Company Registrar 8–800–700–03–70
Bolshaya Pirogovskaya ulitsa, 27 building 2, Moskva, Russia, 119435  ·  +7 (495) 664–88–40  ·  office@interrao.ru

Development strategy

PJSC Inter RAO evolves to a large integrated energy enterprise from an electricity exporting and importing company.
Inter RAO is a diversified energy group with various assets both in Russia and abroad. Inter RAO is one of the largest players in the Russian electric power industry.
Installed capacity1
32.5 GW
Total revenue1
805.3BILLION
rub.
EBITDA1
71.1BILLION
rub.
1
Data for 2015, without unallocated items and eliminations
2
From start of trading in PJSC Inter RAO shares in 2015 after the completion of consolidation through June 3, 2016 (from January 20, 2015 through June 3, 2016)
KEY FACTORS
  • Substantial changes in the regulatory framework of the supply segment; inadequate regulatory framework of the thermal power segment.
  • Postponement of commissioning of a number of facilities under the contracts for capacity supply (CCS).
  • Unfavorable trends in key export areas.
  • Decisions of local regulators on the Group's foreign assets.
  • Unfavorable economic situation in Europe and, consequently, fewer M&A transactions.
MAIN RESULTS
  • Considerable expansion of the Group's scope and transition to the target business model.
  • Under the CCS, 1.6 GW of generating capacities have been launched.
  • Approximately RUB 50 billion was attracted due to the sale of  minority interests.
  • The Group is developing new business areas.
  • Increase in the operational efficiency of assets has been ensured.
INDICATORS 2010   2013
Installed capacity, GW 19.7
33.6
abroad, GW
5.5
6.0
Share of the supply market, % 15.6
15.1
Supply of electric power, billion kWh 157
156
Volume of foreign trade operations, billion kWh 21.5
22.1
Revenue, RUB billion 464.4
662.3
EBITDA, RUB billion 33.6
39.2
Total revenue
for 2010-2013
+42.6%
Consolidated EBITDA
for 2010-2013
+16.5%
GLOBAL TRENDS AND CHALLENGES1
  • Possibility that a number of countries will abandon the regime of parallel operation with the Unified Energy System of Russia
  • Integration of energy systems and energy markets accompanied by gradual price stabilization
  • Unstable economic situation in Europe
COUNTRY-SPECIFIC TRENDS AND CHALLENGES1
  • Uncertainty over long-term rules regulating the wholesale electricity and capacity market, the supply electricity market and the models of the thermal energy market
  • Relevance of enhancing energy efficiency of production
  • Low efficiency of mechanisms for funding R&D
  • Increasing ageing of permanent equipment of power plants and heating networks
  • Lower efficiency of electric power export
  • Fuel supply risks
  • Development of distributed generation
  • Development of renewable generation in Russia
  • High cost of construction of generation facilities and the electric grid complex
  • Potential for developing promising technologies
1
At the time of strategy development
FOCUS ON THE EFFICIENCY OF EXISTING ASSETS AND ORGANIC GROWTH
  • Realization of potential for increasing asset efficiency
  • Optimization of investment activity
  • Promoting offerings concerning the market model
DECREASE IN M&A ACTIVITY IN FOREIGN MARKETS IN THE NEXT 2 TO 3 YEARS
  • Considering options of managing assets in foreign markets
  • Focus on markets within the Group's footprint
FOCUS ON INCREASING VALUE
  • Participation in projects aimed at promoting Russia's strategic interests with the use of state funding within frameworks that have no negative impact on the Company's shareholder value
  • Efficiency of current projects > WACC
BY 2020, INTER RAO is expected to become A GLOBAL COMPANY — A KEY PLAYER IN THE GLOBAL ENERGY MARKET AND THE LEADER IN THE RUSSIAN ENERGY INDUSTRY
STRATEGIC GOALS
  • Retaining leadership in the Russian energy industry
  • Ensuring leading positions among Russian energy companies in terms of efficient management of energy assets with a focus on integrating innovation and increasing energy efficiency
  • Increase in shareholder value
  • Expanding the Company's presence in key foreign markets as well as promoting Russian energy practices and solutions abroad
  • Assuring energy safety and promoting Russia's strategic interests
KEY TARGET INDICATORS1   2020
EBITDA2
>RUB 100 billion (>RUB 130 billion)3
EBITDA margin
>8.7%
Installed power generation capacity
>34.6 GW (> 36.6 GW)3
Share of the Russian supply market
>16% (>20%)3
Marginal profit from foreign trade operations
RUB 3.6 billion
Efficiency of current projects
> WACC
EBITDA (in accordance with IFRS)4
RUB 97.6 billion2
Dividends   ≥ 25% of net profit in accordance with IFRS
(in case of changes in legislation,
if there is free cash flow)
1
Here and elsewhere, target indicators are provided for the existing assets of Inter RAO
2
In accordance with consolidated management accounts and given the shareholdings in JV Stantsiya Ekibastuzskaya GRES-2 (50%), JV Kvarz Noviye Technologii (50%) and INTER RAO UES Energy Efficiency Center (50%).
3
By using free investment resources, by 2020, the Group may achieve additional EBITDA of at least RUB 30 billion / additional installed power generation capacity of up to 2 GW; Inter RAO's share of the supply electric power market may exceed 20% (provided that Inter RAO management bodies make relevant decisions on acquisition / construction of new assets).
4
The calculation does not take into account intragroup balance; EBITDA of jointly controlled companies is shown as a share of net profit
EBITDA increase
x2.2
Increase in electric power supply
15%
Operating costs
-15%
Decrease in the number of employees
-11%
Decrease in specific fuel equivalent consumption
-15g f.e. / 1 kWh
Electric power generation and the heat business
Fuel supply
Supply business
Services in energy conservation and energy efficiency
Supply business
MAIN AREAS OF DEVELOPMENT
Development of international operations
Innovation
Engineering
Promising areas of business
Management of minority interests
ELECTRIC POWER GENERATION AND THE HEAT BUSINESS
  • Promoting offerings concerning the market model;
  • Implementation of long-term production programs and programs for increasing operational efficiency;
  • Decommissioning of low-performing capacities;
  • Implementation of construction / modernization projects, including those under the CCS;
  • Acquisition of shares in generating companies / power plant assets1.
FUEL SUPPLY
  • Concluding long-term contracts for fuel supply;
  • Switching to alternative coal brands;
  • Increasing transportation efficiency.
The share of long-term
contracts
for the supply of gas is close to
100%
Ratio of coal price rates
for the Group's generating assets
to growth rates of prices in the day-ahead market
<1
SUPPLY BUSINESS IN RUSSIA
  • Promoting offerings concerning the market model;
  • Unification of the management system in electric power supply companies;
  • Retaining customers and expanding the customer base;
  • Expanding the list of additional fee-based services;
  • Acquisition / taking control of utility enterprises;
  • Acquisition of economically attractive electric power supply companies1.
SERVICES IN ENERGY EFFICIENCY
  • Development of competencIes and technologies in the sphere of energy conservation and energy efficiency;
  • Building partnerships with manufacturers of energy-saving and energy-efficient equipment, technologies and solutions;
  • Establishing modern production of smart meters
FOREIGN TRADE OPERATIONS
  • Expanding the product line and introducing new forms of trading;
  • Development of export in Southeast Asia;
  • Promoting offerings concerning projects on interstate electric power connections;
  • Participation in the resolution of tariff issues in non-pricing zones in the Kaliningrad Region and the Far East;
  • Wider representation in foreign markets1.
INTERNATIONAL OPERATIONS
  • Increasing the efficiency of existing assets;
  • Elaborating options of asset management;
  • Addressing issues of converting sovereign debts of third world countries to Russia into shares in the authorized capital of energy companies;
  • Promoting offerings concerning state support measures;
  • Participation in projects under intergovernmental agreements;
  • Implementation of new construction and acquisition projects1
ENGINEERING
  • Development of competencies in the following areas: general contracting, design and commissioning;
  • Supply of turnkey equipment;
  • Establishing consortia with international engineering companies;
  • Organizing production of modern energy equipment in Russia.
INNOVATION
  • Implementation of the innovative development and R&D program;
  • Creating direct investment and venture capital funds;
  • Development of an expert evaluation system for R&D funding;
  • Promoting offerings concerning state support measures aimed at the development of innovation;
  • Participation in the development of priority areas of science and technology in Russia.
PROMISING BUSINESS AREAS
  • Participation in project implementation in the distributed generation segment;
  • Consideration of expediency of participation in renewable energy projects;
  • Monitoring of new solutions and products in order to assess the feasibility of entering new adjacent markets.
MANAGEMENT OF MINORITY INTERESTS

