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Annual Report 2015

The drafting and implementation of the Long-Term Development Programme resulted in a new level of planning in Federal Grid Company. It also produced a new set of well-thought-out strategic goals in taking management decisions and communicating them within the Company and to external stakeholders.

Semyon Danilov

Temporary Acting Director for Strategic Development and Head of Strategic Development Department

Long-Term Development Strategy

Market Overview

Macroeconomic Environment

1008.3 billion kWh
Electricity consumption in UES of Russia in 2015

The social and economic conditions in Russia in the reporting year were the main factor that constrained the increase of electricity consumption and, as a result, the volume services provided by Federal Grid Company.

Industrial output in Russia dropped by 3.4% for the full year 2015 (in 2014, Russia reported growth by 1.7%). Output in the energy-intensive sectors, such as metallurgy and manufacture of machines and equipment, declined by 6.5 and 11.1%, respectively1.

According to the System Operator of UES2, electricity consumption across the unified energy system (UES) of Russia reduced by 0.55% year-on-year in 2015, to 1,008.3 billion kWh. Export to the neighbouring countries increased by 25% but it accounts for a small share in electricity consumption in UES of Russia (less than 2%). The average annual growth of electricity consumption in UES of Russia is estimated at 100.81% in 2016–2022.

Electricity Consumption in UES of Russia in 2015 and Forecast for 2016–2022, billion kWh

Moderate GDP growth rates in Russia in the coming years and electricity consumption developments are important factors that affect the volumes of electricity consumption and electricity transmission services. Electricity consumption in the manufacture of the most energy-intensive goods has been declining over the past years due to modernisation of production technologies and implementation of energy saving programmes. A steady increase of electricity consumption was reported only in the oil industry.

These factors mitigate the effect of changes in the geography of demand for electricity and distribution of loads. They also help to use the available spare capacity in the grid, and postpone expensive enhancement projects.

1 Source: Ministry of Economic Development of the Russian Federation, “The Outcomes of the Social and Economic Development of the Russian Federation in 2015.” Moscow, February 2016.
2 Source: System Operator of the Unified Energy System, “Report about Operations of UES of Russia in 2015.”

Industry Market

Changes in Electricity Consumption Per Unit of Certain Types of Goods Manufactured in 2014 Relative to 1995

Source: Rosstat, “Russian Statistical Yearbook, 2015”

Federal Grid Company transmits electricity via backbone grids and provides technological connection to the grid. Electricity transmission via backbone grids is a natural monopoly. Besides PJSC Federal Grid Company of the United Energy System, certain transmission services and technological connection to the Unified National Electric Grid (UNEG) are provided by JSC Grid Company (Republic of Tatarstan), JSC Bashkir Grid Company (Republic of Bashkortostan), JSC Regional Electric Grids (REG) (Novosibirsk oblast) and JSC Irkutsk Electric Grid Company (Irkutsk oblast) (within grids that they own).

The Russian market of electricity transmission services is affected primarily by macroeconomic factors that characterise the overall economic situation in the country. The volume of services in the backbone electric grid depends on the capacity which is sold to the customers of electricity transmission services, and on the capacity of power receivers connected to the grid.

In 2015, the paid capacity amounted to 87.9 GW, down by 3 GW relative to the previous year. This change is caused not so much by the lower consumption as by the transition to the principle of measuring services at their average arithmetic capacity when these services are sold to direct customers. Optimisation of consumption modes by the customers and their possible use of distributed sources of generation also constrain the increase of the volume of Federal Grid Company’s services.

The volume of technological connection (of customers and generation facilities) in physical terms did not change substantially over the past few years. These changes largely depend on the demand for capacity which is required for the customers’ and electricity producers’ investment projects. The substantial increase of service in physical terms in 2015 was driven by the completion of several large projects of technological connection at the generating stations of State Nuclear Corporation ROSATOM.

Capacity Paid For by Customers of Transmission Services Provided by Federal Grid Company, GW

Technological Connection Services in Physical Terms*, MW

Based on the estimated electricity consumption and electricity exports and imports, and with regard of factors behind the lower electricity consumption growth rates (energy saving in the first place), the Company does not anticipate any significant increase in the volume of services paid for by the customers. The volume of services will increase in the coming years because UES of Russia will be expanded within the IPS South and IPS East (integration of the western and central energy regions of the Republic of Sakha (Yakutia).

Depreciation of the national currency and growing inflation rates increase the uncertainty of investment expectations and might delay implementation of investment projects run by electricity consumers and producers. New projects of technological connection will be smaller as a result.

