The Development Strategy of the RusHydro Group for the period until 2020, with a perspective of up to 2025, was approved by the PJSC RusHydro Board of Directors (Minutes No. 238 of 08.06.2016).
In accordance with the Strategy, the Group’s activities will be aimed at effective use of hydro resources, ensuring the reliability of the Unified Energy System of Russia, and creating conditions for the social and economic development of the Far East regions through the availability of energy infrastructure for consumers. Unlike the previous Strategy, the new Strategy defines the goals and development directions for the entire RusHydro Group, including its Far Eastern assets.
* Hereinafter in section 2.1.1. “the Company” means Group RusHydro including PJSC RusHydro (Executive office and branches) and its subsidiaries.
RusHydro Group’s value growth key points
Clean energy – environmental safety and natural resources friendliness.
Engineering culture – safe and reliable assets management.
Prosperous society – reliability and infrastructural development, rational use of water resources, development of hydropotential and expansion of the use of renewable energy sources, which contribute to the development of the territories, economic growth, welfare and social prosperity.
Responsible business – social policy that supports staff and residents of the regions where the Company operates.
Leading company – success ensuring and striving for leadership of the Company by combining the efforts of employees, resources and business components in the pursuit of excellence in every aspect of activity.
United team – development opportunities and fair remuneration for employees to achieve the Group’s competitive advantages in different areas of its activities (team spirit, self-expression and personal fulfillment).
Developing environment – new technologies and unlimited opportunities for development.
Young energy – professionalization of the Russian school graduates.
The Company has a strategic management system that links the processes of strategic management with the system of motivation. The system is formed taking into account the recommendations of the Federal Property4 Management Agency for the development of key strategic documents and includes an audit of the implementation of the Long-Term Development Program.
* * Considering the high priority of the reliable and safe functioning of the Company’s facilities and Far East power development.
The Long-term development program of the RusHydro Group (LDP) is drawn up in accordance with the instructions of the President5 of the Russian Federation and the Government6 of the Russian Federation.
The Long-term development program of the RusHydro Group for 2016-2020 is approved by the decision of the Board of Directors of PJSC RusHydro7. The program defines the main principles and directions that ensure the efficient and dynamic development of the RusHydro Group in order to ensure the effective use of water resources, the reliable Unified Energy System of Russia, as well as to create conditions for the social and economic development of the regions of the Far East by ensuring the availability of energy infrastructure for existing and prospective consumers.
LDP is formed on the basis the Development Strategy of the RusHydro Group for the period up to 2020 with a perspective up to 20258, the consolidated RusHydro Group Business Plan and the program documents of the RusHydro Group (PJSC RusHydro and RAO ES EAST, PJSC): production programs, investment programs, innovative development programs.
Key priority areas of development and goals:
The program defines the main principles and directions that ensure the dynamic development of the RusHydro Group and contains proposals to improve the operational and investment activities of PJSC RusHydro, as well as the efficiency and competitiveness of the RAO ES EAST Holding, activities to improve the corporate governance system, the staffing system, the system of antiterrorist, information and economic security and development of international activities, contains risk analysis of activities implementation, key performance indicators and a methodology for calculating and evaluating KPIs of the LDP.
The Long-term development program for 2016-2020 also contains information in accordance with the Directives of the Government of the Russian Federation received in 2016 (No. 1442-P13 of 03.03.2016 «On innovative development», No. 3035p-P13 of April 29, 2013 «On the application of the indicator «Total shareholder return (TSR) of 04.07.2016 No. 4750p-P13 «On the reduction of transaction costs by 10 %», of 2016.06.28 No. 4531p-P13 «On the priority nature of the tasks of social and economic development of the Far East»).
The main activities aimed at the implementation of the Long-Term Development Program in the reporting year are implemented as part of the production, investment and innovation programs. Information on their implementation is presented in Sections 2.3, 2.4, 2.5 and 3.1.3.
Verification of the implementation of the LDP is carried out in accordance with the Standard9 for verification of the LDP implementation and the Technical task for conducting an audit of the implementation of the LDP10, developed on the basis of the recommendations of the Government of the Russian Federation11.
