CHAPTER 2
STRATEGIC REVIEW

2.4 Investment

2016 events

• The investment program financing budget amounted to 78.25 billion rubles1: 56.86 billion rubles accounted for the investment projects of PJSC RusHydro and 21.39 billion rubles for projects of RAO ES EAST, PJSC Holding
• The Company introduced new power generation – 240.89 MW, heat – 6.0 Gcal/h, the grid – 876.3 km, Transformer capacity – 436.33 MVA

2.4.1 Investment policy principles

The Company’s investment activity is guided by the Regulations on the Investment Management Process in the Form of Capital Investments.

Approval of the Company’s Investment Program is the responsibility of the Company’s Board of Directors. The investment programs, before being approved by JSC RusHydro’s Board of Directors, are agreed upon with executive authorities and approved by the Russian Ministry of Energy. Prior to the approval by the authorities, the draft investment programs are preliminarily approved by the Boards of Directors of the respective subsidiaries.

2.4.2 2016 Investment program

As part of the Business plan of PJSC RusHydro for 2016-2020 (Minutes of the Board of Directors of 25.12.2015 No. 229) the Business plan of PJSC RusHydro for 2016 has been approved, including investment program for 2016, and the Business plan of PJSC RusHydro for years 2017-2020, including investment program for 2017-2020, has been taken into account.

In the future, in order to optimize expenses for investment activities, the RusHydro Group’s investment program was updated, including the reduction of annual amounts of financing for the projects of technical re-equipment and reconstruction of HPPs of PJSC RusHydro by smoothing the schedule for financing the projects of the Program of the comprehensive modernization of hydroelectric power plants and reducing their unit cost, including through increase the effectiveness of procurement procedures with preserving the quality of work performance and the pledged initially target parameters of reliability and safety of hydropower plants.

Based on the results of the optimization, the Management Board of PJSC RusHydro approved the Consolidated Investment Program of the RusHydro Group for 2016 (adjustment) (Minutes No. 968pr of March 21, 2013), was noted by the Board of Directors of PJSC RusHydro on 04.07.2016 (Minutes of 08.04.2016 No. 235).

The planned volumes of financing the RusHydro Group’s investment program amounted to 112.76 billion rubles (84.43 billion rubles accounted for investment projects of PJSC RusHydro and 28.33 billion rubles for projects of the RAO ES EAST Holding).

Foto: Zelenchukskaya HPP-PSPP was commissioned.

Execution of investment programs of PJSC RusHydro and RAO ES EAST Holding in 2016

With regard to investment projects implemented by PJSC RusHydro and its subsidiaries, the deviation in terms of financing in the amount of 27.57 billion rubles has taken shape for the following reasons:

1. Optimization of the volume of financing of the projects of technical re-equipment and reconstruction of HPPs of PJSC RusHydro by smoothing the schedule of project financing, reducing their unit cost, improving the efficiency of procurement procedures while maintaining the quality of work performance and the initial target parameters of reliability and safety of HPPs, 47 billion rubles.

According to the Investment Program of PJSC RusHydro for 2016 (adjustment), approved by Order No. 1458 of the Ministry of Energy of Russia of December 30, 2016, it is envisaged to reduce the annual planned financing amounts by 10.53 % of the volumes included in the RusHydro Group Consolidated Investment Program 2016 (adjustment), approved by the Management Board of PJSC RusHydro on March 21, 2016 in the Modernization and reconstruction section.

2. In terms of priority projects implemented in the Far East in pursuance of the Presidential Decree No. 1564 of 22.11.2012 (1st stage of Yakutskaya TPP-2, CHPP in the city of Sovetskaya Gavan, the 1st stage of Sakhalinskaya TPP-2, the second stage of the 2 nd stage of Blagoveshchenskaya TPP), the decrease in the volume of financing from the planned volumes amounted to 17.17 billion rubles. The change in financing schedules was made due to the postponement of the completion of the «right» project implementation, namely:

• Yakutskaya TPP-2 (1st stage) from 2017 to 2018,
• Sakhalinskaya TPP-2 (1st stage) from 2017 to 2018,
• CHPP in Sovetskaya Gavan from 2017 to 2019,
• Blagoveshchenskaya TPP from 2016 to 2017.

According to the investment program of PJSC RusHydro for 2016 (adjustment), approved by the order of the Ministry of Energy of the Russian Federation No. 1458 of December 30, in the priority projects of the Far East, the reduction in the annual planned volumes of financing by 14.58 % of the volumes included in the RusHydro Group Consolidated Investment Program for 2016 (adjustment) approved by the Management Board of PJSC RusHydro on March 21, 2016.

3. Deviation from financing schedule of new construction facilities was primarily caused by a decrease in the amount of financing for actual needs related to fixing the end-of-work volumes and transferring payment of guaranteed deferred payments to the beginning of 2017 in connection with the implementation of activities for the structuring of funding with the allocation of a complex of works and the costs necessary for financing and ensuring the safety and security of construction-in-process facilities. In addition, the main deviations were formed due to a delay in summing up the results of the tender for selecting a general contractor and the duration of procurement procedures.

