2.1.1. Economic Performance
In 2018, the revenue amounts to 202 billion rubles. The indicator growth against 2017 is 15.2%. The scope of Construction Manage-ment (construction and erection works) and Equipment businesses accounts for the most substantial share of the revenue structure.
The main factor of change in the commercial costs is the change of production program and its structure.
The growth of actual costs in 2018 is related to the active construction phase or mobilization on the sites of Belarus NPP, Kudankulam NPP (India) — Units 3 and 4, Rooppur NPP (Bangladesh), Kursk NPP.
The profit growth in 2018 is caused by an increase in the scope of construction, implementation of measures to enhance the efficiency of main operating processes, introduction of time and cost management projects at capital construction facilities in the industry (cost management automation).
The indicator decrease is caused by restraining of the administrative and management personnel number, optimization of the current expenses.
Reasons for net profit growth against the fact of 2017 by +16 billion rubles are related to the increase in the scope of construction, exchange revaluation, profit growth caused by implementation of measures to enhance the efficiency of main operating processes, introduction of time and cost management projects at capital construction facilities in the industry (cost management automation).
Measures aimed at the enhancement of main operating processes efficiency ensure a sustainable growth of labor productivity.
Dynamics of the project portfolio is related to the change in the portfolio structure and implementation of contracts.
n 2016, the court awarded compensation for Belene NPP, which influenced this indicator value. EBITDA growth in 2018 is related to efficient building of cost management process and restraining of management costs increase.
Introduction of digital technologies into the economic efficiency management process — Project “Information Management System of Capital Construction Projects” (ISUP KS)
In 2018, works on implementation of ISUP KS project, the results of which have an impact on the whole industry, continued as planned.
Within the project of ISUP KS, a Corporate Financial Template has been implemented for the first time in the industry on a new software platform SAP S/4 HANA with new functions for the Engineering Division:
- Profit tax;
- Value added tax;
- Records on the fixed assets;
- Records on special clothing and personal protective equipment (PPE);
- Records on funds of asset contribution (budget financing);
- In-house settlements;
- Records on the activities of overseas branch and representative offices;
- Records on settlements with the personnel.
The foundation for transfer of accounting and analytical functions under capital construction projects into a digital business model has been established:
- Future of S/4 HANA: a strategic direction for SAP and new generation of ERP range;
- Up-to-date approaches to building a corporate landscape of information systems;
- New possibilities for the developer of business process models;
- A leap into the future: groundwork is laid for using machine learning and artificial intelligence;
- Basis for introduction of the latest solutions on S/4 HANA;
- New industrial opportunities and functions;
- New scenarios for interaction with Rosatom State Corporation systems and seamless integration with design systems.
2 basic KPI are established for ISUP KS system:
- The number of users working actively in the new information system. The assessment will be done upon the completion of replication process at the Engineering Division enterprises in 2019.
- Fast closure of the reporting period in the system not later than on the 7th (seventh) business day of the following calendar month. KPI is achieved according to the results of the first 6 months of 2018.
The main effect of the process is that automated end-to-end processes of DSW, CEW and PCW management have been implemented for the first time in the industry, from design demand formation to work handover to the Customer — JSC “Rosenergoatom”:
- Master system of SPF design product cards;
- There is Administrative Record Keeping of DD cards in ISUP KS;
- The Administrative Record Keeping is based on 3 types of MSR elements (CCE, Schedule, CFT);
- Automated issue of work acceptance certificates (КС2, КС3);
- Integration with JSC “Rosenergoatom” systems and Electronic Archive of Accounting Documents;
- Accounting documents (accounting entries) are generated automatically;
- Process input data is a consolidated cost estimate down to LCE/LE items;
- Subcontracts are generated on the basis of LCE/LE items — a split sheet is formed;
- Registration of works performed by subcontractors is based on the data of split sheets;
- Upon the registration of KC-2, basic prices are recalculated into current ones with control over non-exceeding of the budget limit;
- Accounting entries are generated automatically based on administrative record keeping documents.
