of joint stock company interregional distributing … · 2015. 10. 1. · of jsc idgc of center and...
TRANSCRIPT
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Preliminary approved by the decision of the Board of Directors of JSC IDGC of Center and Volga Region Minutes № 188 as of May 12, 2015
ANNUAL REPORT
OF JOINT STOCK COMPANY
INTERREGIONAL DISTRIBUTING GRID COMPANY OF CENTER AND VOLGA REGION
FOR 2014
General Director of JSC IDGC of Center and Volga Region
E.V. Ushakov
NIZHNY NOVGOROD, 2015
JSC IDGC of Center and Volga Region management is performed in conformity with the requirements of ISO 9001, OHSAS 18001, ISO 14001 and ISO 50001
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Contents page
Company Overview 4
Investment Attractiveness of the Company 12
Largest Projects of Construction and Renovation Commissioned in 2014 13
Limitation of Liability 14
Address to Shareholders 15
Achievements of the Company in 2014 18
Calendar of 2014 Events 20
SECTION 1. Business Overview 23
1.1. History of industry and the Company 23
1.2. Position in the industry and operations 25
1.3. Structure of the Company 28
SECTION 2. Financial and Operating Performance 29
2.1. Accounting Policy 29
2.2. Analysis of Financial Performance under RAS 29
2.3. Capital Structure 34
2.4. Credit Policy 39
2.5. Tariff Policy 41
2.6. Procurement Activities 52
SECTION 3. Operating Performance 55
3.1. Overview 55
3.2. Power Transmission 56
3.3. Technological Connection to Grids 60
3.4. Other Activities 65
3.5. Decrease in Energy Losses 65
3.6. Organization of Interaction with Service Consumers 66
SECTION 4. Strategy and Risk Management. Anti-Corruption Policy 71
4.1. Strategic priorities and development prospects 71
Report of the Board of Directors on Priority Areas 82
4.2. Internal Control and Risk Management System 84
4.2.1. Model of the Internal Control and Risk Management System 84
4.2.2. Key Risk Factors 87
Risk description 88
4.3. Anti-corruption policy and corporate compliance 97
SECTION 5. Shareholders’ Capital and Interaction with Stakeholders 103
5.1. Securities 103
5.2. Profit Allocation 108
5.3. Dividend Policy 108
Data on the Dividend Paid 109
5.4. Tax Liabilities of Shareholders 110
5.5. Interaction with Stakeholders 110
5.5.1. Stakeholders 110
5.5.2. Interaction with Shareholders and Investors 110
5.5.3. Relations with the Public, Government Authorities, International Cooperation, Congress and Exhibition Activities
111
SECTION 6. Innovations and Investments 116
6.1. Innovations 116
6.1.1. Technical Policy 116
6.1.2. Innovative Development 118
6.1.3. Energy Saving and Energy Efficiency Improvement 119
Consumption of Fuel and Energy Resources for Production and Economic Needs for 12 Months of 2014
121
6.1.4. Reactive Power Flow Management 122
6.1.5. Operative and Technological Process Control 125
6.1.6. Development of Information Technologies and Telecommunications 128
6.2. Investments 131
6.2.1. Investment Program Development 131
6.2.2. Long-term Development 139
SECTION 7. Reliability Assurance 146
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7.1. Reliability Assurance 146
7.2. Repair and Maintenance 146
7.3. Quality Policy 149
7.4. Emergency Prevention and Response at Power Distribution Grid Facilities 150
SECTION 8. Corporate Governance 153
8.1. Structure and Principles of Corporate Governance 153
Report on Compliance with Principles and Recommendations of the Code of Corporate Governance
153
8.2. Management Bodies 157
8.2.1. General Shareholders Meeting 157
8.2.2. Board of Directors 158
Remuneration to the Members of the Board of Directors 164
8.2.3. Committees of the Board of Directors 167
8.2.4. Management Board 168
Remuneration to the Members of the Management Board 171
8.2.5. General Director 172
Remuneration to the General Director 172
8.3. Information on the Transactions Made by the Company in 2014 which are Recognized by the Legislation of the Russian Federation as Interested Party Transactions and Major Transactions
174
8.4. Participation in Non-Commercial Organizations 174
SECTION 9. Audit Commission and the Auditor 175
9.1. Audit Commission 175
9.2. Auditor of the Company 177
SECTION 10.
Human Capital Assets and Social Responsibility 178
10.1. Human Resources and Social Policy of the Company 178
10.2. Key Performance Indicators 193
10.3. Labor Protection 194
10.4. Environmental Protection 198
10.5. Taxation 203
10.6. Non-Financial Reporting 203
Glossary 205
Reference Information 210
Supplements
1. Independent Auditor’s Conclusion on the RAS Annual Financial Reporting. 212
2. IFRS Consolidated Financial Reporting for 2014, including Independent Auditor’s Conclusion
217
3. Supplement to Financial and Operating Performance section, incl. 276
Data on the structure and changes of property 276
Data on participation in commercial entities with the share under 50% 279
4. Supplement to Operating Performance section 285
5. Supplement to Shareholders’ Capital and Interaction with Stakeholders section 294
6. Supplement to the Innovations and Investments Section 300
7. Supplement to Corporate Governance and the Audit Committee and the Auditor Sections (Detailed data on members of the Board of Directors, committees of the Board of Directors, the Management Board and the Audit Commission)
314
8. Interested Party Transactions Completed in 2014 341
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Company Overview
Joint Stock Company Interregional Distribution Grid Company of Center and Volga Region is a
subsidiary of the Russian largest energy company JSC Russian Grids. JSC IDGC of Center and Volga
Region is the key supplier of power distribution and technological connection services in the Vladimir,
Ivanovo, Kaluga, Kirov, Nizhny Novgorod, Ryazan, Tula Regions, Mari El and Udmurtia Republics.
JSC IDGC of Center and Volga Region includes nine branches: Vladimirenergo, Ivenergo,
Kalugaenergo, Kirovenergo, Marienergo, Nizhnovenergo, Ryazanenergo, Tulenergo, and Udmurtenergo.
The Company headquarters are located in Nizhny Novgorod — the capital of the Volga federal district and
Volga-Vyatka economic region.
Consumers of the Company are: entities in oil recovery, engineering, metal, woodworking and
chemical industries, railway transport, agriculture, construction businesses, housing, utilities and social
infrastructure companies.
The Company’s key objectives are to ensure reliable and high-quality power supply to the regions of
its presence and seamless connection of consumers to power grids.
Geographical footprint
Nowadays JSC IDGC of Center and Volga Region supplies power to over 13 mln people in the Central
and Volga federal districts on the territory over 408 thousand sq. km.
No. Russian regions covered by the
Company’s operations
Area, thous. sq. km
Population, thous. persons
Company branches The market share of
services in the region,
%
1 Kirov Region 120.4 1,305 Kirovenergo 60
2 Nizhny Novgorod Region
76.9 3,271 Nizhnovenergo 69
3 Udmurtia Republic 42.1 1,517 Udmurtenergo 23
4 Ryazan Region 39.6 1,136 Ryazanenergo 58
5 Kaluga Region 29.8 1,010 Kalugaenergo 79
6 Vladimir Region 29.1 1,406 Vladimirenergo 61
7 Tula Region 25.7 1,513 Tulenergo 60
8 Mari El Republic 23.4 688 Marienergo 43
9 Ivanovo Region 21.4 1,037 Ivenergo 42
JSC IDGC of Center and Volga Region is not included in the list of strategic entities and strategic joint-
stock companies approved by Decree of the Russian Federation President №1009 dated August 04, 2004.
The Company does not receive state support, including that in the form of subsidies.
Footprint area –
over 408 thous. sq. km.
Population of the area – nearly 13 mln
persons
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Equity Structure
Company Charter
Capital:
RUB 11.3 bln
Information on Shares
Number of shares placed – 112,697,817,043.
Nominal value per share – RUB 0.1.
Weighted average MICEX price (MRKP ticker):
As of December 30, 2014 – RUB 0.1064,
Maximum in 5 years – RUB 0.3331,
Minimum in 5 years – RUB 0.0578.
Market capitalization:
As of December 30, 2014 – RUB 11.99 bln,
Maximum in 5 years – RUB 37.54 bln,
Minimum in 5 years – RUB 6.52 bln.
Dividends per 1 share:
– For 2010 – RUB .00125113337,
– For 2011 – RUB 0.0028,
– For 2012 – RUB 0.00425,
– For 2012 – RUB 0.00563.
Technical Parameters by Branch
Indicator Unit IDGC total
Vladimir-
energo
Iv-energ
o
Kaluga-energo
Kirov-energo
Mari-energ
o
Nizhnov-energo
Ryazan-energo
Tul-energ
o
Udmurt-energo
Number of 35 kV and higher SS
pcs. 1,552 141 141 154 224 88 260 153 171 220
Total transformer capacity of 35 kV and higher SS
thous. MVA
29.83 3.44 2.65 2.99 2.95 1.13 5.32 3.45 4.19 3.72
50.40%
6.26%
15.88%
5.40%
0.004%
22.06%
as of December 31, 2014 JSC Russian Grids
ENERGYO SOLUTIONSRUSSIA (CYPRUS)LIMITED
Genhold Limited
Energosouz HoldingsLimited
The state (the RussianFederation, subjects of theRussian Federation)
Free-float
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Number of TSS of 6-35/0.4 kV
pcs. 61,579 4,842 3,805 6,736 9,005 3,017 14,645 5,988 7,556 5,985
Number of DSS of 6–10 kV
pcs. 570 4 6 63 17 11 232 43 174 20
Length of power transmission line circuits
thous. km.
