2.2 Risk management

2016 events

  • A methodology for evaluating the maturity level of the corporate system of internal control and risk management of PJSC RusHydro (hereinafter CSICandRM) is developed and approved
  • The audit environment of PJSC RusHydro was assessed using a model formed in accordance with the CSIC RM maturity assessment methodology and taking into account the audit result of the business processes of PJSC RusHydro conducted in 2015 and 2016
  • The Register of strategic risks and strategic risk management plan of PJSC RusHydro for 2016-2017 is updated
  • Scenarios and key indicators of the probable implementation of strategic risks of the RusHydro Group are developed
  • In PJSC RusHydro key subsidiaries (design and research institutes, construction organizers and contractors, repair and service companies, marketing companies), risk management plans for 2016-2017 have been approved

2.2.1 Corporate risk management system

The activity of PJSC RusHydro is associated with some risks which, under certain circumstances, may have negative influence on the production and financial results of the RusHydro, as well as the social and natural environment of the Company. The Company has developed a risk management system in order to minimize the negative influence of possible risks and implementation of favourable opportunities. The system is developed in order to ensure the execution of the Company’s strategy.

For risk management processes structuring, the Risk Control and Risk Management Department (hereinafter – CDandRM) was established within the Internal Control and Risk Management Unit.

CDandRM in its activity framework does the following key tasks:

  • organization of an effective CSICandRM,
  • ensuring effective operational control in the RusHydro Group,
  • interaction with external control bodies.


The external evaluation of the CSICandRM effectiveness is carried out regularly during the audit of the performance of the Long-Term Development Program of the RusHydro Group, external audit of financial statements, survey of RusHydro’s facilities, compulsory due diligence as part of Mergers & Acquisitions risk assessment, and Conducting complex assessments of the effectiveness of the internal control system and risk management of the Company by invited independent experts.

The quality of the risk management system of PJSC RusHydro is regularly confirmed by an independent jury of international competitions (RusHydro’s victory in risk management in the contest «Best Risk Management-2015» in the category «Production Organizations», wins in the categories «The Best Integrated Risk Management Program», «The Best Risk Manager of Russia», conducted by the Russian Risk Management Society RusRisk – the Russian National Association of Risk Managers, member of the Federation of European Risk Management Associations FERMA, etc.).

More information about the risk management policy.


The list of methods and approaches to risk management is defined by the Internal Control and Risk Management Policy (approved by the Board of Directors of PJSC RusHydro, Minutes No. 227 of 16.11.2015). The Company uses the following set of methods and approaches to risk management:

  • risk management is an integral part of all organizational processes: risk management is not separate from the main activities and processes of the organization;
  • risk management is part of the decision-making process. Risk management helps decision-makers make informed choices, prioritize actions and identify the most effective actions among alternative options;
  • risk management contributes to the continuous improvement of the organization. To increase the level of maturity of risk management, the Company develops and improves the CSICandRM;
  • the company seeks to create a risk-oriented corporate culture;
  • the top management of the Company ensures the priority of risk management,
  • dissemination of risk management knowledge and skills in the Company and the RusHydro Group, facilitates training in the basics of risk management and the adoption of a corporate culture of «risk management»;
  • training of the Company’s employees is carried out on an ongoing basis to transfer knowledge and experience to new employees, monitor trends in global risk management practices, update the knowledge of employees and managers of all structural units in the field of risk management;
  • the Company’s management ensures the possibility of effective information exchange and the introduction of communicative norms within the framework of corporate risk management.

According to the PJSC RusHydro strategic management provision, the Company compiles the Register of strategic risks on an annual basis. This document is subject to approval by the Board of Directors. The Board approves the plan of strategic risk management for dealing with the critical and significant risks. The plan stipulates the terms of actions, persons responsible for them, and their expected results. The efficiency of the execution of risk management actions and the KPIs is taken into consideration in the distribution of bonuses to employees. The monitoring and control of the plan’s execution is carried out by the risk managers of the Company.


The risk managers interact with the members of the Audit Committee of the Board of Directors for the purpose of controlling the functioning of the risk management system of PJSC RusHydro, which corresponds to the guidelines on the audit of the Boards of Directors of companies with the involvement of the Russian government (stipulated by decree no. 86 of the RF Federal Property Management Agency of 20.03.2014)

According to the Company’s Corporate Governance Code, the Board of Directors (Audit Committee) carries out an analysis and assessment of the risk management and internal control system performance at least once a year. The results of this analysis and assessment are reviewed at a meeting of the Board of Directors (Audit Committee).

In 2016, the Audit Committee conducted an evaluation of the risk management system, which includes:

  • assessment of sufficiency and maturity of elements of the risk management system,
  • analysis of completeness of detection and correctness of risk assessment,
  • analysis of the effectiveness of the Company’s risk management activities,
  • analysis of information about the realized risks.

In June 2017, the Board of Directors will review the report on the functioning of the corporate internal control and risk management system.

more details on the stages and methods of risk management .


The Internal Control and Risk Management Policy of the Company is the main document stipulating the goals, purpose, and principles of the corporate risk management control system efficiency of PJSC RusHydro.

