Risk Management System
The Company has a risk management system (hereinafter referred to as RMS), the purpose of which is to ensure the sustainable continuous operation and development of the Company through the timely identification, assessment and effective management of risks that pose a threat to the effective implementation of business activities and the Company's reputation, employee health, the environment, and property interests of shareholders and investors.
In order to develop the RMS in the Company, the Board of Directors approved the Risk Management Policy (approved in a new edition by the decision of the Company's Board of Directors on April 1, 2016, Protocol dated April 1, 2016 No. 182/2016).
The main ones are the following risk management process participants.
|Participant name||Main functions in the field of RMS|
|Board of Directors|| Approves the Company's internal documents defining the organization and functioning of the Company's RMS. |
Examines the reports of the Company's executive bodies on the organization, functioning and effectiveness of the RMS, evaluates the operation of the RMS and makes recommendations for its improvement
|Authorized Committee in cooperation with the Board of Directors||Monitors the effectiveness of risk management procedures, as well as evaluating the effectiveness of risk management measures and the improvement of the RMS|
|Executive Bodies (Management Board)|| Establish requirements for the format and completeness of information about the risks of the Company. |
Form directions and plans for the development and improvement of the RMS. Conduct risk portfolio analysis and develop response strategies and reallocate resources for managing relevant risks.
|Risk owners||Responsible for the timely identification and assessment of risks, the choice of the method dealing with risks, the timely development and organization of the implementation of risk management measures, regular monitoring of risks|
|Executors of risk management activities||Responsible for timely identification and or minimization of risks, implementation of measures aimed at risk management, timely and in full|
|Risk Management Division||Performs overall coordination of risk management processes.|
|Internal Audit Division||Performs an internal independent assessment of the effectiveness of the risk management system and issuing recommendations for improving the effectiveness and efficiency of the RMS|
Main risk factors
Significance of risk is a combination of the risk occurrence likelihood and the magnitude of the consequences for the Company in monetary and other terms. Assessment of the risk significance is carried out based on the available risk passports or expertly in accordance with the following scale.
|Ser. No.||Risk name||Risk description||Risk consequences minimization measures||Risk assessment and dynamics|
|1||Tariff risk||The state policy of tariff regulation takes into account the need to curb inflation and provides for a change in regulated tariffs of grid organizations in 2017–2019 below the actual inflation index, while prices in the wholesale market are outpacing, which leads to the risk that regulators establish a tariff menu that does not ensure the collection of economically sound revenues||In order to minimize the likelihood of risk occurrence and reduce material risk, a number of measures were implemented on a regular basis in strict accordance with the current legislation of the Russian Federation and interacted with the executive authorities of the constituent entities of the Russian Federation in the field of state regulation of tariffs to ensure balanced decision making in all branches of the Company ( taking into account the introduction of relevant amendments to the current legislation), including the establishment of tariffs for the transmission of electricity with indexation not lower than the level provided for by the Forecast of the SEP of the Russian Federation and the establishment of a base level of controllable expenses ensuring the necessary production and economic activity. As regards the Astrakhanenergo and Rostovenergo branches, the state regulatory authorities fulfill the obligations of phased recording in GRG of the magnitude of the return of accumulated “smoothing” and other lost revenues|
|2||The risk of reducing the amount of electricity transmission services||The risk is due to the possibility of reducing the demand for electricity and the optimization of large-scale external power supply by large consumers.|| In order to cover the most significant risk factors, the Company implements the following measures. |
Conducting work with consumers of services on the coordination of planned values for inclusion in the contract for the next year, as well as for presentation to the state regulatory bodies of tariffs.
Conduct conciliation meetings with the participation of the tariff regulation authorities to make balanced decisions on the value of the predicted productive supply.
Conducting periodic inspections of settlement systems of electricity metering, control readings.
Monitoring of power consumption, the formation of the forecast of productive supply until the end of the year, taking into account the current dynamics of power consumption.
Switching to the calculations for the services rendered for the transmission of electric energy through the general-purpose metering devices installed on the inputs of apartment buildings.
Carrying out activities aimed at resolving disagreements with consumers of services for the transmission of electrical energy in terms of the volume of services and with related grid organizations and preventing their occurrence.
Implementation of measures programmes to reduce electrical energy losses and programmes for the future development of electrical energy metering systems
|3||Risks associated with the provision of technological connection services to applicants||Risks are due to the possible deficit occurrence in the funding source for the contracts for the implementation of technological connection; failure by the applicants to fulfill obligations under contracts for the implementation of technological connection; failure of the applicants to use the power obtained during technological connection. Due to the influence of these factors, it is possible to reduce the Company's revenue from technological connection|| In order to reduce the negative effect and conditions affecting the activities, the Company takes the following measures. |
Removing the test readings from the settlement complexes of electricity metering by attracting additional personnel.
Identification of facts of unaccounted consumption of electric energy, including with the involvement of law enforcement.
Implementation of energy service contracts in order to save energy and increase energy efficiency in the use of energy resources in terms of reducing the technological consumption (loss) of electricity during transmission.
Implementation of measures of the programme for the future development of electricity metering systems
|4||The risk associated with non-payment for services rendered for the transmission of electrical energy (the emergence of contested and unmatched overdue receivables) from consumers||The risk is due to the insufficiency of the existing incentive mechanisms for consumers to make timely payments for electricity transmission services, as well as the influence of macroeconomic factors (reduced solvency of consumers)|| In order to reduce these risks, the Company takes the following measures. |
Negotiations with counterparties.
Participation in meetings with interested parties on payments for electricity transmission services provided.
