developments, created with participation of the Fund.
30 4. CORPORATE DEVELOPMENT STRATEGY
4.3.3. ENERGY EFFICIENCY
The activities of Inter RAO Group related to the management of energy conservation and growth in energy Energy Efficiency and Energy Savings Programme of Inter RAO Group for 2013-20175 covers Inter efficiency will ensure both optimisation of costs and systematic approach to rational and environmentally RAO - Electric Power Plants and TGK-11. Starting from the next reporting period, the Programme for responsible use and consumption of energy resources. Achievements of Inter RAO Group in this area 2014-2018, updated in 2013, will cover Inter RAO - Electric Power Plants, TGK-11, Bashkir Generation provide new opportunities for increase in competitiveness, financial stability, energy security and Company, Bashkir heat distribution grid, Moldova TPP and Ekibastuz TPP-2. In the future, the Group plans environmental safety of the Group. to extend the programme to cover all assets.
Inter RAO Group implements a systematic approach to energy efficiency management based on The Programme provides for gradual considerable decrease in the electricity fuel efficiency and heat recommendations of the ISO 50001 international standard. In 2013, a pilot project for implementation fuel efficiency. Achievement of the established target will be annually assessed by target indicators of of the management system in accordance with the ISO 50001:2011 was completed on the premises efficiency. CORPORATE DEVELOPMENT STRATEGY of the executive authority of JSC Inter RAO as well as the executive authority and Tomsk branch of TGK-11. The development of the energy management system in the Group in 2013 was furthered by The Innovative Development Programme and Energy Efficiency and Energy Savings Programme will implementation and conduct of international certification under ISO 50001 of Omsk branch of TGK-11 establish “higher” and “lower” levels of requirements for the achievement of target indicators of energy and Ekibastuz TPP-2. efficiency, motivating the personnel of the Group to increase efficiency of operations in changing conditions.
2013 RESULTS OF THE ENERGY EFFICIENCY AND ENERGY SAVINGS PROGRAMME* Inter RAO Group is the first European energy holding certified in the area of energy conservation and Target indicator Result Plan Actual increased energy efficiency in accordance with the 4 ISO 50001 international standard. Fuel equivalent efficiency for electricity generation Met 321.4 g/kWh 319.77 g/kWh Fuel equivalent efficiency for heat generation Met 149.58 kg/Gcal 149.04 kg/Gcal Electricity efficiency for own needs for electricity Met 4.50% 4.28% generation
Achievement of goals and objectives of the Group in energy efficiency is supported by implementation of Electricity efficiency for own needs for heat generation Not met 41.15 kWh/Gcal 41.80 kWh/Gcal the mid-term Energy Efficiency and Energy Savings Programme annually updated in accordance with the Strategy and Innovative Development Programme of the Group. * The results of implementing Inter RAO Group’s 2013-2017 Energy Efficiency and Energy Savings Programme, approved by the Order of JSC Inter RAO dated December 28, 2012, No. 890, that cover Inter RAO – Electric Power Plants and TGK-11 are provided.
4 GUTcert, part of the international AFNOR group and certified by the unified German accreditation authority DakkS, issued a compliance 5 Approved by the JSC Inter RAO order dated December 28, 2012, No. IRAO/890. certificate dated February 28, 2013 No. B-13-33001 in the name of Inter RAO Group.
31 JSC Inter RAO / ANNUAL REPORT / 2013
In spite of changes in the structure of distribution of electricity and heat and regular loading of less efficient equipment in relation to 2013 RESULTS OF THE ENERGY EFFICIENCY AND ENERGY SAVINGS PROGRAMME safety requirements and system regulator’s instructions in 2013, the OF INTER RAO GROUP* Group fulfilled its basic indicators of Energy Efficiency and Energy Savings Programme. The main reason for non-fulfilment of the “Electricity efficiency for own needs for heat generation” indicator is decreased heat distribution from collectors and changes in the ▻▻ Fuel by 666,303 tonnes of coal equivalent heat distribution structure (inclusion of heat equipment of heating boiler houses and network pumps of heating boiler houses to secure DECREASED CONSUMPTION ▻▻ Heat by 2,166 Gcal hydraulic control). OF ENERGY RESOURCES ▻▻ Electricity by 16,060 ths kWh
In 2013, the companies of the Group implemented several large- 3 scale projects related to energy conservation and increase of energy ▻▻ Water by 41,000 m efficiency, including:
►► reconstruction of lighting, substituting lighting fixtures to FUEL EQUIVALENT ▻▻ For electricity distribution by 5.96 g/kWh (1.8%) energy-conservative ones (LED) on the premises of most power EFFICIENCY RATIO plants; REDUCED ▻▻ For heat distribution by 0.04 kg/Gcal (0.03%) ►► reconstruction of generating unit No. 10 at Verkhnetagilskaya TPP, substituting the High Pressure Cylinders, Medium Pressure Cylinders and Law Pressure Cylinders, implementing cellular A RUR 1,088,184 THS ECONOMIC BENEFIT shroud seals; FROM THE ENERGY EFFICIENCY ACTIVITIES
►► modernisation of the ESP unit No. 2 of Severo-Zapadnaya TPP;
* The results of implementing Inter RAO Group’s 2013-2017 Energy Efficiency and Energy ►► reconstruction of feed electric pumps, installing hydraulic Savings Programme, approved by the Order of Inter RAO Group dated December 28, 2012, couplings at the ESP unit No. 12 of Omskaya CHPP-4 and No. 890, cover Inter RAO - Electric Power Plants and TGK-11 are provided. electric submersible pump No. 13 of Tomskaya TPP-2;
►► improvement of the technology for make-up water treatment of turbine condensers of Omskaya CHPP-5 with the use of KS Vityaz technology.
32 4. CORPORATE DEVELOPMENT STRATEGY
THE RESULTS OF THE ACTIVITIES OF KEY RESULTS OF INTER RAO UES POWER EFFICIENCY CENTRE, 2012-2013 INTER RAO UES POWER EFFICIENCY CENTRE The first Russian company to receive an international certificate of compliance with the requirements of the
Inter RAO UES Power Efficiency Centre was created in the end ISO 50001:2011 CORPORATE DEVELOPMENT STRATEGY of 2010 on a parity basis with JSC Inter RAO and State Atomic Energy Corporation Rosatom with an aim to ensure leadership Energy inspections at more than 1,500 facilities in the industrial, power, and public utilities sectors of the company in the area of energy conservation, increase in energy efficiency and ecology of energy, strengthening positions in Implementation of more than 300 automated energy consumption systems onsite power energy sector and entering external markets and increasing capitalisation. Implementation of projects ordered by government and private customers in the area of energy efficiency and Inter RAO UES Power Efficiency Centre was one of the originators energy conservation in 41 regions of Russia of new market creation, i.e. the market of energy efficiency services. The results of 2013 demonstrated that this is a promising business: Development of more than 50 comprehensive programmes for energy efficiency and energy savings for apart from implementation of technologies in the companies of State energy facilities Atomic Energy Corporation Rosatom and Inter RAO Group a dynamic growth in external markets has continued. Thus, in 2013 active Installation of more than 520,000 electricity meter points and heat conductor meter stations collaboration with a range of significant customers was commenced, including governmental and budgetary customers and businesses. Implementation of over 60 projects in the area of energy efficiency and energy conservation for third-party Currently, the main competencies of the Inter RAO UES Power customers Efficiency Centre are engineering services in the area of energy efficiency and the efficient management of manufacturing processes, Registration of more than 1,000 energy passports in SRO, of which 950 passports were for third-party as well as engineering-related consulting. During 2013, the customers Power Efficiency Centre improved its competencies pertaining to engineering, energy inspections and R&D, and developed new areas of business, including certification of management systems and The laying of more than 150 km of fibre-optic telecommunication lines provision of measurement services. Installation of more than 200,000 LED-based lighting fixtures
Completion of the data centre construction with a capacity of 10 MW
33
5. OPERATING ACTIVITY OF INTER RAO GROUP
5. OPERATING ACTIVITY OF INTER RAO GROUP
5.1. SEGMENT INFORMATION
In accordance with IFRS 8 Operating segments, the following segments were distinguished (taking the criteria of aggregating and quantitative threshold amounts of revenue and EBITDA): The management of JSC Inter RAO analyses the activities of the Group ►► The Generation in the Russian Federation segment is ►► The Engineering in the Russian Federation segment is represented by the following reporting sub-segments: represented by LLC Inter RAO – Engineering, LLC Quartz – OF INTER RAO GROUP OPERATING ACTIVITY both in terms of geography New Technologies (equity accounted investee), LLC Quartz (by countries of the Group’s company ▻▻ Inter RAO – Electricity Generation Group is represented Group (equity accounted investee up to August 5, 2013), by JSC Inter RAO - Electric Power Plants and CJSC LLC InterRAO − WorleyParsons (equity accounted investee), jurisdiction) and business perspective Nizhnevartovskaya TPP (equity accounted investee); LLC Inter RAO UES Power Efficiency Centre (equity accounted
(generation, trading, energy supply, investee), LLC Interenergoeffect (equity accounted investee) ▻▻ TGK-11 is represented by TGK-11 Group; (up to December 31, 2012), CP Energy Union, LLC Inter RAO distribution, engineering, and other). Export and Non-for-profit Fund Energy Beyond Borders. Correspondingly, each operating ▻▻ Bashkir Generation is represented by LLC Bashkir Generation Company and LLC BashRTS from the beginning ►► The Georgia segment is represented by JSC Telasi, LLC Mtkvari segment represents a certain type of November 2012. Energy, JSC Khramhesi I and JSC Khramhesi II. of business activities or companies ►► The Supply in the Russian Federation segment is ►► The Armenia segment is represented by CJSC Electric in a certain country. represented by JSC Mosenergosbyt (Group of companies), Networks of Armenia and JSC Hrazdan Power Company JSC St. Petersburg Power Supply Company (PSK) (Group (JSC HrazTES). of companies), JSC Tambov Power Supply Company, JSC Saratovenergo (Saratov Power Supply Company), ►► The Moldova segment is represented by CJSC Moldova TPP. JSC Altayenergosbyt (Altay Power Supply Company), LLC Inter RAO – Oryol Energy Sales Company, and their management ►► The Kazakhstan segment is represented by JSC Ekibastuz company JSC United Power Supply Company (until March TPP-2 (equity accounted investee) and LLC Inter RAO Central 14, 2013), JSC Promyshlennaya Energetika, LLC RN-Energo, Asia. JSC Tomskenergosbyt (Tomsk Power Supply Company) (from December 20, 2013), LLC RT-Energotrade (equity accounted ►► The Turkey segment is represented by Trakya Group (starting investee). December 2012) and Inter Rao Turkey Energy Holding A.S.
►► The Trading in the Russian Federation and Europe segment is ►► Other. represented by trading operations of JSC Inter RAO, RAO Nordic Oy, AB Inter RAO Lietuva, SIA Inter RAO Latvia, Inter RAO Eesti OU, Inter Green Renewables and Trading AB and JSC Eastern Energy Company (EEC).
35 JSC Inter RAO / ANNUAL REPORT / 2013
►► The Supply in the Russian Federation The Generation in the Russian Federation The Trading in the Russian Federation segment segment and Europe segment ▷ JSC Mosenergosbyt (Group of companies) Inter RAO – Electricity Generation Group sub-segment ▷ JSC Inter RAO ▷ JSC St. Petersburg Power Supply Company ▷ JSC Inter RAO - Electric Power Plants ▷ RAO Nordic Oy (PSK) (Group of companies) ▷ CJSC Nizhnevartovskaya TPP ▷ AB Inter RAO Lietuva ▷ JSC Tambov Power Supply Company ▷ SIA Inter RAO Latvia ▷ JSC Saratovenergo (Saratov Power Supply Company) TGK-11 sub-segment ▷ Inter RAO Eesti OU ▷ JSC Altayenergosbyt (Altay Power Supply Company) ▷ TGK-11 Group ▷ Inter Green Renewables and Trading AB ▷ LLC Inter RAO – Oryol Energy Sales Company ▷ JSC Eastern Energy Company (EEC) ▷ JSC Tomskenergosbyt (Tomsk Power Supply Company) Bashkir Generation sub-segment ▷ LLC RN-Energo ▷ LLC Bashkir Generation Company ▷ LLC RT-Energotrade ▷ LLC BashRTS ▷ JSC Promyshlennaya Energetika
GENERATION OPERATING IN RUSSIAN DERATION TR The Engineering in the Russian Federation LY N FE IN AD PP IA R IN SEGMENTS U S N FE U G segment S S IO A DE SS U T N R IA R A D AT N N ER EU I ▷ LLC Inter RAO – Engineering I D EGMENTS R O OF INTER RAO E S O N F P ▷ LLC Quartz – New Technologies E ▷ LLC Quartz Group G GROUP ▷ LLC InterRAO − WorleyParsons N I N N O R A T ▷ LLC Interenergoeffect I IO E H S T E ▷ LLC Inter RAO Export S A E N R I U R ▷ CP Energy Union R G E
N D ▷ LLC Inter RAO UES Power Efficiency Centre N I E E ▷ Non-for-profit Fund Energy Beyond Borders F Inter RAO The Turkey segment ▷ Trakya Group ▷ Inter Rao Turkey Energy Holding A.S. G Group E Y O E R K The Georgia segment R G I U A T ▷ JSC Telasi ▷ LLC Mtkvari Energy The Kazakhstan segment ▷ JSC Khramhesi I ▷ JSC Ekibastuz TPP-2 ▷ JSC Khramhesi II SEGM NTS N ▷ LLC Inter RAO Central Asia A E A R ST M H EN K IA ZA The Armenia segment KA M A The Moldova segment ▷ CJSC Electric Networks of Armenia OLDOV ▷ JSC Hrazdan Power Company (JSC HrazTES) ▷ CJSC Moldova TPP
36 5. OPERATING ACTIVITY OF INTER RAO GROUP
ASSESSMENT OF THE RESULTS OF SEGMENT ACTIVITIES
The Management Board assesses the results of operational segments based on the following indicators: Moreover, joint ventures (equity accounted investees) are analysed in terms of the Group’s share in their profit/(loss) and loans and borrowings. ►► EBITDA: is calculated as profit/(loss) for the period before finance income and finance expenses, income tax expense, depreciation and amortisation of property, plant and equipment and intangible Unallocated and eliminations include elimination of transactions among the reporting segments assets, impairment of property, plant and equipment and investment property, impairment of goodwill (“Eliminations”) and management expenses, interest income and expense of JSC Inter RAO as well as and provisions for doubtful debts and for inventory obsolescence, share in profit/(loss) of associates loans and borrowings, obtained by JSC Inter RAO or other subsidiaries, which cannot be allocated to a and acquisition effects such as excess of the acquired share in the fair value of the identifiable assets specific reporting segment on a reasonable basis (“Unallocated”). and liabilities over the cost of investment, and other analogous effects1;
►► Depreciation and amortisation of property, plant and equipment and intangible assets, interest income OF INTER RAO GROUP OPERATING ACTIVITY and expenses;
►► Revenue of the segment mainly represented by revenue from the sales of electricity, capacity and heat distributed by reporting segments;
►► Loans and borrowings allocated to the reporting segments, excluding inter-segment balances.
1 The Group’s method for calculating EBITDA may differ from that used by other companies.
37 JSC Inter RAO / ANNUAL REPORT / 2013
5.2. GROUP PERFORMANCE RESULTS
The objective of Inter RAO Group in 2013 was improved operating efficiency via organic and inorganic growth, and the optimisation of expenses.
KEY FINANCIAL AND ECONOMIC RESULTS OF THE GROUP ACTIVITIES FOR THE YEAR ENDING ON DECEMBER 31, 2013
Indicator UOM Supply Generation Trading Armenia Georgia Moldova Kazakhstan Turkey Engineer- Other Unallocated Total ing in the and The Russian The Russian Federation The Russian Russian eliminations Federation Federation Federation Inter RAO – TGK-11 Bashkir and Europe Electricity Generation Generation Group
Total revenue RUR mn 404,290 138,612 24,885 42,908 47,484* 10,332 5,364 4,655 79 14,304 2,712 1,149 (34,453) 662,321 Share of Segment Revenue in % 61 21 4 6 7 2 1 1 0 2 0 0 –5 100 the Total Operating expenses, including: Purchased electricity and RUR mn (218,851) (7,821) (1,765) (3,248) (38,989) (5,842) (663) - (45) - - (23) 31,709 (245,538) capacity Fuel expenses RUR mn (31) (79,623) (11,575) (27,688) - (1,345) (1,173) (3,087) - (12,600) - - - (137,122) Electricity transmission expenses RUR mn (163,522) - - (69) (4,654) (308) (393) (47) (29) - - - - (169,022) Share in profit/loss of joint ventures RUR mn 58 1,014 ------1,890 - 7 (5) - 2,964 EBITDA RUR mn 7,060 23,745 2,930 3,998 2,930 325 1,539 534 1,898 664 (113) 502 (6,825) 39,187 Amortisation RUR mn (1,185) (13,301) (1,495) (4,628) (56) (477) (428) (482) (3) (772) (66) (426) (414) (23,733) Interest revenue RUR mn 865 826 - 120 46 21 68 - 2 6 153 1,279 (638) 2,748 Interest expenses RUR mn (350) (1,492) (630) (52) (21) (445) (143) (157) - (328) (32) (471) 87 (4,034) Share of EBITDA in Total % 18.0 60.6 7.5 10.2 7.5 0.8 3.9 1.4 4.8 1.7 –0.3 1.3 –17.4 100.0 EBITDA margin % 1.7 17.1 11.8 9.3 6.2 3.1 28.7 11.5 4.6 –4.2 43.7 19.8 5.9
* Revenue from the Russian Federation and Europe Trading segment does not include results from financial trading.
38 5. OPERATING ACTIVITY OF INTER RAO GROUP
KEY OPERATING RESULTS OF GROUP ACTIVITIES FOR THE YEAR ENDING DECEMBER 31, 2013 OF INTER RAO GROUP OPERATING ACTIVITY
Indicator UOM Supply Generation Trading Armenia Georgia Moldova Turkey Kazakhstan Engineer- Other Total ing in the The Russian The Russian Federation The Russian Federation Russian
Federation Inter RAO – TGK-11 Bashkir Federation Electricity Generation and Europe Generation Group
Installed capacity MW - 21,392 2,003 4,227 - 1,110 827 2,520 478 1,000 - 30 33,587 Electricity generation mn kWh - 103,601 8,791 19,760 - 660 1,385 3,044 3,889 6,280 - 57 147,468 Electricity sales* mn kWh 153,234 ------153,234 Heat sales** ths Gcal - 4,591 13,879 23,935 - - - 98 - 36 - - 42,539 Capacity factor % - 55.8 50.4 53.6 - 6.8 19.1 13.8 92.9 71.7 - 21.8 50.5 Fuel consumption, including: Gas mn m³ - 22,010 1,915 7,283 - 193 243 681 685 - - - 33,011 Coal ths - 10,565 4,493 651 - - - 277 - 3,982 - - 19,968 tonnes Fuel oil ths - 109 17 17 2 34 3 183 tonnes Other ths - - - 93 ------93 tonnes
* Electricity sales include inter-segment revenue (ISR). Electricity sales excluding ISR in 2013 were 147,666 mn kWh. ** Heat sales include inter-segment revenue (ISR). Heat sales excluding ISR in 2013 are 37,104 ths Gcal. Heat sales are calculated as heat sales from collectors subtracting heat losses and heat spent on industrial and economic needs.
39 JSC Inter RAO / ANNUAL REPORT / 2013
5.3. GENERATION IN THE RUSSIAN FEDERATION
VERKHNETAGILSKAYA TPP GUSINOOZYORSKAYA TPP IVANOVSKIYE CPP Sverdlovsk Region, Verkhny Tagil The Republic of Buryatia, Gusinoozyorsk Ivanovo Region, Komsomolsk Commissioned since May 29, 1956 Commissioned since December 22, 1976 Commissioned since May 20, 2008 Installed electricity capacity: 1,497 MW Installed electricity capacity: 1,130 MW Installed electricity capacity: 325 MW Installed heat capacity: 480 Gcal/h Installed heat capacity: 224.5 Gcal/h Installed heat capacity: 79 Gcal/h Electricity generation: 7,359 mn KWh Electricity generation: 4,823 mn KWh Electricity generation: 448 mn KWh Heat sales: 207 ths Gcal Heat sales: 243 ths Gcal Heat sales: 116 ths Gcal
DZHUBGINSKAYA TPP IRIKLINSKAYA TPP Krasnodar Krai, Tuapsinsky district, Defanovka village Orenburg Region, Novoorsky district, Energetik township Commissioned since October 31, 2013 Commissioned since November 7, 1970 Installed electricity capacity: 201 MW Installed electricity capacity: 2,430 MW Electricity generation: 61 mn KWh Installed heat capacity: 121 Gcal/h Electricity generation: 11,772 mn KWh Heat sales: 111 ths Gcal
Kaliningradskaya TPP-2 Severo-Zapadnaya TPP Pechorskaya TPP
Kashirskaya TPP Urengoyskaya TPP Kostromskaya TPP Ivanovskiye CPP RUSSIAN Cherepetskaya TPP
Permskaya TPP Nizhnevartovskaya TPP FEDERATION LLC Bashkir Generation Company generating assets Verkhnetagilskaya TPP LLC BashRTS generating assets Yuzhnouralskaya TPP, TPP-2* Dzhubginskaya TPP Iriklinskaya TPP Sochinskaya TPP JSC TGK-11 generating assets
Kharanorskaya TPP Gusinoozyorskaya TPP
40 5. OPERATING ACTIVITY OF INTER RAO GROUP
KALININGRADSKAYA TPP-2 PECHORSKAYA TPP CHEREPETSKAYA TPP Kaliningrad Region, Kaliningrad Komi Republic, Pechora Tula Region, Suvorov Commissioned since October 28, 2005 Commissioned since February 5, 1979 Commissioned since December 1953 Installed electricity capacity: 875 MW Installed electricity capacity: 1,060 MW Installed electricity capacity: 1,285 MW Installed heat capacity: 680 Gcal/h Installed heat capacity: 327 Gcal/h Installed heat capacity: 94 Gcal/h Electricity generation: 6,282 mn KWh Electricity generation: 3,763 mn KWh Electricity generation: 3,146 mn KWh Heat sales: 277 ths Gcal Heat sales: 281 ths Gcal Heat sales: 142 ths Gcal
KASHIRSKAYA TPP SEVERO-ZAPADNAYA TPP YUZHNOURALSKAYA TPP Moscow Region, Kashira Saint-Petersburg, Olgino township Chelyabinsk Region, Yuzhnouralsk OF INTER RAO GROUP OPERATING ACTIVITY Commissioned since June 4, 1922 Commissioned since December 2000 Commissioned since April 28, 1952 Installed electricity capacity: 1,910 MW Installed electricity capacity: 900 MW Installed electricity capacity: 882 MW Installed heat capacity: 458 Gcal/h Installed heat capacity: 700 Gcal/h Installed heat capacity: 395 Gcal/h Electricity generation: 6,406 mn KWh Electricity generation: 5,478 mn KWh Electricity generation: 4,024 mn KWh Heat sales: 262 ths Gcal Heat sales: 1,279 ths Gcal Heat sales: 374 ths Gcal
KOSTROMSKAYA TPP SOCHINSKAYA TPP YUZHNOURALSKAYA TPP‑2* Kaliningradskaya Kostroma Region, Volgorechensk Krasnodar Krai, Sochi Chelyabinsk Region, Yuzhnouralsk TPP-2 Commissioned since June 29, 1969 Commissioned since December 20, 2004 First generating unit commissioned Installed electricity capacity: 3,600 MW Installed electricity capacity: 158 MW on February 27, 2014 Severo-Zapadnaya TPP Installed heat capacity: 450 Gcal/h Installed heat capacity: 50 Gcal/h Installed electricity capacity: 408 MW Electricity generation: 14,245 mn KWh Electricity generation: 879 mn KWh * Commissioned since 2014 Pechorskaya TPP Heat sales: 196 ths Gcal URENGOYSKAYA TPP Kashirskaya TPP Urengoyskaya TPP Kostromskaya TPP NIZHNEVARTOVSKAYA TPP Yamalo-Nenets Autonomous District, JSC TGK-11 Khanty-Mansi Autonomous District, Nizhnevartovsky district, Novy Urengoy, Limbyayakha district Installed electricity capacity: 2,003 MW Ivanovskiye CPP RUSSIAN Izluchinsk township Commissioned since August 28, 1987 Electricity generation: 8,791 mn KWh Cherepetskaya TPP Commissioned since January 30, 1993 Installed electricity capacity: 484 MW Heat sales: 15,957 ths Gcal Installed electricity capacity: 1,600 MW Installed heat capacity: 410 Gcal/h Permskaya TPP Nizhnevartovskaya TPP FEDERATION Installed heat capacity: 758 Gcal/h Electricity generation: 3,256 mn KWh Electricity generation: 11,908 mn KWh Heat sales: 112 ths Gcal LLC BASHKIR GENERATION COMPANY LLC Bashkir Generation Company generating assets Verkhnetagilskaya TPP LLC BashRTS generating assets Heat sales: 234 ths Gcal Installed electricity capacity: 4,203 MW Electricity generation: 19,699 mn KWh Yuzhnouralskaya TPP, TPP-2* KHARANORSKAYA TPP Heat sales: 16,660 ths Gcal PERMSKAYA TPP Zabaykalsky Krai, Olovyanninsky district, Dzhubginskaya TPP Iriklinskaya TPP Sochinskaya TPP JSC TGK-11 generating assets Perm Krai, Dobryanka Yasnogorsk township Commissioned since June 30, 1986 Commissioned since October 11, 1995 LLC BashRTS Kharanorskaya TPP Installed electricity capacity: 2,400 MW Installed electricity capacity: 655 MW Installed electricity capacity: 24 MW Installed heat capacity: 620 Gcal/h Installed heat capacity: 329.3 Gcal/h Electricity generation: 61 mn KWh Gusinoozyorskaya TPP Electricity generation: 15,820 mn KWh Electricity generation: 3,930 mn KWh Heat sales: 4,161 ths Gcal Heat sales: 292 ths Gcal Heat sales: 123 ths Gcal
41 JSC Inter RAO / ANNUAL REPORT / 2013
5.3.1. SEGMENT DESCRIPTION
The Generation in the Russian Federation segment of Inter RAO Group comprises the management company Inter RAO – Management of Electric Power Plants and the generating companies Inter RAO - The Generation in the Russian Federation Electric Power Plants, Nizhnevartovskaya TPP, TGK-11, Bashkir Generation Company and BashRTS. segment The generating companies in this segment are located in 19 regions of the Russian Federation and Inter RAO – Electricity Generation Group sub-segment ▷ JSC Inter RAO - Electric Power Plants participate in five integrated power systems (IPS) of Russia. Inter RAO – Management of Electric ▷ CJSC Nizhnevartovskaya TPP Power Plants manages Inter RAO - Electric Power Plants that unifies 16 large power plants and Nizhnevartovskaya TPP. The facilities of Inter RAO – Electricity Generation Group are located in 16 regions TGK-11 sub-segment of Russia and are represented by such large power plants as Kostromskaya TPP, Iriklinskaya TPP and ▷ TGK-11 Group Permskaya TPP.
Bashkir Generation sub-segment TGK-11 manages TPPs and district boiler houses in Tomsk Region and Omsk Region. Bashkir Generation ▷ LLC Bashkir Generation Company Company is a regional company that manages thermal power plants and small energy facilities in the ▷ LLC BashRTS Republic of Bashkortostan.
GENERATION IN RUSSIAN EDERATION TR LY N F IN AD PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E As of the end of 2013, the overall installed electricity
G N I N N O capacity of the Group’s Russian generating companies was R A T I IO E H S T E S A E N R I U R
G R E 27,622 MW, while the heat capacity was 24,697 Gcal/h.
N D N I E E F Inter RAO
G Group E Y During the reporting period, changes in the installed electricity capacity of Inter RAO - Electric Power O E R K G R Plants amounted to less than 1% of total installed capacity of the company as of the end of 2013. The I U A T changes are related to the commissioning of Dzhubginskaya TPP and modernised generating unit No. 4 of Gusinoozyorskaya TPP and decommissioning of generating unit No. 1 of Ivanovskiye CPP. TGK-11 SEGMENTS N A A commissioning of new generating unit at Omskaya CHPP-3 and Tomskaya CHPP-1 and modernisation R ST M H EN K IA ZA and decommissioning of steam turbines at Omskaya CHPP-3 resulted in the growth of overall installed KA MOLDOVA capacity by 1.6%. At Bashkir Generation Company, modernisation and the decommissioning of steam turbines at a range of power plants did not result in substantial changes in overall installed capacity.
42 5. OPERATING ACTIVITY OF INTER RAO GROUP
THE LARGEST GENERATING FACILITIES IN THIS SEGMENT 5.3.3. OPERATING RESULTS ARE IN THE VOLGA AND CENTRAL FEDERAL DISTRICTS
MW As of the end of 2013, changes in installed capacity Southern Federal District 359 for the Generation in the Russian Federation segment Northwestern Federal District 2,835 totalled 86.3 MW. Siberian Federal District 3,788 Urals Federal District 4,463 DURING THE REPORTING PERIOD, OVER 540 MW OF CAPACITY WAS Central Federal District 7,120 COMMISSIONED: Volga Federal District 9,057 ►► 200.7 MW at Dzhubginskaya TPP; OF INTER RAO GROUP OPERATING ACTIVITY
►► 210 MW at Gusinoozyorskaya TPP2;
►► 95.2 MW at the Omsk branch of TGK-11 as a result of
commissioning CCGT-90 with a capacity of 85.2 MW at Omskaya CHPP-3 and the recertification of TG-12 at Omskaya CHPP-3 from 50 MW to 60 MW; 5.3.2. POSITION OF THE SEGMENT IN THE MARKET ►► 37.7 MW at Bashkir Generation Company.
ELIMINATION OF CAPACITY TOTALLED 288.7 MW: DISTRIBUTION OF GENERATING CAPACITIES OF THE SEGMENT FOR IPS OF RUSSIA ►► 158 MW - decommissioning of unit No. 1 at the Ivanovskiye Indicator UOM Total for IPS IPS of IPS IPS IPS of CPP branch of Inter RAO – Electric Power Plants; UES of of the North-West of South of Ural Siberia Russia Centre ►► 75 MW at Omskaya CHPP-3 of the Omsk branch of TGK-11;
Installed capacity at MW 226,470.2 51,681.8 23,386.3 19,302.4 47,587.5 49,241.7 ►► 55.7 MW at Bashkir Generation Company. IPS as of January 01, 2014, total Installed capacity for MW 27,621.8 7,120.0 2,835.0 358.7 13,520.5 3,787.6 The installed heat capacity decreased by 528 Gcal/h, mainly as a result of decommissioning 259 Gcal/h at the Segment Omsk branch of TGK-11 and 342 Gcal/h at Bashkir Generation Company. Share of capacities % 12.2 13.8 12.1 1.9 28.4 7.7 of the Segment in In 2013, Inter RAO Group’s Russian generating companies generated 132.2 bn kWh of electricity, which the installed capacity exceeds the previous year’s level by 16.0%, as a result of an increase in generation for the Inter RAO – of IPS Electricity Generation Group sub-segment by 3.5%, and an inclusion of assets of the Bashkir Generation Share of IPS in the % 100.0 25.8 10.3 1.3 48.9 13.7 sub-segment within the boundaries of the Group. structure of the capacities of the Segment 2 Reports from Inter RAO Group for earlier periods did not stipulate the output of 180 MW at Gusinoozyorskaya TPP, therefore, the result of commissioning coal-fired generating unit No. 4 of 210 MW in the report is 30 MW.
43 JSC Inter RAO / ANNUAL REPORT / 2013
IN 2013, THE INCREASE IN ELECTRICITY GENERATION FOR A NUMBER OF PLANTS OF THE IN 2013, THE SHARE OF NATURAL GAS IN THE FUEL BALANCE INCREASED INTER RAO – ELECTRICITY GENERATION GROUP SUB-SEGMENT WAS OFFSET BY A DECREASE BY 4.3 P.P. OVER 2012, WHILE THE SHARE OF COAL DECREASED BY 4.5 P.P. IN ELECTRICITY GENERATION IN OTHER SUB-SEGMENTS Growth in electricity generation volume A decrease in the volume of electricity generation
Gas 2,777 mn kWh at Permskaya TPP 1,401 mn kWh at Yuzhnouralskaya TPP 74.7% due to optimisation of the schedule of repairs as a result of a shortening of the list of equipment 79.0% during the reporting period in the reporting period Coal 2,593 mn kWh at Urengoyskaya TPP 1,069 mn kWh at Iriklinskaya TPP 24.8% as a result of commissioning generating capacity as a result of a shortening of the list of equipment 20.3% within the framework of the Capacity Delivery in the reporting period Agreement (CDA) Fuel oil and other fuels 0.5% 1,039 mn kWh at Nizhnevartovskaya TPP 1,025 mn kWh at Kashirskaya TPP 0.6% as a result of a decrease in the number of as a result of a shortening of the list of equipment 2012 malfunctions in the reporting period 0% 50% 100% 2013 799 mn kWh at Severo-Zapadnaya TPP as a result of a shortening of the time the equipment spends in cold reserve
611 mn kWh at Kharanorskaya TPP as a result of commissioning generating capacity In 2013 the prices of gas for the companies of this segment increased by average 13.1% as a result of within the framework of the Capacity Delivery increase of rates controlled by the state in July, August and October of 2013. The main gas suppliers were Agreement (CDA) NOVATEK (53%), Gazprom (35%) and Rosneft (10%).
The specific price of purchase of coal for the segment decreased by 4.0%, including by 6.2% in Inter RAO – Electric Power Plants. This decrease occurred due to the following factors: A decrease in electricity generation at TGK-11 by 10.5% is related to the performance of the dispatch load schedule and operation of the plants in the mode close to the thermal schedule and a break in operation of ►► minimum growth of coal prices since January ►► optimisation of work with coal suppliers Tomskaya TPP-3 in the summer. 01, 2013; and resulting growth of the share of cheap coal supply to Gusinoozyorskaya TPP and The heat sales of the segment totals to 42.4 mn Gcal, i.e. by 78.3% more than in 2012 due to purchase of ►► stabilisation of the coal price for TGK-11 at the Kharanorskaya TPP and decrease in the the generating assets of the Bashkir Generation sub-segment. level of the previous year; expensive coal supply to Cherepetskaya TPP.
Gas and coal are the main types of fuel used by the companies of the segment. The structure of the fuel balance of the Russian Group's generating assets consists of 79.0% gas, 20.3% coal, 0.4% fuel oil and 0.2% other types of liquid fuel.3 A systematic decrease in specific consumption of energy resources and a decrease in expenses for the same is an important area of the work related to increase in efficiency of functioning of the primary 3 Hereinafter, in 2013 an aggregate value of shares of fuel types used in the fuel balance for Generation in the Russian Federation is 99.9% as a result of rounding the data relating to fuel consumption by companies from this segment. production facilities of the segment.
44 5. OPERATING ACTIVITY OF INTER RAO GROUP
The task related to the sufficient coal and liquid fuel reserves at the companies of the Group in Russia The Autumn and Winter periods maximise the load of the facilities in the segment. The planning and established by the order of the Ministry of Energy of the Russian Federation is 100% done. performance of activities related to the uninterrupted use of the equipment during this period will ensure reliable electricity supply to Russian consumers. Fuel equivalent efficiency for electricity generated by the segment decreased by 6.1 g/kWh or by -1.9% up to 319.8 g/kWh. The fuel equivalent efficiency for heat generation decreased by 3.5 kg/Gcal or by -2.3% In accordance with the order of the Ministry of Energy of the Russian Federation, in autumn 2013 the up to 145.5 kg/Gcal. companies of this segment were subject to inspections of generating facilities readiness for operation during the 2013-2014 Autumn and Winter period. Inspections were performed by commissions consisting In 2013, complete and intermediate overhauls were performed at 21 generating units with a total capacity of representatives of the System Operator of Unified Energy System of Russia, Technical Inspection of 6,165 MW; 24 turbine-generator units and 27 boilers were repaired, 13 inspections were carried out of of UES, Federal Environmental, Industrial and Nuclear Supervision Service of Russia (Rostekhnadzor), the gas turbine equipment, and more than 150 current repairs of major equipment were completed. As a Ministry of the Russian Federation for Civil Defence, Emergencies and Elimination of Consequences of result of a successful repair campaign, the availability factor at all segment facilities increased. Disasters (EMERCOM of Russia) and representatives of technical services from the Group’s companies. Based on the results of inspections, Inter RAO – Electricity Generation Group, Nizhnevartovskaya TPP, TGK-11, Bashkir Generation Company and BashRTS received certificates of operation for the Autumn and THE POWER PLANT AVAILABILITY FACTOR EXCEEDED THE 2012 PARAMETER AS Winter period 2013-2014. WELL AS THE TARGET PARAMETER FOR 2013. OF INTER RAO GROUP OPERATING ACTIVITY
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
77.3 81.7 83.8 UOM 2012 2013 2013/2012, % 85.7 88.4 Inter RAO – Electric Power Plants Installed capacity as of the end of the period MW 27,535 27,622 +0.3 % 88.8 Fuel balance structure: Bashkir Generation Company Gas % 74.7 79.0 +4.3 p.p. Coal % 24.8 20.3 –4.5 p.p.
TGK-11 Fuel oil % 0.5 0.4 –0.1 p.p. Other fuels % 0.0 0.2 +0.2 p.p. 89.5 Electricity generation in Russia bn kWh 1,032,271 1,023,500 –0.8 % 85.2 88.5 Electricity generation by segment mn kWh 113,955 132,152 +16 %
70 75 80 85 90 Share of electricity generation by Inter RAO’s % 11.0 12.9 +1.9 p.p. Russian assets Fuel equivalent efficiency for electricity generation g/kWh 326.0 319.8 –1.9 % Actual factor 2012 Target factor 2013 Capacity factor % 55.6 55.1 –0.5 p.p. Actual factor 2013 Net supply of heat by Segment ths Gcal 23,786 42,405 +78.3 % Fuel equivalent efficiency for heat generation kg/Gcal 149.0 145.5 –2.3 %
45 JSC Inter RAO / ANNUAL REPORT / 2013
5.3.4. FINANCIAL RESULTS
In 2013, revenue for the Generation in the Russian Federation segment increased by RUR 54.1 bn or In 2013, the EBITDA indicator in the Generation in the Russian Federation segment doubled from RUR 35.5%. The significant revenue growth resulted from both organic and inorganic growth in the segment. 15.4 bn to RUR 30.7 bn. The EBITDA margin increased by 5.5 p.p. from 11.9% to 17.4%. The inorganic growth in the segment occurred due to the inclusion of the Bashkir Generation sub-segment within the framework of the Group’s assets. The organic growth occurred due to the following factors: EBITDA for the Inter RAO – Electricity Generation sub-segment increased by RUR 10.2 bn on account of the commissioning of new capacities within the framework of CDA at Urengoyskaya TPP, Kharanorskaya ►► commissioning new capacity; ►► growth in prices for the capacity sold in the TPP, Gusinoozyorskaya TPP and Dzhubginskaya TPP. EBITDA for TGK-11 increased by RUR 1.6 bn as a Competitive Capacity Outtake (CCO) of the result of increased operating efficiency and the commissioning of new facilities at Tomskaya CHPP-1. In ►► growth in prices at the day-ahead market in the wholesale electricity and capacity market the Bashkir Generation sub-segment, 2012 EBITDA is represented by only two-months’ worth of operating first and second price zones; (WECM). activities, since the company was purchased in November 2012. The results of operating activities in 2013 are represented in EBITDA for the entire year. EBITDA of this sub-segment for the reporting period As a result of organic growth in the segment, the change in the revenue amounted to 13.6%, while the amounted to RUR 4 bn against RUR 0.6 bn in the previous year. overall change in the revenue amounted to 35.5%. Similarly, as a result of organic growth in the segment, the change in EBITDA amounted to 80.1%, while the overall change in EBITDA amounted to 99.6%. FINANCIAL RESULTS OF INTER RAO – ELECTRICITY GENERATION GROUP FOR THE YEAR Over the reporting period, the segment revenue from electricity sales increased by RUR 27.2 bn (including ENDED DECEMBER 31, 2012/2013 RUR 18.5 bn on account of the Bashkir Generation sub-segment), particularly from heat sales - by RUR 11.7 bn, from capacity sales - by RUR 15.5 bn (including RUR 4.6 bn on account of Bashkir Generation UOM 2012 2013 2013/2012, % (restated)* sub-segment).
Growth in segment revenue from electricity sales occurred due to commissioning of new capacities and an Revenue RUR mn 119,917 138,612 +16 % increase in day-ahead market prices in the first and second price zones. The main reasons for the growth Share in Inter RAO Group revenue % 22 21 –1 p.p. in the revenue from electricity sales in the Inter RAO – Electricity Generation sub-segment are: Operating expenses, including: RUR mn ►► growth in electricity sales prices at the ►► commissioning of facilities within the Purchased electricity and capacity RUR mn (6,766) (7,821) +16 % wholesale electricity and capacity market as a framework of CDA at Urengoyskaya TPP and Fuel purchase expenses RUR mn (72,270) (79,623) +10 % result of the growing cost of fuels; Kharanorskaya TPP in the end of 2012. Share in profit/loss of joint ventures 1,075 1,014 –6 % ►► increased electricity generation at Permskaya EBITDA RUR mn 13,521 23,745 +76 % TPP due to shorter repair periods for generating EBITDA margin % 11.3 17.1 +5.9 p.p. equipment; Share in Inter RAO Group EBITDA % 50.8 60.6 +9.8 p.p. Growth in segment revenue from capacity sales occurred due to commissioning of new facilities within the framework of the CDA and growth in prices for capacity sold in the CCO of the wholesale electricity and * Hereinafter, results from Inter RAO Group’s financial activities in 2012 may differ from the results of financial activities provided in JSC Inter RAO’s capacity market. The main drivers of revenue growth from capacity sales in the Inter RAO – Electricity 2012 Annual Report. The 2012 results from financial activities by Group segments were recalculated based on the use of new and updated IFRS Generation Group sub-segment are: standards used in JSC Inter RAO’s 2013 IFRS consolidated financial reports.
►► commissioning of the capacities within the ►► an increase in the price of capacity sales in framework of CDA at Urengoyskaya TPP and the CCO and the obtaining of higher regulated Kharanorskaya TPP in the end 2012 and capacity tariffs in 2013, particularly for Gusinoozyorskaya TPP and Dzhubginskaya branches labelled “forced” and “expensive”. TPP in November 2013;
46 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.3.5. DEVELOPMENT PROSPECTS
The key advantages of the companies of Inter RAO Group are high cost effectiveness, the low product FINANCIAL RESULTS OF TGK-11 FOR THE YEAR cost of heat generated in the course of cogeneration of electricity, and high reliability of heat supply. ENDED DECEMBER 31, 2012/2013
UOM 2012 2013 2013/2012, % The future growth of companies in the Generation in the Russian Federation segment is aimed at (restated) improving the technical condition of electricity-generation facilities as well as their energy efficiency, while being compliant with industrial and environmental safety requirements.
Revenue RUR mn 24,009 24,885 +4 % The primary means of achieving the above goals is the commissioning of new generating facilities within Share in Inter RAO Group revenue % 4 4 - the framework of the capacity delivery agreements (CDA), the implementation of equipment modernisation programmes, and the development of repair and maintenance systems at segment companies. Operating expenses, including: RUR mn
Purchased electricity and capacity RUR mn (1,769) (1,765) 0 % The construction and reconstruction of generating facilities in accordance with CDA is a key area for OF INTER RAO GROUP OPERATING ACTIVITY Fuel purchase expenses RUR mn (11,676) (11,575) –1 % future development of the Generation in the Russian Federation segment. Share in profit/loss of joint ventures - - - The creation of new system of repair and maintenance as part of the Group is planned along the EBITDA RUR mn 1,291 2,930 +127 % following vectors:
EBITDA margin % 5.4 11.8 +6.4 p.p. Share in Inter RAO Group EBITDA % 4.9 7.5 +2.6 p.p. ►► maximum use of the potential of the Group’s ►► implementation of a systematic approach repair subdivisions and assets; to recruiting and motivation of own repair personnel; ►► creation of a single repair and maintenance FINANCIAL RESULTS OF BASHKIR GENERATION FOR THE YEAR company; ►► strengthening of the repair base at distant ENDED DECEMBER 31, 2012/2013 plants; ►► transfer to a system of long-term contracts with UOM 2012 2013 2013/2012, % equipment manufacturers; ►► creation of multifunctional teams. (restated)
Special attention is paid by companies of the Generation in the Russian Federation segment to growing Revenue RUR mn 8,416 42,908 +410 % the heat supply business. In heating sector, the following are promising areas for segment companies: Share in Inter RAO Group revenue % 2 6 +4 p.p. ►► increasing competitiveness of distributed heat ►► participation in legislation related to the Operating expenses, including: RUR mn via lower expenses related to generation and development of amendments to existing Purchased electricity and capacity RUR mn (550) (3,248) +491 % transportation of heat; regulations and effective pricing policy as Fuel purchase expenses RUR mn (5,692) (27,688) +386 % concerns heat supply; ►► implementation of activities linked to fulfilment Share in profit/loss of joint ventures - - - of long-term guarantees for heat supply; ►► participation in the development of heat supply EBITDA RUR mn 555 3,998 +620 % schemes in cities and municipalities. EBITDA margin % 6.6 9.3 +2.7 p.p. These activities will ensure competitiveness of the companies of this segment domestically and abroad, as Share in Inter RAO Group EBITDA % 2.1 10.2 +8.1 p.p. well as short- and long-term financial stability and operational effectiveness.
47 JSC Inter RAO / ANNUAL REPORT / 2013
5.4. SUPPLY IN THE RUSSIAN FEDERATION
JSC ALTAYENERGOSBYT JSC SARATOVENERGO LLC INTER RAO – ORYOL ENERGY SALES COMPANY
Electricity sales in the retail market: 5,186 mn KWh Electricity sales in the retail market: 5,990 mn KWh Electricity sales in the retail market: 830 mn KWh Market share in the regions of presence: 56 % Market share in the regions of presence: 59 % Market share in the regions of presence: 32 %
JSC MOSENERGOSBYT JSC TAMBOV POWER SUPPLY COMPANY LLC RN-ENERGO
Electricity sales in the retail market: 83,413 mn KWh Electricity sales in the retail market: 1,588 mn KWh Electricity sales in the retail market: 19,847 mn KWh Market share in the regions of presence: 91 % Market share in the regions of presence: 48 % JSC PROMYSHLENNAYA ENERGETIKA
JSC ST. PETERSBURG POWER SUPPLY COMPANY JSC TOMSKENERGOSBYT Electricity sales in the retail market: 2,265 mn KWh
Electricity sales in the retail market: 30,538 mn KWh Electricity sales in the retail market: 4,095 mn KWh LLC RT-ENERGOTRADE Market share in the regions of presence: 96 % Market share in the regions of presence: 57 % Electricity sales in the retail market: 2,469 mn KWh
St. Petersburg RUSSIAN
MOSCOW FEDERATION Oryol
Tambov Saratov
Tomsk
Barnaul
Gorno-Altaysk * Henceforth the indicators are included into the financial reporting since the inclusion of the company into Inter RAO Group.
48 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.4.1. SEGMENT DESCRIPTION
The Supply in the Russian Federation segment covers 10 companies of Inter RAO Group that supply Prior to 2013, management of the Group’s energy supply assets was carried out by United Power Supply (sell) electricity to consumers. The segment comprises seven energy supply companies, guaranteeing Company. In 2013, a new management model was implemented in this segment: energy supply companies suppliers4,and three non-regulated energy supply companies that ensure the supply of electricity to large were put under the direct management of JSC Inter RAO, and United Power Supply Company was industrial enterprises5. liquidated, as it had fulfilled the task of integrating the Group’s energy supply assets.
THE GEOGRAPHICAL PRESENCE OF INTER RAO GROUP’S ENERGY SUPPLY COMPANIES AS OF THE END OF 2013 The Supply in the Russian Federation Title Status Territory of presence segment GENERATION IN RUSSIAN T Y FEDERATION RA ▷ JSC Mosenergosbyt L N IN D OF INTER RAO GROUP OPERATING ACTIVITY PP IA R IN U S N FE U G S S IO A DE SS (Group of companies) U T N R IA R A D AT N N ER EU I I D EGMENTS R O ▷ JSC St. Petersburg Power Supply E S O N Altayenergosbyt Guaranteeing supplier Altai Krai, Republic of Altai F P Company (PSK) E (Group of companies) G IN N N O Mosenergosbyt Guaranteeing supplier Moscow, Moscow Region A O R I I T ▷ JSC Tambov Power Supply E S T H E S A E N R I U R Company E R G PSK (St. Petersburg Power Guaranteeing supplier St. Petersburg, Leningrad Region D N N I E E ▷ JSC Saratovenergo F Supply Company) (Saratov Power Supply Inter RAO Company) Saratovenergo Guaranteeing supplier Saratov Region G Group ▷ JSC Altayenergosbyt Y E O E (Altay Power Supply Company) R K G R Tambov Power Supply Guaranteeing supplier Tambov Region I U St. Petersburg ▷ LLC Inter RAO – A T Company Oryol Energy Sales Company ▷ JSC Tomskenergosbyt Tomskenergosbyt Guaranteeing supplier Tomsk Region SEG TS N RUSSIAN A MEN (Tomsk Power Supply Company) TA RM S E KH ▷ LLC RN-Energo NI A A AZ Inter RAO - Oryol Energy Guaranteeing supplier Oryol Region K Sales Company FEDERATION ▷ LLC RT-Energotrade MOLDOVA MOSCOW ▷ JSC Promyshlennaya Energetika RN-Energo Non-regulated energy Krasnodar Krai, Stavropol Krai, Republic of Udmurtia, Oryol supply company Samara Region, Komi Republic, Tyumen Region (including Khanty-Mansi AO – Yugra, Yamalo- Tambov Nenets AO), Tomsk Region, Irkutsk Region, Saratov Krasnoyarsk Krai, Sakhalin Region Promyshlennaya Energetika Non-regulated energy Sverdlovsk Region, Volgograd Region, Moscow supply company Region, Perm Krai
4 The guaranteeing supplier (GS) is a supply company bound to enter into an energy supply contract with any individual or corporate RT – Energotrade Non-regulated energy Samara Region, Moscow Region, Nizhniy Novgorod Tomsk entity or other organisation located in the area of operation. The guaranteeing supplier acts within a certain area of operation. The GS sells supply company Region, Leningrad Region, Novosibirsk Region, retail electricity (capacity) they purchased on the wholesale market from grid supply points (GSP), corresponding to its area of operation, as Republic of Udmurtia, Republic of Bashkortostan and well as on the retail markets from energy supply (power supply) organisations and producers of electric energy (power). Republic of Tatarstan Barnaul 5 A non-regulated energy supply company is one which enters into an energy supply contract with a corporate entity in order to supply that entity with electricity. A non-regulated energy supply company independently buys capacity for the consumer from the guaranteeing supplier on the retail electricity and capacity market (RECM) or brings the consumer to the wholesale electricity and capacity market Gorno-Altaysk (WECM), buying energy for the consumer on WECM.
49 JSC Inter RAO / ANNUAL REPORT / 2013
5.4.2. POSITION OF THE SEGMENT IN THE MARKET
The energy supply companies of Inter RAO Group participate in the wholesale and retail electricity Supply Company) were pronounced the winners of tenders for the status of guaranteeing supplier in Oryol markets. In the reporting period the level of payment discipline of wholesale and retail electricity and Region and Omsk Region, respectively.6 capacity markets’ participants was decreasing, and as a result the amount of accounts receivable and accounts payable of energy supply companies was increasing. As per a decision of NP Market Council for During the reporting period, the segment included Tomskenergosbyt (Tomsk Power Supply Company), organizing efficient system of trading at wholesale and retail electricity and capacity market, 13 Russian which has the status of guaranteeing supplier in Tomsk Region. As of December 2013, the share of the energy supply companies were deprived of the status of guaranteeing supplier for violating payment Supply in the Russian Federation segment in the Russian retail electricity market amounted to 15.2%. discipline rules in the wholesale electricity market. To select new guaranteeing suppliers, Ministry of Energy of the Russian Federation held tenders for the status of a guaranteeing supplier in a range of In 2013, changes in legislation concerning the power and the housing & utility sector affecting the regions of the Russian Federation. In December 2013, in accordance with the Orders of Ministry of Energy activities of Inter RAO Group’s energy supply companies took effect. of the Russian Federation, Inter RAO – Oryol Energy Sales Company and PSK (St. Petersburg Power 6 See orders of the Russian Ministry of Energy dated December 10, 2013, No. 881 On Recognition as the Winner of a Competition to Award the Status of Guaranteeing Supplier in Oryol Region and December 10, 2013, No. 884, On Recognition as the Winner of a Competition to Award the Status of Guaranteeing Supplier in Omsk Region.
CHANGES IN THE REGULATORY FRAMEWORK OF POWER SECTOR THAT AFFECTED INTER RAO GROUP’S ENERGY SUPPLY COMPANIES’ 2013 FINANCIAL RESULTS
Regulatory acts Key provisions Consequences of the adoption of an act
Decree of the Russian Starting July 1, 2013, the elimination of a choice between the first and second price categories for Payment for consumption of electricity based on the maximum capacity for consumers with a Government dated May consumers with power-receiving equipment whose maximum capacity exceeds 670 kW. maximum capacity exceeding 670 kW, that do not correspond to requirements for the use of price 04, 2012 No. 442* categories 3 to 6. Growth in the revenue and gross margin of energy supply companies.
The order of the FTS of ▻▻ Establishment of new principles for the calculation of supply margins. Improvement of the mechanism of justification of economically grounded expenses and increased Russia dated October 30, ▻▻ Definition of return on sales for guaranteeing suppliers. level of collection of necessary gross revenue of energy supply companies. 2012 No. 703-e** ▻▻ Distribution of supply margins for the group “other consumers” into four subcategories of consumers depending on the maximum capacity of power-receiving equipment. ▻▻ Taking the compensation of shortfall in income of the guaranteeing suppliers from the cross- subsidisation of energy supply into account.
Decree of the Russian Cancellation of limitations on the use of the capacity payment ratio from July 1, 2013, with an aim to The guaranteeing suppliers obtaining additional grounded revenue vis-a-vis consumers who, for Government dated stimulate the choice of price categories by consumers, with the exception of the first one. whatever reason, did not refuse to have accounting done per the first price category. December 29, 2011 No. 1179***
Decree of the Russian Clarification of the procedure for determining the maximum capacity based on aggregate receiving A decrease of supply margins applied to the guaranteeing suppliers Government dated July equipment and relevant choice of price category by a consumer. 31, 2013 No. 652****
Decree of the Russian Establishment of the procedure for service payments related to energy supply based only on the rate Settlements of the guaranteeing supplier with the grid company for each energy supply point with Government dated May 4, option for these services chosen by the consumer starting January 1, 2013. the use of the rate chosen by the consumer 2012 No. 442
* Russian Government order dated May 4, 2012, No 442 Concerning the operation of retail electricity markets, complete and/or partial disconnection. ** Order of the Russian FTS dated October 30, 2012, No. 703-e, On approval of guidelines for calculating the supply margin of guaranteeing suppliers and the profitability of sales by guaranteeing suppliers. *** Russian Government Decree dated December 29, 2011, No. 1179, On determination and use by guaranteeing suppliers of unregulated prices for electricity (capacity). **** The Russian Government decree dated July 31, 2013, No. 652, On Amendment of Certain Russian Government Regulations to the Extent of Clarification of the Procedure for Determining the Aggregate Maximum Capacity of all Customer Power-Consuming Devices.
50 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.4.3. OPERATING RESULTS
In 2013, a total increase in the volume of electricity sales to OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013 consumers by 0.2% was seen in the segment. Main volume UOM 2012 2013 2013/2012, % of electricity sales in 2013 is provided by Mosenergosbyt Group – 53.4%, St. Petersburg Power Supply Group – 19.5% and RN-Energo – 12.7%. Net supply in Russia* mn kWh 1,016,333.2 1,009,739.8 –1 % Net supply for the Segment** mn kWh 152,957 153,234 +0.2 % Net supply share for the Segment in Russia % 15*** 15.2 +0.2 p.p. A CONSIDERABLE INCREASE IN ELECTRICITY SALES TO CONSUMERS WAS DEMONSTRATED BY THE FOLLOWING COMPANIES: Clients of energy supply companies (guaranteeing pcs. 10,648,323 11,305,406 +6.2 % OF INTER RAO GROUP OPERATING ACTIVITY suppliers) as of the end of the calendar year,**** including: ►► Mosenergosbyt Group – by 1.5% (+1,264 ►► RT-Energotrade – by 12.3% (+270 mn kWh) on mn kWh) due to the natural expansion of the account of growth in the number of consumers; households pcs. 10,302,603 10,929,733 +6.1 %
customer base; corporate entities and other organisations pcs. 345,443 375,358 +8.7 % ►► Tomskenergosbyt (Tomsk Power Supply grid companies pcs. 277 315 +13.7 % ►► RN-Energo – by 3.7% (+708 mn kWh) mainly Company), where only indicators for Q4 2013 Clients of energy supply companies (non-regulated pcs. 980 951 –3 % on account of carrying out of contractual are taken into account; the volume of electricity energy supply company) as of the end of the campaign, increase in the number of consumers sales was 1,109 mn kWh. calendar year, including: in compliance with the realisation of the households pcs. 184 154 –16.3 % prerogative right to energy supply to the consumers of Rosneft in accordance with the corporate entities and other organisations pcs. 792 793 0 % Agreement for obligations made between Inter grid companies pcs. 4 4 0 % RAO and Rosneft;
THE POSITIVE DYNAMICS OF ELECTRICITY SALES TO CONSUMERS WERE * In JSC Inter RAO’s 2012 Annual Report the figure “net supply in Russia” was based on data from SO UES on “Russia-wide” electricity sales (in 2012 PARTIALLY OFFSET BY THE DECREASE IN ELECTRICITY GENERATION IN OTHER - 1,038.1 bn kWh, in 2013 - 1,031.2 bn kWh). In JSC Inter RAO’s 2013 Annual Report data from SO UES “for Russia” are used. ** The net supply for the segment includes inter-segment revenue. The net supply for the segment excluding inter-segment revenue was 148.656 bn SUB-SEGMENTS: kWh in 2012 and 147.666 bn kWh in 2013. *** In JSC Inter RAO’s 2012 Annual Report, the share of net supply for the segment in Russia was calculated based on “Russia-wide” data from SO UES. In JSC Inter RAO’s 2013 Annual Report, the share of net supply for the segment in Russia was calculated based on “for Russia” data from SO UES. ►► Promyshlennaya Energetika – by 49.9% ►► Saratovenergo – by 5.0% (-314 mn **** Data from Tomskenergosbyt (Tomsk Power Supply Company) for the fourth quarter of 2013 was taken into account in calculating the company’s number of customers. (-2,259 mn kWh) on account of the withdrawal kWh) on account of entering into the of consumers of Mosenergosbyt (Moscow wholesale electricity and capacity market Power Supply Company), Volgogradergosbyt of such consumers of the company as (Volgograd Power Supply Company) and AZOT Oboronenergosbyt and Electricity Supply branch of Uralkhim; Company;
►► St. Petersburg Power Supply Group – by 0.9% ►► Altayenergosbyt – by 4.6% (-252 mn kWh). (-278 mn kWh);
51 JSC Inter RAO / ANNUAL REPORT / 2013
The energy supply companies of Inter RAO Group carry out various In the course of handling consumers’ communications, energy supply In 2013, the number of customers activities to increase the quality and availability of the energy supply companies actively use such external communication channels as to the consumers. These activities are: the mass media, public events, social networks, etc. among guaranteeing suppliers increased by 6.2% to 10.9 mn of ►► adoption of updated standards of quality of services provided to IN 2013, MOSENERGOSBYT’S CUSTOMER the consumers that comply with the requirements of the decrees COMPLAINTS CONCERNED MOSTLY ELECTRICITY households, 375 thousand legal of the Russian Government dated May 4, 2012 No. 442 and No. METER READINGS AND ELECTRICITY CHARGES, % entities and 315 grid companies. 354 dated May 6, 20117;
The greatest increase in the ►► provision of services concerning on-site, remote and off-site number of customers (more than services for consumers, including invitation of inspectors for 36,5% Electricity meter readings servicing of disabled persons and seniors at home; 1,6% Complaints from individuals and 200,000 households) accounts for organisations Mosenergosbyt Group as a result ►► installation of ramps at companies’ premises to ensure access to disabled persons; 7,8% Other of entering into new agreements 17,0% General issues and the acceptance of subscribers ►► provision of various online services, particularly with the use of of Khimenergosbyt in lieu of the Dashboard service at companies’ websites; settlements. ►► operating contact centres to provide consultations to consumers related to the accounting of and payment for electricity;
►► creation of teams to service English-speaking consumers.
