CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY...

SUSTAINABLE DEVELOPMENT – ASSURED FUTURE

CORPORATE SOCIALRESPONSIBILITYAND SUSTAINABILITYREPORT

2014

www.rosseti.ru/eng

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY REPORT 2014

SuStainable Development – aSSureD Future

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Message froM the Director general oleg BuDargin 4

report profile 6principles of information selection 6Material aspects 6external assurance 7

coMpany profile 7core activities 7role and Business position 7stakes held by rosseti in subsidiaries and Dependent companies 7capital structure 7governance 9awards and achievements in the reporting period 11

corporate social responsiBility anD sustainaBility MoDel of rosseti 12understanding of social responsibility and sustainable Development 12ethics and integrity 12anti-corruption 12Avoidance of Conflicts of Interest 14

stakeholDer relations 14Main approaches to stakeholder relations 14government and ngo relations 14investor relations 16international cooperation 17

custoMer relations 18principles of customer relations 18customer service 18results of surveys Measuring customer satisfaction 20network connection 20Enhancing the Affordability of the Grid Infrastructure 22reducing accident rates 23

society relations 24relations with labor unions 24charity and sponsorship 24protecting people from electrical injuries 24

internal control anD risk ManageMent systeM 25Unified Approaches 25internal control system participants 25key results in 2014 and goals for 2015 26risk Management system 26

reputational policy anD integrateD coMMunications ManageMent 29principles and practices of Disclosure 29implementation of the uniform information policy 29Main areas of integrated communications 29

contents

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econoMic iMpacts 34operating results 34financial performance 35capital investment program 36innovative Development program 36

procureMent practices 38approach to supplier relations 38purchases from small and Medium-sized Businesses 38Import Substitution and Geographical Diversification of Purchased Equipment 39

huMan resource DevelopMent 40Basic principles of the personnel policy 40number of employees 40labor compensation system and Motivation programs 41occupational safety 43human resource Development programs 43cultural, sports, and environmental initiatives 45professional competitions 45non-state pension coverage (nspc), provision of care for pensioners and veterans 47award policy 47

environMental responsiBility anD environMental protection 49key areas and results of the environmental policy 49environmental protection initiatives and current programs 49Development of polar regions 51Development of the ev charging station infrastructure 51environmental initiatives of the company 52environmental protection expenses 52

appenDices 53appendix 1. compliance table to gri g4 guidelines and sector Disclosures 53appendix 2. external assurance 59appendix 3. glossary and abbreviations 61

feeDBack Questionnaire 63

contact inforMation 64

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message from the Director General roSSeti

Detailed information – p. 4

Compliance table to Gri G4

Detailed information – p. 53

Check out the on-line version of the report r14.rosseti.ru/en/sr

Message from the Director general

Dear Colleagues and Friends:

i would like to present to you the 2014 rosseti corporate social responsibility and sustainability report.

as one of the most important infrastructure companies in the russian federation, rosseti is responsible for a reliable and uninterrupted electricity supply.

the company’s core activities have a direct impact on the country’s business cli-mate, its economic development, and its attraction among investors.

The publication of the next Report confirms that the Company is committed to sustainable development and strives to conform to high corporate governance standards.

ROSSETI pays considerable attention to increasing the efficiency of its subsidiaries and dependent companies and improving their financial and economic indicators, which leads to an increase in tax payments to budgets of different levels.

to create the optimal conditions for the development and conduct of business in Russia, the Company has adopted a policy to increase the affordability of elec-tricity connections and simplify and cheapen network connection procedures. the company systematically interacts with regional governments to coordinate grid infrastructure development plans with territorial development programs of the regions. this makes it possible to reduce construction and operation costs of power facilities and optimally site them where they are necessary for electricity consumers.

Much attention in 2014 was traditionally paid to procurement management. as a result of daily work on optimizing and increasing the transparency of procure-ment at ROSSETI and its subsidiaries, the consolidated economic effect in the re-porting year reached 30.6 billion rubles, or 8.8% of total purchases. this work was highly appreciated in the relevant national rankings.

the rosseti group’s activities do not involve substantial environmental damage. however, the development of green energy is one of the absolute priorities of pro-duction. for example, the rehabilitation and construction of power facilities use modern equipment that have a minimal environmental impact due to advanced technical specifications and smaller sizes compared with similar equipment of previous generations. We install oil receivers to protect soils, use bird protection equipment when constructing overhead lines, plant trees everywhere to compen-sate for the loss of trees resulting from building clearings for power lines.

to improve the environmental situation in major cities, rosseti has assumed responsibility for the implementation of the all-russia Development program for the electric vehicle charging station infrastructure. for instance, by agree-ment with the yaroslavl administration, the company installed charging stations for electrobuses in 2014, which are currently already in wide use in the city center, installed the first EV charging stations in Saint Petersburg, and continued the op-eration of charging stations in Moscow.

Director general of rosseti oleg Budargin

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Jsc rosseti social report 2014

one of the key resources and the most important areas of the Company’s investments is undoubtedly its staff. In 2014, rosseti developed and approved the personnel and social policy intended to address the electric grid sector’s current and future chal-lenges in human resource development. rosseti’s social protection and corporate support provide employees with credible assurance and confidence in the future.

preventing electrical injuries, primarily among children, is another priority for the company’s social policy. in the reporting year, rosseti was awarded by the russian Ministry of energy a diploma for high social significance and effective prevention of children’s electrical injuries.

substantial assistance in implementing the corporate social respon-sibility and sustainability policy comes from constructive dialog with stakeholders. communicating their interests and wishes, stakehold-ers help the Company identify the areas that require special attention.

for its part, the company follows the principles of transparency, providing complete information about its activities and a variety of options for communication. rosseti’s strategic planning and day-to-day operations obligatorily take into account the interests of stake-holders, which minimizes non-financial risks. For example, you can find a feedback form at the end of this Report.

in the coming years, rosseti is facing a whole range of challeng-es strategically important for the sustained development of this country. We can meet these challenges only by implementing inter-national best practices in corporate social responsibility, listening carefully to public opinion, and assessing the impact of our activities on the environment. the rosseti group is always ready for dialog with customers, employees, partners, and all those who care about the future of the russian electric grid sector.

sincerely, Director general oleg Budargin

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Message froM the Director general

1. Report Profilethe following principles underlie the company’s governance:• accountability;• fairness;• transparency;• responsibility.

The regular publication of annual and non-financial reports fully conforms to the principles of corporate governance and proves that the company’s executives are committed to sustainability values and high standards of corporate culture. the company strives to con-stantly improve the quality of its non-financial reporting.

this report contains the standard disclosure items from the gri sus-tainability reporting guidelines. this year, the company is beginning to gradually transition to the new and latest version of the sustaina-bility reporting guidelines, g4, released by the global reporting initia-tive (gri). one of the key aspects of the transition to g4 was to identify the material topics of the report. in accordance with this approach, the company’s sustainability reporting is not focused on the total coverage of all aspects of the company’s activities but is directed at the most essential and significant areas.

characteristics of the 2014 rosseti corporate social responsibility and sustainability report:• This Report is the fifth annual non-financial report of the Company.• The Report focuses on the Company’s activities from January 1 to

December 31, 2014.• The Company uses the annual sustainability reporting cycle.

the previous report was released in 2014. the next report is sched-uled for publication in 2016.

• The process of preparing this Report was in accordance with the GRI g4 sustainability reporting guidelines and the electric utilities sec-tor Disclosures document.

• ROSSETI’s sustainability reporting covers the results of the Com-pany, its divisions, subsidiaries and dependent companies and their branches operating in the Russian Federation (see Company Profile below).

• Experts in corporate social responsibility and sustainability as-sessed the contents of this Report; external assurance statements can be found in external assurance.

Principles of Information Selection

as recommended by the gri g4 guidelines, the process of preparing this report gave special attention to identifying material subjects that reflect the ROSSETI Group’s significant economic, environ-mental, and social impacts or influence the assessments and de-cisions of shareholders, investors, and other stakeholders. to this end, the company’s management, experts in the relevant areas, and stakeholders invited to discussion made a comprehensive anal-ysis and provided their recommendations. publications appearing in media outlets in the reporting year were also examined in order to identify topical issues.

The process of analysis identified the following material topics: economic impacts of the rosseti group as one of russia’s most significant infrastructure companies, the environmental and social aspects of activities, human resource development, and occupational safety. this report also covers procurement practices and anti-cor-ruption. a special section deals with the company’s socially important initiative to prevent injuries from electric shocks.

It is also important to note that the G4 disclosure requirements with respect to governance are stricter than those in g3: from the disclo-sure of the composition of the Board of Directors and the number of independent directors to the process for determining remunera-tion payable to senior executives. in accordance with g4, rosseti informs the public and stakeholders in detail about the competen-cies and members of its governance bodies. Specifically, for the first time, the report contains information on the committees of the Board of Directors.

the process of preparing information in this report was consistent with the following principles:• balance;• comparability;• accuracy;• clarity;• reliability.

the methodological framework for the preparation of this report includes the following standards and documents:• GRI G4 Sustainability Reporting Guidelines;• Electric Utilities Sector Disclosures;• AA1000 Stakeholder Engagement Standard (AA1000SES);• Social Charter of the Russian Business;• National standard GOST R ISO 26000:2012;• Special standards ISO 14001, ISO 9001:2008;• OHSAS 18001:2007.

Material Aspects

The following material aspects were identified in the process of analysis and are addressed in detail in this report.

Category: Economic Aspects: • Economic Performance• Market Presence• Indirect Economic Impacts• Procurement Practices

Category: Environ-mental

Aspects: • Energy• Water• Biodiversity

Category: Social

Sub-Category: Labor Practices and Decent Work

Aspects:• Employment• Labor/Management Relations• Occupational Health and Safety• Training and Education

Sub-Category: Human Rights

Aspects:• Investment• Non-discrimination• Freedom of Association and Collective

Bargaining

Sub-Category: Society

Aspects:• Anti-corruption• Public Policy• Anti-competitive Behavior

Sub-Category: Product Respon-sibility

Aspects:• Customer Health and Safety

JSC ROSSETI SOCIAL REPORT 2014

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External Assurance

In accordance with the GRI Guidelines, non-financial reports are sub-ject to external assurance. External experts assess the significance and completeness of disclosures.

rosseti asked representatives of key stakeholders, namely experts in corporate social responsibility and sustainability, environmental protection, and social policy, to provide assurance. the independ-ent experts invited to participate in the project examined this report in May 2015 and provided their recommendations.

external assurance statements can be found in appendix 2. they ex-press the personal opinions of the experts rather than the organiza-tions that the experts represent.

Company Names in the Report

full name: Joint stock company rosseti

short name: Jsc rosseti

other names used in this report: rosseti, company

names of the entities collectively referred to as the rosseti group: rosseti group, group, rosseti and its subsidiaries and depend-ent companies (sDcs) and subsidiaries and dependent companies of rosseti sDcs.

2. Company Profile

Core Activities

in accordance with the strategic tasks assigned to rosseti by the Government, and given the current trends and challenges affect-ing the electric grid sector, the goals and objectives of the rosseti group are in the following main areas:

1. secure a reliable and uninterrupted power supply and ensure energy security

2. Improve service quality and increase customer satisfaction

3. Maintain the accessibility of infrastructure and create the condi-tions for economic growth

4. Enhance the operating efficiency of electric grids

5. Keep a balance between the interests of different key stakeholders

the company’s principal goals are to secure a reliable and uninter-rupted electricity supply, modernize and improve network reliability, promote innovative development, optimize operational performance, and ensure effective investment.

Role and Business Position of the Company

The ROSSETI Group is one of the most significant infrastructure com-panies in russia and one of the world’s largest electric grid compa-nies in terms of the number of customers and the length of power lines. the company is engaged in the operation of electric grid facili-ties in all russian regions.

the group holds russia’s main electric grid assets: 70% of distri-bution grids and 90% of transmission grids. the length of power lines is more than 2.3 million kilometers, the transformer capacity

of 480,000 substations is over 751 gva. in 2014, the rosseti group’s electricity transmission and distribution services generated 715 bil-lion kWh.

rosseti sDcs operate in natural monopoly conditions and account for over 70% of all electricity transmission and distribution generated in the russian federation. for most electricity consumers in russia, they provide services throughout the downstream process: from transmission from generation companies to distribution to custom-ers’ power-receiving equipment.

Stakes Held by ROSSETI in Subsidiaries and Dependent Companies1

rosseti has shareholdings in 43 subsidiaries and dependent com-panies. as at the end of 2014, the rosseti group held stakes in one transmission grid company, 11 interregional distribution grid compa-nies, five distribution grid companies, seven regional retail compa-nies, seven r&D and design companies, and 12 construction, procure-ment, and service organizations.

Capital Structure

the share capital of rosseti is one hundred sixty-three billion, one hundred fifty-four million, two thousand, six hundred ninety-four (163,154,002,694) rubles and consists of one hundred sixty-three bil-lion, one hundred fifty-four million, two thousand, six hundred nine-ty-four (163,154,002,694) shares, each with a par value of 1 ruble.

1 shares in capital as at December 31, 2014.

2. coMpany profile

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the volume of electricity transmission and distribution

services provided by the rosseti group in 2014 is

715 billion kWh

the transformer capacity of 480,000 substations is more than

>751gvathe company operates electric grid

facilities in all russian regions

the length of power lines is over

>2.3 million kilometers

Share Capital of ROSSETI, %

85.313.56

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Government

Corporate entities and nominee shareholders

Individuals

the largest shareholder is the russian federation represented by the fed-eral agency for state property Management (85.31%). residents of the rus-sian federation hold 95.7% of shares, while the remaining 4.3% of shares are distributed among corporate entities and individuals from 45 countries.

Governance

Goals and Principles of Governance

rosseti’s governance system is in accordance with the russian applicable laws, the articles of the association, and internal regu-latory documents. the company also applies global best practices.

the principal goals and objectives of the company’s governance are as follows:• protect the legitimate rights and interests of all shareholders

of ROSSETI;• constantly improve the mechanisms for relations between ROSSETI

and shareholders, securities holders, and potential investors;

• enhance the transparency of governance bodies’ decision-making, maximize the disclosure of information about the company’s activi-ties, and improve the governance system.

the following principles underlie the company’s governance:• accountability;• fairness;• transparency;• responsibility.

on february 13, 2014, the government of the russian federation approved the corporate governance code as a recommendatory document. the code was approved by the Board of Directors of the Bank of russia on March 21, 2014, and recommended by the Bank of russia (letter no. 06-52 of april 10, 2014) for implementation by joint-stock companies whose shares are admitted to regulated trading.

in 2014, the company compared its governance practices and the key provisions of the corporate governance code. Based on the com-parison, rosseti prepared a road map (the action plan to introduce the key provisions of the code). the results of this work were submit-ted to the Ministry of energy of the russian federation and the feder-al agency for state property Management of the russian federation. In March 2015 (after the reporting date), the Board of Directors ap-proved the action plan (road map) to introduce the code into the com-pany’s activities.

Governance Structure

the company’s highest governance body used by shareholders to exercise their right to participate in the company’s governance is the general Meeting of shareholders. the procedure for convening and holding the general Meeting of shareholders of rosseti is gov-erned by the regulations for the general Meeting of shareholders approved by the annual general Meeting of shareholders on June 30, 2014.

rosseti

Karachaevo-Cherk-esskenergo

100.00%

Yantarenergo 100.00%

MOESK 50.90%

FGC UES 80.13% REC IDGC, VNIPIENER-

GOPROM, SKB VTI 100.00%

Power Grid Optical Networks Engineering,

VNIPIENERGOPROM Real Estate, Engineer-

ing Center UES Real Estate, North-West Power Engineering Center Real Estate,

Volga Power Engineer-ing Center Real Estate, South Center of Power

Engineering Real Estate, Urals Power

Engineering Company Real Estate, Siberian Energy Scientific and Technical Center Real

Estate 100.00%

NWEMC, Grozenergo 49.00%

IT Energy Service 19.99%

ZES 9.51%

ENIN 31.34%

Urals Power Engi-neering Company, SevZap NTC, VPEC

25.00%

LENENERGO 64.49%

Tyumenenergo 100.00%

IDGC of Urals 51.52%

IDGC of Centre 50.23%

IDGC of Siberia 55.59%

IDGC of Volga 67.63%

IDGC of South 51.66%

IDGC of Center and Volga Region

50.40%

IDGC of North-West 55.38%

IDGC of Northern Caucasus 92.00%

TDC 85.77%

Chechenenergo 72.66%

Kubanenergo 92.24%

NURENERGO 23.00%

Kalmenergosbyt 100.00%

Tyvaenergosbyt 62.27%

Dagestan Energy Supply Company

51.00%

Sevkavkazenergo 49.00%

Ingushenergo 49.00%

Retail CompaniesInterregional

Distribution Grid Companies

R&D and Design Companies

Distribution Grid Companies

Transmission Grid Company

Construction, Procurement, and

Service Organizations

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Board of Directors

the Board of Directors is the collegial body in charge of the general management of rosseti’s activities. the Board of Directors is responsible for defining the Company’s strategy, supervises execu-tive bodies, and protects the rights and legitimate interests of share-holders. the Board of Directors is composed of 15 members elected by the general Meeting of shareholders at the suggestion of share-holders holding an aggregate of 2% of voting shares.

in 2014, the composition of the Board of Directors of rosseti was changed: the members elected by the general Meeting of sharehold-

ers on June 28, 2013, served until June 30, 2014; the members elected on June 30, 2014, served after June 30, 2014.

Committees of the Board of Directors

In order to perform its functions in the most effective manner and preliminarily consider the most important issues falling with-in its competence, the Board of Directors set up six committees. the members, competence, and working procedure of the com-mittees are determined by the Board of Directors and set forth in the committee regulations. Decisions made by the committee are recommendatory.

1 in the company’s opinion.

MEMBERS of tHE BoARD of DiRECtoRS AftER JuNE 30, 2014

Member of the Board of Directors Term on the Board of Directors Position as of the Time of Election

Sergey Ivanovich ShmatkoChairman of the Board of Directors

December 30, 2008 – June 22, 2011,June 23, 2013 – present

Special Representative of the President of the Russian Federation on International Cooperation in the Electric Power Industry

Boris Ilyich Ayuyev June 23, 2013 – present Chairman of the Management Board, SO UPS

Oleg Gennadyevich Barkin June 30, 2014 – present Member of the Board, NP Market Council

Oleg Mikhailovich Budargin June 23, 2013 – present Director General, ROSSETI

Anatoly Fyodorovich Dyakov June 30, 2014 – present President and Chairman of the Scientific and Technical Board, Scientific and Technical Council of Unified Energy System

Andrey Yurievich Ivanov June 30, 2014 – present Deputy Minister of Finance of the Russian Federation

Alexander Sergeyevich Kalinin June 30, 2014 – present First Vice President for Energy and Infrastructure, OPORA RUSSIA All-Russian Public Organization of Small and Medium Business

Vyacheslav Mikhailovich Kravchenko July 1, 2008 – December 12, 2008;June 29, 2009 – present

Deputy Minister of Energy of the Russian Federation

Alexei Aleksandrovich Makarov June 30, 2014 – present Member of the Presidium, Russian Academy of Sciences

Sergei Nikolaevich Mironosetsky June 30, 2014 – present Member of the Board of Directors, Siberian Generation Company

Denis Stanislavovich Morozov June 23, 2013 – present Representative of the Russian Federation on the Board of Directors of the European Bank for Reconstruction and Development

Andrey Yevgenyevich Murov June 23, 2013 – present Chairman of the Management Board, FGC UES

Seppo Juha Remes July 1, 2008 – present Director General, Kiuru

Pavel Olegovich Shatsky June 29, 2009 – June 22, 2011,June 30, 2012 – present

First Deputy Director General, Gazprom Energoholding

Andrey Nikolayevich Shishkin June 23, 2013 – present Vice President, Rosneft

iNfoRMAtioN oN tHE iNDEPENDENCE of MEMBERS of tHE BoARD of DiRECtoRS

Member of the Board of Directors In Accordance with the MICEX Stock Exchange Listing Rules

In Accordance with the Provisions of the Corporate Governance Code Recommended by the Bank of Russia1

Status of the Director as of the Time of Nomination for Election to the Board of Directors of the Company in 2014

Sergey Ivanovich Shmatko representative of the Russian Federation

Boris Ilyich Ayuyev representative of the Russian Federation

Oleg Gennadyevich Barkin independent director

Oleg Mikhailovich Budargin representative of the Russian Federation

Anatoly Fyodorovich Dyakov independent director

Andrey Yurievich Ivanov representative of the Russian Federation

Alexander Sergeyevich Kalinin independent director independent director independent director

Vyacheslav Mikhailovich Kravchenko representative of the Russian Federation

Alexei Aleksandrovich Makarov independent director independent director independent director

Sergei Nikolaevich Mironosetsky independent director independent director

Denis Stanislavovich Morozov representative of the Russian Federation

Andrey Yevgenyevich Murov representative of the Russian Federation

Seppo Juha Remes representative of the Russian Federation

Pavel Olegovich Shatsky independent director

Andrey Nikolayevich Shishkin independent director


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CoMMittEES of tHE BoARD of DiRECtoRS

Committees Functions

investment, technical Policy, Reliabil-ity, Energy Efficiency, and Innovation Committee Chairman: B. I. Ayuyev

The Committee’s function is to formulate recommendations regarding the implementation of the investment and technical policies, reliability assurance, energy efficiency, and innovative development. The Committee monitors the implementation of:• the consolidated investment program;• the Annual Comprehensive Procurement Program of SDCs;• the Consolidated Innovative Development Program and the Consolidated Energy Conservation and Energy Efficiency Enhancement Program.

