3.5

Strategic Development Priorities

Priority Areas for the Development of OGK-2

OGK-2 JSC plans its priority development directions within the framework of the general Strategy of Gazprom PJSC in the electric power industry for the next ten-year period (until 2027), including increasing customer focus and maintaining import substitution policy.

Mission and Development Priorities of the Company

Taking into account the strategic goal, the characteristics of the Company, the market situation and risks, the main directions of development of OGK-2 are formed with an emphasis on improving profitability, efficiency and competitiveness. Strategic development priorities are identified in four main areas:

• building an optimal structure of production facilities;
• cost optimization and efficiency improvements to adapt to changing market conditions;
• ensuring sustainable development and corporate social responsibility;
• increasing the level of safety and reliability of production.

To implement these tasks, a system of Key Performance Indicators (KPIs) has been established that sets specific goals and motivates the management of the Company to achieve them.

Based on the work of the OGK-2 risk management system, the monitoring of possible negative impacts on the implementation of the Company’s development priorities is carried out with further adjustment of tasks and KPIs.

Development Priorities of OGK-2

Change of Strategic Development Priorities in the Reporting Year

In the reporting year, there were no changes in strategic development priorities.

Key Performance Indicators

The use of the KPI system in OGK-2 improves the performance of governing bodies and gives the company an objective basis for a regular bonus system.

The list, methods of calculation and performance assessment, as well as target KPIs for 2020 were approved by OGK-2 JSC Order No. 292 dated November 10, 2020.

The KPI matrix for 2020 features 15 quarterly and 32 annual indicators in the following areas:

• Indicators aimed at increasing the level of safety of production;
• Production indicators;
• Indicators for sales activity;
• Economic indicators;
• Indicators for procurement activities;
• Safety indicators;
• Indicators for investment activities;
• Indicators for the Company’s development;
• Personnel management indicators.

The decomposition of indicators by the Company’s employees is based on the KPIs of the Company’s top managers. The indicators are cascaded down to the level of branch managers, executives and branch employees, with a focus on the achievement of structural divisions’ objectives, as well as individual goals and objectives.

Notes:
This List establishes the composition of the KPIs and the weights of indicators of the Company's Senior Managers.  If the weights of indicator groups indicated in the List differ from those approved by other documents of the Company, the values from the List shall take precedence. 
1) If there is no position of the Senior Manager in the organizational structure and/or in the staffing table of the Company, the Managing Director of the Company determines the list of employees (Line Director, Head of a Structural Unit, etc.) responsible for achievement of the relevant operational KPIs (KPI of a functional unit) and the weights of indicators (the relative amount of bonus paid for achieving the indicator). The aggregate weight of these indicators in the total (nominal) amount of bonuses paid to relevant employees shall be at least 50% per quarter, year.
2) If the zeroing KPI is not met, no bonus is paid for achieving strategic annual KPIs.
3) Evaluation of performance of the Managing Director for the "Annual Operational KPIs", "Quarterly KPIs" group is calculated as the average assessment of KPI achievement by the rest of the Senior Managers (functional units).
4) The "Turnover of Heat Energy Trade Receivables" indicator is given for reference purposes,  the assessment of its achievement does not affect the amount of employee bonuses.

Efficiency Improvement and Investment Activity

Efficiency Project

• Increased operational and investment efficiency.
• Organizational and structural measures aimed at improving the efficiency of activities.
• Ensuring technological independence.

Following the results of 2020, the effect of the implementation of the Plan approved by the Board of Directors of OGK-2 amounted to 435.9 million rubles.

In order to monitor the implementation of the Action Plan for increasing operating efficiency, a system for monitoring the implementation of measures has been developed, incentive and incentive mechanisms have been introduced. Work is underway to replicate best practices.

The priority area of activity in 2021 is the further development of the Action Plan to increase the Company’s operational efficiency, one of the main directions of which is to increase the efficiency of work on equipment maintenance, reduce under-supply of power and improve the technical and economic indicators of operation of power units.

Management systems

In 2019, the Company developed and implemented an energy management system in accordance with the requirements of the ISO 50001:2018 standard.

