Annual Report 2015


Message from the General Director of the Company

Dear Shareholders,

In 2015, PJSC IDGC of the North-West as a major infrastructure company of the Northwestern Federal District reached its primary objectives: ensured the reliable operation of the power grid infrastructure for consumers in seven regions of the NWFD and achieved a good financial result in the form of net profit of RUB 644 million, which is higher than the business plan figure.

This is due to a balanced usage policy of production, human and financial resources in an unfavorable macroeconomic environment with accounts receivables for electricity transmission services provided by the Company.

We performed all planned activities of the Repair and Maintenance Programme — we spent more than RUB 1.7 billion for repair of equipment, received the AWP Readiness Certificate for 2015/2016, and passed the autumn-winter peak loads successfully.

As of year-end, the accident rate and the amount of grid disturbances reduced by 31% as compared to 2014.

Undersupply of electricity to consumers due to grid disturbances reduced by 38%.

PJSC IDGC of the North-West spent RUB 4.8 billion for development of the power grid in the regions, allowing to improve the equipment reliability, and to ensure the grid connection of new customers. 1097 km of power transmission lines of 0.4-150 kV voltage class and 242 MVA of new transformer capacity were commissioned.

One of the essential factors that had positive effect on the operating results in the context of a general economic downturn was the management decision to increase the proportion of work carried out without involvement of contractors. Thus, the Repair and Maintenance Programme and grid connection activities of consumers for more than 70% were performed by the Company using its own resources. As a result, we managed to maximise the use of our own human capacity, significantly improve the quality and level of responsibility for the work performed.

The most important projects in 2015 included renovation of the 110/35/10 kV Tarnoga substation supplying electricity to over 14 thousand citizens of Vologda Oblast, construction of the 110 kV Zelenogorsk — Izhma overhead transmission line to supply electricity to remote areas of the Komi Republic and the 110 kV overhead transmission line and the 110/35/6 kV Verkhovye substation for connection of oil production facilities of the Yaregskoye oil and titanium deposit, and reconstruction of the 110/35/6 kV Kuznechevskaya substation in the capital of Pomorye.

The priority of our work in 2015 was to increase of effectiveness of investment activity in regions where the Company operated, to create conditions under which the Investment Programme funds will be spent only for really demanded projects in the regions.

The increase of effectiveness of investment activity in regions where the Company operated was the priority.

Through the cooperation with the Administrative Office of Presidential Plenipotentiary Envoy to the Northwestern Federal District, the first Regional Investment Energy Fair was held in Pskov. As a result, agreements were signed with investors who planned to develop their businesses in Pskov Oblast. Further development of this project in all regions where the Company operates and at the interregional level will allow us to move away from inefficient building of capacity, to allocate funds for the implementation of really demanded projects and to receive profit from the transmission of electricity to be consumed by real properties. Investors will be able to obtain access to the grid infrastructure faster, better and cheaper, and consumers will get better tariffs.

In 2015, 36.9 billion kWh of electricity was transmitted via the Company’s grid. As compared to 2014, the volume of electricity transmitted reduced by 0.6%, which is due to a slight decrease of electricity demand in some regions of responsibility. The volume of revenue from sales of electricity transmission services increased by RUB 5.538 billion rubles and was 118% of the previous year’s volume due to the increase in the average sales tariff.

The total electricity losses reduced by 26 million kWh to 6.38%. In absolute values, this figure as of year-end was 2.5 billion kWh.

In 2015, we obtained a good financial result. Net profit was RUB 644 million. Revenues amounted to RUB 39.623 billion, which exceeded the target value by RUB 158 million. The general decline in revenue of RUB 4,639 million (10%) as compared to 2014 was due to the cancellation of supplier of last resort functions in Murmansk Oblast.

The main focus of the management was and still is on the consumer receivables for electricity transmission services.

As of year-end, the consistent work in this field resulted in the collection of more than RUB 10 billion from the debtors. However, unfortunately, the payment discipline — especially in case of suppliers of last resort in regions — where the Company operates remains extremely low.The suppliers of last resort account for the largest portion of the debt. And this is a deterrent in the development of the Company.

As from the beginning of 2016, we started implementing the road map providing for transition of major consumers to the direct payment scheme. This will enable us to receive funds for electricity transmission services, bypass the intermediaries who are not necessarily honest and use the money to implement the production programmes. The first campaign to effect the transition to direct payments was organised in Arkhangelsk and Vologda Oblasts as most problematic areas in terms of payment discipline of suppliers of last resort in the regions. In Q2, the Komi Republic will join the project implementation efforts. Further, the project will extend to all regions where the Company operates.

In 2016, the management of PJSC IDGC of the North-West will concentrate its attention on ensuring reliability of electricity supply to consumers of the North-West. The focus will be on improving planning and implementation of the Investment Programme in close cooperation with the regional authorities, reducing the accounts receivable and ensuring profitability of the Company.