During the three-year period the structure of assets of JSC IDGC of the North-West remains quite stable. Based on the results of the reporting periods it is as follows:

• fixed assets, the share of which remains at the level of 81% in the analyzed period;
• accounts receivable, the share of which varies from 12% to 13%;
• cash, the share of which decreased from 3% to 1.4%;
• cash, the share of which decreased from 3% to 1.4%;

The dynamics of assets in the analyzed period show a significant growth of RUB 7,218 million, or 19%. The growth of the Company's assets was mainly due to: 1) increase of fixed assets by RUB 6,068 million, which occurred owing to the implementation of the Investment Program; 2) growth of accounts receivable by RUB 1,386 million.

In a more detailed analysis of production activities in 2012 the following changes reflected in the composition of the Company’s fixed assets should be noted:

• increase of fixed assets by RUB 3,647 million, including due to energy supply facilities and technological connection facilities, both under construction and commissioned;
• increase in accounts receivable by RUB 1,569 million, including due to the increase in trade receivables by RUB 1,488 million;
• increase in material inventory by RUB 138 million;
• decrease in cash by RUB 828 million.

The most significant increase in fixed assets of JSC IDGC of the North-West occurred in 2012. The cost of fixed assets put into operation and documented with certificates based on the results of 2012 was RUB 6,277 million, including such large investment projects as:

• SS reconstruction — 110/10/6 kV Parfino (Novgorodenergo branch);
• construction of distribution substation (DS) 110 kV and reconstruction of overhead line 110 kV on the plot of SS 110 kV Lugovaya with approaches on DS 110 kV (Vologdaenergo branch);
• construction of DS 110 kV for connection of Krasavino GT CHP to the Vologdaenergo electric grid;
• construction of OL 110 kV Sokolovka — Pazhga (Komienergo branch);
• construction of OL 20 kV, OL 10 kV, OL 0.4 kV, DS 20/10 kV, PTS 10/0.4 kV for energy supply to Abez village (Komienergo branch);
• reconstruction of L-163 SS56 Pyaozero-SS58 Kestenga (Karelenergo branch);
• reconstruction of OL 110 kV Starorusskaya, Shimskaya (Novgorodenergo branch);
• reconstruction of SS 35/10 kV Kornilovo (Vologdaenergo branch);
• reconstruction of SS 35 kV Novinkovskaya (Vologdaenergo branch);
• reconstruction of SS 35/6 kV Vorkutinskaya (Komienergo branch).

Furthermore, the structure of current assets was affected by legal acts and regulations on accounting: Decree No.66n on the Ministry of Finance of Russia of July 2, 2010 on Forms of Accounting Reporting of Organizations as well as making amendments to accounting standards and adjustments to rules of recognition of assets:

• advance payments made for capital construction are included in fixed assets while before they were recognized in accounts receivable;
• amounts of deferred expenses under insurance agreements and prepaid vacations were included in accounts receivable and deferred expenses (up to 12 months) on software and other expenses are accounted in other current assets.

The working capital management policy of JSC IDGC of the North-West involves determination of a sufficient level and rational structure of current assets and determination of a value and structure of relevant financing sources. In order to achieve goals of effective use of equity and debt capital and maintain its financial stability, the Company takes actions in the following areas: borrowing funds in accordance with the established limits of debt position and building an adequate and well-balanced system of budget management (cash flow management).

Structure of equity and debt capital (liability)

In 2010-2012 the main changes in the Company's liabilities structure occurred in 2012. The share of equity decreased from 70% to 60% and was redistributed towards debt capital, the share of which increased from 30% to 40%. At the same time, it should be noted that equity accounts for a major share of the Company's liabilities which characterizes the Company's financial and economic condition as stable.

In 2012 the largest shares in the property sources were presented by reassessment of fixed assets (35%) and authorized capital (21%).

Loss from financial activities in 2010 in the amount of RUB 807 million was due to a negative result of tariff regulation of Kolenergo branch. In compared dynamics of 2011 and 2012 the Company's equity was at the same level which was due to a positive result of financial and business activities both in 2011 and 2012. But under the conditions of the growth of revenues from electricity transmission compared to the growth rates of the previous periods and increase in interest payable to credit institutions (+RUB 174 million) and increase of other expenses (+ RUB 1,512 million) in 2012 the financial result dynamics became negative which affected net profit amounted to RUB 62 million as of the end of 2012.

Advances for technological connections account for 68% of other long-term liabilities, long-term payments under voluntary medical insurance agreements — for 11% and other long-term liabilities, including advances received for removal (relocation) of energy facilities — for 21%.

Debt capital (short- and long-term credits and loans) as of December 31, 2012 was RUB 10,648 million, including RUB 2,850 million of target investment credits. As of December 31, 2012 indebtedness to credit institutions grew by RUB 4,420 million compared to the indebtedness as of December 31, 2011 and by RUB 5,997 million compared to the indebtedness of 2010. The following factors affected the growth of credit liabilities:

• switch to RAB-regulation (return on investment capital method) resulted in the change in the structure of financing of investment activities, including a significant increase in the share of borrowed funds in financing sources of investment programs implemented in the regions which had switched to RAB-regulation;
• non-performance by selling and grid companies of their financial obligations (more detailed analysis of accounts receivable is provided in section "Accounts receivable").

