Title pageStrategic OverviewRisks and Opportunities
GRI:

1.2.Risks and Opportunities

Risk management is one of the conditions to achieve the strategic goals of the Engineering Division.
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1.2.1. Risk Management System

In order to manage risks, the Division applies proven methodological approaches on the basis of international standards. In 2018, the risk management standard for the Engineering Division’s complex engineering construction projects was updated taking into account the best international practice.

Risk management in 2018

In 2018, risk management of 12 NPP construction projects was carried out in the following areas:

  • high-level risks (major risks affecting the project implementation within the period until the project completion);
  • milestones risks (milestones achievement on time);
  • budget/business-plan risks for the current calendar year and over the next three years;
  • risks of project actual cost deviation from the contract value by cost items;
  • project risks reviewed at OBEYA meetings.

The risks are detected (identified) in each project, risk owners are specified, corrective measures on risks mitigation are developed by design unit specialists and business areas experts. Implementation of these measures allowed reducing the level of a number of risks.

The final annual report which includes reports on all projects has been issued. The data base on risks is supplemented taking into account the current year’s experience.

In order to computerize the process during the project risk management, automated risk management system (ARMS) is applied. The ARMS main functions are as follows:

  • automatic risk identification;
  • generation of the data base of NPP construction projects key risks;
  • projects risk map maintenance;
  • tracing the schedule of the compensating measures.

The Engineering Division took part in implementation of Rosatom State Corporation project for quantitative assessment of NPP construction project risks, the results of which are:

  • quantitative assessment of the NPP construction project risks according to the capital project risk management practices of the Russian and global major power companies and requirements of the Total Cost Management Standard of the Association for the Advancement of Cost Engineering (ААСЕ) for 6 NPP construction projects;
  • Additional extended parametrical evaluation of NPP construction project risks in 7 NPP construction projects.

The industrial conference of internal auditors was held whose key topic was to review the prospective areas of interface between the risk management functions and the internal control and audit service.

300 persons were trained as part of the corporate training in the area of “Risk management”.

The managers of Rosatom State Corporation Engineering Division were trained as part of the risk management course in Engineering & Construction Risk Institute (ECRI).

Risk insurance

The purpose of risk insurance is providing insurance coverage of the Company’s property interests when carrying out its production and economic activity, as well as when fulfilling obligations of the contracts under implementation.

Peculiarities of the insurance coverage in the Division are stipulated by the character of the activity to be carried out, projects geography, legislative aspects of the customer countries, customers’ requirements, contractual obligations.

Due to this, each particular project is ensured by its unique insurance, the parameters of which depend on the terms of the contracts and agreements to be concluded, specifics of the region, as well as on the national legislation of the country where the project is implemented.

Insurance is made in Russian and foreign insurance companies. The selection of insurers depends on legislative regulations of the customer’s country and the customer’s requirements. When applicable, risks are allocated in Russian insurance companies that have passed pre-qualification of Rosatom State Corporation.

The package insurance of CEW is made with mandatory involvement of reinsurance companies, both international and Russian ones. If needed, specialized insurance brokers, such as Nuclear insurance broker, AON, Marsh, Willis and others are engaged for insurance.

Subcontractors’ works and personnel engaged in a Project are to be insured as well. Subcontractors are responsible for insurance of their own construction machinery and personnel.

1.2.2. Map of Risks and Opportunities

Click on risk for more information
Risks—Threats
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PossibilityExposure (potential damage)Very highHighMediumLowVery lowVery lowLowMediumHighVery highHighLowMedium— Decrease in influence5.35.41.21.16.13.12.14.24.15.15.27.14.3
Risks—Opportunities
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PossibilityExposure (potential gain)Very highHighMediumLowVery lowVery highHighMediumLowVery lowHighLowMedium0.10.2
1
Risk change dynamics and key risk management measures of 2018

Following the results of 2018 the Engineering Division’s key risks were updated.

