ANNUAL REPORT 2017 2017 ANNUAL REPORT About Annual Report Disclaimer The Company makes no warranties with respect to the achievement of the operat- ing results described in the forward-look- The Annual Report of PJSC ROSSETI The Annual Report includes data from ing statements and warns that the actual (ROSSETI, The Company) for 2017 con- the ROSSETI Group’s entities and publicly results may materially differ from what is tains information about the joint-stock available information. expressed, whether directly or indirectly, company and PJSC ROSSETI’s subsidiar- This Annual Report contains: in the forward- looking statements. ies and dependent companies. > certain forward-looking statements The Company shall not be liable for any This Annual Report (hereinafter, the regarding the Company’s business losses that may be incurred by any indi- “Annual Report” or the “Report”) is made operations, economic indicators, finan- viduals or corporate entities relying upon to provide easy-to-use information about cial condition, plans, projections, and forward-looking statements. the Company’s operating results and expected results Except where otherwise specifically give a clear understanding of its current > forward-looking statements regarding provided for in law, the Company shall not condition, business position, and growth changes in prices of products/ ser- be obligated to publish any updates on or prospects. vices, output and consumption, costs, changes in forward-looking statements On May 29, 2018, the Board of Directors estimated expenditures, development based on new information or subsequent of PJSC ROSSETI resolved to give prior prospects, and other similar factors events. approval to the Annual Report of the Com- > predictions with respect to the develop- pany for 2017 (Minutes of the Meeting No. ment of the industry and markets 310 of May 30, 2018). Forward-looking statements are gener- The reliability of information contained in ally identified by words such as “intend,” this Report is confirmed by the report of “strive,” “project,” “expect,” “estimate,” the Company’s Internal Audit Commission “plan,” “believe,” “assume,” “may,” “can,” (Minutes of the Meeting No. 6 of May 14, “should,” “will,” “continue,” and other sim- 2018). ilar or related words and expressions. By virtue of their particularities, forward-looking statements involve inherent risk and uncertainty of a general and specific nature, and there is a risk that estimates, predictions, projections, or other forward-looking statements may not materialize. Content ROSSETI TODAY ROSSETI YESTERDAY ROSSETI APPENDIX FOR SHAREHOLDERS Message Operating performance 50 Appendix can be found from the Chairman AND INVESTORS on the corporate website at of the Board of Directors 8 Economic performance 56 http://www.rosseti.ru/eng/ ROSSETI’s investors/reports/annual/ Message Investing Activities 65 Corporate Governance 78 from the Director General 11 Sustained Development General Meeting Company Profile 13 and International of Shareholders 81 Activities 68 1 Business Model 20 3 4 Board of Directors 82 6 Geography Performance 24 Executive Bodies 95 Industry Review 28 Committees of the Board of Directors of ROSSETI 100 Corporate Highlights in 2017 31 Corporate Secretary 107 Risk Management System (RMS) 108 Control System 112 Dividend Policy and Profit Distribution 120 ROSSETI Shareholding Structure and Share Market 121 Shareholders and Investors Relation 124 ROSSETI TOMORROW GLOSSARY Strategy and Its Implementation 36 Long-Term Development Program and the Report on Its Implementation 39 KPI System and Performance 2 Evaluation 41 5 2017 Annual Report Drivers of Growth 44 ROSSETI ROSSETI www.rosseti.ru 1section ROSSETI TODAY ROSSETI is the mainstay of Russia’s electric grid sector Message from the Chairman of the Board of Directors ROSSETI TODAY Dear Shareholders: The mainstay of Russia’s electric grid sec- technical upgrading and rehabilitation of Import substitution measures included development and the accomplishment of ed the Introductory Course Program tor, ROSSETI, is pleased to present to you facilities will be updated every year by set- creating an automated treasury man- its social tasks. for Newly Elected Members of the Board the Annual Report on its activities during ting priorities for the technical condition agement system used throughout the 215,000 employees of ROSSETI, a team of of Directors. 