To increase the quality of Inter RAO Group’s energy supply MOSENERGOSBYT’S In 2013, the market share of the companies’ customer service, much attention is being paid to CUSTOMER COMPLAINTS communications received from customers. The companies ensure TOPICS Group’s energy supply companies onsite and remote acceptance of consumers’ communications in Russia totalled 15.2%. via hotline, email, or virtual office. These communications mainly address the readings of electricity meters, the accounting of the volume of electricity consumed, and payments for electricity.
Fee-based services 2,9% Electricity charges 34,2% 7 Russian Government decree dated May 6, 2011, No. 354, On Providing Utility Services to Owners and Users of Premises in Multi-Apartment Buildings and Residential Houses.
52 5. OPERATING ACTIVITY OF INTER RAO GROUP
The quality and operating efficiency of the energy supply companies depend on the fulfilment of consumers’ contractual responsibilities. The energy supply companies of the Group aim to increase consumers’ payment discipline and decrease the volume of existing accounts receivable. One of the disciplinary measures to deal with systematically late payments for electricity is disconnection from the grid.
CLIENTS OF THE GROUP'S ENERGY SUPPLY COMPANIES PAY ELECTRICITY IN 2013, CLIENTS WERE RE-CONNECTED WITHIN 1-2 BUSINESS DAYS CHARGES WITHIN 48 HOURS OF DISCONNECTION FOLLOWING PAYMENT.
Inter RAO – Oryol Energy Sales Company (GS) 100% Inter RAO – Oryol Energy Sales Company (GS) 100.0% Mosenergosbyt (GS) 89.0% Saratovenergo (GS) 100.0% RN-Energo 82.4% Altayenergosbyt (GS) 58.5% St. Petersburg Power Supply Company (GS) 48.0% St. Petersburg Power Supply Company (GS) 52.0% Tambov Power Supply Company (GS) % % 39.0 Tomskenergosbyt (GS) 40.0 OF INTER RAO GROUP OPERATING ACTIVITY Tomskenergosbyt (GS) 35.3% Tambov Power Supply Company (GS) 37.4% Altayenergosbyt (GS) 21.9% RN-Energo 20.4% % % Saratovenergo (GS) 1.7 Mosenergosbyt (GS) 13.0
Time elapsed between disconnection and the moment payment is made Time elapsed between the moment payment is made and re-connection Less than 48 hours 48 hours – 1 week 1 week – 1 month Less than 24 hours 24 hours – 1 week More than 1 week 1 month – 1 year More than 1 year
To ensure a long-term relationship with its customers, in 2013 energy supply companies of Inter RAO Group carried out comprehensive activities related to the optimisation of energy consumption and promotion of energy and resource saving, including:
►► conducting workshops for the accounting ►► participation in exhibitions and forums on ►► carrying out energy inspections ►► entering into energy service contracts for and optimisation of consumption of electricity, energy saving; (energy audits) in multi-apartment carrying out energy- and resource-efficient particularly by corporate customers using houses and public-sector organisations; activities with the participation of companies’ power-receiving equipment with capacities ►► carrying out trainings in energy saving for customers. exceeding 670 kW; school pupils; ►► development and promotion of technical solutions for the implementation of energy- ►► arrangement of round-table discussions ►► providing consultations on energy saving and resource-efficient technologies at and events related to energy conservation at the official websites of companies; customers’ facilities, as well as schemes for for households and corporate entities, financing them; including homeowners’ associations, building ►► targeting customers of companies co-operatives and the boards of multi- that promote energy saving technologies; apartment houses;
Collaboration of Group’s energy supply companies with electricity consumers promotes efficiency of activities within the segment and the creation of new promising areas of its development in the domestic electricity and capacity market.
53 JSC Inter RAO / ANNUAL REPORT / 2013
5.4.4. FINANCIAL RESULTS 5.4.5. DEVELOPMENT PROSPECTS
In 2013, the external revenue of the Supply in the Russian Federation segment increased by 13% Inter RAO Group has determined four strategic directions for development of the energy supply amounting to RUR 404 bn. The increase in the revenue is mainly based on the increase in prices (tariffs) companies: participation of companies in lawmaking process related to the power and housing & utility of energy supply companies, growth in the customer base and inclusion of Tomskenergosbyt, where the sector, an increase in operating efficiency, retention and development of the customer database, and revenue amounted to RUR 2.4 bn in Q4 2013 in the framework of consolidation of the Group. development of additional paid services.
EBITDA throughout the segment grew by 12% amounting to RUR 7.1 bn. An increase in EBITDA is Participation in development of new regulation in the area of power energy and the housing & utility demonstrated by the guaranteeing suppliers of this segment based on the increase in prices (tariffs) of sector promotes participation of energy supply companies in improvement of electricity and capacity supplying companies and an increase in the volume of additional services provided. A decrease in EBITDA markets in Russia. In the reporting period, the Group’s companies participated in the work of governmental was demonstrated by non-regulated energy supply companies of this segment based on both changes in authorities related to the making of social norms of electricity consumption and discussion of changes the customer base and substitution of the Federal Grid Company of the Unified Energy System consumer in the rules of accounting of and payment for electricity consumption. Active participation of the Group’s connection scheme by the grids of the distribution grid companies with a higher price of energy supply energy supply companies in lawmaking process will allow for the elimination of the existing discrepancies services. in the legislation that in practice provoke discussions between market participants and as a result negatively affect the financial and economic position of energy supply companies. The segment’s share in the EBITDA decreased by 5.6 p.p. In fact, EBITDA margin for the segment increased, taking the activities related to the capacity utilisation time in Q1 2012 into account. The factors Improving operating efficiency becomes a dominating factor of growth in the segment and its adaptation of changes are a decrease in a range of operating costs and an increase in revenue from provision of to the changes in regulation of electricity and capacity markets. An increase in operating efficiency of additional services, e.g. installation of electricity meters and energy audit. the Group’s energy supply companies is to be realised through creation and implementation of a target model of an energy supply company (taking the parameters of the standard energy supply model) and optimisation of work with accounts receivable in the segment. As a result of changes in the management model of energy supply companies the prices lowered and the efficiency of managerial activities increased, FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013 functional responsibilities of subdivisions are redistributed, new corporate organisations and staffing charts are approved, and the role of general directors is increased. UOM 2012 2013 2013/2012, % (restated) Development of the customer base is focused on creating an optimum system of assessment of customer satisfaction in relation to the provided services and obtaining feedback. In the future the Revenue RUR mn 359,105 404,290 +13 % companies of the Group plan to maintain and actively develop relations with customers, which will allow to considerably increase presence of the companies of the segment on the market. Share in Inter RAO Group revenue % 65 61 –4 p.p.
Operating expenses, including: RUR mn Provision of additional paid services to the consumers allows for ensuring diversification of energy Purchased electricity and capacity RUR mn (191,675) (218,851) +14 % supply companies activities and develops new areas of operating activities. In 2013 a range of companies entered into service contracts and performed energy service-related activities and installation of energy Electricity transmission expenses RUR mn (146,025) (163,522) +12 % saving equipment for the customers. The list of promising services also includes installation and servicing EBITDA RUR mn 6,287 7,060 +12 % of heat and water meters and provision of services related to the utility billing system8, sales of insurance EBITDA margin % 1.8 1.7 –0.1 p.p. and financial services and services related to the electricity quality inspection. Share in Inter RAO Group EBITDA % 23.6 18.0 –5.6 p.p.
8 The utility billing system is a set of processes and decisions that includes collecting information on usage by housing and public utilities, pricing, subscriber billing, and payment processing.
54 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.5. TRADING IN THE RUSSIAN FEDERATION AND EUROPE
Inter RAO is the largest Russian player at the international electricity supply (sales) market.
Share in electricity exports and imports In 2013 the revenue from the Trading SWEDEN in the Russian Federation is 97%. in the Russian Federation and Europe
FINLAND segment amounted to RUR 47,484 mn. OF INTER RAO GROUP OPERATING ACTIVITY ESTONIA
LATVIA LITHUANIA BELARUS MOSCOW MOLDOVA UKRAINE RUSSIAN FEDERATION
Blagoveschensk
TURKEY GEORGIA ARMENIA KAZAKHSTAN AZERBAIJAN
MONGOLIA
CHINA 55 JSC Inter RAO / ANNUAL REPORT / 2013
5.5.1. SEGMENT DESCRIPTION
In 2013, the Trading in the Russian Federation and Europe segment included trading operation in the following countries: Finland, Norway, Belarus, Lithuania, Latvia, Estonia, Ukraine, Georgia, Azerbaijan, Kazakhstan, South Ossetia, Mongolia and China. The operations are performed by the companies of Inter The Trading in the Russian Federation and Europe RAO Group: JSC Inter RAO, RAO Nordic Oy, AB Inter RAO Lietuva, SIA Inter RAO Latvia, OU Inter RAO segment Eesti and Eastern Energy Company (EEC). ▷ JSC Inter RAO ▷ RAO Nordic Oy ▷ AB Inter RAO Lietuva ▷ SIA Inter RAO Latvia Collaboration of the companies promotes achievement of ▷ Inter RAO Eesti OU ▷ Inter Green Renewables and Trading AB maximum synergy within the framework of the Group’s ▷ JSC Eastern Energy Company (EEC) trading activities at the regional markets.
GENERATION IN RUSSIAN EDERATION TR LY N F IN AD JSC INTER RAO PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N In the Trading in the Russian Federation and Europe segment JSC Inter RAO acts as an export and import F P E operator on the territory of the Russian Federation. Throughout 2013, Inter RAO ensured supplies both G N I N N O under commercial contracts and within the framework of ensuring reliable synchronous operation with R A I O T E I S H E T S A E N foreign power systems and rendering emergency aid. R I U R
G R E
N D N E I E F Inter RAO
G Group E Y E RAO NORDIC OY O R K G R I U A T RAO Nordic Oy is registered in Finland and is a subsidiary of Inter RAO Group. Development of RAO Nordic Oy’s business is of strategic importance to the expansion of the Group’s presence in the European SEGMENTS N A A market. RAO Nordic Oy purchases electricity from JSC Inter RAO under a supply agreement and ensures R ST M H EN K IA ZA its further sale in the electricity market in Northern Europe, also selling electricity to contractors via direct KA MOLDOVA contracts. Moreover, RAO Nordic Oy ensures trading of standard and structured energy derivatives on the Nasdaq OMX Commodities exchange.
56 5. OPERATING ACTIVITY OF INTER RAO GROUP
AB INTER RAO LIETUVA OU INTER RAO EESTI
AB Inter RAO Lietuva is part of the trading segment of Inter RAO Group, having commenced its activities OU Inter RAO Eesti was established in 2010 with an aim to create a competitive energy trading company in 2002. AB Inter RAO Lietuva is a leading participant of the electric energy market in the Baltic states in the Estonian market. and one of the largest independent suppliers of electricity in Lithuania, and developing its activities in Latvia, Estonia and Poland. Currently, the Inter RAO Lietuva comprises such subsidiaries as Inter RAO Latvia, Inter RAO Eesti, IRL Polska Sp. z o.o. and UAB Vydmantai wind park.9 The company trades at the Nord Pool European energy market. IRL POLSKA SP. Z O.O. OF INTER RAO GROUP OPERATING ACTIVITY
Through UAB Vydmantai Wind Park Inter RAO Lietuva is presented at the electricity generation sector, IRL Polska Sp. z o.o. is a subsidiary of Inter RAO Lietuva in Poland. The company was established in being an owner and manager of one of the largest wind parks in the Baltic states located in Western 2012 in order to expand the Group’s activities in the region. The authorised capital of the company was Lithuania. The company actively collaborates with partners in the Baltic states and Scandinavia, Russia, increased from PLZ 2 mn to PLZ 10 mn in November 2013.
Belarus, and Poland.
A 51% shares of Inter RAO Lietuva belong to the Finnish RAO Nordic Oy, 29% of shares belong to the Lithuanian investment company UAB Scaent Baltic, and there is a 20% free float. EASTERN ENERGY COMPANY (EEC)
EEC, a subsidiary of Inter RAO, was established in 2007 in order to develop projects related to the export of electricity to China and Mongolia and extend cooperation in the electric energy sphere with other Asia SIA INTER RAO LATVIA Pacific countries. The company also participated in implementation of power development in the Far East and Siberia regions. Inter RAO Latvia was established in January 2010 with an aim to create a competitive company that sells electricity in the Latvian market. In March of the same year, the company obtained a licence of an independent electricity supplier that permits retail sales in the Latvian energy market. The company is one of the largest electricity suppliers in the country, supplying electricity to the business and public sector in Latvia.
9 Operational, financial, and economic results for UAB Vydmantai wind park are taken into account in Other.
57 JSC Inter RAO / ANNUAL REPORT / 2013
5.5.2. POSITION OF THE SEGMENT IN THE MARKET 5.5.3. OPERATING RESULTS
Companies of this segment work at the electricity markets of the Russian Federation, the countries of In 2013, the volume of JSC Inter RAO’s electricity export from the Russian Federation, taking into Northern Europe10 and the Baltic states11, Azerbaijan, Belarus, Georgia, Ukraine, Kazakhstan, Mongolia, account EEC’s electricity supply to China and Mongolia and without agency agreements decreased by 4% and China. compared with 2012, amounting to 17,539 mn kWh.
In the Russian Federation, JSC Inter RAO trades electricity at the wholesale electricity and capacity In 2013, exported electricity supplies of EEC to China and Mongolia totalled 3,909 mn kWh, which topped market. The main volume of trading operations is carried out in the day-ahead market sector of the the 2012’s figure by 29.3%. The increase in electricity export to the Mongolian and Chinese markets wholesale electricity and capacity market. occurred due to increasing demand for competitive Russian electricity in these markets.
In the countries of Northern Europe and the Baltic states the companies of this segment carry out activities at a single exchange, Nord Pool. The exchange offers day-ahead and intraday trading. Also in the IN 2013, THE INCREASE IN THE VOLUME OF ELECTRICITY EXPORT IN A RANGE OF AREAS WAS countries of Northern Europe there is a unified exchange, Nasdaq OMX Commodities, for trading derivative OFFSET BY DECREASE IN EXPORT VOLUMES IN OTHER AREAS industrial and financial instruments. An increase in the volume of electricity export A decrease in the volume of electricity export
COMPETITORS IN THE TRADING IN THE RUSSIAN FEDERATION AND EUROPE SEGMENT 865 mn kWh to China 1,212 mn kWh to Lithuania due to an increase in the contractual electricity due to throughput limitations on the part of the Name of competitor Sphere of competition Region Competitor advantages volume. Transmission occurs via the 500 kV system operators in the Baltic states starting Q2 (company) Amurskaya-Khekhe transmission line. 2013 for electricity supplies from Russia
313 mn kWh to Finland 616 mn kWh to Kazakhstan Russian generating Import of electricity into Russia Payment to domestic generating due to an increase in prices at the Nord Pool including 370 mn kWh due to fewer deviations companies Russia companies in the Russian exchange, in the Finland zone between synchronously operating power systems capacity market, and non- in Russia and Kazakhstan and 246 mn kWh due to payment for imported capacity a decrease in commercial export
Ukrainian electric energy Electric energy supply to Belarus, Moldova Surplus capacity, geographic companies Belarus, Moldova position In 2013, the total volume of electricity imported by Inter RAO Group to the Russian Federation increased by Azenergy (Azerbaijan) Supply of electricity to Transcaucasian Surplus capacity 75% compared with the preceding year. Georgia energy systems
Suppliers of electricity in Supply of energy to Kazakhstan Hydropower potential In 2013, the volume of import to the Russian Federation compared with the previous year is based on an Central Asia (Kyrgyzstan) Kazakhstan increase of 99%, i.e. 1,958 mn kWh, of electricity supply from Kazakhstan. The trend of increasing electricity imports from Kazakhstan can be explained by the technical and economic opportunity to ensure mutually Electricity suppliers and Electricity supply to the Finland, the Baltic Seasonal (by year) possibility of traders from the countries countries of Northern states electricity generation with a low beneficial commercial electricity supplies. of Northern Europe and Europe and Baltic states product cost Baltic states
10 The countries of Northern Europe referred to in this report are Finland and Norway. 11 The Baltic states include Estonia, Latvia, and Lithuania.
58 5. OPERATING ACTIVITY OF INTER RAO GROUP
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
UOM 2012 2013 2013/2012, %
Electricity sold, mn kWh 21,777 23,854 +9.5 % including: Russian Federation mn kWh 2,587 4,564 +76.4 % Countries of Northern Europe mn kWh 3,861 4,836 +25.3 % Lithuania mn kWh 3,895 3,615 –7.2 % Belarus mn kWh 3,807 3,712 –2.5 % Latvia mn kWh 1,114 640 –42.6 % China mn kWh 2,630 3,495 +32.9 %
Mongolia mn kWh 393 414 +5.2 % OF INTER RAO GROUP OPERATING ACTIVITY Other mn kWh 3,490 2,578 –26.1 %
Including the volumes of export and import electricity supplies over the border of the Russian Federation.
ELECTRICITY EXPORT OF INTER RAO GROUP OVER THE BORDER OF THE RUSSIAN ELECTRICITY IMPORT OF INTER RAO GROUP OVER THE BORDER OF THE RUSSIAN FEDERATION WITHOUT AGENCY AGREEMENTS FEDERATION
Export volume UOM 2012 2013 2013/2012, % Import volume UOM 2012 2013 2013/2012, %
Total export volume, including the following mn kWh 18,364 17,539 –4 % Total import volume, including the following mn kWh 2,608 4,564 +75 % vectors: vectors: Azerbaijan mn kWh 56 57 +3 % Azerbaijan mn kWh 241 129 –47 % Belarus mn kWh 3,698 3,597 –3 % Belarus mn kWh 4 2 –48 % Georgia mn kWh 517 461 –11 % Georgia mn kWh 369 371 +0.3 % Kazakhstan mn kWh 2,284 1,668 –27 % Kazakhstan mn kWh 1,973 3,931 +99 % China mn kWh 2,630 3,495 +33 % Lithuania mn kWh 0 99 - Lithuania mn kWh 4,780 3,568 –25 % Mongolia mn kWh 21 23 +11 % Mongolia mn kWh 393 414 +5 % Ukraine mn kWh 0 6 - Ukraine mn kWh 82 39 –53 % Finland mn kWh 0 3 - Finland mn kWh 3,794 4,107 +8 % South Ossetia mn kWh 130 134 +3 %
59 JSC Inter RAO / ANNUAL REPORT / 2013
5.5.4. FINANCIAL RESULTS
In 2013, revenue from the Trading in the Russian Federation and Europe segment increased by 5%, i.e. RUR 2 bn, compared with the previous year.
The increase in the revenue is based on the increase in the Russian electricity supply for export and The revenue of the companies of this segment in the countries of Northern Europe and the Baltic states increase in electricity sales in the Russian market due to the increased electricity import from Kazakhstan. depends of the prices at Nord Pool. In 2013, the prices at Nord Pool remained at a low level due to the The increase in the revenue was partly offset due to the decrease in the revenue of AB Inter RAO Lietuva higher than average air temperature in the countries covered by Nord Pool Spot, and the high productivity as a result of unfavourable pricing in the energy market of the Baltic states and falling revenue from of wind generators. The situation at Nord Pool also affects the electricity prices in Lithuania. supplies to Kazakhstan and Belarus. The EBITDA of this segment decreased by 33%, and EBITDA margin decreased by 4 p.p. compared In 2013, the shares of a range of countries in the total revenue of the segment increased: with similar indicators for the previous year. A drop in the indicator is first and foremost based on the outstripping growth of fuel prices in Russia compared with the prices for electricity sold. A relatively small ►► Countries of Northern Europe - by RUR 2 bn as a result of an increase in the volume of export and absolute change in EBITDA accompanied by the relatively high rate of growth in prices of purchased higher prices on the Nord Pool exchange; electricity can be explained first and foremost by a refocusing on electricity import from Kazakhstan, where the price of the purchased electricity remains at a relatively low and more competitive level. A ►► China - by RUR 1.7 bn as a result of an increase in demand for electricity on the part of the importer, decrease in EBITDA has resulted from an overall decrease in the marginality of AB Inter RAO Lietuva’s taking the conditions of a long-term energy supply contract into account; trading activities due to the technical constraint on network transmission capacity on the part of system operators in the Baltic states, and the climbing prices of imported electricity. These negative effects were ►► Russia - by RUR 0.5 bn due to greater domestic sales of electricity imported from Kazakhstan. partially eliminated due to the growth in EBITDA, related to the trading activities of RAO Nordic Oy and Eastern Energy Company. In 2013, the shares of a range of countries in the total revenue for the segment decreased:
►► Lithuania and Latvia - by RUR 1.3 bn for two counties due to constraints on network transmission capacity (by system operators of the Baltic states) for electricity supplies from Russia;
►► Kazakhstan - by RUR 0.7 bn due to a falling volume of electricity as part of a simultaneous running of energy systems in Russia and Kazakhstan.
60 5. OPERATING ACTIVITY OF INTER RAO GROUP
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
UOM 2012 2013 2013/2012, % (restated)
Revenue, including: RUR mn 45,249 47,484 +5 % Russian Federation RUR mn 12,294 12,886 +5 % Countries of Northern Europe RUR mn 6,210 8,160 +31 % Lithuania RUR mn 7,324 6,579 –10 % Belarus RUR mn 7,356 6,980 –5 % Latvia RUR mn 2,055 1,444 –30 % China RUR mn 4,023 5,699 +42 % other RUR mn 5,987 5,736 –4 % OF INTER RAO GROUP OPERATING ACTIVITY Share in Inter RAO Group revenue % 8 7 –1 p.p. Purchased electricity and capacity RUR mn (35,957) (38,989) +8 % Electricity transmission expenses RUR mn (4,498) (4,654) +3 % EBITDA RUR mn 4,396 2,930 –33 % EBITDA margin % 9.7 6.2 –3.5 p.p. Share in Inter RAO Group EBITDA % 16.5 7.5 –9.0 p.p.
5.5.5. DEVELOPMENT PROSPECTS
In the short-term perspective, the activities of the Trading in the Russian Federation and Europe segment Other areas of development of the companies of this segment are diversification of their activities and will be greatly affected by completion of the NordBalt cable connecting Lithuania and Sweden in 2014- entering new markets. Thus, RAO Nordic Oy plans to create the European trading house that provides 2015. Completion of this project will result in creation of the following opportunities to increase the export a wide range of energy and industrial products. These development areas include the sale of standard of electricity by the Group’s companies: instruments (forwards, contracts for difference), structured instruments (options, profile products and swaps). Future plans provide for an expansion of commercial presence in the financial sector of the ►► increase in the grid transmission capacity in the countries of Northern Europe and the Baltic states; Swedish market. IRL Polska Sp. z o.o. plans active development of activities related to the sales of electricity purchased in the Polish market.12 In the medium-term and long-term perspective IRL Polska ►► increase in integration processes in the European electricity market in general. Sp. z o.o. is intended to ensure electricity import and export. The long-term plans include broadening the range of services and the supply of electricity to retail consumers.
12 In January 2014, a license valid through January 2024 was granted to IRL Polska Sp. z o.o. for the sale of electricity in Poland.
61 JSC Inter RAO / ANNUAL REPORT / 2013
5.6. ENGINEERING IN THE RUSSIAN FEDERATION
RUSSIAN FEDERATION
Tula Region Cherepetskaya TPP Perm Krai Khanty-Mansi Autonomous District Permskaya TPP Nizhnevartovskaya TPP Sverdlovsk Region Dzhubginskaya TPP Chelyabinsk Region Verkhnetagilskaya TPP Troitskaya TPP Yuzhnouralskaya TPP-2 Omskaya CHPP-3 Gusinoozyorskaya TPP
Ekibastuz TPP-2 KAZAKHSTAN VENEZUELA
Implemented Projects in 2013
Ongoing projects in the Russian Federation ECUADOR
Ongoing projects abroad
62 5. OPERATING ACTIVITY OF INTER RAO GROUP
IMPLEMENTED PROJECTS IN 2013 Three RUR 30.6 bn worth projects with a capacity of 495 MW.
DZHUBGINSKAYA TPP GENERATING UNIT NO. 4 CCGT-90 Krasnodar Krai OF GUSINOOZYORSKAYA TPP AT OMSKAYA CHPP-3 Republic of Buryatia Omsk Region
RUSSIAN OF INTER RAO GROUP OPERATING ACTIVITY
FEDERATION
Tula Region Cherepetskaya TPP Perm Krai Khanty-Mansi Autonomous District Permskaya TPP Nizhnevartovskaya TPP Sverdlovsk Region Dzhubginskaya TPP Chelyabinsk Region Verkhnetagilskaya TPP Troitskaya TPP Yuzhnouralskaya TPP-2 ONGOING PROJECTS Eight ongoing RUR 186 bn worth projects (as of December 31, 2013). Omskaya CHPP-3 IN THE RUSSIAN FEDERATION Gusinoozyorskaya TPP Total capacity of ongoing projects - 3.5 GW. Location of the facilities - Sverdlovsk Region, Perm Krai, Tula Region, Ekibastuz TPP-2 Chelyabinsk Region (3 projects), Khanty-Mansi Autonomous District (Nizhnevartovsk). KAZAKHSTAN VENEZUELA ONGOING PROJECTS Implemented Projects in 2013 ABROAD* Four ongoing USD 1,683 mn worth projects. Total capacity of ongoing projects - 1.6 GW. Ongoing projects in the Russian Federation ECUADOR Location of the facilities - Ecuador (2 projects), Venezuela, Kazakhstan.
Ongoing projects abroad * The projects are financed by the clients.
63 JSC Inter RAO / ANNUAL REPORT / 2013
5.6.1. SEGMENT DESCRIPTION The Engineering in the Russian Federation segment The Engineering in the Russian Federation covers Inter RAO – Engineering, Quartz – New Technologies ▷ LLC Inter RAO – Engineering (equity accounted investee), QUARTZ Group (equity accounted investee up to August 5, 2013), InterRAO − ▷ LLC Quartz – New Technologies WorleyParsons (equity accounted investee), Inter RAO UES Power Efficiency Centre (equity accounted ▷ LLC Quartz Group investee), Interenergoeffect (equity accounted investee) (up to December 31, 2012), CP Energy Union, Inter ▷ LLC InterRAO − WorleyParsons RAO Export and Non-for-profit Fund Energy Beyond Borders. ▷ LLC Interenergoeffect ▷ LLC Inter RAO Export ▷ CP Energy Union ▷ LLC Inter RAO UES Power Efficiency Centre ▷ Non-for-profit Fund Energy Beyond Borders Detailed information on the activities of the Energy Beyond Borders Fund and Inter RAO UES Power Efficiency Centre is available in the subsections devoted to the Energy Beyond Borders Fund and Energy Efficiency
GENERATION IN RUSSIAN EDERATION TR LY N F IN AD PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E
G Inter RAO – Engineering is the Group's key engineering asset N I N N O R A T I IO E H S T E S A E N that ensures the management of all the Group's core assets R I U R
G R E
N D N I E E F Inter RAO and the realisation of the investment programme vis-a-vis construction and modernisation of new generating capacities.
G Group E Y O E R K G R I U A T
SEGMENTS N A A Inter RAO – Engineering and Quartz – New Technologies specialise in construction project management and R ST M H EN K IA ZA modernisation of electric power facilities in Russia and abroad. KA MOLDOVA Quartz Group, created in 2005, is a holding structure that unites repair enterprises created as a result of the reform of the power energy sector based on the centralised industrial and repair subdivisions of the largest energy JSC. The created enterprises retained their specialisation in various areas and types of repair.
As of December 31, 2012, the share of Inter RAO Group in Quartz Group totalled 50.1% (equity accounted investee). On August 5, 2013, the Group purchased an additional share in Quartz Group (49.9%), and as a result its ownership increased to 100%.
On 2 December 2013, Quartz Group was reorganised via merger with FPR, REM, KATEKenergoremont, Quartz - Western Siberia, PermGRESenergoremont, Energoremont, Energoavtomatika, Remservis KGRES, PRP Omskenergoremont, ISKOM and Energoservis. As a result, a single operating company with industrial branches and a head office in Moscow was created. The main customers of these enterprises are the largest power energy companies: Inter RAO – Electric Power Plants, E.ON Russia, OGK-2, Fortum (TGK-10), TGK-2, TGK-11, Bashkir Generation Company.
64 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.6.2. POSITION OF THE SEGMENT 5.6.3. OPERATING RESULTS IN THE MARKET
Creation and development of the engineering services market in the Russian power sector is tied to the necessity of modernising the existing and commissioning new generating facilities. The most In 2013 the aggregate portfolio of successfully implemented projects of the dynamic sector of the engineering services market is construction of power energy infrastructure for the energy enterprises. Currently, companies in the Engineering in the Russian Federation segment formed the largest engineering services companies in Russia are Group E4, 3 projects on construction of new generating units with a total capacity of United Company NIAEP – Atomstroyeksport, TEK-Mosenergo and VO Technopromexport. These companies implement approximately 495 MW and a grid construction project “Construction of an electricity supply half the projects pertaining to construction, modernisation and system of the skiiing resort “Bolshoy Vudyarv” (Kirovsk, Murmansk Region). reconstruction of power and heat generating facilities. OF INTER RAO GROUP OPERATING ACTIVITY
The Russian engineering services market is focused on the cutting edge trends in construction and modernisation of power facilities. These trends include increase in requirements for the quality and The current order portfolio consists of 12 projects with a total installed capacity quantity parameters of new power and heat generating facilities, of 5.2 GW. increase in the number of power and heat generating facilities under construction that use renewable energy sources (RES) and increasing automation of management processes and use of higher These include the construction of new generating facilities in The main result of activities of Inter RAO Invest – Engineering technical requirements to qualification of employees in engineering Russia, Kazakhstan, Ecuador and projects to supply and assembly in 2013 was completion of a range of projects related to the companies. equipment for the needs of state and private power energy construction, modernisation and reconstruction of power and heat companies in Venezuela and Ecuador. generating facilities in Russia: In the reporting period, the main areas of activities of the companies in this segment were construction and modernisation of power Compared with the previous year, in 2013 total amount of contracts ►► construction of Dzhubginskaya TPP with an installed capacity facilities, engineering consulting, work related to research, design, of Inter RAO Invest – Engineering increased by 19.6% and total price of 200.7 MW in Krasnodar Krai for Inter RAO – Electric Power calculation and analysis, agency services pertaining to supply of of contracts of Quartz – New Technologies increased by 47.4%, and Plants; the equipment and performance of an agent’s functions under total price of the contracts of InterRAO – WorleyParsons decreased the agreements with Inter RAO. Moreover, the set of segment by 31.2%. ►► construction of combined cycle generating unit with an installed contracts covers the entire territory of the Russian Federation: large- capacity of 85.2 MW at Omskaya CHPP-3 for TGK-11; scale projects are implemented in Ural, North Caucasian, Central, Volga, Southern, North-Western and other districts of the Russian ►► reconstruction of the coal-fired generating unit No. 4 of Federation. Gusinoozyorskaya TPP with an installed capacity of 210 MW for Inter RAO – Electric Power Plants.
65 JSC Inter RAO / ANNUAL REPORT / 2013
In 2014 Inter RAO Invest – Engineering plans to complete the following current projects: 2013 PORTFOLIO STRUCTURE BY TYPE OF ACTIVITY ►► construction of two coal-fired generating ►► construction of two combined cycle generating Type of activity 2013 portfolio units with a total capacity of 450 MW at units with a total capacity of 800 MW at Cherepetskaya TPP for Inter RAO – Electric Uralskaya TPP-2 for Inter RAO – Electric Power Power Plants; Plants; ▻▻ Construction of the Yuzhnouralskaya TPP-2 energy complex (Unit No. 1, Unit No. 2) ►► construction of the generating unit with a total ►► supply of gas turbine generator packages with ▻▻ Construction of Dzhubginskaya TPP (Units No. 1, 2) capacity of 400 MW at Nizhnevartovskaya TPP a total capacity of 423.8 MW for Bariven S.A., ▻▻ Construction of two generating units with a capacity of 225 MW at for Inter RAO – Electric Power Plants; to Venezuela. The function of customer Cherepetskaya TPP (Unit No. 8, Unit No. 9) vis-a-vis construction and modernisation of power energy ▻▻ Reconstruction and restoration of generating unit No. 4 of During the reporting period, Inter RAO – Engineering successfully implemented the optimisation and facilities Gusinoozyorskaya TPP simplification of the management system so as to comply with the requirements of the ISO 9001, ▻▻ Construction of the combined cycle generating unit of Permskaya TPP ISO 14001, and OHSAS 18001 international standards. A certification audit was carried out by the TUV with an installed capacity of at least 800 MW NORD SERT GmbH international certification organisation, and in December 2013 Inter RAO Invest – ▻▻ Construction of the combined cycle generating unit of Engineering was issued an Integrated Management System certificate of compliance. In 2013, the Verkhnetagilskaya TPP with an installed capacity of at least 410 MW company obtained a preliminary certificate; the main certificates will be issued to the company in 2014. Engineering consulting No orders in 2013. The main result of the activities of Quartz - New Technologies in 2013 was the completion of a range of ▻▻ The agent’s function under the contract No. IRAO/IRE-001P dated projects on construction, modernisation and feasibility studies for power and heat generating facilities The agent’s function under the December 29, 2012 (research of new projects) in Russia. Thus, in collaboration with Inter RAO – Engineering, the company completed a construction contracts with JSC Inter RAO ▻▻ The agent’s function under the contract No. IRAO/IRE-002A dated project of Dzhubginskaya TPP, the arrangement of “Bolshoy Vudyarv” electricity supply system for Apatit December 29, 2012 (supply of gas turbine generators to Venezuela) and prepared feasibility study for construction of Volga TPP for Volga. In 2014, Quartz - New Technologies ▻▻ Development of a preliminary feasibility study for reconstruction of plans to complete the project for construction of the coal-fired generating unit with an installed capacity of the generating units of CCGT-250 No. 11, 12 of Moldova TPP with 660 MW at Troitskaya TPP for OGK-2. substitution of the existing gas turbines GT-25-770-3 with modern CCGTs In 2013, InterRAO – WorleyParsons carried out a range of projects in the sphere of engineering consulting: ▻▻ Development of operating documents for the TPP-5 CCGT capital construction facility in Ufa ►► provision of consulting services in the course of construction of a nuclear plant in Turkey; ▻▻ Development of a project for reconstruction of hydropower installation of the (coal) ash disposal area (site) No. 2 based on the results of multi-factorial research with the project expertise for the needs of ►► preparation of feasibility study on construction of a coal-chemical plant in Rostov region; Verkhnetagilskaya TPP, branch of Inter RAO – Electric Power Plants Work related to research, design, ▻▻ Development of the project pertaining to construction of the new fuel ►► provision of consulting services pertaining to consideration and analysis of tender documents of the calculation and analysis oil pumping station for the needs of the 3-1 priority generating units of consortium for participation in the tender for construction of two units of a nuclear plant in the Czech the existing surface tankage at Cherepetskaya TPP Republic. ▻▻ Development of a project related to the performance of works for transfer of the existing simultaneous generation of electricity and heat from the 1st priority to the 3rd priority for the needs of Cherepetskaya The company also entered into an agreement for development of preliminary feasibility study for TPP construction of the nuclear plant in the Republic of Serbia. ▻▻ The field supervision in the course of assembly of pipelines at the generating units of No. 9 at Novocherkasskaya TPP ▻▻ Development of technical documentation and performance of survey for the needs of TERMOGAS Machala power plant (TPP)
Agency services on supply of ▻▻ Agency services under the GE Energy Products France, SNC contract equipment
66 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.6.4. FINANCIAL RESULTS 5.6.5. DEVELOPMENT PROSPECTS
In 2013, the revenue of the Engineering segment was made in accordance with the concluded agreements The main goals of Inter RAO – Engineering and other sectoral companies with respect to implementation for provision of contractual services, equipment supply, energy and technical audit, expertise in the area of of projects on construction and modernisation of energy facilities are: standardisation and performance of technical agent and developer-customer’s functions. ►► promotion of engineering services at the ►► optimisation of expenses in the course of the Expenses are planned taking into account the out-of-pocket expenses and direct expenses related to the markets being external for the Group; capital construction project management; provided services. The negative EBITDA indicator is based on the specifics of this business, namely: long cycle of project implementation, as well as inclusion of scientific research, experimental and design, experimental ►► growth in the project portfolio; ►► implementation of the best international and technological works and innovative activities in the aggregate results of activities of a non-commercial practices related to quality management, organisation Energy Beyond Borders Fund that implements the Programme with an aim of development of ►► high-quality implementation of current projects, ecological security and occupational health and scientific and technological potential of energy enterprises. ensuring compliance with the established safety. periods of commissioning of power energy facilities and guaranteed power technical OF INTER RAO GROUP OPERATING ACTIVITY indicators of energy facilities; FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013 In the future Inter RAO – Engineering plans development of its activities related to design of energy UOM 2012 2013 2013/2012, % facilities, particularly, with the use of 3D design, based on Teploenergoproekt – Ivanovo branch of (restated) Inter RAO – Engineering and employment of highly qualified personnel sufficient to enter general design contracts. The Company aims to be seen in the engineering-services market as a general contractor on Revenue* RUR mn 1,034 2,712 +162 % projects pertaining to capital construction and modernisation of power energy facilities in Russia and abroad, providing the best comprehensive solutions in this area to its customers. Share in Inter RAO Group revenue % 0.2 0.4 +0.2 p.p. Expenses RUR mn (1,081) (2,883) +167 % EBITDA RUR mn (220) (113) +49 % EBITDA margin % –21.3 –4.2 +17.1 p.p. Share in Inter RAO Group EBITDA % –0.8 –0.3 +0.5 p.p. Share in profit/loss of joint ventures RUR mn (173) 7 +104 %
* Revenue from Quartz Group for the period from August 5, 2013 to December 31, 2013, totalling RUR 2.46 bn, is included in full in the Group’s financial statements.
67 JSC Inter RAO / ANNUAL REPORT / 2013
5.7. GEORGIA
5.7.1. SEGMENT DESCRIPTION
The generating assets of Inter RAO Group in Georgia are represented by Mtkvari Energy (a thermal power plant), Khramhesi I, Khramhesi II (cascade of hydropower plants). The segment also comprises a grid company Telasi. The Georgia segment Mtkvari Energy comprises two generating units, with a total installed capacity of 600 MW. The station’s ▷ JSC Telasi ▷ LLC Mtkvari Energy main fuel is natural gas. Khramhesi I and Khramhesi II form a cascade of hydropower plants on the Khrami ▷ JSC Khramhesi I River. Total installed capacity of two hydropower plants totals to 227.2 MW. 100% share of Khramhesi I ▷ JSC Khramhesi II and Khramhesi II are owned by Gardabani Holdings B.V., a subsidiary of JSC Inter RAO.
Telasi manages a grid consisting of ten branches that service Tbilisi and its suburbs. GENERATION IN RUSSIAN EDERATION TR LY N F IN AD PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E
G N I N In 2013, the number of the enterprise’s consumers increased N O R A T I IO E H S T E S A E N R I U R by 3.7% totalling to 524,559 subscribers. G R E
N D N I E E F Inter RAO
G Group E Y O E R K R During the reporting period, the total length of the company’s G I U A T transmission lines increased by 6% compared with 2012
SEGMENTS N totalling to 4,347 km, including overhead lines of 1,897 km, A A R ST M H EN K IA ZA KA cable lines of 2,449 km. MOLDOVA
The company also owns 1,726 transformer substations. JSC Inter RAO owns 75.108% of the authorised capital of Telasi, 24.529% of the authorised capital is owned by Georgia.
68 5. OPERATING ACTIVITY OF INTER RAO GROUP
IN 2013, TELASI SAW AN INCREASE IN THE NUMBER OF CUSTOMERS BY 3.7% OVER 2012
Refugees, persons 903 872 OF INTER RAO GROUP OPERATING ACTIVITY
Public users, units 1,567 1,643
General consumption, units 36,069 32,084
Business users, units 36,889 45,455
Households, persons 430,447 2012 444,505 2013
IN 2013, THE TOTAL LENGTH OF TELASI'S TRANSMISSION AND DISTRIBUTION LINES INCREASED BY 6% OVER 2012
Overhead transmission lines, 110-220 kV 247 247
Overhead transmission lines, 1-35 kV 399 406
Cable transmission lines, under 1 kV 919 1,015
Overhead transmission lines, under 1 kV 1,157 1,243 2012 Cable transmission lines, 1-35 kV 1,364 1,435 2013
69 JSC Inter RAO / ANNUAL REPORT / 2013
5.7.2. POSITION OF THE SEGMENT IN THE MARKET 5.7.3. OPERATING RESULTS
Total installed capacity for the country’s power plants stands at 3,363 MW. The Georgian power system is In 2013, electricity generation by all generating assets of Georgia decreased by 23.4% due to system excessive in the summer period and insufficient in the winter. Electricity, capacity and rates in Georgia are restrictions and seasonal needs in electricity generation by the companies of this segment. developed on competitive basis and regulated by the legislation for the benefit of consumers. Mtkvari Energy generated 899 mn kWh of electricity, i.e. lower by 23.6% than the generation in 2012. A decrease in electricity generation in the reporting period occurred due to the following reasons:
Mtkvari Energy is one of two Georgia’s primary TPPs. ►► increase of system and seasonal (capacity) ►► high external air temperature in autumn and limitations based on the decision of the winter period in 2012-2013 and as a result National Control (Dispatch) Centre of Georgia; stoppage of the generating unit prior to the The winter high-load period of the energy system comprises the major part of electricity generation at the planned period. plant. The electricity distributed by the power plant is sold under contracts made with Telasi and Electricity System Commercial Operator ESCO. Mtkvari Energy annually generates 9-10% of total electricity Consumption of natural gas for the needs of power and heat generation by Mtkvari Energy decreased generated in Georgia depending on the demand for the electricity in the country and the level of the air by 24.5% retaining the last year’s gas price and price of its transportation to TPP. A decrease in installed temperature in the autumn and winter period. capacity factor and electricity fuel efficiency in 2013 compared with the previous year occurred due to the operation of the unit No. 9 of the station with greater average load. Khramhesi I and Khramhesi II generate electricity for the needs of population and industrial facilities throughout the calendar year. The electricity is being sold under the contracts made with Telasi. Khramhesi I generated 187 mn kWh of electricity, Khramhesi II - 299 mn kWh. A decrease of generation Khramhesi I and Khramhesi II annually generate approx. 5% of electricity generated in Georgia. at Khramhesi I compared with generation in the last year totalled to 28.4%, and 19.1% at Khramhesi II. A decrease in generation of hydropower plants of this segment in the reporting period occurred due to the low precipitation level in the region throughout 2013 and, consequently, due to the low water level in the annual run-off pond. Telasi is one of the largest energy supply companies in Over the reporting period, the generating assets of the segment performed all repairs in accordance with Georgia that ensures management of distribution grids the cost forecasts. At Khramhesi I and Khramhesi II the works shifted from 2012 due to impossibility of full and electricity supply. Telasi services the households stoppage of the plants are completed. At Khramhesi I current and major repair of hydraulic unit and work related to the repair of power transformer and settlement monitoring of hydrotechnical structures is carried of Tbilisi and its suburbs. out. At Khramhesi II current repair of two hydraulic units, repair of sealing of water disposal mechanisms and intake chamber of daily run-off pond, major repair of underground part of HPP and other technical works are carried out. As a result of the work performed, actual plant equipment availability for operation remained at the level of 2012.
70 5. OPERATING ACTIVITY OF INTER RAO GROUP
ELECTRICITY GENERATION AND THE INSTALLED CAPACITY FACTOR DECLINED YEAR-ON-YEAR IN 2013
In 2013 the volume of power distribution at Telasi exceeded Generation, 0 400 800 1,200 1,600 KWh mn the last year’s level by 4.8% on account of organisational and 17.1% 22.3% technical works. Mtkvari Energy 1,177.1 899.3 %
26.3 OF INTER RAO GROUP OPERATING ACTIVITY Khramhesi I 260.7 186.7 During the reporting period, Telasi paid special attention to the technical condition and extension of the % 36.8% 18.9 power grid in Tbilisi, and to the improvement of the subscriber servicing system. Khramhesi II 369.7 299.0 29.8% Capacity 0% 10% 20% 30% 40% factor, %
Generation 2012 Capacity factor 2012 Generation 2013 Capacity factor 2013
HIGHER QUALITY ELECTRICITY METERING THE TRANSMISSION LOSS COEFFICIENT ROSE SLIGHTLY IN 2013 TO REACH 2% MADE IT POSSIBLE TO REDUCE GRID LOSSES OF TOTAL ELECTRICITY PURCHASED BY 2.6 P.P. TO 7.5%
2012 1.8% 2012 10.1% 2013 2.0% 2013 7.5%
71 JSC Inter RAO / ANNUAL REPORT / 2013
In order to increase electricity supply reliability and safety Telasi carries out activities provided for by the Technical policy of the company. The results of the reporting period demonstrate the decrease in the number of power outages by 14%, and total time of power outage by 9%. In 2014, Telasi plans to rehabilitate distribution grids 110-24-10-6-0.4 kV to further decrease the number and length of power outages.
SAIFI REMAINED FLAT YEAR-ON-YEAR IN 2013 (INDIVIDUAL CASES PER USER)*
The company also carries out activities for improvement of customer support service. Telasi uses a billing system, i.e. a database of reports by separate operations and commercial parameters of electricity supply to more than 500 thousand company customers. In the reporting period, the billing system included the following options, among others: the possibility of export of subscribers’ data with the use of mobile 2012 0.01636 devices, the module for authorisation of contracts for redistribution of subscribers’ debts and a module for 2013 0.01356 the connection of new subscribers.
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
* The System Average Interruption Frequency Index (SAIFI) expresses the number of power outages per consumer for a reference year. Indicator UOM 2012 2013 2013/2012, %
IN 2013, SAIDI DECLINED COMPARED TO 2012 Installed capacity MW 827.2 827.2 0 % (MINUTES PER USER)** Fuel balance structure: Gas % 100 100 - Domestic electricity generation mn kWh 9,698 10,059 +3.7 % Electricity generation by segment mn kWh 1,808 1,385 –23.4 % Share of domestic electricity generation by the % 18.6 13.8 –4.8 p.p. 2012 1.93526 Segment 2013 1.69960 Fuel equivalent efficiency for electricity g/kWh 327.2 326.2 –0.3 % generation Capacity factor % 24.9 19.1 –5.8 p.p. Total length of transmission and distribution km 4,087 4,347 +6.4 % lines for the Segment ** The System Average Interruption Duration Index (SAIDI) depicts the average duration of a power outage (in minutes) per consumer for a reference year. Electricity supply for the Segment adjusted for mn kWh 1,819 1,907 +4.8 % losses* Electricity supply for the Country adjusted for mn kWh 9,379 9,690 +3.3 % losses
* In 2012, the distribution loss was reviewed, taking the losses for the segment into account.
72 5. OPERATING ACTIVITY OF INTER RAO GROUP
5.7.4. FINANCIAL RESULTS 5.7.5. DEVELOPMENT PROSPECTS
In 2013 the revenue of the Georgia segment in relation to the transmission services was established in August 2013 in accordance Development of Georgia is related to industry-wide trends in the generating assets decreased by 23%. A decrease in revenue mainly with a decision of the Georgian National Energy and Water Supply country and region. By 2015, growth in electricity consumption by fell on Mtkvari Energy due to a decrease in the volume of electricity Regulatory Commission. 30% compared with 2010 is expected in Georgia. According to the generation at the plant and a decrease of the electricity rate forecasts, electricity consumption will grow by 6% per annum during and price of guaranteed capacity in the country from September In 2013, EBITDA for the Georgia segment decreased by RUR the period up to 2020. 2013. Expenses for fuel purchases fell by 22% due to a decrease 0.04 bn. A decrease in EBITDA is based on oppositely directed in electricity generation; expenses for the purchase of electricity effects: In the reporting period, the Georgian Government, Partnership and capacity increased by 17% on account of an increase in the Foundation and Inter RAO Group signed a Memorandum for purchased electricity volume due to early stoppage of the unit. ►► a decrease in EBITDA for generating assets by RUR 0.2 bn is development of collaboration in the area of electricity and a result of decrease in electricity sales price and decrease in implementation of previously achieved agreements. Signing the A decrease in the revenue related to the generating assets of generation at Mtkvari Energy, Khramhesi I and Khramhesi II; Memorandum aims to establish the transparent regulation of Georgia in the reporting period is partly balanced by the increase of activities of Telasi and to increase the overall efficiency of operating OF INTER RAO GROUP OPERATING ACTIVITY the revenue of Telasi. The amount of revenue of the grid company ►► an increase in EBITDA for grid assets by RUR 0.2 bn is mainly a activities of the Georgia segment. in commercial sector increased by 9.6% due to the increase in result of decrease in expenses for purchase of electricity in 2013 the volume of electricity sales with intact rate. An increase in the due to increase in purchase of electricity from Inguri HPP and expenses of the company for electricity transmission by 12% occurs Vardnili HPP Cascade at a lower rate. as a result of a new company, Energotrans, that provides electricity
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
UOM Generation Grids 2012 2013 2013/2012, % 2012 2013 2013/2012, % (restated) (restated)
Revenue* RUR mn 2,384 1,840 –23 % 4,797 4,902 +2 % Share in Inter RAO Group revenue % 0.4 0.3 –0.1 p.p. 0.9 0.7 –0.2 p.p. Operating expenses, including: RUR mn Purchased electricity and capacity* RUR mn (6) (7) +17 % (2,092) (2,033) –3 % Electricity transmission expenses (1) (1) 0 (350) (392) +12 % Fuel purchase expenses RUR mn (1,497) (1,173) –22 % - - - EBITDA RUR mn 549 340 –38 % 1,026 1,199 +17 % EBITDA margin % 23.0 18.5 –4.6 p.p. 21.4 24.5 +3.1 p.p. Share in Inter RAO Group EBITDA % 2.1 0.9 –1.2 p.p. 3.9 3.1 –0.8 p.p. *Including inter-segment revenue: Revenue RUR mn 1,462 1,378 - Purchased electricity and capacity RUR mn - - (1,462) (1,377)
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5.8. ARMENIA
5.8.1. SEGMENT DESCRIPTION
The Armenia segment of Inter RAO Group covers Hrazdan Power Company (JSC HrazTES) and Electric Networks of Armenia. The Armenia segment ▷ CJSC Electric Networks of Armenia ▷ JSC Hrazdan Power Company (JSC HrazTES) HrazTES is the largest thermal power plant of the Republic of Armenia with an installed electricity capacity of 1,110 MW and GENERATION IN RUSSIAN heat capacity of 560 Gcal/h. EDERATION TR LY N F IN AD PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E The station’s main fuel is natural gas. HrazTES is a peaking plant that generates electricity in case of G N I N N O R A O T insufficiency of electricity in the power system of Armenia. JSC Inter RAO is the only shareholder of I I E H S T E S A E N R I U R HrazTES. G R E
N D N I E E F Inter RAO
G Group E Y O E R K R Electric Networks of Armenia is the only company G I U A T of Armenia that carries out activities related to power
SEGMENTS N transmission and distribution. A A R ST M H EN K IA ZA KA MOLDOVA The company manages 11 branches located throughout the country. During the reporting period, Electric Networks of Armenia had 31,397 km of transmission lines in total, including 25,690 km of overhead lines and 5,708 km of cable lines. The Company owns 324 transformer stations, 8,106 transformer substations and 260 distribution stations. JSC Inter RAO owns 100% of the authorised capital of Electric Networks of Armenia.
74 5. OPERATING ACTIVITY OF INTER RAO GROUP
THERE WERE NO CONSIDERABLE CHANGES IN THE CONSUMER STRUCTURE IN 2013, THE TOTAL LENGTH OF TRANSMISSION AND DISTRIBUTION LINES (KM) FOR OF ELECTRIC NETWORKS OF ARMENIA IN 2013 ELECTRIC NETWORKS OF ARMENIA REMAINED UNCHANGED COMPARED TO 2012
2,337 5,313 Public users, units Cable transmission lines, under 1 kV 2,344 5,351 2,766 63,308 General consumption, units Overhead transmission lines, 110-220 kV 2,765 65,176 3,356 907,341 Households, persons Cable transmission lines, 1-35 kV 3,364 913,767 10,478 2012 2013 Overhead transmission lines, 1-35 kV 10,523 OF INTER RAO GROUP OPERATING ACTIVITY 11,952 Overhead transmission lines, under 1 kV 12,402
2012 2013
5.8.2. POSITION OF THE SEGMENT IN THE MARKET
The total installed capacity of Armenian power stations stands at 3,500 MW. The Armenian electricity Electric Networks of Armenia is responsible for the distribution and sale of electricity to more than 1 mn market is regulated by the Public Services Regulatory Commission of the Republic of Armenia. Rates users in Armenia. Electric Networks of Armenia is regularly compelled to purchase electricity at high for the purchase and sale of electricity as well as those for electricity transit and dispatch are set by the market prices as market players do not always comply with power balance agreements. Measures taken Public Services Regulatory Commission in the interests of the user. during the reported period to improve the rate setting process had a positive effect on Electric Networks of Armenia. Therefore, the weighted average rate was increased and measures were taken to compensate HrazTES is one of the main power plants in Armenia. Most electricity is generated during the autumn the rate mark-up not received by the company in the past three years. These measures are expected to and winter period due to power system load and during annual outage of Armenia Nuclear Power Plant.13 allow Electric Networks of Armenia to improve its financial and economic results and to, subsequently, HrazTES accounts for up to 6% of the country’s annual electricity generation. invest additional funds towards improving its operational efficiency.
13 The Armenian Nuclear Power Plant is the only plant in the Republic of Armenia with an (installed) capacity of 408 MW for an operating generating unit. The Armenian Nuclear Power Plant generates an average 30-40% of the total volume of electricity in Armenia. Prior to March 1, 2012, the plant was managed by the Inter RAO Group.
75 JSC Inter RAO / ANNUAL REPORT / 2013
5.8.3. OPERATING RESULTS
In 2013, HrazTES generated 660 mn kWh, a 17.2% drop year-on-year. The decrease in electricity THE TRANSMISSION LOSS COEFFICIENT generation during the reported period was due to a lack of demand from consumers. DECLINED BY 0.2 P.P. IN 2013 TO 2.01%
The 1.4 p.p. drop in installed capacity factor to 6.8% was due to lower electricity generation than in 2012 and changes to plant operation modes planned and regulated by Power System Operator of Armenia.
The drop in electricity generation led to a 17.6% reduction in natural gas consumption (the main fuel used at the power plant). However, the cost of natural gas increased considerably: on July 7, 2013 the Public 2012 2.20% Services Regulatory Commission of the Republic of Armenia raised the gas rate by 14% to USD 277 for 2013 2.01% 1,000 m3.
During the reported period HrazTES completed all scheduled repairs of the equipment, as well as maintenance and servicing. The plant availability factor increased by 2.3 p.p. to 98.9% during the year. Fuel efficiency related to electricity generation dropped by 5.4% in 2013 due to changes in the operating mode of plant equipment. THE DISTRIBUTION LOSS COEFFICIENT In 2013, Electric Networks of Armenia supplied 5,384 mn kWh of electricity (adjusting for losses), which FELL BY 0.2 P.P. IN 2013 TO 12.91% was 1.5% more than in 2012. The electricity supply growth was driven by a relatively small increase in the volume of electricity purchased and a reduction in losses via high-voltage transmission lines.
The company continues to implement measures aimed at reducing electricity losses from transmission lines and improving power supply reliability. During the reported period Electric Networks of Armenia improved procedures for loss estimation, implemented a loss reduction programme and introduced an 2012 13.08% automated system for monitoring and metering 0.4 kV transmission lines. 2013 12.91% The equipment used by Electric Networks of Armenia is characterised by a high level of depreciation. To ensure power supply safety and reliability, the company repaired 6,252 transformer substations and 217 distribution substations, and upgraded and repaired 12,643 km of overhead transmission lines and 878 km of cable lines. As a result of work performed in 2013, the frequency and duration of power outage was reduced. The equipment of Electric Networks of Armenia requires large-scale modernisation. Raising funds via financial institutions for modernisation is impeded by the country’s return on investment and procedures for determining tariff rates. Implementation of an investment programme in 2014-2018 to modernise equipment and enhance efficiency is a top priority of Electric Networks of Armenia.
76 5. OPERATING ACTIVITY OF INTER RAO GROUP
IN 2013, SAIFI REMAINED UNCHANGED YEAR-ON-YEAR IN 2013, SAIDI DECLINED COMPARED TO 2012 (INDIVIDUAL CASES PER USER)* (MINUTES PER USER)**
2012 0.00430 2012 4.849 2013 0.00426 2013 2.541 OF INTER RAO GROUP OPERATING ACTIVITY
* The System Average Interruption Frequency Index (SAIFI) expresses the number of power outages per consumer for a reference year. ** The System Average Interruption Duration Index (SAIDI) depicts the average duration of a power outage (in minutes) per consumer for a reference year.
