Management Report of PJSC ROSSETI · 2020. 4. 30. · 2 table of contents company overview 3 historical background 3 rosseti group structure (as of december 31, 2019) 4 rosseti group

Management

Report

of PJSC ROSSETI

2

Table of contents

COMPANY OVERVIEW 3

HISTORICAL BACKGROUND 3

ROSSETI GROUP STRUCTURE (AS OF DECEMBER 31, 2019) 4

ROSSETI GROUP 5

CONSOLIDATION OF ELECTRIC GRID ASSETS 5

OPERATING INDICATORS 5

KEY EVENTS IN 2019 6

EVENTS AFTER THE REPORTING PERIOD 7

RESULTS IN 2019 8

OPERATING ACTIVITIES 8

FINANCIAL AND ECONOMIC PERFORMANCE 14

CAPITAL INVESTMENT PROGRAM 27

INTRODUCTION OF NEW TECHNOLOGIES 29

PREDICTIVE ANALYTICS 31

STRATEGY FOR DEVELOPMENT OF THE ELECTRIC GRID SECTOR OF THE RUSSIAN FEDERATION 31

CORPORATE GOVERNANCE 33

CORPORATE GOVERNANCE MODEL 33

CORPORATE GOVERNANCE SYSTEM DEVELOPMENT IN 2019 33

GENERAL MEETING OF SHAREHOLDERS 35

BOARD OF DIRECTORS 37

COMMITTEES OF THE BOARD OF DIRECTORS 52

ROSSETI EXECUTIVE BODIES 53

CORPORATE SECRETARY 58

SHARES AND SHARE MARKET 59

RISK MANAGEMENT SYSTEM AND INTERNAL CONTROL 62

ROSSETI GROUP STRUCTURE 79

RESPONSIBILITY STATEMENT 80

GLOSSARY 81

CONTACT INFORMATION 83

APPENDIX 84

3

Company Overview

Historical background

Reform of the Russian

electricity industry

Establishment of Interregional

Distribution Grid Companies

Holding (MRSK Holding) through a spin-off from RAO UES of

Russia

Consolidation of electricity transmission

and distribution

grids

Completed corporate

formation of ROSSETI as an open joint-

stock company

Renaming of the legal form of ROSSETI as a public joint-stock company

The implementation of Rosseti Group's digital transformation programme has been started.

Rosseti Group's development strategy until 2030 was

approved.

A new brand architecture of the energy holding company

was presented

early 2000s

2008 2012 2013 2015 2019

In accordance with Decree of the President of the Russian Federation No. 1567 of November 22, 2012, “On Joint Stock Company ROSSETI” and pursuant to the Strategy for Development of the Electric Grid Sector approved by Ordinance of the Government of the Russian Federation No. 511-r of April 3, 2013, ROSSETI:

Performs strategic functions

Performs coordinating functions

Performs controlling functions

Accomplishes institutional goals faced by the entire industry

Participates in the consolidation of territorial grid organizations in order to ensure the necessary level of power supply reliability and quality

4

ROSSETI Group Structure (as of December 31, 2019)

5

ROSSETI Group

The ROSSETI Group has an absolute monopoly on electricity transmission and distribution. The market share controlled by the companies of Rosseti Group amounts to 73.3%.

Consolidation of Electric Grid Assets1 To gain control of electric grid assets that are not part of or controlled by the ROSSETI Group, the Company works toward asset consolidation.

Operating Indicators Indicator 2017 2018 2019

1 In the corresponding period.

Industry: electric power

Status: natural monopoly

Geographic presence: 80 Russian regions

Services:

- electricity transmission and distribution

- network connection

Controlling shareholder:

The controlling shareholder is the Government, represented by the Federal Agency for State Property Management and holding an 88.04% stake

Structure:

- 26 grid companies

- 9 retail companies

- 5 R&D and testing companies

- 27 service, maintenance, and repair companies

- 2 construction and procurement companies

- 15 other companies

Assets of the Group:

- 2.37 million kilometers of power lines

- 517 thousand substations

- 217 thousand employees

Largest electric utility and mainstay of the electric grid

sector

1,031 570

5,6183,602 3,093

22,912

2017 2018 2019

Acquired electric grid facilities

Transformer capacity, MVA Power lines, km

15,92321,406

24,813

42,282

49,441

56,683

2017 2018 2019

Leased electric grid facilities

Transformer capacity, MVA Power lines, km

6

Length of power lines, mn km 2.34 2.35 2.37

Number of substations, thsd units 502 507 517

Transformer capacity of substations, GVA 781 792 802

Connected capacity of customers’ power-

receiving equipment, MW 15,201 13,905 11,945

Electric grid SDCs’ staff on the payroll, thsd

people 215 217 217

Key Events in 2019 Finance February Moody’s Investors Service upgrades the long-term global scale credit rating of

ROSSETI to investment grade (Baa3, stable outlook).

February The Analytical Credit Rating Agency (ACRA) reaffirms the national scale credit rating of ROSSETI (AAA(RU), stable outlook).

June The Company signs a memorandum of cooperation with Gazprombank to use digitalization for the treasury function.

Operating and investing activities

March A 220 kV substation, Port, which is strategically important for regional investment potential, begins operation in the Krasnodar Territory.

September A 220 kV substation, Prompark, providing an external electricity supply for an advanced development zone, is put into operation in the Far East.

September Phase 1 of a 110 kV substation, Plievo Novaya, is put into operation to ensure the creation of a grid of nine power lines in Ingushetia, North Ossetia, and Chechnya, which considerably improves the reliability of the North Caucasian energy system as a whole.

October The largest substation, Khovanskaya, with installed transformer capacity of 700 MVA begins operation in Moscow’s Troitsk and Novomoskovsky Administrative Districts.

October A new 110 kV substation, Kuzemkino, is put into operation to provide an external electricity supply for Nord Stream 2 facilities located in the Leningrad Region.

November ROSSETI approves the Regulations “On the Uniform Technical Policy in the Electric Grid Sector.”

November A 110 kV substation, Industrialnaya, is put into operation to supply smart energy to the biggest industrial park in the Kaliningrad Region.

December ROSSETI organizes the “Power Grids 2019” International Forum, a large sectoral event aimed at discussing and resolving the most important issues of electricity industry development.

December The ROSSETI Group puts into operation several modern power facilities in the Irkutsk and Tyumen Regions, which considerably improve electricity supply system reliability for several regions and ensure that sufficient transformer capacity is available for future regional development.

December New electric grid facilities—substations, network control centers, and customer service centers—begin operation in nine Russian regions. The new substations use digital technology.

December The Development Strategy of Public Joint Stock Company ROSSETI and Its Subsidiaries and Dependent Companies (ROSSETI Group) Until 2030 receives approval. The key difference from the previous version is the transition to a business model of modern innovative infrastructure.

International activities

January A Russia-Serbia cooperation memorandum is signed to develop innovations in the electricity industry.

June A memorandum was signed with French company EDF to implement joint projects on the territory of third countries and to cooperate in creating digital distribution networks in Russia as well as in developing intelligent metering systems.

June The agreement on implementation of projects on the construction and upgrade of the power grid complex facilities on the territory of third countries was signed with Chinese company China Energy Engineering Corporation.

7

June A cooperation agreement was signed with Chinese company NARI Group Corporation to create digital electrical grids and localise the production of equipment necessary for the creation of digital grids.

September The Company signs three-year memorandum with Mongolia’s largest state-owned enterprise Erdenes Mongol to develop the energy interconnection system covering Northeast Asia.

October A memorandum was signed with Mozambican company Electricidade de Mocambique to cooperate in designing and constructing new facilities and upgrading the existing ones, part of the electric grid complex in the Republic of Mozambique, as well as in supplying electric energy equipment.

December A memorandum was signed with Belgian organisation PRIME ALLIANCE AIBSL to cooperate in creating digital electric grids and introducing intelligent metering systems.

December A memorandum was signed with Union Electrica of the Republic of Cuba in order to develop the power grid infrastructure of the Republic of Cuba, including the feasibility study of constructing new facilities and upgrading the existing ones of the main distribution electric grid complex in the Republic of Cuba.

Corporate governance

June Shareholders approve the payment of more than 5 billion rubles as dividends for the first quarter of 2019.

July Approval is given to a restated version of the Regulations for Insider Information in line with legislative changes.

December The Russian Institute of Directors reaffirms ROSSETI’s corporate governance rating at 7++ “Developed practice of corporate governance.”

December Amendments to the Articles of Association of ROSSETI Tyumen are registered as related to the changed corporate name.

Sustainable development

April In order to demonstrate and test equipment used for projects related to the industry’s digital transformation and to strengthen and expand relations with suppliers, ROSSETI organizes the “Partnership Days” Forum for Russian and foreign manufacturers of electrical products.

April The Board of Directors approves the Uniform Corporate Identity Standard of the ROSSETI Group. ROSSETI presents the Group’s new, uniform brand architecture in June.

August With support from the Russia – a Country of Opportunities platform, ROSSETI holds a contest, Energy Leaders, to select the most skilled and motivated industry executives for its personnel reserve.

October Major network connections reforms carried out by the ROSSETI Group help the

Russian Federation rank 7th in the “Getting Electricity” ranking according to the

World Bank’s Doing Business report.

December ROSSETI’s environmental management system is certified to comply with ISO 14001:2015 and its Russian equivalent GOST R ISO 14001-2016.

December A restated version of the Environmental Policy of the Electric Grid Sector is approved.

Events after the reporting period Corporate governance

February–March

Amendments of the articles of association of PJSC IDGC of South and PJSC IDGC of Northern Caucasus, related to the companies' names (PJSC Rosseti South and PJSC Rosseti Northern Caucasus, respectively), were registered.

8

Results in 2019

Operating Activities

Electricity Transportation and Losses

ROSSETI Group core business is electricity transmission services. In 2019, the volume of electricity transmitted via the network of ROSSETI Group

decreased by 0.17% compared to 2018, amounting to 834,939.0 million kWh.

The company once more faced a decrease in the level of electricity losses – down to 8.57% (by 0.38 percentage points compared to the 2018 annual

results) for the reporting year. The steady reduction in network electric energy losses of the Group over the course of several years is the result of

comprehensive efforts including implementation of energy saving and energy efficiency projects by means of digital technologies, including the

implementation of measures to reduce electricity losses.

Subsidiary/Dependent Company

Volume of electric energy supplied to the network, mln kW * h

Volume of electric energy losses, mln kW * h Level of electrical energy loss,%

2017 2018 2019 planned

2019 actual

2020 planned

2017 2018 2019 planned

2019 actual

2020 planned

2017 2018 2019 planned

2019 actual

2020 planned

MOESK 90,231.4 91,881.2 93,234.0 91,747.8 92,742.3 7,431.7 7,439.5 7,315.0 7,036.5 7,125.4 8.24 8.10 7.85 7.67 7.68

IDGC of Urals 73,897.3 73,135.7 73,701.1 71,598.5 70,954.4 5,715.3 5,427.5 5,241.0 4,810.2 4,989.8 7.73 7.42 7.11 6.72 7.03

IDGC of Siberia 65,507.0 62,021.3 62,617.3 61,065.2 61,460.9 4,997.8 4,844.2 5,046.5 4,778.2 4,768.9 7.63 7.81 8.06 7.82 7.76

ROSSETI Tyumen 65,022.0 57,853.8 58,102.1 58,059.7 58,683.2 1,700.0 1,640.2 1,585.8 1,547.0 1,523.1 2.61 2.84 2.73 2.66 2.60

IDGC of Center and Volga Region

54,797.5 54,055.5 54,409.8 53,617.7 53,082.3 4,373.5 4,236.4 4,075.2 4,257.6 3,842.9 7.98 7.84 7.49 7.94 7.24

IDGC of Centre 59,234.8 54,235.7 53,554.3 53,141.3 52,749.6 5,841.8 5,751.5 5,494.3 5,434.5 5,185.1 9.86 10.60 10.26 10.23 9.83

IDGC of Volga 53,051.2 53,491.2 53,043.3 51,884.8 51,332.2 3,501.8 3,466.6 3,355.4 3,200.4 3,145.9 6.60 6.48 6.33 6.17 6.13

LENENERGO 38,717.3 38,263.8 38,764.7 38,255.5 37,914.8 4,439.6 4,337.5 4,320.9 4,138.4 4,123.5 11.47 11.34 11.15 10.82 10.88

IDGC of North-West 37,621.4 34,297.4 34,791.0 34,593.7 34,135.2 2,283.6 2,258.6 2,200.3 2,156.4 2,124.3 6.07 6.59 6.32 6.23 6.22

IDGC of South 27,995.1 27,326.0 27,036.7 25,973.5 26,784.7 2,653.8 2,679.0 2,436.2 2,323.8 2,273.4 9.48 9.80 9.01 8.95 8.49

Kubanenergo 22,633.3 23,032.5 23,378.0 22,850.7 23,838.8 2,729.0 2,590.1 2,582.5 2,426.4 2,504.3 12.06 11.25 11.05 10.62 10.51

IDGC of Northern Caucasus 18,477.2 18,531.1 18,983.2 18,720.7 19,005.5 4,024.8 3,703.2 3,587.3 4,246.0 3,406.5 21.78 19.98 18.90 22.68 17.92

TDC 5,442.2 5,288.9 5,368.2 5,335.7 5,285.1 450.0 475.8 476.6 464.8 457.6 8.27 9.00 8.88 8.71 8.66

Yantarenergo 4,178.6 4,142.5 4,145.0 4,140.3 4,186.5 646.6 520.6 531.1 474.6 510.1 15.47 12.57 12.81 11.46 12.19

Chechenenergo 2,681.8 2,754.4 2,800.0 2,905.3 2,862.9 925.0 988.1 846.0 1,069.0 806.6 34.49 35.87 30.21 36.80 28.17

Total for distribution grids 619,488.1 600,311.0 603,928.7 593,890.5 595,018.5 51,714.3 50,358.9 49,094.0 48,363.8 46,787.4 8.35 8.39 8.13 8.14 7.86

FGC UES 571,658.7 582,268.9 580,190.7 581,918.5 581,349.9 24,307.3 24,539.2 25,360.8 23,196.7 24,454.8 4.44 4.40 4.57 4.15 4.39

ROSSETI SDCs account for 78% of transmission and distribution for electricity generated in Russia.

9

TOTAL for ROSSETI SDCs 824,184.1 836,393.1 838,991.7 834,939.0 831,892.6 76,021.6 74,898.2 74,454.8 71,560.5 71,242.2 9.22 8.95 8.87 8.57 8.56

10

Intelligent Electricity Metering Systems

The expected level of losses in Rosseti Group's grids will not exceed 8.56% due to implementation

of digital technologies for the network operation.

Technology contributes to enhancing the economic and energy efficiency of electricity networks, reducing electricity non-network losses, and enforcing payment discipline. Intelligent metering systems enable automatic data collection intended for the timely detection of noncontractual and unbilled electricity consumption and allow timely corrective measures. Modern electricity meters provided for ROSSETI SDCs:

Subsidiary/Dependent Company Proportion of Modern Electricity Meters, %

MOESK 18.3

IDGC of Urals 23.4

IDGC of Siberia 32.2

ROSSETI Tyumen 67.4

IDGC of Center and Volga Region 10.5

IDGC of Centre 11.9

IDGC of Volga 17.5

LENENERGO 14.1

IDGC of North-West 8.1

IDGC of South 21.0

Kubanenergo 20.0

IDGC of Northern Caucasus 13.2

TDC 25.7

Yantarenergo 93.1

Chechenenergo 50.3

TOTAL 20.1

An intelligent electricity (capacity) metering system is designed for the remote collection,

processing, and transmission of electricity meter readings in real time.

11

Network Connection

The companies of the ROSSETI group provide comprehensive services for the technological

connection of consumers and producers of electricity to electric networks. Technological connection

is the actual connection of power receiving devices of consumers, electric energy production facilities

and electric grid facilities to electric networks.

In 2019, the volumes of technological connection of consumers and electric power generation

facilities decreased by 9% compared to 2018 in the number of fulfilled contracts and by 21% in

connected capacity. The bulk of the fulfilled contracts for technological connection (98%) are the

applicants of the preferential category with power receivers with a capacity of up to 150 kW inclusive.

Doing Business 2019 rating

The Russian Federation climbed to 7th place according to the World Bank’s business “Doing

Business 2020” annual report in the category “Connecting to a power supply system”. This is

once again the convincing evidence for success and effectiveness of all announced reforms

aimed at simplifying the process of technological connection to electric networks.

Based on the operation results for 2019, the Russian Federation climbed from 31st place to

28th in the overall ranking.

ROSSETI Achievements in Doing Business Rankings in 2019 (in comparison to 2018)

Changes in network connections provided for individual customers and power generation facilities in 2019 against 2018

Received network connection requests

431,158 requests (-11%) 43,807 MW (-11%)

Signed network connection contracts

342,929 contracts (-10%) 13,732 MW (-18%)

Completed network connection contracts

7Position in the rating by the indicator

"Connection to the power supply system" (growth from 12th place)

5 Connection cost,% GNI per capita (decrease from 5.7%)

41 Connection duration, days (decreased from 73 days)

2 The number of steps required for connection, pcs.

12

331,712 contracts (-9%) 15,066 MW (-21%)

Electricity connections provided for customers’ power-receiving equipment in 2019


Network Connection Requests

Signed Network Connection Contracts


requests MW contracts MW contracts MW

MOESK 77,249 6,208 57,942 2,060 52,725 1,887

IDGC of Urals 40,176 2,166 29,959 806 27,794 678

IDGC of Siberia 33,088 2,512 26,787 813 28,188 723

Rosseti Tyumen 6,306 607 5,114 247 4,956 300


55,968 2,188 45,639 913 44,059 895

IDGC of Centre 47,871 2,703 38,529 909, 38,061 813

IDGC of Volga 20,591 1,263 16,695 450 16,119 543

LENENERGO 29,983 1,998 23,987 772 27,482 893

IDGC of North-West 24,398 1,212 20,404 521 20,400 426

IDGC of South 18,799 1,626 14,698 418 14,032 354

Kubanenergo 33,216 1,421 28,532 711 26,165 797

IDGC of Northern Caucasus 9,928 565 8,725 300 8,370 325

TDC 3,155 139 2,690 76 2,697 62

Yantarenergo 5,919 334 4,809 169 5,718 170

Other 23,992 1,317 18,181 380 14,707 336

Total for distribution grids 430,639 26,259 342,691 9,544 331,473 9,200

FGC UES 363 7,451 182 2,724 190 2,745

TOTAL for ROSSETI SDCs 431,002 33,711 342,873 12,268 331,663 11,945

Electricity connections provided for power generation facilities in 2019


Network Connection Requests

Signed Network Connection Contracts


requests MW contracts MW contracts MW

MOESK 15 99 5 37 1 71

IDGC of Urals 12 112 5 78 2 13

IDGC of Siberia 15 167 11 159 12 218

Rosseti Tyumen 0 0 0 0 0 0

IDGC of Center and Volga Region 1 3 0 0 0 0

IDGC of Centre 5 233 2 5 2 27

IDGC of Volga 12 352 2 76 12 172

LENENERGO 15 182 4 12 1 0

IDGC of North-West 2 36 1 4 0 24

IDGC of South 25 1,351 10 713 5 138

Kubanenergo 3 25 2 21 0 0

IDGC of Northern Caucasus 8 309 1 2 1 74

TDC 0 0 0 0 0 0

Yantarenergo 0 0 0 0 0 65

Other 3 4 2 3 1 347

Total for distribution grids 116 2,874 45 1,11

1 37 1,149

FGC UES 40 7,222 11 352 12 1,972

TOTAL for ROSSETI SDCs 156 10,096 56 1,46

4 49 3,121

13

Changes in the cost of obtaining an electricity connection in 2017–2019, RUB/kW

Indicator 2017 2018 2019

Cost 2,722 2,852 3,031

Indices of reliable and uninterrupted power supply

*Пsaidi - System Average Interruption Duration Index (hours) **Пsaifi - System Average Interruption Frequency Index (outages)

Effective management of remedying process failures A total of 9,600 process failures in networks rated 110 kV and above were recorded and investigated in 2019 (or 13% lower than in 2018).

2,4

1.3

1.8

1.2

0,0

0,5

1,0

1,5

2,0

2,5

3,0

Пsaidi Пsaifi

2018 2019

34%

21%

36%

9%

Causes of operation failures in electric grids in 2019

Environmental factors

Physical deterioration

External factors

Other

-8%

-25%

14

Financial and Economic Performance The primary focus of the Company’s financial policy is on improving operating efficiency, maintaining

an optimum level of liquidity and a low debt burden, retaining high credit ratings from international

rating agencies, and ensuring a high level of self-financing for capital expenditures. This allows the

Company to maintain operational profitability and ensure shareholder return in the form of dividend

payout.

The key factors affecting Rosseti Group's financial performance in 2019 were:

• higher revenue from electric energy transmission due to the tariff indexation regarding electric

energy transmission services;

• recognition of loss from the depreciation of property, plant and equipment of Rosseti Group;

• conclusion of asset consolidation major transactions by Rosseti Group;

• application of the new IFRS 16 Leases standard in Rosseti Group's accounting;

• increase in depreciation expenses for property, plant and equipment due to the introduction

of new capacities.

Summary of IFRS Key Financial Results

Indicator (bn RUB unless otherwise stated)

2017 (restated)

2018 2019 2019/2018 Change, %

Revenue 948.3 1,021.6 1,029.7 0.8

Operating expenses (760.2) (835.8) (858.3) 2.7

Adjusted EBITDA2 314.1 313.9 323.7 3.1

Operating profit 172.4 175.7 151.5 (13.8)

Net profit 121.2 124.7 105.3 (15.5)

Net debt 453.4 434.1 422.8 (2.6)

Net cash flows from operating activities 212.4 238.6 256.4 7.5

Results in 2019:

• Effective cost management and increased revenue: adjusted EBITDA rose by 3.1% (or 9.8 billion rubles) to 323.7 billion rubles.

• Maintained comfortable level of debt: Net Debt/Adjusted EBITDA decreased to 1.31.

2 Adjusted EBITDA is calculated as EBITDA (earnings before interest, tax, depreciation, and amortization) less impairment of fixed assets.

948.3

1,021.61,029.7

314.1 313.9 323.7121.2 124.7 105.3

30.9

30.7

31.4

30,0

30,5

31,0

31,5

32,0

0,0

200,0

400,0

600,0

800,0

1 000,0

1 200,0

2017 2018 2019

Revenue, bn RUB Adjusted EBITDA, bn RUB

Net profit, bn RUB Adjusted EBITDA margin, %

453.4

434.1 422.8

1.44

1.38

1.31

1,2

1,2

1,3

1,3

1,4

1,4

1,5

1,5

1,6

400,0

420,0

440,0

460,0

2017 2018 2019

Net debt, bn RUBNet Debt/Adjusted EBITDA

15

• Management of working capital and short-term debt: the current ratio went down to 0.77.

• Use of long borrowings: as with the 2018 results, long-term debt obligations dominated the loan portfolio, accounting for 82.6%.

Revenue

Its socially significant and geographically diversified activities enable the Group to have a solid base

of ultimate electricity consumers. In combination with a stable tariff policy, this ensures predictable

operating revenue.


2017 (restated)

2018 2019 2019/2018 Change, %

Revenue, including: 948.3 1,021.6 1,029.7 0.8

Electricity transmission and distribution

784.2 826.2 860.9 4.2

Network connection services 52.4 52.6 48.7 (7.4)

Electricity and capacity sales 75.7 119.9 100.3 (16.3)

Other revenue 36.0 22.9 19.8 (13.5)

The Company’s revenue increased by 0.8% (or 8.1 billion rubles) in 2019 on 2018 to 1,029.7 billion

rubles. The key factors contributing to changes in revenue are as follows:

• Revenue from electricity transmission and distribution increased by 4.2% (or 34.7 billion

rubles) due to tariff indexation.

• Revenue from electricity and capacity sales decreased by 16.3% (or 19.6 billion rubles)

because of the supplier of last resort functions transferred by SDCs and due to lower

electricity sales of FGC UES’s subsidiary (MGES).

• Revenue from network connection services went down by 7.4% (or 3.9 billion rubles) due to

compliance with the services schedule depending on customers.

784.2826.2 860.9

52.452.6

48.775.7

119.9100.3

36

22.9 19.8

500

800

1100

2017 2018 2019

Revenue Structure, bn RUB

Other revenue

Revenue from electricity and capacity sales

Revenue from network connection services

Revenue from electricity transmission and distribution

16

• Other revenue decreased by 13.5% (or 3.1 billion rubles) due to changes in the completion

of different construction project stages.

Operating Expenses

The ROSSETI Group’s priorities include improving operating efficiency and reducing expenses

without detriment to the reliability, quality, and accessibility of services.


2017 (restated)

2018 2019 2019/2018 Change, %

Total expenses 797.6 869.3 905.3 4.1

Operating expenses, including: 760.2 835.8 858.3 2.7

Employee benefits 181.5 187.4 201.3 7.4

Depreciation and amortization, right-of-use assets and intangible assets

107.3 116.1 129.4 11.5

Electricity transmission and distribution services

143.9 153.3 155.4 1.4

Electricity purchased for compensation for electricity network losses

128.2 148.1 150.7 1.8

Electricity purchased for resale 42.2 67.1 60.7 (9.5)

Taxes and levies except profit tax 24.8 31.8 27.1 (14.8)

Provisions 5.1 5.0 17.3 3-fold

Other operating expenses 127.2 127.2 116.4 (8.3)

Provision for expected credit losses (impairment of receivables)

16.2 25.8 23.4 (9.3)

Losses on impairment of fixed assets and right-of-use assets

21.2 7.7 23.6 2-fold

181.5 187.4 201.3

107.3 116.1129.4

143.9153.3

155.4

128.2148.1

150.742.2

67.160.7

24.8

31.827.1

5.1

5,017.3

127.2

127,0116.4

2017 2018 2019

Structure of Operating Expenses, bn RUB

Other operating expenses

Provisions

Taxes and levies except profit tax

Electricity purchased for resale

Electricity purchased for compensationfor electricity network losses

Electricity transmission and distributionservices

Depreciation and amortization

Employee benefits

17

The Company’s operating expenses increased by 2.7% (or 22.5 billion rubles) in 2019 on 2018 to

858.3 billion rubles. The key factors contributing to their changes are as follows:

• Employee benefits increased due to wage indexation for production personnel in accordance

with the Sectoral Wage Rate Agreement.

• Expenses associated with electricity distribution services grew due to tariff indexation for

other territorial grid organizations.

• Expenses associated with electricity purchased for compensation for electricity network

losses increased due to higher unregulated prices of purchased electricity.

• Expenses associated with electricity purchased for resale decreased because of the supplier

of last resort functions transferred by SDCs.

• Tax payments decreased due to movable property tax relief granted as of January 1, 2019.

• Provisioning rose following the assessment of possible negative outcomes of ongoing legal

proceedings.

• Depreciation and amortization grew due to putting into operation new fixed assets, and

introducing IFRS 16 Leases into the Company’s accounting practices.

It is noteworthy that the provision for expected credit losses in 2019 was comparable to that in 2018.

Losses on impairment of fixed assets were recognized in 2019 chiefly by three subsidiaries

(LENENERGO, FGC UES, and IDGC of Northern Caucasus).

Operating Efficiency Management

In order to bring down operating expenses and improve efficiency, the Company was active in

carrying out the Program to Improve the Operating Efficiency and Reduce Expenses of the ROSSETI

18

Group for 2019–2023 and implementing the action plan to optimize ROSSETI’s expenses with due

consideration to subsidiaries according to the independent audit results.3

The ROSSETI Group’s specific operating expenses in 2019 were more than 2.0% down from 2018.

With a view to meeting the targets of the Strategy, ROSSETI initiated the formulation of the Operating

Efficiency Improvement Program in 2020 as part of ROSSETI’s strategic planning documents with

due regard to the objectives of transforming the energy industry. The Program will form the basis for

determining priorities and actions related to the centralization and optimization of the administrative

and accounting functions and selecting methods for increasing the efficiency of production and other

processes.

Assets and Liabilities

Some of the factors affecting the Company’s assets are as follows:

• The technical base is constantly modernized, including through digitalization.

• Equipment has a long life cycle.

• The Company has a unique infrastructure that can help develop new activities and achieve

synergies.

Indicator (bn RUB unless

otherwise stated)

2017

(restated)

2018 2019 2019/2018

Change, %

Assets 2,346.4 2,518.6 2,649.6 5.2

Noncurrent assets 2,053.0 2,144.8 2,328.1 8.5

Current assets 293.4 352.3 321.2 (8.8)

Available-for-sale assets - 21.5 0.3 (98.6)

Liabilities 2,346.4 2,518.6 2,649.6 5.2

Equity 1,369.8 1,495.0 1,584.1 6.0

Noncurrent liabilities 645.4 625.2 650.5 4.0

Current liabilities 331.2 398.4 415.0 4.2

Structure of Assets and Liabilities, bn RUB

3 Minutes of the Meeting of the Board of Directors of ROSSETI No. 254 of March 3, 2017.

2,053.0 2,144.8 2,328.1

293.4 352.3321.221.5

0.3

2017 2018 2019

Assets

Noncurrent assets Current assets

Available-for-sale assets

2,346.4

2,649.62,518.6

1,369.8 1,495.0 1,584.1

645.4625.2 650.5

331.2398.4

415

2017 2018 2019

Liabilities

Equity Noncurrent liabilities Current liabilities

2,346.42,518.6

2,649.6

19

The Group’s assets increased by 5.2% (or 131.0 billion rubles) in 2019 on 2018 to 2,649.6 billion

rubles. Changes in noncurrent assets were largely due to the following reasons:

• Fixed assets were increased by the implementation of the investment program.

• Right-of-use assets were recognized (in accordance with IFRS 16 Leases, effective from

January 1, 2019).

The key factors contributing to changes in the value of current assets and available-for-sale assets

are as follows:

• Receivables were decreased by completed payments for the sale of a shareholding in Inter

RAO.

• The asset swap agreement with FEEMC was completed.

Changes in the structure of equity were primarily due to the net profit received in 2019.

The key factors contributing to changes in current liabilities are as follows:

• Short-term loans and borrowings were increased by reclassifying some long-term bond loans

as short-term loans by maturity.

• Dividends were accrued.

The key factors contributing to changes in noncurrent liabilities are as follows:

• Lease obligations were recognized (in accordance with IFRS 16 Leases, effective from

January 1, 2019).

• Long-term prepayments for network connection services increased.

• Long-term loans and borrowings decreased due to reclassification of a part of long-term bond

loans as short-term loans by maturity.

Debt

The Company maintains an optimum level of liquidity and a low debt burden. Its borrowings are not

exposed to currency risk because 100% of the Company’s debt is ruble denominated.

20

The Group’s debt obligations decreased by 5.9 billion rubles in 2019. It is, however, important to

note that the introduction of IFRS 16 Leases, effective from January 1, 2019, increased lease

obligations by 36.2 billion rubles. With lease obligations factored out, the Group’s debt would have

decreased by 42.1 billion rubles in 2019.

The Group’s debt went down from 7.2% to 7.0% p.a., remaining below the market average

(according to the Bank of Russia, the average lending rate in rubles for Russian corporate lenders

for maturities of 1–3 years was 8.48% p.a. in December 2019).

The Group’s debt portfolio is dominated by long-term borrowings, with a weighted average maturity

exceeding 8 years.

Bonds

Rosseti Group actively attracts long-term borrowings on capital markets. In 2019, no placement of

PJSC Rosseti's bonds took place; however, the companies of Rosseti Group successfully placed

the following bond issues, and also the offer was approved without the provision by the holders of

bonds with a total nominal volume of RUB 30.0 billion:

333 327 298

224 239226

1 2 38

7.3 7.2 7.0

0,0

2,0

4,0

6,0

8,0

-100

100

300

500

700

900

2017 2018 2019

Financial Debt, bn RUB

Lease obligations

Loans and other financial obligations

Public debt offerings (bond loans)

Company weighted average rate at the end of the period, %

562568558

27 24 25

18

15 16

2017 2018 2019

Debt Service Expenses, bn RUB

Accrued interest capitalized in fixed asset value

Accrued interest included in expenses

45

39 42

88 106

163 163

2020 2021 2022 after 2022

Debt Repayment Schedule, bn RUB

Principal debt less accrued but unpaid interest

21

Issue number Series Outstanding volume,

RUB mln Date of

placement Placement rate,

%

PJSC MOESK

4B02-01-65116-D-001P 001P-01 8,000 23 Apr 2019 8.45%

4B02-05-65116-D BO-05 5,000 6 Jun 2019* 8.40%

PJSC IDGC Ural

4B02-03-32501-D BО-03 3,000 30 Oct 2019 7%

4B02-04-32501-D BО-04 4,000 30 Oct 2019 7%

PJSC IDGC of Centre

4B02-01-10214-A-001P 001P-01 5,000 19 Nov 2019 6.85%

PJSC IDGC of Centre and Privolzhie

4B02-02-12665-E BO-02 5,000 3 Dec 2019 6.85% *As part of the offer

The purpose of raising borrowed funds was to refinance the loan portfolio by subsidiaries. The key

investors were managing companies, pension funds, banks, investment and insurance companies,

as well as individuals.

In order to optimise the debt portfolio, PJSC Rosseti repaid 4 issues of listed bonds (series BO-02,

BO-03, BO-05 and BO-06), placed in 2015–2016, with a total nominal volume of RUB 26.0 billion.

The companies of Rosseti Group also redeemed/bought back bonds totalling RUB 47.4 million under

the offers.