In accordance with the main principles of management of shareholdings in electric power assets owned or controlled by OJSC Inter RAO from 2010 through 2013, approved by the Board of Directors on May 24, 2010:

ownership in the following assets was increased to achieve controlling interest: Bashkir Generation Company, Bashkir Heat Distribution Grid and Tomskenergosbyt;
minority interests worth a total of RUB 50.4 billion in the following companies were sold:  Enel OGK-5,  Volga TGC, TGC-6, E.ON Russia, OGK-2, OGK-6, Kuban Energy Supply Company, Kuban Generation Company, Kuzbassenergo, Yenisei TGC, Novosibirskenergo and Tomskenergoremont;
shares in the following companies were used as part of deals on asset exchange: Fortum, RAO Energy Systems of the East and the Group's foreign assets.
AS AT JANUARY 1, 2014, INTER RAO HELD MINORITY INTERESTS WORTH A TOTAL OF RUB 22.6 BILLION, INCLUDING:
Significant minority interests (5-50%)
14.6BILLION
rub.
Insignificant minority interests (<5%)
8BILLION
rub.

In the mid-term, non-strategic minority interests will be sold.

ELECTRIC POWER GENERATION AND THE HEAT BUSINESS
  • Ensuring that the level of dividend payout is sufficient
  • Economic efficiency (IRR>WACC, payback period corresponding to industry-average indicators)
  • Systematic approach (securing a substantial market share / creating reserves)
  • Synergy with Inter RAO assets
  • Minimizing Inter RAO's debt burden (project financing)
  • Using state support to implement projects that form part of the state policy
  • Using interstate lending mechanisms to fund infrastructural projects
MAIN AREAS OF DEVELOPMENT
  • Generating assets
  • Heat assets
  • Engineering assets (including design and installation companies)
  • Innovative development companies (including research institutes / venture capital funds)
  • Trading assets
  • Repair and maintenance companies
  • Fuel assets
  • Energy supply assets
KEY MEASURES
  • Changing Inter RAO's dividend policy by increasing the amount of dividends to at least 25% of the Group's net profit according to IFRS (in case of changes in legislation);
  • Improving the corporate governance system;
  • Maintaining and increasing the liquidity of securities;
  • Creating investment attractiveness for the long-term attractiveness;
  • Providing conditions for the growth of shareholder value.
KEY MEASURES
  • Improving the corporate governance system;
  • Maintaining and increasing the liquidity of securities;
  • Creating long-term investment attractiveness;
  • Providing conditions for the growth of shareholder value.
1
Strategic investor or free float