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
Indicator UOM 2012 2013 2013/2012, %
Installed capacity MW 1,110 1,110 - Fuel balance structure: Gas % 100 100 - Domestic electricity generation kWh mn 8,036 7,721 –3.9 % Electricity generation by segment kWh mn 797 660 –17.2 % Share of domestic electricity generation by the Segment % 9.9 8.5 –1.4 p.p. Fuel equivalent efficiency for electricity generation g/kWh 367.8 347.9 –5.4 % Capacity factor % 8.2 6.8 –1.4 p.p. Total length of transmission and distribution lines for the Segment km 30,889 31,397 +1.6 % Electricity supply for the Segment adjusted for losses kWh mn 5,304 5,384 +1.5 % Electricity supply for the Country adjusted for losses kWh mn 5,304 5,384 +1.5 %
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5.8.4. FINANCIAL RESULTS 5.8.5. DEVELOPMENT PROSPECTS
In 2013, the bulk of revenue in the Armenia segment (86%) was The revenue of HrazTES remained unchanged year-on-year The key points for the development of the Armenia segment and the generated by Electric Networks of Armenia. during the reporting period despite the considerable decrease in participation of Inter RAO Group in Armenia’s electricity market are electricity generation. We attribute the unchanged revenue level to specified in the Memorandum of Cooperation signed by JSC Inter Electric Networks of Armenia recorded revenue growth of 19% for the the tariff revisions implemented by the Public Services Regulatory RAO and Ministry of Energy and Natural Resources of the Republic reported period driven by an increase in the average electricity tariff Commission of the Republic of Armenia and the operations mode of Armenia on May 15, 2013. while maintaining sales volumes. Households remain the primary for power plants set by Power System Operator of Armenia. The consumers in domestic market. In 2013, they accounted for 37% of fuel costs of HrazTES dropped by 11% mainly due to a decrease The memorandum implies the participation of both parties in the company’s electricity sales in the domestic market, or 36% of in electricity generation. The company’s expenses for electricity formulating an electricity balance in the country, raising the total electricity sales volume. The cost of electricity purchased by purchases and capacity surged by 273%, as last year these responsibility of electricity market members to achieve balance, Electric Networks of Armenia increased by 25% as a result of higher expenses were recorded as utilities expenses. preparation of draft laws aimed at amending the return on electricity tariffs implemented on July 7, 2013 while electricity sales investment mechanism in the country and joint development volumes remained the same. The company’s power transmission EBITDA in the Armenia segment increased by RUR 0.1 bn due to the and implementation of Electric Networks of Armenia investment costs surged by 45%, also caused by higher tariffs for the services following: a RUR 0.03 bn reduction in the EBITDA of transmission programme for 2014-2018. of infrastructure organisations of the electricity market in Armenia assets and a RUR 0.1 bn increase in the EBITDA of generation implemented on July 7, 2013. assets. The considerable increase in the EBITDA of generation assets in the segment was achieved mainly through a reduction in fuel expenses.
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
UOM Generation Grids 2012 (restated) 2013 2013/2012, % 2012 (restated) 2013 2013/2012, %
Revenue* RUR mn 1,711 1,715 0 % 8,744 10,388 +19 % Share in Inter RAO Group revenue % 0.31 0.26 –0.05 p.p. 1.57 1.57 - Operating expenses, including: RUR mn Purchased electricity and capacity* RUR mn (15) (56) +273 % (6,027) (7,556) +25 % Electricity transmission expenses - - - (212) (308) +45 % Fuel purchase expenses RUR mn (1,517) (1,345) –11 % - - - EBITDA RUR mn (7) 141 +2,114 % 212 184 –13 % EBITDA margin % –0.4 8.2 +8.6 p.p. 2.4 1.8 –0.7 p.p. Share in Inter RAO Group EBITDA % 0.0 0.4 +0.4 p.p. 0.8 0.5 –0.3 p.p. *Including inter-segment revenue: Revenue RUR mn 1,711 1,715 15 56 Purchased electricity and capacity RUR mn (15) (56) (1,709) (1,714)
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5.9. MOLDOVA
5.9.1. SEGMENT DESCRIPTION
The Moldova segment of Inter RAO Group includes Moldova TPP, located in the south-eastern part of The Moldova segment plays a key role in the regional energy system: Moldova TPP meets the annual Transnistria. The company became part of the Group in 2005. JSC Inter RAO controls 100% of Moldova electricity needs of the Moldovan Republic of Transnistria and exports up to 76% of net electricity supply to TPP shares. Moldova and Romania (till March 2013).
OF INTER RAO GROUP OPERATING ACTIVITY GENERATION Moldova TPP generates nearly 70% of the imported electricity IN RUSSIAN EDERATION TR LY N F IN AD PP IA R IN in the Republic of Moldova. U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E
G IN N N O A O R I I T E S T H E S A E N R 5.9.2. POSITION OF THE SEGMENT IN THE MARKET I U R R E G
D N N I E E The Moldova segment F Inter RAO ▷ CJSC Moldova TPP Moldova TPP actively participates in functioning of the domestic electricity market of Transnistria and G Group E Y O E electricity exports to the Republic of Moldova. R K G R I U A T Moldova TPP accounts for 97% of the installed capacity of all generation companies operating in
SEGM NTS N A E A Transnistria. Electricity generated by the segment is sold on the wholesale and retail electricity markets. R ST M H EN K IA ZA The electricity market in Transnistria is regulated by state tariffs. Electricity is sold to end consumers by KA MOLDOVA Unified Power Distribution Grids at a monopolistic market of electricity distribution and supply.
Electricity exports by Moldova TPP to the Republic of Moldova are carried out on unregulated contracts and based on price competition with electricity produced in Ukraine. In 2009 Moldova TPP resumed electricity supplies to Moldova in cooperation with Energocom and RED Union Fenosa. Electricity was Moldova TPP owns 12 generating units with installed electricity capacity of 2,520 MW and heat capacity supplied to Romania till March 2013 and had been limited by the capacity of border areas of Romania, of 166 Gcal/h. During the reported period, the company did not commission new capacity, nor did it initiate which was in UCTE non-synchronous grid (ENTSO-E) since 200414. The termination of electricity supplies any modernisation or decommissioning. The company also owns open distribution units (ODU 100 kV, to Romania did not have a considerable effect on the operating and financial activities of the segment. 300 kV and 400 kV) and 11.6 km long-distance EHV transmission and distribution lines (400 kV). This ensures the capability to supply electricity to Ukraine, Moldova, Romania and other countries in the Balkan Peninsula.
Moldova TPP generates electricity using three types of fuel: natural gas, coal and fuel oil. Uninterrupted 14 The UCTE (Union for the Co-ordination of Transmission of Electricity) is an energy union for European countries. ENTSO-E (European supply to consumers can be ensured in sufficient quantity of one or two types of fuel. Network of Transmission System Operators for Electricity) is a European Network of Transmission System Operators for Electricity.
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5.9.3. OPERATING RESULTS THE SHARE OF COAL IN THE FUEL BALANCE OF MOLDOVA TPP INCREASED BY 22.9 P.P. IN 2013
In 2013, Moldova TPP generated 3,044 mn kWh of electricity. During the reported period, electricity generation fell by 30%, electricity transmission dropped by 31%. Electricity sales in the domestic market dropped by 18% due to work outages at Moldova Steel Works in 2013, a large electricity customer. Total Gas electricity exports to Moldova and Romania fell by 35.5% due to the following: 99.0% 76.1% ►► the 22.9% reduction in electricity transmission to Moldova was due to growth in natural gas tariffs Coal for exported electricity and limitations on coal use as a fuel (enactment of PMR Government Decree % No. 64 dated April 10, 201315), which made exports unprofitable and reduced electricity generation 0.8 % in April-July 2013. The signing of an agreement on State Support Measures saw exports to Moldova 23.7 resumed in August 2013; Fuel oil 0.2% ►► the 86.1% reduction in electricity transmission to Romania was due to a lack of economic feasibility as 0.2% a result of unfavourable pricing. 2012 0% 50% 100% 2013 Due to the above reasons, installed capacity factor at the plant contracted by 6 p.p. to 13.8% and fuel equivalent efficiency for electricity generation increased by 2.6% to 366.3 g/kWh.
In 2013, the plant’s heat supply increased by 3.2% because of the early start of the autumn and winter period of 2013-2014 due to low temperatures in the country in early October 2013. OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
Mainly natural gas and coal were used as fuel for electricity generation by the plant during the reporting Indicator UOM 2012 2013 2013/2012, % period. The share of coal in the plant’s fuel mix increased by 22.9% in 2013 due to a proportional reduction in the share of natural gas. The reduction in the consumption of natural gas was due to lower electricity demand by Moldova Steel Works and considerable growth in the gas price for exported electricity. The company also fulfilled fuel inventory (coal and fuel oil) obligations for the autumn and winter period of Installed capacity MW 2,520 2,520 0 % 2013-2014. Fuel balance structure: Gas % 99.0 76.1 –22.9 p.p. In 2013, the maintenance programme at Moldova TPP was conducted in full. Eight repairs (seven current Coal % 0.8 23.7 +22.9 p.p. and one major overhaul) were completed during the reported period. The plant availability factor increased by 4.1 p.p. to 80.8% for the year. Fuel oil % 0.2 0.2 - Domestic electricity generation kWh mn 4,869 3,600 –26.1 % Electricity generation by segment kWh mn 4,375 3,044 –30.4 % Share of domestic electricity generation by the % 89.8 84.6 –5.3 p.p. Segment Fuel efficiency for electricity generation g/kWh 356.9 366.3 +2.6 % Capacity factor % 19.8 13.8 –6 p.p. Heat supply ths Gcal 1,644 1,568 –4.6 % Net supply of heat by Segment ths Gcal 95 98 +3.2 % 15 The Transnistrian Moldavian Republic Government Decree No. 64, dated April 10, 2013, On Measures to Ensure Environmental Safety, stipulates that for the manufacture of goods (products) and reprocessing of raw materials for further export, at least 50% of the total volume Share of domestic heat supply by Segment % 5.77 6.27 +0.5 p.p. of fuel consumed in this manufacturing and reprocessing be natural gas.
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5.9.4. FINANCIAL RESULTS
In 2013, the revenue of the Moldova segment fell by 28%. Revenue from electricity sales in the domestic Fuel expenses constitute a major part of the segment’s operating costs. During the reported period, fuel market dropped by 14%; revenue from electricity sales for export contracted by 29%. The segment’s drop expenses fell by 22% due to a reduction in electricity exports as well as changes to the fuel consumption in revenue was due to lower electricity sales, although this was cushioned somewhat by 1.2% growth in structure. the average electricity sale price. The 64% drop in EBITDA was due to lower profit margins in the segment.
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
UOM 2012 2013 2013/2012, % OF INTER RAO GROUP OPERATING ACTIVITY
Revenue RUR mn 6,484 4,655 –28 % Share in Inter RAO Group revenue % 1 1 -
Operating expenses, including: RUR mn - - - Purchased electricity and capacity RUR mn - - - Electricity transmission expenses RUR mn (152) (47) –69 % Fuel purchase expenses RUR mn (3,974) (3,087) –22 % EBITDA RUR mn 1,503 534 –64 % EBITDA margin % 23.2 11.5 –11.7 p.p. Share in Inter RAO Group EBITDA % 5.7 1.4 –4.3 p.p.
5.9.5. DEVELOPMENT PROSPECTS
Inter RAO Group’s long-term strategy in its Moldova segment is aimed at optimising energy efficiency Increasing electricity exports to Moldova, Romania and other European countries is also seen as a good at the power station, reconstruction and modernisation of plant equipment and development of export business opportunity for the segment. Implementation of the Antenna project which will synchronise the potential. two generating units of Moldova TPP with UCTE (ENTSO-E) will boost electricity supplies to Romania to 400 MW. Specialists from Moldova TPP and State Enterprise Moldelectrica (Moldova) held joint meetings The position of Moldova TPP in the Transnistria electricity market is not expected to undergo any and continued to cooperate under Antenna project in 2013. significant change in the near future. Management is primarily focused on plans to modernise and improve the efficiency of power generation equipment at the plant.
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5.10. TURKEY
5.10.1. SEGMENT DESCRIPTION
The Turkey segment of Inter RAO Group includes Trakya Elektrik Uretim Ve Ticaret a.s., which manages The Turkey segment Trakya Elektrik thermal power plant located 100 km from Istanbul. The plant has installed capacity of 478 MW. The plant is primarily fuelled by natural gas, with diesel fuel as a back-up. The plant was constructed ▷ Trakya Group under the BOT agreement, which is valid until 2019, with the option to be until 2046. JSC Inter RAO holds ▷ Inter Rao Turkey Energy Holding A.S. all of the authorised capital16.
GENERATION IN RUSSIAN 5.10.2. POSITION OF THE SEGMENT IN THE MARKET EDERATION TR LY N F IN AD PP IA R IN U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I I D EGMENTS R O E S O N F P E The installed capacity of Turkish power plants stands at more than 53 GW. Turkey’s largest energy
G N company is Elektrik Uretim A.S., which owns 20 GW of capacity. Generation companies operating under I N N O R A T I IO E H S T BOT agreements own 2.4 GW of capacity. Trakya Elektrik A.S. accounts for 20% of the installed capacity E S A E N R I U R
G R E of plants operating under BOT agreements. N D N I E E F Inter RAO Turkey’s electricity market currently consists of four segments: the electricity balancing market with
G Group financial settlements on per hour basis, the day-ahead market, the electricity balancing market and the E Y O E R K spot market. G R I U A T Load peaks are observed in the daytime during the summer period and in the evenings during the winter
SEGMENTS N period. Trakya Elektrik A.S. generates up to 1.6% of the total electricity generated in Turkey. Electricity A A R ST M H EN K generated by Trakya Elektrik A.S. is sold under a contract with TETAS, a state-owned wholesale trading IA ZA KA company. The contract under which Trakya Elektrik A.S. sells its electricity is valid until 2019, with an MOLDOVA option to extend it until 2046. The contract is secured by guarantees from the Turkish government.
16 BOT (Build – Operate – Transfer) is a type of concession agreement under which a concessionaire carries out construction of a facility and operates it for a certain period, after which the object is passed to the grantor State.
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5.10.3. OPERATING RESULTS 5.10.4. FINANCIAL RESULTS
In 2013, the financial performance of the Turkey segment was guided by the purchase of Trakya Elektrik In 2013, Trakya Elektrik A.S. generated 3,889 mn kWh of Uterim Ve Ticaret A.S. generation plant in December 2012. Trakya Elektrik A.S. recorded EBITDA of RUR 664 mn in 2013 versus EBITDA RUR 60 mn for one month in 2012. electricity, a 1.4% year-on-year increase.17
Electricity transmission accounted for 3,813 mn kWh. The increase in electricity generation and installed FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013 capacity at Trakya Elektrik A.S plant was driven by the plant operation mode set by the dispatcher of the National Load Dispatch Centre also known as the System Operator. UOM 2012 2013 2013/2012, % (restated) As in the previous year, Trakya Elektrik A.S. mainly used natural gas for electricity generation (95% of OF INTER RAO GROUP OPERATING ACTIVITY total used fuel), which was supplied by state-owned company BOTAS. Gas is supplied under a contract Revenue RUR mn 1,665 14,304 +759 % valid until 2019 with an option to extend it. In 2013, the gas price for the company averaged USD 541.7 Share in Inter RAO Group revenue % 0 2 +2 p.p. per 1,000 m³, which was 9% lower than the average price of the previous year. The lower gas price did not impact commercial efficiency as fuel costs for electricity generation are factored into the price. Operating expenses, including: RUR mn
Purchased electricity and capacity RUR mn - - - The repair programme at Trakya Elektrik A.S. is being conducted on a long-term agreement with Siemens Fuel purchase expenses RUR mn (1,508) (12,600) +736 % Sanayi ve Ticaret A.Ş. and Siemens Aktiengesellschaft valid until 2020. During the reported period power plant availability factor remained unchanged year-on-year at 98%. EBITDA RUR mn 60 664 +1,007 % EBITDA margin % 3.6 4.6 +1.0 p.p. Share in Inter RAO Group EBITDA % 0.2 1.7 +1.5 p.p. OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
Indicator UOM 2012 2013 2013/2012, % (December 1–31, 2012) 5.10.5. DEVELOPMENT PROSPECTS
Installed capacity MW 478 478 - Fuel balance structure: According to Inter RAO Group’s strategy, Turkey is considered as one of priority markets for international development. Turkey is a developing market posting high annual growth rates. Electricity consumption Gas % 100 95.3 –4.5 p.p. has been increasing by 7% per annum since 2004. According to forecasts, demand will grow by 6.2% per Diesel fuel % - 4,7 % - annum from 2013 until 2020. The electricity sector in Turkey is being actively privatised and modernised. Electricity generation by segment kWh mn 306 3,889 +1,171 % Several major infrastructure projects are set to be launched in the near future. Turkey is a leading importer of Russian natural gas, which creates opportunities to form a gas to power chain owing to partnership of Fuel efficiency for electricity generation g/kWh 269 201.5 –25.1 % Inter RAO Group and Russian gas producers. Capacity factor % 98.1 92.9 –5.2 p.p. In 2014 Inter RAO Group plans to complete restructuring of Trakya Elektrik A.S. assets to enhance efficiency of operating and financial activities of the company.
17 In 2012, the Trakya Elektrik A.S. plant generated 3.836 bn kWh of electricity.
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5.11. KAZAKHSTAN
5.11.1. SEGMENT DESCRIPTION 5.11.2. POSITION OF THE SEGMENT IN THE MARKET
Kazakhstan’s existing power system has three zones: Northern, Southern and Western. There are approximately 70 power plants in the country. Ekibastuz TPP-2 is located in the Northern energy zone GENERATION IN RUSSIAN where the majority of the country’s generation companies are concentrated. It is the fourth largest EDERATION TR LY N F IN AD PP IA R IN plant in the country based on installed capacity. Some of the power plants, including Ekibastuz TPP-2, U S N FE U G S S IO A DE SS U T N R IA R A D AT N N ER EU I are classified as of national importance - i.e., large power stations generating and selling electricity to I D EGMENTS R O E S O N F P E wholesale consumers in Kazakhstan’s electricity market. The sale of electricity in Kazakhstan’s wholesale
G N I N N O electricity market is conducted by Ekibastuz TPP-2 under purchase and sale contracts between the A O R I I T E S T H E S A E N R company and other market members. Ekibastuz TPP-2 accounted for 6.8% of total electricity generation in I U R R E G
D N N I E E Kazakhstan during the reported period. F Inter RAO
G Group E Y O E R K G R I U A T 5.11.3. OPERATING RESULTS The Kazakhstan segment SEGM NTS N A E A R ST M H EN K IA ZA ▷ JSC Ekibastuz TPP-2 KA ▷ LLC Inter RAO Central Asia MOLDOVA In 2013, Ekibastuz TPP-2 generated 6,280 mn kWh. During the reported period the volume of generated electricity increased by 2.4% and the volume sold rose by 2.2%. The increased electricity generation during the reported period was driven by growth in demand and the success of generation units at reducing outages due to non-scheduled repairs. The installed capacity increased by 1.9 p.p. due to the reduction in outage during repairs. In 2013, the company sold 36 thousand Gcal of heat, which was down 7.8% year- The Kazakhstan segment of Inter RAO Group includes Ekibastuz TPP-2 thermal power plant located 38 on-year. Heat sales during the reported period were subject to weather and consumer needs. km from Ekibastuz in the Pavlodar Region. Ekibastuz TPP-2 is a 50/50 joint venture between JSC Inter RAO and Samruk-Energy (Kazakhstan). Ekibastuz TPP-2 currently has two generating units with capacity Coal accounted 99% of the fuel used at Ekibastuz TPP-2. Fuel oil is used as a backup. Due to technical of 500 MW each. The plant has installed capacity of 1,000 MW. Construction of the third generating unit reasons, the company increased specific fuel consumption rates per unit of electricity sold by 2% in 2013. of the plant started in July 2011. Construction is planned for completion in 2015: installed capacity at the Fuel costs increased due to the growth in the specific fuel consumption rate relative to the actual values plant will be increased to 1,600 MW. registered in 2012 and values planned for 2013.
Commission of the third generating unit at Ekibastuz TPP-2 will allow electricity transmission to 12% of In 2013, Ekibastuz TPP-2 overhauled generation units No. 1 and No. 2 at a cost of RUR 173,217 thousand. users in Kazakhstan. In 2015, it will be one of the top three power plants in the country. During the reported period the plant availability factor increased by 7.7 p.p. to 86.6%.
Coal is the main fuel at Ekibastuz TPP-2 with fuel oil used as backup fuel supply. Cheap coal mined at Ekibastuz coalfield ensures low fuel costs for electricity generation at the plant.
84 5. OPERATING ACTIVITY OF INTER RAO GROUP
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013 FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2012/2013
Indicator UOM 2012 2013 2013/2012, % UOM 2012 2013 2013/2012, % (restated)
Installed capacity MW 1,000 1,000 - Revenue RUR mn 238 79 –67 % Fuel balance structure: Share in Inter RAO Group revenue % 0 0 - Coal % 99.7 99.8 +0.1 p.p. Operating expenses, including: RUR mn Fuel oil % 0.3 0.2 –0.1 p.p. Purchased electricity and capacity RUR mn (180) (45) –75 % Domestic electricity generation kWh mn 90,248 91,973 +1.9 % Electricity transmission expenses RUR mn (37) (29) –22 % Electricity generation by segment kWh mn 6,134 6,280 +2.4 % Fuel purchase expenses RUR mn - - - Share of domestic electricity generation by the % 6.8 6.8 - Share in profit/loss of joint ventures 1,216 1,890 +55 % Segment OF INTER RAO GROUP OPERATING ACTIVITY EBITDA RUR mn 1,233 1,898 +54 % Fuel equivalent efficiency for electricity g/kWh 372.2 379.7 +2 % generation Share in Inter RAO Group EBITDA % 4.6 4.8 +0.2 p.p.
Capacity factor % 69.8 71.7 +1.9 p.p. Heat supply ths Gcal 97,987 98,401 +0.4 % Net supply of heat by Segment ths Gcal 39 36 –7.8 % Fuel equivalent efficiency for heat generation kg/Gcal 195.9 202.7 +3.5 %
5.11.4. FINANCIAL RESULTS 5.11.5. DEVELOPMENT PROSPECTS
In 2013, revenue in the Kazakhstan segment fell by 67% due to exit of Kazenergoresurs from the Group Development of the Kazakhstan segment corresponds to industry trends in the country. The Government and the reduction in electricity sales by Inter RAO Central Asia as a result of a Kazakhstan Law limiting of Kazakhstan pays special attention to the sustainable development of the electricity sector balancing the direct sales to electricity consumers in July 2012. Inter RAO Central Asia stopped importing electricity to interests of the economy, public and environment. The planned commissioning of new generation assets Kazakhstan as the company changed its status to a power supply company. This restricts electricity sales to at Ekibastuz TPP-2 in 2015 is based on sustainable development and environmental protection principles same status companies. This had a negative impact on EBITDA of the Kazakhstan segment. of Kazakhstan.
The main driver of EBITDA dynamics in the Kazakhstan segment was changes to the share of profit/loss in joint ventures. In 2013, revenue growth from Ekibastuz TPP-2’s participation in joint venture jumped to 55% owing to increased profits. In turn, revenue growth at Ekibastuz TPP-2 was driven by the average electricity sales growth outpacing average growth in the rates for coal purchase in 2013 as well as an increase in electricity generation volumes.
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6. CORPORATE GOVERNANCE
6. CORPORATE GOVERNANCE
6.1. CORPORATE GOVERNANCE SYSTEM AND PRINCIPLES
JSC Inter RAO strives to continuously improve the mechanisms and procedures of corporate governance and to ensure compliance with CORPORATE international standards. Under a loan agreement with the EBRD, GOVERNANCE JSC Inter RAO undertook the obligation to develop and approve the Corporate Development Action Plan for 2013-2014. The Plan was PRINCIPLES OF approved by the Board of Directors at a meeting held on March 28, JSC INTER RAO* 2013. CORPORATE GOVERNANCE The action plan involves work in the following areas:
ACCOUNTABILITY ►► Rights of shareholders and external influence;
►► Board of Directors and its committees;
FAIRNESS ►► Risk management, internal control system and internal audit;
►► Transparency and disclosures; TRANSPARENCY ►► Management of subsidiaries;
►► Corporate governance architecture. RESPONSIBILITY JSC Inter RAO implemented all measures planned for 2013, including: approving new revisions to the Charter, Regulations on the Board of Directors, Regulations on the Audit Committee, Regulations on the Human Resources and Remuneration Committee, External * The content of these principles is disclosed in JSC Inter RAO’s Corporate Governance Code Auditor Rotation Policy. (approved by the Board of Directors on April 23, 2008 - Minutes No. 1 dated April 23, 2008)
More detailed information on the above principles can be found on the official Company website at http://www.interrao.ru/en/investors/uprav/ principles-of-corporate-governance/
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REVISIONS AND ADDITIONS TO JSC INTER RAO DOCUMENTS IN 2013 REVISIONS AND ADDITIONS TO JSC INTER RAO DOCUMENTS IN 2013
Document Description Revisions and Additions Approved in 2013 EXTERNAL AUDITOR ROTATION POLICY The revision to the Policy includes changes to the The new version of the External Auditor Rotation Policy extension of the term of office of Head of the Audit was approved by the Board of Directors on July 25, Committee, rules for signing contracts with the auditor 20137. that can be signed without being reviewed by the Audit CHARTER The revision to the Charter dated June 25, 2013 Committee and upon preliminary review by the Audit The current version of the Charter was approved is in compliance with Federal Law On Joint-Stock Committee. 2 on June 25, 2013 at the Annual General Meeting of Companies , containing provisions related to the The Rotation Policy includes provisions for the Shareholders of JSC Inter RAO1 and registered by competence of the Board of Directors and establishing Handbook of the Code of Ethics for Professional Inter-District Federal Tax Service Inspectorate No. 46 standards on broadening the participation of Board Accountant of IFAC as well as the Financial Reporting for Moscow on July 15, 2013. members in official meetings. Council.
REGULATIONS ON THE BOARD OF DIRECTORS The new version of the Regulations contains the REGULATIONS ON INTERNAL AUDIT, Revisions dated May 31, 2013 extend the functions of Regulations of the Board of Directors was approved procedure for electing the Chief Independent Director, CONTROLLING AND RISK MANAGEMENT the Internal Audit, Controlling and Risk Management during the Annual General Meeting of Shareholders on the list of mandatory information to be submitted Changes and additions to Regulations were approved Unit (hereinafter referred to as IAU) with functions to June 25, 20133, replacing earlier approved Regulations in writing by the Board of Directors members and by the Board of Directors dated August 03, 20118 and prepare and submit periodic reports of IAU activities on Procedures for Calling and Holding Board of candidates, criteria for selecting the Board of Directors resolution of the Board of Directors dated May 31, in the field of internal audit, controlling and risk Directors’ meetings. candidates, including criteria for independent directors 2013.9 management to the Audit Committee of the Board of and the minimum number of official meetings in Directors. praesentia during a corporate year. Moreover, it was clarified that candidates for position Moreover, amendments and additions were made to the of the Head of IAU and the terms and conditions of procedure for holding the Board of Directors meetings, the employment contract signed with him/her shall clarification was included to the process for adopting be approved by the Audit Committee of the Board of resolutions by members in absentia, questionnaires for Directors. the Board of Directors candidates and notifications on the selection of the Board of Directors members were developed and deemed Attachments to the Regulations 1 The Minutes of June 26, 2013, No. 13. 2 Amendments to the Federal Law On Joint-Stock Companies were made by the Federal Law dated December 29, 2012, No. 282-FZ, On Amendment on the Board of Directors. of Certain Regulations of the Russian Federation and Rendering Certain Provisions of Regulations of the Russian Federation Invalid (the law On Market Liberalisation). REGULATIONS ON THE STRATEGY AND The new version of the Regulations stipulates the 3 The Minutes of June 26, 2013, No. 13. INVESTMENT COMMITTEE OF THE BOARD OF possibility of Committee members to participate 4 The Minutes of May 16, 2013, No. 92. 5 The Minutes of September 19, 2013, No. 100. DIRECTORS in the official meetings using telecommunications 6 The Minutes of October 14, 2013, No. 101. Revisions to Regulations on the Strategy and equipment in order to ensure quorum during meetings, 7 The Minutes of July 29, 2013, No. 97. and updates the procedure governing the process of 8 The Minutes of August 5, 2011, No. 46. Investment Committee of the Board of Directors of JSC 9 The Minutes of June 3, 2013, No. 93. Inter RAO was approved by the Board of Directors on adopting resolutions during meetings of the Committee. May 16, 20134. The Company Charter and corporate documents are available at REGULATIONS ON AUDIT COMMITTEE OF THE The new version of the Regulations is designed to make BOARD OF DIRECTORS it compliant with the Company’s in-house regulations. http://www.interrao.ru/en/investors/uprav/docs/ The new version of Regulations on the Audit Committee of the Board of Directors was approved by the Board of Directors on September 17, 20135.
REGULATIONS ON HUMAN RESOURCES AND The revision of the Regulations extends the authority of REMUNERATION COMMITTE OF THE BOARD OF the Human Resources and Remuneration Committee DIRECTORS of the Board of Directors to include development of The new version of Regulations on the Human the Training and Development Programme for the Resources and Remuneration Committee of the Board Company’s Board of Directors, preparation and update of Directors was approved by the Board of Directors on of the Board of Directors Member Succession Plan, October 10, 20136. determination of the Board of Directors member status and other issues.
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6.2. JSC INTER RAO GOVERNANCE BODIES 6.3. GENERAL MEETING OF SHAREHOLDERS
According to the Charter, the governance bodies of JSC Inter RAO shall include the General Meeting of General Meeting of Shareholders is the senior management body of JSC Inter RAO. The General Meeting's Shareholders, the Board of Directors, the Management Board, and the Sole executive body (Chairman of authority, time schedule, meeting preparation and procedures for holding them were established by the Management Board). Federal Law On Joint-Stock Companies, the Company Charter, and Regulations on Preparation and Holding of the JSC Inter RAO General Meeting of Shareholders.1. Activities of the Board of Directors is supported by the Committees having authority to prepare recommendations, evaluate the effectiveness of corporate governance procedures, and other functions aimed at maintaining the Board of Directors high standards of performance. All committees are subordinate to the Board of Directors. INFORMATION ABOUT THE GENERAL MEETING OF SHAREHOLDERS HELD IN 2013
The Revision Commission is responsible for supervision of the Company’s business and financial performance. Type of meeting (annual / extraordinary) Annual
Date of the meeting June 25, 2013
Format Meeting (held in praesentia)
Venue of the meeting (held in praesentia) Moscow, Europe Square, bld. 2, Radisson
Slavyanskaya Hotel, Conference Hall CORPORATE GOVERNANCE
GENERAL MEETING OF SHAREHOLDERS Date and number of Meeting minutes Minutes No. 13 dated June 26, 2013
BOARD OF DIRECTORS Annual General Meeting of Shareholders held on June 25, 2013 reviewed the following issues:
►► Approval of the Company annual report;
►► Approval of annual financial statements;
REVISION HR AND COMMITTEE ►► Approval of distribution of profits (including payment (declaration) of dividends) and Company losses COMISSION AUDIT REMUNERATION FOR STRATEGY for 2012; COMMITTEE AND ACCOUNTABLE COMMITTEE TO SHAREHOLDERS INVESTMENTS ►► Election of Board of Directors;
►► Election of Revision Commission: CHAIRMAN OF MANAGEMENT BOARD ►► Approval of the Company Auditor;
►► Approval of new version of Company Charter; MANAGEMENT BOARD ►► Approval of Regulations on the Board of Directors;
1 Approved by the JSC Inter RAO Annual General Meeting of Shareholders, Minutes No. 5 dated June 25, 2010.
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►► Remuneration for Board related work to members of the Board of Directors who are non-government SHAREHOLDER ENGAGEMENT employees for the amount specified in corporate documents;
►► Additional remuneration to Revision Comission members;
►► Setting the price (monetary value) of services purchased by JSC Inter RAO related to the directors, 2 officials and company liability insurance contracts signed between JSC Inter RAO and SOGAZ; Shareholders of JSC Inter RAO: 355,316 shareholders
►► Approval of interested-party transactions. JSC Inter RAO Registrar: OJSC R.O.S.T. Registrar
Professional participant of the securities market at Inter RAO Group: Inter RAO Invest3
Measures aimed at raising minority shareholder awareness and facilitating interaction between shareholders, professional securities market participants and the Company were implemented as part of JSC Inter RAO Minority Shareholder Involvement Programme developed for 2013 (hereinafter referred to as the Programme).
MAIN OBJECTIVES AND MEASURES TAKEN THROUGH JSC INTER RAO MINORITY SHAREHOLDERS ENGAGEMENT IN 2013
Objective Measures taken in 2013
Raising awareness of shareholders ▻▻ Development of external and internal communication channels, including preparation and publishing of information leaflets (JSC Inter RAO Shareholder Handbook).
Simplification of engagement processes ▻▻ Improving availability of Inter RAO Invest services ▻▻ Providing broker services to private shareholders ▻▻ Holding local meetings with private shareholders
2 Total number of persons with a non-zero balance on personal accounts recorded in the JSC Inter RAO register of shareholders as of December 31, 2013. 3 Inter RAO Invest is a subsidiary of JSC Inter RAO that is licensed as a professional securities market participant.
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DEVELOPMENT OF EXTERNAL AND INTERNAL OPTIMISATION OF ENGAGEMENT PROCESSES COMMUNICATION CHANNELS WITH SHAREHOLDERS
DEVELOPMENT OF INTERNAL INTER RAO INVEST REGULATIONS ON PROVIDING JSC INTER RAO SHAREHOLDER HANDBOOK SERVICES TO MINORITY SHAREHOLDERS OF THE COMPANY
The JSC Inter RAO Shareholder Handbook was first published in 2013. It helps shareholders and their A revision to the Depository standards of Inter RAO Invest took effect on February 1, 2013 to include, inter successors to find answers to their questions. The Handbook contains information on the governance alia, a provision that the cost of storage and/or registration of JSC Inter RAO shares (in the absence of system, the structure of the Company’s authorised capital, its registrar, its regional divisions and transfer other securities on the securities account) shall constitute RUR 1 (one) per month per shareholder.4 agents, the rights and obligations of the shareholders and detailed instructions on the main share transactions. The Handbook is distributed free of charge during meetings and General Meetings of Shareholders held by the Company. The cost of storage and/or registration of JSC Inter RAO shares
EXTERNAL AND INTERNAL COMMUNICATION CHANNELS WITH SHAREHOLDERS (in the absence of other securities on the securities account) shall constitute RUR 1 (one) per month per shareholder. Communication Channel Available Information
Regulations on brokerage services in the securities and futures market of Inter RAO Invest stipulates CORPORATE GOVERNANCE Section Information for Shareholders on official JSC Inter RAO website that commission fees for OTC transactions are calculated as a percentage of the transaction, and for http://www.interrao.ru/investors/info/ transactions up to RUR 10,000,000 (ten million) the commission fee (as a % of the transaction amount, Subsection Feedback ▻▻ Telephone numbers and e-mails of Corporate VAT is not charged) amounts to 0.1% of the transaction. http://www.interrao.ru/en/investors/contacts/ Relations Department of Corporate and Property Relations Unit For share transactions on the MICEX Stock Exchange, the commission fee is RUR 65 (sixty five) (VAT not ▻▻ Consultancy services for shareholders, charged) for each order for amount not exceeding RUR 500,000 (five hundred thousand). re-addressing issues to specialised Company departments Thus, interested minority shareholders of the Company may use brokerage and deposit services with large Subsection Frequently Asked Questions ▻▻ Answers to questions about JSC Inter RAO, discounts to similar services. http://www.interrao.ru/en/company/FAQ/ dividends, shares, corporate governance and other subjects Section Information on Registrar of JSC Inter ▻▻ Information on valid registrar license RAO http://www.interrao.ru/investors/restrinfo ▻▻ Contact details of R.O.S.T. Registrar, its branches and transfer agents Call centres of JSC Inter RAO registrar: ▻▻ Updated information and consultancy services for Tel.: 8-800-700-03-70 (toll free for Russia) shareholders E-mail: [email protected]
Corporate publications Section for minority shareholders in the ▻▻ Results of shareholder meetings newspaper and magazine Energy Without ▻▻ Answers to frequently asked questions Borders ▻▻ Other information of interest to shareholders
4 Amendments came into force in accordance with the Order of Inter RAO Invest dated January 21, 2013 No. 2013-01-21/D.
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PROSPECTS AND PLANS FOR SHAREHOLDER ENGAGEMENT IN 2014
Based on the results of the 2013 Programme, as well as feedback and requests from minority Local Meetings with Private Shareholders shareholders, the Company has developed the JSC Inter RAO Minority Shareholder Involvement Programme for 20146, which provides measures for: In 2013, JSC Inter RAO held two off-site meetings with private shareholders: in Dobryanka, Perm Region, on July 11, 2013 and in Krasnoyarsk on September 25, 2013. The meetings were 1. Implementing mechanisms for the purchase of shares from minority shareholders by Inter RAO Invest attended by representatives of the Company, the Registrar and professional securities market to minimise transaction costs; participant. 2. Improving the financial and legal literacy of private shareholders on how to exercise their rights, in particular:
▻▻ Launching services for minority shareholders (shareholder’s personal account) on the Company Registrar’s website;
▻▻ Improving information leaflets for shareholders (handbooks) and distribution among shareholders during meetings and General Meetings of Shareholders;
▻▻ Organising information campaigns for shareholders of the Company in the regions of Inter RAO Group’s operations;
3. Expanding the transfer agent network of the Company’s Registrar through the signing of a transfer agency agreement with Inter RAO Invest.
Based on the results of the activities, their effectiveness will be evaluated, additional opportunities for improving shareholder engagement will be identified, including the assessment of necessary resources, and After presentations, representatives of JSC Inter RAO, R.O.S.T. Registrar and Inter RAO Invest proposals for 2015-2016 Programme content will be developed. provided personal consultations to shareholders on various aspects of shareholders rights, the purchase and sale of securities, inheritance, and corporate governance system.
As a professional stock market trader, Inter RAO Invest provided services to private shareholders in Dobryanka as related to signing contracts for brokerage services for purchase and/or sale of Company shares on the stock exchange within a month after the meeting.5
Following the meeting JSC Inter RAO received letters of thanks from minority shareholders addressed to the Chairman of the Board of Directors and Chairman of the Management Board. The Company is considering the opportunity to use this format of shareholder engagement going forward.
5 Shareholders of JSC Inter RAO may use this service at any time at the location of Inter RAO Invest. 6 Approved by the Management Board of JSC Inter RAO (minutes No. 475).
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6.4. BOARD OF DIRECTORS
The Board of Directors’ work is organised in accordance with the Board of Directors Work Plan7. The scope ►► Development of a new questionnaire for candidate to the Board of Directors and members of the Board of the Board of Directors’ work includes consideration of important issues such as: of Directors, containing a list of information that members of the Board of Directors are required to submit in writing on a quarterly basis; ►► Definition of the main activities of the Company; ►► Defining the obligations of the Board of Directors to prepare and revise (based on the evaluation of the ►► Review and approval of the Strategy; work of the Board of Directors) the Succession Plan for the Board of Directors on an annual basis;
►► Review and approval of risk management policy; ►► Inclusion of a provision that, subject to the availability of at least three independent directors on the Board of Directors, the Board of Directors shall elect the Chief Independent Director from among them; ►► Approval of Management Board remuneration system; ►► Increasing the number of Board meetings by personal attendance: at least four times a year; ►► Approval of non-standard transactions; ►► Development of a list of issues to be considered at the Board meetings in praesentia; ►► Decisions making on important corporate actions; ►► Introduction of an opportunity to participate in Board of Directors meetings using electronic CORPORATE GOVERNANCE ►► Determining position on key matters associated with subsidiaries and affiliates and company communication means (telephone) and equating this remote participation to personal attendance. activities.
Matters to be submitted to the Board of Directors for review are preliminary considered by the Management Board to define the Company's position. Matters under the authority of the Board of In 2013, the Board of Directors of JSC Inter RAO8 defined the Directors Committees are preliminary considered by the relevant Committees. status of members of the Board of Directors to meet the criteria The process for nominating candidates to the Board of Directors is regulated by the Federal Law “On of independence set by Regulation on the Board of Directors Joint Stock Companies”. After the nomination of candidates, the Human Resources and Remuneration Committee evaluates them for compliance within set criteria. The JSC Inter RAO Board of Directors of JSC Inter RAO and the Listing Rules of MICEX Stock consists of 11 members as defined in Article 14.1 of the Company Charter. Board of Directors members are Exchange.9 elected at the annual General Meeting of Shareholders through cumulative voting.
Key changes to Board of Directors membership and procedure for holding meetings during the reporting period include: Regulations on the Board of Directors of JSC Inter RAO can be found on official JSC Inter RAO website at http://www.interrao.ru/upload/docs/Regulation_of_the_BD_Inter_ ►► Setting requirements for the reputation of the Board members and eliminating conflict of interest with RAO_25.06.2013.pdf Company interests;
►► Defining criteria for the independence of the Board members; Listing Rules of MICEX Stock Exchange can be found on official website at http://moex.com/s575 ►► Defining the obligation of the Company to forward notices of election containing the basic rights and duties, statement of liability, information on remuneration and compensation and other information related to members elected to the Board of Directors; 8 Minutes of June 25, 2013, No. 96. 9 Approved by the MICEX Stock Exchange Board of Directors on February 06, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. 7 The Work Plan was approved by a decision of the Board on July 25, 2013. (Minutes of July 29, 2013, No. 97). (Minutes No. 8).
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6.4.1. MEMBERS OF THE BOARD OF DIRECTORS
IGOR DMITRY OLEG SECHIN SHUGAEV BUDARGIN Chairman of the Board of Directors Deputy Chairman of the Board of Directors
VLADIMIR BORIS DMITRIEV KOVALCHUK
94 6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE
VYACHESLAV ALEXANDER RONALD JAMES KRAVCHENKO LOKSHIN POLLETT
VLADIMIR KIRILL DENIS POTANIN SELEZNYOV FEDOROV
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Education, Skills and Professional Experience
▻▻ Higher education Graduated from Leningrad State University in 1984. Ph.D. in Economics.
▻▻ Specialisation in the electricity sector Chairs the Boards of Directors of the following leading energy companies: Rosneftegaz, National Oil Consortium.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as Saras Raffinerie Sarde SpA (Italy)
Evaluation Based on Independence Criteria
IGOR IVANOVICH SECHIN ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO10: Igor Sechin is not an Independent Director because at the time of the evaluation a relationship existed between Samaraneftegazas a part of Oil Company Rosneft and Inter RAO – Electric Chairman of the Board of Directors Power Plants as a part of Inter RAO Group (gas supply contract).
First elected to the Board of Directors on October 23, 2008. Served as a member of the Board of Directors ▻▻ According to the Listing Rules of MICEX Stock Exchange 11: until June 24, 2011 and re-elected to the Board of Directors on June 25, 2013. Independent Director.
Year of birth: 1960 Non-Executive Director.
President, Chairman of the Management Board of Oil Company Rosneft. Does not hold JSC Inter RAO shares.
Igor Sechin has extensive experience in leadership roles. He was Deputy Head of the Presidential Administration of the Russian Federation in 2000-2004. He held position of the Assistant to the President of the Russian Federation in 2004-2008.
From 2008-2012 Igor Sechin was the Deputy Chairman of the Government of the Russian Federation.
Since May 2012, Igor Sechin has been CEO and Chairman of the Management Board of Oil Company Rosneft.
He chaired the Board of Directors of Oil Company Rosneft from 2004 until 2011. In November 10 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the 2012, he was re-elected to the Board of Directors of Oil Company Rosneft and since June 2013 General Meeting of Shareholders on June 25, 2013. has acted as Deputy Chairman of the Board of Directors of Oil Company Rosneft. 11 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
96 6. CORPORATE GOVERNANCE
Member of the Board of Directors of Marketing and Investment Projects, Russian Corporation of Rocket and Space Instrumentation and Information Systems and other companies.
Awarded the Order For Merit to the Fatherland II class.
Education, Skills and Professional Experience
▻▻ Higher education In 1987 he graduated from the Moscow State Institute of International Relations of USSR Ministry of Foreign Affairs. Specialising in International Journalism. Ph.D. in Economics.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as Chairman of JSC Inter RAO Board of Directors since 2011. CORPORATE GOVERNANCE
DMITRY EVGENYEVICH SHUGAEV Evaluation Based on Independence Criteria
Deputy Chairman of the Board of Directors ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO12: Independent Director. Dmitry Shugaev is a member of the Management Board of State First elected to the Board of Directors on June 24, 2011. Corporation, i.e. an organisation affiliated with the state and a shareholder of the Company, which, together with its affiliates, owns more than 60% of the stock in the company. However, taking Year of birth: 1965 into consideration the previous experience of Mr. Shugaev’s work and the results of his voting at the Company’s Board of Directors meetings, there is no reason to believe that his position on Deputy CEO of Russian Technologies State Corporation. the Company Board of Directors is not independent or that he is acting in the interests of any shareholder (shareholder group) or any stakeholders. Moreover, he was not nominated by the Chairman of the JSC Inter RAO Human Resources and Remuneration Committee of the Board of government and he does not vote on the regulations of the Russian Federation. Directors, member of the Strategy and Investment Committee and Audit Committee of the Board of Directors of JSC Inter RAO. ▻▻ According to the Listing Rules of MICEX Stock Exchange13: Independent Director. Has extensive management experience both in public service and in commercial organisations. From 1997 to 2001, he served as Executive Director of Legal Profile. Does not hold JSC Inter RAO shares.
From 2001 to 2008, he was a consultant to the Deputy CEO; Assistant to the First Deputy CEO; Head of the CEO Office of Federal State Unitary Enterprise Rosoboronexport.
From 2008 to 2009 he was head of the Office of the CEO in the Russian Technologies State Corporation.
12 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 13 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
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Education, Skills and Professional Experience
▻▻ Higher education In 1982, he graduated cum laude from Norilsk Industrial Institute with a degree in Industrial and Civil Construction. Qualification: Construction engineer.
▻▻ Specialisation in the electricity sector and strategic management He is a member of the Presidential Commission for Fuel and Energy Sector Development Strategy and Environmental Safety and Chairman of the Supervisory Board of Nonprofit Partnership Association of Solar Energy Enterprises.
In 2012, based on Presidential Decree No. 859 dated June 15, 2012 he was awarded the honorary title Honoured Power Engineer of the Russian Federation, he has also received the Order of Honour, Order For Merit to the Fatherland II class and a number of other awards.
▻▻ Specialisation in finance OLEG MIKHAYLOVICH BUDARGIN Ph.D. in Economics. In 2005 Oleg Budargin was awarded with Commendation by the President of the Russian Federation for achievements in socio-economic development in the Taimyr (Dolgan- First elected to the Board of Directors on August 31, 2011. Nenets) Autonomous District.
Year of birth: 1960 ▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and General Director, Chairman of the Management Board of Russian Grids. international companies such as Chairs the Board of Directors of MOESK and is a member of the Board of Directors of FGC UES. From 1984 to 2000 he worked at various times at Norilsk Nickel, where he rose from the position of Foreman to the Deputy Director General for Human Resources. During his stint as Head of Evaluation Based on Independence Criteria the Norilsk city and afterwards as Governor of the Taimyr (Dolgan-Nenets) Autonomous District (2000-2007) the income of public sector employees increased almost three fold, trade turnover ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO14: doubled, and the quality of municipal medical services was considerably improved. After the Oleg Budargin is not an Independent Director as he and one other Board member are members of merger of Taimyr District with Evenk Autonomous District and Krasnoyarsk Region as one the Board of Directors of FGC UES. The total volume of transactions between JSC Inter RAO and constituency of the Russian Federation in 2007, Oleg Budargin was appointed Assistant to the FGC UES stood at more than 10% of the book value of the Company’s assets in 2011. Oleg Budargin Presidential Plenipotentiary Envoy to the Siberian Federal District, and held this position until his is also a representative of a major shareholder and a representative of the Russian Federation. transfer to FGC UES in 2009. Since 2013 he has been CEO of Russian Grids. ▻▻ According to the Listing Rules of MICEX Stock Exchange15: Independent Director.
Non-Executive Director.
Does not hold JSC Inter RAO shares.
14 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 15 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
98 6. CORPORATE GOVERNANCE
▻▻ Specialisation in finance and investments Ph.D. in Economics. A recognised expert in the field of economics and management, evidenced by his successful implementation of anti-crisis measures both in the Government and in the Central Bank in 2008-2009. For his contributions to the development of Russia’s financial and banking system and many years of diligent work he was awarded with the Order of Alexander Nevsky, Order For Merit to the Fatherland IV class, Order of Honour; he was also awarded the badge of the Association of Russian Banks For Services to the Banking Community. He has other awards in addition to the Presidential and Government ones.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as He has been a member of the JSC Inter RAO Board of Directors since 2010. He is a member of the Board of Directors of the following leading publicly traded companies: RUSNANO, KAMAZ, United Aircraft Corporation, NOVATEK.
VLADIMIR ALEXANDROVICH DMITRIEV Evaluation Based on Independence Criteria
First elected to the Board of Directors on June 25, 2008. Member of the Board of Directors until October ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO16: CORPORATE GOVERNANCE 23, 2008. Re-elected to the Board of Directors on June 25, 2010. Vladimir Dmitriev is not an Independent Director as he represents a major JSC Inter RAO shareholder. He is also a member of the Board of Directors of other joint-stock companies with Year of birth: 1953 other members of the Board of Directors of JSC Inter RAO.
Chairman of Bank for Development and Foreign Economic Affairs (Vnesheconombank). Vladimir Dmitriev, together with other Board members, B. Kovalchuk and V. Potanin, is a member of the Management Board of the Russian National Association of Employers “Russian Union of From 1975 to 1979 he worked as an engineer in the State Committee for Foreign Economic Industrialists and Entrepreneurs” and Russian National Public Organisation (Russian Union of Relations of the USSR Council of Ministers. He held the position of Attaché and Third Secretary Industrialists and Entrepreneurs). Together with V. Potanin, he is a member of the Board of the of the USSR Ministry of Foreign Affairs Department from 1979 till 1986. Worked as Researcher Russian National Association of Employers “Russian Union of Industrialists and Entrepreneurs” at the Institute of World Economy and International Relations of USSR Academy of Science from and Russian National Public Organisation “Russian Union of Industrialists and Entrepreneurs”. 1986 to 1987. Worked as Second and First Secretary of USSR Embassy of USSR Ministry of Together with I. Sechin, he is a member of the Board of Directors of JSC Inter RAO, a member of Foreign Affairs from 1987 to 1992. Worked as the First Secretary of USSR Embassy of USSR the Supervisory Board of the National Organisation Russian Volleyball Federation. Together with Ministry of Foreign Affairs from 1992 to 1993. Deputy Head, Head of Department in Ministry of K. Seleznyov, he is a member of the Board of Directors of JSC Inter RAO, a member of the Board of Finance of the Russian Federation from 1993 to 1997. Directors of NOVATEK.
In 1997, he was appointed as First Deputy Chairman of Vnesheconombank of the USSR. ▻▻ According to the Listing Rules of MICEX Stock Exchange 17: Vladimir Dmitriev was Deputy President and Chairman of Vneshtorgbank Management Board Independent Director. from 2002 to 2004 and Chairman of Vnesheconombank of the USSR from 2004 to 2007. Has been Chairman of State Corporation Bank for Development and Foreign Economic Affairs Non-Executive Director. (Vnesheconombank) since June 2007. Does not hold JSC Inter RAO shares. Education, Skills and Professional Experience
▻▻ Higher education 16 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the In 1975 he graduated from the Moscow Financial Institute with a degree in International Economic General Meeting of Shareholders on June 25, 2013. Relations. Associate Member of the Russian Academy of Natural Sciences. 17 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
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Education, Skills and Professional Experience
▻▻ Higher education In 1999, he graduated from Saint-Petersburg State University with degree in Law.
▻▻ Specialisation in the electricity sector He holds the honorary title of Honoured Power Engineer, has been awarded with the Order of Honour. Boris Kovalchuk chairs the Board of Directors of Kambaratinskaya HPP-1. He is a member of the Board of Directors of leading power companies: Saint- Petersburg Power Supply Company, Mosenergosbyt, Irkutskenergo.
▻▻ Specialisation in law Worked as Legal Advisor in the Federal State Unitary Enterprise CRI Granit from 1999 to 2006.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and BORIS YURYEVICH KOVALCHUK international companies such as He is a member of the Board of Directors of the following leading publicly traded energy First elected to the Board of Directors on June 25, 2009. companies: Federal Grid Company UES, Mosenergosbyt and Irkutskenergo. He served as Chairman of the Board of Directors in Tambov Power Supply Company as well as a member of the Year of birth: 1977 Board of Directors of Saratovenergo.
Chairman of JSC Inter RAO Management Board. Evaluation Based on Independence Criteria
Since 2009, Boris Kovalchuk has been Acting Chairman of the Management Board of JSC Inter ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO18: RAO. Since 2010, he is the Chair of the Management Board of JSC Inter RAO and a member of Boris Kovalchuk is not an Independent Director as he is Chairman of the Company’s Management the Board of Directors. Board and representative of the Russian Federation.
Office Assistant to First Deputy Chairman of the Russian Government, Director of the Department ▻▻ According to the Listing Rules of MICEX Stock Exchange 19: of National Priority Projects of the Russian Government in 2006-2009. Boris Kovalchuk is not an Independent Director as he is Chairman of the Company’s Management Board. In 2009, he was Deputy Director General for Development of the State Atomic Energy Corporation Rosatom. Executive Director.
Since 2010 he has been a member of the Management Board of Russian National Association Does not hold JSC Inter RAO shares. of Employers Russian Union of Industrialists and Entrepreneurs and the Russian National Public Organisation Russian Union of Industrialists and Entrepreneurs.
18 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 19 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
100 6. CORPORATE GOVERNANCE
Education, Skills and Professional Experience
▻▻ Higher education In 1995, he graduated from Lomonosov Moscow State University with a degree in Law.
▻▻ Specialisation in the electricity sector He is a member of the Board of Directors of leading publicly traded energy companies and holds positions in the management bodies of power industry infrastructure organisations: System Operator of the Unified Power System, Trading System Administrator of the Wholesale Electricity Market, CFR Energo.
▻▻ Specialisation in law From 1998 to 2001 Vyacheslav Kravchenko was Head of the Control and Legal Department of the Russian Federal Energy Commission.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock VYACHESLAV MIKHAYLOVICH KRAVCHENKO companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as First elected to the Board of Directors on October 23, 2008. He is a member of the Board of Directors of the following leading listed energy companies: CORPORATE GOVERNANCE Russian Grids, Federal Grid Company of the Unified Energy System, JSC Inter RAO. Year of birth: 1967 He was a member of the Board of Directors of Tambov Power Supply Company, Saratovenergo, Deputy Minister of Energy of the Russian Federation. Mosenergosbyt, Inter-regional Distribution Grid Company of the Centre and Volga Region, Interregional Distribution Grid Company of the Centre Region. Chairman of the Strategy and Investment Committee of the Board of Directors of JSC Inter RAO. Evaluation Based on Independence Criteria Vyacheslav Kravchenko is a renowned expert in the electricity sector. He is an experienced public and private energy sectors expert. From 1993 to 1998 he held various positions at Russian ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO20: Energy Company. From 1998 to 2001 he was Head of the Control and Legal Department of the Vyacheslav Kravchenko is not an Independent Director because at the time of evaluation he, Russian Federal Energy Commission. From 2001 to 2004 he was head of the Natural Monopoly together with another member of JSC Inter RAO Board of Directors, was a member of the Board Restructuring Department of the Russian Ministry of Economic Development. From 2004 to of Directors of other companies. He is a representative of the Russian Federation. 2008 he worked with the Russian Ministry of Industry and Energy. His most recent position was Director of Electric Power Industry Department. From 2008 to 2010 he was General Director of ▻▻ According to the Listing Rules of MICEX Stock Exchange 21: RN-Energo. Vyacheslav Kravchenko was General Director of United Power Supply Company from Vyacheslav Kravchenko is not Independent Director as he is a representative of the Russian 2010 to 2012. From 2012 to 2013 he was Chairman of the Management Board of NP Market Federation. Council and Chairman of the Management Board of Trading System Administrator. Since 2013, he has been Deputy Energy Minister of Russia. Non-Executive Director.
Does not hold JSC Inter RAO shares.
20 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 21 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
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▻▻ Specialisation in the electricity sector He is a recognised expert in the nuclear power sector. Honorary Power Engineer of the Russian Federation.
From 1996 to 1998 he was Deputy Head of General Directorate, Deputy Head of the Department of Commerce – Head of the Information and Analytical Department at Concern Rosenergoatom (Moscow).
From 1998 to 2001 he was First Deputy Director for Marketing, Economic and Commercial Activities at Concern Rosenergoatom.
From 2001 to 2006 he was Acting Director, Director, Deputy General Director of Concern Rosenergoatom – Director of Concern Rosenergoatom Branch “Smolensk Nuclear Power Plant”. From 2006 to 2008 he was First Deputy Director General and Acting Director General of FSUE Concern Rosenergoatom. From June 2008 to January 2010 he was Deputy Director General of State Atomic Energy Corporation Rosatom. Since February 2010 he has been Deputy Director ALEXANDER MARKOVICH LOKSHIN General - Director of Nuclear Park Directorate of State Atomic Energy Corporation Rosatom. From April 2011 to November 2012 he was First Deputy Director General - Director of Nuclear First elected to the Board of Directors on June 25, 2010. Park Directorate. Since November 2012 he has been First Deputy Director General for Operations Management. Year of birth: 1957 ▻▻ Work experience including Board of Directors membership or other senior positions in joint stock Management Board member, First Deputy Director General for Operations Management of the State companies whose securities are listed on organised trading platforms (stock exchanges) and Atomic Energy Corporation Rosatom. international companies such as Since 2010 Alexander Lokshin has been a member of the JSC Inter RAO Board of Directors. Member of Human Resources and Remuneration Committee of the Board of Directors of JSC Inter RAO. Evaluation Based on Independence Criteria
Alexander Lokshin has been working in the nuclear power sector since 1980. ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO22: Alexander Lokshin is not an Independent Director because at the time of evaluation he was a In 1980, he was an Engineer at Smolensk Nuclear Power Plant where he held various positions representative of a major shareholder. until transferring to FSUE Concern Rosenergoatom in 1996. His last position at Smolensk Nuclear Power Plant was Head of the First Stage Station Shift. From 1996 to 2008, he held various ▻▻ According to the Listing Rules of MICEX Stock Exchange 23: positions at FSUE Concern Rosenergoatom, including Director of Concern Rosenergoatom Branch Independent Director. “Smolensk Nuclear Power Plant”, First Deputy Director General, Acting Director General of Rosenergoatom. In 2008, he joined State Atomic Energy Corporation Rosatom. Non-Executive Director.
Education, Skills and Professional Experience Does not hold JSC Inter RAO shares.
▻▻ Higher education In 1980, he graduated from M.I. Kalinin Leningrad Polytechnic Institute (currently Saint- Petersburg State Polytechnical University) with a degree in Thermal Physics. He passed the
Presidential programme training in the Academy of National Economy under the Government of 22 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the the Russian Federation. General Meeting of Shareholders on June 25, 2013. 23 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
102 6. CORPORATE GOVERNANCE
Education, Skills and Professional Experience
▻▻ Higher education In 1991, he graduated cum laude from Colgate University (New York) with a degree in Sovietology.
▻▻ Specialisation in finance Ronald Pollett is a member of the International Advisory Council of IBLF and is a member of the Board of Directors of the American Chamber of Commerce in Russia since 2001. In January 2012, he was elected Chairman of the Council for sixth time running.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as General Electric Company
Evaluation Based on Independence Criteria RONALD JAMES POLLET ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO24: First elected to the Company Board of Directors on June 25, 2013. Ronald Pollett is an Independent Director as the Company acknowledges that business relations CORPORATE GOVERNANCE between the Group and General Electric are not under the materiality guideline. Moreover, there Year of birth: 1969 is no reason to believe that his position of this Board of Directors is not independent or that he is acting in the interests of any shareholder (shareholder group) or certain stakeholders. President and CEO of GE in Russia and CIS. ▻▻ According to the Listing Rules of MICEX Stock Exchange 25: Member of JSC Inter RAO Board of Directors’ Audit Committee. Independent Director.