Events after the reporting date:

In the favourable market conditions, the companies of Rosseti Group placed bonds with a total

volume of RUB 30 billion in early 2020.

Issue number Series Outstanding volume,

RUB mln Date of

placement Placement rate,

%

PJSC FGC UES

4B02-04-65018-D-001P 001Р-04R 10,000 4 Feb 2020 6.75%

PJSC Lenenergo

4B02-03-00073-A BО-03 5,000 5 Feb 2020 6.20%

4B02-04-00073-A BО-04 5,000 5 Feb 2020 6.20%

PJSC MOESK

4B02-02-65116-D-001P 001Р-02 10,000 21 Feb 2020 6.15%

In early 2020, Rosseti Group also prepaid/redeemed bonds totalling RUB 23.1 billion under the

offers.

Credit ratings

Currently, PJSC Rosseti has investment ratings from two major international rating agencies

Standard & Poor's (BBB- with a stable outlook) and Moody's ( Baa3 with a stable outlook) at the

level of the sovereign rating of the Russian Federation, as well as the highest rating of AAA (RU)

22

with a stable outlook assigned by national rating agency ACRA (JSC), corresponding to the level of

financial obligations of the Russian Government.

Rosseti Group's high credit quality is confirmed by credit ratings assigned by international and

national rating agencies. Credit ratings not only raise the investment attractiveness, but also allow

for conducting effective borrowing policies on capital markets.

Credit Ratings (as of February 2020)

Rating Agency S&P Moody’s Fitch ACRA Expert RA

Rating Scale International National

ROSSETI BBB- Baa3 - AAA(RU) -

FGC UES BBB- Baa3 BBB AAA(RU) - MOESK BB+ Ва1 BB+ AAA(RU) -

LENENERGO - Ва1 - AAA(RU) -

IDGC of Volga - Ва1 - AA+(RU)

IDGC of North-West - - - AA+(RU) -

IDGC of Urals - Ва1 - - ruAA

IDGC of Centre BB+ - - - ruAA


- Ва1 - - ruAA

ROSSETI Tyumen - - - - ruAA

23

Moody's

ROSSETI and FGC UES: Baa3,

stable outlook

ACRA

ROSSETI: ААА(RU), stable

outlook

S&P

MOESK and IDGC of Centre:

BB+, stable outlook

ACRA

IDGC of North-West: АА+(RU), stable outlook

February March

ACRA LENENERGO:

ААА(RU), stable outlook

Expert RA IDGC of Urals: ruAA, stable

outlook

July August

Expert RA ROSSETI Tyumen: ruAA, stable outlook

October

Fitch ROSSETI Tyumen:

ruAA, stable outlook

ACRA IDGC of Volga: АА+(RU), stable

outlook

December

Fitch MOESK: BB+, stable outlook

Expert RA IDGC of

Centre: ruAA, stable outlook

IDGC of Center and

Volga Region: ruAA, stable

outlook

February

ACRA LENENERGO:


ROSSETI:


24

Cash Flows

Indicator, mn RUB 2017 2018 2019

Net cash provided by operating activities 212,386 238,571 256,445

Net cash used in investing activities (188,840) (253,840) (201,112)

Net cash used in financing activities (8,462) (2,729) (60,376)

Cash flow balance 15,084 (17,998) (5,043)

Net cash used in financing activities increased in 2019 on 2018 due to the Group’s decreased

debt obligations.

Key Ratios 2017 2018 2019

Adjusted EBITDA Margin 33.1% 30.7% 31.4%

Net Debt/Adjusted EBITDA 1.44 1.38 1.31

Liquid Ratio 0.31 0.33 0.33

Current Ratio 0.89 0.88 0.77

Financial Leverage 0.71 0.68 0.67

Long-Term Loans/Gross Debt 91% 85% 83%

Tariff Policy

Since the ROSSETI Group has a monopolistic position in the market, the Company’s tariff policy

is subject to government regulation.

Tariff Policy for Electricity Transmission and Distribution Services

In accordance with the Forecast of the Socioeconomic Development approved by the Russian

Government:

• the lower and/or upper limits on tariffs for electricity transmission and distribution

services require approval from the Federal Antimonopoly Service;

• regional regulators set uniform pool tariffs for electricity distribution services within the

tariff limits approved by the Federal Antimonopoly Service.

The Forecast of the Socioeconomic Development also places restrictions on total ceiling

household payments for utility services and does not factor in the outstripping growth in electricity

prices in the wholesale market as compared with the growth rate of grid tariffs, and, accordingly

the outstripping growth in electricity purchased for compensation for electricity network losses.

Distribution Grid Tariff, %

6.3 7.1 6.23.4

5.22.9

July 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020

25

Transmission Grid Tariff, %

Distribution of Costs in the Electricity Distribution Pool Tariff

Indicator (bn RUB unless otherwise stated) 2018 2019 2019/2018 Change, %

Costs related to payment for normative (technological) electricity network losses of distribution grid companies

121 126 4.1

Costs related to payment for services of allied territorial grid organizations at individual tariffs

157 164 4.5

Costs related to payment for services of FGC UES 144 147 2.1

Minimum regulated revenue for maintenance of electric grid facilities

404 417 3.2

All of ROSSETI’s subsidiaries are subject to long-term tariff regulation methods:

• return on invested capital method (RAB regulation) in 12 operating areas;

• long-term minimum regulated revenue indexation method in 53 operating areas;

• return on invested capital method applied to FGC UES tariffs.

Tariff Policy for Network Connection Services

The network connection fee is based on approved fee rates (standardized or rates for 1 kW of

connected capacity) or charged individually in accordance with cost estimate standards.

Network connection fees also cover expenses incurred by ROSSETI SDCs in connection with

organizational and technical measures and the construction of electric power facilities from

existing facilities to connected power-receiving equipment (last mile expenses).

With the aim of carrying out measures to increase the accessibility of grid infrastructure, it is

forbidden to include in the network connection fee for all categories of requesting entities the

investment component for covering the costs associated with the development of existing

networks. Preferential terms apply to connections of 150 kW and below:

• in the case of 15 kW or below, the network connection fee does not exceed 550 rubles

(provided that the conditions for Reliability Category 3 are fulfilled, that the distance from

existing electric grid facilities is not in excess of 300 meters in urban areas or 500 meters

in rural areas, and that voltages are not above 20 kV);

• in the case of a maximum of 150 kW, the fee covers expenses associated with

organizational and technical measures (excluding last mile expenses).

Economically reasonable costs incurred by ROSSETI SDCs that are not covered by the network

connection fee are included in electricity distribution tariffs.

7.55.5 5.5 5.5 5.5

July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020

26

Government Support

In the reporting period, ROSSETI did not receive government support, including subsidies.

Government subsidies provided for ROSSETI’s subsidiaries totaled 148 million rubles.

27

Capital Investment Program For 2020–2024:

• Financing for the capex program: 1,114 billion rubles (inclusive of VAT)

• Commissioning of fixed assets: 1,127 billion rubles (inclusive of VAT)

• Commissioning of transformer capacity: 62.3 GVA

• Commissioning of power lines: 90,200 kilometers

Consolidated capex program of ROSSETI SDCs for 2019–2021

Financing, mn RUB (inclusive of VAT) 2019 2020 2021

Distribution grids 167,458 166,660 120,164

Transmission grids 149,755 125,537 118,284

ROSSETI subsidiary SDCs

572 774 251

Total for ROSSETI SDCs 317,785 292,970 238,698

Commissioning of fixed assets, mn RUB




718 893 209

Total for ROSSETI with subsidiary SDCs

270,231 307,890 251,969

Commissioning of fixed assets, power lines, km




81 30 14


32,541 23,238 18,866

Commissioning of fixed assets, transformer capacity, MVA




32 15 2


12,401 11,397 15,378

Overview of the implementation of the consolidated capex program of the ROSSETI Group in 2019

SDCs Financing, mn RUB (inclusive

of VAT)

Commissioning, mn RUB (exclusive of

VAT)

Commissioning, MVA

Commissioning, km

Distribution grids

MOESK 34,264 30,229 1,070 4,358

IDGC of Urals 9,991 10,942 459 2,563

IDGC of Siberia 11,810 10,524 790 3,146

ROSSETI Tyumen 11,572 11,802 560 697


17,931 14,282 1,620 6,769

IDGC of Centre 13,563 11,246 426 3,351

28

IDGC of Volga 9,544 8,868 489 1,614

LENENERGO 32,568 23,997 1,078 2,294

IDGC of North-West 5,534 4,892 179 1,316

IDGS of South 2,296 2,619 215 794

Kubanenergo 5,445 12,912 783 791

IDGC of Northern Caucasus

3,341 1,966 84 659

TDC 1,061 848 86 555

Yantarenergo 3,893 6,776 369 369

Chechenenergo 1,831 744 5 53

ENCE 2,254 1,767 161 101

Transmission grids

FGC UES 149,755 114,368 3,957 2,832


Tyvaenergo 561 730 38 196

Tsarskoye Selo Energy Company

66 55 6 5

Kurortenergo 345 308 13 44

Svet 11 9 6 1

Petrodvorets Electric Company

110 121 3 14

Saint Petersburg Power Grid

40 225 3 18


317,785 270,231 12,401 32,541

Changes in financing in 2017–2019, mn RUB (inclusive of VAT)

2017 2018 2019

261.9 258.4 317.8

Changes in commissioning in 2017–2019

2017 2018 2019

Power lines, km 24,897 28,297 32,541

Substations, MVA 12,335 12,076 12,401

Main sources of financing for the capex program in 2019

Source Share, %

Internal funds (depreciation and profit) 58.5

Borrowed funds 4.9

Connection fee 13.3

Other 23.3

29

Introduction of new technologies

Digital Transformation 2030 At the end of 2018, ROSSETI adopted the concept "Digital Transformation 2030." Its purpose is

to change the logic of processes and shift of the company to risk-oriented management based on

introduction of digital technologies and big data analysis. The concept is implemented in

accordance with the specially developed Target Model of digital transformation of the electric grid

complex ROSSETI until 2030.

Single process policy In 2019, in support of implementation of the Concept "2030 Digital Transformation", a new

technical policy of ROSSETI was approved, which is guided by the Company in making technical

decisions during operation of electric grid facilities, implementation of new construction programs,

complex technical re-equipment and reconstruction of facilities, as well as in innovative and

promising development.

Key solutions of the new process policy:

• Application of information control systems;

• Determination of digital substation architecture

• Transition to IEC 61850 digital data exchange protocol;

• Transition to risk-oriented management based on digital technologies introduction and big

data analysis

• Intelligent monitoring and predictive analytics systems

• Introduction of new cyber security technologies;

• Implementation of solutions based on the phenomenon of superconductivity;

• Implementation of energy storage facilities.

Program of Innovative Development

ROSSETI implements Innovative Development Program for 2016-2020 with vision up to 2025.4

Key areas:

• Transition and large-scale implementation of digital substations of 35-110 (220) kV

voltage class;

• Transition to digital active-adaptive networks with distributed intelligent automation and

control system;

• Transition to comprehensive business process efficiency and management automation

• Application of new technologies and materials in the electric power industry.

4 Approved by the Board of Directors of ROSSETI of December 30, 2016 (minutes № 250).

Target Model main principals

complete transformation of the power grid infrastructure of all Group companies

platform solutions, single digital environment, information security

interconnection of all cloud-based digital information

streams

100% data input to information systems

data flow to unified network management centers to the

extent necessary for decision-making

30

R&D Projects

20 R&D titles of protection:

• 7 patents for utility models

• 4 patents for inventions

• 9 certificates

8,72 million rubles - amount of

fees paid under license agreements

46 partnerships with universities and

academic organizations

In 2019, R&D projects were implemented on more than 100 topics in 15 ROSSETI SDCs.

8.710.9

12.313.5

15.2

3.26

4.344.00

4.38 4.50

0.24 0.26 0.20 0.29 0.200,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

5,00

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

2017 2018 2019(target)

2019 2020(target)

Implementation of KPI target values "Innovation Efficiency"

Costs onimplementation ofInnovativeDevelopmentProgram, bn rubles

Share of costs onimplementation ofinnovative solutionsin PDI,%

Share of R&D costs inrevenue,%

31

Predictive Analytics

ROSSETI’s Mission

ROSSETI’s mission is to secure a reliable, high-quality, and affordable power supply for a

comfortable life and free economic growth in Russia, increasing profitability for shareholders and

offering more opportunities for professional growth. As a pillar of the country’s energy security,

we use advanced, innovative technologies.

Strategy for Development of the Electric Grid Sector of the Russian Federation Since the Company is the Government’s agent for the implementation of the most important

national capital investment projects and programs in the electric power industry and is a strategic

infrastructure company, ROSSETI’s strategic planning process is invariably guided by

governmental strategies and programs.

The priorities of the Russian electric grid sector’s development, including with respect to

ROSSETI, are established by the Strategy for Development of the Electric Grid Sector of the

Russian Federation.5

Key Results of Implementing the Strategy for Development of the Electric Grid Sector of the

Russian Federation in 2013–2019 by ROSSETI Group

Strategic Priority Achieved Results

Reliability and quality of power supply

Indices introduced and improved: SAIDI from 10.62 hours to 1.8 hours, SAIFI from 2.3 to 1.2

Infrastructure accessibility • the number of procedures to obtain an electricity

connection was reduced to 36 in 2019

• the time required to obtain an electricity connection was

reduced from 183 days in 2013 to 41 days in 2019 (from

141st in 2013 to 7th in 2019 in the “Ease of Doing

Business” ranking)

Efficiency • the level of electricity losses in 2019 was reduced by

1.31 p.p. against 2012 (from 9.88% to 8.57%);

• specific operating and investing expenses reduced by

30.3% and 30% respectively by 2017

Accomplishment of federal-level tasks

Infrastructure built under federal projects (Olympic Winter Games in 2014, 2018 FIFA World Cup, BRELL, etc.)

Technological and innovative development

• uniform technical and innovation policies approved

• program introduced for pilot projects of digital

transformation

Reduced fragmentation of territorial grid organizations

The number of territorial grid organizations was decreased from 3,000 in 2013 to 1,600 in 2019. This made it possible to increase the efficiency of using uniform operating standards and improve reliability and customer satisfaction.

6 To 2 procedures in accordance with the World Bank’s methodology.

32

Overall, all quantitative target values specified in the Strategy for Development of the Electric Grid

Sector of the Russian Federation for the period until 2019 were attained.

Development Strategy of the ROSSETI Group Until 2030

Following the strategic planning period of 2015–2019 and with due consideration to strategic

documents adopted by the Russian Government, the Board of Directors of ROSSETI approved

in December 2019 the ROSSETI Group’s new strategy until 20307 (the “Strategy 2030”) defining

the goals and areas of the Group’s development.

Company will become a leader in the energy sector resilient to changes in the global and local

electricity markets by 2010 through the digital transformation of its business.

Strategic priorities of the Company:

• increasing core business efficiency (electricity transmission and distribution);

• promoting legislative initiatives to develop the industry;

• ensuring electricity supply reliability and quality and nondiscriminatory access to energy

infrastructure in a new digital environment;

• keeping a balance between the interests of all different stakeholders: government /

customers / shareholders / investors;

• developing new business areas (nontariff services) through digital transformation to meet

the changing demand.

Targets of the Strategy 2030:

Targets 2030

Electricity losses, % 7.34

Grid observability, %* 90–100

SAIDI, hours 1.6

SAIFI, outages 0.85

Digital Transformation Index 0.95–1

R&D expenses, % of revenue at least 0.25

Revenue from nontariff sources, % at least 20

Workforce productivity growth, %** by 40

Decline in specific OPEX, % by 40

7 Development Strategy of Public Joint Stock Company ROSSETI and Its Subsidiaries and Dependent Companies (ROSSETI Group) Until 2030. Approved by the Board of Directors (Minutes of the Meeting No. 388 of December 26, 2019).

33

Corporate Governance

Corporate Governance Model An efficient corporate governance system is one of the key components for the successful development of the Company, providing the necessary balance of interests of shareholders, investors, creditors, and employees. ROSSETI is one of the largest public companies in Russia in terms of the extent of operation, with the number of shareholders exceeding 320 thousand persons. The ROSSETI corporate governance model is a system of relations between shareholders, the Board of Directors, the executive bodies of the Company and other stakeholders, which supports activities and development path, management and control, rules and procedures for corporate decision-making in the Company and the ROSSETI Group as a whole.

Objectives of the corporate governance of the Company Strategic guidelines

• Increase in shareholder value and investment attractiveness of the Company;

• Generating profit from the activities;

• Stable and predictable development of the Company;

• Ensuring efficient asset management of the Company and its subsidiaries;

• Improving the management system, employee motivation and succession practices.

Principles and priorities of the corporate governance of the Company Key corporate governance principles

• Respect for and guarantees of the rights and legitimate interests of shareholders, investors, and stakeholders of the Company;

• Ensuring information and financial transparency of the Company;

• Predictable dividend policy of the Company;

• Efficient and professional Board of Directors accountable to the shareholders of the Company;

• Zero tolerance for corruption and fraud;

• High standards of business ethics and compliance;

• Minimization and settlement of corporate conflicts;

• Occupational safety and environmental protection;

• Developed corporate culture and practice of corporate social responsibility.

Activities Key corporate governance policies

• Implementation of uniform management standards in the ROSSETI Group;

• Improving operational efficiency, improving the management system of the Company and the ROSSETI Group, improving the quality of business processes;

• Professional interaction with investors, employees and partners of the Company;

• Improving the information transparency of the Company, internal control and audit mechanisms.

Corporate governance system development in 2019

The Company consistently implements plans to improve its corporate governance practices, following the Corporate Governance Code recommendations, changes in the regulatory environment, and initiatives of the professional community.

34

National Corporate Governance Rating

In 2019, based on the results of independent monitoring of corporate governance practice, Non-

Profit Partnership Russian Institute of Directors once again confirmed the ROSSETI corporate

governance rating

In 2019, the Company continued to improve corporate governance in the Company and the ROSSETI Group as a whole. The new version of the ROSSETI Articles of Association, approved in 2019, takes into account legislative innovations, according to which the Board of Directors is vested with the right, along with shareholders, to propose candidates to the management and control bodies of the Company. The competence of the Board of Directors has been expanded to include issues related to monitoring the implementation of transactions on making gratuitous contributions to the property of companies in which ROSSETI has an interest in the authorized capital, where such contributions do not increase the authorized capital of such companies and do not change the nominal value of shares.

The new version of the Regulations for the General Meeting of Shareholders of ROSSETI, approved in 2019, in addition to previously specified methods for submitting proposals by shareholders to items on the agenda of the general meeting, proposals to nominate candidates to the management and control bodies, and requests to hold an extraordinary General Meeting of Shareholders, provided for a possibility to send such proposals using electronic signature to the following email address: [email protected].

The new version of the Regulations for the Board of Directors of the Company, approved in 2019, established the right of the official responsible for organizing and conducting internal audits in the company to demand the convening of a meeting of the Board of Directors.

The revised Regulations for the Management Board, approved in 2019, also take into account changes to the Federal Law “On Joint-Stock Companies”: the right of the official responsible for organizing and conducting internal audit in the Company to receive minutes of meetings of the Management Board is stipulated.

In 2019, the revised Regulations for Remuneration and Compensation for Members of the Board of Directors of the Company were also approved, which provide for amendments aimed at complying with the recommendations of the Corporate Governance Code, according to which the level of remuneration paid shall be sufficient to attract, motivate and retain persons with competency and qualifications required by the Company.

In 2019, the Company continued the practice of providing a possibility for easy participation in the annual general meeting, including the live broadcast of the event on the corporate website of the Company and the possibility of electronic voting. Also, a special e-mail address was opened for communication with shareholders and a forum was provided to discuss the issues on the agenda of the meeting on the Company's website.

The composition of the Board of Directors of the Company elected at the annual General Meeting of Shareholders fully complies with the requirements of the Moscow Exchange for issuers of the 1st tier listing and the recommendations of the Corporate Governance Code: 5 out of 15 members of the Board of Directors are independent.

Company complies with the requirements of Russian legislation in the area of corporate governance and follows a significant number of recommendations of the Russian Corporate Governance Code, and is also characterized by a high level of corporate governance and low risks of loss of ownership related to the quality of corporate governance.

7 ++, “Developed Corporate Governance Practice”

mailto:[email protected]

35

Achievements of ROSSETI in corporate governance in 2019

General Meeting of Shareholders The General Meeting of Shareholders is the supreme management body of ROSSETI. The procedure for preparing and holding the General Meeting of Shareholders is regulated by the Articles of Association 8 and the Regulations for the General Meeting of Shareholders of ROSSETI9.

Digitalization of the General Meeting of Shareholders in 2019

Taking into account the development of IT technologies, the Company is actively introducing

tools for remote participation in Meetings and the ability to access all necessary information

through digital services. In particular, in 2019 the following activities were implemented:

• a forum was organized for shareholders to discuss items on the agenda of the General Meeting of Shareholders;

• video broadcasting was conducted on the Company's website from the venue of the General Meeting of Shareholders;

• a possibility was provided to fill out the electronic form of the bulletin on the website;

• a possibility was provided to fill out the electronic form of the bulletin at information desks at the venue of the General Meeting of Shareholders during the meeting;

• materials in electronic form were made available on the Company's website and

information desks at the venue of the General Meeting of Shareholders during the

meeting;

• use of QR codes to get access to materials and the agenda;

• a possibility was provided to fill out the electronic feedback form.

The annual General Meeting of Shareholders on the Company's performance in 2018 was held on June 27, 2019 (Minutes without number dated June 27, 2019). No extraordinary General Meetings of Shareholders were held in the reporting period.

8Approved under the decision of the Annual General Meeting of Shareholders dated 27.06.2019 (Minutes of the Meeting dated 27.06.2019 w/o No.), the text can be found on the Company's website http://www.rosseti.ru/about/documents/ 9Approved under the decision of the Annual General Meeting of Shareholders dated 27.06.2019 (Minutes of the Meeting dated 27.06.2019 w/o No.), the text can be found on the Company's website http://www.rosseti.ru/about/documents/

The Board of Directors has approved a single standard of corporate identity of

Rosseti Group.

In June, Rosseti Group presented a new unified brand architecture of the energy

holding.

Russian Institute of Directors, a non-profit partnership, confirmed the corporate

governance rating of PJSC FGC UES at 7++ “Advanced Corporate Governance

Practice”

http://www.rosseti.ru/about/documents/

36

Agenda items and decisions of the Annual General Meeting of Shareholders

№ Item on the agenda: Results and status

1 Approval of the Company's annual report

for 2018.

The Company's annual report for 2018 was

approved.

2 Approval of the Company's annual

accounting (financial) statements for

2018.

The Company's annual accounting

(financial) statements for 2018 were

approved.

3 Approval of the Company's 2018 profit

distribution.

Since there was no net profit for 2018, the

Company did not distribute its profit

(losses).

4 Amount of dividends, terms and form of

their payment for 2018, and setting the

date to define persons entitled to receive

dividends.

It was decided not to pay dividends on the

Company's preferred and ordinary shares

for 2018 due to the loss according to the

accounting (financial) statements for 2018.

5 Amount of dividends, terms and form of

their payment for Q1 2019, and setting

the date to define persons entitled to

receive dividends.

As of December 31, 2019, the following dividends were paid for Q1 2019: - on preferred shares in the amount of RUB 0.7997 per share for the total amount of RUB 159,277,148.33 - on ordinary shares in the amount of RUB

0.02443 per share for the total amount of

RUB 4,852,155,945.39

6 Payment of remuneration for work in the

Board of Directors to members of the

Board of Directors, who are not

government officials, in the amount

prescribed by the Company's internal

documents.

It was decided not to pay remuneration to

members of the Company's Board of

Directors.

7 Payment of remuneration for work in the

Internal Audit Commission to members of

the Internal Audit Commission, who are

not government officials, in the amount

prescribed by the Company's internal

documents.

It was decided to pay remuneration to

members of the Company's Internal Audit

Commission, who are not government

officials.

8 Election of members to the Company's

Board of Directors.

The new Board of Directors of the Company

was elected.

9 Election of Members to the Company's

Internal Audit Commission.

The new Internal Audit Commission of the

Company was elected.

10 Approval of the Company's auditor. LLC RSM RUS was approved as the auditor

11 Approval of the Company's Articles of

Association in a new version.

The new version of the Articles of

Association of ROSSETI was approved.

12 Approval of the Regulation on the

Company's General Meeting of

Shareholders in a new version.

The new version of the Regulation on the

Company's General Meeting of

Shareholders was approved.


Company's Board of Directors in a new

version.


Company's Board of Directors was

approved.

37

№ Item on the agenda: Results and status


Company's Management Board in a new

version.


Company's Management Board was

approved.

15 Approval of the Regulation on payment of

remunerations and compensations to

members of the Company's Board of

Directors in a new version.

The new version of the Regulation on

payment of remunerations and

compensations to members of the

Company's Board of Directors was

approved.

Board of Directors

• Collegial management body of ROSSETI.

• Governed by the laws of the Russian Federation, the Articles of Association, the Corporate

Governance Code, and the Regulations for the Board of Directors of ROSSETI10.

The key element of the Company's efficient corporate governance system is the professional Board of Directors, which plays a key role in the Company's strategic and business management. The competence of the Company's Board of Directors is determined by legal requirements and the Company's Articles of Association and takes into account the Company's special status as the largest national electricity transmission operator.

Principal objectives and tasks of the activities of the Company’s Board of Directors:

The Company's Board of Directors is accountable to the General Meeting of Shareholders and is responsible to the shareholders for the Company's development strategy, performance, and management control in the implementation of its objectives.

10 Approved by the Annual General Meeting of Shareholders on June 29, 2018; available on the Company’s website at http://www.rosseti.ru/investors/info/charter_and_internal_documents/.

Define the Company’s development strategy aiming to enhance its market capitalization and

appeal to investors, achieve the maximum profit, and increase its assets

Ensure the exercise and protection of the rights and legitimate interests of shareholders and

contribute to resolving corporate conflicts

Ensure that the information about the Company disclosed to shareholders and other stakeholders

is complete, reliable, and unbiasedCreate effective internal control mechanisms

Evaluate the performance of the Company’s executive bodies on a regular basis

http://www.rosseti.ru/investors/info/charter_and_internal_documents/

38

Nominees for election to the Board of Directors are preliminarily evaluated by the Nomination and

Remuneration Committee11 for compliance with the independence criteria.

The Board of Directors elected by the Annual General Meeting of Shareholders in 2019 complies

fully with the Level 1 listing requirements of the Moscow Exchange and the recommendations of

the Corporate Governance Code.

As of December 31, 2019, the ROSSETI Board of Directors consisted of the Chairman (Non-

Executive Director), one Executive Director, eight Non-Executive Directors and five Independent

Directors (all members of the Board of Directors are citizens of the Russian Federation).

11 In accordance with the restated version of the Regulations for the Nomination and Remuneration Committee of the Board of Directors approved by the Board of Directors on February 28, 2018 (Minutes of the Meeting No. 295).

NOVAK Alexander Valentinovich Chairman of the Board Non-executive Director

Born in 1971 in the city of Avdeevka, Donetsk region, Ukrainian SSR. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1993 he graduated from the Norilsk Industrial Institute with a degree in Economics and Management in Metallurgy. In 2009 he graduated from Moscow Lomonosov State University. with a degree in "management". PROFESSIONAL EXPERIENCE Before 2012, he worked in government authorities. From May 2012 - Minister of Energy of the Russian Federation. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of Rosneft, PJSC Gazprom, Transneft, State Corporation Rosatom, NRU MEI, NIU named after I.M. Gubkin, Siberian Federal University, Russian Basketball Federation, All-Russian Athletics Federation, Russian Motorcycle Federation, Conservation and Development Fund of the Solovetsky Archipelago, ANO International Center for Sustainable Energy Development, Global Energy Association, and is also the chairman of the Presidium of the Association of Fuel and Energy Complex “Russian National Committee of the World Energy Council”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

ASHIROV Stanislav Olegovich Independent Director Member of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee

Born in 1973 in the city of Achinsk, Krasnoyarsk Region. Citizenship - Russian Federation. The candidacy was proposed by the shareholder of the Company, Progressive Investment Ideas Management Company JSC, trust management of pension savings funds to finance the funded pension of JSC NPF GAZFOND Pension Savings. EDUCATION In 1996 he graduated from the State Academy of Management named after Sergo Ordzhonikidze with a degree in Management. PhD in Economics.

39

under the Board of Directors of the Company Member of the Strategy Committee under the Board of Directors of the Company

PROFESSIONAL EXPERIENCE Before 2008, he held senior positions in companies in the extractive and electricity sectors of the economy. From 2008 - General Director of JSC Gazprom Energosbyt Also since 2017 - General Director (part-time) of LLC Engineering Company Energy Solutions in the Electric Power Industry, since 2019 - Director (part-time) of Our Future Fund OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

AYUEV Boris Ilyich Non-Executive Director

Born in 1957 in the city of Rostov-on-Don. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1979 he graduated from the Ural Polytechnic Institute with a degree in Electrical Stations. Doctor of Engineering Science. PROFESSIONAL EXPERIENCE Before 2004, he worked in project and managerial positions in electric power enterprises. From 2004 - Chairman of the Management Board of SO UES JSC. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the Boards of Directors (Supervisory Boards) of PJSC Inter RAO, JSC SO UES, Association Digital Energy, and is also a member of the Presidium of RNC CIGRE. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES Share in the authorized capital of ROSSETI: 0.004467% Percentage of ordinary shares of ROSSETI owned by the person: 0.004514 %. Share in the authorized capital of FGC UES: 0.007115 % Percentage of ordinary shares of FGC UES owned by the person: 0.007115 %. During the reporting year, he carried out no transactions with securities (shares) of ROSSETI and its affiliated organizations. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

40

BELOV Vasily Mikhailovich Independent Director Chairman of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee under the Board of Directors of the Company

Born in 1981 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2003 he graduated from the Faculty of Computational Mathematics and Cybernetics of Moscow State University named after М. V. Lomonosov and received an MBA from the American Institute of Business and Economics (AIBEc). PROFESSIONAL EXPERIENCE Before 2013, he worked in international consulting companies, as well as investment banking holdings. From 2013 to 2017 - Senior Vice President, Innovation, Skolkovo Foundation. From 2017 to 2019, he headed Skolkovo - Venture Investments LLC. From September 2019 - Director of Mergers and Acquisitions of IBS LLC. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the Board of Directors of Skolkovo-Venture Investments LLC. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

BYSTROV Maksim Sergeevich Independent Director Member of the HR and Remuneration Committee under the Board of Directors of the Company

Born in 1964 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1986 he graduated from the Moscow Institute of Civil Engineering (MISI) with a degree in hydraulic engineering construction of river structures and hydroelectric power stations. In 1998 he graduated from the All-Russian Academy of Foreign Trade with a degree in World Economics. PROFESSIONAL EXPERIENCE Before 2013, he worked in government bodies in the structures of the Government, the Ministry of Economic Development, the Ministry of Regional Development of the Russian Federation From 2013, he has been the head of ATS JSC. From 2014, he has headed the Association NP Market Council. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, JSC SO UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

41

DUBNOV Oleg Markovich Independent Director Chairman of the Committee on Investments, Technical Policy, Reliability, Energy Efficiency and Innovation under the Board of Directors of the Company Member of the Audit Committee under the Board of Directors of the Company Member of the HR and Remuneration Committee under the Board of Directors of the Company Member of the Strategy Committee under the Board of Directors of the Company

Born in 1971 in Vologda. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2000 he graduated from the Griboedov Institute of International Law and Economics with a degree in law. In 2004 he graduated from the Moscow State Institute of International Relations (MGIMO) with a degree in World Economics. PROFESSIONAL EXPERIENCE In 2011-2015 - Director for Power Engineering, Member of the Management Board of CJSC Polyus. In 2015 - 2017 served as Advisor to the Director General of the Institute of Professional Directors Fund. From 2017 - Vice President, Executive Director of the Energy Efficiency Technology Cluster of the Skolkovo Foundation. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

KALININ Alexander Sergeevich Independent Director Chairman of the HR and Remuneration Committee under the Board of Directors of the Company Member of the Audit Committee under the Board of Directors of the Company

Born in 1966 in Chelyabinsk. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1989 he graduated from the Chelyabinsk Polytechnic Institute with a degree in Robotic Engineering. In 1998 he graduated from the Ural Academy of Public Administration with a degree in law. Candidate of Engineering Science, PROFESSIONAL EXPERIENCE Before 2014, he worked in commercial and public organizations, acting as one of the founders of the Organization of Small and Medium Enterprises OPORA ROSSII. From 2014, he headed the All-Russian Public Organization of Small and Medium Enterprises OPORA ROSSII and NP OPORA. Also, since 2014, Director (part-time) of Granitny Bereg LLC PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of JSC SO UES, JSC Federal Corporation for the Development of Small and Medium Enterprises, PJSC CB Vostochny. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

42

LIVINSKIY Pavel Anatolyevich Executive Director

Born in 1980 in Chelyabinsk. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2001 he graduated from Moscow Lomonosov State University with a degree in Economics, In 2003 — graduated with a master's degree in Management from Lomonosov Moscow State University. PROFESSIONAL EXPERIENCE Before 2013, he worked in electric grid companies in Moscow and the Moscow Region, having passed the path to the head of JSC “OEC” In 2013 - 2017 headed the Department of Fuel and Energy Economy of Moscow, the Department of Housing and Public Utilities of Moscow. From 2017 - General Director and Chairman of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of SO UES, PJSC RusHydro, ROSSETI, MOESK, FGC UES, LENENERGO, NP NTS UES, NRU MEI, and Associations of Organizations digital development of the industry "Digital Power Engineering". He is also a member of the boards of directors (supervisory boards, board of trustees) of the Christ the Savior Cathedral Foundation, the All-Russian public sports organization Federation of the Russian Modern Pentathlon, the All-Russian Swimming Federation public organization, and the All-Russian Athletics Federation public organization. In addition, he is a member of the presidiums of the Association “RNA CIGRE”, the Association “RNA MIRES” and ROO “SFPS”, a member of the Board of OOR “RSPP”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

43

MANEVICH Yuri Vladislavovich Non-Executive Director Member of the Strategy Committee under the Board of Directors of the Company

Born in 1972 in St.Petersburg. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1994, he graduated from St. Petersburg State University of Economics and Finance with a degree in Economics and Production Management. PhD in Economics. PROFESSIONAL EXPERIENCE Before 2010, he worked in financial and industrial holdings, as well as infrastructure companies in the electric power industry. In 2010-2019 he headed CJSC "ROSPROEKT" From 2019 - Deputy Minister of Energy of the Russian Federation PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, JSC SO UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

44

MUROV Andrey Evgenievich Non-Executive Director

Born in 1970 in Leningrad Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1993 he graduated from the Law Faculty of St. Petersburg State University with a degree in Law. In 2009, he graduated from the State University of Civil Aviation with a degree in Organization of Transportation and Transport Management (Air Transport). Doctor of Economics. PROFESSIONAL EXPERIENCE Before 2013, he worked in commercial organizations in the transport and electric power sectors. From 2013 - Chairman of the Management Board of FGC UES. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, she is also a member of the Board of Directors (Supervisory Boards, Board of Trustees) of FGC UES, JSC SO UES, PJSC Inter RAO UES, Global Energy Association, NP NTS UES, member of the Presidium of RNA CIGRE Association. In addition, he is a member of the Boards of Directors (Supervisory Boards, Boards of Trustees) of the National Research University of Power Engineering, St. Petersburg State University, St. Petersburg State University of Economics, the Rugby Sports Federation (Union) of Russia, and the Russian Engineering Union. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

45

RASSTRIGIN Mikhail Alekseevich Non-Executive Director

Born in 1983 in Ivanovo. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 2005 he graduated from Ivanovo State Energy University named after V.I. Lenin with a degree in "thermal power plant engineering" and "economics". PROFESSIONAL EXPERIENCE Before 2008, he worked in banks and electric power sectors. In 2008-2017 - Analyst, Head of the Electric Power Division, VTB Capital Analytical Department. From 2017 - Assistant to the Minister of Economic Development of the Russian Federation, Deputy Minister of Economic Development of the Russian Federation, member of the Board of the FAS Russia. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of PJSC RusHydro, JSC Russian Railways, JSC SO UES, Association NP Market Council. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

ROGALEV Nikolay Dmitrievich Non-Executive Director

Born in 1962 in Urussu, Tatar ASSR. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1985, he graduated from the Moscow Power Engineering Institute with a degree in Thermal Power Plants. Doctor of Engineering Science, PROFESSIONAL EXPERIENCE Before 2013, he worked in scientific, educational institutions and commercial organizations, specializing in energy efficiency and innovative development. From 2013 - Rector of the National Research University MPEI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors of PJSC RusHydro, President of NP NTS UES, OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

46

TIKHONOV Anatoly Vladimirovich Non-Executive Director

Born in 1969 in Moscow. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1995 he graduated from Moscow Lomonosov State University. with a degree in "legal science". In 2011 he graduated from Moscow Lomonosov State University. with a degree in "management".

