Management
Report
of PJSC ROSSETI
2
Table of contents
COMPANY OVERVIEW 3
HISTORICAL BACKGROUND 3
ROSSETI GROUP STRUCTURE (AS OF DECEMBER 31, 2019) 4
ROSSETI GROUP 5
CONSOLIDATION OF ELECTRIC GRID ASSETS 5
OPERATING INDICATORS 5
KEY EVENTS IN 2019 6
EVENTS AFTER THE REPORTING PERIOD 7
RESULTS IN 2019 8
OPERATING ACTIVITIES 8
FINANCIAL AND ECONOMIC PERFORMANCE 14
CAPITAL INVESTMENT PROGRAM 27
INTRODUCTION OF NEW TECHNOLOGIES 29
PREDICTIVE ANALYTICS 31
STRATEGY FOR DEVELOPMENT OF THE ELECTRIC GRID SECTOR OF THE RUSSIAN FEDERATION 31
CORPORATE GOVERNANCE 33
CORPORATE GOVERNANCE MODEL 33
CORPORATE GOVERNANCE SYSTEM DEVELOPMENT IN 2019 33
GENERAL MEETING OF SHAREHOLDERS 35
BOARD OF DIRECTORS 37
COMMITTEES OF THE BOARD OF DIRECTORS 52
ROSSETI EXECUTIVE BODIES 53
CORPORATE SECRETARY 58
SHARES AND SHARE MARKET 59
RISK MANAGEMENT SYSTEM AND INTERNAL CONTROL 62
ROSSETI GROUP STRUCTURE 79
RESPONSIBILITY STATEMENT 80
GLOSSARY 81
CONTACT INFORMATION 83
APPENDIX 84
3
Company Overview
Historical background
Reform of the Russian
electricity industry
Establishment of Interregional
Distribution Grid Companies
Holding (MRSK Holding) through a spin-off from RAO UES of
Russia
Consolidation of electricity transmission
and distribution
grids
Completed corporate
formation of ROSSETI as an open joint-
stock company
Renaming of the legal form of ROSSETI as a public joint-stock company
The implementation of Rosseti Group's digital transformation programme has been started.
Rosseti Group's development strategy until 2030 was
approved.
A new brand architecture of the energy holding company
was presented
early 2000s
2008 2012 2013 2015 2019
In accordance with Decree of the President of the Russian Federation No. 1567 of November 22, 2012, “On Joint Stock Company ROSSETI” and pursuant to the Strategy for Development of the Electric Grid Sector approved by Ordinance of the Government of the Russian Federation No. 511-r of April 3, 2013, ROSSETI:
Performs strategic functions
Performs coordinating functions
Performs controlling functions
Accomplishes institutional goals faced by the entire industry
Participates in the consolidation of territorial grid organizations in order to ensure the necessary level of power supply reliability and quality
4
ROSSETI Group Structure (as of December 31, 2019)
5
ROSSETI Group
The ROSSETI Group has an absolute monopoly on electricity transmission and distribution. The market share controlled by the companies of Rosseti Group amounts to 73.3%.
Consolidation of Electric Grid Assets1 To gain control of electric grid assets that are not part of or controlled by the ROSSETI Group, the Company works toward asset consolidation.
Operating Indicators Indicator 2017 2018 2019
1 In the corresponding period.
Industry: electric power
Status: natural monopoly
Geographic presence: 80 Russian regions
Services:
- electricity transmission and distribution
- network connection
Controlling shareholder:
The controlling shareholder is the Government, represented by the Federal Agency for State Property Management and holding an 88.04% stake
Structure:
- 26 grid companies
- 9 retail companies
- 5 R&D and testing companies
- 27 service, maintenance, and repair companies
- 2 construction and procurement companies
- 15 other companies
Assets of the Group:
- 2.37 million kilometers of power lines
- 517 thousand substations
- 217 thousand employees
Largest electric utility and mainstay of the electric grid
sector
1,031 570
5,6183,602 3,093
22,912
2017 2018 2019
Acquired electric grid facilities
Transformer capacity, MVA Power lines, km
15,92321,406
24,813
42,282
49,441
56,683
2017 2018 2019
Leased electric grid facilities
Transformer capacity, MVA Power lines, km
6
Length of power lines, mn km 2.34 2.35 2.37
Number of substations, thsd units 502 507 517
Transformer capacity of substations, GVA 781 792 802
Connected capacity of customers’ power-
receiving equipment, MW 15,201 13,905 11,945
Electric grid SDCs’ staff on the payroll, thsd
people 215 217 217
Key Events in 2019 Finance February Moody’s Investors Service upgrades the long-term global scale credit rating of
ROSSETI to investment grade (Baa3, stable outlook).
February The Analytical Credit Rating Agency (ACRA) reaffirms the national scale credit rating of ROSSETI (AAA(RU), stable outlook).
June The Company signs a memorandum of cooperation with Gazprombank to use digitalization for the treasury function.
Operating and investing activities
March A 220 kV substation, Port, which is strategically important for regional investment potential, begins operation in the Krasnodar Territory.
September A 220 kV substation, Prompark, providing an external electricity supply for an advanced development zone, is put into operation in the Far East.
September Phase 1 of a 110 kV substation, Plievo Novaya, is put into operation to ensure the creation of a grid of nine power lines in Ingushetia, North Ossetia, and Chechnya, which considerably improves the reliability of the North Caucasian energy system as a whole.
October The largest substation, Khovanskaya, with installed transformer capacity of 700 MVA begins operation in Moscow’s Troitsk and Novomoskovsky Administrative Districts.
October A new 110 kV substation, Kuzemkino, is put into operation to provide an external electricity supply for Nord Stream 2 facilities located in the Leningrad Region.
November ROSSETI approves the Regulations “On the Uniform Technical Policy in the Electric Grid Sector.”
November A 110 kV substation, Industrialnaya, is put into operation to supply smart energy to the biggest industrial park in the Kaliningrad Region.
December ROSSETI organizes the “Power Grids 2019” International Forum, a large sectoral event aimed at discussing and resolving the most important issues of electricity industry development.
December The ROSSETI Group puts into operation several modern power facilities in the Irkutsk and Tyumen Regions, which considerably improve electricity supply system reliability for several regions and ensure that sufficient transformer capacity is available for future regional development.
December New electric grid facilities—substations, network control centers, and customer service centers—begin operation in nine Russian regions. The new substations use digital technology.
December The Development Strategy of Public Joint Stock Company ROSSETI and Its Subsidiaries and Dependent Companies (ROSSETI Group) Until 2030 receives approval. The key difference from the previous version is the transition to a business model of modern innovative infrastructure.
International activities
January A Russia-Serbia cooperation memorandum is signed to develop innovations in the electricity industry.
June A memorandum was signed with French company EDF to implement joint projects on the territory of third countries and to cooperate in creating digital distribution networks in Russia as well as in developing intelligent metering systems.
June The agreement on implementation of projects on the construction and upgrade of the power grid complex facilities on the territory of third countries was signed with Chinese company China Energy Engineering Corporation.
7
June A cooperation agreement was signed with Chinese company NARI Group Corporation to create digital electrical grids and localise the production of equipment necessary for the creation of digital grids.
September The Company signs three-year memorandum with Mongolia’s largest state-owned enterprise Erdenes Mongol to develop the energy interconnection system covering Northeast Asia.
October A memorandum was signed with Mozambican company Electricidade de Mocambique to cooperate in designing and constructing new facilities and upgrading the existing ones, part of the electric grid complex in the Republic of Mozambique, as well as in supplying electric energy equipment.
December A memorandum was signed with Belgian organisation PRIME ALLIANCE AIBSL to cooperate in creating digital electric grids and introducing intelligent metering systems.
December A memorandum was signed with Union Electrica of the Republic of Cuba in order to develop the power grid infrastructure of the Republic of Cuba, including the feasibility study of constructing new facilities and upgrading the existing ones of the main distribution electric grid complex in the Republic of Cuba.
Corporate governance
June Shareholders approve the payment of more than 5 billion rubles as dividends for the first quarter of 2019.
July Approval is given to a restated version of the Regulations for Insider Information in line with legislative changes.
December The Russian Institute of Directors reaffirms ROSSETI’s corporate governance rating at 7++ “Developed practice of corporate governance.”
December Amendments to the Articles of Association of ROSSETI Tyumen are registered as related to the changed corporate name.
Sustainable development
April In order to demonstrate and test equipment used for projects related to the industry’s digital transformation and to strengthen and expand relations with suppliers, ROSSETI organizes the “Partnership Days” Forum for Russian and foreign manufacturers of electrical products.
April The Board of Directors approves the Uniform Corporate Identity Standard of the ROSSETI Group. ROSSETI presents the Group’s new, uniform brand architecture in June.
August With support from the Russia – a Country of Opportunities platform, ROSSETI holds a contest, Energy Leaders, to select the most skilled and motivated industry executives for its personnel reserve.
October Major network connections reforms carried out by the ROSSETI Group help the
Russian Federation rank 7th in the “Getting Electricity” ranking according to the
World Bank’s Doing Business report.
December ROSSETI’s environmental management system is certified to comply with ISO 14001:2015 and its Russian equivalent GOST R ISO 14001-2016.
December A restated version of the Environmental Policy of the Electric Grid Sector is approved.
Events after the reporting period Corporate governance
February–March
Amendments of the articles of association of PJSC IDGC of South and PJSC IDGC of Northern Caucasus, related to the companies' names (PJSC Rosseti South and PJSC Rosseti Northern Caucasus, respectively), were registered.
8
Results in 2019
Operating Activities
Electricity Transportation and Losses
ROSSETI Group core business is electricity transmission services. In 2019, the volume of electricity transmitted via the network of ROSSETI Group
decreased by 0.17% compared to 2018, amounting to 834,939.0 million kWh.
The company once more faced a decrease in the level of electricity losses – down to 8.57% (by 0.38 percentage points compared to the 2018 annual
results) for the reporting year. The steady reduction in network electric energy losses of the Group over the course of several years is the result of
comprehensive efforts including implementation of energy saving and energy efficiency projects by means of digital technologies, including the
implementation of measures to reduce electricity losses.
Subsidiary/Dependent Company
Volume of electric energy supplied to the network, mln kW * h
Volume of electric energy losses, mln kW * h Level of electrical energy loss,%
2017 2018 2019 planned
2019 actual
2020 planned
2017 2018 2019 planned
2019 actual
2020 planned
2017 2018 2019 planned
2019 actual
2020 planned
MOESK 90,231.4 91,881.2 93,234.0 91,747.8 92,742.3 7,431.7 7,439.5 7,315.0 7,036.5 7,125.4 8.24 8.10 7.85 7.67 7.68
IDGC of Urals 73,897.3 73,135.7 73,701.1 71,598.5 70,954.4 5,715.3 5,427.5 5,241.0 4,810.2 4,989.8 7.73 7.42 7.11 6.72 7.03
IDGC of Siberia 65,507.0 62,021.3 62,617.3 61,065.2 61,460.9 4,997.8 4,844.2 5,046.5 4,778.2 4,768.9 7.63 7.81 8.06 7.82 7.76
ROSSETI Tyumen 65,022.0 57,853.8 58,102.1 58,059.7 58,683.2 1,700.0 1,640.2 1,585.8 1,547.0 1,523.1 2.61 2.84 2.73 2.66 2.60
IDGC of Center and Volga Region
54,797.5 54,055.5 54,409.8 53,617.7 53,082.3 4,373.5 4,236.4 4,075.2 4,257.6 3,842.9 7.98 7.84 7.49 7.94 7.24
IDGC of Centre 59,234.8 54,235.7 53,554.3 53,141.3 52,749.6 5,841.8 5,751.5 5,494.3 5,434.5 5,185.1 9.86 10.60 10.26 10.23 9.83
IDGC of Volga 53,051.2 53,491.2 53,043.3 51,884.8 51,332.2 3,501.8 3,466.6 3,355.4 3,200.4 3,145.9 6.60 6.48 6.33 6.17 6.13
LENENERGO 38,717.3 38,263.8 38,764.7 38,255.5 37,914.8 4,439.6 4,337.5 4,320.9 4,138.4 4,123.5 11.47 11.34 11.15 10.82 10.88
IDGC of North-West 37,621.4 34,297.4 34,791.0 34,593.7 34,135.2 2,283.6 2,258.6 2,200.3 2,156.4 2,124.3 6.07 6.59 6.32 6.23 6.22
IDGC of South 27,995.1 27,326.0 27,036.7 25,973.5 26,784.7 2,653.8 2,679.0 2,436.2 2,323.8 2,273.4 9.48 9.80 9.01 8.95 8.49
Kubanenergo 22,633.3 23,032.5 23,378.0 22,850.7 23,838.8 2,729.0 2,590.1 2,582.5 2,426.4 2,504.3 12.06 11.25 11.05 10.62 10.51
IDGC of Northern Caucasus 18,477.2 18,531.1 18,983.2 18,720.7 19,005.5 4,024.8 3,703.2 3,587.3 4,246.0 3,406.5 21.78 19.98 18.90 22.68 17.92
TDC 5,442.2 5,288.9 5,368.2 5,335.7 5,285.1 450.0 475.8 476.6 464.8 457.6 8.27 9.00 8.88 8.71 8.66
Yantarenergo 4,178.6 4,142.5 4,145.0 4,140.3 4,186.5 646.6 520.6 531.1 474.6 510.1 15.47 12.57 12.81 11.46 12.19
Chechenenergo 2,681.8 2,754.4 2,800.0 2,905.3 2,862.9 925.0 988.1 846.0 1,069.0 806.6 34.49 35.87 30.21 36.80 28.17
Total for distribution grids 619,488.1 600,311.0 603,928.7 593,890.5 595,018.5 51,714.3 50,358.9 49,094.0 48,363.8 46,787.4 8.35 8.39 8.13 8.14 7.86
FGC UES 571,658.7 582,268.9 580,190.7 581,918.5 581,349.9 24,307.3 24,539.2 25,360.8 23,196.7 24,454.8 4.44 4.40 4.57 4.15 4.39
ROSSETI SDCs account for 78% of transmission and distribution for electricity generated in Russia.
9
TOTAL for ROSSETI SDCs 824,184.1 836,393.1 838,991.7 834,939.0 831,892.6 76,021.6 74,898.2 74,454.8 71,560.5 71,242.2 9.22 8.95 8.87 8.57 8.56
10
Intelligent Electricity Metering Systems
The expected level of losses in Rosseti Group's grids will not exceed 8.56% due to implementation
of digital technologies for the network operation.
Technology contributes to enhancing the economic and energy efficiency of electricity networks, reducing electricity non-network losses, and enforcing payment discipline. Intelligent metering systems enable automatic data collection intended for the timely detection of noncontractual and unbilled electricity consumption and allow timely corrective measures. Modern electricity meters provided for ROSSETI SDCs:
Subsidiary/Dependent Company Proportion of Modern Electricity Meters, %
MOESK 18.3
IDGC of Urals 23.4
IDGC of Siberia 32.2
ROSSETI Tyumen 67.4
IDGC of Center and Volga Region 10.5
IDGC of Centre 11.9
IDGC of Volga 17.5
LENENERGO 14.1
IDGC of North-West 8.1
IDGC of South 21.0
Kubanenergo 20.0
IDGC of Northern Caucasus 13.2
TDC 25.7
Yantarenergo 93.1
Chechenenergo 50.3
TOTAL 20.1
An intelligent electricity (capacity) metering system is designed for the remote collection,
processing, and transmission of electricity meter readings in real time.
11
Network Connection
The companies of the ROSSETI group provide comprehensive services for the technological
connection of consumers and producers of electricity to electric networks. Technological connection
is the actual connection of power receiving devices of consumers, electric energy production facilities
and electric grid facilities to electric networks.
In 2019, the volumes of technological connection of consumers and electric power generation
facilities decreased by 9% compared to 2018 in the number of fulfilled contracts and by 21% in
connected capacity. The bulk of the fulfilled contracts for technological connection (98%) are the
applicants of the preferential category with power receivers with a capacity of up to 150 kW inclusive.
Doing Business 2019 rating
The Russian Federation climbed to 7th place according to the World Bank’s business “Doing
Business 2020” annual report in the category “Connecting to a power supply system”. This is
once again the convincing evidence for success and effectiveness of all announced reforms
aimed at simplifying the process of technological connection to electric networks.
Based on the operation results for 2019, the Russian Federation climbed from 31st place to
28th in the overall ranking.
ROSSETI Achievements in Doing Business Rankings in 2019 (in comparison to 2018)
Changes in network connections provided for individual customers and power generation facilities in 2019 against 2018
Received network connection requests
431,158 requests (-11%) 43,807 MW (-11%)
Signed network connection contracts
342,929 contracts (-10%) 13,732 MW (-18%)
Completed network connection contracts
7Position in the rating by the indicator
"Connection to the power supply system" (growth from 12th place)
5 Connection cost,% GNI per capita (decrease from 5.7%)
41 Connection duration, days (decreased from 73 days)
2 The number of steps required for connection, pcs.
12
331,712 contracts (-9%) 15,066 MW (-21%)
Electricity connections provided for customers’ power-receiving equipment in 2019
Subsidiary/Dependent Company
Network Connection Requests
Signed Network Connection Contracts
Completed network connection contracts
requests MW contracts MW contracts MW
MOESK 77,249 6,208 57,942 2,060 52,725 1,887
IDGC of Urals 40,176 2,166 29,959 806 27,794 678
IDGC of Siberia 33,088 2,512 26,787 813 28,188 723
Rosseti Tyumen 6,306 607 5,114 247 4,956 300
IDGC of Center and Volga Region
55,968 2,188 45,639 913 44,059 895
IDGC of Centre 47,871 2,703 38,529 909, 38,061 813
IDGC of Volga 20,591 1,263 16,695 450 16,119 543
LENENERGO 29,983 1,998 23,987 772 27,482 893
IDGC of North-West 24,398 1,212 20,404 521 20,400 426
IDGC of South 18,799 1,626 14,698 418 14,032 354
Kubanenergo 33,216 1,421 28,532 711 26,165 797
IDGC of Northern Caucasus 9,928 565 8,725 300 8,370 325
TDC 3,155 139 2,690 76 2,697 62
Yantarenergo 5,919 334 4,809 169 5,718 170
Other 23,992 1,317 18,181 380 14,707 336
Total for distribution grids 430,639 26,259 342,691 9,544 331,473 9,200
FGC UES 363 7,451 182 2,724 190 2,745
TOTAL for ROSSETI SDCs 431,002 33,711 342,873 12,268 331,663 11,945
Electricity connections provided for power generation facilities in 2019
Subsidiary/Dependent Company
Network Connection Requests
Signed Network Connection Contracts
Completed network connection contracts
requests MW contracts MW contracts MW
MOESK 15 99 5 37 1 71
IDGC of Urals 12 112 5 78 2 13
IDGC of Siberia 15 167 11 159 12 218
Rosseti Tyumen 0 0 0 0 0 0
IDGC of Center and Volga Region 1 3 0 0 0 0
IDGC of Centre 5 233 2 5 2 27
IDGC of Volga 12 352 2 76 12 172
LENENERGO 15 182 4 12 1 0
IDGC of North-West 2 36 1 4 0 24
IDGC of South 25 1,351 10 713 5 138
Kubanenergo 3 25 2 21 0 0
IDGC of Northern Caucasus 8 309 1 2 1 74
TDC 0 0 0 0 0 0
Yantarenergo 0 0 0 0 0 65
Other 3 4 2 3 1 347
Total for distribution grids 116 2,874 45 1,11
1 37 1,149
FGC UES 40 7,222 11 352 12 1,972
TOTAL for ROSSETI SDCs 156 10,096 56 1,46
4 49 3,121
13
Changes in the cost of obtaining an electricity connection in 2017–2019, RUB/kW
Indicator 2017 2018 2019
Cost 2,722 2,852 3,031
Indices of reliable and uninterrupted power supply
*Пsaidi - System Average Interruption Duration Index (hours) **Пsaifi - System Average Interruption Frequency Index (outages)
Effective management of remedying process failures A total of 9,600 process failures in networks rated 110 kV and above were recorded and investigated in 2019 (or 13% lower than in 2018).
2,4
1.3
1.8
1.2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
Пsaidi Пsaifi
2018 2019
34%
21%
36%
9%
Causes of operation failures in electric grids in 2019
Environmental factors
Physical deterioration
External factors
Other
-8%
-25%
14
Financial and Economic Performance The primary focus of the Company’s financial policy is on improving operating efficiency, maintaining
an optimum level of liquidity and a low debt burden, retaining high credit ratings from international
rating agencies, and ensuring a high level of self-financing for capital expenditures. This allows the
Company to maintain operational profitability and ensure shareholder return in the form of dividend
payout.
The key factors affecting Rosseti Group's financial performance in 2019 were:
• higher revenue from electric energy transmission due to the tariff indexation regarding electric
energy transmission services;
• recognition of loss from the depreciation of property, plant and equipment of Rosseti Group;
• conclusion of asset consolidation major transactions by Rosseti Group;
• application of the new IFRS 16 Leases standard in Rosseti Group's accounting;
• increase in depreciation expenses for property, plant and equipment due to the introduction
of new capacities.
Summary of IFRS Key Financial Results
Indicator (bn RUB unless otherwise stated)
2017 (restated)
2018 2019 2019/2018 Change, %
Revenue 948.3 1,021.6 1,029.7 0.8
Operating expenses (760.2) (835.8) (858.3) 2.7
Adjusted EBITDA2 314.1 313.9 323.7 3.1
Operating profit 172.4 175.7 151.5 (13.8)
Net profit 121.2 124.7 105.3 (15.5)
Net debt 453.4 434.1 422.8 (2.6)
Net cash flows from operating activities 212.4 238.6 256.4 7.5
Results in 2019:
• Effective cost management and increased revenue: adjusted EBITDA rose by 3.1% (or 9.8 billion rubles) to 323.7 billion rubles.
• Maintained comfortable level of debt: Net Debt/Adjusted EBITDA decreased to 1.31.
2 Adjusted EBITDA is calculated as EBITDA (earnings before interest, tax, depreciation, and amortization) less impairment of fixed assets.
948.3
1,021.61,029.7
314.1 313.9 323.7121.2 124.7 105.3
30.9
30.7
31.4
30,0
30,5
31,0
31,5
32,0
0,0
200,0
400,0
600,0
800,0
1 000,0
1 200,0
2017 2018 2019
Revenue, bn RUB Adjusted EBITDA, bn RUB
Net profit, bn RUB Adjusted EBITDA margin, %
453.4
434.1 422.8
1.44
1.38
1.31
1,2
1,2
1,3
1,3
1,4
1,4
1,5
1,5
1,6
400,0
420,0
440,0
460,0
2017 2018 2019
Net debt, bn RUBNet Debt/Adjusted EBITDA
15
• Management of working capital and short-term debt: the current ratio went down to 0.77.
• Use of long borrowings: as with the 2018 results, long-term debt obligations dominated the loan portfolio, accounting for 82.6%.
Revenue
Its socially significant and geographically diversified activities enable the Group to have a solid base
of ultimate electricity consumers. In combination with a stable tariff policy, this ensures predictable
operating revenue.
Indicator (bn RUB unless otherwise stated)
2017 (restated)
2018 2019 2019/2018 Change, %
Revenue, including: 948.3 1,021.6 1,029.7 0.8
Electricity transmission and distribution
784.2 826.2 860.9 4.2
Network connection services 52.4 52.6 48.7 (7.4)
Electricity and capacity sales 75.7 119.9 100.3 (16.3)
Other revenue 36.0 22.9 19.8 (13.5)
The Company’s revenue increased by 0.8% (or 8.1 billion rubles) in 2019 on 2018 to 1,029.7 billion
rubles. The key factors contributing to changes in revenue are as follows:
• Revenue from electricity transmission and distribution increased by 4.2% (or 34.7 billion
rubles) due to tariff indexation.
• Revenue from electricity and capacity sales decreased by 16.3% (or 19.6 billion rubles)
because of the supplier of last resort functions transferred by SDCs and due to lower
electricity sales of FGC UES’s subsidiary (MGES).
• Revenue from network connection services went down by 7.4% (or 3.9 billion rubles) due to
compliance with the services schedule depending on customers.
784.2826.2 860.9
52.452.6
48.775.7
119.9100.3
36
22.9 19.8
500
800
1100
2017 2018 2019
Revenue Structure, bn RUB
Other revenue
Revenue from electricity and capacity sales
Revenue from network connection services
Revenue from electricity transmission and distribution
16
• Other revenue decreased by 13.5% (or 3.1 billion rubles) due to changes in the completion
of different construction project stages.
Operating Expenses
The ROSSETI Group’s priorities include improving operating efficiency and reducing expenses
without detriment to the reliability, quality, and accessibility of services.
Indicator (bn RUB unless otherwise stated)
2017 (restated)
2018 2019 2019/2018 Change, %
Total expenses 797.6 869.3 905.3 4.1
Operating expenses, including: 760.2 835.8 858.3 2.7
Employee benefits 181.5 187.4 201.3 7.4
Depreciation and amortization, right-of-use assets and intangible assets
107.3 116.1 129.4 11.5
Electricity transmission and distribution services
143.9 153.3 155.4 1.4
Electricity purchased for compensation for electricity network losses
128.2 148.1 150.7 1.8
Electricity purchased for resale 42.2 67.1 60.7 (9.5)
Taxes and levies except profit tax 24.8 31.8 27.1 (14.8)
Provisions 5.1 5.0 17.3 3-fold
Other operating expenses 127.2 127.2 116.4 (8.3)
Provision for expected credit losses (impairment of receivables)
16.2 25.8 23.4 (9.3)
Losses on impairment of fixed assets and right-of-use assets
21.2 7.7 23.6 2-fold
181.5 187.4 201.3
107.3 116.1129.4
143.9153.3
155.4
128.2148.1
150.742.2
67.160.7
24.8
31.827.1
5.1
5,017.3
127.2
127,0116.4
2017 2018 2019
Structure of Operating Expenses, bn RUB
Other operating expenses
Provisions
Taxes and levies except profit tax
Electricity purchased for resale
Electricity purchased for compensationfor electricity network losses
Electricity transmission and distributionservices
Depreciation and amortization
Employee benefits
17
The Company’s operating expenses increased by 2.7% (or 22.5 billion rubles) in 2019 on 2018 to
858.3 billion rubles. The key factors contributing to their changes are as follows:
• Employee benefits increased due to wage indexation for production personnel in accordance
with the Sectoral Wage Rate Agreement.
• Expenses associated with electricity distribution services grew due to tariff indexation for
other territorial grid organizations.
• Expenses associated with electricity purchased for compensation for electricity network
losses increased due to higher unregulated prices of purchased electricity.
• Expenses associated with electricity purchased for resale decreased because of the supplier
of last resort functions transferred by SDCs.
• Tax payments decreased due to movable property tax relief granted as of January 1, 2019.
• Provisioning rose following the assessment of possible negative outcomes of ongoing legal
proceedings.
• Depreciation and amortization grew due to putting into operation new fixed assets, and
introducing IFRS 16 Leases into the Company’s accounting practices.
It is noteworthy that the provision for expected credit losses in 2019 was comparable to that in 2018.
Losses on impairment of fixed assets were recognized in 2019 chiefly by three subsidiaries
(LENENERGO, FGC UES, and IDGC of Northern Caucasus).
Operating Efficiency Management
In order to bring down operating expenses and improve efficiency, the Company was active in
carrying out the Program to Improve the Operating Efficiency and Reduce Expenses of the ROSSETI
18
Group for 2019–2023 and implementing the action plan to optimize ROSSETI’s expenses with due
consideration to subsidiaries according to the independent audit results.3
The ROSSETI Group’s specific operating expenses in 2019 were more than 2.0% down from 2018.
With a view to meeting the targets of the Strategy, ROSSETI initiated the formulation of the Operating
Efficiency Improvement Program in 2020 as part of ROSSETI’s strategic planning documents with
due regard to the objectives of transforming the energy industry. The Program will form the basis for
determining priorities and actions related to the centralization and optimization of the administrative
and accounting functions and selecting methods for increasing the efficiency of production and other
processes.
Assets and Liabilities
Some of the factors affecting the Company’s assets are as follows:
• The technical base is constantly modernized, including through digitalization.
• Equipment has a long life cycle.
• The Company has a unique infrastructure that can help develop new activities and achieve
synergies.
Indicator (bn RUB unless
otherwise stated)
2017
(restated)
2018 2019 2019/2018
Change, %
Assets 2,346.4 2,518.6 2,649.6 5.2
Noncurrent assets 2,053.0 2,144.8 2,328.1 8.5
Current assets 293.4 352.3 321.2 (8.8)
Available-for-sale assets - 21.5 0.3 (98.6)
Liabilities 2,346.4 2,518.6 2,649.6 5.2
Equity 1,369.8 1,495.0 1,584.1 6.0
Noncurrent liabilities 645.4 625.2 650.5 4.0
Current liabilities 331.2 398.4 415.0 4.2
Structure of Assets and Liabilities, bn RUB
3 Minutes of the Meeting of the Board of Directors of ROSSETI No. 254 of March 3, 2017.
2,053.0 2,144.8 2,328.1
293.4 352.3321.221.5
0.3
2017 2018 2019
Assets
Noncurrent assets Current assets
Available-for-sale assets
2,346.4
2,649.62,518.6
1,369.8 1,495.0 1,584.1
645.4625.2 650.5
331.2398.4
415
2017 2018 2019
Liabilities
Equity Noncurrent liabilities Current liabilities
2,346.42,518.6
2,649.6
19
The Group’s assets increased by 5.2% (or 131.0 billion rubles) in 2019 on 2018 to 2,649.6 billion
rubles. Changes in noncurrent assets were largely due to the following reasons:
• Fixed assets were increased by the implementation of the investment program.
• Right-of-use assets were recognized (in accordance with IFRS 16 Leases, effective from
January 1, 2019).
The key factors contributing to changes in the value of current assets and available-for-sale assets
are as follows:
• Receivables were decreased by completed payments for the sale of a shareholding in Inter
RAO.
• The asset swap agreement with FEEMC was completed.
Changes in the structure of equity were primarily due to the net profit received in 2019.
The key factors contributing to changes in current liabilities are as follows:
• Short-term loans and borrowings were increased by reclassifying some long-term bond loans
as short-term loans by maturity.
• Dividends were accrued.
The key factors contributing to changes in noncurrent liabilities are as follows:
• Lease obligations were recognized (in accordance with IFRS 16 Leases, effective from
January 1, 2019).
• Long-term prepayments for network connection services increased.
• Long-term loans and borrowings decreased due to reclassification of a part of long-term bond
loans as short-term loans by maturity.
Debt
The Company maintains an optimum level of liquidity and a low debt burden. Its borrowings are not
exposed to currency risk because 100% of the Company’s debt is ruble denominated.
20
The Group’s debt obligations decreased by 5.9 billion rubles in 2019. It is, however, important to
note that the introduction of IFRS 16 Leases, effective from January 1, 2019, increased lease
obligations by 36.2 billion rubles. With lease obligations factored out, the Group’s debt would have
decreased by 42.1 billion rubles in 2019.
The Group’s debt went down from 7.2% to 7.0% p.a., remaining below the market average
(according to the Bank of Russia, the average lending rate in rubles for Russian corporate lenders
for maturities of 1–3 years was 8.48% p.a. in December 2019).
The Group’s debt portfolio is dominated by long-term borrowings, with a weighted average maturity
exceeding 8 years.
Bonds
Rosseti Group actively attracts long-term borrowings on capital markets. In 2019, no placement of
PJSC Rosseti's bonds took place; however, the companies of Rosseti Group successfully placed
the following bond issues, and also the offer was approved without the provision by the holders of
bonds with a total nominal volume of RUB 30.0 billion:
333 327 298
224 239226
1 2 38
7.3 7.2 7.0
0,0
2,0
4,0
6,0
8,0
-100
100
300
500
700
900
2017 2018 2019
Financial Debt, bn RUB
Lease obligations
Loans and other financial obligations
Public debt offerings (bond loans)
Company weighted average rate at the end of the period, %
562568558
27 24 25
18
15 16
2017 2018 2019
Debt Service Expenses, bn RUB
Accrued interest capitalized in fixed asset value
Accrued interest included in expenses
45
39 42
88 106
163 163
2020 2021 2022 after 2022
Debt Repayment Schedule, bn RUB
Principal debt less accrued but unpaid interest
21
Issue number Series Outstanding volume,
RUB mln Date of
placement Placement rate,
%
PJSC MOESK
4B02-01-65116-D-001P 001P-01 8,000 23 Apr 2019 8.45%
4B02-05-65116-D BO-05 5,000 6 Jun 2019* 8.40%
PJSC IDGC Ural
4B02-03-32501-D BО-03 3,000 30 Oct 2019 7%
4B02-04-32501-D BО-04 4,000 30 Oct 2019 7%
PJSC IDGC of Centre
4B02-01-10214-A-001P 001P-01 5,000 19 Nov 2019 6.85%
PJSC IDGC of Centre and Privolzhie
4B02-02-12665-E BO-02 5,000 3 Dec 2019 6.85% *As part of the offer
The purpose of raising borrowed funds was to refinance the loan portfolio by subsidiaries. The key
investors were managing companies, pension funds, banks, investment and insurance companies,
as well as individuals.
In order to optimise the debt portfolio, PJSC Rosseti repaid 4 issues of listed bonds (series BO-02,
BO-03, BO-05 and BO-06), placed in 2015–2016, with a total nominal volume of RUB 26.0 billion.
The companies of Rosseti Group also redeemed/bought back bonds totalling RUB 47.4 million under
the offers.