Ronald Pollett started his career in 1991 as a Financial Analyst in the Investment and Banking Division of Kidder, Peabody & Co in New York. Does not hold JSC Inter RAO shares. In 1993, Ronald Pollett joined General Domestic Appliances (GDA), a joint venture between GE and GEC in Great Britain as Director for the JV in the CIS based in Donetsk (Ukraine).
From 1994 to 1997, in addition to duties in GDA, Ronald Pollett headed the GE division in Ukraine and was responsible for the establishment and expansion of company activities in the region.
In 1996 Ronald Pollett was employed as Director for Business Development in GE Lighting Europe. His responsibilities included the fulfilment of strategic tasks and integrated support of company activities in Eastern Europe.
In September 1998, Ronald Pollett was appointed Head of the GE Representative Office in Russia, Belarus and Ukraine and in 2001 was appointed Head of GE in Russia and the CIS. Currently, Ronald Pollett is responsible for a wide range of GE commercial development in Russia.
24 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 25 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
103 JSC Inter RAO / ANNUAL REPORT / 2013
and settlement system, the inter-agency committee of the Russian Federation for cooperation with international financial and economic organisations and the Group of Seven. He also headed the Russian delegation on the International Bank for Reconstruction and Development and Multilateral Investment Guarantee Agency.
Since May 1997 he has been President of Unexim Bank.
Since December 17, 2012 he has been CEO and Chairman of the Management Board of Mining and Metallurgical Company Norilsk Nickel.
Education, Skills and Professional Experience
▻▻ Higher education In 1983, he graduated from Moscow State Institute of International Relations (Faculty of Economics) as an International Economist.
VLADIMIR OLEGOVICH POTANIN ▻▻ • Specialisation in finance Vladimir Potanin has focused his career on economy and management. Besides work in the First elected to the Company Board of Directors on June 25, 2013. banking sector and the Russian Government, Potanin is also a member of the Council on Competitiveness and Entrepreneurship under the Russian Government and a member of the Year of birth: 1961 Russian Union of Industrialists and Entrepreneurs.
CEO and Chairman of the Management Board of Mining and Metallurgical Company Norilsk Nickel. ▻▻ State and other awards In August 2007, based on Decree by President Vladimir Putin, Potanin was awarded with Order Has extensive management experience both in public service and in commercial organisations. For Merit to the Fatherland IV class. He received a government award “In memory of the 850th anniversary of Moscow” and a medal “In memory of the 300th anniversary of Saint Petersburg” as After graduation, he worked in the USSR Ministry of Foreign Economic Relations from 1983 to well as a number of other awards. 1990. Evaluation Based on Independence Criteria Since 1990 he has been President of Foreign Economic Association Interros. ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO26: From 1992 to 1993 he was Vice President, then President of International Finance Company. Vladimir Potanin is not an Independent Director because at the time of evaluation he represented a major shareholder. Since 1993 he has been President of Unexim Bank, Chairman of the Board of Directors of International Finance Company. ▻▻ According to the Listing Rules of MICEX Stock Exchange27: Independent Director. From August 14, 1996 to March 17, 1997 he was First Deputy Chairman of the Russian Government. He was in charge of economic issues and coordinated the work of the Ministry of Non-Executive Director. Does not hold JSC Inter RAO shares. Economy of the Russian Federation, Russian State Committee for Antimonopoly Policy, State Committee of the Russian Federation for the Administration of State Property, Russian Federal Property Fund, Federal Administration for Insolvency (Bankruptcy), the Federal Commission for the Securities Market, Federal Energy Commission of the Russian Federation.
26 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the While working in the Government of the Russian Federation he headed about 20 federal, General Meeting of Shareholders on June 25, 2013. governmental and inter-agency committees, including the government committee for financial and 27 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes monetary policy, operations committee of the Russian Government for improvement of payment No. 8).
104 6. CORPORATE GOVERNANCE
Education, Skills and Professional Experience
▻▻ Higher education In 1997 he graduated from the Ustinov Baltic State Technical University with degree in Impulse Devices and Automatic Rotary Lines.
In 2002 he graduated from Saint-Petersburg State University with degree in Finance and Credit.
Ph.D. in Economics.
▻▻ Specialisation in finance From 1998 to 1999 he was a Technical Analyst for Money Market Instruments and a Specialist and Lead Specialist for Securities in the Stock Exchange Transactions Department of Investment and Finance Group “Management. Investments. Development”.
From 1999 to 2000 he had been Lead Specialist of the Investment Activity Coordination Group in KIRILL GENNADYEVICH SELEZNYOV Sea Port of Saint-Petersburg.
First elected to the Board of Directors in 2008. From 2000 to 2001 he has been Head of Tax Group in Baltic Pipeline System (BPS), then BPS CORPORATE GOVERNANCE Branch, Upper-Volga Main Oil Pipelines. Year of birth: 1974 ▻▻ Work experience including Board of Directors membership or other senior positions in joint stock Member of the Management Board, Head of the Gas and Liquid Hydrocarbons Marketing and companies whose securities are listed on organised trading platforms (stock exchanges) and Processing Department of Gazprom. international companies such as Kirill Seleznyov is a member of the Board of Directors of the following leading listed power Has extensive experience in senior positions in other organisations, including JSC Inter RAO, companies: Inter RAO, Mosenergo, TGC-1. He is a member of the Board of Directors of the shares of which are traded on the foreign trading platforms. From 1997 to 1998 – Manager of following leading companies: NOVATEK, Gazprom Neft, Gazprombank. Baltic Financial Company. Evaluation Based on Independence Criteria From 2001 to 2002 he was Deputy Head of the Management Office - Assistant to Gazprom Management Board Chairman. In 2002, he was appointed as Head of the Gas and Liquid ▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO28: Hydrocarbons Marketing and Processing Department of Gazprom. Kirill Seleznyov is not an Independent Director because at the time of evaluation he, together with another member of JSC Inter RAO Board of Directors, was a member of the Board of Directors of Since 2007, Kirill Seleznyov has been Director General of Gazprom Mezhregiongaz other companies and held positions in the management bodies of Company’s competitor. (Mezhregiongaz – until September 2010). ▻▻ According to the Listing Rules of MICEX Stock Exchange 29: Independent Director.
Non-Executive Director.
Does not hold JSC Inter RAO shares.
28 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the General Meeting of Shareholders on June 25, 2013. 29 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
105 JSC Inter RAO / ANNUAL REPORT / 2013
▻▻ Specialisation in the electricity sector From 2001 to 2003 he worked in RAO United Energy Systems and then in SPIC Turbocon. From 2006 to 2008 he served as CEO of Mezhregionenergosbyt. CEO of Gazprom Energoholding, CEO and member of the Board of Directors of Centrenergoholding. Chairs the Boards of Directors of the following energy companies: Tyumen Energy Supply Company, OGK-2.
▻▻ Work experience including Board of Directors membership or other senior positions in joint stock companies whose securities are listed on organised trading platforms (stock exchanges) and international companies such as Denis Fedorov is a member of the Board of Directors of the following publicly traded energy companies: JSC Inter RAO, Federal Grid Company of the Unified Energy System, Mosenergo, TGC-1.
Evaluation Based on Independence Criteria
▻▻ According to the Regulations on the Board of Directors of JSC Inter RAO30: DENIS VLADIMIROVICH FEDOROV Denis Fedorov is not an Independent Director because at the time of evaluation he, together with other members of JSC Inter RAO Board of Directors, was a member of the Board of Directors of First elected to the Board of Directors on June 24, 2011. other companies and held positions in the management bodies of the Company’s competitors.
Year of birth: 1978 ▻▻ According to the Listing Rules of MICEX Stock Exchange 31: Independent Director. Head of the Directorate for Power Sector Development and Marketing in Power Generation of the Gas and Liquid Hydrocarbons Marketing and Processing Department of Gazprom. Non-Executive Director.
Chairman of the Audit Committee, member of Human Resources and Remuneration Committee of the Does not hold JSC Inter RAO shares. Board of Directors of JSC Inter RAO.
In 2003, he was recognised the Best Young Scientist of Russia in Physics and Mathematics. Author of 15 published research papers and 2 monographs.
Education, Skills and Professional Experience
▻▻ Higher education In 2001, he graduated from Bauman Moscow State Technical University as an Economist Manager. In 2003, he graduated from Moscow Power Engineering Institute (Technical University) – holding post-graduate study in two majors - Economy and Industrial Heat Power Engineering.
Ph.D. in Economics.
▻▻ Specialisation in finance
From 2003 to 2006 he headed the Department of Investment Technologies and Process Projects 30 The criteria for independence of directors provided by JSC Inter RAO’s Regulations on the Board of Directors were approved by the in EuroSibEnergo-Engineering and Investment Department of Corporation Gazenergoprom. General Meeting of Shareholders on June 25, 2013. 31 Approved by the MICEX Stock Exchange Board of Directors on February 6, 2013. (Minutes No. 14). Current version of the listing rules that came into force on November 18, 2013. (Approved by the MICEX Stock Exchange Board of Directors on September 27, 2013. (Minutes No. 8).
106 6. CORPORATE GOVERNANCE
6.4.3. BOARD OF DIRECTORS PERFORMANCE REPORT
In 2013, 21 Board of Directors meetings were held – 4 in praesentia and 17 in absentia. 129 matters, In 2013 there were no transactions with shares owned by the including 12 directive were been reviewed during the meetings. Resolutions were adopted on all matters. members of the Board of Directors of JSC Inter RAO. Minutes of the Board of Directors meetings are available on the Company’s Internet website at: http://www.interrao.ru/investors/uprav/org/minutes/2013.php
6.4.2. CHANGES TO THE BOARD OF DIRECTORS COMPOSITION MADE IN 2013 NUMBER OF BOARD OF DIRECTORS MEETINGS ATTENDED BY EACH MEMBER IS ONE OF THE FACTORS AFFECTING REMUNERATION* The Annual General Meeting of Shareholders of JSC Inter RAO was held on June 25, 2013 and new members were elected of the Board of Directors. The following members were not re-elected to the Board of Directors: Dmitry Shugaev 21 of 21 CORPORATE GOVERNANCE 1. Ferdinando Beccali; Denis Fedorov 21 of 21 2. Grigory Kurtser; Boris Kovalchuk 21 of 21 Oleg Budargin 21 of 21 3. Vladimir Strzhalkovsky. Alexander Lokshin 20 of 21 The following members were elected to the Board of Directors: Kirill Seleznyov 19 of 21 1. Ronald Pollett; Vladimir Dmitriev 19 of 21 Vyacheslav Kravchenko 2. Vladimir Potanin; 18 of 21 Ron Pollett (until 25.06.2013) 11 of 11 3. Igor Sechin. Grigory Kurtser (until 25.06.2013) 10 of 10 Igor Sechin (until 25.06.2013) 9 of 11 Vladimir Potanin (until 25.06.2013) 9 of 11 Ferdinando Falco Beccali (until 25.06.2013) 7 of 10 Vladimir Strzhalkovsky (until 25.06.2013) 4 of 10
Number of meetings that Board member was able to attend * Detailed information on principles and coefficients used toNumber determine of the meetings remuneration attended of Board by of DirectorsBoard member members is provided in the Regulations on Payment of Remuneration and Compensation to Members of the Board of Directors http://www.interrao.ru/upload/docs/ Regulations_on_Payment_of_Remunerations_and_CompensationsMembers_25.06.2012.pdf
107 JSC Inter RAO / ANNUAL REPORT / 2013
MEETINGS OF THE BOARD OF DIRECTORS WERE FOCUSED ON CORPORATE 6.4.4. REMUNERATION TO THE MEMBERS OF THE GOVERNANCE, MANAGEMENT OF FINANCIAL AND ECONOMIC ACTIVITIES OF THE COMPANY AND CONDUCTING TRANSACTIONS BOARD OF DIRECTORS
Total amount of remuneration for participation of the members
Corporate governance elected in 2012 in the Board of Directors of JSC Inter RAO 33 totalled RUR 23,620,909.09 in 2013.
Regulation of financial and business operations 25 Total amount of remuneration for participation of the members elected in 2012 in the Board of Directors of JSC Inter RAO totalled RUR 23,620,909.09 in 2013. Amount is exclusive of remuneration to the Management Board Chairman as, in accordance with the Regulation on Disclosure of Information by Transactions the Securities Issuers, such remuneration is included into the amount of remuneration paid to the 21 Management Board members for 2013.32
Other issues 18 REMUNERATION PAID TO THE BOARD OF DIRECTORS MEMBERS IN 2013 Determining the position on the agenda of S&A's 14 Full Names of Board of Directors Amount, RUR
Participation in other organizations 8 Denis Fedorov 3,600,000.00 Alexander Lokshin 3,468,750.00 Approval of internal documents Dmitry Shugaev 3,468,750.00 8 Vyacheslav Kravchenko 3,141,818.20 Priority directions of development Oleg Budargin 2,945,454.60 2 Ferdinando Falco Beccali 2,032,500.00 Kirill Seleznyov 1,813,636.40 Vladimir Dmitriev 1,718,181.80 Vladimir Strzhalkovsky 1,431,818.20
32 Approved by an order from the Federal Financial Markets Service dated October 04, 2011, No. 11-46.
108 6. CORPORATE GOVERNANCE
6.4.5. BOARD OF DIRECTORS COMMITTEES
BOARD OF DIRECTORS COMMITTEES
Committee Functions
Preparation and submission of recommendations to the Board of Directors on the following matters: ▻▻ Defining priority areas, strategic goals and fundamentals of Company’s strategic development Strategy and Investment Committee ▻▻ Improving investment attractiveness of the Company ▻▻ Improving investment activities and making justified investment decisions CORPORATE GOVERNANCE
▻▻ Development of principles and criteria for determination of the amount of remuneration payable to members of the Board of Directors, Management Board and person serving as Sole Executive Body ▻▻ Preparation of proposals for defining material terms and conditions of contracts signed with members of the Board of Directors, Management Board and person Human Resources and Remuneration Committee serving as Sole Executive Body ▻▻ Defining criteria for selecting candidates to the Board of Directors, Management Board and Sole Executive Body as well as preliminary evaluation of the candidates ▻▻ Approval of the target values (adjusted values) of key performance indicators of the Company and reports on their fulfilment ▻▻ Other matters
▻▻ Evaluation of candidates to the Company Auditors ▻▻ Evaluation of the Auditor’s Report Audit Committee ▻▻ Evaluation of internal control procedures effectiveness and preparation of proposals for their improvement ▻▻ Preparation and submission of recommendations (reports) to the Board of Directors for Company audit and reporting activities
109 JSC Inter RAO / ANNUAL REPORT / 2013
STRATEGY AND INVESTMENT COMMITTEE
Activities of the Strategy and Investment Committee of the Company Board of Directors are regulated by The following Committee changes were made based on the resolution of the Board of Directors dated June 25, Regulations on the Strategy and Investment Committee of JSC Inter RAO Board of Directors33. 2013:
There were two compositions of the Strategy and Investment Committee of the Board of Directors in 2013: ►► The powers of the following members were terminated: Andrey Bugrov, Deputy Director General, member of the Management Board of Holding Company Interros; Vyacheslav Kravchenko, Chairman ►► From January 1, 2013 to June 25, 2013 (based on the resolution of the Board of Directors dated July of the Management Board of Non-Profit Partnership Market Council for Organising Efficient System of 12, 2012, as amended on December 14, 2012) Trading at Wholesale and Retail Electricity and Capacity Market; David Hexter, International Advisor of XENON Capital Partners; ►► From June 26, 2013 to December 31, 2013 (based on resolution of the Board of Directors dated June 25, 2013, as amended on October 31, 2013) ►► The following members were elected: Elena Bezdenezhnykh, Deputy Director General, Head of the Corporate, Property and Legal Affairs Unit of Norilsk Nickel; Anatoly Gavrilenko, Director General of Leader; Charlotte Philipps, Managing Director of XENON Capital Partners. STRATEGY AND INVESTMENT COMMITTEE OF THE BOARD OF DIRECTORS OPERATING FROM OCTOBER 31, 2013 TILL DECEMBER 31, 2013 The following Committee changes were made based on the resolution of JSC Inter RAO Board of Directors dated October 31, 2013: Full Name of Committee member Position ►► The powers of Mikhail Kurbatov were terminated;
1. Vyacheslav Kravchenko Deputy Minister of Energy of the Russian Federation ►► Vyacheslav Kravchenko, Deputy Minister of Energy of the Russian Federation was elected to the (Committee Chairman) Committee.
2. Elena Bezdenezhnykh Deputy Director General, Head of the Corporate, Property and Legal Affairs Unit of Norilsk Nickel In 2013, the Strategy and Investment Committee held 12 meetings in absentia and 5 meeting in praesentia, one of which was held together with the Human Resources and Remuneration Committee. 3. Anatoly Gavrilenko Director General of Leader During the meetings, the Committee adopted resolutions within its jurisdiction. The following matters were preliminary reviewed: 4. Andrey Kazachenkov First Deputy Chairman of the Management Board, member of FGC UES Management Board ►► Approval of JSC Inter RAO Corporate ►► Amendment of the investment programme 5. Ilnar Mirsiyapov Member of the Management Board, Head of Strategy and Development Action Plan34; forming part of the Company Business Plan for Investment Unit of JSC Inter RAO 201338; 6. Nataliya Khanzhenkova Managing Director of European Bank for Reconstruction and ►► Approval of JSC Inter RAO Business Plan Development in Russia Implementation Report for 201235; ►► A number of matters relating to Company participation in other companies39; 7. Charlotte Philipps Managing Director of XENON Capital Partners ►► Review of strategic JSC Inter RAO development 36 8. Dmitry Shugaev Member of the Board of Directors, Deputy Director General of priorities for 2013 ; ►► Approval of JSC Inter RAO Business Plan State Corporation for Promotion of Development, Production and and Inter RAO Group Business Plan for Export of Hi-Tech Industrial Products Rostec ►► Review of Report on strategic JSC Inter RAO 2014, approval of the list and values of key development priorities implemented in 201237; performance indicators and control indicators of the Company for 2014.40
34 Minutes of March 18, 2013, No. 51. 38 Minutes of August 12, 2013, No. 59. 35 Minutes of March 22, 2013 No. 52. 39 Minutes of July 24, 2013, No. 58, dated August 12, 2013, 36 Minutes of March 22, 2013 No. 52. No. 59, dated August 29, 2013, No. 60. 33 Approved by the JSC Inter RAO Board of Directors May 16, 2013 (minutes of May 16, 2013, No. 92). 37 Minutes of May 31, 2013, No. 56/49. 40 Minutes of December 05, 2013, No. 54.
110 6. CORPORATE GOVERNANCE
HUMAN RESOURCES AND REMUNERATION COMMITTEE
Besides the preliminary review of matters within the responsibility of the Board of Directors, in 2013 the Human Resources and Remuneration Committee of the Company Board of directors organises its work Strategy and Investment Committee also considered instructions issued to the Committee. So, based according to Regulations on the Human Resources and Remuneration Committee of JSC Inter RAO Board on recommendations by the Committee, the Board of Directors and the Committee regularly review of Directors43. consolidated Inter RAO Group Business Plan and reports on its implementation. The Board of Directors approved the Declaration on Maximum Permissible Limit of Inter RAO Group Debt Burden.41 Also in 2013, The main task of the Human Resources and Remuneration Committee is appointing qualified specialists to the Strategy and Investment Committee held joint meeting with the Human Resources and Remuneration the management of JSC Inter RAO and developing appropriate incentives. Committee where they reviewed key performance indicators of JSC Inter RAO for 2013 based on approved Strategic Company Development Priorities for 2013.42 Committee members are appointed based on the Company Board of Directors resolution numbering a minimum of three and maximum of seven. The Committee members are elected by the Board of Remuneration to members of the Strategy and Investment Committee is paid once a year after the Annual Directors from the candidates nominated by the Company Board of Directors. It should be noted that General Meeting based on the Board of Directors resolution. According to Regulation related to the JSC only independent non-executive members of the Board of Directors can be members of the Committee Inter RAO Strategy and Investment Committee, there is a number of restrictions applied to the payment of according to requirements set by stock exchanges to issuers whose shares are included into Quotation remuneration to Committee members, namely: List A.
►► Membership in the Board of Directors; There were two composition of Human Resources and Remuneration Committee of the Board of Directors in 2013: ►► Statutory bar; CORPORATE GOVERNANCE ►► From January 01, 2013 to June 25, 2013 (based on the resolution of the Board of Directors dated July ►► Employment Contract with the Company. 12, 2012)
Taking into account the above restrictions, the following amounts are to be paid: ►► From June 26, 2013 to December 31, 2013 (based on the resolution of the Board of Directors dated June 25, 2013) ►► Andrey Bugrov – RUR 500,000.00;
►► Nataliya Khanzhenkova – RUR 450,000.00; THE HUMAN RESOURCES AND REMUNERATION COMMITTEE OF THE BOARD OF DIRECTORS ►► David Hexter – RUR 750,000.00. OPERATING FROM JUNE 25, 2013 TO DECEMBER 31, 201344 Full Name of Committee Member Position Nataliya Khanzhenkova, a member of the Strategy and Investment Committee refused the remuneration payment. 1. Dmitry Shugaev Member of the Board of Directors, Deputy Director General of Remuneration to members of the Strategy and Investment Committee who are also members of the (Committee Chairman) State Corporation for Promotion of Development, Production and Export of Hi-Tech Industrial Products Rostec Company Board of Directors, was paid according to Regulation on Payment of Remuneration and Compensations to Members of the Board of Directors with due account of all relevant multiplying ratios. 2. Alexander Lokshin Member of the Board of Directors, First Deputy General Director for Operations Management of the State Atomic Energy Corporation Rosatom 3. Denis Fedorov Member of the Board of Directors, Head of the Directorate for Power Sector Development and Marketing in Power Generation of Gazprom, General Director of Centrenergoholding, General Director of Gazprom Energoholding
41 Minutes of June 17, 2013, No. 57. 43 Approved by a Resolution of the Inter RAO Board of Directors on October 10, 2013 (Minutes No. 101 of October 14, 2013). 42 Minutes of May 31, 2013, No. 56/49. 44 Minutes of June 25, 2013, No. 96.
111 JSC Inter RAO / ANNUAL REPORT / 2013
AUDIT COMMITTEE
The following Committee changes were made based on the resolution of the Board of Directors dated June 25, Activities of the Audit Committee of the Board of Directors are regulated by the Regulations on the Audit 2013: Committee of JSC Inter RAO’s Board of Directors49.
►► The powers of Oleg Budargin, Member of the Board of Directors, Chairman of the Management Board Three to seven officers can be members of the Audit Committee. The Committee members are appointed of FGC UES, and Ferdinando Beccali, President and CEO of General Electric (GE) in Europe and North based on the resolution of the Company’s Board of Directors. Only independent non-executive members of Asia, CEO of GE in Germany, were terminated. the Board of Directors can be members of the Committee, according to the requirements set by the stock exchange for issuers whose shares are included in Quotation List A. In 2013 the Human Resources and Remuneration Committee held 18 meetings in absentia, and one meeting in praesentia together with the Strategy and Investment Committee. There were two compositions of Human Resources and Remuneration Committee of the Board of Directors in 2013: The most important resolutions of the Committee in 2013: ►► From January 01, 2013 to June 25, 2013 (based on the resolution of the Board of Directors dated July ►► Preliminary evaluation of candidates for compliance with the Criteria for selecting candidates to the 12, 2012) Board of Directors45; ►► From June 26, 2013 to December 31, 2013 (based on the resolution of the Board of Directors dated ►► Preliminary evaluation of the Members of the Board of Directors for compliance with the Criteria for June 25, 2013). the independence of directors for JSC Inter RAO’s Annual Report for 201246;
►► Financial incentives, approval of KPI and reports on their implementation47; AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OPERATING FROM JUNE 25, 2013 UNTIL ►► Election and termination of the powers of the Management Board members48. DECEMBER 31, 201350
Remuneration to Members of the Human Resources and Remuneration Committee was paid according Full Name of Committee member Position to the Regulations on Payment of Remuneration and Compensation to the Members of the Board of Directors, with due account of all relevant multiplying ratios. 1. Denis Fedorov (Committee Chairman) Member of the Board of Directors, Head of the Directorate for Power Sector Development and Marketing in Power Generation of Gazprom, General Director of Gazprom Energoholding.
2. Dmitry Shugaev Deputy CEO of Russian Technologies State Corporation.
3. Ronald Pollett President and CEO of GE in Russia and CIS.
45 Minutes of March 29, 2013, No. 44. 46 Minutes of April 11, 2013, No. 45. 47 Minutes of February 22, 2013, No. 43; Minutes No. 54 dated October 04, 2013. 49 Approved by Resolution of the Inter RAO Board of Directors on September 17, 2013 (Minutes No. 100 dated September 19, 2013). 48 Minutes of December 19, 2013, No. 60. 50 Minutes of June 25, 2013, No. 96.
112 6. CORPORATE GOVERNANCE
6.5. MANAGEMENT BOARD
The following changes in the Audit Committee were made based on Seven meetings in absentia and five meetings in praesentia were As a collegial executive body, the Management Board of JSC Inter the resolution of the Board of Directors dated June 25, 2013: held in 2013 to adopt resolutions within the jurisdiction of the Audit RAO is in charge of day-to-day management of the company’s Committee. The following matters were preliminarily reviewed: activities and implementation of the Group’s goals, strategies ►► The powers of Oleg Budargin, Member of the Board of Directors, and policy. The Management Board is subordinate to the General Chairman of the Management Board of FGC UES, Vyacheslav ►► Corporate Development Action Plan;51 Meeting of Shareholders and Board of Directors. Members of the Kravchenko, Chairman of the Management Board of the non- Management Board are appointed and the number of Members profit partnership Market Council for Organising an Efficient ►► JSC Inter RAO’s report on relations with the Company’s External is determined based on the resolution of the Board of Directors. Trading System on the Wholesale and Retail Electricity and Auditor and the Auditor’s conformance with independence Management Board members are nominated by the Chairman of Capacity Markets, and Alexander Lokshin, Member of the Board requirements;52 the Management Board and elected by the Board of Directors for a of Directors, First Deputy General Director of the Nuclear Park period of five years. Directorate of State Atomic Energy Corporation Rosatom, were ►► Recommendations to the Board of Directors regarding approval terminated; of the Company’s Annual Report and Financial Statements for Activities of the management Board are regulated by the Charter 2012;53 and Regulations on the Management Board57. ►► Ronald Pollett, President and CEO of GE in Russia and CIS, and Dmitry Shugaev, Deputy CEO of Russian Technologies State ►► Report on the evaluation of the effectiveness of the risk CORPORATE GOVERNANCE Corporation, were elected. management process in the Company in 2012;54
►► Consolidated Financial Statements for 2012 prepared in accordance with International Financial Reporting Standards, results of the Company’s audited Consolidated Financial Statements for 2012;55
►► Latest version of the Auditor Rotation Policy.56
In 2013 remuneration to members of the Audit Committee was paid according to the Regulation on Payment of Remunerations and Compensations to Members of the Board of Directors, with due account of all relevant multiplying ratios.
51 Minutes of March 25, 2013, No. 27. 52 Minutes of March 25, 2013, No. 27. 53 Minutes of May 8, 2013, No. 29. 54 Minutes of May 28, 2013, No. 30. 55 Minutes of June 14, 2013, No. 31. 57 Approved by the Management Board of RAO United Energy Systems on March 28, 56 Minutes of July 12, 2013, No. 32. 2008 (Minutes of March 28, 2008, No. 1845pr/3).
113 JSC Inter RAO / ANNUAL REPORT / 2013
6.5.1. MEMBERS OF THE MANAGEMENT BOARD
BORIS VYACHESLAV ARTAMONOV ALEXANDER KOVALCHUK Member of the Management Board BORIS Chairman of the Management Board (until December 31, 2013) Member of the Management Board
ILNAR VALERY MIRSIYAPOV MURGULETS Member of the Management Board, Member of the Management Board, Head of Strategy and Investment Unit Head of Innovations, Investments and Costs Unit
114 6. CORPORATE GOVERNANCE CORPORATE GOVERNANCE PAVEL ALEXANDER OKLEY PAKHOMOV Member of the Management Board, Member of the Management Board, Head of the Operations Unit Head of Legal Affairs Unit
DMITRY KARINA YURY PALUNIN TSURKAN SHAROV Member of the Management Board, Member of the Management Board, Member of the Management Board, CFO Head of Trading Unit Head of Engineering Unit
115 JSC Inter RAO / ANNUAL REPORT / 2013
BORIS YURYEVICH KOVALCHUK Chairman of the Management Board of JSC Inter RAO
The Chairman of the Management Board is responsible for overseeing day-to-day activities of the Company in accordance with the Charter, resolutions of the General Meeting of Shareholders, Board of Directors and Management Board adopted within their respective jurisdiction.
The Chairman of the Management Board ensures achievement of the Group’s goals by coordinating the work of the Deputy Chairman of the Management Board, Members of the Management Board and heads of subordinated business units.
Year of birth: 1977
In 1999 he graduated from the Law Faculty of Saint-Petersburg State University.
From 1999 until 2006 he worked as Legal Advisor at the Federal State Unitary Enterprise CRI Granit. Office Assistant to First Deputy Chairman of the Russian Government, Director of the Department of Priority National Projects of the Russian Government in 2006- 2009. In 2009, he was Deputy Director General for Development of the State Atomic Energy Corporation Rosatom. In 2009 Boris Kovalchuk was appointed Acting Chairman of the Management Board of JSC Inter RAO. In 2010 he was appointed Chairman of the Management Board of JSC Inter RAO and a Member of the Board of Directors.
He holds the honorary title of Honoured Power Engineer, has been awarded with the Order of Honour.
He is a member of the Management Board of the Russian Union of Industrialists and Entrepreneurs.
Does not hold JSC Inter RAO shares.
116 6. CORPORATE GOVERNANCE
VYACHESLAV YURYEVICH ARTAMONOV ALEXANDER GENNADYEVICH BORIS
Member of the Management Board of JSC Inter RAO58 Member of the Management Board of JSC Inter RAO CORPORATE GOVERNANCE
Vyacheslav Artamonov was responsible for trading activity methods. Alexander Boris coordinates activities in the field of social responsibility and administrative management.
Year of birth: 1957 Year of birth: 1959
In 1980 he graduated from Moscow Power Engineering Institute, National Research University as In 1985 he graduated from Leningrad Institute of Refrigeration Technologies with a degree an Electrical Engineer. in Refrigeration and Compressor Machines and Units as a Mechanical Engineer. In 2005 he graduated from the North-West Academy of Public Administration with a degree in State and He is a PhD in Technical Sciences, and the author of a dissertation on Development of Variable Municipal Administration. Speed Induction Motors for Running Internal Combustion Motor benches. He started his career in 1976 as a mechanic at the Baranovichi Trade Machinery Manufacturing He was awarded the title of Honoured Worker of Unified Energy System of Russia and was Plant. From 2004 until 2006, he held management positions in the Federal Tax Service. In 2006- awarded a badge celebrating 85 Years of the GOELRO Plan. 2009, he worked in the Office of the Government of the Russian Federation. In 2009-2010, he served as Director of the Development Centre of the State Atomic Energy Corporation Rosatom. Has been working in Inter RAO Group since 2000. In 2009 he was appointed as a Member of the Management Board of JSC Inter RAO. Share in the Company’s authorised capital: 0.0191%. Awarded Order of Honour and Order For Merit to the Fatherland II class.
Has class rank of Active State Advisor.
Does not hold JSC Inter RAO shares.
58 Vyacheslav Artamonov was a Member of the Management Board of JSC Inter RAO until December 31, 2013 and controlled matters relating to sales methodology.
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ILNAR ILBATYROVICH MIRSIYAPOV VALERY VALERYEVICH MURGULETS
Member of the Management Board, Head of Strategy and Investment Unit of JSC Inter RAO Member of the Management Board, Head of Innovations, Investments and Costs Unit of JSC Inter RAO
Year of birth: 1982 Year of birth: 1977
In 2005 Ilnar Mirsiyapov graduated from Moscow State Institute of International Relations with In 1999 he graduated from Saint-Petersburg State University. In 2006 he graduated from a degree in Management with Knowledge of Foreign Languages. In 2007 he graduated from Stockholm School of Economics. Almetyev State Oil Institute as an Engineer with a degree in Development and Operation of Oil and Gas Fields. In 2012 he graduated from Kutafin Moscow State Law Academy, with a degree in From 2007 until 2010, he served as Head of the Financial Department of Konstantinovsky Jurisprudence. Congress Centre. In 2010, he was employed by JSC Inter RAO as Head of the Investment Programme Department. In 2011 he was appointed Head of the Innovations, Investments He received PhD in Economics and Social Sciences. and Costs Unit. In 2012 he was appointed a Member of the Management Board, Head of the Innovations, Investments and Costs Unit of JSC Inter RAO. Awarded Certificate of Merit by JSC Inter RAO for his significant contribution in implementing the project on the consolidation of power assets. Does not hold JSC Inter RAO shares.
From 2006 until 2009, he held management positions in the State Atomic Energy Corporation Rosatom. He joined JSC Inter RAO in 2009.
Does not hold JSC Inter RAO shares.
118 6. CORPORATE GOVERNANCE
PAVEL IVANOVICH OKLEY ALEXANDER ALEXANDROVICH PAKHOMOV
Member of the Management Board, Head of the Operations Unit of JSC Inter RAO Member of the Management Board, Head of Legal Affairs Unit of JSC Inter RAO CORPORATE GOVERNANCE
Year of birth: 1970 Year of birth: 1973
In 1992 he graduated from Omsk Institute of Railway Engineers with a degree in Railway In 1995 he graduated from the Military University of the Russian Defence Ministry. In 1999 he Automation, Telemetry and Communication as a Railway Electrical Engineer. graduated from the Russian Academy of Public Administration under the President of the Russian Federation with a degree in Jurisprudence. PhD in Economics. From 1997 until 1999, he worked in the Legal Department of Bank Alba Alliance. From 1999 From 2001 until 2005, he worked in Omskenergo. From 2005 until 2008, he held management until 2003, he served as Director General of Centre of Judicial and Legal Protection Arbitr. He positions in FGC UES. From 2008 until 2010, he was Deputy General Director of Holding MRSK. started his career at JSC Inter RAO in 2003. From 2003 through 2011, he held various positions, In 2010 he was appointed Head of the Operations Unit, Member of the Management Board of including Head of Legal Department, Director of the Tax Planning Directorate and Deputy Director JSC Inter RAO. of the Tax Reporting and Accounting Department. Has been a Member of the Management Board of JSC Inter RAO and Head of the Legal Unit since 2011. Awarded Certificate of Merit by RAO United Energy Systems in 2007, title of Honoured Worker of Unified Energy System of Russia, Certificate of Merit of Russia’s Energy Ministry in 2009, Share in the Company’s authorised capital: 0.0025%. awarded a Breast Badge For Impeccable Work in the Distribution Network Sector in 2010.
Does not hold JSC Inter RAO shares.
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DMITRY NIKOLAYEVICH PALUNIN KARINA VALERYEVNA TSURCAN
Member of the Management Board, CFO of JSC Inter RAO Member of the Management Board, Head of Trading Unit of JSC Inter RAO
Year of birth: 1969 Year of birth: 1974
In 1992 he graduated from Moscow State Aviation Institute (Technical University) with a degree In 1999 she graduated from International Independent University of Moldova with a degree in in Radio Engineering. In 2008 he graduated from The Russian Presidential Academy of National Economic Law. In 2004 received MBA degree from the University Consortium of Spain (IUP). Economy and Public Administration as Master of Business Administration. She has been working in Inter RAO Group’s companies since 2005. From 1986 until 1993, he worked as an Engineer in the Research and Development Centre of the Federal Agency of Government Communications and Information under the President of the In 2012 was appointed to the Management Board of JSC Inter RAO by the Board of Directors. Russian Federation. From 1994 until 2002, he worked in the banking sector. He has worked in JSC Inter RAO since 2002 in management positions in the Financial Accounting Directorate, Share in the Company’s authorised capital: 0.0019%. Department of Economy and Finance, Financial and Economic Centre.
Share in the Company’s authorised capital: 0.0019%.
120 6. CORPORATE GOVERNANCE
YURY VLADIMIROVICH SHAROV In 2013 there were no transactions with shares owned by the Member of the Management Board, Head of Engineering Unit of JSC Inter RAO members of the Management Board of JSC Inter RAO. CORPORATE GOVERNANCE Year of birth: 1959
In 1986 he graduated from Moscow Power Engineering Institute (Technical University), with specialisation in Power System Cybernetics. Qualification: Electrical Engineer. In 1998 graduated from Plekhanov Russian Academy of Economics, with specialisation in Finance and Credit.
Candidate of Technical Sciences, Professor. Head of Electric Power Systems Department of 6.5.2. CHANGES TO THE MANAGEMENT BOARD National Research University Moscow Power Engineering Institute, Federal State Budgetary COMPOSITION MADE IN 2013 Educational Institution of Higher Professional Education.
Awarded honorary title Honoured Power Engineer of the Russian Federation, Commendation by the President of the Russian Federation and Order of Honour. Based on the resolution of JSC Inter RAO’s Board of Directors, dated December 26, 2013, the powers of Vyacheslav Artamonov, Member of the Management Board, were terminated and the Management Board Does not hold JSC Inter RAO shares. was made up of nine members.59
59 Minutes of December 30, 2013, No. 106.
121 JSC Inter RAO / ANNUAL REPORT / 2013
6.5.3. MANAGEMENT BOARD PERFORMANCE REPORT 6.5.4. REMUNERATION TO THE MEMBERS OF THE MANAGEMENT BOARD
In 2013, the Management Board held 70 meetings, including The incentive system for Members of the Management Board of JSC Inter RAO is aimed at ensuring their financial interest in achieving strategic goals and enhancing economic efficiency. The procedures for 10 in praesentia and 60 in absentia. determining and remunerating Members of the Management Board are established by the Regulation on Financial Incentives for the Chairman of the Management Board and Members of the Management Board of JSC Inter RAO60.
The system of financial incentives for Members of the Management Board of JSC Inter RAO in 2013 ATTENDANCE OF MEETINGS BY MANAGEMENT BOARD MEMBERS IN 2013 covers salary and bonus payments, based on the achievement by the Company of quarterly and annual key performance indicators (KPIs). Bonuses are paid to the Members of the Company’s Management Board on achievement by the Company of the KPIs for the current quarter and year. The Board of Directors approves a list of quarterly and annual KPIs, as well as KPI targets for the Management Board, based on the approved Business Plan. Boris Kovalchuk 57 10 KPIs for 2013 include the following areas of activity: Dmitry Palunin 57 9 Valery Murgulets 57 9 ►► Financial independence and sustainability; Vyacheslav Artamonov 57 9 ►► Business profitability and cost management; Karina Tsurcan 57 8
llnar Mirsiyapov 56 9 ►► Fulfilment of investment obligations. Yury Sharov 54 10 In 2013 the Company set the remuneration for Members of the Management Board, including the Pavel Okley 52 9 Chairman, at a total of RUR 527,896,305.79 (considering wages, bonuses and benefits), which is 15% less Alexander Boris 52 8 than last year. Alexander Pakhomov 51 8 Remuneration to the Management Board members was paid in 2013 in accordance with Employment Meetings in absentia Meetings in praesentia Contracts signed with Management Board members and was also based on resolutions of the Company’s Board of Directors61.
60 Approved by Resolution of the Inter RAO Board of Directors on November 1, 2013 (Minutes No. 103 dated November 05, 2013). 61 Resolution of the Inter RAO Board of Directors dated April 29, 2013 (Minutes No. 91 dated May 6, 2013). Resolution of the Inter RAO Board of Directors dated May 31, 2013 (Minutes No. 93 dated June 3, 2013). Resolution of the Inter RAO Board of Directors dated June 19, 2013 (Minutes No. 94 dated June 24, 2013). Resolution of the Inter RAO Board of Directors dated October 10, 2013 (Minutes No. 101 dated October 14, 2013). Resolution of the Inter RAO Board of Directors dated November 28, 2013 (Minutes No. 104 dated December 2, 2013). Resolution of the Inter RAO Board of Directors dated December 26, 2013 (Minutes No. 106 dated December 30, 2013).
122 6. CORPORATE GOVERNANCE
6.6. CORPORATE CONTROL
JSC Inter RAO’s corporate control system is aimed at ensuring regular monitoring of the Company’s financial and business activities, subdivisions, officials, management bodies and business units of the executive office for compliance with the Russian legislation, as well as the Company’s Charter and in-house regulations. The Revision Commission and Internal Audit, Controlling and Risk Management Unit are responsible for internal control. External control and independent appraisal of information on the Company’s financial position is the responsibility of the Auditor.
6.6.1. INTERNAL CONTROL
REVISION COMMISSION
Every year, the General Meeting of Shareholders elects the Revision Commission, consisting of five REVISION COMMISSION MEMBERS members to control the financial and business activities of JSC Inter RAO. NIKOLAY VARLAMOV The procedure for electing the Members of the Revision Commission is regulated by Article 85 of the CORPORATE GOVERNANCE Federal Law On Joint Stock Companies. The activities of the Revision Commission are regulated by the Year of birth: 1974 Company Charter and Regulation on the Revision Commission62. Education: Higher, Finance Academy under the Russian Government, Lomonosov Moscow State University. The Revision Commission reports to the General Meeting of Shareholders. ANNA DROKOVA MEMBERS OF THE REVISION COMMISSION OF JSC INTER RAO IN 2013. Year of birth: 1985 Full Name of Member Position Education: Higher, State University of Management. Master’s degree in Jurisprudence, Russian of the Revision State University of Trade and Economics. Commission ELENA KABIZSKINA Nikolay Varlamov Deputy Director General for Control and Revision Activities of JSC Russian Grids Year of birth: 1964 Anna Drokova Head of Department of Fuel and Power Industry Organisations’ Directorate of Property Education: Higher, Far Eastern Technical Fisheries Institute. Relations and Privatisation of Large Organisations, Federal Agency for State Property Management EKATERINA KHEIMITZ Elena Kabizskina Head of Methodological Support Directorate of the Internal Audit Department of JSC Moscow United Power Grid Company Year of birth: 1976 Ekaterina Kheimitz Deputy Head of Directorate, Head of Department for Controlling the Soundness of Assets in the Audit Department of the Internal Control Department of JSC Norilsk Education: Higher, Norilsk Industrial University. Nickel Yury Scherbakov Head of Treasury Department of JSC Inter RAO YURY SCHERBAKOV
Year of birth: 1977 Education: Higher, Finance Academy under the Government of the Russian Federation. No changes were made to the Revision Commission composition in 2013.
62 Approved by the Management Board of RAO United Energy Systems on March 28, 2008 (Minutes of March 28, 2008, No. 1845pr/3).
123 JSC Inter RAO / ANNUAL REPORT / 2013
REPORT ON THE ACTIVITIES OF THE REVISION COMMISSION
In 2013 the Revision Commission held four meetings attended by all Commission members. During the meetings the Commission reviewed 13 issues, including those associated with the results of the Commission’s work (four issues) and the nine issues regarding its work organisation. All the issues raised were resolved.
REMUNERATION TO MEMBERS OF THE REVISION COMMISSION
In 2013 JSC Inter RAO set the remuneration to Members of the Revision Commission (wages, bonuses, benefits, remuneration) involved in verification of the financial and business activities of the Company for 2012 at RUR 6,409,460.
INTERNAL AUDIT, CONTROLLING COMPLIANCE CONTROL AND RISK MANAGEMENT UNIT
The Internal Audit, Controlling and Risk Management Unit was created in JSC Inter RAO to fulfil internal In 2013 JSC Inter RAO created the Compliance Control Department of the Security and Regulations Unit, control functions. whose functions are given below:
►► Control over effectiveness of financial expenditure: contracts, capital expenditure, investments, charity; INTERNAL AUDIT, CONTROLLING AND RISK MANAGEMENT UNIT STRUCTURE ►► Checks and investigations based on information on the Economic Security Service;
Audit Department of Distribution Assets and Trading ▻▻ Foreign Assets Audit Department ►► Control over work of the Economic Security Service of the Group’s companies; ▻▻ Trading Efficiency Audit Directorate ▻▻ Thermal Power Supply Audit Directorate ►► Development of compliance procedures, management and coordination of activities of the Economic Security Service. Department of Operational Controlling and Audit ▻▻ Internal Control Directorate Support ▻▻ Risk Management Directorate In 2013, the Compliance Control Department of the Security and Regulations Unit developed the JSC Inter ▻▻ Audit Support Directorate RAO Fraud and Corruption Prevention Policy64, which is the basic document defining the Group’s main goals, objectives, principles and activities to prevent fraud and corruption.
Main goals, functions, procedures and powers of the Internal Audit, Controlling and Risk Management Unit are specified in the respective Regulations63.
63 Approved by the Management Board of RAO United Energy Systems on June 22, 2010 (Minutes No. 28) (as amended by a Resolution 64 Approved by a Resolution of the Inter RAO Board of Directors on January 31, 014, Minutes No. 107 dated February 3, 2014. of the Board of Directors on August 3, 2011 (Minutes No. 46 dated August 5, 2011).
124 6. CORPORATE GOVERNANCE
Inter RAO Group’s Principles to Prevent Fraud and Corruption
►► Principle of zero tolerance of fraud and corruption in any form while carrying out operational, investment and other types of activity.
►► Principle of management’s mission – members of management bodies and the Group’s managers shall form uncompromising ethical standards against fraud and corruption.
►► Principle of minimising risk of business relations with counter-parties involved in fraud – this principle is implemented by checking that the Group’s counter-parties have their own anti-corruption procedures or policies and their readiness to fulfil their requirements and include the respective articles in the contracts.
►► Principle of due diligence – the Group checks the counter-parties and bidders prior to making a decision on starting or continuing business CORPORATE GOVERNANCE relations
►► Principle of inevitability of punishment – the Group investigates all reasonably justified reports on breach of procedures to prevent fraud and corruption and holds the guilty parties liable
►► Principle of consistency and continuity - the Group’s activity aimed at preventing fraud and corruption through the development and implementation of a system of procedures to prevent fraud and corruption
►► Monitoring and control – the Group monitors the implementation of adequate procedures to prevent fraud and corruption, checks that they are observed and regularly improves them
More detailed information on the Policy can be found on the Company site at http://www.interrao.ru/upload/docs/Politika.pdf
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6.7. INFORMATION DISCLOSURE AND EXTERNAL COMMUNICATIONS 6.6.2. EXTERNAL CONTROL
The General Meeting of Shareholders annually approves the Company Auditor to audit and approve When disclosing information, JSC Inter RAO is bound to meet the requirements of the Russian legislation the financial statement. The Company Auditor audits the Company’s financial and business activities in and best international practices. In addition to the mandatory disclosure of information in accordance with accordance with the Russian Legislation and based on the contract signed with the Company. federal laws and other regulations, as well as the trading requirements in securities market, the Company also strives to disclose additional information to ensure maximum transparency of its activities. The Annual General Meeting of Shareholders of JSC Inter RAO held on June 25, 201365, adopted the resolution proposed by the Board of Directors of JSC Inter RAO to approve Ernst & Young as the Auditor The main documents regulating Group activities in the area of information disclosure are listed below: for 2013. ►► Regulation on the Information Policy67; The interaction of the internal and external auditors during an independent (external) audit is performed in compliance with the norms and principles set in Regulations (Standard) no. 29 on Auditing66 and in ►► Corporate Governance Code68; accordance with international audit standard ISA 610 Considering the Work of Internal Auditing − JFAC. ►► Regulations on Insider Information69; Prior to auditing financial statements, the External Auditor shall discuss the plan and scope of the audit with the Head of the Internal Audit, Controlling and Risk Management Unit. The External Auditors have ►► Corporate Ethics Code70; access to the results of the internal audits and have an unrestricted right to communicate with the internal auditors. ►► Communication Strategy.
The External Auditors shall inform the Head of the Internal Audit, Controlling and Risk Management Unit on the results of the audit, following the audit of the Company’s financial and business activities and shall provide information to the Audit Committee of the Board of Directors. JSC INTER RAO INFORMATION DISCLOSURE PRINCIPLES
Information Policy Communication Strategy
▻▻ Regularity and Promptness ▻▻ Information Transparency ▻▻ Information Availability ▻▻ Fair Accessibility of Information ▻▻ Completeness and Accuracy of Disclosed Information ▻▻ Consistency of Communications ▻▻ Equality ▻▻ Proactiveness, Long-Term Planning ▻▻ Balance ▻▻ Protection of Information Resources
More detailed information on the information disclosure principles can be found on the Company website at http://www.interrao.ru/en/
67 Approved by Resolution of the Inter RAO Board of Directors on September 27, 2011, Minutes No. 48 dated September 30, 2011. 68 Approved by Resolution of the Inter RAO Board of Directors dated April 23, 2008, Minutes No. 1. 65 The Minutes of June 26, 2013, No. 13. 69 Approved by Resolution of the Inter RAO Board of Directors on August 29, 2011, Minutes No. 47 dated September 1, 2011. 66 Approved by Russian Government Decree No. 523 dated August 25, 2006. 70 Approved by Resolution of the Inter RAO Board of Directors on October 18, 2011, Minutes No. 50 dated October 21, 2011.
126 6. CORPORATE GOVERNANCE
Inter RAO Group discloses information on all material facts, financial position, social and economic indicators, performance results, as well as ownership and management structure, to the fullest extent and THE GROUP USES VARIOUS COMMUNICATION CHANNELS FOR STAKEHOLDER ENGAGEMENT in a timely manner to provide the stakeholders with reliable and objective information. Communication Channels Key Engagement Issues in 2013
INTER RAO GROUP STAKEHOLDERS Internal stakeholders
Management and control bodies
▻▻ Group management and control bodies ▻▻ Sessions and meetings to exercise authority ▻▻ Group Strategy and Development directions ▻▻ Employees and employee representatives to act for the benefit of the Group and its ▻▻ Business plans and investment programmes shareholders ▻▻ Shareholders (including minorities) ▻▻ Performance results ▻▻ Investors and analysts ▻▻ Approval of interested-party transactions and
▻▻ Government (including government agencies in the countries of operation) large transactions CORPORATE GOVERNANCE ▻▻ Communities (including consumers) Employees and employee representatives ▻▻ Business partners and industry community ▻▻ Competitors ▻▻ Regular individual meetings of Human Resources ▻▻ The Group’s strategic HR management issues and Organisational Development Unit with JSC ▻▻ Career opportunities in the Group’s companies ▻▻ Mass media Inter RAO employees ▻▻ Rights and obligations of employees of the The list of the Group’s stakeholders was established by JSC Inter RAO’s Corporate Ethics Code and ▻▻ Satisfaction assessment Group’s companies Communication Strategy. ▻▻ Corporate publications ▻▻ Workplace conditions ▻▻ Conferences on implementing the HR and social ▻▻ Social security and benefits policies of Inter RAO Group ▻▻ Non-financial reports The Group developed a uniform approach towards identitifying the stakeholders, principles and areas of stakeholder engagement. The Group’s companies regularly review stakeholder interests and needs in order to: External Stakeholders
►► Avoid conflicts; Shareholders ▻▻ General Meeting of Shareholders, meetings with ▻▻ Financial and operating results ►► Take stakeholder expectations into account in planning Group operations; minority shareholders ▻▻ Dividend payment ▻▻ JSC Inter RAO hot line for shareholders ▻▻ Election of members to governance bodies ►► Achieve engagement goals and objectives, and address areas of concern; ▻▻ R.O.S.T. Registrar hot line ▻▻ Approval of interested-party transactions and ▻▻ Shareholder handbook major transactions ►► Maintain the Group’s positive image. ▻▻ Official correspondence ▻▻ Structure changes: purchase / winding-up of ▻▻ Interfax Publications companies The results of the review are used to select the engagement forms and practices that are most appropriate ▻▻ Corporate publications for each stakeholder group.
127 JSC Inter RAO / ANNUAL REPORT / 2013
THE GROUP USES VARIOUS COMMUNICATION CHANNELS FOR STAKEHOLDER ENGAGEMENT THE GROUP USES VARIOUS COMMUNICATION CHANNELS FOR STAKEHOLDER ENGAGEMENT
Investors and analysts Business partners and industrial community
▻▻ Meetings and presentations for investors and ▻▻ Group financial and operating results ▻▻ Contractual relations and cooperation ▻▻ Fulfilment of obligations analysts ▻▻ Group development strategy agreements ▻▻ Increasing transparency of procurement ▻▻ Investor Days, Analyst Days ▻▻ Disclosure of material facts and changes ▻▻ Participation in the Russian Union of procedures ▻▻ Meetings with investors on road shows and ▻▻ Major events implemented or initiated by the Industrialists and Entrepreneurs ▻▻ Prospective areas of cooperation conferences Group ▻▻ Project activities ▻▻ Developing trading rules in the wholesale and ▻▻ Conference calls ▻▻ Industry regulation ▻▻ Procurement procedures retail electricity and capacity markets ▻▻ Webcasts ▻▻ Improving operating efficiency ▻▻ Participation in trading in the wholesale and ▻▻ Support for commercial and process ▻▻ On-site visits retail electricity and capacity markets infrastructure operation ▻▻ Official correspondence, telephone discussions ▻▻ Cooperation in energy efficiency and energy ▻▻ Websites of the Group’s companies conservation ▻▻ Specialised materials for investment community (for example, Analyst Handbook)
Government (including government agencies in the countries of operation) Competitors
▻▻ Participation in work groups, panels and ▻▻ Implementation of instructions and decrees ▻▻ Contractual obligations ▻▻ Open, honest and fair competition committees to develop laws and regulations, as ▻▻ Participation in strategic national and international well as strategy for the power industry ▻▻ Participation in developing rules for wholesale ▻▻ Observing financial discipline and the obligations projects and retail electricity and capacity markets assumed ▻▻ Participation in intergovernmental commissions ▻▻ Rational use of natural resources ▻▻ Settlement of disputes related to consumer ▻▻ Submission of state reporting ▻▻ Ensuring energy supply security servicing by the Group’s companies ▻▻ Disclosure of information to participants of the wholesale and retail electricity and capacity markets
Communities (including consumers) Mass media ▻▻ Public hearings ▻▻ Ensuring energy supply security ▻▻ Press conferences ▻▻ Group financial and operating results ▻▻ Conferences ▻▻ Supply chain and procurement ▻▻ Press tours ▻▻ Group development strategy ▻▻ Charity projects, region social and economic ▻▻ Ensuring a reliable and uninterrupted power development projects supply, and energy supply security ▻▻ Press lunches ▻▻ Disclosure of material facts and changes ▻▻ Sites and web-pages of the social media of the ▻▻ Environmental protection and rational use of ▻▻ The Group website ▻▻ Major events implemented or initiated by the Group’s companies resources ▻▻ Corporate mass media Group ▻▻ Hot lines for consumers ▻▻ Social and economic development in the regions ▻▻ Industry regulation ▻▻ Improving operational efficiency
128 6. CORPORATE GOVERNANCE
JSC INTER RAO: STAKEHOLDER ENGAGEMENT IN FIGURES, 2013
Stakeholders
▻▻ 21 general meetings of the Board of Directors Management and control bodies ▻▻ 70 meetings of the Management Board
▻▻ 1 Annual General Meeting of Shareholders ▻▻ 2 local meetings with minority shareholders ▻▻ 153 written inquiries from shareholders and notaries Shareholders ▻▻ 131 inquiries to which R.O.S.T. Registrar responded ▻▻ 167 disclosures of material facts ▻▻ 21 press-releases in the news feeds of the authorised information agency (Interfax) ▻▻ 141 messages in the RNS news feed. CORPORATE GOVERNANCE
▻▻ 83 individual and group meetings ▻▻ 7 investment conferences ▻▻ 2 road shows Investors and analysts ▻▻ 2 webcasts based on results of six month / annual IFRS report publication ▻▻ 1 on-site visit ▻▻ 1 Analyst Day
▻▻ 311 meetings ▻▻ 105 press conferences ▻▻ 9 press tours Mass media ▻▻ 1 press lunch ▻▻ 10 press breakfasts ▻▻ 4 conference calls ▻▻ 26 on-site visits
129
7. THE COMPANY IN THE CAPITAL MARKETS
7. THE COMPANY IN THE CAPITAL MARKETS
ONE OF THE MAJORITY SHAREHOLDERS OF JSC INTER RAO CHANGED IN DECEMBER 2013. STRUCTURE OF JSC Inter RAO’s authorised capital totals AUTHORISED CAPITAL AS OF DECEMBER 31, 2013 RUR 293,339,702,832.56769861 and % is divided into 10,440,000,997,683 FGC UES Group 18.57 18.57% of common shares with a par value % Free float 18.06 of RUR 0.02809767 each. It has 16.65% 7,234,112,847,330 authorised but not % Inter RAO Capital 13.93 placed shares. As of December 31, 13.93% % 2013, JSC Inter RAO did not have Rosimushchestvo 13.76 13.76% any preferred shares. % Norilsk Nickel Group 13.21 13.21% On December 5, 2013 JSC Rosneftegaz purchased 12.49% stock % of JSC Inter RAO from the State Atomic Energy Corporation Rosneftegaz Group 13.86 % Rosatom. As a result, JSC Rosneftegaz increased the number THE COMPANY IN THE CAPITAL MARKETS VEB 5.07 of the Company’s shares, which it is entitled to control, up to 5.11% 1,315,651,504,837 (or 12.6020% of JSC Inter RAO’s authorised % capital). Based on the results of this transaction, Rosneftegaz Group RusHydro Group 4.92 % became the owner of 13.8643% of JSC Inter RAO’s authorised 4.92 capital as of December 31, 2013. Rosatom Group % 12.49 2012
The Company’s shares were purchased pursuant to the instructions 0% 10% 20% 2013 issued by the Government of the Russian Federation and the Federal Agency for State Property Management, aimed at implementing JSC Rosneftegaz’s strategic goals, according to Decree no. 695 of Federal property privatisation plans (programmes) for 2011-2013 and 2014-2016, approved by Decree no. 2102-r, dated November 27, 2010, and the President of the Russian Federation, dated May 22, 2012, On Decree no. 1111-r, dated July 1, 2013, envisage that the state will cease to participate in JSC Inter RAO’s authorised capital but will retain 9 (nine) Privatisation of Federal Shareholdings in Largest Fuel and Energy shares in federal ownership. Complex Companies. 16.65% of JSC Inter RAO authorised capital was in free float as of December 31, 2013. The Russian Federation represented by the Federal Agency for State Property Management owned 13.76% or 1,436,971,195,062 shares of the Company; the Russian Federation has no special right (golden share) to participate in the Company’s management. According to Decree No. 22-r of the Russian Government, dated January 16, 2014, 1,436,971,195,053 shares owned by the Russian Federation (13.7641% minus 9 shares of the authorised capital) were sold to JSC Rosneftegaz. Based on the results of this transaction, Rosneftegaz Group became the owner of 27.6284% (2,884,402,003,202 shares) of the authorised capital of JSC Inter RAO as of December 31, 2013.
