Strategic risks

Macroeconomic, political, economic and social changes in Russia may have a negative influence on the Company’s operations. A possible decrease in demand and prices on key commodities exported by Russia (oil, gas and metals) due to the recession, possible decrease in demand on goods by internal markets as well as decrease in production rates lead to such strategic risks as significant deviation of real productive supply and energy consumption from targeted ones as well as decrease in connections. To minimize the risks we monitor energy consumption, work hard on forecasts bearing in mind the current dynamics of energy consumption, productive supply and connection applications. To improve mutual interaction we aspire to disseminate information on connection among consumers. We have arranged several Client Support Centers; information on connection is posted on our web-site.

Climatic peculiarities of the Urals may also have a negative impact on our operations. Emergency situations related to rapid changes of temperature, natural disasters (fires, floods) may lead to loss of supply and material impairment. To minimize the risks we conclude insurance contracts compensating damages, create emergency supply of material resources and prepare emergency response teams.

Ill-run retail market mechanisms may lead to risks related to disagreements among grid companies and retail suppliers on consumption volumes, growth of accounts receivable and low consumer payment discipline. To minimize the risks we aspire to eliminate conflicts with consumers, to decrease receivables on energy transmission as well as to accumulate court practice and positive precedents.

Another important factor is the lack of legal regulation of MRSK-FSK “last mile” relations. Despite the legitimate right to conclude such MRSK-FSK contracts, there are no procedures for contract approval by the Russian Ministry of Energy. Therefore, the appetence of large industrial enterprises to conclude direct transmission contracts with FSK and existing court practice may lead to a possible decrease of the service volume due to cancellation (non-renewal) of “last mile” rental contracts. FSK risk management is aimed at full observance of contract conditions and timely contract prolongation. Court practice is constantly being monitored and analyzed.

At the backdrop of recession, taking into account marginal growth of tariffs in the regions, there is a risk of the increase in economically feasible expenses incurred by allied grids while the growth boiler tariffs is limited. Therefore, under limited growth of final and network tariffs a regional regulator can approve increased tariffs for several grids while our revenues are decreased or left unchanged. Key steps for risk minimization are to submit to regional regulators justifying materials proving required expense gains that are not below the average network tariff growth as well as assertion of required expense growth since we are a regional backbone grid company.