More details on internal control and risk management .

Documents stipulating strategic risk management

Operational risksInvestment risksMarket (sales) risksM&A risks
  • The directive on the process of the formation of production programs
  • The recommendations of the Analysis Centre (as a part of the annual report of the Analysis Centre)
  • The directive on the system of retrofitting and upgrading project management
  • Methodical Recommendations for the efficiency evaluation of the TP & R projects of generating branches and subsidiaries of PJSC RusHydro branches and subsidiaries (methodological recommendations take into account the risks of production disruptions and environmental risks)
  • The set of standards concerning the production activity of the Company in terms of the management of the risks of certain stages of production asset lifecycle
  • The directive on the management of investments in the form of capital investments
  • Methodological guidelines on risk assessment on the RORAC basis
  • Quarterly reports on project risk management filed by investment subjects to the Board of Directors
  • The standard list of risks connected with the execution of investment projects as a part of the Directive on the management of investments in the form of capital investments
  • Risk registers, risk management action plans, and monthly reports on the execution of the plan of risk management events
  • The Directive on the policy of PJSC RusHydro in the field of the sales of active power generation units within the pricing areas of the wholesale power joint market
  • Methodological guidelines of the identification of the minimal (maximum) electrical energy indices for the wholesale power joint market
  • Methodological guidelines for the assessment of the internal ratings of the contractors of the Company operating in the wholesale power joint market based on the criteria of Moody’s with a limitation of the credit rating of the contract portfolio
  • The directive on the planning, pre-approval, support, and the execution of strategically important other significant transactions.
  • Registers and risk management plans concerning the considered strategically important transactions as parts of the certificates of strategically important transactions.


In order to improve the CSICandRM, the Company implements the program for the development of the RusHydro Group’s CSICandRM by 2019 (approved by the Management Board of PJSC RusHydro on November 28, 2014), and the plan for improving the Company’s internal control system for the reporting year is approved annually.

The Company currently focuses on the improvement of the CSICandRM in the following areas of activity:

  • carrying out regular assessments of the effectiveness of risk management measures, automating management procedures to collect information on risks, activities and risk indicators for the Group;
  • regulation of risk management processes in the Group’s Subsidiaries based on approaches implemented in PJSC RusHydro;
  • integration of risk management systems into planning and decision-making processes in the Group’s companies;
  • development of an end-to-end system for collecting reports on the risk management of Group’s companies and aggregating information on risk management at the parent company level using the automated risk management system of PJSC RusHydro;
  • typing of risk control procedures in all companies of the Group;
  • annual reassessment of the levels of development of risk management systems in the Group companies to update the integrated assessment of systems, development of a program for the improvement of the RusHydro Group risk management system based on the assessment.

In 2016, in order to improve the risk management system, the following key actions were implemented:

Corporate level

  • The Strategic Risk Management Plan is updated and approved by the Management Board of PJSC RusHydro for 2016 – 2017.
  • Based on the scenario approach, a system of indicators for the implementation of strategic risks of PJSC RusHydro and the RusHydro Group was developed and approved as part of the approval of the Strategic Risk Management Plan for 2016-2017.
  • The methodology for assessing the CSICandRM maturity level of PJSC RusHydro, its branches and subsidiaries was developed and approved (CSICandRM assessment of the maturity includes: assessment of the compliance of CSICandRM with regulatory requirements and evaluation of the effectiveness of risk management).
  • Branches and Subsidiaries are assessed and prioritized according to the level of risk and the status of implementation of risk management procedures in order to form a risk-oriented internal audit plan for PJSC RusHydro for 2017-2018.
  • In the key subsidiaries of PJSC RusHydro (design and research institutes, construction organizers and contractors, repair and service companies, retail companies), risk management plans for 2016-2017 have been approved.
  • As part of the risk management activities of the RAO ES EAST Holding, the measures envisaged by the Strategic Management Plan for the Holding Company RAO ES EAST for 2015-2016, developed for the strategic risks of RAO ES EAST, PJSC, as well as strategic risks Subsidiaries of RAO ES EAST, PJSC: JSC «FEGC», JSC «FEDC», PJSC «FEEC» and PJSC «Yakutskenergo».

The implemention of the system of scenarios/indicators of realization of strategic risks of PJSC RusHydro and RusHydro Group will allow to:

  • provide a factor analysis of risks of not achieving strategic goals (strategic risks) and establish a relationship “goals (KPIs) – risks” through objective scenarios of risk realization;
  • monitor trends in risk management;
  • make timely and reasonable decisions about exclusion of irrelevant risks from the vision of management for the next planning period, or about need of development of corrective measures to strengthen control under realized risks, if a negative trend of risk indicators shows insufficient efficiency of existing control procedures and risk response measures;
  • analyze statuses of risks based on values of the indicators and exclude ineffective measures from the plan of governance of strategic risks, replacing them with more specific and relevant control procedures;
  • conduct a risk-based internal audit based on assessments of values of the risk indicators and allocation of “weak points” of the business processes of PJSC RusHydro and RusHydro Group.