PROFESSIONAL EXPERIENCE Before 2014, he held senior positions in commercial, banking organizations, as well as in government bodies. In 2014-2019 he headed FGBU REA of the Russian Ministry of Energy. From 2019 - Deputy Minister of Energy of the Russian Federation

PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of the ANO “Fund for the Promotion of International Energy Cooperation”, JSC Zarubezhneft, ANO “Russian-French Center for Energy Efficiency”

OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

47

SHMATKO Sergey Ivanovich Non-Executive Director

Born in 1966 in Stavropol. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1990 he graduated from Ural State University with a degree in Political Economy In 1992 he graduated from the Faculty of Economics of the University of Marburg with a degree in Economics Candidate of Technical Sciences, Professor PROFESSIONAL EXPERIENCE Before 2013, he held senior positions in consulting companies in Russia and Europe, and also held positions in government agencies, also in 2008-2012 he headed the Ministry of Energy of the Russian Federation. From 2012 - President of Artpol Holding LLC. From 2013 - Special Representative of the President of the Russian Federation on International Cooperation in the Field of Electric Power From 2014, a professor in NRU MPEI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards) of JSC Artpol-Engineering, JSC Atommashexport, NP NTS UES, and NRU MPEI. He is a member of the Presidential Commission on the strategic development of the fuel and energy complex and environmental safety. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

48

SHULGINOV Nikolay Grigoryevich Non-Executive Director

Born in 1951 in Stavropol Region. Citizenship - Russian Federation. The candidacy is proposed / approved by the decision of the Board of Directors of the Company. EDUCATION In 1973 he graduated from the Novocherkassk Polytechnic Institute named after S. Ordzhonikidze with a degree in "Power supply of industrial enterprises and cities." Candidate of Engineering Science, PROFESSIONAL EXPERIENCE From 1976 to 2015, he worked in organizations of the energy system of Russia, having his promotion from an engineer to the first deputy Chairman of the Management Board of SO UES JSC. From September 2015 - Chairman of the Management Board, General Director of PJSC RusHydro. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of PJSC RusHydro, NP NTS UES, Association NP Market Council, Association Hydropower of Russia, NRU MEI, Siberian Federal University, Russian Geographical Society, Global Energy Partnership. He is also a member of the Board of OOR "RSPP". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC ROSSETI AND SUBSIDIARIES AND AFFILIATES During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies. It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

Changes in the composition of the Board of Directors during the reporting year

During 2019, the composition of the Board of Directors of the Company was renewed by 13%: based on the results of the annual general meeting, 2 new members were elected, including one independent director - Mr. M.S. Bystrov, as well as Mr. Yu.V. Manevich The remaining 13 members of the Board of Directors were re-elected for a new term.

In the period until the annual General Meeting of Shareholders, the Board of Directors of the Company also included the following members: Barkin, Oleg Gennadievich (independent director) Born in 1975 in the town of Tomilino, Moscow Region. His position at the time of election - Deputy Chairman of the Board of the Association NP Market Council. In 1998 he graduated from NRU MPEI with a degree in Applied Mechanics. In 1999 he graduated from NRU MPEI with a degree in Financial Management. From 2012 - Deputy Chairman of the Board of the Association NP Market Council. Kravchenko, Vyacheslav Mikhailovich (non-executive director) Born in 1967 in Moscow. In 1995 he graduated from Moscow Lomonosov State University with a degree in law. From 20134 to 2018 - Deputy Minister of Energy of the Russian Federation

49

O.G. Barkin and V.M. Kravchenko in the reporting year did not own shares of ROSSETI and its controlled companies, did not make transactions with securities of these organizations, and also did not have family relations with members of the management bodies of the Company.

Board of Directors Performance Appraisal According to the internal documents of the Company, the Board of Directors is entitled to annually

evaluate performance of the Board of Directors independently (self-assessment) or with the

involvement of an independent external organization (consultant) possessing required

qualifications to conduct the appraisal.

As part of NP “Russian Institute of Directors” assessment of the Board of Directors performance

in 2017, no external appraisal was carried out in 2019.

In the reporting year, performance of the Board of Directors and Committees of the Board of

Directors was assessed according to the Methodology for performance appraisal of the Board of

Directors, Committees of the Board of Directors and members of the Board of Directors of

ROSSETI, approved by the Board of Directors.

By conducting a self-assessment of the effectiveness of the Board of Directors in 2019, the

following were assessed: the quality of the Board of Directors and the Committees fulfilling the

functions assigned to them, relevance of the composition and structure of the Board of Directors

and Committees, role of individual members of the Board of Directors, role of the Chairman,

planning of the work of the Board of Directors and Committees, procedures of the meetings,

information support of the Board of Directors and Committees, as well as a number of

infrastructure aspects.

Appraisal Criteria

Average Score by Criteria

Changge (year

on year) 2017 - 2018

2018 - 2019

Performance by the Board of Directors of the key functions in the management of the company

4.73 4.71 -0.02

Composition and structure of the Board of Directors 4.75 4.83 +0.08

Organization of the work of the Board of Directors 4.60 4.65 +0.05

Incentive system for members of the Board of Directors 4.20 4.22 +0.02

Interaction of the Board of Directors with the management of the Company and Committees of the Board of Directors of the Company

4.70 4.80 +0.10

Audit Committee 4.81 4.95 +0.06

Human Recouces and Remuneration Committee 4.76 4.97 +0.21

Strategy Committee 4.55 4.53 -0.02

Committee on Investment, Technical Policy, Reliability, Energy Efficiency and Innovation 4.47 4.52 +0.05

Meetings held by the Board of Directors in 2019 Form of the Meeting 2017 2018 2019

In person 6 6 7

16% 12% 13%

In absentia 31 45 46

84% 88% 87%

TOTAL 37 51 53

Issues considered by the Board of Directors in 2019

50

Form of the Meeting 2017 2018 2019

In person 30 28 22

In absentia 134 160 160

TOTAL 164 188 182

The most important issues are considered by in-person meetings of the Board of Directors of ROSSETI.

Report of the Board of Directors on development results in priority areas of its activities

Strategic development • In December 2019, the Board of Directors approved the new Development Strategy for ROSSETI.

• During the reporting year, the updated development plans of ROSSETI SDCs were reviewed, as well as the status of certain areas of ROSSETI's activities.

Finance and investment In 2019, the Company's Board of Directors: • Approved the budget of the ROSSETI group of companies,

and reviewed reports on its implementation; • Regularly monitored accounts receivable in the ROSSETI

group of companies; • Considered issues of working with non-core assets of the

Company; • Approved the consolidated investment program with total

funding of 1.12 trillion rubles in 2020-2024.

Personnel policy In the reporting year, the Board of Directors: • Considered issues of motivation of the Company's

management and its significant subsidiaries and affiliates; • Approved the KPIs of the Company's top management, as

well as reports on their implementation; • Approved changes in the Company's organizational

structure.

Participation in meetings of the Board of Directors Member of the Board of Directors Participation

Novak Alexander Valentinovich 53/53

Ashirov Stanislav Olegovich 53/53

Ayuev Boris Ilyich 53/53

5%7%

6%

3%

34%5%

4%

36%

5%

16%

9%

12%

34%

5%

2%

19%

Categories of matters reviewed by the BoD

Стратегия

Финансы и инвестиции

Аудит, контроль и риски

КПЭ, кадры и мотивация

ДЗО

ВНД

Закупки

Иное

Strategy

Finance and investments

Audit, control and risks

KPI, personnel and incentives (motivation)

Subsidiaries

Internal regulations

Procurement

Other

51

Belov Vasily Mikhailovich 52/53

Bystrov Maksim Sergeevich

(since June 27, 2019)

28/29

Dubnov Oleg Markovich 52/53

Kalinin Alexander Sergeevich 50/53

Livinsky Pavel Anatolievich 52/53

Manevich Yuri Vladislavovich (since June 27, 2019)

28/29

Murov Andrey Evgenievich 52/53

Rasstrigin Mikhail Alekseevich 49/53

Rogalev Nikolay Dmitrievich 53/53

Tikhonov Anatoly Vladimirovich 53/53

Shmatko Sergey Ivanovich 52/53

Shulginov Nikolai Grigoryevich 53/53

Barkin Oleg Gennadievich (until June 27, 2019)

24/24

Kravchenko Vyacheslav Mikhailovich

(until June 27, 2019)

15/24

Note: "Participation" The data in the table are in the format "5/7", indicating that a person could have participated in 7 meetings of the Board of Directors (Committee), actually participated in 5 meetings.

Average number of issues considered by the Board of Directors at one meeting

2017 2018 2019

Number of issues 4.43 3.69 3.43

Remuneration for members of the Board of Directors and the Board Committees

The amount of remuneration for the members of the Board of Directors is determined based on

the scope of responsibilities and actual participation in the work of the Board of Directors, as well

as work in the Committees under the Board of Directors. The amount of basic annual

remuneration set out in the Regulations on Remuneration and Compensation to ROSSETI Board

Members is adjusted for these indicators.

Remuneration is paid in the form of a lump sum payment in rubles. Other forms of remuneration,

including forms of short-term and long-term motivation depending on the financial result, as well

as forms of motivation by shares (stock options), are not applied in the Company.

Reward

member

boards of

directors

(no more than

the base annual

compensation)

Reward

for participation

on the board of

directors (S1)

Extras

(summed up

when combining

duties)

30% of S1 - Chairman of the Board of Directors

20% of S1 - Chairman of the Committee under

the Board of Directors

10% of S1 - for participation in the work of the

Committee of the Board of Directors

S1 = (base annual compensation) X 100/130 X n/m

where:

n - number of actual participations of the member of the Board of

Directors in the meetings of the Board of Directors during the

corporate year

m - number of meetings of the Board of Directors during the

corporate year

52

The amount of the base annual compensation is 3.5 million rubles.

Restrictions on payment of remuneration:

Members of the Board of Directors who are also members of the Management Board of the Company.

The Regulations on Payment to ROSSETI Board Members do not apply. Remuneration is not accrued or paid.

Members of the Board of Directors who are persons for whom federal law restricts or prohibits any payments from commercial organizations.

No remuneration shall be accrued or paid to such persons.

Members of the Board of Directors who attend less than 50% of meetings of the Board of Directors.

No remuneration shall be paid to such member of the Board of Directors.

Total remuneration of all members of the Board of Directors exceeds the Company's net profit under RAS for the last year.

Remuneration is not paid to all members of the Board of Directors.

Holding less than 3 meetings of the Board of Directors Committee.

No remuneration (bonuses) is paid for chairing and/or being a member of this Committee.

The Company provides for the payment of compensation to the members of the Board of Directors of ROSSETI for expenses associated with participation in meetings of the Board of Directors or committees, according to the standards of reimbursement of travel expenses in force at the time of the meeting, established in the Company.

In the event of early termination of the powers of a member of the Board of Directors, no severance pay, compensation or other payments are envisaged in the Company.

The Annual General Meeting of Shareholders of the Company held on 27.06.2019 decided not to pay members of the Board of Directors of the Company remuneration for their work in the Board of Directors due to a loss incurred in 2018.

Liability Insurance of the Board of Directors For several years, the company and its subsidiaries have been using the practice of liability insurance of members of the Board of Directors, executive bodies and officials under a liability insurance contract for directors, officers and companies (Directors and Officers Liability, D&O).

Liability insurance allows you to guarantee the protection of directors and officers in cases of claims of third parties related to their activities. In addition, the D&O policy also protects the property interests of the shareholders of the Company, fixing the source of compensation for possible losses of the Company and / or insured persons in the event of insured events.

The main insurance conditions comply with international standards, and also take into account

the scale of the business and the specifics of the industry in terms of the volume of insured risks

and compensation limits. The D&O agreement insures the liability of the insured persons and / or

ROSSETI for obligations arising from loss / harm to third parties and / or ROSSETI as a result of

unintentional / erroneous acts of the insured persons as part of their performance of their

functional duties.

Committees of the Board of Directors

Committees of ROSSETI Board of Directors are an important element of the corporate governance system of the Company, providing preliminary study and examination of the most significant issues related to the competence of the Board of Directors of the Company. Effective

53

and professional work of the Committees allows for more thorough consideration of certain aspects of the Company and its subsidiaries activities, as a result of which the Board of Directors is provided with recommendations regarding voting on the agenda items.

In 2019 the following four Committees were active in ROSSETI: 1. Audit Committee (AC); 2. Human Resources and Remuneration Committee (HR&RC); 3. Strategy Committee (SC); 4. Committee on Investment, Technical Policy, Reliability, Energy Efficiency and

Innovation (CITPREEI).

ROSSETI Executive Bodies The management of the Company's current activities is carried out by the collective and sole

executive bodies - the Management Board and General Director of ROSSETI.

The competence of the executive bodies includes the resolution of the issues related to the current

activities of ROSSETI, except for the issues referred to the competence of the General Meeting

of Shareholders and the Board of Directors in accordance with the Company's Articles of

Association.

Collegial Executive Body (the Management Board)

The ROSSETI Management Board is a collegial executive body whose tasks include joint

consideration, analysis and decision making on the most important issues of the Company's

current activities, control over which is the responsibility of the executive bodies. In its activities,

the Management Board is guided by the requirements of the Charter and the Regulations on the

Management Board of the Company, ensuring both implementation of decisions of the General

Meeting of Shareholders and the Board of Directors of the Company. In addition, the Management

Board of the Company performs a significant amount of functions related to the management of

100% of ROSSETI's subsidiaries, making decisions that fall within the competence of the

meetings of shareholders (participants) of these companies.

54

Livinsky Pavel Anatolyevich Director General, Chairman of the ROSSETI Management Board

Born in 1980 in Chelyabinsk. Citizenship - Russian Federation.

The candidacy is proposed / approved by the decision of the Board of

Directors of the Company.

EDUCATION

In 2001 he graduated from Moscow Lomonosov State University with a degree in Economics, In 2003 — graduated with a master's degree in Management from Lomonosov Moscow State University. PROFESSIONAL EXPERIENCE Before 2013, he worked in electric grid companies in Moscow and the Moscow Region, having passed the path to the head of JSC “OEC” In 2013 - 2017 headed the Department of Fuel and Energy Economy of Moscow, the Department of Housing and Public Utilities of Moscow. From 2017 - General Director and Chairman of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period, he is also a member of the boards of directors (supervisory boards, board of trustees) of SO UES, PJSC RusHydro, ROSSETI, MOESK, FGC UES, LENENERGO, NP NTS UES, NRU MEI, and Associations of Organizations digital development of the industry "Digital Power Engineering". He is also a member of the boards of directors (supervisory boards, board of trustees) of the Christ the Savior Cathedral Foundation, the All-Russian public sports organization Federation of the Russian Modern Pentathlon, the All-Russian Swimming Federation public organization, and the All-Russian Athletics Federation public organization. In addition, he is a member of the presidiums of the Association “RNA CIGRE”, the Association “RNA MIRES” and ROO “SFPS”, a member of the Board of OOR “RSPP”. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC

ROSSETI AND SUBSIDIARIES AND AFFILIATES

During the reporting year, he did not have shares (stakes) of ROSSETI

and its affiliated organizations; he did not make transactions with

securities (stakes) of these companies.

It does not have family relations with other persons who are members of the management (control) bodies of ROSSETI or its affiliated organizations.

Demin Andrey Alexandrovich Member of the Management Board

Born in 1974 in Zaporozhye, Ukrainian SSR. Citizenship - Russian Federation. EDUCATION In 1996 he graduated from Zaporozhye State University with a degree in Applied Mathematics, in 1999 he graduated from Zaporozhye Institute of Economics and Information Technologies with a degree in Finance. PROFESSIONAL EXPERIENCE Till 2013 he worked in the companies of electric power industry, dealing with finance, operations and strategic management issues. In 2013-2015 - First Deputy Director General for Economics and Finance ROSSETI Since 2013 he is a member of the Management Board of ROSSETI. PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the Board of Directors of ROSSETI Tyumen.

55

OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC


During the reporting year, he did not have shares (stakes) of ROSSETI and its affiliated organizations; he did not make transactions with securities (stakes) of these companies.

Korotkov Dmitry Sergeyevich Member of the Management Board, Deputy Director General for Legal Support ROSSETI

Born in 1982 in Leningrad. Citizenship - Russian Federation. EDUCATION In 2004, he graduated from St. Petersburg State University with a degree in law. PROFESSIONAL EXPERIENCE Until 2015, he worked in federal government bodies In 2015 - 2018. - Assistant to the Prime Minister of the Government of the Russian Federation Since 2018 - Deputy Director General for Legal Support, member of the Management Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the Board of Directors of IDGC of Volga, a member of the Supervisory Board of ANO Centre Amur Tiger. OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC



Sergeeva Olga Andreyevna Member of the Board, General Counsel ROSSETI

Born in 1984 in Moscow. Citizenship - Russian Federation. EDUCATION In 2006, she graduated from the Plekhanov Russian Academy of Economics. In 2006 she graduated from the Russian Academy of Economics named after G.V. Plekhanov with a degree in economics and management at an enterprise. Construction". WORK EXPERIENCE From 2012 to 2017, she held managerial positions in the Moscow City Government. In 2017 - 2018. - Advisor, Chief Advisor of ROSSETI In 2018 -2019. - Deputy General Director - Head of the ROSSETI Office, Member of the ROSSETI Management Board Since 2019. - Chief Advisor of ROSSETI, Member of the Management Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period she is also a member of the boards of directors (supervisory boards, boards of trustees) of FGC UES, MOESK, LENENERGO, IDGC of South, IDGC of North-West, IDGC of Northern Caucasus, Kubanenergo, JSC "NPF Otkrytie", Association "ERA of Russia". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC



Pyatigor Alexander Mikhailovich

Born in 1980 in Kiima village of Kazakh SSR. Citizenship - Russian Federation. EDUCATION

56

Member of the Management Board, Deputy General Director for ROSSETI services

In 2002, he graduated from the Kazakh Agrarian University. С. Saifulin Kazakh Agrarian University, majoring in "Electricity supply and electrification of agriculture". WORK EXPERIENCE From 2013 to 2018, he served as Deputy Director General for Technological Connection and Development of MOESK services. Since 2018 - Acting Deputy Director General for Development and Implementation of Services, Deputy Director General for Implementation of Services ROSSETI Since 2018 - Member of the Board of ROSSETI PARTICIPATION IN GOVERNING BODIES At the end of the reporting period he is also a member of the boards of directors (supervisory boards, boards of trustees) of IDGC of Volga, IDGC of Northern Caucasus, PJSC Dagestan Power Sales Company, JSC Ekaterinburgenergosbyt, JSC "Kabbalkenergo", JSC "Sevkavkazenergo", JSC "Karachayevo-Cherkesskenergo", JSC "Pskovenergosbyt", JSC "Kalmenergosbyt", JSC "Tyvaenergosbyt", JSC "Yantarenergosbyt", JSC "Energocenter", JSC "Management of Vols VL". OWNERSHIP AND TRANSACTIONS WITH SHARES OF PJSC



Changes in the composition of the Management Board in 2019

Over the period through 29.04.201912, Valentin Efimovich Mezhevich was also a member of the Management Board of the Company.

Report on activity of the Management Board members

During the reporting period, the Management Board of the Company held 166 meetings, including 2 meetings in person, at which a total of 402 issues were reviewed.

Sole Executive Body (Director General)

In accordance with the Company's Charter, the current management of ROSSETI is carried out

by the Company's General Director elected by the ROSSETI Board of Directors. The General

Director also heads the Company's Management Board.

Since September 201713, functions of the sole executive body of ROSSETI, the General Director,

have been performed by Pavel Anatolievich Livinsky.

Remuneration of the Management Board and General Director of the Company

The remuneration system of ROSSETI Management Board members is aimed at ensuring their material interest in achieving the Company's long-term goals and increasing the economic efficiency of management, as well as ensuring a fair and competitive remuneration level. ROSSETI CEO's remuneration is determined by the terms of the employment contract.

12 This member’s power were cancelled under the decision taken by the Board of Directors on 29.04.2019 (Minutes of the Meeting of 30.04.2019 № 353). 13 BoD decision No. 125 of 14.06.2013, Order No. 363к of 15.06.2013.

57

Remuneration for the members of the Management Board consists of fixed (salary) and variable (KPI bonus) parts.

Main components of the motivation system for the Management Board members

Fixed part Variable part

Other forms of incentives

Form of implementation

Official salary Quarterly and annual bonuses based on KPI achievement

Social package and liability insurance

Target weight of components in the compensation structure for the year

not more than 40% not less than 60% Provided

Target

Attracting and retaining highly professional managers through a fair level of base compensation at market level.

Incentives to achieve the targets in accordance with the Long-Term Development Programme and business plans of the Company

Provision of social benefits in accordance with best market practices

Key parameters

The level of salary corresponds to market conditions, which ensures stability of the Company management

The amount of the quarterly and annual bonuses of the top manager of the Company is calculated on the basis of actually achieved KPI values based on the Company's performance. The Company's KPI system is interconnected with the business plan, the Company's strategy, innovation activities, and achievement of the Company's sustainable development goals.

• Insurance coverage under VHI and liability insurance programs

• Other types of compensation and remuneration in accordance with the employment contract and the Company's ORD

Control over implementation and implementation of the Company's policy in the area of

remuneration for key employees of the Company falls within the competence of the Board of

Directors of the Company and the HR and Remuneration Committee under the Board of Directors

of the Company.

The return to the Company of the paid variable part of remuneration, the amount of severance

pay and other payments in the event of early termination of the authority of the Company's top

managers shall be regulated in accordance with the requirements of the legislation of the Russian

Federation.

Compensation to the General Director and members of the Management Board accrued in

2019, thous. RUB

Remuneration for participation in the work of the management body 3,618

Salary 104,485

Prizes 158,926

Other types of remunerations 6,332

Total 273,361

The amount of the premium for 2019 was determined based on the achievement of KPI targets.

58

Corporate Secretary • Governed by the Regulations for the Corporate Secretary

• Functionally subordinate to the Board of Directors and administratively subordinate to the Director General

• Functions:

BARANYUK Natalya

Nikolaevna

Born in 1978 in Krasnoyarsk. In 2011 she graduated from Lomonosov Moscow State University with a degree in Management. In 2000, she graduated from Krasnoyarsk State Agrarian University with a degree in law. Professional experience

2008 – 2015 Referent, Deputy Director of the Department of the

Ministry of Finance of the Russian Federation

2015 – 2015 Deputy Director of the Affairs Management Department

of the Ministry of Energy of the Russian Federation

2015 – present Corporate Secretary - Head of Staff of ROSSETI

Chairman of the Board of Directors

ensures the efficient

work of the Board

of Directors

coordinates the Boardof Dicerctors and theManagement Board

interaction

participates in the

improvement of the

Company’s corporate

governance practices

participates in

the implementation

of corporate policy

59

Shares and Share Market

Listing:

Moscow Exchange

• ticker: RSTI; Rstip

• listing date: 12/03/2008

• quotation list - first

• segment: main market

London stock exchange

• ticker: RSTI

• listing date: 12/08/2011

• 1 depositary receipt = 200 ordinary shares of ROSSETI

• segment: Main Market Standard Listing, IOB platform

The presence of ROSSETI in international indices:

- FTSE All-World (weight <0,005%)

- FTSE Emerging (weight <0,01%)

ROSSETI Share Capital Overview

• As of December 31, 2019, the registered share capital of ROSSETI was 200,903,014,525 rubles.

• The share capital consists of 200,903,014,525 shares, each with a par value of 1 ruble, including 198,827,865,141 ordinary shares and 2,075,149,384 preference shares.

• The total number of ROSSETI’s ordinary shareholders and preference shareholders is over 323,000.

• The Government holds an 88.04% stake, while corporate entities and individuals hold 9.38% and 2.58% stakes respectively.

10.21

0.71

10.21

0.71

3.28

1.17

0.18 0.01 0.18 0.01

3.28

0

2

4

6

8

10

12

RUB OS RUB PS USD OS USD PS

ROSSETI Shares Included in Moscow Exchange Indices

Electricity Index Medium and Small Cap Index

Government Equity Index Broad market index

Medium and Small Cap Index RTS

60

• The share of ordinary shares in free float is 11.1% of the total number of ordinary shares. The share of preferred shares in free float is 57.21% of the total number of preferred shares.

Key shareholders of ROSSETI (over 1%) as of December 31, 2019:

Additional share issues in 2019

The issue of ROSSETI shares in 2019 was not carried out. The executive bodies of the

Company do not have information on the existence of shares in shares exceeding five percent,

in addition to those already disclosed. The structure of share capital with an ownership interest

of more than 5% of the authorized capital did not change.

Depositary receipts

ROSSETI global depositary receipts have been traded on the London Stock Exchange in the

main market segment since December 8, 2011 and since May 28, 2014 have been admitted to

trading at MICEX Stock Exchange in the inter-dealer repo mode.

In connection with the circulation of depositary receipts for ROSSETI shares on the London Stock

Exchange in the Main Market segment in the standard listing category (Standard Listing), the

Company must comply with the requirements for depositary receipts established by the Listing

Rules and Disclosure and Transparency Rules).

Interaction with shareholders, investors and analysts

One of the main vectors of protecting shareholder rights is to ensure equal and free access to

information to the extent necessary for shareholders to make an informed decision on investing

in ROSSETI securities

In the reporting year, the Company continued its practice of interacting with investors and analysts in order to increase the transparency of activities and ensure awareness of this group of stakeholders. In particular, conference calls were organized for investors with the participation of representatives of specialized areas of the Company as part of the disclosure of the results of the Company, meetings were held with investors both during investment conferences and during participation in congress and exhibition events. Particular emphasis was placed on issues of disclosure of information on the

Making information about ROSSETI

operations known to investors and stakeholders

Expanding contacts with investment community (bankers, investors, analysts)

Regular Company information disclosure: reports, menites, records, statements of material facts and press-releases

Action to ensure information transparency

Keeping in touch with shareholders by responding to questions as soon as they emerge

Name

Number of shares, pcs. Ownership share, %

ordinary shares preferred shares

of ordinary shares

of preferred shares

of share capital

Federal Property 176 729 514 113

145 523 224

88.89 7.01 88.04

Gazprom Capital LLC 2 562 682 9002 0.00 1.29 0.00 1.28

61

digitalization of the Company, sustainable development and social responsibility of the ROSSETI group of companies.

62

Risk management system and internal control

Risk management system

In the course of their operational activities, ROSSETI and the companies of the ROSSETI Group

are exposed to a significant number of external and internal risks, which can have a significant

impact on the performance and efficiency of ROSSETI as a whole. Monitoring, forecasting,

prevention and mitigation of negative consequences of risks is one of the most important tasks of

the Company's management system.

Risk management is considered in ROSSETI as an integral part of strategic and operational

management, business planning, and represents a set of measures implemented at all levels of

management and planning. The goal of ROSSETI risk management system is to provide

reasonable assurance in achieving the goals set for the Company.

Main principles of the Company RMS functioning:

• focus on creating and protecting the Company's values;

• a systematic approach that provides for communication with strategic goals, as well as the applicability of risk management on a continuous basis to all organizational processes of the Company;

• the principle of optimality of the system in terms of costs and the effect received by the Company from the applied risk management measures;

• adaptability and dynamism of the system in conditions of constantly changing external and internal environment;

• involvement of all participants in the risk management process of the Company's business processes and their responsibility for the result.

Tasks of risk management system

Risks

In order to determine the level of the impact of risks on the activities of the ROSSETI Group, the

level of risk materiality is identified through the expert assessment of risk probability and risk

consequences, as well as through the quantitative assessment using mathematical methods to

calculate risk probability and risk consequences.

Risks are divided into three materiality levels: moderate, significant, critical.

Developing a risk-oriented corporate

culture

Achieving an optimal balance between

preferred risk (risk appetite) and

development strategy

Improvement of decision-making

process to respond to emerging risks

Reducing the number of unforeseen events

and losses in business activities

Identification, management, all risks in business activities

63

Key Risks and Risk Response Measures

Risk reduction ↓

Risk increase ↑

Unchanged →

Risk description

Risk significance trends at the

end of the year

Risk description Risk minimisation measures

Industry markets

The risk associated with non-payment for electricity transmission services rendered

→

The risk is based on peculiarities of the retail electricity market operations, as well as the insufficiency of existing mechanisms in stimulating consumers to pay on time for electricity transmission services, and the impact of macroeconomic factors (lower consumer solvency).

In 2019, the volume of outstanding account receivables for electricity transmission services decreased by RUB 10.3 billion (or 8.5%).

Total account receivables for electricity transmission services were down by RUB 5.3 billion, and the turnover period shortened by 5 days.

The positive trend was observed mainly due to a reduction in outstanding amount of debt to regional grid organisations by RUB 10.8 billion, including RUB 5.7 billion in the intra-group settlements with PJSC FGC UES.

The overdue debt of guaranteeing suppliers grew by RUB 0.3 billion in 2019. This was mainly due to non-payments of TNS Energo Group's guaranteeing suppliers (RUB +0.9 billion), Astrakhanenergosbyt (RUB +1.1 billion), Chitaenergosbyt (RUB +0.8 billion), and Volgogradenergosbyt (RUB +0.8 billion). In

• In Rosseti Group, measures are carried out to eliminate the causes of conflicts with consumers, to reduce disputed overdue account receivables for services rendered, including through the implementation in distribution networks of approved programmes related to the perspective development of electricity metering systems in the retail electricity market.

• The work is under way regarding the cooperation with federal authorities on improving the rules of the retail market functioning.

• The law enforcement practice is being shaped, as well as positive precedents are monitored.

• The S&A initiates the consideration of non-payments at meetings of regional collegial working bodies chaired by executive authorities of the constituent entity of the Russian Federation.

• A possible restructuring of overdue debts with subsequent control of the execution of signed agreements on debt payment is being reviewed.

• A possible repayment of overdue debts by debtors in the framework of transactions on the acquisition or lease of regional grid organisations' networks is being reviewed.