Society, Customer, and Government Relations and information Policy Chairman: V. Ye. Mezhevich

The Committee is responsible for formulating recommendations with respect to improving relations with governmental agencies, local government authorities, and civil society organizations, improving the quality and reliability of customer service, and implementing the uniform information policy.

Valuation Committee Chairman: D. M. Belenky

The goal of the Committee is to provide assistance in developing and supervising asset and business valua-tion for the Company, its SDCs, and new companies.

Nomination and Remuneration Committee Chairperson from January 1, 2014, to September 10, 2014: M. V. Ochirova Chairman from September 10, 2014, to December 31, 2014: A. A. Makarov

The Committee preliminarily reviews and formulates proposals to:• define selection criteria for and preliminarily evaluate nominees for senior executives;• define material terms and conditions of contracts with senior executives;• develop principles and criteria of remuneration for the Company’s management, regularly evaluate

the activities of the Director General and members of the Management Board, and prepare proposals as to whether they can be reappointed;

• formulate recommendations for the formation of the personnel reserve.

Strategy CommitteeChairman: V. M. Kravchenko

The Committee prepares proposals for the Company’s strategic development and for the preparation of standards for formulating development plans for SDCs and supervises the Company’s development.

Audit CommitteeChairman from January 1, 2014, to September 10, 2014: S. RemesChairman from September 10, 2014, to December 31, 2014: A. S. Kalinin

The Committee ensures that the Board of Directors effectively supervises the Company’s financial and eco-nomic activities by:• selecting the auditor;• assessing the reliability of financial statements;• assessing the external auditors’ report;• assess the efficiency of the internal control and risk management system;• preventing conflicts of interest.

MEMBERS of tHE MANAGEMENt BoARD of RoSSEti

1. Oleg Mikhailovich Budargin Chairman of the Management Board and Director General, ROSSETI

2. Dan Mikhailovich Belenky Member of the Management Board and First Deputy Director General for Investment, ROSSETI

3. Roman Nikolaevich Berdnikov Member of the Management Board and First Deputy Director General for Technical Policy, ROSSETI

4. Andrey Aleksandrovich Dyomin Member of the Management Board and First Deputy Director General for Economic Affairs and Finance, ROSSETI

5. Valentin Yefimovich Mezhevich Member of the Management Board and Deputy Director General for Strategic Communications, ROSSETI (as of the time of election)

Management Board

the Management Board of rosseti is responsible for managing the com-pany’s day-to-day activities, developing long-term plans, and submitting them and performance results for consideration by the Board of Directors.

Awards and Achievements in the Reporting Period

During the reporting year, rosseti’s successful activities received several awards and prizes. in addition, the company was granted awards in 2014 for its achievements in 2013.• ROSSETI won in the category “Fuel and Energy Sector” of the Annual

National Award “Company of the Year 2013.”• The Company received an award from the Russian Government in sci-

ence and engineering for 2013 for developing and commercializing hy-drogen and superconductor technology for the creation of the energy industry’s crucially new MW capacity systems and for prototyping equip-ment for the generation, transportation, and accumulation of energy.

• In the 2013 National Procurement Transparency Rating of Contract-ing public entities, rosseti received the highest award.

• As a winner of the annual contest “Leader in Competitive Procure-ment 2013,” the Company was recognized as “Company of the Year in Competitive Procurement.”

• The Company won in the category “Procurement Transparency” of the annual contest “Leader in Competitive Procurement 2013.”

• ROSSETI received the “High Procurement Management Quality” rat-ing from expert ra rating agency.

• As part of the 10th Annual Russian Big Business Forum “Expert 400,” the ROSSETI Group won in the category “Investment Activity” for 2013.

• The Ministry of Education and Science of the Russian Federation granted two awards to rosseti’s project to organize and hold the international youth forum of the electric power industry:– the winner’s prize in the category “Russian World” for the best

project of a russian company promoting national values and co-operation principles abroad;

– an award in the category “Technologies of the Future” for the de-velopment of strategic competencies of young specialists who will be leaders in the russian electricity industry in the 2nd All-Russian Contest Among Employers’ Best Practices “Creating the Future” for human resource development.

• In 2014, the media relations department of ROSSETI was recognized as the best in the electricity industry in the kontekst 2015 contest.

• The Company won a prize of the 17th annual nationwide contest of annual reports and corporate websites organized by the Moscow exchange and rcB Media group for the best disclosure.

• The ROSSETI Group received the “Guaranteed Transparency” rating (national procurement transparency rating).

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3. corporate social responsibility and sustainability Model of rosseti

Understanding of Social Responsibility and Sustainable Development

as a single electric grid management company, rosseti is aware of the importance of its tasks to secure a reliable electricity sup-ply and make electricity connection services more affordable. As one of the most significant infrastructure companies in Russia, the company has a direct impact on the country’s economic de-velopment.

The effective performance of the Company’s important functions would not be possible without its sustained growth in the long term. the rosseti group pays close attention to corporate social responsibility because it ensures effective and sustained develop-ment. in this connection, the rosseti group establishes several priorities.

the rosseti group believes that the ethics and integrity of busi-ness conduct is the only possible approach. the company applies mechanisms for anti-corruption and conflict of interest manage-ment.

the issues related to corporate social responsibility and sustaina-bility are managed by governance bodies in the same way as other business issues.1

Ethics and Integrity

the ethics and integrity of business conduct are the basis of rosseti’s philosophy. Ethical business conduct is defined by the Company’s Code of Ethics. The document also defines the Company’s mission and corporate values.

rosseti applies the principles of ethical employee conduct. first, employees are expected to avoid conflicts of interest and perform their functions in good faith. second, integrity and objectivity should be the basis of any decisions and actions of employees: any biased attitude to their duties or colleagues is not allowed. third, the team members should take care of the company’s positive reputation and avoid situations that may adversely affect ROSSETI’s image, in-cluding outside working time.

Employees should take care of the Company’s property and efficient-ly use the company’s resources. employees should strive to reduce the company’s expenses, including transportation and accommoda-tions during business travel.

the basic principle that should guide all employees of the company, regardless of their positions and functions, is to respect the interests of the company.

the company’s commission on corporate ethics compliance and Conflict of Interest Resolution is responsible for resolving any conflicts of interest.

Anti-Corruption

combating corruption in all of its manifestations is an essential com-ponent of the sustained development of russian companies. under-standing this issue at the highest level has led to systematic changes in legal requirements for the regulation of organizations’ activities in this respect. for instance, a presidential decree tasked organiza-tions with complying with legislative acts and administrative deci-sions in the area of combating corruption and approved the national anti-corruption plan for 2014–2015.

rosseti did not hold itself aloof from the anti-corruption initiatives. in 2014, it worked hard to improve the internal corporate regulation of the company’s and sDcs’ anti-corruption activities with due re-gard to all changes in legislation. for example, the Board of Directors of rosseti approved a restated version of the anti-corruption pol-icy. this is a uniform strategic document for combating corruption in the russian electric grid sector.

ROSSETI and its SDCs operate a unified, vertically integrated anti-corruption system. this system includes the mechanism for implementing the anti-corruption policy, the procedures for control and prevention measures, the powers of divisions re-sponsible for preventing and combating corruption, and key an-ti-corruption standards.

in 2013, the company established the Department for corporate and anti-corruption compliance procedures, which reports directly to the Director general. the division is responsible for anti-corruption measures to prevent, identify, and combat corruption offenses and for minimizing reputational and corruption risks.

the main activities of the Department include:• assessing corruption risks;• doing anti-corruption monitoring;• studying information on possible cases of corruption;• identifying and resolving conflicts of interest;• interact with counterparts;• creating an effective regulatory mechanism.

important aspects of ongoing work are corruption prevention through legal education and the formation of anti-corrupt corporate con-sciousness.

the Department gives heightened attention to the following areas of the company’s operations exposed to a high risk of corruption:• appointment of the Company’s and SDCs’ senior executives;• procurement;• government relations;

1 see governance for further information.


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• political engagement;• charity and sponsorship; • payments through intermediaries or to third parties.

an important achievement on the way toward the transparency of business operations in the industry is the creation of a unique au-tomated analysis and collection system for information on beneficiar-ies, which is a unified information space concerning existing and po-tential counterparties. the system makes it possible to accumulate data from multiple sources, verifying the completeness and reliability of information about corporate entities and individuals. in addition, the system provides information on the business reputation of a counterparty’s chief executive, his or her inclusion on the regis-ter of unscrupulous suppliers, enforcement proceedings, etc. this makes it possible to proactively detect affiliation, conflicts of interest, pre-conflicts of interest, and other abuses.

Fulfilling the requirements set forth in Federal Law No. 273-FZ of De-cember 25, 2008, “On Combating Corruption’ and setting an example,

the senior executives of the company’s and sDcs’ executive arm de-clare their income, expense, property, and property obligations dis-close similar information with respect to their close relatives.

in addition to work within the company, rosseti cooperates exten-sively with governmental authorities in improving the legal regu-lation of anti-corruption activities. the company’s representatives participate in the relevant working groups, commissions, and other public initiatives.

StRAtEGiC PRioRitiES of SuStAiNABiLity foR tHE RoSSEti GRouP

fair competition Being a natural monopoly in the electric power sector, the ROSSETI Group understands the particular importance of ethical business conduct. Specifically, the Company strictly complies with the rules of the Sectoral Wage Rate Agreement. The Group also adheres to the principle of fair competition by applying competitive procurement practices.

Economic impacts The ROSSETI Group is an infrastructure company that influences the development of the Russian economy as a whole. Securing a reliable electricity supply for the country and making services more affordable are a priority of the Company’s SDCs. Raising profitability, ensuring operating efficiency, and implementing the capital investment program are the Group’s strategic objectives.

Environmental pro-tection

The particularities of the Company’s activities do not involve substantial damage to the environment. Nevertheless, the activities of subsidiaries and dependent companies have an impact on nature. The ROSSETI Group strives to minimize the adverse impact by rehabilitating land, installing bird protection equipment, and taking into consideration environmental requirements at the stage of designing electrical installation installations. A special program is aimed at disposing of hazardous trichlorodiphenyl-containing equipment. Employees also participate in various environmental actions.

Personnel development and social programs, occupational safety

The staff of the Group is the most important resource. ROSSETI and SDCs provide adequate pay and training for employees and carry out insurance, youth, pension, and other social programs. Particular attention is given to occupational safety: an electric current is a threat to the health and lives of workers. The Company maintains its special focus on teaching safety rules and ensuring strict control of their implementation.

Stakeholder relations The key stakeholder groups of the ROSSETI Group are shareholders, investors, and the financial community; customers; employees and labor unions; the sectoral and business communities; governmental authorities and public organizations; higher education institutions, specialized secondary education institutions, and research institutes; the media and society. Its system of stakeholder relations allows the Company to receive and promptly respond to feedback, minimizing non-financial risks. The Company pursues a policy of transparency and regularly discloses complete and accurate information about its activities, including by fulfilling legal requirements with respect to the disclosure of information by issuers.

CoRPoRAtE VALuES

Efficiency The Company is aware of its responsibilities to shareholders, investors, and partners. Therefore, the Company’s efficiency (cost reduction) is a basic value.

Social responsibility The ROSSETI Group is a socially responsible company that pays close attention to occupational health and safety, environmental protection, social programs, and the development of the regions where the Company operates and of the Russian economy as a whole.

Human resources The retaining and development of personnel as a key resource, the creation of a united and motivated team, the improvement of conditions for work and recreation, and the enhancement of occupational health safety are a priority for the Group.

Cooperation In its activities, the Group takes into account the position of stakeholders and is open to dialog and fruitful cooperation with them.

Ethics ROSSETI adheres to the principles of professional ethics, honesty, fairness, and integrity.

Lawfulness The Company and its employees strictly comply with the laws of the Russian Federation and the provisions of internal corporate documents. The Company creates the conditions for all employees familiarizing themselves with the regulatory and legal framework.

Safety In their activities, ROSSETI SDCs fulfill the requirements for occupational safety, industrial safety, and environmental protection.

3. corporate social responsiBility anD sustainaBility MoDel of rosseti

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rosseti acceded to the anti-corruption charter of the russian Busi-ness in 2014.

RoSSEti’S PARtiCiPAtioN iN WoRkiNG GRouPS AND otHER iNitiAtiVES to PREVENt CoRRuPtioN

Name Functions

Interdepartmental working group of the General Prosecutor's Office of the Russian Federation

• consider the transparency of fi-nancial and economic activities;

• remove administrative barriers to the development of the elec-tric grid sector

Expert group of the interde-partmental working group of the Federal Service for Finan-cial Monitoring of the Russian Federation to combat illegal financial transactions

• determine the mechanism for identifying beneficiaries as part of verifying information on corporate entities and indi-viduals

Expert group of the Joint Commit-tee of the Chamber of Commerce and Industry of the Russian Federation

• implement the provisions of the Anti-Corruption Charter of the Russian Business

All-Russia People’s Front • build a transparent procurement system

Avoidance of Conflicts of Interest

rosseti admits that its operations may involve situations where per-sonal, professional, financial, and other interests of the Company’s executives and employees and their family members may potentially be in conflict with the interests of the Company. Such cases are con-sidered by the Company to be conflicts of interest.

ROSSETI takes a number of measures to avoid conflicts of interest. The Company’s approaches to this issue are defined by the Code of ethics.

For instance, in order to avoid conflict situations, the Company’s em-ployees should obey the following rules:• perform their functions only for the benefit of the Company;• limit their relationships with the Company’s partners solely to busi-

ness matters;• avoid situations where their personal interests may be in conflict

with the interests of the Company;• not influence the personnel decisions made by division heads;• not participate in making decisions on the business relationships

with suppliers if their close relatives work for such entities.

In the event of any conflict of interest, an employee should immedi-ately give notice thereof in accordance with the company’s proce-dure. The Commission on Corporate Ethics Compliance and Conflict of Interest Resolution resolves pre-conflict situations and conflicts of interest and deals with violations of corporate ethics.

4. stakeholder relations

Main Approaches to Stakeholder Relations

stakeholder relations are one of the strategic instruments for securing the rosseti group’s sustained development.

in 2014, rosseti approved the policy on society, customer, and gov-ernment relations. the policy provides for a customer-oriented ap-proach and raised customer confidence.

the company determined the range of stakeholders by assessing their impact on its day-to-day operations and strategic development. rosseti also considered the existing practice of the company’s inter-action with external stakeholders. other criteria include dependence on the electric grid sector’s operating results, the degree of mutual influence and cross-interests, and regular interaction.

rosseti’s interaction with stakeholders is based on the following principles:• complying with legal requirements and other commitments made

by the Company;• considering the interests and expectations of stakeholders;• ensuring transparency;• evaluating effectiveness and continuously improving activities.

the properly functioning system of constant interaction with stake-holders enables the company to be aware of the opinions, inter-ests, and wishes of stakeholders. to settle any issues, rosseti

arranges meetings and maintains a constructive dialog with stake-holders. the company pursues a transparent information policy by providing stakeholders with significant and complete information. The Company uses a variety of channels of disclosure and offers several forms of feedback (hotline, website, monitoring of media publications, personal meetings). the practice of constant interaction and effective response in stakeholder relations allows the Company to remove the majority of non-financial risks from its activities, thus ensuring its sustained development.

the corporate social responsibility toolkit includes:• identifying and ranking stakeholders;• constructing the “stakeholder map”;• identifying and monitoring risk situations;• making a scenario analysis of the Company’s behavior and interac-

tion with its stakeholders;• developing the Company’s projects aimed at stakeholders and at

the constructive or neutralizing interaction with them;• conducting annual open dialogs within the process of non-financial

reporting, including disclosing and discussing the company’s prob-lems and successes.

Government and NGO Relations

as a government-linked infrastructure company, rosseti actively cooperates with legislative and executive governmental authorities at federal and regional level. the built system of cooperation allows the Company to ensure its financial and economic stability through


14

rapid response to changes in the regulatory framework that affect the company’s activities.

the company carries out the strategy for Development of the electric grid sector of the russian federation,1 plans and road maps of federal executive authorities, including the Road Map “Enhancing the Afforda-bility of the Power Infrastructure.”2

the company is also subject to inspections by government regula-tors.

the company employs several mechanisms on a planned basis to interact with governmental authorities. rosseti constantly monitors the legal framework. the company’s consolidated position on im-proving the regulatory framework is defined by a special permanent collegial body, namely the rulemaking commission of rosseti.

MAiN CouNtERPARtiES REPRESENtiNG tHE GoVERNMENt iN tHE ELECtRiC PoWER iNDuStRy

Governmental Authority Principal Function

Government of the Russian Federation Development strategy

Ministry of Energy of the Russian Federation

Capital investment program and electricity supply reliability

Ministry of Economic Development of the Russian Federation

Macroeconomic parameters

Federal Tariff Service of the Russian FederationRegional Energy Commission

Tariff regulation

Federal Antimonopoly Service of the Russian Federation

Antimonopoly regulation

Federal Agency for State Property Management of the Russian Federation

Governance

Federal Service for Environmental, Technological and Nuclear Supervision of the Russian Federation

Technical supervision

1 approved by ordinance of the government of the russian federation no. 511-r of april 3, 2013.2 approved by ordinance of the government of the russian federation no. 1144-r of June 30, 2012.

MAiN StAkEHoLDER GRouPS AND kEy CHANNELS of CoMMuNiCAtioN WitH StAkEHoLDERS

Key Stakeholders of ROSSETI Key Channels of Communication with Stakeholders Disclosure of Information Significant to Stakeholders in the Report (Chapters)

Shareholders and investors, financial community

• Annual General Meeting of Shareholders• one-on-one and collective meetings with management• road shows• investor forums and conferences• Interfax Corporate Disclosure Center/LSE Regulatory

News Service

2. Company Profile4. Stakeholder Relations7. Internal Control and Risk Management System8. Reputational Policy and Integrated Communications Management9. Economic Impacts

Educational institution and research centers

• meetings• conferences• participation in working groups

6. Society Relations11. Human Resource Development

Civil society organizations (nonprofit organizations and associations)

• meetings• conferences• annual reports and corporate social responsibility

and sustainability reports

3. Corporate Social Responsibility and Sustainability Model of ROSSETI

4. Stakeholder Relations11. Environmental Responsibility and Environmental Protection

Electricity market and business communities

• meetings• conferences• business associations• annual reports and corporate social responsibility


2. Company Profile7. Internal Control and Risk Management System9. Economic Impacts10. Procurement Practices

Existing and potential customers

• corporate website and SDCs’ websites• uniform network connection website (ПОРТАЛ-ТП.рф)• call centers of the ROSSETI Group• customer service centers of the ROSSETI Group• seminars and public meetings• satisfaction evaluation

5. Customer Relations

Employees and All-Russian Electrounion

• internal portal• corporate media• meetings with management• corporate events

6. Society Relations11. Human Resource Development

Media • press releases• press tours• meetings

8. Reputational Policy and Integrated Communications Management

Federal and regional governmental authorities of the Russian Federation

• participation in commissions and working groups• meetings• annual reports and corporate social responsibility


2. Company Profile4. Stakeholder Relations7. Internal Control and Risk Management System9. Economic Impacts

Society • publications in media outlets• annual reports and corporate social responsibility

and sustainability reports• corporate website• measures to prevent injuries from electric shocks, etc.

6. Society Relations11. Environmental Responsibility and Environmental Protection

4. stakeholDer relations

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the company mainly interacts with governmental authorities in the following areas:• securing a reliable power supply and improving the quality of elec-

tricity distribution services;• providing the operation platform for the electric grid sector and elec-

tricity (capacity) markets;• regulating prices (setting tariffs for electricity distribution services

and network connection fees);• ensuring the long-term development of the energy industry

and electricity connections;• regulating the investing activities of organizations operating

in the electric grid sector and the construction of electric grid fa-cilities;

• ensuring the operation of electric grid facilities;• ensuring the energy, technological, industrial, and environmental

security of electric power facilities;• regulating legislation on land and urban planning as related to

the allocation of land for power lines;• regulating natural monopolies and ensuring antimonopoly regula-

tion, including the disclosure of information about the company’s activities.

as part of cooperation with governmental authorities, rosseti takes an active role in drafting legislative acts and regulations. The Company prepares and submits comments, suggestions, and amendments with respect to draft documents, and its employees are involved as experts in the process of governmental authorities’ formulating proposals for changes to legislation. the company’s representatives also regularly participate in parliamentary hearings, roundtables, conferences, meetings, and working groups on the improvement of the legal framework.

Structure of Legislative Initiatives Developed with the Involvement of the Company’s Experts

57Federal Law 35-FZ

Federal Law 36-FZ

Government Resolution 1178




Orders of federal executive authorities

Land legislation

Other legal regulations

5713 16

533044

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the company sent 130 letters to governmental authorities in 2014, submitting proposals to improve legislation.

the proposals mostly related to the laws on the electric power in-dustry, on the functioning of retail electricity markets, on network connection, on electricity pricing, and on capex programs. the com-pany also put forward proposals regarding legislation on land and urban planning.

the company mainly cooperates with the state Duma’s commit-tees on energy, property, land relations and construction, industry, economic policy, and innovative development and entrepreneurship and with the federation council’s committee on economic policy. the company’s representatives are members of the expert councils and panels of the committees.

in 2014, legislative authorities held several important events related to the electricity industry with the participation of rosseti:• roundtable at the Federation Council on “Russian electric grid sec-

tor: development strategy and its legislative support;• extended session of the State Duma Committee on Energy on “Pros-

pects for the development of distributed energy, its place and role in the contemporary energy structure”;

• extended session of the State Duma Committee on Energy on “The role of ROSSETI in the development of the domestic electric grid sector”;

• roundtable at the State Duma on “Legal regulation and principles of investment in public-private partnership-based res projects in the “isolated” regions of Russia”;

• roundtable on the draft of the Federal Law “On Professional Engi-neers in the Russian Federation”;

• panel session of the expert council of the State Duma Committee on Energy on “Ways of resolving the problems of combined heat and power plants’ operation in market conditions”;

• expert panel session of the Advisory Council of the State Duma Committee on Energy on “Raising payment discipline in the fuel and energy sector and public utility services.”

in addition to interacting with governmental authorities, rosseti takes an active part in public discussions of projects to define the common position of the industry’s organizations. the company closely cooperates with sectoral and public organizations, unions, associations, including:• Agency for Strategic Initiatives,• Russian Union of Industrialists and Entrepreneurs,• Chamber of Commerce and Industry of the Russian Federation,• expert communities;• coordinating and expert councils on energy and public utility services.

