Assets and Liabilities

The main parameters of property of JSC IDGC of the North-West and sources of their funding are shown according to RAS data for 2010-2014.

In 2013-2014, there were the following material events that affected changes of the entire financial and business operations:

from March 01, 2013 in the Murmansk Region, from April 01, 2013 and from October 01, 2013 in the Novogord Region, the functions of guaranteed supplier of electricity in respect of the business area of JSC Kolskaya Energy Sales Company, JSC Novgorodoblenergosbyt, and Novgorodenergosbyt LLC were transferred to JSC IDGC of the North-West.
The functions of guaranteed supplier that are exercised by JSC IDGC of the North-West in the Novgorod Region, were transferred to Garantenergoservis LLC. In the event of JSC Novgorodoblenergosbyt, the functions were transferred from January 01, 2014, and from October 01, 2014, in respect of Novgorodenergosbyt LLC.

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Asset structure and dynamics, mln

Indicator	2010Indicators for 2010 are shown in accordance with the annual accounting statements for 2011.	2011Indicators for 2011–2013 are shown in accordance with the annual accounting statements for 2013.	2012Indicators for 2012–2014 are shown in accordance with the annual accounting statements for 2014.	2013	2014
Intangible assets	—	—	1	1	1
Results of research and development			8	8	8
Fixed assets	30,933	33,354	37,001	39,648	40,925
Income-bearing investments in material valuables	—	-	—	—	—
Long-term financial investments	70	56	39	39	393
Deferred tax assets	155	192	450	714	844
Other non-current assets	27	18	269	393	376
Non-current assets	31,186	33,620	37,767	40,802	42,547
Inventory	796	887	827	849	793
VAT on valuables acquired	42	114	109	268	167
Accounts receivable	4,629	4,446	5,929	12,279	14,877
Short-term financial investments	—	42	66	66	1,045
Cash	1,132	1,485	657	773	975
Other current assets	485	476	287	327	502
Current assets	7,084	7,450	7,875	14,562	18,358
Total assets	38,270	41,070	45,642	55,364	60,905

The greatest share is that of non-current assets, 96% of which are fixed assets. Such a significant prevalence of non-current assets is due to the nature of business of JSC IDGC of the North-West, which is a capital-intensive industry and requires significant investment in fixed assets. The greatest increase of fixed assets (9% annual average) was in 2011-2013 due to the post-crisis economy rise, “recharge” of the parameters of RAB regulation of branches, and the resulting increase of capital investments. In 2014, the growth rates reduced down to 3% due to worse macroeconomic conditions, liquidity shortage in the banking sector, and review of investment program funding sources.

In 2010-2014, the share of non-current assets in total assets decreased from 81% down to 70%. The greatest part of current assets of the Company (81%) is accounts receivable.

The increase of accounts receivable in 2014 amounted to RUB 2,598 million and is related to systemic impairment of payment discipline of consumers, breach of contractual liabilities, one of the reasons of which is change of the macroeconomic conditions and liquidity shortage in the banking sector.

The increase of total financial investments in 2014 was affected by the deposits made with the St. Petersburg Shareholder Commersical Bank Tavrichesky (JSC) (hereinafter referred to as the Bank) in the amount of RUB 3,000 million. Due to the fact that on 11.02.2015, external management was imposed at the Bank and the functions of temporary administration were delegated to the Deposit Insurance Agency (hereinafter referred to as DIA), which is taking a set of steps to prevent bankruptcy of the Bank. According to clause 9 of the Accounting Statute 7/98, the Company evaluates the introduction of external management as an event after the reporting date, which affects the evaluation of the book the Bank of deposits in the 2014 financial statements. In March 2015, an investor for financial rehabilitation of the Bank was selected at a tender and a plan of debt restructuring was developed, pursuant to which the Company expects a part of the deposit to be repaid in 2015, while the remaining part will be repaid after 20 years. Based on the calculated value of economic benefits from the abovementioned financial investments and the risk of their impairment, the Company established a provision for impairment of financial investments as at 31.12.2014 in the amount of RUB 1,665 million.

