Risk Management System
The Company implemented the Risk Management System (further referred to as the RMS) to ensure sustainable and uninterruptible operation and development of the Company due to timely identification, assessment and efficient management of risks which threaten the efficient performance of the Company’s business activities and reputation, the employees’ health, environment, and property interests of the shareholders and investors.
In order to develop the RMS in the Company, the Board of Directors approved the Risk Management Policy (Minutes No. 242 dated October 9, 2014).
The main participants in the risk management process are:
- Board of Directors;
- Authorized committed reporting to the Board of Directors;
- Executive bodies (Management Board, Director General);
- Risk owners;
- Rink Management Department;
- Persons in charge of risk management action performance.
Dynamics of risk significance relative to 2014 and during 2015 (if any) is shown with arrows: ↑ (growth of risk significance), ↓ (reduction of risk significance).Critical
Main Risks in the Company Operation
|Level of risk significance and its dynamics relative to 2014 and during 2015||Description||Risk mitigation activities|
|Country risk||Decrease in the Company possibilities to access capital and decrease in the demand for the Company services due to the negative impact of global financial market instability on the Russian economy.||
|Regional risks||Risks associated with deterioration of economic situation in the region and destabilized political situation||
|Regulatory risk||Risks associated with the regional specifics of operation||
|Regional risks||Risk associated with the resolutions of authorities in the field of tariff regulation: introduction of electric power transmission tariffs below economically feasible level, revision of established tariffs over the regulation period||
|Risk of decrease in demand for services ↑||Risk associated with decrease in the volume of electric power transmission services due to general decrease in the volumes of power consumption and technological connections||
|Operational risk||Risk associated with technological violation (including grid breakdown)||
|Price risk||Risk associated with possible variation of prices for raw materials, services, equipment and other material and technical resources used by the Company in the course of operation.||
|Interest rate risk ↓||Risk associated with increase in the rate of interest on borrowed funds due to financial market instability||
|Currency risk||Increase in the Company costs due to currency exchange rate fluctuations||
|Inflation risk ↑||Increase in the Company costs due to higher inflation rate||
|Credit risk||Risk associated with nonperformance
|Strategic risk||Risk of Company losses due to the errors (omissions) made when taking resolutions which determine the Company’s operation and development strategy (strategic management)||
|Reputation risk||Risk of losses, which may be incurred by the Company due to decrease in the number of clients (counterparties) due to formation of negative image of the Company’s financial stability, financial position, quality of its products (work, services) or nature of its activities.||
|Amendment of tax law||Risk associated with amendment of tax system, tax rates, tax payment procedure||
|Amendment of legal practices||Risk of amendment of legal practice in the aspects associated with the Company activities||
|Antimonopoly regulation risk||Risk of fines imposed by antimonopoly authorities in connection with violation with the timeframe for preparation of offers on technological connection and contract performance timeframe as required by the law.||
Level of Risk Significance
Information on Possible Circumstances which Objectively Impact the Company’s Operation
Risk of earthquake
The region of PJSC MOESK property location is not classified as seismic hazardous.
The risk of losses due to earthquake is absent.
Risk of flood
A part of the Company’s electric transmission lines run across the beds of rivers in Moscow region — areas of possible land flooding during spring flood season. Sharp elevations of water level are possible after snowy winters; however, the flow rate of most rivers is regulated by dams of hydraulic structures, which reduces the water level variation amplitude during spring floods.
The risk of losses due to flooding or partial flooding is assessed as low.
The premises where the Company property is located are surrounded with fencing. Entry to and exit from the station premises is controlled due to utilization of access permit system. Shift duty personnel and security personnel are always present at the attended stations; video surveillance systems are installed; for unattended stations without continued presence of operating personnel, transfer points, cable structures are equipped with security alarm. In our opinion, the risk of unauthorized access to premises where the Company property is located is low, including unauthorized access with sabotage intentions. The risk of terrorist attack is minimal for these facilities.
The risk of losses due to a terrorist attack is insignificant.
