Responsible Business Practices
The company's main asset and driving force are its people, a tight-knit team of professionals ready to cope with the most complex and ambitious tasks that are, first and foremost, related to the organization's performance improvement and the provision of best-in-class services to our customers throughout the country.
Being a large employer, Russian Utilities Systems applies a socially conscious HR Policy and makes efforts to increase salaries and to raise living standards of its employees.
As of 31 December 2017, the headcount of Russian Utilities Systems was 8959 people (the Group's total). The group-wide turnover rate is 0.29.
|up to 30 years of age||1,195|
|31–50 years of age||4,265|
|51 years of age and older||3,499|
The HR Policy is focused on increasing the personnel's performance and efficiency, primarily by increasing the level of their involvement and satisfaction with job. This approach allows the Group to modify the organizational structure and business processes as required by the company's fast growth.
The HR management system is based on corporate values that the Group's employees of all levels should know and follow.
Personnel remuneration. KPI system
Russian Utilities Systems developed model internal standards regulating the personnel remuneration:
- model collective agreement;
- model internal labor rules and procedures
and leave regulations;
- model regulations on wages and bonuses;
- model regulations on occupational safety: provision of special work clothes and footwear, special protective equipment, washing agents and detergents, extra holidays, extra payments and milk provision to employees working in harmful and/or hazardous work environment;
- model regulation on social benefits.
Every enterprise within the Group's loop of control adjusts these model regulations in accordance with their local conditions and with the approval of Russian Utilities Systems.
The average ratio of the standard entry level wage to the minimum wage established in the group was 1.7.
The position salaries/wages depends on the labor market situation and is determined:
- on a case-by-case basis for directors depending on the business areas of the organizations within the Group and for employees of the Group;
- in accordance with the rate scale (personnel chart) for specialists and workers of the organizations within the Group's loop of control.
Every year the organizations assess their potential to increase (including indexation) wages. The size of the increase is determined on a case-by-case basis for each enterprise and depends on the established tariffs, performance improvement measures and the government's minimum wage policy.
If wage-increasing measures lead to a reduction in the headcount, the following rule applies: 50% of the payroll fund saving is directed to the development of the enterprise, 50% is used to motivate employees (including rise in wages, additional bonuses, etc.).
The Group has developed and introduced the bonus regulations.
Key performance indicators (KPI) are approved annually. The KPIs of the Group's top management are approved by the Group's Board of Directors.
The KPIs of the top management of the Group's units and the directors of the organizations controlled by the Group are set on the basis of the Group's KPIs and approved by the Group's management board.
Improvement of Working Conditions
In April 2017, the field meeting of the executives of Russian Utilities Systems made a decision to run the Revizorro program. The Group's enterprises were instructed to make an inventory of all production facilities and to identify the premises that need improvement. Then they should develop a schedule for their renovation and inform the employees.
All enterprises of the Group inspected all buildings and facilities and developed a detailed plan for their renovation and re-equipment within the period up to 2022. The objective is to make all the premises of the Group, whether in offices or at production facilities, comfortable and compliant with occupational safety, hygiene and industrial aesthetics standards.
Russian Utilities Systems encourages employees to bring new ideas and to make recommendations on how to improve the operational efficiency at their workplace. Employees focused on improving processes and their work results, optimizing operating activities, realizing their potential and developing together with the company, are a valuable asset for the Group's development.
For example, in 2013 Kirov Utilities JSC launched the Go ahead! Program to encourage its employees to make recommendations for improving the company's performance. The program has already ensured millions of savings while the number of rationalization proposals is constantly growing. The program includes a bonus system.
Russian Utilities Systems Petrozavodsk has launched the Lean Production competition. All employees that have ideas for improving financial and operational indicators can apply for participation in the competition and submit their proposals. If the proposal is implemented, the employee will be paid up to 15% of the money saved or gained by the enterprise. The participant whose proposition will produce the maximum economic effect will be awarded with a special prize.
Other subsidiaries of the Group also run similar incentive schemes.
Proposals made by employees can reduce not only the consumption of materials or electricity, but also time and human labor expenditure.
I would like to thank all employees for their ideas and willingness to make our company better. Involved and result-oriented employees do become the company's backbone and help us to address complex problems successfully and implement the most ambitious plans!
