RUS

Development Management

Development Prospects

Russian Utilities Systems applies a comprehensive approach to develop its own potential, to benefit the existing market opportunities and create possibilities for further growth and to optimize its activity both in the regions of its operation and in new markets.

Business development in new markets



Potential regions of operation assessment criteria
Project Completion Indicators
Readiness Estimation Criteria of Transfer for Management
Stages of entry into a new territory
Business Case. Entry to a new region – Penza
Current and potential business geography of Russian Utilities Systems
Basic Development Directions in New Regions in Near Future

Development in Regions of Operation

RUS

Internal Development

Corporate Governance

The Company's corporate governance system is built with due account for the recommendations of the Corporate Governance Code approved by the Board of Directors of the Bank of Russia on March 21, 2014, and in line with the best Russian and global corporate governance practices.

Basic Principles of Corporate Management

Governance Structure

The governance structure of Russian Utilities Systems is in line with the Russian best practices in corporate governance.

General Meetings of Shareholders in 2017

Comprehensive list of General Meetings of the Company's Shareholders and business transacted

All resolutions on matters reserved to the General Meeting of the Company's Shareholders in 2017 were adopted by unanimous consent – 100% of votes.

Board of Directors

Composition of the Board of Directors


http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Igor Nikolaevich Dibtsev Chairman of the Board of Directors
  • Born in 1970
  • 1995 – graduated from Ordzhonikidze Moscow University of Management, degree in economics and production site management
  • February 2008 to February 2015 – President, Russian Utilities Systems OJSC
  • March 2015 to the present day – General Director, Renova Aktiv LLC
  • At present – member of governing bodies in a number of organizations:
Organization's name Position
AKADO Holding JSC Chairman of the Board of Directors
Kamensk Uralsky Metallurgical Works OJSC Member of the Board of Directors

http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Aleksandr Nikolaevich Akhmetbekov member of the Board of Directors
  • Born in 1983
  • 2005 – graduated from Lomonosov Moscow State University. Degree in law
  • July 2012 to April 2015 – senior lawyer, Gide Loyrette Nouel East
  • July 2015 to September 2016 – head of the Legal Department, ALTHAUS Consulting LLC
  • October 2016 to the present day – Main Specialist, Renova Aktiv LLC
  • At present – member of governing bodies in a number of organizations:
Organization's name Position
Kamensk Uralsky Foundry JSC Member of the Board of Directors
Technoprom LLC General Director
EZ OtsM JSC Member of the Board of Directors

http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Dmitry Valerievich Vasiliev independent member of the Board of Directors
  • Born in 1962
  • 1984 – Graduated from Voznesensky Leningrad Institute of Finance and Economics. Degree in economics
  • 1994 – graduated from the International Institute for Securities Market Development, Washington, USA
  • 2007 – graduated from Charted Securities Institute under the authority of Financial Services Authority (London, Great Britain)
  • April 2009 to the present day – Managing Director, Institute for Corporate Law and Governance, autonomous non-profit organization
  • October 2010 to April 2013 – member of the Board of Directors of Avtokran LLC
  • October 2010 to April 2013 – member of the Board of Directors of Gazpromkran LLC
  • July 2011 to May 2013 – member of the Board of Directors of Otkritie Bank OJSC
  • June 2012 to January 2013 – member of the Board of Directors of Russian Utilities Systems OJSC
  • January 2012 to December 2015 – member of the Board of Directors of the U.S.-Russia Foundation for Economic Advancement and the Rule of Law (Washington, USA)
  • June 2013 to December 2015 – member of the Supervisory Board (advisory body) under the Board of Directors of Russian Utilities Systems – Management OJSC
  • February 2016 to April 2016 – chairman of the Supervisory Board of Bank Otkritie Financial Corporation PJSC
  • At present – member of governing bodies in a number of organizations:
Organization's name Position
Bank Otkritie Financial Corporation PJSC Member of the Supervisory Board
National Pension Association, non-profit partnership for social stability promotion and pension scheme improvement Member of the Supervisory Board
UC RUSAL Plc (UNITED COMPANY RUSAL Plc) Member of the Board of Directors

http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Ilya Alekseevich Guzeev member of the Board of Directors
  • Born in 1982
  • 2004 – graduated from the State University of Management Degree in economics.
  • February 2011 to December 2013 – head of the HR Department, Russian Utilities Systems OJSC
  • January 2014 to March 2015 – Director for HR and Administrative Matters in the management apparatus of Russian Utilities Systems OJSC
  • March 2015 to the present day – Deputy General Director for HR and General Affairs, Renova Aktiv LLC
  • At present – member of governing bodies in a number of organizations:
Organization's name Position
Kamensk-Uralsky Non-Ferrous Metal Working Plant, OJSC Member of the Board of Directors
BOLSHOI, Interregional Non-state Pension Scheme, JSC Member of the Board of Directors
AKADO Holding JSC Member of the Board of Directors
Russian Utilities Systems Management JSC Member of the Board of Directors

