2014 Annual report

Board of Directors' Report

Priority areas of the Company’s activity are ensuring maximum efficiency, attracting investments and fulfillment of legal and social obligations. In this situation, the Board of Directors provides leadership in achieving strategic objectives. The Board of Directors determines the ways, means and mechanisms for the implementation of set tasks. In the process of creation and implementation of the Company’s development strategy, the Board of Directors pays special attention to maintaining a balance between risk and profit.

For the purpose of setting up and organizing internal business processes, in 2014 the Board of Directors reviewed and approved the Company’s internal documents, such as Procurement Policy; Policy of Innovative Development, Energy Supply and Efficiency; Standard of Technical Policy. Electric power metering systems with remote data collection in the wholesale and retail electricity markets; Regulations on technical policy in the area of telecommunications; Standard of the JSC IDGC of the North-West for bills transactions of the third parties; Regulation for placement of temporary free funds. Changes are introduced to the following current documents: Regulations on investment activities; Regulations on insurance coverage of the Company; VOLS-VL Standards of the Company. Terms and Definitions; VOLS-VL. Terms for Laying OL; VOLS-VL. Terms for Laying. OL.

In order to ensure sustainable development, the Company approved the following long-term plans and programs: adjusted Energy saving and energy efficiency programme of the Company for 2014 and forecast for 2015-2019; Schedule for development of production asset management system in the Company for 2014-2015, Road map for implementation of the Company’s Strategy in the field of information technology, automation and telecommunications for the period 2014-2016; a comprehensive programme of JSC IDGC of the North-West to reduce risks of injury to personnel and third parties at the electric grid facilities for the period 2014-2017; reviewed a draft investment programme for 2014 and the period 2015-2019; a decision is made on registration of commercial papers; approved prospectus of commercial papers . The Board of Directors uses the principles of regularity and efficiency to oversee the implementation of approved programmes and plans, and studies reports on their execution.

One of the areas to reduce costs and achieve efficiency is the optimization of technological consumption (losses) of electricity during transmission. In 2014, the Board of Directors paid close attention to the procedure of planning and supervision of the implementation of such an important indicator of the Company’s performance. Based on the 2014 year end results, the Company’s loss indicator of the electricity supplied to the grid is lower than the approved planned target.

Non-observance of payment discipline by consumers is a serious problem of power grid companies under current circumstances, the result of which is a significant size of accounts receivable. In order to manage the Company’s activities for the purpose of financial stabilization, the Board of Directors conducts effective monitoring of receivables and approves quarterly Schedule of activities of JSC IDGC of the North-West to reduce outstanding receivables. As the result of monitoring of the adequacy of planned measures and implementation of approved activities by the Company’s management is the stabilization of the level of outstanding receivables and a significant reduction of disputed debt (by 26%).

Ensuring reliable and quality supply of consumers is one of the Company’s key priorities. Evaluation of efficiency of the complex of organizational and technical measures aimed at the preparation of the electric grid complex to the period of maximum loads and difficult weather conditions, volume of work performed, as well as timing is set by the Board of Directors in the review of report on the results of the Company’s preparation for the autumn-winter period of 2014-2015.

In 2014, the Board of Directors paid much attention to the building of an effective system of internal control, audit and risk management. The Company made efforts to improve the internal control and risk management systems and develop an internal audit function. Within the priority areas, the Board of Directors approved the following internal documents of the Company in 2014: Internal audit policy, new version of internal control policy of JSC IDGC of the North-West, new version of Risk management policy of JSC IDGC of the North-West. Also in 2014, the Board of Directors approved the Registry of key operational risks of the Company, assigned owners of the risks and reviewed a Report on the key risks of JSC IDGC of the North-West for 2013.

Achievement of objectives is impossible without improving the system of remuneration of managers with regard to the results of financial and business activity, assessment of the effectiveness of the Company’s current management. Under the current system of motivation for the management, the Board of Directors approved the target values of annual and quarterly key performance indicators for the General Director and the senior managers of the Company for 2014, and reviewed and approved quarterly reports on their implementation.

In 2014, the Board of Directors focused on the above matters and made decisions on various activities of the Company.

With regard to strategic objectives, long-term plans and programmes

With regard to financial, business and investment operations

With regard to corporate governance (the Company and its subsidiaries)

With regard to ensuring effectiveness of the Company’s internal control and audit

With regard to personnel policy and appointments