QUARTERLY REPORT Quarter 2 of 2012 - Холдинг МРСК

performance of securities-related obligations are not incurred.
2.4.2. Country and Regional Risks
Since JSC IDGC Holding does not perform any operating activities and is only in charge of corporate
management of IDGCs, country and regional risks are primarily incurred by the SDCs of the Company.
Country risks:
JSC IDGC Holding’s SDCs incur risks associated with changes in the macroeconomic situation in the
Russian Federation. The adverse effects of macroeconomic factors entail difficulty in attracting investment and
higher borrowing costs.
There is a risk that JSC IDGC Holding’s SDCs may receive less revenue than used for tariff setting for
electricity distribution services.
Unlike economic indicators, the political situation in the Russian Federation is characterized by stability.
The vast majority of the population has confidence in the President and the Government. Therefore, the risk that
the Company’s performance may become worse as a result of domestic political instability is considered
minimal.
Regional risks:
The electric power industry is a regulated economic sector. Electricity distribution tariffs are regulated by
the government agencies authorized to set tariffs in constituent entities of the Russian Federation. If any federal
or local authority pursues a policy aiming to keep tariffs down, there is a risk that tariffs may be lower than
economically feasible. The transition to regulation based on the return on invested capital method (RAB
regulation) also involves a risk that the value of the initial invested capital base appraised by independent
appraisers may be disputed. In addition, there may be losses due to an incorrectly predicted breakdown of
electricity distribution by voltage. In order to reduce these risks, the Federal Tariff Service of the Russian
Federation and the government agencies authorized to set tariffs in constituent entities of the Russian Federation
are provided with justification for declared tariffs. Agreements defining the amount and sources of financing for
investing activities under long-term programs of regional development are signed to exclude any subjectivity of
tariff and balancing decisions owing to the formulation and implementation of cost management programs,
including as part of implementing the Russian President’s instructions in relation to an at least 10 percent annual
reduction of per-unit purchase costs related to goods (work, services) within three years in real terms in 2010
prices.
As natural monopoly entities, JSC IDGC Holding’s SDCs incur a risk that their electricity distribution and
network connection services may be held to be in violation of antimonopoly laws. In order to reduce this risk, the
timely processing of customers’ applications and appeals is monitored, and the timely disclosure of information
in accordance with Russian laws is clearly regulated and monitored.
Expected behavior of the issuer in the event of adverse effect of changes in the situation in the country
(countries) and region on its activities:
Most of these risks cannot be controlled by IDGCs and the issuer itself due to their scope. In the event of
destabilization of political and economic situation in Russia or any given region, which can adversely affect the
activities of the issuer’s SDCs, the situation will be analyzed on a case-by-case basis and a number of crisis
management measures will be taken to minimize adverse effects, specifically minimize expenses and limit
investment plans.
Risks associated with possible military conflicts, imposition of the state of emergency and strikes in the
country (countries) and region:
The Russian Federation is a multinational state including regions with varying levels of social and
economic development. In this regard, the likelihood of internal conflicts in Russia, including military ones,
cannot be entirely ruled out. Moreover, the Company cannot fully rule out risks associated with possible
imposition of the state of emergency in the regions in which the SDCs of the Company are located and in Russia
in general.
The operations of Russian companies, including JSC IDGC Holding, can be damaged by both domestic
and international acts of terrorism, which can also adversely affect investments and the value of the Company’s
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