http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Dmitry Mikhailovich Churin member of the Board of Directors
  • Born in 1979
  • 2001 – graduated from the Finance Academy under the Government of the Russian Federation Degree in economics
  • July 2012 to April 2015 – Deputy Chief Financial Officer, RENOVA Group of Companies, CJSC
  • April 2015 to the present day – Deputy General Director for Finance and Economics, Renova Aktiv LLC
  • At present – member of governing bodies in a number of organizations:
Organization's name Position
Kamensk-Uralsky Non-Ferrous Metal Working Plant, OJSC Member of the Board of Directors
EZ OtsM JSC Member of the Board of Directors
AKADO Holding JSC Member of the Board of Directors
PRTs JSC Member of the Board of Directors
Core Competence of Members of the Board of Directors
No. Full name Work experience in Housing and Utilities Finance, economics and audit Strategy Risk Management Corporate governance and legal issues Housing and Utilities HR
1. I.N. Dibtsev from 2008 + + + - + -
2. A.N. Akhmetbekov from 2016 - - + + + -
3. D.V. Vasiliev from 2012 + + + + + +
4. I.A. Guzeev from 2011 + + - - + +
5. D.M. Churin from 2012 + + + - + -
Composition of the Board of Directors detailed per age in 2017
Education of Members of the Board of Directors

The performance of the Board of Directors was not assessed in 2017.

Chairperson of the Board of Directors

The Chairperson of the Board of Directors organizes the activity of the Company's Board of Directors and fulfills other functions provided for by the Regulation on the Procedure for Convening and Holding Meetings of the Company's Board of Directors.

The Chairperson of the Board of Directors is elected by and from among the members of the Company's Board of Directors by a majority of votes. The Chairperson of the Board of Directors cannot be the Company's General Director. Igor Nikolaevich Dibtsev was the Chairperson of the Board of Directors within the period from November 22 to December 31, 2017.


Report on Activities of the Board of Directors

Attendance of Members of the Board of Directors at Meetings of the Board of Directors in 2017
Full name . Status Board of Directors
I.N. Dibtsev Chairperson of the Board of Directors Personal attendance at all the meetings
A.N. Akhmetbekov Member of the Board of Directors Personal attendance at all the meetings
D.V. Vasiliev Independent member of the Board of Directors Personal attendance at all the meetings
I.A. Guzeev Member of the Board of Directors Personal attendance at all the meetings
D.M. Churin Member of the Board of Directors Personal attendance at all the meetings

The average quorum at the meetings of the Board of Directors of Russian Utilities Systems was 100%.

Board Committees

Board Audit Committee's core objectives
Board Audit Committee Composition from November 27 to December 31, 2017

Board Audit Committee's Activity in 2017

General Director


http://www.roscomsys.ru/upload/iblock/72c/NAV_teryan1.jpg
Grigory Sarkisovich Teryan
  • Born in 1981
  • Education: university degree
  • Primary employment: Russian Utilities Systems
  • Position: General Director
  • Secondary employment: Russian Utilities Systems Management JSC
  • Position: Director for Legal and Corporate Affairs
  • Share in the Company's authorized capital: none
  • At present – member of governing bodies of an organization:
Organization's name Position
Russian Utilities Systems Management JSC Chairperson of the Board of Directors

Corporate Governance Development in 2017 and Plans for Year 2018

Risk Management System

Russian Utilities Systems considers the risk management system to be essential for the implementation of the Company's strategy and business plan at all levels of the governance as such system helps to identify and assess the risks on a timely basis in order to prevent, mitigate and monitor them.

Goals and Aims of Risk Management System

In 2017, Russian Utilities Systems took active measures to prevent and mitigate the consequences of risks associated with the Group's activities.

Risk Management Organization Chart
Key Risk Management Areas in 2017

Timely and efficient implementation of the said measures makes it possible to minimize the impact of those risks on the Company' financial state and operations.

List of Key Risks of Russian Utilities Systems

Risk Effect Score
Risk Occurrence Probability Score
Risk Map of Russian Utilities Systems
The annual plan for 2017 was developed to manage the key risks of Russian Utilities Systems
Annual Plan of Actions to Minimize Risks with Potentially Significant Impact on the Company's Activity (red and dark grey areas on the map)
No. Name of the risk Cause of risk occurrence Probable effects Planned actions to minimize the risk
Financial risks / risks of investment
1 Restrictions on borrowing The financial positions of some enterprises make it impossible to secure loan resources for them.