Events after the reporting date:
In the favourable market conditions, the companies of Rosseti Group placed bonds with a total
volume of RUB 30 billion in early 2020.
Issue number Series Outstanding volume,
RUB mln Date of
placement Placement rate,
%
PJSC FGC UES
4B02-04-65018-D-001P 001Р-04R 10,000 4 Feb 2020 6.75%
PJSC Lenenergo
4B02-03-00073-A BО-03 5,000 5 Feb 2020 6.20%
4B02-04-00073-A BО-04 5,000 5 Feb 2020 6.20%
PJSC MOESK
4B02-02-65116-D-001P 001Р-02 10,000 21 Feb 2020 6.15%
In early 2020, Rosseti Group also prepaid/redeemed bonds totalling RUB 23.1 billion under the
offers.
Credit ratings
Currently, PJSC Rosseti has investment ratings from two major international rating agencies
Standard & Poor's (BBB- with a stable outlook) and Moody's ( Baa3 with a stable outlook) at the
level of the sovereign rating of the Russian Federation, as well as the highest rating of AAA (RU)
22
with a stable outlook assigned by national rating agency ACRA (JSC), corresponding to the level of
financial obligations of the Russian Government.
Rosseti Group's high credit quality is confirmed by credit ratings assigned by international and
national rating agencies. Credit ratings not only raise the investment attractiveness, but also allow
for conducting effective borrowing policies on capital markets.
Credit Ratings (as of February 2020)
Rating Agency S&P Moody’s Fitch ACRA Expert RA
Rating Scale International National
ROSSETI BBB- Baa3 - AAA(RU) -
FGC UES BBB- Baa3 BBB AAA(RU) - MOESK BB+ Ва1 BB+ AAA(RU) -
LENENERGO - Ва1 - AAA(RU) -
IDGC of Volga - Ва1 - AA+(RU)
IDGC of North-West - - - AA+(RU) -
IDGC of Urals - Ва1 - - ruAA
IDGC of Centre BB+ - - - ruAA
IDGC of Center and Volga Region
- Ва1 - - ruAA
ROSSETI Tyumen - - - - ruAA
23
Moody's
ROSSETI and FGC UES: Baa3,
stable outlook
ACRA
ROSSETI: ААА(RU), stable
outlook
S&P
MOESK and IDGC of Centre:
BB+, stable outlook
ACRA
IDGC of North-West: АА+(RU), stable outlook
February March
ACRA LENENERGO:
ААА(RU), stable outlook
Expert RA IDGC of Urals: ruAA, stable
outlook
July August
Expert RA ROSSETI Tyumen: ruAA, stable outlook
October
Fitch ROSSETI Tyumen:
ruAA, stable outlook
ACRA IDGC of Volga: АА+(RU), stable
outlook
December
Fitch MOESK: BB+, stable outlook
Expert RA IDGC of
Centre: ruAA, stable outlook
IDGC of Center and
Volga Region: ruAA, stable
outlook
February
ACRA LENENERGO:
ААА(RU), stable outlook
ROSSETI:
ААА(RU), stable outlook
24
Cash Flows
Indicator, mn RUB 2017 2018 2019
Net cash provided by operating activities 212,386 238,571 256,445
Net cash used in investing activities (188,840) (253,840) (201,112)
Net cash used in financing activities (8,462) (2,729) (60,376)
Cash flow balance 15,084 (17,998) (5,043)
Net cash used in financing activities increased in 2019 on 2018 due to the Group’s decreased
debt obligations.
Key Ratios 2017 2018 2019
Adjusted EBITDA Margin 33.1% 30.7% 31.4%
Net Debt/Adjusted EBITDA 1.44 1.38 1.31
Liquid Ratio 0.31 0.33 0.33
Current Ratio 0.89 0.88 0.77
Financial Leverage 0.71 0.68 0.67
Long-Term Loans/Gross Debt 91% 85% 83%
Tariff Policy
Since the ROSSETI Group has a monopolistic position in the market, the Company’s tariff policy
is subject to government regulation.
Tariff Policy for Electricity Transmission and Distribution Services
In accordance with the Forecast of the Socioeconomic Development approved by the Russian
Government:
• the lower and/or upper limits on tariffs for electricity transmission and distribution
services require approval from the Federal Antimonopoly Service;
• regional regulators set uniform pool tariffs for electricity distribution services within the
tariff limits approved by the Federal Antimonopoly Service.
The Forecast of the Socioeconomic Development also places restrictions on total ceiling
household payments for utility services and does not factor in the outstripping growth in electricity
prices in the wholesale market as compared with the growth rate of grid tariffs, and, accordingly
the outstripping growth in electricity purchased for compensation for electricity network losses.
Distribution Grid Tariff, %
6.3 7.1 6.23.4
5.22.9
July 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020
25
Transmission Grid Tariff, %
Distribution of Costs in the Electricity Distribution Pool Tariff
Indicator (bn RUB unless otherwise stated) 2018 2019 2019/2018 Change, %
Costs related to payment for normative (technological) electricity network losses of distribution grid companies
121 126 4.1
Costs related to payment for services of allied territorial grid organizations at individual tariffs
157 164 4.5
Costs related to payment for services of FGC UES 144 147 2.1
Minimum regulated revenue for maintenance of electric grid facilities
404 417 3.2
All of ROSSETI’s subsidiaries are subject to long-term tariff regulation methods:
• return on invested capital method (RAB regulation) in 12 operating areas;
• long-term minimum regulated revenue indexation method in 53 operating areas;
• return on invested capital method applied to FGC UES tariffs.
Tariff Policy for Network Connection Services
The network connection fee is based on approved fee rates (standardized or rates for 1 kW of
connected capacity) or charged individually in accordance with cost estimate standards.
Network connection fees also cover expenses incurred by ROSSETI SDCs in connection with
organizational and technical measures and the construction of electric power facilities from
existing facilities to connected power-receiving equipment (last mile expenses).
With the aim of carrying out measures to increase the accessibility of grid infrastructure, it is
forbidden to include in the network connection fee for all categories of requesting entities the
investment component for covering the costs associated with the development of existing
networks. Preferential terms apply to connections of 150 kW and below:
• in the case of 15 kW or below, the network connection fee does not exceed 550 rubles
(provided that the conditions for Reliability Category 3 are fulfilled, that the distance from
existing electric grid facilities is not in excess of 300 meters in urban areas or 500 meters
in rural areas, and that voltages are not above 20 kV);
• in the case of a maximum of 150 kW, the fee covers expenses associated with
organizational and technical measures (excluding last mile expenses).
Economically reasonable costs incurred by ROSSETI SDCs that are not covered by the network
connection fee are included in electricity distribution tariffs.
7.55.5 5.5 5.5 5.5
July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020
26
Government Support
In the reporting period, ROSSETI did not receive government support, including subsidies.
Government subsidies provided for ROSSETI’s subsidiaries totaled 148 million rubles.
27
Capital Investment Program For 2020–2024:
• Financing for the capex program: 1,114 billion rubles (inclusive of VAT)
• Commissioning of fixed assets: 1,127 billion rubles (inclusive of VAT)
• Commissioning of transformer capacity: 62.3 GVA
• Commissioning of power lines: 90,200 kilometers
Consolidated capex program of ROSSETI SDCs for 2019–2021
Financing, mn RUB (inclusive of VAT) 2019 2020 2021
Distribution grids 167,458 166,660 120,164
Transmission grids 149,755 125,537 118,284
ROSSETI subsidiary SDCs
572 774 251
Total for ROSSETI SDCs 317,785 292,970 238,698
Commissioning of fixed assets, mn RUB
Distribution grids 155,145 158,035 98,355
Transmission grids 114,368 148,963 153,405
ROSSETI subsidiary SDCs
718 893 209
Total for ROSSETI with subsidiary SDCs
270,231 307,890 251,969
Commissioning of fixed assets, power lines, km
Distribution grids 29,628 20,586 16,288
Transmission grids 2,832 2,623 2,564
ROSSETI subsidiary SDCs
81 30 14
Total for ROSSETI with subsidiary SDCs
32,541 23,238 18,866
Commissioning of fixed assets, transformer capacity, MVA
Distribution grids 8,412 7,603 5,004
Transmission grids 3,957 3,778 10,372
ROSSETI subsidiary SDCs
32 15 2
Total for ROSSETI with subsidiary SDCs
12,401 11,397 15,378
Overview of the implementation of the consolidated capex program of the ROSSETI Group in 2019
SDCs Financing, mn RUB (inclusive
of VAT)
Commissioning, mn RUB (exclusive of
VAT)
Commissioning, MVA
Commissioning, km
Distribution grids
MOESK 34,264 30,229 1,070 4,358
IDGC of Urals 9,991 10,942 459 2,563
IDGC of Siberia 11,810 10,524 790 3,146
ROSSETI Tyumen 11,572 11,802 560 697
IDGC of Center and Volga Region
17,931 14,282 1,620 6,769
IDGC of Centre 13,563 11,246 426 3,351
28
IDGC of Volga 9,544 8,868 489 1,614
LENENERGO 32,568 23,997 1,078 2,294
IDGC of North-West 5,534 4,892 179 1,316
IDGS of South 2,296 2,619 215 794
Kubanenergo 5,445 12,912 783 791
IDGC of Northern Caucasus
3,341 1,966 84 659
TDC 1,061 848 86 555
Yantarenergo 3,893 6,776 369 369
Chechenenergo 1,831 744 5 53
ENCE 2,254 1,767 161 101
Transmission grids
FGC UES 149,755 114,368 3,957 2,832
ROSSETI subsidiary SDCs
Tyvaenergo 561 730 38 196
Tsarskoye Selo Energy Company
66 55 6 5
Kurortenergo 345 308 13 44
Svet 11 9 6 1
Petrodvorets Electric Company
110 121 3 14
Saint Petersburg Power Grid
40 225 3 18
Total for ROSSETI with subsidiary SDCs
317,785 270,231 12,401 32,541
Changes in financing in 2017–2019, mn RUB (inclusive of VAT)
2017 2018 2019
261.9 258.4 317.8
Changes in commissioning in 2017–2019
2017 2018 2019
Power lines, km 24,897 28,297 32,541
Substations, MVA 12,335 12,076 12,401
Main sources of financing for the capex program in 2019
Source Share, %
Internal funds (depreciation and profit) 58.5
Borrowed funds 4.9
Connection fee 13.3
Other 23.3
29
Introduction of new technologies
Digital Transformation 2030 At the end of 2018, ROSSETI adopted the concept "Digital Transformation 2030." Its purpose is
to change the logic of processes and shift of the company to risk-oriented management based on
introduction of digital technologies and big data analysis. The concept is implemented in
accordance with the specially developed Target Model of digital transformation of the electric grid
complex ROSSETI until 2030.
Single process policy In 2019, in support of implementation of the Concept "2030 Digital Transformation", a new
technical policy of ROSSETI was approved, which is guided by the Company in making technical
decisions during operation of electric grid facilities, implementation of new construction programs,
complex technical re-equipment and reconstruction of facilities, as well as in innovative and
promising development.
Key solutions of the new process policy:
• Application of information control systems;
• Determination of digital substation architecture
• Transition to IEC 61850 digital data exchange protocol;
• Transition to risk-oriented management based on digital technologies introduction and big
data analysis
• Intelligent monitoring and predictive analytics systems
• Introduction of new cyber security technologies;
• Implementation of solutions based on the phenomenon of superconductivity;
• Implementation of energy storage facilities.
Program of Innovative Development
ROSSETI implements Innovative Development Program for 2016-2020 with vision up to 2025.4
Key areas:
• Transition and large-scale implementation of digital substations of 35-110 (220) kV
voltage class;
• Transition to digital active-adaptive networks with distributed intelligent automation and
control system;
• Transition to comprehensive business process efficiency and management automation
• Application of new technologies and materials in the electric power industry.
4 Approved by the Board of Directors of ROSSETI of December 30, 2016 (minutes № 250).
Target Model main principals
complete transformation of the power grid infrastructure of all Group companies
platform solutions, single digital environment, information security
interconnection of all cloud-based digital information
streams
100% data input to information systems
data flow to unified network management centers to the
extent necessary for decision-making
30
R&D Projects
20 R&D titles of protection:
• 7 patents for utility models
• 4 patents for inventions
• 9 certificates
8,72 million rubles - amount of
fees paid under license agreements
46 partnerships with universities and
academic organizations
In 2019, R&D projects were implemented on more than 100 topics in 15 ROSSETI SDCs.
8.710.9
12.313.5
15.2
3.26
4.344.00
4.38 4.50
0.24 0.26 0.20 0.29 0.200,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
5,00
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
2017 2018 2019(target)
2019 2020(target)
Implementation of KPI target values "Innovation Efficiency"
Costs onimplementation ofInnovativeDevelopmentProgram, bn rubles
Share of costs onimplementation ofinnovative solutionsin PDI,%
Share of R&D costs inrevenue,%
31
Predictive Analytics
ROSSETI’s Mission
ROSSETI’s mission is to secure a reliable, high-quality, and affordable power supply for a
comfortable life and free economic growth in Russia, increasing profitability for shareholders and
offering more opportunities for professional growth. As a pillar of the country’s energy security,
we use advanced, innovative technologies.
Strategy for Development of the Electric Grid Sector of the Russian Federation Since the Company is the Government’s agent for the implementation of the most important
national capital investment projects and programs in the electric power industry and is a strategic
infrastructure company, ROSSETI’s strategic planning process is invariably guided by
governmental strategies and programs.
The priorities of the Russian electric grid sector’s development, including with respect to
ROSSETI, are established by the Strategy for Development of the Electric Grid Sector of the
Russian Federation.5
Key Results of Implementing the Strategy for Development of the Electric Grid Sector of the
Russian Federation in 2013–2019 by ROSSETI Group
Strategic Priority Achieved Results
Reliability and quality of power supply
Indices introduced and improved: SAIDI from 10.62 hours to 1.8 hours, SAIFI from 2.3 to 1.2
Infrastructure accessibility • the number of procedures to obtain an electricity
connection was reduced to 36 in 2019
• the time required to obtain an electricity connection was
reduced from 183 days in 2013 to 41 days in 2019 (from
141st in 2013 to 7th in 2019 in the “Ease of Doing
Business” ranking)
Efficiency • the level of electricity losses in 2019 was reduced by
1.31 p.p. against 2012 (from 9.88% to 8.57%);
• specific operating and investing expenses reduced by
30.3% and 30% respectively by 2017
Accomplishment of federal-level tasks
Infrastructure built under federal projects (Olympic Winter Games in 2014, 2018 FIFA World Cup, BRELL, etc.)
Technological and innovative development
• uniform technical and innovation policies approved
• program introduced for pilot projects of digital
transformation
Reduced fragmentation of territorial grid organizations
The number of territorial grid organizations was decreased from 3,000 in 2013 to 1,600 in 2019. This made it possible to increase the efficiency of using uniform operating standards and improve reliability and customer satisfaction.
6 To 2 procedures in accordance with the World Bank’s methodology.
32
Overall, all quantitative target values specified in the Strategy for Development of the Electric Grid
Sector of the Russian Federation for the period until 2019 were attained.
Development Strategy of the ROSSETI Group Until 2030
Following the strategic planning period of 2015–2019 and with due consideration to strategic
documents adopted by the Russian Government, the Board of Directors of ROSSETI approved
in December 2019 the ROSSETI Group’s new strategy until 20307 (the “Strategy 2030”) defining
the goals and areas of the Group’s development.
Company will become a leader in the energy sector resilient to changes in the global and local
electricity markets by 2010 through the digital transformation of its business.
Strategic priorities of the Company:
• increasing core business efficiency (electricity transmission and distribution);
• promoting legislative initiatives to develop the industry;
• ensuring electricity supply reliability and quality and nondiscriminatory access to energy
infrastructure in a new digital environment;
• keeping a balance between the interests of all different stakeholders: government /
customers / shareholders / investors;
• developing new business areas (nontariff services) through digital transformation to meet
the changing demand.
Targets of the Strategy 2030:
Targets 2030
Electricity losses, % 7.34
Grid observability, %* 90–100
SAIDI, hours 1.6
SAIFI, outages 0.85
Digital Transformation Index 0.95–1
R&D expenses, % of revenue at least 0.25
Revenue from nontariff sources, % at least 20
Workforce productivity growth, %** by 40
Decline in specific OPEX, % by 40
7 Development Strategy of Public Joint Stock Company ROSSETI and Its Subsidiaries and Dependent Companies (ROSSETI Group) Until 2030. Approved by the Board of Directors (Minutes of the Meeting No. 388 of December 26, 2019).
33
Corporate Governance
Corporate Governance Model An efficient corporate governance system is one of the key components for the successful development of the Company, providing the necessary balance of interests of shareholders, investors, creditors, and employees. ROSSETI is one of the largest public companies in Russia in terms of the extent of operation, with the number of shareholders exceeding 320 thousand persons. The ROSSETI corporate governance model is a system of relations between shareholders, the Board of Directors, the executive bodies of the Company and other stakeholders, which supports activities and development path, management and control, rules and procedures for corporate decision-making in the Company and the ROSSETI Group as a whole.
Objectives of the corporate governance of the Company Strategic guidelines
• Increase in shareholder value and investment attractiveness of the Company;
• Generating profit from the activities;
• Stable and predictable development of the Company;
• Ensuring efficient asset management of the Company and its subsidiaries;
• Improving the management system, employee motivation and succession practices.
Principles and priorities of the corporate governance of the Company Key corporate governance principles
• Respect for and guarantees of the rights and legitimate interests of shareholders, investors, and stakeholders of the Company;
• Ensuring information and financial transparency of the Company;
• Predictable dividend policy of the Company;
• Efficient and professional Board of Directors accountable to the shareholders of the Company;
• Zero tolerance for corruption and fraud;
• High standards of business ethics and compliance;
• Minimization and settlement of corporate conflicts;
• Occupational safety and environmental protection;
• Developed corporate culture and practice of corporate social responsibility.
Activities Key corporate governance policies
• Implementation of uniform management standards in the ROSSETI Group;
• Improving operational efficiency, improving the management system of the Company and the ROSSETI Group, improving the quality of business processes;
• Professional interaction with investors, employees and partners of the Company;
• Improving the information transparency of the Company, internal control and audit mechanisms.
Corporate governance system development in 2019
The Company consistently implements plans to improve its corporate governance practices, following the Corporate Governance Code recommendations, changes in the regulatory environment, and initiatives of the professional community.
34
National Corporate Governance Rating
In 2019, based on the results of independent monitoring of corporate governance practice, Non-
Profit Partnership Russian Institute of Directors once again confirmed the ROSSETI corporate
governance rating
In 2019, the Company continued to improve corporate governance in the Company and the ROSSETI Group as a whole. The new version of the ROSSETI Articles of Association, approved in 2019, takes into account legislative innovations, according to which the Board of Directors is vested with the right, along with shareholders, to propose candidates to the management and control bodies of the Company. The competence of the Board of Directors has been expanded to include issues related to monitoring the implementation of transactions on making gratuitous contributions to the property of companies in which ROSSETI has an interest in the authorized capital, where such contributions do not increase the authorized capital of such companies and do not change the nominal value of shares.
The new version of the Regulations for the General Meeting of Shareholders of ROSSETI, approved in 2019, in addition to previously specified methods for submitting proposals by shareholders to items on the agenda of the general meeting, proposals to nominate candidates to the management and control bodies, and requests to hold an extraordinary General Meeting of Shareholders, provided for a possibility to send such proposals using electronic signature to the following email address: [email protected].
The new version of the Regulations for the Board of Directors of the Company, approved in 2019, established the right of the official responsible for organizing and conducting internal audits in the company to demand the convening of a meeting of the Board of Directors.
The revised Regulations for the Management Board, approved in 2019, also take into account changes to the Federal Law “On Joint-Stock Companies”: the right of the official responsible for organizing and conducting internal audit in the Company to receive minutes of meetings of the Management Board is stipulated.
In 2019, the revised Regulations for Remuneration and Compensation for Members of the Board of Directors of the Company were also approved, which provide for amendments aimed at complying with the recommendations of the Corporate Governance Code, according to which the level of remuneration paid shall be sufficient to attract, motivate and retain persons with competency and qualifications required by the Company.
In 2019, the Company continued the practice of providing a possibility for easy participation in the annual general meeting, including the live broadcast of the event on the corporate website of the Company and the possibility of electronic voting. Also, a special e-mail address was opened for communication with shareholders and a forum was provided to discuss the issues on the agenda of the meeting on the Company's website.
The composition of the Board of Directors of the Company elected at the annual General Meeting of Shareholders fully complies with the requirements of the Moscow Exchange for issuers of the 1st tier listing and the recommendations of the Corporate Governance Code: 5 out of 15 members of the Board of Directors are independent.
Company complies with the requirements of Russian legislation in the area of corporate governance and follows a significant number of recommendations of the Russian Corporate Governance Code, and is also characterized by a high level of corporate governance and low risks of loss of ownership related to the quality of corporate governance.
7 ++, “Developed Corporate Governance Practice”
35
Achievements of ROSSETI in corporate governance in 2019
General Meeting of Shareholders The General Meeting of Shareholders is the supreme management body of ROSSETI. The procedure for preparing and holding the General Meeting of Shareholders is regulated by the Articles of Association 8 and the Regulations for the General Meeting of Shareholders of ROSSETI9.
Digitalization of the General Meeting of Shareholders in 2019
Taking into account the development of IT technologies, the Company is actively introducing
tools for remote participation in Meetings and the ability to access all necessary information
through digital services. In particular, in 2019 the following activities were implemented:
• a forum was organized for shareholders to discuss items on the agenda of the General Meeting of Shareholders;
• video broadcasting was conducted on the Company's website from the venue of the General Meeting of Shareholders;
• a possibility was provided to fill out the electronic form of the bulletin on the website;
• a possibility was provided to fill out the electronic form of the bulletin at information desks at the venue of the General Meeting of Shareholders during the meeting;
• materials in electronic form were made available on the Company's website and
information desks at the venue of the General Meeting of Shareholders during the
meeting;
• use of QR codes to get access to materials and the agenda;
• a possibility was provided to fill out the electronic feedback form.
The annual General Meeting of Shareholders on the Company's performance in 2018 was held on June 27, 2019 (Minutes without number dated June 27, 2019). No extraordinary General Meetings of Shareholders were held in the reporting period.
8Approved under the decision of the Annual General Meeting of Shareholders dated 27.06.2019 (Minutes of the Meeting dated 27.06.2019 w/o No.), the text can be found on the Company's website http://www.rosseti.ru/about/documents/ 9Approved under the decision of the Annual General Meeting of Shareholders dated 27.06.2019 (Minutes of the Meeting dated 27.06.2019 w/o No.), the text can be found on the Company's website http://www.rosseti.ru/about/documents/
The Board of Directors has approved a single standard of corporate identity of
Rosseti Group.
In June, Rosseti Group presented a new unified brand architecture of the energy
holding.
Russian Institute of Directors, a non-profit partnership, confirmed the corporate
governance rating of PJSC FGC UES at 7++ “Advanced Corporate Governance
Practice”
36
Agenda items and decisions of the Annual General Meeting of Shareholders
№ Item on the agenda: Results and status
1 Approval of the Company's annual report
for 2018.
The Company's annual report for 2018 was
approved.
2 Approval of the Company's annual
accounting (financial) statements for
2018.
The Company's annual accounting
(financial) statements for 2018 were
approved.
3 Approval of the Company's 2018 profit
distribution.
Since there was no net profit for 2018, the
Company did not distribute its profit
(losses).
4 Amount of dividends, terms and form of
their payment for 2018, and setting the
date to define persons entitled to receive
dividends.
It was decided not to pay dividends on the
Company's preferred and ordinary shares
for 2018 due to the loss according to the
accounting (financial) statements for 2018.
5 Amount of dividends, terms and form of
their payment for Q1 2019, and setting
the date to define persons entitled to
receive dividends.
As of December 31, 2019, the following dividends were paid for Q1 2019: - on preferred shares in the amount of RUB 0.7997 per share for the total amount of RUB 159,277,148.33 - on ordinary shares in the amount of RUB
0.02443 per share for the total amount of
RUB 4,852,155,945.39
6 Payment of remuneration for work in the
Board of Directors to members of the
Board of Directors, who are not
government officials, in the amount
prescribed by the Company's internal
documents.
It was decided not to pay remuneration to
members of the Company's Board of
Directors.
7 Payment of remuneration for work in the
Internal Audit Commission to members of
the Internal Audit Commission, who are
not government officials, in the amount
prescribed by the Company's internal
documents.
It was decided to pay remuneration to
members of the Company's Internal Audit
Commission, who are not government
officials.
8 Election of members to the Company's
Board of Directors.
The new Board of Directors of the Company
was elected.
9 Election of Members to the Company's
Internal Audit Commission.
The new Internal Audit Commission of the
Company was elected.
10 Approval of the Company's auditor. LLC RSM RUS was approved as the auditor
11 Approval of the Company's Articles of
Association in a new version.
The new version of the Articles of
Association of ROSSETI was approved.
12 Approval of the Regulation on the
Company's General Meeting of
Shareholders in a new version.
The new version of the Regulation on the
Company's General Meeting of
Shareholders was approved.
13 Approval of the Regulation on the
Company's Board of Directors in a new
version.
The new version of the Regulation on the
Company's Board of Directors was
approved.
37
№ Item on the agenda: Results and status
14 Approval of the Regulation on the
Company's Management Board in a new
version.
The new version of the Regulation on the
Company's Management Board was
approved.
15 Approval of the Regulation on payment of
remunerations and compensations to
members of the Company's Board of
Directors in a new version.
The new version of the Regulation on
payment of remunerations and
compensations to members of the
Company's Board of Directors was
approved.
Board of Directors
• Collegial management body of ROSSETI.
• Governed by the laws of the Russian Federation, the Articles of Association, the Corporate
Governance Code, and the Regulations for the Board of Directors of ROSSETI10.
The key element of the Company's efficient corporate governance system is the professional Board of Directors, which plays a key role in the Company's strategic and business management. The competence of the Company's Board of Directors is determined by legal requirements and the Company's Articles of Association and takes into account the Company's special status as the largest national electricity transmission operator.
Principal objectives and tasks of the activities of the Company’s Board of Directors:
The Company's Board of Directors is accountable to the General Meeting of Shareholders and is responsible to the shareholders for the Company's development strategy, performance, and management control in the implementation of its objectives.
10 Approved by the Annual General Meeting of Shareholders on June 29, 2018; available on the Company’s website at http://www.rosseti.ru/investors/info/charter_and_internal_documents/.
Define the Company’s development strategy aiming to enhance its market capitalization and
appeal to investors, achieve the maximum profit, and increase its assets
Ensure the exercise and protection of the rights and legitimate interests of shareholders and
contribute to resolving corporate conflicts
Ensure that the information about the Company disclosed to shareholders and other stakeholders
is complete, reliable, and unbiasedCreate effective internal control mechanisms
Evaluate the performance of the Company’s executive bodies on a regular basis
38
Nominees for election to the Board of Directors are preliminarily evaluated by the Nomination and
Remuneration Committee11 for compliance with the independence criteria.
The Board of Directors elected by the Annual General Meeting of Shareholders in 2019 complies
fully with the Level 1 listing requirements of the Moscow Exchange and the recommendations of
the Corporate Governance Code.
As of December 31, 2019, the ROSSETI Board of Directors consisted of the Chairman (Non-
Executive Director), one Executive Director, eight Non-Executive Directors and five Independent
Directors (all members of the Board of Directors are citizens of the Russian Federation).
11 In accordance with the restated version of the Regulations for the Nomination and Remuneration Committee of the Board of Directors approved by the Board of Directors on February 28, 2018 (Minutes of the Meeting No. 295).
NOVAK Alexander Valentinovich Chairman of the Board Non-executive Director
Born in 1971 in the city of Avdeevka, Donetsk region, Ukrainian SSR. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1993 he graduated from the Norilsk Industrial Institute with a degree in Economics and Management in Metallurgy. In 2009 he graduated from Moscow Lomonosov State University. with a degree in "management". PROFESSIONAL EXPERIENCE Before 2012, he worked in government authorities. From May 2012 - Minister of Energy of the Russian Federation. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of Rosneft, PJSC Gazprom, Transneft, State Corporation Rosatom, NRU MEI, NIU named after I.M. Gubkin, Siberian Federal University, Russian Basketball Federation, All-Russian Athletics Federation, Russian Motorcycle Federation, Conservation and Development Fund of the Solovetsky Archipelago, ANO International Center for Sustainable Energy Development, Global Energy Association, and is also the chairman of the Presidium of the Association of Fuel and Energy Complex “Russian National Committee of the World Energy Council”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
ASHIROV Stanislav Olegovich Independent Director Member of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee
Born in 1973 in the city of Achinsk, Krasnoyarsk Region. Citizenship - Russian Federation. The candidacy was proposed by the shareholder of the Company, Progressive Investment Ideas Management Company JSC, trust management of pension savings funds to finance the funded pension of JSC NPF GAZFOND Pension Savings. EDUCATION In 1996 he graduated from the State Academy of Management named after Sergo Ordzhonikidze with a degree in Management. PhD in Economics.
39
under the Board of Directors of the Company Member of the Strategy Committee under the Board of Directors of the Company
PROFESSIONAL EXPERIENCE Before 2008, he held senior positions in companies in the extractive and electricity sectors of the economy. From 2008 - General Director of JSC Gazprom Energosbyt Also since 2017 - General Director (part-time) of LLC Engineering Company Energy Solutions in the Electric Power Industry, since 2019 - Director (part-time) of Our Future Fund OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
AYUEV Boris Ilyich Non-Executive Director
Born in 1957 in the city of Rostov-on-Don. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1979 he graduated from the Ural Polytechnic Institute with a degree in Electrical Stations. Doctor of Engineering Science. PROFESSIONAL EXPERIENCE Before 2004, he worked in project and managerial positions in electric power enterprises. From 2004 - Chairman of the Management Board of SO UES JSC. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the Boards of Directors (Supervisory Boards) of PJSC Inter RAO, JSC SO UES, Association Digital Energy, and is also a member of the Presidium of RNC CIGRE. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES Share in the authorized capital of ROSSETI: 0.004467% Percentage of ordinary shares of ROSSETI owned by the person: 0.004514 %. Share in the authorized capital of FGC UES: 0.007115 % Percentage of ordinary shares of FGC UES owned by the person: 0.007115 %. During the reporting year, he carried out no transactions with securities (shares) of ROSSETI and its affiliated organizations. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
40
BELOV Vasily Mikhailovich Independent Director Chairman of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee under the Board of Directors of the Company
Born in 1981 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2003 he graduated from the Faculty of Computational Mathematics and Cybernetics of Moscow State University named after М. V. Lomonosov and received an MBA from the American Institute of Business and Economics (AIBEc). PROFESSIONAL EXPERIENCE Before 2013, he worked in international consulting companies, as well as investment banking holdings. From 2013 to 2017 - Senior Vice President, Innovation, Skolkovo Foundation. From 2017 to 2019, he headed Skolkovo - Venture Investments LLC. From September 2019 - Director of Mergers and Acquisitions of IBS LLC. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the Board of Directors of Skolkovo-Venture Investments LLC. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
BYSTROV Maksim Sergeevich Independent Director Member of the HR and Remuneration Committee under the Board of Directors of the Company
Born in 1964 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1986 he graduated from the Moscow Institute of Civil Engineering (MISI) with a degree in hydraulic engineering construction of river structures and hydroelectric power stations. In 1998 he graduated from the All-Russian Academy of Foreign Trade with a degree in World Economics. PROFESSIONAL EXPERIENCE Before 2013, he worked in government bodies in the structures of the Government, the Ministry of Economic Development, the Ministry of Regional Development of the Russian Federation From 2013, he has been the head of ATS JSC. From 2014, he has headed the Association NP Market Council. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, JSC SO UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
41
DUBNOV Oleg Markovich Independent Director Chairman of the Committee on Investments, Technical Policy, Reliability, Energy Efficiency and Innovation under the Board of Directors of the Company Member of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee under the Board of Directors of the Company Member of the Strategy Committee under the Board of Directors of the Company
Born in 1971 in Vologda. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2000 he graduated from the Griboedov Institute of International Law and Economics with a degree in law. In 2004 he graduated from the Moscow State Institute of International Relations (MGIMO) with a degree in World Economics. PROFESSIONAL EXPERIENCE In 2011-2015 - Director for Power Engineering, Member of the Management Board of CJSC Polyus. In 2015 - 2017 served as Advisor to the Director General of the Institute of Professional Directors Fund. From 2017 - Vice President, Executive Director of the Energy Efficiency Technology Cluster of the Skolkovo Foundation. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
KALININ Alexander Sergeevich Independent Director Chairman of the HR and Remuneration Committee under the Board of Directors of the Company Member of the Audit Committee under the Board of Directors of the Company
Born in 1966 in Chelyabinsk. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1989 he graduated from the Chelyabinsk Polytechnic Institute with a degree in Robotic Engineering. In 1998 he graduated from the Ural Academy of Public Administration with a degree in law. Candidate of Engineering Science, PROFESSIONAL EXPERIENCE Before 2014, he worked in commercial and public organizations, acting as one of the founders of the Organization of Small and Medium Enterprises OPORA ROSSII. From 2014, he headed the All-Russian Public Organization of Small and Medium Enterprises OPORA ROSSII and NP OPORA. Also, since 2014, Director (part-time) of Granitny Bereg LLC PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of JSC SO UES, JSC Federal Corporation for the Development of Small and Medium Enterprises, PJSC CB Vostochny. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
42
LIVINSKIY Pavel Anatolyevich Executive Director
Born in 1980 in Chelyabinsk. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2001 he graduated from Moscow Lomonosov State University with a degree in Economics, In 2003 — graduated with a master's degree in Management from Lomonosov Moscow State University. PROFESSIONAL EXPERIENCE Before 2013, he worked in electric grid companies in Moscow and the Moscow Region, having passed the path to the head of JSC “OEC” In 2013 - 2017 headed the Department of Fuel and Energy Economy of Moscow, the Department of Housing and Public Utilities of Moscow. From 2017 - General Director and Chairman of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of SO UES, PJSC RusHydro, ROSSETI, MOESK, FGC UES, LENENERGO, NP NTS UES, NRU MEI, and Associations of Organizations digital development of the industry "Digital Power Engineering". He is also a member of the boards of directors (supervisory boards, board of trustees) of the Christ the Savior Cathedral Foundation, the All-Russian public sports organization Federation of the Russian Modern Pentathlon, the All-Russian Swimming Federation public organization, and the All-Russian Athletics Federation public organization. In addition, he is a member of the presidiums of the Association “RNA CIGRE”, the Association “RNA MIRES” and ROO “SFPS”, a member of the Board of OOR “RSPP”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
43
MANEVICH Yuri Vladislavovich Non-Executive Director Member of the Strategy Committee under the Board of Directors of the Company
Born in 1972 in St.Petersburg. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1994, he graduated from St. Petersburg State University of Economics and Finance with a degree in Economics and Production Management. PhD in Economics. PROFESSIONAL EXPERIENCE Before 2010, he worked in financial and industrial holdings, as well as infrastructure companies in the electric power industry. In 2010-2019 he headed CJSC "ROSPROEKT" From 2019 - Deputy Minister of Energy of the Russian Federation PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, JSC SO UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
44
MUROV Andrey Evgenievich Non-Executive Director
Born in 1970 in Leningrad Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1993 he graduated from the Law Faculty of St. Petersburg State University with a degree in Law. In 2009, he graduated from the State University of Civil Aviation with a degree in Organization of Transportation and Transport Management (Air Transport). Doctor of Economics. PROFESSIONAL EXPERIENCE Before 2013, he worked in commercial organizations in the transport and electric power sectors. From 2013 - Chairman of the Management Board of FGC UES. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, she is also a member of the Board of Directors (Supervisory Boards, Board of Trustees) of FGC UES, JSC SO UES, PJSC Inter RAO UES, Global Energy Association, NP NTS UES, member of the Presidium of RNA CIGRE Association. In addition, he is a member of the Boards of Directors (Supervisory Boards, Boards of Trustees) of the National Research University of Power Engineering, St. Petersburg State University, St. Petersburg State University of Economics, the Rugby Sports Federation (Union) of Russia, and the Russian Engineering Union. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
45
RASSTRIGIN Mikhail Alekseevich Non-Executive Director
Born in 1983 in Ivanovo. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2005 he graduated from Ivanovo State Energy University named after V.I. Lenin with a degree in "thermal power plant engineering" and "economics". PROFESSIONAL EXPERIENCE Before 2008, he worked in banks and electric power sectors. In 2008-2017 - Analyst, Head of the Electric Power Division, VTB Capital Analytical Department. From 2017 - Assistant to the Minister of Economic Development of the Russian Federation, Deputy Minister of Economic Development of the Russian Federation, member of the Board of the FAS Russia. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of PJSC RusHydro, JSC Russian Railways, JSC SO UES, Association NP Market Council. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
ROGALEV Nikolay Dmitrievich Non-Executive Director
Born in 1962 in Urussu, Tatar ASSR. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1985, he graduated from the Moscow Power Engineering Institute with a degree in Thermal Power Plants. Doctor of Engineering Science, PROFESSIONAL EXPERIENCE Before 2013, he worked in scientific, educational institutions and commercial organizations, specializing in energy efficiency and innovative development. From 2013 - Rector of the National Research University MPEI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, President of NP NTS UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
46
TIKHONOV Anatoly Vladimirovich Non-Executive Director
Born in 1969 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1995 he graduated from Moscow Lomonosov State University. with a degree in "legal science". In 2011 he graduated from Moscow Lomonosov State University. with a degree in "management".
