Revenue for 2016
Net income for 2016
Record volume of dividends paid for 2016
The share of purchases from small and medium-sized enterprises
Expansion of production
In 2016, we launched:
- Zelenchukskaya HPP-PSPP (+140 MW)
- Zaragizhskaya HPP (+30,6 MW)
- 2 phase of Blagoveshchenskaya CHPP (+124 MW)
- In 2016, the Group created a specialized supply company RusHydro Supply (JSC RHS) for more efficient procurement management
314.3 million rubles RusHydro Group R&D expenses in 2016
- There is a special Scientific and Design Complex (SDC) which is in charge of R&D implementation in RusHydro In 2016
- The Concept of Reforming the SPC was pproved to improve the effectiveness In 2016
- The innovation management system of the RusHydro Group and RAO ES of the East were merged
The main driver for the financial capital formation in a long term should be efficient operating activities and a stable long-term profit. Thus, we have formed and we are implementing a number of programs to improve operational and investment efficiency, we are working to reduce the costs of RAO ES of the East.
Member of the Board,
First Deputy Director General
3.1. Financial and Economic Results
The development of RusHydro Group depends on how successfully the Company is in creating a base for social and economic relations with all stakeholders. In this regard, RusHydro is striving to make its sustainable development policy transparent and understandable.
RusHydro Group has a complex impact on the economy, in particular, on the sales markets for electricity and heat. The Company supports competition on products and services market by ensuring competitive procurement activities. The Company also participates in solving the employment problems for local population, by shaping the labour market. In addition, RusHydro is a taxpayer of budgets at different levels.
3.1.1. Key financial results according to IFRS
In 2016, RusHydro demonstrated high financial results, which were achieved due to an increase in the level of electricity generation by the Group by 9.2% compared to 2015 and a significant optimization of operating expenses. Revenue growth in 2016 amounted to 8.2% compared to 2015: it has risen from 361,826 million rubles to 391,322 million rubles.
Natural resources, labour, capital and intellectual ability are used in the process of cost creation for hydro and heat energy. The new «added value» is divided among the Company’s employees, shareholders and creditors in the form of dividends, interest payments to creditors, wages, taxes, as well as charity and social expenses.
Please see 2016 Annual Report of PJSC RusHydro, for detailed information on the factors that influenced the change in the key economic indicators.
Direct economic value created and divided, million rubles
|Items||RusHydro Group||RAO ES of the East|
|Economic value generated||375,18||413,076||177,065||189,905|
|Revenues from business operations less impairment loss of receivables||343,501||366,939||159,692||171,577|
|Financial revenues and a share in the results of the associated companies and joint ventures||12,741||16,625||2,152||973|
|Revenues/losses from assets sale (revenues from subsidiaries, fixed and other assets sale)||4,6244,624||12,262||953||171|
|Economic value divided||323,373||333,59||174,354||182,546|
|Employee salaries and benefits||72,871||71,768||51,46||52,164|
|Payments to capital providers (interest on loans and other financial expenses, accrued dividends on shares)||24,755||28,917||10,73||11,028|
|Payments to government (taxes charged at the accounting period, including profit tax)||18,673||23,491||1,557||1,969|
|Community investments (charitable contributions, donations to charitable organizations)||1,052||864||454||315|
|Economic value retained||51,807||79,486||2,711||7,359|
RusHydro Group’s key economic indicators, million rubles
|Indicators||2014||2015||2016||Change for 2016/2015|
|Long-term loans||119,187||135,179||158,046||16.9 %|
|Short-term loans and short-term part of long-term loans||57,843||62,214||41,757||-32.9 %|
|Government subsidies||12,428||14,314||17,25||20.5 %|
|Operating costs*||290,838||315,103||315,705||0.2 %|
|Net profit||24,131||27,159||39,751||46.36 %|
Debt to equity ratio, %
|Debt to equity ratio||50%||53%||51%|
The sources to ensure the RusHydro Group’s creditworthiness in the medium and long term are its own funds, as well as funds received from external sources: ruble bonds, credit lines, unutilised balances of approved banking limits in leading banks, liquid investments in shares available for sale. Financial sustainability is guaranteed and the control of the total amount of debt is carried out, among others, by the subsidiaries’ boards of directors, which approves the plans of borrowing, the marginal cost of borrowing and standard financial and behavioural covenants. Quarterly, the RusHydro Group companies report on attraction and repayment of loan funds, as well as on a timely and full performance of all obligations under agreements on borrowing.
Please see 2016 Annual Report of PJSC RusHydro, for more information on the structure of the Group’s debt, changes in 2016 and the RusHydro’s credit ratings.
3.1.2. Procurement activities
PROCUREMENT MANAGEMENT SYSTEM
To support its operations, RusHydro Group purchases a large number of products and services from third-party organizations. In RusHydro Group, a number of local regulatory documents (acts) to prevent misuse and mismanagement of funds is adopted.