The business model of Russian Utilities Systems cannot ensure a highly liquid security for a loan, which is often the reason why banks deny loans and, therefore, leads to the increase of the cost of borrowings.

To finance development projects and to participate in tenders, it is necessary to open loan limits before the operating activity begins.

Call for early loan repayment

Lack of money to carry out current operations and investment activities

Lack of money to participate in development project tenders

To fix loan limits for Russian Utilities Systems in new banks to diversify the Group's flow of credits

To take anti-recessionary measures in the risk zone to facilitate obtaining loans

To open loan limits for participation in tenders

To obtain a credit rating for the Group

To issue a bonded loan

2 Freezing of tariffs

Significant deterioration in the operating environment

Decrease in the Company's value

Failure to compensate for lost income

To be proactive in terms of government relations in order to influence the legislation development
3 Economically unsound tariff

Other players in the regional market that are in the same "pie" (utility charge ceiling) as the companies of Russian Utilities Systems lobby their own interests

A new player appears in the "pie" of the utility charges for households – the solid municipal waste payment

Business running at a loss

Winding up of the company

To provide high-quality transparent reports to regulatory authorities at regional level to consider the possibility of forming acceptable maximum levels of citizens’ payments

Operating and technical risks

5

Reduced operational reliability of the equipment and rise in the failure rate

Reduction in the amount of finance for repairs (the cost of materials increased; the regulators did not include the full amount of other necessary costs)

Damage to third-party organizations and individuals the compensation for which (extra expenses on restoring to working condition and damage compensation) would lead to the expenses preventing from meeting the planned budget or to the bankruptcy of the resource provider

The lessor will have incontrovertible argument before the court for lease (or concession) termination

Damage to the brand of Russian Utilities Systems in terms of PR and GR, that will impede the extensive geographical development

Failure to achieve technical reliability targets (pursuant to Order 162-pr of the Ministry) leading to the tariff decrease

To develop and implement the program system of operating asset management on the basis of the system of major accident risk assessment (Order No. 107)
Accidents the cost of response to which will far outweigh the cost of repairs, including heat supply accidents in winter

Degradation of technical and economic performance of the equipment

Failure to include sufficient costs of repair in next period tariffs

Criminal prosecution of executives in the case of accidents

Accident consequences for cooperating enterprises

To identify the most problematic equipment units and network sections

To monitor problematic facilities on a regular basis

To comply with the rules of planning and accounting of emergency stocks of materials for prompt response to potential consequences of an accident

To introduce the requirements of the Unified Technical Policy of Russian Utilities Systems Management

Sales risks
8 Occurrence of receivables that are hard to collect from managing companies, including as a result of re-voting on the housing stock (sales of managing companies) Managing companies' attempts to escape their liability for debts by creating "clones" and re-voting on the housing stock.

Lack of human and financial resources in managing companies and expertise (experience) in managing relations with debtors.

Managing companies' unauthorized use of the money collected for utilities at their own discretion and for their own purposes; money withdrawal.

Inability to impose restrictions on, and/or disconnect, non-paying consumer represented by the managing company (only detached own houses).

Inclusion of charges for the maintenance of common facilities in the charges for the dwelling maintenance collected by managing companies. The managing company can pay utility charges for the maintenance of common facilities only by a court order.

Money withdrawal through third-party cash processing centers based on managing companies' order letters in order to escape their enforced collection.

The managing company becomes a bankrupt and all information about households' liabilities to the managing company is destroyed, which makes it impossible to recover debts even in the case of controlled bankruptcy proceedings

Rise in the amount of noncollectable receivables due to the close-down of managing companies.

Degradation of household consumers' payment discipline; new managing companies playing a role of intermediaries and go-betweens and using the old schemes to withdraw money.

Decline in core indicators against the Company's sales plan, which results in a decrease in money inflow.

To ensure a regular monitoring of housing stock operations and changes in managing companies and to cooperate with regional Housing Inspectorates and prosecution agencies.

To provide expert support for amendments to the Residential Housing Code of the Russian Federation and Government Resolution 354 in order to facilitate the transition to direct contracts.

To make contracts of agency with managing companies and transfer them in controlled cash processing centers.

To initiate criminal actions against executives of managing companies that fail to pay utility charges and make their managing companies bankrupt

To freeze the funds on third-parties' accounts (cash processing centers controlled by managing companies)

To impose secondary liability on executives of bankrupt managing companies and then to foreclose on the property of such individuals or to initiate personal bankruptcy proceedings against such individual.