Business and operational level:

  • The adequacy and effectiveness of control procedures (testing of the design of control procedures) of business processes « Materials and technical equipment (ME) Procurement and Services Management», «Management of sales of electricity and capacity» and «Management of Research work and Research and
  • Development work» were assessed as sufficient and effective.
  • Operational effectiveness evaluation (assessment of implementation and actual execution) of the audit procedures for the business process « Materials and equipment (ME) Procurement and Services Management» was conducted.
  • Within the framework of self-assessment of the internal control system of PJSC RusHydro, an assessment of the control environment of PJSC RusHydro was made using a model formed in accordance with the methodology for the CSICandRM = maturity assessment and with due regard to the audit result of the business operations of PJSC RusHydro, held in 2015 and 2016.
  • Within the framework of coordination and methodological support for the implementation of the internal control system management process in PJSC RusHydro:
    – administrators of the internal control and risk management system were appointed for key business processes of PJSC RusHydro,
    – matrices of control procedures for key business processes of PJSC RusHydro are formed,
    – Corporate training on the topic «Construction and management of the internal control system in PJSC RusHydro» was organized.

More information on improving the risk management system.

2.2.2 RusHydro Group risk register


The current register of strategic risks associated with the Company’s operations was formed on the basis of the register of the previous period and analysis of external information and approved by the Company’s Board in November 2016.

More details on the formation of the risk register go to the .

The strategic risk register, taking into account their ranking according to the likelihood of implementation and impact on the Company’s and Group’s business, is presented at the Risk Radar. The Radar reflects the Company’s risk profile in 2016-2017. The risk ranking presented in the Radar reflects the priorities of the management to ensure the Company’s readiness for possible negative scenarios for the development of the overall risk environment.

PJSC RusHydro Risk Radar for 2016-2017

PJSC RusHydro strategic risks register

Risk nameRisk factorsRisk management activities
Capital construction project risks

The risk is related to a wide range of investment programs for the next few years, and the complex management and financing structure of a range of products.

Risk factors:
At the initiation and design stage:

  • great uncertainty in the projects’ feasibility studies, 
  • non-compliance of the quality of design documents with the requirements set,
  • considerable dependence of the projects’ economic parameters on the external factors (the availability of grid infrastructure and markets by the date of commissioning of the facility constructed).

At the implementation stage:

  • problems with the preparation of flood zones,
  • increase of the cost of equipment and materials during the construction,
  • supply chain interruptions due to various reasons.


  • interaction with shareholders of PJSC RusHydro.

The arrangement of data on the designed projects:

  • the development of the corporate project management system for the systematisation of data on the existing and designed projects.

The development of the internal expert review of design and detailed design documents:

  • improvement of the efficiency of functioning of design institutes, optimisation of purchasing activities intended to reinforce the role of the Company’s own design institutes in performing the internal assessment of the design and tender documents,
  • regulating the internal expert assessment of design documents.

Control over the quality of work, schedule and cost:

  • maintenance of the list of mala fide designers, and selection of subdesigners;
  • refinement of insurance and purchasing systems in regard of construction and mounting activities,
  • development of regulatory documents in regard of performance of individual types of work, the implementation of an authorisation system permitting the employees to perform such types of work, and enabling the suspension of individual employees from the performance of work in case of any material violations,
  • development of the supplied equipment quality control (including equipment manufacture and shipment/delivery),
  • the creation of the schedule and cost monitoring and control system for the new construction projects based on the SAP capital construction management information system.

The risk of the reduction of electric power and capacity sales income compared to the business plan

The risk is critical due to overregulation of the electricity and capacity market, highly volatile electricity prices on WECM, variability of fuel prices for PJSC RAO Energy System of the East, decreasing payment capacity of contractors resulting from the effects of financial crisis, unfavourable conditions (dry years), difficulties in forecasting the payload of the equipment.

  • Preparation of proposals on changes to be introduced in legal documents regulating power industry;
  • periodic review of the marketing policy of RusHydro;
  • implementation of a commercial dispatch system.
The risk of negative legal changes/violations

The critical risk of unfavourable changes/ violations of law is one of the most significant for the power industry not only in Russia, but worldwide.

The safety, insurance, environmental and other regulatory requirements are getting more stringent.

Possible claims of tax authorities, due to the uncertainty of tax legislation.

  • Continuous monitoring of initiated and reviewed changes of the law which may affect the activities of the Company;
  • monitoring and review of existing standards and normative documents in the sphere of technical regulation;
  • representation of the Company interests, its representatives, participation in major events and round table discussions concerning the above mentioned amendments, such events and discussions organized by the bodies of legislative, executive and judicial powers, by nongovernmental organizations, industry associations, by legal unions and associations;
  • performance of periodic environmental audits and adhering to the resulting recommendations;
  • participation in the activities of the work groups of the Russian Ministry of Energy on issues of technical regulation (concerning Technical Procedures) and in the work of the Technical Committee No 330 of the Russian Technical Regulation Authority (concerning national standards).
The risk of man-made accidents

The risk is mitigated within the red zone due to the implementation of the comprehensive modernisation programme and the respective equipment reliability and safety growth. However, taking into consideration the potential consequences of risk occurrence, which may threat human life and health and lead to the disruption of production and further reduction of the Company’s revenue, the risk remains in the focus of attention of the managers of the Group.