Category Risk No. Name of risk (risk factor) Trend Trend justification Key activities on risk management and response to risks emerged in 2018. Risk management results in 2018
RISKS—THREATS
Political risks
(including the political and economic instability of the target markets and in RF)
1.1
Risk of violation of the RF international commitments.Introduced for the first timeThe introduction of the risk is caused by separation of external and internal factors of political risks.Complete fulfillment of the RF international commitments.
1.2
Risk of violation of the sanctions of foreign states. At the level of 2017 Maintaining the high level of risk continued sanctions by the USA and EU and retaliatory sanctions by Russia. In 2018, Engineering Division’s activities were not influenced by the risk.
Reputational Risks
(change of perception of reliability and advantages of Rosatom State Corporation and its organizations and/ or their products by stakeholders in comparison with the current or expected perception)
2.1
Reputational risk (major incidents in the global nuclear industry). At the level of 2017 The risk dynamics has remained unchanged. The global nuclear industry has not witnessed major nuclear incidents. Organization of continuous informational exchange with mass media on the activities of the Division, organization of press-tours to NPPs constructed by the Company, organization of PR-support of all important events.
  Mass media publications (in RF and abroad) of articles discrediting Russian nuclear technologies in the traditional and prospective markets. At the level of 2017 In some cases, the Company's overseas projects development are faced with opposition from local public organizations and political structures. In general, the scale of this opposition is relatively low, however, such events are periodically covered by the media. Measures undertaken to strengthen the positive public attitude towards development of the nuclear power industry through further improvement of the information transparency and open communication with all stakeholders.
  • Regular interaction with the public and the mass media in the regions of operation. Informing the public on all important events related to JSC ASE EC core business.
  • Publication of the Company’s Reports including the Integrated Annual Report.
  • Analysis of stakeholders’ structure, identification of their expectations, expansion of stakeholder groups, involvement of foreign stakeholders.
  • Participation in Russian industrial events and international exhibitions and conferences.
  • Strengthening the brand presence on foreign markets through marketing promotion of the brand.
Commercial risks
3.1
Risk of the contractual partners’ (external/internal suppliers and buyers) failure to fulfill their obligations in full scope within the established period of time (credit risk for suppliers and buyers). At the level of 2017 The risk remained at the level of 2017. In order to minimize the credit risks for contractual partners, the financial status is monitored on the quarterly basis. Within the framework of competitive procedures, the contractual partners’ financial resources are assessed. The Company uses guarantees provided by the partner banks of Rosatom State Corporation.
Economic and financial risks
4.1
Risk of unfavorable changes of currency rates (currency risk). At the level of 2017 In 2018, the trend towards ruble weakening versus major currencies was observed (USD, Euro). The Engineering Division was not exposed to negative influences in 2018. Individual approach to subcontractors, including accounting for the share of the currency component in the production cost. Control of foreign currency exposure.
4.2
Risk of unfavorable changes of interest rates (percentage risk). At the level of 2017 Due to the stable RF Central bank key rate, significant fluctuations of the currency rates were not observed within 2018. Within the reporting period, the Engineering Division was not influenced by the risk.
4.3
Risk of state funding availability decrease. Reduction Risk mitigants:
  • The first 9 months of 2018 demonstrated a tendency towards growing prices of oil and gas;
  • The RF sovereign credit ratings were raised by the international rating agencies. (S&P Global Ratings raised the RF sovereign credit ratings as follows: Long-term and short-term ratings for foreign currency obligations — from ВВ+/В to ВВВ-/А-3 and long-term and short-term ratings for national currency obligations — from ВВВ- А-3 to ВВВ/А-2. The rating forecast is “stable”.
Within the reporting period, the Engineering Division was not influenced by the risk.
Project risks
5.1
The risk of non-fulfillment of contractual obligations for NPP construction in RF. At the level of 2017 The risk management system is implemented in NPP construction projects in RF. Complicated issues of NPP construction are reviewed at joint meetings with the Customer, Rosatom State Corporation management and other project participants in the format of brief meetings, steering committee meetings, OBEYA meetings etc. which allows maintaining the risk control at the stable level.
  1. Contractual obligations for NPP construction in RF are fulfilled in full scope.
  2. Commissioning of Rostov NPP Unit 4.
  3. Systematic work for implementation and practical application of:
  • information management system for capital construction projects (ISUP KS);
  • integrated cost and time management system for nuclear facilities construction — TOTAL COST MANAGEMENT of NUCLEAR CONSTRUCTION (TCM NC);
  • functional and cost analysis of designed NPP units;
  • making catalogue
  • s of design solutions, equipment, materials, civil erection technologies and works during designing and construction of NPPs with VVER reactors;
  • typical technical requirements for equipment;
  • audit of the data reliability of suppliers of products, works and services;
