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S&P: Generating Company OGK-4 Governance Score raised to 'CGS-4+' from 'CGS-4' and Withdrawn at the Company’s Request

April 10, 2009 | "Standard & Poor's"

S&P Withdraws OGK-4 Governance Score 'CGS-4+' and Russia National Scale 'CGS-4.9' at the Company’s Request

MOSCOW (Standard & Poor's) April 9, 2009--Standard & Poor's Governance Services said today that it raised its corporate governance score (CGS) of “The Fourth Generation Company of the Wholesale Electricity Market” (OGK-4) to 'CGS-4+' from 'CGS-4'. The company’s Russia national scale CGS was raised to 'CGS-4.9' from 'CGS-4.4'. The scores were immediately withdrawn.

“OGK-4’s governance practices have developed since German energy group E.ON acquired a controlling stake in the company. The activity of the board and its role in decision making have grown,” said Standard & Poor's governance analyst Ekaterina Marushkevich. “E.ON is motivated to develop the business of OGK-4, and has the technological and management expertise necessary to achieve this goal.”

“At the same time, checks and balances in the company’s governance system are weak. Current board composition and decision-making procedures allow E.ON to pass board resolutions on most issues, including those on related-party transactions, regardless of whether they are supported by other shareholders. It is also a weakness that the internal audit for OGK-4 is performed by the E.ON team,” Ms. Marushkevich added.

The overall CGS on OGK-4 was the result of four component scores on the global and Russia national scales of 1 (low) to 10 (high). Before being withdrawn, these component scores were revised to reflect changes in governance practices since our last review. The global scale score is shown first below, and the Russia national scale score second:

-- Ownership structure and external influences
5/5.3 (raised from 4+/4.5)
-- Shareholder rights and stakeholder relations
5+/5.9 (unchanged)
-- Transparency, disclosure, and audit
4+/4.7 (unchanged)
-- Board structure and effectiveness
4/4.3 (raised from 3+/3.8)

Standard & Poor's analysis has identified the following weaknesses in the OGK-4's governance system:

 Checks and balances in the company’s governance system are weak. The board composition and voting procedure do not allow minority shareholders to balance the influence of E.ON.
 A lack of the board committees’ activity prevents preliminary discussions of issues brought to the board’s vote and diminishes the role of independent directors.
 The company lacks an independent internal audit process. The role of the audit committee is low and there is no internal audit department in the company.
 Management remuneration is not disclosed in public sources.

The strengths of corporate governance practices at OGK-4 include:

 E.ON’s technological expertise and managerial experience places it in a good position to develop the business of OGK-4. OGK-4 is in the process of implementing a number of initiatives on performance improvement.
 A wide measure of OGK-4 shareholders’ rights is backed by Russian legislation.
 Information disclosure practices are fairly good at OGK-4. The company publishes its annual audited financial statements according to International Financial Reporting Standards. It also maintains a comprehensive Web-site where it publishes its internal by-laws, resolutions of the board and board committees, as well as presents other useful information for investors and analysts.

The opinions expressed are the independent opinions of S&P’s Governance Services, a department of Equity Research Services, and do not reflect the opinions of other areas of Standard & Poor’s. Standard & Poor's GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process. GAMMA scores are offered to companies in the emerging markets, with the primary focus on Brasil, Russia, India, and China (the BRIC countries).

Company: Unipro

Full company nameUnipro PJSC
Country of riskRussia


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