Contribution to the digital economy development in the RF
Within the framework of the development of state program “Digital Economy in the Russian Federation”, the following works were performed in 2018:
- Section “Assurance of Transfer to Information Modeling Technologies when Managing Residential Buildings, Industrial and Infrastructure Facilities of Smart Cities” of “Smart City”, Russian Ministry of Construction’s project related to digitalization of municipal facilities and services, was developed.
- Elaboration of datasheet of “Smart City”, Russian Ministry of Construction’s project (order of Russian Ministry of Construction No. 695/ПР dd. 31.10.2018) related to digitalization of municipal facilities and services, was ensured.
- Section “Use of Information Modeling Technologies to Create Information Models of Houses, Cities, Settlements and Territorial Entities” of “Digital Construction” departmental project of Russian Ministry of Construction, was developed.
- The departmental project of Russian Ministry of Construction, “Digital Construction” was launched.
2.1.2. Financial Capital Management
During its financial activities, the Company is guided by federal laws, provisions of the tax, administrative and civil legislation, accounting policy, local regulatory and legal acts of Rosatom State Corporation, procedural instructions, as well as internal regulations, standards and orders of the industry and the enterprise. Basic functions of the Treasury:
- Arrangement of payments and cash management;
- Management of the Division’s structures liquidity (assurance of uninterrupted functioning of payment system, timely elimination of cash deficiencies, arrangement of intra-group loans, excess funds allocation on fixed deposits);
- Financial risks assessment and monitoring, foreign exchange risk hedging;
- Interaction with outside financial and credit, control and auditing institutions (banks, Federal Treasury, etc.);
- Currency exchange regulation;
- Financial expert review of guarantor banks regarding securities granted to suppliers/contractors;
- Records on received and granted securities;
- Arrangement and support of payroll card programs.
Name of the company
|% to be received||% to be paid||Balance, %%||% to be received||% to be paid||Balance, %%||% to be received||% to be paid||Balance, %%||% to be received||% to be paid||Balance, %%||% to be received||% to be paid||Balance, %%|
|JSC ASE EC||76||28||48||99||631||−533||129||348||−220||161||951||−791||32||603||−571|
|Trest RosSEM Ltd||2||0||2||8||0||8||2||52||−50||8||51||−42||6||−2||8|
|NUKEM Technologies GmbH,
NUKEM Technologies Engineering Services GmbH
|TOTAL in the Division (minus %% on intra-group loans)||943||4,325||−3,382||1,028||1,816||−788||76||3,303||−3,226||1,504||614||889||1,427||−2,689||4,116|
Current liquidity ratio
Current liquidity ratio of the Engineering Division for 2016–2018 is within the range of 1.4–2.0 while the criterion value of the indicator shall be not less than 1. It indicates that within the short-term period (up to 1 year) the Company does not face a risk of losing the possibility to fulfill the current obligations to creditors; moreover, there is a required safety margin maintained at the sufficient level. Such ratio is achieved due to maintenance of the optimal balance structure, use of recurring advances and obtaining of long-term loans.
The balance of interest receivable/payable has been growing sustainably over the last 3 years. Multidirectional dynamics of the change in flows is obvious: the interest payable is decreasing annually while the interest receivable is growing smoothly.
In 2018, the balance of interest became positive. It means that within the reporting year the Division received more interest from debt financing and allocation of temporarily free funds on deposits than it paid under the obtained loans.
Such growth is a consequence of credit portfolio optimization, as well as efficient management of the Division’s liquidity and financial and credit risks management.
2.1.3. NPP Construction Cost Management
In 2018, work on theimprovement of cost management system continued in JSC ASE EC.
In particular, cooperation of Cost Management Unit (hereinafter — CMU) with Rosatom State Corporation and PI Rosatom Capital Construction Industry Center (CCIC) continued regarding Rosatom State Corporation’s program of integrated cost and time management Total Cost Management Nuclear Construction (TCM NC). Procedural guidelines were elaborated and agreed with the direct involvement of Cost Management Unit, e.g. Unified Industry Procedure for Monitoring of Construction Resource Prices for the Facilities Implemented outside the Russian Federation was approved (Rosatom State Corporation Order No. 1/1032-P dd. 14.09.2018).
