State Oil Company of Azerbaijan Republic Message of the President of SOCAR Rovnag Abdullayev

transformation into the com- begin in 2013. Also, the con- pany effectively operating in a struction of production facili- global scale. Today, SOCAR, ties of nitrogen fertilizers and the largest taxpayer and carbamide was launched in employer in the country, is Sumgait based on the latest a public interest entity play- technological achievements. ing a great role in the eco- To be able to use new fi- nomic development of nancial instruments, and to at- Azerbaijan. tract investment on Our honorable President, international capital markets, Mr. Ilham Aliyev, as a wise the Company issued eu- leader of our country, closely robonds. Besides, in 2011 we scrutinizes and personally su- continued a dynamic expan- Introduction of the first sus- pervises the settlement of all sion abroad. SOCAR’s suc- tainability report of the State the issues underlying the cessful performance in 2011 Oil Company of the Azerbai- Company’s strategy. As an is reflected in more than 23% jan Republic to the general exact result of this care and rise in net profits and nearly public is a remarkable event. attention, today the Company double revenues from the SOCAR is the first-ever Azer- goes through the phase of sale of oil and oil products. As baijani company to issue such rapid growth and transforma- part of ecological programs a report. The report contains tion which affects not only the realized by SOCAR, in 2011 detailed information on the ac- production and economic as- we expanded substantially tivities of the Company in all pects of our business but also land rehabilitation, improved lines of sustainability. It re- our activities aimed at social waste management at the 1 flects the comprehensive in- support of the Company em- Company's facilities, raised formation on adherence by ployees and the whole popu- the utilization rate of the APG SOCAR to sustainable devel- lation of the country. (associated petroleum gas) to opment principles, our per- SOCAR continuously un- 91%. SOCAR implemented a formance in 2011, the dertakes significant missions number of social programs challenges facing the Com- and has made significant aimed at improving the wel- pany as well as our goals and progress in realizing them. fare of the community, the liv- plans for the future. Sustain- The discovery of new gas de- ing standards and working ability Report is another posits Umid and Absheron in- conditions of oilmen, their pro- step made by the Company creased considerably proven fessional training and devel- on the way to systematizing gas reserves and raised opment. the experience we gained in highly the interest of interna- In 2012, we plan to con- this field, raising trans- tional community in the coun- tinue our efforts to improve parency and ensuring effi- try's energy potential. transparency and governance cient management of Creating the Azerbaijan- efficiency in line with global economic, ecological and Turkish consortium for the best practices, including sus- social aspects of our activ- construction of Trans-Ana- tainability. Our achievements ity. tolian gas pipeline (TANAP) in development of oil and gas Sustainable development, was another strategic step industry, the increased energy as part of a new oil strategy made by the Company. The potential of our country, along founded by the Nationwide Company launched the great- with the dedicated work of the Leader Heydar Aliyev and est innovative project that in- Azerbaijani oilmen point to successfully continued under volves the creation of oil and further improvement of the the guidance of the President gas processing facilities as performance described in the of the Azerbaijan Republic Mr well as the manufacture of Report in the following years. Ilham Aliyev, served as a petrochemical products, with background for SOCAR’s the construction scheduled to Sustainability Report

The History of Azerbaijan Oil Industry

"From the late 19th - early 20th century, Azer- baijan and Baku's oil attracted corporations and business people from all over the world, and many foreign companies organized suc- cessful operation here and contributed to oil production." Heydar Aliyev National Leader of Azerbaijan

