MANAGEMENT REPORT 2019 SUPERVISORY BOARD CHAIRMAN ADDRESS 2 CEO ADDRESS 4 1 ABOUT UKRHYDROENERGO 6 Our mission and values 8 Role of Ukrhydroenergo in the Ukrainian Energy Market 10 Highlights 2019 14 2 UKRHYDROENERGO DEVELOPMENT STRATEGY 20 Ukrhydroenergo Development Strategy 22 Key Operating Results 28 Investment Activities 36 Development and Innovations of HPPs and PSPs as objects 48 3 CORPORATE GOVERNANCE 58 Corporate Governance System 60 Ukrhydroenergo’s Organisational Structure 66 Anti-Corruption Programme 86 Risk Management 88 4 SOCIAL AND ENVIRONMENTAL RESPONSIBILITY 92 Social Policy of the Company 94 Safe Working Conditions 108 Environmental Policy of the Company 112 Energy Efficiency and Energy Saving 124 5 ANNEXES 128 About the Report 130 Corporate social responsibility strategy 134 SUPERVISORY BOARD CHAIRMAN ADDRESS Since the establishment of its of the Company’s fixed assets) and Supervisory Board, Ukrhydroenergo raising foreign investments. That has been operating in a new is exactly why the sustainable and corporate governance system, which predictable development of the has a strong positive impact on the Company, capacity building, stable development of the Company and economic and financial position, and the national economy and is key to adherence to modern standards of the effective cooperation with our good standing are so crucial. partners and investor. Over this short term, the Supervisory Alongside other corporatised Board has already taken many businesses, our Company has important steps for Ukrhydroenergo’s embarked on a path of a prospective development in the new corporate sustainable development. Today, governance system. We keep on Ukrhydroenergo is a modern analysing the Company’s ability to business with a developed corporate meet its objectives and risks it may governance system in place that face, such as the dividend payout, balances the interests of the implementation of investment Company and its shareholder, programmes, etc. We will continue the Government. After all, to do everything we can for Ukrhydroenergo strives not only Ukrhydroenergo to be a leader to generate profits, but also to among the state-owned enterprises, perform social functions by fulfilling remain a stable business attractive public service obligations and for new investments, and secure its meeting other commitments and future development. economic functions by making capital investments (modernisation, modification, and reconstruction VALENTYN HVOZDIY 2 UKRHYDROENERGO MANAGEMENT REPORT 3 CEO LADIES AND GENTLEMEN Amid active transformations of the where big new build projects 2019, a new model of the electricity energy sector in Ukraine and the are currently under practical market was introduced in accordance ADDRESS intensive development of renewables, implementation. At present, with the Law On the Electricity the shortage of load-following Ukrhydroenergo is directing its utmost Market approved back in 2017. Having capacities in the national grid becomes efforts to implement the most started to work in the new market, particularly important. In this context, ambitious project of modern Ukraine, the Company has encountered a the role of hydropower is growing, as the construction of Dnistrovska PSP. number of legal, economic, and HPPs and PSPs are the best sources Currently, Stage 1 of the plant technical issues that affect its financial of control and reserve capacities and consisting of three power units is in performance. These include the can ensure the balanced and efficient operation. The construction of power need to sell 35% of the electricity operation of the United Energy unit No. 4 is underway. I believe generated by HPPs to Guaranteed Systems of Ukraine. that we will make the first start of Buyer state enterprise at a too low Understanding the challenges the power unit this August before price, higher costs of electricity facing the energy community today, the Independence Day and put it to fill water reservoirs of PSPs, no Ukrhydroenergo contributes to the into industrial operation before the revenue from the provision of services energy stability of the country by Power Engineer Day. With the launch for automatic and manual load- following the path of continuous of the last power unit (No. 7) and frequency control, additional losses self-improvement and development. the achievement of the 2268 MW during synchronous compensator Recognising that Ukraine needs installed capacity in generator mode, operation for voltage and reactive efficient, environmentally friendly and Dnistrovska PSP will become the power control, etc. I am confident that competitive energy that contributes largest pumped storage plant in unfair competition and discriminatory to better quality of life, we are Europe and the