PAO RusHydro
Explanatory Notes to the 2016 Balance sheet and Statement of Financial Results
(in millions of Russian Roubles unless otherwise stated)
TRANSLATOR'S EXPLANATORY NOTE: This version of our report/the accompanying documents is a translation from the original, which was prepared in
Russian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all
matters of interpretation
of information, views
or opinions, the original language version of our report takes precedence over this translation.
60
measured because there's no practice of new tax rules. Financial statements of the Company can
be affected if tax disputes arise.
3.15 Financial risk management
The primary objectives of the financial risk management function are to provide reasonable
assurance of achieving the Company's goals by developing a methodology of risk identification,
analysis and
assessment, as well as to establish risk limits, and then ensure
that exposure to risks
stays within these limits and if the limits are exceeded
– to treat this risk accordingly.
Market risks
Market risks include currency risk, interest rate and price risks.
Currency risk. The Company sells its produced electricity and capacity in the Russian domestic
market at prices denominated in national currency, settlements with resources suppliers, charge
and acceptance of payments from the customers are made specifically in Russian roubles.
Liabilities of the Company are denominated in national currency; share of liabilities denominated
in foreign currency is amounted to less than 15%. As a result effect of changes in currency
exchange rates on the Company’s financial position and activities is estimated as insignificant.
The Company's operations are planned and carried out in such a way that all its assets and
liabilities are denominated in the national currency.
Information on the Company's exposure to currency risk is presented in line with its use for the
preparation of RusHydro Group's IFRS financial statements as defined in IFRS 7:
Monetary
financial assets
Monetary
financial
liabilities
Net balance
sheet
position
31 December 2016
US
Dollars
547
-
547
Euro
-
(11,716)
(11,716)
Total
547
(11,716)
(11,169)
31 December 2015
US Dollars
3,096
-
3,096
Euro
-
(15,426)
(15,426)
Total
3,096
(15,426)
(12,330)
31 December 2014
US Dollars
1,700
-
1,700
Euro
2,321
(13,449)
(11,128)
Total
4,021
(13,449)
(9,428)
The above analysis includes only monetary assets and liabilities. Investments in shares and non-
monetary assets are not considered to give rise to significant currency risk.
Changes in exchange rates have no significant influence on the Company's financial position.
Interest rate risk.
The Company’s operating profits and cash flows from operating activity are
substantially independent of the changes in market interest rates.
The effect of changes in the average market interest rates on the value of the Company's
investments is insignificant as the rates of return on the Company's investments are fixed.
The Company also receives loans with floating interest rates based on MOSPRIME, Euribor rates,
which leads to risk of changes in interest rates.
At the same time, the share of borrowed funds
with a fixed interest rate is 91% of the Company's loan portfolio.
The influence of changes in
these rates on the Company's profit is insignificant.
The Company monitors interest rate risk for its financial instruments. Effective interest rates as of
the end of the period are presented in paragraph 3.4.1 of the Explanatory Notes.
To mitigate the interest
rate risk, the Company takes the following measures:
monitors the credit market to identify favourable terms of financing;
diversifies credit portfolio by raising fixed and floating rate loans.
PAO RusHydro
Explanatory Notes to the 2016 Balance sheet and Statement of Financial Results
(in millions of Russian Roubles unless otherwise stated)
TRANSLATOR'S EXPLANATORY NOTE: This version of our report/the accompanying documents is a translation from the original, which was prepared in
Russian. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation
of information, views or opinions, the original language version of our report takes precedence over this translation.
61
Price risk. The Company sales power and capacity, mainly, in the wholesale market. The price
risk at the wholesale market is connected with possible volatility of the prices, and also with
reduction of prices of the corresponding goods.
Electricity at the wholesale market is realized by Company mainly at the market for the days
ahead. Weighted average price of sale of electricity for the days ahead for the Company in 2016
didn't change significantly in comparison with an indicator of 2015.
As the key instrument for trading capacity in the wholesale market is the contracts for purchase
and sale of capacity by results of competitive selection of capacity. The price of capacity, based
on which liabilities under such contracts are calculated, after the transition in 2015 to long-term
model of competitive selection of capacity, is determined by results of competitive selections of
capacity for four years ahead. The price differences on capacity created following the results of
competitive selections of capacity for 2016-2020, make no more than 5% for each price zone.
At the liberalized market of the electric power the price of goods directly depends on demand
amount. For the purpose of increase in a financial result of economic activity Company considers
the seasonal, week and daily changes in demand on the electric power in case of sales planning
of the electric power.
The price risk determines the possible changes / fluctuations in the fair value or future cash flows
due to changes in market prices (excluding changes leading to interest rate or currency risk).
The table below includes the Company's investments exposed to the price risk.
Category of investments
31 December
2016
31 December
2015
31 December
2014
Equity investments for which current market value can be
determined, including:
7,818
2,286
1,505
PAO Inter RAO
7,709
2,217
1,445
PAO Irkutskenergo
65
36
25
PAO Krasnoyarskaya GES
44
33
35
Equity investments to subsidiaries measured at current
market value but not revalued as of the reporting date
20,204
20,204
20,204
Equity investments for which current market value cannot
be determined
236,565
245,174
208,604
Total equity investments (see paragraph 3.1.2 of the
Explanatory Notes)
264,587
267,664
230,313
Current market value of quoted securities is determined by market prices established on the stock
exchange ОАО MICEX-RTS (www.rts.micex.ru), according to the 'Procedure for determining
market value of securities, estimated price of securities and the threshold for the fluctuations of
securities' market price for the purpose of Chapter 23 of the Russian Tax Code approved by Order
of the Federal Service for Financial Markets No. 10-65/pz-n of 9 November 2010.
Credit risk
Credit risk is the possibility of the Company's losses resulting from the counterparty’s inability to
meet its obligations under the contract. Exposure to credit risk arises as
a result of the Company’s
sales of products on credit terms and other transactions with counterparties giving rise to financial
assets.
Although collectability of receivables can be influenced by economic factors, management believe
that there is no significant risk of loss to the Company beyond the provision for impairment of
receivables already recorded.
Cash has been placed in financial institutions, which are considered at the time of deposit to have
minimal risk of default. The Company approves deposit banks as well as rules for making cash
deposits. The Company performs regular review of financial institutions, monitors their ratings
assigned by independent agencies as well as other performance indicators of these financial
institutions.
Summary information on cash deposits and their equivalents including names of banks and other
financial institutions and their ratings as of the end of the reporting period is provided in paragraph
3.2.4 of the Explanatory Notes.