Up-to-date information on JSC Inter RAO’s authorised capital can be found on the website http://www.interrao.ru/company/capital/
131 JSC Inter RAO / ANNUAL REPORT / 2013
SHAREHOLDERS REGISTERED IN THE JSC INTER RAO’S SHAREHOLDER LIST, OWNING MORE SHAREHOLDERS REGISTERED IN THE JSC INTER RAO’S SHAREHOLDER LIST, OWNING MORE THAN 5% OF THE VOTING SHARES OF THE COMPANY AS OF JANUARY 01, 2013 (EXCLUDING THAN 5% OF THE VOTING SHARES OF THE COMPANY AS OF DECEMBER 31, 2013 (EXCLUDING NOMINEE SHAREHOLDERS) NOMINEE SHAREHOLDERS) Item Full name or company Location Number of shares Item Full name or company Location Number of shares No. No. Total, sh. % of the authorised capital Total, sh. % of the authorised capital
1. Joint Stock Company Atomic 24 Bolshaya Ordynka St., 819,255,165,615 7.8473 1. Open Joint Stock Company 26/1 Sofiyskaya Nab., 1,315,651,504,837 12.6020 Energy Power Corporation Moscow, 119017 ROSNEFTEGAZ Moscow, 115035 2. The Russian Federation 9 Nikolsky Per., Moscow, 1,436,971,195,062 13.7641 2. The Russian Federation 9 Nikolsky Per., 1,436,971,195,062 13.7641 represented by the Federal 109012 represented by the Federal Moscow, 109012 Agency for State Property Agency for State Property Management Management 3. Non-Banking Credit 1/13 Sredny Kislovsky 1,776,781,609,757 17.0190 3. Non-Banking Credit 12 Spartakovskaya St., 3,123,115,314,718 29.9149 Organisation Closed Joint- Per., bld. 8, Moscow, Organisation Closed Joint- Moscow, Russia Stock Company National 125009 Stock Company National Settlement Depository Settlement Depository (nominee shareholder) (nominee shareholder) 4. LLC Depository and 4 Stromynka St., bld. 1, 5,415,824,028,173 51.8757 4. LLC Depository and Corporate 4 Stromynka St., bld. 1, 4,352,939,099,014 41.6948 Corporate Technologies Moscow, 107014 Technologies (nominee Moscow, 107014 (nominee shareholder) shareholder) TOTAL per list: 9,448,831,998,607 90.5060 TOTAL per list: 10,228,677,113,631 97.9758 (accounts: 4) (accounts: 4)
DATES OF STATE REGISTRATION AND STATE REGISTRATION NUMBERS OF SHARE ISSUE
Date of state registration State registration number Date of registration of Report on Issue Results Date of cancellation of individual number (code) of additional issue
October 29, 2009 1‑03‑33498‑E November 19, 2009 - September 11, 2012 1‑03‑33498‑E-003D October 25, 2012 February 05, 2013 September 11, 2012 1‑03‑33498‑E-004D October 25, 2012 February 05, 2013 September 11, 2012 1‑03‑33498‑E-005D October 25, 2012 February 05, 2013 September 11, 2012 1‑03‑33498‑E-006D October 25, 2012 February 05, 2013 September 11, 2012 1‑03‑33498‑E-007D December 06, 2012 March 12, 2013 September 11, 2012 1‑03‑33498‑E-008D December 06, 2012 March 12, 2013
132 7. THE COMPANY IN THE CAPITAL MARKETS
SHARES OF PRIMARY ISSUE (1-03-33498-E) OF JSC INTER RAO ADDITIONAL ISSUES OF JSC INTER RAO SHARES (007D-008D)
The shares of JSC Inter RAO’s major issue are traded on the Moscow Stock Exchange based on the During the first quarter of 2013, JSC Inter RAO’s additional share issues (state registration numbers Contract no. B-165/06, dated November 25, 2009, on including and maintaining the securities in the of additional issues 1-03-33498-E-007D and 1-03-33498-E-008D), into which the shares of JSC quotation list of JSC MICEX Stock Exchange (Level 1 A Quotation List). As of December 31, 2013, there Bashenergoaktiv (established after the restructuring of JSC Bashkirenergo) had been converted, were were 10,440,000,997,683 shares of the primary issue. included in JSC MICEX Stock Exchange’s B Quotation List:
►► 007D state registration number 1-03-33498-E-007D dated September 11, 2012 (the date of state registration of the report on the results of the additional issue of securities is October 25, 2012) is ADDITIONAL ISSUES OF JSC INTER RAO SHARES (003D-006D) assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO (conversion of common JSC Bashenergoaktiv shares); In the first quarter of 2013, JSC Inter RAO’s additional share issues 1-03-33498E-003D, 1-03-33498E-004D, 1-03-33498E-005D, and 1-03-33498E-006D, in which the shares of minority ►► 008D state registration number 1-03-33498-E-008D dated September 11, 2012 (the date of the shareholders (JSC OGK-1, JSC OGK-3, JSC Inter RAO-Energy and JSC Inter RAO - EnergoAktiv) had state registration of the report on the results of the additional issue of securities is October 25, 2012) been converted, were included in JSC MICEX Stock Exchange’s B Quotation List: is assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO (conversion of Class A preferred shares of JSC Bashenergoaktiv). ►► 003D state registration number 1-03-33498-E-003D, dated September 11, 2012 (the date of state registration of the report on the results of the additional issue of securities was October 25, 2012) is After consolidation of the additional issues listed above with the major share issue, due to the cancellation assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO of the individual numbers (codes) of the additional issues by the Russian Federal Financial Markets (conversion of JSC OGK-1 shares); Service, as of March 21, 2013, the additional share issues above are traded in the First Level A Quotation List as part of the primary issue. As of March 21, 2013, all JSC Inter RAO shares constituting the ►► 004D state registration number 1-03-33498-E-004D, dated September 11, 2012 (the date of state Company’s authorised capital are traded in the Higher Level Quotation List.
registration of the report on the results of the additional issue of securities is October 25, 2012) is THE COMPANY IN THE CAPITAL MARKETS assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO (conversion of JSC OGK-3 shares); DEPOSITORY RECEIPTS: ►► 005D state registration number 1-03-33498-E-005D, dated September 11, 2012 (date of state registration of the report on the results of the additional issue of securities is October 25, 2012) is As of November 28, 2011, JSC Inter RAO shares are traded in the form of global depository receipts on the assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO London Stock Exchange (LSE) in the International Order Book (IOB) segment in the listing mode. (conversion of JSC Inter RAO - EnergoAktiv shares);
►► 006D state registration number 1-03-33498-E-006D, dated September 11, 2012 (the date of state registration of the report on the results of the additional issue of securities is October 25, 2012) is assigned to the additional issue of common registered non-documentary shares of JSC Inter RAO (conversion of JSC Inter RAO - Energy shares).
After consolidation of the shares of the additional issues listed above with the primary share issue, due to the cancellation of individual numbers (codes) of additional issues as of February 8, 2013 by the Russian Federal Financial Markets Service, the additional share issues above are traded in the First Level Quotation List A of JSC MICEX Stock Exchange as part of the primary issue.
133 JSC Inter RAO / ANNUAL REPORT / 2013
SHARES ON THE MOSCOW STOCK EXCHANGE JSC INTER RAO ORDINARY SHARES ARE INCLUDED IN THE CALCULATION BASE OF THE FOLLOWING INDICES:
MOSCOW STOCK EXCHANGE (FIRST LEVEL A QUOTATION LIST) INDICES
Market Sector Ticker ISIN Date of Listing Index Description Ticker Weighting of Inter RAO Date of Update securities in index, %
Main Market IRAO* RU000A0JPNM1 July 17, 2008 MSCI Emerging Market index MXEM – December 25, 2013 Classic IRAO RU000A0JPNM1 July 17, 2008 MICEX index / RTS index (composite index) INDEXCF 0.22 December 25, 2013 Standard IRAOS RU000A0JPNM1 December 6, 2010 MICEX Power index (industry index) MICEXPWR 9.77 December 25, 2013
* Ticker IUES during the period from December 1, 2009 to November 18, 2011.
In 2013, more than 25 analysts from leading Russian and international banks provided analytical coverage of the Company. The Consensus Forecast tool installed on the Company’s site in the Shareholder and Investor Up-to-date information on the Company’s financial position and JSC section allows investors to quickly check analyst recommendations. Information on share price movements is Inter RAO share price movements can be found on the website: also available online on the Company’s website. http://www.interrao.ru/en/investors/calendar/
DYNAMICS OF SHARE PRICE OF JSC INTER RAO ON MICEX IN 2013
Inter RAO share price, RUR Trading volume, RUR mn 0.028 1,400 0.025 1,300 1,200 0.023 1,100 0.020 1,000 0.018 900 800 0.015 700 0.013 600 0.010 500 0.008 400 300 0.005 200 0.003 100 0.000 0 8 Jan 23 Jan 7 Feb 22 Feb 9 Mar 24 Mar 8 Apr 23 Apr 8 May 23 May 7 Jun 22 Jun 7 Jul 22 Jul 6 Aug 21 Aug 5 Sep 20 Sep 5 Oct 20 Oct 4 Nov 19 Nov 4 Dec 19 Dec 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013
Inter RAO trading volume on MICEX Inter RAO stock price on MICEX
134 7. THE COMPANY IN THE CAPITAL MARKETS
DIVIDEND POLICY
Dividends are declared and paid by JSC Inter RAO in accordance with the Federal Law On Joint-Stock Companies and the Regulations on the Dividend Policy approved by a resolution of the Board of Directors AMOUNT OF DIVIDENDS PAID IN THE PAST on April 29, 2011.1 Period of Dividend Payment 2010 2011 2012 JSC Inter RAO’s Dividend policy is aimed at ensuring complete satisfaction of shareholder interests through an optimal ratio of capitalised net profit to the net profit distributed in the form of dividends. According to the Regulations, the Dividend Policy shall address the following points: Date of announcement of the Board of Directors’ recommendations on May 16, 2011 – – the dividend amount ►► Optimisation of net profit distribution; Record date May 17, 2011 – – ►► Improvement of investment attractiveness; Date the resolution was adopted by the Board of Directors June 24, 2011 – –
►► Strict observance of shareholder rights and legal interests. Dividend per share, RUR 0.00001544 – –
Total dividends declared, ths RUR 150,015 – – Dividends are paid from after-tax profit (net profit of JSC Inter RAO), determined on the basis of RAS financial statements. According to the Regulations on Dividend Policy, at least five percent of JSC Inter Total dividends paid2 148,819 – – RAO’s net profit can be used for payment of dividends (however, the re-evaluation of financial investments shall be taken into account). When determining the amount of net profit to be used for dividend payment, Amount of dividends / RAS net profit, % 5.55 – – the following factors shall be taken into account: Amount of dividends / base in accordance with Dividend Policy, % 11.93 – – THE COMPANY IN THE CAPITAL MARKETS
►► Necessity to create funds; According to para. 2, Article 42 of the Federal Law On Joint-Stock Companies and JSC Inter RAO’s ►► Forecast net profit indicators for the current fiscal year; Regulations on Dividend Policy approved by the Board of Directors (paras. 3.1 and 3.2)3:
►► Necessity to finance JSC Inter RAO’s investment activities; ►► Dividends are paid from the Company’s after-tax RAS profit (net profit);
►► Availability and optimality of the financing sources of JSC Inter RAO’s investment activities. ►► The dividends cannot exceed the Company’s RAS net profit.
According to para. 3, Article 42 of the Federal Law On Joint-Stock Companies, the resolution on payment Considering the points stated above and the losses of RUR 14,360,641 thousand incurred by JSC Inter (declaration) of dividends, including the resolution on the amount of the dividend and the form of payment RAO in the 2012 fiscal year, the Annual General Meeting of Shareholders held on June 25, 2013 adopted relative to each category (type) of shares, is adopted by the General Meeting of Shareholders of JSC Inter the resolution not to pay dividends for common JSC Inter RAO shares for 2012.4 RAO, based on recommendations of the Board of Directors.
2 Data are provided as of the deadline date for payment of dividends in accordance with article 42 of the Federal Law On Joint-Stock Companies. 3 Extract from Minutes No. 41 dated May 3, 2011. 4 The Minutes of June 26, 2013, No. 13. 1 Minutes of May 3, 2011, No. 41.
135
8. CORPORATE SOCIAL RESPONSIBILITY
8. CORPORATE SOCIAL RESPONSIBILITY
8.1. APPROACH TO SUSTAINABILITY
Inter RAO Group is guided by generally accepted business rules, including compliance with the principles Inter RAO Group’s sustainability policy is based on the following principles: of sustainability, i.e., ensuring the kind of development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.1 ►► Improving economic efficiency in the interest of ►► Protecting employee’s life, health, labour shareholders; activity and career longevity; The Group’s contribution to sustainability is its social responsibility; i.e., its responsibility for the impact of its decisions and activities on society and the environment through transparent and ethical behaviour. ►► Ensuring the quality, reliability and safety of ►► Observing human rights and avoiding any forms Therefore, Inter RAO Group understands social responsibility as a business management concept that activities; of discrimination; takes into account the interests of all stakeholders including shareholders, investors, the state, employees, society, business partners and competitors. The scope of the Group’s social responsibility is determined ►► Creating a business development strategy by ►► Developing social partnership; primarily by its size and the importance of its contribution to the social and economic development of the meeting the needs of local communities; regions in which it operates. ►► Counteracting corruption; ►► Promoting sustainable economic and social The main goal of Inter RAO Group’s sustainability policy is to create an integrated innovation system of performance in the regions of operation; ►► Advancing sustainability principles in the socially responsible business aimed at achieving strategic goals, ensuring maximum operating efficiency business community; and compliance with stakeholder expectations ►► Promoting the development and expansion of CORPORATE SOCIAL RESPONSIBILITY efficient, environmentally friendly and resource- ►► Interacting with internal and external saving technologies; stakeholders based on a balance of interests and mutual benefits.
Being guided in its activities by sustainability principles, Inter RAO Group strives to continuously interact with the stakeholders.
More detailed information on the Group’s approach towards sustainability can be found in the Report on Sustainability and Environmental responsibility for 2012 (section on Approach to Sustainability). 1 The Brundtland Commission is the International Commission on Environment and Development (1984-1987). The commission chairman is Gro Harlem Brundtland, the Minister for Environmental Affairs and former Prime Minister of Norway. The key objective of the Commission was to develop the concept of sustainable development. In October 1987, the commission published a report titled Our common future, also known as the Brundtland Report, that established the term “sustainable development.”
137 JSC Inter RAO / ANNUAL REPORT / 2013
8.2. HUMAN RESOURCES MANAGEMENT MORE THAN 50% OF PERSONNEL WORK AT THE GROUP’S GENERATING COMPANIES2
% Generation 56.7 8.2.1. STAFF PROFILE 52.8% % Sales 20.6 19.8% % Grids 16.8 As of December 31, 2013 the number of the Group’s 16.0% % 1 Other (maintenance, service, etc.) 3.5 employees reached 61,951 people. 9.2% % Engineering 1.2 1.2% % Trading 1.2 1.0%
2012 2013
STRUCTURE OF PERSONNEL WORKING AT THE GROUP’S RUSSIAN AND FOREIGN COMPANIES DID NOT UNDERGO CONSIDERABLE CHANGES COMPARED TO 2012 THE AVERAGE AGE OF THE GROUP’S EMPLOYEES IN 2013 WAS 41 YEARS
Trading 24.4% 44.7% 17.8% 6.2% 6.9%
% Engineering 20.6% 33.2% 25.4% 10.4% 10.4% Russian companies 74.2 75.5% Sales 21.6% 26.5% 22.8% 16.2% 12.9% % Other (maintenance, service, etc.) 20.3% 25.1% 24.6% 16.7% 13.3% Foreign companies 25.8 % 24.5 Generation 17.3% 23.9% 28.9% 16.2% 13.7% Grids 11.5% 19.4% 28.2% 22.1% 18.8%
2012 2013 Up to and including 30 31-40 51-55 41-50 Over 55
1 Apart from the subsidiaries covered by Inter RAO Group’s 2013 consolidated financial reports, data on the following companies was 2 In 2013, personnel were transferred to a single repair and maintenance service company based on production assets of MC Quartz as taken into account in calculating HR and social parameters: Nizhnevartovskaya TPP, Ekibastuz TPP-2, RT-Energotrade. Data for 2012 part of establishing a new repair and maintenance service system in Inter RAO Group. and 2013 relating to social and HR parameters are provided in accordance with the boundary of this report and may differ from the data disclosed in other Inter RAO Group reports for previous reporting periods.
138 8. CORPORATE SOCIAL RESPONSIBILITY
THE SHARE OF WORKERS IN THE GROUP’S PERSONNEL STRUCTURE INCREASED IN 2013 THE AVERAGE EMPLOYEE TURNOVER RATE WAS 12.5% BY 1.5 P.P. IN 2013
% Engineering 35.6 % % 35.6 Workers 52.5 % % 54.0 Other (maintenance, service, etc.) 30.0 % % 32.9 Specialists 32.7 % % 29.4 Trading 12.9 % % 22.6 Executives 14.8 % % 16.5 Sales 15.2 14.9% 6.9% 2012 2013 Generation 10.2% % Grids 11.2 9.8%
2012 2013
THE MAJORITY OF EMPLOYEES ELIGIBLE FOR RETIREMENT ARE WORKERS THE HIGHEST EMPLOYEE TURNOVER RATE IS AMONG EMPLOYEES BELOW THE AGE 30 CORPORATE SOCIAL RESPONSIBILITY
Persons
Workers 8,800 Under 30 26.7% 4,821 31-40 23.3% Specialists 4,391 2,669 41-50 18.4% 51-55 % Executives 3,119 11.1 1,231 Over 55 20.5%
Employees eligible for retirement in 10 years Employees eligible for retirement in 5 years
139 JSC Inter RAO / ANNUAL REPORT / 2013
8.2.2. HR MANAGEMENT SYSTEM
The objectives of Inter RAO Group’s HR management system reflect the main stages of the Group’s In 2012 Inter RAO Group launched pilot projects aimed at improving HR management activities to achieve development and its establishment as a leading diversified holding. In the process of asset acquisition, efficiency improvement goals and objectives. Pilot projects are implemented in a limited number of the integration and development of a unified HR management system has become critically important. Group’s companies and are applied to other companies in case of positive results. In 2013 all pilot projects Currently, the priority objective is to improve efficiency of internal processes both on the JSC Inter RAO launched in 2012 were extensively implemented. level and in all the companies of the Group.
HR MANAGEMENT SYSTEM AS A TOOL FOR IMPLEMENTING THE GROUP’S STRATEGY
ASSET ACQUISITION INTEGRATION EFFICIENCY
Different management systems and methods ▻▻ Unification of approaches towards management system ▻▻ Unified HR management standards
Different remuneration and incentive systems ▻▻ Development of target remuneration model, reflecting professional, ▻▻ Development of the remuneration system based on grades* regional, qualification and other factors ▻▻ Updating the system of key performance indicators ▻▻ Development of key competence model
Different performance indicators ▻▻ Analysis of performance indicators and identification of factors to ▻▻ Optimisation of the number of employees improve them ▻▻ Organisational structure optimisation ▻▻ Personnel training and development
Different types of corporate culture ▻▻ Development of unified corporate culture ▻▻ Development of internal communication channels ▻▻ Assessment of staff loyalty
Resistance to change ▻▻ Interaction with trade unions ▻▻ Implementation of a social benefit system based on individual personnel ▻▻ Development of employee social protection programmes preferences ▻▻ Improvement of personnel loyalty
* The grade is a group of positions of equal value for JSC Inter RAO.
140 8. CORPORATE SOCIAL RESPONSIBILITY
IMPLEMENTATION OF PILOT PROJECTS BY INTER RAO GROUP
Project Coverage Results Achieved in 2013
Optimising the Organisational Structure 16 branches of Inter RAO − Electric Power Plants ▻▻ Preparatory work for unification of organisational structure ▻▻ Analysis of potential reduction of surplus management and approval of approaches and targets of each project ▻▻ Optimisation of support functions (finance, HR management, procurement, etc.) Improving the System of Labour Remuneration Iriklinskaya TPP ▻▻ Improvement of main principles of a unified remuneration system based on a grade system for all positions and KPIs for managers and executives Improving the System of Developing Candidate Pool Kaliningradskaya TPP-2 ▻▻ Development and approval of Methods for Forming, Evaluating and Developing Candidate Pool for business division Electricity Generation Sochinskaya TPP ▻▻ Compilation of employee list for candidate pool Urengoyskaya TPP Gusinoozyorskaya TPP ▻▻ Approval of individual candidate development programmes Cherepetskaya TPP ▻▻ Approval of development budget for candidate pool Improving Employee Recruitment and Adaptation System Verkhnetagilskaya TPP ▻▻ Creation of a unified information database of external candidates constituting 4% of the personnel of Inter RAO − Electric Power Plants Permskaya TPP ▻▻ Update of local standard database for recruitment and adaptation process Yuzhnouralskaya TPP Gusinoozyorskaya TPP ▻▻ Development and implementation of New Employee Handbook and personnel adaptation training The Day to Get to Know Your Company Cherepetskaya TPP Improving Employee Training and Development System CORPORATE SOCIAL RESPONSIBILITY Education and Training Centre in Dobryanka, Perm ▻▻ Determination of a financing scheme, optimal organisational, legal and technological form of implementing functions of a Unified Centre of Personnel Development of the Region Generation in the Russian Federation segment A System of Social Benefits Inter RAO − Electric Power Plants ▻▻ Implementation of a number of measures for identifying the awareness and interest of employees in social benefits and guarantees provided ▻▻ Development of proposals for changing the existing social benefit system
In 2014, such projects as Improving the Employee Recruitment and Adaptation System, Improving the System of Developing Candidate Pool and Improving the System of Labour Remuneration will be launched To achieve one of the key objectives, namely, increasing the at all plants of the Generation in the Russian Federation segment. efficiency of the HR management process, in 2013 the Group In 2013, a new pilot project Standardisation of the Number of Employees was launched in the was involved in optimising the organisational structure of JSC Kaliningradskaya TPP-2 branch of Inter RAO − Electric Power Plants. This project aims to develop a unified corporate standard, regulating the optimal model for organising labour and managing the number Inter RAO divisions, as well as key subsidiaries and affiliates of personnel at the combined cycle gas turbine power plants (CCGTs). The project is scheduled to be of the Group; it also conducted training in Lean Production. completed in 2014.
141 JSC Inter RAO / ANNUAL REPORT / 2013
OPTIMISING THE ORGANISATIONAL STRUCTURE OF JSC INTER RAO DIVISIONS AND KEY SUBSIDIARIES OF THE GROUP
The implementation of the Corporate Development Strategy of Inter RAO Group is not possible without IMPLEMENTED MEASURES FOR OPTIMISING THE ORGANISATIONAL STRUCTURE an effective management system. In 2013 special attention was paid to the role of the corporate centre, HAVE IMPROVED THE SPAN OF CONTROL JSC Inter RAO, in the management of the Group and its optimal organisational structure. The optimal management structure attributes are given below:
►► The required number of divisions with highly qualified personnel; Inter RAO – Electric Power Plants +45% ►► Limited number of management levels; Inter RAO – Procurement Management Centre +120% ►► High productivity and low costs; Inter RAO Management of Electric Power Plants +122% ►► Quick response to changes in the internal and external environment (legislative changes, changes in the markets, introduction of new objectives by top management, etc.). JSC Inter RAO +90% Under JSC Inter RAO’s project to optimise the corporate structure, measures were taken to identify Eastern Energy Company redundancy, excessiveness and/or incompleteness of the functions fulfilled in its divisions. Activities +68% carried out by the divisions were described in the form of functional matrices, and the targeted corporate Inter RAO Export structure of JSC Inter RAO was developed based on the results of the functional analysis of business +17% processes.
0 2 4 6 8 10 The project Optimising the Organisational Structure of Key Company’s Subsidiaries, covering 29 key subsidiaries and affiliates, was launched in 2013 to improve the quality and promptness of managerial 2012 2013 decisions.
The structure of Severo-Zapadnaya TPP, Nizhnevartovskaya TPP, and Trakya Elektrik A.S. was analysed and the results of the pilot project Improving the Organisational Structure, implemented at Kashirskaya TPP in 2012, were used to determine the corporate structure of the Group’s key subsidiaries. Furthermore, the Group interacted with Enel OGK-5 and Yugo-Zapadnaya CHPP to identify leading industry practices.
The project was implemented in several stages and allowed the Group to ensure a high degree of In 2013, the average growth rate of the workforce labour division, a structured management hierarchy, and effective recruitment of employees, taking into consideration their business and professional strength. In 2013 the project was completed in JSC Inter productivity reached 17% in comparison with 2012 RAO, Inter RAO – Management of Electric Power Plants, Inter RAO − Electric Power Plants, Inter RAO – in the Group’s companies participating in the project Procurement Management Centre, Inter RAO Export, and Eastern Energy Company. The key achievement 4 of the project was reduction in the surplus management level and improvement of the span of control in Optimising the Organisational Structure. these companies3. The project will be completed in 2014.
3 The span of control is the number of people directly subordinated to a manager. 4 Inter RAO Group defines the workforce productivity growth rate as EBITDA (ths RUR) per employee.
142 8. CORPORATE SOCIAL RESPONSIBILITY
8.2.3. REMUNERATION AND MOTIVATION
Lean Production Project Inter RAO Group’s remuneration policy aims to ensure In 2013, additional activities aimed at improving operational efficiency were carried out. These a competitive level of remuneration, reflecting the included training for employees in innovative approaches with respect to lean production5. The achievement of the Group’s goals and objectives. chemical units of Inter RAO − Electric Power Plants’ production branches were the pilot site for implementing the tools of lean production. Inter RAO Group’s remuneration policy aims to ensure a competitive level of remuneration, reflecting the achievement of the Group’s goals and objectives. Personnel remuneration is based on four components:
►► Base salary: paid for the employee’s qualification and performance, corresponding to the position’s standards;
►► Semi-constant payments: individual incentive allowances based on the performance evaluation of a specific employee;
►► Deferred payments: achievement of established KPIs – financial and non-financial indicators influencing the quantitative and qualitative results related to the Group’s strategic goals;
►► Spot-bonus system: fulfilment of the most important tasks, which are evaluated and rewarded in the form of a one-time payment. CORPORATE SOCIAL RESPONSIBILITY The KPI system for 2013 stipulated annual and quarterly bonus payments and assessed performance in the following areas:
►► Financial independence and sustainability;
►► Business profitability and cost management; Upon completion of each stage of training, the participants prepared proposals for improving their divisions’ business processes. Thus, in the context of the Lean Production System, the step- ►► Fulfilment of investment obligations. wise system of organising the work place, 5S, was implemented to allow significant performance improvement. The system includes the following stages:
►► Stage 1 - sort; ►► Stage 2 - set in order (orderliness); ►► Stage 3 - shine (cleanliness); ►► Stage 4 - standardise (standardised clean-up); ►► Stage 5 - sustain (discipline).
5 Lean production is the concept of managing a company based on constant commitment to eliminating all types of losses. Lean production implies involvement of each employee in the process of optimising business processes and maximising focus on the customer.
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MAIN CATEGORIES OF KPIS APPLIED IN INTER RAO GROUP IN 2013
Financial KPIs Economic KPIs Investment KPIs
Example Quick ratio Achievement of economic indicators Implementation of investment programme
Parameter ▻▻ Solvency and financial sustainability of the Group’s ▻▻ Operational efficiency ▻▻ Ensuring the reliability and security of the energy supply companies ▻▻ Reduction of fixed expenses ▻▻ Improving the operating performance of the generating ▻▻ Effectiveness of investment and financial activities assets ▻▻ Ensuring upgrades and technological development ▻▻ Increase in installed capacity via implementation of investment projects within the established term as part of the approved budget
The KPI system approved for 2014 includes only annual indicators, comprehensive analysis of activities of the Group’s companies and assessment of management work based on financial, investment and market indicators.
Control performance indicators are developed along with KPIs. The indicator Obtaining (Availability of) The system of non-financial motivation of employees Passports of Readiness to Operate in Autumn and Winter Period by the Subsidiaries of JSC Inter RAO was added to the list of control indicators in 2013. The importance of this indicator is conditioned by the special is based on the encouragement of personnel through state control of the safety and security of the energy supply. corporate awards for achieving strong results in the The Regulations on Payment of Remunerations and Compensations to the Chairman of the Management implementation of the Group’s business strategy. In Board and Members of the Management Board approved by JSC Inter RAO’s Board of Directors in 2013 more than 1,700 employees of the Group received November 2013 sets limitations on bonus payments in case control indicators are achieved: if the actual value exceeds the actual value, the implementation rate becomes fixed at 1.2. The list of control indicators corporate awards presented by JSC Inter RAO. for 2014 includes the indicator Execution of the Instructions of the Board of Directors of JSC Inter RAO. This indicator assesses the timeliness and accuracy of the Company’s Management implementation of the Board of Directors’ instructions.
In order to retain, develop and motivate personnel in 2013 the Group launched a project to develop a Moreover, the employees received departmental awards: the honorary title Honoured Power Engineer new remuneration system which applies the mechanisms for effective management of fixed (salary) and and Certificate of Merit and Commendation of the Ministry of Energy the Russian Federation, or other variable (bonus) parts of earnings, based on an optimised grade system and key performance indicators ministries of countries in which the Group operates. In 2013, the number of the Group’s employees who under the targeted corporate structure. This project will be completed in 2014. received state and departmental awards more than doubled to 645 people.
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8.2.4. PERSONNEL TRAINING AND DEVELOPMENT IMPLEMENTATION OF THE YOUTH POLICY
The main aim of personnel knowledge assessment, training and The main forms of the Group’s employee training include refresher Various channels and forms of interaction are used to minimise the development programmes in 2013 was to provide Inter RAO Group courses, retraining, seminars, conferences, business games and remote initial loads on young specialists, to help them though adaptation with human resources with sufficient qualifications to implement its training. During corporate round tables, the Group’s employees discuss process and improve their performance: strategic objectives and priorities. working practices and useful methodological materials. ►► Programmes for mentoring young specialists; Each of the Group’s business segments developed training In 2013 the Group launched a project aimed at establishing a programmes, which met the goals of the companies operating in personnel development Centre at the Education and Training Centre ►► Specialised informational materials; the segment, the objectives of particular divisions and individual in Dobryansk, Perm Region, in order to ensure greater access to employee development plans. Thus, the segment Supply in the educational programmes. This Centre will implement technologies of ►► Feedback questionnaires; Russian Federation developed training programmes aimed at remote training and webinars. Starting from 2014, the branches of Inter achieving the priorities set in its business plan – improving the client RAO – Electric Power Plants will gradually transfer the functions of ►► One-day face-to-face training for new hires The Day to Get to focus level, the quality of internal infrastructure and implementation personnel training to this Centre. Know Your Company; of key projects. The Group is focused on the professional development and advanced ►► Programmes for supporting and developing young specialists; Special attention is paid by all companies of the Group to improving training of employees included in candidate pool. Methods for Forming, qualification of personnel and implementing mandatory training Evaluating and Developing Candidate Pool for the Business Division ►► Internship for students. programmes in compliance with Rostekhnadzor’s requirements Electricity Generation were developed and approved in 2013. It is and Regulations on HR Management in the electricity industry. intended for implementation in particular companies in the second In 2013 1,300 students underwent industrial practice in Inter RAO An important condition to ensure the security and reliability of quarter of 2014. Group companies; 139 people were employed based on the practice production involves carrying out industrial training briefings. In results. 2013 all employees passed mandatory training according to the The Group also focuses on developing and improving the managerial established procedure in compliance with legislative requirements. competencies of executives. In 2013 JSC Inter RAO approved the The Youth Core Group (YCG) was formed in 2012 as part of the model of key managerial competencies and assessed all managers of policy to attract and develop young specialists to create conditions
Inter RAO Group implements programmes of short-term and long- the Company by the 360-degree method. In 2014 managers will be for the development and professional growth of young employees at CORPORATE SOCIAL RESPONSIBILITY term training in order to increase the competence of employees. assessed in all companies of the Group. Individual development plans Inter RAO Group. The main achievements of the YCG in 2012-2013 Total expenses for training programmes reached over RUR 125 mn will be prepared, training and development programmes for managers were presented at the II Congress of the Youth Core Group. Over in 2013. will be expanded based on the assessment. 200 events were organised during the reporting period regarding innovations, energy saving, education, science, culture, health and sports. A new activity programme with the outlook to 2015 was proposed during the Congress, including the creation of a common THE AVERAGE NUMBER OF TRAINING HOURS FOR THE GROUP’S SPECIALISTS AND MANAGERS INCREASED BY 28% information sharing environment, the development of a Suggestion Box and YCG’s informational portal. Position Categories 2012 2013 Change Over 20 representatives of the Group’s youth units participated in the Youth Day organised during the II Energy Efficiency and Energy Workers 14.6 15.1 +3.2% Saving International Forum ENES 2013 held on November 23, 2013 in Moscow. Young specialists received diplomas in the category Specialists, administrative and technical staff 15.8 25.9 +64.7% Employer Brand for the project Development of the Youth Movement in Inter RAO Group. Strategy of Young Heroes and in category Managers, senior executives 30.2 33.0 +9.1% Energy Efficiency Culture for the project Prudent Attitude to Energy Resources by Mosenergosbyt.
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INTERNAL COMMUNICATIONS SYSTEM AND CORPORATE CULTURE
The Group pays special attention to improving internal communications and raising awareness of employees about their work objectives and results. Face-to-face meetings are held by the Head of Human Resources and Organisational Development Unit with JSC Inter RAO’s employees on a regular basis in order to create an effective system of internal communications. The corporate newspaper Energy Without Borders, the similarly named magazine, and Inter RAO Group’s other corporate publications are also used for internal communications.
Team building events, including sports, are aimed at promoting the development of the corporate culture.
TGK-11 team won the II Summer JSC Inter RAO Spartakiada Games
408 employees representing 19 companies of the Group participated in the II Summer JSC Inter RAO Spartakiada Games held in Tomsk on August 7-9, 2013. Over three days, JSC Inter RAO employees competed in seven sports: track and field, table tennis, chess, volleyball, weightlifting, darts and tug-of-war. TGK-11 team was the overall winner. The second place was taken by Bashkir Generation Company’s team, followed by Kostromskaya TPP’s team in third place. The I Winter JSC Inter RAO Spartakiada Games are scheduled for 2014 to be held in Volgorechenck, Kostroma Region.
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Telasi team showed the best results in the international JSC Inter RAO Mini-Football Tournament
The VII Annual International JSC Inter RAO Mini-Football Tournament was held on June 18-22, 2013 in Yekaterinburg. A total of 465 employees representing 30 Group companies from six countries participated in the tournament: Russia, Armenia, Georgia, Kazakhstan, Moldova and Turkey. Representatives of Bashkir Generation Company participated in the Tournament for the first time.
Competitions were held over five days at two arenas of Yekaterinburg Sports Palace. Telasi team won the tournament based on the Golden Cup series results. The teams representing Ekibastuz TPP-2 and TGK-11 were second and third, respectively. All tournament CORPORATE SOCIAL RESPONSIBILITY participants received cups and diplomas.
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8.2.5. SOCIAL PARTNERSHIP
Social partnership in the sphere of social and labour relations in Inter RAO Group is based on the principles of balancing employee and employer interests, equality and mutual respect of the parties, fulfilment of the obligations taken by the parties, and the parties’ responsibility to meet the terms and conditions of the In 2013 total expenses for implementation of Inter RAO Group Collective Agreements. social programmes increased almost by 19% compared to 2012 The Collective Agreements signed under the social partnership system take into consideration the regional and constituted more than RUR 4.6 bn. specifics and peculiarities of the operating activities of the Group’s companies.
CHANGES IN THE STRUCTURE OF FINANCING THE GROUP’S SOCIAL PROGRAMMES IN 2013 REFLECT PRIORITIES IN THE GROUP’S SOCIAL 63% of Group employees are members POLICY: ENSURING EMPLOYEE HEALTH AND SAFETY, AND CREATING AN of the Primary Trade Union Organisation. ENVIRONMENT FOR PROFESSIONAL AND PERSONAL DEVELOPMENT. 83% of Group employees are covered by the Collective Agreements. % Employee safety 45.7 50.2% The Collective Agreements of the Group’s companies contain provisions of the social policy implemented % via 12 social programmes. Implementation of social programmes ensures social protection of the Employee health and activity 27.0 employees, their family members and ex-employees who made a significant contribution to the 25.9% development of the Group. Decent pensions and 6.1% Golden Fund 5.8% Based on the results of the first stage of power assets consolidation by the Group, collective negotiations % had been conducted in Inter RAO − Electric Power Plants in 2013 to develop harmonised terms and Employee welfare 4.4 conditions of the Collective Agreement of restructured companies for 2014 and subsequent years. 5.7% The terms and conditions of the Collective Agreement envisage harmonisation of the conditions for 6.7% implementing social programmes and granting social benefits. Professional career 5.4% Regardless of the unfavourable external economic background, due to the limitations imposed by the state % Corporate culture 7.2 on the tariff growth rates of natural monopolies, the parties to the social partnership were able to reach 3.8% agreement during collective negotiations. As a result they were able to meet both the interests of the % employer related to the reduction of expenses and the interests of employees regarding sufficiently high Young families and Children 2.3 salaries and provision of social benefits and guarantees. Employee social protection programmes covering 2.5% the most essential elements of social programmes will be implemented in 2014, based on the analysis of Best Employee, Young Specialist, 0.6% awareness and interest of employees in the social benefits and guarantees. This analysis was carried out Candidate Pool 0.7% in 2013.
2012 2013
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8.3. OCCUPATIONAL HEALTH AND SAFETY6 IMPROVEMENT OF OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT EFFECTIVENESS
The Regulations on the Occupational Health, Industrial, Fire and Environmental Safety Management One of the key priorities of the Group is the minimisation System7, developed in 2012 was implemented in the Group’s companies during the reporting period to of health and safety risks for employees and prevention of create a common approach to occupational health and safety management.
accidents and occupational injuries. An important achievement of the reporting period was the approval and implementation in subsidiaries of the Corporate Standard Methodology for Providing Employees of Inter RAO Group’s companies In 2013, the main tasks in the area of occupational health and safety were: with Personal Protective Equipment (PPE), which established major requirements for the quality and methods of PPE use. The effectiveness of PPE use and acquisition was considerably improved due to the ►► Improvement of occupational health and safety management effectiveness; development and implementation of a uniform standard.
►► Compliance assessment of the actual occupational health situation in the Group’s facilities compared To improve the efficiency and quality management, the common information environment, integrating to the standard requirements; occupational health, industrial, fire and environmental safety matters, was created. Currently, the initial stage of the project has been completed, i.e. implementation and operation of the information system in ►► Improvement of personnel safety during the course of work. Inter RAO, Inter RAO – Management of Electric Power Plants and certain branches of Inter RAO − Electric Power Plants were performed.
The Group’s hazardous production facilities were re-registered and hazard classes were assigned to ensure a systemic approach in the identification of industrial hazard level according to the Federal Law no. 22-FZ.8
Occupational Health and Safety Committees, comprising employee representatives, trade unions and CORPORATE SOCIAL RESPONSIBILITY management, were appointed at subsidiaries and affiliates to enhance the involvement of the Group’s personnel in the process of control and improvement of occupational health and safety indicators.
More detailed information on the management system can be found in the Sustainability and Environmental Responsibility Report for 2012 (in the section Labour Safety)
6 The quantitative data relating to occupational health and safety include facilities in the Generation in the Russian Federation segment, 7 Approved by the order of JSC Inter RAO dated October 05, 2012, No. IRAO/637. guaranteeing suppliers in the Supply in the Russian Federation segment, Georgia, Armenia, Moldova, and Kazakhstan segments as 8 The Federal Law dated March 4, 2013, No. 22-FZ On Amendment of the Federal Law On Occupational Safety of Hazardous Facilities, well as Quartz Group, Trakya Elektrik A.S and Vydmantai Wind Park. In 2013, consolidated data also included such energy facilities as Certain Regulations of the Russian Federation and Rendering Sub-Clause 114, Clause 1, Article 333.33, part two of the Tax Code of the Dzhubginskaya TPP and Vydmantai Wind Park. Russian Federation Invalid.
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ASSESSMENT OF FACILITY COMPLIANCE WITH STANDARD REQUIREMENTS
To prevent injuries, occupational diseases and equipment malfunctions in 2013 technical audits of production safety were conducted at 24 facilities of the Group. Based on the audit results the operation of all production facilities was recognised as complying with the standard requirements. Action plans that established the deadlines and indicated persons in charge were developed to rectify the non-conformance revealed during the audit process.
IMPROVEMENT OF LABOUR SAFETY
Maintaining a high level of employee awareness of occupational health requirements is a mandatory condition for ensuring labour safety, and one of the factors that reduce injuries and accidents in the Group’s companies. Traditionally, personnel training includes three key elements: simulator training, professional mastery competitions and psychophysiological training. Significant attention is given to the first aid drills, including training personnel in cardiopulmonary resuscitation. Training for rendering first aid is conducted under the supervision of external resuscitators. Special attention is paid to training operating personnel that is directly involved in the production process.
Participation of the Group’s employees in National Professional Mastery Competitions for the Operating Personnel of TPP
The Group’s companies actively participate in industrial professional mastery competitions for TPP employees. The aim of the competitions is to improve the professional training level of operating personnel and stimulate the know-how exchange. During the competitions held in 2013 Inter RAO Group’s representatives won medals.
Nizhnevartovskaya TPP’s team won the first prize in the National Competition for Operating Personnel of TPP with CCGT. Five plant employees were distinguished in the Best in Profession category:
►► Mikhail Dolgorukov - Head of Shift, ►► Dmitry Markin - Head of Shift, Boiler-and-Turbine Unit; Automated Process Control System Unit; ►► Evgeny Kuligin - Head of Shift, Electrical Unit; ►► Dmitry Zubov - Chief Operator, Generating Unit of Boiler-and-Turbine TGK-11’s team came second in the National Competition for Operating Personnel of TPP with ►► Svetlana Khvashchevskaya - Head of Unit. cross-braced links. During all nine competition rounds, the plant’s team demonstrated a profound Shift, Chemical Unit; knowledge of standard and technical documentation, first aid skills and the ability to jointly operate the plant’s equipment in contingency cases. The chief turbine operator of Tomskaya CHPP-3, Vasily Plaksin, was acknowledged as the Best in Profession.
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To assess the quality of the workplace conditions in 2013 the workplace certification was performed: 86% of workplaces subject to certification were certified.9
The Best Workplace was awarded to Ekibastuz TPP-2
The plant’s management is focused on creating favourable workplace conditions. Based on the results of the traditional competition held with the participation of 12 plant CORPORATE SOCIAL RESPONSIBILITY divisions, the hydraulic structure and underground utility unit heating system’s repair shop was recognised as the best workplace. As part of the preparation process for the competition, apart from the excellent organisation of the workplace, the working room was repaired and the dining room was upgraded during the preparation for the competition.
9 Due to the exclusion of Sangtudinskaya HPP-1 from the data set relating to occupational health and safety, the data for 2012 were adjusted.
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THE NUMBER OF OCCUPATIONAL INJURIES AMONG GROUP EMPLOYEES The Group maintains stable level of investments to ensure FELL BY 22% TO 18 CASES IN 2013 high level of production activity safety. In 2013 the amount of investments in occupational health and safety per Group 2012 employee increased by 1.1%10 to RUR 20,981. 20 3 2013 16 2
Number of injuries of all severity levels Fatalities REDUCTION OF OCCUPATIONAL INCIDENTS
The Group was able to considerably reduce the level of occupational injuries as a result of activities aimed at increasing labour safety, and developing and implementing organisational and technical measures for THE OCCUPATIONAL INJURY RATE AMONG EMPLOYEES improving workplace conditions. In 2013, 21 employees were injured, two of whom suffered fatal injuries. DECLINED BY 17% IN 2013 All cases were investigated and necessary measures were taken to prevent them from re-occurring.
In 2013 the level of occupational incidents among contract employees was lowered due to the application of the uniform occupational health and safety requirements for contractors, as well as vesting the Group’s persons in charge with power to suspend contract work in case of safety requirements violations. 19 2012 0.403 people were injured during the reporting period, four of whom died. 2013 0.333 Despite the training of personnel and provision of PPE, six cases of occupational diseases were registered among the Group’s employees during the reporting period. Among them, 80% of the cases were associated with a high noise level and were classified as hearing loss (three cases of occupational diseases were registered in 2012)11. NUMBER OF INJURIES AMONG CONTRACT EMPLOYEES The Group pays special attention to analysing the causes of injuries and occupational diseases and FELL TO 18 CASES IN 2013 develops corrective actions based on the analysis. Such actions include conducting monthly Occupational Health and Safety Days, stricter requirements regarding the competence of employees, ensuring multi- level control over employee use of PPE, employee training in occupational health and safety and incentives for good results. 2012 11 8 2013 14 4
Number of injuries of all severity levels Fatalities 10 The data for 2012 were recalculated given the exclusion of Sangtudinskaya HPP-1 from the boundary. 11 The data for 2012 were adjusted due to updating the method of data collection.
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Examples of promotion the culture of safety REDUCTION IN THE ACCIDENT RATE in the Group’s companies
►► Bashkir Generation Company, St. Petersburg Power Supply Company, Ivanovskiye CPP use industrial publications for familiarising employees with the best occupational health and safety practices and investigation of injuries and Number of equipment emergency shut downs in the Group’s incidents. generating facilities was reduced due to a number of measures, ►► Quartz Group holds a monthly competition for The Best Occupational Health and including emergency response and fire safety exercises. Safety Division. The number of emergency shut downs declined by 4% ►► All Group’s companies have installed occupational health and safety bulletin to 582 cases compared to 2012. boards. CORPORATE SOCIAL RESPONSIBILITY
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8.4. CONTRIBUTION TO THE DEVELOPMENT OF THE REGIONS OF THE GROUP’S OPERATION
Traditionally the key objectives of Inter RAO Group in the area of developing the regions of operation are reliable and uninterrupted electricity and capacity supply, application of responsible labour practices and Dzhubginskaya TPP provided power supply for the Sochi implementation of socially important projects. 2014 Olympic Games
Dzhubginskaya TPP was constructed in accordance with the Programme of of Olympic Venues Reliable and uninterrupted power supply is ensured Construction and Sochi Development as Alpine Resort12. The Plant was intended to provide Sochi Olympic venues with additional capacities and meet the region’s electricity demand. by upgrading the existing equipment and large-scale commissioning of new capacities in Russia and abroad. Dzhubginskaya TPP received the award “Gateway to the Future!” in the Best Economic Prosperity Project category for its contribution to sustainable development of Sochi 2014 Olympic Games.13 Reliable and uninterrupted power supply is ensured by upgrading the existing equipment and large-scale commissioning of new capacities in Russia and abroad. Over 540 MW of capacity were commissioned in 2013. One of the most important projects was the commissioning of Dzhubginskaya TPP in the Krasnodar Region.
Two LMS 100 gas turbines manufactured by General Electric (USA) were installed at the plant, ensuring high flexibility of the new capacities. The Plant meets the most stringent environmental safety requirements due to the installed rainwater and wastewater treatment plants, closed water cooling system and modern dry low-emissions equipment. The Plant uses separate waste collection approach.
12 The programme was approved by the Russian Government Decree from December 29, 2007, No. 991. 13 http://www.sochi2014.com/programa-priznaniya
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As a responsible employer, Inter RAO Group offers its Charity Concept of Inter RAO Group: employees a competitive level of remuneration, creates Key Provisions career opportunities and provides social benefits and The Group applies best international practices when implementing charity and sponsorship guarantees. activities.
Projects are selected in accordance with the principles of Target Orientation, Efficiency, As a responsible employer, Inter RAO Group offers its employees a competitive level of remuneration, Objectivity, Effectiveness and Compliance with the approved charitable activities of Inter RAO creates career opportunities and provides social benefits and guarantees. The Group’s companies, Group. especially the city-forming enterprises14, are interested in creating the most comfortable and safest working and living environment in the regions of operation. Main Charity and Sponsorship Activities:
Charity and sponsorship are an important part of the Group’s activities which aim at improving the social ►► Support for vulnerable social groups; climate through implementation of socially important projects in the regions of operation. ►► Support for educational institutions and health care facilities, as well as mass and youth sports;
CHARITY ►► Support programmes for industry veterans, combat veterans and the disabled;
►► Assistance to artists, support for cultural events, financing objects of historical and cultural
value; CORPORATE SOCIAL RESPONSIBILITY In 2013 Inter RAO Group continued to improve the effectiveness and transparency of its charity projects. Priority areas of the Group’s activities include systemising charity projects’ selection process, expanding ►► Support for environmental organisations and ecological reserves. projects’ geographic location and evaluating social effectiveness of investments. To ensure uniform standards for implementing charity and sponsored projects, the Charity Concept of Inter RAO Group was The effectiveness of each implemented project is evaluated based on the reports submitted by adopted at the end of 2013.15 the Group’s companies to the Public Relations Department − the corporate centre for coordinating charitable activities.
Successful charity projects transform into Network Projects that are implemented in the Group’s In 2013, 330 charity projects were implemented. companies and adapted for specific regional needs. The Group’s total expenses for charity and social projects reached RUR 648.2 mn.
14 Iriklinskaya TPP, Kharanorskaya TPP and Gusinoozyorskaya TPP are city-forming enterprises in their regions of operation. 15 Approved by the Management Board of JSC Inter RAO, Minutes No. 475 dated December 19, 2013.
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RUSSIA
THE PRIORITY AREAS FOR CHARITABLE ACTIVITIES IN 2013 INCLUDED ART AND In 2013 the Group’s work in the Russian Federation focused on geographic expansion of the most CULTURE, SPORTS AND SCIENCE AND EDUCATION PROJECTS successful projects.
Area
SUPPORT FOR VULNERABLE SOCIAL GROUPS % Art and Culture 39.9 % 48.5 Purpose % Sports 6.1 20.7% SUPPORT FOR THE DISABLED, CHILDREN IN ORPHANAGES AND BOARDING SCHOOLS, AND THE ELDERLY % Science and Education 27.3 14.0% % Vulnerable social groups 6.9 7.0% “The World at Your Fingertips” project 7.6% Religion “The World at Your Fingertips” project, which has already become traditional, is implemented in % 3.8 cooperation with the “Illustrated Books for Small Blind Children” Fund. Within the framework of % Other 11.1 this project the Group’s companies present specialised colourful atlases to the children with poor 3.1% eyesight. The project was started in Tambov (Tambov Power Supply Company) in January 2013 % and then moved to Biysk (Altayenergosbyt) and Omsk (TGK-11). Health care 0.5 2.3% % Environment 0.6 0.6% 2012 0% 25% 50% 2013
In 2013 Inter RAO Group implemented its charitable programmes in the Russian Federation (91.5%), Kazakhstan (1.2%) and other countries of operation (7.3%).
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“The Brightest New Year Tree” network project
The Group’s employees continue to organise holiday shows and give interesting presents to children in remote villages and settlements. In 2013 the project was implemented at Iriklinskaya TPP, Verkhnetagilskaya TPP, Kaliningradskaya TPP-2, Kostromskaya TPP, Permskaya TPP, Yuzhnouralskaya TPP, Gusinoozyorskaya TPP and Altayenergosbyt. CORPORATE SOCIAL RESPONSIBILITY
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Area
SUPPORT FOR EDUCATIONAL INSTITUTIONS AND HEALTH CARE FACILITIES, AS WELL AS MASS AND YOUTH SPORTS “Your Choice is Building a Career as an Engineer” network project
Purpose To promote energy sector−related professions among youth, the Group’s companies regularly organise specialised competitions, lectures and training for children. In 2013 the project was implemented by SUPPORT FOR SCHOOLS, KINDERGARTENS, HOSPITALS AND OTHER NON- employees of Tambov Power Supply Company, Gusinoozyorskaya TPP, Kaliningradskaya TPP-2 and PROFIT INSTITUTIONS, AS WELL AS PROMOTION OF A HEALTHY LIFESTYLE Kostromskaya TPP. AMONG CHILDREN AND TEENAGERS
“Energy of Sport” network project
Within the framework of this project employees of Verkhnetagilskaya TPP, Gusinoozyorskaya TPP and Kaliningradskaya TPP-2 purchased sports equipment for young sportsmen and organised several mass sports events. The winners received prizes and awards.
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Area
SUPPORT PROGRAMMES FOR INDUSTRY VETERANS, COMBAT VETERANS AND THE DISABLED
Purpose
SUPPORTING VETERANS AND THE DISABLED THROUGH PURCHASING MEDICINES AND THERAPEUTIC EQUIPMENT, AS WELL AS ORGANISING EVENTS ON MEMORIAL DATES
“Energy of Memory and Welfare” network project
In 2013 Kaliningradskaya TPP-2, Severo-Zapadnaya TPP, JSC Tambov Power Supply Company and JSC Altayenergosbyt rendered assistance to the city administrations in organising various specialised events dedicated to the Victory Day.
“We Remember!” projects CORPORATE SOCIAL RESPONSIBILITY In 2013 the “We Remember!” project aimed at organising leisure evenings for veterans and the disabled on memorial dates and anniversaries was implemented by Pechorskaya TPP and Iriklinskaya TPP.
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Area
ASSISTANCE TO ARTISTS, SUPPORT FOR CULTURAL EVENTS, FINANCING OBJECTS OF HISTORICAL AND CULTURAL VALUE Pilot project: “From Heart to Heart” cultural and educational programme Purpose
PRESERVATION AND REVIVAL OF CULTURAL HERITAGE OF THE REGIONS IN Kostromskaya TPP, in cooperation with the “From Heart to Heart” charitable Foundation, WHICH THE GROUP’S COMPANIES OPERATE, RESTORATION OF ARCHITECTURAL sponsored a project intended to acquaint regional population with classical music. The project MONUMENTS AND CULTURAL EDUCATION included support for talented young classical performers and concerts in hospitals and children's hospitals, orphanages and nursing homes. The coordinator of this project is generally an established musician, elected by the Group’s representatives.
“Miracles Happen!” project
With the participation of the “Ordinary Miracle” Fund, TGK-11 organised the “Miracles Happen!” holiday for children. The entertainment programme was performed by the Tomsk Academic Symphony Orchestra and the StArt Sand Animation Studio, which held a sand drawing master class for children. Master class participants received annual subscriptions for training at the StArt Studio and visiting the State Philarmony of the Tomsk Region.
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Area
VOLUNTEER PROJECTS
Purpose
ASSISTING PEOPLE WHO FIND THEMSELVES IN DIFFICULT LIFE SITUATIONS
Assisting flood victims in the Far East
More than 170,000 people suffered from severe flooding in the Far East region in autumn of 2013. To help victims of the disaster, Inter RAO Group, with the active participation of the internal Youth Group, collected voluntary donations and raised more than RUR 7 mn.
Group’s volunteers cooperated with the Podari Zhizn' (Gift of Life) Fund CORPORATE SOCIAL RESPONSIBILITY Donor Day
In 2013, the Group together with the Gift of Life Fund continued the tradition of organising a Donor Day which was attended by more than 100 employees. The event took place in May and November 2013. The collected blood was sent to the Federal Scientific and Clinical Centre of Pediatric Hematology, Oncology and Immunology named after Dmitry Rogachev. Cash donations helped to purchase necessary equipment and medicaments for the Centre.
“Box for the Brave”
Within the framework of another volunteer initiative, the Group and the Gift of Life Fund organised the “Box for the Brave” charitable project. The Group’s employees gathered 11 boxes of toys for little patients of several oncology clinics. These little patients were in dire need of support during complex and difficult treatment.
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GEORGIA MOLDOVA
The Group’s Georgian assets including Telasi, Mtkvari Energy, Khramhesi I and Khramhesi II continue to Moldova TPP, the largest power plant in Europe, stimulates the improvement of the quality of life for provide substantial support for the local population. the population of Moldova by ensuring a reliable and efficient power supply. Traditionally, Moldova TPP provides charitable support to vulnerable groups of the local communities. In 2013 Moldova TPP continued Pupils at the Dighomi orphanage for children with impaired hearing, the Centre for children with leukemia to provide charitable assistance to children's municipal institutions and a library. and Day Care House “Rtsmena” have been under the guardianship of Telasi for many years. In 2013, Telasi covered the cost of energy consumed by the Patriarchate of Georgia, the Sioni and Sameba Cathedrals, the Day Care House “Rtsmena” and the Rehabilitation Home for children with leukemia. In turn, Mtkvari Energy donated money to the Development Fund of the Monastery Complex in Vardzia. Khramhesi I provided support to the Development Fund of the Monastery Complex in the Bediani village, whereas Khramhesi II donated to the Support Fund of the monastery in the Ktsiysk Gorge. KAZAKHSTAN
Ekibastuz TPP-2, a joint Kazakhstan-Russian energy company, annually undertakes various projects in order to improve the social environment in the region. The Company’s charitable activities are focused on ARMENIA supporting scientific, educational and cultural projects, as well as rendering assistance to vulnerable social groups. During the reporting period, Ekibastuz TPP-2 paid particular attention to offering gratituous repair In the Republic of Armenia, Inter RAO Group is represented by the Electric Networks of Armenia (ENA) works and providing hot meals in secondary schools. and HrazTES. Both companies of the Group serve as examples of successful Russian-Armenian business cooperation aimed at enhancing the safety and efficiency of power production and distribution.
In September 2013, ENA signed a Memorandum with the Armenian Ministry of Education on cooperation in teaching the rules of safe electricity usage at schools to reduce the number of related accidents among children.
ENA annually sponsors the Renaissance international festival for young performers and contributes to implementing major cultural projects at the Spendiarov National Academic Opera and Ballet Theatre that are regularly organised by the Armenian Ministry of Culture.
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8.5. ENVIRONMENTAL POLICY16 THE KEY DIRECTIONS OF REDUCING ENVIRONMENTAL IMPACT IN 2013
In 2013, JSC Inter RAO’s Environmental Management System Guidance17, which created a unified approach to managing environmental aspects, was approved. The Group is actively working with its subsidiaries and affiliates to extend the system.
BY THE END OF 2015, THE ENVIRONMENTAL MANAGEMENT SYSTEM WILL BE DEVELOPED Environmental protection is inextricably linked to the AND CERTIFIED BY TEN GROUP’S COMPANIES operational efficiency of the Group. The use of advanced technologies makes it possible not only to increase energy 1. Inter RAO – Electric Power Plants efficiency, but also to minimise negative impact on the 2. Nizhnevartovskaya TPP environment. 3. Ugolny Razrez 4. Mtkvari Energy 5. Khramhesi I 6. Khramhesi II 7. Telasi 8. Moldova TPP In the course of implementing its strategic objectives on consistently reducing environmental impact, 9. Electric Networks of Armenia in 2013 the Group continued working towards improving the environmental performance management system and implementing investment activities aimed at improving the environmental safety of the Group’s 10. Hrazdan Power Company CORPORATE SOCIAL RESPONSIBILITY production activities.
During the reporting period, development of the Group’s Targeted Environmental Programme until 2030 continued. As the central instrument for planning the Group’s environmental performance, the programme will define the goals and objectives in the field of environmental protection and outline measures to achieve them.
As part of building and renovating facilities in 2013, Group’s companies conducted consultations on environmental protection issues with stakeholders.
More detailed information on the management systems can be found in the Sustainability and Environmental Responsibility Report for 2012 (in the section Environment ) 16 The quantitative data on environment are provided for the Generation in the Russian Federation segment and generating assets in Moldova, Kazakhstan, Georgia, Armenia, and Turkey segments as well as Vydmantai Wind Park as a result of the significant impact of these Group's assets on the environment. In 2013, the following Group’s companies were included in the consolidated data: Dzhubginskaya TPP, Trakya Elektrik A.S., Vydmantai Wind Park. To comply with the principle of comparability, the data for 2012 were recalculated taking the Group’s new companies into account depending on the date of their inclusion in the Group (2012 data for Trakya Elektrik A.S. is provided for 17 The system was developed in accordance with ISO 14001:2004 “Environmental management systems ‒ Requirements with guidance the entire year due to the specific features of the accounting system). for use”.