In order to control and enhance the efficiency of expenditure for overseas projects:
- Regulations of process “Limits and Reserves Management in Overseas NPP Projects” were approved;
- financial estimates (FE) were approved with breakdown by cost items, in the format of Standard Structure and within the target price. The information was submitted to the financial and economic unit with a purpose of budgets generation for the entire period of projects implementation.
For the purposes of cost control and forecasting, as well as forming of low-level reserves (reserves of the Engineering Division funds for operative project management):
- limits with breakdown by cost items were approved;
- Resolutions on low-level reserves use according to the results of contract conclusion fact analysis were approved;
- FE of contracts, limits for direct and associated costs are downloaded into the Resources Information Management System (RIMS). Items of calendar plans and contractor agreement, supply contract specifications are linked to rationing units, data on the associated costs actually used is imported from accounting systems;
- monthly signing of certificates on the RIMS status, including information on the limit control and forecasting under the project, was arranged for the project managers. These certificates are signed with EED of Rosatom State Corporation on a quarterly basis.
Achievement of 2018: commissioning of Unit 4 of Rostov NPP
The level of the construction limit price was determined for the project. During the entire period of power unit construction, Cost Management Directorate was forecasting the price of construction and updating it annually based on the change in the data of detailed design documentation issued, actual implementation and contracting, observance of the construction schedule, valid pricing indices. Estimated forecasting cost of construction was compared with the established limits, deviations were identified and analyzed.
Compliance with the established limits was taken into account during procurement procedures and conclusion of equipment and long manufacturing cycle equipment supply contracts. Actual cost of performed construction and erection works, as well as other works, was also monitored for compliance with the limits.
The established procedure of forecasting cost monitoring allowed developing and implementing the corrective measures timely (within the General Contractor’s responsibility) in order to comply with the established limit price of the construction.
The construction cost management system developed by JSC ASE EC and implemented during the construction of Unit 4 of Rostov NPP should be considered as successful.
Introduction of digital technologies in cost management process — Total Cost Management Nuclear Construction (TCM NC) Program
In 2018, active introduction of NPP construction cost management system TCM NC was arranged in the Engineering Division. Generation of detailed budgets of NPP construction projects on the horizon of implementation is planned for the first time. Budgets elaborated by the Engineering Division of Rosatom State Corporation were used as a basis for project budgets in other divisions of Rosatom State Corporation. This management tool allows evaluating the decisions made dynamically, from the point of impact on the project cost and timeframe of its implementation, enhances efficiency of the Company’s funds use. Generation of project budgets is one of the key phases of NPP construction cost management system TCM NC introduction process.
Cost Management Unit took part in practical work within ТСМ NC. To evaluate the cost of Akkuyu NPP construction project in Turkey with accuracy class 3, input data was collected (regarding selection of similar and equivalent equipment) and its price estimate was made (including other equipment). In 2018, the prototype of TCM NC information system, which was launched within CostOS and EcoSys, allowed the employees of multiple subdivisions to undergo training and become familiar with the work in these modules.
In 2018, the following major results were achieved in the course of Program implementation:
- The main guidelines describing the processes of project cost parameters evaluation and management were elaborated, updated and approved;
- The individual project cost was evaluated with accuracy class 3 (Phase 1);
- TCM NC IS was put into trial operation in pilot projects;
- The expert board approved budgets (production programs) of NPP construction projects within the business plan for 2019–2023, considering the relation between the work schedule and cost.
With a purpose to introduce the principles and uniform methodology of TCM NC, Project Office was set up in the Engineering Division for TCM NC introduction and optimization of construction management processes, whose include organization of interaction between structural subdivisions of the Engineering Division and TCM NC methodologists — CCIC of Rosatom State Corporation, as well as introduction of processes, methodology and implementation of the Engineering Division’s information systems integration with TCM NC IS.
