ANNUAL REPORT 2018 Preliminary approved by the Board of Directors of Mosenergo Minutes No. 63 of «06» may 2019 MOSENERGO ANNUAL REPORT 2018 Director General of Gazprom Energoholding LLC, Mosenergo managing company Denis Fedorov CONTENTS 12 SUSTAINABLE DEVELOPMENT 7 page 64 COMPANY DEVELOPMENT 12.1 Headcount and Staff Structure 66 12.2 Corporate Culture 67 page 23 12.3 Staff Training and Development 68 12.4 Motivation and Social Programs 69 12.5 Occupational Health and Safety 70 1 4 8 10 12.6 Environmental Protection 72 Addresses INVESTMENT CORPORATE GOVERNANCE 13 page 2 APPEAL RESULTS OF page 43 ADDITIONAL INFORMATION page 12 OPERATING 10.1 Memorandum on Gazprom PJSC’s AND APPENDICES ACTIVITIES intentions regarding controlled companies, namely Mosenergo PJSC, MOEK PJSC, OGK-2 PJSC, page 76 page 27 and TGK-1 PJSC 44 13.1 Information Policy 78 10.2 Underlying Principles 44 8.1 Power generation 28 13.2 Mosenergo History 78 10.3 General Meeting of Shareholders 45 8.2 Sales 31 13.3 Financial Statements according to IFRS 82 10.4 Board of Directors 46 8.3 Fuel Supply 33 13.4 Glossary 86 2 5 10.4.1 Members of the Board of Directors 47 8.4 Investment and Maintenance 13.5 Contact Information 87 10.4.2 Committees of the Board of Directors 49 MOSENERGO INFORMATION Activities 34 8.4.1 Investments 34 10.5 Executive Bodies 51 PROFILE FOR INVESTORS 8.4.2 Maintenance and Repairs 36 10.6 Board of Internal Auditors 51 10.7 Remuneration 52 page 6 page 14 3 6 9 11 BUSINESS KEY CORPORATE ANALYSIS OF FINANCIAL RISK MANAGEMENT MODEL EVENTS OF 2018 RESULTS page 54 page 38 page 10 page 21 11.1 Mosenergo’s Risk Management System 56 9.1 Revenue 40 11.2 Substantial risks for Mosenergo during the reporting period 57 9.2 Prime Cost 40 11.2.1 Industry Risks 57 9.3 Other Incomes and Costs 40 11.2.2 Production Risks 58 9.4 Net Profit 41 11.2.3 Financial Risks 60 9.5 Liquidity and Loan Portfolio Management 41 11.2.4 Legal Risks 60 9.6 Balance Sheet Analysis 41 11.2.5 Risks related to activities of Mosenergo 61 9.7 Financial Position Indicators 41 11.3 Ensuring the compliance of activities with the requirements of anti-corruption laws aimed against illegal use of insider information and market manipulation 62 MOSENERGO | 3 MOSENERGO | 5 Address of the Chairman of the Address of the Managing Mosenergo Board of Directors Director « IN 2019, THE COMPANY CONTINUES TO STRIVE FOR FAIL-SAFE OPERATION OF INDUSTRIAL EQUIPMENT AND INCREASING OPERATIONAL EFFICIENCY « AND FINANCIAL STABILITY. I AM CONFIDENT THAT, WITH JOINT EFFORT GAZPROM STRIVES TO ACHIEVE SUCCESSFUL AND EFFECTIVE FROM MOSENERGO’S MANAGEMENT AND EMPLOYEES, WE SHOULD BE DEVELOPMENT OF MOSENERGO IN THE INTEREST OF ALL SHAREHOLDERS. ABLE TO REACH THE OBJECTIVES SET FOR THE COMPANY, WHICH WILL I AM CONFIDENT THAT THE JOINT WORK OF THE BOARD OF DIRECTORS FURTHER SOLIDIFY MOSENERGO AS THE LEADER OF THE RUSSIAN POWER AND MANAGEMENT, WITH SUPPORT FROM THE SHAREHOLDERS, WILL MAKE INDUSTRY THE COMPANY MORE PROFITABLE AND SUCCESSFUL GOING FORWARD « « Dear Shareholders, Dear Shareholders, One of the most important events of by 6% to RUB 23.77 bln while the Mosenergo the BB+ rating with a In 2018, just like in previous years, improvement of corporate culture. at TPP-22. The Company is currently 2018 was the approval of Gazprom’s gross profit increased by 1.1% and positive outlook. Later that year, in Mosenergo successfully solved the In 2018, high professionalism working to transfer the power plant Strategy for Power Industry for the amounted to RUB 199.05 bln. June, the rating was increased to task of ensuring stable and fail-safe and determination of Mosenergo to oil-gas fuel management and operation of production facilities to eliminate burning coal as fuel years 2018-2027 by the Gazprom In accordance with Gazprom’s BBB- rating with a stable outlook. employees have been confirmed by which provide consumers from altogether. Board of Directors. For the past ten Strategy for Power Industry for the In May 2018, the BBB- rating with a the results of competitions within Moscow with electricity and heat. years, Gazprom has created Russia’s years 2018-2027, a key strategic goal stable outlook given to Mosenergo the industry. Staff of TPP-22 and Mosenergo’s management undertakes Electricity output by Mosenergo largest vertically integrated energy of providing steady profit increase by Fitch remained unchanged. TPP-25 took the first and second measures caused by a decrease power plants increased by 0.8% and place respectively in the competition in revenues from capacity sales, holding which unites assets in the and retain high level of reliability of In November 2018, Russian rating to 58.32 billion kWh, compared to the of operating personnel teams held which is linked to termination of field of electrical and thermal power providing consumers with electrical agency Expert assigned Mosenergo same figure of 2017. At the same time, by Gazprom Energoholding Group. capacity contracts. Mosenergo production, as well as thermal power. the ruAAA credit rating with a stable total volume of