In accordance with the policy of energy conservation and energy efficiency, the priorities of OGK-2 JSC in the field of energy conservation have been identified:

• increase of the economic efficiency of the Company due to economy and rational use of energy resources;
• continuous improvement of energy efficiency of production activities by reducing specific fuel consumption for the supply of electric and thermal energy through the implementation of technical and operational-technical measures;
• ensuring sustainable development of the Company, taking into account the best practices in the field of energy conservation and energy efficiency;
• assistance in the implementation of the state strategy in the field of energy conservation and energy efficiency.

The purpose of the Company in the field of energy conservation and energy efficiency is to achieve planned savings in fuel and energy resources by branches and the Company in kind and in money terms for the period, subject to economic feasibility.

A certification audit conducted by an independent expert organization confirmed the compliance of the functioning system with the requirements of the standard ISO 50001:2018. The certificate of conformity was obtained in March 2020.

In the second half of 2019, the Company began the development and implementation of a Quality Management System in accordance with the requirements of ISO 9001:2015 and STO Gazprom 9001-2018.

The development of the system is based on mutual support of mutual coordination, unification of the quality management system of Gazprom Energoholding LLC and OGK-2 JSC due to their harmonization at the level of quality policy and goals, as well as through the implementation of a unified approach to the formation of the process model of the system management to ensure uniformity of business architecture of the management system of OGK-2 JSC with Gazprom Group companies.

Investment Program

In 2020, the actual financing of capital investment amounted to 9,437.8 million rubles. The actual financing of capital investment within the framework of the technical re-equipment and reconstruction program in 2020 amounted to 8,470.4 million rubles, which is 43.8% higher than in 2019.

Energy Repair Activities

The main objective of the Company is to maintain the basic production assets in good operational condition at optimal costs for repairs and maintenance of equipment, buildings and structures.

In 2020, in order to ensure the required reliability of energy supply in accordance with the annual schedule of repair of the main equipment, overhaul and medium repairs were carried out on 11 turbines with a total capacity of 3,423 MW and 14 boilers with a steam capacity of 11,700 t/h, as well as extended current repairs were performed. In addition, the repairs commenced in 2019 were completed:

• overhaul of Power Unit under st. No. 3 at Surgutskaya GRES-1 with a capacity of 215 MW and a steam capacity of 670 t/h;
• overhaul of 50 MW turbine st. No. 3T at Kirishskaya GRES;
• overhaul of boiler under st. No. 3T at Kirishskaya GRES with a steam capacity of 420 t/h;
• overhaul of 52 MW steam turbine under st. No. 20 at Adlerskaya TPP.

New Generation Maintenance Service

The most effective and technically sophisticated new generation facilities are given increased attention both during operation and in the organization of the maintenance service.

The Company has developed a set of measures aimed at timely service, taking preventive measures to reduce the risk of emergency situations and improving the reliability of equipment.

In order to ensure the power supply reliability, trouble-free and economical operation of the equipment, minor inspections of gas turbines of the modern power units of two CCGTs-180 of Adlerskaya TPP, CCGT-450 of Cherepovetskaya GRES, CCGT-450 of Serovskaya GRES, a sophisticated main inspection (MI) of the gas turbine of GTU-11 of Adlerskaya TPP were performed in 2020.

The service maintenance of the power unit of STU-330 of Novocherkasskaya GRES with a unique and single boiler in Russia with a circulating fluidized bed (CFB) and the power unit of STU-660 of Troitskaya GRES constructed based on imported elements, was performed by designated companies.

Furthermore, in 2020, works were commenced on main inspections of GTU-22 at Adlerskaya TPP, GTU-62, GTU-63 of CCGT-800 unit at Kirishskaya GRES, scheduled to be completed in February 2021.

Innovative development program

Power industry is an industry in which modern technologies are actively applied. To maintain competitiveness, OGK-2, like other large electricity companies, conducts research and development in the field of increasing production efficiency and introducing innovative technology.

A significant role in this process is performed by scientific and technical and experimental design work (R&D).