  • industrial quality management system (UIS-Quality);
  • unified industry procedure for non-conformance control.
5.2
The risk of non-fulfillment of EPC contracts for NPP construction projects abroad. At the level of 2017 Absence of factors in 2018 influencing the fulfillment of the Division’s obligations under EPC-contracts for NPP construction abroad. Strict fulfillment of contractual conditions for NPP construction abroad (see i. 3 of risk 4.1)
5.3
Loss of contract, postponement of EPC-contract for NPP construction abroad. At the level of 2017 Maintaining the risk at high level in 2018. The risk was not realized in the Engineering Division’s projects.
5.4
Reduction of the customer’s financing. At the level of 2017 Political and economic stability on target markets. Work for searching possibilities to finance prospective projects was carried out together with Rusatom Overseas JSC both by attracting RF credit resources, alternative sources and redistribution of free credit resources among projects.
Technological risks
6.1
Risk of decreasing of competitiveness of the developed technologies. At the level of 2017 Growth factors:
  • Growth of NPP operational costs.
  • Prolongation of NPP construction time.
  • Stricter NPP safety requirements.
  • Development of new technologies in the conventional power industry and enhancement of the energy efficiency of production in the developed countries.
  • A record growth of renewable sources of energy during the last year.
Reduction factors:
  • References exist for the majority of the offered products.
  • Application of digital solutions as part of the Digitalization program for organization of works throughout the whole NPP lifecycle.
  • Power shortage and interest in nuclear energy in the emerging countries.
Key works for risk management:
  • Analysis of engineering solutions based on the open information about national and foreign technologies and NPP projects.
  • Participation in IAEA projects in terms of review of efficiency of renewable power sources as compared to nuclear power.
  • Continuous development of the system, structure and culture of the project activity in design and construction according to the design management standards, including IPMA.
  • Improvement of design quality, cost reduction at all stages of NPP life cycle due to the use of BIM and Multi-D technologies.
  • Evaluation of implemented projects at the pre-investment phase according to the criteria of novelty, cost and quality.
  • Assisting the customer countries in developing their own nuclear infrastructure.
  • Diversification of activities, product ranges and services taking into account the diversity of customer requirements. Development of new market segments.
  • Package offers to consumers of products and services.
  • Development of principles of standard technical solutions and equipment to reduce the design and procurement periods.
Human resources
7.1
Risk of qualified staff shortage At the level of 2017 Risk impact growth factors:
  • The shortage / absence of specialists in the field of nuclear energy in the target countries for NPP construction.
  • Shortage of blue-collar and engineering specialists in RF.
  • Evaluation of competence and level of English knowledge, re-training.
  • Employment from the labor market of specialists having competence in the area of international logistics and suppliers audit on international markets.
  • Employment of specialists having competence in the area of international designing.
  • Employment of graduates of the Higher Engineering School.
  • Employment of graduates from RF higher educational institutions, MEPhI, Master’s Degree Program of the Russian Academy for Foreign Trade.
Measures to reduce the impacts of risks in the Project Directorates:
  • Rotation of experienced specialists from the Division (candidates’ pool, employees with a high potential) to international projects — about 15%.
  • Employment of specialists with competence in the field of international contracting (FIDIC standards), international supplies and logistics, quality management, licensing and audits of contractors accounts — closing 80% of the demand.
  • Employment of graduates of MSCU, “Incubator” project (10%).
Measures to reduce the impacts of risks in the Construction Branch Offices:
  • Rotation to international projects of experienced Division’s specialists and specialists from the completed construction projects in Russia, such as: Rostov NPP, Novovoronezh NPP-2, Belarus NPP — 10–20%of the demand.
  • Employment of foreign experts from the labor market in the area of engineering policy, coordination and arrangement of the work of contractors, acceptance of the equipment — closing up to 35% of the demand. 
  • Employment of graduates of higher educational institutions in the relevant areas of expertise — 10%.
RISKS—OPPORTUNITIES
IT
0.1
Transformation into a digital Company At the level of 2017 Development of the digital economy in Russia, penetration of digital technology into all processes of operating activities. Implementation of Data-oriented comprehensive digital management system. Digitalization of processes to improve the quality and speed. Updating the infrastructure to support digital transformation.
Human resources
0.2
Increase of the personnel efficiency under conditions of transition to a digital Company At the level of 2017 Reducing transaction/time costs for processing information and making decisions. Increase of the personnel effectiveness through the use of information technologies. Personal transformation of the staff, training of digital transformation leaders inside JSC ASE EC and supporting leaders on the outside. Formation of basic knowledge and skills that contribute to the development and implementation of projects within the framework of transition to a digital Company.