PROFESSIONAL EXPERIENCE Before 2014, he held senior positions in commercial, banking organizations, as well as in government bodies. In 2014-2019 he headed FGBU REA of the Russian Ministry of Energy. From 2019 - Deputy Minister of Energy of the Russian Federation
PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of the ANO “Fund for the Promotion of International Energy Cooperation”, JSC Zarubezhneft, ANO “Russian-French Center for Energy Efficiency”
OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
47
SHMATKO Sergey Ivanovich Non-Executive Director
Born in 1966 in Stavropol. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1990 he graduated from Ural State University with a degree in Political Economy In 1992 he graduated from the Faculty of Economics of the University of Marburg with a degree in Economics Candidate of Technical Sciences, Professor PROFESSIONAL EXPERIENCE Before 2013, he held senior positions in consulting companies in Russia and Europe, and also held positions in government agencies, also in 2008-2012 he headed the Ministry of Energy of the Russian Federation. From 2012 - President of Artpol Holding LLC. From 2013 - Special Representative of the President of the Russian Federation on International Cooperation in the Field of Electric Power From 2014, a professor in NRU MPEI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of JSC Artpol-Engineering, JSC Atommashexport, NP NTS UES, and NRU MPEI. He is a member of the Presidential Commission on the strategic development of the fuel and energy complex and environmental safety. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
48
SHULGINOV Nikolay Grigoryevich Non-Executive Director
Born in 1951 in Stavropol Region. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1973 he graduated from the Novocherkassk Polytechnic Institute named after S. Ordzhonikidze with a degree in "Power supply of industrial enterprises and cities." Candidate of Engineering Science, PROFESSIONAL EXPERIENCE From 1976 to 2015, he worked in organizations of the energy system of Russia, having his promotion from an engineer to the first deputy Chairman of the Management Board of SO UES JSC. From September 2015 - Chairman of the Management Board, General Director of PJSC RusHydro. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of PJSC RusHydro, NP NTS UES, Association NP Market Council, Association Hydropower of Russia, NRU MEI, Siberian Federal University, Russian Geographical Society, Global Energy Partnership. He is also a member of the Board of OOR "RSPP". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
Changes in the composition of the Board of Directors during the reporting year
During 2019, the composition of the Board of Directors of the Company was renewed by 13%: based on the results of the annual general meeting, 2 new members were elected, including one independent director - Mr. M.S. Bystrov, as well as Mr. Yu.V. Manevich The remaining 13 members of the Board of Directors were re-elected for a new term.
In the period until the annual General Meeting of Shareholders, the Board of Directors of the Company also included the following members: Barkin, Oleg Gennadievich (independent director) Born in 1975 in the town of Tomilino, Moscow Region. His position at the time of election - Deputy Chairman of the Board of the Association NP Market Council. In 1998 he graduated from NRU MPEI with a degree in Applied Mechanics. In 1999 he graduated from NRU MPEI with a degree in Financial Management. From 2012 - Deputy Chairman of the Board of the Association NP Market Council. Kravchenko, Vyacheslav Mikhailovich (non-executive director) Born in 1967 in Moscow. In 1995 he graduated from Moscow Lomonosov State University with a degree in law. From 20134 to 2018 - Deputy Minister of Energy of the Russian Federation
49
O.G. Barkin and V.M. Kravchenko in the reporting year did not own shares of ROSSETI and its controlled companies, did not make transactions with securities of these organizations, and also did not have family relations with members of the management bodies of the Company.
Board of Directors Performance Appraisal According to the internal documents of the Company, the Board of Directors is entitled to annually
evaluate performance of the Board of Directors independently (self-assessment) or with the
involvement of an independent external organization (consultant) possessing required
qualifications to conduct the appraisal.
As part of NP “Russian Institute of Directors” assessment of the Board of Directors performance
in 2017, no external appraisal was carried out in 2019.
In the reporting year, performance of the Board of Directors and Committees of the Board of
Directors was assessed according to the Methodology for performance appraisal of the Board of
Directors, Committees of the Board of Directors and members of the Board of Directors of
ROSSETI, approved by the Board of Directors.
By conducting a self-assessment of the effectiveness of the Board of Directors in 2019, the
following were assessed: the quality of the Board of Directors and the Committees fulfilling the
functions assigned to them, relevance of the composition and structure of the Board of Directors
and Committees, role of individual members of the Board of Directors, role of the Chairman,
planning of the work of the Board of Directors and Committees, procedures of the meetings,
information support of the Board of Directors and Committees, as well as a number of
infrastructure aspects.
Appraisal Criteria
Average Score by Criteria
Changge (year
on year) 2017 - 2018
2018 - 2019
Performance by the Board of Directors of the key functions in the management of the company
4.73 4.71 -0.02
Composition and structure of the Board of Directors 4.75 4.83 +0.08
Organization of the work of the Board of Directors 4.60 4.65 +0.05
Incentive system for members of the Board of Directors 4.20 4.22 +0.02
Interaction of the Board of Directors with the management of the Company and Committees of the Board of Directors of the Company
4.70 4.80 +0.10
Audit Committee 4.81 4.95 +0.06
Human Recouces and Remuneration Committee 4.76 4.97 +0.21
Strategy Committee 4.55 4.53 -0.02
Committee on Investment, Technical Policy, Reliability, Energy Efficiency and Innovation 4.47 4.52 +0.05
Meetings held by the Board of Directors in 2019 Form of the Meeting 2017 2018 2019
In person 6 6 7
16% 12% 13%
In absentia 31 45 46
84% 88% 87%
TOTAL 37 51 53
Issues considered by the Board of Directors in 2019
50
Form of the Meeting 2017 2018 2019
In person 30 28 22
In absentia 134 160 160
TOTAL 164 188 182
The most important issues are considered by in-person meetings of the Board of Directors of ROSSETI.
Report of the Board of Directors on development results in priority areas of its activities
Strategic development • In December 2019, the Board of Directors approved the new Development Strategy for ROSSETI.
• During the reporting year, the updated development plans of ROSSETI SDCs were reviewed, as well as the status of certain areas of ROSSETI's activities.
Finance and investment In 2019, the Company's Board of Directors: • Approved the budget of the ROSSETI group of companies,
and reviewed reports on its implementation; • Regularly monitored accounts receivable in the ROSSETI
group of companies; • Considered issues of working with non-core assets of the
Company; • Approved the consolidated investment program with total
funding of 1.12 trillion rubles in 2020-2024.
Personnel policy In the reporting year, the Board of Directors: • Considered issues of motivation of the Company's
management and its significant subsidiaries and affiliates; • Approved the KPIs of the Company's top management, as
well as reports on their implementation; • Approved changes in the Company's organizational
structure.
Participation in meetings of the Board of Directors Member of the Board of Directors Participation
Novak Alexander Valentinovich 53/53
Ashirov Stanislav Olegovich 53/53
Ayuev Boris Ilyich 53/53
5%7%
6%
3%
34%5%
4%
36%
5%
16%
9%
12%
34%
5%
2%
19%
Categories of matters reviewed by the BoD
Стратегия
Финансы и инвестиции
Аудит, контроль и риски
КПЭ, кадры и мотивация
ДЗО
ВНД
Закупки
Иное
Strategy
Finance and investments
Audit, control and risks
KPI, personnel and incentives (motivation)
Subsidiaries
Internal regulations
Procurement
Other
51
Belov Vasily Mikhailovich 52/53
Bystrov Maksim Sergeevich
(since June 27, 2019)
28/29
Dubnov Oleg Markovich 52/53
Kalinin Alexander Sergeevich 50/53
Livinsky Pavel Anatolievich 52/53
Manevich Yuri Vladislavovich (since June 27, 2019)
28/29
Murov Andrey Evgenievich 52/53
Rasstrigin Mikhail Alekseevich 49/53
Rogalev Nikolay Dmitrievich 53/53
Tikhonov Anatoly Vladimirovich 53/53
Shmatko Sergey Ivanovich 52/53
Shulginov Nikolai Grigoryevich 53/53
Barkin Oleg Gennadievich (until June 27, 2019)
24/24
Kravchenko Vyacheslav Mikhailovich
(until June 27, 2019)
15/24
Note: "Participation" The data in the table are in the format "5/7", indicating that a person could have participated in 7 meetings of the Board of Directors (Committee), actually participated in 5 meetings.
Average number of issues considered by the Board of Directors at one meeting
2017 2018 2019
Number of issues 4.43 3.69 3.43
Remuneration for members of the Board of Directors and the Board Committees
The amount of remuneration for the members of the Board of Directors is determined based on
the scope of responsibilities and actual participation in the work of the Board of Directors, as well
as work in the Committees under the Board of Directors. The amount of basic annual
remuneration set out in the Regulations on Remuneration and Compensation to ROSSETI Board
Members is adjusted for these indicators.
Remuneration is paid in the form of a lump sum payment in rubles. Other forms of remuneration,
including forms of short-term and long-term motivation depending on the financial result, as well
as forms of motivation by shares (stock options), are not applied in the Company.
Reward
member
boards of
directors
(no more than
the base annual
compensation)
Reward
for participation
on the board of
directors (S1)
Extras
(summed up
when combining
duties)
30% of S1 - Chairman of the Board of Directors
20% of S1 - Chairman of the Committee under
the Board of Directors
10% of S1 - for participation in the work of the
Committee of the Board of Directors
S1 = (base annual compensation) X 100/130 X n/m
where:
n - number of actual participations of the member of the Board of
Directors in the meetings of the Board of Directors during the
corporate year
m - number of meetings of the Board of Directors during the
corporate year
52
The amount of the base annual compensation is 3.5 million rubles.
Restrictions on payment of remuneration:
Members of the Board of Directors who are also members of the Management Board of the Company.
The Regulations on Payment to ROSSETI Board Members do not apply. Remuneration is not accrued or paid.
Members of the Board of Directors who are persons for whom federal law restricts or prohibits any payments from commercial organizations.
No remuneration shall be accrued or paid to such persons.
Members of the Board of Directors who attend less than 50% of meetings of the Board of Directors.
No remuneration shall be paid to such member of the Board of Directors.
Total remuneration of all members of the Board of Directors exceeds the Company's net profit under RAS for the last year.
Remuneration is not paid to all members of the Board of Directors.
Holding less than 3 meetings of the Board of Directors Committee.
No remuneration (bonuses) is paid for chairing and/or being a member of this Committee.
The Company provides for the payment of compensation to the members of the Board of Directors of ROSSETI for expenses associated with participation in meetings of the Board of Directors or committees, according to the standards of reimbursement of travel expenses in force at the time of the meeting, established in the Company.
In the event of early termination of the powers of a member of the Board of Directors, no severance pay, compensation or other payments are envisaged in the Company.
The Annual General Meeting of Shareholders of the Company held on 27.06.2019 decided not to pay members of the Board of Directors of the Company remuneration for their work in the Board of Directors due to a loss incurred in 2018.
Liability Insurance of the Board of Directors For several years, the company and its subsidiaries have been using the practice of liability insurance of members of the Board of Directors, executive bodies and officials under a liability insurance contract for directors, officers and companies (Directors and Officers Liability, D&O).
Liability insurance allows you to guarantee the protection of directors and officers in cases of claims of third parties related to their activities. In addition, the D&O policy also protects the property interests of the shareholders of the Company, fixing the source of compensation for possible losses of the Company and / or insured persons in the event of insured events.
The main insurance conditions comply with international standards, and also take into account
the scale of the business and the specifics of the industry in terms of the volume of insured risks
and compensation limits. The D&O agreement insures the liability of the insured persons and / or
ROSSETI for obligations arising from loss / harm to third parties and / or ROSSETI as a result of
unintentional / erroneous acts of the insured persons as part of their performance of their
functional duties.
Committees of the Board of Directors
Committees of ROSSETI Board of Directors are an important element of the corporate governance system of the Company, providing preliminary study and examination of the most significant issues related to the competence of the Board of Directors of the Company. Effective
53
and professional work of the Committees allows for more thorough consideration of certain aspects of the Company and its subsidiaries activities, as a result of which the Board of Directors is provided with recommendations regarding voting on the agenda items.
In 2019 the following four Committees were active in ROSSETI: 1. Audit Committee (AC); 2. Human Resources and Remuneration Committee (HR&RC); 3. Strategy Committee (SC); 4. Committee on Investment, Technical Policy, Reliability, Energy Efficiency and
Innovation (CITPREEI).
ROSSETI Executive Bodies The management of the Company's current activities is carried out by the collective and sole
executive bodies - the Management Board and General Director of ROSSETI.
The competence of the executive bodies includes the resolution of the issues related to the current
activities of ROSSETI, except for the issues referred to the competence of the General Meeting
of Shareholders and the Board of Directors in accordance with the Company's Articles of
Association.
Collegial Executive Body (the Management Board)
The ROSSETI Management Board is a collegial executive body whose tasks include joint
consideration, analysis and decision making on the most important issues of the Company's
current activities, control over which is the responsibility of the executive bodies. In its activities,
the Management Board is guided by the requirements of the Charter and the Regulations on the
Management Board of the Company, ensuring both implementation of decisions of the General
Meeting of Shareholders and the Board of Directors of the Company. In addition, the Management
Board of the Company performs a significant amount of functions related to the management of
100% of ROSSETI's subsidiaries, making decisions that fall within the competence of the
meetings of shareholders (participants) of these companies.
54
Livinsky Pavel Anatolyevich Director General, Chairman of the ROSSETI Management Board
Born in 1980 in Chelyabinsk. Citizenship - Russian Federation.
The candidacy is proposed / approved by the decision of the Board of
Directors of the Company.
EDUCATION
In 2001 he graduated from Moscow Lomonosov State University with a degree in Economics, In 2003 — graduated with a master's degree in Management from Lomonosov Moscow State University. PROFESSIONAL EXPERIENCE Before 2013, he worked in electric grid companies in Moscow and the Moscow Region, having passed the path to the head of JSC “OEC” In 2013 - 2017 headed the Department of Fuel and Energy Economy of Moscow, the Department of Housing and Public Utilities of Moscow. From 2017 - General Director and Chairman of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of SO UES, PJSC RusHydro, ROSSETI, MOESK, FGC UES, LENENERGO, NP NTS UES, NRU MEI, and Associations of Organizations digital development of the industry "Digital Power Engineering". He is also a member of the boards of directors (supervisory boards, board of trustees) of the Christ the Savior Cathedral Foundation, the All-Russian public sports organization Federation of the Russian Modern Pentathlon, the All-Russian Swimming Federation public organization, and the All-Russian Athletics Federation public organization. In addition, he is a member of the presidiums of the Association “RNA CIGRE”, the Association “RNA MIRES” and ROO “SFPS”, a member of the Board of OOR “RSPP”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC
ROSSETI AND SUBSIDIARIES AND AFFILIATES
During the reporting year, he did not have shares (stakes) of ROSSETI
and its affiliated organizations; he did not make transactions with
securities (stakes) of these companies.
It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.
Demin Andrey Alexandrovich Member of the Management Board
Born in 1974 in Zaporozhye, Ukrainian SSR. Citizenship - Russian Federation. EDUCATION In 1996 he graduated from Zaporozhye State University with a degree in Applied Mathematics, in 1999 he graduated from Zaporozhye Institute of Economics and Information Technologies with a degree in Finance. PROFESSIONAL EXPERIENCE Till 2013 he worked in the companies of electric power industry, dealing with finance, operations and strategic management issues. In 2013-2015 - First Deputy Director General for Economics and Finance ROSSETI Since 2013 he is a member of the Management Board of ROSSETI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the Board of Directors of ROSSETI Tyumen.
55
OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC
ROSSETI AND SUBSIDIARIES AND AFFILIATES
During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies.
Korotkov Dmitry Sergeyevich Member of the Management Board, Deputy Director General for Legal Support ROSSETI
Born in 1982 in Leningrad. Citizenship - Russian Federation. EDUCATION In 2004, he graduated from St. Petersburg State University with a degree in law. PROFESSIONAL EXPERIENCE Until 2015, he worked in federal government bodies In 2015 - 2018. - Assistant to the Prime Minister of the Government of the Russian Federation Since 2018 - Deputy Director General for Legal Support, member of the Management Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the Board of Directors of IDGC of Volga, a member of the Supervisory Board of ANO Centre Amur Tiger. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC
ROSSETI AND SUBSIDIARIES AND AFFILIATES
During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies.
Sergeeva Olga Andreyevna Member of the Board, General Counsel ROSSETI
Born in 1984 in Moscow. Citizenship - Russian Federation. EDUCATION In 2006, she graduated from the Plekhanov Russian Academy of Economics. In 2006 she graduated from the Russian Academy of Economics named after G.V. Plekhanov with a degree in economics and management at an enterprise. Construction". WORK EXPERIENCE From 2012 to 2017, she held managerial positions in the Moscow City Government. In 2017 - 2018. - Advisor, Chief Advisor of ROSSETI In 2018 -2019. - Deputy General Director - Head of the ROSSETI Office, Member of the ROSSETI Management Board Since 2019. - Chief Advisor of ROSSETI, Member of the Management Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period she is also a member of the boards of directors (supervisory boards, boards of trustees) of FGC UES, MOESK, LENENERGO, IDGC of South, IDGC of North-West, IDGC of Northern Caucasus, Kubanenergo, JSC "NPF Otkrytie", Association "ERA of Russia". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC
ROSSETI AND SUBSIDIARIES AND AFFILIATES
During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies.
Pyatigor Alexander Mikhailovich
Born in 1980 in Kiima village of Kazakh SSR. Citizenship - Russian Federation. EDUCATION
56
Member of the Management Board, Deputy General Director for ROSSETI services
In 2002, he graduated from the Kazakh Agrarian University. С. Saifulin Kazakh Agrarian University, majoring in "Electricity supply and electrification of agriculture". WORK EXPERIENCE From 2013 to 2018, he served as Deputy Director General for Technological Connection and Development of MOESK services. Since 2018 - Acting Deputy Director General for Development and Implementation of Services, Deputy Director General for Implementation of Services ROSSETI Since 2018 - Member of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the boards of directors (supervisory boards, boards of trustees) of IDGC of Volga, IDGC of Northern Caucasus, PJSC Dagestan Power Sales Company, JSC Ekaterinburgenergosbyt, JSC "Kabbalkenergo", JSC "Sevkavkazenergo", JSC "Karachayevo-Cherkesskenergo", JSC "Pskovenergosbyt", JSC "Kalmenergosbyt", JSC "Tyvaenergosbyt", JSC "Yantarenergosbyt", JSC "Energocenter", JSC "Management of Vols VL". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC
ROSSETI AND SUBSIDIARIES AND AFFILIATES
During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies.
Changes in the composition of the Management Board in 2019
Over the period through 29.04.201912, Valentin Efimovich Mezhevich was also a member of the Management Board of the Company.
Report on activity of the Management Board members
During the reporting period, the Management Board of the Company held 166 meetings, including 2 meetings in person, at which a total of 402 issues were reviewed.
Sole Executive Body (Director General)
In accordance with the Company's Charter, the current management of ROSSETI is carried out
by the Company's General Director elected by the ROSSETI Board of Directors. The General
Director also heads the Company's Management Board.
Since September 201713, functions of the sole executive body of ROSSETI, the General Director,
have been performed by Pavel Anatolievich Livinsky.
Remuneration of the Management Board and General Director of the Company
The remuneration system of ROSSETI Management Board members is aimed at ensuring their material interest in achieving the Company's long-term goals and increasing the economic efficiency of management, as well as ensuring a fair and competitive remuneration level. ROSSETI CEO's remuneration is determined by the terms of the employment contract.
12 This member’s power were cancelled under the decision taken by the Board of Directors on 29.04.2019 (Minutes of the Meeting of 30.04.2019 № 353). 13 BoD decision No. 125 of 14.06.2013, Order No. 363к of 15.06.2013.
57
Remuneration for the members of the Management Board consists of fixed (salary) and variable (KPI bonus) parts.
Main components of the motivation system for the Management Board members
Fixed part Variable part
Other forms of incentives
Form of implementation
Official salary Quarterly and annual bonuses based on KPI achievement
Social package and liability insurance
Target weight of components in the compensation structure for the year
not more than 40% not less than 60% Provided
Target
Attracting and retaining highly professional managers through a fair level of base compensation at market level.
Incentives to achieve the targets in accordance with the Long-Term Development Programme and business plans of the Company
Provision of social benefits in accordance with best market practices
Key parameters
The level of salary corresponds to market conditions, which ensures stability of the Company management
The amount of the quarterly and annual bonuses of the top manager of the Company is calculated on the basis of actually achieved KPI values based on the Company's performance. The Company's KPI system is interconnected with the business plan, the Company's strategy, innovation activities, and achievement of the Company's sustainable development goals.
• Insurance coverage under VHI and liability insurance programs
• Other types of compensation and remuneration in accordance with the employment contract and the Company's ORD
Control over implementation and implementation of the Company's policy in the area of
remuneration for key employees of the Company falls within the competence of the Board of
Directors of the Company and the HR and Remuneration Committee under the Board of Directors
of the Company.
The return to the Company of the paid variable part of remuneration, the amount of severance
pay and other payments in the event of early termination of the authority of the Company's top
managers shall be regulated in accordance with the requirements of the legislation of the Russian
Federation.
Compensation to the General Director and members of the Management Board accrued in
2019, thous. RUB
Remuneration for participation in the work of the management body 3,618
Salary 104,485
Prizes 158,926
Other types of remunerations 6,332
Total 273,361
The amount of the premium for 2019 was determined based on the achievement of KPI targets.
58
Corporate Secretary • Governed by the Regulations for the Corporate Secretary
• Functionally subordinate to the Board of Directors and administratively subordinate to the Director General
• Functions:
BARANYUK Natalya
Nikolaevna
Born in 1978 in Krasnoyarsk. In 2011 she graduated from Lomonosov Moscow State University with a degree in Management. In 2000, she graduated from Krasnoyarsk State Agrarian University with a degree in law. Professional experience
2008 – 2015 Referent, Deputy Director of the Department of the
Ministry of Finance of the Russian Federation
2015 – 2015 Deputy Director of the Affairs Management Department
of the Ministry of Energy of the Russian Federation
2015 – present Corporate Secretary - Head of Staff of ROSSETI
Chairman of the Board of Directors
ensures the efficient
work of the Board
of Directors
coordinates the Boardof Dicerctors and theManagement Board
interaction
participates in the
improvement of the
Company’s corporate
governance practices
participates in
the implementation
of corporate policy
59
Shares and Share Market
Listing:
Moscow Exchange
• ticker: RSTI; Rstip
• listing date: 12/03/2008
• quotation list - first
• segment: main market
London stock exchange
• ticker: RSTI
• listing date: 12/08/2011
• 1 depositary receipt = 200 ordinary shares of ROSSETI
• segment: Main Market Standard Listing, IOB platform
The presence of ROSSETI in international indices:
- FTSE All-World (weight <0,005%)
- FTSE Emerging (weight <0,01%)
ROSSETI Share Capital Overview
• As of December 31, 2019, the registered share capital of ROSSETI was 200,903,014,525 rubles.
• The share capital consists of 200,903,014,525 shares, each with a par value of 1 ruble, including 198,827,865,141 ordinary shares and 2,075,149,384 preference shares.
• The total number of ROSSETI’s ordinary shareholders and preference shareholders is over 323,000.
• The Government holds an 88.04% stake, while corporate entities and individuals hold 9.38% and 2.58% stakes respectively.
10.21
0.71
10.21
0.71
3.28
1.17
0.18 0.01 0.18 0.01
3.28
0
2
4
6
8
10
12
RUB OS RUB PS USD OS USD PS
ROSSETI Shares Included in Moscow Exchange Indices
Electricity Index Medium and Small Cap Index
Government Equity Index Broad market index
Medium and Small Cap Index RTS
60
• The share of ordinary shares in free float is 11.1% of the total number of ordinary shares. The share of preferred shares in free float is 57.21% of the total number of preferred shares.
Key shareholders of ROSSETI (over 1%) as of December 31, 2019:
Additional share issues in 2019
The issue of ROSSETI shares in 2019 was not carried out. The executive bodies of the
Company do not have information on the existence of shares in shares exceeding five percent,
in addition to those already disclosed. The structure of share capital with an ownership interest
of more than 5% of the authorized capital did not change.
Depositary receipts
ROSSETI global depositary receipts have been traded on the London Stock Exchange in the
main market segment since December 8, 2011 and since May 28, 2014 have been admitted to
trading at MICEX Stock Exchange in the inter-dealer repo mode.
In connection with the circulation of depositary receipts for ROSSETI shares on the London Stock
Exchange in the Main Market segment in the standard listing category (Standard Listing), the
Company must comply with the requirements for depositary receipts established by the Listing
Rules and Disclosure and Transparency Rules).
Interaction with shareholders, investors and analysts
One of the main vectors of protecting shareholder rights is to ensure equal and free access to
information to the extent necessary for shareholders to make an informed decision on investing
in ROSSETI securities
In the reporting year, the Company continued its practice of interacting with investors and analysts in order to increase the transparency of activities and ensure awareness of this group of stakeholders. In particular, conference calls were organized for investors with the participation of representatives of specialized areas of the Company as part of the disclosure of the results of the Company, meetings were held with investors both during investment conferences and during participation in congress and exhibition events. Particular emphasis was placed on issues of disclosure of information on the
Making information about ROSSETI
operations known to investors and stakeholders
Expanding contacts with investment community (bankers, investors, analysts)
Regular Company information disclosure: reports, menites, records, statements of material facts and press-releases
Action to ensure information transparency
Keeping in touch with shareholders by responding to questions as soon as they emerge
Name
Number of shares, pcs. Ownership share, %
ordinary shares preferred shares
of ordinary shares
of preferred shares
of share capital
Federal Property 176 729 514 113
145 523 224
88.89 7.01 88.04
Gazprom Capital LLC 2 562 682 9002 0.00 1.29 0.00 1.28
61
digitalization of the Company, sustainable development and social responsibility of the ROSSETI group of companies.
62
Risk management system and internal control
Risk management system
In the course of their operational activities, ROSSETI and the companies of the ROSSETI Group
are exposed to a significant number of external and internal risks, which can have a significant
impact on the performance and efficiency of ROSSETI as a whole. Monitoring, forecasting,
prevention and mitigation of negative consequences of risks is one of the most important tasks of
the Company's management system.
Risk management is considered in ROSSETI as an integral part of strategic and operational
management, business planning, and represents a set of measures implemented at all levels of
management and planning. The goal of ROSSETI risk management system is to provide
reasonable assurance in achieving the goals set for the Company.
Main principles of the Company RMS functioning:
• focus on creating and protecting the Company's values;
• a systematic approach that provides for communication with strategic goals, as well as the applicability of risk management on a continuous basis to all organizational processes of the Company;
• the principle of optimality of the system in terms of costs and the effect received by the Company from the applied risk management measures;
• adaptability and dynamism of the system in conditions of constantly changing external and internal environment;
• involvement of all participants in the risk management process of the Company's business processes and their responsibility for the result.
Tasks of risk management system
Risks
In order to determine the level of the impact of risks on the activities of the ROSSETI Group, the
level of risk materiality is identified through the expert assessment of risk probability and risk
consequences, as well as through the quantitative assessment using mathematical methods to
calculate risk probability and risk consequences.
Risks are divided into three materiality levels: moderate, significant, critical.
Developing a risk-oriented corporate
culture
Achieving an optimal balance between
preferred risk (risk appetite) and
development strategy
Improvement of decision-making
process to respond to emerging risks
Reducing the number of unforeseen events
and losses in business activities
Identification, management, all risks in business activities
63
Key Risks and Risk Response Measures
Risk reduction ↓
Risk increase ↑
Unchanged →
Risk description
Risk significance trends at the
end of the year
Risk description Risk minimisation measures
Industry markets
The risk associated with non-payment for electricity transmission services rendered
→
The risk is based on peculiarities of the retail electricity market operations, as well as the insufficiency of existing mechanisms in stimulating consumers to pay on time for electricity transmission services, and the impact of macroeconomic factors (lower consumer solvency).
In 2019, the volume of outstanding account receivables for electricity transmission services decreased by RUB 10.3 billion (or 8.5%).
Total account receivables for electricity transmission services were down by RUB 5.3 billion, and the turnover period shortened by 5 days.
The positive trend was observed mainly due to a reduction in outstanding amount of debt to regional grid organisations by RUB 10.8 billion, including RUB 5.7 billion in the intra-group settlements with PJSC FGC UES.
The overdue debt of guaranteeing suppliers grew by RUB 0.3 billion in 2019. This was mainly due to non-payments of TNS Energo Group's guaranteeing suppliers (RUB +0.9 billion), Astrakhanenergosbyt (RUB +1.1 billion), Chitaenergosbyt (RUB +0.8 billion), and Volgogradenergosbyt (RUB +0.8 billion). In
• In Rosseti Group, measures are carried out to eliminate the causes of conflicts with consumers, to reduce disputed overdue account receivables for services rendered, including through the implementation in distribution networks of approved programmes related to the perspective development of electricity metering systems in the retail electricity market.
• The work is under way regarding the cooperation with federal authorities on improving the rules of the retail market functioning.
• The law enforcement practice is being shaped, as well as positive precedents are monitored.
• The S&A initiates the consideration of non-payments at meetings of regional collegial working bodies chaired by executive authorities of the constituent entity of the Russian Federation.
• A possible restructuring of overdue debts with subsequent control of the execution of signed agreements on debt payment is being reviewed.