9 Decrease in net supply and, as a result, decrease in the amount of sales of utility resources Housing and Communal Services are not motivated to install building-level meters if its installation leads to increased consumption.

Household consumers underreport the readings of their individual meters.

Household consumers go on installing individual meters due to the establishment of rates with multipliers and some of such household consumers underreport the readings of their individual meters. Housing and communal services underreport the number of residents in flats where individual meters are not installed

Reduced consumption of utilities by state-financed consumers due to the ongoing reduction in financing limits.

Reduced consumption of utilities by industrial consumers due to the stagnation of the economy and the transition to their own water intake facilities and sewage treatment plants.

Decrease in net supply, decrease in the sales volume (revenues).

Decrease in profit/EBITDA

Decrease in the money inflow as the amount in issued bills is lower than the amount provided for in the budget

To continue the implementation of the program for installing building-level meters under Federal Law 261-FZ in the situations when it is more reasonable in terms of generating the net supply and charging managing companies rather than households for expenses.

To provide expert support for amendments to the legislation in order to align the volume of sewage reported by Housing and Communal Services with the volumes of cold and hot water supplied.

To create teams of inspectors and to assign them a task of checking the actual number of residents and verifying the submitted readings of individual and building-level meters in multi-family dwellings.

To obtain information about the number of residents registered in flats

To analyze data on existing consumers with the largest decrease in consumption in order to detect unregistered branch connections.

To zone water consumption in order to localize the loss centers and to reveal unauthorized consumption

11 Decrease in collection of charges due to amendments to the Residential Housing Code of the Russian Federation Transfer of the payment for utilities for building-level needs from utility charges to the payment for the maintenance of common facilities included in the charges for the dwelling maintenance billed by managing companies to the owners of residential and non-residential premises. 3% to 6% of charges for water supply and sewerage services and up to 10% of charges for power supply for building-level needs are transferred from the controlled flow in the managing organization to the managing companies with available direct payments (to the payment for the maintenance of common facilities)

Managing companies can pay charges for the maintenance of common facilities only against enforcement orders and, as a result, the payment may be delayed by 5–7 months and the level of collection of charges for the maintenance of common facilities may be as low as 50% only.

Failure to achieve the main targets set by the business plan with regard to the charges collection level and rise in the receivables in absolute terms and in terms of the turnover

To negotiate with managing companies on keeping cash flow under the agent-based payment scheme through the controlled cash processing centers

To interact with law courts constantly and to initiate litigations if a managing company fails to make payments for the maintenance of common facilities

No. Name of the risk Cause of risk occurrence Probable effects Planned actions to minimize the risk
Legal risks
13 Termination of leases (concession agreements) essential to the Group's business, including termination of (short-term) leases because the title to the facilities was not registered The political will of heads of regional and municipal governments, competitors' aggressive campaigns intended to "conquer the areas"

Unregistered rights of municipal (state) ownership

Loss of business in the regions of operation (termination of leases or concession agreements)

If any right of municipal (state) ownership is not registered, it will lead to the loss of the relevant property and the tariff decrease because the expenses on the relevant property will be excluded from the gross revenue requirement

To replace short-term contracts for the property with long term-contracts

To monitor and to prevent the occurrence of risk-contributing factors when fulfilling lease contracts (concession agreements)

14 Bankruptcy of the managing organization Subsidiary claims against Russian Utilities Systems Management for the debts of managing organizations Actual operational environment of managing organizations:

- high level of wear of the leased property; operating profit is minimum or equal to zero;

- lack of current assets to cover current costs;

- no (or very little) property (water supply and sewerage facilities) is owned by the managing organization;

- lack of funds to service the corporate debt;

- the tariff is too lower to cover current (fixed) costs and to recover the property.

The current management scheme used by managing organizations implies that cash flows under management agreements and loan agreements

Reputational risks for Russian Utilities Systems

Imposition of secondary liability on Russian Utilities Systems Management, the head of Russian Utilities Systems Management, the Managers and Developers Guild and shareholders/members

To apply a developed system for monitoring the financial situation of managing organizations in order to identify the circumstances specified in the Law on Bankruptcy and to implement the plan of actions (with the involvement of an outsourced service provider) to mitigate the risks
15 Cancellation of (decrease in) tariffs, surcharges, rates on the basis of a decision of court Claims brought by government agencies and other parties Cancellation of (decrease in) tariffs, surcharges, rates on the basis of a decision of court To ensure competent legal support of court proceedings both by Russian Utilities Systems Management and the managing organization
16 Administrative liability for violation of the antitrust legislation Determination of a breach of the antitrust legislation Administrative liability in the form of turnover-based fines (percentage of the managing organization's revenue); disqualification of officers To analyze court practices; to make inquiries to the Federal Anti-Monopoly Service; consultancy support of the managing organization by Russian Utilities Systems Management in order to mitigate potential risks

