CHAPTER 4
CORPORATE GOVERNANCE

4.5 Business ethics and anti-corruption

4.5.1 Control over Major and Interested Party Transactions

PJSC RusHydro operates a system of internal control over transactions. The adopted Regulations stipulate the unified procedure for approving, signing and executing of contracts concluded on behalf of PJSC RusHydro. The draft contracts pass a corporate examination in order to comply with the legislation and to reduce the risk of disputing contracts by counterparties and shareholders of PJSC RusHydro.

In 2016, PJSC RusHydro concluded interested-party transactions, the list of which, including the subject of transactions, stakeholders and information on their approval, is given in Appendix No. 2 to the Annual Report. The Board of Directors or the General Meeting of Shareholders approved all transactions, thus, there was no conflict of interest in the performance of these transactions.

4.5.2 Preventing the use of Insider Information

A new version of the Insider Information Policy was approved in September 2014. The Policy regulates the Company practices of observing the Russian law pertaining to the prevention of illegal use of insider information and market manipulation. The Policy has been developed taking into account the international practices of corporate governance, including the requirements of the Disclosure and Transparency Rules of the UK Financial Conduct Authority.

The Regulation establishes the categories of persons that PJSC RusHydro includes in the list of insiders, the access procedure and the rules for protecting the confidentiality of insider information, as well as restrictions on the use of information by insiders to conduct transactions with the Company’s financial instruments and to transfer information about it to other persons.

The Controller of PJSC RusHydro is in charge of monitoring compliance with the requirements of legislation on insider information . Upon the results of each quarter, the Controller provides a report to the Audit Committee. The Audit Committee includes in its annual report information on the Company’s performance of these requirements.

4.5.3 Anti-corruption efforts

The Company carries out regular work on prevention and detection of the corruption offence in the PJSC RusHydro, activities aimed at the elimination (minimization) of the reasons and conditions which may allow corruption to occur.

Its work is based on the Anti-corruption Policy, Code of conduct, Conflict of interests Management Policy, Integrated Program of Anti-corruption efforts and a number of other local regulatory documents forming the elements of corporate culture, rules and procedures to ensure prevention of corruption in the PJSC RusHydro.

As per the provisions of the Anti-corruption Policy, all the Company employees and members of the Board of Directors must observe the terms of the Russian legislation and international law in the field of anti-corruption efforts. The obligations are assigned to the employees and members of the Board of Directors by the Code of Conduct to act in the interests of the Company and to avoid the conflict of interests. The members of the Board of Directors must notify the Company about occurrence or the risk of occurrence of the conflict of interests (as well as of its affiliation).

PJSC RusHydro is a participant of the Anti-corruption Charter of the Russian business accepted by business community in 2012 for implementation of the National Anti-Corruption Plan.

Anti-corruption activities in the Company are conducted in four areas:

• improvement of the local regulatory documents (acts) basis,
  prevention and combating corruption,
• verification of reports of possible facts of corruption (unlawful actions, conflicts of interest, etc.),
• improving the internal control system.

In 2016, the Board approved a new version of the Program, which is synchronized with the National Anti-Corruption Plan for 2016-2017.

The Company declares the non-acceptability of corruption manifestations, in this regard, the main direction of anti-corruption activities is activities aimed at the prevention of corruption, such as identifying and preventing conflicts of interest, assessing the probability of corruption risks.

Method of evaluation of goodwill and financial conditions of procurement procedures participants

For the implementation of the Comprehensive Program, the Chairman of the Management Board – CEO of PJSC RusHydro, approves the annual plan of actions, which fixes the annual target results, as well as the personal responsibility of the officials for obtaining the specified results.

The Company’s website regularly features thematic press releases, official statements and information messages on the issues of combating corruption, preventing illegal actions and conflicts of interest, and reports on the implementation of the Comprehensive Anti-Corruption Program.

HELPLINE

«Helpline» permanent functions in the Company – communication channel for applications of the PJSC RusHydro employees and third persons (including the anonymous ones) related to the issues of fraud and corruption management, suppression of illegal actions and conflicts of interests, the Company activities improvement.

In 2016, the Company’s Helpline received 196 appeals (from launching the»helpline» in 2011, 719 appeals were received).

Compared to 2015, the number of applications received for consideration decreased by 9 %. The main reasons for refusal to consider were:

• non-compliance with the criteria for consideration of applications submitted to the «Line of Trust»;
• lack of information for feedback (letters without return address).

