Since PJSC ROSSETI does not perform any operating activities and is only in charge of corporate management, country and regional risks are primarily incurred by the Company’s SDCs.
Risks associated with the political and economic situation in the country and regions.
Country and regional risks incurred by the Company and SDCs are determined primarily by macroeconomic factors existing globally, nationwide, and at regional level. These factors may cause the risks that will affect the Company’s and SDCs’ possibilities for borrowing and reduce their liquidity, investment and operating efficiency, and, eventually, shareholder value. Additionally, the global economic crisis has a harmful effect on industrial production and electricity consumption, which reduces revenues of the Company and SDCs.
The volatile external conditions, lower credit ratings, higher inflationary pressures contribute to the ROSSETI Group’s economic decline in the regions and an increase in borrowing costs and lead to the risk of a potential growth in SDCs’ receivables.
With the aim of mitigating the macroeconomic risk, the Company and SDCs take comprehensive measures to optimize the share of borrowings in their total capital, take out fixed interest rate loans, and enhance the efficiency of operating and investment expenses of the Company and SDCs.
The impact of macroeconomic risks on the volume of electricity distribution services provided by the Company’s SDCs and measures to minimize the consequences of materialized risks are described in more detail in the section “Industry-Specific Risks.”
Risks associated with possible military conflicts and their implications, imposition of the state of emergency, and strikes in the regions.
A significant contributor to the uninterrupted operation of the Russian electric grid sector will be efforts to ensure the safety and security of its facilities. Damage to SDCs’ activities can be caused by illegal interference in SDCs’ operations, including acts of terrorism, as well as international terrorism, and by nationalists from certain countries. These acts, along with potential governmental counterterrorism measures and the imposition of the state of emergency in certain regions where the Company’s SDCs operate, can have an adverse effect not only on fulfilling SDCs’ functions specified in the Strategy for Development of the Electric Grid Sector of the Russian Federation in general but also on the amount of investment and on the value of the Company’s securities.
However, it is expertly estimated that these risks are unlikely to occur.
Risks associated with the geographical characteristics of the country(ies) and regions, including the potential effects of natural disasters, interruptions to transportation due to remoteness and/or inaccessibility, etc.
The Company’s SDCs operate in a considerable area of Russia with diverse climatic, natural, and temperature conditions. Therefore, there are risks associated with natural and climatic emergencies (hurricanes, heavy rains, high water and floods, snow drifts, icing, power outages due to fires, domestic gas explosions, etc.). This can result in interruptions to the region’s electricity supply and transportation.
Detailed information concerning measures to reduce technological risks is contained in Section 2.4.7.
Risks associated with high likelihood of natural disasters and with possible interruptions to transportation due to remoteness and/or inaccessibility are assessed by the Company as negligible.
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