Development Strategy

Federal Grid Company’s mission is to ensure reliable operation and development of UNEG that will be adequate to economic growth, and demonstrate high economic efficiency and cost minimisation. Our strategy should ensure steady commitment to this mission, respond to technological and economic challenges and promote the solution of problems that are caused by the current situation in the backbone electric grids and the capacity which is available for meeting the demand.


Given the overall economic situation in the coming years, we anticipate the continued restrictive policy of tariff regulation and the transition to the setting of tariffs based on the “inflation minus” principle. One of the main incentives in the Company’s operations in this environment is the reduction of operating and investment costs. However, this reduction should not adversely affect reliability and entail higher costs in the future.

While pursuing its cost reduction policy, the Company should carefully select investment projects for upgrade and development of its electrical grid network.

The stagnating volume of services and restrictive tariff policy, even on the back of cost reduction, results in risks of restraining earnings increase for shareholders.

Innovative development of Federal Grid Company should focus on the selection of the most relevant projects with the best prospects. The priority areas are identified in the Innovative Development Programme for PJSC FGC UES for 2016–2020. They include the design of substations with a high level of automated management of technological processes (“digital substation”), digital design, energy efficiency, and reliability and asset management.

The grid remains underutilised in comparison to foreign peers. The utilisation ratio is the result of structural changes in electricity consumption and reflects principles of UNEG Planning that have been established over decades, and methods that ensure reliability.

Long-Term Development Programme

The Company’s strategy is outlined in the Long-Term Development Programme of Federal Grid Company which is approved by the Board of Directors (Minutes No. 243 dated 19 December 2014). The Programme is coordinated with the relevant federal executive authorities and supported by the Expert Council at the Government of the Russian Federation.

The Long-Term Programme is consistent with the targets and provisions of the Development Strategy for the Russian Electric Grid Complex, as approved by Resolution No. 511-r of the Government of the Russian Federation, dated 3 April 2013, and Methodological Guidelines on the Drafting of Long-Term Development Programmes approved by the RF Ministry of Economic Development in 20141.

In 2015, the Company drew up an updated Long-Term Development Programme which factors in a weaker operating environment in the coming years due to external factors and changes of macroeconomic parameters in late 2014 and early 2015. The new Long-Term Programme includes adjusted goals, objectives and implementation actions. The long-term goals and objectives were adjusted in such a way that they would meet the electrical grid users’ needs and shareholder expectations to the utmost possible extent, and would be feasible and achievable. The updated Long- Term Development Programme has a stronger focus on cost saving. This is reflected in the initiatives to reduce operating costs (they are more ambitious than those envisioned by the Government directives), and in a more cautious approach to the planning of electric grid development and earnings metrics.

Guided by the Strategy of the Electric Grid Complex Development of the Russian Federation, Federal Grid Company focuses on the following strategic goals in its operations until 2030:

  • To ensure service reliability and quality
  • To maintain financial sustainability and independence and ensure an increase in the Company value
  • To develop UNEG with regard of technical and economic optimisation of the backbone grids
  • To meet customers’ demand for the Company’s services with regard of their region-specific features of demand and higher effectiveness of capacity utilisation
  • To consolidate, under Federal Grid Company’s management, all electric grid facilities that are part of UNEG
    and are consistent with the criteria for including the facilities in UNEG.
1 Methodological Guidelines on the Drafting of Long-Term Programmes for the Development of Strategic Open Joint-Stock Companies and Federal Sate Unitary Enterprises and Open Joint-Stock Companies in Which the Total Share of the Russian Federation in the Authorised Capital Exceeds Fifty Percent.
Question for S. Danilov - Temporary Acting Director for Strategic Development and Head of Strategic Development Department



“The drafting and implementation of the Long-Term Development Programme resulted in a new level of planning in Federal Grid Company. It also produced a new set of well-thought-out strategic goals in taking management decisions and communicating them within the Company and to external stakeholders. Since 2015, all key processes (such as investment planning, business planning and regulation of operational areas) are consistent with the strategic goals that are outlined in the Long-Term Development Programme.

Key performance indicators are now also consistent with the strategic goals outlined in the Long-Term Development Programme. They were met and exceeded in 2014, as was proven by the Programme implementation audit that was held for the first time in 2015.

As for the efficiency of actions with deadlines in 2015, I can say that the Company has fully implemented its import substitution initiatives, both in organisational terms and in the development and use of domestically manufactured products / technologies. Plans to reduce operating and investment costs and increase labour productivity have been overachieved. Electricity losses were reduced in 2015 by almost 49.4 million KWh due to measures that were part of the programme for reducing electricity losses. The Company considerably reduced duration of transmission interruptions. It drew up many rules and regulations, and organised communication for addressing important issues, such as improvement of schemes for financing of the fee for technological connection, optimisation of load on the energy grid, and financing of projects of national significance.

