Major risk map

JSC FPC Risk Map

Risk Risk descriptiona Mitigation measures
1. Market risks
1.1 Decline in traffic volume due to the growth of tariffs, reduction of transport activity and purchasing power The projected growth of tariffs (ticket prices) in the Strategy at the level above inflation, but lower than the growth of the population’s real disposable income may lead to a drop in long-distance railway passenger transportation volume.

Deterioration of the economy: the rise in inflation and unemployment, reduction of the real disposable income may affect the reduction of transport activity and the population’s purchasing power.

Introduction of the long-term subsidisation system.

Improvement of the quality of services to substantiate the increase in prices and reduce the loss of customers to air transport.

Application of dynamic pricing.

Change of price based on the elasticity of demand for the price and comfort.

Application of various marketing initiatives: special tariffs for domestic and international long-distance trains.

1.2 Reduction of international transportation volume The aggravation of the geopolitical situation and the strengthening of economic sanctions against Russia may lead to a drop in the volume of long distance passenger transportation by railway.
1.3 A change of passenger preferences in favor of alternative means of transport A change of passenger preferences in favor of air transport (reduction of air transport fares by subsidising regional transportation with public support) or buses (in case of population income reduction) may lead to a drop in traffic by FPC trains.

Implementation of competitive strategy for passenger retention and attraction of new passengers using other means of transport.

Using innovative rolling stock, including:

• purchase of 50 double-decker cars to organise double-decker train communication on the most loaded routes, such as Moscow — St. Petersburg, as well as approval of two-storey carriage with seating;

• use of sleeping RIC carriages for international transportation in the trains Moscow—Prague, Moscow—Helsinki,Moscow— Warsaw, Moscow—Paris, Moscow—Nice.

Optimisation of the movement of trains, including their acceleration.

2. Regular risks
Tariff increase in the regulated segment at a faster rate than that which is planned in the Strategy without compensation from the Government. To increase affordability of long-distance railway transportation services for the population the Government can index the tariffs at a rate which is slower than that included in the Strategy. Reduction of the amount of unprofitable transportation services in case of insufficient subsidising from the Government.
3. Investment risks
3.1 The absence of investment component in the Government support to fund renovation of the rolling stock The passenger railcar fleet largely depreciated, JSC FPC’s own sources of investment being insufficient. This can lead to a loss of quality and a reduction in the rail traffic volume. Active work with executive and representative authorities, business and expert communities aimed at substantiating the need for the Government’s targeted support to finance renovation of the rolling stock.
3.2. Failure to achieve the planned efficiency of investment projects’ results as a result of investment programme implementation Failure to comply with the terms of capital investments and commissioning, as well as substantial changes in the fixed assets’ operating conditions may lead to a deterioration of the expected investment projects’ results. Using project management approaches at all stages of investment projects’ implementation.
4. Higher-than-anticipated growth of expenses risks
Higher-than-anticipated growth of suppliers’ prices and the cost of long-distance passenger transportation services faster than the growth of transportation tariffs Higher-than-anticipated growth of FPC’s suppliers’ prices compared with the growth of tariffs for long-distance transportation of passenger creates the risk of reducing FPC’s operational efficiency.

Long-term planning of supply needs

Conclusion of mutually beneficial long-term contracts with suppliers

5. Technical and process risks
5.1 Lagging behind in technical, economic and performance characteristics of the passenger rolling stock from the world level Lagging behind in technical, economic and performance characteristics of the passenger rolling stock from the world level creates the risk of reducing FPC’s competitiveness, lagging behind in the required rate of operational costs reduction.

Development and implementation of a long-term strategy of FPC’s innovative development.

Building the infrastructure and identifying the sources for FPC’s innovative development.

Purchase of up-to-date rolling stock, which meets international standards.

5.2 Insufficient pace of innovation in the transportation process Insufficient pace of innovation in the transportation process will not allow the realisation of technological potential to improve transportation safety and the quality of passenger service. Introduction of new technologies and enhancements to the existing software.
5.3 Safety inhibition

Events occurring due to violation of safety rules.

Equipment failures.

Implementation of traffic safety management system in JSC FPC.

Analysis of traffic safety and equipment failures.

Carrying out technical inspections and traffic safety organisation audits.

Analysis of non-destructive testing activities and development of measures for their improvement.

Implementation of security and communication monitoring systems on staff cars of passenger trains.

Carrying out technical audits of repair shops of the Branches’ business units.

5.4 Fire safety Fire events on rolling stock.

Carrying out fire safety compliance audits in trains.