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Dynamics and structure of liabilities, RUB mln

Indicator	2010Indicators for 2010 are shown in accordance with the annual accounting statements for 2011.	2011Indicators for 2011–2013 are shown in accordance with the annual accounting statements for 2013.	2012Indicators for 2012–2014 are shown in accordance with the annual accounting statements for 2014.	2013	2014
Authorized capital	9,579	9,579	9,579	9,579	9,579
Own shares repurchased from shareholders
Reassessment of non-current assets	16,046	16,018	15,917	15,876	15,851
Surplus capital (with no reassessment)	1,318	1,318	1,318	1,318	1,318
Reserve capital	344	344	365	368	383
Undistributed profit (uncovered loss) in the reporting year	–596	–157	226	520	–166
Equity	26,691	27,102	27,404	27,661	26,965
Long-term credits and loans	4,372	6,148	10,629	13,953	14,913
Deferred tax liabilities	1,236	1,443	1,808	2,431	2,610
Assessment liabilities					0
Other long-term obligations	301	227	325	1,052	516
Long-term liabilities	5,909	7,818	12,763	17,437	18,039
Short-term credits and loans	279	80	19	2,777	3,539
Short-term accounts payable	4,854	5,094	4,278	6,526	11,764
Deferred income	46	42	38	34	31
Assessment liabilities	491	934	1,140	929	567
Other short-term liabilities	0	0
Short-term liabilities	5,670	6,150	5,475	10,266	15,901
Total liabilities	38,270	41,070	45,642	55,364	60,905

Following performance in 2014, the Company’s assets did not undergo any significant structural change, but in the examined period (2010-2014), the ratio shifted towards borrowed sources and short-term liabilities and redistributed as follows:

the share of equity and provisions reduced from 70% to 44%;
the share of total borrowings increased from 12% to 30%;
the share of other accounts receivable decreased from 13% to 20%.
the share of other liabilities (including deferred tax liabilities) increased from 5% to 6%.

The structural changes and dynamics of the Company’s liabilities depend directly on the changes in the asset part of the balance sheet. The increase of accounts receivable of consumers causes an increase of accounts payable to counterparties and extra borrowings.

As at 31.12.2014, the equity of JSC IDGC of the North-West amounted to RUB 26,965 million, which is a 696 million less than the same value in 2013. The main reason for the change of the Company’s equity is the negative change of the financial result on the results of 2014, which was caused by the establishment of the provision for impairment of financial investments in the amount of RUB 1,665 million based on the conditions of measures for preventing the bankruptcy of Bank Tavrichesky that are being taken by the Central Bank of Russia.

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Dynamics and structure of liabilities in 2010–2014, mln

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Structure of accounts receivable, RUB mln

Indicator	2010	2011	2012	2013	2014
Accounts receivable	4,629	4,446	5,929	12,279	14,877
Accounts receivable (payments are expected in over 12 months after the reporting date)	203	148	95	56	255
trade receivables (buyers and customers)	32	28	19	16	201
debt of subsidiaries and affiliates	—	1	—	1	0
advances paid	171	119	75	40	55
Accounts receivable (payments are expected within 12 months after the reporting date)	4,426	4,298	5,834	12,223	14,621
trade receivables (buyers and customers)	3,697	3,539	5,036	11,460	13,696
debt of subsidiaries and affiliates	82	106	94	248	205
advances paid	647	653	704	515	720

As at 31.12.2014, the accounts receivable of the Company amounted to RUB 14,877 million and its change over the periods had the following dynamics:

2010-2011, an increase of RUB 183 million;
2011-2012, an increase of RUB 1,483 million;
2012-2013, an increase of RUB 6,350 million;
2013-2014, an increase of RUB 2,598 million.

In five years, the composition of accounts payable has not changed much, and buyers and customers are still its main components; in addition, their share in the total accounts receivable increased from 80% to 93%.

In the structure of buyers and customers, 97% of the debt is distributed as follows: 73%, electricity transfer services (GS, TGCo, direct consumers), 24% sale and resale of electricity (end consumers), while the remaining 3% are buyers and customers on miscellaneous activities.

In 2010-2014, the debt of buyers and customers increased from RUB 3,729 million to RUB 13,897 million. Most of the increase occurred in 2013 and was due to two main factors, namely, the acquisition of guaranteed supplier functions and breach of liabilities by major consumers including JSC Arkhangelsk Sales Company, JSC Vologda Sales Company (managed by JSC Mezhregionsoyuzenergo) and JSC Severstal (the biggest direct consumer in the Vologda Region). In 2014, the debts continued growing, but the implemented debt recovery measures made it possible to slow it down. Macroeconomic problems and difficulties in the banking sector added to the default growth, also at the account of consumers that had no long-overdue payments before.

