Investment risk

The Company actively invests to update and expand its infrastructure, encountering a risk related to the efficiency decrease and capex depreciation during the execution of investment programs, innovative development and R&D programs. Growing investment programs demand considerable financial resources, both internal and external, raised under conditions satisfying RAB parameters, thus, being a factor of investment risk. Even if the Company has enough financial resources to finance its investment program, the Company may violate planned terms for capex and delay the commissioning of the facilities from its investment program, including failures to discharge or untimely discharge of liabilities by contractors and suppliers.

Government Decree #159 dd. 27.02.2013 on the changes into the Rules dealing with the approval of investment programs of energy companies with state participation and grid companies stipulated the exclusion of facilities from the Company’s investment program that are not covered by regional development programs. Here we can encounter a risk related to increased incomplete construction due to the exclusion of facilities under construction that are not included into regional development programs from the investment program.

To decrease the investment risk the Company prepares its investment program taking into account the following efficiency criteria: increased availability of network infrastructure, decreased depreciation and update of grid facilities, high utilization of commissioned capacities. Integration of the investment program with regional development plans is a compulsory condition for the preparation of the investment program. Besides, the Company monitors investment programs and financing and analyzes reasons that led to deviation from plan. The Company implements investment project management, one of the areas of knowledge being investment project risk management. We take measures aimed at the increase of project implementation quality and investment efficiency, decrease of construction unit cost, high utilization of commissioned facilities, development and implementation of comparative analysis system dealing with unit cost of construction-assembly works and materials, arrangement of innovative activities management system, automated investment management system.