Talent Pool Development
Russian Utilities Systems considers the creation of a talent pool to be one of its focal areas of personnel development.
The program of talent pool development – Russian Utilities Systems' Leaders – and the selection of candidates commenced in May 2016. Nearly 800 employees applied for participation. The candidates had then to pass various evaluations and other selection procedures. The key selection criterion was the participant's potential for development. The talent pool consists of 52 employees.
All project participants could get feedback about the areas for their further development.
The key goal of the project is to prepare teams for new enterprises as well as to find and support promising candidates and then promote them to key positions in their companies.
The ambitious task of creating a pool of succession candidates is accomplished through training programs that develop professional and managerial skills and allow the participants to gain practical experience in running projects. Each talent pool member has to deliver a project essential to his/her company that would optimize its processes, increase the operational efficiency and the quality of customer service.
In 2017, 6 succession candidates selected under the above program were assigned to higher-level positions, including in other regions of Russian Utilities Systems' operation. In 2018, 5 succession candidates were moved to higher-level positions.
Another important area of the Group's talent pool development is personnel training.
The major portion of training is effected through compulsory programs provided for by the legislation.
Additional training is financed out of the budgets of the Group's enterprises. In 2017, additional training program was aimed at improving personal competence and providing opportunities for getting higher education.
|Indicator||Total number of (academic) hours of training||Number of (academic) hours of training per employee|
|Total number of hours of training, including||31,304||10.67|
DOKA Occupational Excellence Contest
The Group has been holding DOKA Occupational Excellence Contest since 2012. The contest is designed to support the development of occupational skills, encourage best tradesmen and enhance the prestige of the utilities and blue-collar jobs.
The contest consists of two stages. The regional winners — 41 specialists from 8 regions of the Group's operation — participated in the finals held in Petrozavodsk in 2017. The competitors had to fulfill theoretical and practical tasks: first aid, water analysis, assembly of a water measuring unit and its insertion into a steel pipeline. 15 participants became winners in main nominations and 16 participants won in special nominations.
Communications Policy and Satisfaction Level Assessment
Russian Utilities Systems is committed to be maximum open and transparent for its employees. The General Director's Hotline project for direct communication with the General Director of Russian Utilities Systems was launched in late 2016. Dozens of questions related to the Group's work were received. All questions were answered in time.See detailed information in Section 2.5 (Stakeholder Involvement)
In addition, the Group's enterprises have a mechanism that enables employees to file complaints through various communication channels (e-mail, ordinary mail, etc.). 16 complaints regarding such issues as wage increases, amenities at work and work clothes were received in 2017. There were also some anonymous complaints. All of them were promptly processed and accepted for investigation. For example, the improvement of amenities in Kirov Utilities JSC was included in the 2017–2018 repair schedule.
Annual assessments of the personnel involvement is a good method to evaluate the Group's HR Policy effectiveness. In April 2018, the Group conducted another staff involvement survey.
|Measures||Issue-related surveys||Meetings of executives with employees||Face-to-face contacts of executives with employees||Other*|
|Amur Utilities JSC||+||+|
|Volzhskie Utilities LLC||+||+|
|Kirov Utilities JSC||+||+|
|Novogor-Prikamye LLC||+||+||Ask the Director section on the web-site|
|Tambov Utilities JSC||+|
Social support activities play an important role in the Group's development strategy since the recruitment and retention of competent employees is essential to the success of its business.
The Group developed standard social programs covering the following areas:
- additional paternity leave, wedding leave or September 1 leave, bereavement leave;
- financial aid in connection with the birth of the child, the wedding, September 1, the death in the family, the death of the employee (to his/her relatives), financial hardships or for medical treatment;
- New Year's gifts for children and tickets for New Year's performances;
- compensation for the cost of vouchers to children's health camps;
- financial aid to the elderly employees and veterans of the Group's enterprises on the International Day of Older Persons and to World War II veterans on May 9.
The Group's subsidiaries may, at their discretion, include additional benefits to, or exclude any particular benefits from, the above list.
Financial aid was provided to the employees of all organizations in the Group's loop of control. 1661 employees and retirees of Russian Utilities Systems were provided with financial aid totaling 14.7 million rubles.