electricity generated Employees of these two power plans to strengthen its financial power transmission and sales. Key The Company continues to outlook. Rating agency experts using combined cycle power units plants occupied seven top spots in stability by implementing several production companies of Gazprom modernize equipment and noted Mosenergo’s high quality increased by 3% and amounted to the professional ranking. Employees promising projects. Mosenergo’s Group currently provide regular operation aimed at increasing of corporate governance, strong 17 billion kWh. Heat supply from of Mosenergo became winners of 2027 Development Program electrical power and are financially operating efficiency. Mosenergo market positioning, importance of collectors of thermal power plants the Contest of professional skills of presupposes participation in a stable, both as separate entities and is implementing several promising the company for the economy of and municipal and local power plants environmental protection experts, brand new TPP modernization as a group. projects aimed at securing financial Moscow and Moscow Oblast in equaled 82.3 million Gcal which is the Young Specialist and Rationalizer program, an increase in operating Mosenergo was Gazprom’s first asset stability, increasing gross profits, and terms of infrastructure, high level of 3.6% more than last year. Contest of Gazprom Energoholding efficiency due to decommissioning in the power industry and the first decreasing fixed costs. operating margin, and low debt. Mosenergo achieved success on Group, as well as the International of inefficient capacities, an increase the wholesale market as well. The Competition of Scientific, Technical in paid capacities of combined-cycle Russian company to undertake large- As part of implementing programs Mosenergo is consistently working to company ranked first in the Market and Innovative Developments held power units, an increase in service scale construction of new combined aimed at modernizing equipment, minimize its environmental impact. Counsel association rating which under the auspices of the Ministry of intervals and normative periods of cycle power units. Seven large special attention is paid to In 2018, the company received the reflects the performance of power- Energy of the Russian Federation. equipment operation, implementation combined cycle power units with developing cooperation with Russian Moscow Government award in the generating equipment manufactured of a program aimed at improving the total capacity of 2.9 GW have manufacturers. Thus, reconstruction field of environmental protection for One of the Company’s key areas of by various companies in the industry. activities is environmental protection. primary cost-performance ratio of been commissioned at Company’s of TPP-22’s power unit 9 is the project involving the transfer of In recent years, Mosenergo has In 2018, Mosenergo confirmed TPPs, switching of heat load from power plants. The share of high- underway. After the reconstruction, TPP-22 from coal to natural gas. done an enormous job of optimizing the compliance of the Company’s MOEK boilers to Mosenergo sources, efficient capacities in Mosenergo’s commissioning of the most powerful Dear Shareholders, Gazprom strives current equipment and ensuring Environmental Management System and optimization of water-chemistry total output is increasing annually. In extraction turbine in Russia, T-295, is to achieve successful and effective its efficient use and operation. As a (EMS) to ISO 14001:2015. Mosenergo conditions at TPP-21, TPP-23, and 2018, it amounted to 29.1%. scheduled for 2021. development of Mosenergo in the result of this, electricity generation constantly increases the level of TPP-25. Last year, Mosenergo managed Successful development of interest of all shareholders. I am fuel rate has decreased significantly production’s environmental safety In 2019, the Company continues to perform well financially despite Mosenergo under the leadership confident that the joint work of the and amounted to 227 g per kWh. This and decreases harmful environmental to strive for fail-safe operation of the limiting factor of termination of of Gazprom is underlined by Board of Directors and management, is still one of the lowest values in the impact of power plants. In 2018, industrial equipment and increasing contracts regarding the provision of high ratings given by the largest with support from the shareholders, entire heat generation industry. thanks to environmental activities operational efficiency and financial combined cycle power units at TPP- international and Russian rating will make the company more Mosenergo strives to ensure implemented, the pollutant emissions stability. I am confident that, with joint 21 and TPP-27. This is the reason agencies. In February 2018, Standard profitable and successful going sustainable development of its decreased throughout the company, effort from Mosenergo’s management why the net profit in 2018 decreased & Poor’s once again assigned forward.