The Company’s activities in the field of procurement are regulated by the requirements of the Russian legislation, in particular the requirements of Federal Law
No. 223-FZ of 18.07.2011 «On Procurement of Goods, Works, Services by Individual Types of Legal Entities», and the Regulation on Procurement of Products for the Needs of PJSC RusHydro (approved in a revised version by the decision of the PJSC RusHydro Board of Directors dated 23.06.2016, No. 239, as amended). The use of these regulatory documents facilitates the regulation of purchases, timely and high-quality provision of goods and services, as well as the economical expenditure of the Group’s cash.
In 2016, the RusHydro Group created a specialized supply company, RusHydro Supply (JSC RHS), which ensures the optimal quality of the purchased products, transparency of procurement processes, increase in the efficiency of procurement and supply processes.
Functions of JSC RHS include:
- development of the procurement and supply management functions in the Group;
ensuring the procurement planning process, supporting the work of the CPC;
ratification of documents required to prepare the beginning of the procurement procedure;
- market analysis;
- organization and implementation of procurement procedures;
- analysis of pricing documents;
- ratification of contracts, additional agreements;
- examination of economic security;
- other functions to support the procurement management of the Group’s enterprises.
The procurement activities regulation includes:
- application of mandatory procedures, including a careful planning of the products demand;
- market analysis;
- information transparency of the procurement;
- actions aimed at achieving equality, fairness, non-discrimination and unreasonable restrictions on competition with respect to procurement participants;
- targeted and cost-effective spending of money for the purchase of goods, works, services and other activities.
To increase the procurement’s efficiency, transparency and fairness, RusHydro Group is guided by the following principles:
- openness (transparency);
A permanent collegial body, the Central Procurement Commission (CPC), ensures control and coordination of procurement activities in PJSC RusHydro. For the direct coordination and implementation of procurement procedures, the CPC appoints permanent procurement commissions.
Procurement is carried out by the Procurement, Marketing and Price Formation Department in the Executive Office of PJSC RusHydro and by procurement departments in the branches.
RESULTS OF PROCUREMENT ACTIVITIES
A significant share of purchases in the Group is carried out through the electronic trading platform. In 2016, the share of such purchases was 86.27% for PJSC RusHydro and 64.9% for RAO ES of the East.
In 2016, within the framework of the Eastern Economic Forum, PJSC RusHydro and the Unified Electronic Trading Facility signed an agreement on cooperation. The agreement is aimed at cooperation in the field of procurement for the needs of PJSC RusHydro through the specialized electronic trading platform «Commercial Procurement» of JSC Unified Electronic Trading Facility.
Currently, RusHydro is developing a centralized procurement management system for the Group, including RAO ES of the East, aiming to increase the transparency of procurement activities and create the most comfortable competitive environment.
A share of purchases from a single source is significant due to acquisition of goods and services from the core industry institutions, monopoly companies and state monopolies.
Please, see 2016 Annual Report of PJSC RusHydro, for detailed information on the procurement trends from a single supplier.
The volume of purchases in 2016, billion rubles
PROCUREMENT FROM SMALL AND MEDIUM ENTERPRISES
RusHydro Group strives to cooperate with small and medium-sized enterprises as part of the procurement activities with the aim to maintain their competition and a stable development.
The website of the Unified information system in procurement and the PJSC RusHydro’s website include list of goods, works, and services, which are purchased from small- and medium-size business enterprises.
RusHydro has its own planned indicators for 2016 purchases from small and medium-sized enterprises. They are established by Decree of the Government of the Russian Federation No. 1352 «On the Specifics of the Participation of Small and Medium-Sized Entrepreneurs in the Procurement of Goods, Works, Services by Individual Types of Legal Entities» of 11.12.2014. At the end of the year, the Group managed to achieve results that far exceeded the plan. The actual result significantly exceeded the plan and the similar indicator of 2015, including, for the following reasons:
- purchases planned for the previous periods (2014-2015) and advance requiring purchases (2017) were included in the counting contour;
- at the end of the reporting period, the number of categories that were excluded earlier were included in the procurement contour related to the procurement from SMEs, in accordance with the legislation.
In 2017, RusHydro Group plans to purchase at least 18% of the total volume of purchases from small and medium-sized enterprises, including at least 10% of purchases conducted with the participation of only small and medium-sized businesses.
