13 May 2004 02:15
S&P raises Lenenergo Corp. Gov. Score to `CGS-6.0`
MOSCOW. May 12 (Interfax) - Standard & Poor's Governance Services has raised the corporate governance score
(CGS) on Russia-based electricity utility Lenenergo to 'CGS-6.0' from 'CGS-5.9', S&P said in a
press release Wednesday.
The upgrade is due to a number of improvements in the company's corporate governance practices since the score
was last reviewed in July 2003.
Lenenergo, together with all other Russian regional energy utilities, is now entering a process of reorganization
initiated by the company's major shareholder, Russian energy utility RAO UES of Russia, and the Russian government.
The rationale for the reorganization is the creation of an effective and competitive market for electricity in Russia.
As part of this process, Lenenergo will be divided into a number of new entities, but shareholders will have a degree of
protection by rule providing for the pro- rata distribution of shares in the new companies. The procedures by which
decisions are being made in the course of reorganization have a significant impact on the corporate governance
score.
Improvements in Lenenergo's corporate governance practices over the last year include: a more precisely defined
direction for the company providing clearer guidance for management following the reorganization; the improvement of
remuneration policies, including the implementation of performance-related compensation for management; the public
disclosure of IFRS financial statements and accompanying notes in English before the company's annual general
meeting; improvements in the information disclosed on the English-language web site; and the increased involvement of
the company's strategic shareholder, Finnish utility Fortum Oyj.
Standard & Poor's analysis also identified some significant weaknesses: federal and local governments'
continuing and significant influence over Lenenergo's operations and reform, primarily driven by social and
political factors; uncertainties in the program associated with Lenenergo's reorganization, including the
allocation of debt between divested companies and their future regulation; the absence of an audit committee that could
provide independent oversight of the audit process; and the lack of independent directors on the board.
The overall CGS on Lenenergo is a result of four component scores on a scale of 1 (low) to 10 (high): ownership
structure and external influences - 5.5, shareholder rights and stakeholder relations - 7.3, transparency, disclosure,
and audit - 5.8, and board structure and effectiveness - 5.5
"Lenenergo's management and shareholders have demonstrated their willingness to improve the company's
corporate governance practices, which is unusual for government-influenced Russian monopolies," said Julia
Kochetygova, Director of Standard & Poor's Governance Services. "Several governance weaknesses remain,
however, and these, together with developments in Standard & Poor's analytical methodology and scoring
criteria, have constrained the CGS."
Standard & Poor's analytical framework now places greater emphasis on the level of independent control over
the audit process, and board independence and effectiveness. "The developments in our methodology reflect the
evolving nature of corporate governance global practices and increasing investor interest in a broader range of
governance issues," said Kochetygova.
[Interfax] |
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