Annually, measures are taken to promote (popularize) the «Helpline» among employees of PJSC RusHydro:

• information on the «Helpline» on the official website and the internal portal is systematically updated.The additional criteria for consideration of applications submitted to the «Helpline» and new revisions to the Rules of Work and the Rules for Consideration of Appeals were placed in 2016;
• since 2016, once every six months, information on the results of the work of the «Helpline» is published on the Company’s website in the section «Helpline»;
• RusHydro posted information posters and mailboxes «Helpline» in the halls of its offices.

COMPLIANCE WITH THE CODE OF CORPORATE ETHICS

The Company has the Code of Corporate Ethics of PJSC RusHydro (the first version of the Code was approved by the Board of Directors, Minutes No. 152 of May 21, 2012, the new version of the Code of Corporate Ethics was approved by the Board of Directors, Minutes No. 235 of 08.04.2016). It takes into account the current recommendations of the Corporate Governance Code approved by the Bank of Russia, as well as other requirements and recommendations issued by the regulatory bodies to date.

In accordance with the Code of Corporate Ethics, the Company’s employees shall:

• not give preference to any counterparties of the Company, organizations, be independent of their influence;
• exclude actions related to the influence of any personal, property / financial and other interests that interfere with the conscientious performance of their employment duties;
• observe an impartiality that excludes the possibility of influencing the work of their decisions by political parties and public associations;
• not use the official position to influence the activities of state bodies, local governments, organizations, officials, state (municipal) employees and citizens in solving personal issues;
• not take unlawful actions.

In the part of preventing conflicts of interest the Code states that the Company’s employees shall:

• take measures to prevent the emergence of a conflict of interest and the resolution of the emergent cases of conflict of interest;
• refrain from part-time employment at enterprises / organizations outside the RusHydro Group, except for teaching, creative and scientific activities, if this does not lead to a conflict of interest;
• not directly or indirectly apply to any personal loan or service from any individual or legal entity that has a business relationship with the Company or who aspires to such a relationship. This does not apply to organizations that offer similar loans or services as part of their normal business activities;
• state the existence or threat of personal interest, which affects or may affect the proper performance of official duties.

The Code of Corporate Ethics also specifies that employees shall not:

• give gifts in connection with the performance of official duties to state and municipal employees;
• accept remuneration (loans, monetary and other remuneration, services, entertainment, recreation, transport expenses) and gifts from individuals and legal entities²⁸.

PREVENTION OF CONFLICTS OF INTERESTS OF EMPLOYEES

In order to identify and prevent conflicts of interest, the Company has established requirements for annual declarations of income, property and title obligations by the top managers of the RusHydro Group towards themselves and their close relatives. The Company operates the procedure for disclosing the chain of beneficiaries by counterparties, and the Human Resources Commission also operates.

Annually, within a specified time period, a declaration campaign is conducted, under which the declarations of the Company’s managers are checked for conflicts of interest. The report on the results of the inspection is submitted to the Ministry of Energy of the Russian Federation.

In PJSC RusHydro, the process of verifying declarations has been automated. For this purpose, the «Client of Affiliated Persons» system is used. As part of the development of the program module for the identification and control of affiliated persons, the processes for collecting information and conducting complex inspections to identify conflicts of interest have been automated.

Since 2014, all declarations of employees and their relatives have been submitted, processed and analyzed using this program. The introduction of this software significantly reduced the labor costs for conducting authentication of the information provided and allowed to minimize the risks associated with the human factor in its implementation.

As part of the declaration campaign (verification of income for 2016) to participate in the activities of commercial organizations and the fact of a conflict of interest, more than 490 executives of the Company and its subsidiaries, as well as their relatives (2,226 people) have been verified in 2017. Based on the results of the audit, disciplinary measures were applied to the employees of the RusHydro Group.

In order to provide additional transparency when interacting with suppliers and contractors, special requirements are set for counterparties. In particular, when entering into contracts, an indispensable condition is the provision of information and supporting documents regarding the entire chain of counterparty owners, including the ultimate beneficiaries, as well as the signing of a letter of guarantee for the non-involvement of «one-day firms» in fulfilling obligations under contracts.

In 2016, the Economic Security Department of PJSC RusHydro checked 547 counterparties in the framework of procurement procedures and contracting procedures. Facts and features of conflicts of interest between the leaders (founders) of these organizations and the Company’s employees have not been revealed.