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RMS development in 2013: From regulations to practices

In the reporting period, RMS developed, in accordance to the plan coordinated with ROSATOM and approved by the Company General Director, in a way where the focus was on the application of adopted organisational and methodological documents.

In the reporting period, RMS developed, in accordance to the plan coordinated with ROSATOM and approved by the Company General Director, in a way where the focus was on the application of adopted organisational and methodological documents.

In ROSATOM’s entities, the transition of the long-term (until 2030) strategic planning process to a new qualitative level made it necessary to carry out an in-depth analysis of strategic risks of macroeconomic and market environs, i.e. the transition from expert judgments on these risk categories based on the analysis of scenarios to semi-quantitative methods and mathematical modelling.

The completion of the HEU-LEU Agreement and technological retrofitting of the world uranium enrichment industry20 increased the uncertainty of the market environs.

The turbulence in the world market has been aggravated by the persistent, negative, long-term consequences of the Fukushima- Daiichi accident (uncertainty of restart of Japanese NPPs, revision of nuclear power programmes by some countries, building up large stocks of material), cheapening of shale gas (possibly temporary but entailing reduction of nuclear power competitiveness in USA), the emergence of the PRC as a uranium enrichment services supplier, etc.

The aggravation of existing risks and the emergence of new risks in the market environs and their much more complex correlational relationships has required more diligent evaluation, in the course of the Company’s strategy development, of values at risk (VaR) by the Company, such as the expected market share, sales volume, proceeds, and free cash flow, in its strategy elaborations. The methodology was refined in two stages.

At the first stage of the Company’s strategy development (May– November 2013), the expert methodology that involved the quantitative processing of results was tested. This methodology had been developed one year earlier. The estimated deviation from the target market share and sales volume of the Company with an 80% confidence over the period until 2030 demonstrated the feasibility of the Company’s strategic goals without exceeding its risk preparedness21, provided the Company implements its projects on designing new market instruments and the market itself develops sustainably.

At the second stage, which is to end in 2014, the Company requested a quantitative strategic risk assessment model using metric analysis techniques to project demand, supply, and market prices, as well as using multi-agent simulation modelling to formulate demand-rivalling scenarios in the market and the Monte Carlo method to build a stochastic distribution and to derive the VaR of the market share, sales volume, and proceeds.

In 2013, JSC Techsnabexport worked out a methodology for portfolio performance, i.e. deriving new contract pricing in the context of the “expected returns” and “returns-under- risk” in conditions of rapid market change. This methodology is scheduled to be tested in 2014.

The task of higher operational efficiency set by ROSATOM for the Company, in practice, means the optimisation of the risk-benefit ratio in new (especially long-term) contracts, since a financial outcome of the contracts each year is determined in many respects by the correlation of pricing and market trends. To this end, in 2013, JSC Techsnabexport worked out a methodology for portfolio performance, i.e. deriving new contract pricing in the context of the “expected returns” and “returns-under-risk” in conditions of rapid market change. This methodology is scheduled to be tested in 2014.

In the reporting year, work was done to enhance operational efficiency through the building up and application of in-house methodologies for the fair estimation of the insurance premium in insuring the repayment risk applied to the Company’s contracting parties (the risk of their failure to meet obligations to pay for supplied uranium product) and the risk of accidental destruction or damage to the uranium product. The methodologies enabled the Company to act on equal footing with insurance companies in negotiating the procurement of insurance services and trading insurance premiums, which helped to substantially economise on insurance in 2013.

Now, the agenda item is to produce an adequate tool to raise the obtained VaR in regard to the vulnerability of hard-to-model risks, as operational risks are a part of this. This work started late in the reporting year and ended in the first half of 2014.

Work also continued to enhance the qualitative estimation model22 that is used to assess the Company’s performance indicators, which are affected by a combination of regular financial and some strategic risks (VaR), including the exchange risk, uranium product pricing changes, customers buying out contracted options, credit, and interest risks. In 2013, the detailed input data and estimates of the risk model were made based on the period of time over which risks were assessed, i.e. short-term (budget), mid-term (five- or three-year planning), or strategic (until 2030). Now, the agenda item is to produce an adequate tool to raise the obtained VaR in regard to the vulnerability of hard-to-model risks, as operational risks are a part of this. This work started late in the reporting year and ended in the first half of 2014.

Regarding the management of key operational risks, efforts were made to shift from post-factum risk information processing to proactive measures, implying a preventative response before a loss appears. The Company considers the various failures of its business processes as such risks; failures with signed contracts are the highest risks for the Company. In the reporting year, work was started to create a computer-based “Situation Risk Prompt Response System” (SRPRS), which is a software pack intended for employees who are directly involved in the implementation of contracts. The system displays every document, event, and milestone as being altered over time and, when risks emerge, can send an “alarm” signal to managers and staff to stimulate a prompt response to minimise them. The system is to be implemented for the pilot operation in 2014.

20 Since the second half of 2013 the commercial operation of the US has ceased operation of its last gaseous diffusion plant (Paducah); laser enrichment technology is currently being developed.
21 Marginal departures of the Company beneficiary’s performance indicators from target values.
22 By Monte Carlo and “mean return” methods.



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