Investor Relations

the company has two special divisions responsible for shareholder/investor relations: the shareholder and investor relations Division, and the unit for support for shareholder rights of the Department for corporate governance and shareholder and investor relations.

in its shareholder/investor relations, rosseti pursues an important goal of making the company more attractive to investors, including by enhancing transparency, adhering to a stable dividend policy, and in-creasing the liquidity of its securities.

the company pursues a uniform policy on shareholder/investor relations in the electric grid sector. for instance, annual seminars are held for shareholder/investor relations departments of russian electric grid companies. The seminars are intended to upgrade qual-ifications and professional skills of shareholder relations personnel of rosseti’s subsidiaries. the company inspects the timeliness and completeness of disclosures on subsidiaries’ websites.

The Company fulfills all legal requirements for disclosures. Addition-ally, the company maintains constant dialog with shareholders, inves-tors, and professional securities market participants. for this purpose, the shareholder and investor relations Division organizes meetings, conference calls, and presentations of strategic plans and operating results. The Company prepares replies to inquiries, maintains a share-holder hotline, and has a special feedback form on its website.

at present, analyst coverage is provided for the company’s shares by 13 investment banks and companies. the company is working to expand analyst coverage.


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on a regular basis, the shareholder and investor relations Division holds events based on the disclosure of the company’s results, organizes road shows for investors, and participates in investor con-ferences of russian and foreign investment banks.

the shareholder and investor relations Division held a number of meetings with the investor community in 2014.

Event Organizing Bank

Annual Depositary Receipt Issuers’ Conference

BNY Mellon

Investor conference Raiffeisen Bank

Investor conference Gazprombank

Russia: The Inside Track annual investment conference

Sberbank CIB

6th Annual Investment Forum VTB Capital

Power Industry Day BCS Financial Group

important instruments for disclosures are annual and corporate social responsibility reports published every year. in 2014, the com-pany’s efforts in this area received an accolade from experts. ROSSETI won a prize of the 17th annual nationwide contest of annual reports and corporate websites organized by the Moscow exchange and rcB Media group. the company’s 2013 annual report was also recognized as a leader in sustainability disclosure according to expert ra rat-ing agency’s annual review of best practices in disclosure in annual reports.

International Cooperation

rosseti continued in 2014 to actively build up international coopera-tion with the global energy community.

cooperation between rosseti and foreign energy systems in 2014 involved preparing and signing several documents. these include the agreement with fingrid oyj for the utilization of transmission ca-pacity, the organization of flow metering, and operation. This project was launched in 2008. in the reporting year, the company successful-ly completed trial tests of two-way electricity transmission between russia and finland. the implementation of this strategic project will improve the reliability of the northwestern federal District energy system.

a strategic cooperation agreement was signed with Belenergo to develop the russian and Belarusian electric grid sectors, including providing personnel training, sharing experience in operating electric grid facilities, applying new technology, and developing smart grids.

simultaneously, cooperation with the energy systems of the coun-tries of the Brell (Belarus, russia, estonia, latvia, and lithuania) energy ring included formulating the new regulations for planning in-terstate electricity flows with due consideration to trading in the Bal-tic countries’ markets.

the advisory committee of the eurasian economic commission approved the concept of forming the common electricity Market for russia, kazakhstan, and Belarus under the treaty on the eurasian economic union.

in 2014, rosseti took an active part in the commission for operation-al and technical coordination of Joint operation of energy systems in the cis and Baltic countries and working groups of the executive committee of the cis electric power council (cis epc).1 the most important area of the executive committee’s activities is to create the legal framework of the cis member states for the electric power industry and take coordinated measures to secure a stable and relia-ble electricity supply for the member states.

in 2014, the company’s senior executives took part in several events organized by the World energy council (Wec), for instance, the World energy leaders’ Dialogue in abu Dhabi, uae. the event focused on discussing energy integration, which would enhance energy efficien-cy and make national energy systems more reliable through access to partner countries’ capacity in emergency situations.

another important event organized by the Wec was the World energy leaders’ summit in cartagena, colombia, discussing what was done to establish cis countries’ national committees of the World energy council and addressing other international partnership projects.

A significant step in 2014 toward expanding cooperation between rosseti and the Wec was that the company became a member of the russian national committee of the World energy council. ROSSETI’s plans include continuing with its efforts to form the Eura-sian committee of the Wec and attracting new countries to participa-tion in the World energy council.

1 the cis epc was established in accordance with the agreement for the coordination of interstate relations in the cis electric power industries.

4. stakeholDer relations

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Services in the administrative centers of Russian regions are provided

by 69high-standard customer service centers

As at the end of 2014

986 customer service offices

including

300 customer service centers and 686 customer service points at local divisions of SDCs, operated in the regions served by ROSSETI

5. customer relations

Principles of Customer Relations

Customer relations have a direct influence on the financial perfor-mance of the rosseti group. With the involvement of the govern-ment, public organizations, and other stakeholders, the rosseti group keeps working to balance its interests and the interests of its customers in securing an affordable and reliable electricity supply.

rosseti’s social responsibility in the area of customer relations entails understanding how important it is for the company to act as an infrastructure organization that supports a society and aspiring to play this role as effectively as possible with due regard to the cus-tomer’s interests and expectations.

the company’s high priority is to achieve customer loyalty the rosseti Group by providing affordable services, offering high-quality customer service, and ensuring customer satisfaction in the short and long term.

the rosseti group’s policy on society, customer, and government re-lations defines the following guiding principles of customer relations:• affordable and high-quality services provided by the ROSSETI Group;• customers’ sufficient awareness of the ROSSETI Group and services;• territorial accessibility and convenient conditions of the ROSSETI

Group’s face-to-face customer service;• accessibility and promptness of remote and online customer service;• qualified customer service;• transparent business processes of the ROSSETI Group’s service

performance and customer service.

Customer Service

the company gives special attention to ensuring that rosseti sDcs provide high-quality customer service. Services are provided on a face-to-face basis at the ROSSETI Group’s customer service offices and on a remote basis by telephone and over the internet.

The ROSSETI Group received 3.5 million inquiries via all customer re-lations channels in 2014, or 18% less than in 2013. complaints and re-quests for advice decreased by 26% and 11.5% respectively. This trend proves the effectiveness of measures taken to improve service qual-ity and that customers are adequately informed.

Changes in Inquiries in 2010–2014

20112010 2012 2013 2014

345 183249200169

3,9053,527

4,310

2,0491,785

Total inquiries (thousand pcs.)

Quality complaints (thousand pcs.)

20112010 2012 2013 2014

345 183249200169

3,9053,527

4,310

2,0491,785

Total inquiries (thousand pcs.)

Quality complaints (thousand pcs.)

Opened Offices and Face-to-Face Customer Service

to provide territorial accessibility and convenient conditions for cus-tomers, customer service centers are upgraded and fitted with modern equipment such as electronic queue management systems, payment terminals, and self-service information kiosks. visitors to customer service centers can submit requests for services, including network connection requests, obtain reference information and con-sultations, make a claim (complaint), and become familiar with infor-mation about other local electric utilities.

this work is done by grid organizations in accordance with the uni-form customer service Quality standards approved by the Ministry of energy of the russian federation in 2014.

As at the end of 2014, 986 customer service offices, including 300 customer service centers and 686 customer service points at local divisions of sDcs, operated in the regions served by rosseti. servic-es in the administrative centers of russian regions are provided by 69 high-standard customer service centers.

in 2014, the company opened new and upgraded customer service offices in Moscow; Troitsk, New Moscow; Sochi; Sovetsk, Kaliningrad Region; Kashira, Moscow Region; Revda, Sverdlovsk Region; and An-apa, krasnodar territory.

the most successful process of developing face-to-face custom-er service in 2014 was kubanenergo’s electronic rosseti project. the project involved opening a customer service center in sochi, de-signed to maximally automate customer service processes, including implementing electronic queue management and customer service evaluation systems and using self-service kiosks.

Overall, the number of visitors to ROSSETI customer service offices was 1.36 million in 2014, or 2% more than in 2013. the growth is due to improved territorial accessibility and face-to-face customer service for households in the regions served by the rosseti group.

Changes in the Opening of Customer Service Offices and the Number of Face-to-Face Inquiries in 2010–2014

20112010 2012 2013 2014

0

200

400

600

800

1000

616

986

734

571544

1,2511,3611,331

989.6

793.7

Customer service offices (pcs.)

Face-to-face customer inquiries (thousand pcs.)

5. custoMer relations

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Customer Service by telephone and over the internet

customer service over the telephone uses call center hotlines and numbers of the operational dispatching units of sDcs. sDcs created hotlines to mitigate the consequences of process failures and promptly provide households with information on the duration of accident recovery work.

the principal goals of a call center is to receive and handle customers’ incoming calls about all issues related to sDcs’ activities and provide a customer with necessary information.

In 2014, the Company received a total of 1.87 million inquiries by tele-phone. following current trends, the rosseti group focuses its at-tention on employing online technology and expanding the use of its uniform customer service website (ПОРТАЛ-ТП.рф) and electronic services on sDcs’ websites. the principal goal of furthering the use of the customer service website is to ensure the accessibility of network connection services by switching over to electronic remote customer ser-vice for document management related to customers’ requests to reduce the number of connection stages. SDCs’ websites also offer remote cus-tomer service.

the development of remote customer service allowed the company to double the number of electronic inquiries to 44,700 in 2014.

Results of Surveys Measuring Customer Satisfaction

in order to evaluate customer satisfaction with their core services, ROSSETI SDCs constantly conduct surveys to find how satisfied customers are with service quality and study what customers think about prospects for service development.

the basic approach applied by rosseti sDcs is the customer satis-faction index, calculated on the basis of separately evaluated service parameters according to their significance to customers.

in 2014, the rosseti group made more than 100 various surveys, with the number of respondent exceeding 78,000. the surveys typ-ically consisted in questioning visitors to customer service offices and conducting telephone surveys.

the main topic of surveys in the reporting year was the issues of the quality and accessibility of network connection services such as:• meeting of prescribed network connection deadlines;• convenience of customer service offices’ location and working hours;• qualifications and efficiency of personnel;• ease of obtaining information about the electricity connection proce-

dure.

to have feedback on the development of remote customer service, iDgc of centre and Moesk conducted an online survey of customer

satisfaction with online customer service for receiving network con-nection requests. The survey collected customer feedback in relation to the further improvement of customer service over the internet.

the results of the surveys enabled the rosseti group to improve service quality, providing a comfortable environment for customers and increase the transparency of its network connection operations.

the company will continue to make surveys in the future. it is planned to conduct a survey in 2015 to evaluate the quality and accessibility of network connections in collaboration with opora russia all-rus-sian Public Organization of Small and Medium Business. The findings will reveal the areas of customer dissatisfaction in the regions where the company operates and take corrective measures. therefore, small and medium-sized businesses will be provided with assistance in improving the business environment by enhancing the affordability of the power infrastructure.

Network Connection

network connection is one of the rosseti group’s main regulated services.

network connection makes it technically feasible to consume (deliv-er) electricity (capacity). these services include the actual connec-tion of the following equipment and facilities to networks:• power-receiving equipment of customers;• power generation facilities;• electric grid facilities owned by grid organizations and other persons.

Network Connection Results in 2014

in 2014, the rosseti group continued to systematically provide elec-tricity connections.

kEy NEtWoRk CoNNECtioN iNDiCAtoRS iN 2014

Indicator Number, 2014 Changes, 2014/2013, %

Network connection requests

488,324 pcs. +2

Total capacity (under requests)

52,022 MW -5

Network connection contracts

383,125 pcs. -0.06

Total capacity (under contracts)

20,468 MW -33

Network connection certificates under completed contracts

346,062 pcs. +32

Capacity (under certificates)

17,246 MW -12

Network Connection Stages

Entering into Network Connection

Contract

Completing network connection procedures and obtaining permits

Providing a voltage supply

Issuing network connection documents

for the requesting entity’s facilities

Network Connection

Request

Network Connection

Contract

Certificate of Compliance with Technical Specifications

Network Connection Certificate


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The growth is due to improved territorial accessibility and face-to-face customer service for households in the regions served by the ROSSETI Group

Overall, the number of visitors to ROSSETI customer service offices was

1.36 million, or 2% more than in 2013

Simplifying the Network Connection Procedure

the russian government’s systematic policy to simplify and cheapen network connections resulted in reducing rosseti sDcs’ electricity connection prices: an 11% decrease in prices to 2,606 rubles/kW in 2014 and a 70% decrease compared with the highest prices in 2010. The result of ROSSETI’s comprehensive efforts was a considerable reduction in the time of getting electricity. in the case of network connection requests for facilities rated 150 kW or below, the time of preparing contracts and obtaining an electricity connection was reduced by 9 and 103 days respectively, or 35% compared with 2013. Among the most effective SDCs, reducing the time by more than 50%, are iDgc of volga, iDgc of south, tyumenenergo, iDgc of siberia, and iDgc of center and volga region.

substantial work was done to remove administrative barriers affecting the time of obtaining an electricity connection. On the initia-tive of rosseti sDcs, regional governments enacted legislative acts simplifying the construction of electric grid facilities rated 20 kv or below in the sverdlovsk region, the chelyabinsk region, the novgo-rod region, the vologda region, the arkhangelsk region, the yaroslavl region, the Moscow region, the nizhni novgorod region, the tyumen region, the ulyanovsk region, the orenburg region, the perm terri-tory, the republic of karelia, the chuvashi republic, the udmurtian republic, and the khanty-Mansijsk autonomous District.

introducing Best Corporate Practices

one of the mechanisms for increasing the accessibility of network con-nections is to introduce into rosseti sDcs best corporate and regional practices related to ensuring the accessibility of the grid infrastructure.

IDGC of Siberia: the Creation of the Back Office

the project launched in early 2014 combines the engineering of busi-ness processes for centralizing functions in the course of preparing network connection contracts and technical specifications, and the au-tomation of these processes by using geographic information sys-tems and a SAP software solution. The project will reduce unjustified measures related to network construction and rehabilitation, optimize the number of employees by spreading the workload, and eliminate the risk of corruption.

MoESk: “3 Steps, 2 Visits”

the project is aimed at simplifying the network connection proce-dure by using remote customer service. it is a logical continuation of the 2013 “5 Steps, 3 Visits” program for network connection re-quests for facilities rated 150 kW or below. The program resulted in reducing the number of stages from 19 to 5 and reducing the time of preparing contracts from 31 to 9 days. the new network connection standards decreased the number of visits to the office to 2 through the use of electronic requests. In 2014, MOESK received about 13,000 online requests (15% of the total number of requests submitted to the company). in 2015, Moesk plans to introduce a digital signature scheme and payment by bank card, which will make it completely unnecessary to visit MOESK’s office.

further Development of the Network Connection Portal

to reduce the number of network connection stages, rosseti streamlines its business processes, including by promoting electronic customer service. for instance, the company launched an online cus-tomer service website, namely ПОРТАЛ-ТП.рф, which makes it possi-ble to submit online network connection requests and track the pro-gress of processing such requests.

SErvICES On Портал-тП.рф

Accessibility of information

• changes in laws and other important events;• description of the network connection

procedure;• analytical information on regional energy

systems;• overview of SDCs’ activities;• standard forms of documents

feedback • contact information of all SDCs;• feedback form

Personal Login Page

• network connection requests with tracking the progress of processing such requests;

• capacity redistribution requests

Network Connection Price Calculator

• calculation of network connection prices

Capacity Requirement Calculator

• calculation of required capacity in the process of submitting a network connection request

in the near future, it is planned to expand the functionality of the personal login page, provide synchronization with personal login pages of lower levels, create a scientific calculator for con-nection prices, and expand the geographic coverage of the interac-tive map of main substations operated by independent territorial grid organizations.

Enhancing the Affordability of the Grid Infrastructure

Enhancing the affordability of the power infrastructure is a strategic pri-ority for rosseti in its customer relations. this is the company’s con-tribution to improving the business climate, enhancing russia’s attrac-tion among investors, and facilitating russian economic development.

in 2012, the agency for strategic initiatives in collaboration with the Company developed the Road Map “Enhancing the Affordability of the Power Infrastructure” aimed at:• reducing the time of obtaining an electricity connection;• reducing the number of electricity connection stages;• reducing electricity connection prices.

the World Bank’s Doing Business annual rankings are chosen as benchmarks to assess how successfully legislation is reformed in the area of network connection accessibility, with the target being Russia’s rising to at least the 20th position in the “Getting Electricity” ranking by 2018.

Plans for 2015

Continuing its systematic work to improve the affordability of the grid infrastructure, rosseti approved the action plan to reach the targets in the “Getting Electricity” ranking of Doing Business. It is planned to carry out the following measures in 2015:• enter into agreements with Russian regional executive authorities

for the allocation of land for the construction of electric grid facilities under a simplified network connection procedure;

• enter into agreements with energy retail companies in Russian re-gions for the implementation by grid companies of the procedure for verifying electricity meters and issuing electricity supply con-tracts to requesting entities;

• enter into an agreement with the Federal Service for Environmental, technological and nuclear supervision of the russian federation for the simplification of the procedure for issuing permits to electric grid facilities built in the course of network connection;


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• use in-house resources to provide network connection for electrical installations rated 15–150 kW.

To raise requesting entities’ awareness of the network connection procedure and of the methods for resolving disagreements arising from existing contracts, the company has plans to hold a series of public meetings with existing and potential requesting entities in the first half of 2015. Representatives of public organizations and business associations will be invited to attend the meetings. it is planned to hold panel discussions and round tables in June 2015 to discuss the results of the public meetings.

in order to engage governmental authorities, public organizations, and electricity industry experts to discuss topical issues related to the affordability of the grid infrastructure and share best corporate and regional practices, rosseti plans to hold the 3rd all-russian fo-rum on network connection in september 2015.

Reducing Accident Rates

electricity supply reliability is an important task of rosseti. the com-pany takes systematic measures to reduce accident rates.

in the rosseti group’s networks rated 6 kv and above in 2014, the specific accident rate was decreased by 16%, while the aver-age duration of process failures related to power outages was de-creased by 21% to an average of 3 hours in the rosseti group against 3.8 hours in the previous year.

the system of recording electric grid facilities’ process failures is governed by the following regulations:• Rules for Investigating into the Causes of Accidents in the Electricity

industry, approved by the resolution of the government of the rus-sian Federation;

• Guidelines for Calculating the Level of Reliability and Quality of Sup-plied goods and rendered services for the organization Managing the Unified National (All-Russian) Electric Grid and Territorial Grid organizations, approved by the order of the Ministry of energy of the russian federation.

ROSSETI developed and brought into operation an up-to-date soft-ware system for recording process failures (Avariynost). The soft-ware system calculates electricity supply reliability indicators based on accident rate data.

the internationally accepted criterion for measuring reliability is the duration of power outages. The equivalent of this indicator for the company’s sDcs is the average outage Duration indica-tor specified by Regional Energy Commissions. All ROSSETI SDCs achieved their planned targets in this area in 2014.

every power outage is subject to investigation for identifying and rem-edying its cause.

Main Causes of Power Outages

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10.3

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7.7

5.96.5

Worn-out (damaged) insulation

Trees falling onto overhead line wires

Atmospheric (lightning) overvoltage

Damaged customer equipment

Damage caused by icing and wind loads, acts of nature

Physical damage, including damage caused by outsiders

Obstruction caused by birds/animals

Other defective operation

1.9

in order to reduce accident rates, rosseti sDcs continued in 2014 to work under the target-oriented multiyear programs to:• widen narrow clearings;• replace oil circuit breakers rated 6–110 kV with modern vacuum cir-

cuit breakers and SF6-insulated circuit breakers;• replace surge arresters rated 6–110 kV with overvoltage suppres-

sors, etc.

in the reporting year, measures were developed and carried out to prevent consistent failures of overhead lines. production operations also substantially reduced process failures caused by trees falling onto overhead line wires, malfunctions and false operation of relay protection, and other defective operation.

the reduction in the duration of power outages is substantially due to the company’s methodical work to organize the activities of cri-sis centers and improve their efficiency, organize mutual assistance among sDcs and their branches by using mobile crews, emergency reserves, and backup power sources in the organization and perfor-mance of accident recovery work in the electric grid sector. in addition, an important contribution to improving the efficiency of responding to and remedying the consequences of accidents in electricity networks comes from organizational and methodological work on the optimi-zation of the operational process control system of sDcs and their branches, including developing and approving the target models of operational process control, the plans of organizational and tech-nical measures for the transition to the target models, and raising the level of automation in the electric grid sector.