The negative effect on the risk probability of severance of managerial ties is possible in case of Company privatisation and/or restructuring of the management system by cash-generating units and projects under construction. Here the risk factors result from design faults manifesting at the operation stage, equipment deterioration, the violation of operating conditions, untimely repairs, re-equipment and reconstruction, low-quality repair, the low-quality of construction and installation works connected with re-equipment and reconstruction, the human factor, and environmental factors.

All of them may lead to the breakdown of major equipment and deterioration of hydrotechnic structures. As estimated by the Company, the probability of the breakdown of equipment and structures stays within the industry-average level. All main production facilities of PJSC RusHydro are insured.

  • Repair work in full and the implementation of the re-equipment and reconstruction programme;
  • development of the quality control system for supplied equipment including its manufacturing and shipment/delivery, construction, installation and commissioning, as well as increasing the scope of contractual liability of suppliers/contractors for the manufacture and supply of equipment and materials;
  • filing claims against mala fide suppliers/contractors;
  • observance of the recommendations given in the course of the inspection of facilities owned by PJSC RusHydro;
  • strengthening onsite control over suppliers/contractors in terms of eliminating injuries, fire incidents, misconduct and thefts;
  • development of regulatory technical documentation aimed at enhancing the quality of designing and construction management processes;
  • introduction of continuous up-to-date equipment troubleshooting procedures, advanced control technologies for business assets including appropriate information technologies;
  • refinement of the structure and amount of replacement parts;
  • development of equipment lifecycle management systems at operating hydroelectric power plants;
  • control over the officials’ compliance with theregulations, instructions, etc. in the course of operations, service, etc.
The risk of fund shortage including the shortage of external funds for planned investments

Against ongoing stagflation and international sanctions, the risk may be slightly mitigated due to the reconsideration of investment priorities. At that, given that international sanctions continue, the risk of the unavailability of borrowed funds on terms favourable for the Company is growing due to the existing covenants set forth in the Group’s loan agreements. Most of the affecting risk factors are represented by the country and external factors of the Group.

The risk of external fund shortage is critical for the Company. It is closely bound with the implementation of capital construction projects. The full or partial reduction of financing sources within the framework of the investment programme may cause the late completion of ongoing projects or the Company’s being forced to suspend construction or even suspend the construction of a number of facilities.

Taking into account high cost of preservation of facilities under construction, which in some cases is comparable with the cost of proceeding with the construction, this fact will affect the economic efficiency of the Company’s investment projects, as well as its financial and performance results.

  • Maintenance of the availability of money and financial resources in in sufficient amounts by ensuring adequate loan facilities;
  • implementation of a balanced model of the working capital financing by using short-term and long-term sources;
  • control over the observance of credit agreements to prevent any violation of financial covenants of the Company;
  • placement of temporarily available funds in short-term financial instruments (bank deposits);
  • execution of contracting agreements in accordance with standard financial provisions;
  • interest and currency risk management with a view to the credit policy of RusHydro;
  • preparation of the flood zones of power plants under construction using the funds of the federal budget and of the budgets of the subjects of the Russian Federation;
  • in order to reduce the debt burden of RusHydro Holding, an additional issue of shares was made and an agreement was concluded on the purchase of 55 billion shares of the Company by PJSC «VTB Bank».
The risk of the shortage of resources for the implementation of working programmes

This risk correlates with the risk of a shortage of funds for investment. There are possible disruptions of competitions, equipment supplies, rendering of services by foreign counteragents, reviews of bank guarantees issued by foreign banks.

  • Prompt performance of claims work in response to low quality of repairs, inadequate quality of equipment, violation of delivery time;
  • using the recommendations of the Analytical Center when making production programs;
  • monitoring of financial information about the suppliers and contractors to prevent the risk of the counterparty’s bankruptcy;
  • refinement of the process of contract negotiation, amending local regulations of the Company on contractual activity;
  • monitoring of technical re-equipment and reconstruction projects implementation in accordance with the standards of the organization.
The risk of failure to achieve target values by engineering companies

In the crisis, the key development opportunity is quality growth and cost reduction at all stages of the life cycle of the Group’s assets, largely due to reduced risks of engineering activities.

At the same time, it is possible to restrict access of engineering companies to credit facilities in the event of long-term international sanctions and difficulties in obtaining funds in freely convertible currency.

The company considers this risk to be significant because of the significant importance of the engineering business within the life cycle of production assets.

  • Development of a unified design complex of PJSC RusHydro by restructuring the engineering subsidiaries and affiliates;
  • implementation of the development programs for engineering subsidiaries;
    introduction of international experience sharing programs to repair and engineering subsidiaries and affiliates;
  • personnel development and scientific personnel training programs;
  • development of standard bills of work for repair of equipment and hydrotechnic structures;
  • creation and operation of the database of advanced innovations;
  • minimization of the risks of the inefficient management of non-core operations by their consolidation at specialised maintenance subsidiaries.
Terrorism risk

This risk is caused by general political and social tensions, the activity of armed groups in the North Caucasus and their attempts to expand their activities to other regions of the Russian Federation, the high probability of local and regional armed conflicts, the growing threat of international terrorism and political instability in a number of developing countries caused by the economic crisis, as well as the activity of extremist organisations, and growing commercial terrorism.

