Federal and regional risks

Federal and regional risks are mainly determined by global macro-economical factors occurring on global level, in Russia and regions. These factors may have a negative impact on possible fund raising, liquidity ratios, investment and operating efficiency and, finally, on shareholder value of the Company. Besides, recession negatively influences the production volume and energy consumption causing Company’s revenues to decline. The key factor of the macro-economical risk is an ongoing global crisis influencing commodities and financial market indicators: oil and energy prices as well as primary resources prices, cost of capital, exchange rates, inflation. The Russian economy, along with BRICS economies, belongs to emerging markets and is vulnerable to global recession. This is determined by its dependence on energy resource prices, low volume and volatility of the Russian stock market, transiency of domestic bank system. To minimize the consequences of the risk we undertake measures aimed at the optimization of debt share in overall capital structure, attraction of long-term borrowings and loans with fixed interest rates, increased efficiency of operating and investment expenses of the Company.

Regional risks appear when a regional regulator ignores a part of reasonable expenses recited by the Company for inclusion into a tariff. This fact may have a strong impact on the implementation of the investment program. We do not expect unfavorable changes of political situation in the service area impinging our operations and economic situation in the short run. The majority of such risks cannot be controlled by the Company due to their scale. In case political and economical situation in Russia or any constituent part of it undermining our operations is upset, the Company intends to take anti-crisis measures to reduce negative effects as much as possible (cost-cutting, decreased investment plans, reduced debt financing of operations, well-balanced financial policy). We also work in close cooperation with governmental bodies and other interested parties to reduce the risks. A possibility of military conflicts and state of emergency in Russia and its constituent parts is low. In case military conflicts occur, the Company may be influenced by risks of disabling of fixed assets. We cover the risks via insurance of a major part of our assets.