5. custoMer relations

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6. society relations

Relations with Labor Unions

in the regulation of labor relations, rosseti cooperates with the all-russian electrounion (areu) and primary labor union organ-izations of sDcs.

in relations with labor unions, the electricity industry’s employers are represented by the all-russia trade association of employers in the power industry (rael association), whose members include all of the company’s sDcs.

the commission on the regulation of social and labor relations in the electric power industry, which includes rael and areu repre-sentatives, settles labor disputes, resolves disagreements, and im-plements joint measures in the sector.

in 2014, the commission addressed a number of issues related to the fulfillment of the Sectoral Wage Rate Agreement in the Electric power industry of the russian federation for 2013–2015 (sWra). an agreement was signed to amend and supplement the sWra. the agreement provides for bringing the provisions of the sWra into line with changes in the federal laws regarding the special assess-ment of working conditions.

every year, the commission approves the report on the coordinated policy pursued by representatives of employers and employees under the sWra. the document is intended to provide information for a wide range of stakeholders: employers, employees, and govern-mental authorities.

at the local level of social partnership, the collective bargaining agreements of rosseti subsidiaries specify the positions agreed upon by employers and employees’ authorized representatives with respect to remuneration, working hours, recreation, additional bene-fits, guarantees, and compensation.

the most topical issue in collective bargaining during 2014 continued to be the performance of employers’ obligations with respect to remuneration amid restrictions on tariff growth rates for electric-ity distribution. a constructive social dialog resulted in mutually beneficial decisions aimed at curbing the growth of personnel costs in the conditions of frozen tariffs and, at the same time, at ensuring higher wages.

in 2014, rosseti subsidiaries’ management jointly with labor unions traditionally organized sports and cultural events, provided recreation and treatment for employees and their family members. on a regular basis, the company cooperated with veterans’ associations.

Charity and Sponsorship

rosseti gives much attention to charity and sponsorship activi-ties. the company supports the initiatives of charitable foundations and nonprofit organizations in the following areas:• promoting Russia’s cultural and spiritual heritage: projects in cul-

ture and the arts; programs to create, protect, and restore historic and architectural monuments;

• shaping a favorable social environment and settle pressing social issues;

• providing support for sports and a healthy lifestyle;• preserving and increasing the intellectual potential and providing

support for initiatives in science, education, and instruction;• providing target-oriented social support for people in difficult situa-

tions, including veterans.

The Company gives preference to the projects with clearly defined objectives and measurable results.

Protecting People from Electrical Injuries

rosseti carries out a package of measures to inform the public about the danger of electric currents and about the rules that should be obeyed by outsiders while they are close to electrical installations. the company works in close cooperation with the media in this area.

in cooperation with law enforcement agencies, the company protects power facilities from equipment theft and prevents unauthorized network connections-these offenses are a frequent cause of injury and death in outsiders. preventive measures are also taken to reduce the risk of electrical injuries that may affect anglers.

a special risk group is children and teenagers, who can, out of igno-rance or curiosity, violate safety requirements and come inadmissibly close to hazardous power facilities. preventive measures to protect children from electrical injuries include technical and outreach pro-grams. in 2014 alone, the company’s employees gave about 7,000 lessons across the country.

For example, the Company conducted a summer campaign “Safe Energy – a Happy Summer” in the Sochi area in 2014. The Sochi branch of kubanenergo, together with the Department of education and science of the sochi administration, conducted more than 60 les-sons on this subject at summer camps. these sessions were attend-ed by about 5,000 children.

The “Kind Electricity to Children” campaign has been carried on in Moscow since 2009. in 2014, electrical safety rules were visual-ized by characters of fixiki, a popular animated sitcom. the popular characters appeared in all visual materials distributed at educa-tional institutions in Moscow and the Moscow region. in addition, the company gives a teacher or kindergartner a DvD with cartoons on this subject. the DvD also contains methods for teaching les-sons and samples of printed products for use at lessons. teachers will also be provided with a set of posters showing electrical safety rules, and images of prohibiting signs placed at power facilities.

in 2014, athlete and state Duma Deputy nikolai valuev took part in preventive campaigns. a short features him warning children against incautious acts and reminding adults about their ability to prevent the tragedy.

currently, work is underway on a series of short videos in which the stars of russian football will remind that it is dangerous for chil-dren to play with electricity.


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the Ministry of energy of the russian federation awarded rosseti a diploma for high social significance and effective prevention of chil-dren’s electrical injuries in the category “For the successful imple-mentation of social policy in the fuel and energy sector.” The award-

ing ceremony took place during the 5th all-russian conference on the fuel and energy sector’s human resources “Role of Human Capital and Social Policy in Russia’s Energy Strategy.”

7. internal control and risk Management system

Unified Approaches

the internal control system is an important element of rosseti’s and ROSSETI SDCs’ governance. The effectiveness of internal con-trol is ensured by the interrelationship of internal audit, internal control, risk management, and auditorial control. the principal goal of the rosseti group’s internal control is to provide reasonable as-surance that the company and rosseti’s subsidiaries and dependent companies achieve the goals in the following areas:• cost effectiveness of the Company’s activities;• compliance with legal requirements and internal documents;• prevention of wrongful acts on the part of employees and third par-

ties in relation to the Company’s assets;• reliability, completeness, and timeliness of preparing all kinds of re-

ports.

The ROSSETI Group’s internal control system is built on unified approaches. the functions of internal audit, internal control, and risk management are vertically integrated. the functions of internal audit, internal control, and risk management are effectively implemented by means of unifying regulatory documents. in 2014, the Board of Direc-tors of rosseti approved the strategy for Developing and improving the internal control system of rosseti and sDcs. the following model documents were developed subject to the provisions of the corpo-rate Governance Code and the requirements of the Federal Agency for state property Management of the russian federation and intro-duced into sDcs:• Internal Control Policy;• Risk Management Policy;• Internal Audit Policy;• Regulations for the Internal Audit Commission;• Regulations for the Audit Committee.

Internal Control System Participants

internal Audit Commission

the competence of the internal audit commission of the company and the internal audit commissions of sDcs includes:• exercising control of the Company’s and SDCs’ financial and eco-

nomic activities;• ensuring compliance of business transactions conducted by

the company and sDcs with the laws of the russian federation and the Articles of Association of the Company and SDCs;

• making an independent assessment of information about the Com-pany’s and SDCs’ financial condition;

• assuring the reliability of information contained in reports and other financial documents of the Company and SDCs.

Board of Directors

Within the internal control system, the competence of the Board of Directors of the company includes ensuring the creation, super-vising the operation, and defining the general development strategy of the rosseti’s internal control system. the corresponding func-tions are performed by the boards of directors of sDcs.

Audit Committee1

the audit committees of the Boards of Directors of rosseti and sDcs:• ensures the selection of the external auditor;• monitor the preparation of accounting (financial) statements

and conducts their preliminary reviews;• assess external auditors’ reports;• review the internal audit policy;• are responsible for the functional management of internal audit;• review the report on key risks;• are responsible for the prior approval of the internal documents

defining the principles of and approaches to organizing the internal control and risk management system;

• assess the effectiveness of the internal control system and pre-pares proposals for its improvement.

Management Board

sDcs’ management boards review and analyze reports on the sta-tus of sDcs’ internal control and risk management systems, while the Management Board of rosseti does the same in relation to the entire rosseti group.

Director Generalthe Director general of rosseti and the sole executive bod-ies of sDcs ensure the creation and operation of the company’s and SDCs’ effective and reliable internal control and risk manage-ment system and formulate proposals to improve the internal control and risk management system.

Internal Audit, Internal Control, and Risk Management Divisionthe functions of internal audit and methodological support for the rosseti group’s internal audit, internal control, and risk man-agement system are the responsibility of the internal audit and con-trol Department of rosseti.

1 see governance for further information.

7. internal control anD risk ManageMent systeM

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as part of preventive and routine control, this department is respon-sible for:• assisting management in building a control environment;• applying routine control procedures in key and high-risk business

processes;• developing and ensuring the implementation of basic and methodo-

logical documents in relation to building and improving the group’s internal control, risk management, and internal audit system;

• coordinating activities in relation to maintaining and monitoring the target state of sDcs’ internal control and risk management sys-tem.

the internal audit and control Department of Jsc rosseti, jointly with sDcs’ internal audit divisions:• conducts internal audits of divisions, branches, business processes,

projects, and activities;• assesses the reliability and effectiveness of internal control and risk

management;• formulates recommendations to improve the efficiency of opera-

tions, enhance corporate governance, and increase the effective-ness of internal controls and risk management processes.

Key Results in 2014 and Goals for 2015

Performance Results in 2014

the units responsible for internal audit, internal control, and risk management conducted 563 inspections in the reporting period, including 107 internal audits of subsidiaries, subsidiary subsidiar-ies, and dependent companies. internal audits covered 104 entities of the rosseti group.

Breakdown of Inspections in 2014

107155

Internal audits of subsidiaries, subsidiary subsidiaries and dependent companies

Limited scope audits

Full scope audits of branches and SDCs

Monitoring of implementation of measures

Assessment of the internal control and risk management system

Other control measures16 98 51 136

2,286 corrective measures were proposed for implementation by the rosseti group’s entities as a result the above-mentioned in-spections. out of the 1,897 corrective measures to be implemented in the reporting year, 1,701 were completed.

Goals of Development for 2015

for the purpose of implementing the internal audit function, the com-pany set up a special division of the company, namely the Directo-rate for Internal Audit, after the reporting date (on January 19, 2015). this division is functionally subordinate to the Board of Directors of rosseti and administratively subordinate to the sole executive body of the company.

the principal internal documents that govern the company’s internal audit are the internal audit policy (approved by the Board of Direc-tors of ROSSETI; Minutes of the Meeting No. 151 of April 28, 2014) and the regulations for the Directorate for internal audit.

the policy is based on best practices and experience of leading in-ternational and russian companies and is formulated in accordance with the approaches applied by the institute of internal auditors (iia), an international professional association. the iia is the internal audit profession’s global voice, recognized authority, acknowledged leader, chief advocate, and principal educator.

Work will continue in 2015 on integrating control procedures into the company’s and sDcs’ business processes, integrating risk infor-mation into the rosseti group’s business planning system, develop-ing and improving the regulatory framework for the rosseti group’s risk management and internal audit, implementing an automated system of internal audit, etc.

Risk Management System

risk management ensures the sustained development of the com-pany by means of the timely identification, assessment, and effective management of risks threatening the company’s operations and rep-utation, the health of its employees, the environment, and the property interests of its shareholders and investors.

the system is governed by two key documents: risk Management policy and recommended guidelines for risk Management.

The Company defined the following principles of risk management:• systematic approach;• senior management’s support for developing the corporate culture

of risk management;• integration into strategic and operational administration;• separated decision-making levels;• responsibility for risk management;• common information channel;• cost-effectiveness.

Main Risk Management Methods

Risk management methods

Risk reduction (minimization)

Risk transfer (sharing)

Risk acceptance

Risk avoidance (aversion)

key Risks of the Company

in the reporting year, the rosseti group’s risk information was consolidated using data about rosseti and sDcs. each risk was as-signed a significance level and changes. The Company is aware that some risks that are currently negligible can have a substantial impact on the company’s activities in the future.


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The main groups of risks affecting ROSSETI are as follows:• industry-specific risks;• country and regional risks;• financial risks;• legal risks;• risks associated with the Company’s activities.

The Company has the limited ability to influence some existing (mostly, macroeconomic) risks. These risks may affect the Company’s profit, assets, capital, liquidity, and solvency.

SuMMARy tABLE of tHE RoSSEti GRouP’S RiSkS By SiGNifiCANCE LEVEL

Significance Level Changes

Critical No changes or minor changes in significance ---

Significant Increased significance ▲

Moderate Decreased significance ▼

Risk Group of Risks Changes*

Critical

Tariff regulation risks (restrictions on tariff growth)

industry-specific risks ▲

Risks associated with increases in overdue and uncollectable receivables for provided electricity distribution services

industry-specific risks ▲

Significant

Risk of lost income resulting from interrupted electricity consumption industry-specific risks ---

Network connection risks industry-specific risks ▼

Risk associated with the decreased volume of electricity distribution industry-specific risks ▲

Risk of increased expenses incurred in relation to the purchase of electricity to compensate for electricity network losses

industry-specific risks ▼

Operational and technological risk of SDCs’ activities risks associated with the Company’s activities

▲

Investment (project) risk affecting SDCs’ activities risks associated with the Company’s activities

▲

Risks associated with the political and economic situation in the country and the regions of SDCs’ operations

country and regional risks ▲

Risks associated with the geographical characteristics of the country and the regions of SDCs’ operations

country and regional risks ▲

Risks associated with loan interest rate changes financial risks ▲

Risks associated with inflation impact financial risks ▲

Moderate

Risks associated with taking on and subsequently transferring the supplier of last resort status

industry-specific risks ▼

Legal risks risks associated with the Company’s activities

---

Risks associated with exchange rate changes financial risks ▲

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ROSSETI Information Resources

Corporate website:

rosseti.ru

LSE Regulatory News Service (RNS)

Interfax Corporate Disclosure Center

8. reputational policy and integrated communications Management

Principles and Practices of Disclosure

ensuring the openness and transparency of rosseti’s activi-ties and providing comprehensive and accurate information to all stakeholders are important components of the company’s commu-nications policy. the company is committed to communicating im-portant corporate events in a regular and timely manner, including disclosing unfavorable information. using various methods for dis-closure of information about rosseti’s activities makes it possible to substantially speed up the provision of information for the market and makes it easier for stakeholders to obtain information. there-fore, the general public can, at any time, form an objective opinion on the company’s activities.

the following fundamental principles underlie the company’s infor-mation policy:• openness;• accessibility;• timeliness;• regularity;• reliability;• completeness.

to disclose information, the company uses the publicly available media providing the largest coverage in the russian federation: tel-evision, radio, printed media, news agencies, social networks, web-sites of the company and its sDcs.

an important information resource is rosseti’s corporate web-site, containing up-to-date relevant information about the activities of the company and its sDcs.

As an issuer, the ROSSETI Group fulfills all legal requirements for dis-closures to investors and shareholders. for this purpose, the compa-ny uses the Interfax Corporate Disclosure Center. The most significant events are internationally disclosed by rosseti through the lse reg-ulatory news service.

RoSSEti information ResourcesCorporate website: rosseti.ruInterfax Corporate Disclosure Centerhttp://www.e-disclosure.ru/portal/company.aspx?id=13806LSE Regulatory News Service (RNS):http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=US47973C2061USUSDIOBE&lang=en

Implementation of the Uniform Information Policy

ROSSETI approved the standards, rules, and requirements appli-cable to communications between the company and its sDcs. they also apply to relations with all stakeholders. The Company identifies the following top-priority target audiences: governmental authorities; big business; small and medium-sized businesses; the energy-relat-ed business, scientist, and expert communities; public organizations; and other stakeholders.

The media centers of grid companies at different levels and the infor-mation departments of eMercoM, the russian Ministry of the interi-or, and regional and municipal administrations interacted effectively in 2014 and signed memorandums on informational interaction.

special attention is paid to pursuing the uniform information policy of the Company and its SDCs. Specifically, obligatory sections were included in the structure of operating entities’ websites in line with rosseti’s corporate website, and rosseti’s corporate identity is used for such websites. uniform standards also apply to other ar-eas of disclosure.

Main Areas of Integrated Communications

Events of Public importance

enhancing the reputations of the company and sDcs as socially responsible companies was facilitated by cultural events held un-der a single concept and information algorithm in all of the russian regions of the rosseti group’s operations. for instance, the celebra-tion of the 69th anniversary of the victory in the great patriotic War of 1941–1945 involved sDcs’ war veterans, more than 3,600 people. electric grid companies made wide use of corporate museums’ ca-pabilities. particular attention was paid to the improvement of mil-itary memorials and monuments to fallen soldiers. together with representatives of local government authorities, veteran and youth organizations, students of secondary schools, vocational schools, and universities, energy workers took part in wreath-laying ceremo-nies, commemorative events, and lessons of history.

the following activities of rosseti received information support and extensive coverage in media outlets, social networks, and elec-tronic media and on the corporate website:– ROSSETI’s first anniversary. Company Day was celebrated in Sochi.

the ceremonies were attended by subsidiaries’ best employees and representatives of labor dynasties, student labor brigades from partner universities, veterans of the energy industry, who visited Olympic Games sites and modern energy infrastructure facilities;

– st. petersburg international economic forum, with rosseti’s delega-tion organizing a roundtable discussion on “Integration of Global En-ergy Systems: Jointly Designing the Future,” attended by representa-tives of russian federal authorities, foreign ministries and agencies, and executives of major russian and foreign energy companies. The Forum took place in Saint Petersburg on May 15, 2014;

8. reputational policy anD integrateD coMMunications ManageMent

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In 2014, ROSSETI launched

an internal corporate portal

by 47% the number of visitors to the Company’s corporate website increased –

1,018,945 on the average (compared with 692,072 in 2013)

Foreign visitors (the geographical division is Russia and the rest of the world) to the whole site (not only the English version)

34%346,000 visitors

– interregional competition among 0.4–10-kv distribution network repair and maintenance crews of rosseti subsidiaries, which took place on the training ground of penzaenergo, a branch of iDgc of Volga, August 4–11, 2014;

– 11th international competition among 0.4–10-kv distribution net-work repair and maintenance crews of cis national energy systems, which took place on the training ground of lenenergo in peterhof September 22–26, 2014;

– 2nd All-Russian Forum on Network Connection “Accessible Net-works: Projects, Experience, Current Issues,” which was held in Saint Petersburg on September 5, 2014;

– 5th working season of the electric grid sector’s student labor brigades, which was launched at the Moscow power engineering institute (national research university), rosseti’s partner univer-sity. the closing ceremony of the season, featuring the top 16 labor brigades, took place in Crimea October 8–11, 2014;

– rugrids-electro international electric power forum organized by rosseti with support from the federation council of the federal assembly, the state Duma, and the Ministry of energy. the forum was held in Moscow October 15–17, 2014;

– 4th International Forum “The Arctic: Present and Future,” including the first session held by the Association of Polar Explorers public commission on environmental protection. the session was headed by the association’s vice president oleg Budargin, Director general of rosseti. the forum took place in saint petersburg December 10–11, 2014;

– package of measures to prevent children’s electrical injuries across russia.

in addition, the rosseti group secured a reliable power supply for more than 35,000 polling stations on the single day of voting in the russian regions of its operations. this event also received wide media coverage.

the most important events in the company’s life were featured in videos. Many of them were regionally broadcast on television, shown in movie theaters, and posted on popular websites. on energy Worker Day in December 2014, ROSSETI first tried the system of a uniform media space when the country’s leading radio stations con-gratulated the company’s best employees.

internal Communications

the company operates and constantly improves its system of internal communications to ensure that employees are informed in a timely and unbiased manner. given the scale of rosseti’s operations, in-ternal communications are an important component of teambuilding policy.

Internal Corporate Portalin 2014, rosseti launched an internal corporate portal. access to the portal is granted to all employees of the company and the executive arms of its sDcs. the portal is part of a common infor-mation space and is designed to optimize day-to-day operations and raise employees’ awareness.

the corporate portal covers the main events in the company’s activities through a newswire, video blog, and photo gallery. it contains the lat-est issue of the corporate newspaper, monitoring results, reviews, documents, and a directory of employees. The section “Personnel Management” contains the key documents in this area, the Compa-ny’s organizational and functional structure, and information about personnel changes and employee awards.

Rossiyskie Seti Corporate Newspaperin september 2013, the company began to release a corporate monthly with a circulation of more than 40,000. the rossiyskie seti newspaper

is registered with the federal service for supervision of communica-tions, information technology and Mass Media of the russian feder-ation. the publication is distributed to all of the company’s divisions and sDcs, down to electric grid districts and production units. the key audience of the newspaper is production personnel and the staff of the executive arms of sDcs.

the company’s sDcs attach their own inserts to the main edition of the rossiyskie seti.

PublishingAfter the XXII Olympic Winter Games and the XI Paralympic Winter games, the olympics energy in the people photo album was released. It is a 300-page unique publication that contains photographs of over 3,000 employees of the company, who made a personal contribution to the construction and rehabilitation of the olympic games electric grid infrastructure.

the reporting year saw the preparation and publication of booklets and leaflets about activities of ROSSETI and its SDCs, timed to coin-cide with the XXII Olympic Winter Games in Sochi, the St. Petersburg international economic forum, the 5th working season of the electric grid sector’s student labor brigades, the annual Meeting of share-holders of rosseti, the rugrids-electro international electric power Forum, and the 4th International Forum “The Arctic: Present and Fu-ture.”

Videosas part of covering the rosseti group’s work in 2014, videos were made to show the sochi Winter olympics, the st. petersburg inter-national economic forum, the rugrids-electro international elec-tric power forum, the completed season of student labor brigades working at electric grid facilities, the prevention of people’s electrical injuries, the best energy workers listed on rosseti’s and sDcs’ rec-ognition boards, etc.

the most popular was the sochi’s olympic energy video about the rosseti group’s contribution to the comprehensive rehabilitation of electric grid facilities in the sochi district and to the creation of one of the most modern and environmentally friendly energy systems in russia. a video about the rosseti group’s professional competitions was included in presentations for the company’s employees who start their careers as electricians.

External Communications

Corporate WebsiteA key official source of information concerning the Company’s activi-ties is its corporate website (www.rosseti.ru).

the number of visitors to the company’s corporate website increased by 47% on the average to 1,018,945 in 2014 (compared with 692,072 in 2013). foreign visitors (the geographical division is russia and the rest of the world) to the whole site (not only the english ver-sion) accounted for around 34%, or about 346,000 in 2014.