To provide competent legal support during the hearings of cases antitrust legislation breach cases and administrative offense cases

18 Changes to the laws and regulations Adoption of laws and regulations that do not meet the interests of Russian Utilities Systems

Inactivity of the government authorities with regard to adopting legal acts in the interests of the loop of control

Delays in adopting amendments to the legal framework that would ensure the reduction in overdue receivables for housing and utilities services and anticipated tariff decisions

Complication of the business development process and new market entry

Lack of clearly formalized guarantees of return on the private operator's investment

To efficiently support the adoption of relevant amendments to the legal framework in the interests of organizations of the utilities industry and to resist undesirable changes, including through associations and unions of the market players.
Risks associated with the business strategy and development
19 Faulty assessment of the technical and economical state of the asset to be purchased and legal risks Lack of information or its intentional concealment

Overestimation of the company's own competences

Latent defects

High costs of a comprehensive technical investigation using instruments of control

Mistakes made at the analysis and calculation stage

Mistakes made at the stage of investment activity approval

Misestimation of financial requirements

Identification of incorrect long-term regulation parameters

To engage expert organizations

To develop employees' skills

21 Difficulties in establishing formalized mutual obligations with the authorities upon the project launch The municipal government owns the housing and utilities complex property; it is also responsible for the quality and reliability of the water supply and sewerage system; the tariff decisions are made by the regional government agency; any disagreements are resolved by the Federal Anti-Monopoly Service Conflict of interests of the process members

Disequilibrium economics of the project; obligations that are not supported by the ROI mechanism

Loss of an asset due to a default of obligations

To build relations with the authorities involved in the process

To ensure maximum regulation and formal approval of mutual obligations

To support the project at the stage of bid documentation development

Reputational risks
28 Publicly demonstrated dissatisfaction of the representatives of the regional and municipal authorities with the company's operations Change of leadership of regional or municipal authorities and attempts to change the utilities operator

Conflict of interests with agencies connected with the government authorities: cash processing centers, managing companies.

Personal biased negative attitude of any representatives of the government authorities

Large scale publications in the media to discredit the activities of the utility operator, including by referencing to a government official.

Threat of re-division of the established market of utilities

Degradation of the Company's operations, tariff regulation parameters, etc.

To implement projects in cooperation with the authorities: cultural, social, innovative, educational, etc. projects.

To conduct public awareness campaigns so as to inform about the Company's activity.

To monitor the public on a regular basis

29 Exit from some markets Company's failure to perform its obligations

Debt to generating companies and counterparts

Change in the business configuration resulting from the change in the organization's status

Decision to exit from economically unprofitable markets

Unfavorable coverage of a regional project development in the media: such phrases as "exit", "reduction", "failure to perform", "an unfair partner"

Degradation of the Company's public status in the region: from a "major" market player to a "minor" one

Adverse impact on the the image of the managing organization and Russian Utilities Systems Management that are loosing the market

To draw the public attention to Russian Utilities Systems' projects successfully implemented thanks to a constructive dialog with the authorities and efficient public-private partnership

To publish reports on how much the Company has done in the region it is leaving

To monitor the public on a regular basis

30 Resistance of the public, delegates, local authorities to conclusion of concession agreements in new regions Election race for power; attempts to speculate on housing and utilities issues, desire of any representatives of the government authorities to improve their personal image by "sorting out the mess" in the housing and utilities industry.

Conflict of interests with agencies connected with the government authorities: cash processing centers, managing companies.

Local authorities' attempts to pursue their interests, to lobby their own water supply operator

Historical "closedness" of the region; reluctance of local delegates to allow a new player to enter their region.

Personal biased negative attitude of any representatives of the government authorities

Accidents and technology breakdowns at the facilities due to the high degree of wear of the infrastructure being operated

Lack of strong contacts between Russian Utilities Systems and local authorities

Local authorities' large-scale resistance to Russian Utilities Systems' entering new markets by denying the access to new facilities, new documentation, etc.

Large scale publications in the media to discredit the activities of the utility operator, including by referencing to a government official.

Sponsored publications in the media bout adverse effect of Russian Utilities Systems' entering new markets, references to negative events connected with the Company's operations in other regions (severe accidents, environment pollution, injuries, higher tariffs, etc.)