• Measures aimed at recovering overdue debts within the framework of claims review are carried out.

• Rosseti Group interacts with the Federal Bailiff Service of the Russian Federation at the enforcement proceeding stage, signs cooperation agreements with the Federal Bailiff Service of the Russian Federation, and controls the debt repayment in the framework of the enforcement proceedings based on court judgements on recovery of overdue debts.

64

terms of guaranteeing suppliers, outstanding receivables fell by RUB 3.3 billion, including RUB 1.4 billion due to writing off the debt of Energostrim Group.

Given the possible cancellation of energy sales licensing introduction, the risk of overdue debt growth remains significant and pressing.

The risk of reduction in the volumes of electricity transmission services

→

The risk is due to the possibility of reduction in electricity consumption related to macroeconomic changes, a decline in business activity, fluctuations in the consumer demand for electricity, as well as optimisation of external power supply arrangements by major consumers.

Realisation of this risk is affected by abnormal meteorological conditions (low predictability of climate changes and their impact on different geographical regions).

The risk is due to the failure of applicants to use the capacity obtained by means of technological connection.

Decentralisation of generation and deterioration of the overall economic situation are the factors associated with the decline in demand for electricity transmission services.

In 2019, the volume of electricity transmission services of subsidiaries and affiliates saw an increase of 0.25% in physical terms year-over-year.

In the reporting year, Rosseti Group managed to reduce the level of electricity losses by 0.38 p.p. to 8.57%, compared to the actual value y-o-y.

The risk remains significant and pressing for the Group.

• Forecasting and monitoring of electricity consumption is carried out by voltage level, the price (tariff) for electricity transmission services of which is differentiated, and by category of consumers, as well as the physical parameters of the electric energy and capacity balance are monitored.

• The work is being performed to improve the accuracy and reliability of electricity and capacity demand planning, in particular a special focus is placed on monitoring of electricity consumption by large consumers (who plan a construction and/or acquisition of alternative and generating facilities).

• Inspections of off-the-record electricity consumption are carried out.

• The data on volumes of consumption used by guaranteeing suppliers (energy sales organisations) in the calculation of costs of electricity transmission services is managed (including by voltage level, the price (tariff) for electricity transmission services of which is differentiated, by tariff option chosen by consumers, by category of consumers, within and above the social norm of consumption).

• In 2019, measures were taken to resolve differences in determining the scope of obligations under contracts for the provision of energy transmission services and (or) purchase of electric energy to compensate for technological consumption (losses) of electric energy.

• In 2019, the implementation of the Programme of Measures to Reduce Electricity Losses in Electricity Networks continued.

• In 2019, the Group continued to work with consumers of electricity transmission services to coordinate the planned scope of services, including the declared capacity, to introduce them into respective electricity transmission service contracts and submit them to state tariff regulation authorities.

• Suggestions on technological consumption of electricity/capacity are formed and submitted to state tariff regulation bodies, taking into account the current dynamics of productive supply for the purpose of

65

establishing the consolidated forecast balance of production and supply of electric energy for the next year.

• As part of the schedule in 2019, inspections of measuring complexes were carried out on a regular basis in order to replace metering devices on schedule.

• Currently, the analysis of approved arrangements and programmes for the development of the regional electric power industry is conducted to determine the necessity in constructing new generation facilities.

• The subsidiaries and affiliates implement approved programmes for the prospective development of electricity metering systems on the retail electricity market in distribution networks.

Risks associated with the provision of technological connection services to applicants

→

Risks are associated with the possible shortage of funds for the implementation of contracts on technological connection; decrease in demand for technological connection services in comparison with planned volumes taken into account when regional bodies make tariff and balance sheet decisions; failure of applicants to perform obligations under technological connection contracts (in particular, growth of operating costs due to an overestimation of the declared capacity by consumers in technological connection); untimely performance of obligations by a grid organisation.

Due to the influence of these factors, revenue from technological connection may decrease.

In 2019, the volume of technological connection of consumers and energy generation facilities suffered a drop of 9% in terms of the executed contracts and of 21% in terms of connected capacity y-o-y. At the same time, the amount of accumulated obligations was reduced by 9%.

The general volume of executed technological connection contracts (98%) falls on applicants on benefits, with power receiving

• Rosseti Group operates a range of measures related to technological connection contract management (it covers each stage: development of technical conditions, pricing, procurement, signing and execution of contractor agreements, execution of in-house technological connection contracts), including the automation of technological connection activities.

• In 2019, applications were monitored as well as technological connection forecasts were prepared (including the growth geography) in order to predict the volume of applications and obligations of the grid company in the next year.

• Workflows for processing consumer applications for technological connection and execution of technological connection contracts are improved. Technological connection is conducted in an automated process control system, thus ensuring transparency, rapid drafting and analysis of reports, control of the implementation practice, and documentation drafting. Applications for technological connection are filled in electronically on the subsidiaries and affiliates' official websites, as well as on the PJSC Rosseti portal of electric grid services (портал-тп.рф), which allows for processing applications in real time and avoid paper document flow.

• To ensure the provision of high-quality services by the grid organisations to their consumers, current and potential applicants can apply for technological connection online on the Portal of Electric Grid Services (портал-тп.рф).

• Since 2018, the SVETLAYA STRANA (Bright Country) Portal has been functioning for electricity consumers to provide feedback for the

66

devices with a capacity of up to 150 kW (inclusive).

The key achievement in this type of operations was the reduced period of connection of applicants — 88 days, which is 9% less against 2018.

purpose of rapid real-time communication between residents and an electricity supplier.

• In order to reduce the number of stages and speed up the connection of applicants, the volume of work on technological connection, performed on own account, increases.

• Automation of the preparation of technical conditions takes place: introduction of geoinformation systems and digitisation of power grid facilities make it possible, based on the topography data of electric grid facilities, to automatically generate a list of activities aimed for the inclusion in technical conditions, while reducing the period of such a stage of the technological connection procedure.

• For the purpose of implementing the digitalisation concept, work is being performed on the transition to a unified digital infrastructure for servicing consumers of Rosseti Group.

• In 2019, the development of a mobile application of the power grid services portal was started, allowing to use a wide range of electronic services.

Risks of tariff regulation

→

The risks are associated with the partial consideration of costs of power grid companies incurred in the course of necessary gross revenue generation, as a result of limited growth rates of tariffs for electricity transmission services.

Implementation of the state tariff policy on distribution of the social burden of cross-subsidisation of residents to consumers of the distribution power grid complex exclusively causes major consumers to choose a UNEG management company or their own generation.

These factors negatively affect Rosseti Group's financial stability.

• Work is being carried out on the cooperation with executive authorities of the constituent entities of the Russian Federation in the field of state regulation of tariffs when setting economically reasonable tariffs.

• Work is being carried out on the cooperation with federal executive authorities (the FAS of Russia, the Ministry of Energy of Russia, the Ministry of Economic Development of Russia and others) aimed to improve the principles of tariff regulation.

Financial risks

Risks associated with the impact of inflation ↓

Growth of the consumer price index has an impact on the level of costs and profitability and, as a result, on the Group's financial condition and ability to meet its obligations.

Unit operating costs in 2019 were reduced by more than 2% year-over-year.

• To minimise inflationary risks, the 2019—2023 Operational Efficiency Improvement and Cost-Cutting Programme is being implemented by Rosseti Group.

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Risks associated with changes in interest rates

→

The risk is due to the impact of market interest rates on the possible growth of the Group's borrowing costs for debt refinancing, investment programme financing and operational activities.

The main factors influencing interest rates are the macroeconomic situation and the policy pursued by the Central Bank of the Russian Federation. Despite the consistency of the risk materiality assessment, the level of significance of risk consequences was lower due to the drop in the Bank of Russia's key rate in the reporting period.

• Rosseti Group provides a set of measures aimed at optimising the share of borrowings in the total capital structure, attracting long-term borrowings at fixed interest rates, and increasing the efficiency of operating and investment costs.

• The Company's planning of its business activities depends on risks associated with changes in interest rates.

• A balanced credit policy, intended to streamline the loan portfolio structure and reduce to the lowest costs of debt servicing, is being delivered.

The risk of deviation of the Debt/EBITDA indicator from the value set in the business plan

→

Risks of deviation of the actual value of the Debt/EBITDA debt burden ratio from the value set in the business plan. The Debt/EBITDA indicator characterises the Company's degree of debt burden and solvency.

In general, for Rosseti Group the risk was not realised. In 2019, the value of the Debt/EBITDA indicator was 1.9 (with a target value of 2.0).

• Cost management that depends on the expected level of income (with mandatory reliability and security requirements taken into account), in order to reach the EBITDA level set in the business plan.

• Rationing of operating expenses, control of their limits, and achievement of the target indicators set for the reduction of unit operating expenses are carried out.

• The compliance with approved limits of financing of the investment programme as well as the implementation of investment projects following the agreed costs and deadlines are being monitored.

Risks associated with the Company’s activities

Failure to meet the reliability of electricity transmission services

↓

Risks associated with climatic factors, physical wear, violation of operating conditions and critical changes in the parameters of operation of power grid equipment, which can lead to a failure (accidents) of electrical equipment and decline in the reliability of power supply.

In 2019, the limit values of indicators of the service reliability level, set by tariff regulation authorities, were not exceeded across Rosseti Group, except for JSC Chechenenergo: the failure to achieve this indicator was connected with the improvement of the accounting system of power supply interruptions in the 0.4—10 kV distribution network.

• Over the reporting year, measures were taken to raise the level of monitoring and controllability of the electric grid complex as well as to reduce the time of emergency response.

• To minimise the risk and accidents at the facilities, long-standing targeted programmes are being implemented by the S&A, aimed at: - the disposal of equipment that may cause injuries; - the standardisation of OL passages (clearing the territories near power lines of forests); - the improvement of reliability of the distribution network; - the improvement of lighting-surge proofness; - the replacement of switches, OD, and SC whose service life has expired; - the replacement of oil-filled bushings with solid insulation ones; - the replacement of porcelain and polymer combined insulators with OL;

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The average duration of disruption of electricity transmission to the Psaidi reception point was 1.8 hours.

The average frequency of disruption of electricity transmission to the Psaifi reception point was 1.2 pcs.

The Russian Federation confirmed a maximum rating of 8 out of 8 points for the Electrical Power Reliability Index (SAIDI, SAIFI) indicator.

In total, PJSC Rosseti subsidiaries and affiliates recorded and investigated 9.6 thousand process violations (accidents) in the network of 110 kV and above in 2019 (a decrease of 12% compared to 2018).

In 2019, as a result of effective production activities of subsidiaries and affiliates of PJSC Rosseti, the number of technological violations related to adverse weather events was down by 20%, and due to the poor maintenance of equipment — decreased by 13%.

Based on the strategic importance of the "reliability of electricity transmission services" indicator, this risk remains significant for Rosseti Group.

the replacement of support and rod insulators and the upgrade of relay protection and automation devices and gear of the electric grid complex.

• Scheduled ordinary and advanced trainings along with the control of production personnel's performance are carried out every year.

Occupational risks →

The risks are caused by unintentional neglect of labour protection requirements on the part of workers in the production process.

The risk is critical, as Rosseti Group has zero tolerance for accidents that are dangerous for its employees.

• Rosseti Group analyses and introduces the best practices to promote the culture of employee safety, as well as automates production processes regarding the safety to avoid occupational injuries as much as possible.

• Steps are being taken to comply with the requirements of existing regulatory laws of the Russian Federation in the field of labour protection.

• In order to create a personnel safety culture, employees are trained and corresponding measures are taken to prevent occupational injuries, as well as the legal framework of labour protection, labour protection rules in the operation of electrical installations, first aid to victims are being studied. The Company's employees were trained on the safe performance (aimed at appropriate safe behaviour and accident prevention at work).

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• Technologies that ensure safe performance and safe working environment are being introduced and applied.

• Examination of workplaces in structural division, production structural divisions, including with the inspection of territory (industrial premises), workplaces passages and evacuation routes is conducted; sources of hazards and/or dangerous situations (initiating events) related to the work performed by an employee or type of work are identified.

• Periodic maintenance (diagnosis, inspection, repair, testing, etc.) of production equipment and tools which are a source of potential danger to employees is carried out.

• Automatic control devices for harmful substances, process safety parameters and other signalling devices are used.

The risk of failure to deliver key parameters of the investment programme14

↓ The risk of deviation of the investment

programme's actual parameters (on financing, execution, introduction of fixed assets) from the approved ones.

The risk realisation is mainly affected by the following factors: lack of financing sources, failure to meet project deadlines by contractors, bankruptcy, unwillingness and refusal of an applicant related to TC activities, failure to receive initial permits.

In 2019, 193 priority facilities worth RUB 78 billion were scheduled for commissioning. In fact, 188 facilities worth RUB 76.7 billion were accepted.

• In 2019, the criteria of highlighting priority investment projects were updated in order to improve the effectiveness of control over the implementation of Rosseti S&A's investment programmes.

• A new system of assessment of key management efficiency indicators of Rosseti's S&A has been introduced so that to increase the responsibility for execution of investment projects, taking into account quarterly performance in terms of priority facilities commissioning.

• The system of control over the implementation of priority investment projects, introduced by PJSC Rosseti, allows for the timely identification of risks of failure to implement projects and promptly respond to slippages.

• In order to minimise the risk, Rosseti Group performs certain activities to comply with the terms of procurement procedures and conclusion of contracts in accordance with the time periods of implementation of investment projects of approved investment programmes.

• The quality of capital construction is controlled, and on-site checks of actual availability of resources and/or quality of products of contractors are carried out.

Risks associated with innovative technology implementation

→

The tasks of accelerated breakthrough scientific, technological and socio-economic development, set forth by Decree of the President of the Russian Federation No. 204 of

• PJSC Rosseti's key innovative development areas are being formed and introduced on the basis of best practices in terms of the application of innovative technologies developed by leading foreign peers.

14 The Company has no investments, whose estimated level of income exceeds 10% per year.

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7 May 2018, require the introduction of technological innovations to accelerate technological development, as well as the introduction of new innovative technologies, including in the part of large-scale digitalisation of the power grid complex.

Meeting these goals is associated with risks of higher investment costs, lower return on investments, and failure to achieve required effects, as well as with risks related to information security.

The areas of PJSC Rosseti's innovation-driven growth are in conformity with main areas of application of overseas companies' innovative technology.

The key performance indicators set for the Innovative Development Programme of PJSC Rosseti correspond to the indicators used by peers, and also reflect the contribution of innovation in the combined effect of improving the performance of production activities.

PJSC Rosseti's level of technological development corresponds to the level of peers in respect of 22 technologies. Digital substations have the highest compliance rate (71.4%) (5 out of 7).

There is a lag behind peers in respect of 33 technologies. A clearly expressed lag was recorded on end-to-end technologies. Lags in organisational innovations and business processes accounted for 46.7% and 42.9%.

• Updating of the list of priority technologies in the areas of innovative development, taking into account the best world experience, is taking place.

• Every year, the evolution and experience of innovative technology introduction abroad is studied.

• Patent research (patent analytics) on priority technological innovations is carried out.

• The automated system of formation and monitoring of implementation and efficiency assessment of the innovative development programme's activities and projects is being implemented across Rosseti Group.

• Work is underway to improve the system of innovation management (taking into account the objectives of digital transformation).

• Work has been organised to form and expand the ecosystem of innovations with the involvement of experts, scientific organisations, universities, and professional communities.

• The analysis of necessity and sufficiency of the current coverage of all subjects of the Russian Federation by digital technology is conducted.

• To reduce risks of cyber threats, the transition to the use of mainly domestic software is in progress.

• Information security threats are analysed and a model of information security threats is developed or elaborated (if there is one), as well as the category of importance of information infrastructure facilities is determined.

Legal risks

Risks associated with changes in legislation and judicial practice

→

Activities of Rosseti Group are regulated and controlled by federal executive authorities, including the Federal Antimonopoly Service of Russia, the Federal Tax Service of Russia, the Ministry of Energy of Russia, and Rostekhnadzor.

• In 2019, the updating of local regulations was actively carried out.

• Legislative changes are monitored every month.

• Every year, a plan of rule-making activities is created and implemented.

• An intra-group law enforcement practice on the functioning of the power grid complex is being formed.

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Rosseti Group executes a number of orders and instructions of the Government of the Russian Federation, and is controlled by the Accounts Chamber of the Russian Federation in terms of the lawful use budget funds allocated for significant investment projects.

Compliance risks → Inside Rosseti Group, a special attention is paid to the work on ensuring the compliance with legal requirements for anti-corruption and competition, as well as activities to counter the misuse of insider information and market manipulation.

Based on the accepted level of tolerance to this group of risks, compliance risks remain significant and relevant.

• Rosseti Group has formed and adhere to the basic principles of anti-corruption; the adopted local regulations allow to promote a negative attitude towards corruption, to prevent or resolve conflicts of interest, and to prevent any illegal activities.

• The Company has the Ethics Code in place, which defines, inter alia, the procedure for response of employees in a conflict of interest. It also suggests a mechanism for implementation and monitoring of compliance with the corporate ethics guidelines.

• The Anti-corruption policy has been adopted. Every year, a set of measures aimed at preventing corruption are developed and followed.

• Rosseti Group strives to ward off the violation of general prohibitions and restrictions of the competition legislation, taking steps to prevent the abuse of dominant position and discrimination and limiting competition by means of:

- standardisation and unification (based on Russian legislation) of processes exposed to the antitrust risk; - introduction of online services that provide complete, transparent and reliable information about services and the order of their provision; - implementation of measures in respect of the openness and accessibility of procurement; - training of employees in order to fully achieve detailed understanding of the competition legislation.

• Rosseti Group, in accordance with the requirements of Russian legislation, performs work on the counteracting the misuse of insider information and market manipulation; the procedure of access to insider information has been established; lists of insiders have been formed; and rules of internal control for compliance with the legislative requirements in this area have been prepared.

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Participants in Internal Control System

Given the size of the Company, a significant number of participants interact in the risk

management process, ranging from operating units and employees in the field to shareholders

and stakeholders of the Company.

The Board of Directors is responsible for monitoring the formation and effective functioning of the

Company's risk management system. In addition, the Audit Committee on a regular basis

examines risk management issues in more detail, analyzing both summary reports on risk

management, plans for the development of the function, and studying individual, the most

significant risks associated with the Company's activities, as well as the status of measures taken

by management.

In order to provide guarantees for the effectiveness of the risk management system, the

Company's internal audit department annually conducts an independent assessment of the risk

management system efficiency. The internal auditor's report on risk management system

efficiency assessment was approved by the Board of Directors of ROSSETI 23.12.2019 (Minutes

No. 386 dated 25.12.2019) with preliminary consideration by the Audit Committee under the

Board of Directors on 13.08.2019 (Minutes No. 107 dated 13.08.2019). Based on the results of

the Board of Directors' review, the level of the risk management system as an optimal one.

In the reporting year, an independent expert in the Company conducted an independent

assessment of the effectiveness of the risk management system, the report on the results of which

was also reviewed by the Board of Directors of ROSSETI. Based on the results of the independent

assessment carried out in the reporting period, the risk management system was recognized as

"effective, with potential for improvement".

Key measures implemented in 2019 In 2019, we continued to improve our risk management system based on common approaches and standards:

• an independent expert was selected on a competitive basis, and an independent external evaluation of risk management efficiency was conducted;

• key methodological documents in the field of risk management of ROSSETI Group were updated, including the approach to determining the level of risk appetite;

• Risk management units' employees were trained on professional topics in order to maintain the required level of competence;

• a risk management knowledge day was held for the company's employees in order to maintain the required level of corporate culture maturity.

In order to develop the risk management system in the Company, an action plan to improve the risk management system of ROSSETI Group for 2020 - 2023 was developed and approved by decision of the Board of Directors, which includes the following areas:

• development of risk awareness culture as part of the Company's corporate culture; • improvement of risk-oriented approach in the management decision making system; • automation of risk assessment process; • updating the methodology for determining risk appetite, coordinated with the development

strategy of the Company; • introduction of professional standards in the activities of the Company (a specialist in risk

management).

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Internal Control System

The internal control system of the ROSSETI Group is designed to minimize risks arising from the achievement of strategic and operational goals of the Company, as well as to increase the efficiency of the Company’s activity, to ensure compliance with legal requirements and guarantee the reliability of the financial and management reporting of the Company. Internal control is integrated into the risk management system and is an integral part of it.

The internal control procedure in the ROSSETI Group is governed by the Internal Control Policy approved by the decision of the Board of Directors of the Company dated November 16, 201515. Certain elements of the internal control system (ICS) in the Company are governed by documents determining the order, procedures and content of the control environment.

In accordance with the Internal Control Policy, responsibility for the proper organization and execution of the control procedures lies with all participants in the internal control process within the powers set forth in the Articles of Association of the Company, Internal Control Policy, local regulatory acts of the Company, regulations on structural units and job descriptions.

As part of the control procedures, special attention is paid to the analysis of reporting processes, procedures to combat abuse, corruption, and fraud. The Company has an Anti-Corruption and Fraud Hotline, as well as a Consumer Hotline of the Company. The key processes of the Company are monitored on a regular basis, including analysis of the results of operations, verification of the results of business operations, and verification of the effectiveness of business processes.

An important element in building the internal control system is the Company's risk management process, including identification, assessment, measures to minimize risks, and monitoring the implementation of risks.

Assessment of the effectiveness of the internal control Internal assessment (self-esteem) In 2019, the ROSSETI Internal Audit Division conducted an annual internal assessment of the effectiveness of the internal control system. The report of the internal auditor on evaluating the effectiveness of the internal control system was reviewed by the ROSSETI Board of Directors16, while the Board of Directors noted the status of the functioning of the internal control system as being at the development level between ‘optimal’ and ‘high (advanced)’. External evaluation In accordance with the requirements of the ROSSETI Internal Control Policy, an independent assessment of the internal control system was also carried out in 2019. Based on the assessment, the independent expert recognized ICS as ‘effective’. The report of the independent expert on evaluating the effectiveness of the internal control system was reviewed by the ROSSETI Board of Directors17 on December 23, 2019.

15 Minutes No. 208 dated November 16, 2015. 16 Minutes No. 386 dated December 23, 2019 17 Minutes no. 386 dated December 23, 2019

74

Internal Audit Commission

In order to control the financial and economic activities of ROSSETI, the Company has

established an Audit Commission, a permanent control body formed by and accountable to the

General Meeting of Shareholders.

Key issues considered by the Internal Audit Commission in the reporting year

Control over financial and economic activities, elimination of identified shortcomings as a result of inspections

ROSSETI's financial and business operations for 2018 and 9 months of 2019 were audited (no violations were found).

Assessing the reliability of the data contained in the annual report and annual financial statements

Reviewed the annual report, annual financial statements for 2018. No material misstatements were found that could significantly affect the information in the annual report.

Informing on the facts of violation of the accounting procedure, presentation of financial statements, procedure of financial and economic activities

The issues of preparing the financial statements and compliance with accounting rules were considered, and no violations were found.

Control of legitimacy of financial and economic operations carried out

The report on interested party transactions concluded in 2018 was considered (no violations of the law were revealed).

Composition of the Internal Audit Commission of the Company

By resolution of the Annual General Shareholders Meeting of the Company dated June 27,

2019, the Internal Audit Commission was formed as follows:

Full Name Position at election time

Zobkova Tatiana Valentinovna Chairman of the Internal Audit Commission

Born in 1976 in Uralsk city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 1999, she graduated from the Moscow Regional Pedagogical University as a teacher of mathematics. In 2004, she graduated from the Moscow Engineering Physics Institute (State University) with a degree in economics. WORK EXPERIENCE Until 2014, she worked in commercial organizations and municipal authorities. Since 2014 - Leading Advisor, Deputy Head of Division, Head of Division, Deputy Director of the Department of Corporate Policy and Property Relations in the Fuel and Energy Sector of the Ministry of Energy of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, she did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.

Balagurov Sergey Arkadievich

Born in 1984 in Ivanovo city. Citizenship - Russian Federation. The candidacy was proposed / approved by the decision of the Board of Directors of the Company. EDUCATION

75

In 2006 he graduated from Ivanovo State University of Chemical Technology with a degree in electrochemical production technology. WORK EXPERIENCE Since 2014 - Chief Expert Specialist; Leading Advisor; Deputy Head of the Division for Pricing Policy and Infrastructure Control of the Industry of the Department of Electric Power Development of the Ministry of Energy of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.

Gabov Andrey Vladimirovich

Born in 1981 in Gubaha city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 2003 he graduated from Perm State Technical University, qualification "Engineer" with a degree in "Lifting, construction and road machinery and equipment". In 2008, he graduated from Perm State University, qualification "Economist" with the specialty "Finance and Credit". PROFESSIONAL EXPERIENCE Since 2014 - Head of the Electric Power Industry Development Division; Deputy Director of the Department of State Regulation of Tariffs, Infrastructure Reforms and Energy Efficiency of the Ministry of Economic Development of Russia. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations

Grechka Irina Nikolaevna

Born in 1964 in Lubny city. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 1986, she graduated from the St. Petersburg State University of Economics and Finance, majoring in labor economics. PROFESSIONAL EXPERIENCE Until 2014, she worked as Deputy Chief Accountant in commercial organizations. From 2014 to 2015, she headed the Internal Audit Department at RT-Biotechprom JSC. In 2015 – an Advisor to the Director General of FGUP NPO Mikrogen. From 2016 to 2018, she was Head of the Planning and Economic Department of the State Budgetary Institution of the United Research and Development Centre of Moscow. From 2018 to 2019, she was Head of the Internal Audit Directorate at ROSSETI. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, she did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.

76

Simochkin Dmitry Igorevich

Born in 1992 in Moscow. Citizenship - Russian Federation. The candidacy was proposed/approved by the decision of the Company's Board of Directors. EDUCATION In 2015 he graduated from Moscow State University with a degree in economics. In 2015, he graduated from the Moscow Institute of State and Municipal Management with a Master of Law degree. PROFESSIONAL EXPERIENCE: Since 2015 - specialist; chief expert; advisor of the department; deputy head of the department; head of the Federal Property Management Agency. PARTICIPATION IN MANAGEMENT BODIES During the reporting year, he did not have any shares (stakes) in ROSSETI or its controlled entities, nor did she perform any transactions with securities (stakes) in the above companies. Does not have any family relations with any other members of ROSSETI's management (control) bodies or its controlled organizations.

Before the Annual General Shareholders' Meeting of the Company on 27 June 2019, the Internal Audit Commission functioned as follows 18:

Full Name Position at election time

Zobkova Tatiana Valentinovna

Chairman of the Internal Audit Commission

Division Head, Department of the Russian Ministry of Energy

Zadorozhnaya Angelica Alexandrovna

Head of Internal Audit Department of ROSSETI

Simochkin Dmitry Igorevich

Deputy Head of the Department of Federal Property Management

Sinitsina Natalya Valerievna

Division Head, Department of the Russian Ministry of Energy

Hakimova Nina Sergeyevna

Leading Advisor of a Division at the Ministry of Economic Development of Russia

Statistics of the Internal Audit Commission

Attendance at meetings Members of the Internal Audit Commission in 2019 Internal

Audit Commission (5 meetings)

Note: The 6/7 format means that a member of the Audit Commission could have participated in seven meetings, but in fact only participated in six meetings.

Zobkova Tatiana Valentinovna 5/5

Balagurov Sergey Arkadievich (from 27.06.2019) 2/2

Andrey Vladimirovich Gabov (from 27.06.2019) 2/2

Grechka Irina Nikolaevna (from 27.06.2019) 0/2

Simochkin Dmitry Igorevich 3/5

Zadorozhnaya Angelika Alexandrovna (till 27.06.2019) 3/3

Sinitsina Natalya Valerievna (till 27.06.2019) 0/3

18 Elected by the General Meeting of Shareholders on 29.06.2018 (Minutes of the Meeting of 29.06.2018)

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Khakimova Nina Sergeevna (till 27.06.2019) 3/3

Internal Audit

ROSSETI has formed a unit and such unit is effectively functioning, it performs the functions of

internal audit and reports to the Board of Directors of the Company - the Internal Audit

Department.

The purpose of the internal audit is to assist the Board of Directors and executive bodies of the

Company in increasing the efficiency of the Company's management, improving its financial and

economic activities, including through a systematic and consistent approach to the analysis and

evaluation of risk management systems, internal control and corporate governance as tools to

ensure reasonable assurance in achieving the goals set for the Company.

ROSSETI internal audit principles:

• Independence

• Professional competence

• Integrity

• Confidentiality

• Fairness and impartiality

The functional subordination of the internal audit to the Board of Directors of the Company means

the implementation by the Board of Directors of control and organization of the activities of the

internal audit unit, including:

• approval of the internal audit activity plan;

• consideration of the report on the implementation of the internal audit plan;

• approval of the budget of the internal audit unit;

• approval of decisions on the appointment, dismissal, and determination of remuneration

for the head of the internal audit unit.

The goals and objectives, the basic principles of the organization, the functions and powers of the

internal audit are defined in the ROSSETI Internal Audit Policy, approved by the decision of the

Board of Directors. In addition, the Company has other internal documents governing the function

of internal audit.

In 2019, for the first time, an external independent assessment of the internal audit activity of

ROSSETI Group of Companies was carried out, the periodic implementation of which is provided

for by the internal audit policy (at least once every 5 years). Based on the results of an

independent assessment, the Company received the opinion of an external expert (KPMG JSC),

according to which the activities of the internal audit of the Company were recognized as

‘generally consistent’ with the requirements of the International Professional Standards for

Internal Auditing, the Code of Ethics, and the Internal Audit Policy.

Based on the results of the internal audit self-assessment, as well as taking into account the

recommendations of an external independent expert, an Action Plan for the development and

improvement of the internal audit activity in the ROSSETI Group of Companies for the period from

2020 to 2024 was developed, containing measures aimed at further enhancing the role of internal

audit as a strategic partner business and increased consultation.

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External audit

For the purpose of an independent assessment of the reliability of the accounting (financial) statements, the Company annually engages an external auditor to audit the accounts prepared in accordance with IFRS and RAS. External auditors are involved on the basis of competitive procedures that ensure objective selection according to criteria that take into account the volume and time of work, as well as the specifics of the Company. The candidatures of the auditors of the Company, as well as its subsidiaries (including the main terms of the contracts on the basis of which the auditors are involved) are preliminary considered by the Audit Committee of the Board of Directors of the Company to develop recommendations for further approval of external auditors.

2017 2018 2019

Auditor (RAS and IFRS) RSM RUS LLC RSM RUS LLC RSM RUS LLC

Cost of Reporting Audit Services 5 000 thous. rubles

4 034 thous. rubles.

4 068 thous. rubles

Cost of services other than the statutory audit (provision of audit-related services)

not provided not provided not provided

In April 2019, the Audit Committee of the Board of Directors reviewed the results of the audit of the Company's reporting for the previous reporting period (2018), as well as the comments of the external auditor, as a result of which there were no problematic issues regarding reporting.

In addition, by decision of the Board of Directors, the ROSSETI Auditor Rotation Policy19, was approved, which defines the main approaches to selection and requirements for the Company's external auditors.

19 Minutes No. 368 dated July 29, 2019

79

ROSSETI Group Structure Subsidiaries and dependent companies as of December 31, 2019

Name Location of head office

TRANSMISSION GRID COMPANY

FGC UES Moscow

INTERREGIONAL GRID COMPANIES

Rosseti Tyumen Surgut

IDGC of Northern Caucasus Pyatigorsk

IDGC of South Rostov-on-Don

IDGC of Volga Saratov

LENENERGO Saint Petersburg

IDGC of Siberia Krasnoyarsk

IDGC of North-West Saint Petersburg

IDGC of Urals Yekaterinburg

MOESK Moscow

IDGC of Center and Volga Region Nizhniy Novgorod

IDGC of Centre Moscow

DISTRIBUTION GRID COMPANIES

Yantarenergo Kaliningrad

Kubanenergo Krasnodar

TDC Tomsk

Chechenenergo Grozny

REGIONAL RETAIL COMPANIES

Karachaevo-Cherkesskenergo Cherkessk

Kalmenergosbyt Elista

Tyvaenergosbyt Kyzyl

Dagestan Energy Supply Company Makhachkala

Sevkavkazenergo Vladikavkaz

Kabbalkenergo Nalchik

OTHER (R&D, CONSTRUCTION, SERVICE AND OTHER ORGANIZATIONS)

TCC Moscow

Engineering Center UES Real Estate Moscow

Power Grid Optical Networks Engineering Moscow

NWEMC Saint Petersburg

Ingushenergo Nazran

ENIN Moscow

Urals Power Engineering Company Yekaterinburg

VPEC Samara

NURENERGO Grozny

IT Energy Service Moscow

ZES Moscow

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Responsibility Statement

1. The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2. The management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board of Directors

Director for accounting

and reporting – Chief Accountant

D.V. Nagovitsyn

81

Glossary

Term/Abbreviation Meaning

ANO Autonomous Nonprofit Organization

BRELL Electric ring of Belarus, Russia, Estonia, Latvia and Lithuania

CIGRE International Council for Large High Voltage Electrical Systems

EBITDA, EBITDA adj An analytical indicator equal to the amount of profit before deducting expenses for interest, taxes, depreciation and accrued depreciation (Earnings before interest, taxes, depreciation and amortization) (Earnings before interest, taxes, depreciation and amortization)

FAS Russia Federal Antimonopoly Service of Russia

FGC UES Federal Grid Company of the Unified Energy System

FSUE Federal State Unitary Enterprise

GNI Gross National Income

GOST State Standard

IDGC Interregional Distribution Grid Company

IFRS International Financial Reporting Standards

JSC Joint Stock Company

KPI Key Performance Indicators

MBA Master of business administration

NRU MEI National Research University Moscow Power Engineering Institute

OAD Organizational and administrative documents

OL Overhead Line

OPEX Operating expenses

PJSC Public Joint Stock Company

R&D Research and development work

RAB-regulation Regulatory Asset Base

RAO "UES of Russia" Russian Joint Stock Company "Unified Energy System of Russia"

SC Short circuit

SSR Soviet Socialist Republic

VAT Value Added Tax

VHI Voluntary Health Insurance

Пsaidi Indicator of the average duration of the termination of the transfer of electrical energy to the supply point, hour

Пsaifi Indicator of the average frequency of interruptions in the transfer of electrical energy to the supply point, pcs.