• A possible repayment of overdue debts by debtors in the framework of transactions on the acquisition or lease of regional grid organisations' networks is being reviewed.
• Measures aimed at recovering overdue debts within the framework of claims review are carried out.
• Rosseti Group interacts with the Federal Bailiff Service of the Russian Federation at the enforcement proceeding stage, signs cooperation agreements with the Federal Bailiff Service of the Russian Federation, and controls the debt repayment in the framework of the enforcement proceedings based on court judgements on recovery of overdue debts.
64
terms of guaranteeing suppliers, outstanding receivables fell by RUB 3.3 billion, including RUB 1.4 billion due to writing off the debt of Energostrim Group.
Given the possible cancellation of energy sales licensing introduction, the risk of overdue debt growth remains significant and pressing.
The risk of reduction in the volumes of electricity transmission services
→
The risk is due to the possibility of reduction in electricity consumption related to macroeconomic changes, a decline in business activity, fluctuations in the consumer demand for electricity, as well as optimisation of external power supply arrangements by major consumers.
Realisation of this risk is affected by abnormal meteorological conditions (low predictability of climate changes and their impact on different geographical regions).
The risk is due to the failure of applicants to use the capacity obtained by means of technological connection.
Decentralisation of generation and deterioration of the overall economic situation are the factors associated with the decline in demand for electricity transmission services.
In 2019, the volume of electricity transmission services of subsidiaries and affiliates saw an increase of 0.25% in physical terms year-over-year.
In the reporting year, Rosseti Group managed to reduce the level of electricity losses by 0.38 p.p. to 8.57%, compared to the actual value y-o-y.
The risk remains significant and pressing for the Group.
• Forecasting and monitoring of electricity consumption is carried out by voltage level, the price (tariff) for electricity transmission services of which is differentiated, and by category of consumers, as well as the physical parameters of the electric energy and capacity balance are monitored.
• The work is being performed to improve the accuracy and reliability of electricity and capacity demand planning, in particular a special focus is placed on monitoring of electricity consumption by large consumers (who plan a construction and/or acquisition of alternative and generating facilities).
• Inspections of off-the-record electricity consumption are carried out.
• The data on volumes of consumption used by guaranteeing suppliers (energy sales organisations) in the calculation of costs of electricity transmission services is managed (including by voltage level, the price (tariff) for electricity transmission services of which is differentiated, by tariff option chosen by consumers, by category of consumers, within and above the social norm of consumption).
• In 2019, measures were taken to resolve differences in determining the scope of obligations under contracts for the provision of energy transmission services and (or) purchase of electric energy to compensate for technological consumption (losses) of electric energy.
• In 2019, the implementation of the Programme of Measures to Reduce Electricity Losses in Electricity Networks continued.
• In 2019, the Group continued to work with consumers of electricity transmission services to coordinate the planned scope of services, including the declared capacity, to introduce them into respective electricity transmission service contracts and submit them to state tariff regulation authorities.
• Suggestions on technological consumption of electricity/capacity are formed and submitted to state tariff regulation bodies, taking into account the current dynamics of productive supply for the purpose of
65
establishing the consolidated forecast balance of production and supply of electric energy for the next year.
• As part of the schedule in 2019, inspections of measuring complexes were carried out on a regular basis in order to replace metering devices on schedule.
• Currently, the analysis of approved arrangements and programmes for the development of the regional electric power industry is conducted to determine the necessity in constructing new generation facilities.
• The subsidiaries and affiliates implement approved programmes for the prospective development of electricity metering systems on the retail electricity market in distribution networks.
Risks associated with the provision of technological connection services to applicants
→
Risks are associated with the possible shortage of funds for the implementation of contracts on technological connection; decrease in demand for technological connection services in comparison with planned volumes taken into account when regional bodies make tariff and balance sheet decisions; failure of applicants to perform obligations under technological connection contracts (in particular, growth of operating costs due to an overestimation of the declared capacity by consumers in technological connection); untimely performance of obligations by a grid organisation.
Due to the influence of these factors, revenue from technological connection may decrease.
In 2019, the volume of technological connection of consumers and energy generation facilities suffered a drop of 9% in terms of the executed contracts and of 21% in terms of connected capacity y-o-y. At the same time, the amount of accumulated obligations was reduced by 9%.
The general volume of executed technological connection contracts (98%) falls on applicants on benefits, with power receiving
• Rosseti Group operates a range of measures related to technological connection contract management (it covers each stage: development of technical conditions, pricing, procurement, signing and execution of contractor agreements, execution of in-house technological connection contracts), including the automation of technological connection activities.
• In 2019, applications were monitored as well as technological connection forecasts were prepared (including the growth geography) in order to predict the volume of applications and obligations of the grid company in the next year.
• Workflows for processing consumer applications for technological connection and execution of technological connection contracts are improved. Technological connection is conducted in an automated process control system, thus ensuring transparency, rapid drafting and analysis of reports, control of the implementation practice, and documentation drafting. Applications for technological connection are filled in electronically on the subsidiaries and affiliates' official websites, as well as on the PJSC Rosseti portal of electric grid services (портал-тп.рф), which allows for processing applications in real time and avoid paper document flow.
• To ensure the provision of high-quality services by the grid organisations to their consumers, current and potential applicants can apply for technological connection online on the Portal of Electric Grid Services (портал-тп.рф).
• Since 2018, the SVETLAYA STRANA (Bright Country) Portal has been functioning for electricity consumers to provide feedback for the
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devices with a capacity of up to 150 kW (inclusive).
The key achievement in this type of operations was the reduced period of connection of applicants — 88 days, which is 9% less against 2018.
purpose of rapid real-time communication between residents and an electricity supplier.
• In order to reduce the number of stages and speed up the connection of applicants, the volume of work on technological connection, performed on own account, increases.
• Automation of the preparation of technical conditions takes place: introduction of geoinformation systems and digitisation of power grid facilities make it possible, based on the topography data of electric grid facilities, to automatically generate a list of activities aimed for the inclusion in technical conditions, while reducing the period of such a stage of the technological connection procedure.
• For the purpose of implementing the digitalisation concept, work is being performed on the transition to a unified digital infrastructure for servicing consumers of Rosseti Group.
• In 2019, the development of a mobile application of the power grid services portal was started, allowing to use a wide range of electronic services.
Risks of tariff regulation
→
The risks are associated with the partial consideration of costs of power grid companies incurred in the course of necessary gross revenue generation, as a result of limited growth rates of tariffs for electricity transmission services.
Implementation of the state tariff policy on distribution of the social burden of cross-subsidisation of residents to consumers of the distribution power grid complex exclusively causes major consumers to choose a UNEG management company or their own generation.
These factors negatively affect Rosseti Group's financial stability.
• Work is being carried out on the cooperation with executive authorities of the constituent entities of the Russian Federation in the field of state regulation of tariffs when setting economically reasonable tariffs.
• Work is being carried out on the cooperation with federal executive authorities (the FAS of Russia, the Ministry of Energy of Russia, the Ministry of Economic Development of Russia and others) aimed to improve the principles of tariff regulation.
Financial risks
Risks associated with the impact of inflation ↓
Growth of the consumer price index has an impact on the level of costs and profitability and, as a result, on the Group's financial condition and ability to meet its obligations.
Unit operating costs in 2019 were reduced by more than 2% year-over-year.
• To minimise inflationary risks, the 2019—2023 Operational Efficiency Improvement and Cost-Cutting Programme is being implemented by Rosseti Group.
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Risks associated with changes in interest rates
→
The risk is due to the impact of market interest rates on the possible growth of the Group's borrowing costs for debt refinancing, investment programme financing and operational activities.
The main factors influencing interest rates are the macroeconomic situation and the policy pursued by the Central Bank of the Russian Federation. Despite the consistency of the risk materiality assessment, the level of significance of risk consequences was lower due to the drop in the Bank of Russia's key rate in the reporting period.
• Rosseti Group provides a set of measures aimed at optimising the share of borrowings in the total capital structure, attracting long-term borrowings at fixed interest rates, and increasing the efficiency of operating and investment costs.
• The Company's planning of its business activities depends on risks associated with changes in interest rates.
• A balanced credit policy, intended to streamline the loan portfolio structure and reduce to the lowest costs of debt servicing, is being delivered.
The risk of deviation of the Debt/EBITDA indicator from the value set in the business plan
→
Risks of deviation of the actual value of the Debt/EBITDA debt burden ratio from the value set in the business plan. The Debt/EBITDA indicator characterises the Company's degree of debt burden and solvency.
In general, for Rosseti Group the risk was not realised. In 2019, the value of the Debt/EBITDA indicator was 1.9 (with a target value of 2.0).
• Cost management that depends on the expected level of income (with mandatory reliability and security requirements taken into account), in order to reach the EBITDA level set in the business plan.
• Rationing of operating expenses, control of their limits, and achievement of the target indicators set for the reduction of unit operating expenses are carried out.
• The compliance with approved limits of financing of the investment programme as well as the implementation of investment projects following the agreed costs and deadlines are being monitored.
Risks associated with the Company’s activities
Failure to meet the reliability of electricity transmission services
↓
Risks associated with climatic factors, physical wear, violation of operating conditions and critical changes in the parameters of operation of power grid equipment, which can lead to a failure (accidents) of electrical equipment and decline in the reliability of power supply.
In 2019, the limit values of indicators of the service reliability level, set by tariff regulation authorities, were not exceeded across Rosseti Group, except for JSC Chechenenergo: the failure to achieve this indicator was connected with the improvement of the accounting system of power supply interruptions in the 0.4—10 kV distribution network.
• Over the reporting year, measures were taken to raise the level of monitoring and controllability of the electric grid complex as well as to reduce the time of emergency response.
• To minimise the risk and accidents at the facilities, long-standing targeted programmes are being implemented by the S&A, aimed at: - the disposal of equipment that may cause injuries; - the standardisation of OL passages (clearing the territories near power lines of forests); - the improvement of reliability of the distribution network; - the improvement of lighting-surge proofness; - the replacement of switches, OD, and SC whose service life has expired; - the replacement of oil-filled bushings with solid insulation ones; - the replacement of porcelain and polymer combined insulators with OL;
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The average duration of disruption of electricity transmission to the Psaidi reception point was 1.8 hours.
The average frequency of disruption of electricity transmission to the Psaifi reception point was 1.2 pcs.
The Russian Federation confirmed a maximum rating of 8 out of 8 points for the Electrical Power Reliability Index (SAIDI, SAIFI) indicator.
In total, PJSC Rosseti subsidiaries and affiliates recorded and investigated 9.6 thousand process violations (accidents) in the network of 110 kV and above in 2019 (a decrease of 12% compared to 2018).
In 2019, as a result of effective production activities of subsidiaries and affiliates of PJSC Rosseti, the number of technological violations related to adverse weather events was down by 20%, and due to the poor maintenance of equipment — decreased by 13%.
Based on the strategic importance of the "reliability of electricity transmission services" indicator, this risk remains significant for Rosseti Group.
the replacement of support and rod insulators and the upgrade of relay protection and automation devices and gear of the electric grid complex.
• Scheduled ordinary and advanced trainings along with the control of production personnel's performance are carried out every year.
Occupational risks →
The risks are caused by unintentional neglect of labour protection requirements on the part of workers in the production process.
The risk is critical, as Rosseti Group has zero tolerance for accidents that are dangerous for its employees.
• Rosseti Group analyses and introduces the best practices to promote the culture of employee safety, as well as automates production processes regarding the safety to avoid occupational injuries as much as possible.
• Steps are being taken to comply with the requirements of existing regulatory laws of the Russian Federation in the field of labour protection.
• In order to create a personnel safety culture, employees are trained and corresponding measures are taken to prevent occupational injuries, as well as the legal framework of labour protection, labour protection rules in the operation of electrical installations, first aid to victims are being studied. The Company's employees were trained on the safe performance (aimed at appropriate safe behaviour and accident prevention at work).
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• Technologies that ensure safe performance and safe working environment are being introduced and applied.
• Examination of workplaces in structural division, production structural divisions, including with the inspection of territory (industrial premises), workplaces passages and evacuation routes is conducted; sources of hazards and/or dangerous situations (initiating events) related to the work performed by an employee or type of work are identified.
• Periodic maintenance (diagnosis, inspection, repair, testing, etc.) of production equipment and tools which are a source of potential danger to employees is carried out.
• Automatic control devices for harmful substances, process safety parameters and other signalling devices are used.
The risk of failure to deliver key parameters of the investment programme14
↓ The risk of deviation of the investment
programme's actual parameters (on financing, execution, introduction of fixed assets) from the approved ones.
The risk realisation is mainly affected by the following factors: lack of financing sources, failure to meet project deadlines by contractors, bankruptcy, unwillingness and refusal of an applicant related to TC activities, failure to receive initial permits.
In 2019, 193 priority facilities worth RUB 78 billion were scheduled for commissioning. In fact, 188 facilities worth RUB 76.7 billion were accepted.
• In 2019, the criteria of highlighting priority investment projects were updated in order to improve the effectiveness of control over the implementation of Rosseti S&A's investment programmes.
• A new system of assessment of key management efficiency indicators of Rosseti's S&A has been introduced so that to increase the responsibility for execution of investment projects, taking into account quarterly performance in terms of priority facilities commissioning.
• The system of control over the implementation of priority investment projects, introduced by PJSC Rosseti, allows for the timely identification of risks of failure to implement projects and promptly respond to slippages.
• In order to minimise the risk, Rosseti Group performs certain activities to comply with the terms of procurement procedures and conclusion of contracts in accordance with the time periods of implementation of investment projects of approved investment programmes.
• The quality of capital construction is controlled, and on-site checks of actual availability of resources and/or quality of products of contractors are carried out.
Risks associated with innovative technology implementation
→
The tasks of accelerated breakthrough scientific, technological and socio-economic development, set forth by Decree of the President of the Russian Federation No. 204 of
• PJSC Rosseti's key innovative development areas are being formed and introduced on the basis of best practices in terms of the application of innovative technologies developed by leading foreign peers.
14 The Company has no investments, whose estimated level of income exceeds 10% per year.
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7 May 2018, require the introduction of technological innovations to accelerate technological development, as well as the introduction of new innovative technologies, including in the part of large-scale digitalisation of the power grid complex.
Meeting these goals is associated with risks of higher investment costs, lower return on investments, and failure to achieve required effects, as well as with risks related to information security.
The areas of PJSC Rosseti's innovation-driven growth are in conformity with main areas of application of overseas companies' innovative technology.
The key performance indicators set for the Innovative Development Programme of PJSC Rosseti correspond to the indicators used by peers, and also reflect the contribution of innovation in the combined effect of improving the performance of production activities.
PJSC Rosseti's level of technological development corresponds to the level of peers in respect of 22 technologies. Digital substations have the highest compliance rate (71.4%) (5 out of 7).
There is a lag behind peers in respect of 33 technologies. A clearly expressed lag was recorded on end-to-end technologies. Lags in organisational innovations and business processes accounted for 46.7% and 42.9%.
• Updating of the list of priority technologies in the areas of innovative development, taking into account the best world experience, is taking place.
• Every year, the evolution and experience of innovative technology introduction abroad is studied.
• Patent research (patent analytics) on priority technological innovations is carried out.
• The automated system of formation and monitoring of implementation and efficiency assessment of the innovative development programme's activities and projects is being implemented across Rosseti Group.
• Work is underway to improve the system of innovation management (taking into account the objectives of digital transformation).
• Work has been organised to form and expand the ecosystem of innovations with the involvement of experts, scientific organisations, universities, and professional communities.
• The analysis of necessity and sufficiency of the current coverage of all subjects of the Russian Federation by digital technology is conducted.
• To reduce risks of cyber threats, the transition to the use of mainly domestic software is in progress.
• Information security threats are analysed and a model of information security threats is developed or elaborated (if there is one), as well as the category of importance of information infrastructure facilities is determined.
Legal risks
Risks associated with changes in legislation and judicial practice
→
Activities of Rosseti Group are regulated and controlled by federal executive authorities, including the Federal Antimonopoly Service of Russia, the Federal Tax Service of Russia, the Ministry of Energy of Russia, and Rostekhnadzor.
• In 2019, the updating of local regulations was actively carried out.
• Legislative changes are monitored every month.
• Every year, a plan of rule-making activities is created and implemented.
• An intra-group law enforcement practice on the functioning of the power grid complex is being formed.
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Rosseti Group executes a number of orders and instructions of the Government of the Russian Federation, and is controlled by the Accounts Chamber of the Russian Federation in terms of the lawful use budget funds allocated for significant investment projects.
Compliance risks → Inside Rosseti Group, a special attention is paid to the work on ensuring the compliance with legal requirements for anti-corruption and competition, as well as activities to counter the misuse of insider information and market manipulation.
Based on the accepted level of tolerance to this group of risks, compliance risks remain significant and relevant.
• Rosseti Group has formed and adhere to the basic principles of anti-corruption; the adopted local regulations allow to promote a negative attitude towards corruption, to prevent or resolve conflicts of interest, and to prevent any illegal activities.
• The Company has the Ethics Code in place, which defines, inter alia, the procedure for response of employees in a conflict of interest. It also suggests a mechanism for implementation and monitoring of compliance with the corporate ethics guidelines.
• The Anti-corruption policy has been adopted. Every year, a set of measures aimed at preventing corruption are developed and followed.
• Rosseti Group strives to ward off the violation of general prohibitions and restrictions of the competition legislation, taking steps to prevent the abuse of dominant position and discrimination and limiting competition by means of:
- standardisation and unification (based on Russian legislation) of processes exposed to the antitrust risk; - introduction of online services that provide complete, transparent and reliable information about services and the order of their provision; - implementation of measures in respect of the openness and accessibility of procurement; - training of employees in order to fully achieve detailed understanding of the competition legislation.
• Rosseti Group, in accordance with the requirements of Russian legislation, performs work on the counteracting the misuse of insider information and market manipulation; the procedure of access to insider information has been established; lists of insiders have been formed; and rules of internal control for compliance with the legislative requirements in this area have been prepared.
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Participants in Internal Control System
Given the size of the Company, a significant number of participants interact in the risk
management process, ranging from operating units and employees in the field to shareholders
and stakeholders of the Company.
The Board of Directors is responsible for monitoring the formation and effective functioning of the
Company's risk management system. In addition, the Audit Committee on a regular basis
examines risk management issues in more detail, analyzing both summary reports on risk
management, plans for the development of the function, and studying individual, the most
significant risks associated with the Company's activities, as well as the status of measures taken
by management.
In order to provide guarantees for the effectiveness of the risk management system, the
Company's internal audit department annually conducts an independent assessment of the risk
management system efficiency. The internal auditor's report on risk management system
efficiency assessment was approved by the Board of Directors of ROSSETI 23.12.2019 (Minutes
No. 386 dated 25.12.2019) with preliminary consideration by the Audit Committee under the
Board of Directors on 13.08.2019 (Minutes No. 107 dated 13.08.2019). Based on the results of
the Board of Directors' review, the level of the risk management system as an optimal one.
In the reporting year, an independent expert in the Company conducted an independent
assessment of the effectiveness of the risk management system, the report on the results of which
was also reviewed by the Board of Directors of ROSSETI. Based on the results of the independent
assessment carried out in the reporting period, the risk management system was recognized as
"effective, with potential for improvement".
Key measures implemented in 2019 In 2019, we continued to improve our risk management system based on common approaches and standards:
• an independent expert was selected on a competitive basis, and an independent external evaluation of risk management efficiency was conducted;
• key methodological documents in the field of risk management of ROSSETI Group were updated, including the approach to determining the level of risk appetite;
• Risk management units' employees were trained on professional topics in order to maintain the required level of competence;
• a risk management knowledge day was held for the company's employees in order to maintain the required level of corporate culture maturity.
In order to develop the risk management system in the Company, an action plan to improve the risk management system of ROSSETI Group for 2020 - 2023 was developed and approved by decision of the Board of Directors, which includes the following areas:
• development of risk awareness culture as part of the Company's corporate culture; • improvement of risk-oriented approach in the management decision making system; • automation of risk assessment process; • updating the methodology for determining risk appetite, coordinated with the development
strategy of the Company; • introduction of professional standards in the activities of the Company (a specialist in risk
management).
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Internal Control System
The internal control system of the ROSSETI Group is designed to minimize risks arising from the achievement of strategic and operational goals of the Company, as well as to increase the efficiency of the Company’s activity, to ensure compliance with legal requirements and guarantee the reliability of the financial and management reporting of the Company. Internal control is integrated into the risk management system and is an integral part of it.
The internal control procedure in the ROSSETI Group is governed by the Internal Control Policy approved by the decision of the Board of Directors of the Company dated November 16, 201515. Certain elements of the internal control system (ICS) in the Company are governed by documents determining the order, procedures and content of the control environment.
In accordance with the Internal Control Policy, responsibility for the proper organization and execution of the control procedures lies with all participants in the internal control process within the powers set forth in the Articles of Association of the Company, Internal Control Policy, local regulatory acts of the Company, regulations on structural units and job descriptions.
As part of the control procedures, special attention is paid to the analysis of reporting processes, procedures to combat abuse, corruption, and fraud. The Company has an Anti-Corruption and Fraud Hotline, as well as a Consumer Hotline of the Company. The key processes of the Company are monitored on a regular basis, including analysis of the results of operations, verification of the results of business operations, and verification of the effectiveness of business processes.
An important element in building the internal control system is the Company's risk management process, including identification, assessment, measures to minimize risks, and monitoring the implementation of risks.
Assessment of the effectiveness of the internal control Internal assessment (self-esteem) In 2019, the ROSSETI Internal Audit Division conducted an annual internal assessment of the effectiveness of the internal control system. The report of the internal auditor on evaluating the effectiveness of the internal control system was reviewed by the ROSSETI Board of Directors16, while the Board of Directors noted the status of the functioning of the internal control system as being at the development level between ‘optimal’ and ‘high (advanced)’. External evaluation In accordance with the requirements of the ROSSETI Internal Control Policy, an independent assessment of the internal control system was also carried out in 2019. Based on the assessment, the independent expert recognized ICS as ‘effective’. The report of the independent expert on evaluating the effectiveness of the internal control system was reviewed by the ROSSETI Board of Directors17 on December 23, 2019.
15 Minutes No. 208 dated November 16, 2015. 16 Minutes No. 386 dated December 23, 2019 17 Minutes no. 386 dated December 23, 2019
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Internal Audit Commission
In order to control the financial and economic activities of ROSSETI, the Company has
established an Audit Commission, a permanent control body formed by and accountable to the
General Meeting of Shareholders.
Key issues considered by the Internal Audit Commission in the reporting year
Control over financial and economic activities, elimination of identified shortcomings as a result of inspections
ROSSETI's financial and business operations for 2018 and 9 months of 2019 were audited (no violations were found).
Assessing the reliability of the data contained in the annual report and annual financial statements
Reviewed the annual report, annual financial statements for 2018. No material misstatements were found that could significantly affect the information in the annual report.
Informing on the facts of violation of the accounting procedure, presentation of financial statements, procedure of financial and economic activities
The issues of preparing the financial statements and compliance with accounting rules were considered, and no violations were found.
Control of legitimacy of financial and economic operations carried out
The report on interested party transactions concluded in 2018 was considered (no violations of the law were revealed).
Composition of the Internal Audit Commission of the Company
By resolution of the Annual General Shareholders Meeting of the Company dated June 27,
2019, the Internal Audit Commission was formed as follows:
Full Name Position at election time
Zobkova Tatiana Valentinovna Chairman of the Internal Audit Commission
Born in 1976 in Uralsk city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 1999, she graduated from the Moscow Regional Pedagogical University as a teacher of mathematics. In 2004, she graduated from the Moscow Engineering Physics Institute (State University) with a degree in economics. WORK EXPERIENCE Until 2014, she worked in commercial organizations and municipal authorities. Since 2014 - Leading Advisor, Deputy Head of Division, Head of Division, Deputy Director of the Department of Corporate Policy and Property Relations in the Fuel and Energy Sector of the Ministry of Energy of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, she did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.
Balagurov Sergey Arkadievich
Born in 1984 in Ivanovo city. Citizenship - Russian Federation. The candidacy was proposed / approved by the decision of the Board of Directors of the Company. EDUCATION
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In 2006 he graduated from Ivanovo State University of Chemical Technology with a degree in electrochemical production technology. WORK EXPERIENCE Since 2014 - Chief Expert Specialist; Leading Advisor; Deputy Head of the Division for Pricing Policy and Infrastructure Control of the Industry of the Department of Electric Power Development of the Ministry of Energy of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.
Gabov Andrey Vladimirovich
Born in 1981 in Gubaha city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 2003 he graduated from Perm State Technical University, qualification "Engineer" with a degree in "Lifting, construction and road machinery and equipment". In 2008, he graduated from Perm State University, qualification "Economist" with the specialty "Finance and Credit". PROFESSIONAL EXPERIENCE Since 2014 - Head of the Electric Power Industry Development Division; Deputy Director of the Department of State Regulation of Tariffs, Infrastructure Reforms and Energy Efficiency of the Ministry of Economic Development of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations
Grechka Irina Nikolaevna
Born in 1964 in Lubny city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 1986, she graduated from the St. Petersburg State University of Economics and Finance, majoring in labor economics. PROFESSIONAL EXPERIENCE Until 2014, she worked as Deputy Chief Accountant in commercial organizations. From 2014 to 2015, she headed the Internal Audit Department at RT-Biotechprom JSC. In 2015 – an Advisor to the Director General of FGUP NPO Mikrogen. From 2016 to 2018, she was Head of the Planning and Economic Department of the State Budgetary Institution of the United Research and Development Centre of Moscow. From 2018 to 2019, she was Head of the Internal Audit Directorate at ROSSETI. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, she did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.
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Simochkin Dmitry Igorevich
Born in 1992 in Moscow. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 2015 he graduated from Moscow State University with a degree in economics. In 2015, he graduated from the Moscow Institute of State and Municipal Management with a Master of Law degree. PROFESSIONAL EXPERIENCE: Since 2015 - specialist; chief expert; advisor of the department; deputy head of the department; head of the Federal Property Management Agency. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.
Before the Annual General Shareholders' Meeting of the Company on 27 June 2019, the Internal Audit Commission functioned as follows 18:
Full Name Position at election time
Zobkova Tatiana Valentinovna
Chairman of the Internal Audit Commission
Division Head, Department of the Russian Ministry of Energy
Zadorozhnaya Angelica Alexandrovna
Head of Internal Audit Department of ROSSETI
Simochkin Dmitry Igorevich
Deputy Head of the Department of Federal Property Management
Sinitsina Natalya Valerievna
Division Head, Department of the Russian Ministry of Energy
Hakimova Nina Sergeyevna
Leading Advisor of a Division at the Ministry of Economic Development of Russia
Statistics of the Internal Audit Commission
Attendance at meetings Members of the Internal Audit Commission in 2019 Internal
Audit Commission (5 meetings)
Note: The 6/7 format means that a member of the Audit Commission could have participated in seven meetings, but in fact only participated in six meetings.
Zobkova Tatiana Valentinovna 5/5
Balagurov Sergey Arkadievich (from 27.06.2019) 2/2
Andrey Vladimirovich Gabov (from 27.06.2019) 2/2
Grechka Irina Nikolaevna (from 27.06.2019) 0/2
Simochkin Dmitry Igorevich 3/5
Zadorozhnaya Angelika Alexandrovna (till 27.06.2019) 3/3
Sinitsina Natalya Valerievna (till 27.06.2019) 0/3
18 Elected by the General Meeting of Shareholders on 29.06.2018 (Minutes of the Meeting of 29.06.2018)
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Khakimova Nina Sergeevna (till 27.06.2019) 3/3
Internal Audit
ROSSETI has formed a unit and such unit is effectively functioning, it performs the functions of
internal audit and reports to the Board of Directors of the Company - the Internal Audit
Department.
The purpose of the internal audit is to assist the Board of Directors and executive bodies of the
Company in increasing the efficiency of the Company's management, improving its financial and
economic activities, including through a systematic and consistent approach to the analysis and
evaluation of risk management systems, internal control and corporate governance as tools to
ensure reasonable assurance in achieving the goals set for the Company.
ROSSETI internal audit principles:
• Independence
• Professional competence
• Integrity
• Confidentiality
• Fairness and impartiality
The functional subordination of the internal audit to the Board of Directors of the Company means
the implementation by the Board of Directors of control and organization of the activities of the
internal audit unit, including:
• approval of the internal audit activity plan;
• consideration of the report on the implementation of the internal audit plan;
• approval of the budget of the internal audit unit;
• approval of decisions on the appointment, dismissal, and determination of remuneration
for the head of the internal audit unit.
The goals and objectives, the basic principles of the organization, the functions and powers of the
internal audit are defined in the ROSSETI Internal Audit Policy, approved by the decision of the
Board of Directors. In addition, the Company has other internal documents governing the function
of internal audit.
In 2019, for the first time, an external independent assessment of the internal audit activity of
ROSSETI Group of Companies was carried out, the periodic implementation of which is provided
for by the internal audit policy (at least once every 5 years). Based on the results of an
independent assessment, the Company received the opinion of an external expert (KPMG JSC),
according to which the activities of the internal audit of the Company were recognized as
‘generally consistent’ with the requirements of the International Professional Standards for
Internal Auditing, the Code of Ethics, and the Internal Audit Policy.
Based on the results of the internal audit self-assessment, as well as taking into account the
recommendations of an external independent expert, an Action Plan for the development and
improvement of the internal audit activity in the ROSSETI Group of Companies for the period from
2020 to 2024 was developed, containing measures aimed at further enhancing the role of internal
audit as a strategic partner business and increased consultation.
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External audit
For the purpose of an independent assessment of the reliability of the accounting (financial) statements, the Company annually engages an external auditor to audit the accounts prepared in accordance with IFRS and RAS. External auditors are involved on the basis of competitive procedures that ensure objective selection according to criteria that take into account the volume and time of work, as well as the specifics of the Company. The candidatures of the auditors of the Company, as well as its subsidiaries (including the main terms of the contracts on the basis of which the auditors are involved) are preliminary considered by the Audit Committee of the Board of Directors of the Company to develop recommendations for further approval of external auditors.
2017 2018 2019
Auditor (RAS and IFRS) RSM RUS LLC RSM RUS LLC RSM RUS LLC
Cost of Reporting Audit Services 5 000 thous. rubles
4 034 thous. rubles.
4 068 thous. rubles
Cost of services other than the statutory audit (provision of audit-related services)
not provided not provided not provided
In April 2019, the Audit Committee of the Board of Directors reviewed the results of the audit of the Company's reporting for the previous reporting period (2018), as well as the comments of the external auditor, as a result of which there were no problematic issues regarding reporting.
In addition, by decision of the Board of Directors, the ROSSETI Auditor Rotation Policy19, was approved, which defines the main approaches to selection and requirements for the Company's external auditors.
19 Minutes No. 368 dated July 29, 2019
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ROSSETI Group Structure Subsidiaries and dependent companies as of December 31, 2019
Name Location of head office
TRANSMISSION GRID COMPANY
FGC UES Moscow
INTERREGIONAL GRID COMPANIES
Rosseti Tyumen Surgut
IDGC of Northern Caucasus Pyatigorsk
IDGC of South Rostov-on-Don
IDGC of Volga Saratov
LENENERGO Saint Petersburg
IDGC of Siberia Krasnoyarsk
IDGC of North-West Saint Petersburg
IDGC of Urals Yekaterinburg
MOESK Moscow
IDGC of Center and Volga Region Nizhniy Novgorod
IDGC of Centre Moscow
DISTRIBUTION GRID COMPANIES
Yantarenergo Kaliningrad
Kubanenergo Krasnodar
TDC Tomsk
Chechenenergo Grozny
REGIONAL RETAIL COMPANIES
Karachaevo-Cherkesskenergo Cherkessk
Kalmenergosbyt Elista
Tyvaenergosbyt Kyzyl
Dagestan Energy Supply Company Makhachkala
Sevkavkazenergo Vladikavkaz
Kabbalkenergo Nalchik
OTHER (R&D, CONSTRUCTION, SERVICE AND OTHER ORGANIZATIONS)
TCC Moscow
Engineering Center UES Real Estate Moscow
Power Grid Optical Networks Engineering Moscow
NWEMC Saint Petersburg
Ingushenergo Nazran
ENIN Moscow
Urals Power Engineering Company Yekaterinburg
VPEC Samara
NURENERGO Grozny
IT Energy Service Moscow
ZES Moscow
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Responsibility Statement
1. The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2. The management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board of Directors
Director for accounting
and reporting – Chief Accountant
D.V. Nagovitsyn
81
Glossary
Term/Abbreviation Meaning
ANO Autonomous Nonprofit Organization
BRELL Electric ring of Belarus, Russia, Estonia, Latvia and Lithuania
CIGRE International Council for Large High Voltage Electrical Systems
EBITDA, EBITDA adj An analytical indicator equal to the amount of profit before deducting expenses for interest, taxes, depreciation and accrued depreciation (Earnings before interest, taxes, depreciation and amortization) (Earnings before interest, taxes, depreciation and amortization)
FAS Russia Federal Antimonopoly Service of Russia
FGC UES Federal Grid Company of the Unified Energy System
FSUE Federal State Unitary Enterprise
GNI Gross National Income
GOST State Standard
IDGC Interregional Distribution Grid Company
IFRS International Financial Reporting Standards
JSC Joint Stock Company
KPI Key Performance Indicators
MBA Master of business administration
NRU MEI National Research University Moscow Power Engineering Institute
OAD Organizational and administrative documents
OL Overhead Line
OPEX Operating expenses
PJSC Public Joint Stock Company
R&D Research and development work
RAB-regulation Regulatory Asset Base
RAO "UES of Russia" Russian Joint Stock Company "Unified Energy System of Russia"
SC Short circuit
SSR Soviet Socialist Republic
VAT Value Added Tax
VHI Voluntary Health Insurance
Пsaidi Indicator of the average duration of the termination of the transfer of electrical energy to the supply point, hour
Пsaifi Indicator of the average frequency of interruptions in the transfer of electrical energy to the supply point, pcs.