Modernisation of passenger cars in terms of compliance with fire safety requirements.

Equipping JSC FPC facilities with security and fire alarms and automatic fire extinguishing devices.

5.5 Environmental safety Emissions.

Modernisation of rolling stock and civil engineering structures of JSC FPC’s branches’ business units.

Measures for saving and protection of water resources used for production purposes.

5.6 Infrastructure constraints Inability to to determine the most convenient long-distance train schedule for passengers and increase their speed will not improve the FPC’s competitive advantages on short and medium routes and will create the risk of passengers’ leaving to alternative means of transport. Long-term planning of rail infrastructure development for passenger traffic together with JSCo RZD.
5.7 Threat of terrorist attacks Threat or committing of unlawful interference acts (including terrorist attacks) at transport infrastructure facilities and JSC FPC’s vehicles.

Carrying out preventive measures in cooperation with the Central Directorate on Transport of the Ministry of Internal Affairs, the FSB, the Security Department of the JSCo RZD and regional security centres of JSCo RZD.

Strengthening the access mode and internal security regime at the JSC FPC’s facilities.

Proving the JSC FPC’s transport facilities with engineering and technical transport security equipment.

6. Social risks
6.1 The emergence of societal dissatisfaction with the JSC FPC’s activities Unpopular measures, related to higher tariffs and closure of unprofitable routes, can cause mass discontent among the population. The introduction of government order for long-distance transportation, and targeted subsidies for wide geographical accessibility and financial affordability of transportation services.
6.2 Emergence of tensions among the personnel Optimisation of repair facilities and other assets, accompanied by staff layoffs, may cause employee discontent.

Retraining and transfer of laid-off employees to vacant positions in the FPC or Holding Company.

Development of the internal labour market in the FPC and Holding Company.

The increased use (work load) of the assets, being optimised, through diversification of activities.

7. Reputational risk
Occurrence of corporate reputation loss

Possible increase in negative public relations as a result of train cancellations and issues relating to passenger transport subsidies.

Public pressure is associated with an increase in customers’ quality requirements and requirements to the services provided by JSC FPC.

Negative rating in case of poor travel conditions on FPC’s trains.

Increased competitive pressure from aviation and road carriers.

Forecasted passenger traffic decrease due to objective factors.

Communication campaign of certain intensity in socio-political printed media, business and specialised publications, as well as online.

Participation in trade exhibitions and conferences. Holding image-strengthening events.

Generation of positive external evaluation of the Company by the expert community.

Monitoring consumer loyalty to the JSC FPC’s activities (initiating and maintaining passenger feedback). Monitoring negative reports about the Company in the information space, carrying out crisis management, if necessary, for leveling the negative news flow.

Monitoring of competitors — the key players in the market of transport services in the aviation, automotive and railway sectors, ensuring the Company’s presence in the competitors’ information field.

8. Occupational injuries
Occupational injuries Damage from injuries and illnesses of the Company’s employees, received on the job.

Compliance with industrial, fire and environmental safety legislation.

Regular employee training and certification, production control in terms of occupational safety and fire safety prevention work.

9. Financial risks
9.1 Foreign currency exchange risk The risk of JSC FPC’s costs rising on agreements and contracts, denominated in foreign currency: contracts with foreign contractors for the services of FPC trains’ access to foreign railway infrastructure, contracts for the development and delivery of foreign-made passenger trains, contracts for settlements with foreign carriers on the sold travel documents. Hedging of payments in foreign currency using derivative financial instruments, renegotiation of contracts, denominated in a foreign currency.
9.2 Interest rate risk The risk of interest rates’ increase on borrowed funds and the funds being raised. Obtaining credit ratings from the leading international rating agencies.

Maximum interest rates on loans are limited by conditions of the long-term contracts, signed with creditor banks on the basis of public tenders. Revision of interest rates in accordance with the conditions of loan agreements can be implemented only by mutual agreement of the parties.

9.3 Liquidity risk The risk related to threats and opportunities related to the management of the Company’s surplus funds (insolvency risks, cash shortages risks). Daily planning of payments, availability of long-term credit lines, placement of free funds on deposit with the early termination right.
9.4 Credit risk Risk of contractors’ failure to fulfill their obligations before the Company on the concluded contracts/agreements.

The use of standard terms of payment aimed at minimising upfront payments and pre-payments for contractors’ services.

Setting up a requirement for risk group contractors to provide bank guarantees to ensure fulfillment of their obligations.