Being a responsible employer, Russian Utilities Systems seeks to ensure safe and comfortable working environment for its employees. All measures intended to prevent occupational injuries and diseases are taken by the Group in strict in compliance with he law.
In 2017, the Group's enterprises:
- hold required safety briefings and inspections at workplaces;
- provided their employees with special clothes, footwear and protective equipment;
- provide social guarantees and pay compensations to employees working in harmful and/or hazardous work environment: extra payments, addition leave days, milk;
- provide amenities and workplace conveniences for employees, including: designated rooms for lunch breaks, provision of soap
To assess the working conditions at its enterprises, the Group inspected 1389 workplaces in 2017. Various safety-related trainings were arranged for more that 5,900 employees of the Group. There were 3 occupational injuries in total, including:
1 minor injury caused by the employee's carelessness. Relevant unscheduled briefings were held for the organization's employees.
1 severe injury resulted from poor work organization. Relevant unscheduled briefings were held for the organization's employees. The administrative punishment was imposed on employees found guilty in the violation; they were also instructed to undergo unscheduled appraisal in Rostekhnadzor.
1 minor injury resulted from the poor state of the building surrounding area. Relevant unscheduled briefings were held for the organization's employees.
No occupational diseases were registered in 2017.
In the reporting year, Russian Utilities Systems began purchasing new high-quality work clothes for employees of all enterprises of the Group. The technical requirements for work clothes and footwear were updated. For these purposes, the Procurement Department created a designated sectoral team of six leaders of regional OHS Departments. The team is headed by Larisa Lukan, the head of the Department of Industrial and Occupational Safety and Civil Defense in NOVOGOR-Prikamye LLC. Potential suppliers provided summer and winter sets of work special clothes as test samples. The team assessed the test samples for their compliance with technical requirements: water- and oilproofing, size range and corporate style, trimming quality, quality of the fabric and lining, and fabrication nicety. The winner of the tender procedure was determined only at the second stage after adjusted samples had been submitted for assessment. The new clothes compliant with all technical requirements of the Group have been provided to its employees since July 2017.
That was Russian Utilities Systems' largest-scale centralized purchase of special clothes ever. The objective was to provide high-quality, modern and safe work clothes to all employees of the Group — from laboratory assistants to water/heat supply pipe fitters. The projected service life of these new special clothes will cover the second half of 2017 and the first half of 2018.
One of the Group's focal areas of its long-term development program is anticorruption activities.
Russian Utilities Systems pays close attention to preventing thievery and corruption.
Pursuant to the anticorruption legislation, the Group developed and adopted the Anticorruption Policy (approved by Order No. 38 on Anticorruption Measures dated 18.04.2016) in 2017.
The principles and objectives stated in the Group's Anticorruption Policy are in line with the world's and Russia's best practices in the field of anticorruption management.
The Group's Security Service encourages reporting any suspicions or concerns regarding factual or alleged violations, thefts or corrupt practices in the companies within the Group's loop of control. The report may be submitted by:
- ANTICRIMINAL phone: 8-800-250-82-34
- email: email@example.com;
- post or in-person at 119180, Moscow, Malaya Polyanka, 2
The reports are accepted and handled by the Security Service employees. Following the verification and analysis of the received documents, the Security Service prepares an internal investigation report and internal memo and submits them to the General Director for making the decision whether to:
- award the employees that provided information for initiating the internal investigation;
- impose liability on persons found guilty in the violation;
- carry out additional investigation;
- file the case for lack of confirming information.
10 reports were received via the ANTICRIMINAL line in 2017, six of them contain suspicion of wrongdoing.
The anticorruption program also considers the messagesposted via the General Director's Hotline: /http://roscomsys.ru/askdirector. Any messages containing information about any illegal conduct, fraud or corrupt practices are forwarded to the head of the Security Service who should take relevant actions and then submit materials to the General Director in accordance with the established procedure.
The former director of a number of managing companies in Blagoveshchensk will have to pay the penalty in the amount of 30 million rubles for an attempt to bribe the head of Amur Utilities JSC. That fine was awarded by the justice of the peace in Blagoveshchensk in November 2017.
Two internal investigations into alleged corrupt practices were carried out in 2017 (completed in 2018). The employees that had been found guilty were dismissed. One of them is subject to criminal liability.