To optimize the processes of capital construction management, unified information space development and unification of accounting and administrative record keeping processes, information system ISUP KS (I) on SAP S/4HANA platform was introduced in the pilot project of Kursk NPP-2 in 2018. Initial integration with ERP-system of the Customer (JSC “Rosenergoatom”) was held.
2.1.4. Investment Management
System of investment and investment decision-making management in the Engineering Division of Rosatom State Corporation.
The investment activities management process in the Division is arranged in accordance with regulatory documents and standards of Rosatom State Atomic Energy Corporation and local regulatory acts of the Engineering Division of Rosatom State Corporation.
The primary internal regulatory document that governs investment activities of the Engineering Division and determines the uniform rules for cooperation between the Division’s subdivisions when making and implementing investment decisions is STO 8841271.011-2017 “Investment Management”.
Basic parameters of investment program of the Engineering Division of Rosatom State Corporation are determined by decisions of the Investment Committee of Rosatom State Atomic Energy Corporation.
The Investment Committee of JSC ASE EC, ASE JSC, JSC “Atomenergoproekt” and JSC ATOMPROEKT is the authority that makes investment decisions in the Engineering Division of Rosatom State Corporation. This is a collegial body that implements principles of the unified industry investment policy of Rosatom State Atomic Energy Corporation and its companies within the authority delegated by a superior company.
To ensure the continuity of the principles of the industry investment policy, the Investment Committee of the Engineering Division of Rosatom State Corporation includes representatives of Rosatom State Atomic Energy Corporation.
The Division has a Task Group of the Division’s Investment Committee intended to improve the efficiency of investment activities and control the implementation of investment decisions.
Information on the investment management system impact on suppliers’ selection and activities
Being guided by Rosatom State Corporation’s scenario provisions for leasing, the Engineering Division has to acquire on lease the capital assets related to “Machines and Equipment” and “Vehicles” groups, with the useful lifetime exceeding 3 years (depreciation group 3–10) and minimum procurement price of 10 million rubles. This condition binds the suppliers to conclude a trilateral sale and purchase agreement with participation of the lessor.
Leasing mechanism will allow improving the flexibility of financial planning and reducing the amount of funds drawn away by the Division to purchase the basic assets.
Implementation of plans to improve investment activities within the reporting period and mid-term plans
The following measures were implemented within the reporting period:
- technical and economic analysis methodology was being improved;
- equipment sample/example base was processed;
- investment project administrators are being trained in Project Management School of Rosatom State Corporation;
- key performance indicators of investment project portfolio were achieved;
- Maturity enhancement program of investment project management is being implemented;
- a standard list of equipment and construction machines used during the NPP construction was developed. The list will be used when planning the investment budget of prospective projects related to construction sites mechanization.
In the mid-term perspective, it is planned to implement the following initiatives regarding the investment management:
- to develop motivation principles for the companies of the Engineering Division of Rosatom State Corporation in order to identify and implement investment projects for new business lines of the Engineering Division;
- to develop the institute of technical and economic analysis (TEA), including the establishment of the industry experts team, regular training for investments initiators;
- project management maturity enhancement in the investment activities.
- generation of adapted template for downloading of plan-fact reports on the investment activities in ISUP KS.
Information on the main financing sources for investment activities of the Engineering Division
In accordance with the main areas of activity, the Division’s investment portfolio consists of projects, the purpose of which is to support implementation of NPP design and construction projects within the framework of participation in Rosatom State Corporation’s investment and construction projects.
The priority task in the implementation of investment projects to equip construction sites is to meet production needs for the timely execution of contracts for the construction of Belarus NPP, Kursk NPP, Rooppur NPP, Akkuyu NPP and other facilities constructed as part of the implementation of investment and construction projects of Rosatom State Corporation.
IT projects implementation aims to upgrade the key assets, in particular, electronic computing equipment and provide production processes with automation and software tools.
Infrastructural investments provide the necessary renewal of fixed assets and the required level of safety.
Financing of investment projects in 2018 was implemented at the expense of the internal sources and external financing.
The overall effect of investments for the Division consists in the assurance of upward trend of financial and economic performance indicators and the growth of labor productivity in the Division companies.