Media RelationsOn a regular basis, ROSSETI informs the public about significant cor-porate achievements and the implementation of the company’s social programs through media outlets. the company regards the media as the main and most effective channel of disseminating information on its activities.

the year 2014 saw a considerable increase in publications about the Company’s and SDCs’ activities, up by 88% to 220,500; radio and tv broadcasters aired 600 items. Building up its relations with the journalist community, rosseti regularly organizes press tours

8. reputational policy anD integrateD coMMunications ManageMent

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of the company’s and its sDcs’ facilities, timed to coincide with the Company’s significant events. In the reporting period, ROSSETI arranged 285 press tours resulting in about 4,500 publications.

in the reporting year, the topical subjects of publications about the company’s activities were as follows:• financial performance;• effectiveness of the capital investment program;• debt and nonpayment management;• tariff policy;• cooperation with State Grid Corporation of China;• import substitution policy in the electric grid sector.

in 2014, rosseti was mentioned in more than 25,500 printed and elec-tronic publications. among electric grid companies, the greatest ac-tivity was shown by iDgc of centre (98,611 publications), fgc ues (31,508), iDgc of center and volga region (17,092), and iDgc of urals (12,575).

in 2014, neutral publications accounted for the largest share (over 58%). overall, negative and positive publications represented 4% and 38% respectively.

Social Media Public Relationsin cooperation with nationwide and regional media outlets, the com-pany SDCs regularly inform the public about significant corporate achievements and the implementation of their social programs.

a priority of the company’s information policy is to prevent outsiders’ electrical injuries at electric grid facilities. all sDcs, jointly with the executive arm of rosseti, carry out a package of measures, including in collaboration with the media, to inform the public about the danger of electric currents and about the safety precautions that should be obeyed by outsiders while they are close to electrical installations. preventive measures to protect children from electrical injuries in-clude technical and outreach programs. in 2014 alone, the company’s employees gave about 7,000 lessons across the country.

Participation in Conferences and Exhibitionsin 2014, the rosseti group took part in the industry’s events: exhibi-tions, conferences, and forums.

During the annual the st. petersburg international economic forum, the Company organized a roundtable discussion on “Integration of Global Energy Systems: Jointly Designing the Future,” attended by representatives of russian federal authorities, foreign ministries and agencies, and executives of major russian and foreign ener-gy companies. the company’s participation in the forum resulted in signing several important documents, including as follows:• agreement with the Sverdlovsk Region Government to develop wire

manufacture and modernize the Urals electric grid sector;• agreement with the Government of Moscow to develop the territory

of New Moscow;

• agreement with the Arkhangelsk Region Government to implement measures to secure a reliable electricity supply and create the con-ditions for network connection in the Arkhangelsk Region;

• General Partnership Agreement with the Moscow Power Engineer-ing institute concerning the development of cooperation in educa-tion and R&D;

• agreement with Oboronenergo to cooperate in carrying out measures to secure a reliable electricity supply and create the conditions for network connection;

• Memorandum on Cooperation among ROSSETI, the Agency for housing Mortgage lending, and the agency for financing of housing construction concerning the implementation of the pro-ject “Construction and Rehabilitation of Electric Grid Facilities for the purpose of providing citizens of the russian federation with Affordable and Comfortable Housing and Public Utility Services.”

With support from the federation council of the federal assembly, the state Duma, and the Ministry of energy, the company organized and held the rugrids-electro international electric power forum, which took place in Moscow in october 2014. the main components of the forum were an exhibition, an extensive business program, a podium of innovative solutions, a business contact exchange, and a youth policy area. the forum’s three days included 28 discus-sion events.

The ROSSETI Group presented the results of its efforts to reduce the risk of injuries affecting personnel and outsiders at power facil-ities at the 5th sape (safety and protection in energy) international exhibition and conference in Moscow. this is the energy industry’s leading event related to industrial and occupational safety with a full range of modern equipment and recent developments.

rosseti took an active part in the 2nd all-russian forum on network Connection “Accessible Networks: Projects, Experience, Current Issues.”

in august 2014, rosseti’s delegation took part in the 45th session of the council on large electric systems (cigre), currently one of the most reputable scientific and technical associations bringing together researchers and experts in electric power systems from all around the world.

in september 2014, the company took part in the sochi 2014 interna-tional investment forum. the forum deals with making innovation projects more attractive to investors. several documents were signed in sochi while rosseti’s delegation was participating in the event, including the pentalateral Energy-Efficient City agreement signed by rosseti, energostroy-Mn, and the city administrations of gudermes, Magas, and kaspiysk.

In addition to industry-specific and economic events, the Company paid attention to environmental efforts. As part of the 4th Internation-al Forum “The Arctic: Present and Future,” the first session was held by the association of polar explorers public commission on environ-mental protection. the session was headed by the association’s vice president oleg Budargin, Director general of rosseti.


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consolidated financial indicators

key financial indicators, million rubles 2013 2014

REVENUE 755,806 759,608

OPERATING EXPENSES (912,566) (759,805)

ADJUSTED EBITDA 233,162 249,029

ADJUSTED EBITDA MARGIN, % 30.8% 32.8%

ADJUSTED NET PROFIT 73,999 69,499

9. economic impacts

Operating Results

Electricity Distribution

rosseti sDcs are engaged in electricity transmission and distribu-tion in the regions of their operations and are responsible for a relia-ble and uninterrupted power supply.

Reducing Electricity Losses

rosseti carries out the consolidated energy conservation and energy Efficiency Enhancement Program for 2011–2015.

the company’s actual electricity losses were 75,229.955 million kWh, or 9.52% of electricity delivered to networks. compared with 2013, electricity losses fell by 1,056.4 million kWh, or 0.14 percentage points. these indicators resulted from a package of measures taken by ROSSETI SDCs. The economic effect of reducing electricity loses totaled 5,219.8 million rubles.

reduced energy consumption for business needs:

The economic effect of measures was as follows:• 144.7 million rubles in distribution grids• 6.56 million rubles in transmission grids

Major facilities Connected to Electricity Networks

as part of rosseti’s contribution to russia’s economic development, the company continued in the reporting year to provide electricity con-nections for major facilities. the following facilities were connected to networks in 2014:• new facility for the production of oil and gas pipes in the Kostroma

Region (9.5 MW);• 110/10-kV Titan Substation in the Middle Urals, which will supply elec-

tricity to industrial facilities in the Titanium Valley special economic zone;• Beloyarsk NPP of Rosenergoatom (890 MW);• Nyagan TPP of Fortum (420 MW);• Novogorkovskaya CHPP (Units 1 and 2) of Integrated Energy Systems

(180 MW);• CHPP-16 of Mosenergo (420 MW);• Abakan CHPP of TGK-13 (120 MW).

the company improved electricity supply reliability for customers in Moscow and the Moscow region (223 Mva of transformer capacity) and in krasnoyarsk (801 Mva of transformer capacity and 23.7 kilo-meters of power lines).

Tariff Policy

The tariff policy in the electric grid sector has two principal goals:• establish long-term stable parameters of regulation;• provide competitive tariffs for the Russian economy.

oPERAtiNG RESuLtS of RoSSEti SDCS* iN 2014

Subsidiary/Dependent Company Name Delivery to Networks, million kWh

Electricity Losses, million kWh

Electricity Losses, %

IDGC of Centre 64,175.5 5,949.2 9.27

IDGC of Center and Volga Region 55,004.0 5,076.9 9.23

IDGC of Volga 54,931.5 3,638.4 6.62

IDGC of North-West 39,715.0 2,547.1 6.41

IDGC of Siberia 74,766.2 5,668.8 7.58

TDC 6,050.2 511.9 8.46

IDGC of Urals 79,770.1 6,240.6 7.82

IDGC of South 29,525.8 2,745.3 9.30

IDGC of Northern Caucasus 18,058.7 3,572.8 19.78

Chechenenergo 2,533.3 944.8 37.29

Kubanenergo 21,572.7 2,852.7 13.22

MOESK 88,764.9 7,784.6 8.77

LENENERGO 34,208.4 3,791.5 11.08

Tyumenenergo 73,403.2 1,868.2 2.55

Yantarenergo 4,198.4 776.0 18.48

total for distribution grids 646,678.0 53,968.9 8.35

FGC UES** 536,510.65 21261.0832 4.13

totAL for RoSSEti SDCs*** 790,534.6 75,229.96 9.52

* the rosseti group’s result takes account of rosseti sDcs’ subsidiaries and dependent companies engaged in electricity distribution

** the calculation of fgc ues’s electricity losses is based on electricity delivery from fgc ues’s networks to customers’ electricity networks

*** The calculation of the ROSSETI Group’s total result takes account of the electricity flow balance between electricity networks of FGC UES and electricity networks of ROSSETI’s

subsidiaries and dependent companies engaged in distribution


34

At present, ROSSETI SDCs are subject to two long-term tariff regu-lation methods.

Return on invested Capital Method (RAB)

inherent in the method is the possibility of a phased payback plus interest on invested capital. Therefore, the benefits of the transition to raB regulation are that returns are guaranteed, thus encouraging investment in grid infrastructure construction and modernization, and that it is possible to make more investments compared with the alternative tariff regulation method.

Long-term Minimum Regulated Revenue indexation Method

in the case of this method, the main components of minimum regu-lated revenue are controllable expenses and uncontrollable expens-es, including expenses associated with depreciation of fixed assets and expenses related to using reinvested profit. Reinvested profit may not be in excess of 12% of a grid organization’s minimum regulated revenue.

the calculation base for electricity transmission and distribution services is the volume of electricity delivery and the amount of ca-pacity determined in accordance with the rules of nondiscrimina-tory access to electricity transmission and Distribution services and the provision thereof and the consolidated forecast electricity (capacity) balance.

The weighted average pool tariff in the existing agreement system was 1.17 rubles per kWh in 2014, or 10% higher than in 2013.

Changes in the Weighted Average Tariff of Electricity Distribution Services, kopecks/kWh

5544

68

8697 96

106117

2010 2011 20122008 20092007 2013 2014

Weighted average tariff of electricity distribution services

Financial Performance of the ROSSETI Group

key financial indicators

adjusted eBitDa1 was 249.0 billion rubles in the reporting year, or up by 6.8% on the previous year. the adjusted eBitDa margin increased to 32.8%, or 2.0 percentage points higher than in 2013.

Adjusted net profit2 in 2014 reached 69.5 billion rubles and slightly decreased by 4.5 billion rubles, or 6.1% compared with 2013, due to a high growth rate of depreciation resulting from the commissioning of new capital assets under the capex program.

CoNSoLiDAtED fiNANCiAL iNDiCAtoRS, MiLLioN RuBLES

Key Financial Indicators, million rubles

2013 2014 2014/2013

Revenue 755,806 759,608 0.5%

Operating expenses (912,566) (759,805) (16.7)%

Adjusted EBITDA 233,162 249,029 6.8%

Adjusted EBITDA margin, % 30.8% 32.8% 2.0 pp

Adjusted net profit 73,999 69,499 (6.1)%

Revenue

consolidated revenue in the reporting period rose by 0.5% to 759.6 billion rubles. changes in revenue are determined by changes in elec-tricity consumption and electricity distribution tariffs. In the reporting year, electricity demand increased by 0.4%. additionally, revenue was affected by a lower growth rate of electricity distribution tariffs, which resulted in a minor change in the group’s revenue.

revenue from electricity distribution went up by 6.8% to 620.0 billion rubles due to an increase in the average electricity distribution tariff. revenue from electricity distribution services accounted for the largest share (82%) in the group’s total revenue. revenue from elec-tricity and capacity sales went down by 31.9% due to the supplier of last resort functions transferred by some rosseti sDcs in 2014 to the winning bidders as a result of the bidding procedures conducted by the russian Ministry of energy.

StRuCtuRE of REVENuE, MiLLioN RuBLES

Revenue 2013 2014 2014/2013, %

Electricity distribution 580,656 620,022 6.8

Network connection services

37,005 36,473 (1.4)

Electricity resale 127,063 86,516 (31.9)

Other 11,009 12,484 13.4

Government subsidies 73 4,113 -

total 755,806 759,806 0.5

Cost Management

one of the key objectives of the company’s management is to in-crease the operating efficiency of the ROSSETI Group. The targets in this respect are set by the strategy for Development of the electric grid sector of the russian federation.

Work in this area in 2014 included approving the economic policy and the Operating Efficiency Management Program for 2014–2017.

1 Adjusted EBITDA is calculated as EBITDA (earnings before interest, tax, depreciation, and amortization for the reporting period) less losses on impairment of fixed assets, impair-

ment of financial investments, and impairment of receivables.2 Adjusted Net Profit for the reporting period is calculated as the period’s net profit less losses on impairment of fixed assets, impairment of financial investments, and impairment

of receivables and related deferred profit tax liabilities.

9. econoMic iMpacts

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the economic policy of the company sets the company’s priori-ties and goals with respect to improving the operating and financial efficiency of the electric grid sector, ensuring long-term transparent tariff regulation, balancing the interests of electric grid companies and customers, and increasing investor appeal for the industry as a whole.

The Operating Efficiency Management Program is a tool aimed at min-imizing the consumption of resources without compromising the reli-ability, quality, and accessibility of power supply. The Program is syn-chronized with the action plan to limit the ultimate cost of goods and services of infrastructure companies.

The target of the Operating Efficiency Management Program is to op-timize costs and ensure effective cash management amid restricted tariff-based sources of financing. For this purpose, the Company in-tends to increase the efficiency of its operating, investing, and financ-ing activities.

The implementation of measures under the Operating Efficiency Man-agement program resulted in reducing per-unit operating expenses of rosseti by 13.5% in 2014, or 23.1 billion rubles, compared with 2012, adjusted for inflation. The Company cut its general and admin-istrative expenses by 17.5%, or 9.5 billion rubles.

Credit Ratings

receiving credit ratings from international credit rating agencies ena-bles the company and sDcs to be increasingly attractive to investors and pursue an effective borrowing policy in public capital markets. the company is active in cooperating with leading international rating agencies.

in accordance with the methodologies of the international rating agen-cies, ROSSETI and its SDCs qualify as government-linked companies. Consequently, the credit ratings of the Company are closely tied to the sovereign rating of the russian federation. against a background of instable foreign policy, sanctions, and the deteriorating economic situation, the international rating agencies in 2014 revised the sover-eign rating for the russian federation and the credit ratings for rus-sia’s largest companies, including the rosseti group’s entities.

however, rosseti’s own creditworthiness was not revised by any rating agency, which indicates the Group’s stable financial position.

CREDit RAtiNGS of tHE RoSSEti GRouP AS At DECEMBER 31, 2014

Company Current Credit Rating

Moody’s S&P Fitch

ROSSETI Group Ba1 ВВВ- _

FGC UES Ваа3 ВВВ- ВВВ

MOESK Ва2 ВВ BB+

IDGC of Centre - ВВ -

IDGC of Volga Ва2 - -

IDGC of Center and Volga Region

Ва2 - -

IDGC of Urals Ва2 - -

LENENERGO Ва2 - -

Capital Investment Program

the capital investment program of rosseti sDcs is aimed at se-curing a reliable and high-quality electricity supply by means of the technical upgrading and rehabilitation of electric grid facilities and by means of new construction, including for providing new cus-tomers with electricity connections. the company uses its own funds and borrowings to finance the capex program.

The financing of the capex program was 240.8 billion rubles in 2014, or a fourth less than in the previous year due to restrictions on the tariff growth rate and a shortage of funds in the financial and economic situation of 2014. in 2014, commissioned capacity totaled 19,483 Mva and 32,933 kilometers.

network connection expenses accounted for the largest share (34.1%) in financing, while technical upgrading and rehabilitation accounted for 29.4% and new construction for 24.4%.

Breakdown of Financing Under the Consolidated Investment Program by Area (inclusive of VAT), billion rubles, %

34.112.1

24.4

Network connection

Technical upgrading and rehabilitation

New construction

Other

29.4

Innovative Development Program

implementation of the innovation Program

in 2014, rosseti developed and approved the innovative Develop-ment, Energy Conservation, and Energy Efficiency Enhancement Policy. The Policy defines principles and rules, contains goals and ob-jectives, and details targets and implementation mechanisms.

pursuant to the approved policy, the company continued in the re-porting year to carry out the innovative Development program of rosseti for distribution and transmission grids. the program is aimed at achieving the strategic goal: securing the reliable, high-quality, and affordable energy supply for customers by building a network infrastructure that is maximally efficient and conforms to international standards, including using advanced innovative ap-proaches, technologies, and solutions.

Programs of SDCs for distribution grids

Program for transmission grids

Innovative Development Program of ROSSETI


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the innovative Development program focuses on:• building up an efficient management system for innovative devel-

opment;• developing and introducing advanced technology, including energy

efficiency technology and , environmental protection technology;• carrying out the Research and Development (R&D) Program;• creating the conditions for the implementation of innovation pro-

jects, including pilot projects;• automating the operation of electric grid facilities;• developing and improving electricity metering systems.

the company also intends to cooperate closely with innovative small and medium-sized businesses and develop innovative, scientific, and engineering competencies of its own personnel.

Standardization

in 2014, rosseti provided resources for establishing the subcom-mittee on electric grids (transmission and Distribution) of the tech-nical committee on electricity industry standardization working in the area of national standardization. technical regulation system will provide the legal framework for the innovative development of not only the company but also the russian electricity industry as a whole.

the subcommittee formulated proposals for the plan to develop na-tional and interstate standards for 2015. the plan includes 15 doc-uments, 11 national standards, and four interstate standards with financial backing. Action plans for national standardization will also be formulated for 2016 and 2017.

implementation of the R&D Program

the r&D program is an integral part of the innovative Development program. the r&D program is based on the electric grid sector’s cur-rent issues and aimed at creating fundamentally new developments, technologies, methods, and materials and at improving existing tech-nologies. the list of r&D areas recommended for implementation under the r&D program in 2014 –2018 and based on the collection and expert examination of proposals received from rosseti sDcs, r&D and design organizations, and production entities is posted on the company’s corporate website.

in the reporting year, the company approved the regulations for the introduction of innovative solutions into rosseti. this doc-ument sets forth the procedure and rules for rosseti’s and its sDcs’ measures introduce innovative solutions into sDcs’ electric

grid facilities. rosseti established the innovation commission with the principal goal of keeping the register of innovative solutions rec-ommended for use by sDcs.

in the reporting year, the company also approved the concept of Managing the intellectual property of rosseti and sDcs. the concept provides the basis for building up the system of intellectual property, innovation, and invention management at the company and sDcs.

additionally, the company is considering setting up the centralized foundation for research, Development, and innovation support (r&D foundation) and the center for technology Monitoring and transfer. the r&D foundation will provide further impetus for the development of r&D by making it possible to carry out long-term projects with confirmed financial backing, distribute R&D deliverables to all SDCs, and co-finance large-scale projects jointly with sectoral and govern-mental foundations.

the r&D program includes measures to develop breakthrough and applied technologies. some of them were implemented in 2014. in the reporting year, the company also successfully completed sev-eral pilot projects and resolved the issue of seeking federal and re-gional regulators’ consent to r&D areas.

Setting up the federal testing Center

the year 2014 saw the establishment of russia’s federal testing center (ftc). this is one of the most important steps toward the de-velopment of the country’s electric grid sector.

With 10 laboratories, ftc will focus primarily on testing high-voltage equipment. FTC will make it possible to conduct comprehensive tests both on prototypes and pre-production models of new electrical prod-ucts and on a full range of domestically made electrical equipment.

up to now, russia has had no testing facility conforming to interna-tional standards and domestic manufacturers have had to conduct necessary tests abroad. setting up ftc will considerably shorten the period from developing new domestic technologies to bringing them into use and will create the conditions for avoiding additional transportation costs and customs fees and duties. this will provide considerable support for the development of domestic manufactur-ers of equipment rated over 110 kV.

the company plans to begin the creation of ftc in saint petersburg in 2015 and complete it in two years’ time.

9. econoMic iMpacts

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10. procurement practices

Approach to Supplier Relations

the company gives special attention to the transparency of its pro-curement policy. its achievements in this area have received numer-ous honorary awards.1

The Company’s procurement is governed by the Federal Law “On Pur-chases of goods, Work, and services by certain types of corporate Entities,” Uniform Procurement Policy of ROSSETI, and the Procure-ment regulations.

the basic principles of procurement are as follows:• equality and fairness with respect to procurement participants,• proper and economically viable spending,• disclosure of procurement information,• transparency and manageability of procurement,• professionalism and expertise of responsible officers.

preference is given to competitive purchasing methods, particular-ly bidding. other approved purchasing methods include auctions, requests for proposals, requests for quotations, competitive nego-tiations, and sole source purchases. the company works to reduce the share of sole source purchases. Over the past five years, they have decreased from 31.4% to 3.7% of the actual volume of pur-chases.

Procurement Breakdown in 2014, %

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Public competitive bidding

Public requests for proposals

Public auctions

Sole source purchases

Public requests for quotations

Public competitive negotiations

any purchasing method is selected within due consideration to the parameters of the purchased item in accordance with the pro-curement regulations. purchase documents are prepared, setting out the requirements for products/services, purchase participants, and their bids.

the main criteria for selecting preferred bidders are as follows:• price,• bidder qualifications,• logistical support available for the performance of the contract.

each criterion is assigned its weight. the maximum weight is as-signed to the price. through this approach, in 95% of cases, the win-ning bidder is the entity offering the lowest price with the fulfillment

of all other requirements of purchase documents. The economic effect of competitive procedures in 2014 was 5.3%, or 17.9 billion rubles (exclusive of vat).