268.94 22.46 15.39 28.57 38.98 12.53 60.96 31.43 32.76 25.86
Power grids volume
thous. conv. units
1,500.53 126.43 86.87 154.93 199.33 72.38 389.09 147.72 175.94 147.84
10 largest industrial consumers
Branch Consumer Consumption volume, mln
kWh
Share of the Company's productive supply, %
Vladimirenergo, Kalugaenergo, Kirovenergo, Nizhnovenergo, Ryazanenergo, Tulenergo, Udmurtenergo
JSC RZD 3,185 6
Nizhnovenergo, Marienergo
Gazprom Transgaz Nizhny Novgorod Ltd. 1,162 2
Vladimirenergo, Ivenergo, Kirovenergo, Marienergo, Nizhnovenergo, Ryazanenergo, Udmurtenergo
JSC Transneft 1,053 2
Udmurtenergo JSC Belkamneft 954 2
Kirovenergo JSC Kirovo-Chepetsk Chemical Plant 745 1
Nizhnovenergo JSC Volga 670 1
Nizhnovenergo JSC LUKOIL-Nizhegorodnefteorgsintez 491 1
Ryazanenergo CJSC Ryazan Refining Plant 405 1
Udmurtenergo JSC Izhstal 386 1
Tulenergo Kargill Ltd. 217 0.4
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Power consumption from JSC IDGC of Center and Volga Region grids by 10 largest consumers
(Consumption volume, mln kWh)
Largest generating companies of the Company’s footprint
0 1 000 2 000 3 000 4 000
JSC RZD
Gazprom Transgaz Nizhny Novgorod Ltd
JSC Transneft
JSC Belkamneft
JSC Kirovo-Chepetsk Chemical Plant
JSC Volga
JSC LUKOIL-Nizhegorodnefteorgsintez
CJSC Ryazan Refining Plant
JSC Izhstal
Kargil Ltd
3 185
1 162
1 053
954
745
670
491
405
386
217
Generating company Company branches
Power plant Installed
capacity, MW Location
CJSC IES Holding JSC TGC-6
Ivenergo, Vladimirenergo, Nizhnovenergo
Ivanovskaya CHPP-3
330 Ivanovo
Vladimirskaya CHPP-2
414.5 Additionally 63 in
2014
Vladimir
Novogorkovskaya CHPP
205 Additionally 188 in 2014
Kstovo, Nizhny Novgorod Region
Sormovskaya CHPP
350 Nizhny Novgorod
Dzerzhinskaya CHPP
565 Dzerzhinsk, Nizhny Novgorod Region
NiGRES 112 Balakhna, Nizhny Novgorod Region
CJSC IES Holding JSC TGC-5
Kirovenergo, Marienergo, Udmurtenergo
Kirovskaya CHPP-3 160 Additionally 236
in 2014
Kirovo-Chepetsk, Kirov Region
Kirovskaya CHPP-4 160 Additionally 188
in 2014
Kirov
Yoshkar-Olinskaya CHPP-1
195 Yoshkar-Ola
Izhevskaya CHPP-1
290 Izhevsk
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Key performance indicators
Financial indicators in 2010–2014
Izhevskaya CHPP-2
390 Izhevsk
JSC EuroSibEnergo Nizhnovenergo Avtozavodskaya CHPP
580 Nizhny Novgorod
JSC Kvadra Ryazanenergo, Tulenergo, Kalugaenergo
Dyagilevskaya CHPP
110 Ryazan
Novomoskovskaya SDPP
413.65
Novomoskovsk, Tula Region
Kaluzhskaya CHPP-1
48.9 Kaluga
Aleksinskaya CHPP
102 Aleksin, Tula Region
Schekinskaya SDPP
160 Sovetsk, Tula Region
JSC WGC-3 Tulenergo Cherepetskaya SDPP
1 510 Suvorov, Tula Region
JSC WGC-2 Ryazanenergo Ryazanskaya SDPP
3 070 Novomichurinsk, Ryazan Region
Ivanovskiye CCGTs branch of JSC INTER RAO UES
Ivenergo Ivanovskaya CCGT
325 Komsomolsk, Ivanovo Region
Ryazan branch of Novoryazanskaya CHPP Ltd.
Ryazanenergo Novoryazanskaya CHPP 425
Ryazan
JSC RusHydro Nizhnovenergo Nizhegorodskaya HPP
520 Zavolzhye, Nizhny Novgorod Region
Schekinskaya SDPP Ltd.
Tulenergo Schekinskaya SDPP
400 Sovetsk/ Tula Region
Indicator Unit 2014 2013 Change,
% 2012 2011 2010 *
Total revenue RUB mln 69,161 77,670 -11 59,889 64,404 54,395
Capitalization RUB mln 11,991 7,580 +58.2 19,363 16,581 33,776
EBITDA RUB mln 9,916 10,833 -8.4 9,783 10,958 6,613
Profitability on EBITDA
% 14.34 13.95 - 16.33 17.02 12.16
Net profit RUB mln 1 378 2,536 -45.7 1,916 4,232 1,269
Net assets RUB mln 49,785 48,954 +1.7 46,897 45,297 41,176
Capital investments RUB mln 8,025 9,577 -16.2 9,831 11,510 13,601
Debt RUB mln 26,816 23,276 +18.7 24,335 23,148 15,613
Debt/EBITDA ratio - 2,7 2.15 +29.3 2.49 2.11 2.36
Profit per share RUB 0.0122 0.0225 -45.8 0.0170 0.0376 0.0113
Dividend per share RUB ** 0.00563 - 0.00425 0.00280 0.00125
Weighted average share price at year
RUB/pcs. 0.1064 0.06726 +58.1 0.17181 0.14713 0.2997
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* Starting January 01, 2011, amendments were introduced to accounting and reporting of organizations
(Orders of the Russian Ministry of Finance as of July 02, 2010 №66n and as of December 24, 2010 №186n).
To align the data, indicators for 2010 were presented in accordance with the adjusted accounting for 2010.
** The decision on the amount of dividend allocated for 2014 is to be made by the General Shareholders Meeting in 2015.
Dynamics of Key Financial and Economic Indicators
The reduction of revenue in 2014 is due to ceasing to perform the POLR (provider of last resort)
functions in the territory of Tula and Ivanovo Regions.
The outstripping revenue reduction rate against the cost reduction rate has caused the decrease of
EBITDA and net profit indicators.
The Company’s net assets are continuously growing; their value has grown by RUB 8,609 mln, or 21
%, for 5 years. The positive dynamics of net assets is due to the growth of the Company’s retained earnings.
54,395
64,404
59,889
77,670
69,161
50 000
60 000
70 000
80 000
2010 2011 2012 2013 2014
Revenue, mln RUB
end
6,613
10,958
9,783
10,833
9,916
5 000
7 000
9 000
11 000
13 000
2010 2011 2012 2013 2014
EBITDA, mln RUB
1,269
4,232
1,916
2,536
1,378
0
1 000
2 000
3 000
4 000
5 000
2010 2011 2012 2013 2014
Net profit, mln RUB
41,176
45,297
46,897
48,954 49,785
40 000
45 000
50 000
2010 2011 2012 2013 2014
Net assets, mln RUB
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Production performance in 2009 – 2013
* Power connected under technological connection agreements including generation facilities (without temporary
technological accession).
.
Indicator Unit 2010 2011 2012 2013 2014
2014/2013(absolut
e increase)
2014/2013
(relative increase),
%
Number of 35 kV and higher SS
pcs. 1,541 1,548 1,550 1,551 1,552 +1 +0.1
Capacity of 35 kV and higher SS
thous. MVA
28.61 29.35 29.47 29.67 29.82 +0.15 +0.5
Number of TSS (DSS) of 6-35/0.4
kV
pcs. 58,845 59, 621 60,677 61,460 62,149 +689 +1.2
Length of power transmission line circuits, networks
km 262,320 263,391 265,477 267,260 268,944 +1,684 +0.7
Length of power transmission line
circuits, routes km 251,930 253,106 255,068 256,816 258,408 +1,592 +0.7
Output to grid mln kWh 59,492 59,653 59,683 58,848 54,956 -3,892 -6.61
Productive supply mln kWh 54,100 54,299 54,539 53,881 49,882 -3,999 -7.42
Total losses mln kWh 5,392 5,354 5,144 4,967 5,074 107 +2.15
Total losses % 9.06 8.97 8.62 8.44% 9.23 0.79 p.p. -
Power connected under technological
connection agreements *
MW 331.01 364.09 697.05 1,182.87 1,344.50 +161.63 +13.66
Number of electric grids employees
(payroll)
pers. 22,074 22,269 23,334 24,168 22,931 -1,237 -5.2
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Dynamics of Production Performance in 2010-2014
2014/2013
+ 1,684 km
+ 1,592 km
2014/2013
+ 107 kWh mln
+ 0.79 p.p.
2014/2013
+ 161 MW
+ 10,786 pcs
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Investment Attractiveness of the Company Regions of operations with solvent demand
The Company operates in economically stable regions accommodating approximately 10% of Russian population.
The regions of operations are characterized by stable volume of the gross regional product, which involves permanent demand for power.
In 2014 the volume of connected capacity grew by 8% (to 1,352 MW).
Experienced team of professionals
A powerful management team.
Experience of the Company’s General Director in power industry is 27 years.