In this context, PJSC RusHydro expects the growth of risks related to terrorist activities aimed at hydroelectric power facilities.

Lack of coordination with international antiterrorist services in the event of tougher international sanctions. The upcoming events (World Cup in 2018, etc.), a large proportion of foreign-made ASIS.

Another risk factor is the growth of cyberterrorism threats (according to the Kaspersky Lab’s research, Russia belongs to the leaders in the rating of susceptibility to cyber threats).

  • Provision of armed security of facilities by forces of the private guard of Rosgvardia, FSUE «Okhrana» of Rosgvardia and FSUE «Departmental security» of the Ministry of Energy of the Russian Federation;
  • development and maintenance of up-to-date plans for interaction with law enforcement agencies to protect the Company’s facilities when committed or threatened to commit a terrorism act;
  • maintenance of security pass regime for the Company’s facilities;
  • application ofmeasures to identify, prevent and suppress acts of unlawful interference in the activities of the Company’s facilities jointly with law enforcement agencies;
  • assessments of the most likely threats and develop plans for mitigation, together with the territorial bodies of EMERCOM of Russia in the constituent entities of the Russian Federation at the location of the Company’s facilities;
  • equipment of the facilities of the Company with engineering and technical means of protection;
  • organization and control over the access to information on the composition and condition of engineering and technical means of protection;
  • property insurance of the Company for the risk of «Terrorism and Diversion»;
  • increased number of equipment certified by FSTEC of Russia, and equipment of domestic production;
  • audits of information and technical security;
  • organization and control over the mode of access to software and hardware of control systems and information systems.
The risk of failure to achieve target values by retail companies

The risk declines, remains significant for the Company. The risk may depend on slumping demand for electric power and capacity due to decline in production, intense competition with independent power supply companies and the development of energy-saving technologies, as well as consumers’ financial insolvency caused by stagflation and the development of energy-saving technologies.

The risk factors include a high level of competition, a threat of losing the last resort supplier status in retail regions and the possibility for construction of alternative electric supply facilities by large consumers.

  • Monitoring of the Company’s compliance as a guaranteeing supplier with financial stability criteria in accordance with retail market rules;
  • active cooperation with consumers to establish a mutually beneficial relationship, including through JSC ESK RusHydro. A program to retain customers has been approved;
  • introduction of a corporate risk management system for PJSC RusHydro in its subsidiary sales companies.
The risk of delays and errors in management system improvement
  • Changing structure of the Holding Company;
  • conflict of interests between shareholders and the Company’s management, conflicts of interest between employees;
  • delayed approvals by the stakeholders of the Company;
  • imperfection of the Company’s business processes;
  • slow rate of making approvals and management decision-making;
  • rejection of documents on formal grounds/artificial delays in business processes.
  • Improving activity regulation and the business process management system;
  • refinement of the procurement schedule;
  • improved cooperation with stakeholders.

The internal control department of PJSC RusHydro analyses key business processes in order to improve the Company’s control system and enhance its process efficiency. Civil responsibility of the Company’s officers to any third parties is insured.

PJSC RusHydro introduces corporate management standards in reacquired or established subsidiaries and affiliates, as well as the systems of corporate project management, staff grading (grading means the establishment of a job hierarchy based on the job evaluation, strategy, and corporate culture of the Company), manager certification and implementation of individual personnel development plans.

The risk of cooperation with stakeholders
  • Incorrect interpretation of information by representatives of the target audience, including environmental (ecological) organisations, which can damage the Company’s reputation and/or cause its shares to fall;
  • dissemination of false and black information about the Company in the media and social networks, including projects;
  • delayed response to the information in the media.
  • Observance of the Regulation on Information Activity, the Regulation on Participation in Public Events, Regulations on Information Disclosure;
  • preparation of explanatory press releases and materials for mass media;
  • establishment of cooperation with stakeholders as per the key activities of the Company including the organisation of joint public events;
  • preparation of press releases, representing the official position of the Company
  • concerning key operational matters on a regular basis;
  • press tours and special events for mass media.
The risk of damage caused by natural disasters and man-made accidents outside the Company’s facilities

Risk aggravation is connected with the uncertainty of consequences and difficulties in forecasting such risks. This is one of the most significant risks for fuel and energy companies, according to insurance companies.

Protection procedures are being improved, but there may be the risk of force-majeure events including incidents similar to the flood of 2013. There is the probability of systemic accidents and damages caused by natural disasters.

  • Modernization in accordance with modern requirements of the centralized system emergency control system;
  • research and development of methods for remote monitoring of the state of facilities and operating modes of HPPs;
  • compliance with the RF legislation in the field of industrial safety and the use of a production control system operating on its basis;
  • property insurance of the Company.
The risk of the misconduct or legislation violation of employees

The growing risk; such incidents are possible due to the conflict of interests in case of restructuring (including privatisation), though the efficiency of risk management is constantly improving.