Rate of purchases from small and medium-sized enterprises in 2016, %
|Rate of purchases with SMEs’ participation against total annual cost of purchases||PJSC RusHydro||18 %||73.8 %,|
|RusHydro Group||61,6 %|
|Rate of purchases only from SMEs against total annual cost of purchases||PJSC RusHydro||10 %||56.8 %|
|RusHydro Group||29.7 %|
3.1.3. Investment activities
INVESTMENT ACTIVITIES ISSUES MANAGEMENT
The RusHydro’s management approach is focused on improvement of investment and operating efficiency through concentration of financial resources on the most perspective and important projects. Successful investment activities help RusHydro Group to maintain high level of competitiveness, maximise profit, and ensure the reliability of electric power system operation.
Principles of the PJSC RusHydro investment policy:
- compliance of investment decisions and projects with legal requirements, construction and environment standards;
- analysis of profit and loss from implementation of alternative investment decisions upon completion of every stage of an investment project in case of change of its baselines;
- compliance of investment decisions and projects with the profit and risk requirements, approved by the Company’s Board of Directors;
- adherence to the stages’ and milestones’ cycle during investment project implementation;
- provision of all investment projects with financing sources.
The Company’s development milestones, including those in the field of investment activities, are defined by the RusHydro Group’s Development Strategy, the RusHydro Group’s mid-term consolidated business plan and the Long-Term Development Program of RusHydro Group for the period 2016-2020 (hereinafter referred to as the LTDP).
Board of Directors of the RusHydro Group’s subsidiares and affiliates
Ministry of Energy of the Russian Federation
Bosrd of Directors of RusHydro Group
The Company’s development milestones, including those in the field of investment activities, are defined by the RusHydro Group’s Development Strategy, the RusHydro Group’s mid-term consolidated business plan and the Long-Term Development Program of RusHydro Group for the period 2016-2020 (hereinafter referred to as the LTDP). Investment activity in RusHydro is regulated by the Regulation on the Investment Management Process in the Form of Capital Investments. In addition, while making investment decisions, the Company is guided by the Rules for the approval of investment programs for government-linked power industry entities.
In accordance with the directives of the Government of the Russian Federation No. 4955p-P13 of 17.07.2014, an external audit of the implementation of the LTDP is conducted annually.
CONTROL OVER THE PROPER USE OF FUNDS FOR INVESTMENT PROJECTS AND REPAIR WORK
Investment projects worth more than 1.5 billion rubles are audited in accordance with the Regulation on the Public Technological and Price Audit of Large Investment Projects of PJSC RusHydro.
The Regulation on Investment Activity of PJSC RusHydro includes the control over the implementation of investment projects at all stages of the life cycle. It also includes a price audit, deadlines control and compliance control with the requirements of the current legislation. Special field inspections are regularly conducted at each construction site.
The Company initiates discussion on implementation or completion status of the investment project at the Board of Directors upon completion of each stage of the investment project, as well as when the facility is transferred to a pilot operation. Questions on the implementation of the investment program and individual investment projects may be submitted for consideration by the Board of Directors at the initiative of any member of the Board of Directors.
CONTROL OVER THE PROPER USE OF BUDGET FUNDS
In order to control the targeted use of budget funds, namely, while implementing priority investment projects under the Far Eastern Energy Development Program, a special monitoring system has been created. It allows the state to monitor in real-time mode the use of targeted budget funds received by PJSC RusHydro as part of additional emission. The system’s participants are the Accounts Chamber of the Russian Federation, the Ministry of Economic Development of the Russian Federation, the Ministry of Energy of the Russian Federation, and PJSC Sberbank.
Permanent monitoring of the priority investment projects implementation within the framework of the Far Eastern Energy Development Program is carried out by the Risk Management Department of PJSC RusHydro, which allows preventing and promptly reacting to possible deviations from the established requirements.
As part of this function, preliminary control of targeted investment funds spending is carried out through analysis of primary financial documents. These documents are received by organizations authorised to make payments for works under projects, monitor compliance of the works actually performed with the requirements established by the project documentation, monitor compliance with the requirements of the Town Planning Code, maintain executive documentation and compliance with deadlines, and eliminate previously identified shortcomings and violations.
Mechanisms to control the intended expenditure of the Federal budget funds allocated to investment projects
INVESTMENT PROGRAM FOR 2016
The investment program of PJSC RusHydro for 2016 is approved by Order of the Ministry of Energy of the Russian Federation No. 956 of December 14, 2015 as part of the investment program of PJSC RusHydro for 2016-2018. It is also adjusted by Order of the Ministry of Energy of the Russian Federation No. 1458 of December 30, 2016 «On Approval of the PJSC RusHydro’s Investment Program for 2017-2019 and Changes Made to the PJSC RusHydro’s Investment Program Approved by Order of the Ministry of Energy of the RF No. 956 of December 14, 2015».
The investment program of PJSC RusHydro for 2017 was approved as part of the PJSC RusHydro’s business plan for 2017-2021 (Minutes of the Board of Directors No. 245 of December 26, 2016).