Favorable regulatory conditions The regulation is based on the RAB method.
In 2011, all the Company’s branches transferred to RAB tariff regulation.
The guaranteed return on new investment is 12% in 2010–2012 and 11% in 2013–2017.
Stable financial indicators In 2013, EBITDA increased on 8.4% (to RUB 9.9 bln), net profit – by 45.7% (to RUB 1.38 bln), net assets increased by 1.7 (to RUB 49.8 bln) year on year.
Debt/EBITDA ratio as of December 31, 2014 was 2.7.
The average dividend income in 2010-2013 was 3.3 %*.
High efficiency of the Company’s activities
Decrease in operating expenses counting on unit of service of the electrotechnical equipment in 2014 made 9% taking into account inflation concerning the level of 2012.
Growth potential for the Company’s shares amounted to +36.5% of the market price as of December 31, 2014.
Transparent model of mutual settlements for power transmission – “boiler on top”
This model of settlements provides for income of payments for power transfer services to the largest TGO – boiler holder, who, in its turn, carries out mutual settlements with other territorial retail companies. The scheme increases transparency of cash flows among market players, and creates necessary guarantees both got grid organizations and consumers of the services.
In 2013, in 7 out of 9 regions, Company branches are boiler holders (with the exception of the Ivanovo Region and the Udmurt republic, where another model has been adopted “mixed boiler”).
Company development potential stipulated by the current investment program
By the end of 2017, the Company is to invest RUB 45,276.5 mln, it is planned to construct and reconstruct 13,513.9 km again and to carry out input of transformer capacity in volume of 3,491.2 MVA.
Stable credit rating In 2012, the Company first acquired a rating from Moody's Investors Service Ba2 with the projection of “stable”. Moreover, Moody's Interfax Rating Agency assigned Aa2.ru rating to the Company on the national scale
In April 2014, the agency confirmed this rating.
* Calculated in accordance with the formula: dividend for the year/share price as of the year end.
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Largest Projects of Construction and Renovation Commissioned in
2014
Branch Commissioning date
(month) Facility name
Facility location (settlement)
Installed capacity
(km, MVA)
Nizhnovenergo December SS 110 kV Strelka with 110 kV cable
line Nizhny Novgorod
4.1 km, 80 MVA
Nizhnovenergo November Construction of EL 110 kV NGCHPP-
Kudma-2 Nizhny Novgorod Region,
Kstovo District 8.61 km
Nizhnovenergo November Construction of EL 110 kV NGCHPP-
Kudma-3 Nizhny Novgorod Region,
Kstovo District 4.45 km
Nizhnovenergo December Renovation of EL 110 Sverdlovskaya-2,
Priokskaya Nizhny Novgorod 10.6 km
Ryazanenergo November
Connection of combined-cycle gas turbine of the applicant JSC Kvadra to the grids of Ryazanenergo Branch of
JSC IDGC of Center and Volga Region
Ryazan 7.61 km
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Liability limitation The present Annual Report of JSC IDGC of Center and Volga Region for 2013 (hereinafter referred to
as the Annual Report) has been prepared on the basis of information available to the Company at the
moment of preparation of the Annual Report.
The Annual Report contains information on the results of 2013, as well as forward-looking statements
and declarations concerning intentions, opinions and current expectations of the Company in regard of the
results of the Company activities, its financial condition, liquidity, growth prospects, strategy and the develop-
ment of the industry the Company is engaged in. Due to their nature, such forward-looking statements are
characterized by the presence of risks and uncertainty factors, as far as they pertain to the events and
depend on the circumstances which are not necessarily to happen in the future.
The words “intends”, “strives”, “expects”, “assesses”, “plans”, “considers”, “assumes”, “can”, “should”,
“would”, “will continue” and the like are used, as a rule, to indicate the forward-looking nature of statements
and may suggest the risk of non-occurrence of events or actions specified, depending on a variety of factors.
The Company warns that the forward-looking statements do not guarantee future results. Actual
results of the activity of the Company, its financial condition and liquidity, as well as the development of the
industry of which the Company is a member, may differ considerably from those presented in the forward-
looking statements herein. Besides, even if said values correspond to the pro-forma statements contained in
this Annual Report, they are not indicative of similar results and events in the future.
The Company does not give any direct or supposed assurances and guarantees and does not bear
any responsibility in case of losses which can be incurred by natural persons or legal entities as a result of
using the forward-looking statements of this Annual Report by any reason, directly or indirectly. The specified
persons should not rely on the forward-looking statements, containing in the Annual report, as they are not
the unique possible succession of events.
Except in cases stipulated by the law, the Company shall not be obliged to re-consider or confirm its
expectations or assessments, or to publish updates and changes of the forward-looking statements
contained in the Annual Report in connection with subsequent events or the receipt of new data.
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Address to Shareholders
Dear Shareholders!
Energy Company JSC IDGC of Center and Volga Region is incorporated in JSC Russian Grids’
Group. Over 7 years, the Company has demonstrated the stable growth and responsibility towards its
customers, shareholders and investors. The onward movement to implementation of the Company’s
development plans is well-defined and structured, and all the Company’s business lines are regulated by the
world’s strictest quality standards. So, in 2014 the independent auditors performed due diligence of all
aspects of JSC IDGC of Center and Volga Region’s activity, namely, process system, resources
management, investment activity, human resources management, planning, internal control system,
consumer relations. As a result, the certification audit showed that the Company’s management fully
complied with the international standards. In addition, the scope of certification was extended to include all
branches of the Company.
In the preceding year, the Company again proved its ability to be a part of a large cohesive team in
implementation of a project of national significance. In the course of preparation for 2014 Olympic Games in
Sochi, JSC IDGC of Center and Volga Region together with other subsidiaries of JSC Russian Grids took
part in repair, renovation and maintenance of the facilities supplying power to the tourist and sport
infrastructure. Over 100 employees of JSC IDGC of Center and Volga Region ensured safety and reliability
of power supply during the Olympic and Paralympic Games on the spot.
In June 2014, the Annual General Shareholders Meeting again decided to pay dividends at the rate of
25 % of the net profit and to contribute the retained earnings to the Company’s development.
According to the Company’s financial statements for the preceding year, the revenue amounted to
RUB 69,161 mln, gross profit being RUB 7,337 mln.
The Board of Directors of the Company held 30 meetings and discussed beyond 340 issues that were
relevant for strategic development and optimization of the Company’s operations, increase in the efficiency
of production and operating activities.
In 2015, despite difficult macroeconomic conditions, JSC IDGC of Center and Volga Region will
continue to ensure reliable and high-quality power supply to consumers. The Company has all resources
necessary to perform its financial obligations to employees, creditors and contractors, maintain financial
stability and receive profit, as it did in 2014.
I would like to thank the employees and management of JSC IDGC of Center and Volga Region for
effective work, and the shareholders and members of the Board of Directors for effective cooperation. I am
certain that all professional targets that we have set ourselves for 2015 will be accomplished in full.
Sincerely,
Chairman of the Board of Directors of JSC IDGC of Center and Volga Region -
Deputy General Director for Control and Audit Operations of JSC Russian Grids
Varlamov Nikolay Nikolaevich
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Dear Shareholders!
Key result of JSC IDGC of Center and Volga Region in the preceding year is accurate performance of
tasks set for the Company aimed at reliable and uninterruptible power supply to and technological
connection of consumers. In the reporting period, the Company demonstrated robust growth, efficiency,
reliability and stability in achieving business objectives.
The Company operated positively during the autumn and winter period of 2013-2014. The
Company continued to work on decreasing incident response time. The Energy Company formed 104 mobile
units ready to go to the site 24 hours a day and equipped with all resources necessary to restore power
supply as soon as possible. In order to coordinate their actions, the System of Operation Headquarters was
created and operates involving representatives of the management of JSC IDGC of Center and Volga
Region, the Ministry of Emergency Situations and regional governments. At present, incident response time
in the Energy Company is at most 2 hours.
We completed the repair campaign in a quality manner and in due time. During the preceding
year, over 230 substations with voltage of 35 kV or more and over 8,000 transformer substations of 6-10/0.4
kV were repaired, and the repair of over 30,000 km of lines in 0.4-10 kV distribution grids and about 4,000
km of 35-110 kV electric lines was completed.
In 2014, we maintained the required rate of progress for construction and modernization of
power grids. The Company commissioned over 2,800 km of electric lines and over 360 MVA of capacities.
As at year end, several new facilities were put into operation, such as SS 100 kV Strelka with 110 kV cable
electric line and 80 MVA capacity in Nizhny Novgorod Region, as well as the first start-up complex of SS 110
kV Kolosovo and the double circuit aerial cable electric line Sozvezdie-Kolosovo of 110 kV in Kaluga Region.
In total, RUB 8 bln was invested into construction, renovation and technical re-equipment of power facilities
in 2014.
We have been improving the performance of the power grid complex on a day-to-day basis.
The Company carries out timely repairs and renovation of facilities, implements up-to-date energy-efficient
domestic equipment, reduces technological and commercial losses in grids, inter alia through installation of
reactive power compensation devices. Each year we reduce expenses on the Company’s operating
activities, apply the latest telemetry systems and remote control gears, and optimize power metering
systems. In 2014, the volume of energy supply into the grids of JSC IDGC of Center and Volga Region
amounted to 54,956 mln kWh. The total energy losses amounted to 9.23 % against 9.30 % as planned, and
reduced by 36 mln kWh in absolute terms.