The main indicator established by Rosatom State Corporation for monitoring the efficiency of the investment program is the integral investment performance indicator (IIPI), with account for the compliance of the estimated return profitability of the project portfolio with the planned one, as well as the achievement of the milestones of investment projects under implementation, established for the current year.
The value of the Division’s IIPI based on 2018 results amounts to 103.1% (with the target level being 100%).
2.1.5. Control of Financial and Economic Activity
JSC ASE EC Order No. 40/1124-P dd. 08.08.2016 approves the Procedure for Taking Measures to Prevent Possible Occurrence of Conflict of Interest by Employees of JSC ASE EC, JSC ASE, JSC “Atomenergoproekt” and JSC ATOMPROEKT.
According to the above procedure, in case of a potential conflict of interest, an employee shall submit to the Company’s President a notification of personal interest occurrence while executing his/her job duties, which results or may result in a conflict of interest, once the employee becomes aware of it.
Based on the results of review of the above notification, the Company’s commission for compliance with official behavior requirements and settlement of the conflict of interests shall make a decision ruling out the conflict of interest.
The method of hidden conflict of interest revelation is a campaign to collect income details, which is held in the Engineering Division on the annual basis.
Any employee of the Engineering Division is also entitled to address the security service for a consultation on ethical and law-abiding behavior and on the issues related to unfairness manifestations in the Company.
Rosatom State Corporation Order No. 1/186-P dd. 20.02.2018 approves the Unified Industry Procedure for working with hot line messages in Rosatom State Corporation and its companies. This Procedure was adopted for guidance in accordance with JSC ASE EC Order No. 40/359-P dd. 05.03.2018.
NIAEP JSC Order No. 40/938-P/007/262-P dd. 20.07.2015 approves Regulations on the work of “Trust Boxes” for written applications of the Company’s employees, contracting parties and other persons regarding cases of corruption offenses.
Within the framework of the above local and regulatory acts implementation, the employees of the Company were informed of the possibility to inform publicly or anonymously regarding the facts of corruption and other offenses under “Hot Line” channels of specialized communication or by electronic mail to the address of JSC ASE EC asset security subdivision, as well as in writing through the “Trust Boxes” located in central offices, branch offices and representative offices of the Engineering Division of Rosatom State Corporation. Any employee of the Engineering Division, as well as representative of another organization is provided with a possibility to inform of any data regarding corruption activities, namely:
- cases of employees being tempted to commit corruption offenses;
- cases of corruption offenses committed by other employees, agents of the Company or other persons;
- the employee’s conflict of interest that has arisen or is likely to arise.
Internal control system
Internal control system of the Engineering Division is an interrelated integral combination of organizational structures, processes, rules of their implementation and features of company management system, being a part of it, which executes the internal control function on a permanent basis or occasionally and ensures achievement of internal control goals. The purpose of its functioning is to provide guarantees of the Engineering Division’s goals achievement with unconditional compliance with safety requirements, provisions of the legislation and international treaties.
The basic document regulating the functioning and development of internal control system of the Engineering Division is the Policy in the field of internal control of Rosatom State Corporation and its companies approved by Rosatom State Corporation Order No. 1/1143-P dd. 28.12.2011 and adopted for guidance by NIAEP JSC and JSC ASE Order No. 40/854-P/007/286-P dd. 11.09.2013.
One of internal control system subjects is Internal Control and Audit Service of JSC ASE EC (IC&A) acting on the basis of Regulations on the Service of 19.06.2018.
The primary area of IC&A activity is a constant improvement of efficiency and reliability of the internal control system in the Company and Rosatom State Corporation companies, in relation to which IC&A carries out control according to requirements of the legislation of the Russian Federation, regulatory state authorities and international standards.
Process groups “Internal Control and Internal Audit” function in accordance with the chart approved by the President of JSC ASE EC on 10.05.2018.
