2018

The Russian Institute of Directors (RID) evaluated the corporate governance practice in RusHydro (hereinafter, the "Company") in accordance with the methodology of the National Corporate Governance Rating (NCGR). As a result of such evaluation, RID increased the National Corporate Governance Rating of the Company to level 8, "Advanced corporate governance practice" according to the NCGR scale.

The corporate governance practice in the Company was evaluated with regard to four components:

1. shareholders' rights;
2. activities of the management and supervisory bodies;
3. information disclosure;
4. corporate social responsibility and sustainable development.

After the corporate governance rating was confirmed in May 2017, a number of significant corporate events took place at RusHydro that changed the rating.

In 2017, RusHydro and VTB Bank (PJSC) signed agreements on the acquisition by the Bank of 55 billion ordinary shares of RusHydro by way of the purchase of an additional issue of shares and a block of quasi-treasury shares. Following the transactions, the proportion of quasi-treasury shares decreased from 4.88% to 0.9%, and these shares do not take part in voting at the General Meeting of Shareholders.

In 2017—2018, the Company's internal documents governing the corporate governance system were amended in accordance with amendments in Russian legislation and the MOEX Listing Rules and the unification of internal documents. Amendments in the Articles of Association introduced the term "significant corporate actions", clarified the competence of the Board of Directors, and changed the competence of the Management Board. The Regulation on the Convening and Holding of Meetings of the RusHydro Board of Directors was supplemented with clauses on instating newly elected members of the Board of Directors and on conflict of interests and established the right of members of the Board of Directors to request information on controlled entities, to engage external consultants, and to participate in training and advanced training programs at the cost of the Company's budget.

The Board of Directors approved the Auditor Rotation Policy and supplemented the Internal Audit Policy with a section on the principles of building a groupwide internal audit function in RusHydro Group.

Remuneration to the members of RusHydro executive bodies provides for the dependence of remuneration payments on the achievement of short-term and long-term performance indicators of the Company. The Long-Term Management Motivation Program has been operating in the Company since 2017. It was developed by an independent consultant and approved by the Board of Directors. This program is in line with the recommendations set out in Chapter 4 of the Corporate Governance Code.

Remuneration to the members of the Board of Directors is paid in the form of a fixed annual remuneration. Based on the results of a study conducted by an independent consultant, the base remuneration of the members of the Board of Directors in 2017 was adjusted to the average market remuneration in comparable companies.

Among the positive changes in the work of the Board of Directors in 2017—2018 were election of the senior independent director, an increase in the number of in-person meetings of the Board of Directors and the key committees, evaluation of internal control and risk management system efficiency, and consideration of the report on compliance with the Regulation on Information Policy. In 2018, an independent consultant evaluated the work of the Board of Directors and its Committees, and the report on the evaluation results was reviewed by the Board of Directors at an in-person meeting.

During the monitoring of corporate governance practice, the Company increased the scope of information disclosure for shareholders when preparing for the General Meeting of Shareholders, and started streaming video of the General Meeting of Shareholders. In 2018, the HR and Remunerations Committee drafted recommendations for the shareholders on electing nominees to the Board of Directors based on the analysis of their professional expertise, experience and conflict of interests (if any).

Insofar as it concerns sustainable development, the Company joined the UN Global Compact and assumed obligations to adhere to sustainable development principles.

Furthermore, corporate governance practice in RusHydro preserves the following key positive aspects:

• the rights to the Company's shares are recorded by a highly reputed registrar with reliable technologies;
• the auditor for the statements is chosen in an open tender. In 2018, the tender for the period of 2018 to 2020 was won by PricewaterhouseCoopers Audit JSC;
• external auditors do not provide any non-audit services to the Company;
• shareholders can put questions to the members of the management and supervisory bodies of the Company during the General Meeting;
• business units were set up for interaction with shareholders and investors, and the Company holds meetings and presentations for shareholders and investors with the participation of the members of the management bodies on a regular basis;
• the powers of the Board of Directors were expanded in terms of decision-making on major transactions;
• the Company has a positive dividend history;
• the minimum portion of net profit to be allocated for payment of dividends on ordinary shares was determined;
• the Board of Directors considers matters of procurement policy on a regular basis;
• 4 out of 15 members of the Board of Directors have the status of independent directors;
• the Chairmen of the Audit Committee and the HR and Remunerations Committee are independent directors;
• the composition and functions of the Audit Committee and the HR and Remunerations Committee are in line with the recommendations of the Corporate Governance Code;
• the Board of Directors has approved an internal document outlining the key principles, elements and procedures of the internal control and risk management system;
• there is comprehensive regulation of conflict of interests of the members of the Board of Directors and the executive bodies;
• there is an Internal Audit Service that performs internal control and audit functions and is functionally subordinated to the Audit Committee;
• a regulatory framework for risk management has been approved, and a Control and Risk Management Department is functioning which performs key risk management functions;
• financial statements are disclosed in due time, including interim IFRS statements and explanations of the management on the statements;
• the Company's statements correspond to the International Integrated Reporting Standard and GRI SRS standard.

The following deficiencies were identified, among other things, in the corporate governance practice of RusHydro:

• the share of independent directors is less than one third of all members of the Board, which does not conform to the recommendation of the Corporate Governance Code;
• there is no succession pool to replace top executive staff of the Company;
• the amount of individual remuneration paid to each member of the Management Board and to each member of the Board of Directors is not disclosed.

According to the National Corporate Governance Rating scale, a Company with an NCGR of 8 complies with the requirements of Russian laws in the field of corporate governance and adheres to a significant number of recommendations of the Russian Corporate Governance Code. The Company is characterized by fairly low risks of loss to owners associated with the quality of corporate governance.