I would like to note that experience of operating in accordance with a long-term programme document is in itself a key outcome in the first year of implementation of the Long-Term Development Programme. We were able to assess the viability of our forecasts and feasibility of goals. While updating our Programme, we received feedback from a broad range of experts within the Company, in the ministries and in the Open Government, and we intend to use all new information for improvement of our long-term planning.”

Strategic Objectives of Federal Grid Company in 2015–2019

1 Reduce investment costs by 30% against the 2012 baseline by 2017
2 Reduce investment costs by 30% against the 2012 baseline by 2017
3 Implement investment projects of national significance on schedule
4 Ensure compliance with the principles of technical and economic expediency when decisions are taken about the scheme of the backbone grid development
5 Integrate an economic model of technical connection based on a balance of interests and equitable risk-sharing between the applicant and the Company
6 Reduce operating costs by 41% against our 2012 baseline by 2017 * while maintaining reliability and avoiding an increase of costs in the future periods
7 Optimise the utilisation of existing capacities
8 Develop a programme of phased consolidation of electric grid facilities that are part of UNEG and meet its eligibility criteria
9 Maintain the Company’s credit rating at the level of the sovereign credit rating on the Russian Federation, ensure earnings growth and an increase in the Company value

Actions that are part of the Long-Term Development Programme are targeted at implementation of strategic goals and objectives. The base case scenario underlying Federal Grid Company’s financial model is based on the meeting of key performance indicators including a 30% reduction in operating and investment costs against 2012 already by 2017. These targets are more ambitious than those set in the Development Strategy for the Russian Electric Grid Complex. Yet, the Company aims to achieve these higher targets because it needs to complete a long-term investment programme and maintain a sustainable financial position.


An audit was initiated by Federal Grid Company and held in 2015 in order to monitor implementation of measures and achievement of targets that are set in the Long-Term Development Programme (its findings are included in the audit report dated 31 July 2015).

An independent auditor compared the targeted and achieved KPIs in 2014, and analysed the reasons of deviations that were identified during the audit. Based on this review, the auditor concluded that actual KPIs were higher than the targeted ones because several measures had been taken to improve the Company’s effectiveness.

Besides an external audit, Federal Grid Company performs internal monitoring of measures included in the Long-Term Development Programme.

Reliability and quality of services to customers


KPI* 2015, plan 2015, actual 2015 RESULTS
Implementation of strategy in 2015 (measures completed and achievements)
2016 PLANS
Realization of strategy in 2016 (planned events and indicators)
List of risks that affect implementation of strategy
Reliability measure:
no increase in the
number of major
Zero increase Zero increase
  • The number of major accidents over the reporting period went down from 22 to 17
  • Injury rate at the Company’s facilities lowered by 22% relative to 2014
  • Undersupply of electricity to customers reduced by 51.5% relative to 2014
  • The Company has completed all planned repair and maintenance at UNEG facilities
  • Enhance the role of diagnostic using contemporary tools and methods for assessment of the actual state of equipment and for taking timely actions to prevent failures and avoid weaker reliability of Federal Grid Company’s facilities
  • Conduct repairs in a timely way and take targeted actions via upgrade / replacement of the most damageable equipment units


The Long-Term Development Programme analysed risks that might affect implementation of Federal Grid Company’s strategy, and outlined measures to minimise these risks
  • Operational and technological risks: violations of service conditions and system-wide interruptions in the performance of electric grids
  • Lower rates of replacement of fixed assets due to financial constraints
Preventing increase
in the number of
persons injured in
Zero increaseZero increase
Achieving reliability
level of services

Maintenance of financial stability and independence


KPI* 2015, plan 2015, actual 2015 RESULTS
Implementation of strategy in 2015 (measures completed and achievements)
2016 PLANS
Realization of strategy in 2016 (planned events and indicators)
List of risks that affect implementation of strategy
Return on invested
capital (ROIC)
(actual figure must be at least 0.9 of the target)
1.95% (actual figure amounted to 1.8 of the target)
  • The costs of maintenance and repair conducted by external contractors was reduced by 25.6% as part of the efficiency enhancement programme
  • The Company achieved a reduction of operating expenditure (OPEX) by 40.1% compared to the 2012 level, which was above the target set by the Strategy of the Electric Grid Complex Development of the Russian Federation
  • The Company made changes in the structure and staffing tables of structural units within the Executive Directorate and the Company’s branches. As a result of these changes, the average headcount was reduced by 4.1% and labour productivity increased by 9.9% relative to 2014
  • Continue cost optimisation initiatives
  • Implement the Procedure of Operational Efficiency and Cost Reduction
  • Strengthen claims and bad debt recovery efforts to collect fees for the technological connection of electricity generation facilities
  • Seek to strengthen the customers’ payment discipline and liability for non-payment
  • Manage the efficiency of the Company’s units and employees by raising the level of labour productivity
  • Financial risks related to the impact of the following factors: CBR’s monetary policy, exchange rate fluctuations, changes of interest rates and inflationary pressures
  • Risks related to tariff regulation
measure: financial
No more than 1.5 or the value as per the business plan0.43
Total shareholder
return (TSR)
Higher than the average value for the past three years before the reporting year by the amount established by the Board of Directors28%
Reduction of OPEX  By at least 14.2%24.2%
Labour productivity  At least17%21.5%