Accusations of Russian Utilities Systems posted by regional government officials on their personal web-pages in social networks

To ensure media support during scheduled maintenance activities

To ensure fast publicly visible responses to any abnormal situations that may occur, to provide comments and feedback

To draw the public attention to Russian Utilities Systems' projects successfully implemented thanks to a constructive dialog with the authorities and efficient public-private partnership

To monitor the public on a regular basis

We are going to further develop our risk management system in 2017 by updating the methods of risk identification, assessment, prevention and/or mitigation and monitoring.

Research and Technology Policy. Innovations and Modernization. Information Technology

Russian Utilities Systems is well positioned to modernize the utilities systems in Russian regions, to raise significant investments in the development of communal infrastructure and to deploy advance equipment and up-to-date technologies in the Housing and Utilities. Pursuant to its Development Strategy and Technical Policy, Russian Utilities Systems implemented and enhanced innovative technologies in order optimize costs, modernized water supply and sewerage systems, brought into use and reconstructed structures and facilities using the world's best practices in the reporting year.

Innovations and Modernization of Facilities

Region Investment, million rubles Key events and activities in 2017
Perm Krai 765.5 Reconstruction of biological sewage treatment plants
Amur Region 208.6 Construction of the steam plant fired with coal
Kirov Region 104.4 Reconstruction of sewerage pumping stations
Samara Region 474.5 Construction of water pipe-lines to the stadium for the 2018 FIFA World Cup matches
Tambov Region 18.2 Reconstruction of third-stage pumping stations
Ulyanovsk Region 12.4 Replacement of water pipes
Republic of Karelia 166.2 Reconstruction and modernization of sewage treatment plants

In 2017, Volzhskie Utilities LLC completed a large-scale reconstruction of the Head Sewerage Pumping Station No. 4 in one of Tolyatti's districts. Over 50 million rubles were invested to install new equipment.

RUS

It means, first of all, more reliable heat supply for our customers. The pump mode control lowers the force of hydraulic blows in the heat network, which, in turn, reduces the number of accidents. The new system contributes to a better environmental situation in the district. The automatic mode selection ensures more complete combustion of coal and, therefore, less emissions into the atmosphere.

Ilya Fursov, CEO, Amur Utilities JSC

In 2017, Kirov Utilities completed the installation of the environmental monitoring complex at the sewage treatment plant in Kirov. This system installation will increase the reliability of sewage treatment plants in the regional center and contribute to the environmental stability of the Vyatka River.

In the reporting year, Novogor-Prikamye LLC reconstructed biological treatment plants (BTP) in Perm deploying state-of-the-industry equipment and technologies. This project delivery will increase the efficiency and reliability of the sewage treatment process and ensure the compliance with the environmental law.

In addition, in 2017, NOVOGOR-Prikamye commenced the reconstruction of Yuzhnaya pumping station under the company's approved investment program. The total cost of Perm's key pumping station reconstruction is over 718 million rubles.

Areas of Focus in the Information Technology Field
Centralization of Accounting and Treasury Functions in a Shared Service Center (SCC)
Use of Unified Engineering Center
BUSINESS CASE. Perm water and sewer enterprise.

In 2017, the water and sewer enterprise in Perm created the Automatic Process Control System Service with a team of eight specialists responsible for control and instrumentation. The enterprise also has a metrology laboratory (four specialists) and a diagnostic laboratory (nine specialists).

BUSINESS CASE. Tambov Utilities JSC launched new online services for its consumers.

They can now submit an electronic application for the connection to Tambov's water supply and sewerage networks from the company's web-site and ask any WSS-related questions directly to the head of the enterprise. Using their user accounts, consumers can transfer readings from their water meters online, see and pay for their WSS service bills. Moreover, the electronic document management system based on the SBIS Online Service is used. These innovations are primarily intended to save the time of both consumers and employees of the company.

Intellectual Property

Environmental Policy. Contribution to Environment Protection

Given that the year 2017 was declared the Year of Ecology in Russia, the Russian Utilities Group of Companies paid particular attention to the ecological situation in the regions of its operation and the environment protection measures that could minimize the adverse impact on the environment. Some of the focal areas include the reconstruction of biological treatment plants, the construction of modern sewerage pumping stations, the automation of facilities responsible for the quality of sewage treatment.

At the same time, one of the most important steps to raise the environmental awareness is to instill the principles of responsible water consumption and care of the environment in our consumers. The company attaches great importance to such activities as environmental exhibitions in parks, "clean water lessons" at school, city holidays and festivals aimed at improving urban areas and keeping them clean.