Units of measurement

Abbreviation Meaning

GVA Gigavolt-ampere

GW Gigawatt

u Unit

kV Kilovolt

kWh Kilowatt-hour

km Kilometer

MVA Megavolt-ampere

82

MW Megawatt

mn Million

bn Billion

subpara. Subparagraph

RUB Russian ruble

t Tonne

thsd Thousand

pc. Piece

P.p. Percentage point

83

Contact Information

Registered address: Russia, 121353, Moscow, ul. Belovezhskaya, 4

Address for correspondence: Russia, 121353, Moscow, ul. Belovezhskaya, 4

Place of business: Russia, Moscow, ul. Belovezhskaya, 4

Telephone: +7 (495) 995-5333 (9 a.m. to 6 p.m. Moscow time)

Telephone/Fax: +7 (495) 664-8133

Email: [email protected]

84

Appendix

Consolidated financial statements of

Public Joint Stock Company ROSSETI and its subsidiaries

prepared in accordance with

International Financial Reporting Standards

for the year ended 31 December 2019

with independent auditor’s report

2

Contents

Page

Consolidated financial statements

Independent auditor's report 3

Consolidated statement of profit or loss and other comprehensive income 8

Consolidated statement of financial position 9

Consolidated statement of cash flows 10

Consolidated statement of changes in equity 12

Notes to the consolidated financial statements

1 Background 14 2 Basis of preparation 15 3 Significant accounting policies 19 4 Measurement of fair values 29 5 Significant subsidiaries 30 6 Acquisition of subsidiaries 31 7 Non-controlling interests 33 8 Segment information 35 9 Revenue 40 10 Other income and other expenses 40 11 Operating expenses 41 12 Personnel costs 42 13 Finance income and costs 42 14 Income tax 43 15 Property, plant and equipment 44 16 Intangible assets 47 17 Right-of-use assets 48 18 Other financial assets 49 19 Deferred tax assets and liabilities 51 20 Inventories 54 21 Trade and other receivables 55 22 Advances given and other assets 55 23 Cash and cash equivalents 56 24 Equity 57 25 Earnings per share 59 26 Borrowings 60 27 Changes in liabilities arising from financing activities 63 28 Employee benefits 65 29 Trade and other payables 68 30 Taxes other than income tax 68 31 Advances received 68 32 Provisions 69 33 Financial risk and capital management 69 34 Capital commitments 76 35 Contingencies 76 36 Related party transactions 77 37 Events after the reporting period 78

3

INDEPENDENT AUDITOR'S REPORT

4

5

6

7

ROSSETI Group

Consolidated financial statements for the year

ended 31 December 2019

The accompanying notes are an integral part of these Consolidated Financial Statements 8

Consolidated Statement of Profit or Loss and Other Comprehensive Income

(in millions of Russian rubles unless otherwise stated)

Notes

Year ended

31 December 2019

Year ended

31 December 2018

Revenue 9 1,029,654

1,021,602

Operating expenses 11 (858,282) (835,755)

Accrual of allowance for expected credit losses 33 (23,356) (25,820)

Net accrual of impairment of property, plant and equipment and

right-of-use assets 15

(23,631)

(7,688)

Other income 10 31,966 26,170

Other expenses 10 (4,860) (2,815)

Operating profit 151,491 175,694

Finance income 13 21,741 17,617

Finance costs 13 (31,696) (27,517)

Total finance costs (9,955) (9,900)

Share of profit of associates and joint ventures

(net of income tax)

192

337

Profit before income tax 141,728 166,131

Income tax expense 14 (36,436) (41,453)

Profit for the period 105,292

124,678

Other comprehensive income

Items that may be reclassified subsequently to profit or loss

Foreign currency translation difference (228) 178

Total items that may be reclassified subsequently to profit or

loss

(228)

178

Items that will not be reclassified subsequently to profit or loss

Changes in fair value of financial assets at fair value through other

comprehensive income

9,865

1,667

Remeasurements of the defined benefit liability 28 (5,056) 2,381

Income tax 14 (731) 6,160

Total items that will not be reclassified subsequently to profit or

loss

4,078

10,208

Other comprehensive income for the period, net of income tax 3,850 10,386

Total comprehensive income for the period

109,142

135,064

Profit attributable to:

Owners of the Company 76,773 90,985

Non-controlling interest 28,519 33,693

Total comprehensive income attributable to:

Owners of the Company 80,411 99,184

Non-controlling interest 28,731 35,880

Earnings per share

Basic and diluted earnings per share (in RUB) 25 0.38 0.45

These consolidated financial statements were approved by management on ____ March 2020 and were

signed on its behalf by:

Director General Director for accounting

and reporting – Chief Accountant

P.A. Livinsky D.V. Nagovitsyn

ROSSETI Group




Consolidated Statement of Financial Position


Notes 31 December 2019 31 December 2018

ASSETS

Non-current assets

Property, plant and equipment 15 2,119,648 1,983,874

Intangible assets 16 19,648 19,145

Right-of-use assets 17 36,669 –

Investments in associates and joint ventures 1,296 1,401

Trade and other receivables 21 76,882 78,068

Assets related to employee benefits plans 5,808 6,216

Other non-current financial assets 18 49,227 41,562

Deferred tax assets 19 12,245 10,090

Advances given and other non-current assets 22 6,664 4,453

Total non-current assets 2,328,087 2,144,809

Current assets

Inventories 20 37,329 37,109

Other current financial assets 18 57,592 47,192

Income tax prepayments 2,266 3,380

Trade and other receivables 21 126,827 161,465

Cash and cash equivalents 23 79,013 84,056

Advances given and other current assets 22 18,152 19,154

Total current assets 321,179 352,356

Assets held for sale 10 313 21,467

Total assets 6,649,579 2,518,632

EQUITY AND LIABILITIES

Equity

Share capital 24 200,903 200,903

Share premium 213,098 213,098

Treasury shares (109) (109)

Other reserves 17,517 15,322

Retained earnings 758,600 687,786

Total equity attributable to owners of the Company 1,190,009 1,117,000

Non-controlling interests 394,096 377,962

Total equity 1,584,105 1,494,962

Non-current liabilities

Non-current borrowings 26 464,709 480,989

Non-current trade and other payables 29 23,797 17,825

Non-current advances received 31 42,280 26,221

Employee benefit liabilities 28 27,800 23,592

Deferred tax liabilities 19 91,878 76,640

Total non-current liabilities 650,464 625,267

Current liabilities

Current borrowings and current portion of non-current

borrowings 26 97,698

87,268

Trade and other payables 29 208,685 202,568

Taxes other than income tax 30 22,427 23,724

Advances received 31 58,992 68,832

Provisions 32 23,234 10,901

Current income tax liabilities 3,974 5,110

Total current liabilities 415,010 398,403

Total liabilities 1,065,474 1,023,670

Total equity and liabilities 2,649,579 2,518,632

ROSSETI Group

Consolidated financial statements for year



Consolidated Statement of Cash Flows


Notes

Year ended

31 December 2019

Year ended

31 December 2018

CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the period 105,292 124,678

Adjustments for:

Depreciation of property, plant and equipment and right-of-

use-assets, amortisation of intangible assets 11 129,413 116,124

Accrual of impairment of property, plant and equipment and

right-of-use assets, net 15 23,631 7,688

Finance costs 13 31,696 27,517

Finance income 13 (21,741) (17,617)

Loss on disposal of property, plant and equipment 10 4,860 2,275

Share of profit of associates and joint ventures, net of income

tax (192) (337)

Gain on derecognition of subsidiary 10 – (690)

Accrual of allowance for expected credit losses 33 23,356 25,820

Accrued provisions 17,340 4,952

Gain on compensation of losses in connection with retirement

/ liquidation of electric grid assets (2,663) (2,684)

Non-cash settlements of technological connection agreements (962) (2,570)

Gain on disposal of assets 10 (8,110) –

Gain on acquisition of new subsidiaries 10 (1,036) –

Other non-cash transactions (774) (697)

Income tax expense 14 36,436 41,453

Total impact of adjustments 231,254 201,234

Change in assets related to employee benefit liabilities 408 494

Change in employee benefit liabilities (2,633) (8,839)

Change in non-current trade and other receivables 1,022 (8,843)

Change in non-current advances given and other non-current

assets (2,508) 317

Change in non-current trade and other payables 2,459 955

Change in non-current advances received 16,058 1,619

Cash flows from operating activities before changes in

working capital and provisions 351,352 311,615

ROSSETI Group




Consolidated Statement of Cash Flows


Notes Year ended

31 December 2019 Year ended

31 December 2018

Changes in operating assets and liabilities:

Change in trade and other receivables (14,159) (27,494)

Change in advances given and other assets 2,419 4,029

Change in inventories 546 (1,648)

Change in trade and other payables 526 26,371

Change in advances received (9,895) (2,432)

Change in provisions (5,051) (4,613)

Cash flows from operating activities before income tax and

interest paid 325,738 305,828

Income tax paid (23,971) (27,550)

Interest paid on lease agreements (3,305) (250)

Interest paid (42,017) (39,457)

Net cash flows from operating activities 256,445 238,571

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment and intangible

assets (231,684) (220,653)

Proceeds from sale of property, plant and equipment and

intangible assets 1,622 1,375

Acquisition of investments and placement of bank deposits (119,864) (73,091)

Disposal of investments and withdrawal of bank deposits 109,730 26,351

Interest received 9,210 7,129

Sale of financial investments 32,180 2,795

Acquisition of shares in subsidiary net of cash and cash

equivalents 6 (3,818) –

Proceeds from sale of subsidiary, net of cash and cash

equivalents 45 –

Dividends received 1,467 2,254

Net cash flows used in investing activities (201,112) (253,840)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from loans and borrowings 288,722 615,072

Repayment of loans and borrowings (330,660) (605,710)

Acquisition of non-controlling interests (74) (476)

Sale of treasury shares – 1,214

Dividends paid to owners of the Company (4,988) (2,436)

Dividends paid to non-controlling interest (10,154) (10,248)

Repayment of lease liabilities (3,222) (145)

Net cash flows used in financing activities (60,376) (2,729)

Net decrease in cash and cash equivalents (5,043) (17,998)

Cash and cash equivalents at the beginning of the period 23 84,056 102,054

Cash and cash equivalents at the end of the period 23 79,013 84,056

ROSSETI Group




Consolidated Statement of Changes in Equity


Attributable to equity holders of the Company

Share capital

Share

premium

Treasury

shares

Reserves

Retained

earnings Total

Non-controlling

interest Total equity

Balance at 31 December 2018 200,903 213,098 (109) 15,322 687,786 1,117,000 377,962 1,494,962

Changes in accounting policy (Note 2e) – – – – (430) (430) (5) (435)

Balance at 1 January 2019 (restated) 200,903 213,098 (109) 15,322 687,356 1,116,570 377,957 1,494,527

Profit for the period – – – – 76,773 76,773 28,519 105,292

Transfer of provision for revaluation on the disposal

of equity investments (Note 18) – – – (1,338) 1,338 – – –

Other comprehensive income – – – 4,358 – 4,358 223 4,581

Related income tax (Note 14) – – – (720) – (720) (11) (731)

Total comprehensive income for the period – – – 2,300 78,111 80,411 28,731 109,142

Dividends (Note 24) – – – – (4,990) (4,990) (15,323) (20,313)

Change of non-controlling interest (Note 24) – – – (105) (1,877) (1,982) 2,060 78

Acquisition of new subsidiaries (Note 6) – – – – – – 671 671


ROSSETI Group




Consolidated Statement of Changes in Equity


Attributable to equity holders of the Company

Share capital

Share

premium

Treasury

shares

Reserves

Retained

earnings Total

Non-controlling

interest Total equity

Balance at 1 January 2018 200,903 213,098 (2,702) 25,752 583,424 1,020,475 349,318 1,369,793

Profit for the period – – – – 90,985 90,985 33,693 124,678

Transfer of provision for revaluation on the disposal

of equity investments (Note 18) – – – (18,629) 18,629 – – –

Other comprehensive income – – – 3,244 – 3,244 982 4,226

Related income tax (Note 14) – – – 4,955 – 4,955 1,205 6,160

Total comprehensive income/(loss) for the period – – – (10,430) 109,614 99,184 35,880 135,064

Sale of treasury shares – – 2,593 – (1,379) 1,214 – 1,214

Dividends – – – – (2,442) (2,442) (10,461) (12,903)

Change of non-controlling interest – – – – (1,431) (1,431) 1,210 (221)

Derecognition of subsidiary – – – – – – 2,015 2,015


ROSSETI Group Notes to the Consolidated Financial Statements for the year ended 31 December 2019

(in millions of Russian rubles, unless otherwise stated)

14

1 Background

a) The Group and its operations

Public Joint Stock Company «ROSSETI» (PJSC «ROSSETI» or the "Company") and its subsidiaries (the

"Group" or "Rosseti Group of Companies") are a natural monopoly operator of distribution and transmission

grids in the Russian Federation, the largest backbone power grid company. By Decree of the President of the

Russian Federation dated August 4, 2004 No. 1009 “On approval of the list of strategic enterprises and

strategic joint-stock companies”, the Company is included in the List of strategic enterprises and strategic

joint-stock companies.

The primary activities of the Group are provision of services for transmission and distribution of electricity

for power grids and provision of services for technological connection of consumers to the grids. The Group’s

power distribution companies sell electricity. The Group’s principal subsidiaries are disclosed in Note 5.

The ordinary and preference shares of the Company are traded on the Moscow Exchange. The Company’s

GDRs are traded on the London Stock Exchange.

Location of PJSC «ROSSETI» is 4 Belovezhskaya Street, Moscow, Russia, 121353.

b) The Group’s business environment

The Group operates mainly in the Russian Federation.

The economy of the Russian Federation displays certain characteristics of an emerging market. Its economy

is particularly sensitive to oil and gas prices. Legal, tax and regulatory systems continue to evolve and are

subject to frequent changes and varying interpretations. Ongoing political tensions, as well as international

sanctions against some Russian companies and citizens, continue their adverse effect on the Russian

economy.

The stability of oil prices, low unemployment rate and rising wages contributed to moderate economic growth

in 2019. Such economic environment has a significant impact on the Group's operations and financial

position.

Management believes it is taking appropriate measures to support the sustainability of the Group’s business

in the current circumstances. The consolidated financial statements reflect management’s assessment of the

impact of the Russian business environment on the operations and the financial position of the Group.

Nevertheless, the future consequences of the current economic situation are difficult to predict, and as a

result, the current estimates and expectations of the Group's management may differ from the actual results.

c) Relations with the state

The Russian Government through the Federal Agency for the Management of State Property is the ultimate

controlling party of the Company. The Government’s economic, social and other policies could have a

significant impact on the Group's operations.

As at 31 December 2019 the Russian Government owned 88.04 % in the share capital of the Company,

including 88.89 % of the voting ordinary shares and 7.01 % of the preference shares (as at 31 December 2018

the Russian Government owned 88.04 % in the share capital of the Company, including 88.89 % of the voting

ordinary shares and 7.01 % of the voting preference shares)

The State influences the Group's operations through its representation in the Board of Directors of the

Company, regulation of tariffs in the electric power industry, approval and control over implementation of

the investment program. The Group's counterparties (consumers of services, suppliers and contractors, etc.)

include a significant number of state controlled entities.



15

2 Basis of preparation

a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (IFRS).

Each entity of the Group individually maintains its own books of accounts and prepares its statutory financial

statements in accordance with the Russian Accounting Standards (hereinafter – RAS).

The Group’s consolidated financial statements are based on the statutory records in accordance with RAS

with adjustments and reclassifications for the fair presentation in accordance with IFRS.

b) Basis for measurement

These consolidated financial statements have been prepared on the historical cost basis, except for:

financial assets measured at fair value through profit or loss,

financial assets measured at fair value through other comprehensive income.

c) Functional and presentation currency

The Russian ruble (hereinafter referred to as ruble or RUB) is the national currency of the Russian Federation

and is used by the Group as its functional currency and the currency in which these consolidated financial

statements are presented. All financial information presented in RUB has been rounded to the nearest million.

d) Use of professional judgements and estimates

The preparation of consolidated financial statements in conformity with IFRS requires management to make

a number of professional judgements, estimates and assumptions that affect the application of accounting

policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from

these estimates

The management constantly reviews assumptions and estimates based on previous experience and other

factors that affect the application of accounting policies and the reported amounts of assets and liabilities.

Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any

future periods affected by these changes.

The professional judgements and assumptions that have the most significant effect on the amounts recognised

in these consolidated financial statements and estimates that can cause a significant adjustment to the carrying

amount of assets and liabilities within the next financial year include:

Impairment of fixed and right-of-use assets

At each reporting date management assesses whether there is any indication of impairment in respect of

property, plant and equipment and right-of-use assets. Such indication includes a change in business plans,

tariffs and other factors leading to unfavorable impact on the Group’s business.

When measuring value in use, management assesses estimated cash flows from assets or groups of assets

(cash generating units) and calculates an acceptable discount rate for the present value of these cash flows.

For more detailed information see note 15 “Property, plant and equipment” and 17 “Right – of – use assets”

Impairment of accounts receivable

Allowance for expected credit losses of accounts receivable is based on management assumption of debt

recovery made for each debtor individually. For the purposes of assessing credit losses, the Group

consistently takes into account all reasonable and verifiable information on past events, current and projected

events that is available without excessive effort and is appropriate for the assessment of receivables.

Experience gained in the past is adjusted on the basis of data available to date to reflect current conditions

that had no impact on previous periods and to exclude the impact of conditions that have occurred in the past

and no longer exist.



16

Pension obligations

The costs of the defined benefit pension plan and its related costs are determined using actuarial valuations.

Actuarial valuations involve making demographic and financial data assumptions. As the programme is the

long-term one there is considerable uncertainty about such estimates.

Deferred tax assets recognition

At each reporting date, management assesses the amount of deferred tax assets to be recognized to the extent

that tax deductions are likely to be used. In determining future taxable profit and deductions, management

makes estimates and judgments based on the taxable profit of previous years and expectations for future

profits that are reasonable in the current circumstances.

e) Change in accounting policies

Starting from 1 January 2019 the Group began applying IFRS 16 Leases as described below:

IFRS 16 Leases

New IFRS 16 Leases was issued in January 2016 and replaces existing leases guidance including IAS 17

Leases and relevant leases IFRS interpretations; eliminating the classification of leases as either operating

leases or finance lease and establishes a single lessee accounting model.

An agreement is, or contains, a lease if it conveys the right to control the use of an identified asset for a period

in exchange for consideration.

Right-of-use assets are initially measured at cost and amortised to the earlier of the following: the end date

of useful lives of the right-of-use asset or the lease end date. The initial cost of the right-of-use asset includes

the amount of the initial measurement of the lease liability, lease payments made before or at the

commencement of the lease, and initial direct costs. After initial recognition, the right-of-use assets are

carried at cost less accumulated depreciation and accumulated impairment losses. Right-of-use assets are

presented in the Сonsolidated Statement of financial position as a separate line item.

The lease liability is initially measured at the present value of the lease payments that are not paid on inception

of the lease and subsequently measured at amortized cost in the form of interest in the finance costs line in

the consolidated statement of profit or loss and other comprehensive income. Lease liabilities are presented

in the Сonsolidated Statement of financial position under Current and Non-current Borrowings lines.

Regarding a separate lease agreement, the decision may be made on the qualification of the agreement as a

lease with the low cost of an asset. Lease payments under such an agreement will be recognized as an expense

on a straight-line basis over the lease term.

The Group defines the lease term as a non-early termination period during which the Group has the right to

use the underlying assets, together with:

periods in respect of which the option to extend the lease applies, if there is sufficient certainty that

the Group will exercise this option; and

periods in respect of which an option to terminate the lease applies, if there is sufficient certainty that

the Group will not exercise this option.



17

When determining the lease term the Group considers the following factors:

whether the leased facility is specialized;

the location of the facility;

the Group and the lessor have the practical ability to choose an alternative counterparty (choose an

alternative asset);

costs associated with the termination of the lease and the conclusion of a new (replacement) contract;

the presence of significant improvements to the leased facilities.

The main objects of the Group’s lease are electric grid facilities (electricity transmission grids, equipment

for electricity transmission, other) and land plots. The Group also leases non-residential real estate and

vehicles.

For leases of land plots under electric grid facilities with an indefinite period of time or with a contract term

of not more than 1 year with the possibility of annual renewal, the Group determines the term of the contract

using the useful life of fixed assets located on leased land plots as basic criteria.

For leases of electric grid facilities with an indefinite term or with a contract term of not more than 1 year

with the possibility of annual renewal, the Group determines the term of the contract using the useful life of

its own fixed assets with similar technical characteristics as basic criteria.

The Group adopted a modified retrospective method to reflect the cumulative effect of the initial application

of the standard as at the date of transition – 1 January 2019. The weighted average rate of additional

borrowings applied to lease liabilities recognized in the Statement of financial position at the date of initial

application was 9.42%.

The Group also applied practical simplifications, in particular - did not apply the new standard to lease

agreements that expire within twelve months from the date of transition.

As at 1 January 2019 the date of initial application of IFRS 16 Leases, the effect on the Groups assets,

liabilities and the capital is the following:

1 January 2019

Assets

Property, plant and equipment (2,302)

Right-of-use assets 34,025

Impairment loss of right-of-use assets (437)

Deferred tax assets 2

Advances given and other current assets (273)

Liabilities

Long-term lease liabilities (within non-current borrowings) 29,380

Short-term lease liabilities (within current borrowings) 2,502

Trade and other payables (432)

Retained earnings (435)



18

Below is the reconciliation between contractual operating lease liabilities performed under IAS 17 Leases as

at 31 December 2018 and lease liabilities recognized in the Statement of financial position as at

1 January 2019 under IFRS 16 Leases.

1 January 2019

Operating lease liabilities as at 31 December 2018 64,545

Other operating lease liabilities 19,728

Options for renewal /termination of leases for which there is sufficient certainty 12,709

Exemption for the recognition of short-term leases (670)

Discounting effect (63,749)

Finance lease liabilities as at 31 December 2018 1,952

Other (681)

Lease liabilities as at 1 January 2019 33,834

f) Changes in presentation

Reclassification of comparative data

In the reporting period the Group changed the presentation of certain amounts in order to provide more

accurate presentation of information about its nature in the consolidated statement of financial position and

consolidated statement of profit or loss and other comprehensive income. To provide comparability the

previous reporting period data have been reclassified:

Accrual (reversal) of allowance for expected credit losses previously disclosed in Note 11 “Operating

expenses” is disclosed as a separate line in the Consolidated Statement of profit or loss and other

Comprehensive Income,

Net accrual (reversal) of impairment of property, plant and equipment previously disclosed in Note

11 “Operating expenses” is disclosed as a separate line in the Consolidated Statement of profit or

loss and other comprehensive income,

Other income and other expenses previously disclosed in Note 10 “Other income and other

expenses” is disclosed as a separate line in the Consolidated Statement of profit or loss and other

comprehensive income,

Advances given and other non-financial assets previously disclosed in Note 21 “Trade and other

receivables” are presented as separate lines “Advances given and other current assets” and

“Advances given and other non-current assets” in the Consolidated Statement of financial position;

Non-current and current advances received (contract liability) previously disclosed in Note 29

“Trade and other payables” are disclosed in separate lines in the Consolidated Statement of financial

position;

Taxes payable, other than income tax, previously disclosed in Note 29 “Trade and other payables”

are disclosed in a separate line in the Consolidated Statement of financial position;

g) Application of new and amended standards and interpretations

Except for the changes in accounting policies described in section 2e the following new amendments and

interpretations that are effective as at 1 January 2019 have no impact on these consolidated financial

statements:

IFRIC 23 Uncertainty over Income Tax Treatments;

Amendments to IFRS 9 Prepayment Features with Negative Compensation;

Amendments to IFRS 3 Business Combinations;

Amendments to IFRS 11 Joint Arrangements;



19

Amendments to IAS 12 Income Taxes – Income Tax Consequences of Payments on

Instruments Classified as Equity;

Amendments to IAS 23 Borrowing Costs;

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures;

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement.

A number of new Standards, amendments to Standards and Interpretations were published and are mandatory

for the annual periods beginning on or after 1 January 2020, and which the Group has not early adopted:

Amendments to IAS 1 and IAS 8 Definition of Material

These amendments specify the definition of “material” and its application by including recommendations on

the definition that were previously presented in other IFRSs and align the definition across the Standards.

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence

decisions that the primary users of general purpose financial statements make on the basis of those financial

statements, which provide financial information about a specific reporting entity.

The Conceptual Framework for Financial Reporting

The revised Conceptual Framework for Financial Reporting contains a new Chapter on measurement,

recommendations for reporting financial results, new definitions and recommendations (in particular –

definition of “liabilities”) and explanations on specific issues such as the role of management, prudence, and

measurement uncertainty in the preparation of financial statements.

Amendments to IAS 3 Definition of a Business

These amendments specify the definition of “business” and are to help entities determine whether an acquired

set of activities and assets is a business or not.

Amendments to IAS 1 Classification of liabilities as current and non-current

The amendments specify the requirements for classifying liabilities as current and non-current (depending

on the rights that exist at the end of the reporting period).

IFRS 17 Insurance Contract, Amendments to IFRS 9, IAS 39 и IFRS 7 Interest Rate

Benchmark Report - are not applicable to the Group.

The Group plans to adopt these pronouncements when they become effective; they are not expected to have

a significant impact on the Group’s Consolidated Financial Statements.

3 Significant accounting policies

Accounting policies set out below have been applied consistently to all periods presented in these

consolidated financial statements except for changes in the accounting policy described in notes 2e and

related to adoption of from 1 January 2019 IFRS 16 Leases and reclassification of comparative data disclosed

in note 2f.

a) Basis of consolidation

i. Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has

the rights to, variable returns from its involvement with the entity and has the ability to affect those returns

through its power over the entity. The financial statements of subsidiaries are included in the consolidated

financial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed when necessary to align them with the policies

adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to non-

controlling interests, even if doing so causes the non-controlling interests to have a debit balance (“deficit”)

on the account.



20

ii. Business combination

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the

date on which the Group obtains control of the acquiree.

The Group measures goodwill at the acquisition date as:

The fair value of the consideration transferred: plus

The recognized amount of any non-controlling interests in the acquiree; plus

The fair value of the pre-existing equity interest in the acquiree if the business combination is

achieved in stages; less

The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities

assumed.

When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss for the period.

Transaction costs that the Group incurs in connection with a business combination, other than those

associated with the issue of debt or equity securities, are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent

consideration is classified as equity, it is not remeasured and settlement is accounted for within equity.

Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or

loss for the period.

iii. Accounting for acquisitions of non-controlling interests

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as

owners, and therefore no goodwill is recognized as a result. Adjustments to non-controlling interests are

based on a proportionate amount of the net assets of the subsidiary.

iv. Acquisition from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the

shareholder that controls the Group are accounted for by the method the predecessor. The acquired assets

and liabilities are recognized at the carrying amounts recognized previously in the consolidated financial

statements of the acquired entities. Any cash or other contribution paid for the acquisition is recognized

directly in equity.

v. Investments in associates (equity accounted investees)

Associates are such entities in which the Group has significant influence, but not control, over the financial

and operating policies.

Investments in associates are accounted for using the equity method and are recognized initially at cost. The

cost of the investment also includes transaction costs.

The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive

income of equity accounted investees, after adjustments to align the accounting policies with those of the

Group, from the date that significant influence commences until the date that significant influence ceases.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount

of that interest (including any long-term investments) is reduced to nil and the recognition of further losses

is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the

investee.



21

vi. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group

transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from

transactions with equity accounted investees are eliminated against the investment to the extent of the

Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but

only to the extent that there is no evidence of impairment.

b) Foreign currency

Monetary assets and liabilities denominated in foreign currency at the reporting date are translated to rubles

at the exchange rate at that date. Foreign currency transactions accounted for at the exchange rates prevailing

at the date of the transactions. Foreign currency profit or loss arising from retranslation is recognised in profit

or loss.

c) Financial instruments

i. Financial assets

The Group classified financial assets as follows: financial assets measured at amortised cost, financial assets

measured at fair value through other comprehensive income, financial assets measured at fair value through

profit or loss

The classification depends on the business model for managing financial assets and the contractual

characteristics of cash flows.

Financial assets are classified as measured at amortised cost if the following conditions are met: the asset is

held under a business model that aims to hold assets to receive contractual cash flows, and at the end of the

contract, cash flows are received on the specified dates that are solely payments to the principal amount and

interest on the outstanding portion of the principal amount.

The Group includes the following financial assets in the category of financial assets measured at amortised

cost:

trade and other receivables that meet the definition of financial assets in case the Group does not

intend to sell them immediately or in the nearest future;

bank deposits, that do not meet the criteria of cash equivalents;

promissory notes and bonds not held for trading;

loans given;

cash and cash equivalents.

For financial assets classified as measured at amortised cost, an allowance for expected credit losses

(hereinafter – ECL) is made.

When financial assets measured at amortised cost and fair value through profit or loss are derecognized, the

Group recognizes the financial result of their disposal equal to the difference between the fair value of the

consideration received and the carrying amount of the asset in the Consolidated Statement of profit or loss

and other comprehensive income (through profit or loss) .

The Group treated the following equity instruments of other companies as financial assets measured at fair

value through other comprehensive income:

those that are not classified as measured at fair value with any change therein recognised in profit or

loss; and

those that do not provide the Group with control, joint control, or significant influence over the

company under investment.

When equity instruments of other companies classified at the Group's discretion as measured at fair value

through other comprehensive income are derecognized, the previously recognized components of other

comprehensive income are transferred from the provision of fair value change to retained earnings.



22

ii. Impairment of financial assets

Loss allowances are measured on either of the following bases: 12-month ECLs that result from possible

default events within the 12 months after the reporting date; and lifetime ECLs that result from all possible

default events over the expected life of a financial instrument.

The Group uses a simplified approach to estimating an allowance for expected credit losses – an estimate of

an amount equal to the expected credit losses for the entire term of trade receivables or contractual assets that

arise as a result of transactions within the scope of IFRS 15 Revenue from Contracts with Customers

(including those containing a significant financing component) and lease receivables.

For other financial assets classified as at amortised cost loss allowances are measured as 12-month ECLs

unless there has been a significant increase in credit risk since initial recognition.

The estimated allowance for expected credit losses on a financial instrument is estimated at each reporting

date at the amount equal to the expected credit losses for the entire period if the credit risk for the financial

instrument has increased significantly since initial recognition, taking into account all reasonable and

verifiable information, including forward-looking information.

As indicators of significant deterioration in credit risk the Group considers the actual or anticipated

difficulties of the Issuer or of a debtor's asset, the actual or expected breach of a contract, the expected

renegotiation of the contract due to financial difficulties of the debtor at a disadvantage for the Group the

terms on which it would disagree in other circumstances.

Based on the usual credit risk management practice, the Group defines default as the inability of the

counterparty (Issuer) to meet its obligations (including repayment of funds under the agreement) due to a

significant deterioration in its financial position.

A credit impairment loss on a financial asset is accounted by recognizing an estimated allowance for

impairment. For a financial asset measured at amortised cost, the amount of the impairment loss is calculated

as the difference between the asset's carrying amount and the present value of expected future cash flows

discounted at the initial effective interest rate.

If, in subsequent periods, the credit risk of a financial asset decreases as a result of an event occurring after

the recognition of this loss, the previously recognized impairment loss is reversed by reducing the

corresponding valuation allowance. As a result of the recovery, the carrying amount of the asset should not

exceed the amount at which it would have been recorded in the statement of financial position if the

impairment loss had not been recognized.

iii. Financial liabilities

The Group classifies financial liabilities into the following measurement categories: financial liabilities

measured at fair value through profit or loss; and financial liabilities measured at amortised cost.

The Group includes the following financial liabilities in the category of financial liabilities measured at

amortised cost:

loans and borrowing (debt)

trade and other payables

Loans and borrowing are initially recognized at fair value taking into account transaction costs that are

directly related to raising these funds. Fair value is determined based on prevailing market interest rates for

similar instruments if it differs significantly from the transaction price. In subsequent periods borrowings

are carried at amortised cost using the effective interest rate method; any difference between the fair value

of funds received (net of transaction costs) and the amount due is recorded in profit or loss as interest expense

over the entire period of the liability to repay the borrowed funds.

Borrowing costs are charged in the reporting period in which they were incurred if they were not related to

the acquisition or construction of qualified assets. Borrowing costs related to the acquisition or construction

of assets that take a significant amount of time to prepare for use (qualifying assets) are capitalized as part of

the asset's value.



23

Capitalization is performed when the Group:

bears the costs of qualified assets,

bears borrowing costs and

conducts activities related to preparing assets for use or sale.