In 2014, the Company performed its obligations in full towards applicants under technological
connection contracts, and ensured the ability to connect and receive the requested capacity volumes for all
applicants. Beyond 45,000 consumers were connected to the Company’s power grids. The total capacity
under the performed technological connection contracts amounted to over 1.3 GW.
In 2014, we doubled the number of innovation patents and certificates. During the reporting
period, the Energy Company received from the Federal Service for Intellectual Property (FSIP) 8 utility model
patents, a patent for invention, and a certificate of state registration of a computer program.
Historically, we have paid much attention to the relations with the Company’s shareholders and
investment community. We managed to work out most efficient interaction among all participants of
corporate relations and to ensure the observance of their rights and protection of their interests.
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17
I am of the opinion that the Company managed to achieve positive performance results in the
reporting period thanks to well-coordinated team work aimed towards the same goal, and to each
employee’s pursuit of success.
Our primary targets for 2015 remain the ensuring of reliability and quality of power supply to
consumers in all catchment areas, stable growth of the power grid complex, improving the performance of
the Company, and cost optimization. I am certain that we will overcome the period which is uneasy for the
economy of the whole country, and will move from the existing circumstances to a new level of financial
stability, being more strong and efficient.
Sincerely,
General Director of JSC IDGC of Center and Volga Region
Ushakov Evgeny Viktorovich
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18
Achievements of the Company in 2014 Working ‘To the Maximum’
As a result of a high-quality repair campaign, JSC IDGC of Center and Volga Region timely received a
certificate of readiness for the autumn and winter period and went through it successfully. During the
preceding year, over 230 substations with voltage of 35 kV or more and over 8,000 transformer substations
of 6-10/0.4 kV were repaired, and the repair of over 30,000 km of electric lines in 0.4-10 kV distribution grids
and about 4,000 km of 35-110 kV electric lines was completed.
Rate of Growth
In 2014, the Company commissioned over 2,800 km of electric lines and over 360 MVA of capacities.
Several new facilities were put into operation, such as SS 110 kV Strelka with 110 kV cable electric line and
80 MVA capacity in Nizhny Novgorod Region, as well as the first start-up complex of SS 110 kV Kolosovo
and the double circuit aerial cable electric line Sozvezdie-Kolosovo of 110 kV in Kaluga Region. In total, RUB
8 bln was invested into construction, renovation and technical re-equipment of power facilities in 2014.
Damage Repaid
In 2014, JSC IDGC of Center and Volga Region recovered over RUB 53 mln for stolen electrical power. The
Company pays special attention to identification of facts of unlawful connections to power grids and power
stealing. Successful work in this area contributes to the reduction of power losses, and hence, to the
enhancement of energy efficiency of production operations and reliable power supply to good faith
consumers.
Meeting Consumers’ Needs
In 2014, the Company performed its obligations in full towards applicants under technological connection
contracts, and ensured the ability to connect and receive the requested capacity volumes for all applicants.
Beyond 45,000 consumers were connected to the Company’s power grids. The total capacity under the
performed technological connection contracts amounted to over 1.3 GW. In addition, the Company ensured
a possibility for its customers to make a remote application for technological connection to the Company’s
power grids, with available online monitoring.
R&D Year
Since 2011, JSC IDGC of Center and Volga Region has been actively implementing the innovative grid
complex infrastructure development program. 2014 was the most successful year for the Company in terms
of R&D: 8 utility model patents, a patent for invention, and a certificate of state registration of a computer
program. Development and implementation of up-to-date devices, equipment and materials with advanced
specifications is necessary to ensure the operation of power grids with minimal degree of wear and in
compliance with the world’s power supply reliability standards, with appropriate power quality.
Best Practices
Expert RA Rating Agency assigned to JSC IDGC of Center and Volga Region the rating of governance
quality of ‘8’ which means ‘Best Practice of Corporate Governance’. It confirms that the Company observes
the requirements of the corporate governance laws of Russia and complies with most part of
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19
recommendations contained in the Russian Code of Corporate Conduct and with certain recommendations
of international best practices of corporate governance.
Professional Team
In 2014, over 11,000 persons being a half of the employees of JSC IDGC of Center and Volga Region took
part in the programs of training, retraining and advanced training of personnel. The graduates of the
Presidential Management Training Program for National Economy of the Russian Federation were granted
an opportunity of training in the leading energy companies of China and Germany. 127 best students of
specialized electric power professions from major higher professional education institutions worked at the
energy facilities of the power grid complex within students’ construction brigades. The professional team of
JSC IDGC of Center and Volga was joined by 93 best graduates of specialized professions who successfully
passed the on-the-job training.
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20
Calendar of 2014 Events
January
JSC IDGC of Center and Volga Region was awarded the Prize of the Government of the Russian Federation
in the field of quality, for achievement of significant results in terms of quality of services and implementation
of high-efficient quality management methods.
February
Ryazanenergo Branch implemented a large investment project for the city needs: connection of new
combined-cycle gas turbine with capacity of 115 MW at Dyagilevskaya CHPP.
March
The first result of R&D operations of JSC IDGC of Center and Volga Region in 2014 was the certificate
issued by the Federal Service for Intellectual Property in respect of the computer program titled Overload
Tolerance Forecast for Oil Power Transformers.
Nizhnovenergo Branch started a trial run of desktop virtualization system on the basis of Citrix, XenDesktop
and Zero-Client. The project is implemented within the Company’s IT infrastructure and information
technology development.
Ivenergo Branch transferred the building of the former Church of Peter and Paul in Ples, where SS Ples was
located, to the Russian Orthodox Church.
April
The meeting of the Technical Council of JSC IDGC of Center and Volga Region was held in Tula, at which
the energy workers discussed the results of going through the autumn and winter load peak and the issues
of organizing safe large-scale operations during the repair campaign, etc.
Nizhnovenergo Branch started construction of SS 110 kV Sennaya in Nizhny Novgorod, a project
implemented in preparing the city power grids for the 2018 Football Championship.
Udmurtenergo Branch ensured power supply to the construction site of the Kama bridge, the largest
infrastructure project under implementation in the territory of the Udmurt Republic.
Oleg Budargin, General Director of JSC Russian Grids, expressed gratitude to the personnel of JSC IDGC of
Center and Volga Region for reliable operation of the Olympic power facilities, active and professional work
on power supply to the Sochi power region.
May
The Ministry of Energy of the Russian Federation and JSC Russian Grids rewarded JSC IDGC of Center and
Volga Region for dedicated work of its employees for the benefit of the national power industry.
Students’ construction brigades were created in 9 branches of JSC IDGC of Center and Volga Region.
June
On June 26, the Annual General Shareholders Meeting of JSC IDGC of Center and Volga Region was held.
Nizhnovenergo Branch was awarded a special certificate of IV All-Russian Competition named Best Power
Grids of Russia in the category of the Investment Project of the Year for renovation of 110 kV overhead line
Molitovskaya - Priokskaya.
The meeting of the Technical Council of JSC IDGC of Center and Volga Region was held in Ivanovo, which
considered the improvement of reliability of power supply to consumers and preparation for the forthcoming
autumn and winter period.
JSC IDGC of Center and Volga Region afforded an opportunity for its customers to make a remote
application for technological connection to the Company’s power grids, with available online monitoring.
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21
On June 20, JSC IDGC of Center and Volga Region, for the fifth time, took part in a donor initiative named
Life Energy held in cooperation with the Blood Donor Center of Nizhny Novgorod Region.
July
The meeting of the Technical Council of JSC IDGC of Center and Volga Region was held in the Republic of
Mari El.
JSC IDGC of Center and Volga Region took part in the international forum of young energy and industrial
workers ‘FORSAZH-2014’.
Nizhnovenergo Branch completed the renovation of SS 110/6 kV Svetloyarskaya and the construction of the
electric line Novogorkovskaya CHPP - Kudma-3.
August
Nizhnovenergo Branch was awarded the Golden Key prize for construction of SS 110/10 kV Strelka.
September
On the single voting day September 14, JSC IDGC of Center and Volga Region ensured reliable power
supply to the polling stations and commissions.
Vladimirenergo Branch started the construction of new SS 110/10/10 kV Vorsha in Sobinsky District of
Vladimir Region.
Udmurtenergo Branch started the trial run of mobile terminals for data collection in meter reading.
October
All branches of JSC IDGC of Center and Volga Region and the Company received certificates of readiness
for the autumn and winter period of 2014-2015.
Employees of JSC IDGC of Center and Volga Region became award winners of All-Russian Youth
Competition titled From Idea to Innovation.
JSC IDGC of Center and Volga Region carried out a drill program for liquidation of large-scale failures in
power supply to consumers during the low temperature period.
Nizhnovenergo Branch was awarded an Honor Pennant of the Head of Administration of Nizhny Novgorod
‘For Substantial Contribution to the City Development’.
November
JSC IDGC of Center and Volga Region got a patent for a utility model ‘Receiving Power Grid Switchgear for
Single-Phase Grid’.
JSC IDGC of Center and Volga Region presented the results of the trial run of unique innovative power grid
in Bogorodsk, Nizhny Novgorod Region.
A regular meeting of the Technical Council of JSC IDGC of Center and Volga Region was held in Tula
concerning the Company’s operations during the autumn and winter load peak.
JSC IDGC of Center and Volga Region and the Government of the Udmurt Republic entered into an
agreement on support for domestic food industry enterprises and agricultural producers.
