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President of Russia Vladimir Putin: Good afternoon, Mr Shulginov.

How long have you been working in this position?

Chairman of the Board and General Director of PJSC RusHydro Nikolai Shulginov: It will be ten months in just a few days.

Vladimir Putin: Nine months is a symbolic term.

Nikolai Shulginov: These nine months went by like a single week, and were filled with big and exciting challenges.

Vladimir Putin: Is everything working out well?

Nikolai Shulginov: Yes, it is.

Vladimir Putin: Did you have any doubts about accepting this post?

Nikolai Shulginov: Yes I did. But not anymore. Let me start by thanking you, Mr President, for giving me this opportunity to discuss issues related to the operations of this major energy holding. These issues require your approval or decision.

Vladimir Putin: Very well, I would like to ask you to start by answering two questions. What is the progress in turning the company around? And what are the results of the first six months of the year? After that, we can discuss the issues that you mentioned.

Nikolai Shulginov: There is positive momentum in the 2015 operational and financial results. Energy output increased despite lower water levels. Revenue was up 5.8 percent. Most importantly, IFRS net profit rose, it was up 12.5 percent compared to 2014. All in all, these are quite positive results. Of course, there was an increase in operating expenses, but it was still lower than the rate of inflation. We have drawn some conclusions. You are probably aware of the fact that we have commissioned the main equipment at the Blagoveshchenskaya heating and power station, which is being built under your executive order. The remaining work will be completed this year.

At the end of the year, we sharply changed our approach, focusing on efficiency and streamlining costs. Cost-cutting measures, especially in terms of operating costs, have already been factored into the 2016 business plan at a level of 9 percent, which is 9.2 billion rubles. These costs can be managed, since they relate to management operations. Consequently, cost cutting will not affect the reliability of the plant’s assets.

I will report on investment costs a little later. We started working on this issue, and continue this year, i.e. making it systemic in nature. Together with the Ministry of Economic Development we have agreed to hold an independent audit. We have to find more cost-cutting opportunities. We are already working on it.

As for investment costs, our policy is to abandon inefficient projects that will never yield a return. We are even reviewing existing contracts. For example, we have reviewed the contract with Austria’s Voith Hydro to reduce expenses by 7 billion rubles simply by dealing with some of the intermediary companies.

Vladimir Putin: Did you eliminate them?

Nikolai Shulginov: Yes.

We have also started systematic work to raise the efficiency of procurement procedures, reduce costs and promote transparency, integrity and openness. Now we are coordinating our purchases with RAO Energy Systems of the East and establishing a separate subsidiary for this purpose.

We are planning (with the approval of the Board of Directors) to establish a new list of non-core assets that we should get rid of. We have a lot of them – about 19 billion in all, so this is a potential reserve as well. However, to be honest, not everything is going smoothly. We have some assets – railways, bridges, flats and the like – that we should deal with.

In the first quarter of 2016, the spring flood remained under control. The rate of water flow was higher than the year before. It was at the level of the long-term average so generation [of electricity] is higher and we expect to receive greater revenues this year. Currently generation exceeds that of last year by about 17 percent and is greater than planned. These are the initial results.

I can add that as regards investment programmes (with the exception of those specific examples I mentioned – the reduction of costs by seven billion), we have again revised the technical refurbishing programme and planned to reduce our costs by only about 50 billion by 2020. Again, we are not sacrificing reliability in the process because we have reserves that we can find if we do this purposefully, seriously and professionally.

Of course, we have outstanding issues or problems that I would like to discuss with you. For example, we have essentially commissioned one facility, as I mentioned. Three others are under construction, following your instructions. However, the energy complex has the same problems as the construction industry in general. You raised these issues at the State Council. The same applies to our estimate and contracting work.

Large companies, contractors win tenders even with fixed prices that later go up in all kinds of ways. We are countering this trend. I came from the Yakutsk GRES power plant that should be put into service this year. Naturally, there are problems but we are trying to do all we can to complete this project this year, especially everything that needs to be done before the onset of the cold season. Probably, this facility will not be put into full operation but much has already been done and more will be done.

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