The history of Azerbaijan oil oil pro-ducing fields, oil refiner- cant fall in oil production. industry comprises 5 stages; ies, oil tankers, barges, rail- Stage II – nationalization each of them is remarkable for ways, hotels, etc. In 1876, of oil industry (1921-1949). its achievements: when the excise tax was abol- In 1921, oil production fell to Stage I - mud oil produc- ished, new oil refineries were 2.4mn tons. In the following tion (1847-1920). built and commissioned. years, along with the expan- In 1847-1848, first commer- In 1883, the construction sion of ex-ploration works, new cial oil production was of the Baku-Batumi railway oil fields were discovered and launched in Azerbaijan on the was completed which brought into development, oil Balakhany and Bibi-Eybat oil played an important role in production rose from year to fields where machine drilling boosting oil exports to Eu- year reaching 23.6mn tons in was used. In 1863, Djavad rope. In 1901, Azerbaijan 1941, which accounted for Melikov constructed a kero- reached 11bn tons of oil pro- nearly 76% of the USSR total 2 sene plant in Baku and was duction which at that time ex- at that time. the first in the world to use re- ceeded 50% of the world total. In the war years of 1941- frigerators in the oil-refining On the eve of nationaliza- 1945 oil production in Azerbai- process. In 1867 Azerbaijan tion of oil industry, Azerbaijan jan fell nearly twofold due to had 15 kerosene plants. had 270 oil producers, 49 the relocation of Azerbaijani oil Along with the development large and small firms involved producing capacities to new oil of machine drilling technolo- in contract drilling, 25 oil re- regions of Turkmenia, gies, new oil fields (Binagady, fineries, more than 100 me- Tatarstan, Bashkiria, and other Pirallakhy, Surakhany, etc.) chanical plants and repair eastern regions of the USSR. were discovered on the Ab- shops, etc. Last years of this On November 7, 1949, well sheron peninsula, oil produc- period witnessed deterioration No 1 of the Neft Dashlary oil tion increased, oil industry in the oil industry (war, revolu- field was commissioned, which infrastructure and crude refin- tion, etc.) which led to signifi- opened the way for offshore oil ing developed, national bour- production. geoisie appeared in Stage III – development of Azerbaijan. Baku turned into offshore production (1950- one of the world industrial cen- 1969). ters. The commissioning of the In 1873, Robert Nobel of large oil field Neft Dashlary laid Swedish descent visited Baku the foundation of the new and saw the economic growth stage in oil industry develop- driven by oil production with ment. This period is known for his own eyes. In 1876, the considerable expansion of sea Nobel brothers established an exploration, discov-ery and de- oil company in Baku involved velopment of new oil and gas in oil production and refining. fields (Peschany-sea, Bakhar, At those times, the Nobel Sangachaly-Duvanny-o. Bulla, brothers owned a number of Bulla-sea, etc.), development State Oil Company of Azerbaijan Republic of sea drilling technologies and offshore production infrastruc- ture. Stage IV – development of oil and gas industry (1969-1994). The technologies used in the Caspian Sea before, did not allow to work deeper than 40 meters. Initiated by Azer- baijan National Leader Heydar Aliyev, Azerbaijan purchased 400 weight lifting ships, pipe handling vessels, seismic, passenger and other vessels of 75 types in total. 2500 DWT crane ship was also brought to the Caspian Sea. These and other measures allowed to perform explora-tion at the depth of 70 meters. This pe- riod witnessed the develop- ment of 8 new oil and gas fields, oil reserves increased twofold, gas reserves three- fold. In 1975, total oil and gas production reached 27.1mn 3 tons. This period is remarkable for the development of oil re- serves at the depth of 80-350 meters (Guneshli, Chigar, Azeri, etc). Stage V – new stage in the development of oil and gas industry (1994 until now). In September 1994, for the purposes of developing the Azeri and Chigar fields that were discov-ered back in 1980s, and the deep-water part of Guneshli, 12 oil major companies of 8 countries signed the "Contract of the Century", - a large contract in recoverable reserves and in- vestment vo-lume. This opened the way for large-scale foreign investments in the oil industry of sovereign Azer-bai- jan. Sustainability Report About The Report

