About Russian Utilities Systems
Russian Utilities Systems is the only multi-product private federal company that operates successfully in the Russian housing and utilities sector; it is the country’s largest water and sewerage system operator.
Russian Utilities Systems comprises 18 companies. Russian Utilities Systems Management JSC performs the functions of the sole executive body. The major shareholder of Russian Utilities Systems is T Plus PJSC.
A holding structure comprising Russian Utilities Systems and Russian Utilities Systems Management JSC were created in 2013. The separation of asset holding and asset management functions makes it possible to minimize the key risks associated with the Company’s operations.See further information about the Group’s structure in Section 1.2 (Organization Chart).
Russian Utilities Systems Management JSC performs the functions of the sole executive body in all organizations within the Company’s control loop.
The companies within the control loop of Russian Utilities Systems carry out their operations in 8 regions of the Russian Federation: Perm Krai, Amur Region, Kirov Region, Penza Region, Samara Region, Tambov Region, Ulyanovsk Region and the Republic of Karelia. The Company does its best to build up mutually beneficial relations of partnership with the local authorities in the regions of its operation and offers comprehensive solutions for the community infrastructure development.In November 2017, Russian Utilities Systems entered into the agreement on acquisition of Investresurs LLC and Water and Sewer Enterprise LLC that own a 51% interest in Urban Water and Sewer Enterprise LLC (Penza) with the deferred transfer of the title and closed the acquisition transaction in April 2018.
The Group's operations in the regions of operation are based on the multi-product business model that comprises heat supply, water supply and sewerage systems and are carried out under lease agreements for the communal utility assets and under concession agreements. The Company's long-term development strategy provides for the further expansion of its business, the development of the communal infrastructure in Russian cities and towns and the rendering of high-quality services to our consumers. Russian Utilities Systems is implementing a far-reaching investment program designed to modernize the housing and utilities systems in the regions of its operation.
In order to minimize the risks, the Group's corporate structure is based on the separation of the functions of assets holding (Russian Utilities Systems) and assets management (Russian Utilities Systems Management JSC).
The direct control loop of Russian Utilities Systems covers 18 companies rendering housing and utility services in the regions of their operation as well as the industry's core companies:
- Russian Utilities Systems Engineering LLC, the largest general contractor in the Russian housing and utilities sector. Since 2012, it has been rendering design and overhaul repair services and actively developing the utilities market in Russia. 12 regions of operation, over 2,500 projects, over 120 employees in 8 branches across the country. The Company creates sophisticated functional and technological facilities using state-of-the-art technologies and advanced engineering solutions;
- Expert Service Center LLC renders accounting services, financial auditing services and tax consulting services;
- Investresurs LLC renders comprehensive consulting services related to the business and management in the housing and utilities sector.
Mission and Values
The mission of Russian Utilities Systems is to take care of health and welfare of residents of Russian regions in which the Group carries out its business and to ensure comfort and convenience in their houses and buildings.
The mission of Russian Utilities Systems is not just a slogan. It reflects the calling the Group serves and highlights the intended purpose of its operations.
Within the 15 years of its existence, the Group has undergone the period of active transformation and adopted the corporate mission and values that guide its decisions and actions.
The corporate values allow Russian Utilities Systems to achieve its objectives in key areas:
- to be an attractive employer and a source of income for its employees;
- to be a stable provider of services and the guarantor for the quality for the communities;
- to be a reliable partner for municipal authorities in developing cities and towns;
- to be an efficient business and make profit for its shareholders.
Business Model and Value Creation
|Value delivery to the Company||Value delivery to stakeholders|
Finance – ensuring economic efficiency and sustainability of the business
106.64% revenue increase
60% EBITDA increase
Natural capital – environment protection
> 120 million rubles in aggregate was spent on the environment protection in 2017
943 million rubles in aggregate was spent on the implementation of environmental investment projects in 2017
Human Capital – talent pool development
15% increase in employee involvement (according to the survey in early 2018)
40% increase in investments in personnel training and education
13% average salary rise
10% headcount growth
Social capital – contribution to the development of the regions of the Group's operation
> 4,250 million rubles of taxes was paid in all regions of our operation in 2017
Group's contractual obligations in the regions of its operation:
Infrastructure – increased performance
1,750 million rubles invested in the infrastructure in 2017
121 km of new water supply lines
The number of faults in the water supply networks decreased by 230 incidents
5% decrease in the number of faults per 100 km of the sewerage networks
Intellectual capital – competitive services and technological leadership
Over 300 research articles and papers were published.
Position in the Industry
Russian Utilities Systems is one of the largest private companies in the water supply and sewerage sector and the only multi-product operator in that market.
|Indicator||Number of WSS units||Revenue, mln rubles|
|Under control of business structures, including||31||78,593|
|Russian Utilities Systems||8||30,657|
|Leader Management Company||1||2,489|
Today, the Russian housing and public utilities industry is a large multi-sector complex that comprises about 3.5 billion square meters of the housing stock, multi-purpose engineering infrastructure that ensure the rendering of such services as heat/water/power supply and wastewater disposal, cleaning services, removal and recycle of household waste, territory improvement and landscaping, etc.
