Business interruption risks

This risk is caused by any factors that can lead to business interruption. Meanwhile, this risk includes both a direct stoppage in production resulting from physical damage of the equipment, and a consequential business interruption resulting from material loss at an outside facility that does not belong to the Company, and is not maintained or managed thereby.

The main factors when assessing the possible losses include turbine oil catching fire, damage of the turbine wheelspace, explosion of the boiler at ignition, fuel oil spill fire in the boiler room, explosion in the chemical water treatment ammonia storage, washout of the water gathering pond dam, etc

To reduce probability of negative events, the Company undertakes the following measures:

• establishing a four-tier system of industrial control and industrial safety management;
• carrying out equipment maintenance in line with a strict schedule;
• ongoing monitoring of the state of waterworks;
• high-quality training of the personnel (especially the employees operating hazardous facilities), assessment of their knowledge, special training (technical workshops, simulator training), advanced training, and analysis of their reliability based on investigations of incidents and near misses;
• ensuring systematic work with the personnel to increase their reliability manifesting itself in the absence or minimisation of consequences of any accidents/incidents resulting from human errors;
• performing close technical investigations of accidents, process incidents and significant defects with the identification of system-level (root) causes and development of accident prevention measures using various tools, including the Cause Tree and BSCAT methodology;
• organising a system to monitor the implementation of the accident prevention measures developed based on the investigation results, integrating them in corporate procedures, maintenance and repair documentation, including them, if necessary, in the financial programmes of the Company, and ensuring their use with the similar equipment at all power plants of the Company;
• implementing a risk-oriented approach to planning targeted measures improving the equipment reliability and implemented as part of repair and modernisation operations by generating risk maps for each equipment group, analysing previous and forecasting future forced unavailability;
• calculating and analysing the reliability indicators for equipment groups to forecast its forced unavailability and ensure that investments are used to minimise such forced unavailability;
• implementing the recommendations of risk engineers from insurance companies (following the audits) that are based on the best practices in improving the reliability and fire safety of equipment, buildings and structures;
• identifying and evaluating hazards and threats using the BowTie methodology, developing safeguards;
• ensuring thorough supervision over the maintenance personnel in terms of their strict compliance with the procedures for the maintenance and technical acceptance of repaired equipment by the customer’s representatives;
• using a system for periodic assessment of the technical condition of equipment, calculation of the technical condition index in accordance with the industry procedure and its consideration when planning technical impacts;
• involving specialised contractors to assist with technical condition diagnostics and assessment;
• conducting on-site inspections to assess equipment maintenance readiness and assess the completed repairs;
• analysing changes in the equipment performance indicators and cost/ performance ratios;
• implementation of a comprehensive programme for the equipment replacement and per-unit reconditioning;
• implementation of a comprehensive programme for advanced training of the production personnel;
• standardising repairs, including by developing maintenance data sheets and maintenance workflow specifications;
• providing employees with incentives intended to reduce the equipment damage rate and forced unavailability (including targeted reduction of the bonus rate depending on the contribution of specific employees to the forced unavailability value);
• insuring business interruptions and property damage.

Risk of business interruption due to the spread of coronavirus infection COVID-19

One of the major risks in the Russian electric power industry associated with the spread of coronavirus infection is force majeure related to hindered supply of equipment and components, as well as the work of personnel against the restrictive measures. These facts impede both repair works and implementation of investment projects, which, along with the likely deterioration of the financial situation, may lead to a cut of investment programs by energy companies.

The production risks related to the pandemic can be attributed to the following areas:

• limitation of available capacity due to the risk of quitting by a critical number of operating staff who directly operate the equipment due to a disease or quarantine;
• limitation of available capacity when reaching the ultimate life, an individual resource due to a delay in the supply of components and spare parts for maintenance, repairs, of extension of the resource and keeping the equipment operational due to the shutdown of manufacturers, lack of domestic substitutes (for foreign equipment), closure of borders and other logistic issues;
• limitation of available capacity when reaching the ultimate life, an individual resource due to the fact that it is impossible to perform technical diagnostics, industrial safety expert examinations, repairs and maintenance due to unavailability of experts, work restrictions, and financial difficulties of specialpurpose organizations, as well as without foreign domain experts for equipment diagnostics and repair;
• limitation of available capacity in case of failures in the supply of operational goods (chemicals, ion-exchange resins, chemical reagents, components of devices for ongoing analytical control of the flow process, etc.).

Steps taken in these areas are as follows:

1. To ensure the protection of the operating staff, all branches have taken steps to prevent the spread of the COVID-19 coronavirus infection that include:

• arranging for remote work of the maximum possible number of employees not involved in the equipment control;
• additional public health measures aimed at lowering contacts among employees of various shifts and the same shift;
• monitoring the health condition of the staff when they access the plant;
• infection testing in employees who arrive after vacations and business trips, seconded personnel of the Company and contractors;
• special procedure for access of repair crews, including contractors;
• more frequent cleaning and disinfection of workplaces by both single purpose companies and the plant staff;
• use of special personal protective equipment;
• arranging for the places for staff meals and the manner in which the staff can take a shower that ensure the required social distance;
• organisation of regular testing for infection among the employees who do not work remotely, as well as contact persons;
• mass vaccination of employees who have given their consent.

When a significant number of personnel is absent on sick leave or in connection with quarantine, a three-shift work was organised instead of a four-shift mode.

