Risks associated with exchange rate changes.
Currently, all revenues and an overwhelming majority of operating and investing expenses of the Company and its SDCs are denominated in rubles. PJSC ROSSETI and its SDCs do not have any foreign currency-denominated loan debts or any investments in foreign companies whose value is exposed to risks associated with exchange rate changes.
Exchange rate changes have a certain adverse impact on the Company’s financial and economic performance. Information about the impact of currency fluctuations on the implementation of capital investment programs is contained below.
Risks associated with interest rate changes.
The Company and SDCs mainly borrow to refinance debts and finance SDCs’ capital investment programs.
The loan portfolio of the Company and SDCs consists mostly of fixed interest rate instruments. To reduce the risk of higher interest costs, the Company and SDCs take measures to minimize the loan portfolio, including by means of optimizing their operating expenses and capital investment programs and by means of using their own funds to partially repay debts.
Risks associated with the effects of inflation.
Changes in the consumer price index have certain effects on SDCs’ interest costs, profitability, and, consequently, the financial condition of the Company and SDCs and their ability to perform obligations.
The government’s monetary policy and the electric grid sector’s tariff regulation policy give consideration to the consumer price level, changes in the actual purchasing power of the ruble, and the situation in the electricity markets, which impacts companies’ profitability.
Risks associated with possible failure to receive money from bank accounts.
The Company and its SDCs are mainly provided with payment and cash services by five key banks ranking among Russia’s 20 largest banks in terms of net asset value. Therefore, this risk is minimized by concentrating a large amount of the Company’s and SDCs’ cash turnover at Russian major banks.
The risk associated with the possible nonrepayment of fixed-term deposits is minimized by setting ceiling limits on deposits with counterparty banks (as a percentage of banks’ asset value as of the latest balance sheet date) and monitoring compliance with such limits.
Risks associated with impaired financial stability and financial solvency.
These risks are determined by the simultaneous and unidirectional effects of several factors, and it is reasonable to single out the following factors:
- set tariffs;
- lower financial solvency of electricity consumers;
- lower volume of electricity distribution services provided;
- inflation factors (higher loan interest rates, inflation, changes in US dollar and euro exchange rates, etc.);
- volatility in the financial markets;
- increased number of network connection requests.
The Company and SDCs manage the risk of impaired financial stability and financial solvency by optimizing their capital structure, monitoring compliance with debt limits under the Regulations for Credit Policy approved by the Boards of Directors of the Company and SDCs, pursuing a policy on receivables and payables management, and implementing other measures that help minimize the potential adverse impact of this risk on the Company and SDCs.
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