About 30% of all capital assets of the country is attributed to the housing and public utilities sector. The housing and utilities complex is one of the most vital components of the life support system, covering almost all population of the country and, therefore, holding a unique position among other industries. In the housing and public utilities industry, the authorities of various levels, businesses and regulators still share the responsibility for delivering stable, reliable and high-quality services to consumers.
Specific aspects of the housing and public utilities industry:
- great significance for the community;
- natural monopoly and subjection to government regulation (tariffs);
- being tied to the market of a particular region;
- large relative weight of public ownership of the communal infrastructure;
- power intensity (about 10% of the electric and heat power generated in the country).
In the course of the industry reformation, the functions of holding, management and regulation in the housing and utilities industry reallocated among the government and private operators interested in increasing the performance and in improving the quality and reliability of the services rendered.
Today, the private operators in the housing and utilities industry are more effective in coping with the tasks of improving the quality of utility services and ensuring the operating efficiency, which includes increasing utility charge collection, implementing targeted cost and loss reduction program, improving the worker productivity level, etc.
The potential investment attractiveness of the utilities market is based on the guaranteed sales of products.
The industry has significant investment attractiveness. For example, the cost of the tap water, if compared to the bottled water, is extremely underestimated, which makes it possible to forecast a stable revenue growth for water supply and sewerage businesses on a long-term horizon.
At present, large operators has no more than 30% of the water supply and sewerage market.
In the short- and mid-run, the geographical expansion of the market players will take place not due to the existing market re-division by competitors but due to the penetration to new territories covered by municipal unitary enterprises and the transition to the concession as a major mechanism of public-private partnership.
"Concession" means a contract for creation or reconstruction, at the expense of an investor (or co-funding in cooperation with the concession provider), of any real property (as a rule) item owned by the state, which grants the investor the right to operate such real property item on a fee basis collecting the revenue for its own benefit.
"Concession agreement" means a form of public-private partnership, private sector involvement in managing state-owned property or in rendering services, which are generally rendered by the state, under mutually beneficial conditions.
Russian Utilities Systems is already the largest private federal company in the housing and utilities sector. We are guided by the principle of sustainable value creation for the key groups of our stakeholders – members and investors, clients and local communities, employees and partners — in the long-run. We seek to strengthen and expand our leadership by developing the communal infrastructure in Russian cities and towns and providing high-quality services to our consumers.
The strategic goal of the Company is to create the largest group of companies rendering high-quality utility services.
Our strategy implies retaining our leading positions in the market and expanding the business of Russian Utilities Systems by beginning operations in new towns and cities, diversifying the range of our services and improving their quality in those regions where the Company has already been carrying out its operations.
Retaining the leading position in the market implies retaining the status of the largest private operator in terms of the revenue and improving the profitability, including by means of increased labor productivity and operational efficiency, innovative technologies and increased customer satisfaction, centralization and optimization of management systems.
According to the analysis performed in cooperation with Ernst & Young under the EY Growth Navigator™ program, the core areas for the Company's efficiency growth are connected with human resources and operations.
At the same time, the presence in the housing and utilities market in the short- and mid-run can be primarily expanded through the penetration to new territories that are currently operated by municipal unitary enterprises. The shift from municipal unitary enterprises to the concession as the core mechanism of the public-private partnership is backed up by the Russian Government.
Today, the risk of accidents is going down markedly in those constituents of the Russian Federation where concession holders operate under concession agreements rather than where the systems are operated by state or municipal unitary enterprises.
Russian Utilities Systems takes an active part in the industry transformation process. We support the development of a competitive environment in the utilities sector, the creation of efficient and transparent practices and the enhancement of the sector's investment attractiveness. The Group is committed to the principle of mutually beneficial co-operation with local authorities as the Group's business is community-oriented.
The Group has vast opportunities and resources to modernize the communal infrastructure in the regions of the Russian Federation and to improve the service quality steadily. Being a large company, the Group raises investments to develop the utility systems and to ensure the use of modern equipment and technologies in the housing and utilities industry.
Cooperating with the Group, municipal entities can enjoy the new level of utilities management, confidence in reliable operation and development of the communal infrastructure and increased tax payments to local budgets.
Here are some interesting figures: in the regions where concessions are applied (there are 35 such constituents of the Russian Federation now), the rate of accidents has reduced by 47% in heat supply networks and by 21% in water supply network.
|To improve the existing asset performance|
|5% profitability from operating tariffing activity||The positive dynamics of operating activity profitability has been achieved|
Actions to improve operating efficiency
Pilots were launched under the Model Water and Sewer Enterprise project, including:
|Centralization of functions||The accounting and treasury functions were transferred to the common service center.|
|Search for and use of the most efficient and advanced technologies||
The following actions were taken:
|To develop the business in new territories|
|Acquisition of rights to water supply and sewerage assets in the Russian Federation in accordance with the applicable laws; conclusion of high-priority concession agreements||
|To change the institutional environment|
Active lobbying of legislative initiatives in order to:
The Group contributed to introducing some changes in the legislation that allow: