Сorporate governance and control scheme

In order to improve and systematize the corporate governance of the Company,ensuring greater transparency in the management of Kubanenergo PJSC and confirming the continued readiness to follow the standards of good corporate governance since 2006, the Company has a Corporate Governance Code of the CompanyThe current edition was approved by the Board of Directors of OJSC Kubanenergo on March 6, 2013, Minutes under No. 154/2013., based on the legislation of the Russian Federation, in force at the time of its approval,the Code of Corporate Conduct recommended for use by the FCSM of Russia by Order No. 421/р of April 4, 2002, recognized in international practice as the OECD Principles of Corporate Governance. The Company fully complies with the principles of its Corporate Governance Code.

The Company also adheres to the principles and recommendations of the Corporate Governance Code recommended by the Bank of Russia letter of 10.04.2014 No. 06-52 / 2463 for use by joint-stock companies whose securities are admitted to on-exchange trading (hereinafter referred to as the Corporate Governance Code). Report on the observance of the Corporate Governance Code by Kubanenergo PJSC in 2018 is included in Appendix 3. The Company’s Board of Directors confirms that the information contained in this report includes complete and reliable information on the Company’s compliance with the principles and recommendations of the Corporate Governance Code for 2018.

To ensure proper corporate governance and its enhancement the Company also has the following provisionsThe other internal documents of Kubanenergo PJSC on corporate governance are listed on the website — section ’About Us/ Constituent and internal documents.’, concerning the:

  • General Shareholders Meeting,
  • Board of Directors,
  • Management Board,
  • Auditing Commission,
  • Board of Directors committees,
  • Insider Information
  • Information Policy,
  • Corporate Secretary of the Company,
  • Dividend Policy, etc.

In the reporting year, the internal audit department assessed the Company’s corporate governance system for 2017, according to the results of which the Company’s corporate management was recognized as valid with remarks (received 400 points out of 509 possible).

The results of the evaluation of the corporate governance of the Company for 2017 by the criteria
Components Number of questions Maximum rating Evaluation of Kubanenergo PJSC
Number of points Weight in the evaluation Number of points Weight in the evaluation Level of compliance of the corporate governance system with the established criteria
Shareholder rights 22 79 16% 66 13% 84%
Board of Directors 49 166 33% 109 21% 66%
Executive management 5 40 8% 32 6% 80%
Transparency and disclosure of information 15 130 26% 110 22% 85%
Risk management, internal control and internal audit 16 63 12% 60 12% 95%
Corporate social responsibility, business ethics 6 31 6% 23 5% 74%
Overall rating 113 509 100% 400 79% 79%

August 22, 2018 the Board of Directors of the Company approved an internal audit report for the evaluation of the effectiveness of the corporate governance system for 2017.

The following measures were taken in the reporting year, to raise the level of corporate governance of Kubanenergo PJSC:
The Company’s Charter was approved in a new edition. The purpose of approval of a new Charter edition is to bring it in compliance with the legislation of the Russian Federation and the Corporate Governance Code:
  • shareholders have an additional opportunity to send bulletins by e-mail, the same as to post them on the Company’s website in the Internet;
  • competence of the Board of Directors:
    • supplemented by making decisions on the acceptance of offers to acquire additional shares of the Company,
    • changed to determine the position on the approval of the business plan of specialized subsidiaries and affiliates,
    • specified in terms of control and organization of the internal audit subdivision;
  • the procedure for determining the quorum for holding a meeting of the Board of Directors has been clarified for making decisions on whether to consent to or for subsequent approval of transactions;
  • the frequency of issues for the consideration of documents of subsidiaries and affiliates has been synchronized;
  • the list and procedure are clarified for the provision and access of shareholders to information, kept by the Company;
  • the possibility of sending notifications to the Company about the indication of possible interest in making the Company’s transactions through the information and telecommunication Internet network and e-mail
Regulation for the Board of Directors were approved in a new edition The new wording of the Regulation:
  • the requirements of the Federal Law No. 208-ФЗ dated December 26, 1995 "On Joint-Stock Companies" of the Corporate Governance Code were taken into account;
  • the role of the Board of Directors has been clarified in control over the activities of the Company’s executive bodies and the legitimate interests of the Company’s shareholders;
  • for organizing and conducting meetings of the Board of Directors, there was provided a modern software
Management Board Regulation approved in a new edition The new wording of the Regulation:
  • there were considered the following requirements of Federal Law No. 208-ФЗ dated December 26, 1995 "On Joint-Stock Companies";
  • the possibility of using modern software is provided for organizing and conducting meetings of the Management Board
Regulation for the payment of remuneration and compensation to the members of the Auditing Commission has been approved in a new edition The purpose of adopting a new version of Regulation is to improve corporate governance practices; this document specifies the deadlines for the payment of remuneration to the Auditing Commission members and clarifies the list of Provision non-applicants
The information policy Regulation was approved in a new edition The new wording of the Regulation provides for the mandatory annual review of the Company’s compliance with its information policy
Regulation on the Dividend Policy was approved in a new edition The new version of the Regulation clarifies the following provisions:
  • aspects of Dividend Policy;
  • determining the dividends rate (accounting for consolidated financial statements in determining the amount of dividends);
  • dividend calculation procedure;
  • conditions and grounds for interim dividend payments
The Regulation about the insider information were approved in a new edition The list of insiders of the second class includes employees, responsible for the following functions in the Company:
  • ensuring the implementation of investment programs, the development of sources of financing investment programs, capital construction and repair activities;
  • tariff making, interaction with regulatory bodies, electricity market participants, customers, ensuring the transportation of electricity and power supply, technological connection, technology evolution, and innovations;
  • automated control systems, software administration, IT security;
  • operational and technical management, emergency prevention;
  • paperwork management, case management, and protocol support
The participation of its members in the work of the Board of Directors has made up 98.3% The activity of members of the Board of Directors in the work of this governing body increased in the reporting year by 3.3% compared with the previous year

The Company plans to maintain the achieved level of corporate governance practice and is committed to improving it in the future.