2017 and its development prospects for of equipment, which will make it possible ROSSETI Group and based on a domestic high-level professionals, have all contrib- In 2017, an external consultant was 2018–2019. to know up-to-date information about the platform. uted to these achievements. engaged by the Company for the first time The Company was established five years condition of grids and make timely deci- Large-scale work was initiated at gov- The Company puts a lot of effort into hu- to make an independent performance ago under the Russian President’s decree sions to ensure the required level of their ernmental level to enhance the trans- man resource development and pursues evaluation of the Board of Directors, Chairman of the Board to further the development of the elec- operating reliability. parency of capital investment programs an effective social policy. The Company’s committees of the Board of Directors, of Directors of ROSSETI tric grid sector and keep down tariffs for The Company makes extensive efforts in and reduce electricity network losses. In partners under various projects are over and members of the Board of Directors. Alexander Novak ultimate customers. Over the past period, the area of innovative development and accordance with the Strategy for Develop- 300 higher and secondary education The Board of Directors also approved the Company has done much to improve import substitution. In 2017, the Board of ment of the Electric Grid Sector approved institutions; more than 5,000 students are the Technique for Evaluating the Perfor- power supply reliability and accessibility, Directors approved the Concept of Setting by the Government of the Russian Feder- involved in traineeship programs of the mance of the Board of Directors, Com- enhance management efficiency, and up the Foundation for Research, Develop- ation, ROSSETI has achieved a more than Company’s facilities every year, including mittees of the Board of Directors, and raise its technological level. ment, and Innovation Support of ROSSETI. 14 percent decrease in electricity losses students at the leading university in our Members of the Board of Directors of The Board of Directors approved and the This innovation foundation will allow the for six years on a basis comparable with sphere, the Moscow Power Engineering ROSSETI. The document regulates annu- Company follows the Uniform Technical Company to build up an effective system 2012. Institute. The Company also organized al evaluation (self-assessment) in relation Policy in the Electric Grids; general coor- for managing its intellectual products and Throughout the reporting period, the student labor brigades for 7,000 people. to the performance of the Company’s dination procedures were introduced for use external sources for financing the Company successfully participated in ROSSETI’s annual Youth Forum, whose Board of Directors. remedying process failures; the Company ROSSETI Group’s innovation activities. projects of national importance: participants also include representatives The Group’s consolidated financial established an emergency reserve; coor- This will make it possible to implement > construction of substations and net- of foreign utility companies, has gained results in 2017 showed an upward dination agreements were signed with all the Russian President’s instructions in works for new facilities and stadiums national fame. trend compared with the prior periods; those involved in the process. full with respect to technological solutions for the 2018 FIFA World Cup; The Company works to improve corporate net profit increased by 39.5% on 2016; As a result, the ROSSETI Group substan- based on Russian R&D products. > construction of substations and net- governance, taking account of amend- EBITDA rose by 18.3%; the Group’s tially reduced the frequency and average The Company introduces digital substation works in the Kaliningrad Region; ments to shareholder laws, the recom- assets increased by 6.3% 2,409.4 billion duration of power outages. technology (Tyumenenergo’s Olimpiyska- > construction of the electric power mendations of the Corporate Governance rubles due to the commissioning of new To ensure further improvement, the ya substation) and smart grid technology infrastructure of the Eastern Sibe- Code, regulatory documents and clarifica- facilities under the capex program; net Board of Directors of ROSSETI approved a (Yantarenergo) and is beginning to use ria-Pacific Ocean oil pipeline and tions of the Bank of Russia, and the Action debt totaled 456.2 billion rubles. risk-based program to renew electric grid more and more electric vehicles. other major facilities in the east Plan to Improve Corporate Governance The ROSSETI Group also takes effective facilities. Equipment will be replaced after In 2017, the Information Technology, Au- of the country (Zvezda Shipbuilding Practices recommended by the Russian measures to improve operating efficiency the assessment of actual technological tomation, and Telecommunications Policy Complex; Vostochny Cosmodrome; Institute of Directors when ROSSETI was and, as a result, reduced specific opera-