Shareholder value risk

According to our development strategy till 2015 (2020 in perspective) we implement opportunities for future growth and profitability management. Shareholder value of the company is influenced by many internal and external factors. IDGC of Urals is included into the list of monopolistic companies subject to state regulation according to the Russian legislation. In this respect federal and regional regulators set and regulate tariffs for services rendered by the Company. To constrain tariff growth for end users the state is entitled to limit tariff growth parameters and, correspondingly, profitability of services. Transfer to RAB tariffs decreases shareholder value risk, reducing the influence of subjective factors on tariff decisions but it does not still eliminate the risk. The execution of long-term RAB parameters is a prerequisite for the achievement of shareholder goals. To minimize the risk the Company implements cost-reducing programs, ensures well-balanced planning of operations according to the approved tariffs, controls the execution of the approved business plan, participates in the preparation of regional development programs alongside with local authorities in terms of volume and resources of financing.

A significant risk factor is competitiveness for tariff revenues with regional gridcos in each region. To minimize the risk the Company intends to take measures to decrease current tariff disparities leading to disproportionate revenue growth of regional gridcos. A significant risk factor is violations of anti-monopoly legislation by the Company. The risks of anti-monopoly regulation are mainly related to connection services. Appeals to territorial FAS offices and subsequent initiation of proceedings on violation of legislation on connection may be caused by violations of consumer rights. In particular, rejections to connect, failures to observe terms for connection stipulated by the legislation and other factors may cause the risks. Additional negative factor is a right of FAS for a broad interpretation of commodities market given by the current legislation. Thus, a reasonable complaint may incur turnover-based fine calculated on the basis of the overall revenues gained from the whole service area.

To reduce the risk factors the Company improves connection processes simplifying internal procedures and implementing new forms of client services (for example, on-line services).