Capitalization of borrowing costs continues until the asset is ready for use or sale. The Group capitalizes

borrowing costs that could have been avoided if it had not incurred the costs of qualifying assets. Borrowing

costs are capitalized on the basis of the Group's average cost of financing (weighted average interest expense

related to expenses incurred on qualifying assets), except for loans that were received directly for the purpose

of acquiring a qualifying asset. Actual borrowing costs reduced by the amount of investment income from

temporary investment of loans are capitalized.

Accounts payable are accrued starting the moment the counterparty fulfills its obligations under the

agreement. Accounts payable are recognized at fair value and subsequently accounted at amortised cost using

the effective interest rate method.

d) Share capital

Ordinary shares and non-redeemable preference shares are both classified as equity.

e) Property, plant and equipment

i. Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment

losses. The deemed cost of property, plant and equipment as at 1 January 2007, the date of transition to IFRS,

was determined by using its fair value at that date.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-

constructed (built) assets includes the cost of materials and direct labour, any other costs directly attributable

to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing

the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software

that is integral to the functionality of the related equipment is capitalized as part of that equipment.

If significant parts of an item of property, plant and equipment have different useful lives, they are accounted

as separate items (major components) of property, plant and equipment.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the

proceeds from disposal with the carrying amount of property, plant and equipment, and is recognized net

within “Other expense” line within profit or loss for the period.

ii. Subsequent cost

The cost of replacing part (major component) of an item of property, plant and equipment is recognized in

the carrying amount of the item if it is probable that the future economic benefits embodied within the part

will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is

derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in the

statement of consolidated profit or loss and other comprehensive income as incurred.

iii. Depreciation

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part

of an item of property, plant and equipment, since this most closely reflects the expected pattern of

consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the

shorter of the lease term and their useful lives. Land is not depreciated.



24

The estimated useful lives for the current and comparative periods are as follows:

Buildings 7–50 years;

Electricity transmission grids 5–40 years;

Equipment for electricity transmission 5–40 years;

Other assets 1–50 years.

Estimated useful lives and residual values of property, plant and equipment are reviewed at each reporting

date and adjusted if appropriate.

f) Intangible assets

i. Goodwill

Goodwill (negative goodwill) arises on the acquisition of subsidiaries, associates, and joint ventures. For the

measurement of goodwill at initial recognition, see Note 3(a)(ii).

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses. With respect to associates, the carrying

amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an

investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the

equity-accounted investee.

ii. Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost

less accumulated amortization and accumulated impairment losses.

iii. Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the

specific asset to which it relates. All other expenditure is recognized in the consolidated statement of profit

or loss and other comprehensive income as incurred.

iv. Amortisation

Amortisation expense on intangible assets, other than goodwill is recognized in profit or loss on a straight-

line basis over the estimated useful lives of intangible assets from the date that they are available for use,

since this most closely reflects the expected pattern of consumption of future economic benefits embodied in

the asset. The estimated useful lives of intangible assets for the current and comparative periods are as

follows:

Licenses and certificates 1–10 years;

Software 1–15 years.

Amortization methods, useful lives and residual values are reviewed at each financial year end and adjusted

if appropriate.

g) Impairment of non-financial assets

The carrying amount of the Group's non-financial assets, other than inventories and deferred tax assets, is

reviewed at each reporting date to determine whether there is any indication of impairment. If any such

indication exists, the recoverable amount of the relevant asset is estimated.

For goodwill the recoverable amount is estimated at each reporting date. An impairment loss is recognised if

the carrying amount of an asset or its related cash generating unit (CGU) exceeds its estimated (recoverable)

amount. The recoverable amount of an asset or cash generating unit is the greater of its two values: the value

in use of this asset (this unit) and its fair value less costs to sell.

For the purpose of an impairment test, assets that cannot be individually tested are grouped into the smallest

group of assets that generates cash inflows from continuing use of the relevant assets that are largely

dependent on the cash inflows of other assets or groups of assets (“cash generating unit”).



25

For the purposes of impairment test, the goodwill acquired in a business combination allocated to cash

generating units which it relates to.

The corporate assets of the Group do not generate separate cash flows and are used by more than one cash

generating unit. The cost of a corporate asset is allocated to CGUs on a reasonable and consistent basis, and

it is tested for impairment as part of testing the unit to which it was allocated.

Impairment losses are recognized in profit or loss. Impairment losses on cash generating units are initially

allocated to reduce the carrying amount of goodwill allocated to these units, and then proportionally to reduce

the carrying amount of other assets in the unit (group of units).

Amounts written off as a goodwill impairment loss are not recoverable. For other assets at each reporting

date, an impairment loss recognized in one of the previous periods is assessed for any indication that the loss

has decreased or no longer exists.

Amounts written off for impairment losses are reversed if the valuation factors used in determining the

relevant recoverable amount change.

An impairment loss is reversed only to the extent that it is possible to restore the value of assets to their book

value, in which they would be reflected (less accumulated depreciation amounts), if no impairment loss had

been recognized.

h) Inventories

Inventories are measured at the lower of cost or net realizable value. The cost of inventories is determined

on the weighted average cost method, and includes expenditure incurred in acquiring the inventories,

production or conversion costs and other costs incurred in bringing them to their existing location and

condition.

Net realizable value is the estimated selling price in the ordinary course of business of the Group, less the

estimated costs of completion and selling expenses.

i) Advances given

Advances given are classified as non-current if they are connected with the acquisition of an asset which will

be classified as non-current upon initial recognition. Advances given for the acquisition of an asset are

included in its carrying amount upon the acquisition of control over the asset, and when it is probable that

the Group will obtain economic benefit from its usage.

j) Value-added tax

Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of

receivables from customers or (b) delivery of goods or services to customers Input VAT is generally

recoverable against output VAT upon receipt of the VAT invoice. As part of advances given and other assets

are recognised (on a net basis) the amounts of VAT accrued from advances received and advances given, as

well as VAT recoverable and prepayment for VAT. Amounts of VAT payable to the budget are disclosed

separately as part of current liabilities. Where allowance for the expected credit losses has been made for

receivables, the allowance loss is recorded for the gross amount of the debtor, including VAT.

k) Employee benefits

i. Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions

into a separate (independent) entity and will have no further (legal or constructive) obligation to pay further

amounts. Obligations for contributions to defined contribution pension plans, including Russia’s State

Pension Fund, are recognized as an employee benefit expense in profit or loss in the periods during which

services are rendered by employees. Prepaid contributions are recognized as an asset to the extent that a cash

refund or a reduction in future payments is available.



26

ii. Defined benefit plans

A defined benefit plan is a post-employment benefit plan differing from a defined contribution plan. The

liability recognised in consolidated statement of financial position in respect of defined benefit plans is the

discounted amount of the liability at the reporting date.

The discount rate is the yield at the reporting date on government bonds that have maturity dates

approximating the terms of the Group’s obligations and that are denominated in the same currency in which

the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the

projected unit credit method.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses and the effect

of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income.

The Group determines the net interest expense on the net defined benefit liability for the period by applying

the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the

then-net defined benefit liability, taking into account any changes in the net defined benefit liability during

the period as a result of contributions and benefit payments. Net interest expense and other expenses related

to defined benefit plans are recognized in profit or loss. Actuarial gains and losses on changes in actuarial

assumptions are recognized in other comprehensive income/expense.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates

to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group

recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

iii. Other non-current employee benefits

The Group’s net obligation with respect to long-term employee benefits other than pension plans is the

amount of future benefit that employees have earned in return for their service in the current and prior periods.

That benefit is discounted to determine its present value. The discount rate is the yield at the reporting date

on government bonds that have maturity dates approximating the terms of the Group’s obligations and that

are denominated in the same currency in which the benefits are expected to be paid. The calculation is

performed using the projected unit credit method. Remeasurements are recognized in profit or loss in the

period in which they arise.

iv. Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the

related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing

plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service

provided by the employee, and the obligation can be estimated reliably and it is highly probable that there

will be an outflow of economic benefits.

l) Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation

that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to

settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax

rate that reflects current market assessments of the time value of money and the risks specific to the liability.

The unwinding of the discount is recognized as finance cost.

m) Revenue from Contacts with Customers

The Group recognizes revenue when (or as) it satisfies a performance obligation by transferring a promised

good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control

of that asset.

When (or as) a performance obligation is satisfied, the Group recognizes as revenue the amount which the

Group expects to be entitled in exchange for transferring promised assets to a customer excluding VAT.



27

Electricity transmission service, sale of electricity and power

The Group transfers control of a service or good over period and, therefore, satisfies a performance obligation

period (billing month). For measuring progress towards complete satisfaction of a performance obligation

the output method is used (cost of transferred and sold electricity and power volumes).

The tariffs for the distribution of electricity (in respect to all constituent entities of the Russian Federation)

and sale of electricity on the regulated market (in respect of constituent entities of the Russian Federation,

not united in the price zones of the wholesale electricity market) are approved by the executive authorities of

constituent entities of the Russian Federation (hereinafter - regional regulatory authority) in the sphere of the

state energy tariff regulation within the range of cap and (or) floor tariffs approved by the Federal

Antimonopoly Service of the Russian Federation.

Services for technological connection to electric grids

Revenue from the services for technological connection to the electric grid is a non-refundable fee for

connecting consumers to the electric grids. The Group transfers control of a service at a point in time (after

the consumer is connected to the electric grid) and, therefore, satisfies a performance at a point in time.

Payment for technological connection for an individual project, the standardized tariff rates, the rates per unit

of maximum capacity and fee’s formula for the technical connection are approved by the regional energy

commission (the department of prices and tariffs of the corresponding region) and do not depend on the

proceeds from the provision of electricity transmission services.

Payment for technological connection to the unified national electric network is approved by the Federal

Antimonopoly Service.

The Group made judgment that connection service is a separate performance obligation that is recognised

when the respective services are provided. The customer obtains distinct connection service and there are no

any other obligations beyond the connection services agreement. Practically and in accordance with the law

on electricity market, connection services and electricity transmission agreements are negotiated separately

with different customers as different packages and with different commercial objectives with no relation in

the contracts in pricing, purpose, acceptance, or type of service.

Other revenue

Revenue from installation, repair and maintenance services and other sales is recognized when the customer

obtains control over the asset.

Trade receivables

The accounts receivables represent the Group's right to compensation, which is unconditional (i.e., the

moment when such compensation becomes payable is due only to the passage of time).

Contract liabilities

A contract liability is an obligation to transfer goods or services to a customer for which the Group has

received consideration (or an amount of consideration is due) from the customer. If a customer pays

consideration before the Group transfers goods or services to the customer, a contract liability is recognised

when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as

revenue when the Group performs under the contract. Contract liabilities are recognized within “Advances

received” including value-added-tax (VAT)

Advances received from buyers and customers are analyzed by the Group for the presence of a financial

component. If there is a gap of time of more than 1 year between the receipt of advances from customers and

transfer of the promised goods and services for reasons other than providing financing to the counterparty

(under contracts for technological connection to electric grids), received advances are not recognized interest

expense. Such advances are recorded at the fair value of assets received by the Group from buyers and

customers in advance.



28

n) Government grants

Government grants are recognized where there is reasonable assurance that the grant will be received and all

the attached conditions will be complied with. When the grant relates to an expense item, it is recognized as

income on a systematic basis over the periods that the related costs, for which it is intended to compensate,

are expensed. When the grant relates to an asset, it is recognized as income, less the related expenses, in

equal amounts over the expected useful life of the related asset.

Government grants that compensate the Group for low electricity tariffs (lost income) are recognized in the

Consolidated Statement of profit or loss and other comprehensive income (among other income line) in the

same periods in which the respective revenue is earned.

o) Social expenditures

To the extent that the Group’s contributions to social programs benefit the community at large without

creating constructive obligations to provide such benefit in the future and are not restricted to the Group’s

employees, they are recognized in the income statements as incurred. Group costs related to the financing of

social programs, without making a commitment with respect to such financing in the future date are

recognized in the Consolidated Statement of profit or loss and other comprehensive income as they arise.

p) Finance income and cost

Finance income comprises of interest income on funds invested, dividend income, gains on the disposal of

financial assets measured at fair value and amortised cost, discounts on financial instruments. Interest income

is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is

recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs are comprised of interest expense on borrowings, lease liabilities, and loss on disposal of

financial assets measured at fair value or amortised cost, discounts on financial instruments. Borrowing costs

that are not directly attributable to the acquisition, construction or production of a qualifying asset are

recognized in profit or loss using the effective interest rate method.

q) Income tax expense

Income tax expense is comprised of current and deferred tax. It is recognized in profit or loss, except to the

extent that it relates to a business combination, or items recognized in other comprehensive income or directly

in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax

rates enacted or substantively enacted at the reporting date, and any adjustment to income tax payable with

respect to previous years.

Deferred tax is recognized with respect to temporary differences between the carrying amounts of assets and

liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not

recognized for:

temporary differences on the initial recognition of assets and liabilities in a transaction that is not a

business combination and that affects neither accounting nor taxable profit or loss,

temporary differences relating to investments in subsidiaries and associates to the extent that the

Group is able to control the timing of the reversal of the temporary differences and it is probable

that they will not reverse in the foreseeable future; and

taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the

Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and

liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when

they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain

tax positions and whether additional taxes, penalties and late-payment interest may be due. The Group

accrues tax liabilities based on its assessment of many factors, including interpretations of tax law and prior



29

experience. This assessment relies on estimates and assumptions, and may involve a series of judgments

about future events. New information may become available that causes the Group to change its judgment

regarding the adequacy of existing tax liabilities for prior periods; such changes to tax liabilities will impact

the tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets

and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or

on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax

assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to

the extent that it is probable that future taxable profits will be available against which temporary difference

can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is

no longer probable that the related tax benefit will be realized.

r) Earnings per share

To calculate basic earnings per share, profit or loss is distributed between ordinary shares and preferred

shares in proportion to each instrument's share of profit or loss, assuming that all profit (or loss) for the

reporting period has been distributed. The total profit or loss attributable to each of the two classes of equity

instruments (ordinary shares and preferred shares) is determined by adding together the amount attributable

to dividends and the amounts attributable to profit sharing. The total profit or loss thus determined is divided

by the number of outstanding shares to which this profit is attributable.

4 Measurement of fair values

A number of the Group’s accounting policies and disclosures require the measurement of fair value for both

financial and non-financial assets and liabilities.

When measuring the fair value of an asset or liability, the Group uses observable market data as much as

possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in

the valuation techniques as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices);

Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels

of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of

the fair value hierarchy as the lowest level of the input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy during the reporting period when

the change has occurred.

The Group considers the point of time when transfers between and for certain levels are recognised when an

event or change in circumstances occurs



30

5 Significant subsidiaries

Ownership/voting, %

Country of

incorporation 31 December 2019 31 December 2018

PJSC “FGC UES” Russian Federation 80.14 80.14

PJSC “MOESK” Russian Federation 50.90 50.90

JSC “ROSSETI Tyumen” Russian Federation 100.00 100.00

PJSC “Lenenergo” Russian Federation 68.10/69.17 68.10/69.17

PJSC “IDGC of Centre” Russian Federation 50.23 50.23

JSC “IDGC of Urals” Russian Federation 51.52 51.52

PJSC “IDGC of Centre and Volga

region” Russian Federation 50.40 50.40

PJSC “Kubanenergo” Russian Federation 93.44 92.78

PJSC “IDGC of Siberia” Russian Federation 57.84/55.59 57.84/55.59

PJSC “IDGC of Volga” Russian Federation 67.97 67.97

PJSC “IDGC of North-West” Russian Federation 55.38 55.38

PJSC “ROSSETI Northern Caucasus” Russian Federation 98.77 98.71

JSC “Chechenenergo”* Russian Federation 73.65 71.73

PJSC “ROSSETI South”* Russian Federation 84.12 65.12

PJSC “TDC” Russian Federation 85.77/94.58 85.77/94.58

JSC “Yantarenergo” Russian Federation 100.00 100.00

JSC “Karachaevo-Cherkesskenergo” Russian Federation 100.00 100.00

JSC “Kalmenergosbyt” Russian Federation 100.00 100.00

JSC “Kabbalkenergo” Russian Federation 65.27 65.27

JSC “Tyvaenergosbyt” Russian Federation 100.00 100.00

JSC “Sevkavkazenergo” Russian Federation 55.94 55.94

PJSC “Dagestan Power Sales Company” Russian Federation 51.00 51.00

*The share includes actually placed shares of the current issue



31

6 Acquisition of subsidiaries

As part of the implementation of the Development Strategy for the electric grid complex of the Russian

Federation, approved by order of the Government of the Russian Federation dated 3 April 2013 No. 511-r,

in order to reduce the number of existing TSS, the Group acquired:

By the subsidiary of PJSC “ROSSETI South”:

on 20 June 2019 – 100% share of JSC «Volgogradskie mejrajonnie elektricheskie seti” (hereinafter

– JSC “VMES”) in cash consideration of RUB 2,700 million, based on the results of participation in

an open tender for the sale of shares of JSC “VMES”.

on 17 May 2019 – 100% share in LLC “UgStroyMontaj” in exchange for RUB 159 million of

accounts receivable. The main activity of LLC “UgStroyMontaj” is electricity transmission and

technological connection to distribution grids, electrical installation works.

By the subsidiary of PJSC “IDGC of Centre”:

on 20 November 2019 – 100% of shares in the Сharter capital of JSC Voronezh City Electric Grids

(hereinafter referred to as JSC “VGES”) in cash consideration of RUB 1,534 million following as a

result of participation in an open tender for the sale of shares of JSC “VGES”. The title to the shares

of JSC “VGES” was postponed until the Group fulfills the tender conditions, however, the Group

gains control over the acquired company from the date of election of the board of directors of JSC

“VGES” consisting of representatives of the Group. The date of election of the board of directors is

20 November 2019.

on 30 December 2019 – 69.9992% of shares in the Charter capital of Tula City Electric Grids JSC

(hereinafter referred to as JSC “TGES”). The purchase price of JSC “TGES” was determined as RUB

903,003 thousand, while RUB 903,000 thousand paid by transferring property rights - rights of claim

on receivables, RUB 3,00 thousand in cash.

The Group recorded acquisitions in accordance with the requirements of IFRS 3 Business Combination.

The valuation of identifiable net assets of JSC “TGES” was not completed as of the date of signing the

consolidated financial statements of the Group. Thus, the fair value of the identifiable net assets can be

subsequently adjusted using appropriate adjustments to the acquisition income by 31 December 2020.

The table below shows the fair value of the identifiable net assets received at the acquisition date.



32

JSC

“VMES”

LLC

“UgStroyMontaj” JSC “VGES”

JSC

“TGES”

Assets

Intangible assets 18 – – 22

Property, plant and equipment 1,899 184 1,785 2,439

Right-of-use assets 1 – – –

Deferred tax assets – – 372 9

Inventories 99 5 101 28

Accounts receivable 1,156 65 510 230

Advances given and other current assets 13 2 – –

Cash and cash equivalents 170 2 117 127

Total assets 3,356 258 2,885 2,855

Liabilities

Deferred tax liabilities (19) (7) (1) (23)

Accounts payable (664) (67) (967) (141)

Advances received (62) (1) (8) (7)

Provisions (24) – – –

Borrowings (1) (4) – (449)

Current income tax liabilities (1) – – –

Total liabilities (771) (79) (976) (620)

Total identifiable net assets measured

at fair value 2,585 179 1,909 2,235

Identifiable net assets measured at fair

value in the amount of the acquired share 2,585 179 1,909 1,564

Identifiable net assets attributable to

holders of non -controlling interests – – – 671

Transferred consideration 2,700 159 1,534 903

Goodwill 115 20 – –

Gain on a bargain purchase (negative

goodwill) – – 375 661

In the consolidated statement of profit and loss and other comprehensive income, the gain on a bargain

purchase (negative goodwill) on the acquisition of JSC “VGES” and JSC “TGES” in the amount of RUB

1,036 million is recorded in other income.

Net cash outflow related to the acquisition of subsidiaries is presented in the table below

JSC

“VMES”

LLC

“UgStroyMontaj”

JSC

“VGES”

JSC

“TGES”

Total

Net cash received on the acquisition of

a subsidiary 170 2 117 127

416

Cash reward (2,700) – (1,534) – (4,234)

Net cash (outflow)/inflow (2,530) 2 (1,417) 127 (3,818)

The financial results of the acquired subsidiaries after acquisition date did not have a significant impact on

the Group’s revenue and operating results for the year ended 31 December 2019.



33

7 Non-controlling interests

The following table summarizes the information relating to each of the Group’s subsidiaries that has material non-controlling interest, before any intra-group eliminations.

As at 31 December 2019 and for the year ended 31 December 2019:

FGC MOESK Lenenergo

IDGC of

Centre

IDGC of

Urals

IDGC of Centre

and Volga region

IDGC

of Siberia Other subsidiaries Total

Non-controlling percentage 19.86 49.10 31.90 49.77 48.48 49.60 42.16

Non-current assets 1,163,752 324,558 199,230 100,447 76,133 80,865 61,818

Current assets 125,539 24,575 15,265 17,946 12,492 28,484 14,048

Assets held for sale 313 – – – – – –

Non-current liabilities (286,068) (102,456) (30,388) (47,687) (25,709) (26,104) (32,339)

Current liabilities (102,069) (70,648) (45,704) (24,621) (17,307) (28,346) (25,356)

Net assets 901,467 176,029 138,403 46,085 45,609 54,899 18,171

Carrying amount of non-controlling interest 179,874 86,436 42,419 23,443 22,479 27,239 7,670 4,536 394,096

Revenue 249,671 161,463 82,665 94,642 106,149 96,534 59,118

Profit 84,713 8,550 9,211 3,092 2,638 6,906 463

Other comprehensive income/(loss) 7,383 (669) (151) (865) (455) 2 (108)

Total comprehensive income 92,096 7,881 9,060 2,227 2,183 6 908 355

Profit/(loss) allocated to non-controlling interest 16,828 4,198 2,938 1,539 1,279 3,425 195 (1,883) 28,519

Other comprehensive income/(loss) allocated to

non-controlling interest 1,467 (328) (48) (430) (207) 1 (46) (197) 212

Cash flows from operating activities 136,234 27,856 33,543 11,946 8,448 10,619 6,784

Cash flows used in investing activities (79,069) (27,176) (23,476) (13,069) (9,641) (12,719) (10,493)

Cash flows from/(used in) financing activities: (57,706) (5,782) (8,123) 1,854 1,309 (2,516) 3,910

including dividends to non-controlling

shareholders (3,868) (1,401) (878) (442) (148) (2,245) (42)

Net increase/ (decrease) in cash and cash

equivalents (541) (5,102) 1,944 731 116 (4,616) 201



34


FGC MOESK Lenenergo

IDGC of

Centre

IDGC of

Urals

IDGC of Centre

and Volga region

IDGC

of Siberia Other subsidiaries Total

Non-controlling percentage 19.86 49.10 31.90 49.77 48.48 49.60 42.16

Non-current assets 1,062,120 313,161 191,208 91,969 65,535 75,142 53,838

Current assets 133,101 26,957 15,390 16,155 14,455 28,180 14,709

Assets held for sale 21,467 – – – – – –

Non-current liabilities (280,791) (98,119) (42,490) (36,865) (14,193) (23,100) (25,485)

Current liabilities (95,104) (68,943) (33,426) (26,407) (21,934) (25,810) (25,209)

Net assets 840,793 173,056 130,682 44,852 43,863 54,412 17,853

Carrying amount of non-controlling interest 167,605 84,962 40,381 22,459 21,624 26,994 7,524 6,413 377,962

Revenue 254,463 159,485 77,990 93,834 100,303 94,213 57,051

Profit 93,588 6,257 13,145 2,938 602 11,759 1,182

Other comprehensive income/(loss) 8,332 169 (289) 120 459 366 (20)

Total comprehensive income 101,920 6,426 12,856 3,058 1,061 12,125 1,162

Profit/(loss) allocated to non-controlling interest 18,591 3,072 4,193 1,462 292 5,832 498 (247) 33,693

Other comprehensive income/(loss) allocated to

non-controlling interest 1,655 83 (8) 60 226 183 (9) (3) 2,187

Cash flows from operating activities 124,070 27,801 23,298 14,437 6,486 20,057 9,176

Cash flows used in investing activities (84,639) (24,927) (15,539) (13,017) (7,495) (12,972) (12,456)

Cash flows from/(used in) financing activities: (44,348) 3,498 (4,824) (1,995) 1,685 (4,228) 2,427

- including dividends to non-controlling

shareholders (3,569) (752) (1,188) (427) (917) (2,211) (150)

Net increase/ (decrease) in cash and cash

equivalents (4,917) 6,372 2,935 (575) 676 2,857 (853)



35

8 Segment information

The Group has identified fourteen reportable segments, as described below, which are the Group’s strategic

business units. Each strategic business unit offers electricity transmission services, including technological

connection services, in a separate geographical region of the Russian Federation and is managed separately.

The “other” segment includes several operating segments such as electricity sales, rent services and repair

services. Unallocated items are comprised mainly of assets and account balances related to the Company’s

headquarters.

The Management Board of the Company assesses the performance, assets and liabilities of operating

segments based on internal management reporting, which is based on the information reported in RAS.

Performance of each reportable segment is measured based on earnings or loss before interest expense,

income tax and depreciation and amortization (EBITDA). Management believes that EBITDA is the most

relevant measurement for evaluating the results of the Group’s operating segments.

The reconciliation of reportable segment measurements with similar items in these consolidated financial

statements includes those reclassifications and adjustments that are necessary for the financial statements to

be presented in accordance with IFRS.

Information regarding reportable segments is included below.



36

a) Information about reportable segments


IDGC of

Siberia and

Tomskaya

DC

ROSSETI

Tyumen

IDGC of

Urals

IDGC of

Volga

ROSSETI

South

Kuban-

energo

ROSSETI

Northern

Caucasus

IDGC of

Centre

and Volga

IDGC of

North-West

Len-

energo

Yantar-

energo

IDGC of

Centre MOESK FGC Other Total

Revenue from external

customers 64,608 63,372 86,668 62,872 35,224 50,996 12,656 96,172 41,361 82,178 1,561 94,126 159,926 94,102 88,967 1,034,789

Inter-segment revenue 66 93 7,374 8 1,743 8 5,705 171 3,770 194 5,379 380 449 148,598 46,866 220,804

Segment revenue 64,674 63,465 94,042 62,880 36,967 51,004 18,361 96,343 45,131 82,372 6,940 94,506 160,375 242,700 135,833 1,255,593

Including

Electricity

transmission 58,898 60,871 70,084 62,437 34,911 46,516 14,196 94,329 42,931 75,696 5,628 90,887 148,567 223,144 14,469 1,043,564

Technological

connection services 1,224 2,273 783 266 848 4,206 531 1,062 1,298 6,242 1,140 1,542 8,754 17,235 3,021 50,425

Sales of electricity and

capacity 4,188 – 22,806 – 923 – 2,708 – – – 39 521 – – 79,230 110,415

Other revenue 302 262 152 87 265 267 356 871 646 271 80 1,528 2,813 1,130 34,573 43,603

Revenue from leases 62 59 217 90 20 15 570 81 256 163 53 28 241 1,191 4,540 7,586

Finance income 75 215 557 243 360 68 552 249 119 701 19 121 319 10,281 546 14,425

Finance costs (2,387) (347) (1,083) (120) (2,441) (1,971) (655) (1,815) (1,087) (995) (398) (3,218) (5,118) (4,914) (1,052) (27,601)

Depreciation and

amortisation 6,176 9,728 5,610 5,577 2,643 4,257 2,086 8,089 4,694 12,590 1,224 11,598 24,527 78,660 6,091 183,550

EBITDA 8,118 10,466 9,557 9,432 1,267 9,752 (9,031) 17,169 6,585 30,761 1,970 15,990 40,617 158,151 (8,272) 302,532

Segment assets 87,700 161,695 77,190 65,830 44,263 76,232 33,512 118,272 54,461 226,796 27,856 124,263 351,834 1,532,324 157,491 3,139,719

Including property,

plant and equipment

and construction in

progress 67,168 154,511 60,062 54,850 28,614 63,343 23,294 86,664 44,687 187,018 24,968 101,191 318,989 1,257,406 83,610 2,556,375

Capital expenditure 11,000 10,061 11,856 9,031 3,091 5,451 3,331 13,298 4,486 27,127 3,717 11,875 31,862 135,470 8,137 289,793

Segment liabilities 55,184 27,899 35,649 16,912 32,412 35,622 21,087 52,589 28,771 75,728 8,369 67,336 158,643 393,261 171,147 1,180,609



37


IDGC of

Siberia and

Tomskaya

DC

ROSSETI

Tyumen

IDGC of

Urals

IDGC of

Volga

ROSSETI

South

Kuban-

energo

ROSSETI

Northern

Caucasus

IDGC of

Centre

and Volga

IDGC of

North-West

Len-

energo

Yantar-

energo

IDGC of

Centre MOESK FGC Other Total

Revenue from external

customers 62,209 58,496 82,116 63,486 35,887 46,397 11,758 93,750 57,564 76,156 3,205 93,640 156,395 94,632 92,064 1,027,755

Inter-segment revenue 92 111 7,509 106 507 4 5,282 126 3,559 293 4,947 234 99 145,662 49,726 218,257

Segment revenue 62,301 58,607 89,625 63,592 36,394 46,401 17,040 93,876 61,123 76,449 8,152 93,874 156,494 240,294 141,790 1,246,012

Including

Electricity

transmission 57,986 56,149 67,897 62,592 34,928 45,583 14,010 88,853 40,427 68,807 5,165 90,015 145,380 213,620 11,209 1,002,621

Technological

connection services 1,018 2,110 744 721 380 602 41 926 2,423 7,066 2,838 1,864 9,023 24,300 1,366 55,422

Sales of electricity and

capacity 2,958 – 20,538 – 847 – 1,951 3,316 17,541 – 21 530 – – 81,176 128,878

Other revenue 283 289 211 194 202 199 488 706 496 388 76 1,423 1,854 1,073 42,787 50,669

Revenue from leases 56 59 235 85 37 17 550 75 236 188 52 42 237 1,301 5,252 8,422

Finance income 116 92 544 346 48 91 321 133 57 332 50 68 229 10,562 487 13,476

Finance costs (2,016) (204) (887) (129) (2,508) (1,911) (964) (1,513) (1,105) (1,065) (270) (3,196) (5,294) (3,978) (984) (26,024)

Depreciation and

amortisation 5,550 8,709 5,303 5,341 2,673 3,978 2,081 7,330 4,611 11,778 832 11,103 23,774 78,649 6,073 177,785

EBITDA 9,184 7,375 7,315 11,353 6,670 7,169 834 21,834 6,782 26,521 3,572 16,508 38,052 156,035 (8,822) 310,382

Segment assets 84,109 156,584 71,940 63,767 45,122 75,909 38,059 114,703 56,417 214,720 26,800 122,536 347,573 1,487,063 141,454 3,046,756

Including property,

plant and equipment

and construction in

progress 62,897 148,825 53,972 51,517 28,180 62,535 22,402 82,217 45,020 175,177 23,053 101,461 311,632 1,201,105 75,210 2,445,203

Capital expenditure 13,886 11,468 8,329 7,752 2,205 6,950 1,865 13,735 7,576 20,982 5,272 12,716 31,257 107,210 7,025 258,228

Segment liabilities 50,593 27,844 32,022 13,969 38,163 40,670 16,515 47,748 30,714 75,018 8,236 64,105 156,081 396,669 148,766 1,147,113



38

b) Reconciliation of key indicators of reportable segment revenues, EBITDA, assets and liabilities

The reconciliation of key segment items measured as reported to the Management Board of the Group with

similar items in these consolidated financial statements is presented below.