Russian Utilities Systems is the largest operator in the market. The Group is committed to reliable, long-term and mutually beneficial cooperation with its suppliers.
The Group's procurement activity is regulated in accordance with Russian Utilities Systems Management's Regulation on Procurement for Enterprises' Needs and Regulation on Procurement for Russian Utilities Systems Management's Needs, i.e. internal regulations determining the procedures for purchasing goods, work and services. Russian Utilities Systems Management's Regulation on Procurement for Enterprises' Needs was developed in accordance with Federal Law No. 223-FZ dated July 18 On Procurement of Goods, Work and Services by Certain Types of Legal Entities.
The procurement activity is based on the principles of collective leadership, freedom of discussion of issues, openness, transparency, responsibility for decisions, measurability and consistency of evaluation criteria, equity, fairness, competitive procedures, non-discrimination and avoidance of unreasonable restrictions on competition with respect to participants of the procurement process.
Products required to meet the needs of the enterprises of Russian Utilities Systems Management JSC are procured in one of the following ways:
- purchases using the procedures requiring the justification of the counterpart selection;
- direct purchases.
The main procedures requiring the justification of the counterpart selection are bidding (tender).
The counterpart selection is arranged by the organizer's responsible unit and the relevant Commissions created by Russian Utilities Systems Management JSC or its enterprises depending on the allocation of the responsibility for current purchases. The Group's Procurement Department or the enterprise's Procurement and Logistics Department act as the procurement organizer.
The goods and services for enterprises within the Group's loop of control are procured pursuant to the Procurement Plan published in the shared information system at http://zakupki.gov.ru.
All purchases are made in the trading system of Unified Electronic Trading Facility JSC at https://www.roseltorg.ru/
In 2017, the Group carried out about 6,000 procurement procedures amounting to more than 11.5 billion rubles. As of the end of 2017, local (Russian) suppliers account for 99.66% of all counterparts in procurement procedures. Over 16% of the Group's contracts were signed with small and medium-sized businesses.
The economic effect of competitive procurement procedures carried out by by the Procurement Department of Russian Utilities Systems Management JSC in 2017 was about 418 million rubles. (7.82% of the amount of purchases).
Control and Audit
The system of internal control and auditing is an integral part of the management system of Russian Utilities Systems. Its objective is to minimize the operating risks and to ensure the Company's performance.
Internal Control and Auditing
The system of internal control and auditing of Russian Utilities Systems is created in line with the requirements of Russian laws and international standards, including International Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors.
The Group's system of internal control and auditing is based on the Board Audit Committee Regulation (approved by Resolution No. 01/17 of the Board of Directors of Russian Utilities Systems dated 27.11.2017), Internal Audit Department Regulation (approved by Order No. 25 dated 07.05.2018) and the Regulation on Interactions between the Internal Audit Department and Security and Custodial Units during Internal Control Procedures (approved by Order No. 10 dated 27.09.2016).
The Audit Committee was created on November 27 2017 and acts as a collective advisory body supporting the efforts of the Board of Directors in the field of control of the Company's financial and business activities*.* See further information about the Audit Committee in Section 3.2 (Corporate Governance).
The Internal Audit Department is a designated internal control body of Russian Utilities Systems designed to conduct internal audits of financial statements, internal document management, the safeguard of the company's assets, compliance with policies and procedures existing in the Group and in the companies within the Group's loop of control, the functioning of business processes and compliance with legal requirements.
The Internal Audit Department carries out its activity in line with the principles of independence and objectivity, the Internal Audit Department Regulation, Russian legislation, the Group's Board Audit Committee Regulation, resolutions of the General Meeting of Shareholders and the Group's Board of Directors, internal regulatory documents, internal auditors' performance standards defined by International Standards for the Professional Practice of Internal Auditing and the Code of Ethics of the Institute of Internal Auditors.
To ensure the adherence to the principle of independence and objectivity, the Internal Audit Department is made accountable to the Board Audit Committee and the Board of Directors and reporting to the Group's General Director under the administrative chain of command. The decision to appoint or dismiss the Director of the Internal Audit Department is made, upon the Audit Committee's recommendation, by the Board of Directors by a majority of votes of the Directors attending the meeting. The employment contract with the Director of the Internal Audit Department is signed by the Group's General Director under the terms and conditions set by the Audit Committee.