Units of measurement
Abbreviation Meaning
GVA Gigavolt-ampere
GW Gigawatt
u Unit
kV Kilovolt
kWh Kilowatt-hour
km Kilometer
MVA Megavolt-ampere
82
MW Megawatt
mn Million
bn Billion
subpara. Subparagraph
RUB Russian ruble
t Tonne
thsd Thousand
pc. Piece
P.p. Percentage point
83
Contact Information
Registered address: Russia, 121353, Moscow, ul. Belovezhskaya, 4
Address for correspondence: Russia, 121353, Moscow, ul. Belovezhskaya, 4
Place of business: Russia, Moscow, ul. Belovezhskaya, 4
Telephone: +7 (495) 995-5333 (9 a.m. to 6 p.m. Moscow time)
Telephone/Fax: +7 (495) 664-8133
Email: [email protected]
84
Appendix
Consolidated financial statements of
Public Joint Stock Company ROSSETI and its subsidiaries
prepared in accordance with
International Financial Reporting Standards
for the year ended 31 December 2019
with independent auditor’s report
2
Contents
Page
Consolidated financial statements
Independent auditor's report 3
Consolidated statement of profit or loss and other comprehensive income 8
Consolidated statement of financial position 9
Consolidated statement of cash flows 10
Consolidated statement of changes in equity 12
Notes to the consolidated financial statements
1 Background 14 2 Basis of preparation 15 3 Significant accounting policies 19 4 Measurement of fair values 29 5 Significant subsidiaries 30 6 Acquisition of subsidiaries 31 7 Non-controlling interests 33 8 Segment information 35 9 Revenue 40 10 Other income and other expenses 40 11 Operating expenses 41 12 Personnel costs 42 13 Finance income and costs 42 14 Income tax 43 15 Property, plant and equipment 44 16 Intangible assets 47 17 Right-of-use assets 48 18 Other financial assets 49 19 Deferred tax assets and liabilities 51 20 Inventories 54 21 Trade and other receivables 55 22 Advances given and other assets 55 23 Cash and cash equivalents 56 24 Equity 57 25 Earnings per share 59 26 Borrowings 60 27 Changes in liabilities arising from financing activities 63 28 Employee benefits 65 29 Trade and other payables 68 30 Taxes other than income tax 68 31 Advances received 68 32 Provisions 69 33 Financial risk and capital management 69 34 Capital commitments 76 35 Contingencies 76 36 Related party transactions 77 37 Events after the reporting period 78
3
INDEPENDENT AUDITOR'S REPORT
4
5
6
7
ROSSETI Group
Consolidated financial statements for the year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 8
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(in millions of Russian rubles unless otherwise stated)
Notes
Year ended
31 December 2019
Year ended
31 December 2018
Revenue 9 1,029,654
1,021,602
Operating expenses 11 (858,282) (835,755)
Accrual of allowance for expected credit losses 33 (23,356) (25,820)
Net accrual of impairment of property, plant and equipment and
right-of-use assets 15
(23,631)
(7,688)
Other income 10 31,966 26,170
Other expenses 10 (4,860) (2,815)
Operating profit 151,491 175,694
Finance income 13 21,741 17,617
Finance costs 13 (31,696) (27,517)
Total finance costs (9,955) (9,900)
Share of profit of associates and joint ventures
(net of income tax)
192
337
Profit before income tax 141,728 166,131
Income tax expense 14 (36,436) (41,453)
Profit for the period 105,292
124,678
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Foreign currency translation difference (228) 178
Total items that may be reclassified subsequently to profit or
loss
(228)
178
Items that will not be reclassified subsequently to profit or loss
Changes in fair value of financial assets at fair value through other
comprehensive income
9,865
1,667
Remeasurements of the defined benefit liability 28 (5,056) 2,381
Income tax 14 (731) 6,160
Total items that will not be reclassified subsequently to profit or
loss
4,078
10,208
Other comprehensive income for the period, net of income tax 3,850 10,386
Total comprehensive income for the period
109,142
135,064
Profit attributable to:
Owners of the Company 76,773 90,985
Non-controlling interest 28,519 33,693
Total comprehensive income attributable to:
Owners of the Company 80,411 99,184
Non-controlling interest 28,731 35,880
Earnings per share
Basic and diluted earnings per share (in RUB) 25 0.38 0.45
These consolidated financial statements were approved by management on ____ March 2020 and were
signed on its behalf by:
Director General Director for accounting
and reporting – Chief Accountant
P.A. Livinsky D.V. Nagovitsyn
ROSSETI Group
Consolidated financial statements for the year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 9
Consolidated Statement of Financial Position
(in millions of Russian rubles unless otherwise stated)
Notes 31 December 2019 31 December 2018
ASSETS
Non-current assets
Property, plant and equipment 15 2,119,648 1,983,874
Intangible assets 16 19,648 19,145
Right-of-use assets 17 36,669 –
Investments in associates and joint ventures 1,296 1,401
Trade and other receivables 21 76,882 78,068
Assets related to employee benefits plans 5,808 6,216
Other non-current financial assets 18 49,227 41,562
Deferred tax assets 19 12,245 10,090
Advances given and other non-current assets 22 6,664 4,453
Total non-current assets 2,328,087 2,144,809
Current assets
Inventories 20 37,329 37,109
Other current financial assets 18 57,592 47,192
Income tax prepayments 2,266 3,380
Trade and other receivables 21 126,827 161,465
Cash and cash equivalents 23 79,013 84,056
Advances given and other current assets 22 18,152 19,154
Total current assets 321,179 352,356
Assets held for sale 10 313 21,467
Total assets 6,649,579 2,518,632
EQUITY AND LIABILITIES
Equity
Share capital 24 200,903 200,903
Share premium 213,098 213,098
Treasury shares (109) (109)
Other reserves 17,517 15,322
Retained earnings 758,600 687,786
Total equity attributable to owners of the Company 1,190,009 1,117,000
Non-controlling interests 394,096 377,962
Total equity 1,584,105 1,494,962
Non-current liabilities
Non-current borrowings 26 464,709 480,989
Non-current trade and other payables 29 23,797 17,825
Non-current advances received 31 42,280 26,221
Employee benefit liabilities 28 27,800 23,592
Deferred tax liabilities 19 91,878 76,640
Total non-current liabilities 650,464 625,267
Current liabilities
Current borrowings and current portion of non-current
borrowings 26 97,698
87,268
Trade and other payables 29 208,685 202,568
Taxes other than income tax 30 22,427 23,724
Advances received 31 58,992 68,832
Provisions 32 23,234 10,901
Current income tax liabilities 3,974 5,110
Total current liabilities 415,010 398,403
Total liabilities 1,065,474 1,023,670
Total equity and liabilities 2,649,579 2,518,632
ROSSETI Group
Consolidated financial statements for year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 10
Consolidated Statement of Cash Flows
(in millions of Russian rubles unless otherwise stated)
Notes
Year ended
31 December 2019
Year ended
31 December 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the period 105,292 124,678
Adjustments for:
Depreciation of property, plant and equipment and right-of-
use-assets, amortisation of intangible assets 11 129,413 116,124
Accrual of impairment of property, plant and equipment and
right-of-use assets, net 15 23,631 7,688
Finance costs 13 31,696 27,517
Finance income 13 (21,741) (17,617)
Loss on disposal of property, plant and equipment 10 4,860 2,275
Share of profit of associates and joint ventures, net of income
tax (192) (337)
Gain on derecognition of subsidiary 10 – (690)
Accrual of allowance for expected credit losses 33 23,356 25,820
Accrued provisions 17,340 4,952
Gain on compensation of losses in connection with retirement
/ liquidation of electric grid assets (2,663) (2,684)
Non-cash settlements of technological connection agreements (962) (2,570)
Gain on disposal of assets 10 (8,110) –
Gain on acquisition of new subsidiaries 10 (1,036) –
Other non-cash transactions (774) (697)
Income tax expense 14 36,436 41,453
Total impact of adjustments 231,254 201,234
Change in assets related to employee benefit liabilities 408 494
Change in employee benefit liabilities (2,633) (8,839)
Change in non-current trade and other receivables 1,022 (8,843)
Change in non-current advances given and other non-current
assets (2,508) 317
Change in non-current trade and other payables 2,459 955
Change in non-current advances received 16,058 1,619
Cash flows from operating activities before changes in
working capital and provisions 351,352 311,615
ROSSETI Group
Consolidated financial statements for the year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 11
Consolidated Statement of Cash Flows
(in millions of Russian rubles unless otherwise stated)
Notes Year ended
31 December 2019 Year ended
31 December 2018
Changes in operating assets and liabilities:
Change in trade and other receivables (14,159) (27,494)
Change in advances given and other assets 2,419 4,029
Change in inventories 546 (1,648)
Change in trade and other payables 526 26,371
Change in advances received (9,895) (2,432)
Change in provisions (5,051) (4,613)
Cash flows from operating activities before income tax and
interest paid 325,738 305,828
Income tax paid (23,971) (27,550)
Interest paid on lease agreements (3,305) (250)
Interest paid (42,017) (39,457)
Net cash flows from operating activities 256,445 238,571
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment and intangible
assets (231,684) (220,653)
Proceeds from sale of property, plant and equipment and
intangible assets 1,622 1,375
Acquisition of investments and placement of bank deposits (119,864) (73,091)
Disposal of investments and withdrawal of bank deposits 109,730 26,351
Interest received 9,210 7,129
Sale of financial investments 32,180 2,795
Acquisition of shares in subsidiary net of cash and cash
equivalents 6 (3,818) –
Proceeds from sale of subsidiary, net of cash and cash
equivalents 45 –
Dividends received 1,467 2,254
Net cash flows used in investing activities (201,112) (253,840)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans and borrowings 288,722 615,072
Repayment of loans and borrowings (330,660) (605,710)
Acquisition of non-controlling interests (74) (476)
Sale of treasury shares – 1,214
Dividends paid to owners of the Company (4,988) (2,436)
Dividends paid to non-controlling interest (10,154) (10,248)
Repayment of lease liabilities (3,222) (145)
Net cash flows used in financing activities (60,376) (2,729)
Net decrease in cash and cash equivalents (5,043) (17,998)
Cash and cash equivalents at the beginning of the period 23 84,056 102,054
Cash and cash equivalents at the end of the period 23 79,013 84,056
ROSSETI Group
Consolidated financial statements for the year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 12
Consolidated Statement of Changes in Equity
(in millions of Russian rubles unless otherwise stated)
Attributable to equity holders of the Company
Share capital
Share
premium
Treasury
shares
Reserves
Retained
earnings Total
Non-controlling
interest Total equity
Balance at 31 December 2018 200,903 213,098 (109) 15,322 687,786 1,117,000 377,962 1,494,962
Changes in accounting policy (Note 2e) – – – – (430) (430) (5) (435)
Balance at 1 January 2019 (restated) 200,903 213,098 (109) 15,322 687,356 1,116,570 377,957 1,494,527
Profit for the period – – – – 76,773 76,773 28,519 105,292
Transfer of provision for revaluation on the disposal
of equity investments (Note 18) – – – (1,338) 1,338 – – –
Other comprehensive income – – – 4,358 – 4,358 223 4,581
Related income tax (Note 14) – – – (720) – (720) (11) (731)
Total comprehensive income for the period – – – 2,300 78,111 80,411 28,731 109,142
Dividends (Note 24) – – – – (4,990) (4,990) (15,323) (20,313)
Change of non-controlling interest (Note 24) – – – (105) (1,877) (1,982) 2,060 78
Acquisition of new subsidiaries (Note 6) – – – – – – 671 671
Balance at 31 December 2019 200,903 213,098 (109) 17,517 758,600 1,190,009 394,096 1,584,105
ROSSETI Group
Consolidated financial statements for the year
ended 31 December 2019
The accompanying notes are an integral part of these Consolidated Financial Statements 13
Consolidated Statement of Changes in Equity
(in millions of Russian rubles unless otherwise stated)
Attributable to equity holders of the Company
Share capital
Share
premium
Treasury
shares
Reserves
Retained
earnings Total
Non-controlling
interest Total equity
Balance at 1 January 2018 200,903 213,098 (2,702) 25,752 583,424 1,020,475 349,318 1,369,793
Profit for the period – – – – 90,985 90,985 33,693 124,678
Transfer of provision for revaluation on the disposal
of equity investments (Note 18) – – – (18,629) 18,629 – – –
Other comprehensive income – – – 3,244 – 3,244 982 4,226
Related income tax (Note 14) – – – 4,955 – 4,955 1,205 6,160
Total comprehensive income/(loss) for the period – – – (10,430) 109,614 99,184 35,880 135,064
Sale of treasury shares – – 2,593 – (1,379) 1,214 – 1,214
Dividends – – – – (2,442) (2,442) (10,461) (12,903)
Change of non-controlling interest – – – – (1,431) (1,431) 1,210 (221)
Derecognition of subsidiary – – – – – – 2,015 2,015
Balance at 31 December 2018 200,903 213,098 (109) 15,322 687,786 1,117,000 377,962 1,494,962
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
14
1 Background
a) The Group and its operations
Public Joint Stock Company «ROSSETI» (PJSC «ROSSETI» or the "Company") and its subsidiaries (the
"Group" or "Rosseti Group of Companies") are a natural monopoly operator of distribution and transmission
grids in the Russian Federation, the largest backbone power grid company. By Decree of the President of the
Russian Federation dated August 4, 2004 No. 1009 “On approval of the list of strategic enterprises and
strategic joint-stock companies”, the Company is included in the List of strategic enterprises and strategic
joint-stock companies.
The primary activities of the Group are provision of services for transmission and distribution of electricity
for power grids and provision of services for technological connection of consumers to the grids. The Group’s
power distribution companies sell electricity. The Group’s principal subsidiaries are disclosed in Note 5.
The ordinary and preference shares of the Company are traded on the Moscow Exchange. The Company’s
GDRs are traded on the London Stock Exchange.
Location of PJSC «ROSSETI» is 4 Belovezhskaya Street, Moscow, Russia, 121353.
b) The Group’s business environment
The Group operates mainly in the Russian Federation.
The economy of the Russian Federation displays certain characteristics of an emerging market. Its economy
is particularly sensitive to oil and gas prices. Legal, tax and regulatory systems continue to evolve and are
subject to frequent changes and varying interpretations. Ongoing political tensions, as well as international
sanctions against some Russian companies and citizens, continue their adverse effect on the Russian
economy.
The stability of oil prices, low unemployment rate and rising wages contributed to moderate economic growth
in 2019. Such economic environment has a significant impact on the Group's operations and financial
position.
Management believes it is taking appropriate measures to support the sustainability of the Group’s business
in the current circumstances. The consolidated financial statements reflect management’s assessment of the
impact of the Russian business environment on the operations and the financial position of the Group.
Nevertheless, the future consequences of the current economic situation are difficult to predict, and as a
result, the current estimates and expectations of the Group's management may differ from the actual results.
c) Relations with the state
The Russian Government through the Federal Agency for the Management of State Property is the ultimate
controlling party of the Company. The Government’s economic, social and other policies could have a
significant impact on the Group's operations.
As at 31 December 2019 the Russian Government owned 88.04 % in the share capital of the Company,
including 88.89 % of the voting ordinary shares and 7.01 % of the preference shares (as at 31 December 2018
the Russian Government owned 88.04 % in the share capital of the Company, including 88.89 % of the voting
ordinary shares and 7.01 % of the voting preference shares)
The State influences the Group's operations through its representation in the Board of Directors of the
Company, regulation of tariffs in the electric power industry, approval and control over implementation of
the investment program. The Group's counterparties (consumers of services, suppliers and contractors, etc.)
include a significant number of state controlled entities.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
15
2 Basis of preparation
a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS).
Each entity of the Group individually maintains its own books of accounts and prepares its statutory financial
statements in accordance with the Russian Accounting Standards (hereinafter – RAS).
The Group’s consolidated financial statements are based on the statutory records in accordance with RAS
with adjustments and reclassifications for the fair presentation in accordance with IFRS.
b) Basis for measurement
These consolidated financial statements have been prepared on the historical cost basis, except for:
financial assets measured at fair value through profit or loss,
financial assets measured at fair value through other comprehensive income.
c) Functional and presentation currency
The Russian ruble (hereinafter referred to as ruble or RUB) is the national currency of the Russian Federation
and is used by the Group as its functional currency and the currency in which these consolidated financial
statements are presented. All financial information presented in RUB has been rounded to the nearest million.
d) Use of professional judgements and estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make
a number of professional judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates
The management constantly reviews assumptions and estimates based on previous experience and other
factors that affect the application of accounting policies and the reported amounts of assets and liabilities.
Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected by these changes.
The professional judgements and assumptions that have the most significant effect on the amounts recognised
in these consolidated financial statements and estimates that can cause a significant adjustment to the carrying
amount of assets and liabilities within the next financial year include:
Impairment of fixed and right-of-use assets
At each reporting date management assesses whether there is any indication of impairment in respect of
property, plant and equipment and right-of-use assets. Such indication includes a change in business plans,
tariffs and other factors leading to unfavorable impact on the Group’s business.
When measuring value in use, management assesses estimated cash flows from assets or groups of assets
(cash generating units) and calculates an acceptable discount rate for the present value of these cash flows.
For more detailed information see note 15 “Property, plant and equipment” and 17 “Right – of – use assets”
Impairment of accounts receivable
Allowance for expected credit losses of accounts receivable is based on management assumption of debt
recovery made for each debtor individually. For the purposes of assessing credit losses, the Group
consistently takes into account all reasonable and verifiable information on past events, current and projected
events that is available without excessive effort and is appropriate for the assessment of receivables.
Experience gained in the past is adjusted on the basis of data available to date to reflect current conditions
that had no impact on previous periods and to exclude the impact of conditions that have occurred in the past
and no longer exist.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
16
Pension obligations
The costs of the defined benefit pension plan and its related costs are determined using actuarial valuations.
Actuarial valuations involve making demographic and financial data assumptions. As the programme is the
long-term one there is considerable uncertainty about such estimates.
Deferred tax assets recognition
At each reporting date, management assesses the amount of deferred tax assets to be recognized to the extent
that tax deductions are likely to be used. In determining future taxable profit and deductions, management
makes estimates and judgments based on the taxable profit of previous years and expectations for future
profits that are reasonable in the current circumstances.
e) Change in accounting policies
Starting from 1 January 2019 the Group began applying IFRS 16 Leases as described below:
IFRS 16 Leases
New IFRS 16 Leases was issued in January 2016 and replaces existing leases guidance including IAS 17
Leases and relevant leases IFRS interpretations; eliminating the classification of leases as either operating
leases or finance lease and establishes a single lessee accounting model.
An agreement is, or contains, a lease if it conveys the right to control the use of an identified asset for a period
in exchange for consideration.
Right-of-use assets are initially measured at cost and amortised to the earlier of the following: the end date
of useful lives of the right-of-use asset or the lease end date. The initial cost of the right-of-use asset includes
the amount of the initial measurement of the lease liability, lease payments made before or at the
commencement of the lease, and initial direct costs. After initial recognition, the right-of-use assets are
carried at cost less accumulated depreciation and accumulated impairment losses. Right-of-use assets are
presented in the Сonsolidated Statement of financial position as a separate line item.
The lease liability is initially measured at the present value of the lease payments that are not paid on inception
of the lease and subsequently measured at amortized cost in the form of interest in the finance costs line in
the consolidated statement of profit or loss and other comprehensive income. Lease liabilities are presented
in the Сonsolidated Statement of financial position under Current and Non-current Borrowings lines.
Regarding a separate lease agreement, the decision may be made on the qualification of the agreement as a
lease with the low cost of an asset. Lease payments under such an agreement will be recognized as an expense
on a straight-line basis over the lease term.
The Group defines the lease term as a non-early termination period during which the Group has the right to
use the underlying assets, together with:
periods in respect of which the option to extend the lease applies, if there is sufficient certainty that
the Group will exercise this option; and
periods in respect of which an option to terminate the lease applies, if there is sufficient certainty that
the Group will not exercise this option.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
17
When determining the lease term the Group considers the following factors:
whether the leased facility is specialized;
the location of the facility;
the Group and the lessor have the practical ability to choose an alternative counterparty (choose an
alternative asset);
costs associated with the termination of the lease and the conclusion of a new (replacement) contract;
the presence of significant improvements to the leased facilities.
The main objects of the Group’s lease are electric grid facilities (electricity transmission grids, equipment
for electricity transmission, other) and land plots. The Group also leases non-residential real estate and
vehicles.
For leases of land plots under electric grid facilities with an indefinite period of time or with a contract term
of not more than 1 year with the possibility of annual renewal, the Group determines the term of the contract
using the useful life of fixed assets located on leased land plots as basic criteria.
For leases of electric grid facilities with an indefinite term or with a contract term of not more than 1 year
with the possibility of annual renewal, the Group determines the term of the contract using the useful life of
its own fixed assets with similar technical characteristics as basic criteria.
The Group adopted a modified retrospective method to reflect the cumulative effect of the initial application
of the standard as at the date of transition – 1 January 2019. The weighted average rate of additional
borrowings applied to lease liabilities recognized in the Statement of financial position at the date of initial
application was 9.42%.
The Group also applied practical simplifications, in particular - did not apply the new standard to lease
agreements that expire within twelve months from the date of transition.
As at 1 January 2019 the date of initial application of IFRS 16 Leases, the effect on the Groups assets,
liabilities and the capital is the following:
1 January 2019
Assets
Property, plant and equipment (2,302)
Right-of-use assets 34,025
Impairment loss of right-of-use assets (437)
Deferred tax assets 2
Advances given and other current assets (273)
Liabilities
Long-term lease liabilities (within non-current borrowings) 29,380
Short-term lease liabilities (within current borrowings) 2,502
Trade and other payables (432)
Retained earnings (435)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
18
Below is the reconciliation between contractual operating lease liabilities performed under IAS 17 Leases as
at 31 December 2018 and lease liabilities recognized in the Statement of financial position as at
1 January 2019 under IFRS 16 Leases.
1 January 2019
Operating lease liabilities as at 31 December 2018 64,545
Other operating lease liabilities 19,728
Options for renewal /termination of leases for which there is sufficient certainty 12,709
Exemption for the recognition of short-term leases (670)
Discounting effect (63,749)
Finance lease liabilities as at 31 December 2018 1,952
Other (681)
Lease liabilities as at 1 January 2019 33,834
f) Changes in presentation
Reclassification of comparative data
In the reporting period the Group changed the presentation of certain amounts in order to provide more
accurate presentation of information about its nature in the consolidated statement of financial position and
consolidated statement of profit or loss and other comprehensive income. To provide comparability the
previous reporting period data have been reclassified:
Accrual (reversal) of allowance for expected credit losses previously disclosed in Note 11 “Operating
expenses” is disclosed as a separate line in the Consolidated Statement of profit or loss and other
Comprehensive Income,
Net accrual (reversal) of impairment of property, plant and equipment previously disclosed in Note
11 “Operating expenses” is disclosed as a separate line in the Consolidated Statement of profit or
loss and other comprehensive income,
Other income and other expenses previously disclosed in Note 10 “Other income and other
expenses” is disclosed as a separate line in the Consolidated Statement of profit or loss and other
comprehensive income,
Advances given and other non-financial assets previously disclosed in Note 21 “Trade and other
receivables” are presented as separate lines “Advances given and other current assets” and
“Advances given and other non-current assets” in the Consolidated Statement of financial position;
Non-current and current advances received (contract liability) previously disclosed in Note 29
“Trade and other payables” are disclosed in separate lines in the Consolidated Statement of financial
position;
Taxes payable, other than income tax, previously disclosed in Note 29 “Trade and other payables”
are disclosed in a separate line in the Consolidated Statement of financial position;
g) Application of new and amended standards and interpretations
Except for the changes in accounting policies described in section 2e the following new amendments and
interpretations that are effective as at 1 January 2019 have no impact on these consolidated financial
statements:
IFRIC 23 Uncertainty over Income Tax Treatments;
Amendments to IFRS 9 Prepayment Features with Negative Compensation;
Amendments to IFRS 3 Business Combinations;
Amendments to IFRS 11 Joint Arrangements;
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
19
Amendments to IAS 12 Income Taxes – Income Tax Consequences of Payments on
Instruments Classified as Equity;
Amendments to IAS 23 Borrowing Costs;
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures;
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.
A number of new Standards, amendments to Standards and Interpretations were published and are mandatory
for the annual periods beginning on or after 1 January 2020, and which the Group has not early adopted:
Amendments to IAS 1 and IAS 8 Definition of Material
These amendments specify the definition of “material” and its application by including recommendations on
the definition that were previously presented in other IFRSs and align the definition across the Standards.
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity.
The Conceptual Framework for Financial Reporting
The revised Conceptual Framework for Financial Reporting contains a new Chapter on measurement,
recommendations for reporting financial results, new definitions and recommendations (in particular –
definition of “liabilities”) and explanations on specific issues such as the role of management, prudence, and
measurement uncertainty in the preparation of financial statements.
Amendments to IAS 3 Definition of a Business
These amendments specify the definition of “business” and are to help entities determine whether an acquired
set of activities and assets is a business or not.
Amendments to IAS 1 Classification of liabilities as current and non-current
The amendments specify the requirements for classifying liabilities as current and non-current (depending
on the rights that exist at the end of the reporting period).
IFRS 17 Insurance Contract, Amendments to IFRS 9, IAS 39 и IFRS 7 Interest Rate
Benchmark Report - are not applicable to the Group.
The Group plans to adopt these pronouncements when they become effective; they are not expected to have
a significant impact on the Group’s Consolidated Financial Statements.
3 Significant accounting policies
Accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements except for changes in the accounting policy described in notes 2e and
related to adoption of from 1 January 2019 IFRS 16 Leases and reclassification of comparative data disclosed
in note 2f.
a) Basis of consolidation
i. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has
the rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed when necessary to align them with the policies
adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to non-
controlling interests, even if doing so causes the non-controlling interests to have a debit balance (“deficit”)
on the account.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
20
ii. Business combination
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the
date on which the Group obtains control of the acquiree.
The Group measures goodwill at the acquisition date as:
The fair value of the consideration transferred: plus
The recognized amount of any non-controlling interests in the acquiree; plus
The fair value of the pre-existing equity interest in the acquiree if the business combination is
achieved in stages; less
The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss for the period.
Transaction costs that the Group incurs in connection with a business combination, other than those
associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent
consideration is classified as equity, it is not remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or
loss for the period.
iii. Accounting for acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as
owners, and therefore no goodwill is recognized as a result. Adjustments to non-controlling interests are
based on a proportionate amount of the net assets of the subsidiary.
iv. Acquisition from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the
shareholder that controls the Group are accounted for by the method the predecessor. The acquired assets
and liabilities are recognized at the carrying amounts recognized previously in the consolidated financial
statements of the acquired entities. Any cash or other contribution paid for the acquisition is recognized
directly in equity.
v. Investments in associates (equity accounted investees)
Associates are such entities in which the Group has significant influence, but not control, over the financial
and operating policies.
Investments in associates are accounted for using the equity method and are recognized initially at cost. The
cost of the investment also includes transaction costs.
The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive
income of equity accounted investees, after adjustments to align the accounting policies with those of the
Group, from the date that significant influence commences until the date that significant influence ceases.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount
of that interest (including any long-term investments) is reduced to nil and the recognition of further losses
is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the
investee.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
21
vi. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from
transactions with equity accounted investees are eliminated against the investment to the extent of the
Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
b) Foreign currency
Monetary assets and liabilities denominated in foreign currency at the reporting date are translated to rubles
at the exchange rate at that date. Foreign currency transactions accounted for at the exchange rates prevailing
at the date of the transactions. Foreign currency profit or loss arising from retranslation is recognised in profit
or loss.
c) Financial instruments
i. Financial assets
The Group classified financial assets as follows: financial assets measured at amortised cost, financial assets
measured at fair value through other comprehensive income, financial assets measured at fair value through
profit or loss
The classification depends on the business model for managing financial assets and the contractual
characteristics of cash flows.
Financial assets are classified as measured at amortised cost if the following conditions are met: the asset is
held under a business model that aims to hold assets to receive contractual cash flows, and at the end of the
contract, cash flows are received on the specified dates that are solely payments to the principal amount and
interest on the outstanding portion of the principal amount.
The Group includes the following financial assets in the category of financial assets measured at amortised
cost:
trade and other receivables that meet the definition of financial assets in case the Group does not
intend to sell them immediately or in the nearest future;
bank deposits, that do not meet the criteria of cash equivalents;
promissory notes and bonds not held for trading;
loans given;
cash and cash equivalents.
For financial assets classified as measured at amortised cost, an allowance for expected credit losses
(hereinafter – ECL) is made.
When financial assets measured at amortised cost and fair value through profit or loss are derecognized, the
Group recognizes the financial result of their disposal equal to the difference between the fair value of the
consideration received and the carrying amount of the asset in the Consolidated Statement of profit or loss
and other comprehensive income (through profit or loss) .
The Group treated the following equity instruments of other companies as financial assets measured at fair
value through other comprehensive income:
those that are not classified as measured at fair value with any change therein recognised in profit or
loss; and
those that do not provide the Group with control, joint control, or significant influence over the
company under investment.
When equity instruments of other companies classified at the Group's discretion as measured at fair value
through other comprehensive income are derecognized, the previously recognized components of other
comprehensive income are transferred from the provision of fair value change to retained earnings.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
22
ii. Impairment of financial assets
Loss allowances are measured on either of the following bases: 12-month ECLs that result from possible
default events within the 12 months after the reporting date; and lifetime ECLs that result from all possible
default events over the expected life of a financial instrument.
The Group uses a simplified approach to estimating an allowance for expected credit losses – an estimate of
an amount equal to the expected credit losses for the entire term of trade receivables or contractual assets that
arise as a result of transactions within the scope of IFRS 15 Revenue from Contracts with Customers
(including those containing a significant financing component) and lease receivables.
For other financial assets classified as at amortised cost loss allowances are measured as 12-month ECLs
unless there has been a significant increase in credit risk since initial recognition.
The estimated allowance for expected credit losses on a financial instrument is estimated at each reporting
date at the amount equal to the expected credit losses for the entire period if the credit risk for the financial
instrument has increased significantly since initial recognition, taking into account all reasonable and
verifiable information, including forward-looking information.
As indicators of significant deterioration in credit risk the Group considers the actual or anticipated
difficulties of the Issuer or of a debtor's asset, the actual or expected breach of a contract, the expected
renegotiation of the contract due to financial difficulties of the debtor at a disadvantage for the Group the
terms on which it would disagree in other circumstances.
Based on the usual credit risk management practice, the Group defines default as the inability of the
counterparty (Issuer) to meet its obligations (including repayment of funds under the agreement) due to a
significant deterioration in its financial position.
A credit impairment loss on a financial asset is accounted by recognizing an estimated allowance for
impairment. For a financial asset measured at amortised cost, the amount of the impairment loss is calculated
as the difference between the asset's carrying amount and the present value of expected future cash flows
discounted at the initial effective interest rate.
If, in subsequent periods, the credit risk of a financial asset decreases as a result of an event occurring after
the recognition of this loss, the previously recognized impairment loss is reversed by reducing the
corresponding valuation allowance. As a result of the recovery, the carrying amount of the asset should not
exceed the amount at which it would have been recorded in the statement of financial position if the
impairment loss had not been recognized.
iii. Financial liabilities
The Group classifies financial liabilities into the following measurement categories: financial liabilities
measured at fair value through profit or loss; and financial liabilities measured at amortised cost.
The Group includes the following financial liabilities in the category of financial liabilities measured at
amortised cost:
loans and borrowing (debt)
trade and other payables
Loans and borrowing are initially recognized at fair value taking into account transaction costs that are
directly related to raising these funds. Fair value is determined based on prevailing market interest rates for
similar instruments if it differs significantly from the transaction price. In subsequent periods borrowings
are carried at amortised cost using the effective interest rate method; any difference between the fair value
of funds received (net of transaction costs) and the amount due is recorded in profit or loss as interest expense
over the entire period of the liability to repay the borrowed funds.
Borrowing costs are charged in the reporting period in which they were incurred if they were not related to
the acquisition or construction of qualified assets. Borrowing costs related to the acquisition or construction
of assets that take a significant amount of time to prepare for use (qualifying assets) are capitalized as part of
the asset's value.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
23
Capitalization is performed when the Group:
bears the costs of qualified assets,
bears borrowing costs and
conducts activities related to preparing assets for use or sale.
Capitalization of borrowing costs continues until the asset is ready for use or sale. The Group capitalizes
borrowing costs that could have been avoided if it had not incurred the costs of qualifying assets. Borrowing
costs are capitalized on the basis of the Group's average cost of financing (weighted average interest expense
related to expenses incurred on qualifying assets), except for loans that were received directly for the purpose
of acquiring a qualifying asset. Actual borrowing costs reduced by the amount of investment income from
temporary investment of loans are capitalized.