One of the projects completed in 2020 was carried out by Serovskaya GRES, a branch of OGK-2 JSC – this was cleaning-in-place of the heat exchange surfaces of plate heat exchangers.

An innovation project for developing technology and piloting production of thermal barrier tiles for gas turbines has shifted to 2021.

Information Technology

In 2020, the implementation of an electronic document management information system (hereinafter, EDMS) started in the Executive Office and branches of the Company. In accordance with directives of the Government of the Russian Federation and orders of Gazprom PJSC, aimed at import substitution of software, the EDMS is implemented on the basis of the Sputnik ECM platform, which has been developed by the Russian company KORUS Consulting DM and registered in the Register of Russian Software under No. 3486 on May 03, 2017.

The transition to the EDMS Sputnik ECM will help the Company achieve the following objectives:

• replacement of the outdated EMC Documentum 5.3 platform with a Russian software solution based on the Sputnik ECM platform;
• a significant increase in the speed of operations in the system;
• providing support for an extended list and current browser versions (Internet Explorer, Yandex.Browser, FireFox, Chrome, Opera);
• a decrease in equipment utilization;
• transfer of more than 2 million documents, registered within the Company over 14 years, to the new system.

The implementation of this project will strengthen the position of the Company’s IT solutions in terms of:

• activities aimed at import substitution and reducing dependence on foreign suppliers;
• increasing the level of information security.

In 2020, the server infrastructure was upgraded at OGK-2 JSC branches – Pskovskaya GRES, Kirishskaya GRES, Novocherkasskaya GRES and Adlerskaya TPP. This upgrade enabled the transformation of the current computing infrastructure into a high-tech hardware platform designed to improve fault-tolerance of services, and to effectively address current and future challenges, and it will significantly improve the reliability of the Company’s operations.

Risk Management

Corporate Risk Management System

The Company’s risk management and internal control system (hereinafter, the RM&ICS) is based on the recommendations of international professional organizations, international and Russian standards, Gazprom Group methodological documents on risk management and internal control, as well as on the recommendations of the Bank of Russia on organizing risk management, internal control, internal audit, the work of the Audit Committee under the Board of Directors at public joint stock companies, and the principles of the Corporate Governance Code.

Recognizing that the implementation of activities is subject to uncertainties in the form of risks, OGK-2 JSC takes risk management measures in order to provide sufficient guarantees to achieve the goals set for the Company. The Company has developed and approved by a decision of the Board of Directors (Minutes No. 223 dated September 30, 2019) and has a Risk Management and Internal Control Policy that defines the goals, objectives and components of the risk management and internal control system, the principles of its functioning, as well as the functions of participants in the risk management and internal control system.

Main participants in the RM&ICS:

• Board of Directors of the Company;
• Audit Committee of the Board of Directors of the Company;
• Sole Executive Body of the Company (Managing Organization of the Company);
• Managing Director of the Company;
• Structural divisions of the Company;
• Business process owners;
• Owners (Co-owners) of risks;
• Responsible for the implementation of risk management measures;
• Risk coordinators;
• Owners (Co-owners) of internal control procedures;
• Responsible for monitoring the implementation of internal control procedures;
• Center of responsibility for risk management and internal control.

The Company’s Risk Management and Internal Control Policy applies to the structural units of the Company (including branches), its subsidiaries and organizations.

The risk management and internal control policy defines the following objectives:

• ensuring sufficient confidence in achieving the objectives of the Company;
• ensuring proper control of the financial and economic activities of the Company. 

The organization of the risk management system implements the following basic principles:

• The principle of systemacity (integration).
• The principle of complexity.
• The principle of compliance (with goals).
• The principle of sufficient confidence.
• The principle of adaptability and development.
• The principle of materiality and resource support.
• The principle of continuity (functioning).
• The principle of interaction and collegiality.
• The principle of responsibility.
• The principle of separation of duties.
• The principle of evaluating the results.
• The principle of structuring and operational efficiency.
• The principle of a single regulatory environment.
• The principle of economic feasibility.
• The principle of three lines of defense.

Risk management and internal control activities provide for the continuous operation of system components.