Internal Control and Audit Service executes the following functions in the field of internal audit:
- internal control system efficiency;
- risk management system efficiency;
- financial reports internal control system efficiency;
- correctness and completeness of use of regulations, standards and other administrative documents in the fields of financial and economic activities, public reports generation;
- budget generation and implementation;
- procurement control system efficiency;
- information systems use efficiency (IT-audits);
- other business processes (operating activities);
- elaboration of recommendations to enhance efficiency and effectiveness of activities, corporate management improvement, risk management process efficiency in JSC ASE EC, its subsidiaries and companies within its scope of management, based on the results of audits (assessments) conducted;
- submission of reports on the results of conducted internal audits (assessments) to the President of JSC ASE EC;
- consulting the managers of JSC ASE EC, its subsidiaries and companies within its scope of management on the issues of internal audit and risk management, including ones related to implementation of corrective actions based on the results of conducted internal audits;
- control over the implementation of recommendations issued based on the results of conducted internal audits.
Accounting Office of JSC ASE EC and IC&A act as the subjects of control within the system of financial and economic activities control. The tasks of Accounting Office in this area include:
- control over the correct spending of funds and material values of JSC ASE EC, JSC ASE, JSC “Atomenergoproekt” and JSC ATOMPROEKT;
- observance of the established rules for documenting the acceptance and release of commodities and materials of JSC ASE EC;
- control over correct spending of funds on business travel expenses of JSC ASE EC;
- arrangement of control over payroll accounting processes in accordance with the terms and conditions of agreement concluded between JSC ASE EC, JSC “Atomenergoproekt”, JSC ATOMPROEKT and JSC Greenatom;
- control over accounting and fiscal record-keeping in branch and representative offices, subsidiaries and companies within JSC ASE EC scope of management;
- arrangement and support of improvement of Financial Reports Internal Control System of JSC ASE EC, JSC “Atomenergoproekt” and JSC ATOMPROEKT.
Improvement of internal control and audit system in 2018:
- main processes included in MPG “Internal Control and Internal Audit” (internal audit, auditing activities, expert analytical measures, consideration of procurements from the sole supplier conducted using special authority of the CEO of a nuclear industry company, as well as carried out upon the decision of the customer’s CEO based on the results of canceled competitive procurement) were regulated;
- timeframe of complaints review by the Arbitration Committee of JSC ASE EC and issue of resolutions (conclusions) based on the results of their review was reduced on a regulatory basis.
Name of the company
|JSC ASE EC||56||7||7||0|
|Trest RosSEM Ltd||13||4||1||–75|
|JSC “Spb EIZ”||1||100|
|TOTAL IN THE ENGINEERING DIVISION||89||17||28||65|
Name of the company
|JSC ASE EC||2||8||2||12||500|
|SMU No. 1 LLC||1||2||1||1||–50|
|Trest RosSEM Ltd||1||2||1||2||100|
|JSC “Spb EIZ”||2|
|TOTAL IN THE ENGINEERING DIVISION||12||25||15||41||173|
In 2018, IC&A carried out 42 control activities, based on the results of which 277 recommendations and assignments were issued, including 159 with due date in 2018, out of which 145 (91%) were executed.
Increase in the number of assignments given is due to improved quality of issues elaboration in audit programs.
Disciplinary measures include the types of disciplinary punishments stipulated by the Labor Code of the RF: admonition, reprimand, termination of employment according to the appropriate grounds.
The dynamics results from various subjects of audit in different reporting periods, issues audited.
Based on the results of control activities carried out by Internal Control and Audit Service, no disciplinary responsibility cases were recorded in other companies within the Division’s scope of management.
Increase in the number of audits conducted in the field of procurement results from the interest of the Division’s management in reducing the timeframe of this business process, getting an increased economic effect and in reducing reputation risks related to potential violations in the field of procurement, completion of Competition Policy Control Office separated in the service in 2017 and development of procurement online monitoring mechanism.
In November 2018, there was an IC&A meeting to enhance the efficiency of process group “Internal Control and Internal Audit” in the Engineering Division, as a result of which a list of measures aimed at improvement of internal control systems quality was drawn up and accepted for execution. Thanks to application of intradivisional interaction principles and participation of JSC “Rosenergoatom” in the planning session of IC&A, the best practices of related divisions’ IC&A were adopted for work.