The growing probability of such risks all over the world, according to the findings of international consulting companies.

  • Introduction of the integrated automated control system for the purposes of the distribution of information containing commercial secret;
  • monitoring of the observance of the Regulation on Insider Information by the employees.
  • restriction of the right of access to the insider information for the Company’s employees;
  • organization of mandatory notification by insiders about transactions they enter intowith the Company’s securities.
The risk of the low efficiency of innovation activity

The risk growth against stagflation and the toughening of international sanctions is caused by the adoption of new requirements for the elaboration and implementation of innovation development programs by regulatory authorities, the growing gap between the currently used technologies and the best international practices, as well as the lack of financing for design and survey work due to the risk of fund shortage.

However, there arise new opportunities for innovation development, which may increase competitiveness in case of decline in the exchange rate of the Russian national currency.

  • Alteration/elaboration of work methods and infrastructure in order to ensure the implementation of the innovation programme;
  • update of the innovative development programme;
  • regular benchmarking of currently used technologies
The risk of incorrect water-content and output forecasting

The risk is mitigated, since it is largely the factor of the risks described above. and its occurrence does not directly lead to damages, but may contribute to the possibility of the risks listed above.

This risk includes the failure to accurately forecast power output in the medium- and long-term perspectives.

  • Refinement of the water resource usage of RusHydro’s Energy Saving Program;
  • development of an industry hydro-meteorological observation system and protecting the interests of the HPPs in inter-agency operational groups under the Federal Agency for Water Resources (Rosvodresurs);
  • integration of the medium-term water-content forecasting model executed by the Dispatching Centre Information System and the Commercial Dispatching Information System.
The risk of growth of accounts receivable for the supply of power and capacity
  • Decreased solvency of counterparties in unfavorable macroeconomic environment;
  • mala fide contractors;
  • lack of effective debt collection mechanisms.

Arrangements for management of accounts receivable of the Company and marketing subsidiaries, including initiation of claims and lawsuits, settlements outside the authorized credit institution on the Wholesale Electricity and Capacity Market (WECM) in accordance with the terms of Contract of connection to the WECM trade system.

Sakhalinskaya TPP-2 main building Frame was built

Foto: Sakhalinskaya TPP-2 main building Frame was built.

2.2.3 External Environment and Company’s risks

Country risks

The Russian economy is not protected against market decline and global economic recessions. The decline in the volume of foreign investment in the Russian economy, as well as the vulnerability of the Russian economy to changes in world energy prices, can lead to a significant restriction of the Company’s access to capital and adversely affect the purchasing power of consumers of products and services.

Moreover, under the economy stagnation, there is a risk of reduced demand for electricity, which can result in decreased sales and corporate revenues, as well as the risk of growth in accounts receivable due to non-payment by electricity consumers.
Vulnerability to a country risk with some allowances can be indirectly measured using the credit rating (not taking into account the political risks for the business).

According to the international rating agency Standard & Poor’s, the long-term credit rating of the Russian Federation on foreign currency obligations remains at the level of «BB +». At the same time, the outlook for the long-term credit rating of the Russian Federation was revised by S&P on September 16, 2016 from negative to stable. According to analysts, external risks for Russia declined, the Russian economy is being adapted to low world prices for raw materials. The downgrade of ratings may occur if geopolitical events lead to stricter sanctions of foreign states against the Russian Federation.

Financial risks

The impact of financial risks (risk of growth rates on bank loans, currency risk, inflation risk, liquidity risk) on the Company’s activities is estimated as insignificant.

Financial metrics, liquidity, financing sources and RusHydro’s performance are not very responsive to changes in the exchange rate and interest rates, because the Company sells energy on the domestic market, as well as settles accounts with resource suppliers, and accrues and receives payments from consumers mainly in the national currency – Russian ruble.

Due to the aggravation of the international situation, economic sanctions and other force majeure circumstances, the risks of access to the funds of foreign counterparts is increased well as the debt cost of PJSC RusHydro and the losses due to the growth of the exchange rate of foreign currencies and interest rates. Control over these risks consists in reducing the limits for counterparty banks with a lowered rating, stress testing of possible losses due to the currency appreciation and interest rates in the framework of the methodology of currency and interest risks managing and legal support of the contractual base, approved by JSC RusHydro.

The credit portfolio of PJSC RusHydro mainly consists of the loans with fixed interest rate. Some of the loans of PJSC RusHydro have been taken at variable interest rates of MosPrime and Euribor. In order to minimize interest risk, PJSC RusHydro concluded a swap contract to fix a floating interest rate for the loan of PJSC Sberbank (~ 836 million rubles as of December 31, 2016).

The rate of inflation directly depends on the political and economic situation in the country.

The inflation rate is associated with the overall dynamics of interest rates.

The negative impact of inflation on the financial and economic activities of the Company manifests in the growth of the following risks:

  • the risk of damages connected with the reduction of the actual value of receivables with a significant deferral of or delay in payment;
  • the risk of increasing the value of the Company’s liabilities;
  • the risk of increasing the unit cost of goods, products, works, services due to the increase of energy prices, transportation costs, and salaries;
  • the risk of the decrease of the actual value of funds raised to finance the investment program.