The Director of the Internal Audit Department reports to the Audit Committee and the Board of Directors about the fulfillment of the annual plan of internal audits and the budget of the Internal Audit Department.
The Security and Custodial Services are the units of Russian Utilities Systems and its companies that are responsible for ensuring security and custody in these companies.
The Group's Internal Audit Department and Security and Custodial Services work closely together in planning and conducting internal audits and monitoring follow-up measures.
Every year the Internal Audit Department adopts the audit schedule to check the business cycles in Russian Utilities Systems's structural units and companies within its loop of control. Where required, unscheduled audits are carried out.
Management of Potential Conflicts of Interest
Prevention and management of conflicts of interest is an important mechanism for protecting the Group's and its members' interests. The Group took measures to prevent any potential conflicts that executive bodies and key executives of the Group can have, namely:
- the obligation was included in the Regulation on the Group's General Director according to which the General Director must avoid any actions that would or may result in a conflict of interest and if such conflict arises, he/she should immediately disclose it to the Group's Board of Director. The said obligations are also provided for in the employment contract with the General Director the terms of which are set by the Group's Board of Director;
- the General Director's concurrent service in management bodies of any third-party organizations or in other paid positions of any third-party organizations is allowed only with the approval of the Group's Board of Directors;
- the Group's Board of Directors adopts the corporate risk map providing for measures intended to prevent criminal and legal risks associated with the top management's anticorruption activities. The measures aimed at minimizing that risk include background verification of the Group's key employees and candidates to such positions for any potential conflict of interest. The Audit Committee hears the reports on any occurrence of such risk every quarter;
- the Audit Committee considers the Internal Audit Department's reports on any events connected with conflicts of interests on an annual basis.
To protect the interests of the Group in the event of a conflict of interest, Russian Utilities Systems took a number of actions to ensure that all non-arm's length transactions are first considered by the Board of Directors. These actions include monitoring all transactions of the Group to determine whether they involve any interested parties as well as keeping and updating information about the parties interested in transactions.
In addition to the above actions, the Group pays close attention to managing insider information and considers it to be a meaningful element in handling situations that may lead to a potential conflict of interest.
The range of measures taken by the Group to prevent conflicts of interests enables minimizing the probability of any adverse effects that it can face due to conflicts of interest.
In parallel with those efforts, the Group develops documents setting the principles of and procedures for preventing, identifying and minimizing potential risks of conflicts of interests: anticorruption programs, regulations on insider information, procedures for managing (potential) conflicts of interest, code of ethics. The development and approval of these documents is to be completed in 2018.
Russian Utilities Systems has a mechanism in place that enables it to identify extraordinary transactions (major transactions, non-arm's length transactions, transactions requiring the approval by the Group's management body in accordance with the laws of the Russian Federation and the Charter of the Group) at the stage of internal approvals*.* The list of major transactions made by Russian Utilities Systems in 2017 is provided in Appendix 6. The list of non-arm's length transactions made by Russian Utilities Systems in 2017 is provided in Appendix 5.
This mechanism is based on the system of approvals of transactions to be made by the Group and includes a mandatory check of whether they must be pre-approved by a competent management body.
Keeping and updating a list of parties that will be involved in non-arm's length transactions is an important element of that mechanism and ensures its effective work. The access to the list is provided to all employees of the Group. Therefore, the transaction initiator can easily determine whether the expected transaction is an extraordinary one and, if yes, why.
The foregoing mechanisms make it possible to minimize the probability of making extraordinary transactions without their approval by competent management bodies as required by Russian legislation and the Group's internal regulations as well as to optimize the process of such transaction approval and conclusion.
The candidate for independent external auditor of the RAS accounting reports of the Group and the companies within its control loop is approved by the Group's General Meeting of Shareholders upon the recommendation of its Board of Directors and following the competitive selection by the Board Audit Committee.
In May 2017, the Audit Committee suggested that the Board of Directors recommend Audit and Pravo Association of Russian Independent Auditors LLC for auditing the RAS accounting reports of Russian Utilities Systems and the companies within the Group's loop of control for year 2017.
In June 2017, the annual General Meeting of the Group's Shareholders appointed, upon the recommendation of the Group's Board of Directors, Audit and Pravo Association of Russian Independent Auditors LLC to be the Group's auditor and to audit the RAS accounting reports of Russian Utilities Systems and its companies for year 2017.