In 2014, the total economic effect with savings arising from procure-ment planning reached 30.6 billion rubles, exclusive of vat.

particular attention is paid to the transparency of purchases and the accessibility of information for bidders. information about all planned and current purchasing procedures is posted, as prescribed, on the Company’s website and electronic trading floors and on the Russia’s official website for public contracts.

information on RoSSEti’s purchases is posted on the following websites:• official website for public contracts

www.zakupki.gov.ru• ROSSETI’s website www.rosseti.ru • electronic trading floor of the ROSSETI Group

(all purchases) www.b2b-mrsk.ru• electronic trading floor of the ROSSETI Group

(small purchases of up to 2.5 million rubles) www.etp.rosseti.ru

the company works to increase the proportion of purchases through electronic trading floors. For instance, the share of pur-chases through electronic trading floors increased from 78% in 2011 to 98% in 2014.

in the reporting year, the company put into test operation the second through electronic trading floor, designed for small purchases of up to 2.5 million rubles. it provides small and medium-sized businesses with easier access to procurement procedures due to low participa-tion fees, and the fee is payable only by the winning bidder.

Purchases from Small and Medium-Sized Businesses

the rosseti group is interested in expanding the proportion of sup-pliers from among small and medium-sized businesses (sMBs). sMBs are extensively involved in r&D.

the company is active in working in this area, acting on its own initiative and carrying out the government program “Expanding Ac-cess of small and Medium-sized Businesses to purchases of infra-structural Monopolies and Government-Linked Companies.” To date, the group has implemented all mechanisms and measures under the program. information about them is available on the company’s corporate website in the section “Procurement.”

1 See Company Profile/Awards for further information.


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the company established a deliberative body responsible for the pub-lic audit of its purchases. it consists of representatives of 19 civil society organizations, business associations, technology platforms, and cross-sectoral communities. the company developed a list of goods, work, and services that will be purchased from sMBs only.

the provisions of the resolution of the government of the russian Federation “On the Particularities of Small and Medium-Sized Busi-nesses’ participation in the purchases of goods, Work, and services by Specific Types of Corporate Entities” are incorporated into the reg-ulatory documents that govern procurement.

through a series of measures taken in 2014, the proportion of sMBs that were awarded contracts increased by 5% to 24.1%. the total value of rosseti’s contracts with sMBs exceeded 43 billion rubles in 2014.

Proportion of Purchases from Small and Medium-Sized Businesses, %

2013 2014 2015plan

0

5

10

15

20

25

24

10

1819

Share of direct contracts with SMBs

Share contracts with SMBs, including subcontracts

Import Substitution and Geographical Diversification of Purchased Equipment

rosseti continued to carry out its import substitution program in the reporting year. the foreign economic situation in 2014 around the russian federation showed the correctness and importance of import substitution efforts in the electric power sector as a guar-antee of the country’s future energy security.

the policy of supporting domestic manufacturers received legis-lative support. In late 2014, the Federal Law “On Industrial Policy in the Russian Federation” was enacted, which, among other things, facilitates the implementation of large-scale import substitution in the electricity sector.

the import substitution program of rosseti will be reviewed by the Board of Directors in the 1st half of 2015 and is to be a key instru-ment for implementing the company’s long-term Development pro-gram. the company intends to carry out the program at an accelerat-ed pace and decrease the share of imported products to 14% by 2020.

as instructed by the presidential commission for strategic Devel-opment of the fuel and energy sector and environmental security of the russian federation, rosseti formulated and carries out the action plan to reduce import Dependence in the electric grid sector of the russian federation.

the action plan includes the following key measures:• develop and implement the comprehensive Import Substitution Pro-

gram for SDCs for the period until 2019;• extensively cooperate with domestic manufacturers in order to create

the conditions for achieving expanded production and improved product quality;

• unify technical and design solutions by centralizing equipment pur-chases for SDCs;

• minimize the use of imported equipment and materials in the course of preparing design solutions and maximize the use of domestic equivalents;

• create the conditions for entering into long-term supply contracts with domestic manufacturers for guaranteed quantities in order to encourage the use of state-of-the-art technology and localize the production of equipment and component parts.

With the aim of implementing the action plan, in strategic partnership with rostec, rosseti is creating the common competence center (technical customer center) for the manufacture and supply of im-port-substituting equipment for the electric grid sector.

The Company identified two key areas of import substitution policy implementation.

first area: ensuring industrial growth in the russian economy through the development of domestic manufacturers’ competencies and technology transfer at the desired level of production and r&D localization. This work includes the identification of innovative tech-nologies and the company’s direct involvement in designing new and up-to-date types of electrical equipment.

second area: improving the competitiveness of the russian energy sector through the development of engineering capabilities for power plant engineering inside the country. this area includes providing leg-islative support for giving preference to the use of domestically made equipment and creating the long-range conditions for the production of Russian equivalents.

Manufacturers from russian regions are already engaged to sup-ply products to rosseti’s facilities. the company reached agree-ments on these operations with the sverdlovsk region government and the tomsk region government.

the company also works to geographically diversify the purchase of equipment and component parts that have no domestic equiva-lents, including by importing products from the Asia-Pacific Region. The first steps in this direction have already been taken. In 2014, in the presence of president of the russian federation vladimir putin and President of the People’s Republic of China Xi Jinping, ROSSETI and state grid corporation of china signed the strategic cooperation agreement to set up a russia-based joint venture in order to modern-ize electric grid facilities and attract new technology and investment.

an important area of import substitution is the localization of foreign manufacturers’ production. the company signed strategic cooper-ation agreements with hyundai heavy industries, aBB, and alstom in 2014. in order to optimize costs of localized products, rosseti works to reduce customs duties on imported component parts. for instance, import duties on component parts for factory-assembled switchgear were reduced to zero in 2014.

10. procureMent practices

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11. human resource Development

Basic Principles of the Personnel Policy

in 2014, the company’s Board of Directors approved the personnel and social policy formulated with the aim of employing personnel sufficient to achieve the current and long-range goals of electric grid companies, including the goals contained in the strategy for Devel-opment of the electric grid sector of the russian federation. this is the policy document establishing electric grid companies’ priorities and defining the areas of their activities in human resource man-agement, human resource development, and social management. the provisions of the policy form the basis for the personnel policies of subsidiaries.

goals of the personnel and social policy:• plan personnel requirements by ensuring the availability of reliable

information about the current and forecasted quantitative and qual-itative workforce requirements, provided that such information is necessary and sufficient for electric grid companies to accom-plish their goals;

• provide electric grid companies in a timely manner with required personnel having necessary qualifications;

• ensure electric grid companies’ high personnel efficiency and their workforce productivity growth.

principles of pursuing the personnel and social policy:• introducing unified approaches to human resource management

into electric grid companies with due consideration to the regional particularities of their operations;

• conforming to Russian and foreign best practices and standards in personnel management;

• establishing a unified approach to personnel management to enable electric grid companies to adapt quickly and effectively to corporate and external changes;

• creating a uniform personnel environment, employing uniform techniques, and using common information resources to improve personnel management efficiency and ensure cost reduction;

• providing employees with equal opportunities and preventing dis-crimination for any reason;

• creating the conditions for their maximal career development and investing in personnel development;

• creating the conditions where professionalism, effectiveness, moti-vation for professional growth, and the sharing of corporate values are the necessary requirements and only guarantee for career de-velopment;

• helping the ROSSETI Group to acquire a reputation as a socially re-sponsible and preferable employer.

Number of Employees

The staff on the payroll of ROSSETI SDCs engaged in the grid business was 218,000 people in 2014 (221,600 in 2013). changes in the num-ber of the group’s employees were due to downsizing the personnel responsible for the supplier of last resort functions and optimizing the number of administrative personnel.

totAL PERSoNNEL of GRiD SDCS By oCCuPAtioNAL CAtEGoRy, By EMPLoyMENt CoNtRACt, AND By REGioN

SDCs Staff on the Payroll, people

total for SDCs engaged in core business 217,971

IDGC of Centre 29,657

FGC UES 24,362

IDGC of Center and Volga Region 22,761

IDGC of Volga 21,387

IDGC of Siberia* 20,681

IDGC of Urals* 15,701

IDGC of North-West 15,195

MOESK 15,104

IDGC of South 13,390

IDGC of Northern Caucasus* 12,452

Kubanenergo 8,364

Tyumenenergo 7,503

LENENERGO 6,185

Yantarenergo 1,947

Chechenenergo 1,723

TDC 1,559

* including rosseti sDcs and rosseti sDcs’ subsidiaries and dependent companies

engaged in electricity distribution

Measures implemented by the rosseti group to maintain their person-nel potential enable it to keep its staffing level at not lower than 96% of the required number of employees for several years. The average per-sonnel turnover (the ratio between voluntary resignations and the staff on the payroll) has not been higher than 6% in recent years.

The main staffing needs of SDCs are satisfied by hiring local residents. an exception is remote areas and areas with a shortage of labor where electric grid equipment is maintained by crews working in shifts.

the particularities of the company’s operations determine the per-sonnel structure of entities under management: the largest propor-tion of employees is production personnel and workers; men account for 76% of the group’s employees.

Personnel by Category, %

5331

16

Workers

Specialists and white-collar workers

Executives

Production personnel

Office and management personnel

Auxiliary personnel

85

14 1


40

The effectiveness of measures taken under the Personnel and So-cial Policy is confirmed by positive changes in the qualitative characteristics of the rosseti group’s personnel.

Personnel by Age

the average age of rosseti’s employees is 38 years. Most employees (84%) are 25 to 50 years old.

the age characteristics of sDcs’ personnel remained unchanged: the average age is 42 years, the same as in 2013. the share of em-ployees aged under 35 is almost one-third; the workforce of the most active working age—25 to 50 years old—accounts for over 60%.

Changes in SDCs’ Personnel by Age, %

7

62

247

7

61

248

5

64

238

2012 2013 2014

working pensioners

50 to retirement age

25 to 50

under 25

since employees of retirement and preretirement age account for a considerable part of the staff, keeping a balance between the resignation of pensioners and the recruitment of young profes-sionals is an important element of the personnel policy.

a package of measures is carried out with respect to employees of retirement age to maintain a balance of interests, which makes it possible to:• retain highly qualified employees able to transfer knowledge and ex-

perience as mentors and in-house instructors to young employees;• release pensioners engaged in activities that directly affect elec-

tricity supply reliability and in potentially injury-prone occupations.

resigning old employees have the guarantees provided by the col-lective bargaining agreement and non-state pension coverage plans.

Personnel by Educational Level

rosseti’s employees with higher education account for 99.4%, including 6% with academic degrees of doctors or candidates of science.

the educational structure of sDcs’ personnel is improving: the pro-portion of employees without professional education is on the de-crease; at the end of the year, employees with higher education ac-counted for 42%, while employees with elementary and secondary professional education accounted for 40%.

Changes in SDCs’ Personnel by Educational Level, %

27 25 18

34 34 40

36 38 38

3 3 4

2012 2013 2014

Academic degree, two higher education degrees

Higher education

Elementary/secondary professional education

General secondary education

Labor Compensation System and Motivation Programs

all of rosseti’s grid subsidiaries are members of the all-russia trade association of employers in the power industry (rael asso-ciation), covered by the sectoral Wage rate agreement in the elec-tric power industry of the russian federation for 2013–2015 (sWra) at the federal level of social partnership. the collective bargaining agreements of electric utilities are at the local level of social part-nership and are subject to the provisions of the sWra. over 80% of the rosseti group’s employees are members of labor unions.

in December 2014, the rael association and the all-russian elec-trounion (areu) signed an agreement to extend the term of the sWra for 2016–2018. Under the agreement, the benefits, guarantees, and compensation provided by the sWra for the electricity industry’s workers will continue into 2016–2018.

the labor compensation system of the company’s subsidiaries is based on the provisions of existing collective bargaining agree-ments and is specified in the compensation regulations and other local acts governing the procedure for providing employees with so-cial benefits and guarantees.

under the sectoral Wage rate agreement in the electric power in-dustry of the russian federation for 2013–2015, the growth rate of the minimum monthly wage rate for a first-category worker (MMWr) at most sDcs in 2014 exceeded the growth rate of consumer prices in russia. this factor made workers’ wages more competitive.

the labor compensation system of sDcs includes the constant and variable components of salaries, composed of the following types of pay:• pay at wage rates (official salaries) subject to indexation in accord-

ance with the collective bargaining agreements of sDcs and local regulatory documents;

• additional incentive pay and benefits for a working environment oth-er than normal conditions and for special working conditions (roving work, multishift work, night work, etc.);

• regular bonuses for attaining key performance indicators and for individual results;

• longevity pay (compensation for the length of continuous service in the electricity industry);

• bonuses for the performance of certain types of work according to the effect on their performance (reduction of electricity network losses, optimization of operating expenses, etc.);

• one-off bonuses for the fulfillment of important tasks, in connection with receiving governmental, sectoral, and corporate awards.

under the terms of the collective bargaining agreements, sDcs’ em-ployees received additional pay in 2014 on top of base salaries, in-cluding:• vacation pay;• one-off bonuses in connection with jubilees and holidays;• one-off benefit payments in connection with marriage registration,

child birth (adoption), death of close relatives;• partial compensation for expenses associated with health improve-

ment camps for employees’ children and with sanatorium-resort therapy for employees;

• parental leave pay for employees caring for children aged 1.5–3;• payments under the support programs for the improvement of living

conditions.

11. huMan resource DevelopMent

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the motivation system at all management levels links exec-utives’ remuneration to the attainment of key performance indicators that are established according to the targets speci-fied in the strategy for Development of the electric grid sector of the russian federation and the long-term Development pro-gram of rosseti.

in 2014, the bonus system used the list of indicators aimed at achiev-ing corporate financial results, implementing capex programs, se-curing a reliable and high-quality electricity supply, and increasing workforce productivity.

During the XXII Olympic Winter Games and the XI Paralympic Winter games in 2014, personnel engaged in the operation of electric grid equipment in the Sochi power district were entitled to additional incentive pay, taking into account the raised level of responsibility for their work.

Based on the successful implementation of all planned measures to secure a reliable lectricity supply for olympic games power facili-ties, the employees of the company’s subsidiaries who participated in these activities received one-off bonuses.

the average wages and salaries in the electric grid sector in 2014 were 1.3 times the average amount of labor compensation in the russian federation.

Average Monthly Pay in the Electric Grid Sector vs. the Russian Federation, thousand rubles

20112010 2012 2013 2014

26.6 32.630.023.421.0

34.8 43.640.032.129.0

ROSSETI Group

Russian Federation

at each of rosseti’s sDcs, workers’ average wages are substan-tially higher than the minimum wages in the corresponding regions of sDcs’ operations.

The ROSSETI Group’s financial incentive system:• makes wages and salaries competitive,• facilitates electric grid companies’ workforce productivity growth,• provides employees with a high level of social security.

sDcs carry out the programs of social protection and corporate sup-port for employees, aiming to provide employees with guarantees of security in case of certain circumstances and minimize potential risks of the employer.

the social security system is based on the principles of economic via-bility, differentiation by group of employees, parity, and transparency.

the principle of social partnership in electric grid companies, along with cooperation with labor unions, involves a direct dialog between management and employees (regular meetings), and the monitoring of personnel satisfaction with the conditions and content of labor, in-come, benefits, and compensation.

Life and Health insurance Programs

Work at any industrial facilities objectively exposes employees to the risk of occupational diseases and the potential disablement. rosseti cares about the health of its employees and seeks to provide them with confidence in the future. to this end, in ad-dition to comprehensive occupational health and safety efforts, the rosseti group provides life and health insurance for em-ployees.

in accordance with the social policy, the rosseti group operates a corporate system of voluntary health insurance for employees, which guarantees the timely and high-quality provision of additional medical and other services in the amount and on the terms on top of the program of compulsory health insurance.

100% of the rosseti group’s employees are subject to insurance. voluntary health insurance programs are tailored to regional particu-larities, contain an expanded list of medical services, including high-tech medical services, a wide range of medical specialists, and offer services of the best state, departmental, and commercial medical in-stitutions of the russian federation. the rosseti group’s employees are also provided with an opportunity to take out insurance for their family members under corporate voluntary health insurance pro-grams on favorable terms.

the corporate system of voluntary accident and health insurance for personnel guarantees insurance indemnity payable to employ-ees (their relatives) in the event of death, illness, injury, disability, or emergency hospitalization. the rosseti group provides accident and health insurance for 100% of its staff. In 2014, insurance coverage was expanded in relation to all risks for all categories of employees, including those exposed to high risks. insurance protection for all employees insured is valid 24 hours a day, 7 days a week, around the world.

Sanatorium-Resort therapy, Recreation, and Health Promotion

Important measures to improve the efficiency of personnel are health promotion and recreation for the electric grid sector’s employees and their children.

in 2014, employees needing sanatorium-resort therapy were provid-ed with trips to resorts with partial or full payment at the expense of sDcs. sDcs also partially compensated for recreation expenses.

children of sDcs’ employees were provided with trips to children’s health improvement and sports camps. these expenses were com-pensated for by sDcs and by local governments.

in addition, during the 2014 vacation season, 1,473 employees of the rosseti group and their families vacationed and improve their health in the republic of crimea.


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Occupational Safety

Labor Safety

a top priority of the company’s personnel policy is to reduce the risk of occupational injuries. the company thoroughly analyzes accident information. Based on investigations, the company makes decisions to minimize injury risks. the occupational safety management sys-tem and the industrial safety methodology and processes are im-proved on a constant basis.

the company issued in 2014 three regulatory documents in this area:• order “On Measures to Reduce the Occupational Injury Rate”;• Program of ROSSETI to Reduce the Injury Risks of ROSSETI SDCs’

Personnel and Outsiders at Electric Grid Facilities for 2014–2017;• Model Comprehensive Program of ROSSETI to Reduce the Injury

risks of rosseti sDcs’ personnel and outsiders at electric grid facilities for 2014–2017.

the occupational safety costs of sDcs totaled 4,099.2 million rubles in 2014, or 3.3% more than in 2013. increased occupational safety costs prove that efforts in this area are important to the Company. the company is determined to continue its increasingly strenuous efforts in occupational and industrial safety.

occupational injury Rates

the year 2014 saw 61 occupational accidents at sDcs, involving 67 people. compared with 2012, the number of accidents increased by 3% and the number of injured persons went up by 5%.

as in 2013, the main cause of injuries was electric shocks and arcing faults affecting personnel operating electrical installations. In 2014, the shares of electrical injuries in total accidents decreased: 31% in 2014 against 42% in 2013. this trend is of great positive importance because more than half of the fatal injuries are caused by electric shocks.

The most frequent causes of accidents were as follow:• failure to comply with technical regulations prescribing the switching-off

and grounding of current-carrying parts of operating electrical in-stallations;

• failure to use personal protective equipment while approaching un-grounded current-carrying parts;

• negligent handling of operating energized equipment.

Causes of General Injuries in 2014, %

3119

31

Traffic accidents

Electric shocks, arcing faults

Falling from a height

Other

Falling of equipment and objects

15 4

Human Resource Development Programs

In meeting electric grid companies’ needs for staffing, priority is given to current employees and their development in accordance with the qualification requirements, the recruitment of young profession-als with specialized professional education and, in the case of senior management positions, the industry’s best professionals hired on a competitive basis.

Establishment of Personnel Reserves

In order to provide qualified personnel in a timely manner for the positions left by resigned employees, enable employees to acquire new experience, and keep employees interested and occupationally motivated, career planning is used. the key mechanism for build-ing a career is the establishment and development of personnel reserves.

Personnel reserves are established for the positions that require a long time of training and continuity:• senior positions up to the level of line managers (heads of substa-

tions/electric grid districts) – managerial personnel reserves;• positions whose effective performance requires profound knowl-

edge of the electric grid sector’s particularities – key personnel reserves.

over 80% of managerial positions are covered by the personnel re-serve. every tenth reserve member was appointed to a higher posi-tion in 2014.

Changes in the Number of Accidents in 2013–2014

IDGC of North-West

IDGC of Siberia

IDGC of Northern Caucasus

IDGC of Urals IDGC of Centre IDGC of Center and Volga Region

LENENERGO FGC UES MOESK Tyumenenergo Yantarenergo Kubanenergo IDGC of South IDGC of Volga TDC

0

3

6

9

12

15

2013 2014

13 8 10 8 3 8 4 6 7 5 3 4 0 4 6 3 4 3 3 3 2 3 0 3 3 1 1 1 0 1


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identifying talented young people and creating the conditions for enabling the electric grid sector’s young professionals to realize their potential to the fullest extent are part of establishing the youth personnel reserve. youth personnel reserves are established at all management levels and consist of around the 3,000 most promis-ing young professionals, including those working in hard-to-reach and remote areas. each reserve member is assigned a mentor from among experienced employees. young personnel reserve members are actively involved in the implementation of social events.

personnel reserve member development is based on individual development plans taking into account the actual level of compe-tencies and qualifications of employees for the target positions. Development programs include training events and on-the-job self-training.

Personnel training

the personnel training and development system of electric grid com-panies is focused on enabling employees to realize their potential and develop as professionals with due regard to the future needs of companies and changes in the external environment and is based on the principles of timeliness, consistency, and continuity.

a substantial advantage of the corporate training system is the avail-ability of a network of regional training centers that provide satisfy the basic needs for production personnel training. these are establish-ments licensed to provide additional professional training and having lecture halls, laboratories, and electric-grid training grounds.

the training, retraining, and advanced training programs for employees are planned in accordance with the following approaches:• fulfill the requirements for mandatory training and certification

for electric grid companies’ personnel;• give priority to the training programs aimed at the development

of personnel’s innovative competencies;• provide training for personnel reserve members;• achieve the targets of annual personnel training (at least one-third

of the staff on the payroll annually);• keep a balance between employees’ work hours and personal time

in organizing training.

overall, the training, retraining, and advanced training programs, in-cluding training at corporate training facilities, was attended in 2014 by about 240,000 people. Off-the-job training was provided for about half of the Company’s staff (105,000 people), which is comparable to the level of 2013 (111,000 people).