The significant impact of inflation on the financial performance of PJSC RusHydro is worth mentioning. The increase in inflation may lead to an increase in the costs of PJSC RusHydro and, as a consequence, to a fall in the profit and profitability of the activities of PJSC RusHydro. In addition, the growth of inflation is associated with an increase in the cost of borrowed funds for PJSC RusHydro, which is characterized by a risk of shortage of current assets of the company.

According to Rosstat, annual inflation in the Russian Federation (CPI) in 2016 reached its minimum since 1991 – 5.4 % compared to 12.9 % in 2015. In accordance with the forecast of social and economic development of the Russian Federation for 2017 and for the planned period 2018-2019, published by the Ministry of Economic Development of the Russian Federation, the annual inflation rate in 2017 is estimated to be no higher than 4.5 % for all variants of the forecast.

In case of inflation growth, PJSC RusHydro plans to increase the turnover of current assets due to changes in contractual relations with consumers.

Industry risks

The Company is specifically exposed to industry risks due to possible changes in the electric power industry.

On the one hand, one should note the decrease in the uncertainty of the work of PJSC RusHydro in the wholesale capacity market associated with the transition in 2015 to a long-term competitive power take-off model, which stipulated in the Wholesale Electricity and Capacity Market Rules (approved by RF Government Decree No. 1172 of 27.12.2010). Based on the results of competitive capacity sampling conducted before 2017, prices for capacity for the period up to 2020 (inclusive) were determined. An increase in the price forecast for future periods reduces the level of industry risk.

At the same time, within the framework of the ongoing reform of the electric power industry, there is constant changes of norms of regulating the Russian electricity market, including norms for market liberalization, setting price rates for electricity, functioning of the capacity market and the system of relations between electricity producers and consumers. Since the official launch of the reform (July 2001), the time frame for implementing the stages of the reform and the scope of such stages has changed several times.

Within the framework of industry risks management the necessary measures have been taken to create a favorable for PJSC RusHydro Legal framework for the functioning of the electricity and capacity market. To fulfill this task, PJSC RusHydro participates as an expert in the development of legal acts in the field of electric power industry at the sites of the Ministry of Energy of the Russian Federation, the Association NP Market Council and the Federal Antimonopoly Service.

In addition to the existing risks inherent in the Russian electricity and capacity market, a large number of operational, commercial, technical, managerial, regulatory and other risks can arise which are currently difficult or impossible to foresee and which are beyond the control of JSC RusHydro. These changes and the uncertainty associated with them can have a significant adverse impact on the economic activities of PJSC RusHydro, its revenues and the results of its operations.

The energy retail companies of the RusHydro Group are at risk of increasing competition when working in the retail market due to the intensification of the work of energy retail companies seeking to attract large consumers to their services. To manage this risk, energy retail companies of the RusHydro Group are directed to work with the client base. The measures to neutralize the risk associated with the loss of consumers include:

  • building of individual relations with large consumers;
  • promotion of the energy retail companies of the RusHydro Group in the main consumer markets;
  • establishment of new relationships between the energy retail companies of the RusHydro Group and the subscribers: improving the quality of service, taking into account the needs and expectations of consumers, strict observance of obligations;
  • keeping the status energy retail companies of the RusHydro Group as a guaranteeing supplier to concentrate the customer base and reduce unit costs per unit of energy.

2.2.4 Information about Possible Circumstances that Objectively Hamper the Company’s Activity

Risks associated with the region’s geographical features include the risk of losses (for example, the risk related to the decommissioning of fixed assets) due to seismic activity, avalanches and mudslides, possible landslides and rainfall related floods and other adverse weather conditions (hurricanes, heavy snowfalls and frosts).

Most the regions the Company operates in have a developed transportation infrastructure and are not exposed to the risks associated with the disruption of the transportation link. However, some generating assets are located in remote areas with harsh climates, including in the Krasnoyarsk Region and in the areas of the Far Eastern Federal District.

The Company is constantly working to upgrade the technologies of access and work in harsh climatic conditions in these areas. However, one cannot guarantee that no additional costs will be required to overcome technical difficulties associated with the climate and the accessibility of these locations, which may negatively impact overall revenues, financial conditions, and the Company’s performance and prospects.Thus these risks are estimated as insignificant within the foreseeable future.

Terrorist acts

With a view to the tense political and social situation, the revitalisation of armed groups in the North Caucasus and attempts to move their activities on other Russian Federation regions , the high probability of local and regional armed conflicts in the Russia bordering territories, the increasing threat of international terrorism and political instability in a number of developing countries caused by the economic crisis, the activity of extremist organisations, and developing commercial terrorism, PJSC RusHydro is concerned about possible risks associated with terrorist attacks, in particular at its North-Caucasian facilities.

Security is maintained constantly to reduce such risks. The comprehensive program aimed at ensuring safety and protection of the PJSC RusHydro facilities from terrorism is being implemented. The regular inspections of the antiterrorist security of the Company’s facilities and personnel training, in particular by anti-terrorist drills and trainings, are being carried out.