A system of key performance indicators (hereinafter – KPI) of PJSC RusHydro is aimed at enhancement of efficiency of the Company’s performance and achievement of the goals set by the shareholders. The KPI system includes the indicators approved in the RusHydro Group’s Long-term Program for 2016-2020 (approved for a five-year period) and as part of Business Plan for the year 2016.
PJSC RUSHYDRO KPI
The KPI of PJSC RusHydro includes seven annual KPIs: four financial and economic indicators, two sectoral ones (which meet the requirements of the Federal Property Management Agency) and an integrated KPI for innovation, approved by the minutes of the meeting of the Interdepartmental Working Group on Implementing Innovation Development Priorities of the Presidium of the Presidential Council for Modernization of the Economy and innovative development of Russia (Minutes No. AD-P36-247pr of 17.12.2015).
Financial and economic indicators include two indicators mandatory for use in accordance to the instructions of the Federal Property Management Agency – Total shareholder return (TSR) and return on equity (ROE). The basis for the calculation of financial and economic indicators in the Company is the Group’s consolidated financial statements under IFRS. Integral KPI of innovation activity is included in the list of KPIs for 2016 in pursuance of the directive of the Government of the Russian Federation of 03.03.2016 No. 1472p-P13 (Minutes of the Company Board of Directors of 10.10.2016 No. 242).
Also in 2016, the Board of Directors changed the methodology for calculating and evaluating key indicators of PJSC RusHydro (Minutes No. 242 of10.10.2016) in pursuance of the directive of the Government of the Russian Federation (of 29.04.2016 No. 3035p-P13) on the need to change the procedure for evaluating the indicator « Profitability of investments of shareholders (TSR), %.
THE KPI OF THE LDP OF THE RUSHYDRO GROUP
The Long-term Development Program contains the KPI established for the 2016-2020 period.
The calculation of the target values of the KPI is made in compliance with the parameters for the 2016-2020 Business Plan, and takes into account measures provided for by the RusHydro Group’s programs.
In 2016 in pursuance to instructions from the Government of the Russian Federation, the Long-term Development Program has undergone a number of changes, approved by the Board of Directors (Minutes No. 242 of10.10.2016):
Also in 2016, the Company’s Board of Directors minutes (Minutes No. 244 of11.23.2016) approved a change in the methodology for calculating the Key Performance Indicators «Limit on leverage», the KPI «Implementation of the schedule for commissioning capacities of the main new construction projects», and the replacement of the KPI «Reliability criterion» for the indicator: «Prevention of occupational accidents and the maximum number of accidents by the Group» while foregrounding the assessment methodology.
KPIs Target and Actual Values
* In 2016 the valuation is based on a comparison of the actual TSR of the Company with the dynamics of the composite index of the Moscow stock exchange – the MICEX index (index code – MICEXINDEXCF). The change in the MICEXINDEXCF Index is calculated as the percentage of the change in the average value of the MICEXINDEXCF Index for 22 trading days at the end of the year preceding the reporting period and the average MICEXINDEXCF Index for 22 trading days at the end of the reporting year. The indicator is considered to be fulfilled (will be 100 %) if the actual value of the key indicator of the Company’s TSR efficiency exceeds the dynamics of the MICEXINDEXCF Index for the reporting period by a positive amount. In 2015 the valuation was based on a comparison of its absolute number within the Company to the TSR of other companies (common shares only) included in the power industry sector index of the Moscow stock exchange (MICEX PWR) without grid companies and energy services companies and RAO ES EAST, PJSC. The KPI is considered to be fulfilled if the Company’s TSR value is within the 50th percentile (or higher) in the TSR matrix of the companies included in MICEX PWR, which is equal to 100%.
** The size of own capital at the end of 2016g. Does not take into account the possible increase in the amount of the additional issue to ensure the refinancing of debts on loans and borrowings of the Holding of RAO ES EAST, PJSC.
*** According to the methodology for calculating and evaluating the key performance indicators of PJSC RusHydro (Minutes of the Board of Directors No. 208 of December 26, 2018), the indicator is considered fulfilled if the actual figure is ≥0.85 of the planned (100 %) indicator.
**** In accordance with the approved Methodology, the KPI «Integral KPI of Innovation Activity,%» (hereinafter referred to as «IKPI») includes the indicator «Quality of Development (Updating) of the IRTP / IRTP Implementation», which is determined on the basis of the final assessment of the quality of the development / Implementation of the IRTP, formed by the Interdepartmental Commission for Technological Development of the Presidium of the Council under the President of the Russian Federation for Economic Modernization and Innovative Development of Russia (hereinafter – IDC).
