KEY RISKS

The Company regularly identifies, assesses and monitors risks, implements measures to lessen their probability and any potential consequences they may have, and informs shareholders and other stakeholders thereof.

To ensure effective risk management, the Company has a risk assessment system in place. The impact of risks on the Company’s activities is assessed according to three levels of materiality, which are a generalised assessment of the risk probability and consequences:

Moderate, which does not have a significant negative impact on financial and economic performance, but requires continuous monitoring for timely identification of possible increase in the level of risk materiality

Significant, where the risk once realised may lead to significant deviations in key performance indicators, short-term suspension of operations, downgrade of independent ratings, negative publicity of operations

Critical, when risk once realised may lead to failure to achieve the goals set by the governance bodies, long-term business interruptions, negative publicity of the Company’s activities and a decrease in the market quotation of the Company’s shares

PREFERRED RISK (RISK-APPETITE)

In accordance with the Risk Management and Internal Control Policy of PJSC Rosseti South, subject to the requirements of the Preferred Risk (Risk Appetite) Determination Procedure, the Board of Directors of the Company approved the preferred risk (risk appetite) (Minutes No. 546/2023 dated 6 October 2023).

In accordance with the approved risk appetite targets, PJSC Rosseti South:

Ensures reliable and high-quality power supply
Ensures implementation of the obligations under the Occupational Health and Safety Policy, development and improvement of the occupational health and safety management system and safety culture
Enables the development and increased accessibility of the power grid infrastructure
Endeavours to reduce electricity losses during transmission and distribution
Seeks to maintain a sustainable financial position
Strives to reduce (minimise) the negative environmental impact
Ensures that the rights of shareholders are respected
Does not accept violation of the requirements established by the legislation of the Russian Federation
Strives to ensure technological and innovative development by making and integrating scientific developments
Promotes the development of the power grid complex’s human resources potential and maintains a consistently high staffing level

KEY RISK MANAGEMENT

Risk ID	Risk description	Impact on key performance indicators	Risk materiality level		Key risk management measures
Risk ID	Risk description	Impact on key performance indicators	2022	2023	Key risk management measures
FR01–01	Decrease in the volume of electricity transmission services to consumers connected to regional distribution grids	Achievement of consolidated earnings from operations (EBITDA) targets	C	C	Monitoring and forecasting of electricity consumption broken down by voltage levels, by which the price (tariff) for electricity transmission services is differentiated, and by consumer categories, as well as monitoring of physical parameters of the balance of electricity and capacity. Implementation of measures on taking control readings of electricity meters with the involvement of additional personnel. Implementation of raids to detect off-the-meter electricity consumption, including on weekends and holidays, with the involvement of law enforcement agencies, as well as cross-check raids between territorial structural subdivisions
FR01–09	RGR penalties for non-fulfilment of investment programme parameters	Achievement of consolidated earnings from operations (EBITDA) targets	C	C	Timely preparation of materials for approval of the draft investment programme (draft adjustment of the investment programme) and submission of them to the Ministry of Energy of the Russian Federation. Timely execution of scheduled activities of the Priority Investment Project Implementation Schedule in accordance with Section 6.1 of the project certificates of the approved investment programme. Timely funding of investment programme facilities, observance of payment deadlines under contracts with contractors, taking into account the fulfilment of contractors’ obligations and compliance with investment programme development schedules. Capital construction quality control. Interaction with executive authorities in the field of state tariff regulation under the current legislation of the Russian Federation
FR09–01	Professional risks of the Company. No increase in the number of S&A employees injured in accidents	No increase in the number of S&A employees injured in accidents	C	C	Implementation of measures of the Comprehensive Programme to reduce risks of personnel injuries. Provision of a safe working environment. Implementation of the Company’s target programmes in terms of occupational safety. Medical examinations of employees (preliminary, periodic, pre-trip, etc.). Video recording of works in electrical installations
FR12–04	Involvement of the Company / Company employees in corrupt practices	Compliance with legislation, including laws on preventing and combating corruption and antitrust laws	C	C	Implementation of measures of the Anti-Corruption Plan of PJSC Rosseti South for 2023
FR01–02	Changes in the structure of electricity transmission services by voltage levels, tariff options, consumer groups	Achievement of consolidated earnings from operations (EBITDA) targets	S	M	Monitoring of risk assessment
FR01–13	Bankruptcy and liquidation of counterparties	Achievement of consolidated earnings from operations (EBITDA) targets	S	M	Monitoring of risk assessment
FR01–14	Court rulings (dispute resolution) on recovery of debts for electricity transmission services against the Company	Achievement of consolidated earnings from operations (EBITDA) targets	S	S	Creation of judicial practice for the recovery of disagreements over the volume of electricity transmission services and (or) the volume of electricity losses. Preparation of monthly analyses of court rulings in cases of debt recovery for off-the-meter electricity consumption and forwarding of letters to the directors of the Company’s branches to prevent the disputes over off-the-meter consumption, in respect of which there is negative case history. Implementation of measures to settle disagreements on the volume and cost of rendered electricity transmission services under contracts for electricity transmission services and to prevent their occurrence in the future
FR03–01	Failure of counterparties to fulfil their obligations to pay for electricity transmission services within the terms and (or) in an incomplete amount as stipulated in the agreement/contract	Achievement of the planned level of accounts receivable for electricity transmission services rendered	S	S	Imposition of penalties (forfeitures) on counterparties that have violated payment deadlines, as provided for by 307-FZ. Control over the claims work maintenance and initiation procedure and timing, including by approving the reporting form and responsible persons, as well as quarterly analyses of the timing of initiation of claims work by the Company’s branches. Monitoring of payments and coordination of monthly payment schedules with guaranteeing suppliers. Restriction of the consumption regime in respect of counterparties that violate the terms and conditions of concluded agreements on payment for electricity transmission services rendered
FR03–02	Failure to enforce judicial acts on collection of receivables	Achievement of the planned level of accounts receivable for electricity transmission services rendered	S	S	Interaction with the Federal Bailiff Service of the Russian Federation at the stage of enforcement proceedings, signing of cooperation agreements with the Federal Bailiff Service of the Russian Federation, control over debt repayment within the framework of enforcement proceedings on received court decisions on collection of overdue debts. Initiation of bankruptcy proceedings against debtor companies
FR03–03	Disagreements on the volume and cost of services rendered, including acts of off-the-meter electricity consumption	Achievement of the planned level of accounts receivable for electricity transmission services rendered	S	S	Analyses of acts for off-the-meter consumption of over 300,000 kWh in order to prevent the generation of unjustified disagreements. Implementation of measures to settle disagreements on the volume and cost of rendered electricity transmission services under contracts for electricity transmission services and to prevent their occurrence in the future
FR12–02	Violations of legal requirements by the Company as a result of counterparties' failure to fulfil their obligations to the Company, resulting in holding the Company liable	Compliance with legislation, including laws on preventing and combating corruption and antitrust laws	S	M	Monitoring of risk assessment
FR13–01	Natural technical failures in protection systems of information and telecommunication systems of power grid facilities	Comprehensive security of the Company's operations	S	S	Administration of information security systems. Timely purchase and renewal of licences for specialised software. Timely maintenance of the Information Security System. Funding for licence purchases and technical support from the manufacturer
FR13–03	Disruption and (or) cessation of operation of information infrastructure facilities and telecommunications systems of power grid facilities	Comprehensive security of the Company's operations	S	S	Administration of information infrastructure systems by qualified personnel. Timely purchase and renewal of licences for specialised software. Timely maintenance of the Information Security System. Funding for licence purchases and technical support from the manufacturer