Pavel Kurzaev, General Director, Russian Utilities Systems Management JSC
Environment Protection Expenses of Russian Utilities Systems in 2017, as Detailed by area, rubles.
Adverse environmental impact charges 59,356,763
Preparation of environment-related documentation (development of drafts of waste generation norms and limits, submission of the information to the Consolidated Waste Register, etc.) 4,729,511
Household waste services 2,043,139
Paper and paper waste recycling 54,360
Waste mercuric lamp disposal 131,669
Waste cartridge disposal 36,352
Disposal of computers and hardware (system units, all-in-one PCs, mobile computers, laptops, pads, printers, monitors, scanners, servers, routers, switch-boards, etc.) 20,152
Installation of automatic power consumption control systems 15,749,054
Deployment and certification of environmental management systems 240,000
Training of employees in connection with the introduction of environmental management systems 48,900
Other* 39,929,641
*Some separate items of environment protection expenditure and investment by the organizations controlled by Russian Utilities Systems in 2017 included:
  • measures to control pollutant emission from the sources;
  • industrial waste disposal;
  • charges for water body use;
  • water tax;
  • surveillance research;
  • development and coordination of buffer zone projects;
  • state registration of facilities having an adverse impact on the environment;
  • surveillance study of the quality of the air, surface waters, ground and waste water and soil;
  • automobile tire disposal;
  • laboratory accreditation;
  • competence development;
  • quality assurance.

Investment in Environment Protection

Area Key measures Total expenditure
Reconstruction of biological sewage treatment plants Replacement of blowing units with controlled air supply; modernization of the antiseptic treatment system; selection of effective chemical agents; organization of zones for nitride-denitrification 750 million rubles
Construction of plants to treat rinse water received from filters of water purification plants Elimination of the discharge of rinse water received from filters of water purification plants 160 million rubles
Improvement of the quality of potable water treatment Selection of effective chemical agents, use of modern filtering media 33 million rubles

Water Impact Management


RUS

Participation in Ecological Forums

Business Case. Reconstruction of Biological Sewage Treatment Plants
Business Case. Large-Scale Environment Protection Measures Taken by Novogor-Prikamye LLC

In June 2017, Pavel Kurzaev, General Director of Russian Utilities Systems Management JSC, and Grigory Teryan, General Director of Russian Utilities Systems attended the first Russian Water Congress. Grigory Teryan was a member of an expert jury at the Infrastructure Test Drive discussion platform. Comprised of the industry's experts, the jury analyzed two pilot projects — Sewage Treatment Plant Construction and Reconstruction in Petrozavodsk and Household Sewage Treatment Plants Construction in the town of Losino-Petrovsky. The Congress provides a platform for interdepartmental and inter-industry dialog on the development of an integrated policy for the rational use of water resources in all sectors of the economy.

It should be noted that in 2017 the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing conducted an examination as part of the federal sanitation and epidemic control of the potable water quality in the constituents of the Russian Federation and granted the "green" water quality status to four regions where the Group's enterprises carry out their operations, namely: Amur Region, Kirov Region, Ulyanovsk Region and Perm Krai*.

* See further information about the quality control of supplied water in Section 4.7 (Quality Assurance).
See details on the web-site of the State Housing and Utilities System at https://dom.gosuslugi.ru/#!/map/water-quality

Business Case. Tap Water in Petrozavodsk: Cleaner than Bottled Water


Rewards

In 2017, the Sewage Treatment Plant Construction and Reconstruction in Petrozavodsk (2nd stage) — 3d Launch Complex project of PKS – Water and Sewer Enterprise JSC was included in the TOP-7 short list of environmental projects in the Eco Technology nomination of ERAECO – 2017, an annual national prize established and awarded under the aegis of UNESCO with the support of the Ministry of Natural Resources and Environment of the Russian Federation, the Moscow City Department for Environmental Management and Protection, the United Nations Environment Program (UNEP) and the UNIDO Center for International Industrial Cooperation in Russia. The prize is granted under the 'ECO Projects of Russia' National Program.

In 2017, the Department of Natural Resources, Forestry and Environment of Perm Krai emphasized the effectiveness of the environmental measures taken by NOVOGOR-Prikamye LLC and granted the Letter of Appreciation in acknowledgment of its successful environmental activity throughout the Year of Ecology in Perm Krai.

Development of Regions of Operation

In 2017, the total tax amount paid by Russian Utilities Systems, including the organizations within its loop of control, in all regions of their operation was 4,251,053,183.68 rubles.



Our four-year experience under the similar concession agreement in Perm has confirmed that we perform all of our obligations unfailingly. That is why I guarantee that we fulfill the present concession agreement in its entirety. I would like to thank the government of Berezniki for their constructive interactions and efficient cooperation in preparing and executing this agreement. I am sure that we will go on working as a team to fulfill this agreement!