Accounts payable are accrued starting the moment the counterparty fulfills its obligations under the
agreement. Accounts payable are recognized at fair value and subsequently accounted at amortised cost using
the effective interest rate method.
d) Share capital
Ordinary shares and non-redeemable preference shares are both classified as equity.
e) Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses. The deemed cost of property, plant and equipment as at 1 January 2007, the date of transition to IFRS,
was determined by using its fair value at that date.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed (built) assets includes the cost of materials and direct labour, any other costs directly attributable
to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing
the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software
that is integral to the functionality of the related equipment is capitalized as part of that equipment.
If significant parts of an item of property, plant and equipment have different useful lives, they are accounted
as separate items (major components) of property, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment, and is recognized net
within “Other expense” line within profit or loss for the period.
ii. Subsequent cost
The cost of replacing part (major component) of an item of property, plant and equipment is recognized in
the carrying amount of the item if it is probable that the future economic benefits embodied within the part
will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is
derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in the
statement of consolidated profit or loss and other comprehensive income as incurred.
iii. Depreciation
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part
of an item of property, plant and equipment, since this most closely reflects the expected pattern of
consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the
shorter of the lease term and their useful lives. Land is not depreciated.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
24
The estimated useful lives for the current and comparative periods are as follows:
Buildings 7–50 years;
Electricity transmission grids 5–40 years;
Equipment for electricity transmission 5–40 years;
Other assets 1–50 years.
Estimated useful lives and residual values of property, plant and equipment are reviewed at each reporting
date and adjusted if appropriate.
f) Intangible assets
i. Goodwill
Goodwill (negative goodwill) arises on the acquisition of subsidiaries, associates, and joint ventures. For the
measurement of goodwill at initial recognition, see Note 3(a)(ii).
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. With respect to associates, the carrying
amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an
investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the
equity-accounted investee.
ii. Other intangible assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost
less accumulated amortization and accumulated impairment losses.
iii. Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure is recognized in the consolidated statement of profit
or loss and other comprehensive income as incurred.
iv. Amortisation
Amortisation expense on intangible assets, other than goodwill is recognized in profit or loss on a straight-
line basis over the estimated useful lives of intangible assets from the date that they are available for use,
since this most closely reflects the expected pattern of consumption of future economic benefits embodied in
the asset. The estimated useful lives of intangible assets for the current and comparative periods are as
follows:
Licenses and certificates 1–10 years;
Software 1–15 years.
Amortization methods, useful lives and residual values are reviewed at each financial year end and adjusted
if appropriate.
g) Impairment of non-financial assets
The carrying amount of the Group's non-financial assets, other than inventories and deferred tax assets, is
reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, the recoverable amount of the relevant asset is estimated.
For goodwill the recoverable amount is estimated at each reporting date. An impairment loss is recognised if
the carrying amount of an asset or its related cash generating unit (CGU) exceeds its estimated (recoverable)
amount. The recoverable amount of an asset or cash generating unit is the greater of its two values: the value
in use of this asset (this unit) and its fair value less costs to sell.
For the purpose of an impairment test, assets that cannot be individually tested are grouped into the smallest
group of assets that generates cash inflows from continuing use of the relevant assets that are largely
dependent on the cash inflows of other assets or groups of assets (“cash generating unit”).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
25
For the purposes of impairment test, the goodwill acquired in a business combination allocated to cash
generating units which it relates to.
The corporate assets of the Group do not generate separate cash flows and are used by more than one cash
generating unit. The cost of a corporate asset is allocated to CGUs on a reasonable and consistent basis, and
it is tested for impairment as part of testing the unit to which it was allocated.
Impairment losses are recognized in profit or loss. Impairment losses on cash generating units are initially
allocated to reduce the carrying amount of goodwill allocated to these units, and then proportionally to reduce
the carrying amount of other assets in the unit (group of units).
Amounts written off as a goodwill impairment loss are not recoverable. For other assets at each reporting
date, an impairment loss recognized in one of the previous periods is assessed for any indication that the loss
has decreased or no longer exists.
Amounts written off for impairment losses are reversed if the valuation factors used in determining the
relevant recoverable amount change.
An impairment loss is reversed only to the extent that it is possible to restore the value of assets to their book
value, in which they would be reflected (less accumulated depreciation amounts), if no impairment loss had
been recognized.
h) Inventories
Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined
on the weighted average cost method, and includes expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in bringing them to their existing location and
condition.
Net realizable value is the estimated selling price in the ordinary course of business of the Group, less the
estimated costs of completion and selling expenses.
i) Advances given
Advances given are classified as non-current if they are connected with the acquisition of an asset which will
be classified as non-current upon initial recognition. Advances given for the acquisition of an asset are
included in its carrying amount upon the acquisition of control over the asset, and when it is probable that
the Group will obtain economic benefit from its usage.
j) Value-added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of
receivables from customers or (b) delivery of goods or services to customers Input VAT is generally
recoverable against output VAT upon receipt of the VAT invoice. As part of advances given and other assets
are recognised (on a net basis) the amounts of VAT accrued from advances received and advances given, as
well as VAT recoverable and prepayment for VAT. Amounts of VAT payable to the budget are disclosed
separately as part of current liabilities. Where allowance for the expected credit losses has been made for
receivables, the allowance loss is recorded for the gross amount of the debtor, including VAT.
k) Employee benefits
i. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions
into a separate (independent) entity and will have no further (legal or constructive) obligation to pay further
amounts. Obligations for contributions to defined contribution pension plans, including Russia’s State
Pension Fund, are recognized as an employee benefit expense in profit or loss in the periods during which
services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash
refund or a reduction in future payments is available.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
26
ii. Defined benefit plans
A defined benefit plan is a post-employment benefit plan differing from a defined contribution plan. The
liability recognised in consolidated statement of financial position in respect of defined benefit plans is the
discounted amount of the liability at the reporting date.
The discount rate is the yield at the reporting date on government bonds that have maturity dates
approximating the terms of the Group’s obligations and that are denominated in the same currency in which
the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the
projected unit credit method.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses and the effect
of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income.
The Group determines the net interest expense on the net defined benefit liability for the period by applying
the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the
then-net defined benefit liability, taking into account any changes in the net defined benefit liability during
the period as a result of contributions and benefit payments. Net interest expense and other expenses related
to defined benefit plans are recognized in profit or loss. Actuarial gains and losses on changes in actuarial
assumptions are recognized in other comprehensive income/expense.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group
recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
iii. Other non-current employee benefits
The Group’s net obligation with respect to long-term employee benefits other than pension plans is the
amount of future benefit that employees have earned in return for their service in the current and prior periods.
That benefit is discounted to determine its present value. The discount rate is the yield at the reporting date
on government bonds that have maturity dates approximating the terms of the Group’s obligations and that
are denominated in the same currency in which the benefits are expected to be paid. The calculation is
performed using the projected unit credit method. Remeasurements are recognized in profit or loss in the
period in which they arise.
iv. Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing
plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee, and the obligation can be estimated reliably and it is highly probable that there
will be an outflow of economic benefits.
l) Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The unwinding of the discount is recognized as finance cost.
m) Revenue from Contacts with Customers
The Group recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised
good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control
of that asset.
When (or as) a performance obligation is satisfied, the Group recognizes as revenue the amount which the
Group expects to be entitled in exchange for transferring promised assets to a customer excluding VAT.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
27
Electricity transmission service, sale of electricity and power
The Group transfers control of a service or good over period and, therefore, satisfies a performance obligation
period (billing month). For measuring progress towards complete satisfaction of a performance obligation
the output method is used (cost of transferred and sold electricity and power volumes).
The tariffs for the distribution of electricity (in respect to all constituent entities of the Russian Federation)
and sale of electricity on the regulated market (in respect of constituent entities of the Russian Federation,
not united in the price zones of the wholesale electricity market) are approved by the executive authorities of
constituent entities of the Russian Federation (hereinafter - regional regulatory authority) in the sphere of the
state energy tariff regulation within the range of cap and (or) floor tariffs approved by the Federal
Antimonopoly Service of the Russian Federation.
Services for technological connection to electric grids
Revenue from the services for technological connection to the electric grid is a non-refundable fee for
connecting consumers to the electric grids. The Group transfers control of a service at a point in time (after
the consumer is connected to the electric grid) and, therefore, satisfies a performance at a point in time.
Payment for technological connection for an individual project, the standardized tariff rates, the rates per unit
of maximum capacity and fee’s formula for the technical connection are approved by the regional energy
commission (the department of prices and tariffs of the corresponding region) and do not depend on the
proceeds from the provision of electricity transmission services.
Payment for technological connection to the unified national electric network is approved by the Federal
Antimonopoly Service.
The Group made judgment that connection service is a separate performance obligation that is recognised
when the respective services are provided. The customer obtains distinct connection service and there are no
any other obligations beyond the connection services agreement. Practically and in accordance with the law
on electricity market, connection services and electricity transmission agreements are negotiated separately
with different customers as different packages and with different commercial objectives with no relation in
the contracts in pricing, purpose, acceptance, or type of service.
Other revenue
Revenue from installation, repair and maintenance services and other sales is recognized when the customer
obtains control over the asset.
Trade receivables
The accounts receivables represent the Group's right to compensation, which is unconditional (i.e., the
moment when such compensation becomes payable is due only to the passage of time).
Contract liabilities
A contract liability is an obligation to transfer goods or services to a customer for which the Group has
received consideration (or an amount of consideration is due) from the customer. If a customer pays
consideration before the Group transfers goods or services to the customer, a contract liability is recognised
when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as
revenue when the Group performs under the contract. Contract liabilities are recognized within “Advances
received” including value-added-tax (VAT)
Advances received from buyers and customers are analyzed by the Group for the presence of a financial
component. If there is a gap of time of more than 1 year between the receipt of advances from customers and
transfer of the promised goods and services for reasons other than providing financing to the counterparty
(under contracts for technological connection to electric grids), received advances are not recognized interest
expense. Such advances are recorded at the fair value of assets received by the Group from buyers and
customers in advance.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
28
n) Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all
the attached conditions will be complied with. When the grant relates to an expense item, it is recognized as
income on a systematic basis over the periods that the related costs, for which it is intended to compensate,
are expensed. When the grant relates to an asset, it is recognized as income, less the related expenses, in
equal amounts over the expected useful life of the related asset.
Government grants that compensate the Group for low electricity tariffs (lost income) are recognized in the
Consolidated Statement of profit or loss and other comprehensive income (among other income line) in the
same periods in which the respective revenue is earned.
o) Social expenditures
To the extent that the Group’s contributions to social programs benefit the community at large without
creating constructive obligations to provide such benefit in the future and are not restricted to the Group’s
employees, they are recognized in the income statements as incurred. Group costs related to the financing of
social programs, without making a commitment with respect to such financing in the future date are
recognized in the Consolidated Statement of profit or loss and other comprehensive income as they arise.
p) Finance income and cost
Finance income comprises of interest income on funds invested, dividend income, gains on the disposal of
financial assets measured at fair value and amortised cost, discounts on financial instruments. Interest income
is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is
recognized in profit or loss on the date that the Group’s right to receive payment is established.
Finance costs are comprised of interest expense on borrowings, lease liabilities, and loss on disposal of
financial assets measured at fair value or amortised cost, discounts on financial instruments. Borrowing costs
that are not directly attributable to the acquisition, construction or production of a qualifying asset are
recognized in profit or loss using the effective interest rate method.
q) Income tax expense
Income tax expense is comprised of current and deferred tax. It is recognized in profit or loss, except to the
extent that it relates to a business combination, or items recognized in other comprehensive income or directly
in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax
rates enacted or substantively enacted at the reporting date, and any adjustment to income tax payable with
respect to previous years.
Deferred tax is recognized with respect to temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognized for:
temporary differences on the initial recognition of assets and liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit or loss,
temporary differences relating to investments in subsidiaries and associates to the extent that the
Group is able to control the timing of the reversal of the temporary differences and it is probable
that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain
tax positions and whether additional taxes, penalties and late-payment interest may be due. The Group
accrues tax liabilities based on its assessment of many factors, including interpretations of tax law and prior
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
29
experience. This assessment relies on estimates and assumptions, and may involve a series of judgments
about future events. New information may become available that causes the Group to change its judgment
regarding the adequacy of existing tax liabilities for prior periods; such changes to tax liabilities will impact
the tax expense in the period that such a determination is made.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets
and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or
on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which temporary difference
can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized.
r) Earnings per share
To calculate basic earnings per share, profit or loss is distributed between ordinary shares and preferred
shares in proportion to each instrument's share of profit or loss, assuming that all profit (or loss) for the
reporting period has been distributed. The total profit or loss attributable to each of the two classes of equity
instruments (ordinary shares and preferred shares) is determined by adding together the amount attributable
to dividends and the amounts attributable to profit sharing. The total profit or loss thus determined is divided
by the number of outstanding shares to which this profit is attributable.
4 Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair value for both
financial and non-financial assets and liabilities.
When measuring the fair value of an asset or liability, the Group uses observable market data as much as
possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels
of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of
the fair value hierarchy as the lowest level of the input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy during the reporting period when
the change has occurred.
The Group considers the point of time when transfers between and for certain levels are recognised when an
event or change in circumstances occurs
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
30
5 Significant subsidiaries
Ownership/voting, %
Country of
incorporation 31 December 2019 31 December 2018
PJSC “FGC UES” Russian Federation 80.14 80.14
PJSC “MOESK” Russian Federation 50.90 50.90
JSC “ROSSETI Tyumen” Russian Federation 100.00 100.00
PJSC “Lenenergo” Russian Federation 68.10/69.17 68.10/69.17
PJSC “IDGC of Centre” Russian Federation 50.23 50.23
JSC “IDGC of Urals” Russian Federation 51.52 51.52
PJSC “IDGC of Centre and Volga
region” Russian Federation 50.40 50.40
PJSC “Kubanenergo” Russian Federation 93.44 92.78
PJSC “IDGC of Siberia” Russian Federation 57.84/55.59 57.84/55.59
PJSC “IDGC of Volga” Russian Federation 67.97 67.97
PJSC “IDGC of North-West” Russian Federation 55.38 55.38
PJSC “ROSSETI Northern Caucasus” Russian Federation 98.77 98.71
JSC “Chechenenergo”* Russian Federation 73.65 71.73
PJSC “ROSSETI South”* Russian Federation 84.12 65.12
PJSC “TDC” Russian Federation 85.77/94.58 85.77/94.58
JSC “Yantarenergo” Russian Federation 100.00 100.00
JSC “Karachaevo-Cherkesskenergo” Russian Federation 100.00 100.00
JSC “Kalmenergosbyt” Russian Federation 100.00 100.00
JSC “Kabbalkenergo” Russian Federation 65.27 65.27
JSC “Tyvaenergosbyt” Russian Federation 100.00 100.00
JSC “Sevkavkazenergo” Russian Federation 55.94 55.94
PJSC “Dagestan Power Sales Company” Russian Federation 51.00 51.00
*The share includes actually placed shares of the current issue
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
31
6 Acquisition of subsidiaries
As part of the implementation of the Development Strategy for the electric grid complex of the Russian
Federation, approved by order of the Government of the Russian Federation dated 3 April 2013 No. 511-r,
in order to reduce the number of existing TSS, the Group acquired:
By the subsidiary of PJSC “ROSSETI South”:
on 20 June 2019 – 100% share of JSC «Volgogradskie mejrajonnie elektricheskie seti” (hereinafter
– JSC “VMES”) in cash consideration of RUB 2,700 million, based on the results of participation in
an open tender for the sale of shares of JSC “VMES”.
on 17 May 2019 – 100% share in LLC “UgStroyMontaj” in exchange for RUB 159 million of
accounts receivable. The main activity of LLC “UgStroyMontaj” is electricity transmission and
technological connection to distribution grids, electrical installation works.
By the subsidiary of PJSC “IDGC of Centre”:
on 20 November 2019 – 100% of shares in the Сharter capital of JSC Voronezh City Electric Grids
(hereinafter referred to as JSC “VGES”) in cash consideration of RUB 1,534 million following as a
result of participation in an open tender for the sale of shares of JSC “VGES”. The title to the shares
of JSC “VGES” was postponed until the Group fulfills the tender conditions, however, the Group
gains control over the acquired company from the date of election of the board of directors of JSC
“VGES” consisting of representatives of the Group. The date of election of the board of directors is
20 November 2019.
on 30 December 2019 – 69.9992% of shares in the Charter capital of Tula City Electric Grids JSC
(hereinafter referred to as JSC “TGES”). The purchase price of JSC “TGES” was determined as RUB
903,003 thousand, while RUB 903,000 thousand paid by transferring property rights - rights of claim
on receivables, RUB 3,00 thousand in cash.
The Group recorded acquisitions in accordance with the requirements of IFRS 3 Business Combination.
The valuation of identifiable net assets of JSC “TGES” was not completed as of the date of signing the
consolidated financial statements of the Group. Thus, the fair value of the identifiable net assets can be
subsequently adjusted using appropriate adjustments to the acquisition income by 31 December 2020.
The table below shows the fair value of the identifiable net assets received at the acquisition date.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
32
JSC
“VMES”
LLC
“UgStroyMontaj” JSC “VGES”
JSC
“TGES”
Assets
Intangible assets 18 – – 22
Property, plant and equipment 1,899 184 1,785 2,439
Right-of-use assets 1 – – –
Deferred tax assets – – 372 9
Inventories 99 5 101 28
Accounts receivable 1,156 65 510 230
Advances given and other current assets 13 2 – –
Cash and cash equivalents 170 2 117 127
Total assets 3,356 258 2,885 2,855
Liabilities
Deferred tax liabilities (19) (7) (1) (23)
Accounts payable (664) (67) (967) (141)
Advances received (62) (1) (8) (7)
Provisions (24) – – –
Borrowings (1) (4) – (449)
Current income tax liabilities (1) – – –
Total liabilities (771) (79) (976) (620)
Total identifiable net assets measured
at fair value 2,585 179 1,909 2,235
Identifiable net assets measured at fair
value in the amount of the acquired share 2,585 179 1,909 1,564
Identifiable net assets attributable to
holders of non -controlling interests – – – 671
Transferred consideration 2,700 159 1,534 903
Goodwill 115 20 – –
Gain on a bargain purchase (negative
goodwill) – – 375 661
In the consolidated statement of profit and loss and other comprehensive income, the gain on a bargain
purchase (negative goodwill) on the acquisition of JSC “VGES” and JSC “TGES” in the amount of RUB
1,036 million is recorded in other income.
Net cash outflow related to the acquisition of subsidiaries is presented in the table below
JSC
“VMES”
LLC
“UgStroyMontaj”
JSC
“VGES”
JSC
“TGES”
Total
Net cash received on the acquisition of
a subsidiary 170 2 117 127
416
Cash reward (2,700) – (1,534) – (4,234)
Net cash (outflow)/inflow (2,530) 2 (1,417) 127 (3,818)
The financial results of the acquired subsidiaries after acquisition date did not have a significant impact on
the Group’s revenue and operating results for the year ended 31 December 2019.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
33
7 Non-controlling interests
The following table summarizes the information relating to each of the Group’s subsidiaries that has material non-controlling interest, before any intra-group eliminations.
As at 31 December 2019 and for the year ended 31 December 2019:
FGC MOESK Lenenergo
IDGC of
Centre
IDGC of
Urals
IDGC of Centre
and Volga region
IDGC
of Siberia Other subsidiaries Total
Non-controlling percentage 19.86 49.10 31.90 49.77 48.48 49.60 42.16
Non-current assets 1,163,752 324,558 199,230 100,447 76,133 80,865 61,818
Current assets 125,539 24,575 15,265 17,946 12,492 28,484 14,048
Assets held for sale 313 – – – – – –
Non-current liabilities (286,068) (102,456) (30,388) (47,687) (25,709) (26,104) (32,339)
Current liabilities (102,069) (70,648) (45,704) (24,621) (17,307) (28,346) (25,356)
Net assets 901,467 176,029 138,403 46,085 45,609 54,899 18,171
Carrying amount of non-controlling interest 179,874 86,436 42,419 23,443 22,479 27,239 7,670 4,536 394,096
Revenue 249,671 161,463 82,665 94,642 106,149 96,534 59,118
Profit 84,713 8,550 9,211 3,092 2,638 6,906 463
Other comprehensive income/(loss) 7,383 (669) (151) (865) (455) 2 (108)
Total comprehensive income 92,096 7,881 9,060 2,227 2,183 6 908 355
Profit/(loss) allocated to non-controlling interest 16,828 4,198 2,938 1,539 1,279 3,425 195 (1,883) 28,519
Other comprehensive income/(loss) allocated to
non-controlling interest 1,467 (328) (48) (430) (207) 1 (46) (197) 212
Cash flows from operating activities 136,234 27,856 33,543 11,946 8,448 10,619 6,784
Cash flows used in investing activities (79,069) (27,176) (23,476) (13,069) (9,641) (12,719) (10,493)
Cash flows from/(used in) financing activities: (57,706) (5,782) (8,123) 1,854 1,309 (2,516) 3,910
including dividends to non-controlling
shareholders (3,868) (1,401) (878) (442) (148) (2,245) (42)
Net increase/ (decrease) in cash and cash
equivalents (541) (5,102) 1,944 731 116 (4,616) 201
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
34
As at 31 December 2018 and for the year ended 31 December 2018:
FGC MOESK Lenenergo
IDGC of
Centre
IDGC of
Urals
IDGC of Centre
and Volga region
IDGC
of Siberia Other subsidiaries Total
Non-controlling percentage 19.86 49.10 31.90 49.77 48.48 49.60 42.16
Non-current assets 1,062,120 313,161 191,208 91,969 65,535 75,142 53,838
Current assets 133,101 26,957 15,390 16,155 14,455 28,180 14,709
Assets held for sale 21,467 – – – – – –
Non-current liabilities (280,791) (98,119) (42,490) (36,865) (14,193) (23,100) (25,485)
Current liabilities (95,104) (68,943) (33,426) (26,407) (21,934) (25,810) (25,209)
Net assets 840,793 173,056 130,682 44,852 43,863 54,412 17,853
Carrying amount of non-controlling interest 167,605 84,962 40,381 22,459 21,624 26,994 7,524 6,413 377,962
Revenue 254,463 159,485 77,990 93,834 100,303 94,213 57,051
Profit 93,588 6,257 13,145 2,938 602 11,759 1,182
Other comprehensive income/(loss) 8,332 169 (289) 120 459 366 (20)
Total comprehensive income 101,920 6,426 12,856 3,058 1,061 12,125 1,162
Profit/(loss) allocated to non-controlling interest 18,591 3,072 4,193 1,462 292 5,832 498 (247) 33,693
Other comprehensive income/(loss) allocated to
non-controlling interest 1,655 83 (8) 60 226 183 (9) (3) 2,187
Cash flows from operating activities 124,070 27,801 23,298 14,437 6,486 20,057 9,176
Cash flows used in investing activities (84,639) (24,927) (15,539) (13,017) (7,495) (12,972) (12,456)
Cash flows from/(used in) financing activities: (44,348) 3,498 (4,824) (1,995) 1,685 (4,228) 2,427
- including dividends to non-controlling
shareholders (3,569) (752) (1,188) (427) (917) (2,211) (150)
Net increase/ (decrease) in cash and cash
equivalents (4,917) 6,372 2,935 (575) 676 2,857 (853)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
35
8 Segment information
The Group has identified fourteen reportable segments, as described below, which are the Group’s strategic
business units. Each strategic business unit offers electricity transmission services, including technological
connection services, in a separate geographical region of the Russian Federation and is managed separately.
The “other” segment includes several operating segments such as electricity sales, rent services and repair
services. Unallocated items are comprised mainly of assets and account balances related to the Company’s
headquarters.
The Management Board of the Company assesses the performance, assets and liabilities of operating
segments based on internal management reporting, which is based on the information reported in RAS.
Performance of each reportable segment is measured based on earnings or loss before interest expense,
income tax and depreciation and amortization (EBITDA). Management believes that EBITDA is the most
relevant measurement for evaluating the results of the Group’s operating segments.
The reconciliation of reportable segment measurements with similar items in these consolidated financial
statements includes those reclassifications and adjustments that are necessary for the financial statements to
be presented in accordance with IFRS.
Information regarding reportable segments is included below.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
36
a) Information about reportable segments
As at 31 December 2019 and for the year ended 31 December 2019:
IDGC of
Siberia and
Tomskaya
DC
ROSSETI
Tyumen
IDGC of
Urals
IDGC of
Volga
ROSSETI
South
Kuban-
energo
ROSSETI
Northern
Caucasus
IDGC of
Centre
and Volga
IDGC of
North-West
Len-
energo
Yantar-
energo
IDGC of
Centre MOESK FGC Other Total
Revenue from external
customers 64,608 63,372 86,668 62,872 35,224 50,996 12,656 96,172 41,361 82,178 1,561 94,126 159,926 94,102 88,967 1,034,789
Inter-segment revenue 66 93 7,374 8 1,743 8 5,705 171 3,770 194 5,379 380 449 148,598 46,866 220,804
Segment revenue 64,674 63,465 94,042 62,880 36,967 51,004 18,361 96,343 45,131 82,372 6,940 94,506 160,375 242,700 135,833 1,255,593
Including
Electricity
transmission 58,898 60,871 70,084 62,437 34,911 46,516 14,196 94,329 42,931 75,696 5,628 90,887 148,567 223,144 14,469 1,043,564
Technological
connection services 1,224 2,273 783 266 848 4,206 531 1,062 1,298 6,242 1,140 1,542 8,754 17,235 3,021 50,425
Sales of electricity and
capacity 4,188 – 22,806 – 923 – 2,708 – – – 39 521 – – 79,230 110,415
Other revenue 302 262 152 87 265 267 356 871 646 271 80 1,528 2,813 1,130 34,573 43,603
Revenue from leases 62 59 217 90 20 15 570 81 256 163 53 28 241 1,191 4,540 7,586
Finance income 75 215 557 243 360 68 552 249 119 701 19 121 319 10,281 546 14,425
Finance costs (2,387) (347) (1,083) (120) (2,441) (1,971) (655) (1,815) (1,087) (995) (398) (3,218) (5,118) (4,914) (1,052) (27,601)
Depreciation and
amortisation 6,176 9,728 5,610 5,577 2,643 4,257 2,086 8,089 4,694 12,590 1,224 11,598 24,527 78,660 6,091 183,550
EBITDA 8,118 10,466 9,557 9,432 1,267 9,752 (9,031) 17,169 6,585 30,761 1,970 15,990 40,617 158,151 (8,272) 302,532
Segment assets 87,700 161,695 77,190 65,830 44,263 76,232 33,512 118,272 54,461 226,796 27,856 124,263 351,834 1,532,324 157,491 3,139,719
Including property,
plant and equipment
and construction in
progress 67,168 154,511 60,062 54,850 28,614 63,343 23,294 86,664 44,687 187,018 24,968 101,191 318,989 1,257,406 83,610 2,556,375
Capital expenditure 11,000 10,061 11,856 9,031 3,091 5,451 3,331 13,298 4,486 27,127 3,717 11,875 31,862 135,470 8,137 289,793
Segment liabilities 55,184 27,899 35,649 16,912 32,412 35,622 21,087 52,589 28,771 75,728 8,369 67,336 158,643 393,261 171,147 1,180,609
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
37
As at 31 December 2018 and for the year ended 31 December 2018:
IDGC of
Siberia and
Tomskaya
DC
ROSSETI
Tyumen
IDGC of
Urals
IDGC of
Volga
ROSSETI
South
Kuban-
energo
ROSSETI
Northern
Caucasus
IDGC of
Centre
and Volga
IDGC of
North-West
Len-
energo
Yantar-
energo
IDGC of
Centre MOESK FGC Other Total
Revenue from external
customers 62,209 58,496 82,116 63,486 35,887 46,397 11,758 93,750 57,564 76,156 3,205 93,640 156,395 94,632 92,064 1,027,755
Inter-segment revenue 92 111 7,509 106 507 4 5,282 126 3,559 293 4,947 234 99 145,662 49,726 218,257
Segment revenue 62,301 58,607 89,625 63,592 36,394 46,401 17,040 93,876 61,123 76,449 8,152 93,874 156,494 240,294 141,790 1,246,012
Including
Electricity
transmission 57,986 56,149 67,897 62,592 34,928 45,583 14,010 88,853 40,427 68,807 5,165 90,015 145,380 213,620 11,209 1,002,621
Technological
connection services 1,018 2,110 744 721 380 602 41 926 2,423 7,066 2,838 1,864 9,023 24,300 1,366 55,422
Sales of electricity and
capacity 2,958 – 20,538 – 847 – 1,951 3,316 17,541 – 21 530 – – 81,176 128,878
Other revenue 283 289 211 194 202 199 488 706 496 388 76 1,423 1,854 1,073 42,787 50,669
Revenue from leases 56 59 235 85 37 17 550 75 236 188 52 42 237 1,301 5,252 8,422
Finance income 116 92 544 346 48 91 321 133 57 332 50 68 229 10,562 487 13,476
Finance costs (2,016) (204) (887) (129) (2,508) (1,911) (964) (1,513) (1,105) (1,065) (270) (3,196) (5,294) (3,978) (984) (26,024)
Depreciation and
amortisation 5,550 8,709 5,303 5,341 2,673 3,978 2,081 7,330 4,611 11,778 832 11,103 23,774 78,649 6,073 177,785
EBITDA 9,184 7,375 7,315 11,353 6,670 7,169 834 21,834 6,782 26,521 3,572 16,508 38,052 156,035 (8,822) 310,382
Segment assets 84,109 156,584 71,940 63,767 45,122 75,909 38,059 114,703 56,417 214,720 26,800 122,536 347,573 1,487,063 141,454 3,046,756
Including property,
plant and equipment
and construction in
progress 62,897 148,825 53,972 51,517 28,180 62,535 22,402 82,217 45,020 175,177 23,053 101,461 311,632 1,201,105 75,210 2,445,203
Capital expenditure 13,886 11,468 8,329 7,752 2,205 6,950 1,865 13,735 7,576 20,982 5,272 12,716 31,257 107,210 7,025 258,228
Segment liabilities 50,593 27,844 32,022 13,969 38,163 40,670 16,515 47,748 30,714 75,018 8,236 64,105 156,081 396,669 148,766 1,147,113
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
38
b) Reconciliation of key indicators of reportable segment revenues, EBITDA, assets and liabilities
The reconciliation of key segment items measured as reported to the Management Board of the Group with
similar items in these consolidated financial statements is presented below.
The reconciliation of segment revenue is presented below:
Year ended
31 December 2019
Year ended
31 December 2018
Segment revenues 1,255,593 1,246,012
Intersegment revenue elimination (220,804) (218,257)
Reclassification from other income 140 585
Other adjustments (5,286) (6,750)
Unallocated revenues 11 12
Revenues per consolidated statement of profit or loss and other
comprehensive income 1,029,654 1,021,602
Reconciliation of reportable segment EBITDA:
Year ended
31 December 2019
Year ended
31 December 2018
EBITDA of reportable segments 302,532 310,382
Adjustment for allowance for expected credit losses 12,467 6,908
Adjustment for impairment of advances given 2,048 837
Provisions (1,531) 684
Adjustments for lease 5,845 293
Adjustment for disposal of property, plant and equipment 1,522 (91)
Discounting of financial instruments 4,018 1,824
Accrual of impairment of property, plant and equipment and right-of-
use assets, net (24,489)
(8,475)
Adjustment on assets related to employee benefits (408) (494)
Adjustment for write-off of the other current and non-current assets 23 370
Recognition of retirement and other long-term employee benefit
obligation 848
6,741
Gain on disposal of assets 8,110 –
Re-measurement of financial assets measured at fair value through
other comprehensive income (transfer of re -measurement to equity) (10,293)
(5,075)
Other adjustments 595 (5,522)
Unallocated items (1,206) (2,130)
300,081 306,252
Depreciation of property, plant and equipment and right-of-use-assets,
amortization of intangible assets (129,413) (116,124)
Interest expenses on financial liabilities at amortised cost (25,850) (23,747)
Interest expenses on lease liabilities (3,090) (250)
Income tax expense (36,436) (41,453)
Profit for the period per consolidated statement of profit or loss
and other comprehensive income 105,292 124,678
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
39
The reconciliation of reportable segment total assets is presented below:
Year ended
31 December 2019
Year ended
31 December 2018
Total segment assets 3,139,719 3,046,756
Intersegment balances (138,124) (134,013)
Intersegment financial assets (57,655) (50,852)
Adjustment for net book value of property, plant and equipment (70,987) (102,074)
Impairment of property, plant and equipment (365,998) (359,547)
Recognition of right-of-use-assets 36,669 –
Recognition of assets related to employee benefits 5,808 6,216
Investments accounted for using the equity method 532 669
Adjustment for allowance for expected credit losses 55,689 41,375
Adjustment for impairment of advances given (209) (1,855)
Adjustment for inventories valuation (39) (47)
Deferred tax assets adjustment (14,089) (10,343)
Other adjustments (24,351) (8,709)
Unallocated items 82,614 91,056
Total assets per consolidated statement of financial position 2,649,579 2,518,632
The reconciliation of reportable segment total liabilities is presented below:
Year ended
31 December 2019
Year ended
31 December 2018
Total segment liabilities 1,180,609 1,147,113
Intersegment balances (134,697) (130,659)
Adjustment for deferred tax liabilities (36,534) (38,389)
Accrual of retirement and other long-term employee benefit
obligation 27,800 23,592
Recognition of lease liabilities 38,209 780
Accrued salaries and wages to employees 63 139
Other provisions and accruals 877 232
Other adjustments (16,878) (11,709)
Unallocated items 6,025 32,571
Total liabilities per consolidated statement of financial position 1,065,474 1,023,670
c) Major customer:
In 2019 the Inter RAO Group (consisting primarily of electricity sales companies within the Inter RAO
Group) was a major customer of the Group. Total revenue from companies of the Inter RAO Group amounted
to RUB 253,877 million for the year ended 31 December 2019 (RUB 241,350 million for the year ended
31 December 2018).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
40
9 Revenue
Year ended 31 December
2019 2018
Electricity transmission 860,852 826,241
Sales of electricity and capacity 100,291 119,915
Technological connection services 48,674 52,563
Other revenue 17,046 19,755
1,026,863 1,018,474
Revenue from leases 2,791 3,128
1,029,654 1,021,602
Other revenue are mainly comprised of revenue from construction services, repair and maintenance services.
