The corporate governance system of IDGC of North-West includes two major directions: the organization of the shareholders, the organization of the future activity of the company.

The high quality corporate management is the indispensable factor of success of the organization. According to the data of McKinsey, in the process of the companies’ assessment, in countries with the transitional economy the major investors give the priority to the quality of the corporate management to the financial and economic indices.

In 2009 “Interregional Distribution Grid Company of North-West”, Joint Stock Company got the first appreciable dividends from the corporate governance. Among them is the award of IDGC Holding for the best meeting with the investors and the 6th place in the rating of the transparency of Standard & Poor’s among the leading Russian companies of the power sector. The assessment of the market was the four-fold growth of the capitalization by the results of nine months of the past year.

Corporate Governance System

“The productive corporate governance works for three basic tasks – provision of the safety of the property and the revenue, prevention of risks of taking of the non-professional decisions and, as a consequence, the forming of the system of the productive management at all the levels, providing the growth of the market value of the company”, says Anatoliy Kushnerov, Corporate Governance Deputy General Director of IDGC of North-West.

The corporate governance system of IDGC of North-West includes two major directions. Firstly, the organization of the shareholders relations and provision of the financial transparency and the openness of the company to the investment community. Secondly, the building of the organizational structure directed to the productive solution of the business-processes, that is the work directed to the organization of the future activity of the company.

“Our goal is the protection of the rights and interests of the shareholders of the company. They need to be sure that they get the reliable information about the financial and the operating activity of the company and their opinion is accounted during the decisions taking”, says Anatoliy Kushnerov. “The goal of this assurance is the productive system of business organization, and the transparent procedure of business decisions taking. IDGC of North-West is the public company that’s why we need to support the balance of responsibility between the groups of interests: Board of Directors to shareholders, management to the Board of Directors, owners of the major portfolios to the minorities and, finally, the company to the people in general.”

Closer to the investor

The peculiarities of the Investor Relations in the electric power sector, according to the specialists, is that in most cases the success is achieved due to the division of the success of the whole sector. The basis of IR program is the promotion of the sector, in the first place, and than the separate company. The investors search not only for the best company, but the most under-assessed by the market one, positive factors which were not taken into account by the other investors.

IR sphere becomes complex and segmented and requires more than sending of data messages and the issue of the annual reports. “In IR activity we use the modern channels of communication”, they say in the company noting the shareholders’ interest growth including the foreign banks and funds over the past year. 

Investors have the possibility to meet the top-management of IDGC of North-West. Among the companies-participants of the consultations which were carried out in Moscow in the face to face and the general meeting format were Halcyon Advisors, Renaissance Investment Management, East Capital Investment Management, Troika Asset Management, Alfa Capital, Pharos Fund and others.

Management quality

The professional structure of the Board of Directs is the indicator of quality of the corporate policy. The meeting of the Board of Directors of IDGC of North-West by the most important issues in the face to face meeting allows to take the competent decisions positively assessed by the market.

The Audit Committee is headed by the Independent Director – Seppo Ukho Remes – General Director of LLC “Kiuru”. The competence of the committee covers the control over carrying out of the independent audit and carrying out of the accounting report and the financial reporting of the Company including the assessment of the conclusions of the auditor, represented as the materials to the annual general shareholders meeting. The Committee considers the reports of the independent appraisers, carries out the selection of the candidatures of the external auditors, carries out the control of the Company in the sphere of the accounting and finances and over the service of the internal audit.

“Investors are ready to pay the considerable bonuses for the company which carried out the considerable work directed to the improvement of the corporate management and achieved the results correspondent to the modern standards”, Anatoliy Kushnerov is sure. “The costs and efforts directed to the construction of the corporate management system cannot be considered as something imposed form the outside”

Transparency  of the company

IDGC of North-West is one of the first operation grid companies which presented the financial reporting for 2008 prepared in accordance with IFRS. The annual report of IDGC of North-West was chosen the winner of XII Annual Federal Contest of the annual reports and sites in the territorial nomination (North-West Federal District). The organizers of the contest where 105 companies took place were “Securities market” magazine and MICEX.

Since June 2008, IDGC of North-West at the corporate site publishes the quarterly investments bulletins containing the intermediary financial data on the results of activity and the financial indices of the company as well as information about the major decisions of the Board of Directors and information about the structure of property and investor calendar for 2010.

Index of the information transparency of the company according to Standard & Poor’s methodology was over than the medium one in the sphere of the electric power by 14.1% and the Bank of Moscow in its research “IDGC shares with the fixed revenue” named IDGC of North-West one of the most information open grid companies of the country. According to experts, the factor of the information transparency helps to assess the risk, including the crediting of the company. We shall note that during one year IDGC of North-West used to considerably decrease the costs of borrowing. According to the results of the past credit auction as of December 22, 2009 the company used to attract the credits for the term of 5 years with the possibility to attract the tranches up to 3 years with the rate of not more that 10.9%.

Increase of the market value

One of the strategy goals of the company is the consolidation of the electric grid assets located in the territory of service. It gives the possibility to increase the reliability of the power supply of the region and more operatively react during the emergency situations and carry out the complex work of repairs and the installation of the measuring devices, realization of the activities directed to the decrease of losses. But if for the consumer the consolidation of the grids of the company means the possibility to get more high quality service, for the authorities it is the possibility to implement the powers directed to life support of the territory, and for the investor it is the increase of the market share of the company.  

Strategy of IDGC of North-West is directed to the integration of the grid assets (municipal, private and in abeyance grids) and determines the signing of the purchase and sale, rent and service agreements. To assess the productivity and take the decision on each of the projects, they created the constantly acting committee on issues of acquisition of rights for the grid assets, it assesses the technical, legal, financial risks and the outcomes of the projects realization.   

At present IDGC of North-West gives to the “direct” consumers more than 78% of the electric power of the total amount of the release to the grid. Among the branches this share accounts for, as follows, “Arkhenergo” – 85%, “Vologdaenergo” – 74%, “Karelenergo” – 80%, “Kolenergo” -77%, “Komienergo” - 92%,“Novgorodenergo”- 64.8%, and  “Pskovenergo” – 94%.

Internal growth potential

Besides the transition to new RAB system of tariff formation, the company concentrates its attention on internal sources of capitalization growth and, first of all, on the implementation of the international management standards.

International standards financial reporting for 2009 will be prepared before May 1, 2010 which will help to get familiarized with it before the annual meeting of the shareholders. Since 2011 it is planned to publish the intermediary IFRS financial results.  

The status of the public company determines the presence in the Board of Directors of the independent representatives, not connected with the shareholders and the management. “We plan to develop the amount of the independent representatives in the Board of Directors and we want them to be at the head of the committees”, says Anatoliy Kushnerov. The company is interested in the acquisition of the international rating of the corporate governance. We plan to publish the exchange information in English through the authorized channels of information disclosure. In future, the transition of shares of IDGC of North-West from the quotation list “B” of MICEX to list “A”.

Among the top priority goals is the approval of the regulation on the dividend policy in the new issue, in accordance with which the company will pay to its shareholders at least 1% of the net profit, accounted in accordance with IFRS, which will help to officially register the low border of the dividends payment and reject the upper one. 

“Management of IDGC of North-West is oriented at the long term growth of capitalization of the company and the well-thought dividend policy – instrument of the achievement of the given goal. We are going to form its principles in such a way so that it would be possible to present the interest for the strategic and the portfolio investors”, mentions Anatoliy Kushnerov.

Such changes are introduced to the general strategy on making the corporate governance of IDGC of North-West compliant with the world standards.