Illegal actions of third parties (stealing, robbery, assault with intend to rob, property damage due to willful acts or negligence)
No significant stealing or misappropriation occurrences were detected over the last 5 years at PJSC MOESK facilities, which is attributable to the high perimeter security level and strict access control. All motor vehicles entering or exiting the premises of the Company’s facilities are subjected to thorough inspection at checkpoints.
The risk of losses due to this hazard group is assessed as low.
Improvement of Risk Management System
In the framework of activities conducted by the work group under the supervision of PJSC «Rosseti», the risk management system was integrated into the Company’s business planning process. Methods for risk assessment were developed and approved with consideration of their mutual impact and their impact on achievement of the Company’s strategic objectives (order No. 1021 dated August 14, 2015). Additionally, the Company developed and implemented the Guidelines on Planning and Implementation of Risk Management Activities, for form of Action Plan (Company order No. 1633 dated December 18, 2015).
In the framework of the RMS implemented by the Company, the Board of Directors approved the Register of Key Operation Risks (minutes No. 246 dated November 27, 2014). The key operation risks are the top-level risks which have direct effect on achievement of the Company’s strategic priorities.
Relationship between Strategic Priorities, Risks and KPI
The figure below shows the relationship between the key operation risks and strategic priorities of the Company.
The table below presents information on assessment and actual values of key operation risks in 2015:
|Risk number||Assessment parameter||Unit of measurement||Risk value||Actual value||Deviation, %|
|QRA-001||Volume of electric power transmission services||mln kW·h||71,105.44||70,532.76||-0.81%|
|QRA-002||Average electric power transmission tariff||RUB/K kW·h||1,720.8||1,713.46||-0.43%|
|QRA-003||Number of performed contracts on TC||ea.||55,000||77,355||40.65%|
|Volume of connected capacity||mln kW||1,750||3,106.71||77.53%|
|Revenues from TC services||RUB mln||10,000||10,302.1||3.02%|
|QRA-004||Purchased electric power for power loss compensation||RUB mln||13,637.30||13,170.9||-3.42%|
|QRA-005||Non-influenceable costs minus costs of power loss compensation||RUB mln||71,782.46||68,724.39||-4.26%|
|QRA-006||Operation costs||RUB mln||32,477.90||31,752.88||-2.23%|
|QRA-007||Volume of overdue receivables for electric power transmissi on services||RUB mln||2,392.04||1,564.02||-34.62%|
|QRA-009||Net profit||RUB mln||8,269.18||9,246.55||11.82%|
|QRA-010||Investment utilization (without VAT)||RUB mln||32,916.13||36,715.42||11.54%|
|Commissioning of fixed assets (without VAT)||RUB mln||31,014.75||34,458||11.10%|
|Financing of investment development program (with VAT)||RUB mln||37,297.86||36,295.23||-2.69%|
|QRA-011||Rate of decrease of specific investment costs||%||14.35||15||4.57%|
|QRA-012||Capacity load indicator||%||24||30.13||25.54%|
|QRA-013||Reliability indicator of electric power transmission service (KPI)||-||1||1||0.00%|
|QRA-014||Quality indicator for TC service||-||1.2||1.03||-14.17%|
|QRA-015||Number of work-related injuries||ea.||-||6||-|
|QRA-016||Workforce efficiency||RUB thous. / persons h||4.382||4.432||1.13%|
Commentary-interview of the Audit Director E. A. Schegoleva
The Control and Risk Department took active part in the methodological activities of PJSC “Rosseti” in connection with development of new methods for risk identification and assessment. Due to that and also due to the interest into implementation of new methods demonstrated by the top level executives, this year we managed to make a breakthrough in the RMS formation and improvement, specifically:
- All the risks associated with the Company business were identified, systemized, described and assessed; the risk chart was developed;
- Action plans were developed for all risks, control over their performance and assessment of their impact on the risks are ongoing;
- We implemented the system, which allows us to identify the risk impact on the Company’s operation results and engage manager at all Company levels into this process. In order to improve the Company’s risk management system further, the following activities are scheduled for 2016:
- Adapt the Policies of Internal Control and Risk Management in accordance with the approach recommended by PJSC “Rosseti” and submit these documents to the Board of Directors for approval;
- Develop and approve methods for assessment of the Company’s internal control and risk management system.