In 2012 the Company maintained the credit portfolio management policy aimed at raising long-term credits and loans.

Structure of accounts receivable

The biggest growth of accounts receivable was observed in 2012 while for the three-year period its level reached RUB 6,015 million. It is more than in 2010 by RUB 1,386 million and more than in 2011 by RUB 1,569 million.

The structure of accounts receivable in 2010-2012 did not change substantially and is distributed in the Company's total indebtedness as follows:

• the share of trade receivables varies from 81% to 84%;
• the share of advances paid remains at the level of 2%;
• the share of other accounts receivable decreased from 17% to 14%.

As of the end of 2012 accounts receivable for the service of electricity transmission (less the provision for doubtful debt) amounted to RUB 4,881 million, which is RUB 1,417 million higher than in 2011, accounting for the major share of trade receivables. In 2010-2012 the share of indebtedness for electricity transmission is within the limit of % of trade receivables. The main reason for a considerable change in the amount of indebtedness for the electricity transmission services is still violation by counteragents of their contractual obligations relating to payment for services of electricity transmission. At the same time, the amount of disputable indebtedness is increasing: its growth as of the end of 2012 was RUB 409 million.

Disagreements regarding payment arose due to disputes on application of tariffs (one-rate and two-rate) and on the size of the declared capacity to be paid for. Disputed amount of overdue debt between JSC IDGC of the North-West and the main consumers regarding the rendered electricity transmission services as of December 31, 2012 amounted to RUB 1,187 million (20% of total receivables) and exceeded the last-year value by RUB 409 million. The increasing number of disputes is mostly associated with the amendments made to the effective laws on the procedure for determination of transmission services volume in accordance with Resolution No.442 of the RF Government of May 4, 2012.

The Company took all measures to recover disputable indebtedness but it is complicated due to the lack of court practice for settlement of such disputes. The increase in the number of claims filed to the court amounted to RUB 484 million and as of December 31, 2012 reached RUB 3,059 million.

Based on the results of JSC IDGC of the North-West work in 2012, the significant risks affecting revenues from electric energy transmission services and, thus, amount of trade receivables, are: occurrence of new and non-settlement of already existing disagreements as to contractual volumes of consumed power with selling and grid companies.

Considering problems specified above, based on the results of 2012, the Company made a decision on formation of a provision for doubtful debts in the amount of RUB 1,574 million, which exceeds the provision amount accounted as of the end of 2011 by RUB 562 million and the provision amount accounted as of the end of 2010 by RUB 897 million.

All of the above factors had an effect on increase in accounts receivable of JSC IDGC of the North-West during the period in question.

In order to regulate and control the level of accounts receivable, including prevention of overdue indebtedness growth, measures are taken in all branches of JSC IDGC of the North-West, including in the following areas:

• performance of works for out-of-court settlement of disputes relating to indebtedness repayment;
• performance of the claim-related work;
• conclusion of agreements on the procedure of debt repayment (Restructuring Agreements), which facilitate normalization of payments and reduction of the indebtedness, with counteragents;
• application of off-sets of mutual uniform claims in compliance with the norms and requirements of the applicable law of the Russian Federation.

Structure of accounts payable

Based on the results of 2012 total accounts payable amounted to RUB 4,690 million. The following dynamics were observed in the reporting period:

• increase by RUB 166 million (or 3.2%) in 2010-2011;
• decrease by RUB 631 million (or -11.9%) in 2011-2012.

In 2010-2012 long-term obligations increased by RUB 64 million and the share grew from 6% to 8%. Based on the results of 2012 68% of long-term obligations are represented by advances for technological connection and 13% are represented by advances received for removal (relocation) of energy facilities.

Short-term indebtedness for 2012 decreased by RUB 631 million (-12%) and compared to the 2010 indebtedness the decrease amounted to RUB 465 million (-9%).

Key items of the short-term accounts payable, having effect on its changes in 2012, are as follows:

• indebtedness to suppliers and contractors, which decreased by RUB 315 million;
• indebtedness with regard to taxes and levies, which decreased by RUB 84 million;
• indebtedness for advances for technological connection to the grids of JSC IDGC of the North-West, which decreased by RUB 509 million.

The decrease of indebtedness to suppliers and contractors in 2012 was due to the decrease in the level of current liabilities to construction organization by RUB 232 million, which is directly related to activation of contracted works and commissioning of fixed assets in the course of implementation by the Company of the investment program.

In 2012 a substantial decrease in advances received for technological connection services by RUB 509 million was associated with connection of consumers to the grids in accordance with terms and conditions of agreements. Monetary funds obtained for technological connection are one of the main financing sources under the Company's investment program.

When analyzing indebtedness to suppliers and contractors, it should be taken into account that the main sources of repayment here are accounts receivable from buyers and customers and such repayment directly depends on payment discipline of the Company's main consumers. In case of consumers' failure to fulfill their payment obligations in due time and non-receipt of funds from them, the Company has to attract borrowed funds to repay its current liabilities, which inevitably results in the increase of the credit portfolio. This correlation is observed in the dynamics of growth of borrowed funds based on the results of 2012.