The main risk factors of the Company
The risks information presented below contains the name of the risks most possible in the Company, a brief description of such risks, the main risk management measures implemented in 2018, as well as a graphical depiction of the risk significance assessment and the relevant dynamics compared to 2017 during 2018. The significance of risk is understood as a combination of the probability of occurrence of the risk and the scale of consequences for the Company in monetary and other terms. There was taken the following scale:
Significance level | Dynamics | ||
---|---|---|---|
Critical | No changes (or the dynamics is insignificant) | ||
Significant | Upward trend | ||
Moderate | Downward trend |
Seq No. | Risk Name | Risk description | Risk minimization measures | Risk assessment and dynamics |
---|---|---|---|---|
Industry risks | ||||
1 | Tariff risks | Tariff regulation policy, pursued by the state, takes into account the need to contain inflation and provides for changes in regulated tariffs of network organizations in the | To mitigate the consequences of the implementation of this risk, the Company submits substantiating materials to the regulatory bodies confirming the level of economically justified expenses of the Issuer, defends the position for the necessary faster growth of costs as a backbone Company, the “holder of the boiler” of the Krasnodar Territory and the Republic of Adygea, forms and directs disagreements to the Federal Anti-Monopoly Service of Russia | |
2 | Risk of reducing the volume of electricity transmission services | The risk is due to the possibility of reducing the demand for electricity and the optimization by large consumers of external power supply diagram | In view of the economic development of the regions, covered by the Company, there was a clear upward trend in electricity consumption over the past few years. Nevertheless, the Company carries out:
| |
3 | Risks associated with the provision of technological connection services to the applicants | Risks are caused by the possible occurrence of a deficit in the source of funding for the implementation of contracts for the implementation of technological connection, failure of the applicants to fulfill obligations under contracts for the implementation of technological connection, failure to use by the applicants of the power obtained during technological connection. Due to the influence of these factors, a decrease in the Company’s revenue is possible after technological connection | To mitigate the effects of the risk involvement, the Company:
| |
4 | Risk associated with non-payment for electricity transmission services rendered (with appearing of contested and undisputed overdue receivables) on the part of consumers | This risk is conditioned by insufficiency of the existing mechanisms of bringing incentive to consumers for timely payments for electricity transmission services, same as the influence of macro-economic factors (reduction of consumer solvency) | To mitigate the consequences of this risk, the Company:
| |
Country and regional risks | ||||
5 | Risks associated with the political and economic situation in the country and the region | The risks are subject to a decrease in the economic activity of the constituent entities of the Russian Federation in the regions of presence, with an increase in the cost of credit, which, in turn, may be caused by instability of the external environment, international sanctions, lower credit ratings, and rising of inflationary pressure. The influence of these factors may lead to a reduction in the Company’s revenue, in its shareholder value. | With a view of the economic advancement of the regions, covered by the Company, there is a clear upward trend in electricity consumption over the past few years. In connection with the improvement of the country’s macroeconomic indicators, including an acceptable level of inflation, the Company has seen a decrease in the average capital borrowing rate. To strengthen its position, the Company undertakes:
| |
6 | Risks associated with possible conflicts and their occurrence, the imposition of emergency state and strikes in the regions | Risks are caused by possible acts of unlawful interference in the activities of the Society, including terrorist acts, in particular, caused by representatives of international terrorism, and nationalist elements of individual states. Such actions may have a negative impact on the Company’s activities. | To prevent the occurrence of risks, the Company:
| |
7 | Risks associated with the geographical features of the country or region, including increased risk of natural disasters, the possible termination of transport communication | Risks due to emergency situations of natural and climatic character (impact of hurricanes, torrential rains, floods and high water, snow debris, icing), the same as disruptions in power supply as a result of fires, domestic explosions, etc. As a result, electricity supply, transport can be interrupted in the region | To prevent the occurrence of risks, the Company:
| |
Financial risks | ||||
8 | Risks associated with currency fluctuations | Negative impact on the results of the Company’s financial and economic activities due to changes in currency exchange rates | To prevent the occurrence of risks, the Company:
| |
9 | Risks associated with changes in interest rates | Influence on the possible growth of the Company’s expenses of attracting credit funds for financing investment programs | In order to manage these risks, the Company:
| |
10 | The risks associated with the effects of inflation | The influence of consumer price index growth on interest expenses, costs, profitability, and, consequently, on the financial condition and the ability to meet obligations by the Company | To prevent the occurrence of risks, the Company:
| |
Legal risks | ||||
11 | Legal risks | Risks associated with changes in legislation, judicial practice on the issues of the Company’s activities, disbalance of interests between the Company and other electric power engineering entities | For risks mitigation, the Company undertakes to:
| |
12 | Compliance risks | Risks associated with regulatory sanctions in the case of possible non-compliance of the Company’s activities with the requirements of the legislation, local regulatory acts, and other mandatory regulatory documents | In order to manage these risks, the Company:
| |
Risk of loss of business reputation | ||||
13 | Reputation risk | The risk is associated with the possible default of the Company in full liabilities towards customers and counterparties | Due to the fact that the Company is the subject of a natural monopoly and there is an annual increase in the number of electricity consumers, the Company has worked out a positive practice for long-term interaction with counterparties | |
Strategic risk | ||||
14 | Strategic risk | The risk of failure to achieve the strategic goals and objectives of the Company due to potential changes in the internal and external environment of the Company | In order to manage this risk, the Company
| |
Risks associated with the Company’s activities | ||||
15 | Operational and technological risk | Reducing the reliability of power supply to consumers, due to factors such as emergency situations of natural and man-made, leading to the disruption of the efficiency of electrical equipment; high proportion of equipment with excess service life; failure to comply with regulatory and technical requirements in terms of exceeding the established allowable values of the technological parameters of operation of electrical equipment | To prevent the implementation of risks, the Company carries out:
| |
16 | Investment risk | Reduction of sources of financing of the Company’s investment programs in the event of a deterioration in its financial and economic condition and, as a result, reduction of tariff revenue in case investment programs are not implemented. Violation of the planned deadlines for the commissioning of investment program facilities for reasons of non-fulfillment/ untimely execution by contractors and suppliers of their obligations | To prevent the occurrence of risks, the Company:
| |