The reconciliation of segment revenue is presented below:

Year ended

31 December 2019

Year ended

31 December 2018

Segment revenues 1,255,593 1,246,012

Intersegment revenue elimination (220,804) (218,257)

Reclassification from other income 140 585

Other adjustments (5,286) (6,750)

Unallocated revenues 11 12

Revenues per consolidated statement of profit or loss and other

comprehensive income 1,029,654 1,021,602

Reconciliation of reportable segment EBITDA:

Year ended

31 December 2019

Year ended

31 December 2018

EBITDA of reportable segments 302,532 310,382

Adjustment for allowance for expected credit losses 12,467 6,908

Adjustment for impairment of advances given 2,048 837

Provisions (1,531) 684

Adjustments for lease 5,845 293

Adjustment for disposal of property, plant and equipment 1,522 (91)

Discounting of financial instruments 4,018 1,824

Accrual of impairment of property, plant and equipment and right-of-

use assets, net (24,489)

(8,475)

Adjustment on assets related to employee benefits (408) (494)

Adjustment for write-off of the other current and non-current assets 23 370

Recognition of retirement and other long-term employee benefit

obligation 848

6,741

Gain on disposal of assets 8,110 –

Re-measurement of financial assets measured at fair value through

other comprehensive income (transfer of re -measurement to equity) (10,293)

(5,075)

Other adjustments 595 (5,522)

Unallocated items (1,206) (2,130)

300,081 306,252

Depreciation of property, plant and equipment and right-of-use-assets,

amortization of intangible assets (129,413) (116,124)

Interest expenses on financial liabilities at amortised cost (25,850) (23,747)

Interest expenses on lease liabilities (3,090) (250)

Income tax expense (36,436) (41,453)

Profit for the period per consolidated statement of profit or loss

and other comprehensive income 105,292 124,678



39

The reconciliation of reportable segment total assets is presented below:

Year ended

31 December 2019

Year ended

31 December 2018

Total segment assets 3,139,719 3,046,756

Intersegment balances (138,124) (134,013)

Intersegment financial assets (57,655) (50,852)

Adjustment for net book value of property, plant and equipment (70,987) (102,074)

Impairment of property, plant and equipment (365,998) (359,547)

Recognition of right-of-use-assets 36,669 –

Recognition of assets related to employee benefits 5,808 6,216

Investments accounted for using the equity method 532 669

Adjustment for allowance for expected credit losses 55,689 41,375

Adjustment for impairment of advances given (209) (1,855)

Adjustment for inventories valuation (39) (47)

Deferred tax assets adjustment (14,089) (10,343)


Unallocated items 82,614 91,056

Total assets per consolidated statement of financial position 2,649,579 2,518,632

The reconciliation of reportable segment total liabilities is presented below:

Year ended

31 December 2019

Year ended

31 December 2018

Total segment liabilities 1,180,609 1,147,113

Intersegment balances (134,697) (130,659)

Adjustment for deferred tax liabilities (36,534) (38,389)

Accrual of retirement and other long-term employee benefit

obligation 27,800 23,592

Recognition of lease liabilities 38,209 780

Accrued salaries and wages to employees 63 139

Other provisions and accruals 877 232


Unallocated items 6,025 32,571

Total liabilities per consolidated statement of financial position 1,065,474 1,023,670

c) Major customer:

In 2019 the Inter RAO Group (consisting primarily of electricity sales companies within the Inter RAO

Group) was a major customer of the Group. Total revenue from companies of the Inter RAO Group amounted

to RUB 253,877 million for the year ended 31 December 2019 (RUB 241,350 million for the year ended

31 December 2018).



40

9 Revenue

Year ended 31 December

2019 2018

Electricity transmission 860,852 826,241

Sales of electricity and capacity 100,291 119,915

Technological connection services 48,674 52,563

Other revenue 17,046 19,755

1,026,863 1,018,474

Revenue from leases 2,791 3,128

1,029,654 1,021,602

Other revenue are mainly comprised of revenue from construction services, repair and maintenance services.

10 Other income and other expenses


2019 2018

Income in the form of fines and penalties on commercial contracts 12,890 14,994

Gain on disposal of assets 8,110 –

Gain on compensation of losses in connection with retirement /

liquidation of electric grid assets 4,122 3,133

Gain on from identified non-contracted electricity consumption 2,686 3,083

Gain on acquisition of subsidiaries (Note 6) 1,036 –

Gain on derecognition of subsidiary – 690

Other income 3,122 4,270

31,966 26,170

Gain on disposal of assets in the amount of RUB 8,110 million is recognised under exchange agreement with

JSC “Far Eastern Energy Management Company”.

On 26 December 2018, as a part of UNEG asset consolidation process the Group concluded the exchange

contract with JSC “Far Eastern Energy Management Company” (government-controlled entity). The Group

exchanges property, plant and equipment, accounts receivable, and cash to be paid by instalments up to 2024

in exchange for UNEG assets. The exchange was completed on 1 January 2019.

As at 1 January 2019 the Group has recognized disposal of property, plant and equipment with the carrying

value of RUB 16,045 million, accounts receivable with the value of RUB 5,372 million, and at the same time

recognised additions to property, plant and equipment at fair value of RUB 34,564 million, long-term

accounts payable at fair value of RUB 2,713 million and short-term accounts payable at fair value of RUB

2,384 million at initial recognition. The Group also recognised VAT recoverable amounted to RUB 2,394

million. Fair value of long-term accounts payable has been determined using present value technique based

on estimated future cash flows at the discount rate of 9.00%.

Other expenses include expenses from the disposal of property, plant and equipment in the amount of RUB

4,860 million for the year ended 31 December 2019 (for the year ended 31 December 2018: RUB 2,815

million).



41

11 Operating expenses

Year ended

31 December 2019

Year ended

31 December 2018

Personnel costs 201,274 187,386

Depreciation of property, plant and equipment and right-of-use-assets,

amortization of intangible assets

129,413

116,124

Material expenses, including:

Electricity for compensation of losses 150,743 148,070

Electricity for sale 60,691 67,069

Purchased electricity and heat power for own needs 4,057 4,344

Other material costs 30,709 39,679

Production work and services, including:

Electricity transmission services 155,396 153,261

Repair and maintenance services 15,657 14,420

Other works and industrial services 11,858 13,369

Taxes and levies other than income tax 27,076 31,762

Short term lease/lease 3,490 7,163

Insurance 2,371 2,325

Other third-party services, including:

Communication services 2,726 2,485

Security services 5,012 4,891

Consulting, legal and audit services 3,305 3,282

Software costs and servicing 2,704 2,548

Transportation services 2,777 2,877

Other services 9,912 9,088

Provisions 17,340 4,952

Other expenses 21,771 20,660

858,282 835,755



42

12 Personnel costs


2019 2018

Wages and salaries 151,406 145,381

Social security contributions 43,569 41,441

(Gain) related to defined benefit plan (8) (5,750)

Expenses related to other long-term employee benefits 64 13

Other 6,243 6,301

201,274 187,386

The amount of contributions to the defined contribution plan was RUB 31,850 million for the year ended

31 December 2019 (for the year ended 31 December 2018: RUB 29,548 million).

The amounts of remuneration to the key management personnel are disclosed in Note 36 “Related party

transaction”.

13 Finance income and costs


2019 2018

Finance income

Depreciation of discount of financial assets 9,569 6,837

Interest income on loans, bank deposits and accounts, and promissory

notes 9,371 7,462

Dividends 1,467 2,254

Effect on initial discounting of financial liabilities 927 499

Interest income on assets related to employee benefits plans 39 20

Other finance income 368 545

21,741 17,617

Finance costs

Interest expenses on financial liabilities measured at amortized cost 25,850 23,747

Interest expenses on lease liabilities 3,090 250

Interest expenses on long-term defined benefit liabilities 1,691 2,093

Other finance costs 1,065 1,427

31,696 27,517



43

14 Income tax

Year ended

31 December 2019

Year ended

31 December 2018

Current income tax

Accrual of current tax (23,686) (27,553)

Adjustment for previous periods tax (65) 153

Total (23,751) (27,400)

Deferred income tax

Accrual and reversal of temporary differences (12,685) (14,053)

Total (12,685) (14,053)

Total income tax expense (36,436) (41,453)

Income tax recognized in other comprehensive income

Year ended 31 December 2019 Year ended 31 December 2018

Before tax Tax Net of tax Before tax Tax Net of tax

Financial assets measured at fair

value through other


9,865 (1,357) 8,508

1,667 6,742 8,409

Foreign currency translation

differences (228) – (228)

178 – 178

Remeasurements of the defined

benefit liability (5,056) 626 (4,430)

2,381 (582) 1,799

4,581 (731) 3,850 4,226 6,160 10,386

As at 31 December 2019 and 31 December 2018, deferred income tax assets and liabilities are calculated

(primarily) at the rate of 20%, which is expected to be applicable to the disposal of the related assets and

liabilities. Deferred assets and liabilities arising from individual investments in equity instruments are

calculated at the rate of 13%. Some of the companies of the Group use income tax benefit as reduced income

tax rate provided in accordance with regional legislation.

Profit before income tax for financial reporting purposes is reconciled to income tax expenses as follows:

Year ended

31 December 2019

Year ended

31 December 2018

Profit before income tax 141,728 166,131

Theoretical income tax expense at the rate of 20% (28,346) (33,226)

Effect of income taxed at lower rates 735 14

Tax effect on not taxable or non-deductible for tax

purposes items

(4,049) (6,208)

Adjustments for prior years (65) 153

Change in unrecognized deferred tax assets (4,711) (2,186)

(36,436) (41,453)



44

15 Property, plant and equipment

Land plots

and

buildings

Electricity

trans-

mission

grids

Equipment

for electricity

transmission Other

Construction

in progress Total

Cost/Deemed cost

At 1 January 2018 264,535 1,272,832 1,071,849 310,344 396,878 3,316,438

Reclassification between

groups

(353)

(24)

354

23

–

–

Additions 625 2,473 1,905 8,202 238,743 251,948

Transfers 13,548 111,818 112,754 28,972 (267,092) –

Reclassification to assets

held for sale

(130)

(14,859)

(14,388)

(1,892)

–

(31,269)

Disposals (510) (1,421) (1,354) (1,882) (7,259) (12,426)

At 31 December 2018 277,715 1,370,819 1,171,120 343,767 361,270 3,524,691

Accumulated depreciation

and impairment

At 1 January 2018 (84,064) (582,657) (508,478) (196,573) (67,588) (1,439,360)


groups

45

(2,833)

(6,363)

(381)

9,532

–

Depreciation charge (9,257) (40,768) (40,878) (22,115) – (113,018)


held for sale

35

6,047

7,684

1,422

–

15,188

Disposals 124 591 983 1,982 381 4,061

Impairment (767) (3,408) (2,015) (816) (682) (7,688)

At 31 December 2018 (93,884) (623,028) (549,067) (216,481) (58,357) (1,540,817)

Net book value

At 1 January 2018 180,471 690,175 563,371 113,771 329,290 1,877,078

At 31 December 2018 183,831 747,791 622,053 127,286 302,913 1,983,874



45

Land plots

and

buildings

Electricity

trans-

mission

grids

Equipment

for electricity

transmission Other

Construction

in progress Total

Cost/Deemed cost

At 31 December 2018 277,715 1,370,819 1,171,120 343,767 361,270 3,524,691

Reclassification to right-

of-use assets

(156) (314) (1,422) (1,028) – (2,920)

At 1 January 2019 277,559 1,370,505 1,169,698 342,739 361,270 3,521,771


groups

(7,302) 10 7,180 112 – –

Additions 2,237 31,757 8,659 14,074 229,119 285,846

Acquisition of subsidiaries 3,417 1,910 403 499 78 6,307

Transfers 17,141 87,762 72,916 36,208 (214,027) –


held for sale

– – – – (335) (335)

Disposals (389) (1,882) (2,541) (2,824) (9,570) (17,206)

At 31 December 2019 292,663 1,490,062 1,256,315 390,808 366,535 3,796,383


and impairment

At 31 December 2018 (93,884) (623,028) (549,067) (216,481) (58,357) (1,540,817)

Reclassification to right-

of-use assets

14 68 90 446 – 618

At 1 January 2019 (93,870) (622,960) (548,977) (216,035) (58,357) (1,540,199)


groups

3,956 (1,429) (10,257) (1,758) 9,488 –

Depreciation charge (9,599) (44,228) (43,274) (24,114) – (121,215)


held for sale

– – – – 22 22

Disposals 132 1,387 2,281 2,685 1,028 7,513

Impairment (1,806) (9,127) (5,862) (943) (5,118) (22,856)

At 31 December 2019 (101,187) (676,357) (606,089) (240,165) (52,937) (1,676,735)

Net book value

At 1 January 2019 183,689 747,545 620,721 126,704 302,913 1,981,572

At 31 December 2019 191,476 813,705 650,226 150,643 313,598 2,119,648

As at 31 December 2019, construction in progress includes advance payments for purchase of property, plant

and equipment of RUB 21,838 million (31 December 2018: RUB 23,187 million) and materials for the

property, plant and equipment of RUB 9,220 million (31 December 2018: RUB 10,155 million).

Capitalized borrowing costs for the year ended 31 December 2019 amounted to RUB 16,251 million (for the

year ended 31 December 2018: RUB 15,385 million), with capitalization rates of 6.01 – 9.39% (for the year

ended 31 December 2018: 5.33 – 10.73%).

The depreciation charge for the year ended 31 December 2019 in the amount of RUB 378 million (for the

year ended 31 December 2018: RUB 91 million) has been capitalized to the cost of the capital construction

objects.



46

As of 31 December 2019, fixed assets pledged as collateral for a loan amounted of RUB 38 million.

As of 31 December 2018 there were no fixed assets pledged as collateral for loans and borrowings.

Impairment

As at 31 December 2019 the Group performed an impairment test for the cash generating units (CGU) and

recognized an impairment loss in the amount of RUB 30,380 million, including impairment loss on property,

plant and equipment in the amount of RUB 29,605 million (as at 31 December 2018: RUB 12,242 million),

and also an impairment loss on right-of-use assets in the amount of RUB 775 million. At the same time,

recognised as at 31 December 2019 and partially amortized impairment loss on property, plant and equipment

was reversed in the amount of RUB 6,749 million (as at 31 December 2018 RUB: 4,554 million).

Recoverable amount for all CGU’s, as value in use, was calculated using the discounting rate, determined as

the weighted average cost of capital (WACC) within the range of 8.57% – 9.03% (2018: 9.48% – 10.00%).



47

16 Intangible assets

Software

Licenses,

certificates and

patents Other Total

Cost

At 1 January 2018 23,173 720 10,732 34,625

Reclassification between groups 166 (2) (164) –

Additions 4,730 259 1,180 6,169

Disposals (2,628) (74) (656) (3,358)

At 31 December 2018 25,441 903 11,092 37,436

Accumulated amortization and impairment

At 1 January 2018 (13,847) (140) (3,880) (17,867)

Amortization charge (2,453) (76) (675) (3,204)

Disposals 2,624 74 82 2,780

At 31 December 2018 (13,676) (142) (4,473) (18,291)

Net book value

At 1 January 2018 9,326 580 6,852 16,758

At 31 December 2018 11,765 761 6,619 19,145

Cost

At 1 January 2019 25,441 903 11,092 37,436

Reclassification between groups 216 349 (565) –

Additions 3,585 727 1,261 5,573

Disposals (1,202) (32) (1,268) (2,502)

At 31 December 2019 28,040 1,947 10,520 40,507

Accumulated amortization and impairment

At 1 January 2019 (13,676) (142) (4,473) (18,291)

Reclassification between groups (47) (288) 335 –

Amortization charge (3,137) (134) (715) (3,986)

Disposals 1,050 33 335 1,418

At 31 December 2019 (15,810) (531) (4,518) (20,859)

Net book value

At 1 January 2019 11,765 761 6,619 19,145

At 31 December 2019 12,230 1,416 6,002 19,648

Capitalized borrowing costs for the year ended 31 December 2019 amounted to RUB 28 million

(for the year ended 31 December 2018: RUB 59 million), with capitalization rates of 7.72 – 8.40% (for the

year ended 31 December 2018: 7.68 – 8.28%).



48

17 Right-of-use assets

Land plots and

buildings

Electricity

transmission

grids

Equipment for

electricity

transmission Other Total

Cost

At 1 January 2019 24,282 3,855 4,817 1,713 34,667


groups (39) 121 (93) 11 –

Additions 4,741 1,939 1,076 505 8,261

Change of lease agreement

terms (868) 717 352 19 220

Disposal or termination of

lease agreements (472) (59) (47) (36) (614)

At 31 December 2019 27,644 6,573 6,105 2,212 42,534


and impairment

At 1 January 2019 (51) (280) (289) (459) (1,079)


groups – (26) 24 2 –

Depreciation charge (2,720) (814) (930) (136) (4,600)

Change of lease agreement

terms 177 178 71 2 428

Disposal or termination of

lease agreements 143 10 1 7 161

Impairment (57) (481) (237) – (775)

At 31 December 2019 (2,508) (1,413) (1,360) (584) (5,865)

Net book value

At 1 January 2019 24,231 3,575 4,528 1,254 33,588

At 31 December 2019 25,136 5,160 4,745 1,628 36,669

For the purpose of the impairment test the specialized right-of-use assets (including rented land plots for own

and rented specialized fixed assets) were treated as own non-current assets within cash generating units

(CGU). Value in use of such right-of-use assets as at 31 December 2019 was determined by using the

discounted cash flow method.

For information regarding impairment test see Note 15 “Property, plant and equipment”.



49

18 Other financial assets

31 December 2019 31 December 2018

Non-current

Financial assets measured at amortised cost 3,360 3,209

Financial assets measured at fair value through other comprehensive

income 45,620 37,922

Investments in quoted equity instruments 45,507 37,809

Investments in unquoted equity instruments 113 113

Financial assets measured at fair value through profit or loss 247 431

49,227 41,562

Current

Financial assets measured at amortised cost 57,592 47,192

57,592 47,192

Investments in quoted equity instruments include shares of PJSC “Inter RAO”. Fair value of these shares is

based on published market quotations and amounted to RUB 45,190 million as of 31 December 2019 (as of

31 December 2018: RUB 37,572 million).

On 29 June 2018 the Group has concluded sales agreements to sell 10,440,000 thousand shares or 10% out

of its 18.57% share in Charter capital of PJSC “Inter RAO” to JSC “Inter RAO Capital” (6,608,643 thousand

shares or 6.33%), “DVB Leasing” LLC (3,132,000 thousand shares or 3%) and “Praktika” LLC (699,357

thousand shares or 0.67%) for the price of RUB 3.3463 per share. As at 31 December 2018 6,608,643 and

3,132,000 thousand shares of PJSC “Inter RAO” were transferred to JSC “Inter RAO Capital” and “DVB

Leasing” LLC respectively.

During the year ended 31 December 2018 the Group has reclassified 6,608,643 and 3,132,000 thousand

shares sold to JSC “Inter RAO Capital” and “DVB Leasing” LLC respectively from Level 1 to Level 3 fair

value hierarchy.

The fair value of shares sold as single lot has been determined based on independent appraiser report by

applying income approach with due account for volume discount and payment by instalments in 2019.

During the year ended 31 December 2018 the Group has recognised change in fair value for financial

investments amounted to RUB 2,957 million relating to the part of financial investment in PJSC “Inter RAO”

shares sold to JSC “Inter RAO Capital” and “DVB Leasing” LLC on 29 June 2018 and on 31 July 2018

respectively. Accumulated revaluation reserve relating to shares disposed and amounted to RUB 18,629

million has been reclassified from reserves to retained earnings.

As at 31 December 2019 699,357 thousand shares of PJSC “Inter RAO” were transferred to “Praktika” LLC.

During the year ended 31 December 2019, the Group has reclassified 699,357 thousand shares sold to

“Praktika” LLC from Level 1 to Level 3 fair value hierarchy.

During the year ended 31 December 2019 the Group has recognised revaluation loss for financial investments

amounted to RUB 548 million relating to the part of financial investment in PJSC “Inter RAO” shares sold

to “Praktika” LLC on 03 June 2019. Accumulated revaluation reserve relating to shares disposed and

amounted to RUB 1,338 million has been reclassified from reserves to retained earnings.



50

Financial assets measured at amortised cost at 31 December 2019 and 31 December 2018 are mainly

represented by bank deposits with an original maturity of more than three months:

Interest rate at

31 December

2019 Rating** Rating agency

31 December

2019

31 December

2018

VTB Bank (PJSC)* 5.82–7.35 ВВВ- Standart & Poor’s 37,936 22,231

JSC Russian Agricultural Bank* 6.50–7.20 BBВ- Fitch Ratings 15,228 1,722

Bank GPB (JSC)* 6.20 BB+ Standart & Poor’s 4,221 7,443

OJSC Bank Tavrichesky 0.51 – – 3,131 2,886

JSC Alfa-Bank 5.85 BB+ Standart & Poor’s 70 1,196

PJSC Sberbank* 6.60–6.64 ВВВ Fitch Ratings 7 14,595

60,593 50,073

* Government-related entities



51

19 Deferred tax assets and liabilities

The differences between IFRS and Russian tax regulations give rise to temporary differences between the

accounting value of certain assets and liabilities for financial reporting purposes and the income tax for

taxation purposes.

a) Recognized deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following items:

Assets Liabilities Net

31 December

2019

31 December

2018

31 December

2019

31 December

2018

31 December

2019

31 December

2018

Property, plant and

equipment 7,307 6,489 (112,057) (92,249) (104,750) (85,760)

Intangible assets 448 389 (250) (282) 198 107

Right-of-use assets 2 – (6,952) – (6,950) –

Financial assets

measured at amortised

cost 5,983 6,037 – – 5,983 6,037

Financial assets

measured at fair value

through other

comprehensive income 25 70 (3,611) (2,248) (3,586) (2,178)

Financial assets


through profit or loss 32 35 – – 32 35

Inventories 304 218 (55) (172) 249 46

Trade and other

receivables 20,955 17,117 (553) (985) 20,402 16,132

Advances given and

other assets 2,386 2,071 (31) (4) 2,355 2,067

Lease liabilities 7,565 149 (89) (3) 7,476 146

Loans and borrowings – – (201) (229) (201) (229)

Provisions 6,185 3,812 (1) (1) 6,184 3,811

Employee benefit

liabilities 2,250 1,968 (36) (126) 2,214 1,842

Trade and other payables 2,623 2,317 (1,102) (173) 1,521 2,144

Advances received 1 – – – 1 –

Tax loss carry-forwards 5,373 4,919 – – 5,373 4,919

Asset held for sale – – (63) (4,293) (63) (4,293)

Other 582 1,322 (310) (1,151) 272 171

Tax assets/(liabilities) 62,021 46,913 (125,311) (101,916) (63,290) (55,003)

Set off of tax (33,433) (25,276) 33,433 25,276 – –

Unrecognized deferred

tax assets (16,343) (11,547) – – (16,343) (11,547)

Net tax assets/(liabilities) 12,245 10,090 (91,878) (76,640) (79,633) (66,550)



52

b) Unrecognized deferred tax liabilities

At 31 December 2019, a deferred tax liability for temporary differences of RUB 257,346 million

(31 December 2018: RUB 225,034 million) related to an investment in subsidiaries was not recognized as

the Group is able to control the timing of the reversal of this temporary difference and it is probable that this

temporary difference will not reverse in the foreseeable future.

c) Unrecognized deferred tax assets

Deferred tax assets with respect to tax losses and temporary differences were not recognized, as for a number

of unprofitable companies of the Group there is no high probability of future taxable profit against which the

corresponding temporary differences and tax losses can be utilized.

Deferred tax assets have not been recognized with respect to the following:


Deductible temporary differences 50,970 37,286

Tax losses 30,750 20,449

Total 81,720 57,735

Unrecognized deferred tax assets at the applicable tax rate 16,344 11,547



53

d) Movement in deferred tax assets and liabilities during the year

1

January

2019

Acquired as

part of a

business

combination

Recognized

in profit or

loss

Recognized

in other

comprehensive

income

Recognized

at Capital

31

December

2019

Property, plant and

equipment (85,760) 322 (19,312) – – (104,750)

Intangible assets 107 – 91 – – 198

Right-of-use assets – (458) (6,579) – 87 (6,950)

Financial assets measured

at amortised cost 6,037 – (54) – – 5,983


at fair value through other

comprehensive income (2,178) – (51) (1,357) – (3,586)


at fair value through

profit or loss 35 – (3) – – 32

Inventories 46 (1) 204 – – 249

Trade and other

receivables 16,132 1 4,269 – – 20,402

Advances given and other

assets 2,067 – 288 – – 2,355

Lease liabilities 146 455 6,875 – – 7,476

Loans and borrowings (229) – 28 – – (201)

Provisions 3,811 4 2,369 – – 6,184

Employee benefit

liabilities 1,842 – (254) 626 – 2,214

Trade and other payables 2,144 6 (629) – – 1,521

Advances received – – 1 – – 1

Tax loss carry-forwards 4,919 9 445 – – 5,373

Asset held for sale (4,293) – 4,230 – – (63)

Other 171 (7) 108 – – 272

Unrecognized deferred tax

assets (11,547) – (4,711) – (85) (16,343)

(66,550) 331 (12,685) (731) 2 (79,633)



54

1 January

2018

Recognized in

profit or loss

Recognized

in other

comprehensive

income

31 December

2018

Property, plant and equipment (73,805) (11,955) – (85,760)

Intangible assets 254 (147) – 107

Financial assets measured at

amortised cost 6,091 (54) – 6,037


value through other

comprehensive income (8,963) 43 6,742 (2,178)


value through profit or loss – 35 – 35

Inventories 149 (103) – 46

Trade and other receivables 11,886 4,246 – 16,132

Advances given and other assets 1,831 236 – 2,067

Finance lease liabilities 185 (39) – 146

Loans and borrowings (229) – – (229)

Provisions 3,339 472 – 3,811

Employee benefit liabilities 3,361 (937) (582) 1,842

Trade and other payables 2,279 (135) – 2,144

Tax loss carry-forwards 4,395 524 – 4,919

Asset held for sale – (4,293) – (4,293)

Other (69) 240 – 171

Unrecognized deferred tax assets (9,361) (2,186) – (11,547)

(58,657) (14,053) 6,160 (66,550)

20 Inventories


Raw materials and supplies 20,564 20,082

Allowance for impairment of raw materials and supplies (540) (439)

Other inventories 17,623 17,783

Allowance for impairment of other inventories (319) (317)

37,329 37,109

As at 31 December 2019 and 31 December 2018, the Group has no pledged inventories in accordance with

loan or other agreements as collateral.



55

21 Trade and other receivables


Non-current trade and other accounts receivable

Trade receivables 75,486 76,825

Allowance for expected credit losses on trade receivables (555) (409)

Other receivables 2,098 1,773

Allowance for expected credit losses on other receivables (251) (240)

Loans given 104 119

Total financial assets 76,882 78,068

Current trade and other accounts receivable

Trade receivables 223,724 219,200

Allowance for expected credit losses on trade receivables (109,619) (100,307)

Other receivables 37,852 62,810

Allowance for expected credit losses on other receivables (25,240) (20,368)

Loans given 265 284

Allowance for expected credit loss on current loans given (155) (154)

Total financial assets 126,827 161,465

Long-term trade receivables mainly relate to the contracts of technological connection that imply deferred

inflow of cash for the provided services (as at 3 December 2019: RUB 69,166 million, as at 31 December

2018: RUB 67,994 million) and to restructured balances receivable for electricity transmission services.

As at 31 December 2018 other receivables includes RUB 28,389 million due from JSC “Inter RAO Capital”

and “DVB Leasing” LLC under the share of PJSC “Inter RAO” sales agreements (Note 18 “Other financial

assets”).

Information regarding exposure credit risk, currency risk, impairment of accounts trade and other receivables,

and fair value is disclosed in Note 33 “Financial risk and capital management”.

22 Advances given and other assets


Non-current assets

Advances given 7,461 7,299

Advances given impairment allowance (7,219) (6,922)

VAT on advances received 6,422 4,076

6,664 4,453

Current assets

Advances given 11,750 13,375

Advances given impairment allowance (5,563) (7,430)

VAT recoverable 2,227 3,464

VAT on advances received and VAT on advances given for purchase of

property, plant and equipment 8,818 8,725

Prepaid taxes, other than income tax 920 1,020

18,152 19,154



56

23 Cash and cash equivalents


Cash at banks and in hand 34,436 53,063

Cash equivalents 44,577 30,993

79,013 84,056

Rating Rating agency 31 December 2019 31 December 2018

Bank GPB (JSC)* BB+ Standart & Poor’s 13,425 13,915

PJSC Sberbank* ВВВ Fitch Ratings 6,487 7,545

JSC AB ROSSIYA A+(RU) ACRA 4,793 12,578

VTB Bank (PJSC)* ВВВ- Standart & Poor’s 3,130 10,571

PJSC RNCB* A(RU) ACRA 2,548 2,234

UFK* – – 1,581 4,234

JSC «Alfa-Bank» BB+ Fitch Ratings 1,339 840

Russian Regional

Development Bank* Ва2

Moody’s

127 896

JSC Russian Agricultural

Bank* ВВВ-

Fitch Ratings

101 51

Other banks – – 837 159

Cash in hand 68 40

34,436 53,063

*Government-related entities

Cash equivalents primarily consist of bank deposits placed with a number of banks for less than three months.

Interest rate at

31 Dcember 2019 Rating** Rating agency

31 Dcember

2019

31 December

2018

Bank GPB (JSC)* 4.50–6.04 BB+ Standart & Poor’s 21,377 474

JSC «Alfa-Bank» 6.05–6.11 BB+ Fitch Ratings 11,761 6,615

Russian Regional

Development Bank* 5.00–6.05

Ва2

Moody’s

6,182 –

FK Otkritie* 5.85–6.04 Ва2 Moody’s 2,804 –

VTB Bank (PJSC)* 4.50–5.85 ВВВ- Standart & Poor’s 1,176 7,193

PJSC Sberbank* 3.69–5.70 ВВВ Fitch Ratings 625 –

JSC Russian Agricultural

Bank* 5.05–7.04

BBВ-

Fitch Ratings

179 12,837

Other banks 2.25–5.65 – – 15 3,356

44,119 30,475

*Government-related entities

As at 31 December 2019 cash and cash equivalents balance included amount in foreign currency in the

amount of RUB 78 million (as at 31 December 2018: RUB 88 million).



57

24 Equity

a) Share capital

Ordinary shares Preference shares

31 December

2019 31 December

2018 31 December 2019 31 December

2018

Par value RUB 1 RUB 1 RUB 1 RUB 1

On issue at 1 January 198,827,865,141 198,827,865,141 2,075,149,384 2,075,149,384

On issue at the end of the year

and fully paid 198,827,865,141 198,827,865,141 2,075,149,384 2,075,149,384

b) Ordinary and preference shares

Holders of ordinary shares have the right to vote on all issues on the agenda at the General Meetings of

Shareholders of the Company, to receive dividends in the manner specified by the legislation of the Russian

Federation and the Charter of the Company, as well as other rights provided for by the Charter and the

legislation of the Russian Federation. Preference shares are recognized in equity. These shares are non-

convertible, non-cumulative and non-redeemable.

Holders of preference shares are entitled to an annual dividend equal to 10% of net statutory profit divided

by 25% of all shares. If the amount of dividends paid by the Company for each ordinary share in a given

year exceeds the amount payable as a dividend on each preference share, the dividend rate payable on the

latter must be increased to the amount of dividends on ordinary shares.

Preference shares carry the right to vote on all issues within the competence of General shareholders’

meetings following the Annual Shareholders’ Meeting at which a decision not to pay (or not to pay the full

amount of) dividends on preference shares was taken. The right of preference shareholders to vote at General

shareholders’ meetings ceases from the date of the first full payment of dividends on such shares.

The preference shares also carry the right to vote, but this right is limited according to the amendments of

the Company’s Charter, which includes reorganization and liquidation as well as the delisting of preference

shares.

The owners of both ordinary and preference shares have the preemptive right to purchase additional

Company’s shares placed through an open subscription, in an amount proportional to the number of this type

of shares held.

In the case of liquidation of the Company, accrued but not paid dividends on preference shares and the

liquidation value specified by the Charter for preference shares are paid. After that the assets are distributed

among the shareholders - owners of ordinary and preference shares.

Preference shares are included in the calculation of the weighted average number of outstanding shares used

in the calculation of basic and diluted earnings per share (Note 25 “Earnings per share”).

c) Dividends

The basis for Company’s profit distribution to shareholders is defined by the Russian legislation as net profit

presented in statutory financial statements prepared in accordance with the Regulations on Accounting and

Reporting of the Russian Federation.

On 27 June 2019 the Annual General Meeting of Shareholders decided not to pay dividends on preference

and ordinary shares of PJSC "ROSSETI" on the results of 2018 and to pay dividends on preference and

ordinary shares of PJSC "ROSSETI" for the first quarter of 2019 in the amount of RUB 5,023 million (for

preference shares in the amount of 0.07997 RUB per one preference share and on ordinary shares in the

amount of 0.02443 RUB per one ordinary share).



58

d) Treasury shares

Information regarding treasury shares is presented below:


Number of shares, mln.

Cost,

mln. RUB

Number of shares, mln.

Cost,

mln. RUB Ordinary Preference Ordinary Preference

3 308 109 3 308 109

e) Changes in shares in subsidiaries

During the reporting period the Group acquired additional issue of shares in a number of subsidiaries.

The most significant ones are described below:

Additional issue of shares by PJSC “Kubanenergo”

During 2019 the Group acquired 30,864,487 shares of additional issue of securities as a part of the

implementation of the program for increasing the Charter capital of PJSC “Kubanenergo”. The shares were

paid in cash in the amount of RUB 3,086 million. Following the issue of shares of PJSC “Kubanenergo” the

Group's ownership interest increased from 92.78% to 93.44%. The Group recognized a decrease in retained

earnings and an increase in non-controlling interest of RUB 7 million and RUB 9 million respectively.

Additional issue of shares by PJSC “ROSSETI Northern Caucasus”

During 2019 the Group acquired 37,861,258 ordinary shares of additional issue of securities as a part of the

implementation of the program for increasing the Charter capital of PJSC “ROSSETI Northern Caucasus”.

Shares were subscribed by the Group for RUB 661 million paid in cash. Following the issue of shares of

PJSC “ROSSETI Northern Caucasus” the Group's ownership interest increased to 98.77%. The Group

recognized an increase in retained earnings and a decrease in non-controlling interest of RUB 3 million and

RUB 0.6 million respectively.

Additional issue of shares by JSC “Chechenenergo”

In 2019 during the course of the additional issue of shares by JSC “Chechenenergo” 1,333,802,459 ordinary

shares were placed. Of these 1,193,324,569 were acquired by the Group. Shares were subscribed by the

Group for RUB 1,193 million paid in cash. The remaining part of the securities in the amount of 140,477,890

shares was purchased by the Ministry of Property and Land Relations of the Republic of Chechnya by

depositing fixed assets worth RUB 140 million into the Charter capital. As the result of the placement of

additional shares of JSC “Chechenenergo” the Group's ownership interest increased to 73.65%. The Group

recognized an increase in retained earnings and in non-controlling interest of RUB 37 million and RUB 103

million respectively.