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Public hearings on Ekibastuz TPP-2’s draft environmental protection action plan for 2014-2016
On October 7, 2013, in Akimat, Solnechny village, Pavlodar region (Kazakhstan), public hearings were held on the station’s draft environmental protection action plan for 2014-2016. Local residents, representatives of local authorities, and plant employees attended the event. As a IN 2013, DUE TO THE COMPLETION OF MAJOR INVESTMENT PROJECTS, result of the discussion, a decision on the positive impact of the developed activities on the THE ENVIRONMENTAL SPENDINGS DECREASED AND ACCOUNTED FOR 18 environmental situation was made. RUR 1,741 MN.
2012 3,072 1,063 149 2013 962 523 256
Investment spending Operating spending Spending on overhauling fixed environmental assets
IN 2013, 98% OF INVESTMENT SPENDING ASSIGNED TO PROTECTING LAND AND WATER RESOURCES
Conservation and efficient use of land 80 %
Protection of water resources 18 % In connection with the completion of large scale environmental projects in the Omsk branch of TGK-11, Urengoyskaya TPP, Kharanorskaya TPP and Iriklinskaya TPP, the Group’s spending on environmental Protection of air, fisheries and installation of waste-disposal facilities. 2 % activities decreased compared to the 2012 and approached the 2010-2011 level.
18 Due to the absence of any spending for environmental actions of Group’s companies included in 2013 the data for 2012 remain the same. The indicators for 2012-2013 exclude Mtkvari Energy for the same reason.
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KEY AREAS OF THE GROUP’S ENVIRONMENTAL IMPACT
The Group’s key actions to reduce environmental impact traditionally include:
►► reducing air emissions; ►► improving the environmental safety of waste disposal facilities; ►► increasing the proportion of reused and recycled water consumption; ►► reducing the impact on biodiversity.
►► increasing the recovery and reuse of ash and slag waste;
AIR PROTECTION
In 2013, the Group’s companies continued systematic work on controlling greenhouse gas emissions.
IN 2013, TOTAL GREENHOUSE GAS EMISSIONS DECREASED SLIGHTLY, IN 2013, SPECIFIC GREENHOUSE GAS EMISSIONS REMAINED AT THE 2012 LEVEL 19 TO 97.77 MN TONNES OF CO2-E DUE TO A SLIGHT REDUCTION IN THE VOLUME OF ENERGY PRODUCED AND CORPORATE SOCIAL RESPONSIBILITY TOTALLED 0.5 TONNES CO2-E/MWH
2012 97.99% 2012 0.49 2013 97.77% 2013 0.50
19 Due to changes in the method of calculating greenhouse gases, 2012 data was recalculated.
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IN 2013, TOTAL POLLUTANT EMISSIONS DECREASED BY 2% AND TOTALLED 537,731 TONNES The 221 thousand tonnes CO2-e. decrease in the volume of greenhouse gases during the reporting period was the result of activities implemented as part of a Energy Efficiency and Energy Savings Programme. 2012 373,199 173,378 2013
383,072 154,659
Patriculate matter Among the key actions to minimise the impact on air quality the reducing air pollutant emissions can be Gaseous and liquid effluent named.
Investment activities for minimising pollutant emissions in 2013 included:
►► reconstructing electric filters in boiler unit No.4 at the TPP-5 Omsk branch of TGK-11; IN 2013, THE VOLUME OF SPECIFIC POLLUTANT EMISSIONS REMAINED AT THE 2012 LEVEL AND TOTALLED 2.76 KG/MWH ►► commissioning a new ash collector in boiler unit No.4 at Gusinoozerskaya TPP (second generation battery emulsifiers) with a design efficiency of 99.5%;
►► continuing work on introducing innovative technology for dry dust and sulphur removal of flue gases (NID technology) on two coal-fired generating units under construction at the Cherepetskaya TPP (installed capacity of each ‒ 225 MW). The estimated efficiency of dust removal ‒ 99.8%, sulphur 2012 2.75 removal ‒ around 40%; 2013 2.76
►► introducing an automated heat mode control on the microprocessor controller at Bashkir Generation Company’s Sterlitamakskaya CHPP with the aim of reducing nitrogen and carbon oxides emissions.
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WATER CONSUMPTION Activities to reduce air emissions at the Omsk branch of TGK-11
In 2013, the Omsk branch of TGK-11 reduced air pollutant emissions by 19%. Due to the dominance An important achievement in the field of environmental protection in 2013 was a significant decline in of coal in branch’s fuel balance, the efficiency of ash removal is of particular importance. As part the volume of total water withdrawal, which is mainly attributed to the gradual modernisation of the of a large-scale programme for rebuilding gas removal facilities at coal TPP-4 and TPP-5, TGK- Group’s equipment and the increased share of more efficient combined cycle gas turbine (CCGT) units in 11 annually invests approximately RUR 200 mn. Over the reporting period, the main programme electricity generation (from 13% to 16%). The increase in 2013 production at the stations with straight- activity was rebuilding the electric filters in boiler unit No. 4 at the Omskaya TPP-5. through or cross-cooling systems (Permskaya TPP, Kostromskaya TPP, Nizhnevartovskaya TPP and Gusinoozyorskaya TPP), that use water from water recycling systems in smaller volumes resulted in a reduced percentage of water reused and recycled in total water consumption.
DUE TO THE GROUP’S TRANSITION TO MORE HIGH-TECH EQUIPMENT, THE TOTAL VOLUME OF WATER WITHDRAWAL DECREASED BY 5%*
Indicators (mn m3) 2012 2013 Change
Total water withdrawal, including: 18,586 17,746 ▼ –5 % CORPORATE SOCIAL RESPONSIBILITY
of surface water bodies 6,731 6,655 ▼ –1 %
of third-party suppliers 81 76 ▼ –6 %
of underground water bodies 6 4 ▼ –24 %
of reused water systems 11,543 10,757 ▼ –7 %
of recycling water systems 225 254 ▲ 13 %
Share of reused and recycled water in total water 63 % 62 % ▼ –2 % consumption, %
* Due to changes in the method for accounting of used and discharged water, the data for 2012 was adjusted.
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IN 2013, TOTAL WASTE WATER DISCHARGE DECREASED BY 3%
Indicators (mn m3) 2012 2013 Change
Total water discharged 6,419 6,245 ▼ –3 % Discharged to third parties 8.17 8.24 ▲ 1 % Discharged to surface water bodies, including: 6,411 6,237 ▼ –3 % not requiring treatment (quality standards met) 6,161 6,006 ▼ –3 % sufficiently treated (quality standards met) 232 213 ▼ –8 % insufficiently treated (quality standards not met) 10 8 ▼ –14 % without treatment (polluted) 8 9 ▲ 2 % Percentage of water meeting quality standards without treatment in total water discharge, % 96.1 % 96.3 % ▲ 0.2 %
KEY ACTIVITIES IN 2013 TO REDUCE IMPACT ON WATER BODIES
Name Reduction of waste water discharge Modernisation of water recycling systems
Result of actions taken Reduction of waste water discharge without treatment by 3 mn m3 An 83 mn m3 decrease in fresh water consumption
Examples ▻▻ Ekibastuz TPP-2 ‒ reconstruction of treatment facilities; ▻▻ Ekibastuz TPP-2 ‒ repair and replacement of worn water pipes supplying fresh water;
▻▻ Bashkir Generation Company’s Ufimskaya CHPP-1 ‒ introduction of light drainage ▻▻ Bashkir Generation Company’s Sterlitamakskaya CHPP - installation of filtering technology; presses on waste water;
▻▻ Dzhubginskaya TPP ‒ construction of treatment facilities for utility and storm water ▻▻ Gusinoozyorskaya TPP ‒ reconstruction of the clarified pump water from the recycling discharge; ash removal system;
▻▻ Pechorskaya TPP ‒ reconstruction works on water treatment equipment made it ▻▻ TPPs at Bashkir Generation Company and TGK-11 ‒ repair and reconstruction work possible to reduce the volume of waste water on 156 ths m3/year; on recycling cooling systems;
▻▻ Cherepetskaya TPP ‒ continued construction of a complex of facilities for collecting ▻▻ Iriklinskaya TPP ‒ initiated operation of a bypass channel that made it possible to and treating surface and industrial waste water. save 143 mn m3 of fresh water in 2013 due to the organisation of partially recycling water supply at the power plant.
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WASTE TREATMENT Use of ash and slag waste from the Group’s stations in construction
In 2013, the first stage of a large-scale project at IN 2013, TOTAL WEIGHT OF WASTE GENERATED DECREASED Gusinoozerskaya TPP for using ash and slag waste to BY 3%* produce construction materials was completed. In April, the station initiated the first stage of an installation Indicators (tonnes) 2012 2013 Change for collecting and shipping dry ash to consumers. According to the study, the potential demand for ash waste is estimated at 100 thousand tonnes/year for civil-industrial construction and 50 thousand tonnes/ Total weight of waste 5,626,179 5,462,086 ▼ –3 % generated year for road construction in the Republic of Buryatia. Besides creating incentives for socio-economic development in the region, the project has a positive Hazard Class I 20 27 ▲ 37 % impact on the environmental situation, as it will allow the station to reduce ash and slag waste on its territory Hazard Class II 24 16 ▼ –30 % by 30%.
Hazard Class III 1,386 1,170 ▼ –16 % In the reporting period, work on commissioning the equipment for collection and shipment of dry ash to Hazard Class IV 12,988 14,764 ▲ 14 % consumers was also conducted at Kashirskaya TPP and
Verkhnetagilskaya TPP. Ekibastuz TPP-2 is carrying out CORPORATE SOCIAL RESPONSIBILITY Hazard Class V 5,611,762 5,446,108 ▼ –3 % design work for commissioning equipment to ship dry ash to consumers. Total investment for these purposes in 2013 was about RUR 220 mn.
* Mtkvari Energy is excluded from the 2012 data. Due to the insignificant volume of waste generated by Group’s companies included in 2013, the data for 2012 was not significantly Another successful example of ash and slag waste changed. usage was the construction by Omsk branch of TGK-11 of an experimental section of road to access TPP-5. The road was built using ash and slag from the same TPP. Upon completion of this station in May 2014, a decision for applying this experience to other roads in the Omsk region will be made. In addition to road construction, the Omsk branch of TGK-11 supplies ash and slag waste to 15 construction companies in the region. For the extension of this practice, the branch plans to build a new installation for collecting dry ash, with a capacity of more than 100 thousand tonnes/year.
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BIODIVERSITY
In 2013, large-scale work continued on rebuilding ash dumps at Verkhnetagilskaya TPP, Kashirskaya TPP, Given the significant volume of water withdrawal from surface water bodies for cooling equipment, the Gusinoozerskaya TPP, Cherepetskaya TPP, Yuzhnouralskaya TPP, Omskaya TPP-4 and TPP-5 of TGK- Group has a direct impact on the biodiversity of water bodies. To minimise the impact and maintain the 11, aimed to increase the level of environmental and industrial safety of hydro-technical utilities. In 2013, natural conditions of water body ecosystems, the Group’s enterprises traditionally stock fish and install financing of these works reached RUR 650 mn. structures to protect fish. In 2013, as part of planned activities, water intakes at Bashkir Generation Company’s Ufimskaya TPP-1 and Yuzhnouralskaya TPP were equipped with structures to protect fish, and design work on fish protection structures was carried out at Cherepetskaya TPP and Kashirskaya TPP. IN 2013, THE VOLUME OF ASH AND SLAG WASTE VALUE-ADDED USAGE BY THE GROUP’S ENTERPRISES AND SENT TO EXTERNAL ORGANISATIONS INCREASED BY 7%
Indicators (tonnes) 2012 2013 Change The practice of reducing the impact on fish resources at Urengoyskaya TPP Waste generated 5,626,179 5,462,086 ▼ –3 % A new combined cycle gas turbine (CCGT) unit-450 installed in 2012 helped to significantly including ash and slag waste 5,571,805 5,388,001 ▼ –3 % reduce the use of chemicals for water treatment and to reduce the salt content in waste water, which had an adverse impact on fish resources. Waste reused by Group’s enterprises 8,028 950 ▼ –88 %
including ash and slag waste 7,158 227 ▼ –97 %
Waste decontaminated 1,505 1,607 ▲ 7 %
including ash and slag waste - - -
Waste sent to external organisations 218,285 241,691 ▲ 11 %
including ash and slag waste 183,967 204,824 ▲ 11 %
Waste disposed of at the Group’s own facilities 5,398,361 5,149,072 ▼ –5 %
including ash and slag waste 5,380,680 5,182,949 ▼ –4 %
The station’s next step towards reducing the impact on biodiversity in Lake Yamylimuyaganto will be the implementation of the structures to protect fish with electrical effects based on fish behaviour and biological characteristics. A distinctive feature of the facility is the ability to consider fish migration, eating habits, and their response to external stimuli such as light and sound. Due to the comprehensive approach to fish behaviour assessment, this facility will make it possible to significantly reduce the impact of the station’s water intake on biodiversity.
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8.6. ASSET SECURITY
Ensuring the security is one of the essential elements in the Group’s operations. Improving the efficiency Landscaping of a nature park by employees of the Omsk of the security control system was the principal security objective in 2013, along with preventing unlawful branch of TGK-11 interference. The Russian Government decrees20, approved in 2013 and defining the regulations for providing Employees of the Omsk information on threats of unlawful interference, and governing the procedure for establishing protected branch of TGK-11 planted zones, as well as the Presidential Decree of June 14, 201221 on terrorist threat levels had a significant 60 young birches and impact on determining the Group’s activities in ensuring the security during the reporting period. pines in the area allocated specifically for energy As part of improving the efficiency of the system, in 2013 the Group continued to automate the security workers in the “Ptichiya control and external threat response system, and enhanced the physical security system of the Group. An Gavan” park. In the important step was determining the location of security posts of FSUE In-house Security of the Ministry of future, there are plans to Energy of the Russian Federation, as well as the subsequent elimination of 18 security posts. Furthermore, increase the planted area large-scale work began to define protected zones around Group facilities, based on the performed rating to 20 hectares. of the facilities.
The “Ptichiya Gavan” nature park is included in the protected areas along the migration routes of rare birds and plays an important role in the ecosystem of the city of Omsk. Of PRINCIPAL ACTIVITIES TO IMPROVE THE SECURITY CONTROL more than 150 migratory birds registered in the park, 26 are in the Red Book of the Omsk SYSTEM IN 2013: region and Russia.
►► The rating of fuel and energy complex facilities completed. As a result of the rating process, categories CORPORATE SOCIAL RESPONSIBILITY were assigned to 48 generation facilities, 35 of which received security passports. At the end of 2013, 32 rated facilities were listed in the fuel and energy complex facilities register of the Russian Federation; 11 High ►► The technical security equipment set modernisation programme until 2017 is continued. Investment in this area increased by 39% compared to 2012 and accounted for RUR 876 mn;
THE RESULTS OF ►► The exploitation of KAIUS-SECURITY automated information management system, necessary for 48 GENERATION FACILITIES anti-terrorist security, civil defence and emergency prevention trainings, started in subsidiaries and 24 affiliates. Low RATING BASED ON POTENTIAL HAZARD
13 20 The Russian Government decree dated October 2, 2013, No. 861, On Approval of the Rules for Notification by the Parties of the Fuel and Energy Complex on Potential Threats and Unlawful Interference Committed at Fuel and Energy Complex Facilities. The Russian Government Medium decree dated November 18, 2013, No. 1033, On the Procedure for Establishing Protective Zones at Electricity Generating Facilities and Special Conditions for the Use of Land Plots within Such Zones. 21 The Russian Federation Presidential Decree dated June 14, 2012, No. 851, On the Procedure for Establishing Levels of Terrorist Threat Providing the Additional Measures to Ensure Personal, Social and State Security.
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ENSURING THE ANTI-TERRORIST SECURITY AND EMERGENCY PREVENTION MEASURES
In order to improve security control and emergency situation response systems at its facilities, the Group annually conducts a large number of staff inspections, exercises, trainings and coaching sessions. In 2013, National civil defence training at the Kaliningradskaya TPP there were more than 2 thousand training exercises for approximately 1,500 employees from stations and security divisions. In accordance with the Government instructions of October 4, 2013, Kaliningradskaya TPP-2 participated in the National civil defence training focused on emergency response and civil defence exercises. SPECIAL ATTENTION IS GIVEN TO THE ANTI-TERRORISM DRILLS AND EXERCISES AS WELL AS EMERGENCY PREVENTION AND RESPONSE EXERCISES Fire tactical exercises became the main topic of on-site training. The scenario involved extinguishing a burning diesel fuel tank and conduction of search and rescue operations.
A record number of participants were involved in the firefighting exercise: about 134 people and 31 facility units, including a helicopter from the Ministry of the Russian Federation for Civil 194 38 Defence, Emergencies and Elimination of Consequences of Disasters (EMERCOM of Russia) and Emergency Comprehensive a fire train from Russian Railways. Yuri Fedosov, the deputy chairman of the Kaliningrad regional anti-terrorism drills prevention and government, attended the exercise and watched the rescue operation from a mobile command response and exercises exercises post used for transferring operational data to the National Emergency Management Centre in ANTI-TERRORISM DRILLS Moscow. AND EXERCISES 24 of 194 AS WELL AS Command post Station employees demonstrated high qualification: they quickly reacted to the emergency EMERGENCY PREVENTION exercises situation before rescue units arrived from EMERCOM, notified and evacuated personnel. Timely AND RESPONSE shut-down of power and equipment in the affected area ensured that the station would operate without interruption. EXERCISES 144 of 194 26 of 194 Training Special at facilities tactical exercises
The Group actively cooperates with the government and law enforcement agencies to exercise the employee responses to emergency situations. Over the reporting period, the Group’s representatives participated in:
►► 126 meetings of regional anti-terrorist commissions and emergency prevention, response and fire safety commissions;
►► 35 comprehensive anti-terrorist security inspections with the assistance of the Federal security service representatives of the Russian Ministry of Internal Affairs.
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173
9. RISK MANAGEMENT
9. RISK MANAGEMENT
Inter RAO Group’s corporate risk management system (hereinafter - CRMS) is intended to guarantee the achievement of strategic objectives while meeting the interests of all stakeholders.
The Board of Directors, senior management and employees of the Group participate in risk management process on a regular basis following the unified approach stated in the Corporate Risk Management Business Process Regulations.
The Group seeks to integrate risk management processes in the areas of strategic, operational and project management, as well as to maintain focus on the interaction between CRMS, the internal audit and internal control systems.
DISTRIBUTION OF RESPONSIBILITIES
The Board of Directors is responsible for the risk management system RISK MANAGEMENT The Group operates the risk and evaluating the effectiveness of the system. Their functions include approving critical risk matrices, risk plans, and CRMS reports. management system under the integrated principle of shared Management of operational risks refers to the competence of the Group’s top managers - the risk owners. responsibility according to management levels. Providing essential information on risks, analysis and development of key decisions is carried out during panel sessions of Inter RAO Budget Planning Committee.
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Coordinating activities on identification, risk assessment and analysis, development, implementation and periodic updating of the methodology, reporting, information disclosure, and ensuring communication with RISK MANAGEMENT MEASURES the Board of Directors is carried out by a separate risk management subdivision, which form a part of the Internal Audit, Controlling and Risk Management Unit. IMPLEMENTED IN 2013
The risk management functions in subsidiaries and affiliates are the responsibilities of its management. Directors of subsidiaries and affiliates bear personal responsibility for adhering to risk management Key achievements in 2013: measures, not exceeding the established limits, and submitting business risk management process results for peer review by the Budget Planning Committee. ►► the Group’s Critical risk matrix for 2013 was ►► the Group’s Risk management key targets were developed and approved; approved, including “Risk Appetite” and “Pain The Group seeks to maximize the application of mathematical methods in risk modelling and analysis in Threshold”, selection criteria for subsidiaries order to eliminate subjective factors. ►► the Group’s Critical risk management action and affiliates for managing critical risks of the plan for 2013 was developed and approved; Group with a list of critical business processes and target assessment of the risk impact.
In order to elaborate key CRMS documents for 2014, the Group changed the criteria for inclusion of CORPORATE DOCUMENTS AND INTERNATIONAL subsidiaries and affiliates in CRMS compared to the reporting period. The approach made it possible to greatly expand the boundaries of Inter RAO Group’s corporate risk management system in 2014 and take STANDARDS REGULATING THE GROUP’S RISK into account the potential risks of the Group’s assets with a low level of materiality. MANAGEMENT In this regard, the methodological base was expanded to include the approved “Risk Modelling and Assessment Methodology,” and “Methods for assessing the risk appetite and pain threshold of the Group’s subsidiaries and affiliates.” The Group's corporate risk management system operates in accordance with current practices and recognised international standards in the field of risk management.
The Group has the necessary key documents regulating all CRMS elements, from risk identification to information disclosure and control.
The functional methodology is transmitted to subsidiaries and affiliates in order to ensure consistent identification, analysis, risk management and reporting processes at the Group level.
176 9. RISK MANAGEMENT
DESCRIPTION OF INTER RAO GROUP’S KEY RISKS
INDUSTRY RISKS
Inter RAO Group specific nature of activities as a diversified energy holding company, operating in different For steam and gas cycle branches, a significant share of technological malfunctions are associated with segments of the electricity industry in Russia and abroad, defines the Group’s exposure to industry risks. damage to electrical equipment, failure or false operation of microprocessors for Relay Protection and Automatic Equipment and Thermal Automatics and Measurements, and also damage to turbine equipment and auxiliary equipment failures. For stations with steam power plants, a significant share of technological malfunctions are associated with damage to auxiliary thermal-mechanical equipment and heating surfaces GENERATION SEGMENT of boiler equipment. In 2013, technical malfunctions remained at the previous year level.
THE MAIN RISKS WITHIN THE GENERATION IN THE RUSSIAN FEDERATION Fuel supply risks include the risk of increased cost of fuel component, leading to a decline in profit SEGMENT INCLUDE: margin. Fuel supply risk is significantly affected by government regulation of the industry. Over 2013, the wholesale gas price changed four times according to the orders of the FTS of the Russian Federation. ►► risks associated with the functioning of the ►► risk of technological violations; electricity and capacity markets; AS PART OF MANAGING THESE RISKS, THE GROUP UNDERTOOK ►► fuel supply risks; THE FOLLOWING: ►► the risk of technological limitations of trading activity; ►► health, safety, and environment (HSE) risks. ►► participated in working groups at the Ministry of Energy of the Russian Federation and made proposals on electricity and heat generation to the Methodological Council of the FAS and the Risks associated with the functioning of the electricity and capacity markets are material to the Group, Supervisory Board of NP Market Council; owing to the commissioning of new facilities and changes in generation by existing hydro and nuclear powers given declining consumption growth. Adverse change in the balance of supply and demand, taking ►► predicted changes in the circuit-mode situation, optimised equipment included in the conditions for into account the introduction of new facilities and infrastructure constraints, may lead to reduction in the changing the circuit-mode situation and interaction with the System Operator; demand for generation, primarily heat generation, as well as a lower profit margin on electricity generation RISK MANAGEMENT and sales in the wholesale market. ►► developed organisational plans and technical measures based on accident risk analyses, taking into account the specific indicators and characteristics of each branch, to ensure effective repair and The risk of technological limitations to trading activities arises from changes in the circuit-mode maintenance of main and auxiliary equipment to reduce accidents, improve reliability and efficiency, situation within the United Energy System. Should this risk materialise, the Group’s generating assets and monitor the implementation of measures imposed following the investigation of technological will become less profitable due to restrictions in power transmission during unscheduled repairs, forced malfunctions; inactivity during periods when the gas supply is limited, etc. ►► planned production repair, reconstruction and technical modernisation programmes based on accident The risk of technological violations caused by damage to equipment due to high yield, changes in analyses; generating unit mode associated with the expansion of the load adjustment range and a reduction in the duration of the work at the basic part of the chart on the initiative of the United Energy System, and ►► optimised the fuel balance, using long-term fuel supply contracts, timely backup of fuel consumed equipment malfunctions at new construction sites. and necessary rolling stock.
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TRADING SEGMENT
IN 2013, THE GROUP FOCUSED ON MANAGING THE FOLLOWING RISKS IN THE The Group recognises its responsibility to ensure occupational TRADING IN THE RUSSIAN FEDERATION AND EUROPE SEGMENT: safety and its environmental impact, and pays special attention ►► price risk; to health, safety, and environment (HSE) risks. ►► risks associated with the functioning of the electricity and capacity markets.
▻▻ The risk of occupational injuries includes accidents and job-related illnesses among employees. In 2013, the trend of convergence of electricity prices on the wholesale market for electricity and capacity The main factors contributing to these risks include violations of labour safety regulations and/ and domestic markets of foreign countries continued. Price risk in the energy markets is caused by price or Russian legislative requirements regarding occupational health and safety, human errors, volatility in the spot electricity segments of markets as well as by changes in prices for services from personal negligence, technical or technological features of the labour process, and the impact of infrastructure organisations. production hazards. The risk to the Group associated with the functioning of electricity and capacity markets is significant ▻▻ Risks associated with environmental damage are related primarily to Generation in the given a possible reduction in the volume of electricity exports in the face of increasing price competition Russian Federation and, above all, to thermal power plants using fossil fuels such as coal and and the existence of technological limitations on power transmission. natural gas. Fuel combustion results in atmospheric emissions and greenhouse gases, while the use of coal results in significant ash and slag waste. Since 2011, Inter RAO Declaration of TO REDUCE THE IMPACT OF THESE RISKS ON THE GROUP’S PERFORMANCE, Environmental Responsibility is adopted, which defines the Group’s strategic objectives in the THE FOLLOWING MEASURES WERE TAKEN: field of environmental protection and natural resource management, has been in force. The Group also takes into account the potential environmental impact from the risk of major technological ►► participation in interagency working groups -together with the NP Market Council, SO UES, FGC UES malfunctions. and market representatives, and drafting proposals to change the regulatory framework and WECM model to account for specifics of foreign economic activity in the model rules; Approaches to managing these risks are focused on minimising harmful and hazardous production factors and strictly enforcing mandatory industrial, fire and occupational safety requirements and in-house local ►► participation in international working groups of the Energy Council of CIS, Energy Systems of safety regulations in order to prevent occupational accidents and personal injuries. Belarus, Russia, Estonia, Latvia, Lithuania (BRELL), the Operational and Technological Coordination Commission and KSTSA to bring into line the regulations of the wholesale market for electricity and capacity with the regulations of electricity markets in foreign energy systems (including technical standards and regulations);
►► management of trading portfolios in domestic and foreign markets in order to ensure profitability of trading activity at the target level;
►► signing direct contracts with foreign partners to sell electricity at a fixed price.
178 9. RISK MANAGEMENT
SALES SEGMENT POLITICAL AND REGIONAL/COUNTRY RISKS
THE GROUP IS CONSTANTLY WORKING TO IDENTIFY, ASSESS AND MANAGE THE The Group operates in the Russian Federation, the Baltic countries, Scandinavia, Central and Eastern FOLLOWING RISKS IN THE SUPPLY IN THE RUSSIAN FEDERATION SEGMENT: Europe, the Black Sea perimeter, Central Asia and the Far East.
►► the risk of making unfavourable tariff decisions; ►► risks relating to major clients switching to At the moment the political situation in Russia is stable, that is characterised by stability in the federal and energy supply companies or major clients regional branches of government. entering the wholesale electricity and capacity market. Within the international business, the Group takes into account political, macroeconomic and social risks in countries of business activity, as well as the risks associated with the geographic features of the countries As part of managing these risks, the Group strives to communicate effectively with regulatory authorities of operation. on the existing legislation. Supply companies send appeals accompanied by supporting documents, conduct negotiations with regulatory authorities regarding lost revenues. TO MINIMISE THESE RISKS, THE GROUP IMPLEMENTS THE FOLLOWING MEASURES: To improve the quality of customer service and retain the customer base, approved corporate standards are in force, remote and interactive communication channels are developed and client services are ►► market analysis, including analysis of regulatory ►► diversifies and periodically inventories the expanded. basis; investment portfolio and contracts to ensure a balance in the Group’s strategic opportunities ►► participates in elaboration of intergovernmental and liabilities; agreements; ►► develops scenarios for working conditions ►► organises interaction with public authorities and in strategic areas of activity, based on large companies in the countries of operation; global forecasts of economic, political and technological factors and change dynamics.
►► promotes projects to develop interstate RISK MANAGEMENT relations in promising areas;
179 JSC Inter RAO / ANNUAL REPORT / 2013
FINANCIAL RISKS
A specialised division of JSC Inter RAO regularly conducts financial risk assessment and develops TO MANAGE RISKS, THE GROUP UNDERTOOK THE FOLLOWING ACTIVITIES: measures for managing financial risk. ►► assessed currency risk using Value-at-Risk, Earnings-at-Risk, scenario modelling and stress-testing. DURING THE REPORTING PERIOD, THE GROUP FOCUSED ON MANAGING Risk assessment methods are compliant with accepted international practices; THE FOLLOWING RISKS: ►► conducted transactions in the derivatives market to hedge currency and interest rate risks. The group ►► currency risk; has systematically hedged currency risk since 2008, which significantly reduces the Group's exposure to risk. ►► interest risk; Default risk (credit risk) arises from the potential for delay in fulfilment or nonfulfillment of obligations by ►► financial stability risk; Group partners, including by:
►► default risk (credit risk). ►► partners in the Generation in the Russian Federation segment when operating on the wholesale electricity and capacity market; The Group's exposure to currency risk arises from the nature of its activities: cross-border electricity sales, foreign asset management and international investment projects. ►► partners in the Generation in the Russian Federation segment in the sphere of heat supply;
The Group is exposed to interest rate risk as interest rates on debt are reviewed during refinancing, and ►► ultimate consumers in the Supply in the Russian Federation segment; also because certain financial liabilities are sensitive to changes in market interest rates. ►► partner banks.
Significant credit risk factors include reduced solvency or bankruptcy of an operation or sales unit, deprivation of companies-suppliers of the status of an entity of wholesale electricity and capacity market and guaranteeing supplier, and the level of payment discipline of contractors-end consumers.
The Receivables Management Committee conducts regular monitoring of the level of receivables in the Group. Therefore, within the segment of Generation in the Russian Federation, claims administration was conducted with non-paying counter parties and, within the segment of Supply in the Russian Federation, measures to ensure the collection of payments and control over subscriber accounts receivable were developed and implemented.
Based on an evaluation of bank paying capacity, JSC Inter RAO assigns internal ratings to banks, establishes limits on operations with bank partners and regularly monitors compliance with these limits.
Assessment of the Group’s solvency and financial stability is carried out based on subsidiary domestic credit rating indicators that provide a qualitative and quantitative assessment of activities. To limit the risk to financial sustainability, the Group undertakes measures to maintain and improve the internal credit ratings of subsidiaries.
180 9. RISK MANAGEMENT
INVESTMENT RISKS LEGAL AND REGULATORY RISKS
The Group investment programme is focused on commissioning new capacities using advanced The Group strives to strictly comply with the regulations imposed by Russian legislation and the legislation technology, ensuring reliability and operability of existing equipment, increasing its energy efficiency and of jurisdictions in which it operates. The Group cannot guarantee that there will be no negative changes in reducing the impact of production on the environment. Russian legislation or the legislation of other countries of operation in the long run, as the majority of these risk factors are beyond its control. Over the reporting period, the Group was focused on managing the risk of delayed delivery of capacity on Capacity Delivery Agreements caused by technical (delay of construction terms and commissioning) THE GROUP IDENTIFIES THE FOLLOWING KEY LEGAL AND REGULATORY RISKS: and/or organisational factors (failure of the right to trade on the wholesale electricity and capacity market), which leads to lost profits and, in some cases, to sanctions under CDA. Factors included in this risk ►► risks associated with changes in the legislation regulating Group activities, including currency are also the financial insolvency of the general contractor, failure to complete work, defects in delivered regulations, tax law, customs control rules and duties, requirements for licensing core operations or equipment and the failure of manufacturers to comply with contractual delivery terms. licensing the rights for use of facilities, the location of which turnover is limited;
IN ORDER TO MANAGE THIS RISK, THE GROUP’S MANAGEMENT IMPLEMENTS ►► risks associated with JSC Inter RAO’s inability to renew licenses for specific operations or for the use THE FOLLOWING ACTIVITIES: of any restricted assets (including natural resources);
►► obtains the right to trade electricity and capacity on the wholesale electricity and capacity market; ►► risks related to changes in judicial practice regarding issues associated with Group activities.
►► prepares documents to obtain certification by the SO UES; Reduction of the negative impact of this category of risks is achieved by monitoring and timely response to changes in legislation, but also through active interaction with legislative and executive authorities ►► organises documents for the Supervisory Board of the NP Market Council to establish payment for and public organisations on the issues of interpretation, enforcement and improvement of legislative technological connection to electric networks for accounting in the Capacity Delivery Agreement price; regulations. To minimise legal and regulatory risks, the Group’s key business processes are subject to mandatory legal review, and pre-trial settlement of disputes with counter parties is widely used. ►► organises delivery of documents on existing tax rates (tax, property tax and profit tax) in the regions where CDA entities are located;
►► prepares documents for presentation to the Supervisory Board of the NP Market Council to establish the value of economically justified capital expenditures for modernisation (for CDA facilities REPUTATIONAL RISKS modernisation). RISK MANAGEMENT As a public company, Inter RAO Group takes into account the reputational component of its activities, and takes measures to mitigate the negative impact of risks on its brand. In order to reduce the risk of creating a negative image, the Company is focused on the interests of investors and other stakeholders and is committed to the principles of integrity, transparency and timeliness of disclosure to the public of information on business opportunities and threats. For the purposes of preventing fraud through use of insider information and price manipulation on the securities market, the Group controls insider information proliferation risk, for which it approved an Insider Information Policy.
181
10. PROCUREMENT
10. PROCUREMENT
In 2013 Inter RAO Group continued to consolidate and centralise procurement procedures in accordance with the corporate standards.
In 2013 Inter RAO Group continued to consolidate and centralise procurement procedures in accordance with the corporate standards. Procurement Policy1 is the main regulatory document that establishes procedures for organising and conducting procurement. Additionally, the following regulatory documents were developed and updated during the reporting period:
►► Regulations on the procedure of performing regulated purchase of goods, works, services for JSC Inter RAO2;
►► Regulations on business process for procurement procedures3;
►► Regulations on business process for Central Procurement Committee operations4;
►► Regulations on business process on development, adjustment and execution control of the annual comprehensive procurement programme (ACPP)5;
►► Regulations on business process of expert evaluation of the bids of procurement participants6;
►► Methodology for development and adjustment of ACPP7. PROCUREMENT
More detailed information on documents regulating procurement activity is available at: http://www.interrao.ru/custom/buy_acts/
1 Approved by JSC Inter RAO order dated April 1, 2011, No. IRAO/198. 2 Approved by JSC Inter RAO Board of Directors, minutes dated January 31, 2013, No. 63. 3 Approved by JSC Inter RAO order dated April 18, 2013, No. IRAO/217. 4 Approved by JSC Inter RAO order dated April 11, 2013, No. IRAO/197. 5 Approved by JSC Inter RAO order dated April 25, 2013, No. IRAO/233. 6 Approved by JSC Inter RAO order dated September 17, 2013, No. IRAO/541. 7 Approved by JSC Inter RAO order dated April 25, 2013, No. IRAO/233.
183 JSC Inter RAO / ANNUAL REPORT / 2013
PROCUREMENT RESULTS
In accordance with the regulatory documents, the main objectives of procurement activities include: In 2013, Inter RAO – Procurement Management Centre as a specialised procurement organisation conducted 89% of the regulated competitive procurement procedures for Inter RAO Group. The cost of the ►► ensuring timely and full provision of the Group’s activities with goods, works and services, based on competitive procedures carried out by the largest companies of the Group amounted to RUR 70,311,521 cost-effective spending; thousand net of VAT.
►► reducing the cost of goods, works and services purchased in compliance with requirements for supply terms and the quality of goods, works and services received; IN 2013 OPEN TENDER AND OPEN COMPETITIVE NEGOTIATIONS BECAME THE PRINCIPAL TYPES OF PROCUREMENT PROCEDURES ►► creating opportunities for improving the efficiency of economic activities of the Group as a whole and individual companies.
The authorised body for implementing centralised procurement in the Group is Inter RAO – Procurement Management Centre. The Centre’s goals include the timely provision of the Group’s companies with goods, works and services, as well as achieving greater economic efficiency in procurement and quality control. Open tender 45.3% As part of its responsibility, the Centre organises activities on formation, coordination and approval of Open competitive negotiations 34.6% ACPP. Open tender & open competitive negotiations 9.8% Open request for proposals 6.3% Closed competitive negotiations 2.0% More detailed information on the purposes and responsibilities of the Open request for quotation 0.8% Inter RAO – Procurement Management Centre is available in the Inter Open auction 0.5% RAO Sustainability and Environmental Responsibility Report for 2012. Closed tender 0.4% Closed request for proposals 0.2% Closed request for quotation 0.1%
0% 25% 50%
The Group achieved significant cost reduction through implementing the order of the President of the Russian Federation8 to reduce the cost of procurement of goods (work, services) per unit of product by no less than 10% for three years in real terms. In 2013, procurement costs were reduced by 10.4%, by 11.1% in 2012, and by 12.7% in 2011.
8 Instruction of the President of the Russian Federation dated April 2, 2011, No. PR-846.
184 10. PROCUREMENT
FURTHER DEVELOPMENT
OF PROCUREMENT SYSTEM
Centralising the largest competitive procurement procedures in 2013 was an effective mechanism of Inter RAO Group sets the following strategic objectives for developing procurement activities for the period control over expenditures, providing transparency in contractor selection and receiving economic effect. from 2014 to 2018:
►► improving efficiency and quality of procurement procedures carried out by Inter RAO – Procurement In the process of implementing the ACPP in 2013 the Group reached a positive financial effect from the Management Centre; planned cost in the amount of 7.9% (excluding purchases of fuel), including: ►► improving efficiency of the ACPP system; ►► 9.7% − Executive Office of JSC Inter RAO ►► developing a procurement management information system in Inter RAO Group; ►► 7.7% − generating assets; ►► increasing standardisation and unification levels of procurement processes; ►► 15.6% − supply assets; ►► reducing the risk of failure to sign agreements for the conducted procurement procedures. ►► 4.8% − other assets. During the stages of planning and standardising procurement processes, procedural regulations are also actively improved:
The main criterion for selecting suppliers is compliance with the ►► in 2014 a new draft of the Procurement Policy was prepared for approval; requirements of Inter RAO Group’s technical specifications and ►► currently the Inventory Management Concept for the Group’s companies is under development. It will tender documentation. determine the approach towards creating a system of inventory management and introduce basic rules for effective functioning of the system.
Procurement procedures strictly follow the principles of ensuring the external openness of procurement As part of increasing the effectiveness of procurement activities, Inter RAO Group continues to form a activities and transparency of the procurement system for supervisory authorities and participants of unified information space for procurement needs through connecting foreign companies to the Unified the procurement process. Inter RAO Group carries out its procurement process, taking into account the Procurement Information System (UPIS). To ensure the comparability of data and analytical reports a requirements of the local legislation, and prevents artificial restriction of competition, respecting the centralised Corporate normative and reference information control system of Inter RAO Group will be principle of parity between free competition and support of local suppliers of goods, works and services. created by the end of 2015. PROCUREMENT
By 2020, a unified agreement maintenance system is planned for introduction. These systems will be synchronised with UPIS within the framework of signing agreements. Additionally, the systems will be synchronized with the accounting and fiscal accounting data as part of fulfilling contractual obligations.
185 JSC Inter RAO / ANNUAL REPORT / 2013
PREVENTING CORRUPTION IN PROCUREMENT
In accordance with the Fraud and Corruption Prevention Policy of JSC Inter RAO9, procurement activity is In cases when information on violations or abuses is confirmed, prompt measures and activities resolving considered as an area exposed to the risk of fraud and corruption. To minimise these risks, the following detected violations are undertaken (as part of competitive procedures competition results can be measures are in place: reviewed, tender documentation re-examined, and recommendations prepared for the inclusion of counter parties in the register of unscrupulous suppliers). Information on revealed violations or abuses is brought to ►► revealing the facts of affiliation; the management bodies of the Group’s companies. Employees who have committed violations are subject to disciplinary action as provided for by in-house regulations of JSC Inter RAO. Such action, for example, ►► reviewing the business reputation of contractors; would incur reducing the premium rate in accordance with the Payroll Provision.
►► ensuring the information transparency of procurement procedures;
►► preventing discrimination and undue restriction of competition; In 2014, the following standards are planned for discussion and approval:
►► tracking the performance of contractual obligations by counter parties; ►► the regulation of business process of information ►► Economic Security Service unified database; disclosure on the chain of contractor owners; ►► tracking the targeted and cost-efficient spending of funds. ►► drafts of documents regulating creation, ►► the methodology draft for evaluating business management and use of the register of In 2013 the economic security system was amended. Department on Economic Security of the Inter reputation of contractors; companies that have not fulfilled their contractual RAO – Procurement Management Centre was appointed the responsible centre for ensuring economic obligations or fulfilled them improperly. security in procurement activities.
In order to provide due diligence in procurement activities, Department of Economic Security of the Inter RAO – Procurement Management Centre controls competitive procurement procedures and the process of selecting contractors. Monitoring the fulfillment of contractual obligations by counter parties is carried out by the Group Economic Security Services through consolidation and analysis of internal information. Security and Regulations Unit of JSC Inter RAO controls the processes related to economic security.
9 Approved by the Resolution of the Inter RAO Board of Directors on January 31, 2014, Minutes No. 107 dated February 3, 2014.
186 10. PROCUREMENT
ECONOMIC SECURITY ASSESSMENT IS PROVIDED AT ALL STAGES OF THE PROCUREMENT PROCESS, STARTING WITH COMPETITIVE PROCEDURES TO THE COMPLETION OF THE CONTRACTUAL RELATIONSHIP.
COMPLIANCE CONTROL DEPARTMENT OF THE SECURITY AND REGULATIONS UNIT, JSC INTER RAO
APPLICATIONS, ESTABLISHING IMPLEMENTING COMPLETING TENDER PROCEDURES, TENDER DOCUMENTS, CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTOR SELECTION PROJECT CHARTER, ETC RELATIONSHIP RELATIONSHIP RELATIONSHIP
Department of Economic Security of Economic Security Departments in the Group’s companies: LLC Inter RAO — Procurement Management Centre: ▷ Tracking fulfilment of obligations ▷ Preventing affiliated relationships ▷ Control of expenditures ▷ Examining business reputation ▷ Ensuring information transparency ▷ Preventing discrimination/restriction of competition PROCUREMENT
Сегмент «Инжиниринг в Российской Федерации» ▷ ООО «Интер РАО − Инжиниринг» ▷ ООО «Кварц – Новые Технологии» ▷ ООО «КВАРЦ Групп» ▷ ООО «ИнтерРАО − УорлиПарсонс» ▷ ООО «ИНТЕРЭНЕРГОЭФФЕКТ» ▷ ООО «Интер РАО – Экспорт» 187 ▷ ООО «Консалтинговое партнёрство ЭнергоСоюз» ▷ ООО «Центр энергоэффективности Интер РАО ЕЭС» ▷ Некоммерческая организация Фонд поддержки научной, научно-технической и инновационной деятельности «Энергия без границ»
11. FINANCIAL RESULTS
11. FINANCIAL RESULTS
11.1. TOTAL DEBT LOAD
CREDITS AND LOANS WITH MATURITIES OF 1-2 YEARS COMPRISE THE MAJOR Debt load, including the share in joint venture debt, fell by 7.9% SHARE OF LOAN PORTFOLIO (EXCLUDING SHARES IN JOINT VENTURES) to RUR 59.6 bn.
RUR bn Less than 1 year 12.6 Group debt obligations (not including shares in joint ventures) 1-2 years 24.7 decreased by RUR 6.7 bn, or 11.2% in comparison with the 2-5 years 14.5 beginning of 2013. Over 5 years 1.0
Deleveraging is connected to the scheduled and early redemption of debt of Group companies, partly 5 15 25 offset by the increase in the discounted value of a long-term loan from JSC Mezhregionenergostroy in the amount of RUR 1.3 bn in view of the approaching time for repayment, as well as receipt of a tranche on a long-term loan from ING Bank amounting to RUR 800 mn as part of the Trakya Elektrik Uretim ve Ticaret A.S acquisition. The currency structure of the credit portfolio is balanced against the currency structure of assets and In addition, during 2013, the debt of joint ventures increased by RUR 1.5 bn due to the draw-down on revenues of the Group: 56% of the loan portfolio is represented by promissory notes in Russian roubles, long-term credit facilities by Ekibastuz TPP-2 for the purposes of financing the investment programme for 34% – US dollars, 6% – Euro, 4% – other currencies. building the 3rd Unit. As of December 31, 2013, the Group share in the credit portfolio of Ekibastuz TPP-2 was RUR 6.2 bn.
Thus, by the end of 2013, the ration of debt (including share in joint ventures) to EBITDA was 1.5, indicating the Group’s financial stability. In 2012, the figure was2.4 .
At the same time, the Group’s net debt (including deposits with maturity from 3 to 12 months) for the FINANCIAL RESULTS accounting period grew by RUR 7.6 bn to RUR 18.2 bn, due to the expenditures for financing the Group's investment programme.
Long-term and short-term debt ratio was 76% to 24% at the end of 2013, in comparison to the beginning of the period when these figures comprised 75% to 25%.
189 JSC Inter RAO / ANNUAL REPORT / 2013
11.2. CASH FLOWS
Key loans obtained by the Group in 2013 CONDENSED CASH FLOW STATEMENT FOR INTER RAO GROUP FOR 2012-2013, RUR BN
Indicators 2012 2013
November 12, 2013, a Securities Prospectus on the issue of Russian corporate bonds totalling RUR 60 bn for a period of 10 years was registered. The Issuer was Inter RAO Finance Net cash inflow/ (outflow): under the guarantee of JSC Inter RAO. operating results 6.5 19.6
November 27, 2013. Inter RAO Group and the European Bank for Reconstruction and investment results 8.8 (13.1) Development (EBRD) entered into a complex transaction for a long-term loan in the amount financial results (11.8) (14.5) of RUR 12 bn for a period of seven years for financing construction, equipment supply and Net (decrease) / increase in cash and cash equivalents 4.5 (8.2) commissioning of a combined cycle gas turbine (CCGT) unit with a capacity of 420 MW at the Verkhnetagilskaya TPP. The borrower is an Inter RAO Group company under a guarantee from JSC Inter RAO. The RUR 8.2 bn net outflow of cash and cash equivalents recorded for the reporting period was due to the following multi-directional factors: December 04, 2013. Inter RAO Group entered into a loan agreement with VTB Group in the amount of RUR 35 bn with tranches of maturity up to five years meant to finance the operating ►► cash from operating activities (RUR 19.6 bn) due to the rapid growth of revenue over operating and business activities of the Group’s companies. expenditures;
December 18, 2013. Inter RAO Group entered into a loan agreement with ING Bank (a branch ►► expenditure of funds on investing activities (RUR 13.1 bn), primarily due to the expenditure of funds for of ING DiBa AG). As part of the project to build and commission Unit 2 at the Yuzhnouralskaya financing the the Group’s investment programme; TPP-2, a long-term loan in the amount of EUR 48.4 million for a period exceeding ten years was taken to refinance Siemens equipment supplies. This loan was secured by an insurance policy ►► expenditure of funds on financing activities (RUR 14.5 bn), mainly due to the planned and early from Euler Hermes Deutschland AG. The borrower is an Inter RAO Group company under a repayment of loans and borrowing by Inter RAO Group companies. guarantee from JSC Inter RAO.
190 11. FINANCIAL RESULTS
11.3. KEY INDICATORS OF FINANCIAL AND ECONOMIC CONDITION1
The main factors influencing the financial results from the Group’s activities are: The changes in these indicators were influenced by the following factors:
►► acquisition of the assets of Bashkirenergo and Trakya Elektrik Uretim ve Ticaret A.S. in Turkey during ►► growth of obligations under a call and put options agreement with Vnesheconombank, as well as the the fourth quarter of 2012, which increased the installed capacity of the Group by 4.7 GW. increase in accounts payable for procurement on the wholesale electricity and capacity market and accounts payable for power facilities construction with a total effect of RUR 11.7 bn, partially offset by ►► commissioning more than 1.3 GW of new capacity under CDAs at Kharanorskaya TPP, Urengoyskaya a 6.7 bn reduction in debt and retirement of deferred tax liabilities in the amount of RUR 2.8 bn as a TPP, Gusinoozerskaya TPP, Dzhubginskaya TPP and other facilities at the end of 2012 and in 2013. result of impairment of fixed assets;
►► increase of prices on the wholesale electricity and capacity market by 10% in the first price zone and ►► capital reduction by RUR 36.9 bn (9.4%) mainly due to a reduction in undistributed profit as a result of by 1.3% in the second price zone. the net loss incurred by the Group in 2013 and disposal of accumulated revaluation of securities sold.
MAIN INDICATORS OF FINANCIAL AND ECONOMIC CONDITION LIQUIDITY RATIOS
Description December 31, December 31, Change % Description December 31, December 31, Change % 2012 2013 2012 2013
Absolute liquidity ratio 0.51 0.36 Debt to Equity 0.50 0.53 6.0 –24.4 Quick ratio 1.11 0.96 Equity ratio 0.67 0.65 –3.0 –29.4 Current ratio 1.61 1.47 –13.5
The ratio of debt to equity shows the holding company’s level of dependence on debt capital. The absolute liquidity ratio is calculated as the ratio of highly liquid assets to short-term liabilities. The equity ratio shows the share of equity used to finance Company’s assets, which are covered by own capital (provided by own sources). The quick ratio is calculated as the ratio of the amount of highly liquid and quick assets to short-term liabilities. At the end of 2013, the debt/equity ratio was 0.53, an increase of 6.0% compared to the same period in 2012, while the equity ratio was 0.65, a decline of 3.0% compared with the same period in 2012. The current ratio is calculated as the ratio of current assets to current liabilities.
During the reporting period, liquidity ratios declined. The decrease in the absolute liquidity ratio was caused by a reduction in current assets, mainly due to a decrease in the value of cash and cash equivalents and deposits with maturity from 3 to 12 months subject to implementation of the Group’s investment programme, and increased short-term liabilities due to the above mentioned reasons. The decrease in the current ratio is mainly connected with the decrease in cash and cash equivalents through FINANCIAL RESULTS use for Group operating and investment activities, partially offset by an increase in accounts receivable as a result of an increase in average supply tariffs in the supply segment, and classification of the shares of Volzhskaya TGK (7.5%) in the structure of assets classified as held for sale.
1 The procedure for determining financial and economic status parameters by the Group may differ from the procedure used by other companies.
191 JSC Inter RAO / ANNUAL REPORT / 2013
PROFIT RATIO AND PROFITABILITY INDICES BUSINESS ACTIVITY (TURNOVER) INDICATORS IN 2012-2013
Description December 31, December 31, Change % Description December 31, December 31, Change % 2012 2013 2012 2013
Working capital, RUR bn 64.6 53.9 –16.6 Turnover of equity, annually 0.37 0.48 29.7 Return on sales, % –5.69 % –2.79 % - Ratio of accounts receivable and 1.38 1.41 2.2 accounts payable Net profit margin –4.01 % –3.63 % - Turnover of accounts receivable, days 141.18 146.90 4.1 Return on assets, % –4.21 % –4.69 % - Turnover of accounts payable, days 188.37 204.94 8.8 Return on equity –6.31 % –7.18 % -
Working capital is calculated as the difference between current assets and current liabilities. By the end of 2013, working capital was RUR 53.9 bn, which is RUR 10.7 bn (16.6 %) less compared to end of 2012. The equity turnover ratio is equal to the volume of sales divided by the annual average cost of equity. The decline can be attributed to a decrease in current assets related primarily to financing investment This figure increased by 29.7% in 2013. All turnover ratios are at a normal level.The ratio of accounts programmes for Inter RAO Group companies, the growth of short-term obligations under the option receivable to accounts payable increased by 2.2% to 1.41. The turnover of accounts payable and agreement with Vnesheconombank, and the increase in payables for procurement on the wholesale accounts receivable increased by 4.1% and 8.8% respectively due to an increase in receivables and electricity and capacity market and payables for power facilities construction. payables. Accounts receivable turnover is less than the coefficient for payables, which is a positive factor.
Return on sales is the ratio of profit on sales to gross revenue.
Net profit margin characterizes the level of profitability of a business and is calculated as the percentage NET ASSETS IN 2012-2013 of net income (loss) to revenue. Description December 31, December 31, Change % 2012 2013 Return on assets demonstrates the degree of efficiency of the organisation's assets and is the ratio of net income (loss) to total assets of the organisation. Net assets, RUR bn 353.2 334.6 –5.3 % Return on equity shows the amount of profit that will be paid to the enterprise (organisation) per unit cost of equity capital. Net assets is a key indicator of activity for any commercial organisation. By the end of 2013, net assets At the end of 2013, profitability ratios were deteriorating. The main factor that affected performance was a totalled RUR 334.6 bn, 5.3% less than the 2012 figure. The main factor underlying the decrease is the net loss of RUR 24.0 bn against a net loss of RUR 22.3 bn in 2012. reduction in retained earnings resulting from the net loss incurred by the Group in 2013.
192 12. SUPPLEMENTS
12. SUPPLEMENTS
12.1. STATEMENT OF THE REVISION COMMISSION
STATEMENT OF THE REVISION COMMISSION OF JOINT-STOCK COMPANY INTER RAO UES
To the General Meeting of Shareholders of JSC Inter RAO to the Company management are provided in the Statement Based on the results of the audit and in view of the Company's attached hereto. Auditor Opinion, the Revision Commission has sufficient grounds to March 20, 2014 believe that the Company's annual financial statements for 2013 and Moscow Based on the results of the audit, the Revision Commission is able to the JSC Inter RAO 2013 Annual Report present fairly, in all material state that: respects, the position of the companies. As required by the Charter of JSC Inter RAO (Company), the Russian federal law Concerning Joint-Stock Companies of 26.12.1995 No. 1. we have not found any noticeable non-compliance with any Members of JSC Inter RAO Revision Commission: 208-FZ, and the decision of the Revision Commission (Minutes No. material external or internal requirements. 3 dated January 22, 2014 and No. 2 dated August 9, 2013), over Deputy Director General for Control and Revision N. Varlamov Activities, JSC Russian Grids, Chairman of JSC Inter the period from February 20, 2014 to March 20, 2014 the Revision 2. we have not revealed any deficiencies in financial results of the RAO Revision Commission Commission carried out an audit of the Company's financial and Company that may lead to a material misstatement of assets or Head of the Methodological Support Department, E. Kabizskina liabilities as of December 31, 2013, and financial results of the business operations in 2013. Internal Audit Directorate, JSC Moscow United Company for 2013. Power Grid Company The primary objective of the audit was to satisfy our expectations Head of the Fuel and Power Industry Organisations A. Drokova that (a) the main financial results reflected on the Company's JSC Inter RAO's auditor, Ernst & Young LLC, appointed by the Department, Property Relations and Major financial statements are accurate, and (b) in its financial and Company's Annual General Meeting of Shareholders (Minutes No. Organisation Privatisation Directorate, Federal business operations, the Company complies with the accounting 13 of June 25, 2013), carried out an audit of the Company's financial Agency for State Property Management rules and legal acts of the Russian Federation. statements for the period of January 1 to December 31, 2013, and Deputy Head of Directorate, Head of Asset E. Kheimits provided the Auditor Opinion of February 14, 2014. Soundness Control Office, Control and Revision Department, Internal Control Directorate, Mining and The responsibility for preparing accurate financial statements and Metallurgical Company Norilsk Nickel complying with the accounting rules and other legal acts of the The Revision Commission notes that: Head of Treasury Department, JSC Inter RAO Y. Shcherbakov Russian Federation lies with the Company management, as provided by the Russian law. 3. The Company's 2013 Annual Report covers not only JSC Inter RAO, but also corporate entities and other organisations I have read the opinion of the Revision Commission: The Revision Commission is responsible for carrying out a sample comprising the Inter RAO Group. audit and obtaining reasonable assurance that all of the primary Chairman, JSC Inter RAO Management Board B. Kovalchuk objectives of the audit have been achieved and conclusions have 4. The Company's 2013 Annual Report includes information from Chief Accountant A. Chesnokova been drawn based on an unbiased and sufficient review of all the IFRS-based financial statements of the Inter RAO Group. information, data and documents provided to the Commission. To review the data contained in JSC Inter RAO’s 2013 Annual SUPPLEMENTS The Revision Commission is of the opinion that the data, information Report, the Revision Commission used the results of the audit of the and documents provided to us are sufficient to draw conclusions and Company's financial and business operations. form an opinion. General results of the audit and recommendations
193 JSC Inter RAO / ANNUAL REPORT / 2013
12.2. IFRS REPORTS
INDEPENDENT AUDITORS' REPORT ON THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS (Translation of the original in Russian language)
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF JSC INTER RAO MANAGEMENT’S RESPONSIBILITY FOR THE SUMMARY FINANCIAL STATEMENTS
The accompanying summary consolidated financial statements, which comprise the consolidated Management of JSC Inter RAO is responsible for the preparation of the summary consolidated financial statement of financial position as at 31 December 2013, consolidated statement of comprehensive income, statements in accordance with the principles described in note 1. consolidated statement of changes in equity, consolidated statement of cash flows and note 1 for the year then ended, are derived from the audited consolidated financial statements of JSC Inter RAO and its AUDITORS' RESPONSIBILITY subsidiaries for the year ended 31 December 2013. We expressed an unmodified audit opinion on these consolidated financial statements in our audit report dated 28 February 2014. The consolidated financial Our responsibility is to express an opinion on the summary consolidated financial statements based on statements and the summary consolidated financial statements do not reflect the effect of events that our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, occurred subsequent to the date of our audit report on the consolidated financial statements of JSC Inter Engagements to Report on Summary Financial Statements. RAO and its subsidiaries. OPINION The summary consolidated financial statements do not contain a description of accounting policies and other disclosures required by International Financial Reporting Standards. Reading the summary In our opinion, the summary consolidated financial statements derived from the consolidated financial consolidated financial statements, therefore, is not a substitute for reading the audited financial statements of JSC Inter RAO and its subsidiaries for the year ended 31 December 2013 are consistent, statements of JSC Inter RAO and its subsidiaries. in all material respects, with the consolidated financial statements, based on the principles described in note 1.
Ernst & Young LLC (original version signed)
14 March 2014
Note 1
The summary consolidated financial statements comprise consolidated statement of financial position, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows included in the audited consolidated financial statements prepared in accordance with International Financial Reporting Standards. The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards.