December
Performance of the Technical Unit of JSC IDGC of Center and Volga Region in 2014 was highly appreciated
by the management of JSC Russian Grids.
Hyperboloidal electric line tower on the books of JSC IDGC of Center and Volga Region was recognized as
a facility of federal significance.
In connection with the professional holiday named Power Engineers' Day, the Company’s employees were
put forward for departmental, industry and corporate decorations.
-
22
Ryazanenergo Branch was awarded a certificate in the regional competition ‘Strong Business - Strong
Russia!’ in the category of the Leadership in Investment Growth Rates.
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23
1. Business Overview
1.1. History of industry and the Company
Key stages of industry development
20th
century
Formation of Russian Electric Power Industry
Early 20th
century
A country-wide unified energy infrastructure was established.
1920s-1930s Large-scale electrification of the country according to the Plan adopted by the State
Commission on the Electrification of Russia was performed accompanied by the construction
of regional heat power and hydro-electric stations.
1930s Major steps were taken to develop heavy and energy industry, including the electricity
distribution sector.
1940s Post-war restoration of the destroyed electric power grid complex of the country was
performed.
1960s Unified Energy System was established, accompanied by implementation of major state-
supported energy projects, including the developments in the field of atomic energy and the
construction of nuclear power stations.
Privatization and Reform
Late 1980s The signs of slowdown in the development of the industry began to show in, with the upgrade
of production facilities lagging behind the electric power consumption growth.
1990s The power industry was privatized, followed by the establishment of the territorial power
companies. JSC RAO UES of Russia was established to control 118 subsidiary and dependent
companies, or practically all electrical energy assets of the country.
Late 1990s The necessity for urgent large-scale transformations contributing to the upgrade of basic
capacities, the increase in industry efficiency and the improvement of reliability and safety of
consumer power supply became evident.
21st
century
Early 21st
century
The reform of the industry was launched. Aims and objectives of the reform are defined by
Order № 526 of the Government of the Russian Federation “On the Reform of Electric Power
Industry of the Russian Federation” dated July 11, 2001. The reform involved changes in the
structure of the power industry, which included the separation of naturally monopolistic
(electrical energy transmission and operative dispatch control) and potentially competitive
(production and sale of energy, repair and service) functions. The vertically integrated
companies which performed these functions were replaced by organizations specializing in
selected activities. The companies were integrated by their activities and operations areas. The
reorganization took place from 2001 to 2008, RAO UES of Russia was dismissed on July 01,
2008.
As a result of reorganization of JSC RAO UES of Russia, JSC IDGC Holding was spun off
(www.holding-mrsk.ru). It owns 50.4% of shares of JSC IDGC of Center and Volga Region and
http://www.holding-mrsk.ru/
-
24
the controlling interest in more than ten interregional distribution grid companies and other
subsidiary and dependent companies.
The data on new target structure of the industry after the reform are shown at the web site of
JSC RAO UES of Russia (www.rao-ees.ru) under Power Industry Reform (http://www.rao-
ees.ru/ru/reforming/reason/show.cgi?content.htm).
Details of power industry reforms are also available at the Company’s web site (www.mrsk-
cp.ru) under “About the Company / Power Industry Reform” (http://www.mrsk-cp.ru/?id=809)
and the official site of the Russian Ministry of Energy (www.minenergo.gov.ru) under “Activities
/ Power Industry / State of the Industry”
(http://minenergo.gov.ru/activity/powerindustry/powersector/).
History of the Company
The establishment of JSC IDGC of Center and Volga Region is an integral part of the reform of
the Russian electric power industry.
Details of the Company history are shown at the Company’s web site www.mrsk-cp.ru under “About the
Company / History of the Company” (http://www.mrsk-cp.ru/?id=3447).
JSC IDGC of Center
and Volga Region is
registered
Extraordinary General Shareholders Meetings of nine DGC and JSC IDGC of Center and
Volga Region on affiliation
Completion of
reorganization as
affiliation
Agreements
concluded with nine
DGCs on the transfer
of functions of the
sole executive body
(CEO)
CEО
Jun
e 2
8.2
00
7
Q3
2007
The new configuration of IDGC approved by the Government of Russia
JSC IDGC of Center and Volga
Region Charter capital
RUB 10 mln
De
ce
mb
er
19
.20
07
De
ce
mb
er
20
07
JSC Vladimirenergo JSC Ivenergo
JSC Kalugaenergo JSC Kirovenergo JSC Marienergo
JSC Nizhnovenergo JSC Ryazanenergo
JSC Tulenergo JSC Udmurtenergo
JSC IDGC of Center and Volga
Region
Charter capital
RUB 11.3 bln
Branches:
Vladimirenergo
Ivenergo
Kalugaenergo
Kirovenergo
Marienergo
Nizhnovenergo
Ryazanenergo
Tulenergo
Udmurtenergo
Fe
bru
ary
29. 20
08
http://www.rao-ees.ru/http://www.rao-ees.ru/ru/reforming/reason/show.cgi?content.htmhttp://www.rao-ees.ru/ru/reforming/reason/show.cgi?content.htmhttp://www.mrsk-cp.ru/http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=809http://www.minenergo.gov.ru/http://minenergo.gov.ru/activity/powerindustry/powersector/http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=3447
-
25
JSC IDGC of Center and Volga Region is the
largest grid organization within its regional footprint. In 2013, the Company’s share of
the power transmission market is
72 %, of the technological connection market -
91 %.
1.2. Position in the Industry and Operations
JSC IDGC of Center and Volga Region
JSC FGC UESAllied power
systemsTGC, WGC
Consumers of the power supply
Territorial grid companies
Power retail
companies
Electric power flows
Direction of financial payments
Ele
ctr
ic
po
we
r
tra
ns
mis
sio
nPurchase of power losses
Purchase of power
losses
Purchase of
electric power
Consumers of the
wholesale market
Ele
ctr
ic
po
we
r
tra
ns
mis
sio
n
WHOLESALE ELECTRIC POWER MARKET
Electric power
transmission
Purchase of
electric power
RETAIL ELECTRIC POWER MARKET
Ele
ctr
ic
po
we
r
tra
ns
mis
sio
nE
lec
tric
po
we
r tr
an
sm
iss
ion
Electric power
transmission
Today JSC IDGC of Center and Volga Region is the largest grid organization in the areas of its
presence. Its core business is transmission of power.
Industry Performance
The macroeconomic situation
in the Russian Federation in 2014
was characterized by weakening of
development dynamics. The
escalation of geopolitical environment
and stricter economic sanctions
against Russia in 2014 caused
growing uncertainty and sharp
deterioration in business confidence. The annual GDP growth was merely 0.6 %. Restricted access for
Russian companies to international financial resources and toughening of monetary policy brought about the
growth of borrowing costs, which to an even greater degree affected the investment demand and consumer
sentiment, having caused greater capital outflow and inflation outburst. Falling oil prices and sharpening
foreign economic situation starting from mid 2014 led to further deterioration of conditions for economic
growth. Consumer inflation for the year amounted to 11.4 %, which is 4.9 p.p. higher than in the preceding
year. Having reached a two-digit value, the inflation rate was the highest since 2008.
Although the overall power consumption in the Russian Federation in 2014 increased by 0.4 % as
compared to 2013, which was due to cold weather in January and December, the rest of the months in 2014
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26
(February through November) were characterized by decline in power generation and consumption as
compared to the previous year.
More detailed description of macroeconomic factors affecting the performance of JSC IDGC of Center
and Volga Region is available on the Company’s website (www.mrsk-cp.ru) under ‘For Shareholders and
Investors / Information on the Company's Financial and Economic Activities / Review of Macroeconomic
Factors and Risks’ (http://www.mrsk-cp.ru/?id=4161).
Company’s Market Share
JSC IDGC of Center and Volga Region holds a domineering position on the market in the regions of its
footprint, both in power transmission and in technological connection of consumers’ power receivers to grids.
The major share of power supplied to consumers passes along the grids owned by the Company.
The share of JSC IDGC of Center and Volga Region on the power transmission market was 72%
in 2014, or RUB 65,669 mln*.
The market share was calculated under the formula:
Formula Parameters Actual in
2013
К market = ((В total – В fgc – В tgo + В cont))/(В total –
В tgc)*100%
К market 72%
В tgo – services of distribution grid companies, thous. RUB;
15,320,552
В fgc – services of FGC UES, thous. RUB; 10,732,677
В total – total revenue from power transmission services for the regional boiler, thous. RUB;
65,698,693
В cont – (revenue of grid organizations from power transmission services controlled by subsidiary and dependent companies), thous. RUB
37,649
* - Includes revenues from performing services for the transmission of electricity (equal to 464 mln kW
• h and 586 RUB mln) is recognized in the financial statements in the revenue from sales of electricity (in
accordance with the requirements of RAS).
The major companies engaged in similar activities in the Company’s operations areas include the
following territorial grid organizations:
Udmurtenergoneft, Izhevsk;
JSC Vladimir Region Electric Power Company, Vladimir;
72%
28%
Power transmission market in 2014
JSC IDGC of Center and Volga RegionOther territorial grid organizations
http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=4161
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27
Municipal Unitary Enterprise Izhevsk Power Grids;
Municipal Unitary Enterprise Ryazan Municipal Power Grids;
JSC Tula Municipal Power Grids;
JSC GAZ, Nizhny Novgorod;
Municipal Unitary Enterprise Gorelektroset, Kirov;
Lukoil Power Grids Ltd.;
JSC Russian Railways - in all operations areas.