In the event that the epidemiologic situation deteriorates significantly, each branch has developed plans for emergency actions aimed at switching to an isolated mode of the plant operation:

• lists have been made of the staff who will live at the plant or in detached residential facilities to ensure the independent operation of the plant,
• the need has been determined for additional material and technical resources and services, including those for satisfying the daily living needs of the operation staff, their procurement has been ensured,
• the organisational procedure for the plant interaction with third-party entities, the regime for the supply of materials, the provision of services and the performance of works in its territory have been determined.

2. As regards the risk factors related to a delay in the supply of components for repair, potentially problem-plagued nodes are being identified for their replacement. The possibility of agreeing upon the extension of operation with the manufacturers and regime restrictions is being studied. No critical points were identified as of the end of 2020.

3. As regards arrangements for foreign experts arriving in the Russian Federation to make the repair, the issue is being monitored whether or not the contractual obligations of the contractors engaging foreign experts may be performed. No critical points were identified as of the end of 2020. As regards the industrial safety expert examination and technical diagnostics services rendered by special-purpose organizations, there is preventive control of delay risks in place at each stage of the service rendering, the results of which are used to decide on the need for the contractors to mobilize extra personnel. In 2020, all scheduled opinions on extending the service life of equipment and buildings and structures were received without significant delays.

4. As regards the operational goods, their domestic substitutes are being studied, the sufficiency of emergency stock is being checked, the consumption of materials in the period of logistic and other restrictions caused by the pandemic is being streamlined

Risks associated with Berezovskaya GRES Power Unit No. 3 recovery

On 01 February 2016, a fire outbreak occurred in the boiler house of Power Unit 3 at Berezovskaya GRES causing damage to the boiler. The fire was extinguished. Power Unit 3 of Berezovskaya GRES is currently under repair. There is a risk that the actual date of completion of emergency repairs of Berezovskaya GRES Power Unit 3 and the total cost of recovery may differ from the planned ones. The factors of this risk include unscheduled works (design and planning flaws, remedial works, accidents, etc.) and delays by contractors, including due to shortage of workers during implementation of measures to stop the spread of coronavirus infection COVID-19. In order to prevent from and contain COVID-19 outbreaking all the personnel was tested and a number of other measures were implemented. The risk of suspending the works at the construction site in case of an increase in the number of employees with the infection identified is still present.

The Company pays maximum attention to managing this risk through careful monitoring of the repair process. Moreover, the Company partially insured risks related to the project “Recovery of Power Unit No. 3 at Berezovskaya GRES”

One of the risk groups significantly affecting the activities of Unipro PJSC are legal risks, i.e. the risks of adverse effects as a result of any misuse or misunderstanding of legal rules when making or implementing any managerial decisions and carrying out activities, or due to a significant change in any legal rules during the performance of a transaction or managerial action versus the period when such transaction was agreed upon or such managerial decision was made. Generally, such risks are borne by the majority of businesses operating in Russia and affect the Company’s activities to the same extent as those of any other players in the wholesale electricity market. Since the Company does not operate in foreign markets, legal risks are only described with regard to its domestic market.

The Company’s core business activity covers generation and sales of electric and heat power, thus, legal risks related to the regulation of this area may have a significant impact on the Company’s situation.

The enforcement of industry regulatory laws and regulations is aimed at deregulating the electric power and capacity market, transitioning to market pricing of electric power and capacity, creating a legal framework for deregulated electric power and capacity market operations, developing a competitive environment in the sector of electric and heat power generation and sales, creating mechanisms of flexible and balanced tariff regulation that would ensure the availability of products and services for consumers as well as a reasonable level of revenue and return on Company’s investments.

Another important aspect for the Unipro PJSC activities is self-regulation exercised through Association NP Market Council and its activities related to setting detailed rules of operations in the wholesale market for electricity and power, approving regulations and standard contracts regulating such activities.

Taking into account that the government regulation in Russia tends to change frequently and fast, it cannot be guaranteed that the government would not cancel market deregulation and transition to the free market or would suspend reforms of the heat power market, or change – in any way that would be unfavourable for generation companies – its approaches to such reforms, retreat from the balanced approach to various types of tariff regulation in the industry, which, in its turn, may have an adverse impact on the Company’s activities and present a significant legal risk associated with the Company’s core business activity.

Moreover, the independence of the Russian judicial system and the reliability of mechanisms protecting it against any economic, political and social impact have not been tested enough in practice yet. The judicial system suffers the shortage of competent staff and lack of funding, as well as an overload due to a great number of court cases pending. The enforcement of judgment may prove to be difficult.

Frequent reforms to the organisation of courts and amendments to the procedural legislation, including the matters of competence of the court and its jurisdiction over a case, together with changes in approaches applied by courts to any particular category of cases, bring even more incertitude to the judicial system operations. The said factors make it impossible to predict the outcome of court proceedings in Russia and guarantee the efficiency of remedies. Moreover, sometimes claims may be brought to courts or administrative authorities, or a prosecution may be initiated for some political, competitive, administrative or other reasons rather than on legal grounds. Such actions can also be initiated against Unipro PJSC with no guarantee of impartial trial.

The Company carefully and regularly studies changes in judicial practice related to its activities so as to ensure their timely consideration and take them into account in any then-current proceedings held with participation thereof. The judicial practice is analysed at the level of both the Supreme Court of the Russian Federation and commercial courts; the Company also examines the legal position of the Constitutional Court of the Russian Federation on certain law enforcement matters

The Russian wholesale electricity market regularly undergoes changes, which affects both the structure of the electricity market and relations between its participants.

According to the Company’s estimates, the important industry-specific risk that may significantly affect Unipro PJSC is the risk of change in functioning rules for the electricity and capacity market. Increase in the share of the regulated component in the wholesale market negatively affects the Company’s yield because it reduces the share of more efficient sales at non-regulated (free) prices