In accordance with the organizational structure of the Executive Office of OGK-2 JSC, approved by decision of the Board of Directors (Minutes dated December 17, 2019), a Risk Management and Internal Control Department has been in place at the Company since March 1, 2020. The Department is responsible for solving tasks and performing functions within the process of risk management and internal control, methodological support for implementing the Company’s risk management and internal control policy, and interaction with structural divisions of the Company. The structural divisions – owners of the Company’s risks carry out risk identification, risk assessment, development and implementation of risk management measures, monitoring of risks and measures.

Risk Management Activities in 2020

In 2020, as part of the development of the risk management and internal control system, the Company carried out the following activities:

• By Order No. 133 dated May 14, 2020, the Company enacted the Regulations on the Operational Risk Management System of OGK-2 JSC.
• By Order No. 160 dated June 15, 2020, the Company approved the Methodological Recommendations for Determination of Key Risk Indicators of OGK-2 JSC.
• By Order No. 236 dated September 07, 2020, the Company approved the Risk Classifier of OGK-2 JSC.
• By Order No.306 dated December 04, 2020, the Company approved the Methodological Recommendations for Risk Management Using Qualitative Assessments of OGK-2 JSC.
• By Order No.306 dated December 04, 2020, the Company approved the Key Risk Indicators of OGK-2 JSC.
• By Order No.306 dated December 04, 2020, the Company updated the Register of Key Risks of OGK-2 JSC, specifying risk owners, risk coordinators by area, and the Company’s risk passport.
• By Order No.182 dated July 15, 2020, the 2nd edition of the “Regulations on the Risk Management and Internal Control Department of the Executive Office of OGK-2 JSC” was approved.
• By Decree No.34-R of July 15, 2020, the 2nd edition of the “Job Description of the Chief Specialist of the Risk Management and Internal Control Department” was approved.
• By Order No.328 dated December 28, 2020 “On the implementation of the quality management system, QMS”, the map of the “risk management” process was approved.

Reporting on the Risk Management and Internal Control System was prepared and approved following the results of 2020.

Risk map

Managing sustainable development risks

The risk management and internal control system of OGK-2 includes, among other things, identification, monitoring and management of risks related to sustainable development.

The identified risks include environmental, social, reputational and other sustainability risks.

The impact of climate change, biodiversity and information security risks on the Company’s activities is assessed as minimal.

The description of the risks is available in the Report on Sustainable Development of production companies of the Gazprom Energoholding Group: https://www.ogk2.ru/rus/about/social/.

System of procurement activities

Relations with Suppliers

We build relationships with all our suppliers, regardless of their share in the supply structure, on the principles of responsible partnership. We strive to maintain long-term, stable, mutually beneficial relationships with suppliers. OGK-2 is constantly working to improve the stability of supply, as well as transparency of pricing. We select suppliers and contractors mainly on a competitive basis and strive to work with contractors who have an impeccable reputation, comply with the law, as well as corporate and business ethics.

Procurement Activities

The main document determining the procurement policy of the Company is the Regulations on the procurement of goods, works and services. This document defines a unified methodological basis for ensuring efficient procurement procedures conducted mainly on a competitive basis.

Basic principles of procurement:

• disclosure;
• transparency;
• equality;
• development of fair competition;
• expansion and simplification of access of participants to purchases;
• creating conditions that increase competition between procurement participants;
• balance of costs for organizing and conducting procurement procedures and expected economic benefits from their results.

 The Company Procurement System includes:

1. Organization and monitoring of the market of material and technical resources in order to expand the competitive environment and make decisions in the course of procurement.
2. Improvement of the unified regulatory and reference information system for resource supply.
3. Organization of work on the formation, coordination and approval of projects of the annual integrated procurement program (AIPP) in accordance with corporate requirements.
4. Organization of the examination system and preparation of expert opinions during the procurement process for submission to the Procurement Commission for consideration.
5. Organization and conduct of all stages of the procurement procedures in accordance with the AIPP of the Company.
6. Formation, coordination and control of the implementation of supply contracts, services, work.
7. Formation of consolidated reporting on procurement activities to the management bodies of the Company.
8. Decrease in the level of unproductive diversion of capital to stocks.
9. Optimization of stock balances, including through the sale of unclaimed material and technical resources and recyclable waste.