Map of key risks as at 31 December 2022

Probability level	High		01-01						01-09
	Medium		1-02		01-13		01-14		09-01	12-04
			03-01	03-02		03-03		12-02
	Low								13-01	13-03
		Low	Medium						High
		Level of consequences

Map of key risks as at 31 December 2023

Probability level	High			01-01	01-09
	Medium	01-02	01-13	01-14	03-02	09-01	12-04
				03-01	03-03
	Low			12-02		13-01	13-03
		Low		Medium		High
		Level of consequences

INFORMATION SECURITY RISKS AND CYBERTHREATS

Risk associated with the materialisation of information threats, including those caused by deficiencies (vulnerability) of the applied information technologies.

This risk may be caused by the use of obsolete equipment, lack of technical support, use of equipment after the end of its service life. Realisation of this risk may lead to a decrease in the security of power grid facilities, temporary downtime in information and telecommunication systems. The Company assesses the risk as moderate with low level of consequences.

In order to prevent the risk, the Company provides technical support for information protection means, conducts periodic performance tests of information protection means, conducts repair and (or) replacement of equipment, and controls that protection systems are provided with guaranteed and backup power supply.

Risk of disruption and (or) cessation of operation of information infrastructure facilities and telecommunications systems of power grid facilities.

The main risk sources may be unlawful actions of third parties resulting from a computer attack, which may lead to material damage to the Company, damage to business reputation, as well as cut-off of electricity consumers. The Company assesses the risk as significant with a high level of consequences if realised.

Inclusion of information security requirements in technical specifications for the design of information infrastructure facilities and telecommunications systems of power grid facilities.

Implementation of information protection means at information infrastructure facilities as specified in the relevant technical design specifications.

The Company oversees the actions of the Company’s employees through information security systems, monitors and analyses external information security events, and applies certified information protection means.

RISKS PERTAINING TO SUSTAINABLE DEVELOPMENT

Environmental risk.

The probability of damage (compensation for damage) associated with the negative environmental impact of the Company’s production and business activities is assessed as insignificant, since the Company does not operate production facilities that have a significant negative environmental impact. The Company operates in accordance with the requirements in the field of environmental protection and environmental safety.

The Company assesses the risk as moderate with low level of consequences.

Natural and climatic risk.

Risks related to climate change may have a certain impact on production activities and financial results.

Climatic risks are associated with an increase in average annual air temperature. In addition, changes in conventional climatic conditions can cause natural emergencies.

In particular, such natural phenomena caused by temperature changes as hurricane, flooding, heavy snowfall and freezing rain are capable of damaging the Company’s assets, primarily power transmission lines, thus disrupting uninterrupted power supply to consumers.

The regions where the Company operates are outside the regions with a permanent increased risk of natural disasters (earthquakes, floods, storms, epidemics). The Company assesses the risk as moderate with low level of consequences.

Risks related to non-compliance with social rights and guarantees of employees.

Social rights extend to just and favourable conditions of work, protection against unemployment, fair and satisfactory remuneration, equal pay for equal work, the opportunity to maintain the health and well-being of the people and their family, and education.

The Company takes efforts to observe the social rights of employees, including protection from unemployment, fair remuneration, reimbursement of sports costs, and upgrade of the education level of the Company’s employees.

Given the Company’s high level of responsibility in the context of its social commitments, this risk is assessed as moderate with a low level of consequences if realised.