sixth largest in the conditions in the new market must be consistently pursuing a policy of large- world by installed capacity. eliminated by amending the Market scale equipment reconstruction at I want to emphasise that Rules, so that all electricity producers our plants. So far, we have upgraded Ukrhydroenergo continues to enjoy a level playing field. This will 71 out of 103 operating power units, work on the implementation of its benefit both the energy sector and the using borrowings and own funds. These prospective plans, the construction end consumers. efforts have significantly enhanced of Kanivska PSP and Kakhovska HPP Priorities of Ukrhydroenergo include their capacity and raised environmental No. 2. In this context, the year of the continuous development of standards of electricity generation. Our 2019 was marked by productive sustainable development and ambitious plans are to complete the negotiations with potential investors ecological projects. Last year, we ongoing renovation by 2026 by fully and the resolution of certain introduced new formats designed upgrading fixed assets at all our plants. technical issues. We still have a lot to address environmental issues Last year, we made some important of work to do, but now I can state effectively. We experimentally tested steps towards achieving this goal. with confidence that we are on the the aeration method on power unit One of them was the commissioning right track and can overcome any No. 6 at Kakhovska HPP by supplying of power unit No. 2 at Kyivska PSP difficulty thanks to a solid team of compressed air in front of the turbine. after reconstruction that increased professionals. Tests have shown that aeration is its operating capacity by 5.8 MW. 2019 was a year of change for technically possible and gives good Moreover, the plant started works on the Company. One of the key results. The positive experience of the power unit No. 6 and is preparing for transformations we went through experiment will be scaled across all the reconstruction of power unit No. 4. was a corporate governance reform. HPPs in the Dnieper Cascade. At the same time, we are Its purpose is to build a highly We understand that all the reconstructing the equipment at efficient operating business model. achievements of the Company in 2019 Dniprovska HPP, Kanivska HPP, At present, an effective independent have come from the contribution of Kakhovska HPP, and Supervisory Board has been in place at every employee at Ukrhydroenergo. It Seredniodniprovska HPP. In the course Ukrhydroenergo, comprising experts is only through a concerted teamwork of modernisation of the power units, with years of professional expertise, that we have met the ambitious goals our specialists and contractors extend impeccable reputation, and high we had set. Every player makes a team the service life of the equipment, public trust. I am convinced that with strong. That is why the full personal increase its efficiency factor, eliminate a fresh look at the processes that take fulfilment of every hydropower the possible negative impact on place within the Company, members engineer is among the Company’s the ecology of the river basins, and of the Supervisory Board will give priorities. I am grateful to everyone significantly increase the control a new impetus to the growth and who joins us to generate the energy of range. development of Ukrhydroenergo. the future, develop Ukrhydroenergo, I would like to point out that the 2019 was rich in challenges. Last and make change in the industry. hydropower industry is perhaps the year, Ukraine’s energy sector began only type of generation in Ukraine operating under new rules. On 1 July IHOR SYROTA 4 UKRHYDROENERGO MANAGEMENT REPORT 5 ПРО «УКРГІДРОЕНЕРГО» 1 ABOUT UKRHYDROENERGO 6 UKRHYDROENERGO MANAGEMENT REPORT 7 ABOUT UKRHYDROENERGO MISSION AND VALUES Mission: WE GENERATE ENVIRONMENTALLY FRIENDLY ENERGY FROM WATER IN A CUTTING- EDGE AND RELIABLE WAY. Values: WE CONTRIBUTE TO THE ENERGY STABILITY AND SECURITY OF A human being is the most valuable asset of the Company. UKRAINE AND PROMOTE This value shapes our approach to each employee. Human SOCIAL AND ECONOMIC dignity, health, well-being, motivational aspects, and safety lie DEVELOPMENT AND at the core of the Company’s operations. COMPETITIVENESS OF THE COUNTRY. Responsibility is employee’s personal attitude to his or her work and the Company’s reputation. For us, this concept includes the manager’s responsibility for the objectives and their effectiveness, as well as the responsibility of employees for the proper performance of their roles and duties with the highest professionalism and commitment. In the responsibility for our production, we prioritise the interests of a human being and the safety of every Ukrainian