As at 31.12.2014, the Company had established a bad debt provision in the amount of RUB 2,096 million including RUB 1,662 million for electricity transfer services. The reserved amount of bad debts covers 14% of the total accounts receivable and is shown in the balance sheet as its decrease.

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Dynamics of accounts receivable in 2010-2014

The Company is implementing a whole set of steps for reducing the accounts receivable, in particular:

monthly meetings of the Commission of Control of Accounts Receivable and Accounts Payable;
direct contracts for electricity transfer services are made with end electricity consumers;
approval of a schedule for overdue receivables reduction in relation to the electricity supply services and dispute settlement; The following basic steps are taken in the framework of the schedule:
- negotiations on extrajudicial settlement of disagreements;
- agreements on debt restructuring;
- agreements on set-off of similar counterclaims, assignment of claim rights, etc.
- scheduling of terms and scope of claims for recovery of overdue debts.

In addition to the above, a number of steps have been taken to raise the efficiency of operations as adopted by the Order of JSC IDGC of the North-West of January 12, 2015 No.1. In the framework of this Order, regional commissions on monitoring of the situation with payments for electricity and electricity transfer services are operating, the objective of which is improving the payment discipline of consumers and settling mutual claims between participants of the sector of electricity production, consumption, and transmission.

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Structure of accounts payable, RUB mln

Indicator	2010	2011	2012	2013	2014
Accounts payable	5,155	5,321	4,604	7,578	12,281
Other long-term obligations (without taking into account credits and loans)	301	227	325	1,052	516
Trade payables (suppliers and contractors)	2	9	29	69	73
Other long-term obligations	299	218	296	983	443
Accounts payable (without taking into account credits and loans)	4,854	5,094	4,279	6,526	11,765
trade payables (suppliers and contractors)	2,074	2,390	2,075	3,649	7,628
wages payable to employees	270	298	296	336	344
debt to state and non-budgetary funds	65	99	119	142	141
debts with regard to taxes and levies	535	274	190	670	810
advances received	1,783	1,868	1519	1542	2565
Other creditors	127	165	80	188	276

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Dynamics of accounts payable in 2010-2014

On the results of 2014, the accounts payable amounted to RUB 12,281 million and increased by RUB 4,703 million.

The structure of the total accounts payable in the examined period was presented by the following three main components, namely, the debt to suppliers and contractors, advances received, and miscellaneous liabilities. On the results of 2014, the following changes occurred:

the debt to suppliers and contractors increased by RUB 3,983 million (from RUB 3,718 to RUB 7,701 million);
advances received increased by RUB 483 million (from RUB 2,525 million to RUB 3,008 million);
miscellaneous liabilities increased by RUB 237 million (from RUB 1,335 million to RUB 1,572 million).

The increase of debt to suppliers and contractors in 2014 was due to unstable payment discipline of the main consumers and difficulties in the banking sector, which in is turn caused a delay of payment of liabilities to creditors.

Advanced received increased at the account of advance payments for services of grid connection to grids. The greatest applicants for grid connection to the Company on the results of 2014 were as follows:

CJSC Northwest Phosphorus Company (Oleniy Ruchey mining and processing combine, the Murmansk Region);
Lukoil-Komi LLC (Yaregskoye oil titanium field, the Komi Republic);
CJSC Yamalgazinvest (Bovanenkovo-Ukhta main gas pipeline system, the Komi Republic).

In essence, advances for technical are not liabilities payable but a source of funding non-current assets and expanding production capacities for connecting consumers to distribution grids and will be repaid (set off) after full discharge of the parties’ liabilities and the fact of grid connection of the consumer to the grid.

The main factor affecting the amount of accounts payable is the amount of payments f accounts receivable. Payments of accounts receivable and subsequence payments of accounts payable depending on the amount of claimed debts and on the timeliness of claims.

For the Company’s debtors and creditors, 2014 was marked by macroeconomic changes and financial and economic consequences of tension in the national banking sector. Despite all the difficulties, the Company management aims to comply with all of its liabilities and preventing any increase of debt to creditors, which is achieved by organization of settlements between its counterparties by the following steps:

compliance with the priority and order of payments;
control of the earnings and costs balance;
regulation of settlements by counterclaim setoff and contracts of claim right assignment;
debt restructuring agreements;
improvement of payment procedures in new contracts subject to the following main provisions, namely, settlements within 60 banking days after the job or services have been provided or the product has been delivered; not allowing any advances to contractors save for cases stipulated by federal laws and acts of the Russian government; and provision of payment of creditors’ claims strictly not before the deadline that is stipulated by the contracts.