Personnel Training Indicators, %

48

52

off-the-job training

on-the-job training

at outside educational institutions

at corporate training centers

administrative personnel

production personnel

auxiliary personnel

47

5315

84.7

0.2

Most of the rosseti group’s employees are production personnel (85%), which, coupled with the need to unconditionally comply with the requirements for mandatory training/certification for electric grid companies’ personnel, results in the fact that more than 80% of trained employees are production personnel.

Cooperation with Educational institutions

educational organizations are not merely the rosseti group’s part-ners in the development of employee competencies of employees: higher education institutions and secondary occupational educa-tion establishments located in the regions of sDcs’ operations are the main source of recruiting young personnel.

the main ways of cooperation with supporting educational institu-tions providing training for future personnel of the electric grid sector are as follows:• training is provided for electric grid companies’ personnel on a tar-

geted enrollment basis;• the best students are selected and dealt with in the learning pro-

cess, including scholarship support; they are provided with extern-ships and subsequent employment at electric grid companies;

• student labor brigades are formed for work at electric grid facilities;• educational organizations take account of the particularities of elec-

tric grid companies’ activities in the course of young personnel training by:– interacting with the educational community, learning and teach-

ing associations of educational institutions in order to ensure the harmonization of educational and professional standards;

– developing/refining educational institutions’ relevant person-nel training programs (including engineer training programs and master’s programs) and involving company employees in the educational process;

– facilitating the development of educational institutions’ resources for personnel training (providing equipment for classrooms and laboratories, providing samples of electric grid equipment);

– arranging traineeships for teachers at electric grid companies;• dissertation research is organized for company employees on

the subjects relevant to the development of the electric grid sector;

• students and postgraduates are engaged to carry out work and studies on the subjects related to the electric grid sector.

the partner universities have 5 base departments established with the participation of the rosseti group, including the electric power industry Department of iDgc of urals organized in 2014 at the yeltsin ural federal university. the base departments are not only a link between employers and educational institutions, which communicates requirements for young professionals’ knowledge, but also a platform for providing company employees with ad-vanced training.

the Moscow power engineering institute, russia’s leading energy university, was selected as the key partner of electric grid companies in personnel training. in May 2014, during the st. petersburg interna-tional economic forum, rosseti and the university formalized their intentions by signing the general partnership agreement.

Joint efforts of the ROSSETI Group and supporting educational insti-tutions area gave a new impetus to the development of student labor brigades as an instrument for attracting young people to the indus-try and ensuring practice-oriented training; in 2014, the fifth season of work at electric grid facilities, 1,560 students from 76 higher edu-cation institutions and specialized secondary education institutions worked in 101 student brigades.


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StAtiStiCS oN StuDENt LABoR BRiGADES ENGAGED to WoRk At ELECtRiC GrID FaCIlITIES (2010–2014)

Year Number of Students

Number of Student

Labor Brigades

Number of Educational

Institutions

Number of Power Facilities

2010 48 3 1 3

2011 350 15 7 12

2012 745 46 31 41

2013 1,352 63 38 50

2014 1,560 101 76 83

youth Policy

heightened attention to the implementation of the uniform youth policy is because young people aged under 35 account for about a third of the group’s employees.

the youth policy is aimed at involving young employees in sDcs’ social activities, encouraging their professional and creative activity, and helping them realize their scientific potential.

it is important to note that the rosseti group’s youth policy is shaped by young professionals themselves: in order to sys-tematize the work with youth and formulate the basic princi-ples of the youth policy and the road map for its implementa-tion, the company held a strategic session in november 2014 with the participation of young employees of rosseti and its subsidiaries. The queries put by participants to the Company’s management, along with expectations relating to professional, ca-reer development and social support for young employees, provid-ed the basis for the document defining the principles of the uniform youth policy of rosseti.

the establishment and management of the youth personnel reserve is one of the youth policy’s components. providing support for young employees’ creative and scientific initiatives and assuring them of a stable demand for their qualifications are aimed not only at retaining and developing the company’s youth reserve members, but also makes it possible to involve potential employees, namely students who may soon become a part of the ROSSETI Group’s staff. ROSSETI’s systematic, multidisciplinary projects addressed to young audiences include as follows:• for the first time, the year 2014 witnessed the international for-

mat of the youth forum as part of the st. petersburg international economic forum: along with companies representing the russian electric grid sector, the event was attended by teams of electric utilities from Germany, France, Italy, Moldova, Kazakhstan; the goal of the project is to create an international communication platform facilitating the expansion of ideas of electric grid companies’ young professionals about current development trends in the energy sec-tor in Russia and in the world;

• projects were implemented to identify the scientific and inno-vative potential of employees: the rosseti team of employees and experts took part in the international forum of young pow-er Engineers and Industrialists (Forsage 2014); the International Energy Efficiency and Energy Saving Forum (ENES 2014) held the contest “From Idea to Introduction” among young profession-als’ projects.

for a noticeable contribution to implementing the government’s youth policy and developing the movement of student labor brigades in russia, the company received a letter of gratitude from the Ministry of education and science of the russian federation.

rosseti’s activities in human resource development received the award of 1st all-russian contest among employers’ Best prac-tices “Creating the Future” for dealing with children, youth, and per-sonnel reserves.

Cultural, Sports, and Environmental Initiatives

additional mechanisms for building corporate culture and promoting corporate values are social and cultural programs: cultural events, charity events, environmental initiatives, and projects in the area of physical culture and sports.

Developing Sports and Promoting a Healthy Lifestyle

With a view to promoting a healthy lifestyle, the rosseti group holds annual corporate games and the Botvinnik open chess tournament for energy workers.

In 2014, the 4th chess tournament named after Russia’s first world chess champion and outstanding electrical engineer Mikhail Bot-vinnik brought together 18 teams representing the rosseti group, the committee on energy of the Moscow region, the energy without Borders Fund, Eurocontract – High-Voltage Equipment, research in-stitutes, and other organizations. among 72 tournament participants were fiDe Masters, three grandmasters, and holders of various titles.

the company is a member of the energy sector’s sports competitions: teams representing the electric grid sector took part in the 5th fuel and energy sector futsal cup and the 3rd fuel and energy sector volleyball cup.

Professional Competitions

professional competitions are a traditional area of the company’s personnel policy and help improve the motivation and qualifications of employees.

in 2014, the interregional competition among 0.4-10-kv distribution network repair and maintenance crews of rosseti subsidiaries took place on the training ground of penzaenergo, a branch of iDgc of vol-ga. in addition, the reporting period saw the 11th international compe-tition among 0.4-10-kv distribution network repair and maintenance crews of cis national energy systems.

As part of preparations for the XXII Olympic Winter Games and the XI Paralympic Winter Games, the contest “Best Energy Worker of Olym-pic Sochi” was organized and held.

The contest “Best Energy Worker of Olympic Sochi” received exten-sive public attention and media coverage. the event was organized by ROSSETI as part of preparations the XXII Olympic Winter Games and the XI Paralympic Winter Games among the electric grid sector’s employees participating in the construction, rehabilitation, and oper-ation of sochi’s power facilities and sports infrastructure. the con-test made a considerable contribution to improving energy workers’ professional skills and raising production personnel’s motivation for securing a reliable electricity supply for olympics games sports and infrastructure facilities.

on a monthly basis, special juries composed of chief executives, managers, employees of divisions responsible for the operation of


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number of the rosseti group’s employees awarded in 2014

Award Category Number of People

GOVERNMENTAL AWARDS, COMMENDATIONS FROM THE PRESIDENT AND GOVERNMENT OF THE RUSSIAN FEDERATION

212

OFFICIAL AWARDS OF THE MINISTRY OF ENERGY OF THE RUSSIAN FEDERATION

1,403

AWARDS OF THE ALL-RUSSIA TRADE ASSOCIATION OF EMPLOYERS IN THE POWER INDUSTRY

443

CORPORATE AWARDS OF ROSSETI 2,897

substations and overhead lines, for occupational safety, for reliabili-ty, and for human resource management, and other experts selected winners in the following categories:Best Engineer;Best Foreman;Best Electrician;Best Electrical Mechanic;Best Driver / Operator of Special Vehicles;Best Dispatcher.

the rossiyskie seti corporate newspaper reported on the contest winners, who were ceremonially awarded prizes by rosseti’s Di-rector general oleg Budargin. experience of the best professionals and the prizewinners received coverage in special editions of olym-pics energy, nationwide printed media, and sochi’s major television channels.

Non-State Pension Coverage (NSPC); Provision of Care for Pensioners and Veterans

the non-state pension coverage program is an element of the sys-tem of social guarantees for the rosseti group’s employees. priority continued to be given to the corporate support program.

former employees are also supported through the electric grid sector’s veteran organizations, comprising almost 47,000 people, including more than 3,000 veterans of the great patriotic War, homefront workers, survivors of the siege of leningrad, and child prisoners of nazi concentration camps. the coordinating council of veterans works to consolidate the electric grid sector’s veteran movement.

the social policy’s most important goals of supporting the industry’s veterans and ensuring intergenerational continuity are as follows:• develop the mentoring movement and involving the industry’s vet-

erans in instructional activities;• provide support for labor dynasties (the ROSSETI Group has about

500 dynasties, or nearly 2,000 employees);

• organize sanatorium-resort therapy for veterans;• support the work of creative clubs and organizing cultural events;• provide benefit payments for retirees in connection with jubilees,

bad financial condition, and medical treatment.

in 2014, the company completed several projects aimed at the pro-motion of patriotism among young people:• the From the Heroic Deed Homeland to the Hero’s Homeland in-

ternational commemorative campaign (meetings with veterans, improvement of war heroes’ graves);

• the Clean Springtime campaign (veterans’ apartments were cleaned and minor repairs were carried out to homes by young employees);

• solemn meetings and meetings with veterans to mark the 69th an-niversary of the Victory in the Great Patriotic War;

• the Victory Banner Ceremony historical campaign;• support for museums, setting up and extending commemorative

centers for war and labor veterans (over 65 existing museums and commemorative centers).

Award Policy

for special achievements in the development of the russian electric grid sector, 4,955 employees of rosseti received governmental, official, sectoral, and corporate awards in 2014.

NuMBER of tHE RoSSEti GRouP’S EMPLoyEES AWARDED iN 2014

Award Category Number of People

Governmental awards, commendations from the President and Government of the Russian Federation

212 employees

Official awards of the Ministry of Energy of the Russian Federation

1,403 employees

Awards of the All-Russia Trade Association of Employers in the Power Industry

443 employees

Corporate awards of ROSSETI 2,897 employees


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The new construction, rehabilitation, and re-equipment of overhead lines rated

1,000 V

and below use self-supporting insulated wires

An environmental protection project significant for the Company in 2014 was participation in the nationwide program to develop the electric vehicle charging station infrastructure, the safest for the environment

12. environmental responsibility and environmental protection

Key Areas and Results of the Environmental Policy

the particularities of rosseti’s and its sDcs’ operations do not in-volve a material adverse environmental impact that can lead to en-vironmental disasters or cause any irreversible change to wildlife. nevertheless, the company takes all possible measures to protect the environment and applies the precautionary principle.

the company developed and constantly updates the procedure for implementing voluntary mechanisms of environmental respon-sibility in accordance with Directive no. 1710p-p13 of March 30, 2012, approved by russian prime Minister vladimir putin.

the goals and objectives of rosseti’s environmental responsibility are contained in the guidelines and ruling documents at the level of sDcs. the key areas of protecting the environment against the ad-verse impact of operating activities of the distribution grid organiza-tions managed by rosseti are set forth in the programs of environ-mental policy implementation specifying environmental protection measures in the areas listed below:• air protection;• water protection and conservation;• land protection and conservation;• technical measures;• resource conservation and energy efficiency enhancement.

Environmental Protection Initiatives and Current Programs

Air Protection

overall, air emissions totaled 1,498 tonnes in 2014, including 160 tonnes of solid emissions and 1,323 tonnes of liquid and gaseous emissions in the reporting period.

AiR EMiSSioNS

Substances Volume, tonnes

Total emissions 1,498

including solid substances 160

including liquid and gaseous substances: 1,323

sulfur dioxide 91

carbon oxide 578

nitrogen oxide (rebased to NO2) 208

hydrocarbons (net of volatile organic compounds)

58

volatile organic compounds 366

benzopyrene 1

air protection measures include:• controlling the harmful content of vehicle exhaust emissions to pre-

vent impermissible excess values;• adjusting vehicle fuel systems and replacing gasoline systems with

gas-powered systems;• renovating and landscaping land;• putting into operation dust-collecting units for woodworking ma-

chines.

some branches of sDcs took measures to justify and develop san-itary protection zones (SPZs). These measures were intended to reduce the adverse impact of the noise generated by the cooling systems of supply transformers (substations rated 35 kv and above) and the exhaust gas emitted by the company’s vehicles near resi-dential areas.

Water Protection and Conservation

overall, water withdrawal in the reporting period increased by a third to 106 million cbm. Most water came from surface sources (103 mil-lion cbm), and a relatively small amount came from underground sources (1,100 cbm) and other sources (1,800 cbm). all water was mainly utilized for production purposes.

Water Uses, thousand cbm

103,925

2,311 201

production-purpose water use

domestic-purpose water use

other uses

Water protection and conservation measures generally dealt with:• exercising compliance control with respect to maximum permis-

sible concentrations of contaminants in effluents in sewerage and storm drainage systems;

• repairing drainage systems in a timely manner to prevent insuffi-ciently treated effluents from coming into sewerage systems or ground water;

• improving drainage systems;• cooperating with specialist organizations for the receipt and treat-

ment of effluents;• controlling the condition of the treatment facilities of vehicle-wash-

ing plants;• installing new filters and chemical agents at closed-water-cycle

vehicle-washing plants.

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The Company gives particular attention

to bird protection in building overhead lines

in addition, 6–20 kv protected-wire overhead lines are built, which decreases the area of cut-over land and protects birds from an electric shock

In the reporting year, ROSSETI purchased and installed

25,556 bird protection equipment units

ROSSETI cooperates extensively with WWF Russia

and participates in joint campaigns to save endangered

and rare animal species

Land Protection and Conservation

One of the Company’s significant measures of environmental re-sponsibility is compliance with environmental safety requirements for electrical installations in the design phase. for example, oil re-ceivers and drainage systems are used to protect soil from oil prod-ucts.

the reporting period saw a considerable decrease in damage to land (from 15.8 hectares in 2013 to 0.47 hectares in 2014). all damaged land was rehabilitated, except for 1.29 hectares to be treated in 2015.

in addition, the company deals with production waste. Waste treat-ment measures generally dealt with:• disposal;• transferring production waste to specialist organizations for subse-

quent processing and dumping;• setting limits on waste disposal and providing equipment for tem-

porary waste storage places.

in 2014, the company generated 112,000 tonnes of production waste, including 218 tonnes of ash and slag. Most waste (109,000 tonnes) was transferred to contractors for disposal and dumping. a portion of waste (1,300 tonnes) was decontaminated. therefore, 2,500 tonnes of waste remained untreated at the end of the year.

technical Measures

the main area of grid organizations’ activities is various technical measures, including the operation of electrical installations and other equipment. In its technical activities, the ROSSETI Group takes into consideration environmental issues.

some technical measures aim to protect soil from oil products. for instance, repairs are carried out to oil receivers and drainage sys-tems in 2014. Oil-filled equipment (circuit breakers) is replaced with vacuum equipment. Additionally, oil-filled supply transformers rat-ed 6–10/0.4 kV are gradually replaced with oil-filled sealed and dry transformers. the construction and repair of cable lines use modern cables with insulation made of cross-linked polyethylene and heat shrink tubing, which eliminates the use of lead.

the company gives particular attention to bird protection in building overhead lines. The new construction, rehabilitation, and re-equipment of overhead lines rated 1,000 v and below use self-supporting insulat-ed wires. in addition, 6–20 kv protected-wire overhead lines are built, which decreases the area of cut-over land and protects birds from an electric shock. insulation is installed for exposed current-carrying parts of substation busbars.

Bird protection equipment, including visual and acoustic repellents, is installed in large bird habitats and migration paths. This equipment is primarily installed in nature reserves and sanctuaries. in the con-struction of new power facilities, the company no longer uses towers with pin insulators in large birds’ nesting areas.

in the reporting year, the rosseti group purchased and installed 25,556 bird protection equipment units.

another environmental initiative of the company is to install noise screens in 110-kv substations to reduce noise in residential areas in accordance with sanpin.

pursuant to the stockholm convention on persistent organic pol-lutants, the company implements the phased schedule of disposing of hazardous trichlorodiphenyl-containing equipment for 2013–2025.

in 2014, the company disposed of 4,815 capacitor cells with a total weight of 208.7 tonnes:• IDGC of Centre: 128 cells with a total weight of 5.5 tonnes;• Kubanenergo: 283 cells with a total weight of 14.4 tonnes• IDGC of Siberia: 270 cells with a total weight of 16.2 tonnes• FGC UES: 4134 cells with a total weight of 172.6 tonnes.

Development of Polar Regions

Developing the arctic is a priority for the russian government’s policy. rosseti takes an active part in the development of polar regions.

rosseti’s Director general oleg Budargin is a member of the state commission on arctic Development and the vice president of the as-sociation of polar explorers (aspol) and chairs the aspol public commission on environmental protection.

the state commission is established to organize the interaction among executive authorities, local government authorities, and or-ganizations in dealing with socioeconomic and environmental issues related to the development of russia’s arctic zone and protect nation-al security. the state commission is chaired by Deputy prime Minister Dmitry rogozin.

at the st. petersburg international economic forum in 2014, rosseti’s Director general oleg Budargin and aspol president artur chilingarov signed an agreement for long-term cooperation between rosseti and the association of polar explorers in the area of devel-oping the far north, arctic, and antarctic. the agreement is aimed at implementing the russian government’s policy in polar regions, provides for the formulation and implementation of comprehensive programs for environmental conservation and protection, and speci-fies the development of electricity supply in polar regions.

rosseti provides support and takes part in aspol’s annual interna-tional Forum “The Arctic: Present and Future.” The forum is an infor-mation platform for gathering expert opinions and public initiatives for projects aimed at the achievement of russia’s strategic objectives in the arctic.

rosseti cooperates extensively with WWf russia and participates in joint fundraising campaigns. gathered donations are used to pur-chase special equipment for scientific expeditions to the Arctic.

Development of the EV Charging Station Infrastructure

An environmental protection project significant for the Company in 2014 was participation in the nationwide program to devel-op the electric vehicle charging station infrastructure, the saf-est for the environment. carried out in regions where rosseti’s sDcs have operations, the project has the high economic potential for the energy industry.

the main achievements in the development of the ev charging station infrastructure in the reporting period are as follows:• creation of an ultra-fast charging station for electric public trans-

portation (electric buses) within the responsibility of MOESK;• development of engineering solutions related to combining con-

ventional distribution grid facilities with a charging infrastructure (transformers of a medium-voltage and low-voltage network) with-in the responsibility of IDGC of Centre;

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• development of engineering solutions related to combining a charg-ing infrastructure with high-capacity lithium-ion storage batteries for connections in limited network capacity and/or energy supply category conditions within the responsibility of iDgc of center and Volga Region;

• launch of the first charging stations in Saint Petersburg and Yaroslavl as part of developing Russia’s EV charging station infrastructure;

• creation of a smart infrastructure in Skolkovo (five charging stations came into operation);

• creation of a charging infrastructure in New Moscow (construction of a charging station infrastructure (network) for electric vehicles (big and small electrobuses) in New Moscow);

• launch of the city’s first electrobus route in Yaroslavl within the re-sponsibility of iDgc of centre.

electric vehicles are optimal for historical cities, including unesco World heritage sites. in 2014, rosseti’s subsidiary iDgc of centre signed the first agreement to develop the EV charging station infra-structure in yaroslavl, a city of rich history.

Environmental Initiatives of the Company

throughout the year, rosseti and its employees provided support for environmental campaigns.

in cooperation with WWf russia, the company conducted a campaign to save the atlantic walrus from extinction: raised funds were used to buy and install camera traps to count the number of atlantic walrus-es, reveal the structure of the population, and collect information on the formation of rookeries.

on March 29, 2014, the rosseti group joined earth hour, a worldwide movement organized by the World Wide fund for nature. this move was dictated by the energy sector’s concerns about nature and limit-ed resources of the planet.

On International Energy Saving Day, November 11, the Energy Efficiency Motor rally in the oryol region. the campaign was organized by employees of iDgc of centre, a subsidiary of rosseti, who told children about the energy saving principles and energy-efficient technologies and gave them a ride on an electric car, the vehicle of the rally. the project brought together more than 2,500 school-children from 24 schools.

the company supported all-russian forest planting Day. as part of the campaign, energy workers planted over 80,000 trees in 73 regions where the company operates.

in the reporting year, the rosseti group conducted the environmen-tal campaign “My City. My Park. My Contribution.” During the Com-pany’s employees planted 226,120 saplings in parks all over russia.

Dedicated to Great Patriotic War Victory Day, the first environmental campaign “From Energy Workers to Moscow!” took place in Moscow. the campaign was conducted in sokolniki park on the city’s day of volunteer work, april 26. over 300 employees of rosseti’s ex-ecutive arm, together with their colleagues of subsidiary Moesk, restored the historic Maysky prosek alley. in the park, the compa-ny’s employees and their family members planted more than 3,000 perennial shrubs and trees. therefore, this continued the tradition of planting trees in energy workers’ alleys in Moscow. The first alley was established in victory park in 2012.

Environmental Protection Expenses

in 2014, the company’s environmental protection expenses totaled 394.027 million rubles. payments for permissible and excess emis-sions, effluents, and waste disposal were 45.7 million rubles in 2014. compared with 2013, expenses were slightly lower (by 717,000 rubles) due to the timely preparation and approval of permits at most sDcs.