- in all operations areas.
Consumers of Services
JSC Nizhny Novgorod Retail Company
JSC Kaluga Retail Company
Kirov Branch of JSC Energosbyt Plus
JSC Tula Energy Retail Company
Udmurt Branch of JSC Energosbyt Plus
JSC Vladimirenergosbyt
JSC Ryazan Energy Retail Company
JSC Marienergosbyt
LLC Rusenergosbyt in nine regions of operations
LLC Rusenergoresurs in seven regions of operations
JSC Mezhregionenergosbyt in three regions of operations
The share of JSC IDGC of Center and Volga Region in the technological connection market
within its regional footprint is 91 %.
91 % of consumers of technological connection services are preferential customers (up to 15
kW). The number of applications from preferential customers in 2014 as compared to 2013 remained
unchanged.
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28
1.3. Structure of the Company
Structure of JSC IDGC of Center and Volga Region as of December 31, 2014
JSC IDGC of Center and Volga Region. Executive body (administration)
Nizhnovenergo Branch
Tulenergo Branch POLR
Kalugaenergo Branch
Ryazanenergo Branch
Vladimirenergo Branch
Ivenergo Branch POLR
Marienergo Branch
Kirovenergo Branch
Udmurtenergo Branch
PEI Vladimir Educational
Center
"Energetik"(Vladimir )
NEI Ivanovo Educational
Center (Ivanovo)
Educational Center
"Energetik" (Kaluga)
NINEO Educational Center
"Energetik"(Kirov)
PEI Educational Center
"Energetik-NN"
(Nizhny Novgorod)
NEI PPSE Tula
Educational Course Center
(Tula)
NEI Educational Complex
"Energetik"(Izhevsk)
JSC ATU (100%)
JSC Berendeevskoye
(100%)
JSC Sanatorium-
preventorium
«Energetik» (100%)
CJSC Svet (100%)
JSC IEC
Energoefficiency
Technologies (51%)
Network of Corporate
Educational CentersSubsidiaries
PDs: 4 RPGs: 19
Branches
PDs: 3 RPGs: 20
PDs: 4 RPGs: 26
PDs: 5 RPGs: 41
PDs: 3 RPGs: 14
PDs: 9 RPGs: 57
PDs: 4 RPGs: 26
PDs: 4 RPGs: 27
PDs: 3 RPGs: 27
Provider of Last Resort (POLR) - in accordance with Orders of Minenergo of the Russian Federation
No. 409 and No. 411 dated July 26, 2013, JSC IDGC of Center and Volga Region has been performing
functions of the Provider of Last Resort in the territory of Ivanovo and Tula Regions since February 1, 2013,
and March 1, 2013, respectively.
Since January 1, 2014, the status of the Provider of Last Resort in Tula Region was transferred to JSC
TEC.
Since July 1, 2014, the status of the Provider of Last Resort in Ivanovo Region was transferred to LLC
ESC Garant.
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29
2. Financial and Operating Performance
2.1. Accounting Policy
The Company maintains accounting in compliance with the single guidelines and rules valid in the
Russian Federation based on the unified accounting of all business operations of the Company.
The accounting methods and policy used by the Company in 2014 are specified in the Accounting
Policy Statement of the Company for 2014 approved by Order of the General Director of the Company No.
794 dated December 31, 2013.
The main provisions of the accounting policy are disclosed on the Company’s website www.mrsk-cp.ru
in the section ‘Disclosure and Accounting Information / Financial Information and Statements’
(http://www.mrsk-cp.ru/?id=3364).
2.2. Analysis of Financial Performance under RAS
Financial Performance*
* Indicators correspond to the historically adjusted accounting statements.
At the end of 2014, the Company’s revenue amounted to RUB 69,161 mln, which was 11 % lower
than the same for 2013.
Negative dynamics resulted from decrease in income from reselling of electric power and capacity by
80 % due to termination of serving as a provider of last resort (POLR) in Tula and Ivanovo Regions since
January 1, 2014, and July 1, 2014, respectively. Summarizing the results of tender procedures, the Ministry
Indicator 2014 2013 Change, % 2012 2011 2010
Revenue, RUB mln 69,161 77,670 -11.0 % 59,889 64,404 54,395
from power transmission 65,113 61,225 +6.4 % 58,375 63,249 53,106
from technological connection 723 828 -12.7 % 1,220 816 954
from reselling of electric power and
capacity 3,056 15,375 -80.1 % – – –
from other activities 270 243 +11.1 % 293 339 335
Cost, RUB mln 61,824 66,023 -6.4 % 51,944 57,089 50,422
power transmission 59,084 56,166 +5.2 % 51,280 56,600 50,054
technological connection 788 558 +41.2 % 508 324 230
reselling of electric power and
capacity 1,765 9,171 -80.8 % – – –
other activities 187 129 +45.0 % 156 166 138
Gross profit, RUB mln 7,337 11,647 -37.0 % 7,945 7,315 3,973
EBITDA, RUB mln 9,916 10,833 -8.4 % 9,783 10,958 6,613
Net profit, RUB mln 1,378 2,536 -45.7 % 1,916 4,232 1,269
from power transmission 2,039 1,997 +2.1 % 1,236 3,699 531
from technological connection -52 216 -124.1 % 570 394 580
from reselling of electric power and
capacity -675 232 -390.9 % – – –
from other activities 67 91 -26.4 % 110 139 158
http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=3364
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30
of Energy of the Russian Federation has transferred the POLR functions in the above territories to energy
service organizations with the status of wholesale-market entities.
In accordance with the accounting rules, income from reselling of electric power and capacity includes
a portion of incomings from power transmission services and therefore the data in Revenue from Power
Transmission for 2013 and 2014 are incomparable both to each other and against prior years.
In conditions comparable with 2010-2012, the revenue from power transmission services in 2014 was
RUB 65,699 mln, in 2013 - RUB 66,414 mln. Thus, decrease in income for this type of activity in the
reporting year amounted to 0.6 % of the prior-year figure, which was caused by stepwise termination of last-
mile agreements.
Reduction of income in 2014 was accompanied with reduction of expenses assigned to the cost of
products and services. They have reduced by RUB 4,199 mln or 6.4 %.
The structure and dynamics of the cost for 5 years are presented in the diagrams as follows.
Note: The cost for 2013-2014 is presented in accordance with the accounting statements (without internal
business volumes between transmission and reselling of electric power).
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31
Within the framework of implementation of the Strategy for Development of the Power Grid Industry of
the Russian Federation approved by the Government, the Company performs measures of the Performance
Management Program that allowed decreasing its operating expenses by 9 % per unit of electric equipment
maintenance, adjusted for inflation against 2012. The efficiency of the Performance Management Program is
also confirmed by decrease in general and administrative expenses in the reporting year by RUB 620 mln or
15.7 % of the actual figure recorded in 2013.
As a result of outstripping rate of revenue reduction as compared to the rate of cost reduction, the
gross profit of the Company decreased by 37 % in 2014 against the prior year and amounted to RUB 7,337
mln. The net profit as of the end of the reporting year was RUB 1,378 mln, which is 46 % lower than the
same in 2013.
A decision concerning profit allocation will be made at the Annual General Shareholders’ Meeting with
an allowance for recommendations of the Board of Directors of the Company.
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32
Net assets as of the end of 2014 amounted to
RUB 49,785 mln, which was higher than the same of 2013 by RUB
831 mln (1.7 %)
Financial Ratios*
* Indicators correspond to the historically adjusted accounting statements.
Net Assets
The Company's net assets are calculated in
accordance with the Procedure for Evaluation of Net
Assets approved by Order of the Ministry of Finance
of the Russian Federation No. 84n dated August 28,
2014.
The net assets as of the end of 2014 amounted to RUB 49,785 mln, which was higher than the same
for the prior year by RUB 831 mln or 1.7 %. The Company's net assets are continuously growing; their value
has grown by RUB 8,609 mln or 21 % over 5 years. Positive dynamics of the net assets is due to increase in
the Company's undistributed profit.
Indicator 2014 2013 Change 2012 2011 2010 *
Net assets, RUB mln 49,785 48,954 +831 46,897 45,297 41,176
Liquidity indicators
Absolute liquidity ratio 0.23 0.26 -0.03 0.35 0.74 0.42
Quick assets ratio 0.92 1.13 -0.21 1.24 1.46 1.10
Working capital ratio 1.00 1.27 -0.27 1.37 1.59 1.23
Financial stability indicators
Equity to assets ratio 0.53 0.55 -0.02 0.56 0.57 0.63
Total debt to EBITDA ratio 2.70 2.15 +0.55 2.49 2.11 2.34
Working capital financed by equity to
total assets ratio 0.00 0.21 -0.21 0.27 0.37 0.18
Profitability indicators
Return on equity (ROE), % 2.79 5.29 -2.50 pp 4.16 9.79 3.13
Return on total assets according to profit before tax (ROTA), %
2.50 4.00 -1.50 pp 3.69 7.97 3.39
EBITDA profitability, % 14.34 13.95 +0.39 pp 16.33 17.02 12.16
Business efficiency indicators
Receivables and payables growth rates ratio 1.20 0.90 +0.30 1.40 1.02 0.87
Aggregate receivables and payables ratio 1.22 1.03 +0.19 1.10 0.75 0.72
Most liquid receivables and payables ratio 2.25 1.96 +0.29 2.20 1.72 1.71
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Liquidity Indicators
Liquidity ratios characterize the Company's ability to promptly redeem its short-term liabilities by
means of current assets.