According to the Minutes of the meeting of the IDC of 17.12.2015 No. AD-P36-247pr, the indicator «The quality of development (actualization) of the IRTP / IDP performance,%», included in the IKPE, is calculated as follows: «Based on the results of 2016 and in years the RDP actualization will take place, using weighting factors with values of 0.5 to estimate the quality of the development (update) of the IRTP and 0.5 to assess the quality of the IRTP performance. In other years, assess only the quality of the IRTP.»
As of the date of preparation of the annual report for the year 2016, the indicator “The quality of development (actualization) of the IRTP / IDP performance,%” cannot be calculated, since for its calculation it is necessary to obtain estimates for both indicators included in its composition:
A) assessment of the quality of the development (update) of the IRTP – received, formalized by the Minutes of the IDC of 26.12.2016 No. 23-DO1. The estimate is 95.2 %, being one of the highest assessments of the quality of IRTP development among the companies of the fuel and energy complex.
assessment of the quality of the IRTP implementation is not received, since it can only be obtained after consideration of the IRTP implementation report for 2016 by the authorized federal executive bodies of Russia and the release of the relevant minutes by the Interdepartmental Commission for Technological Development of the Presidium of the Presidential Council for Modernization of Economy and Innovative development of Russia. Thus, as of the date of preparation of the report, the performance of the IKPE for 2016 is not calculated. The results of the implementation will be additionally submitted to the Board of Directors for consideration after receiving an assessment of the quality of the IRTP implementation for 2016.
***** Actual values and degree of achievement of target values of the quarterly KPIs are given for the 4th quarter of 2015 and the fourth quarter of 2016, respectively.
The KPI of the LDP of the RusHydro Group14
* In accordance with the draft Investment Program of PJSC RusHydro and the project of the Investment Program of the RAO ES EAST Holding for 2016-2020. The commissioning of major new construction projects in 2020 is not planned.
** According to PJSC RusHydro.
*** The indicator was evaluated as part of an independent audit of the Long-Term Development Program as of 30.03.2017.
The Board of Directors of PJSC RusHydro approved the Development Strategy of the RusHydro Group for the period up to 2020 with a perspective up to 2025.
The KPI of RAO ES EAST, PJSC for 2016
* According to the guidelines, the indicator is considered fulfilled if its actual value for the reporting period is greater than or equal to 75 %.
THE KEY PERFORMANCE INDICATOR (KPI) SYSTEM OF PJSC RUSHYDRO FOR 2017
In 2016, based on the recommendations of an independent consultant13 the key performance indicators for the long-term motivation first cycle program of JSC RusHydro’s for 2017-2019 were developed, as well as a list and target values of the annual key performance indicators of the members of the Management Board of PJSC RusHydro for 2017, allowing to motivate the Company’s management to implement strategic tasks, and thereby unite the interests of management and shareholders of the Company (Minutes of the Board of Directors No. 245 of December 26, 2016).
The Key performance indicators of PJSC RusHydro were developed taking into account item 4 of the list of instructions of the President of the Russian Federation of July 5, 2013. No. Pr-1474, instructions of the Government of the Russian Federation of March 27, 2014. No. ISH-P13-2043 and directives of the Government of the Russian Federation of April 25, 2014. No. 2579p-P13, of 12.11.2014 No. 7558p-P133 in accordance with the Methodological Guidelines of the Federal Property Management Agency.
Calculation and evaluation of the KPI of the members of the Management Board and the KPI of the Company’s Long-Term Incentive Program is carried out on the basis of themethods for calculating and evaluating the annual key performance indicators of the Management Board members of JSC RusHydro and the Methodology for Calculating and Evaluating the Key Performance indicators of the Long-Term Incentive Program of PJSC RusHydro for the first cycle for 2017-2019 respectively approved by the Board of Directors of the Company (Minutes No. 245 of December 26, 2016).
The KPI Long-Term Incentive Program of PJSC RusHydro The first cycle for 2017-2019
The list and target values of the annual key performance indicators of the members of the Management Board for 2017
2.2 Risk management