10 Other income and other expenses
Year ended 31 December
2019 2018
Income in the form of fines and penalties on commercial contracts 12,890 14,994
Gain on disposal of assets 8,110 –
Gain on compensation of losses in connection with retirement /
liquidation of electric grid assets 4,122 3,133
Gain on from identified non-contracted electricity consumption 2,686 3,083
Gain on acquisition of subsidiaries (Note 6) 1,036 –
Gain on derecognition of subsidiary – 690
Other income 3,122 4,270
31,966 26,170
Gain on disposal of assets in the amount of RUB 8,110 million is recognised under exchange agreement with
JSC “Far Eastern Energy Management Company”.
On 26 December 2018, as a part of UNEG asset consolidation process the Group concluded the exchange
contract with JSC “Far Eastern Energy Management Company” (government-controlled entity). The Group
exchanges property, plant and equipment, accounts receivable, and cash to be paid by instalments up to 2024
in exchange for UNEG assets. The exchange was completed on 1 January 2019.
As at 1 January 2019 the Group has recognized disposal of property, plant and equipment with the carrying
value of RUB 16,045 million, accounts receivable with the value of RUB 5,372 million, and at the same time
recognised additions to property, plant and equipment at fair value of RUB 34,564 million, long-term
accounts payable at fair value of RUB 2,713 million and short-term accounts payable at fair value of RUB
2,384 million at initial recognition. The Group also recognised VAT recoverable amounted to RUB 2,394
million. Fair value of long-term accounts payable has been determined using present value technique based
on estimated future cash flows at the discount rate of 9.00%.
Other expenses include expenses from the disposal of property, plant and equipment in the amount of RUB
4,860 million for the year ended 31 December 2019 (for the year ended 31 December 2018: RUB 2,815
million).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
41
11 Operating expenses
Year ended
31 December 2019
Year ended
31 December 2018
Personnel costs 201,274 187,386
Depreciation of property, plant and equipment and right-of-use-assets,
amortization of intangible assets
129,413
116,124
Material expenses, including:
Electricity for compensation of losses 150,743 148,070
Electricity for sale 60,691 67,069
Purchased electricity and heat power for own needs 4,057 4,344
Other material costs 30,709 39,679
Production work and services, including:
Electricity transmission services 155,396 153,261
Repair and maintenance services 15,657 14,420
Other works and industrial services 11,858 13,369
Taxes and levies other than income tax 27,076 31,762
Short term lease/lease 3,490 7,163
Insurance 2,371 2,325
Other third-party services, including:
Communication services 2,726 2,485
Security services 5,012 4,891
Consulting, legal and audit services 3,305 3,282
Software costs and servicing 2,704 2,548
Transportation services 2,777 2,877
Other services 9,912 9,088
Provisions 17,340 4,952
Other expenses 21,771 20,660
858,282 835,755
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
42
12 Personnel costs
Year ended 31 December
2019 2018
Wages and salaries 151,406 145,381
Social security contributions 43,569 41,441
(Gain) related to defined benefit plan (8) (5,750)
Expenses related to other long-term employee benefits 64 13
Other 6,243 6,301
201,274 187,386
The amount of contributions to the defined contribution plan was RUB 31,850 million for the year ended
31 December 2019 (for the year ended 31 December 2018: RUB 29,548 million).
The amounts of remuneration to the key management personnel are disclosed in Note 36 “Related party
transaction”.
13 Finance income and costs
Year ended 31 December
2019 2018
Finance income
Depreciation of discount of financial assets 9,569 6,837
Interest income on loans, bank deposits and accounts, and promissory
notes 9,371 7,462
Dividends 1,467 2,254
Effect on initial discounting of financial liabilities 927 499
Interest income on assets related to employee benefits plans 39 20
Other finance income 368 545
21,741 17,617
Finance costs
Interest expenses on financial liabilities measured at amortized cost 25,850 23,747
Interest expenses on lease liabilities 3,090 250
Interest expenses on long-term defined benefit liabilities 1,691 2,093
Other finance costs 1,065 1,427
31,696 27,517
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
43
14 Income tax
Year ended
31 December 2019
Year ended
31 December 2018
Current income tax
Accrual of current tax (23,686) (27,553)
Adjustment for previous periods tax (65) 153
Total (23,751) (27,400)
Deferred income tax
Accrual and reversal of temporary differences (12,685) (14,053)
Total (12,685) (14,053)
Total income tax expense (36,436) (41,453)
Income tax recognized in other comprehensive income
Year ended 31 December 2019 Year ended 31 December 2018
Before tax Tax Net of tax Before tax Tax Net of tax
Financial assets measured at fair
value through other
comprehensive income
9,865 (1,357) 8,508
1,667 6,742 8,409
Foreign currency translation
differences (228) – (228)
178 – 178
Remeasurements of the defined
benefit liability (5,056) 626 (4,430)
2,381 (582) 1,799
4,581 (731) 3,850 4,226 6,160 10,386
As at 31 December 2019 and 31 December 2018, deferred income tax assets and liabilities are calculated
(primarily) at the rate of 20%, which is expected to be applicable to the disposal of the related assets and
liabilities. Deferred assets and liabilities arising from individual investments in equity instruments are
calculated at the rate of 13%. Some of the companies of the Group use income tax benefit as reduced income
tax rate provided in accordance with regional legislation.
Profit before income tax for financial reporting purposes is reconciled to income tax expenses as follows:
Year ended
31 December 2019
Year ended
31 December 2018
Profit before income tax 141,728 166,131
Theoretical income tax expense at the rate of 20% (28,346) (33,226)
Effect of income taxed at lower rates 735 14
Tax effect on not taxable or non-deductible for tax
purposes items
(4,049) (6,208)
Adjustments for prior years (65) 153
Change in unrecognized deferred tax assets (4,711) (2,186)
(36,436) (41,453)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
44
15 Property, plant and equipment
Land plots
and
buildings
Electricity
trans-
mission
grids
Equipment
for electricity
transmission Other
Construction
in progress Total
Cost/Deemed cost
At 1 January 2018 264,535 1,272,832 1,071,849 310,344 396,878 3,316,438
Reclassification between
groups
(353)
(24)
354
23
–
–
Additions 625 2,473 1,905 8,202 238,743 251,948
Transfers 13,548 111,818 112,754 28,972 (267,092) –
Reclassification to assets
held for sale
(130)
(14,859)
(14,388)
(1,892)
–
(31,269)
Disposals (510) (1,421) (1,354) (1,882) (7,259) (12,426)
At 31 December 2018 277,715 1,370,819 1,171,120 343,767 361,270 3,524,691
Accumulated depreciation
and impairment
At 1 January 2018 (84,064) (582,657) (508,478) (196,573) (67,588) (1,439,360)
Reclassification between
groups
45
(2,833)
(6,363)
(381)
9,532
–
Depreciation charge (9,257) (40,768) (40,878) (22,115) – (113,018)
Reclassification to assets
held for sale
35
6,047
7,684
1,422
–
15,188
Disposals 124 591 983 1,982 381 4,061
Impairment (767) (3,408) (2,015) (816) (682) (7,688)
At 31 December 2018 (93,884) (623,028) (549,067) (216,481) (58,357) (1,540,817)
Net book value
At 1 January 2018 180,471 690,175 563,371 113,771 329,290 1,877,078
At 31 December 2018 183,831 747,791 622,053 127,286 302,913 1,983,874
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
45
Land plots
and
buildings
Electricity
trans-
mission
grids
Equipment
for electricity
transmission Other
Construction
in progress Total
Cost/Deemed cost
At 31 December 2018 277,715 1,370,819 1,171,120 343,767 361,270 3,524,691
Reclassification to right-
of-use assets
(156) (314) (1,422) (1,028) – (2,920)
At 1 January 2019 277,559 1,370,505 1,169,698 342,739 361,270 3,521,771
Reclassification between
groups
(7,302) 10 7,180 112 – –
Additions 2,237 31,757 8,659 14,074 229,119 285,846
Acquisition of subsidiaries 3,417 1,910 403 499 78 6,307
Transfers 17,141 87,762 72,916 36,208 (214,027) –
Reclassification to assets
held for sale
– – – – (335) (335)
Disposals (389) (1,882) (2,541) (2,824) (9,570) (17,206)
At 31 December 2019 292,663 1,490,062 1,256,315 390,808 366,535 3,796,383
Accumulated depreciation
and impairment
At 31 December 2018 (93,884) (623,028) (549,067) (216,481) (58,357) (1,540,817)
Reclassification to right-
of-use assets
14 68 90 446 – 618
At 1 January 2019 (93,870) (622,960) (548,977) (216,035) (58,357) (1,540,199)
Reclassification between
groups
3,956 (1,429) (10,257) (1,758) 9,488 –
Depreciation charge (9,599) (44,228) (43,274) (24,114) – (121,215)
Reclassification to assets
held for sale
– – – – 22 22
Disposals 132 1,387 2,281 2,685 1,028 7,513
Impairment (1,806) (9,127) (5,862) (943) (5,118) (22,856)
At 31 December 2019 (101,187) (676,357) (606,089) (240,165) (52,937) (1,676,735)
Net book value
At 1 January 2019 183,689 747,545 620,721 126,704 302,913 1,981,572
At 31 December 2019 191,476 813,705 650,226 150,643 313,598 2,119,648
As at 31 December 2019, construction in progress includes advance payments for purchase of property, plant
and equipment of RUB 21,838 million (31 December 2018: RUB 23,187 million) and materials for the
property, plant and equipment of RUB 9,220 million (31 December 2018: RUB 10,155 million).
Capitalized borrowing costs for the year ended 31 December 2019 amounted to RUB 16,251 million (for the
year ended 31 December 2018: RUB 15,385 million), with capitalization rates of 6.01 – 9.39% (for the year
ended 31 December 2018: 5.33 – 10.73%).
The depreciation charge for the year ended 31 December 2019 in the amount of RUB 378 million (for the
year ended 31 December 2018: RUB 91 million) has been capitalized to the cost of the capital construction
objects.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
46
As of 31 December 2019, fixed assets pledged as collateral for a loan amounted of RUB 38 million.
As of 31 December 2018 there were no fixed assets pledged as collateral for loans and borrowings.
Impairment
As at 31 December 2019 the Group performed an impairment test for the cash generating units (CGU) and
recognized an impairment loss in the amount of RUB 30,380 million, including impairment loss on property,
plant and equipment in the amount of RUB 29,605 million (as at 31 December 2018: RUB 12,242 million),
and also an impairment loss on right-of-use assets in the amount of RUB 775 million. At the same time,
recognised as at 31 December 2019 and partially amortized impairment loss on property, plant and equipment
was reversed in the amount of RUB 6,749 million (as at 31 December 2018 RUB: 4,554 million).
Recoverable amount for all CGU’s, as value in use, was calculated using the discounting rate, determined as
the weighted average cost of capital (WACC) within the range of 8.57% – 9.03% (2018: 9.48% – 10.00%).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
47
16 Intangible assets
Software
Licenses,
certificates and
patents Other Total
Cost
At 1 January 2018 23,173 720 10,732 34,625
Reclassification between groups 166 (2) (164) –
Additions 4,730 259 1,180 6,169
Disposals (2,628) (74) (656) (3,358)
At 31 December 2018 25,441 903 11,092 37,436
Accumulated amortization and impairment
At 1 January 2018 (13,847) (140) (3,880) (17,867)
Amortization charge (2,453) (76) (675) (3,204)
Disposals 2,624 74 82 2,780
At 31 December 2018 (13,676) (142) (4,473) (18,291)
Net book value
At 1 January 2018 9,326 580 6,852 16,758
At 31 December 2018 11,765 761 6,619 19,145
Cost
At 1 January 2019 25,441 903 11,092 37,436
Reclassification between groups 216 349 (565) –
Additions 3,585 727 1,261 5,573
Disposals (1,202) (32) (1,268) (2,502)
At 31 December 2019 28,040 1,947 10,520 40,507
Accumulated amortization and impairment
At 1 January 2019 (13,676) (142) (4,473) (18,291)
Reclassification between groups (47) (288) 335 –
Amortization charge (3,137) (134) (715) (3,986)
Disposals 1,050 33 335 1,418
At 31 December 2019 (15,810) (531) (4,518) (20,859)
Net book value
At 1 January 2019 11,765 761 6,619 19,145
At 31 December 2019 12,230 1,416 6,002 19,648
Capitalized borrowing costs for the year ended 31 December 2019 amounted to RUB 28 million
(for the year ended 31 December 2018: RUB 59 million), with capitalization rates of 7.72 – 8.40% (for the
year ended 31 December 2018: 7.68 – 8.28%).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
48
17 Right-of-use assets
Land plots and
buildings
Electricity
transmission
grids
Equipment for
electricity
transmission Other Total
Cost
At 1 January 2019 24,282 3,855 4,817 1,713 34,667
Reclassification between
groups (39) 121 (93) 11 –
Additions 4,741 1,939 1,076 505 8,261
Change of lease agreement
terms (868) 717 352 19 220
Disposal or termination of
lease agreements (472) (59) (47) (36) (614)
At 31 December 2019 27,644 6,573 6,105 2,212 42,534
Accumulated depreciation
and impairment
At 1 January 2019 (51) (280) (289) (459) (1,079)
Reclassification between
groups – (26) 24 2 –
Depreciation charge (2,720) (814) (930) (136) (4,600)
Change of lease agreement
terms 177 178 71 2 428
Disposal or termination of
lease agreements 143 10 1 7 161
Impairment (57) (481) (237) – (775)
At 31 December 2019 (2,508) (1,413) (1,360) (584) (5,865)
Net book value
At 1 January 2019 24,231 3,575 4,528 1,254 33,588
At 31 December 2019 25,136 5,160 4,745 1,628 36,669
For the purpose of the impairment test the specialized right-of-use assets (including rented land plots for own
and rented specialized fixed assets) were treated as own non-current assets within cash generating units
(CGU). Value in use of such right-of-use assets as at 31 December 2019 was determined by using the
discounted cash flow method.
For information regarding impairment test see Note 15 “Property, plant and equipment”.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
49
18 Other financial assets
31 December 2019 31 December 2018
Non-current
Financial assets measured at amortised cost 3,360 3,209
Financial assets measured at fair value through other comprehensive
income 45,620 37,922
Investments in quoted equity instruments 45,507 37,809
Investments in unquoted equity instruments 113 113
Financial assets measured at fair value through profit or loss 247 431
49,227 41,562
Current
Financial assets measured at amortised cost 57,592 47,192
57,592 47,192
Investments in quoted equity instruments include shares of PJSC “Inter RAO”. Fair value of these shares is
based on published market quotations and amounted to RUB 45,190 million as of 31 December 2019 (as of
31 December 2018: RUB 37,572 million).
On 29 June 2018 the Group has concluded sales agreements to sell 10,440,000 thousand shares or 10% out
of its 18.57% share in Charter capital of PJSC “Inter RAO” to JSC “Inter RAO Capital” (6,608,643 thousand
shares or 6.33%), “DVB Leasing” LLC (3,132,000 thousand shares or 3%) and “Praktika” LLC (699,357
thousand shares or 0.67%) for the price of RUB 3.3463 per share. As at 31 December 2018 6,608,643 and
3,132,000 thousand shares of PJSC “Inter RAO” were transferred to JSC “Inter RAO Capital” and “DVB
Leasing” LLC respectively.
During the year ended 31 December 2018 the Group has reclassified 6,608,643 and 3,132,000 thousand
shares sold to JSC “Inter RAO Capital” and “DVB Leasing” LLC respectively from Level 1 to Level 3 fair
value hierarchy.
The fair value of shares sold as single lot has been determined based on independent appraiser report by
applying income approach with due account for volume discount and payment by instalments in 2019.
During the year ended 31 December 2018 the Group has recognised change in fair value for financial
investments amounted to RUB 2,957 million relating to the part of financial investment in PJSC “Inter RAO”
shares sold to JSC “Inter RAO Capital” and “DVB Leasing” LLC on 29 June 2018 and on 31 July 2018
respectively. Accumulated revaluation reserve relating to shares disposed and amounted to RUB 18,629
million has been reclassified from reserves to retained earnings.
As at 31 December 2019 699,357 thousand shares of PJSC “Inter RAO” were transferred to “Praktika” LLC.
During the year ended 31 December 2019, the Group has reclassified 699,357 thousand shares sold to
“Praktika” LLC from Level 1 to Level 3 fair value hierarchy.
During the year ended 31 December 2019 the Group has recognised revaluation loss for financial investments
amounted to RUB 548 million relating to the part of financial investment in PJSC “Inter RAO” shares sold
to “Praktika” LLC on 03 June 2019. Accumulated revaluation reserve relating to shares disposed and
amounted to RUB 1,338 million has been reclassified from reserves to retained earnings.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
50
Financial assets measured at amortised cost at 31 December 2019 and 31 December 2018 are mainly
represented by bank deposits with an original maturity of more than three months:
Interest rate at
31 December
2019 Rating** Rating agency
31 December
2019
31 December
2018
VTB Bank (PJSC)* 5.82–7.35 ВВВ- Standart & Poor’s 37,936 22,231
JSC Russian Agricultural Bank* 6.50–7.20 BBВ- Fitch Ratings 15,228 1,722
Bank GPB (JSC)* 6.20 BB+ Standart & Poor’s 4,221 7,443
OJSC Bank Tavrichesky 0.51 – – 3,131 2,886
JSC Alfa-Bank 5.85 BB+ Standart & Poor’s 70 1,196
PJSC Sberbank* 6.60–6.64 ВВВ Fitch Ratings 7 14,595
60,593 50,073
* Government-related entities
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
51
19 Deferred tax assets and liabilities
The differences between IFRS and Russian tax regulations give rise to temporary differences between the
accounting value of certain assets and liabilities for financial reporting purposes and the income tax for
taxation purposes.
a) Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following items:
Assets Liabilities Net
31 December
2019
31 December
2018
31 December
2019
31 December
2018
31 December
2019
31 December
2018
Property, plant and
equipment 7,307 6,489 (112,057) (92,249) (104,750) (85,760)
Intangible assets 448 389 (250) (282) 198 107
Right-of-use assets 2 – (6,952) – (6,950) –
Financial assets
measured at amortised
cost 5,983 6,037 – – 5,983 6,037
Financial assets
measured at fair value
through other
comprehensive income 25 70 (3,611) (2,248) (3,586) (2,178)
Financial assets
measured at fair value
through profit or loss 32 35 – – 32 35
Inventories 304 218 (55) (172) 249 46
Trade and other
receivables 20,955 17,117 (553) (985) 20,402 16,132
Advances given and
other assets 2,386 2,071 (31) (4) 2,355 2,067
Lease liabilities 7,565 149 (89) (3) 7,476 146
Loans and borrowings – – (201) (229) (201) (229)
Provisions 6,185 3,812 (1) (1) 6,184 3,811
Employee benefit
liabilities 2,250 1,968 (36) (126) 2,214 1,842
Trade and other payables 2,623 2,317 (1,102) (173) 1,521 2,144
Advances received 1 – – – 1 –
Tax loss carry-forwards 5,373 4,919 – – 5,373 4,919
Asset held for sale – – (63) (4,293) (63) (4,293)
Other 582 1,322 (310) (1,151) 272 171
Tax assets/(liabilities) 62,021 46,913 (125,311) (101,916) (63,290) (55,003)
Set off of tax (33,433) (25,276) 33,433 25,276 – –
Unrecognized deferred
tax assets (16,343) (11,547) – – (16,343) (11,547)
Net tax assets/(liabilities) 12,245 10,090 (91,878) (76,640) (79,633) (66,550)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
52
b) Unrecognized deferred tax liabilities
At 31 December 2019, a deferred tax liability for temporary differences of RUB 257,346 million
(31 December 2018: RUB 225,034 million) related to an investment in subsidiaries was not recognized as
the Group is able to control the timing of the reversal of this temporary difference and it is probable that this
temporary difference will not reverse in the foreseeable future.
c) Unrecognized deferred tax assets
Deferred tax assets with respect to tax losses and temporary differences were not recognized, as for a number
of unprofitable companies of the Group there is no high probability of future taxable profit against which the
corresponding temporary differences and tax losses can be utilized.
Deferred tax assets have not been recognized with respect to the following:
31 December 2019 31 December 2018
Deductible temporary differences 50,970 37,286
Tax losses 30,750 20,449
Total 81,720 57,735
Unrecognized deferred tax assets at the applicable tax rate 16,344 11,547
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
53
d) Movement in deferred tax assets and liabilities during the year
1
January
2019
Acquired as
part of a
business
combination
Recognized
in profit or
loss
Recognized
in other
comprehensive
income
Recognized
at Capital
31
December
2019
Property, plant and
equipment (85,760) 322 (19,312) – – (104,750)
Intangible assets 107 – 91 – – 198
Right-of-use assets – (458) (6,579) – 87 (6,950)
Financial assets measured
at amortised cost 6,037 – (54) – – 5,983
Financial assets measured
at fair value through other
comprehensive income (2,178) – (51) (1,357) – (3,586)
Financial assets measured
at fair value through
profit or loss 35 – (3) – – 32
Inventories 46 (1) 204 – – 249
Trade and other
receivables 16,132 1 4,269 – – 20,402
Advances given and other
assets 2,067 – 288 – – 2,355
Lease liabilities 146 455 6,875 – – 7,476
Loans and borrowings (229) – 28 – – (201)
Provisions 3,811 4 2,369 – – 6,184
Employee benefit
liabilities 1,842 – (254) 626 – 2,214
Trade and other payables 2,144 6 (629) – – 1,521
Advances received – – 1 – – 1
Tax loss carry-forwards 4,919 9 445 – – 5,373
Asset held for sale (4,293) – 4,230 – – (63)
Other 171 (7) 108 – – 272
Unrecognized deferred tax
assets (11,547) – (4,711) – (85) (16,343)
(66,550) 331 (12,685) (731) 2 (79,633)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
54
1 January
2018
Recognized in
profit or loss
Recognized
in other
comprehensive
income
31 December
2018
Property, plant and equipment (73,805) (11,955) – (85,760)
Intangible assets 254 (147) – 107
Financial assets measured at
amortised cost 6,091 (54) – 6,037
Financial assets measured at fair
value through other
comprehensive income (8,963) 43 6,742 (2,178)
Financial assets measured at fair
value through profit or loss – 35 – 35
Inventories 149 (103) – 46
Trade and other receivables 11,886 4,246 – 16,132
Advances given and other assets 1,831 236 – 2,067
Finance lease liabilities 185 (39) – 146
Loans and borrowings (229) – – (229)
Provisions 3,339 472 – 3,811
Employee benefit liabilities 3,361 (937) (582) 1,842
Trade and other payables 2,279 (135) – 2,144
Tax loss carry-forwards 4,395 524 – 4,919
Asset held for sale – (4,293) – (4,293)
Other (69) 240 – 171
Unrecognized deferred tax assets (9,361) (2,186) – (11,547)
(58,657) (14,053) 6,160 (66,550)
20 Inventories
31 December 2019 31 December 2018
Raw materials and supplies 20,564 20,082
Allowance for impairment of raw materials and supplies (540) (439)
Other inventories 17,623 17,783
Allowance for impairment of other inventories (319) (317)
37,329 37,109
As at 31 December 2019 and 31 December 2018, the Group has no pledged inventories in accordance with
loan or other agreements as collateral.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
55
21 Trade and other receivables
31 December 2019 31 December 2018
Non-current trade and other accounts receivable
Trade receivables 75,486 76,825
Allowance for expected credit losses on trade receivables (555) (409)
Other receivables 2,098 1,773
Allowance for expected credit losses on other receivables (251) (240)
Loans given 104 119
Total financial assets 76,882 78,068
Current trade and other accounts receivable
Trade receivables 223,724 219,200
Allowance for expected credit losses on trade receivables (109,619) (100,307)
Other receivables 37,852 62,810
Allowance for expected credit losses on other receivables (25,240) (20,368)
Loans given 265 284
Allowance for expected credit loss on current loans given (155) (154)
Total financial assets 126,827 161,465
Long-term trade receivables mainly relate to the contracts of technological connection that imply deferred
inflow of cash for the provided services (as at 3 December 2019: RUB 69,166 million, as at 31 December
2018: RUB 67,994 million) and to restructured balances receivable for electricity transmission services.
As at 31 December 2018 other receivables includes RUB 28,389 million due from JSC “Inter RAO Capital”
and “DVB Leasing” LLC under the share of PJSC “Inter RAO” sales agreements (Note 18 “Other financial
assets”).
Information regarding exposure credit risk, currency risk, impairment of accounts trade and other receivables,
and fair value is disclosed in Note 33 “Financial risk and capital management”.
22 Advances given and other assets
31 December 2019 31 December 2018
Non-current assets
Advances given 7,461 7,299
Advances given impairment allowance (7,219) (6,922)
VAT on advances received 6,422 4,076
6,664 4,453
Current assets
Advances given 11,750 13,375
Advances given impairment allowance (5,563) (7,430)
VAT recoverable 2,227 3,464
VAT on advances received and VAT on advances given for purchase of
property, plant and equipment 8,818 8,725
Prepaid taxes, other than income tax 920 1,020
18,152 19,154
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
56
23 Cash and cash equivalents
31 December 2019 31 December 2018
Cash at banks and in hand 34,436 53,063
Cash equivalents 44,577 30,993
79,013 84,056
Rating Rating agency 31 December 2019 31 December 2018
Bank GPB (JSC)* BB+ Standart & Poor’s 13,425 13,915
PJSC Sberbank* ВВВ Fitch Ratings 6,487 7,545
JSC AB ROSSIYA A+(RU) ACRA 4,793 12,578
VTB Bank (PJSC)* ВВВ- Standart & Poor’s 3,130 10,571
PJSC RNCB* A(RU) ACRA 2,548 2,234
UFK* – – 1,581 4,234
JSC «Alfa-Bank» BB+ Fitch Ratings 1,339 840
Russian Regional
Development Bank* Ва2
Moody’s
127 896
JSC Russian Agricultural
Bank* ВВВ-
Fitch Ratings
101 51
Other banks – – 837 159
Cash in hand 68 40
34,436 53,063
*Government-related entities
Cash equivalents primarily consist of bank deposits placed with a number of banks for less than three months.
Interest rate at
31 Dcember 2019 Rating** Rating agency
31 Dcember
2019
31 December
2018
Bank GPB (JSC)* 4.50–6.04 BB+ Standart & Poor’s 21,377 474
JSC «Alfa-Bank» 6.05–6.11 BB+ Fitch Ratings 11,761 6,615
Russian Regional
Development Bank* 5.00–6.05
Ва2
Moody’s
6,182 –
FK Otkritie* 5.85–6.04 Ва2 Moody’s 2,804 –
VTB Bank (PJSC)* 4.50–5.85 ВВВ- Standart & Poor’s 1,176 7,193
PJSC Sberbank* 3.69–5.70 ВВВ Fitch Ratings 625 –
JSC Russian Agricultural
Bank* 5.05–7.04
BBВ-
Fitch Ratings
179 12,837
Other banks 2.25–5.65 – – 15 3,356
44,119 30,475
*Government-related entities
As at 31 December 2019 cash and cash equivalents balance included amount in foreign currency in the
amount of RUB 78 million (as at 31 December 2018: RUB 88 million).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
57
24 Equity
a) Share capital
Ordinary shares Preference shares
31 December
2019 31 December
2018 31 December 2019 31 December
2018
Par value RUB 1 RUB 1 RUB 1 RUB 1
On issue at 1 January 198,827,865,141 198,827,865,141 2,075,149,384 2,075,149,384
On issue at the end of the year
and fully paid 198,827,865,141 198,827,865,141 2,075,149,384 2,075,149,384
b) Ordinary and preference shares
Holders of ordinary shares have the right to vote on all issues on the agenda at the General Meetings of
Shareholders of the Company, to receive dividends in the manner specified by the legislation of the Russian
Federation and the Charter of the Company, as well as other rights provided for by the Charter and the
legislation of the Russian Federation. Preference shares are recognized in equity. These shares are non-
convertible, non-cumulative and non-redeemable.
Holders of preference shares are entitled to an annual dividend equal to 10% of net statutory profit divided
by 25% of all shares. If the amount of dividends paid by the Company for each ordinary share in a given
year exceeds the amount payable as a dividend on each preference share, the dividend rate payable on the
latter must be increased to the amount of dividends on ordinary shares.
Preference shares carry the right to vote on all issues within the competence of General shareholders’
meetings following the Annual Shareholders’ Meeting at which a decision not to pay (or not to pay the full
amount of) dividends on preference shares was taken. The right of preference shareholders to vote at General
shareholders’ meetings ceases from the date of the first full payment of dividends on such shares.
The preference shares also carry the right to vote, but this right is limited according to the amendments of
the Company’s Charter, which includes reorganization and liquidation as well as the delisting of preference
shares.
The owners of both ordinary and preference shares have the preemptive right to purchase additional
Company’s shares placed through an open subscription, in an amount proportional to the number of this type
of shares held.
In the case of liquidation of the Company, accrued but not paid dividends on preference shares and the
liquidation value specified by the Charter for preference shares are paid. After that the assets are distributed
among the shareholders - owners of ordinary and preference shares.
Preference shares are included in the calculation of the weighted average number of outstanding shares used
in the calculation of basic and diluted earnings per share (Note 25 “Earnings per share”).
c) Dividends
The basis for Company’s profit distribution to shareholders is defined by the Russian legislation as net profit
presented in statutory financial statements prepared in accordance with the Regulations on Accounting and
Reporting of the Russian Federation.
On 27 June 2019 the Annual General Meeting of Shareholders decided not to pay dividends on preference
and ordinary shares of PJSC "ROSSETI" on the results of 2018 and to pay dividends on preference and
ordinary shares of PJSC "ROSSETI" for the first quarter of 2019 in the amount of RUB 5,023 million (for
preference shares in the amount of 0.07997 RUB per one preference share and on ordinary shares in the
amount of 0.02443 RUB per one ordinary share).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
58
d) Treasury shares
Information regarding treasury shares is presented below:
31 December 2019 31 December 2018
Number of shares, mln.
Cost,
mln. RUB
Number of shares, mln.
Cost,
mln. RUB Ordinary Preference Ordinary Preference
3 308 109 3 308 109
e) Changes in shares in subsidiaries
During the reporting period the Group acquired additional issue of shares in a number of subsidiaries.
The most significant ones are described below:
Additional issue of shares by PJSC “Kubanenergo”
During 2019 the Group acquired 30,864,487 shares of additional issue of securities as a part of the
implementation of the program for increasing the Charter capital of PJSC “Kubanenergo”. The shares were
paid in cash in the amount of RUB 3,086 million. Following the issue of shares of PJSC “Kubanenergo” the
Group's ownership interest increased from 92.78% to 93.44%. The Group recognized a decrease in retained
earnings and an increase in non-controlling interest of RUB 7 million and RUB 9 million respectively.
Additional issue of shares by PJSC “ROSSETI Northern Caucasus”
During 2019 the Group acquired 37,861,258 ordinary shares of additional issue of securities as a part of the
implementation of the program for increasing the Charter capital of PJSC “ROSSETI Northern Caucasus”.
Shares were subscribed by the Group for RUB 661 million paid in cash. Following the issue of shares of
PJSC “ROSSETI Northern Caucasus” the Group's ownership interest increased to 98.77%. The Group
recognized an increase in retained earnings and a decrease in non-controlling interest of RUB 3 million and
RUB 0.6 million respectively.
Additional issue of shares by JSC “Chechenenergo”
In 2019 during the course of the additional issue of shares by JSC “Chechenenergo” 1,333,802,459 ordinary
shares were placed. Of these 1,193,324,569 were acquired by the Group. Shares were subscribed by the
Group for RUB 1,193 million paid in cash. The remaining part of the securities in the amount of 140,477,890
shares was purchased by the Ministry of Property and Land Relations of the Republic of Chechnya by
depositing fixed assets worth RUB 140 million into the Charter capital. As the result of the placement of
additional shares of JSC “Chechenenergo” the Group's ownership interest increased to 73.65%. The Group
recognized an increase in retained earnings and in non-controlling interest of RUB 37 million and RUB 103
million respectively.
Additional issue of shares by PJSC “ROSSETI South”
During 2019 the Group acquired 82,600,538,248 shares of additional issue of securities by PJSC “ROSSETI
South”. Shares were subscribed by the Group for RUB 8,260 million paid in cash. Taking into account the
actually placed shares of the current issue of PJSC “ROSSETI South” the Group's ownership interest
increased to 84.12%. The Group recognized a decrease in retained earnings and an increase in non-controlling
interest of RUB 1,298 million and RUB 1,337 million respectively.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
59
25 Earnings per share
The Group has revised the approach to calculating earnings per share by adopting for the purposes of
determining the denominator the number of shares attributable to holders of the Company's shares
(previously – attributable to holders of ordinary shares of the Company). To calculate earnings per share, the
Group divides earnings attributable to the owners of the Company by the weighted average number of
ordinary and preference shares outstanding for the reporting period. The change in approach did not have a
significant impact on the indicator for the previous reporting period (the indicator “Earnings per share - basic
and diluted (in Russian rubles)” for the year ended 31 December 2018: initial presentation – 0.46 RUB,
restated – 0.45 RUB)).