Negative dynamics against the prior year is caused by increase in short-term liabilities due to
reclassification of a considerable portion of raised loans from long-term to short-term ones owing to closer
maturity date.
Financial Stability Indicators
Financial stability indicators characterize the rate of dependency of a company on borrowed funds and
determine the degree of risk for creditors.
Equity to assets ratio represents the share of equity in the Company's total assets. Summarizing the
Company's performance for the reporting year, the equity to assets ratio was 0.53. Gradual reduction of the
ratio during the last 5 years was due to raising of large volume of long-term borrowed funds to finance the
investment program.
Total debt to EBITDA ratio is an indicator of debt load on the Company and characterizes its ability
to repay the debt to creditors by means of cash flow from operations. Summarizing the Company's
performance for 2014, the ratio was 2.70. Increase of the ratio against the prior year is due to decrease in
EBITDA and increase in loans and borrowings.
Working capital financed by equity to total assets ratio shows what portion of the Company’s net
current assets is financed by means of equity. The zero value of the ratio in 2014 is due to decrease in net
current assets due to reclassification of a considerable portion of raised loans from long-term to short-term
ones owing to closer maturity date.
Profitability Indicators
Profitability indicators characterize the effectiveness of the Company's operation. Return on sales
according to EBITDA shows operational effectiveness; return on equity and return on assets represent
effectiveness of using assets and equity by the Company.
Summarizing of the performance for 2014, return on equity and return on assets were 2.79 % and
2.50 %, respectively. Decrease in the ratios against the prior year is due to reduction of net profit and profit
before tax, and to growth of equity capital and total assets of the Company.
Return on sales according to EBITDA was at a high level of 14.34 % in 2014. Growth of the ratio
against 2013 is connected with outstripping rate of revenue decrease as compared to EBITDA reduction
rate.
Business Efficiency Indicators
Summarizing the performance for 2014, the business efficiency indicators have increased. The
dynamics may be explained by the fact that the receivables growth rate is higher than that of payables.
In total, as of the end of the reporting period, financial position of the Company is evaluated as stable
and the performance of the Company as an energy enterprise is at a high level. At the same time, the
Company is actively developing by implementing a large-scale investment program financed both from the
Company's own sources and long-term borrowings.
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Since 2010, growth of the Company's assets
amounted to
44 %
2.3. Capital Structure
2.3.1. Assets
As of the end of the reporting year, the Company's
assets amounted to RUB 93,718 mln. In 2014, the asset
growth was RUB 4,438 mln or 5 %. Over the last 5
years, the asset growth was RUB 28,430 mln or 44 %.
The Company's assets structure is characterized by high share of non-current assets. As of the end of
the reporting year, the share was 80 %. Over the past year, non-current assets of the Company have
increased by RUB 1,858 mln or 3 %.
Major share in the non-current assets structure falls within fixed assets, 98 %. The Company's fixed
assets are continuously growing as a result of implementation of the investment program aimed at
renovation of primary production assets. In the reporting year, fixed assets have increased by RUB 1,877
mln or 3 %. Since 2010, additions to fixed assets amounted to RUB 18,458 mln or 34 %.
The main part of the Company's property is comprised of power grid complexes and independent
power assets with the voltage of 110 kV and lower used for power transmission, as well as underlying land
plots.
Share of current assets of the Company as of the end of the reporting year is 20 %; the major part of
the current assets falls within receivables, 67 %.
Non-Current Assets
The main part of the Company's property is comprised of power grid complexes and independent
power assets with the voltage of 110 kV and lower used for power transmission, as well as underlying land
plots.
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JSC IDGC of Center and Volga Region makes long-term financial investments in the form of joint
ventures and investments in shares and ownership interests of other companies. Details on the subsidiary
and dependent companies are posted on the Company’s website www.mrsk-cp.ru in the section ‘About the
Company / Information on the Subsidiary and Dependent Companies’ (http://www.mrsk-cp.ru/?id=2770).
Property Complex
In 2014, the structure of property complex of JSC IDGC of Center and Volga Region has not
undergone considerable changes. Its main part is represented by power grid facilities with the voltage of 110
kV and lower, which ensure power transmission and distribution. The cost of these assets amounts to 90.75
% of the Company’s fixed assets. The share increased by 0.3 % for 2014. Non-core assets account for about
0.07 % of the Company's fixed assets.
Primary way to increase the property assets of the Company in 2014 was investment in construction
of new facilities and reconstruction of existing ones.
The Company’s activity is based on using its own fixed assets. At the same time, while consolidating
its power grid assets, the Company lays a great emphasis on acquisition of leasehold rights. Lease contracts
are generally concluded as a result of owners’ tender procedures, for medium- and small-voltage grid
facilities for a period of more than five years. The share of long-term contracts is 99.5 % of the total number
of leased power grid facilities.
In 2014, the Company’s management continued implementation of the program of measures aimed at
withdrawal from non-core activities. The Company sold 39 facilities in accordance with the Regulation on
Sales of Non-Core Assets of JSC IDGC of Center and Volga Region approved by the Resolution of the
Board of Directors (Minutes No. 27 dated November 28, 2008) and with the Regulation on Disposal of
Residential Properties and Utilities approved by the Resolutions of the Board of Directors (Minutes No. 50
dated December 25, 2009, Minutes No. 88 dated October 31, 2011).
Information on the structure of the Company's property complex and its changes for the reporting
period is given in Supplement 3 to the Annual Report.
To ensure safe and accident-free operation of the Company’s power assets, areas with special use
conditions are identified and registered as buffer areas of power grid facilities. Registration is made by
entering corresponding data into the State Cadastral Register. This improves protection of power grid
facilities and reduces risks related to improper operations of third parties in proximity to electric lines. In
2014, the Company’s efforts were mainly concentrated on operations at substations with the voltage of 110
and 35 kV. The percentage of buffer areas for the above facilities was 98.2 %. Moreover, the buffer areas
were established on the electric line with the total length of 15,373 km.
Long-Term Financial Investments
JSC IDGC of Center and Volga Region makes long-term financial investments in the form of joint
ventures and ownership interests in other companies.
Joint Ventures
The Company has joint venture agreements that do not imply the subsequent registration of
performance in the form of ownership of shares or interest in the charter capital.
http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=2770
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These investments are aimed at generating income since the facilities under construction have been
commissioned and/or at ensuring the operation of power grid facilities to generate profit.
Joint Ventures in 2014
Joint Venture Agreement No. 4937-yur dated 28 December, 2012
No. 4936-yur dated 28 December, 2012
Subject of the agreement Operation of 110 kV substation (SS) named Start, ensuring reliable power supply to connected power consumers
Operation of 110 kV substation (SS) named Zavodskaya, ensuring reliable power supply to connected power consumers
Amount contributed RUB 17,449 ths RUB 13,102 ths
Purpose of investment Operation of 110 kV substation (SS) named Start, ensuring reliable power supply to connected power consumers, and profit generation
Operation of 110 kV substation (SS) named Zavodskaya, ensuring reliable power supply to connected power consumers, and profit generation
Income received in 2014 within the agreement on joint use of the property
RUB 2,075 ths RUB 1,496 ths
Subsidiaries and Affiliates
As of December 31, 2014, five subsidiaries were in the corporate governance system of JSC IDGC of
Center and Volga Region.
In February 2014, 100 % of shares of JSC PSKh Luchinskoe belonging to non-core assets of JSC
IDGC of Center and Volga Region was deducted from the Company’s balance as a result of alienation.
The Board of Directors of the Company approved the Procedure for Interaction of JSC IDGC of Center
and Volga Region with Entities Which Shares (Interests) are owned by the Company (Minutes No. 35 dated
March 25, 2009). The full text of the document can be found on the Company's website (www.mrsk-cp.ru) in
the section ‘About the Company / The Charter and Internal Documents’ (http://www.mrsk-cp.ru/?id=253).
The document regulates the key issues of corporate interaction with subsidiary and dependent companies,
specifies the procedures for making key decisions and exercising corporate control.
Details on the subsidiary and dependent companies are disclosed on the Company's website
(www.mrsk-cp.ru) in the section ‘About the Company / Information on the Subsidiary and Dependent
Companies’ (http://www.mrsk-cp.ru/?id=2770).
Forms of Corporate Control over the Subsidiary and Dependent Companies
Shareholders' control Participation of the Company's representatives in management bodies of the subsidiary and dependent companies
Managerial control
Formulation and control of implementation of the development strategy for the subsidiary and dependent companies
Development and introduction of unified business processes, internal documents and reports in the subsidiary and dependent companies
Formulation and control of implementation of the HR policy for the subsidiary and dependent companies
Financial control Planning and control of financial and business operations of the subsidiary and dependent companies
http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=253http://www.mrsk-cp.ru/http://www.mrsk-cp.ru/?id=2770
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Subsidiaries and Affiliates of JSC IDGC of Center and Volga Region
As of December 31, 2014
- Participation in core activities; other subsidiary and dependent companies are engaged in non-core activities.
