07. Basic risks and risk management 

The Company recognizes the importance of development of system of procedures for risk management as a key element of corporate management focused on timely identification, assessment, monitoring and reduction of potential events which can undermine its financial stability and reputation.

In order to coordinate implementation and improvement of risk management within the Company including its branch and related organizations some structural subdivisions responsible for risk management were established as well as Risk Committees for pre-liminary review and approval of issues related to risk management were formed. 

Key issues on risk management previously approved by the Risk Committee under the Board are submitted for approval of superior bodies of the Company Group.

For the last year the Company performed work to establish a unified methodological framework, keep current the risk management policy, rules of risk identification and assessment, developed the rules on credit exposure management with a focus on agency banks. Board of Directors of the Company approved consolidated register, risk map and quarterly reports of the manager of structural subdivision on risk management describing and analyzing the key risks. Assessment of effectiveness of risk management was performed which resulted in recommendations for further improvement of risk management.

When identifying any risks the Company rests upon the world experience, sectorial and international benchmarks, expert assessment, statistical data, database of incurred losses, results of audit and other checks, etc. Identified risks are compiled into a register and a risk map of companies for their further assessment, management and monitoring. Risks included into the register and risk map are regularly (not less than once per year) reviewed to define urgent character and degree of feasibility. 

In accordance with the Risk management policy the Company outlines the following risks:

• strategic;
• operational;
• financial;
• legal.

Today activity of the Company is mainly subject to risks related to high degree of physical depreciation of primary and auxiliary equipment, presence of low gain assets, raw materials price increase, change in environmental requirements and legal framework in electric power industry, adverse exchange differences and differences in rates of interests, etc.

In order to reduce the possibility of technological failure the Company performs permanent monitoring of level of reliability of primary and auxiliary equipment, implements ambitious investment programs focused on upgrading and renewal of operating equipment and much attention is given to timely repairs.

The Company gives significant attention to the risk of industrial accident. Instruction of personnel in labor protection, refresher and extra training, pre-shift medical examination and health checks are performed on a regular basis. Every accident is investigated by a special committee and is submitted to a meeting of the Board of directors / Supervisory board of subsidiaries and affiliates of the Company. Indicators on industrial accidents are included into the Key performance indicators of the chief executive officer of the Company / subsidiaries and affiliates of the Company. 

Relevant articles of budgets of subsidiaries and affiliates of the Company provide required funds for first aid measures and treatment of employees suffered an injury, payment of bonuses and compensations for harmful labor conditions, supplementary feeding and unscheduled vacations, purchasing personal protection equipment as well as periodic laboratory measurements of working places. 

The Company plans successive reduction of emission level by implementing international management standards in the sphere of environmental protection and new technologies, i.e. using renewable energy sources. During construction, reconstruction and up-grading of facilities the Company uses innovative equipment and avoids materials (for example polychlorinated biphenyl PCB) constituting a danger to a man’s health. Great attention is paid to issues of energy efficiency. 

Priority events in this sphere are upgrading of outdated equipment, increase of efficiency in production, transport and distribution of electrical and heat energy as well as elaboration of conservation of electrical and heat energy consumption in population.

Within the frames of management of exchange and interest rates the Company developed risk hedging policy and limits on procurement of loans in foreign exchange with floating rate. Constant monitoring of exchange position and interest rate gap is performed as well as works on refinancing foreign exchange loans with floating rate and conclusion of contracts in national currency.

To minimize the risk of unfavorable changes in legal framework of electric energy the Company participates in development of laws and regulations and acts as a member of all industry associations.