Development of UNEG with regard of technical and economic optimisation of backbone grids


KPI* 2015, plan 2015, actual 2015 RESULTS
Implementation of strategy in 2015 (measures completed and achievements)
2016 PLANS
Realization of strategy in 2016 (planned events and indicators)
List of risks that affect implementation of strategy
Compliance with
the facilities
At least 95% 115.5%
  • Capacity commissioning plans were met by 99%, and for commissioning of transmission lines by 100%
  • The Company reviewed its unfinished construction and postponed or cancelled the commissioning of 35 facilities (reduction by RUB 83.6 billion)
  • The Company approved targeted programmes “Renovation of Fixed Assets,” “Facilities Providing Reliable Energy Supply for 2018 FIFA World Cup” and “Actions to Ensure Reliable Operation of UES of Russia Separately from the Energy Systems of BRELL Countries”
  • Improve the business process of planning and control of investment projects
  • Improve methods for assessment of investment projects and the procedure of drawing up investment programmes
  • Write economic rationale for investment projects that are financed from the National Wealth Fund and federal budget
  • Update internal documents when methodological guidelines for technological and pricing audits of investment programmes are approved
  • Distorted priorities of the technical policy and investment planning
  • Suboptimal allocation of financial resources
  • Restricted opportunities for equity or debt financing of capital-intensive investment projects.
Reduction of
investment costs
At least 15%18.3%

Meeting of customers’ demand for services


KPI* 2015, plan 2015, actual 2015 RESULTS
Implementation of strategy in 2015 (measures completed and achievements)
2016 PLANS
Realization of strategy in 2016 (planned events and indicators)
List of risks that affect implementation of strategy
Meeting deadlines
for technological
Not more than 1.1 1.0236
  • The Company signed 210 contracts for technological connection
  • The total connected capacity increased by 47.8% to 8.2 GW
  • The Council of Customers of Federal Grid Company was established in order to improve customer relations and the transparency of the Company’s operations
  • The Company conducts public discussions of its most important draft documents, such as the Long-Term Development Programme and investment programme
  • Develop schemes for the financing of fees for technological connection that would cover the Company’s connection costs, on the one hand, and take the customers’ interest into account, on the other hand
  • Support the work of the Customer Council
  • Improve the system for monitoring of service reliability and quality indicators
Distorted priorities of the technical policy and investment planning
  • Suboptimal allocation of financial resources
  • Restricted opportunities for equity or debt financing of capital-intensive investment projects.
* The Board of Directors annually approves Methodology for Calculation and Evaluation of Key Performance Indicators for Federal Grid’s Senior Management. The complete list of KPIs is available in CORPORATE GOVERNANCE REPORT / Governance System
** Detailed information about the key risk factors and risk management actions is available in CORPORATE GOVERNANCE REPORT / Control System / Risk Factors.

Strategy in the Context of Sustainable Development

Traditionally, sustainable development is based on the ambition to meet the needs of the existing generation without threatening the needs of future generations. This can only be done if all stakeholders’ positions are taken into account, with continuous communication with these stakeholders and integration of these practices in all of the Company’s business processes.

Owing to its specific role in the energy sector, economy and social development, Federal Grid Company expands and complements the traditional concept of sustainability in its operations.


  • To build mechanisms and practices for the synchronisation of stakeholder plans that envisage the development and expansion of UNEG
  • To achieve import substitution for the purposes of innovative development of the national energy sector and higher energy safety of the Russian Federation
  • To form a talent pool for the smart energy sector
  • To develop responsible HR management practices
  • To improve labour protection and industrial safety
  • To strengthen environmental protection and improve the energy efficiency of grid operations
  • To ensure a fair distribution of economic value and assess the economic expediency of implementing innovations and new technologies
  • To integrate Corporate Social Responsibility (CSR) strategy in the internal business processes

As a monopoly operator of UNEG, The Company ensures electricity transmission via backbone electric grids and is responsible for providing a reliable power supply for consumers across the Russian Federation.