Additional issue of shares by PJSC “ROSSETI South”

During 2019 the Group acquired 82,600,538,248 shares of additional issue of securities by PJSC “ROSSETI

South”. Shares were subscribed by the Group for RUB 8,260 million paid in cash. Taking into account the

actually placed shares of the current issue of PJSC “ROSSETI South” the Group's ownership interest

increased to 84.12%. The Group recognized a decrease in retained earnings and an increase in non-controlling

interest of RUB 1,298 million and RUB 1,337 million respectively.



59

25 Earnings per share

The Group has revised the approach to calculating earnings per share by adopting for the purposes of

determining the denominator the number of shares attributable to holders of the Company's shares

(previously – attributable to holders of ordinary shares of the Company). To calculate earnings per share, the

Group divides earnings attributable to the owners of the Company by the weighted average number of

ordinary and preference shares outstanding for the reporting period. The change in approach did not have a

significant impact on the indicator for the previous reporting period (the indicator “Earnings per share - basic

and diluted (in Russian rubles)” for the year ended 31 December 2018: initial presentation – 0.46 RUB,

restated – 0.45 RUB)).

In millions of shares 2019 2018

Issued ordinary and preference shares at 1 January 200,903 200,903

Effect of own shares held (3) (3)

Weighted average number of shares for the period ended 31

December 200,900 200,900

2019 2018

Weighted average number of shares for the period ended 31 December

(in millions of shares) 200,900 200,900

Profit for the period attributable to the owners of the Company 76,773 90,985

Earnings per share (in RUB) – basic and diluted 0.38 0.45



60

26 Borrowings


Non-current liabilities

Secured loans and borrowings 359 –

Unsecured loans and borrowings 213,537 217,421

Unsecured bonds 298,374 327,387

Lease liabilities 38,209 1,952

Less: current portion of long-term lease liabilities (5,550) (467)

Less: current portion of long-term loans and borrowings (28,493) (28,442)

Less: current portion of long-term bonds (51,727) (36,862)

464,709 480,989

Current liabilities

Unsecured loans and borrowings 11,635 21,138

Promissory notes 293 359

Current portion of long-term lease liabilities 5,550 467

Current portion of long-term loans and borrowings 28,493 28,442

Current portion of long-term bonds 51,727 36,862

97,698 87,268

Including:

Interests payable on loans and borrowings 226 332

Interests payable on bonds 3,815 4,378

4,041 4,710

As at 31 December 2019 and 31 December 2018 long-term and short-term liabilities on loans, bonds,

promissory notes amounted to RUB 524,198 and RUB 566,305 million respectively (excluding long-term

and short-term lease liabilities).

As at 31 December 2018 long-term and short-term lease liabilities amounted to RUB 1,952 million,

as at 1 January 2019 and 31 December 2019 amounted to RUB 33,834 and RUB 38,209 million respectively

(effect of initial application of IFRS 16 Leases as at 1 January 2019, Note 2e).

As at 31 December 2019 and 31 December 2018, loans and borrowings are nominated in roubles.



61

Year of maturity

Effective interest rate Carrying value

31 December 2019 31 December 2018 31 December 2019 31 December 2018

Unsecured loans and borrowings

Unsecured bank loans* 2020-2022 6.95–8.20% 7.15–9.80% 114,472 131,489



Unsecured bank loans*

2020-2022

Key rate of CB RF +0.98% – Key rate of CB RF +1.20% – 9,787 –


Unsecured bank loans 2022 7.10% 8.11% 8,017 3,609


2020-2022

Key rate of CB RF + 1.05% –

Key rate of CB RF + 2.00% – 7,326 –

Unsecured bank loans* 2022 7.15-7.89% – 7,219 –

Unsecured bank loans 2022 7.20–7.25% – 5,011 –

Unsecured bank loans 2021 Key rate of CB RF +0.58% Key rate of CB RF + 0.58% 3,002 3,002

Unsecured bank loans 2020-2021 7.34–8.10% 7.49% 2,500 2,001

Unsecured bank loans

2020-2021 Key rate of CB RF

Key rate of CB RF + 0.00% – Key rate of CB RF + 0.44% 2,005 3,107

Unsecured bank loans 2020-2022 7.53–10.00% 8.90–11.25% 1,660 3,839

Unsecured bank loans* 2022-2022 Key rate of CB RF + 1.15% – 805 –

Unsecured bank loans 2021 6.60% 8.10% 700 700

Unsecured bank loans* 2020 Key rate of CB RF Key rate of CB RF 503 503


2020-2022

Key rate of CB RF + 0.95% –

Key rate of CB RF + 1.10% – 500 –

Secured bank loans* 2022 Key rate of CB RF +1.50% – 359 –

Unsecured bank loans 2020-2021 10.00% 10.99–11.00% 200 400

Unsecured bank loans* 2020-2021 10.00% 10.00% 200 200

Unsecured bank loans* 2019 – 8.27% – 3,180

Unsecured bank loans 2019 – 11.00% – 230

Unsecured loans 2019 – Key rate of CB RF – 31

Unsecured bank loans 2019 – 12.5–15.5% – 2

Unsecured loans 2025-2026 0.10 – 3.00% 0.00–3.00% 207 223

225,531 238,559



62

Year of maturity

Effective interest rate Carrying value

31 December 2019 31 December 2018 31 December 2019 31 December 2018

Unsecured loans and borrowings

Unsecured bonds

2022-2048

(CPI **-100%) +1.00% – (CPI -100%) + 2.50%

(CPI **-100%) +1.00% – (CPI -100%) + 2.50% 110,938 110,732

Unsecured bonds 2020-2024 8.3–9.65% 8.30-10.30% 43,905 43,907

Unsecured bonds 2045-2050 (CPI -100%) + 1.00% (CPI -100%) + 1.00% 40,340 40,294

Unsecured bonds 2021-2052 7.60–9.35% 7.60–9.35% 36,432 36,424

Unsecured bonds 2020-2028 5.00–8.50% 7.40–9.00% 20,836 22,782

Unsecured bonds 2020 0.1–8.25% 0.10–8.25% 18,208 18,204

Unsecured bonds 2022 7.00% – 3,036 –

Unsecured bonds 2022 8.15% 8.15% 5,193 5,192

Unsecured bonds 2021 6.95% 6.95% 5,075 5,071

Unsecured bonds 2022 6.85% – 5,033 –

Unsecured bonds 2020-2022 6.85% – 5,015 –

Unsecured bonds 2022 7.00% – 4,048 –

Unsecured bonds 2020-2024 – – 315 361

Unsecured bonds 2019 – 8.45% – 17,943

Unsecured bonds 2019 – 11.25% – 10,117

Unsecured bonds 2019 – 10.29% – 6,046

Unsecured bonds 2019 – 9.15% – 5,157

Unsecured bonds 2019 – 9.15% – 5,157

298,374 327,387

Lease liabilities 2020–2103 5.66–32.89% 10.14–42.31% 38,209 1,952

Promissory notes* on demand 0.00% 0.00% 293 359

Total debt 562,407 568,257

* Government-related entities ** Consumer price index – CPI

The Group has not entered into any hedging arrangements with respect to interest rate exposures. Information about the Group’s exposure to interest rate risk is disclosed

in Note 33 “Financial risk and capital management”.



63

27 Changes in liabilities arising from financing activities

Loans and borrowings Interest payable,

except interest

payable on lease

agreements

Lease

liabilities

Dividends

payable

Non-

current

Current

As at 31 December 2018 479,504 82,091 4,710 1,952 624

Initial application of IFRS 16

Leases, Note 2e – – – 31,882 –

As at 1 January 2019 479,504 82,091 4,710 33,834 624

Changes from financing cash

flows

Proceeds from loans and

borrowings 222,546 66,176 – – –

Repayment of loans and

borrowings (189,788) (140,872) – – –

Repayment of lease liabilities – – – (3,222) –

Interests paid (operating cash

flows, for information) – – (41,207) (3,305) –

Dividends paid – – – – (15,142)

Total 32,758 (74,696) (41,207) (6,527) (15,142)

Non-cash transactions

Transfers (80,578) 80,578 – – –

Capitalised borrowing costs – – 16,036 243 –

Interest expenses – – 24,521 3,090 –

Acquisition under lease

agreements – – – 8,288 –

Dividends accrued – – – – 20,313

Discounting, net 4 39 – – –

Other non-cash, net 362 95 (19) (719) (6)

Total (80,212) 80,712 40,538 10,902 20,307

As at 31 December 2019 432,050 88,107 4,041 38,209 5,789



64

Loans and borrowings Interest payable,

except interest

payable on lease

agreements

Lease

liabilities

Dividends

payable

Non-

current

Current

As at 1 January 2018 506,406 45,762 5,082 984 346

Changes from financing cash

flows

Proceeds from loans and

borrowings 379,504 235,568 – – –

Repayment of loans and

borrowings (341,837) (263,873) – – –

Repayment of lease liabilities – – – (145) –

Interests paid (operating cash

flows, for information) – – (39,457) (250) –

Dividends paid – – – – (12,684)

Total 37,667 (28,305) (39,457) (395) (12,684)

Non-cash transactions

Transfers (64,596) 64,596 – – –

Capitalised borrowing costs – – 15,444 – –

Interest expenses – – 23,747 250 –

Acquisition under lease

agreements – – – 1,117 –

Dividends accrued – – – – 12,903

Discounting, net 2 44 – – –

Other non-cash, net 25 (6) (106) (4) 59

Total (64,569) 64,634 39,085 1,363 12,962

As at 31 December 2018 479,504 82,091 4,710 1,952 624



65

28 Employee benefits

The Group has a defined benefit pension and other long-term defined benefit plans that cover most full-time

and retired employees. Defined post-employment benefits consist of several unfunded plans providing for

lump-sum payments upon retirement, life retirement benefits, financial support for current pensioners, death

benefits, and anniversary benefits.

Amounts of defined benefit obligations recognized in the consolidated statement of financial position are

presented below:


Present value of post-employment net benefits

obligation 26,048 21,934

Present value of other long-term employee net benefit obligation 1,752 1,658

Total present value of employee net benefit obligation 27,800 23,592

Change in the value of assets related to employee benefit obligations:

2019 2018

Value of assets at 1 January 6,216 6,709

Return on plan assets 182 20

Employer contributions 1,286 1,763

Other movements in the accounts (320) 18

Payment of remuneration (1,556) (2,294)

Value of assets at 31 December 5,808 6,216

Assets related to pension plans and defined benefit plans are administrated by non-state pension funds JSC

N-s PF “Otkritie”, NPF “Professional” (JSC) and JSC “NPF GAZFOND pensionnie nakoplenia”.

These assets are not the defined benefit plans' assets, because under the terms of agreements between the

Group and the funds the Group has the right to use the contributions paid under defined benefit plans to fund

its defined contribution pension plans or transfer to another fund on the Group’s own initiative.



66

Movements in the present value of defined benefit liabilities:

Year ended 31 December 2019 Year ended 31 December 2018

Post-

employment

benefits

obligation

Other long-

term employee

benefit

obligation

Post-

employment

benefits

obligation

Other long-

term employee

benefit

obligation

Defined benefit plan obligations as at

1 January 21,934 1,658 31,181 1,536

Current service cost 626 74 1,130 80

Past service cost and curtailments (688) (19) (7,106) 68

Interest expense 1,565 126 1,989 104

Remeasurement arising from:

– Actuarial loss/(gain) arising from

demographic assumptions 463 9 (323) (13)

– Actuarial loss/(gain) arising from financial

assumptions 5,095 250 (3,909) (188)

– Actuarial (gain)/loss arising from

experience adjustment (502) (195) 1,851 214

Contributions to the plan (2,445) (151) (2,879) (143)

Defined benefit plan obligations as at

31 December 26,048 1,752 21,934 1,658

Expenses/income recognized in profit or loss for the period:

Year ended

31 December 2019

Year ended

31 December 2018

Employees service cost (7) (5,750)

Remeasurement of other long-term employee benefit obligation 64 13

Interest expenses 1,691 2,093

Total (expenses)/income recognized in profit or loss 1,748 (3,644)

Gain/loss recognized in other comprehensive income for the period:

Year ended

31 December 2019

Year ended

31 December 2018

Actuarial loss/(gain) arising from demographic assumptions 463 (323)

Actuarial loss/(gain) arising from financial assumptions 5,095 (3,909)

Actuarial (gain)/loss arising from experience adjustment (502) 1,851

Total actuarial loss/(gain) recognized in other comprehensive

income 5,056 (2,381)



67

Movements in remeasurement of employee benefit obligations in other comprehensive income during the

year are as follows:

Year ended

31 December 2019

Year ended

31 December 2018

Remeasurements at 1 January 12,307 14,688

Movement of remeasurements 5,056 (2,381)

Remeasurements at 31 December 17,363 12,307

The significant actuarial assumptions are as follows:


Financial assumptions

Discount rate 6.4% 8.7%

Future salary increase 4.4% 4.6%

Inflation rate 4.0% 4.1%

Demographic assumptions

Expected age of retirement:

Men 65 65

Women 60 60

Average level of staff movement 6.2% 6.4%

A sensitivity of total employee benefits obligations to changes in the key actuarial assumptions is as follows:

Change in the assumption Impact on obligation

Discount rate Increase/decrease by 0.5% Decrease/increase by 4.9%

Future salary growth Increase/decrease by 0.5% Increase/decrease by 3.0%

Future growth of benefits (inflation) Increase/decrease by 0.5% Increase/decrease by 2.4%

Level of staff movement Increase/decrease by 10% Decrease/increase by 1.9%

Mortality level Increase/decrease by 10% Decrease/increase by 1.4%

Expected payments under the defined long-term employee benefit plans to employees in 2019 are RUB 3,435

million, including:

RUB 3,304 million under the defined benefit plans, including non-state pension schemes;

RUB 131 million under the other long-term employee benefit schemes.



68

29 Trade and other payables


Non-current accounts payable

Trade payables 16,349 15,849

Other payables 7,448 1,976

Total financial liabilities 23,797 17,825

Current accounts payable

Trade payables 162,160 158,241

Other payables and accrued expenses 16,433 22,397

Payables to employees 24,303 21,306

Dividends payable 5,789 624

Total financial liabilities 208,685 202,568

As at 31 December 2019 and 31 December 2018 long-term trade accounts payable mainly relate to contracts

for the purchase of property, plant and equipment in instalments.

The Group’s exposure to liquidity risk related to payables is disclosed in Note 33 “Financial risk and capital

management”.

30 Taxes other than income tax


Value-added tax 9,799 11,422

Property tax 6,666 7,085

Social security contributions 4,326 3,975

Other taxes payable 1,636 1,242

22,427 23,724

31 Advances received

Non-current 31 December 2019 31 December 2018

Advances from technological connection services to electricity girds 38,668 23,888

Other advances received 3,612 2,333

42,280 26,221

Current

Advances from technological connection services to electricity girds 50,026 59,658

Other advances received 8,966 9,174

58,992 68,832



69

32 Provisions

2019 2018

Balance at 1 January 10,901 10,561

Increase for the year 19,431 8,847

Decrease due to reversal of provisions (2,071) (3,845)

Provisions used (5,027) (4,662)

Balance at 31 December 23,234 10,901

Provisions relate mainly to legal proceedings and claims against the Group in the day-to-day terms of

business.

33 Financial risk and capital management

In the normal course of business, the Group is exposed to a variety of financial risks, including, but not

limited to: market risk (currency risk, interest rate risk and price risk), credit risk and liquidity risk.

This note contains information about the Group’s exposure to each of these risks, discusses the objectives,

policies and procedures for assessing and managing risks, and the Group’s capital management system. More

detailed quantitative data is disclosed in the relevant sections of these consolidated financial statements.

In order to maintain or change the capital structure, the Company may change the amount of dividends paid

to shareholders, return capital to shareholders or issue new shares.

a) Credit risk

Сredit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by

failing to discharge a contractual obligation in full and on time. Credit risk is mainly associated with the

Group's receivables, bank deposits, cash and cash equivalents.

Deposits with an initial maturity of more than three months, cash and cash equivalents are placed in financial

institutions that have minimal risk of default, are considered reliable counterparties with a stable financial

position in the financial market of the Russian Federation.

Given the structure of the Group's debtors, the Group's exposure to credit risk mainly depends on the

individual characteristics of each counterparty. The Group creates an allowance for expected credit losses on

trade and other receivables, the estimated value of which is determined on the basis of the model of expected

credit losses, weighted by the degree of probability of default, and can be adjusted both up and down. To this

end, the Group analyzes the creditworthiness of counterparties, the dynamics of debt repayment, takes into

account changes in the terms of payment, the availability of third-party guarantees, bank guarantees, current

general economic conditions.

The carrying amount of receivables, net of allowance for expected credit losses, represents the maximum

amount exposed to credit risk. Although the repayment of receivables is subject to economic and other

factors, the Group believes that there is no significant risk of losses in excess of the created allowance.

Whenever possible, the Group uses a prepayment system in relations with counterparties. As a rule, an

advance payment for technological connection of consumers to networks is provided for by the contract. The

Group does not require collateral for receivables.

In order to effectively organize work with receivables, the Group monitors changes in the volume of

receivables and its structure, highlighting current and overdue debts. In order to minimize credit risk, the

Group implements measures aimed at timely fulfillment by counterparties of contractual obligations,

reduction and prevention of formation of overdue debts.

Such measures, in particular, include: negotiating with consumers of services, increasing the efficiency of

the process of generating the volume of electricity transmission services, ensuring the implementation of



70

schedules of control readings and technical verification of electricity metering devices agreed with

guaranteeing suppliers, limiting the mode of electricity consumption (implemented in accordance with norms

of the legislation of the Russian Federation), claim work, presentation of requirements for granting a final

collateral in the form of independent (bank) guarantees, sureties and other forms of securing the fulfillment

of obligations.

(i) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure of the Group. The maximum

exposure to credit risk at the reporting date was:

Carrying amount


Financial assets measured at fair value through profit or loss 247 431

Financial assets measured at fair value through other comprehensive

income 45,620 37,922

Loans given (less allowance for expected credit losses/allowance for

impairment) 214 249

Trade and other receivables (less allowance for expected credit losses) 203,495 239,284

Cash and cash equivalents 79,013 84,056

Bank deposits 60,594 50,074

Promissory notes 358 327

389,541 412,343

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:

Carrying amount


North-West region 15,317 12,572

Central region 90,993 117,846

Ural and Volga region 32,089 31,155

South region 25,038 22,684

Siberian region 19,114 10,948

Other regions 6,485 104

189,036 195,309

The Group’s ten most significant debtors account for RUB 125,125 million of the trade receivables carrying

amount at 31 December 2019 (at 31 December 2018: RUB 116,799 million).



71

The aging of trade and other receivables is provided below:


Gross

Allowance for

expected credit

losses Gross

Allowance for

expected credit

losses

Not past due 167,534 (6,022) 202,900 (21,548)

Past due less than 3 months 26,401 (8,409) 21,152 (3,489)

Past due more than 3 months and

less than 6 months 13,596 (6,546) 12,139 (5,760)

Past due more than 6 months and

less than 1 year 20,636 (14,160) 27,898 (15,050)

Past due more than 1 year 110,993 (100,528) 96,519 (75,477)

339,160 (135,665) 360,608 (121,324)

The Group believes that not impaired and past due accounts receivable are recoverable with the high level of

probability at the reporting date.

The movement оf allowance for expected credit losses of trade and other receivables was as follows:

2019 2018

Balance at 1 January (121,324) (101,089)

Increase for the period (36,990) (40,769)

Decrease due to reversal for the period 13,634 14,949

Allowance utilized 9,015 5,585

Balance at 31 December (135,665) (121,324)

b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

Management of liquidity risk involves maintaining sufficient cash and the availability of financial resources

by attracting credit lines. The Group adheres to a balanced model of financing working capital by using both

short-term and long-term sources. Free funds are invested in the short-term financial instruments such as

bank deposits.

The Group’s approach to managing liquidity is to ensure, that it will always have sufficient liquidity to meet

its liabilities when due, without incurring unacceptable losses or risking damage to the Group’s reputation.

This approach is used to analyse payment dates associated with financial assets, and also to forecast cash

flows from operating activities.

As of 31 December 2019, the amount of free limit on open but unused credit lines of the Group was RUB

646,450 million (31 December 2018: RUB 589,516 million). The Group has opportunity to attract additional

financing within the corresponding limits, including for the purpose of execution of the short-term liabilities.



72

Information regarding the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting, is provided below.

With respect to cash flows included in the maturity analysis it is not intended that it could occur significantly earlier, or at significantly different amounts:

31 December 2019 Carrying

amount

Contractual

cash flows 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years

Non-derivative financial liabilities

Loans and borrowings 225,531 279,124 54,587 104,139 118,466 1,726 2 204

Bonds 298,374 509,931 64,395 39,434 63,880 26,222 13,174 302,826

Promissory notes 293 293 293 – – – – –

Lease liabilities 38,209 70,349 6,750 4,485 3,565 3,048 3,257 49,244

Trade and other payables 232,484 232,687 207,240 14,880 2,498 2,991 3,159 1,919

794,891 1,092,384 333,265 162,938 188,409 33,987 19,592 354,193

31 December 2018 Carrying

amount

Contractual

cash flows 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years

Non-derivative financial liabilities

Loans and borrowings 238,559 273,158 58,615 95,078 115,824 2,488 972 181

Bonds 327,387 577,687 55,773 70,671 35,362 56,197 26,841 332,843

Promissory notes 359 359 359 – – – – –

Finance lease liabilities 1,952 4,507 702 683 606 724 559 1,233

Trade and other payables 220,393 221,630 206,070 5,678 5,844 1,053 1,227 1,758

788,650 1,077,341 321,519 172,110 157,636 60,462 29,599 336,015



73

c) Market risk

Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates, prices of

goods and equity prices that will affect the Group’s financial results or the value of its financial instruments

owned. The objective of market risk management is to manage and control market risk exposures within

acceptable parameters while optimising the return.

(i) Currency risk

The majority of the Group’s revenues and expenditures, monetary assets and liabilities are nominated in

RUB. Changes in exchange rates do not have a significant impact on the Group’s revenue and expenditures.

(ii) Interest rate risk

Changes in interest rates mainly affect loans and borrowings, as they change either their fair value (for loans

and borrowings with a fixed rate) or future cash flows (for loans and loans with a floating rate). The

management of the Group does not adhere to any established rules in determining the relationship between

loans and borrowings at fixed and floating rates. At the same time, at the time of attracting new loans,

management, based on its judgment, decides whether the rate, fixed or floating, will be most beneficial for

the Group for the entire settlement period until the debt repayment period.

Fair value sensitivity analysis for financial instruments with fixed interest rate

The Group does not account for any financial assets and liabilities with fixed interest rate at fair value through

profit or loss for the period. Therefore, a change in interest rates at the reporting date would not affect profit

or loss.

Cash flow sensitivity analysis for financial instruments with floating interest rate

As at 31 December 2019 the Group’s financial liabilities at floating interest rate amounted to RUB 173,802

million (31 December 2018: RUB 156,600 million). A reasonably possible change of 100 basis points in

interest rates would have increased (decreased) profit or loss before income tax for 2019 by RUB 1,738

million (2018: by RUB 1,566 million). This analysis assumes that all other variables remain constant and

interest expenses are not capitalized.

(iii) Price risk

Equity price risk arises from financial assets measured at fair value through other comprehensive income.

The Management of the Group monitors its investment portfolio based on market indices. Significant

investments within the portfolio are managed on an individual basis and all buy and sell decisions are taken

by the management of the Group.

As at 31 December 2019 financial assets measured at fair value through other comprehensive income exposed

to equity price risk amounted to RUB 45,507 million (31 December 2018: RUB 37,809 million).

If equity prices had been 10% higher (lower), with all other variables held constant, the other comprehensive

income would increase (decrease) by RUB 4,551 million.



74

d) Fair values and carrying amounts

A comparison of the fair values and carrying amounts of the Group's financial instruments is presented below,

with the exception of those financial instruments, the carrying value of which corresponds to their fair value:

Financial instruments

Note

31 December 2019

Level of fair value hierarchy

Carrying

amount

Fair

value 1 2 3

Financial assets


cost:

Non-current bank deposits

18

3,131 7,055 – – 7,055

Non-current trade

receivables

21

76,778 76,772 – – 76,772



profit or loss

18

247 247 – – 247

Financial assets


through other

comprehensive income:

Investments in an equity

instruments

18

45,620 45,620 45,507 – 113

Financial liabilities


cost:

Borrowings

26

(524,198) (526,705) (86,214) (299,323) (141,168)

Non-current accounts

payable

29

(23,797) (23,404) – – (23,404)

(422,219) (420,415) (40,707) (299,323) (80,385)

Financial instruments

Note

31 December 2018

Level of fair value hierarchy

Carrying

amount

Fair

value 1 2 3

Financial assets


cost:

Non-current bank deposits

18

2,886 4,904 – – 4,904



profit or loss

18

431 431 – – 431

Financial assets


through other

comprehensive income:

Investments in an equity

instrumentы

18

37,922 37,922 37,809 – 113

Financial liabilities


cost:

Borrowings

26

(566,305) (561,689) (103,251) (317,181) (141,257)

(525,066) (518,432) (65,442) (317,181) (135,809)



75

The interest rate used to discounting expected future cash flows for long-term receivables for the purpose of

determining the disclosed fair value at 31 December 2019 was 4.95 – 9.63%.

The interest rate used to discounting expected future cash flows for non-current accounts payable for the

purpose of determining the disclosed fair value at 31 December 2019 was 5.38 – 8.84%.

The interest rate used to discounting expected future cash flows for non-current and current borrowed funds

for the purpose of determining the disclosed fair value at 31 December 2019 was 4.87 – 8.84% (31 December

2018: 7.35 – 9.27%).

The reconciliation of the carrying amount of financial assets measured at fair value through profit or loss and

financial assets measured at fair value through other comprehensive income at the beginning and end of the

reporting period is provided in the table below:

Financial assets


through profit or loss

Financial assets


through other


At 1 January 2019 431 37,922

Selling (28) (2,167)

Change in fair value recognized in other comprehensive

income – 9,865

Change in fair value recognized in profit or loss (156) –

At 31 December 2019 247 45,620

e) Capital management

The main goal of capital management for the Group is to maintain a consistently high level of capital, which

allows it to maintain the trust of investors, lenders and market participants and to ensure sustainable business

development in the future.

The Group monitors equity structure dynamics (own and borrowed capital), including gearing ratio (target

limit on financial leverage), calculated on the data presented in its statutory financial statements prepared in

accordance with the Russian Accounting Standards. According to the Group’s credit policy, the Group should

ensure that its gearing ratio, being the total debt divided by the total equity, does not exceed 1.

The company and its subsidiaries are required to comply with the statutory requirements for the adequacy of

own capital, according to which the value of its net assets, determined in accordance with the Russian

Accounting Standards, must consistently exceed the amount of the share capital.

The Group’s debt-to-equity ratio was as follows:

Carrying amount


Total liabilities 1,065,474 1,023,670

Less: cash and cash equivalents (79,013) (84,056)

Net debt 986,461 939,614

Equity 1,584,105 1,494,962

Debt-to-equity ratio 62.27% 62.85%



76

34 Capital commitments

As at 31 December 2019, the Group has outstanding commitments under contracts for the purchase and

construction of property, plant and equipment items for RUB 254,410 million including VAT (as at

31 December 2018: RUB 256,644 million including VAT).

35 Contingencies

a) Insurance

The Group has unified requirements in respect of the volume of insurance coverage, reliability of insurance

companies and procedures of insurance protection organization. The Group maintains insurance of assets,

civil liability and other insurable risks. The main business assets of the Group have insurance coverage,

including coverage in case of damage or loss of assets. However, there are risks of negative impact on the

operations and the financial position of the Group in case of damage caused to third parties, and also as a

result of damage or loss of assets, insurance protection of which is non-existent or not fully implemented.

b) Taxation contingencies

Russian tax legislation is subject to varying interpretations regarding the operations and activities of the

Group.

Consequently, tax positions taken by management and the formal documentation supporting the tax positions

may be successfully challenged by the relevant regional and federal authorities. Russian tax administration

is gradually strengthening. In particular there is a higher risk of review of tax transactions without a clear

business purpose or with tax incompliant counterparties.

Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding

the year of decision to perform tax review. Under certain circumstances reviews may cover longer periods.

Transfer pricing legislation enacted in the Russian Federation starting from 1 January 2012 provides for

major modifications making local transfer pricing rules closer to Organisation for Economic Co-operation

and Development (OECD) guidelines, but creating additional uncertainty in practical application of tax

legislation in certain circumstances.

Currently there is lack of practice of applying the transfer pricing rules by the tax authorities and courts, as

tax audits for compliance with the new transfer pricing rules have recently begun.

However, it is anticipated that transfer pricing arrangements will be subject to very close scrutiny potentially

having effect on these consolidated financial statements.

Depending on the further practice of applying the property tax rules by the tax authorities and courts the

classification of moveable and immoveable property set by the Group could be argued.

The Group’s management does not exclude the risk of resources outflow and its impact can not be sufficiently

estimated.

Management believes that its interpretation of the relevant legislation is appropriate and the Group’s tax

positions will be sustained.

c) Legal proceedings

The Group is party to a number of court proceedings (both as a plaintiff and a defendant) arising in the

ordinary course of business. In the opinion of management, there are no current legal proceedings or other

claims outstanding, which could have a material effect on the result of operations or financial position of the

Group and which have not been accrued or disclosed in the consolidated financial statements.



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d) Environmental matters

The Group has been operating in the electric transmission industry in the Russian Federation for many years.

The legislation on environmental protection in the Russian Federation continues to develop, the duties of the

authorized state bodies to monitor its compliance are reviewed. Potential liabilities arising as a result of a

change in interpretation of existing regulations, civil litigation or changes in legislation cannot be estimated

under the existing legislation, management believes that there are no probable liabilities, which will have a

material adverse effect on the Group’s financial position, results of operations or cash flows.

e) Guarantees

As at 31 December 2019 the Company acts as a guarantor to Infrastructural Investments – 3 LLC for the

performance of its subsidiaries' obligations under lease agreements. The total amount of the guarantee is

RUB 11,556 million (as at 31 December 2018: RUB 11,556 million).

36 Related party transactions

a) Control relationships

The Russian Federation holds the majority of the voting shares of the Company. It is the ultimate controlling

party of the Group.

b) Transactions with the key management personnel

In order to prepare these consolidated financial statements, the key management personnel are members of

the Management Board and the Board of Directors of PJSC “ROSSETI” and general directors (sole executive

body) of subsidiaries engaged in transmission and distribution of electric power through electric grids.

The remuneration for the key management personnel consists of the salary stipulated by the employment

contract, non-monetary benefits, bonuses determined based on the results for the period, and other payments.

Remuneration or compensation is not payable to members of the Board of Directors who are government

employees.

The amounts of the remuneration to the key management personnel, disclosed in the table, are recognized as

an expense related to the key management personnel during the reporting period and included in personnel

costs:

Year ended

31 December 2019

Year ended

31 December 2018

Short-term remuneration to employees 1,039 777

Post-employment benefits and other long-term benefits (including

pension plans) (50) (20)

Total 989 757

As of 31 December 2019, the carrying value of defined benefit plan, defined contribution plan and other

post-employment benefit plans reported in the consolidated statement of financial position includes liabilities

related to the key management personnel for RUB 7 million (31 December 2018: RUB 57 million).



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c) Transactions with state-related entities

In the course of its operating activities the Group is engaged in many transactions with government-related

entities. These transactions are carried out in accordance with regulated tariffs or based on market prices.

Revenue from government-related entities for the year ended 31 December 2019 comprise 37% of total

Group revenue (for the year ended 31 December 2018: 36%), including 38% of electricity transmission

revenues (for the year ended 31 December 2018: 38%).

Electricity transmission costs (including compensation of technological losses) for government-related

entities for the year ended 31 December 2019 comprise 31% of total electricity transmission costs (for the

year ended 31 December 2018: 34%).

For the year ended 31 December 2019 interest expenses on government-related banks loans amounted to

RUB 16,095 million (for the year ended 31 December 2018: RUB 13,632 million).

As at 31 December 2019 cash and cash equivalents held in government-related banks amounted to RUB

27,566 million (as at 31 December 2018: RUB 65,812 million).

As at 31 December 2019 deposits with an original maturity of more than three months placed in state-related

banks amounted to RUB 57,392 million (as at 31 December 2018: RUB 45,991 million).

Information of borrowings received from state-related banks is disclosed in Note 26 “Borrowings”. Lease

obligations (as part of borrowings) for government-related entities amounted to RUB 21,867 million аs at 31

December 2019.

The assets exchange transaction with JSC “Far Eastern Energy Management Company” (government-

controlled entity) is disclosed in Note 10 “Other income and other expenses”.

37 Events after the reporting period

As at 17 March 2020 the Group acquired:

49% share in Charter capital of Infrastructural Investments – 3 LLC paid in cash in the amount of

RUB 133 million and и legal claim for a joint loan at RDIF Asset Management LLC paid in cash in

the amount of RUB 481 million,

51% share in Charter capital of Infrastructural Investments – 3 LLC paid in cash in the amount of

RUB 139 million and legal claim for a joint loan at Thirty Seventh Investment Company LLC paid

in cash in the amount of RUB 500 million.

The transaction price was determined based on the valuation of an independent appraiser.

Documents

Management Report of PJSC ROSSETI · 2020. 4. 30. · 2 table of contents company overview 3 historical background 3 rosseti group structure (as of december 31, 2019) 4 rosseti group