In terms of investment projects implemented by the RAO ES EAST Holding the deviation in terms of financing in the amount of 8.64 billion rubles was due to the following reasons:

1. According to the infrastructure objects of the four priority projects implemented in the Far East (access roads and railways, schemes for the issuance of electrical and heat capacity, water disposal and water supply systems, ash and slag removal systems, etc.), due to the shift in the construction of the main facilities, the transfer of the terms «to the right» and, as a result, the financing schedule was changed and the volume of financing for 2016 was reduced by 2.42 billion rubles.

2. The postponement of the deadline for completion of works and the procedure for payment for the implementation of technological connection caused a decrease in the revenues of the subsidiaries of the RAO ES EAST Holding by 3.51 billion rubles.

3. As a result of the optimization work, exclusion of a number of projects from the investment programs of the RAO ES EAST Holding, reduction of the unit cost of project implementation, revision of funding schedules with a shift to the right, reduction of expenses related to technical re-equipment and reconstruction of facilities maintaining the operations’ qualityand keeping up with the initial target parameters of reliability and safety.

4. For the construction of the GTU-CHPP in Vladivostok on the site of the Central Steam-Water Boiler, the design of documentation has been adjusted to change the total cost of construction, and the project implementation period has been postponed from 2016 to 2018.

* TURP – Technical Upgrading and Reconstruction Program
** 4 FE – priority projects implemented in the Far East
*** NC – new construction
**** TU – Technical Upgrading

* Financing of the investment program in 2016 — the figures are given with VAT.

Key Investment Projects (under construction)^*

2.4.3 Plans in the field of investment activities

The investment program of the RusHydro Group provides the commissioning capacity in 2017 at the following sites:

• Nizhne-Bureyskaya HPP (320 MW) in the Amur Region: the introduction of HPPs allows solving a number of energy, economic, nature protection and social tasks on the territory of the Amur Region, including ensuring the long-term consumers of the Far Eastern region with economically efficient electricity (capacity) by removing restrictions on the power output of Bureyskaya HPP and replacing more expensive thermal generation.
• Implementation of the priority projects in the Far East: the first stage of the Yakutskaya TPP-2 in the amount of 193.48 MW and 469.6 Gcal / h, as well as the associated infrastructure thereto – main heating networks, water disposal and water supply systems, electric power transmission networks, access road; Off-site infrastructure in the Sakhalinskaya TPP-2 part – electric power delivery scheme, ash and slag removal system, access roads, and railway access roads to the TPP in Sovetskaya Gavan.
• MGES B. Zelenchuk (North-Caucasian Federal District) in the amount of 1.26 MW. The commissioning of the capacity will enable us to surely guarantee the sufficient electricity supply to consumers of the energy-deficient UES of the South and reduce the electricity deficit in the Karachay-Cherkess Republic.
• Input of the capacity in the framework of technical re-equipment projects and reconstruction (including through the implementation of the Program for the comprehensive modernization of HPPs of PJSC RusHydro) will be 42.5 MW, 136.30 MVA, 109.35 km of electric networks, and 2.47 km and in order to modernize the energy infrastructure of the Far East the heating networks of 1.0 MW, 1.08 Gcal / h will be introduced.
• The capacity input for the implementation of technological connection projects in the Far East territory will be 554.44 MVA, 781.20 km of electric networks, 8.37 km of heating systems.

Investment plans for 2017

2.4.4. HPP Complex Modernisation Program

Since 2012, PJSC RusHydro has been implementing the Complex Modernization Program (CMP) – a unique project designed to upgrade production assets in the energy sector. In the framework of the CMP, until 2025, more than half of the main equipment is planned to be replaced at the HPP.

The program is implemented using innovative and energy-efficient solutions (fiber optic technologies, optical transformers, nanostructured materials spraying, control systems based on microprocessors, vibration monitoring systems, etc.)
The Program’s key performance results in 2016:

• Kamskaya HPP was the first to complete planned modernization of the hydroelectric units;
• at the Volzhskaya HPP: hydro-unit No. 5 is replaced, hydro unit No. 6 was modernized, its hydro generator and a hydroturbine are replaced;
• at the Saratovskaya HPP: modernization of hydroelectric unit No. 8 is completed with replacement of hydro-generator and hydro-turbine. The hydro-turbine No. 4 is replaced;
• at the Zhigulevskaya HPP: replacement of hydro-turbines and modernization of hydro-generators is completed at hydro units Nos. 7, 13 and 16;
• at the Novosibirskaya HPP: replacement of the hydro turbine No. 4 is completed;
• at the Rybinskaya HPP from the Upper Volga HPP Cascade: reconstruction of a 220 kV outdoor switchgear and replacement of modular power transformers at Rybinskaya HPP is completed.

Implementation of the HPP Complex Modernization Program

Increase in installed capacity, MW