The Company’s responsibility for the efficient administration and development of UNEG is not only to ensure a safe, reliable and uninterrupted electricity supply but also to provide nondiscriminatory access to its grid services that should be provided in a transparent, honest (corruption-free) and innovations-based manner. This is why one of the Company’s most important tasks in terms of philosophy and values of corporate social responsibility and sustainable development is to continuously seek the balance between public and economic interests in Federal Grid’s work.

Federal Grid Company, as one of the largest electric power companies in Russia, is responsible for the condition of UNEG, the lynchpin of the national grid system and a vital public infrastructure. Having assessed existing problems and prospective threats, the Company developed and began implementing a Long-Term Development Programme aimed, among other things, at the renovation, modernisation and innovative development of UNEG. The success of this programme largely depends on constructive cooperation between the Company and a broad range of stakeholders. These include suppliers, contractors, project and R&D think tanks, and distribution electric grid companies, IDGCs, customers, generators, infrastructure regulators, labour unions, government authorities, public and environmental organisations and the expert community.

Regular, open communication with stakeholders plays an important role, as it allows us to better understand their expectations and to use a targetoriented approach for shaping the corporate social responsibility agenda. The communication channels we use for the dialogue include congress and exhibition arrangements, multilateral discussions, raising awareness through mass media.


Our social reports are prepared in accordance with international standards for non-financial statement disclosure: GRI Guidelines, the GRI energy protocol, AA 1000 SES standard.

As part of preparing the Social Report, the Company discusses its key topic with stakeholders and collects disclosure requests. Prior to publication, the text of the Report is discussed publicly in the form of hearings held either in absentia or in person.

Federal Grid Company’s social responsibility and corporate sustainability reports are available in the website www.fsk-ees.ru in the section About the Company/Corporate Social Responsibility

Stakeholder Engagement

Stakeholders Understanding of Social Responsibility Progress in 2015
The State and general public
  • Ensuring the reliable and uninterrupted power supply
  • Implementation of priority public sector projects
  • Transparency and efficiency of operations, meeting with the needs of the economy
  • Meeting obligations under the investment programme
  • Meetings with the heads of regions
  • Signing several cooperation agreements with the regional authorities (Krasnodar krai, Republic of Tatarstan)
  • Implementing import substitution programme
  • Openness and flexibility in consumer relations
  • Support of Russian machine manufacturing industry in order to implement import substitution processes
  • Creating and arranging meetings of the Consumer Council
  • Signing cooperation agreements (with RZD)
Shareholders and investors
  • Transparency of business processes
  • Growth in shareholder value
  • Holding General Meeting of Shareholders
  • Arranging meetings of Federal Grid Company’s senior executives with analysts from investment banks and funds, and rating agencies
  • Holding consultation meetings with minority shareholders – individuals
  • Participation in investment activities, such as forums, conferences and meetings with investors
  • Creating decent working conditions
  • Providing opportunities for professional and personal growth
  • Taking measures for attracting and retaining young specialists
  • Implementing a Corporate Housing Programme
  • Sports and fitness events
  • Doors Open Days for employees’ children
  • Conducting professional skills competitions and ensuring professional training, including within the “Knowledge Days”
Suppliers and Contractors
  • Creating transparent competitive environment
  • Using a market-based pricing model
  • Signing agreements with Russian and foreign manufacturers
  • Supporting domestic suppliers in access to foreign markets
Local Communities and Environmental Team
  • Reducing negative impact on the environment
  • Implementing environmental safety policy
  • Cooperation with the World Wildlife Fund (WWF) on conservation of oriental storks and prevention of bird death on power lines
  • Participation in Earth Day
Science and Education
  • Promoting industry-specific science and education
  • Personnel training and ensuring generational continuity
  • Applying innovative technologies that reduce environmental impact
  • Cooperating with scientific organisations and placing orders for R&D
  • R&D and technical partnership with SIGRE Russian National Committee
  • Organising guest lectures and on-the-job training for students
  • Organising students construction teams
  • Participating in events for young people, such as forums, conferences and seminars
  • Cooperating with the Russian Geographic Society (celebrations of the 70th anniversary of victory in the Great Patriotic War)1
  • Cooperating with the Russian Chess Federation
Mass Media
  • Transparency of business processes
  • Ensuring information accessibility of the Company’s activities
  • Holding media events (briefings, press-points, and others)
  • Distributing press releases on a timely basis
  • Handling requests from mass media

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