Pavel Kurzaev, General Director, Russian Utilities Systems Management JSC

Key Measures Taken in 2017 to Develop the Infrastructure in Regions of Operation

Stakeholder Engagement

Interaction with Stakeholders during the Report Preparation

In 2018, Russian Utilities Systems has identified its key stakeholders for the first time as part of its efforts to develop the concept of its first annual public report for the year 2017. The management of Russian Utilities Systems identified the the key stakeholders by analyzing the impact that such stakeholders and the Group have on each other.

Map of Russian Utilities Systems' Key Stakeholders
Impact degree (high, medium) Groups of stakeholders Impact description
Internal stakeholders

High

Municipal authorities The Group is responsible for the efficiency and stability of its utility services, safety and transparency of its operations, exclusion of adverse impact on the environment, and technological modernization of the infrastructure facilities it operates.
Customers (end users) – managing companies The Group is responsible for providing ensuring mutually beneficial cooperation with its counterparts.
Local communities, public (primarily environmental) organizations The Group is responsible for considering the interests, recommendations and expectations of local communities, the safety and transparency of its operations, the prevention of adverse impact on the environment, the stability of its utility services, and the development of regions of its operation.

Medium

Suppliers and contractors The Group is responsible for compliance with business ethics.
Business associations and professional associations The Group is responsible for changing the institutional environment in the housing and utilities industry and developing the professional environment
Banks Development plans, government support, guarantees of consistent quality of operations, stable financial position
Internal stakeholders

High

Members of the Group The Group is responsible for achieving the approved performance indicators.
Chairperson of the Group's Board of Directors The Group is responsible for ensuring the efficient operation of the corporate management system in making managerial decisions
Employees of the Group The Group is responsible for ensuring stable employment, decent salaries, social guarantees and decent work conditions and equal opportunities for professional development and career growth.

When developing the report concept and content, we surveyed representatives of different groups of stakeholders and made a ranking map of significant aspects of the Group's activity based on the survey results *.

* See the ranking map in the About the Report section.

Hotline to Contact the Group's Executives



I was pleasantly surprised with the number of messages and the willingness of different people to share not only their concerns but also positive experience. And the topics of messages vary a lot: from the issues related to quality of services provided and client service level to precise recommendations on how to implement different innovations.

Pavel Kurzaev, General Director, Russian Utilities Systems Management JSC
Statistics of Hotline Calls in Russian Utilities Systems and Controlled Companies
Company Number of calls Subject Matter
Russian Utilities Systems 217
  • request for solving problem situations at the enterprise
  • improvement recommendations
  • service quality
Kirov Utilities JSC 4
  • possibility of electronic submission of the request for sealing the cold water meter
  • elimination of a defect in the water supply network
  • notification of water supply cut for the duration of repairs
  • procedure for remunerating overtime work (from employees)
Tambov Utilities JSC 17
  • possibility of technical connection to the mains
  • problems with cold water supply
  • problems with sewerage
  • receipt of meter readings
NOVOGOR-Prikamye LLC 60
  • questions related to salaries, provision of work clothes, organization of operations (from employees)
  • billing for direct payments
  • simplification of the registration procedure for the personal account and transfer of individual meter readings
  • emergency cut of water
Bereznikovskaya Water Supply Company LLC 10
  • salary-related questions (from employees)
  • simplification of the registration procedure for the personal account and transfer of individual meter readings
  • emergency cut of water
Amur Utilities JSC 3
  • meter readings transmission
Volzhskie Utilities LLC _* _*
PKS – Water and Sewer Enterprise JSC 20
  • payments
  • complaints about the dispatchers
  • questions related to water cut
PKS – Heat Network JSC 4
  • opened sewer hatch
  • heating bill
  • vacancy request
  • question about additional compensation for the work completed instead of missing employees (from an employee)
Ulyanovsk Region Water and Sewer Enterprise LLC 2
  • water cut
* The Hotline Service was arranged on 22 December 2017.

Consumer Satisfaction Survey

Customer Survey Results – Legal Entities

Institutional Environment Change and Professional Community Development

Being a responsible player of the Russian housing and utilities market, Russian Utilities Systems believes that one of its tasks is to contribute to the creation of the institutional environment favorable for the national housing and utilities industry and, therefore, pays a particular attention to the improvement of legal regulation and the development of professional communities.

Participation in Interdepartmental Interactions

Being an industry expert, Russian Utilities Systems participates in specialized departmental organizations, public and business associations and, therefore, is involved in the most important processes of lawmaking and in the implementation of industrial initiatives.

Participation in Major Russian and International Forums

RUS

Important Events after the Reporting Date