194 12. SUPPLEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (IN MILLIONS OF RUR)1
31 31 December 1 January 31 31 December 1 January December 2012 2012 December 2012 2012 2013 (restated) (restated) 2013 (restated) (restated)
Assets Fair value reserve 642 (3,354) (329) Non-current assets Foreign currency translation reserve 413 (1,369) (313) Property, plant and equipment 285,789 282,761 227,525 Retained earnings 9,522 32,278 39,484 Investment property – – 1,211 Total equity attributable to shareholders of the Company 331,522 348,531 347,086 Intangible assets 9,783 8,864 4,814 Non-controlling interest 3,067 4,658 43,135 Investments in associates and joint ventures 28,625 26,630 48,014 Total equity 334,589 353,189 390,221 Deferred tax assets 3,389 1,974 1,104 Available-for-sale financial assets 9,149 32,563 40,651 Non-current liabilities Other non-current assets 6,100 5,177 4,751 Loans and borrowings 40,198 44,377 44,514 Total non-current assets 342,835 357,969 328,070 Deferred tax liabilities 13,399 17,419 18,881 Current assets Other non-current liabilities 8,569 7,624 12,820 Inventories 13,221 12,954 9,945 Total non-current liabilities 62,166 69,420 76,215 Accounts receivable and prepayments 70,198 63,079 44,488 Income tax prepaid 1,095 1,498 1,543 Current liabilities Cash and cash equivalents 39,882 48,049 43,518 Loans and borrowings 12,553 15,034 3,458 Other current assets 3,055 6,986 42,669 Accounts payable and accrued liabilities 98,814 87,130 57,932 127,451 132,566 142,163 Other taxes payable 4,025 3,643 3,681 Assets classified as held-for-sale 42,280 38,048 61,662 Income tax payable 419 167 388 Total current assets 169,731 170,614 203,825 Total current liabilities 115,811 105,974 65,459 Total assets 512,566 528,583 531,895 Total liabilities 177,977 175,394 141,674 Total equity and liabilities 512,566 528,583 531,895 Equity and liabilities Equity Chairman of the Management Board Kovalchuk B.Yu. Share capital 293,340 293,340 272,997 Chief Accountant Chesnokova A.O.
Treasury shares (41,363) (41,363) (34,612) 14 March 2014 Share premium 69,312 69,312 69,706 Hedge reserve (64) 111 306 SUPPLEMENTS Actuarial reserve (280) (424) (153)
1 The consolidated statement of financial position is to be read in conjunction with note 1 to, and forming an integral part of, the summary financial statements.
195 JSC Inter RAO / ANNUAL REPORT / 2013
2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (IN MILLIONS OF RUR)
For the year For the year 2013 2012 2013 2012 (restated) (restated)
Revenue 662,321 556,189 Shareholders of the Company (17,308) (27,284) Other operating income 7,108 5,506 Non-controlling interest (704) 349 Operating expenses, net (687,902) (593,318) (18,012) (26,935) Operating loss (18,473) (31,623) Basic loss per ordinary share for loss attributable to the shareholders of the Company RUR RUR Excess of the acquired share in the fair value of the identifiable assets and – 11,645 liabilities over the cost of investment (0.00265) (0.00262) Finance income 4,014 4,911 Diluted loss per ordinary share for loss attributable to the shareholders of the Company RUR RUR Finance expenses (15,891) (11,800) (0.00283) (0.00274) Share of profit of associates and joint ventures, net 3,252 2,701 Loss before income tax (27,098) (24,166) Income tax benefit 3,068 1,890 Chairman of the Management Board Kovalchuk B.Yu. Loss for the period (24,030) (22,276) Chief Accountant Chesnokova A.O. Other comprehensive income/(loss) 14 March 2014 Other comprehensive income/(loss) that will not be reclassified subsequently to profit or loss Actuarial gain/(loss), net of tax 161 (292) Other comprehensive income/(loss) that will be reclassified subsequently to profit or loss when specific conditions are met Gain/(loss) on available-for-sale financial assets, net of tax 3,996 (3,025) Net loss on hedge instruments, net of tax (167) (195) Exchange gain/(loss) on translation to presentation currency 2,028 (1,147) Other comprehensive income/(loss), net of tax 6,018 (4,659) Total comprehensive loss for the period (18,012) (26,935) Loss attributable to: Shareholders of the Company (23,067) (22,737) Non-controlling interest (963) 461 (24,030) (22,276) Total comprehensive loss attributable to:
2 The consolidated statement of comprehensive income is to be read in conjunction with note 1 to, and forming an integral part of, the summary financial statements.
196 12. SUPPLEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS OF RUR)3
For the year For the year 2013 2012 2013 2012 (restated) (restated)
Operating activities Other non-cash operations/items (40) 111 Loss before income tax (27,098) (24,166) Operating cash flows before working capital adjustments and income tax paid 38,403 23,126 Adjustments to reconcile loss before tax to net cash flows from operating activities: Increase in inventories (432) (858) Depreciation and amortisation 23,733 16,596 Increase in accounts receivable and prepayments (9,273) (16,577) Provision for impairment of accounts receivable 4,397 4,638 Decrease in value added tax recoverable 357 5,633 Other provisions charge 3,709 365 Decrease in other current assets 197 687 Impairment of available-for-sale financial assets and assets classified as 3,282 6,324 (Decrease)/increase in accounts payable and accrued liabilities (6,676) 2,117 held-for-sale Increase in taxes other than income tax prepaid/payable, net (1,020) (2,823) Impairment of property, plant and equipment, intangible assets and 19,704 28,083 goodwill Other working capital adjustments 309 (741) Excess of the acquired share in the fair value of the identifiable assets – (11,645) 21,865 10,564 and liabilities over the cost of investment Income tax paid (2,290) (4,076) Share of profit of associates and joint ventures (3,252) (2,701) Net cash flows from operating activities 19,575 6,488 Income from electricity derivatives, net (223) (521) Foreign exchange loss/(gain), net 541 (90) Interest income (2,748) (4,180) Other finance income (122) (280) Interest expense 4,034 3,796 Other finance expenses 903 395 Dividend income (1,144) (361) Loss/(income) from sale of available-for-sale financial assets and assets 2,397 (1,525) classified as held-for-sale Loss on exchange of treasury shares for shares in available-for-sale – 78 financial assets Shares option plan 46 544 Put and call option agreement 10,413 7,609 (Income)/loss on disposal of controlling interest (129) 56 SUPPLEMENTS
3 The consolidated statement of cash flows is to be read in conjunction with note 1 to, and forming an integral part of, the summary financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) (IN MILLIONS OF RUR)4
For the year For the year 2013 2012 2013 2012 (restated) (restated)
Investing activities Net cash flows used in financing activities (14,523) (11,822) Proceeds from disposal of property, plant and equipment 174 187 Effect of exchange rate fluctuations on cash and cash equivalents (129) 1,097 Purchase of property, plant and equipment and intangible assets (40,982) (48,884) Net (decrease)/increase in cash and cash equivalents (8,167) 4,531 Purchase of controlling interest, net of cash acquired (71) (6,663) Cash and cash equivalents at the beginning of the period 48,049 43,518 Establishment of subsidiaries 4 – Cash and cash equivalents at the end of the period 39,882 48,049 Purchase of available-for-sale financial assets – (407) Proceeds from disposal of controlling interest, net of cash disposed – (42) Proceeds from disposal of associate 1,115 – Chairman of the Management Board Kovalchuk B.Yu. Proceeds from disposal of available-for-sale financial assets and assets 19,125 24,883 Chief Accountant Chesnokova A.O. classified as held-for-sale 14 March 2014 Proceeds from repayment of loans issued 1,142 477 Loans issued (801) (1,406) Bank deposits placed (4,676) (13,877) Bank deposits returned and proceeds from promissory notes repayment 11,111 53,885 Purchase of bonds (344) – Dividends received 1,230 617 Cash flows used for other investing activities (117) (2) Net cash flows (used for)/from investing activities (13,090) 8,768
Financing activities Proceeds from loans and borrowings 59,085 49,413 Repayment of loans and borrowings (69,338) (44,656) Repayment of finance leases (698) (512) Interest paid (3,083) (2,098) Dividends paid (476) (2,248) Purchase of non-controlling interest in subsidiaries (13) (7,893) Disposal of non-controlling interest in subsidiaries – 2,622 Redemption of treasury shares – (6,493) Proceeds from treasury shares sold – 43
4 The consolidated statement of cash flows is to be read in conjunction with note 1 to, and forming an integral part of, the summary financial statements.
198 12. SUPPLEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (IN MILLIONS OF RUR)5
Attributable to shareholders of the Company Non- Share capital Treasury Share Foreign Fair value Hedge Actuarial Retained Total Total controlling shares premium currency reserve reserve reserve earnings equity translation interest reserve
Balance at 1 January 2012 (restated) 272,997 (34,612) 69,706 (313) (329) 306 (153) 39,484 347,086 43,135 390,221 Total comprehensive (loss)/income for the year ended 31 December 2012 (restated) – – – (1,056) (3,025) (195) (271) (22,737) (27,284) 349 (26,935) Dividends to shareholders – – – – – – – – – (2,414) (2,414) Additional issue of shares 20,343 (9,547) (394) – – – – 7,916 18,318 (17,231) 1,087 Acquisition of controlling interest in subsidiary – – – – – – – – – 376 376 Acquisition of non-controlling interest in subsidiaries – 7,116 – – – – – 8,847 15,963 (23,856) (7,893) Disposal of non-controlling interest in subsidiaries – – – – – – – (1,677) (1,677) 4,299 2,622 Acquisition of available-for-sale financial assets – 2,069 – – – – – (33) 2,036 – 2,036 Acquisition of treasury shares – (6,424) – – – – – (69) (6,493) – (6,493) Sale of treasury shares – 35 – – – – – 4 39 – 39 Shares option plan – – – – – – – 543 543 – 543 20,343 (6,751) (394) – – – – 15,531 28,729 (38,826) (10,097) Balance at 31 December 2012 (restated) 293,340 (41,363) 69,312 (1,369) (3,354) 111 (424) 32,278 348,531 4,658 353,189
Balance at 31 December 2012 (restated) 293,340 (41,363) 69,312 (1,369) (3,354) 111 (424) 32,278 348,531 4,658 353,189 Total comprehensive (loss)/income for the year ended 31 December 2013 – – – 1,794 3,996 (175) 144 (23,067) (17,308) (704) (18,012) Dividends to shareholders – – – – – – – – – (486) (486) Acquisition of controlling interest in subsidiary – – – – – – – – – (34) (34) Acquisition of non-controlling interest in subsidiaries – – – (12) – – – 265 253 (371) (118) Recognition of non-controlling interest in established subsidiaries – – – – – – – – – 4 4 Shares option plan – – – – – – – 46 46 – 46 – – – (12) – – – 311 299 (887) (588) Balance at 31 December 2013 293,340 (41,363) 69,312 413 642 (64) (280) 9,522 331,522 3,067 334,589
Chairman of the Management Board Kovalchuk B.Yu. Chief Accountant Chesnokova A.O.
14 March 2014 SUPPLEMENTS
5 The consolidated statement of changes in equity is to be read in conjunction with note 1 to, and forming an integral part of, the summary financial statements.
199 JSC Inter RAO / ANNUAL REPORT / 2013
12.3. RAS STATEMENTS
INDEPENDENT AUDITOR'S REPORT ON THE CONDENSED FINANCIAL STATEMENTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF JSC INTER RAO
The accompanying financial statements which comprise the balance sheet as at 31 December 2013, statement of income as at 31 December 2013 and Appendix 1, were prepared on the basis of audited financial statements of JSC INTER RAO for the year ended 31 December 2013. We issued an audit report with unqualified audit opinion on these financial statements dated 14 February 2014. These financial statements and accompanying condensed financial statements of JSC INTER RAO do not reflect the events that occurred subsequent to the date of our audit report on these financial statements.
The condensed financial statements do not comprise all the disclosures required by the financial reporting rules effective in the Russian Federation. Thus, the review of the condensed financial statements does not replace the review of the audited financial statements of JSC INTER RAO.
AUDITED ENTITY'S RESPONSIBILITY FOR THE CONDENSED FINANCIAL STATEMENTS
The management of JSC INTER RAO is responsible for the preparation of these condensed financial statements based on criteria as described in Appendix 1.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express an opinion on these condensed financial statements based on conducting our audit procedures in accordance with Federal Standards on Auditing effective in the Russian Federation and International Standards on Auditing.
200 12. SUPPLEMENTS
OPINION DETAILS OF THE AUDITED ENTITY
In our opinion, the accompanying condensed financial statements derived from the consolidated financial Name: JSC INTER RAO statements of JSC INTER RAO for the year ended 31 December 2013 are consistent, in all material respects, with the financial statements, in accordance with the criteria established in Appendix 1. Record made in the State Register of Legal Entities on 1 November 2002; State Registration Number 1022302933630. Address: 119435, Russia, Moscow, ul. Bolshaya Pirogovskaya, 27., bld. 2
OTHER MATTERS DETAILS OF THE AUDITOR The accompanying condensed financial statements are not intended to present the financial position and results of operations in accordance with accounting principles and practices generally accepted in Name: Ernst & Young LLC countries and jurisdictions other than the Russian Federation. Accordingly, the accompanying condensed financial statements are not designed for those who are not informed about accounting principles, Record made in the State Register of Legal Entities on 5 December 2002; State Registration Number procedures and practices in the Russian Federation. 1027739707203.
D.E. Lobachev Address: 115035 Russia, Moscow, Sadovnicheskaya naberezhnaya, 77, bld. 1. Partner, General Director Ernst & Young LLC Ernst & Young LLC is a member of Non-profit partnership “Russian Audit Chamber” (“NP APR”). Ernst & Young LLC is registered in the register of auditors and audit organizations of NP APR, number 3028, 14 March 2014 and also included in the control copy of the register of auditors and audit organizations, main registration number 10201017420.
Appendix 1
These condensed financial statements include the balance sheet and the statement of income derived from the audited financial statements, presented in thousands of Russian rubles, and are prepared in accordance with accounting principles and practices generally accepted in the Russian Federation. All amounts in these condensed financial statements are presented in millions of Russian rubles (except for earnings (loss) per share). These condensed financial statements do not include all the disclosures required by accounting principles and practices generally accepted in the Russian Federation. SUPPLEMENTS
201 JSC Inter RAO / ANNUAL REPORT / 2013
Attachment No.1 to Order No. 66n of the RF Ministry of Finance dated July 2, 2010 BALANCE SHEET As of 31 December 2013 year Codes OKUD form 0710001 Date (DDMMYY) 31 12 2013 Entity Open Joint-Stock Company Inter RAO UES OKPO code 33741102 Taxpayer's identification number TIN 2320109650 Type of activity resale and production of electricity OKVED Code 40.10.11; 51.56.4 Legal/ownership form Open Joint-Stock Company/Joint private and foreign ownership OKOPF/OKFS code 12247 34 Measurement unit: RUB mln OKEI code 385 Location (address) 119435, Moscow, ul. Bolshaya Pirogovskaya, 27, bld. 2
Description Code At 31 December 2013 At 31 December 2012 At 31 December 2011 ASSETS I. NON-CURRENT ASSETS Intangible assets 1 110 147 76 7 Research and development results 1 120 - - 2 Property, plant and equipment 1 150 1 348 3 472 29 006 including construction in progress 1 151 433 242 9 879 Income-bearing investments in tangible assets 1 160 20 85 42 Financial investments 1 170 276 347 334 946 241 150 Deferred tax assets 1 180 2 764 3 815 8 010 Other non-current assets 1 190 32 108 26 921 4 870
including long-term accounts receivable 1 191 31 992 26 737 3 732
TOTAL for Section I 1 100 312 734 369 315 283 087 II. CURRENT ASSETS Inventory 1 210 7 14 852 VAT on purchased assets 1 220 668 765 868 Accounts receivable 1 230 11 889 59 346 61 174 including trade accounts receivable 1 231 2 366 2 806 3 773 Financial investments (other than cash equivalents) 1 240 4 228 938 6 028 Cash and cash equivalents 1 250 16 708 14 070 4 869 Other current assets 1 260 75 210 440 TOTAL for Section II 1 200 33 575 75 343 74 231 BALANCE SHEET 1 600 346 309 444 658 357 318
202 12. SUPPLEMENTS
Form 0710001 p. 2
Description Code At 31 December 2013 At 31 December 2012 At 31 December 2011 CAPITAL AND LIABILITIES III. CAPITAL AND RESERVES Charter capital 1 310 293 340 293 340 272 997 Treasury shares 1 320 - (1) - Revaluation of non-current assets 1 340 103 309 353 Additional capital (without revaluation) 1 350 195 416 195 416 195 091 Reserve capital 1 360 296 296 296 Retained earnings (loss), including 1 370 (158 824) (105 341) (154 609) Retained earnings (loss) of prior years 1 371 (105 136) (90 980) (11 481) Retained earnings (loss) of current year 1 372 (53 688) (14 361) (143 128) TOTAL for Section III 1 300 330 331 384 019 314 128 IV. LONG-TERM LIABILITIES Loans and borrowings 1 410 5 335 10 952 17 965 Deferred tax liabilities 1 420 46 53 241 Other long-term liabilities 1 450 402 1 726 19 269 TOTAL for Section IV 1 400 5 783 12 731 37 475 V. SHORT-TERM LIABILITIES Loans and borrowings 1 510 6 3 235 340 Accounts payable 1 520 8 601 43 778 4 482 including: trade accounts payable 1 521 2 317 3 490 3 585 accrued payroll 1 522 - 2 - taxes and levies payable 1 524 9 - 51 advances received 1 525 4 633 2 097 497 other accounts payable 1 526 1 642 38 189 349 Provisions 1 540 1 588 895 893 Other short-term liabilities 1 550 - - - TOTAL for Section V 1 500 10 195 47 908 5 715 BALANCE SHEET 1 700 346 309 444 658 357 318 SUPPLEMENTS
Chief Executive Officer B.Yu. Kovalchuk Chief Accountant A.O. Chesnokova 14 March 2014 year
203 JSC Inter RAO / ANNUAL REPORT / 2013
Attachment to Order No. 66n of the RF Ministry of Finance dated July 2, 2010 STATEMENT OF INCOME for the period from January 01 through December 31, 2013 Codes OKUD form 0710002 Date (DDMMYY) 31 12 2013 Entity Open Joint-Stock Company Inter RAO UES OKPO code 33741102 Taxpayer's identification number TIN 2320109650 Type of activity resale and production of electricity OKVED Code 40.10.11; 51.56.4 Legal/ownership form Open Joint-Stock Company/Joint private and foreign ownership OKOPF/OKFS code 12247 34 Measurement unit: RUB mln OKEI code 385
Description Code January - December 2013 January - December 2012 Revenue from the sale of goods, products, works and services, net (less VAT, excise duties and similar obligatory payments), including: 2110 41 221 42 692 export of energy 2111 23 317 25 575 domestic sales of energy (capacity) 2112 14 655 16 646 sales of power generation equipment 2113 3 043 - other 2114 206 471 Cost of sales of goods, products, works and services 2120 (34 698) (35 175) purchase of energy (power) from domestic market 2121 (26 119) (27 696) production of energy (power) 2122 (1 676) (4 396) import of energy 2123 (4 060) (2 261) sales of power generation equipment 2124 (2 711) - other 2125 (132) (822) Gross profit 2100 6 523 7 517 Selling expenses 2210 (3 775) (4 153) Administrative expenses 2220 (4 685) (4 510) Profit (loss) from operations 2220 (1 937) (1 146) Income from equity participation 2310 3 501 2 573 Interest receivable 2320 3 250 1 724 Interest payable 2330 (862) (1 919) Other income 2340 27 967 121 530 Other expenses 2350 (84 516) (132 551) Profit (loss) before tax 2300 (52 597) (9 789) Current profit tax 2410 (482) (660) including permanent tax liabilities (assets) 2421 12 737 7 196 Deferred tax liabilities change 2430 12 172 Deferred tax assets change 2450 (1 047) (4 236) Other 2460 426 152 Profit (loss) after tax 2400 (53 688) (14 361) FOR REFERENCE Cumulative financial result for the period 2500 (53 688) (14 361) Basic earnings (loss) per share (kop.) 2900 (0,5143) (0,1472) Diluted earnings (loss) per share (kop.) 2910 (0,5143) (0,1472)
Chief Executive Officer B.Yu. Kovalchuk Chief Accountant A.O. Chesnokova 14 March 2014 year
204 12. SUPPLEMENTS
12.4. GRI CONTENT INDEX
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
Strategy and Analysis
1.1. Statement from the most senior decision-maker of the reporting organization about the relevance Disclosed 3. Statement for JSC Inter RAO shareholders and other stakeholders 15-17 of sustainability to the organization and its strategy
1.2. Description of key impacts, risks, and opportunities Disclosed 3. Statement for JSC Inter RAO shareholders and other stakeholders 15-17, 4.1. Strategy of the Company 22, 175-181 9. Risk management
Organizational Profile
2.1. Name of the organization Disclosed 2.1. About Inter RAO Group 8
2.2. Primary brands, products, and/or services Disclosed 2.1. About Inter RAO Group 5
2.3. Operational structure of the organization Disclosed 2.1. About Inter RAO Group 8
2.4. Location of organization’s headquarters Disclosed Bolshaya Pirogovskaya Street 27, Bldg. 2, Moscow, 119435
2.5. Number of countries where the organization operates, and names of countries with either major Disclosed 2.1. About Inter RAO Group 5, 7-8, operations or that are specifically relevant to the sustainability issues covered in the report 8.4. Contribution to the development of the regions of Group’s operation 156, 162
2.6. Nature of ownership and legal form Disclosed 7. The Company in the capital markets 131
2.7. Markets served Disclosed 2.1. About Inter RAO Group 5-8
2.8. Scale of the organization Disclosed 2.2. The Group’s key indicators 9
2.9. Significant changes during the reporting period regarding size, structure, or ownership Disclosed 2.3. Key events 10-11, 7. The Company in the capital markets 131 SUPPLEMENTS
205 JSC Inter RAO / ANNUAL REPORT / 2013
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
2.10. Awards received in the reporting period Disclosed In 2013, the Group won the following awards: “The best mergers and acquisitions deal in Central and Eastern Europe in 2012,” awarded by EMEA Finance for the acquisition of a controlling stake in Trakya Elektrik A.S; III place in the ratings for information transparency of Russian fuel and energy complex companies (APEC); I place in the category “The best annual report in the electricity sector” at the XVI Moscow Stock Exchange Annual Reports Competition; I place in the categories “The best annual report in the energy sector,” “The best annual report by an Issuer in the Central Federal District” and “The best comprehensive company presentation” at the XVI Federal competition of Annual Reports and Web Sites held during the X Federal Investment Forum; III place in the category “The best electronic annual report” at the Krasnodar Region Open Competition for Annual Reports by Joint-Stock Companies.
Report Parameters
3.1. Reporting period (e.g., fiscal/calendar year) for information provided Disclosed 1. About the Report 3
3.2. Date of most recent previous report (if any) Disclosed 1. About the Report 3
3.3. Reporting cycle Disclosed 1. About the Report 3
3.4. Contact point for questions regarding the report or its contents Disclosed 1. About the Report 3
3.5. Process for defining report content Disclosed 1. About the Report 3
3.6. Boundary of the report Disclosed 1. About the Report 3
3.7. Limitations on the scope or boundary of the report Disclosed 1. About the Report 3
3.8. Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and Disclosed 1. About the Report 3 other entities that can significantly affect comparability from period to period and/or between organizations
3.9. Data measurement techniques and the bases of calculations, including assumptions and Disclosed 1. About the Report 3 techniques underlying estimations applied to the compilation of the indicators and other information in the report
3.10. Explanation of the effect of any re-statements of information provided in earlier reports, and the Disclosed 1. About the Report 3 reasons for such re-statement All re-statements and reasons for such re-statements are provided under specific indicators.
206 12. SUPPLEMENTS
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
3.11. Significant changes from previous reporting periods in the scope, boundary, or measurement Disclosed 1. About the Report 3 methods applied in the report In 2013, the Group acquired new assets: Dzhubginskaya TPP, OJSC Tomskenergosbyt and others
3.12. Table identifying the location of the Standard Disclosures in the report Disclosed Supplement 12.4. GRI Content Index 205-225
3.13. Policy and current practice with regard to seeking external assurance for the report Disclosed 1. About the Report 3
Governance, Commitments, and Engagement
4.1. Governance structure of the organization, including committees under the highest governance Disclosed 6.1. Corporate governance system and principles 87-89 body responsible for specific tasks, such as setting strategy or organizational oversight 6.2. JSC Inter RAO Governance Bodies
4.2. Indicate whether the Chair of the highest governance body is also an executive officer Disclosed 6.4. Board of Directors 96
The Chairman of the Board of JSC Inter RAO is not Executive Officer.
4.3. For organizations that have a unitary board structure, state the number of members of the Disclosed 6.4. Board of Directors 93-106 highest governance body that are independent and/or non-executive members
4.4. Mechanisms for shareholders and employees to provide recommendations or direction to the Disclosed 6.3. General Meeting of Shareholders 89-92, highest governance body 6.7. Information disclosure and external communications 127-129
4.5. Linkage between compensation for members of the highest governance body, senior managers, and Disclosed 6.4. Board of Directors 107-108, executives (including departure arrangements), and the organization’s performance (including social and 6.5. Management Board 122 environmental performance)
4.6. Processes in place for the highest governance body to ensure that conflicts of interest are Disclosed 6.4. Board of Directors 93, avoided 6.6. Corporate control 109-113, 123-126
4.7. Process for determining qualifications and expertise of the members of the highest governance Disclosed To evaluate the qualifications and expertise of the Members of the Board of Directors, the body for determining the organization’s strategy on economic, environmental and social conformity assessment of candidates to JSC Inter RAO Board of Directors with respect to the (sustainability) issues Eligibility Criteria is carried out by the Human Resources and Remuneration Committee.
4.8. Internally developed statements of mission or values, codes of conduct, and principles relevant to Disclosed 4.1. Strategy of the Company 19-22, economic, environmental, and social performance and the status of their implementation 6.1. Corporate governance system and principles 87, 126, 137, 226 6.7. Information disclosure and external communications
8.1. Approach to sustainability SUPPLEMENTS Supplement 12.5. Information on Compliance with Corporate Governance Code
207 JSC Inter RAO / ANNUAL REPORT / 2013
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
4.9. Procedures of the highest governance body for overseeing the organization’s identification and Disclosed 6.4. Board of Directors 93, management of economic, environmental, and social performance, including relevant risks and 6.6. Corporate control 107-108, opportunities, and adherence or compliance with internationally agreed standards, codes of 123-126 conduct, and principles
4.10. Processes for evaluating the highest governance body’s own performance, particularly with Disclosed 6.4. Board of Directors 107-113 respect to economic, environmental, and social performance According to the Regulations on the Board of Directors of JSC Inter RAO the assessment of efficiency of Members of the Board of Directors is held annually in the form of self- assessment and is carried out in accordance with the developed assessment methodology. Every three years Inter RAO Group engages an independent external consultant to conduct the efficiency assessment.
4.11. Explanation of whether and how the precautionary approach or principle is addressed by the Disclosed The precautionary principle is one of the key principles in JSC Inter RAO’s Declaration of organization Environmental Responsibility. The Group’s strategic goal is not only to achieve compliance with environmental regulations, but also to further reduce environmental impact to a technically feasible and economically reasonable level.
4.12. Externally developed economic, environmental, and social charters, principles, or other initiatives to Disclosed The Group did not subscribe to economic, environmental, social charters, principles or other which the organization subscribes or endorses initiatives.
4.13. Memberships in associations (such as industry associations) and/or national/international Disclosed 2.3. Key events 12-13 advocacy organizations
4.14. List of stakeholder groups engaged by the organization Disclosed 6.7. Information disclosure and external communications 126
4.15. Basis for identification and selection of stakeholders with whom to engage Disclosed 6.7. Information disclosure and external communications 126-127
4.16. Approaches to stakeholder engagement, including frequency of engagement by type and by Disclosed 6.7. Information disclosure and external communications 127-129 stakeholder groups
4.17. Key topics and concerns that have been raised through stakeholder engagement, and how the Disclosed 5.4. Supply in the Russian Federation segment 51-53, organization has responded to those key topics and concerns, including through its reporting 6.3. General Meeting of Shareholders 89-92, 127-129, 6.7. Information disclosure and external communications 145-148, 8.2. Human resources management 154-155, 8.4. Contribution to the development of the regions of Group’s operation 163-164 8.5. Environmental Policy
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Electric Utility Sector Supplement to GRI Sustainability Reporting Guidelines
Management approach Disclosed 4.3. Investment and innovation 24-33, 5. Operating activity of Inter RAO Group 35-85, 140-143, 8.2. Human resources management 145, 8.3. Occupational Health and Safety 149-153, 8.5. Environmental Policy 163-173 8.6. Asset security
EU1 Installed capacity, broken down by primary energy source and by regulatory regime Disclosed 5.2. Group performance results 39
EU2 Net energy output broken down by primary energy source and by regulatory regime Disclosed 5.2. Group performance results 39
EU3 Number of residential, industrial, institutional and commercial customer accounts Disclosed 5.4. Supply in the Russian Federation segment 51, 69, 5.7. Georgia 75 5.8. Armenia
As of December 31, 2013: ▻▻ Total amount of customers of Group’s electricity supply companies in Russia: ▻▻ 319 grid companies; ▻▻ 376,151 corporate entities and other organisations ▻▻ 10,929,887 end users. ▻▻ Total amount of customers of Group’s grid companies in Georgia and Armenia: ▻▻ 45,455 business users ▻▻ 6,994 public users ▻▻ 97,260 general consumption units ▻▻ 1,358,272 end users ▻▻ 872 refugees.
EU4 Length of above and underground transmission and distribution lines Disclosed 5.7. Georgia 69, 75 5.8. Armenia
In 2013, the total length of transmission and distribution lines of the Group in Georgia and Armenia amounted to 35,744 km, in 2012 ‒ 34,976 km
EU5 Allocation of CO2-e emissions allowances or equivalent, broken down by carbon trading Disclosed The Group has no facilities that require greenhouse gases quota allocation. The Group does SUPPLEMENTS framework not apply the greenhouse gases emissions trading scheme or other regulatory requirements for greenhouse gases management.
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EU6 Management approach to ensure short and long-term electricity availability and reliability Disclosed 5. Operating activity of Inter RAO Group 35-85
Group’s companies on a regular basis carry out repair works, equipment modernisation, and other activities to ensure reliability and availability of electricity in the short- and long-term.
EU7 Demand-side management programs including residential, commercial, institutional and industrial Disclosed 5.4. Supply in the Russian Federation 50-54, programs 5.7. Georgia 70-73, 75-78 5.8. Armenia
EU8 Research and development activity and expenditure aimed at providing reliable electricity and Disclosed 4.3. Investment and innovation 27-30 promoting sustainable development
EU9 Provisions for decommissioning of nuclear power sites and nuclear waste disposal sites Not The Group structure has no nuclear units, and therefore this indicator is not applicable. applicable
EU10 Planned capacity against projected electricity demand over the long term, broken down by energy Disclosed 4.3. Investment and innovation 24-26 source and regulatory regime
EU11 Average generation efficiency of thermal plants by energy source and by regulatory regime Disclosed 5.2. Group performance results 39
EU12 Transmission and distribution losses as a percentage of total energy Disclosed 5.7. Georgia 71, 76 5.8. Armenia
EU13 Biological diversity (impact on biodiversity, population decrease/loss of indigenous species; Partially 8.5. Environmental Policy 170-171 biodiversity of offset habitats compared to the biodiversity of the affected areas) disclosed The Group does not analyse information on the initial and current status of the habitats on which Group’s companies have or may have an impact.
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EU14 Programs and processes to ensure the availability of a skilled workforce Disclosed 8.2. Human resources management 143-145, 148 The Group has various programmes aimed at attracting and retaining a highly qualified labour force, among which are: Professional Career, Candidate Pool, Young Specialist and Golden Fund social programmes. Programme tools include: ▻▻ professional training and raising of employees qualification at universities; ▻▻ development of employees included in the candidate pool of managerial personnel; ▻▻ creation of individual development plans based on the performance evaluation; ▻▻ young specialists support and training; ▻▻ mentoring for new employees; ▻▻ industrial practice for students.
EU15 Percentage of employees eligible to retire in the next 5 and 10 years broken down by job category Disclosed 8.2. Human resources management 139 and by region
EU16 Policies and requirements regarding health and safety of employees and employees of contractors Disclosed 8.3. Occupational Health and Safety 149-153 and subcontractors The occupational health and safety activities of Group employees are governed by the Regulations on The Occupational health, Industrial, Fire and Environmental Safety Management System. Traditionally, contractors working on the Group’s property and premises are responsible for the actions, training and qualification of their employees. Starting from 2013, compliance with security standards, adopted in the Group, has become a prerequisite for qualification selection of contractors. Before admitting contractor personnel to work at the Group’s facilities, safety induction, occupational health and safety education check, as well as initial and workplace specific inductions are held.
EU17 Days worked by contractor and subcontractor employees involved in construction, operation & Disclosed In 2012, only Inter RAO-Engineering provided data for this indicator. In 2013, the indicator maintenance activities scope was expanded to occupational health and safety data scope (see section 8.3, Occupational Health and Safety), which led to an adjustment in the data for 2012. In 2013, the total number of days worked by contractor employees during performing the core business of the Group decreased by 9% compared to 2012 and totalled 5,960 calendar days. SUPPLEMENTS
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EU18 Percentage of contractor and subcontractor employees that have completed relevant health and Disclosed The Group is not involved in training contract employees in occupational health and safety. safety training In accordance with the Russian law, responsibility for such training lies with the employer. Contractor personnel must have the necessary qualifications and certification on completion of occupational health and safety education since it is a compulsory condition for signing a contract. As a result, all employees of contracting organisations admitted to work at Group’s facilities have the necessary occupational health and safety education.
EU19 Stakeholder participation in the decision-making process related to energy planning and Disclosed 5.3. Generation in the Russian Federation 42-54, infrastructure development 5.4. Supply in the Russian Federation 68-81, 163-164, 5.7. Georgia 244-245 5.8. Armenia 8.5. Environmental Policy Supplement 12.10. Government support.
Inter RAO Group’s companies operate on the wholesale and retail electricity and capacity markets in Russia in full compliance with the requirements of Russian state authorities, the System Operator of the Unified Energy System and other market participants.
EU20 Approach to managing the impacts of displacement Disclosed In the reporting period no incidents of displacement were identified.
EU21 Contingency planning measures, disaster/emergency management plan and training programs, Disclosed 8.6. Asset security 171-172 and recovery/restoration plans Group emergency prevention activities are based on the requirements of current legislation. The Group developed and implemented the JSC Inter RAO Action Plan for natural and technical emergency prevention and response, which is updated annually by 1 March. During the process of Action Plan development, local authorities take an active part by providing the basic data.
EU22 Number of people physically or economically displaced and compensation, broken down by type Disclosed During the reporting period, Group activities did not cause impact related to displacement. of project
EU23 Programs, including those in partnership with government, to improve or maintain access to Disclosed 4.3. Investment and innovation 24-27, electricity and customer support services 5. Operating activity of Inter RAO Group 35-85, 154-162, 8.4. Contribution to the development of the regions of Group’s operation 244-245 Supplement 12.10. Government support.
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EU24 Practices to address language, cultural, low literacy and disability related barriers to accessing and Disclosed 5.4. Supply in the Russian Federation 52-54, safely using electricity and customer support services 8.4. Contribution to the development of the regions of Group’s operation 154-162
EU25 Number of injuries and fatalities to the public involving company assets, including legal Disclosed In 2013, no injuries or illnesses among the population were identified. judgements, settlements and pending legal cases
EU26 Percentage of population unserved in licensed distribution or service areas Partially Due to the Group’s business specifics, there is no consolidated data on the population living disclosed in serviced territory. Power supply companies - guaranteeing suppliers in Russia providing power supply services to all addressed consumers in established service areas.
EU27 Number of residential disconnections for non-payment Disclosed 5.4. Supply in the Russian Federation 53
EU28 Power outage frequency Disclosed 5.7. Georgia 72, 77 5.8. Armenia
EU29 Average power outage duration Disclosed 5.7. Georgia 72, 77 5.8. Armenia
EU30 Average plant availability factor by energy source and by regulatory regime Disclosed 5. Operating activity of Inter RAO Group 35-85 SUPPLEMENTS
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Economic Performance Indicators
Management approach Disclosed 4.1. Strategy of the Company 19-22, 5. Operating activity of Inter RAO Group 35-85
EC1 Direct economic value generated and distributed, including revenues, operating costs, employee Disclosed compensation, donations and other community investments, retained earnings, and payments to capital providers and governments
IN 2013, THE AMOUNT OF INVESTMENTS IN CREATING MATERIAL VALUE FOR STAKEHOLDERS INCREASED BY 12% AND REACHED RUR 726,852,220 THOUSAND.
Indicator 2012 2013 Change
Direct economic value created 558,599,813 664,024,989 +19 % Revenues, including 558,599,813 664,024,989 +19 % net sales 556,188,982 662,321,048 +19 % revenues from financial investments 873,875 1,649,466 +89 % revenues from sales of assets 1,536,956 54,476 –96 % Economic value distributed: 648,557,464 726,852,220 +12 % Operating costs 559,641,183 648,820,050 +16 % Employee wages and benefits 33,676,874 39,082,040 +16 % Payments to providers of capital: 6,209,399 4,519,533 –27 % Dividends to all shareholders 2,413,771 485,906 –80 % Interest payments made to providers of loans 3,795,627 4,033,627 +6 % Payments to government broken down by country of operation: 49,030,008 34,430,598 –30 % Armenia 803,029 766,812 –5 % Georgia 1,484,076 2,243,326 +51 % Kazakhstan 20,547 7,347 –64 % Latvia 64,669 136,105 +110 % Lithuania 4,410,627 4,494,074 +2 % Transdniestria 342,014 359,851 +5 % Russia 41,174,035 24,226,173 –41 % Turkey –788 109,292 – Finland 722,074 2,076,770 +188 % Others 9,726 10,848 +12 % Retained economic value –89,957,651 –62,827,231 –30 %
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EC2 Financial implications and other risks and opportunities for the organization’s activities due Disclosed Risks and opportunities associated with climate change are monitored by the Group as part of to climate change monitoring production safety and environmental impact risks. Accounting for financial aspects of climate change risks as a distinct category is currently not done.
EC3 Coverage of the organization’s defined benefit plan obligations Disclosed 8.2. Human resources management 148
The Group has a Non-Governmental Pension Programme. In 2013, the number of participants of the programme increased by more than 25% compared to the previous year, to approximately 3,700 people. Information on the amount of liabilities see the JSC Inter RAO Notes to the consolidated financial statements for the year ended 31 December 2013.* * http://www.interrao.ru/upload/docs/Eng%20IFRS%20fs%20Inter%20RAO%202013%20master%20file_formatted.pdf
EC4 Significant financial assistance received from government Disclosed Supplement 12.10. Government support 244-245
The Group implements and develops a number of projects involving the measures of government support. Nevertheless, Inter RAO Group is not a direct recipient of federal budget funds, as per Federal Law No. 216-FZ dated December 03, 2012, On the Federal Budget for 2013 and for the Planned Period of 2014 and 2015 and regulations adopted in 2013.
EC5 Range of ratios of standard entry level wage compared to local minimum wage at Disclosed 8.2. Human resources management 143-144 significant locations of operation In the majority of Group’s companies, the standard salary exceeds the minimum wage in the region of operation by 35% or more.
EC6 Policy, practices, and proportion of spending on locally-based suppliers at significant Disclosed 10. Procurement 184-186 locations of operation Due to the nature of activities and the geographical location of Inter RAO Group’s companies, procurement can be conducted from a single supplier in the region of activity of a certain subsidiary and affiliate. In this regard, the Group does not collect data on the share of local suppliers in procurement.
EC7 Procedures for local hiring and proportion of senior management hired from the local Disclosed The Group’s principal employment criterion include the candidate’s qualifications and professional community at significant locations of operation experience. If the qualification requirements of the Group are not met by the candidates in the region of operation, candidates from other regions are employed. In 2013, the share of employees from local communities** in the Group’s total headcount was more than 96%. More than 69% of managers are drawn from local communities. In 2012, that indicators amounted to more than 95% and 69% respectively.***
** The representatives of local communities are employees of Inter RAO Group whose labour agreements do not stipulate provisions on relocation payments. SUPPLEMENTS *** As a result of improvement of the calculation method and changes in the definition of managers from local communities, the data for 2012 was adjusted.
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EC8 Development and impact of infrastructure investments and services provided primarily for Disclosed 8.4. Contribution to the development of the regions of Group’s operation 154-162 public benefit through commercial, in-kind, or pro bono engagement The Group’s companies regularly conduct studies to assess stakeholder perceptions of charitable activities in the regions of operation. The results of this assessment are used to improve the effectiveness of social investments.
EC9 Understanding and describing significant indirect economic impacts, including the extent Disclosed 8.4. Contribution to the development of the regions of Group’s operation 154-162 of impacts The Group's activities, especially those of city-forming enterprises, create favourable opportunities for developing local suppliers and providing jobs in the supply chain, as well as for disseminating skills and knowledge in the professional community.
Environmental Performance Indicators
Management approach Disclosed 8.1. Approach to sustainability 137, 8.5. Environmental Policy 163-171
EN1 Materials used by weight or volume Disclosed The indicator is not material to the Group. The principal raw material used by Group production facilities is fuel (see indicator EN3).
EN2 Percentage of materials used that are recycled input materials Partially disclosed 8.5. Environmental Policy 169-170
The Group employs a strategy to consistently reduce environmental impact, and every year increases the proportion of ash and slag waste reused for construction purposes.
EN3 Direct energy consumption by primary energy source Disclosed
TOTAL FUEL CONSUMPTION IN 2012-2013, THOUSAND GJ*
Type of energy 2012 2013 Change %
Fuel, total 1,520,912 1,477,760 –3 % Fuel oil, including 9,746 7,017 –28 % Heating oil 7,670 5,799 –24 % Gas, including 1,173,018 1,124,540 –4 % Natural gas 1,059,880 998,838 –6 % Associated gas 113,137 123,675 9 % Coal, including 338,149 346,204 2 % Hard coal 231,552 164,184 –29 % Brown coal 106,597 182,019 71 %
216 * Inter RAO Group’s volume of fuel consumption for 2012 was calculated based on annual fuel consumption figures from Bashkir Generation Company, BashRTS and Trakya Group. The data for 2012 and 2013 include figures from Nizhnevartovskaya TPP. 12. SUPPLEMENTS
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EN4 Indirect energy consumption by primary energy source Disclosed The purchased power consumption by Group’s companies is negligible compared to primary energy consumption (gas, oil products, coal) EN5 Energy saved through conservation and efficiency improvements Disclosed 4.3. Investment and innovation 31-32
EN6 Initiatives to provide energy-efficient or renewable energy-based products and services, and Disclosed 4.3. Investment and innovation 31-33 reductions in energy requirements as a result of these initiatives
EN7 Initiatives to reduce indirect energy consumption and reductions achieved Disclosed 4.3. Investment and innovation 31-33 EN8 Total water withdrawal by source Disclosed 8.5. Environmental Policy 167-168 EN9 Water sources significantly affected by withdrawal of water Disclosed The Group's main sources of water intakes are the Volga, Kama and Ural rivers. EN10 Percentage and total volume of water recycled and reused Disclosed 8.5. Environmental Policy 167 EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of Disclosed Group’s companies own or lease recreational land with total area of 0.293 km2, on which Energetik high biodiversity value outside protected areas Health and Leisure Centrer, Kostromskaya TPP, Permskaya TPP, as well as Karmanovskaya TPP and Ufimskaya CHPP-1 owned by Bashkir Generation Company, are situated. These protected areas are located in the Kostroma region, the Perm region, and also in the Krasnokamsk, Gafuriysk, Chishminsk and Meleuzovsk districts of the Republic of Bashkortostan. Umagyzinskaya HPP owned by the Bashkir Generation Company, is located on 0.009 km2 in the Bashkiria national park, which is classified as a protected area of Federal importance. EN12 Description of significant impacts of activities, products, and services on biodiversity in protected Disclosed Group’s production facilities and Health and Leisure centres owned by Group’s companies do not areas and areas of high biodiversity value outside protected areas have significant impact on biodiversity in protected areas and areas of high biodiversity value. EN13 Habitats protected or restored Disclosed To minimise environmental impact, the Group has undertaken obligations to build reserves for land remediation used for ash dumps at its electric power plants. At the end of 2013, reserves for land reclamation totalled RUR 762 mn. Land reclamation work will be carried out after the end of the ash dump’s useful life. In 2013, land reclamation was not carried out. EN14 Strategies, current actions, and future plans for managing impact on biodiversity Disclosed 8.5. Environmental Policy 170-171 In accordance with the JSC Inter RAO Environmental Management System Guidelines, the Group identifies the key aspects of environmental impact, among which is the Group’s impact on biodiversity during the water consumption of surface water bodies made by TPPs and HPPs. The list of aspects revision and assessment with respect to their significance are carried out on an annual basis by JSC Inter RAO’s Production Unit. During the analysis of the technical audits of production activity results, changes in the legal requirements and stakeholder engagement this aspect was identified as significant for the Group's operations. To manage these aspects, the Group regularly monitors environmental indicators, based on a result of which corrective actions are taken, including minimising impact on biodiversity. SUPPLEMENTS
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EN15 Number of IUCN Red List species and national conservation list species with habitats in areas Disclosed Some reservoirs on which Group’s facilities are located are the habitat for the sterlet, which is affected by operations, by level of extinction risk included in the Red Data Book of the Russian Federation as a common species, some populations of which are endangered, and the IUCN Red List (according to this classification the species is vulnerable). Every year the Group’s companies restore and replenish fish reserves in water bodies. In 2013, the stock fish activities were carried out by Permskaya TPP, Yuzhnouralskaya TPP and Kharanorskaya TPP. Under the control of the Srednevolzhskoye Volga Territorial Fishery Directorate Permskaya TPP annually stocks the Kama reservoir with young sterlet. In 2013, 400 thousand young fish were released, which is nearly double the volume of fish released in 2012. EN16 Total direct and indirect greenhouse gas emissions by weight Disclosed 8.5. Environmental Policy 165
Indirect greenhouse gas emissions from the production of electricity, heat or steam, purchased by the Group are insignificant, since the share of the purchased electric power is negligible compared with own production. EN17 Other relevant indirect greenhouse gas emissions by weight Not This indicator is not material to the Group as indirect greenhouse gas emissions related to business disclosed assignment of employees are insignificant. EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved Disclosed 4.3. Investment and innovation 31-32, 8.5. Environmental Policy 165-166 EN19 Emissions of ozone-depleting substances by weight Not This indicator is not significant, since no Group’s companies use equipment contributing to the disclosed creation of ozone-depleting substances.
EN20 NOx, SOx, and other significant air emissions by type and weight Disclosed 8.5. Environmental Policy 166-167
TOTAL AIR POLLUTANT EMISSIONS BREAKDOWN IN 2011-2012, TONNES
Indicator 2011 2012 Change
Total air pollutant emissions, including 546,579 537,734 –2 % gaseous and liquid effluent 373,201 383,075 3 % carbon monoxide (CO) 18,440 13,053 –29 %
nitrogen dioxide (expressed as NO2) 170,838 169,624 –1 %
sulphur dioxide (SOx) 183,549 195,569 7 % other pollutants 374 4,829 1 191 % particulate matter 173,378 154,659 –11 % persistent organic pollutants (benzo(a)pyrene) 0.062 0.037 –41 % other pollutants 173,378 154,659 –11 %
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EN21 Total water discharge by quality and destination Disclosed 8.5. Environmental Policy 168 EN22 Total weight of waste by type and disposal method Disclosed 8.5. Environmental Policy 169-170 EN23 Total number and volume of significant spills Disclosed In 2013, no significant spills were recorded. EN24 Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of Disclosed Waste deemed hazardous under the terms of the Basel Convention Annex I, II, III was not the Basel Convention Annex I, II, III, and percentage of transported waste shipped internationally transported, imported, exported and processed. EN25 Identity, size, protected status, and biodiversity value of water bodies and related habitats Disclosed The Group has no water discharge or surface run-off into the protected water bodies. significantly affected by the reporting organization’s discharges of water and runoff EN26 Initiatives to mitigate environmental impacts of products and services, and extent of impact Disclosed The basic products of the Group’s activities, electricity and capacity, have an insignificant mitigation environmental impact compared to other forms of energy. Therefore, the Group does not conduct specific activities to mitigate the environmental impact of products and services. EN27 Percentage of products sold and their packaging materials that are reclaimed by category Not applicable EN28 Monetary value of significant fines and total number of non-monetary sanctions for non- Disclosed In 2013, no significant fines or non-monetary sanctions for non-compliance with environmental compliance with environmental laws and regulations laws and regulations were imposed on the Group. EN29 Significant environmental impacts of transporting products and other goods and materials used for Disclosed This indicator is not material to the Group, as the Group contracts the third party services for freight the organization’s operations, and transporting members of the workforce and passenger transportation. EN30 Total environmental protection expenditures and investments by type Disclosed 8.5. Environmental Policy 164
Labour Practices and Decent Work Performance Indicators Management approach Disclosed 8.1. Approach to sustainability 137, 8.2. Human resources management 140-141 LA1 Total workforce by employment type, employment contract, and region Disclosed 8.2. Human resources management 138-139
In 2012-2013, almost all Group's employees (98%) are full-time employees. The predominant type of employment contract in the Group is an indefinite contract. The percentage of employees working under indefinite contracts increased by 2 p.p. over 2012 to 96.2%. LA2 Total number and rate of employee turnover by age group, gender, and region Disclosed 8.2. Human resources management 138-139
The Group carefully monitors employee turnover and analyses the factors that influence the turnover. In 2013, the average employee turnover rate was 12.5%. The percentage of male employees among all employees who left the Group in 2013 increased by 1 p.p. to 63.5%. The average duration of holding a position for employees who left the Group in 2012-2013 was 4 years. SUPPLEMENTS
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LA3 Benefits provided to full-time employees that are not provided to temporary or part time employees, Disclosed 8.2. Human resources management 148 by major operations The Group implements 12 social programmes, stipulated in the collective agreements signed by the Group employees. LA4 Percentage of employees covered by collective bargaining agreements Disclosed 8.2. Human resources management 148 LA5 Minimum notice period(s) regarding operational changes, including whether it is specified in Disclosed Minimum notice period(s) regarding operational changes correspond to labour legislation of the collective agreements countries of operation. LA6 Percentage of total workforce represented in formal joint management-worker health and safety Disclosed 8.3. Occupational Health and Safety 149-153 committees that help monitor and advise on occupational health and safety programs The Occupational Health and Safety Committees represent the interests of all Group personnel. All in all, there are about 480 employees involved in operations of such committees. At each enterprise, the percentage of such employees is less than 25%. LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related Disclosed 8.3. Occupational Health and Safety 152 fatalities by region When assessing the performance results in the field of labour protection, the Group primarily relies on absolute values. Analysis of occupational injury rate dynamics is based on the occupational injury frequency ratio, which is calculated by the following method: number of occupational injuries divided by the total number of employees. LA8 Education, training, counselling, prevention, and risk-control programs in place to assist workforce Disclosed 8.3. Occupational Health and Safety 149-153 members, their families, or community members regarding serious diseases In the framework of the Employee safety and Worker health and activity social programmes, measures are taken to reduce the employee incidence rate. LA9 Health and safety topics covered in formal agreements with trade unions Disclosed All health and safety issues are covered by the Employee safety and Worker health and activity social programmes. These programmes are set out in the collective agreements. LA10 Average hours of training per year per employee by employee category Disclosed 8.2. Human resources management 145 LA11 Programs for skills management and lifelong learning that support the continued employability of Disclosed 8.2. Human resources management 145, 148 employees and assist them in managing career endings Professional Career and Golden Fund social programmes are aimed at maintaining professional skills and transfering expertise of honoured employees of the industry to young specialists.
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LA12 Percentage of employees receiving regular performance and career development reviews Disclosed 8.2. Human resources management 141-145
In 2013, 100% of JSC Inter RAO managers completed 360 degree performance assessments. In 2014, manager assessments will be conducted in all Group’s companies. The Group pays special attention to creation, assessment and development of the candidate pool. More than 2,300 people were members of the candidate pool of the Group’s companies in 2013, and more than 50% of them were included in the candidate pool for promotion to management positions. Under the work with the candidate pool, Group’s companies carry out career planning and monitoring of the candidates, assess their effectiveness, and create development plans. Due to specific measurement features, calculating the percentage of candidates for candidate pool, who undergo periodic performance assessment is impossible. LA13 Composition of governance bodies and breakdown of employees per category according to gender, Disclosed 8.2. Human resources management 138-139 age group, minority group membership, and other indicators of diversity Due to the industry specific characteristics of the Group’s operations, the majority of employees are men (64.1%). On average, the percentage of men among Group managers is 78.8%. While the percentage of men in total Group employees increased by 0.2 p.p. in 2013, the percentage of men in management positions increased by 2 p.p.
THE AVERAGE AGE OF EMPLOYEES IN THE MANAGING DIRECTOR AND TOP MANAGER CATEGORYWAS 42 YEARS IN 2013.
The percentage of employees in the Managing Director and Top Manager category disaggregated by age (%) 2012 2013 Change
up to and including 30 10.2 10.3 +0.1 p.p. 31-40 35.0 30.5 –4.5 p.p. 41-50 27.0 31.2 +4.2 p.p. 51-55 14.7 15.1 +0.4 p.p. over 55 13.0 12.8 –0.2 p.p. SUPPLEMENTS
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LA14 Ratio of basic salary of men to women by employee category Disclosed The Group does not follow a gender approach in establishing salary size. For all Group employee categories there is no difference between basic salaries for men and women.
Human Rights Performance Indicators Management approach Disclosed 8.1. Approach to sustainability 137, 8.2. Human resources management 140-153, 183-187 8.6. Asset security 10. Procurement
When building its operations, the Group adheres to the requirements of the countries of operation legislation, which prohibits the use of child, forced or compulsory labour. A responsible attitude to employees, consumers and representatives of the population is an essential part of the Group’s operations, which eliminates the risk of human rights violations in Group’s companies. HR1 Percentage and total number of significant investment agreements that include human rights Disclosed The current approach to signing the investment agreements does not specify the official inclusion of clauses or that have undergone human rights screening clauses related to human rights screening. Nevertheless, the Group closely monitors the performance of investment agreements parties regarding all rights and responsibilities. Standard examination of contracts signed includes the verification of contractor compliance with legislative requirements as well as an assessment of their business reputation. HR2 Percentage of significant suppliers and contractors that have undergone screening on human Disclosed 100% of significant suppliers and contractors undergo human rights screening according to the rights and actions taken current regulation. HR3 Total hours of employee training on policies and procedures concerning aspects of human rights Disclosed The Group familiarises employees with the policies and procedures related to human rights, during that are relevant to operations, including the percentage of employees trained the hiring and orientation periods. Measurement of the duration of training periods in hours is not conducted. HR4 Total number of incidents of discrimination and actions taken Disclosed No incidents of discrimination registered in the reporting period. HR5 Operations identified in which the right to exercise freedom of association and collective Disclosed The Group is not involved in any operations in which the right to exercise freedom of association and bargaining may be at significant risk, and actions taken to support these rights collective bargaining may be at significant risk. HR6 Operations identified as having significant risk for incidents of child labour, and measures taken to Disclosed The Group is not involved in any operations that could have significant risk for incidents of child contribute to the elimination of child labour labour. HR7 Operations identified as having significant risk for incidents of forced or compulsory labour, and Disclosed The Group is not involved in any operations that may have significant risk for incidents of forced or measures to contribute to the elimination of forced or compulsory labour compulsory labour. HR8 Percentage of security personnel trained in the organization’s policies or procedures concerning Disclosed All security personnel from Group’s companies received trainining in the Group’s policies and aspects of human rights that are relevant to operations procedures concerning human rights. HR9 Total number of incidents of violations involving rights of indigenous people and actions taken Disclosed No incidents of violations involving the rights of indigenous people were identified in 2013.
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Society Performance Indicators Management approach Disclosed 8.1. Approach to sustainability 137, 8.4. Contribution to the development of the regions of the Group’s operation 154-162, 183-187 10. Procurement
The Group adheres to the principles of responsible business and carries out its activities in strict accordance with the legislation of the countries of operation. The Group is aware of its role in social development, and therefore actively implements and participates in various social projects in the regions of operation. SO1 Nature, scope, and effectiveness of any programs and practices that assess and manage the Disclosed 8.1. Approach to sustainability 137, impacts of operations on communities, including entering, operating, and exiting 8.4. Contribution to the development of the regions of Group’s operation 154-171 8.5. Environmental Policy
As a major taxpayer and responsible employer in the regions of operation, the Group has a significant positive impact on the population. The Group actively engages with stakeholders on issues related to the management of impact, including solving socially significant problems, and building and modernising facilities. SO2 Percentage and total number of business units analyzed for risks related to corruption Disclosed All (100%) Group’s subsidiaries and affiliates in which JSC Inter RAO owns more than a 50% were reviewed for risks related to corruption. SO3 Percentage of employees trained in organization’s anti-corruption policies and procedures Disclosed All permanent Group employees receive internal training on anti-corruption policies and procedures. New employees are required to become acquainted with the principles of the JSC Inter RAO Fraud and Corruption Prevention Policy In 2013, two employees from Inter RAO Procurement Management Centre’s Economic Security Management - received special training at the ANO DPO Institute of Cost Engineering devoted to anti-corruption practices in procurement. SO4 Actions taken in response to incidents of corruption Disclosed In 2013, no incidents of corruption were recorded. The Group continues to operate a hot line. The links to hot line resource is available on the JSC Inter RAO and subsidiaries and affiliates’ websites. The requests are collected by the Internal Audit, Controlling and Risk Management Unit of JSC Inter RAO, which promptly responds to all requests. If needed, the Group’s Economic Security Service is involved to settle specific requests. By the end of 2013, the number of requests increased by 38%, from 251 to 346. In cases when the information on violations is confirmed, prompt measures are agreed and measures on eliminating violations are taken. Information on violations or abuses revealed is brought to the management bodies of Group’s companies. Employees who have committed violations are subject to disciplinary responsibility or liability stated by the internal Grooup’s regulations.
SO5 Public policy positions and participation in public policy development and lobbying Disclosed 4.1. Strategy of the Company 20, SUPPLEMENTS Supplement 12.10 Government support. 244-245
223 JSC Inter RAO / ANNUAL REPORT / 2013
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
SO6 Total value of financial and in-kind contributions to political parties, politicians, and related Disclosed During the reporting period, the Group did not make any financial or in-kind contributions to political institutions by country parties, politicians, or related institutions. SO7 Total number of legal actions for anticompetitive behavior, anti-trust, and monopoly practices and Disclosed In 2013, regional branches of the Federal Anti-monopoly service (FAS) registered 38 anti-monopoly their outcomes legislation violations by Group’s companies (in 2012 - 11 cases). As part of efforts to prevent monopolistic practices, the Group regularly monitors anti-monopoly legislation, reviews internal regulations, prepares legal opinions concerning anti-monopoly risk and provides recommendations for their elimination. Analysis of acts and instructions from the antimonopoly authorities received by Group’s companies, which are disputed in cases of non-compliance with the law, is carried out.
THE TOTAL NUMBER OF ANTI-COMPETITIVE LEGAL ACTIONS AGAINST THE GROUP
Name of subsidiary or affiliate Number of cases Decisions
St. Petersburg Power Supply Company 5 1 fine. 2 cases of administrative liability. 2 complaints (rejected). Inter RAO – Procurement Management Centre 11 5 improvement notices (violations eliminated). 6 complaints (were found to be unsubstantiated and withdrawn). TGK-11 5 2 decisions (under appeal). 3 fines (violations eliminated). Inter RAO – Electric Power Plants 3 2 improvement notices (violations eliminated). 1 case (under appeal). Mosenergosbyt 1 The case was appealed. Electric Networks of Armenia 1 Administrative proceedings are suspended. Bashkir Generation Company 2 2 improvement notices (violations eliminated). Inter RAO – Oryol Energy Sales Company 10 Improvement notices and fines were not received.