In addition, the Board of Directors of the Company reviewed the draft of the RusHydro Group’s Consolidated Investment Program for 2018-2022 and for 2017 (adjustment). The revision took place on April 4, 2017 (Minutes No. 249 of April 07, 2017).
Please see 2016 Annual Report of PJSC RusHydro, for information on implementation of the investment program in 2016 and major investment projects.
3.1.4. Financial discipline and fair business practices
The Company’s dividend policy is aimed at ensuring the strategic development of PJSC RusHydro and a shareholder value growth through creation of an optimal balance between dividend payments to shareholders and profits capitalization. In accordance with the RusHydro Group’s Development Strategy for 2020 with a perspective for up to 2025, the dividend amount should be at least 50% of net profit. In this regard, the Company will strive to ensure a high level of dividend yield to its shareholders.
In 2015, the Company’s dividends amounted to 15.01 billion rubles, or 0.038863 rubles per share.
On June 26, 2017, the Annual General Meeting of Shareholders of PJSC RusHydro was held. According to its decision, 19.876 billion rubles were allocated to pay dividends, which corresponds to 50% of the Company’s net profit under IFRS for 2016 or 0.0466 rubles per share. As a result, the budget of the Russian Federation will receive more than 12 billion rubles.
Amount allocated to dividends paymentfor the corresponding year, billion rubles
RESPONSIBILITY FOR THE RUSHYDRO GROUP’S PRODUCTS
The power supply assets of the Group are consolidated in the subsidiary company – JSC ESC RusHydro. RusHydro’s power supply sector includes guaranteeing electricity suppliers in three regions of the Russian Federation: PJSC Krasnoyarskenergosbyt (Krasnoyarskiy Krai), PJSC Ryazan Energy Retail Company (Ryazan Region), Chuvash Energy Retail Company (Chuvash Republic). Apart from this, the power supply activities are implemented by PJSC FEEC (Primorskiy Krai).
The power supply companies exercise their responsibility for the products and quality of customer service: they provide a reliable, complete and timely information to the market about their services. In accordance with the approved standard of customer service, information on services is disclosed on the website www.esc.rushydro.ru, on the websites of regional marketing companies and other public sources, at information stands in client offices, in promotional materials, contracts and invoices.
The principles of the JSC ESC RusHydro’s interaction with consumers are:
- non-disclosure of consumers’/customers’ personal information;
- ensuring the right to an ecologically safe environment;
- equality of consumers regardless of gender and cultural factors.
The Group’s companies use consumers’ personal data only for the purposes of their core business and do not apply this data to the promotion of other services and other products, as well as for any purposes not agreed with the customer. In 2016, the companies of JSC ESC RusHydro did not receive any claims or appeals for violation of the requirements of the Russian legislation on personal data protection.
The power supply companies operate in the field of electrical energy (power) supply in retail electricity markets and provide services that are continuously associated with the process of power supply to enterprises.
Among the clients of JSC ESC RusHydro there are enterprises in the field of information technology, defence, automotive, chemical and many other industries. Consumers of JSC ESC RusHydro are factories, large fuel and energy complex objects, warehousing and shopping and entertainment complexes, as well as data storage and processing centres, many of which are part of large Russian and international holdings.
RAO ES OF THE EAST RESPONSIBILITY TO THE CONSUMERS
RAO ES of the East is the main provider of electric and thermal energy in the Far Eastern Federal District.
Information on incidents of non-compliance of the Holding’s companies with regulatory requirements and voluntary codes regarding health and safety impact of the products and services, as well as data on the amount of significant fines, are provided in the table.
Cases of non-compliance with regulatory requirements, leading to a fine, penalty or a warning19
|Company||Cases of non-compliance|
|Leading to a fine or penalty||Leading to a warning|
|JSC FEDC||7 Protocols of the State Labor Inspectorate with the total amount of fines of 154 thousand rubles|
|PJSC Kamchatskenergo||13 Rostekhnadzor protocols with the total amount of fines of 507 thousand rubles|
3 Protocols of Rostrudinspectorate with the total amount of fines of 300 thousand rubles
|PJSC Yakutskenergo||46 Rostechnadzor protocols with the amount of fines of 318 thousand rubles 3 regulations of Rostrudinspectorate with the amount of 270 thousand rubles||1 protocol of the State Fire Supervisory Authority (a warning issued) |
5 decisions of the Rostrudinspectorate (warnings issued)
|JSC Teploenergoservice||One Rostekhnadzor Protocol with the total amount of fines of 200 thousand rubles||1 protocol of the State Fire Supervisory Authority (issued a warning)|
Other fines of no more than 65 thousand rubles were imposed on JSC FEGC, JSC FEDC, JSC Chukotenergo, JSC Teploenergoservice.
In 2016, the frequency and average duration of the power cut-offs were significantly reduced.