The candidate for independent auditor of the financial statement of the Group and the companies within its loop of control is considered by the Audit Committee following the competitive selection. In 2017, after the consultation and coordination with the Board Audit Committee, Ernst and Young LLC was appointed to be the independent auditor of the consolidated financial statements of Russian Utilities Systems and the companies within the Group's loop of control.
Russian Utilities Systems develops its quality assurance policy from the perspective of financial viability, reliability and compliance with safety and quality requirements throughout the entire life cycle of its UH facilities.
The integrated quality system of Russian Utilities Systems is compliant with the the requirements of Russian legislation and based on the world's and Russia's best practices. The Group's short-term quality target is to undergo a number of certification procedures, including the ISO certification.
Model Water and Sewer Enterprise
In 2017, the Group launched the Model Water and Sewer Enterprise project to improve the efficiency, client-focus and performance of the group's assets. The Model Water and Sewer Enterprise project is a unified technical policy and a system of strategic measures that can improve the quality and reliability of the Group's water supply and sewerage operations*.* See further information on the project in Section 2.4 Technical Policy.
The quality of water supplied through water supply systems of Russian Utilities Systems is a top priority for all the companies within the Group's loop of control.
Water treatment plants ensure the quality of potable water against all monitored characteristics provided for by SanPiN. No incidents related to the non-compliance of the water supplied by Russian Utilities Systems with the applicable Russian sanitary norms and regulations were registered in 2017.
Consumers in the Regions of Russian Utilities Systems' Operation Have the Cleanest Water.
The "green" water quality status was granted to four regions where Russian Utilities Systems carries out its operations, namely: Amur Region, Kirov Region, Ulyanovsk Region and Perm Krai. 97% of water sources and water mains meet the sanitary norms according to the examination conducted by the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing.
The data is based on the results of the federal sanitation and epidemic control of the potable water quality in the constituents of the Russian Federation. Following the examination, the "green" water quality status was granted to to the said regions.
The quality of all the water supplied is regularly monitored by the Group's specialists and representatives of the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing.
The water in the distributed network of the water supply system operated by the Group is fully compliant with the sanitary norms. Over 53 thousand water samples were taken in 2017 and some quality deviations were detected only in 579 of them (0.02%). This is much below the 5% threshold set by sanitary norms.
The tap water in Petrozavodsk is cleaner than bottled water.
The public housing inspectors tested the tap water quality in Petrozavodsk under the national Competent Consumer School project. As part of the testing, samples were taken in the apartments of residential buildings in different districts of Petrozavodsk (Zareka, Kukkovka, Center, Drevlyanka, Solomennoye, Pyaty Poselok, etc.). Following the test for impurity and dissolved matters in water, the tap water in Petrozavodsk (TDS meter readings: 31 ppm) is proved to be cleaner than the bottled artesian water bought in a supermarket (TDS meter readings: 152 ppm). This demonstrates that the tap water in Petrozavodsk is almost perfectly clean while the bottled water acceptable for human consumption was probably treated only with charcoal filters. The acidity level of the tap water varies from 6.20 pH to 7.26 pH (cold and hot water, respectively), which means that this characteristic of the tap water also meets the established standards.
The following water treatment technologies are used depending on the water source quality: non-chemical and biological treatment, reactant treatment using coagulants, flocculants, sorbents, and oxidants. Ammoniation, carbonation electrochemical decontaminants and ozone treatment are applied to prevent the generation of toxic combinations and to reduce organic and man-made contamination.
The Group never stops working to improve the quality of potable water: modern chemical agent, technologies and equipment are regularly tested in its laboratories and semi-industrial environments.
The Water Quality Testing Center of Amur Utilities JSC was the first to get the accreditation among nonpublic organizations in Blagoveshchensk. The specialists of the laboratory monitor the quality of potable tap water supplied to the residents of Blagoveshchensk 24 hours a day. The sewage is also being tested nonstop. In April, the Water Quality Testing Center was listed in the Register of Certification Bodies and Accredited Testing Laboratories (Centers), including the national section of the Unified Register of Certification Bodies. As a result, Amur Utilities JSC is allowed to test potable water and sewage in parallel with government agencies.