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
SO8 Monetary value of significant fines and total number of non-monetary sanctions for non- Disclosed During the reporting period, no significant fines for failure to comply with laws and regulatory requirements compliance with laws and regulations were imposed on the Group.
224 12. SUPPLEMENTS
GRI CONTENT INDEX
Disclosure (indicator) Disclosure Report Section Report status page
Product Responsibility Performance Indicators Management approach Disclosed 5. Operating activity of Inter RAO Group 35-85, 8.1. Approach to sustainability 137, 163-171 8.5. Environmental Policy
Labelling and marketing communications requirements for electricity and capacity are not regulated. The Group pays special attention to the safety, reliability and quality of power supply. PR1 Life cycle stages in which health and safety impacts of products and services are assessed Disclosed 8.3. Occupational Health and Safety 149-153, for improvement, and percentage of significant products and services categories subject to 8.6. Asset security 171-173 such procedures
The main impact on the health and safety of employees and the population occurs at the electricity production stage. To minimise potential damage to health, the Group ensures a high level of occupational health and safety. PR2 Total number of incidents of non-compliance with regulations and voluntary codes Disclosed No incidents of non-compliance with regulations and voluntary codes concerning health and safety impact of concerning health and safety impacts of products and services, by type of outcomes products and services were registered during the reporting period.
PR3 Type of product and service information required by procedures, and percentage of significant Not With respect to the products produced by the Group the requirements to disclose information on products products and services subject to such information requirements applicable and services properties are not available. PR4 Total number of incidents of non-compliance with regulations and voluntary codes Not With respect to the products produced by the Group the requirements to disclosure of information on concerning product and service information and labeling, by type of outcomes applicable products and services properties are not available.
PR5 Practices related to customer satisfaction, including results of surveys measuring customer Disclosed 5.4. Supply in the Russian Federation 52 satisfaction The Group’s energy supply companies actively work to increase customer satisfaction, due to which they improve the communication channels and analyse requests received. During the reporting period, Mosenergosbyt conducted an assessment of specific indicators of customer satisfaction. At the level of the Supply in the Russian Federation a customer satisfaction survey was not carried out. PR6 Programs for adherence to laws, standards, and voluntary codes related to marketing Disclosed In 2013, the Group became one of the sponsors of the Investment Forum Sochi-2013, the St. Petersburg communications, including advertising, promotion, and sponsorship International Economic Forum and the ENES 2013 International Forum and Exhibition. No violations of the domestic and international laws that regulate advertising and marketing communications were identified.
PR7 Total number of incidents of non-compliance with regulations and voluntary codes Disclosed In 2013, no incidents of non-compliance with regulations and voluntary codes concerning marketing concerning marketing communications, including advertising, promotion, and sponsorship, communications, including advertising, promotion, and sponsorship, were identified. by type of outcomes
PR8 Total number of substantiated complaints regarding breaches of customer privacy and Disclosed During the reporting period, no substantiated complaints regarding breaches of customer privacy or losses of SUPPLEMENTS losses of customer data customer data were registered. PR9 Monetary value of significant fines for non-compliance with laws and regulations concerning Disclosed In the reporting period, significant fines were not revealed. the provision and use of products and services
225 JSC Inter RAO / ANNUAL REPORT / 2013
12.5. INFORMATION ON COMPLIANCE WITH 12.6. MAJOR TRANSACTIONS AND RELATED CORPORATE GOVERNANCE CODE PARTY TRANSACTIONS
In 2013, the Company had no major transactions.
Information on compliance with Corporate Governance Code is Information on related party transactions conducted by the Company available on JSC Inter RAO official website: in 2013 is available on JSC Inter RAO official website: http://www.interrao.ru/investors/disclosure/corporate_behavior/ http://www.interrao.ru/investors/disclosure/major_deals/
12.7. PARTICIPATION IN OTHER COMPANIES
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Business entities in which JSC Inter RAO has a participation interest from 2-20% in the authorised capital 1. Open Joint Stock Company 14.87% 14.87% 161,412 399,515 188,110.33 4,454.24 Electric & thermal power production and No changes. Sangtudinskaya HPP-1 thousand RUR thousand RUR thousand thousand supply (sale) somoni somoni
2. AKKUYU NGS ELEKTRİK 1.7525% 3.4719% 1,025,707 1,025,707 - 308,382.5 Design, construction, ownership, On December 26, 2013, ÜRETİM ANONİM ŞİRKETİ thousand RUR thousand RUR thousand operation, maintenance and the authorised capital was Turkish lira decommissioning of nuclear power increased. plants.
Affiliated companies in which JSC Inter RAO has a participation interest of 20-50% in the authorised capital
3. Irkutsk Power Industry and Elec- 40% 40% 14,651,904 32,263,558 1,010,739 62,444,027 9,681,290 Power production No changes. trification Joint Stock Company thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR
4. Open Joint Stock Company 24.99% 24.99% 104,960 104,960 0 8,956,837 15,731 Electric power purchase and sales No changes. Tomsk Energy Supply Company thousand RUR thousand RUR thousand RUR thousand RUR
226 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
5. Limited Liability Company Ener- 50% 50% 2,631 4,229 0 0 -1,150,723,836 Implementation of cross border projects No changes. gokonnekt thousand RUR thousand RUR Bel. RUR on designing and installation of direct- current links. 6. Open Joint Stock Company 35.17% 35.17% 600,000 600,000 3,060 35,670 14,304 Production of semiconductor No changes. Inter RAO Light-emitting-diode thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR devices, including photosensitive and System optoelectronic devices 7. Limited Liability Company RT- 50% 50% 9,805 9,805 20,044 5,814,726 116,637 Wholesale electric and heat energy No changes. Energotrade thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR trading (excluding transmission and distribution). Wholesale trading through agents (on a fee or contract basis). Agents involved in the sale of electricity and heat energy (excluding generation, transmission and distribution).
8. Limited Liability Company 50% 50% 258,250 45,000 20,573 7,220,095 17,405 Energy efficiency and energy Increase in authorised capital. Inter RAO UES Power Efficiency thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR conservation services Centre
9. Limited Liability Company 50% 50% 1,105 1,105 0 0 -3,175 Work/services in energy saving and No changes. InterENERGOEFFECT thousand RUR thousand RUR thousand RUR energy efficiency
10. Joint Stock Company Ekibastuz 50% 50% 603,311 603,311 0 43,379,379 18,031,950 Production, transfer and distribution of No changes. SDPP-2 thousand RUR thousand RUR thousand RUR thousand RUR electric and thermal energy.
11. Closed Joint Stock Company 50% 50% - - 0 0 0 Electricity supply to Russian defence No changes. Industrial Energy Company industry companies and other consumers
Affiliated companies in which JSC Inter RAO has a participating interest in the authorised capital ranging from 50% + 1 share to 100 % 12. Closed Joint Stock Company 100% 100% 13,769,840 23,255,815 0 16,957,747 -24,156,837 Participation in investment projects Authorised capital was Inter RAO Capital thousand RUR thousand RUR thousand RUR thousand RUR to acquire assets abroad and in the increased. Russian Federation, including shares (interest) of foreign and Russian companies in the field of electric power, management rights, etc. 13. RAO Nordic Oy 100% 100% 43,410 43,410 0 221,703.26 -12,707.82 Electricity trade No changes. SUPPLEMENTS thousand RUR thousand RUR thousand EUR thousand EUR 14. Inter RAO Holding B.V. 100% 100% 4,331,689 4,331,689 0 0 6,076.3 Holding No changes. thousand RUR thousand RUR thousand EUR
227 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
15. Limited Liability Company Inter 100% 100% 47,443 47,443 27,333 437,923 -662,405 Leasing of SPTS property complex No changes. RAO Central Asia thousand RUR thousand RUR thousand RUR thousand tenge thousand tenge of Severny Razrez, Trudovaya and Udarnaya railway stations. Acquisition aimed at selling electric energy. Development of investment projects aimed at asset acquisition in the Republic of Kazakhstan and abroad in the field of energy. 16. Open Joint Stock Company 100% 100% 2,190,290 2,190,290 37,951 6,671,256 380,199 Wholesale power trading No changes. Eastern Energy Company thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR
17. Open Joint Stock Company Test- 82.84% 82.84% 222,447 103,707 0 5,538 -10,204 Holding presentation and acceptance No changes. ing Stand of Ivanovskaya TPP thousand RUR thousand RUR thousand RUR thousand RUR testing of serial gas turbine engines GTE-110 and their modifications, the test operation of the GTE-110. Production and sale of electric energy (capacity).
18. Closed Joint Stock Company 50% 50% 28,864 28,864 0 0 -3,916 Electric & thermal power production and No changes. Kambaratinskaya HPP-1 thousand RUR thousand RUR thousand supply (sale) somoni 19. Open Joint Stock Company 100% 99.82% 2,065,573 2,065,573 0 797,298 31,144 Rental of own non-residential real The authorised capital ELECTROLUCH thousand RUR thousand RUR thousand RUR thousand RUR property was reduced by 34 shares (equivalent to 204 roubles) due to the repayment of treasury shares in the amount of 34 pieces. 20. Closed Joint Stock Company 80.9% 80.9% 457,751 4,964,103 0 145,269 -15,084 Production and supply (sale) of electric No changes. Moldova TPP thousand RUR thousand RUR thousand USD thousand USD energy
21. Inter RAO Middle East B.V. 100% 100% 21,746 245,362 0 0 -1,344.99 Estimated No changes. thousand RUR thousand RUR thousand USD 22. Limited Liability Company 51% 51% 19,384 19,384 0 183,055 2,586 Activities in the field of architecture, No changes. InterRAO-Worly Parsons thousand RUR thousand RUR thousand RUR thousand RUR industrial design engineering and construction. Construction of buildings and structures. Installation of engineering equipment in buildings and constructions. 23. RAO Intertech B.V. 100% 100% 876,700 371,370 0 - - 46.44 Estimated No changes. thousand RUR thousand RUR thousand EUR
228 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
24. Limited Liability Company Inter 100% 100% 500 500 160,564 1,683,248 100,505 Management of financial industrial No changes. RAO – Management of Electric thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR groups and holding companies. Power Plants 25. Joint Stock Company Inter 100% 100% 183,775,712 183,775,712 0 137,581,625 6,004,458 Electric & thermal power production No changes. RAO – Electric Power Plants thousand RUR thousand RUR thousand RUR thousand RUR
26. Inter RAO Finance B.V. 100% 100% 82,748 82,748 0 0 - 59,095 Establishment, participation in one No changes. thousand RUR thousand RUR EUR way or another, management, control, use and promotion of enterprises, organisations and companies. Financing of enterprises and companies. Provision of consulting and other services to companies with which the company forms the Group, as well as to third parties. 27. Open Joint Stock Company 100% 100% 330,000 330,000 0 10,981,000 25,175 Purchase of electric power on the No changes. Altayenergosbyt thousand RUR thousand RUR thousand RUR thousand RUR electricity (capacity) wholesale and retail markets. Realisation (sale) of electricity on the electricity (capacity) wholesale and retail markets to consumers (including individuals), etc
28. Open Joint Stock Company 56.2254% 56.97% 169,606 220,357 0 15,367,761 1,007 Purchase of electric power on the No changes. Saratovenergo thousand RUR thousand RUR thousand RUR thousand RUR electricity (capacity) wholesale and retail markets. Realisation (sale) of electric power on the electricity (capacity) wholesale and retail markets to consumers (including individuals), etc 29. Open Joint Stock Company Tam- 59.38% 59.38% 55,800 246,129 0 4,469,956 48 Power distribution No changes. bov Power Supply Company thousand RUR thousand RUR thousand RUR thousand RUR
30. Open Joint Stock Company Mos- 50.92% 50.92% 4,309,521 6,363,592 254,594 241,336,588 839,153 Purchase of electric power on the No changes. energosbyt thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR electricity (capacity) wholesale and retail markets. Realisation (sale) of electric power on the electricity (capacity) wholesale and retail markets to consumers (including individuals), etc SUPPLEMENTS 31. Open Joint Stock Company 98.53% 98.53% 7,907,858 7,907,858 0 24,960,220 258,875 Electric & thermal power production No changes. Territorial Generating Company thousand RUR thousand RUR thousand RUR thousand RUR No. 11
229 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
32. Open Joint Stock Company 100% 100% 3,994,174 12,623,062 0 59,393,941 228,058 Purchase of electricity and thermal Participation interest in the St. Petersburg Power Supply thousand RUR thousand RUR thousand RUR thousand RUR energy on the electricity and thermal Company increased to 100% Company energy (capacity) wholesale and retail (contract of 26 Dec 2012, no markets. number). Realisation (sale) of electric power on the electricity and thermal energy (capacity) wholesale and retail markets to consumers (including individuals), etc
33. Open Joint Stock Company 100% 100% 624,579 624,579 0 22,013,106 1,404,898 Electric power production No changes. Hrazdan Power Company thousand RUR thousand RUR thousand Dram thousand Dram
34. Limited Liability Company Inter 100% 100% 300,000 300,000 12,001 240,793 17,868 Wholesale trading in machinery and No changes. RAO - Export thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR equipment is the principal economic activity.
35. Limited Liability Company RN- 100% 100% 4,995,804 4,995,804 1,754,642.5 46,509,994 1,338,533 Wholesale electric and heat energy No changes. Energo thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR trading (excluding transmission and distribution). Installation of engineering equipment in buildings and constructions. Electrical installation work.
36. Limited Liability Company Inter 100% 100% 60,000 60,000 16,571 2,592,420 36 Purchase of electric power on the No changes. RAO - Orlovsky Energosbyt thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR electricity (capacity) wholesale and retail markets. Realisation (sale) of electric power on the electricity (capacity) wholesale and retail markets to consumers (including individuals), etc;
37. Limited Liability Company Inter 100% 100% 775 775 181,974.6 1,683,018 29,413 Structural works in construction of No changes. RAO - Engineering thousand RUR thousand RUR thousand RUR thousand RUR thousand RUR thermal and other power plants; Structural works in construction of buildings; Installation of other engineering equipment.
230 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
38. Limited Liability Company Inter 100% 100% 10,000 10,000 0 0 13,032 Securities trading and investments; No changes. RAO Finance thousand RUR thousand RUR thousand RUR property investments. Other financial intermediation; consulting on financial mediation, consultation, commercial activity and management
39. Limited Liability Company Ugolny 100% 100% - - 0 1,827,188 77,052 Brown coal open cast mining No changes. Razrez thousand RUR thousand RUR
40. Limited Liability Company 100% 100% 21,038,482 17,157,773 0 38,427,639 1,749,744 Electric & thermal power production No changes. Bashkir Generation Company thousand RUR thousand RUR thousand RUR thousand RUR
41. Limited Liability Company Inter 100% 100% 122,038 122,038 0 462,721 6,816 Organisation and provision of No changes. RAO - Procurement Manage- thousand RUR thousand RUR thousand RUR thousand RUR centralised material support for Group ment Centre companies Organisations included in the holding structure 42. Limited Liability Company CCGT 0% 43.69% - 2,193,231 0 0 - 152,181 Execution of customer-developer On April 29, 2013, a 0.0001% TPP-5 thousand RUR thousand RUR functions in construction of buildings share in the authorised capital and structures of BashRTS. On October 28, 2013, participation in BashRTS ceased. A 0.0001% share in the authorised capital was sold to Bashenergotrans. The Company is sold: 99.9999 % - LLC BGK, a 0.0001% share is owned by the Company 43. Limited Liability Company 0% 92.84% - 1,687,485 0 6,341,503 - 61,578 Electric & thermal power production The share owned by JSC Bashkir Distribution Heat thousand RUR thousand RUR thousand RUR Inter RAO was alienated on Networks June 11, 2013: 0.0001% - LLC CCGT TPP-5, 99.9999% - LLC BGK. A 0.0001% share was alienated on October 31, 2013: 0.0001% - LLC Bashenergotrans, 99.9999% - LLC BGK SUPPLEMENTS
231 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
44. Limited Liability Company Mos- 0 0 0 0 0 100,684 1,553 Providing services connected with the No changes. energosbyt - Sergiev Posad thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc. 45. Silk Road Holdings B.V. 0 0 0 0 0 - 71.56 Holding No changes. thousand USD 46. Limited Liability Company Mos- 0 0 0 0 0 37,873 1,588 Providing services connected with the No changes. energosbyt - Zhukovsky thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
47. Limited Liability Company Inter 0 0 0 0 0 561,213 2,046 Development and implementation of Change of location address RAO Information Technologies thousand RUR thousand RUR software and consulting in this area (from July 04, 2013 the address is: 119435, Russian Federation, Moscow, 27 B. Pirogovskaya Street, Bldg. 3). Authorised capital increased to 340, 010, 000 RUR Authorised capital increased to 1,056, 989,607.66 RUR
48. Inter RAO Management B.V. 0 0 0 0 0 71.83 -252.56 Management No changes. thousand USD thousand USD
49. Gardabani Holdings B.V. 0 0 0 0 0 - 59,483.13 Holding No changes. thousand USD
50. Closed Joint-stock Company 0 0 0 0 0 132,100,783 - 9,886,904 Power distribution No changes. Electric Networks of Armenia thousand AMD thousand AMD
51. Limited Liability Company 0 0 0 0 0 81,734 -6,612 Electric & thermal power production No changes. Mtkvari Energy thousand lari thousand lari
52. Joint Stock Company Telasi 0 0 0 0 0 250,570 -33,559 Electric & thermal power production and No changes. thousand lari thousand lari supply (sale) 53. Joint Stock Company 0 0 0 0 0 4,216 -2,347 Electric power production No changes. Khramhesi I thousand lari thousand lari
54. Joint Stock Company 0 0 0 0 0 10,340 -1,594 Electric power production No changes. Khramhesi II thousand lari thousand lari
232 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
55. AB Inter RAO Lietuva 0 0 0 0 0 710,514 4,071 Any lawful economic activity, including, No changes. thousand litas thousand litas (but not limited to) production, transmission, distribution and sale of electric energy, investing in the energy sector and implementation of other investment projects
56. Inter RAO Trust B.V. 0 0 0 0 0 - -47.42 Holding No changes. thousand EUR 57. Asia Energy B.V. 0 0 0 0 0 - -221.77 Holding No changes. thousand USD
58. Silverteria Holdings Limited 0 0 0 0 0 300 158.48 Estimated No changes. thousand USD thousand USD 59. Limited Liability Company Inter 0 0 0 0 0 49,166 10,126 Exercise of customs agent and customs No changes. RAO Service thousand RUR thousand RUR representative functions
60. Closed Joint Stock Company 0 0 0 0 0 4,165,575 -2,482,213 Activities not prohibited by law No changes. Turbine - YUTEM thousand PMR thousand PMR 61. Orange Wings Ltd 0 0 0 0 0 - -13.23 Estimated No changes. thousand USD 62. Limited Liability Company 0 0 0 0 0 37,880 -599 Construction of power facilities, civil No changes. INTERSTROI thousand thousand engineering facilities. somoni somoni Installation, adjustment and repair of power facilities, electric power equipment. 63. Limited Liability Company Inter 0 0 0 0 0 656,275 -184,826 Brokerage activities. No changes. RAO Invest thousand RUR thousand RUR Dealer activity on the securities market. Securities management activities Depository activities. Investments in securities; - other financial intermediation
64. SIA Inter RAO Latvia 0 0 0 0 0 6,716 -1,043 Electricity trade No changes. thousand lats thousand lats 65. Inter RAO Eesti OU 0 0 0 0 0 613 -160 Electricity trade No changes. thousand EUR thousand EUR SUPPLEMENTS
233 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
66. NVGRES Holding Limited 0 0 0 0 0 897,941 922,638 The provision of loans to related parties, No changes. thousand RUR thousand RUR including any activity that generates interest income
67. Open Joint Stock Company Lu- 0 0 0 0 0 102,283 363 Sanatorium and health resort activities No changes. komoriye Sanatorium-Dispensary thousand RUR thousand RUR
68. Open Joint Stock Company 0 0 0 0 0 121,589 205 Passenger transportation; cargo No changes. Technological Transport Man- thousand RUR thousand RUR transportation; organising special agement transport and handling equipment; vehicle repair and maintenance services
69. Closed Joint Stock Company 0 0 0 0 0 13,135,831 1,454,645 Electric & thermal power production No changes. Nizhnevartovskaya TPP thousand RUR thousand RUR
70. QUARTZ Group Limited Liability 0 0 0 0 0 4,334,132 16,014 Activities to ensure power plant 1) On February 18, 2013 CJSC Company thousand RUR thousand RUR operation Inter RAO Capital acquired 50.1 % in the authorised capital of LLC Inter RAO Invest 2) On August 14, 2013 CJSC Inter RAO Capital acquired 49.8 % in the authorised capital of LLC LINDITA HOLDINGS LIMITED 3) On August 14, 2013 LLC Inter RAO Invest acquired 0.1 % in the authorised capital of LLC LINDITA HOLDINGS LIMITED 71. Open Joint Stock Company 0 0 0 0 0 0 0 General construction work for laying No changes. Stavenergoremont local pipelines, communication lines and power transmission lines 72. Open Joint Stock Company 0 0 0 0 0 0 0 Motor cargo transport activities No changes. Transavto 73. Open Joint Stock Company 0 0 0 0 0 0 0 Structural work for building thermal and No changes. Stroitelno-Montazhnoye Up- other power plants ravleniye 74. Closed Joint Stock Company 0 0 0 0 0 7,526 -13,716 Structural work for building thermal and Alienation on January 15, Tyumenenergonaladka thousand RUR thousand RUR other power plants 2013 100% shares of LLC Quartz – New Technologies
234 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
75. Limited Liability Company 0 0 0 0 0 12,492,947 59,549 Investment activity and investment No changes. Quartz – New Technologies thousand RUR thousand RUR projects: - construction, reconstruction, modernisation and introduction of new technologies at fuel and energy, oil and gas, petrochemical, and machine-building facilities and building complexes; - organisation, participation and conduct of independent examinations, offers, bids, tenders, preparation of contracts for construction, reconstruction, modernisation and introduction of new technologies at fuel and energy, oil and gas, petrochemical and machine-building facilities and building complexes 76. Limited Liability Company Verh- 0 0 0 0 0 38,063 500 Maintenance and operation services September 27, 2013, transfer netagilskaya Utility Company thousand RUR thousand RUR of a 99.9% share in the authorised capital of the Company to OJSC Inter RAO - Electric Power Plants 77. Open Joint Stock Company 0 0 0 0 0 60,543 4,646 Providing services connected with the No changes. Mosenergosbyt-Serpukhov thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc. 78. Limited Liability Company Mos- 0 0 0 0 0 23,189 1,419 Providing services connected with the No changes. energosbyt - Lukhovitsy thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc. 79. Limited Liability Company Mos- 0 0 0 0 0 59,010 3,033 Providing services connected with the No changes. energosbyt - Chekhov thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc. 80. Limited Liability Company Mos- 0 0 0 0 0 33,112 697 Providing services connected with the No changes. energosbyt - Shatura thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc. 81. Limited Liability Company Mos- 0 0 0 0 0 36,529 1,175 Providing services connected with the No changes. energosbyt - Egorievsk thousand RUR thousand RUR supply of electric energy, including SUPPLEMENTS collection of payments for goods sold and services provided, etc.
235 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
82. Limited Liability Company Mos- 0 0 0 0 0 62,467 6,703 Providing services connected with the No changes. energosbyt - Orekhovo-Zuevo thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
83. Limited Liability Company Mos- 0 0 0 0 0 59,845 2,270 Providing services connected with the No changes. energosbyt - Electrostal thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
84. Open Joint Stock Company 0 0 0 0 0 80,736 4,345 Providing services connected with the No changes. Mosenergosbyt-Pushkino thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
85. Limited Liability Company Mos- 0 0 0 0 0 67,600 3,684 Providing services connected with the No changes. energosbyt - Domodedovo thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
86. Open Joint Stock Company 0 0 0 0 0 65,697 1,306 Providing services connected with the No changes. Mosenergosbyt-Podolsk thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
87. Limited Liability Company Mos- 0 0 0 0 0 141,660 10,630 Providing services connected with the No changes. energosbyt - Narofominsk thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
88. Limited Liability Company 0 0 0 0 0 234,320 17,186 Creating secure document management No changes. Integrator IT thousand RUR thousand RUR and providing services including information encryption, maintenance and distribution of encoding (cryptographic) facilities
89. JSC Energy Supply Company of 0 0 0 0 0 2,505,140 -16,113 Purchase of electric power on the No changes. the Moscow Region thousand RUR thousand RUR wholesale and retail markets of electric energy (capacity); Realisation (sale) of electric energy on the wholesale and retail markets consumer electric power (capacity) markets (including citizens);
236 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
90. Closed Joint Stock Company 0 0 0 0 0 1,963,627 18,243 Electric & thermal power purchase and No changes. Petroelectrosbyt thousand RUR thousand RUR sales Collection and processing of payments in payment for electric power and communal services, 91. Closed Joint Stock Company 0 0 0 0 0 14,150,048 47,621 Purchase of electric energy (power) - August 15, 2013 - ENERGY HOLDING thousand RUR thousand RUR to the wholesale and retail markets conclusion of the contract of of electric energy (power), realisation selling a 0.01% equity stake (sale) of electric power (capacity) on of LLC ENERGY HOLDING the wholesale and retail markets of between St. Petersburg Power electric power (capacity) to consumers, Supply Company (Company including citizens; sole participant to August 15, 2013) and CJSC Inter RAO Capital. - December 1, 2013, reorganisation of LLC ENERGY HOLDING in the form of transformation into a closed joint stock company 92. Open Joint Stock Company 0 0 0 0 0 255,092 -2,093 Operation and repair of heating, water No changes. “Repair and Service Company of thousand RUR thousand RUR supply, and sewage networks; Thermal and Underground Com- Transportation and sale of thermal munication Lines of Kostroms- energy. kaya TPP” 93. Open Joint Stock Company 0 0 0 0 0 0 11,134 Repair of boiler inspection facilities ; No changes. Integrated Energy Repairs thousand RUR manufacture of non-standard equipment supervised by Rostekhnadzor; repair and adjustment of lifting facilities 94. Open Joint Stock Company Heat 0 0 0 0 0 297,721 13,564 Operating and ensuring the efficiency of No changes. Service Company thousand RUR thousand RUR heat networks; Operation, maintenance and repair of hot water networks 95. Open Joint Stock Company 0 0 0 0 0 106,670 92 Operating and ensuring the efficiency of No changes. Kommunalnik thousand RUR thousand RUR thermal networks 96. Open Joint Stock Company 0 0 0 0 0 147,505 -16,696 Operating and ensuring the efficiency No changes. Energy-1 thousand RUR thousand RUR of heat supply networks, heat energy distribution and sale
97. Open Joint Stock Company Kos- 0 0 0 0 0 14,791 185 Hotel services No changes. SUPPLEMENTS tromskaya TPP Hotel thousand RUR thousand RUR 98. Open Joint Stock Company 0 0 0 0 0 247,517 -19,849 Operating and ensuring the efficiency No changes. Yuzhnouralskaya Power Supply thousand RUR thousand RUR of thermal networks in the town of Company Yuzhnouralsk; supplying thermal energy to consumers 237 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
99. Inter RAO Credit B.V. 0 0 0 0 0 22,578,874 EUR 45,805 EUR Participation in one way or another, No changes. management, use and promotion of enterprises, organisations and companies; provision of consulting and other services to companies with which the company forms the Group and to third parties; borrowing, lending and seeking funds, including the issuance of bonds, simple promissory notes or other securities or debt instruments and concluding agreements in connection with the above mentioned activities; issuing guarantees, binding the company by obligations and pledging its assets to secure the obligations of enterprises and companies with which the company forms the Group and on behalf of third parties. 100. UAB Vydmantai wind park 0 0 0 0 0 17,123 8,834 Electric power production and sale Participated in the thousand litas thousand litas reorganisation, which resulted in joining UAB IRL Wind 101. Inter Green Renewables and 0 0 0 0 0 0 -671 Electricity trade No changes. Trading AB thousand EUR 102. Limited Liability Company 0 0 0 0 0 - 75 Power plant under construction No changes. Khramhesi III thousand RUR 103. Inter RAO Europe B.V. 0 0 0 0 0 - -36.79 Estimated No changes. thousand EUR 104. Inter RAO Turkey Enerji Holding 0 0 0 0 0 - -37.756 Holding No changes. Anonim Şirketi thousand Operating Turkish lira 105. IRL POLSKA spółka z 0 0 0 0 0 - -386 PLN Electricity production, distribution, On 4 December 2013, the ograniczoną odpowiedzialnością trading authorised capital of IRL POLSKA was increased from 2 million PLN to 10 million PLN, and 160,000 new shares were issued. After the increase, a total of 200,000 shares at PLN 50 each. 106. Limited Liability Company Ener- 0 0 0 0 0 2,166 35,095 General construction work on laying No changes. goteploremont thousand RUR thousand RUR local pipelines, communication lines and power transmission lines, including related auxiliary work.
107. Limited Liability Company Bash- 0 0 0 0 0 321,913 -5,518 Transportation by road: passenger, No changes. energotrans thousand RUR thousand RUR cargo, oversized cargo, dangerous goods.
238 12. SUPPLEMENTS
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
108. Limited Liability Company Ener- 0 0 0 0 0 3,927 -28,970 Trading activities of all kinds (including No changes. gosnabkomplekt thousand RUR thousand RUR retail, wholesale, commission, itinerant trade, trade by industrial and food goods, raw materials, equipment, devices, spare parts, etc.).
109. Limited Liability Company Agrok- 0 0 0 0 0 6,664 thousand -845 Production, processing and sale of No changes. hozaistvo Mir RUR thousand RUR agricultural products, including: cattle breeding, plant growing, poultry farming, fish farming, bee keeping, horse breeding.
110. Limited Liability Company Ener- 0 0 0 0 0 299,629 32,245 Provision of sanatorium-resort and No changes. getik Health and Leisure Centre thousand RUR thousand RUR preventive treatment services; Medical services; Operation of buildings and structures; Assets management
111. Inter Rao Trakya Enerji A.S. 0 0 0 0 0 - 319,405.62 Holding No changes. Turkish lira
112. Inter RAO TRAKYA ELTKTRIK 0 0 0 0 0 - -33,942.35 Holding No changes. Uretim ve Ticaret L.S. Turkish lira
113. SII Enerji ve Uretim L.S. 0 0 0 0 0 - -800 thousand CCGT operation and maintenance No changes. Turkish lira (Trakya Elektrik station)
114. Trakya Elektrik Uretim ve Ticaret 0 0 0 0 0 -870.3 mn -57.7 mn Electric power production and sale Bringing the Group’s share A.S. Turkish lira Turkish lira to 100%
115. LLC Mosenergosbyt-Solnech- 0 0 0 0 0 19,670 388 Providing services connected with the No changes. nogorsk thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
116. OJSC Mosenergosbyt-Schy- 0 0 0 0 0 65,652 2,873 Providing services connected with the No changes. olkovo thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
117. LLC Mosenergosbyt-Noginsk 0 0 0 0 0 60,248 5,764 Providing services connected with the No changes. thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold SUPPLEMENTS and services provided, etc.
239 JSC Inter RAO / ANNUAL REPORT / 2013
The share of JSC Inter The book value of shares, Total dividends, Changes in participation in the RAO in the company’s participation interest in the thousand roubles 2013 financial results Business activity according to the company in 2013, or contracts Brand name authorised capital company (unless indicated otherwise) Charter on concluded purchases of No January 1, 2014 January 1, 2013 January 1, 2014 January 1, 2013 Revenue Net profit shares/stakes (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
118. Limited Liability Company Mos- 0 0 0 0 0 91,858 8,246 Providing services connected with the No changes. energosbyt - Ramenskoye thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
119. Limited Liability Company Ener- 0 0 0 0 0 5,565 thousand 370 thousand Repair of power equipment, operation of No changes. gospetsservisobsluzhivanie PRM RUR PRM RUR utility networks
120. Closed Joint Stock Company 0 0 0 0 0 110,632 6,407 Activities not prohibited by law No changes. Tomskenergobalans thousand RUR thousand RUR
121. Open Joint Stock Company Koro- 0 0 0 0 0 1,824,212 9,151 No changes. lyov Electrical Grid of SK thousand RUR thousand RUR
122. LLC Inter SMART 0 0 0 0 0 0 -1,526 Production of electric and thermal No changes. thousand RUR energy accounting smart devices
123. Open Joint Stock Company 0 0 0 0 0 4,546,603 78,461 Provision of electricity supply services No changes. Promyshlennaya Energetika thousand RUR thousand RUR
124. Limited Liability Company Mos- 0 0 0 0 0 15,756 43 Providing services connected with the No changes. energosbyt - Kolomna thousand RUR thousand RUR supply of electric energy, including collection of payments for goods sold and services provided, etc.
125. Limited Liability Company Mos- 0 0 0 0 0 5,558 -948 Providing services connected with the No changes. energosbyt - Unified Information thousand RUR thousand RUR supply of electric energy, including Cash Settlement Centre collection of payments for goods sold and services provided, etc.
126. Limited Liability Company Mos- 0 0 0 0 0 - - Providing services connected with the No changes. energosbyt - Troitsk supply of electric energy, including collection of payments for goods sold and services provided, etc.
127. Closed Joint Stock Company 0 0 0 0 0 1,561.6 1,632 Development organisation of production No changes. Svetlana-Optoelektronika thousand RUR thousand RUR and commercial introduction of semiconductor and optoelectronic devices, sensors and systems on their basis
128. Open Joint Stock Company 0 0 0 0 0 749,871 84,963 Manufacture of light-emitting diodes; No changes. SVETLANA-LED thousand RUR thousand RUR Manufacture of electric lamps and lighting equipment; Manufacture of electric lamps and lighting devices
240 12. SUPPLEMENTS
12.8. IN-HOUSE REGULATIONS VALID IN THE COMPANY
Management body that approved No In-house regulation Basic provisions document
1. Regulations on the procedure of preparation and holding of the The document defines the order for preparing and holding the General Shareholders Meeting (hereinafter - GSM) of General Meeting of Shareholders General Meeting of Shareholders of JSC Inter RAO the Company, including provisions on: (Minutes of June 25, 2010 No. 5) ▻▻ the order of convocation and preparation for holding the GSM; ▻▻ specific features for convening an extraordinary GSM; ▻▻ information support for holding the GSM; ▻▻ holding the GSM in the form of a meeting; ▻▻ holding the GSM in the form of absentee voting; ▻▻ working GSM bodies of the Company; ▻▻ for financial support of the Company GSM. 2. Regulations on the Board of Directors of JSC Inter RAO The document defines the order for preparing and holding meetings of the Board of Directors of the Company, General Meeting of Shareholders (new revision) including provisions on: (Minutes of June 26, 2013 No. 13) ▻▻ convening and holding meetings of the Board of Directors of the Company; ▻▻ organising the work of the Board of Directors; ▻▻ rights, duties and responsibilities of Members of the Board of Directors of the Company; ▻▻ the procedure for adopting decisions by absentee voting; ▻▻ the procedure for compiling the Minutes of meetings of Board of Directors of the Company. 3. Regulations on the Audit Committee of the Board of Directors of Board of Directors JSC Inter RAO The documents define the objectives, functions and competence of the Committees, the procedures of membership (Minutes of September 19, 2013 No. 100) on the Committees, and the rights and obligations of the members of the Committees and regulate the procedure 4. Provision on the Committee of the Board of Directors on for convening and holding Committee meetings, as well as issues of cooperation with management bodies of the Board of Directors Strategy and Investments of JSC Inter RAO Company and other persons. (Minutes of September 19, 2013 No. 100)
5. Regulations on the Human resources and Compensation Board of Directors Committee of the Board of Directors of JSC Inter RAO (Minutes of October 14, 2013 No. 101) (new revision) 6. Provision on the Management Board of JSC Inter RAO The Provision defines the procedure for formation of the Management Board, and the rights, duties and The Management Board of RAO United responsibilities of Members of the Management Board; it establishes the procedure for convening and holding Energy Systems carried out the functions meetings of the Management Board by joint presence, the procedure for making decisions by absentee voting, and of an extraordinary General Shareholders
also establishes control over execution of Management Board decisions. Meeting. SUPPLEMENTS OJSC Sochinskaya TPP March 28, 2008 (extract from Minutes of meeting of the Board No PR/3 of March 28, 2008).
241 JSC Inter RAO / ANNUAL REPORT / 2013
Management body that approved No In-house regulation Basic provisions document
7. Provision on Revision Commission of JSC Inter RAO The document identifies the challenges facing the Revision Commission, rights and obligations, highlights how work The Board of RAO United Energy of the Revision Commission is organised, establishes the procedure for conducting audits and requirements for the Systems carried out the functions of decision (statement) of the Revision Commission. an extraordinary General Shareholders Meeting. OJSC Sochinskaya TPP March 28, 2008 (extract from Minutes of meeting of the Board No PR/3 of March 28, 2008).
8. External Auditor Rotation Policy of Open Joint Stock Company The Policy regulates selection procedures and criteria for Inter RAO auditors based on tender results, auditor The Board of Directors (Minutes of July Inter RAO approval by the annual General Shareholders Meeting, and rotation of audit engagement partners. 29, 2013 No 97)
9. Regulations on Payment of the Remuneration and Compensa- The Regulations establish the amount of and procedures for payment of remuneration and compensation to General Meeting of Shareholders tions to the Members of the Board of Directors (new revision) Members of the Board of Directors. (Minutes of June 27, 2012 No. 12)
10. Provision on remunerations and compensations to the members The Provision establishes the amount of and procedure for payment of remuneration and compensation to the The Management Board of RAO United of the Revision Commission of JSC Inter RAO Members of the Revision Commission Energy Systems carried out the functions of an extraordinary General Shareholders Meeting. OJSC Sochinskaya TPP March 28, 2008 (extract from Meeting minutes of the Board No PR/3 of March 28, 2008). 11. Corporate Management Code of JSC Inter RAO This is a Company document that represents the code of principles and rules adopted by the Company and aimed Board of Directors at guaranteeing the rights and legitimate interests of all participants in corporate relations, improvement and (Minutes dated April 23, 2008 No 1) systematisation of corporate governance at JSC Inter RAO, and transparency of the management of the Company. The Code provides for: ▻▻ the practice implemented in the Company corporate governance; ▻▻ information on Company shareholders (rights of shareholders and protection of shareholder rights, General Shareholders Meeting, dividend policy); ▻▻ the information disclosure policy; ▻▻ the principles and practices of interaction with subsidiaries and dependent business entities. 12. Corporate Ethics Code of JSC Inter RAO The document, which constitutes the standards of conduct adopted by the Company that define the fundamental The Board of Directors (Minutes of (as amended) requirements of ethical corporate behaviour. October 21, 2011 No 50)
Amendments to the Code were approved by a decision of the Board of Directors on February 13, 2012 (Minutes dated February 16, 2012 No 59) 13. Provision on the Information Policy of JSC Inter RAO The Policy defines the basic principles of information disclosure of the Company activities, the procedure and terms Board of Directors of disclosure and presentation, as well as a list of information and documents subject to disclosure to shareholders, (Minutes dated September 30, 2011 lenders, potential investors, representatives of the mass media and public organisations, professional participants in No 48) the securities market, state authorities and other stakeholders.
242 12. SUPPLEMENTS
Management body that approved No In-house regulation Basic provisions document
14. Provision on the dividend policy of JSC Inter RAO The document defines the procedure for determining the dividend amount, adopting a decision on announcement Board of Directors (payment) of a dividend, the terms of payment (announcement) of dividends and limitations on their payment (Minutes of May 3, 2011 No. 41) (announcement).
15. Provision on the Insider Information of JSC Inter RAO The Provision regulates the issues connected with the handling and protection of insider information, establishes Board of Directors (new revision) the responsibility of insiders and the rules of transactions by insiders with financial instruments of the Company and (Minutes from December 2, 2013 No 104) also other questions connected with the handling and protection of insider information. 16. The Internal Control Policy of JSC Inter RAO The Policy defines the objectives, key principles and approaches to organisation of internal control of the Company, Board of Directors as well as the role and responsibility of the subjects of internal control. (Minutes of May 3, 2011 No. 41) 17. Provision on Risk Management of JSC Inter RAO The document defines the main objectives, principles and approaches in Company risk management, and also the Board of Directors concept of integrated corporate risk management. (Minutes of November 1, 2010 No. 33) 18. Provision on the Internal Audit, Control and Risk Management The Provision defines the goals, objectives, and functions of the Unit, and the subordination, rights and duties, and Board of Directors Unit of JSC Inter RAO (amended and revised) responsibility of Unit personnel. (Minutes of June 22, 2010 No. 28) Changes and supplements to the Regulation were approved by resolution of the Board of Directors dated August 3, 2011 (Minutes of August 5, 2011 No.46) and a resolution of the Board of Directors dated May 31, 2015 (Minutes of June 3, 2013 No.93) 19. Provision on handling marginal assets of JSC Inter RAO The Provision defines the Company’s general principles and procedure for disposal of Company’s non-core assets, Board of Directors and establishes the principles and procedures for non-core asset sales, as well as the specific features for taking (Minutes of May 3, 2011 No. 41) any other actions in respect of non-core assets. 20. Regulations on insurance protection for JSC Inter RAO The Regulations establish Company insurance protection requirements for each type of insurance, the Company’s Board of Directors requirements for insurance companies, and the stages of organising Company’s insurance protection. (Minutes of December 17, 2012 No. 83) 21. Declaration of Environmental Liability of JSC Inter RAO The Declaration sets the Company’s strategic goals in environmental protection and rational nature management Board of Directors and the Company activities for achieving environmental objectives. (Minutes of April 2, 2012 No. 64) 22. Regulations on procedures for carrying out regulated purchases The Regulations regulate procurement relations, including determination of the content, sequence, terms of Board of Directors of goods, works, services for JSC Inter RAO (amended and procurement procedures and the basic functions of procurement entities. (Minutes of March 19, 2012 No. 63) revised) Changes and supplements to Regulation were approved by a resolution of the Board of Directors dated December 27, 2012 (Minutes of December 29, 2003 No.85), a resolution of the Board of Directors dated January 31, 2013 (Minutes of February 4, 2013 No.86), and a resolution of the Board of Directors dated May 31, 2013 (Minutes of June 3, 2013) SUPPLEMENTS
243 JSC Inter RAO / ANNUAL REPORT / 2013
12.9. INFORMATION ON FULFILLING THE ORDERS OF THE PRESIDENT AND THE RUSSIAN FEDERATION AIMED AT IMPROVING THE ECONOMIC ACTIVITIES OF JSC INTER RAO
Type of order Registration data Name of order Information on execution Details and contents of decisions adopted
Order of the dated April 2, 2011, To ensure the adoption by state-owned corporations and state- Executed. Approve the Company’s amended 2011-2013 Cost Management President of No. PR-846. controlled companies of decisions to reduce the cost of acquiring JSC Inter RAO ensured the Programme for 2013. the Russian goods (works, services) per unit of product, not less than by 10 implementation of this order in The revision was due to completion of the transfer (sale) of property of Federation percent a year for three years in real terms; to consider the results of 2011–2013. production branches (Severo-Zapadnaya TPP, Kaliningradskaya TPP, this reduction as the key measure in assessing the performance of Ivanovskiye CPP, and Sochinskaya TPP) and the transfer of staff to such organisations and their managers. Project implementation will continue in 2014. Inter RAO – Electric Power Plants.
12.10. GOVERNMENT SUPPORT
Project Project description
Share of state funding through Federal Target Programmes and government programmes Construction and operation of a nuclear The project was implemented by a Project Company with a 1.7525% participation interest in Inter RAO Group. In 2013, government support in the amount of RUR 22.45 bn was granted in power plant at Akkuyu (Turkey) the form of an in-kind contribution from Rosatom to the project company’s authorised capital. Inter RAO Group investments totalled 49,995,000 Turkish lira (about USD 33 mn)
Construction of an export-oriented fuel The project is being developed as part of the execution of sub-item “a” of paragraph 2 of the list of orders of the President of the Russian Federation dated August 13, 2013, No PR-1922 and energy complex and a capacity output on the inclusion of measures on building grids between Sakhalin Island and Hokkaido to organise power supplies to the Japanese energy system under the Federal Target Programme for scheme for export of electricity; construction Social-Economic Development of the Kuril Islands (Sakhalin region) in 2016–2025. Inter RAO Group, together with the Ministry of Energy of the Russian Federation, the Russian Ministry of transmission lines to Japan of Development of the Far East, and the Sakhalin Region Government are preparing proposals to fund this project, as well as corrections for inclusion in the Federal Target Programme Economic and Social Development of the Far East and Baikal Region through 2018. Construction of the Kambaratinskaya HPP-1 As part of the Agreement, signed on September 20, 2012, between the Government of the Russian Federation and the Government of the Kyrgyz Republic on Construction and Operation in the Kyrgyz Republic of the Kambaratinskaya HPP-1, the Group is involved in preparing a feasibility study for the project. Lending to the project company is contemplated as implied state support measures in accordance with the terms of the intergovernmental agreement Modernisation of generators on the basis The project will be implemented by Kumertausskaya TPP (Bashkir Generation Company) and Omskaya TPP-4 (OJSC TGC-11). Together with the Russian Ministry of Industry and Trade, of modern, ecologically pure coal burning the Russian Ministry of Energy and TSNIITMASH are working on including the project in sub-programme 9, Power Electrical Engineering and Power Engineering, of the state programme technologies with output up to 500 tonnes Developing the Industry and Increasing its Competitiveness, and public financing in the format of budget subsidies on co-financing principles. Financing needs are estimated at up to RUR of steam per hour 900 mn.
244 12. SUPPLEMENTS
Project Project description
State export credits and state guarantees Electric power equipment supplies for The contract is valued at USD 145 mn. The amount of the loan from Eximbank of Russia, under a state guarantee of the Russian Federation, is USD 123.3 mn. In 2012-2013, as part of an Toachi-Pilaton HPP (Ecuador) advance payment in the amount of USD 30 mn received (20% of the contract value) work was carried out on the design and production of hydraulic installations and electro-mechanical equipment. The construction of a combined cycle of In 2013, a contract was signed for a combined cycle TPP project, Thermogas Machala TPP (Ecuador), with a value of USD 230 mn. Export loans in the amount of 85% of the contract Thermogas Machala TPP (Ecuador) value (USD 195.5 mn) provided by a consortium of Russian banks headed by CJSC Roseximbank, under the sovereign guarantee of the Republic of Ecuador and the state guarantee of the Russian Federation. In September 2013, the Customer received a down payment of 15% of the contract value (USD 34.5 mn) against a guarantee of return of the advance payment in full.
Other state support areas Trade financing under the warranty coverage Cooperation with the HERMES state insurance agency to finance Siemens equipment supplies. Currently, as part of ongoing Group projects under the ECA financing scheme, equipment of national export credit agencies (ECA) delivery for the following branches is being carried out: ▻▻ Yuzhnouralskaya SDPP – Siemens contract value was 86,404,000 euros ▻▻ Permskaya SDPP – Siemens contract value was 126,650,000 euros ▻▻ Verkhnetagilskaya TPP – total estimated cost of equipment is Euro 135,000,000 Insurance coverage by the EXIAR Export In cooperation with the EXIAR Export Insurance Agency of Russia, the Group obtained export contract insurance coverage signed in November 2012. The coverage was secured by a state Insurance Agency of Russia guarantee from the Government of the Russian Federation for the supply of power equipment with a total value of Euro 498,000 to Cuba. Thus, the Group insured counter party risk connected with non-payment for equipment supplied. Amendments to legislation of the Russian Among the state support measures having the greatest influence on trading activity, the following 2013 legislation must be noted: Federation with regard to trading activity 1) Federal Law No 308-FZ dated 6 November 2013 on introducing amendments to the Federal Law On the Electric Power Industry and Article 81 of the Federal Law On Joint Stock Companies. The law extends until 1 January 2015 the period for state regulation of prices (tariffs) for electric energy (power) sold and purchased on the wholesale market for technological support of joint work of the Unified Energy System of Russia and electric power systems of foreign states. 2) A Resolution of the Government of the Russian Federation No. 86 dated February 5, 2013 on amendments to the regulations governing the electric energy and power wholesale market (hereinafter referred to as EPWM), associated with implementing interstate electric energy transmission (hereinafter - IET). The decision takes into account specific features of IET implementation in the Russian energy market model and implement the real launch of the IET mechanism. The adoption of the above-mentioned regulatory enactments in 2013 will allow Inter RAO Group, which is the sole authorised agent, to improve the predictability of power purchase and sale rates to EPWM for foreign economic activities in the framework of parallel work. SUPPLEMENTS
245 JSC Inter RAO / ANNUAL REPORT / 2013
12.11. INFORMATION ON MATERIAL LITIGATION
MATERIAL LITIGATION, IN WHICH JSC INTER RAO WAS INVOLVED AS PLAINTIFF OR DEFENDANT, AS OF DECEMBER 31, 2013
Claim price, The likelihood of adverse PLAINTIFF RESPONDENT The subject of claims Current state of the claim roubles result
M.I. Poshibailov, JSC Inter RAO Recovery of funds under agreements for participation in 62,702,189 low 1. The claim was dismissed by a decision dated January 21, 2014. Individual Entrepreneur shared construction and losses 2. Session of the court of appeal scheduled for April 2, 2014. E. Y. Vlasov, JSC Inter RAO Recovery of funds under agreements for participation in 70,543,561 low 1. The claim was dismissed by a decision dated November 29, 2013. Individual Entrepreneur shared construction and losses 2. The court session of the court of appeal scheduled on April 9, 2014 N.G. Shipilova, JSC Inter RAO Recovery of funds under agreements for participation in 65,343,910 low 1. The claim was dismissed by a decision dated November 29, 2013. Individual Entrepreneur shared construction and losses 2. On March 18, 2014, the resolution portion of the judgement of the court of appeal was announced: the plaintiff’s complaint was dismissed, leaving the decision to stand. JSC Inter RAO OJSC Kapital Recovery of the sum insured 61,157,576.97 low By the decision dated March 7, 2014, the arbitration court of the first Strakhovaniye instance satisfied Inter RAO’s claim in full: an insurance indemnity totalling RUR 54,069,912.59 was recovered in its favour, plus interest totalling RUR 7,087,664.38. The decision has not yet entered into force. JSC Inter RAO OJSC Omskenergosbyt Participation in the bankruptcy proceedings of OJSC 124,148,271 high The next court session was scheduled for April 15, 2014 “Omskenergosbyt” OJSC POLYEF JSC Inter RAO Recovery of unjust enrichment, plus interest. 20,517,856 high The court session was scheduled for April 10, 2014. OJSC BESK It’s likely that 50% of (co-defendants) the original amount claimed will be paid out in satisfaction.
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12.12. GLOSSARY
ABBREVIATIONS
TSA Trading system administrator of the electric energy (capacity) wholesale market WECM Wholesale Electricity and Capacity Market BM Balancing market UPS United Power Systems GS Guaranteeing Supplier CCGT Combined cycle gas turbine unit SDPP State district power plant (in Russia - thermal power plants) RGC Regional Generation Company GTU (GTPP) Gas turbine unit (gas-turbine power plant) RC Regulated contracts HPP Hydraulic power plant RDD Regional dispatching directorates S&A Subsidiaries and affiliates RAS Russian accounting standards CDA Capacity delivery agreement DAM Day-ahead market CPT Competitive power take-off ECPSC Electricity and capacity purchase and sale contract KPI Key performance indicators SO UES System Operator of Unified Energy System IDGC Interregional distribution grid company TS Trading schedule IFRS International Financial Reporting Standards TGK Territorial generating company NP Non-profit partnership TPP Thermal power plant OGK Wholesale Generating Companies CHPP Combined heat and power plant UDD United Dispatching Directorates FGC UES Federal Grid Company of Unified Energy System AWP Autumn and winter period FTS Federal Tariff Service
MEASUREMENT UNIT
GW Gigawatt Measurement unit of electric power kW kilowatt Measurement unit of electric power Gcal gigacalorie Measurement unit of heat energy kWh kilowatt/hour Measurement unit of generated electric power Gcal/h gigacalorie/hour Measurement unit of heat energy MW megawatt Measurement unit of electric power Hz Hertz Frequency of electric current TNT tonne of natural fuel Measurement unit SUPPLEMENTS kV kilovolt A unit of voltage TEF tonne of equivalent fuel Measurement unit kVA kilovolt-ampere Measurement unit of full power t/h tonnes per hour Measurement unit of steam-production capacity
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FINANCIAL TERMS
MSCI Emerging Markets Index is an index of the stock markets of developing countries, calculated and published by Morgan Stanley Capital International. The index consists of 26 indices of developing markets (Russia, Argentina, Mexico, Thailand and others) and is intended to measure equity market performance in emerging market economies.
MSCI Russia Index is the index of companies in the Russian market which is included in the group of indices that constitute the MSCI Emerging Markets. The index is calculated by analytical agency Morgan Stanley Capital International, incorporating Russian mid- and large-cap companies and is the benchmark for many international investors investing in Russian assets, as well as investors following an index investment strategy.
MICEX Index is a price-weighted market capitalisation (free-float) composite index of the Russian stock market, which includes the 30 most liquid equities of the largest and most dynamically developing Russian issuers, the economic activities of which relate to major sectors of the economy, and is listed as CJSC MICEX Stock Exchange.
MICEX Index Standard Cap is a price-weighted market capitalisation (free-float) index of the most liquid shares of Russian companies with standard capitalisation listed on the MICEX Stock exchange.
MICEX Power Index is a price-weighted market capitalisation (free-float) index, which includes the most liquid stocks of Russian companies in the power industry that are listed on the MICEX Stock Exchange.
RTS Index is a price-weighted market capitalisation (free-float) index including shares of the 50 most highly capitalized Russian companies listed on the RTS stock exchange.
Treasury shares (Eng. treasury stock in the US, Eng. treasury share in the UK) - stocks owned by their Issuer. Treasury shares do not have voting rights, are not entitled to preferential rights, and do not participate in dividend distribution or property partition in the case of the Issuer’s liquidation. Treasury shares are circulating, they are issued, but not yet paid. However, they may be cancelled according to a procedure established by the Charter and legislation, with a corresponding reduction in the authorised capital.
248 12. SUPPLEMENTS
13. CONTACT DETAILS
FULL COMPANY NAME IN THE ENGLISH LANGUAGE: AUDITOR REGISTER HOLDER Open Joint Stock Company Inter RAO UES Full company name: Limited Liability Company Full company name: OJSC R.O.S.T. Registrar SHORT COMPANY NAME IN THE ENGLISH LANGUAGE: Ernst & Young JSC Inter RAO License of the Securities Market Federal Short company name: LLC Ernst & Young Commission for conducting of activity on keeping register No 10-000-1-00264 of December 3, 2002, Address: Russian Federation, 115035, Moscow, unlimited duration. STATE REGISTRATION PUBLIC RELATIONS DEPARTMENT: 77 Sadovnicheskaya Naberezhnaya, Bldg. 1 Postal address: Russian Federation, 107996, Principle State Registration Number (OGRN): e-mail: [email protected] INN: 7709383532 Moscow, Stromynka Street, 18, P.O.Box 9 1022302933630 OGRN: 1027739707203 Tel.: +7 (495)755-97-00 Tel.: +7 (495)771-73-35 Date of state registration: November 01, 2002. CONTACTS FOR SHAREHOLDERS: Fax: +7 (495) 755-97-01 Fax: +7 (495) 771-73-34 e-mail: [email protected] e-mail: [email protected], [email protected] Name of the registration authority in accordance OJSC R.O.S.T. Registrar hot line for JSC Inter http://www.rrost.ru/ with the data specified in the certificate of record RAO shareholders for calls from the Russian in the Unified State Register of Legal Entities: Federation: + 7 (800) 700-03-70 DEPOSITARY BANK OJSC R.O.S.T. Registrar hot line for calls from the Inspectorate of the Russian Tax Ministry, Sochi, Russian Federation: Krasnodar region Shareholders hot line: BNY Mellon Shareholders hot line: + 7 (495) 710-89-83 www.bnymellon.com +7 (800) 700-03-70 Series and number of the legal entity’s entry in the Uniform State Register of Legal Entities: Roman Kumits, VP Series 23 No. 002387411 CONTACTS FOR INVESTORS: BNY Mellon Depositary Receipts Legal address: Larisa Sadovnikova 101 Barclay Street Russian Federation, 119435, Moscow, 27 e-mail: [email protected] 22nd Floor West Bolshaya Pirogovskaya Street, 2 New York, NY 10286 phone: +1‑212‑815‑5984 Postal address: fax: +1‑212‑571‑3050 Russian Federation, 119435, Moscow, 27 e-mail: [email protected] Bolshaya Pirogovskaya Street, 2 Mark Lewis, VP Phone.: +7 (495) 664-88-40 (switchboard) BNY Mellon Issuer Services Fax: +7 (495) 664-88-41 One Canada Square e-mail: [email protected] London E14 5AL www.interrao.ru phone: +44 207 163 7407 e-mail: [email protected] SUPPLEMENTS
249 JSC Inter RAO / ANNUAL REPORT / 2013
DISCLAIMER
These materials have been prepared by JSC Inter RAO for the sole purpose of providing information to shareholders and may not be reproduced, retransmitted or further distributed to any other persons or published, in whole or in part, for any purpose.
These materials may contain projections or other forward-looking statements regarding future events or the future financial performance and production activities of the Company. Such terms as “we expect,” “we believe,” “we estimate,” “we intend,” “we will,” “we would“, “we could“, “we may” and similar expressions, as well as figures relating to future periods, indicate that we are referring to forecast estimates. JSC Inter RAO cautions that these statements are only predictions and that actual events or results may differ materially. JSC Inter RAO will not update these statements to reflect events and circumstances occurring after the date hereof. Factors that could significantly change the results contained in the forecasts and projections of JSC Inter RAO may include, among other things, general economic and competitive conditions in the markets where JSC Inter RAO operates, market changes in the energy and extractive industries and numerous other risk factors affecting JSC Inter RAO and its activities.
In addition to official information on the activity of JSC Inter RAO, this Annual Report contains information received from third parties. This information was obtained from sources which, according to JSC Inter RAO, are reliable. However, we cannot guarantee the accuracy of this information, which may be condensed or incomplete.
These materials do not constitute or are not part of an advertisement for securities, any offer or invitation to sell or issue, purchase or subscribe to securities of the Company in any jurisdiction. In addition, these materials or any part thereof, as well as their presentation, information or distribution, shall not constitute grounds and are not reason to conclude any contract or make investment decisions.
Neither JSC Inter RAO, nor its affiliates, their respective advisers, officers, employees or agents provide direct or implied representations or warranties regarding the accuracy of the information or opinions or any damages arising from any cause, directly or indirectly from the use of these materials or their contents.
JSC Inter RAO is not responsible for any damages that may arise to any person in connection with the fact that said person relied on forward-looking statements. Except as directly required by applicable law, the Company undertakes no obligation to publish or distribute updates or changes in the forward-looking statements that reflect any change in expectations or new information, as well as subsequent events, conditions or circumstances.
For this reports materials from the company’s archives were used. Design and production by MediaCode Ltd.
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