Conclusion of debt restructuring agreements.
Restriction of the electric energy consumption mode in respect of debtors, to which the restriction is possible and permissible.
Claims work with consumer debtors
|Country and regional risks|
|5||Risks associated with the political and economic situation in the country and the region||The risks are associated with a decrease in the economic activity of the constituent entities of the Russian Federation in the regions of presence, an increase in the cost of credit funds, which, in turn, may be caused by the instability of the external environment, international sanctions, lower credit ratings and an increase in the inflation burden. The influence of these factors may lead to a reduction in the Company's revenue and its stockholder value.||In case of destabilization of the political and economic situation in Russia or in a particular region, which may adversely affect the Company's operations, the latter will take a number of measures for crisis management in order to minimize the negative impact of the situation on PJSC "MRSK Yuga" (Public Joint-Stock Company "Inter-Regional High-Voltage Grid Company of the South") including cost reduction production and other expenses, reducing investment plans|
|6||Risks associated with possible conflicts and their manifestations, the introduction of a state of emergency and strikes in the regions||The risks are associated with possible acts of unlawful interference with activities, including terrorist acts and representatives of international terrorism, as well as nationalist elements of individual states. Such actions may have a negative impact on the Company's operations.||To minimize the risk of terrorist acts, the Company takes measures to ensure production safety.|
|7||Risks associated with the geographical features of the country or region, including increased risk of natural disasters, the possible termination of transport communication||Risks are caused by natural and climatic emergencies (impact of hurricanes, rain showers, floods, snow blockages, icing, power failure as a result of fires, domestic explosions, etc.). As a result, the power supply and transport communication in the region may be interrupted.||The Company's actions to reduce the impact of these risks are in the design of power lines, taking into account the peculiarities of the weather in the region, as well as in insuring the corresponding risks.|
|8||Risks associated with changes in exchange rates||Negative impact on the results of the Company's financial and economic activities due to changes in currency exchange rates||To minimize the risk, the Company is implementing an import substitution plan, approved by the order of PJSC "MRSK Yuga" dated 10.10.2017 No. 762 “On the implementation of the corporate import substitution plan”|
|9||Risks associated with changes in interest rates||Influence on the possible growth of the Company's expenses on raising funds for financing investment programmes||In case of significant adverse changes in interest rates, the Company will focus on attracting short-term borrowings|
|10||Risks associated with the influence of inflation||The impact of the consumer price index growth on interest expenses, cost level, profitability level, and, as a result, on the financial condition and ability of the Company to fulfill its obligations||In order to reduce the impact of inflationary processes on operating activities, the Company plans investment and maintenance programs, taking into account the higher cost of materials and equipment. In addition, the Company enters into contracts on the terms of a fixed price, which does not change under the influence of inflation during the period.|
|11||Legal risks||Risks associated with changes in legislation, judicial practice on the issues of the Company's activities, balance of interests with other subjects of the electric power industry|| Analysis of the judicial practice on the most problematic issue of law enforcement. |
Preparation and submission to the executive and legislative branches of the Company's legislative initiatives.
Meetings on emerging issues in the industry.
Attracting external consultants to strengthen the Company's legal position in practical disputes and to form a positive practice
|12||Compliance risk||Risks associated with regulatory sanctions in connection with the possible non-compliance of the Company's activities with the requirements of the legislation, local regulatory acts or other regulatory documents that must be executed||Coordination in the prescribed manner of draft responses to requests from regulatory authorities, preparation of opinions on legal issues at the request of contract executing services, participation in the process of agreeing draft agreements concluded within the framework of the Company's activities|
|13||Reputational risk||The risk is associated with the possible failure to perform fully the obligations towards customers and counterparties|| In order to minimize reputational risks, the Company takes the following measures. |
Formation of the official position of the Company, publication of it on the official website, in the media, organization of press conferences, briefings with the participation of the Company's management, placement of information on social networks with the subsequent maintenance of the topic/discussion in the necessary direction of the Company.
Demonstration of openness and readiness for dialogue with the media.
Preparation and coordination of responses to media inquiries.
In order to prevent reputational risks, the following measures are taken.
Daily maintenance of the Company's presence in the media space.
Constant interaction with editors and leading journalists of key media for timely information sharing.
Daily monitoring of media and social networks.
Preparation and coordination of responses to media inquiries.
Holding press tours and events.
Publication on the official website of the Company, in the media, on social networks of information that forms a positive information background on the results of operations and plans of the Company.
Initiation in social networks of active discussions among bloggers/moderators of opinions in the necessary direction of the Company on topics related to the activities of the Company
|14||Strategic risk||The risk of failure to achieve the strategic goals and objectives of the Company due to potential changes in the internal and external environment of the Company|| In order to manage strategic risks and prevent the implementation of this risk, the Company implements the following set of measures. |
|Risks associated with the Company's activities|
|15||Operational and technological risk||Reducing the reliability of power supply to consumers, due to factors such as emergency situations of natural and man-made, leading to the disruption of the efficiency of electrical equipment; high proportion of equipment with excess service life; non-compliance with regulatory and technical requirements in terms of exceeding the established allowable values of the technological parameters of operation of power grid equipment|| Measures taken by the Company to reduce operational and technological risk. |
|16||Investment risk||Reduction of sources of financing for the Company's investment programs in the event of a deterioration in its financial and economic condition and, as a result, a decrease in tariff revenue if investment programs are not fulfilled. Violation of the planned deadlines for the commissioning of investment programme facilities for reasons of non-fulfillment/untimely execution by contractors and suppliers of their obligations|| Measures taken by the Company to reduce the risks of investment activities. |