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appendices

Appendix 1. Compliance Table to GRI G4 Guidelines and Sector Disclosures

No. Indicator Index

Indicator Name / Sector Addition (if any) Location of Disclosure Comments

Disclosure items, Characteristics

1. Strategy and analysis

1. 4.1 Provide a statement from the most senior decision-maker of the organization

Message from the Director General

2. 4.2 Provide a description of key impacts, risks, and opportunities

Chapter 3. Corporate Social Responsibility and Sus-tainability Model of ROSSETI

2. Organizational Profile

3. 4.3 Report the name of the organization Chapter 1. Report Profile

4. 4.4 Report the primary brands, products, and services

Chapter 2. Company Profile

5. 4.5 Report the location of the organization s headquarters

Chapter 1. Report Profile

6. 4.6 Report the number of countries where the organization operates


7. 4.7 Report the nature of ownership and legal form


8. 4.8 Report the markets served (including geographic breakdown, sectors served, and types of customers and beneficiaries)

Chapter 2. Company ProfileChapter 5. Customer Relations

9. 4.9 Report the scale of the organization Chapter 2. Company ProfileChapter 9. Economic ImpactsChapter 11. Human Resource Development

10. 4.10 Report the total number of employees Chapter 11. Human Resource Development No seasonal variations in employment

11. 4.11 Report the percentage of total employees covered by collective bargaining agreements

Chapter 11. Human Resource Development

12. 4.12 Describe the organization’s supply chain Chapter 10. Procurement Practices Partially disclosed

13. 4.13 Report any significant changes during the re-porting period regarding the organization’s size, structure, ownership, or its supply chain

No changes during the reporting period

14. 4.14 Report whether and how the precaution-ary approach or principle is addressed by the organization

Message from the Director General

appenDices

53

No. Indicator Index


15. 4.15 List externally developed economic, envi-ronmental and social charters, principles, or other initiatives to which the organization subscribes or which it endorses


16. 4.16 List memberships of associations (such as industry associations) and national or international advocacy organizations

Chapter 3. Corporate Social Responsibility and Sus-tainability Model of ROSSETIChapter 4. Stakeholder Relations

3. Identified Material aspects and Boundaries

17. 4.17 List all entities included in the organization’s consolidated financial statements or equiva-lent documents


18. 4.18 Explain the process for defining the report content and the Aspect Boundaries


19. 4.19 List all the material Aspects identified in the process for defining report content


20. 4.22 Report the effect of any restatements of information provided in previous reports, and the reasons for such restatements

No restatements

21. 4.23 Report significant changes from previous reporting periods in the Scope and Aspect Boundaries

No significant changes

Stakeholder Engagement

22. 4.24 Provide a list of stakeholder groups engaged by the organization

Chapter 4. Stakeholder Relations

23. 4.25 Report the basis for identification and selec-tion of stakeholders with whom to engage


24. 4.26 Report the organization’s approach to stake-holder engagement


25. 4.27 Report key topics and concerns that have been raised through stakeholder engage-ment

Chapter 4. Stakeholder Relations Partially disclosed

report Profile

26. 4.28 Reporting period for information provided Chapter 1. Report Profile

27. 4.29 Date of most recent previous report Chapter 1. Report Profile

28. 4.30 Reporting cycle Chapter 1. Report Profile

29. 4.31 Provide the contact point for questions regarding the report or its contents


30. 4.32 Report the “in accordance” option the organi-zation has chosen


31. 4.33 Report the organization’s policy and current practice with regard to seeking external assurance for the report



54

No. Indicator Index


Governance

32. 4.34 Report the governance structure of the or-ganization, including committees of the high-est governance body


33. 4.35 Report the process for delegating authority for economic, environmental and social topics


34. 4.36 Report whether the organization has appoint-ed an executive-level position or positions with responsibility for economic, environ-mental and social topics

Chapter 2. Company Profile Partially disclosed

35. 4.37 Report processes for consultation between stakeholders and the highest governance body on economic, environmental and social topics


36. 4.38 Report the composition of the highest gov-ernance body and its committees


37. 4.39 Report whether the Chair of the highest gov-ernance body is also an executive officer


38. 4.40 Report the nomination and selection pro-cesses for the highest governance body


39. 4.41 Report processes for the highest governance body to ensure conflicts of interest are avoid-ed and managed


40. 4.42 Report the highest governance body’s and senior executives’ roles in the devel-opment, approval, and updating of the or-ganization’s purpose, value or mission statements, strategies, policies, and goals related to economic, environmental and so-cial impacts


41. 4.45 Report the highest governance body’s role in the identification and management of eco-nomic, environmental and social impacts, risks, and opportunities


42. 4.46 Report the highest governance body’s role in reviewing the effectiveness of the organi-zation’s risk management processes for eco-nomic, environmental and social topics


43. 4.51 Report the remuneration policies for the highest governance body and senior executives

Chapter 11. Human Resource Development Partially disclosed

44. 4.52 Report the process for determining remu-neration


appenDices

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No. Indicator Index


Ethics and integrity

45. 4.56 Describe the organization’s values, princi-ples, standards and norms of behavior such as codes of conduct and codes of ethics


Category: Economic

Aspect: Economic Performance

46. G4-EC2 Risks and opportunities for the organization’s activities due to climate change

No implications for the Company’s ac-tivities due to climate change

47. G4-EC3 Coverage of the organization's defined bene-fit plan obligations


48. G4-EC4 Financial assistance received from govern-ment

Chapter 9. Economic Impacts Partially disclosed

Aspect: Market Presence

49. G4-EC5 Ratios of standard entry level wage by gender compared to local minimum wage at significant locations of operation

Chapter 11. Human Resource Development Compliance with the principle of gender equality

Aspect: indirect Economic impacts

50. G4-EC7 Development and impact of infrastructure investments and services supported

Chapter 9. Economic Impacts

51. G4-EC8 Significant indirect economic impacts Chapter 9. Economic Impacts

Aspect: Procurement Practices

52. G4-EC9 Proportion of spending on local suppliers at significant locations of operation

Chapter 10. Procurement Practices Partially disclosed

Category: Environmental

Aspect: Energy

53. G4-EN6 Reduction of energy consumption Chapter 9. Economic Impacts

Aspect: Water

54. G4-EN8 Total water withdrawal by source Chapter 12. Environmental Responsibility and Environ-mental Protection

Partially disclosed

Aspect: Biodiversity

55. G4-EN12 Description of significant impacts of activi-ties, products, and services on biodiversity

Chapter 12. Environmental Responsibility and Environ-mental Protection

56. G4-EN13 Habitats protected or restored Chapter 12. Environmental Responsibility and Environ-mental Protection


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No. Indicator Index


Aspect: Emissions

57. G4-EN21 NOX, SOX, and other significant air emissions Chapter 12. Environmental Responsibility and Environ-mental Protection

aspect: Effluents and Waste

58 G4-EN23 Total weight of waste by type and disposal method


Partially disclosed

59. G4-EN25 Weight of transported, imported, exported, or treated waste deemed hazardous


Partially disclosed

Aspect: Compliance

60. G4-EN29 Monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations


Partially disclosed

Aspect: overall

61. G4-EN31 Total environmental protection expenditures and investments by type


Partially disclosed

Labor Practices and Decent Work

Aspect: Employment

62. G4-LA1 Total number and rates of new employee hires and employee turnover by age group, gender and region


Aspect: occupational Health and Safety

63. G4-LA6 Type of injury and rates of injury, occupation-al diseases, lost days, and absenteeism


Aspect: training and Education

64. G4-LA9 Average hours of training per year per em-ployee by gender, and by employee category


65. G4-LA10 Programs for skills management and life-long learning that support the continued employability of employees and assist them in managing career endings


Aspect: Diversity and Equal opportunity

66. G4-LA12 Composition of governance bodies and breakdown of employees per employee category according to gender, age group, minority group membership, and other indicators of diversity

Chapter 2. Company ProfileChapter 11. Human Resource Development

Partially disclosed

Aspect: Equal Remuneration for Women and Men

67. G4-LA13 Ratio of basic salary and remuneration of women to men by employee category, by significant locations of operation

Chapter 11. Human Resource Development Equal salary of women and men

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No. Indicator Index


Aspect: Child Labor

68. G4-HR5 Operations and suppliers identified as having significant risk for incidents of child labor, and measures taken to contribute to the ef-fective abolition of child labor

No child labor

Aspect: forced or Compulsory Labor

69. G4-HR6 Operations and suppliers identified as having significant risk for incidents of forced or compulsory labor, and measures to contrib-ute to the elimination of all forms of forced or compulsory labor

No forced or compul-sory labor

Society

Aspect: Anti-corruption

70. G4-SO4 Communication and training on anti-corrup-tion policies and procedures


Aspect: Product and Service Labeling

71. G4-PR5 Results of surveys measuring customer satisfaction

Chapter 5. Customer Relations

Electric utilities Sector Disclosures

72. EU1 Installed capacity broken down by primary energy source and by regulatory regime


73. EU4 Length of above and underground trans-mission and distribution lines by regulatory regime


74. EU12 Transmission and distribution losses as a percentage of total energy

Chapter 9. Economic Impacts

75. EU15 Percentage of employees eligible to retire in the next 5 and 10 years broken down by job category and by region


76. EU28 Power outage frequency Chapter 5. Customer Relations Partially disclosed

77. EU29 Average power outage duration Chapter 5. Customer Relations Partially disclosed


58

Appendix 2. External Assurance

Expert opinions on the 2014 RoSSEti Corporate Social Responsibility and Sustainability Report

IRINA ORLOVA Director, Economic Political Science Program, Public-Private Partnership Center of the Russian Presidential Academy of National Economy and Public Administration; Doctor of Science (Philosophy), Professor, Member of the Public Chamber of Moscowrosseti has published a sustainability report for 2014. the pub-lic disclosure of material and complete information for a few years can be viewed as evidence that the company is committed to social and environmental responsibility and to ethical business conduct. in general, rosseti deserves a positive assessment with respect to the development of non-financial reporting and the enhancement of transparency.

this report demonstrates the company’s understanding of its own role in the country’s economy, the strategic direction of its develop-ment, and its efforts to secure a reliable electricity supply and make electricity connection services more affordable. Chapter 5 (Cus-tomer relations), where this topic is described in detail, deserves special note.

according to the report, the company shows a positive trend in ma-jor economic indicators, finding the right balance between the oper-ation with frozen tariffs and the effectiveness of the capex program aimed at renewing and building new power infrastructure. the com-pany is also working hard to create smart grids. in the reporting year, substantial steps were taken toward furthering the develop-ment of the r&D program and developing the regulatory framework for intellectual property. in 2014, the company also started the con-struction of the federal test center in saint petersburg, which will be a significant step forward for the development of the domestic electricity industry.

to achieve its economic goals, rosseti pursues a balanced poli-cy on interaction with a broad range of stakeholders. for example, the report says that in rosseti’s corporate social responsibility toolbox includes annual open dialogs in the process of non-finan-cial reporting, including the discussion of the company’s problems and successes. however, detailed information on the contents, goals, and results of such dialogs with stakeholders in 2014 is not presented in full. I believe that a more detailed reflection of such information in ROSSETI’s non-financial report would greatly benefit its contents and would make the report more convincing. in addition, to ensure a balanced presentation of information in the report, it is recom-mended that special attention be given not only to achievements but also to problems in the area of the company’s social responsibility and sustainability.

in the future, in order to develop the reporting system in line with international standards, it can also be recommended that rosseti involve not only experts in the discussion of non-financial reporting but also the general public.

SVYATOSLAV ZABELIN Candidate of Science (Biology); Expert, Socio-Ecological Union; Expert, Interfax-ERAthe publication of the 2014 rosseti corporate social responsi-bility and Sustainability Report definitely and clearly indicates that the company’s management is seriously and on a long-term basis committed to the activities aimed at addressing issues of sustainable development and environmental protection.

it is obvious that the company is systematically and purposefully en-gaged in the reduction of electricity network losses, which—given the scale of its activities—is a significant contribution to Russia’s overall energy efficiency and security and—indirectly—to the reduc-tion of greenhouse gas emissions.

the company’s long-term innovative development, energy conservation, and energy efficiency enhancement program also means its commit-ment to the country’s sustained development. the program implemen-tation should result not only in a substantial reduction in anthropogenic impacts on the environment but also in rosseti’s improved economic performance. the planned creation of the r&D foundation and the center for technology Monitoring and is certainly a step in the right direction.

the development and implementation of a system for charging stations for public and private electric vehicles is undoubtedly one of the most promising elements of the program.

What is noteworthy and deserves complete approval is the fact that envi-ronmental protection and biodiversity protection are mentioned as a pri-ority not only in a special section (environmental responsibility and envi-ronmental protection) but also in several other key sections of the report.

It is noteworthy that bird protection has become a significant part of the company’s activities as to its scale and innovation. as rightly pointed out, the company’s impact on air, water, and land does not cause substantial damage. But the impact on avifauna, on the contra-ry, was very noticeable, especially influencing the state of populations of rare or endangered species. remarkably, the report highlights that the company pays special attention to the protection of birds in the construction of overhead lines.

commendable are environmental protection initiatives and public campaigns conducted by employees of the company almost every-where where it has operations.

in my opinion, recommendations for the next report of the company may be as follows:• It is desirable that activities aimed at the protection of birds and oth-

er animals be disclosed in a separate section rather than in “Tech-nical Measures.”

• It is sensible to describe the activities that fall within the classic definition of “sustainable development” in a separate section or list them in a compact form in the “Report Profile.”

• It is recommended that information on the activities aimed at sustain-able development, including innovation, be disclosed in more detail as, for example, in the description of measures to protect birds.

overall, the report makes a favorable impression. i wish the com-pany’s management and all of its employees success in following the principles of sustainable development and the commitment to high standards of corporate governance and social and environmen-tal responsibility.

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VYACHESLAV GRECHIKHIN Candidate of Science (Engineering), Assistant Professor, Pro-rector, Moscow Power Engineering Institute (National Research University)This report is the fifth annual non-financial report of ROSSETI, cov-ering the company’s activities in corporate social responsibility and sustainability. particular attention in the report is paid to the sig-nificant topics that reflect the economic impact of ROSSETI and its subsidiaries, the environmental and social aspects of their activities, human resource development, and occupational safety.

The Report adequately sets out a model of ROSSETI’s corporate social responsibility and sustainability, provides information about the com-pany’s real contribution to the development of society, the regions, and the country. the information is prepared using international standards of non-financial reporting. The Report notes that the Com-pany pays special attention to corporate social responsibility, thus ensuring the efficient and sustained development of ROSSETI. This document defines the notion of social responsibility in relations with customers and details the basic guidelines of customer relations.

the report contains the strategic priorities for rosseti’s sustained development: fair competition, economic impacts on the develop-ment of the russian economy, environmental protection, personnel and social programs, occupational safety, and stakeholder engage-ment. Sufficient attention is given to such issues of economic im-pacts as operational and financial performance, the capex program, and the innovative development program. the disclosed information on financing electricity connection costs, technical upgrading, reha-bilitation, and new construction provide a clear picture of the struc-ture of the company’s production activities.

at the same time, it is important to note that the principles of sus-tainable development imply the activities based on a balance be-tween the interests of the present and the needs of future genera-tions. in this regard, the report should have disclosed information on changes in technical upgrading and should have decribed the pros-pects for the modernization of electric grid facilities.

in 2014, the company approved the personnel and social policy, de-veloped to resolve the current and future staffing challenges faced by electric grid companies and defining the goals of personnel and social policy and the principles of its implementation. The Report adequate-ly highlights the system of remuneration and incentive programs, the programs of life and health insurance, and the programs of sana-torium treatment and recreation. the report details the company’s ap-proach to personnel training, specifically cooperation with educational institutions. it is emphasized that educational institutions are not only the company’s partners in the development of employee competencies, but also the primary source for hiring young professionals. in this con-text, an important issue is the interaction of educational institutions with the corporate system of training, namely the network of regional training centers that fulfill basic needs for production personnel training. Tighter integration of these structures in settling the issues of personnel training and retraining for the electric grid sector will make it possible to enhance the practical orientation of training programs for specialists with high-er and specialized secondary education at higher education institutions and vocational schools and raise to a qualitatively new methodological level the retraining and advanced training programs for the electric grid sector’s employees. given the importance of this issue, the report for the next year should give special attention to it.

it should be noted that the report systematically provides information on the interaction with society (labor unions, charity and sponsor-ship activities, prevention of electrical injuries among people, culture and sports development, promotion of a healthy lifestyle, care for pen-sioners and veterans), environmental responsibility and environmen-tal protection, procurement practices, and anti-corruption activities.

this report makes it possible to conclude that the issues of corpo-rate social responsibility and sustainability were one of the com-pany’s priorities in 2014. information contained in the report ade-quately discloses ROSSETI’s real contribution to society, the regions, and the country and makes it possible to positively assess its activi-ties as a socially responsible company.


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Appendix 3. Glossary and Abbreviations

Aspect: as applied to sustainability reporting, a material subject that reflects the Company’s significant economic, environmental, and so-cial impacts and influences the assessments and decisions of share-holders, investors, and other stakeholders.

Stakeholder relations: the process that helps the company un-derstand the interests, expectations, and concerns of stakeholders and engage them in its activities and decision-making with due con-sideration to their problems.

Stakeholder dialog: interactive interaction organized between the company and its stakeholders on a voluntary basis and used to comprehend the interests and motives of the parties.

Stakeholders: individuals and organizations that can be materially affected by ROSSETI’s activities and services and organizations and in-dividuals whose actions can affect the Company’s activities and per-formance.

key performance indicator (kPi): an integrated indicator of per-formance measurement applied to the Company, a division, or a specific officer and evaluating the achievement of the goals at a given time.

Corporate social responsibility (CSR): the regularly revised combination of obligations corresponding to the company’s par-ticularities and voluntarily developed with the participation of key stakeholders. intended for implementing internal and external social programs whose results facilitate the development of the company, the improvement of its reputation, and the deepening and expanding constructive relations with stakeholders.

Corruption: bribery, abuse of power, commercial bribery, or any other illegal use by employees of their positions contrary to the legiti-mate interests of the company in order to gain an advantage.

Conflict of interest: a situation where the personal interest (di-rect or indirect) of an employee of the Company affects or may affect the proper performance of his or her official duties and where there is or may be a conflict between the personal interest of an employee and the rights and legitimate interests of the company, which may be detrimental to the interests of the company.

Power supply reliability: an uninterrupted electricity supply for all customers in the required quantity and of the proper quality.

Social or non-financial reporting: the identification, assess-ment, monitoring, and publication of information relating to the com-pany’s real contribution to society, country, and region development and prepared with the use of international non-financial reporting standards and best practices.

Network connection: a primary service provided by rosseti sDcs and making it technically possible to consume (deliver) elec-tricity (capacity). the service includes an actual electricity connection.

Sustainable development: development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

RAB regulation (return on invested capital method): the tar-iff design system based on long-term tariff regulation. Intended for at-tracting large investment in the industry. the methodology is based on the principle of ensuring the return on capital invested in companies’ assets for the specified period corresponding to the relevant operat-ing life of assets and of receiving the rate of return. the rate of return determined by the government should correspond to the level of risks in grid companies and ensure the industry’s appeal for investors.

appenDices

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AbbreviationshcsB: high-capacity storage batteryaspol: association of polar explorerspWol: protected-wire overhead lineres: renewable energy sourceol: overhead lineareu: all-russian electrounionsDcs: subsidiaries and dependent companieshus: housing and utility serviceskpi: key performance indicatorcsr: corporate social responsibilitypl: power lineMvD: Ministry of the interior of the russian federationMinenergo: Ministry of energy of the russian federationWec: World energy councilMMWr: minimum monthly wage ratesMBs: small and medium-sized businesseseMercoM: Ministry of civil Defense, emergencies and Disaster relief of the russian federationr&D: research and developmentlr: legal regulationsnspc: non-state pension coverageovs: overvoltage suppressorsWra: sectoral Wage rate agreementrael: all-russia trade association of employers in the power industryrosimushchestvo: federal agency for state property Management of the russian federationroskomnadzor: federal service for supervision of communications, information technology and Mass Media of the russian federationrostekhnadzor: federal service for environmental, technological and nuclear supervision of the russian federation

rec: regional energy commission, Moscowsanpin: public health regulationsSPZ: sanitary protection zoneMedia: mass mediaslB: student labor brigadenc: network connectionfes: fuel and energy sectorfas: federal antimonopoly service of the russian federationFZ: federal lawftc: federal testing centerFTS: Federal Tariff Service of the Russian Federationcsc: customer service center

***eBitDa: earnings before interest, tax, depreciation and amortizationgri: global reporting initiativeir department: investor/shareholder relations departmentWWf – World Wide fund for nature

units of Measurementkv (kilovolt): unit of voltagekWh (kilowatt-hour): unit of electric power outputMW (megawatt): unit of powerMva (megavolt-ampere): unit of apparent powergva (gigavolt-ampere): unit of apparent powert: tonneha: hectarepcs.: pieces


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feedback QuestionnaireDear reader:

Your opinion is very important to us. We would be grateful if you would help us improve the quality of the Company’s reports by filling out this questionnaire and sending it to the Company.

1. To which group of stakeholders do you belong?a. governmental authoritiesb. Business/industry communityc. shareholder/investord. customerse. employeesf. Mediag. other

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contact informationaddress: russia, 121353, Moscow, ul. Belovezhskaya, 4email: [email protected]

non-financial reporting/Investor relations

name: Maria stepanova, head of the shareholder and investor relations Division, rossetitelephone: +7 (495) 995 5333email: [email protected]

Media Relations

name: ekaterina petrova, head of the Media relations and information Division, rossetitelephone: +7 (495) 995 5333email: [email protected]


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