Compliance risk

Frequent changes of the Russian legislation (keeping in mind state regulation of the sector), wide range of regulatory requirements and limitations are risk factors related to failures to observe legislation and other regulatory documents, requirements of regulators and supervisors as well as local documents of the Company determining internal policy, rules and procedures. The Company’s operations are regulated and controlled by various institutions (Federal Antimonopoly Service, Federal Tariff Service, Federal Service for Financial Markets, Federal Tax Service, Ministry of Energy, Federal Financial Monitoring Service, Federal Technical Supervision Service, Audit Chamber, etc.). Besides, being a state-owned company, IDGC of Urals, OAO executes a range of instructions from the President and Government. In this respect the risk factors are of high importance.

IDGC of Urals, being a monopolist, is subject to risk related to violations of anti-monopoly legislation in terms of connection services and disclosure of information on the services and tender activities. To decrease the risk we monitor prompt processing of applications and appeals from consumers, we also regulate and control timely disclosure of information according to the Russian legislation. Federal Service for Securities Markets controls the observation of Russian legislation on securities, including significant facts that may influence securities prices and counter efforts against illegal use of insider information. Changes in tax legislation may lead to decreased profitability indicators and increased tax burden.

The Company owns, rents or has a right for unlimited use of the majority of land plots with grid infrastructure on them. Nevertheless, some land plots have no proper registration. Besides, the legislation stipulates the term for re-registration of a right for unlimited use of property or rent till 01.01.2015. To minimize the risk the Company implements a program dealing with re-registration of right for unlimited use.

Frequent changes of the Russian legislation are risk factors related to failures to observe requirements of regulators and supervisors

To minimize the risk factors the Company takes measures to improve compliance control. The Company’s BoD approved local documents aimed at the increased efficiency and transparency of operations and anti-corruption measures. We also monitor changes of legislation related to various aspects of the Company’s operations.