In millions of shares 2019 2018
Issued ordinary and preference shares at 1 January 200,903 200,903
Effect of own shares held (3) (3)
Weighted average number of shares for the period ended 31
December 200,900 200,900
2019 2018
Weighted average number of shares for the period ended 31 December
(in millions of shares) 200,900 200,900
Profit for the period attributable to the owners of the Company 76,773 90,985
Earnings per share (in RUB) – basic and diluted 0.38 0.45
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
60
26 Borrowings
31 December 2019 31 December 2018
Non-current liabilities
Secured loans and borrowings 359 –
Unsecured loans and borrowings 213,537 217,421
Unsecured bonds 298,374 327,387
Lease liabilities 38,209 1,952
Less: current portion of long-term lease liabilities (5,550) (467)
Less: current portion of long-term loans and borrowings (28,493) (28,442)
Less: current portion of long-term bonds (51,727) (36,862)
464,709 480,989
Current liabilities
Unsecured loans and borrowings 11,635 21,138
Promissory notes 293 359
Current portion of long-term lease liabilities 5,550 467
Current portion of long-term loans and borrowings 28,493 28,442
Current portion of long-term bonds 51,727 36,862
97,698 87,268
Including:
Interests payable on loans and borrowings 226 332
Interests payable on bonds 3,815 4,378
4,041 4,710
As at 31 December 2019 and 31 December 2018 long-term and short-term liabilities on loans, bonds,
promissory notes amounted to RUB 524,198 and RUB 566,305 million respectively (excluding long-term
and short-term lease liabilities).
As at 31 December 2018 long-term and short-term lease liabilities amounted to RUB 1,952 million,
as at 1 January 2019 and 31 December 2019 amounted to RUB 33,834 and RUB 38,209 million respectively
(effect of initial application of IFRS 16 Leases as at 1 January 2019, Note 2e).
As at 31 December 2019 and 31 December 2018, loans and borrowings are nominated in roubles.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
61
Year of maturity
Effective interest rate Carrying value
31 December 2019 31 December 2018 31 December 2019 31 December 2018
Unsecured loans and borrowings
Unsecured bank loans* 2020-2022 6.95–8.20% 7.15–9.80% 114,472 131,489
Unsecured bank loans* 2020-2022 7.40–10.00% 7.50–11.00% 38,375 47,290
Unsecured bank loans* 2021-2022 7.49–7.68% 7.20–9.80% 13,208 28,283
Unsecured bank loans*
2020-2022
Key rate of CB RF +0.98% – Key rate of CB RF +1.20% – 9,787 –
Unsecured bank loans* 2020-2022 7.50–8.75% 7.84–10.00% 9,475 10,470
Unsecured bank loans 2022 7.10% 8.11% 8,017 3,609
Unsecured bank loans*
2020-2022
Key rate of CB RF + 1.05% –
Key rate of CB RF + 2.00% – 7,326 –
Unsecured bank loans* 2022 7.15-7.89% – 7,219 –
Unsecured bank loans 2022 7.20–7.25% – 5,011 –
Unsecured bank loans 2021 Key rate of CB RF +0.58% Key rate of CB RF + 0.58% 3,002 3,002
Unsecured bank loans 2020-2021 7.34–8.10% 7.49% 2,500 2,001
Unsecured bank loans
2020-2021 Key rate of CB RF
Key rate of CB RF + 0.00% – Key rate of CB RF + 0.44% 2,005 3,107
Unsecured bank loans 2020-2022 7.53–10.00% 8.90–11.25% 1,660 3,839
Unsecured bank loans* 2022-2022 Key rate of CB RF + 1.15% – 805 –
Unsecured bank loans 2021 6.60% 8.10% 700 700
Unsecured bank loans* 2020 Key rate of CB RF Key rate of CB RF 503 503
Unsecured bank loans*
2020-2022
Key rate of CB RF + 0.95% –
Key rate of CB RF + 1.10% – 500 –
Secured bank loans* 2022 Key rate of CB RF +1.50% – 359 –
Unsecured bank loans 2020-2021 10.00% 10.99–11.00% 200 400
Unsecured bank loans* 2020-2021 10.00% 10.00% 200 200
Unsecured bank loans* 2019 – 8.27% – 3,180
Unsecured bank loans 2019 – 11.00% – 230
Unsecured loans 2019 – Key rate of CB RF – 31
Unsecured bank loans 2019 – 12.5–15.5% – 2
Unsecured loans 2025-2026 0.10 – 3.00% 0.00–3.00% 207 223
225,531 238,559
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
62
Year of maturity
Effective interest rate Carrying value
31 December 2019 31 December 2018 31 December 2019 31 December 2018
Unsecured loans and borrowings
Unsecured bonds
2022-2048
(CPI **-100%) +1.00% – (CPI -100%) + 2.50%
(CPI **-100%) +1.00% – (CPI -100%) + 2.50% 110,938 110,732
Unsecured bonds 2020-2024 8.3–9.65% 8.30-10.30% 43,905 43,907
Unsecured bonds 2045-2050 (CPI -100%) + 1.00% (CPI -100%) + 1.00% 40,340 40,294
Unsecured bonds 2021-2052 7.60–9.35% 7.60–9.35% 36,432 36,424
Unsecured bonds 2020-2028 5.00–8.50% 7.40–9.00% 20,836 22,782
Unsecured bonds 2020 0.1–8.25% 0.10–8.25% 18,208 18,204
Unsecured bonds 2022 7.00% – 3,036 –
Unsecured bonds 2022 8.15% 8.15% 5,193 5,192
Unsecured bonds 2021 6.95% 6.95% 5,075 5,071
Unsecured bonds 2022 6.85% – 5,033 –
Unsecured bonds 2020-2022 6.85% – 5,015 –
Unsecured bonds 2022 7.00% – 4,048 –
Unsecured bonds 2020-2024 – – 315 361
Unsecured bonds 2019 – 8.45% – 17,943
Unsecured bonds 2019 – 11.25% – 10,117
Unsecured bonds 2019 – 10.29% – 6,046
Unsecured bonds 2019 – 9.15% – 5,157
Unsecured bonds 2019 – 9.15% – 5,157
298,374 327,387
Lease liabilities 2020–2103 5.66–32.89% 10.14–42.31% 38,209 1,952
Promissory notes* on demand 0.00% 0.00% 293 359
Total debt 562,407 568,257
* Government-related entities ** Consumer price index – CPI
The Group has not entered into any hedging arrangements with respect to interest rate exposures. Information about the Group’s exposure to interest rate risk is disclosed
in Note 33 “Financial risk and capital management”.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
63
27 Changes in liabilities arising from financing activities
Loans and borrowings Interest payable,
except interest
payable on lease
agreements
Lease
liabilities
Dividends
payable
Non-
current
Current
As at 31 December 2018 479,504 82,091 4,710 1,952 624
Initial application of IFRS 16
Leases, Note 2e – – – 31,882 –
As at 1 January 2019 479,504 82,091 4,710 33,834 624
Changes from financing cash
flows
Proceeds from loans and
borrowings 222,546 66,176 – – –
Repayment of loans and
borrowings (189,788) (140,872) – – –
Repayment of lease liabilities – – – (3,222) –
Interests paid (operating cash
flows, for information) – – (41,207) (3,305) –
Dividends paid – – – – (15,142)
Total 32,758 (74,696) (41,207) (6,527) (15,142)
Non-cash transactions
Transfers (80,578) 80,578 – – –
Capitalised borrowing costs – – 16,036 243 –
Interest expenses – – 24,521 3,090 –
Acquisition under lease
agreements – – – 8,288 –
Dividends accrued – – – – 20,313
Discounting, net 4 39 – – –
Other non-cash, net 362 95 (19) (719) (6)
Total (80,212) 80,712 40,538 10,902 20,307
As at 31 December 2019 432,050 88,107 4,041 38,209 5,789
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
64
Loans and borrowings Interest payable,
except interest
payable on lease
agreements
Lease
liabilities
Dividends
payable
Non-
current
Current
As at 1 January 2018 506,406 45,762 5,082 984 346
Changes from financing cash
flows
Proceeds from loans and
borrowings 379,504 235,568 – – –
Repayment of loans and
borrowings (341,837) (263,873) – – –
Repayment of lease liabilities – – – (145) –
Interests paid (operating cash
flows, for information) – – (39,457) (250) –
Dividends paid – – – – (12,684)
Total 37,667 (28,305) (39,457) (395) (12,684)
Non-cash transactions
Transfers (64,596) 64,596 – – –
Capitalised borrowing costs – – 15,444 – –
Interest expenses – – 23,747 250 –
Acquisition under lease
agreements – – – 1,117 –
Dividends accrued – – – – 12,903
Discounting, net 2 44 – – –
Other non-cash, net 25 (6) (106) (4) 59
Total (64,569) 64,634 39,085 1,363 12,962
As at 31 December 2018 479,504 82,091 4,710 1,952 624
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
65
28 Employee benefits
The Group has a defined benefit pension and other long-term defined benefit plans that cover most full-time
and retired employees. Defined post-employment benefits consist of several unfunded plans providing for
lump-sum payments upon retirement, life retirement benefits, financial support for current pensioners, death
benefits, and anniversary benefits.
Amounts of defined benefit obligations recognized in the consolidated statement of financial position are
presented below:
31 December 2019 31 December 2018
Present value of post-employment net benefits
obligation 26,048 21,934
Present value of other long-term employee net benefit obligation 1,752 1,658
Total present value of employee net benefit obligation 27,800 23,592
Change in the value of assets related to employee benefit obligations:
2019 2018
Value of assets at 1 January 6,216 6,709
Return on plan assets 182 20
Employer contributions 1,286 1,763
Other movements in the accounts (320) 18
Payment of remuneration (1,556) (2,294)
Value of assets at 31 December 5,808 6,216
Assets related to pension plans and defined benefit plans are administrated by non-state pension funds JSC
N-s PF “Otkritie”, NPF “Professional” (JSC) and JSC “NPF GAZFOND pensionnie nakoplenia”.
These assets are not the defined benefit plans' assets, because under the terms of agreements between the
Group and the funds the Group has the right to use the contributions paid under defined benefit plans to fund
its defined contribution pension plans or transfer to another fund on the Group’s own initiative.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
66
Movements in the present value of defined benefit liabilities:
Year ended 31 December 2019 Year ended 31 December 2018
Post-
employment
benefits
obligation
Other long-
term employee
benefit
obligation
Post-
employment
benefits
obligation
Other long-
term employee
benefit
obligation
Defined benefit plan obligations as at
1 January 21,934 1,658 31,181 1,536
Current service cost 626 74 1,130 80
Past service cost and curtailments (688) (19) (7,106) 68
Interest expense 1,565 126 1,989 104
Remeasurement arising from:
– Actuarial loss/(gain) arising from
demographic assumptions 463 9 (323) (13)
– Actuarial loss/(gain) arising from financial
assumptions 5,095 250 (3,909) (188)
– Actuarial (gain)/loss arising from
experience adjustment (502) (195) 1,851 214
Contributions to the plan (2,445) (151) (2,879) (143)
Defined benefit plan obligations as at
31 December 26,048 1,752 21,934 1,658
Expenses/income recognized in profit or loss for the period:
Year ended
31 December 2019
Year ended
31 December 2018
Employees service cost (7) (5,750)
Remeasurement of other long-term employee benefit obligation 64 13
Interest expenses 1,691 2,093
Total (expenses)/income recognized in profit or loss 1,748 (3,644)
Gain/loss recognized in other comprehensive income for the period:
Year ended
31 December 2019
Year ended
31 December 2018
Actuarial loss/(gain) arising from demographic assumptions 463 (323)
Actuarial loss/(gain) arising from financial assumptions 5,095 (3,909)
Actuarial (gain)/loss arising from experience adjustment (502) 1,851
Total actuarial loss/(gain) recognized in other comprehensive
income 5,056 (2,381)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
67
Movements in remeasurement of employee benefit obligations in other comprehensive income during the
year are as follows:
Year ended
31 December 2019
Year ended
31 December 2018
Remeasurements at 1 January 12,307 14,688
Movement of remeasurements 5,056 (2,381)
Remeasurements at 31 December 17,363 12,307
The significant actuarial assumptions are as follows:
31 December 2019 31 December 2018
Financial assumptions
Discount rate 6.4% 8.7%
Future salary increase 4.4% 4.6%
Inflation rate 4.0% 4.1%
Demographic assumptions
Expected age of retirement:
Men 65 65
Women 60 60
Average level of staff movement 6.2% 6.4%
A sensitivity of total employee benefits obligations to changes in the key actuarial assumptions is as follows:
Change in the assumption Impact on obligation
Discount rate Increase/decrease by 0.5% Decrease/increase by 4.9%
Future salary growth Increase/decrease by 0.5% Increase/decrease by 3.0%
Future growth of benefits (inflation) Increase/decrease by 0.5% Increase/decrease by 2.4%
Level of staff movement Increase/decrease by 10% Decrease/increase by 1.9%
Mortality level Increase/decrease by 10% Decrease/increase by 1.4%
Expected payments under the defined long-term employee benefit plans to employees in 2019 are RUB 3,435
million, including:
RUB 3,304 million under the defined benefit plans, including non-state pension schemes;
RUB 131 million under the other long-term employee benefit schemes.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
68
29 Trade and other payables
31 December 2019 31 December 2018
Non-current accounts payable
Trade payables 16,349 15,849
Other payables 7,448 1,976
Total financial liabilities 23,797 17,825
Current accounts payable
Trade payables 162,160 158,241
Other payables and accrued expenses 16,433 22,397
Payables to employees 24,303 21,306
Dividends payable 5,789 624
Total financial liabilities 208,685 202,568
As at 31 December 2019 and 31 December 2018 long-term trade accounts payable mainly relate to contracts
for the purchase of property, plant and equipment in instalments.
The Group’s exposure to liquidity risk related to payables is disclosed in Note 33 “Financial risk and capital
management”.
30 Taxes other than income tax
31 December 2019 31 December 2018
Value-added tax 9,799 11,422
Property tax 6,666 7,085
Social security contributions 4,326 3,975
Other taxes payable 1,636 1,242
22,427 23,724
31 Advances received
Non-current 31 December 2019 31 December 2018
Advances from technological connection services to electricity girds 38,668 23,888
Other advances received 3,612 2,333
42,280 26,221
Current
Advances from technological connection services to electricity girds 50,026 59,658
Other advances received 8,966 9,174
58,992 68,832
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
69
32 Provisions
2019 2018
Balance at 1 January 10,901 10,561
Increase for the year 19,431 8,847
Decrease due to reversal of provisions (2,071) (3,845)
Provisions used (5,027) (4,662)
Balance at 31 December 23,234 10,901
Provisions relate mainly to legal proceedings and claims against the Group in the day-to-day terms of
business.
33 Financial risk and capital management
In the normal course of business, the Group is exposed to a variety of financial risks, including, but not
limited to: market risk (currency risk, interest rate risk and price risk), credit risk and liquidity risk.
This note contains information about the Group’s exposure to each of these risks, discusses the objectives,
policies and procedures for assessing and managing risks, and the Group’s capital management system. More
detailed quantitative data is disclosed in the relevant sections of these consolidated financial statements.
In order to maintain or change the capital structure, the Company may change the amount of dividends paid
to shareholders, return capital to shareholders or issue new shares.
a) Credit risk
Сredit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge a contractual obligation in full and on time. Credit risk is mainly associated with the
Group's receivables, bank deposits, cash and cash equivalents.
Deposits with an initial maturity of more than three months, cash and cash equivalents are placed in financial
institutions that have minimal risk of default, are considered reliable counterparties with a stable financial
position in the financial market of the Russian Federation.
Given the structure of the Group's debtors, the Group's exposure to credit risk mainly depends on the
individual characteristics of each counterparty. The Group creates an allowance for expected credit losses on
trade and other receivables, the estimated value of which is determined on the basis of the model of expected
credit losses, weighted by the degree of probability of default, and can be adjusted both up and down. To this
end, the Group analyzes the creditworthiness of counterparties, the dynamics of debt repayment, takes into
account changes in the terms of payment, the availability of third-party guarantees, bank guarantees, current
general economic conditions.
The carrying amount of receivables, net of allowance for expected credit losses, represents the maximum
amount exposed to credit risk. Although the repayment of receivables is subject to economic and other
factors, the Group believes that there is no significant risk of losses in excess of the created allowance.
Whenever possible, the Group uses a prepayment system in relations with counterparties. As a rule, an
advance payment for technological connection of consumers to networks is provided for by the contract. The
Group does not require collateral for receivables.
In order to effectively organize work with receivables, the Group monitors changes in the volume of
receivables and its structure, highlighting current and overdue debts. In order to minimize credit risk, the
Group implements measures aimed at timely fulfillment by counterparties of contractual obligations,
reduction and prevention of formation of overdue debts.
Such measures, in particular, include: negotiating with consumers of services, increasing the efficiency of
the process of generating the volume of electricity transmission services, ensuring the implementation of
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
70
schedules of control readings and technical verification of electricity metering devices agreed with
guaranteeing suppliers, limiting the mode of electricity consumption (implemented in accordance with norms
of the legislation of the Russian Federation), claim work, presentation of requirements for granting a final
collateral in the form of independent (bank) guarantees, sureties and other forms of securing the fulfillment
of obligations.
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure of the Group. The maximum
exposure to credit risk at the reporting date was:
Carrying amount
31 December 2019 31 December 2018
Financial assets measured at fair value through profit or loss 247 431
Financial assets measured at fair value through other comprehensive
income 45,620 37,922
Loans given (less allowance for expected credit losses/allowance for
impairment) 214 249
Trade and other receivables (less allowance for expected credit losses) 203,495 239,284
Cash and cash equivalents 79,013 84,056
Bank deposits 60,594 50,074
Promissory notes 358 327
389,541 412,343
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Carrying amount
31 December 2019 31 December 2018
North-West region 15,317 12,572
Central region 90,993 117,846
Ural and Volga region 32,089 31,155
South region 25,038 22,684
Siberian region 19,114 10,948
Other regions 6,485 104
189,036 195,309
The Group’s ten most significant debtors account for RUB 125,125 million of the trade receivables carrying
amount at 31 December 2019 (at 31 December 2018: RUB 116,799 million).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
71
The aging of trade and other receivables is provided below:
31 December 2019 31 December 2018
Gross
Allowance for
expected credit
losses Gross
Allowance for
expected credit
losses
Not past due 167,534 (6,022) 202,900 (21,548)
Past due less than 3 months 26,401 (8,409) 21,152 (3,489)
Past due more than 3 months and
less than 6 months 13,596 (6,546) 12,139 (5,760)
Past due more than 6 months and
less than 1 year 20,636 (14,160) 27,898 (15,050)
Past due more than 1 year 110,993 (100,528) 96,519 (75,477)
339,160 (135,665) 360,608 (121,324)
The Group believes that not impaired and past due accounts receivable are recoverable with the high level of
probability at the reporting date.
The movement оf allowance for expected credit losses of trade and other receivables was as follows:
2019 2018
Balance at 1 January (121,324) (101,089)
Increase for the period (36,990) (40,769)
Decrease due to reversal for the period 13,634 14,949
Allowance utilized 9,015 5,585
Balance at 31 December (135,665) (121,324)
b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Management of liquidity risk involves maintaining sufficient cash and the availability of financial resources
by attracting credit lines. The Group adheres to a balanced model of financing working capital by using both
short-term and long-term sources. Free funds are invested in the short-term financial instruments such as
bank deposits.
The Group’s approach to managing liquidity is to ensure, that it will always have sufficient liquidity to meet
its liabilities when due, without incurring unacceptable losses or risking damage to the Group’s reputation.
This approach is used to analyse payment dates associated with financial assets, and also to forecast cash
flows from operating activities.
As of 31 December 2019, the amount of free limit on open but unused credit lines of the Group was RUB
646,450 million (31 December 2018: RUB 589,516 million). The Group has opportunity to attract additional
financing within the corresponding limits, including for the purpose of execution of the short-term liabilities.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
72
Information regarding the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting, is provided below.
With respect to cash flows included in the maturity analysis it is not intended that it could occur significantly earlier, or at significantly different amounts:
31 December 2019 Carrying
amount
Contractual
cash flows 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years
Non-derivative financial liabilities
Loans and borrowings 225,531 279,124 54,587 104,139 118,466 1,726 2 204
Bonds 298,374 509,931 64,395 39,434 63,880 26,222 13,174 302,826
Promissory notes 293 293 293 – – – – –
Lease liabilities 38,209 70,349 6,750 4,485 3,565 3,048 3,257 49,244
Trade and other payables 232,484 232,687 207,240 14,880 2,498 2,991 3,159 1,919
794,891 1,092,384 333,265 162,938 188,409 33,987 19,592 354,193
31 December 2018 Carrying
amount
Contractual
cash flows 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years
Non-derivative financial liabilities
Loans and borrowings 238,559 273,158 58,615 95,078 115,824 2,488 972 181
Bonds 327,387 577,687 55,773 70,671 35,362 56,197 26,841 332,843
Promissory notes 359 359 359 – – – – –
Finance lease liabilities 1,952 4,507 702 683 606 724 559 1,233
Trade and other payables 220,393 221,630 206,070 5,678 5,844 1,053 1,227 1,758
788,650 1,077,341 321,519 172,110 157,636 60,462 29,599 336,015
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
73
c) Market risk
Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates, prices of
goods and equity prices that will affect the Group’s financial results or the value of its financial instruments
owned. The objective of market risk management is to manage and control market risk exposures within
acceptable parameters while optimising the return.
(i) Currency risk
The majority of the Group’s revenues and expenditures, monetary assets and liabilities are nominated in
RUB. Changes in exchange rates do not have a significant impact on the Group’s revenue and expenditures.
(ii) Interest rate risk
Changes in interest rates mainly affect loans and borrowings, as they change either their fair value (for loans
and borrowings with a fixed rate) or future cash flows (for loans and loans with a floating rate). The
management of the Group does not adhere to any established rules in determining the relationship between
loans and borrowings at fixed and floating rates. At the same time, at the time of attracting new loans,
management, based on its judgment, decides whether the rate, fixed or floating, will be most beneficial for
the Group for the entire settlement period until the debt repayment period.
Fair value sensitivity analysis for financial instruments with fixed interest rate
The Group does not account for any financial assets and liabilities with fixed interest rate at fair value through
profit or loss for the period. Therefore, a change in interest rates at the reporting date would not affect profit
or loss.
Cash flow sensitivity analysis for financial instruments with floating interest rate
As at 31 December 2019 the Group’s financial liabilities at floating interest rate amounted to RUB 173,802
million (31 December 2018: RUB 156,600 million). A reasonably possible change of 100 basis points in
interest rates would have increased (decreased) profit or loss before income tax for 2019 by RUB 1,738
million (2018: by RUB 1,566 million). This analysis assumes that all other variables remain constant and
interest expenses are not capitalized.
(iii) Price risk
Equity price risk arises from financial assets measured at fair value through other comprehensive income.
The Management of the Group monitors its investment portfolio based on market indices. Significant
investments within the portfolio are managed on an individual basis and all buy and sell decisions are taken
by the management of the Group.
As at 31 December 2019 financial assets measured at fair value through other comprehensive income exposed
to equity price risk amounted to RUB 45,507 million (31 December 2018: RUB 37,809 million).
If equity prices had been 10% higher (lower), with all other variables held constant, the other comprehensive
income would increase (decrease) by RUB 4,551 million.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
74
d) Fair values and carrying amounts
A comparison of the fair values and carrying amounts of the Group's financial instruments is presented below,
with the exception of those financial instruments, the carrying value of which corresponds to their fair value:
Financial instruments
Note
31 December 2019
Level of fair value hierarchy
Carrying
amount
Fair
value 1 2 3
Financial assets
measured at amortised
cost:
Non-current bank deposits
18
3,131 7,055 – – 7,055
Non-current trade
receivables
21
76,778 76,772 – – 76,772
Financial assets measured
at fair value through
profit or loss
18
247 247 – – 247
Financial assets
measured at fair value
through other
comprehensive income:
Investments in an equity
instruments
18
45,620 45,620 45,507 – 113
Financial liabilities
measured at amortised
cost:
Borrowings
26
(524,198) (526,705) (86,214) (299,323) (141,168)
Non-current accounts
payable
29
(23,797) (23,404) – – (23,404)
(422,219) (420,415) (40,707) (299,323) (80,385)
Financial instruments
Note
31 December 2018
Level of fair value hierarchy
Carrying
amount
Fair
value 1 2 3
Financial assets
measured at amortised
cost:
Non-current bank deposits
18
2,886 4,904 – – 4,904
Financial assets measured
at fair value through
profit or loss
18
431 431 – – 431
Financial assets
measured at fair value
through other
comprehensive income:
Investments in an equity
instrumentы
18
37,922 37,922 37,809 – 113
Financial liabilities
measured at amortised
cost:
Borrowings
26
(566,305) (561,689) (103,251) (317,181) (141,257)
(525,066) (518,432) (65,442) (317,181) (135,809)
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
75
The interest rate used to discounting expected future cash flows for long-term receivables for the purpose of
determining the disclosed fair value at 31 December 2019 was 4.95 – 9.63%.
The interest rate used to discounting expected future cash flows for non-current accounts payable for the
purpose of determining the disclosed fair value at 31 December 2019 was 5.38 – 8.84%.
The interest rate used to discounting expected future cash flows for non-current and current borrowed funds
for the purpose of determining the disclosed fair value at 31 December 2019 was 4.87 – 8.84% (31 December
2018: 7.35 – 9.27%).
The reconciliation of the carrying amount of financial assets measured at fair value through profit or loss and
financial assets measured at fair value through other comprehensive income at the beginning and end of the
reporting period is provided in the table below:
Financial assets
measured at fair value
through profit or loss
Financial assets
measured at fair value
through other
comprehensive income
At 1 January 2019 431 37,922
Selling (28) (2,167)
Change in fair value recognized in other comprehensive
income – 9,865
Change in fair value recognized in profit or loss (156) –
At 31 December 2019 247 45,620
e) Capital management
The main goal of capital management for the Group is to maintain a consistently high level of capital, which
allows it to maintain the trust of investors, lenders and market participants and to ensure sustainable business
development in the future.
The Group monitors equity structure dynamics (own and borrowed capital), including gearing ratio (target
limit on financial leverage), calculated on the data presented in its statutory financial statements prepared in
accordance with the Russian Accounting Standards. According to the Group’s credit policy, the Group should
ensure that its gearing ratio, being the total debt divided by the total equity, does not exceed 1.
The company and its subsidiaries are required to comply with the statutory requirements for the adequacy of
own capital, according to which the value of its net assets, determined in accordance with the Russian
Accounting Standards, must consistently exceed the amount of the share capital.
The Group’s debt-to-equity ratio was as follows:
Carrying amount
31 December 2019 31 December 2018
Total liabilities 1,065,474 1,023,670
Less: cash and cash equivalents (79,013) (84,056)
Net debt 986,461 939,614
Equity 1,584,105 1,494,962
Debt-to-equity ratio 62.27% 62.85%
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
76
34 Capital commitments
As at 31 December 2019, the Group has outstanding commitments under contracts for the purchase and
construction of property, plant and equipment items for RUB 254,410 million including VAT (as at
31 December 2018: RUB 256,644 million including VAT).
35 Contingencies
a) Insurance
The Group has unified requirements in respect of the volume of insurance coverage, reliability of insurance
companies and procedures of insurance protection organization. The Group maintains insurance of assets,
civil liability and other insurable risks. The main business assets of the Group have insurance coverage,
including coverage in case of damage or loss of assets. However, there are risks of negative impact on the
operations and the financial position of the Group in case of damage caused to third parties, and also as a
result of damage or loss of assets, insurance protection of which is non-existent or not fully implemented.
b) Taxation contingencies
Russian tax legislation is subject to varying interpretations regarding the operations and activities of the
Group.
Consequently, tax positions taken by management and the formal documentation supporting the tax positions
may be successfully challenged by the relevant regional and federal authorities. Russian tax administration
is gradually strengthening. In particular there is a higher risk of review of tax transactions without a clear
business purpose or with tax incompliant counterparties.
Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding
the year of decision to perform tax review. Under certain circumstances reviews may cover longer periods.
Transfer pricing legislation enacted in the Russian Federation starting from 1 January 2012 provides for
major modifications making local transfer pricing rules closer to Organisation for Economic Co-operation
and Development (OECD) guidelines, but creating additional uncertainty in practical application of tax
legislation in certain circumstances.
Currently there is lack of practice of applying the transfer pricing rules by the tax authorities and courts, as
tax audits for compliance with the new transfer pricing rules have recently begun.
However, it is anticipated that transfer pricing arrangements will be subject to very close scrutiny potentially
having effect on these consolidated financial statements.
Depending on the further practice of applying the property tax rules by the tax authorities and courts the
classification of moveable and immoveable property set by the Group could be argued.
The Group’s management does not exclude the risk of resources outflow and its impact can not be sufficiently
estimated.
Management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax
positions will be sustained.
c) Legal proceedings
The Group is party to a number of court proceedings (both as a plaintiff and a defendant) arising in the
ordinary course of business. In the opinion of management, there are no current legal proceedings or other
claims outstanding, which could have a material effect on the result of operations or financial position of the
Group and which have not been accrued or disclosed in the consolidated financial statements.
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
77
d) Environmental matters
The Group has been operating in the electric transmission industry in the Russian Federation for many years.
The legislation on environmental protection in the Russian Federation continues to develop, the duties of the
authorized state bodies to monitor its compliance are reviewed. Potential liabilities arising as a result of a
change in interpretation of existing regulations, civil litigation or changes in legislation cannot be estimated
under the existing legislation, management believes that there are no probable liabilities, which will have a
material adverse effect on the Group’s financial position, results of operations or cash flows.
e) Guarantees
As at 31 December 2019 the Company acts as a guarantor to Infrastructural Investments – 3 LLC for the
performance of its subsidiaries' obligations under lease agreements. The total amount of the guarantee is
RUB 11,556 million (as at 31 December 2018: RUB 11,556 million).
36 Related party transactions
a) Control relationships
The Russian Federation holds the majority of the voting shares of the Company. It is the ultimate controlling
party of the Group.
b) Transactions with the key management personnel
In order to prepare these consolidated financial statements, the key management personnel are members of
the Management Board and the Board of Directors of PJSC “ROSSETI” and general directors (sole executive
body) of subsidiaries engaged in transmission and distribution of electric power through electric grids.
The remuneration for the key management personnel consists of the salary stipulated by the employment
contract, non-monetary benefits, bonuses determined based on the results for the period, and other payments.
Remuneration or compensation is not payable to members of the Board of Directors who are government
employees.
The amounts of the remuneration to the key management personnel, disclosed in the table, are recognized as
an expense related to the key management personnel during the reporting period and included in personnel
costs:
Year ended
31 December 2019
Year ended
31 December 2018
Short-term remuneration to employees 1,039 777
Post-employment benefits and other long-term benefits (including
pension plans) (50) (20)
Total 989 757
As of 31 December 2019, the carrying value of defined benefit plan, defined contribution plan and other
post-employment benefit plans reported in the consolidated statement of financial position includes liabilities
related to the key management personnel for RUB 7 million (31 December 2018: RUB 57 million).
ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019
(in millions of Russian rubles, unless otherwise stated)
78
c) Transactions with state-related entities
In the course of its operating activities the Group is engaged in many transactions with government-related
entities. These transactions are carried out in accordance with regulated tariffs or based on market prices.
Revenue from government-related entities for the year ended 31 December 2019 comprise 37% of total
Group revenue (for the year ended 31 December 2018: 36%), including 38% of electricity transmission
revenues (for the year ended 31 December 2018: 38%).
Electricity transmission costs (including compensation of technological losses) for government-related
entities for the year ended 31 December 2019 comprise 31% of total electricity transmission costs (for the
year ended 31 December 2018: 34%).
For the year ended 31 December 2019 interest expenses on government-related banks loans amounted to
RUB 16,095 million (for the year ended 31 December 2018: RUB 13,632 million).
As at 31 December 2019 cash and cash equivalents held in government-related banks amounted to RUB
27,566 million (as at 31 December 2018: RUB 65,812 million).
As at 31 December 2019 deposits with an original maturity of more than three months placed in state-related
banks amounted to RUB 57,392 million (as at 31 December 2018: RUB 45,991 million).
Information of borrowings received from state-related banks is disclosed in Note 26 “Borrowings”. Lease
obligations (as part of borrowings) for government-related entities amounted to RUB 21,867 million аs at 31
December 2019.
The assets exchange transaction with JSC “Far Eastern Energy Management Company” (government-
controlled entity) is disclosed in Note 10 “Other income and other expenses”.
37 Events after the reporting period
As at 17 March 2020 the Group acquired:
49% share in Charter capital of Infrastructural Investments – 3 LLC paid in cash in the amount of
RUB 133 million and и legal claim for a joint loan at RDIF Asset Management LLC paid in cash in
the amount of RUB 481 million,
51% share in Charter capital of Infrastructural Investments – 3 LLC paid in cash in the amount of
RUB 139 million and legal claim for a joint loan at Thirty Seventh Investment Company LLC paid
in cash in the amount of RUB 500 million.
The transaction price was determined based on the valuation of an independent appraiser.