Overview of macroeconomic factors

Factors that determine the state of the Russian economy in general and have an impact on the electric power industry:

GDP movement	The index of the physical volume of GDP in the 1st half of 2020 relative to the 1st half of 2019 was 96,6%
Inflation	In the 1st half of 2020 the consumer price index was 100,2% from the beginning of the year
Interest rates to attract credit resources	As of 30 June 2020, the key rate of the Bank of Russia is 4,5%. The decision of the Board of Directors of the Bank of Russia, adopted on 19 June 2020, to cut the key rate to the specified size is proactive and is aimed at limiting inflation risks that remain at an elevated level

The dynamics of the industry development is also determined by a number of specific factors:

Factors descending in significance
State regulation of tariffs
Description	Electricity transmission and grid connection are regulated by the State. Regulatory approval of tariffs for services of the Company directly influences volumes of received proceeds
The current state	The Government of the Russian Federation implements a tariff policy based on the inflation minus principle. Setting tariffs below the economically justified level will lead to underfunding from tariff sources of the Company’s current activities and investment program
Measures to minimize the consequences (if available)	1. Economic justification of costs included in tariffs, including the inclusion of economically justified costs in tariffs incurred in excess of those recorded in tariffs and incurred due to reasons beyond the Company’s control over previous periods. 2. System-wise work to reduce costs and optimize the investment program 3. Implementation jointly with PJSC Rosseti of measures to amend the current legislation of the Russian Federation in the field of pricing for services of natural monopolies to take into account the interests of distribution grid companies in setting tariffs at the retail market.
Changes of energy consumption
Description	Change of energy consumption has a direct impact on the state of the industry
The current state	Actual electricity consumption in the Unified Energy System of Russia in the 1st half of 2020 amounted to 514,6 billion kWh, which is 3,4% lower than in the same period last year.
Measures to minimize the consequences (if available)	A set of measures to increase non-tariff sources of income
Changes of prices for the wholesale electricity market
Description	Changes in electricity prices on the wholesale electricity and capacity market directly affect the amount of compensation for electricity losses in electric grids and, accordingly, the entire activity of the Company
The current state	In the first half of 2020, the one-part price of electricity on the wholesale electricity market increased by 0,5% compared to the same period in 2019
Measures to minimize the consequences (if available)	A set of measures to reduce electricity losses in electric grids
The current state of the industry
Description	The state of the industry has a direct impact on all aspects of the Company’s activity
The current state	Substantial depreciation of main generating and grid equipment Reduction of investment programs in the industry The problem of non-payment The tariff policy, leading to both an underestimation of both financial performance (pricing on a "cost plus" basis), and the real loss making for a number of companies Reducing electricity consumption amid a decline in industrial production, due to the introduction of restrictive measures to prevent the spread of Covid-19
Measures to minimize the consequences (if available)	Implementation of the concept of digital transformation The cost management system implementation Implementation of new management tools by the Company, automation of key functions to improve the efficiency of accepting administrative decisions