
1. The risk of a significant increase in receivables for electricity transmission, related to low payment discipline of end consumers, and a risk of growing bad debts for electricity transmission due to disputes with consumers over the application of industry legislation pertaining to payment for electricity transmission services.
The risk is related to non-payment for transmitted electricity (disputable or indisputable overdue receivables) by consumers. The main debtors are suppliers of last resort, electricity supply companies, and local grid operators. The risk is caused by both the imperfection of the retail energy market mechanisms and lack of effective mechanisms to encourage timely payments for electricity transmission as well as by the impact of macroeconomic factors.
Imperfect retail energy market entails disputes between electricity grid and supply companies with regard to consumed electricity and power. The result is disputable and overdue debts for electricity transmission which causes lower liquidity and financial stability of the Company.
- More active cooperation with court bailiffs service at the execution stage and signing of cooperation agreements.
- Initiation of the review of issues regarding unsatisfactory payment discipline at the meetings of the regional inter-departmental commissions for monitoring electricity and transmission payments.
- Implementation of measures against debtors subject to bankruptcy, including sale of receivables due from bankrupts.
- Activities to fully or partially limit electricity consumption by ’direct’ consumers.
- Counter-injunction for immediate enforcement of the first instance court’s decision to reduce the period until receipt of enforcement orders.
- In order to minimize the risk of non-payment, the Company developed and approved Rules for handling receivables for the Company’s electricity transmission services and measures against non-paying parties.

2. Risk of reduction in the volume of electricity transmission services as a result of:
а) Overall reduction of electricity demand. b) Optimization of external power supply systems, reduction of electricity consumption from the uniform energy system of Russia resulted from consumers’ own generation development.
Industrial growth stopped in the North-West of Russia in 2015. The main causes included reduced investment activity in Russia and unfavorable changes in commodity markets.
Industrial development in 2015 was driven by: Stagnation of production volumes, low productivity growth, slowed down investment activity, weakened national currency, slowed domestic demand, external political pressure, and mutual sanctions.
In 2014, some industrial companies in the Republic of Karelia and Vologda Region initiated the removal of nearby power plants from the WEM and their conversion to isolated generating plant to support direct supplies of electricity for own needs without paying an electricity transmission tariff.
In order to minimize this risk, the Company takes measures to improve the reliability of electricity transmission volume forecasting which is used for pricing and business planning based on macroeconomic statistics and the behavior of major consumers.
In accordance with the Resolutions of the Government of the Russian Federation and with active participation of PJSC ROSSETI and the Company, statutory measures are developed to reduce the number of grid companies and optimize consumers’ costs of electricity transmission. In accordance with legislation amendments effective from 2014 the costs of ’monogrids’ - grid companies which service mainly single consumer and were established with its assets — should be excluded from the ’uniform (boiler)’ revenue.
Another improvement to the legislation of the Russian Federation is a change of procedure for electricity transmission services volume and costs determination in order to determine the consumers’ obligations based on the maximum power capacity and the electricity transmission price (tariff). The relevant proposals were submitted to the Government of the Russian Federation.

3. The risk of disallowance of some of the Company's costs by the regional tariff regulation entities in the context of electricity transmission tariff setting due to limits for the growth of maximum electricity tariff rates established at the federal levelValue did not change..
This risk makes full recovery of feasible expenses incurred by the Company impossible and limits investment in the development of electricity facilities.
- Interaction with regional tariff regulation authorities to establish more feasible tariffs to recover all costs of the Company and to ensure the implementation of the investment programme as needed.
- Well-reasoned approach to costs setting is implemented

4. The risk of an increase in the number of 'privileged' consumers enjoying reduced rates and the volume of connected power capacity as compared to business plan targets.
The risk of an increase in the number of 'privileged' consumers enjoying reduced rates and the volume of connected power capacity as compared to business plan targets which in turn results in a growth of 'privileged' consumers' facilities connection costs and attracting additional funds through borrowings or re-allocation of funds between sites.
- Interaction with regional administrations to developed integrated infrastructure development plans in line with the region development plans.
- Selection of the most cost-effective system for connecting 'privileged' consumers enjoying reduced rates.
- Works carried out using own resources.

5. Risks of violation of the timeframe for regulated purchasing procedures in the reporting period in the current year (violation of official timeframe for purchasing procedure announcement stipulated in the Purchasing Plan and resolutions of the Company's CTC (for unscheduled purchasing); timeframe for completion of purchasing procedures established by the Company's orders and purchasing documentation; and timeframe for goods delivery and execution of works.
The causes of this risk are late provision of terms of references and draft agreements, long approval period for the Purchasing Plan and adjustments, and a long period of approval of unscheduled purchases.
- Control over the timeframe for provision of terms of references, data sheets, and draft agreements for timely drafting of a Purchasing Plan to survey the market value of necessary products.
- Control over conformance of the number of procedures implemented in different ways to the target values in the Purchasing Plan.
- Drafting statements of work for engineering and construction and installation, operations and repairs based on standard statements of work.
- Control over the timeframes for purchasing documentation development determined by the Company's orders.

6. Risk of exceeding the purchasing value above the Purchasing Plan.
Caused by inadequate verification of the substantiation of maximum (initial) costs of purchases when drafting a Purchasing Plan, preparation and adjustment of a Purchasing Plan without a business plan approved by the Board of Directors (with scenario conditions for the forthcoming and current year).
- Control over lots in the Purchasing Plan to prevent restriction of competition between bidders.
- Control over conformance of the number of procedures implemented in different ways to the target values in the Purchasing Plan.
- Control of conformance of the Purchasing Plan to the Company’s production programs approved for the current calendar year.
- Control over drafting terms of references for works related to operation, repair and investment activities of the Company based on standard terms of references.
- Control over the timeframes for purchasing documentation preparation determined by the Company’s orders.

7. Risk of decrease in transparency of purchasing operations.
A change in the ratio between the number and methods (open bidding, open request for proposal, purchasing from a single source, etc.) of purchasing versus the approved Purchasing Plan.
- Control over unconditional implementation of the Regulations on Procurement of Goods, Works, and Services for the Company.
- Control over substantiation of purchasing from a single source.

8. Risk of absence of electric grid rebuild (development) activities in the Company’s investment programme.
Higher risk of rebuild (development) of grid facilities of the Company being left out from the Company’s investment programme results in untimely rebuild of the grids and therefore, reduced reliability of power supply to consumers and untimely fulfillment of grid connection agreements.
- Interaction with regional administrations to approve investment programs, which include measures to maintain system reliability and ensure grid connection of new applicants as needed.
- Interaction with tariffs regulation authorities to include in the electricity transmission tariffs expenses that cannot be compensated through grid connection payments.