No. Full and abbreviated name and location of subsidiary and dependent companies
Registration date
Key activities Charter capital,
RUB
The Company's
share in the
charter capital
of subsidiary
and dependent
companies*, %
Revenue, RUB ths
Net profit (loss),
RUB ths
Dividends for 2013 received in 2014, RUB
ths
1
Closed Joint-Stock Company Svet (CJSC Svet), 8 Lunacharsky Street, Bor, Nizhny Novgorod Region
March 6, 1998 Power transmission 2,402,883 100 37,686 3,711 462
2
Joint-Stock Company Berendeevskoe (JSC Berendeevskoe), Berendeevka Village, Lyskovo District, Nizhny Novgorod Region
February 6, 2004
Production, processing and sales of agricultural products
54,670,600 100 33,468 225 17
3
Joint-Stock Company Automobile Transport Unit (JSC ATU), 50 Yuzhnaya Street, Orichi Settlement, Orichevsky District, Kirov Region
October 14, 2003
Transportation services, motor vehicle servicing, maintenance and repair of transport, services for re-equipment and assessment of transport
205,063,407 100 929,530 1,891 1,145
4
Joint-Stock Company Sanatorium-Preventorium Energetik (JSC Sanatorium-Preventorium Energetik), 10 Aviatsionnaya Street, Izhevsk, the Udmurt Republic
January 10, 2003
Healthcare, medical treatment, health resort, sports and recreation, accommodations and catering services to the population
46,953,097 100 40,867 54 0
5
Joint-Stock Company Interregional Energoservice Company Energoefficiency Technologies (JSC IEC Energoefficiency Technologies), 6 Proviantskaya Street, Nizhny Novgorod
December 27, 2010
Energy services 20,000,000 51 72,963 1,289 0
* The Company’s share in the charter capital of subsidiary and dependent companies equals to the percentage of their voting shares owned by the Company.
In 2014, the shares of JSC PSKh Luchinskoe (100 %) were deducted from the Company’s balance as a result of selling through public offering. The selling
price was RUB 12 mln, the buyer was an individual Ho Shi Zuy, a Vietnamese citizen with a Russian residence permit.
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Financial Investments in Other Shares and Interests
Information on the Company's participation in commercial organizations in which the Company's
interest is less than 50 % is provided in Supplement 3 to the Annual Report.
2.3.2. Liabilities
The largest share in the Company's liabilities structure falls within equity (capital and reserves)
accounting for 53 % as of the end of the reporting year. The Company's equity capital increased by RUB
745 mln or 1.5 % for 2014, and by RUB 8,552 mln or 21 % since 2010.
Through 2010-2014, the share of equity was gradually decreasing as the Company raised
borrowings to fund its investment program. In 2011, all the Company’s branches adopted the RAB-based
tariff regulation system, which ensured the recovery of borrowings raised to fund the investment activity,
in the long run.
As of December 31, 2014, the short-term liabilities of the Company increased by RUB 5,967 mln
or 48 %, and the long-term liabilities decreased by RUB 2,274 mln or 8 %. These changes were mainly
caused by reclassification of RUB 7,000 mln from long-term to short-term loans raised. Reclassification is
carried out when the credit maturity is less than a year from the reporting date.
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2.4. Credit Policy
2.4.1. Credit Portfolio
Credit Portfolio of the Company as of December 31, 2014
Loan type Amount, RUB bln Maturity
Bonded loan 4 2015
Credits 22.8 2015-2018
Total 26.8
In 2014, the total amount of borrowings raised by the Company was over RUB 4.4 bln, including
RUB 1.24 bln for financing of investment activities. All these loan funds were raised without any pledge
from the Company.
Changes in the Loans and Borrowings in 2014, RUB ths
Balance as
of
December
31, 2013
Raised in
2014
Repaid in
2014
Interest
accrued in
2014
Interest
paid in
2014
Reclassification
of debt*
Balance as of
December 31,
2014
Long-term loans and borrowings 22,326,335 4,474,285 0 2,169,907 2,169,907 -7,000,000 19,800,620
Refinancing of credit portfolio 13,210,942 3,231,747 0 1,399,079 1,399,079 -4,800,874 11,641,815
Financing of investment activity 9,115,394 1,242,538 0 770,828 770,828 -2,199,126 8,158,806
Short-term loans and borrowings 949,712 0 935,675 15,040 14,037 7,000,000 7,015,040
Refinancing of credit portfolio 337,571 0 608,884 13,874 12,949 4,800,874 4,530,486
Financing of investment activity 612,141 0 326,791 1,166 1,088 2,199,126 2,484,553
Total 23,276,048 4,474,285 935,675 2,184,947 2,183,944 0 26,815,660
* Transformation of the debt from long-term to short-term one with a repayment period of less than a year.
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The weighted average credit portfolio rate amounted to 8.44 % p.a. as of December 31, 2014.
2.4.2. Bonded Loan
In 2014, JSC IDGC of Center and Volga Region had one outstanding issue of bonded loan with the
following parameters:
Series BO-01
Security type Exchange bonds
Registration number 4В02-01-12665-Е
Volume of issue, RUB ths 4,000,000
Number, pcs ths 4,000
Par value, RUB 1,000
Maturity 3 years
Coupon rate 9.15 % p.a.
Date of the issue listing July 20, 2012
Floatation date December 18, 2012
Maturity date December 15, 2015
Coupon yield per bond, RUB 45.62
Exchange CJSC MICEX Stock Exchange
Quotation list А1
Volume of outstanding issue as of December 31, 2013, RUB ths
4,000,000
On May 23, 2013, CJSC MICEX Stock Exchange listed the issues of exchange bonds of JSC
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In April 2014, Moody’s Rating Agency confirmed the long-term international credit rating
Ba2 with stable outlook and the national rating
Aa2.ru
IDGC of Center and Volga Region, with assignment of unique identification numbers to the issues of
exchange bonds 4B02-02-12665-E, 4B02-03-12665-E, 4B02-04-12665-E, with the total amount of RUB
15 bln and the maturity of 10 years from the floatation date.
In accordance with the Provisions of Federal Law No. 210-FZ dated July 23, 2013, On Amending
the Federal Law On Securities Market and Individual Legal Acts of the Russian Federation, which came
into effect on July 1, 2014, and established, among others, the procedure for anticipated repayment of
bonds and their acquisition by the issuer, the emission documents of the above issues have been
amended accordingly. However, the situation in the domestic debt market existed in 2014 due to external
and internal factors, did not allow the Company to float its bonded loans.
2.4.3. Credit Rating
In October 2012, Moody's Investors Service Rating Agency assigned the international credit rating
Ba2 with stable outlook to JSC IDGC of Center and Volga Region. Moreover, Moody’s Interfax Rating
Agency assigned the national rating Aa2.ru.
When confirming the rating, Moody's
Investors Service pointed out strategic significance
of the Company in its service territory and access
to the governmental support provided through the
state-led parent company. During 2014, Moody’s
Investors Service confirmed twice the Company’s
long-term international credit rating Ba2 with stable outlook and the national rating Aa2.ru, on February 7,
2014, and on April 3, 2014.
In December 2014, Moody’s Investors Service placed the rating of JSC IDGC of Center and Volga
Region under review for possible downgrade. This decision was made in connection with downgrade of
sovereign rating and due to worsening of international and economic situation in Russia.
On March 25, 2015, Moody’s Investors Service confirmed Вa2 rating of JSC IDGC of Center and
Volga Region with negative outlook. This outlook is identical to the forecast for the Russian Federation as
a whole and is determined by the current international and economic situation in the country, but not by
credit quality of the Company.
2.5. Tariff Policy
2.5.1. General Information
JSC IDGC of Center and Volga Region performs the following types of activity subject to
government regulation:
Rendering of power transmission services;
Rendering of services on technological connection to the Company's power grids.
Detailed information on all types of the Company's activities is presented in the section named
Operating Performance of this Annual Report.
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Key regulatory documents governing the Company’s activities are as follows:
Federal Law On the Power Industry No. 35-FZ dated March 26, 2003;
Regulation of the Government of the Russian Federation On Pricing in the Area of Regulated Prices
(Tariffs) in the Power Industry, No. 1178 dated December 29, 2011;
Regulation of the RF Government On Approving the Rules of Technological Connection of Power
Receivers of Consumers, Power Generation Facilities and Power Grid Facilities Owned by Grid
Organizations and Other Entities, to Power Grids, No. 861 dated December 27, 2004;
Order of the Federal Tariff Service (FTS) of Russia On Approving the Guidelines for Calculation of
Regulated Tariffs and Prices for Electric (Thermal) Power in the Retail (Consumer) Market, No. 20-e/2
dated August 6, 2004;
Order of FTS of Russia On Approving the Guidelines for RAB-Based Tariff Regulation No. 228-e dated
March 30, 2012;
Order of FTS of Russia On Approving the Guidelines for Determination of the Fee for Technological
Connection to Power Grids, No. 209-e/1 dated September 11, 2012;
Order of FTS of Russia On Approving the Guidelines for Determination of Shortfalls in Income related
to Technological Connection to Power Grids, No. 215-e/1 dated September 11, 2014.
In 2014, the revenue from all activities of JSC IDGC of Center and Volga Region amounted to
RUB 69,161 mln, which is RUB 8,509 mln (or 11 %) lower than the same of the prior year. Revenue
decrease was mainly caused by reduction of income from reselling of electric power and capacity by RUB
12,319 mln (or by 80 %) in 2014 against 2013 due to termination of serving as a POLR in Tula and
Ivanovo Regions since January 1, 2014, and July 1, 2014, respectively.
Note: The revenue for 2013-2014 is presented in accordance with the accounting statements (without internal
business volumes between transmission and sales (reselling) of electric power).
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In the revenue structure from power transmission services rendered in 2014, the largest share falls
within POLRs and amounts to 79 % (RUB 51,541 mln, VAT excluded), the next are power supply
organizations w