All procurements organized on a competitive basis in 2020 were carried out in electronic form on the websites of the National Electronic Platform (www.etp-ets.ru), the Automated Trading System “Sberbank-AST” (www.sberbank-ast.ru) and the Trading System “GazNeftetorg.ru” (www.gazneftetorg.ru). Based on the results of organizing competitive procurement procedures in 2020, a positive effect was achieved in the amount of 5.5% of the initial (maximum) price of competitive procurements (excluding fuel purchases).

In 2020, OGK-2 complied with the requirements of Decree of the Government of the Russian Federation dated December 11, 2014 No. 1352 with respect to the annual volume of contracts concluded as a result of procurement, of which only small and medium-sized enterprises are participants. In 2020, the volume of contracts concluded on such purchases amounted to 25.2% of the total annual volume of contracts concluded by OGK-2 based on the results of all purchases, with the established regulatory value of 18%.

Cash flow from the sale of unclaimed material and technical resources and recyclable waste in 2020 amounted to 71.7 million rubles without VAT.

Supply Chain

The main resource procured by OGK-2 for the production of electric and thermal energy is fuel. In accordance with the reporting data prepared according to RAS standards, fuel costs also prevail in the structure of the variable costs of the Company:

In 2020, fuel costs amounted to 50,928 million rubles, which is 13.3% lower than in 2019.

In 2020, the cost of gas consumed decreased by 13.9% compared to 2019.

The largest decrease occurred at Kirishskaya GRES (-3,962 million rubles), Surgutskaya GRES-1 (-1,819 million rubles) and Stavropolskaya GRES (-1,265 million rubles). Gas costs have also decreased at Cherepovetskaya GRES (-496 million rubles), Novocherkasskaya GRES
(-308 million rubles), Pskovskaya GRES (-68 million rubles) and Ryazanskaya GRES (-60 million rubles). The main reason for the decrease was a change in generation due to the current pattern and mode situation in the UES of Russia. Meanwhile, the remaining branches saw an increase in gas costs of 1,523 million rubles compared to 2019, influenced by higher output and higher gas prices.

In 2020, the cost of coal consumed decreased by 10.4% compared to 2019.

The largest decrease of coal costs occurred at Krasnoyarskaya GRES-2 (-1,333 million rubles) due to the change of the pattern and mode situation in the Siberian UPS and the transfer of operational control of Krasnoyarskaya GRES-2 to the Siberian Generating Company from October 01, 2020; at Troitskaya GRES (-448 million rubles) due to the change of the pattern and mode situation in the Ural UPS; at Serovskaya GRES (-5 million rubles) due to the decommissioning of coal generation. At the same time, there was an increase in coal costs at individual branches: Novocherkasskaya GRES (+320 million rubles) due to the increase in coal prices; Cherepovetskaya GRES (+164 million rubles) due to the decommissioning of coal generation at Cherepovetskaya GRES from January 01, 2021, the SNLT was reduced for the branch and coal was combusted; Ryazanskaya GRES (+36 million rubles) due to the increase in coal prices.

The cost of fuel oil consumed decreased by 28.4% in 2020. The main reason was a decline in output at Krasnoyarskaya GRES-2 and Troitskaya GRES.

The decrease in diesel fuel costs by 89.8% is due to the pre-commissioning works involving combustion of diesel fuel at Groznenskaya TPP, a branch of OGK-2 JSC to be commissioned in 2019.

The supply chain of OGK-2 JSC reflects the most significant suppliers and their share in the Company’s expenses for the purchase of the main types of raw materials used – gas, coal, fuel oil and diesel fuel. When selecting the most significant suppliers, we were guided by the principle of materiality – the scheme shows suppliers whose share is more than 10% in the total cost of deliveries of this type of raw material for 2020.

Factors of changes in the distribution of shares between the main coal suppliers in 2020 compared to 2019:

• Due to the termination of supplies by Gaz-Alliance LLC in 2020, the volumes were redistributed among the existing suppliers.