The plan for strengthening the security of the Company’s facilities is being implemented. The plan amends the existing security program applied to the power plants including sites under construction. The factors affecting the security of facilities are being monitored. Information security audit is being conducted.

The armed security of facilities is being provided by units of private security of Rosgvardia, FSUE «Okhrana» of Rosgvardia and FSTEC Departmental Security Service of the Russian Federation Energy Ministry. Plans for cooperation with law enforcement authorities are being developed to ensure the protection of facilities in case of a terrorist attack or the threat thereof. Access and internal security control has been introduced within the Company’s facilities. Unlawful interference acts in the Company’s facilities activities prevention work is being carried out in cooperation with law enforcement agencies.

The most relevant threats are being evaluated and consequence management plans are being elaborated in cooperation with the local EMERCOM of the Russian Federation regions (at generating facilities). The main equipment of the company is insured, in particular against terror attacks.

At the same time, international experts do not currently attribute the risk of terrorist attacks to the key risks of the Russian business community – according to the global risks report of the annual Global Economic Forum in Davos (Global risks 2017), the risk of terrorist attacks was ranked 17th in the ranking on the significance of risks to the Business in the Russian Federation.

Earthquake-prone areas

Most of the Company’s facilities are located in seismically quiet regions. However, such facilities as the Pauzhetskaya GeoPP and the Verkhne-Mutnovskaya GeoPP are located in seismic zones, with possible earthquake intensity up to 9 points on the Richter scale. The Company is currently working to create the seismological network of the Dagestan Branch. In 2014, B.E. Vedeneev VNIIG performed seismic monitoring of the Bureyskaya HPP facilities.

The Company has developed an emergency plan in case of earthquakes and is constantly monitoring the situation. There are seismic monitoring stations at the Company’s facilities. Issues relating to the transportation link are refined in good time with a focus on the above-mentioned risk. Cargo and people transportation schemes are optimized. All corporate facilities comply with earthquake resistance standards.

Seasonal flood areas

The risk of seasonal floods plays an important role in corporate activities and is regularly included in the list of critical risks. To manage this risk, the Company has implemented a water regime management, i.e.: forecasting and monitoring hydrological regimes within the facilities, reservoir regulation, spillway construction and operation and other measures.

The Company has also established flood commissions in order to prepare for the spring-summer flood discharge at the Company’s branches. They implement numerous measures aimed at ensuring a trouble-free flood season. In particular, they were making a survey of ice conditions in the area of the dam location, inspecting permanent supports to make sure they are ready for work, to conduct readiness checks of back-up power supply units, releasing the gates of the service spillway from icing and ice fringe so that they could be maneuvered, and to perform inspections of hydropower structures, the drainage system of the dam, the power house and the installation site, visual inspection of the dam body abutment to the shores from the upper pool and lower pool.

Company’s facilities operate in accordance with the instructions of the interdepartmental working group of the Federal Water Resources Agency. The control of production assets was strengthened. No accidents at the Company’s facilities have been recorded in 2016.

2.2.5 Insurance Protection

More details on the insurance protection.

RusHydro’s insurance protection is built based on the normalization principles of the insurance protection system, the optimization of insurance coverage, the unity of approaches to insurance organization, and insurance continuity.


The Company annually seeks for an insurer to enter into an insurance on the basis of regulated procurement procedures. To ensure insurance coverage, PJSC RusHydro conducted an open one-stage tender without preliminary qualifying selection for the right to conclude insurance contracts in 2016. Requirements for insurance coverage are formed on the basis of an analysis of the current risk situation of the Company, analysis of the insurance market’s options, social policy and legal requirements.


In 2016, the insurance coverage of PJSC RusHydro and its subsidiaries was provided for the following types of insurance:

  • Property insurance.
  • Insurance of construction and erection risks.
  • Insurance of civil liability for causing damage due to deficiencies in work that affect the safety of capital construction facilities.
  • Voluntary health insurance.
  • Insurance against accidents and diseases.
  • Obligatory insurance of a civil liability of the owner of a dangerous object for causing harm as a result of an accident at a hazardous facility.
  • Insurance of civil liability of the organization for damage caused as a result of aterrorism act or diversion.
  • Obligatory insurance of civil liability of owners of vehicles.
  • Voluntary insurance of civil liability of owners of vehicles (DSAGO).
  • Motor Vehicle Insurance.
  • Voluntary insurance of shipowner’s civil liability.
  • Insurance of means of water transport.
  • Compulsory insurance of civil liability of the carrier for causing damage to life, health, property of passengers.
  • Insurance of civil liability of members of management and officials of the Company before third parties and the Company.
  • All-risk coverage.

RusHydro imposes strict requirements with regard to insuring its assets (property insurance against all risks and insurance against construction and installation risks), and due to the limited resources of the Russian insurance market also puts forward additional demands and effects control over risk re-insurance. The Company is implementing a policy of openness to foreign insurance community representatives. Each year, the Company organizes insurance engineering surveys for its facilities, and holds road shows, negotiations and follows reinsurers’ recommendations.