The State Oil Company media. At the same time, principles to define the Re- of Azerbaijan Republic this Report is the first at- port content: materiality, ("SOCAR" or "the Com- tempt to consolidate data stakeholder inclusiveness, pany") decided to issue its and disclose non-financial sustainability context, and first Sustainability Report to information in a more sys- completeness. describe its economic, so- temic, full and detailed man- To define material issues cial and ecological perform- ner than ever before. The to be disclosed in the Re- ance. The Report is based Report is ad dres sed to a port, the Company used the on the international stan- wide range of stakeholders. following procedures: dards of sustainability re- The reporting period is • Interviews with execu- porting: the G3 Global taken equal to a calendar tives Reporting Initiative Sus- year. Therefore, the Report • Analysis of non-financial tainability Reporting covers SOCAR performance reports content of peer com- 4 Guidelines ("GRI Guide- from January 1 to December panies lines"), and complies with 31, 2011. The Company in- • Analysis of the informa- the "C" level of application tends to issue sustainability tion field (see the Table of Compli- reports every year. • Review of internal regu- ance with GRI Guidelines). The Report contains in- lations This Report is issued with formation about the SOCAR To define the Report qual- the aim of increasing the Headquarters and other op- ity, the Company used the transparency of the Com- erational units, and covers a GRI Guidelines' principles of pany’s activity and develop- broad range of issues re- balance, comparability, ac- ing a dialogue with all lated to sustainability per- curacy, timeliness, clarity stakeholders. The data con- formance. The Company and reliability. solidated for the purposes of used the GRI Guidelines' this Report enables the Company to analyze its per- formance in the context of sustainability in the regions of its presence and in the entire country as well as to ensure planning and effi- cient control of its social re- sponsibility performance. The issues covered by the Report have been partly described in the Company’s financial state- ments, on corporate web- site, and in corporate State Oil Company of Azerbaijan Republic About The Company

"When we started developing our oil and gas fields, we could not even imagine that the time will come when the Azerbaijani gas will be traded on European markets," Ilham Aliyev, President of Azerbaijan Republic

SOCAR was established includes business units that Azerbaijan and in the Azer- in 1991 on the basis of the have corporate status baijani sector of the Caspian Azneft Concern which in (100% subsidiaries) includ- Sea including Guneshli, Neft 1992 merged with the ing production associations, Dashlary, Bibi-Eybat, and Azneftekhimiya oil company. plants, trusts, fleet, and in- others. In 2010, the Com- Today, SOCAR is the stitutions. SOCAR Head- pany discovered a new large leader of the national oil quarters located in Baku is gas condensate field Umid industry and a leading ver- responsible for the manage- with 200bn m3 of gas re- tically integrated oil com- rial and financial control of serves and 30-40 mn tons of pany in the Caspian such business units. In addi- condensate. region that controls about tion, SOCAR participates in SOCAR is a member of 20% of oil production in a number of joint ventures a number of product shar- Azerbaijan. The Company and alliances with compa- ing agreements covering is a large employer in the re- nies from the UK, USA, groups of onshore and 5 gions of its presence; in UAE, Italy, and other coun- offshore fields including 2011 the Company em- tries. Azeri-Chirag-Guneshli ployed over 77,000 people. The development and op- (11%), Absheron (40%), 100% of the Company's eration of hydrocarbon fields Araz-Alov-Sharg (15% ), capital is owned by the gov- is the responsibility of PA Bakhar-Gum-Deniz (20%), ernment. The government of Azneft. PA Azneft includes 7 Kursengui-Garabangly Azerbaijan appoints key ex- oil & gas production depart- (50%), and others. ecutives and determines the ments (OGPD) and 2 inte- Gas storage, distribution Company strategy while grated oil fields. Oil and gas and transportation within the day-to-day operations are are produced mainly by on- country, and to Iran, Georgia managed by the Company shore and offshore fields lo- and Russia is the responsi- itself. As of December 31, cated on the territory of bility of PA Azerigaz that was 2011, the Company share capital amounted to 105 mn manats. The Company's main lines of business are the development of oil and gas fields, production, re- fining and sale of oil and gas products on interna- tional markets, as well as participation in various oil and gas projects operated by other companies. The Company structure Sustainability Report

merged into the Company in 10mn tons, and gas pro- erkhimya that will be 2009. Besides, SOCAR to- cessing plant with the an- united in a single chemical gether with its foreign part- nual capacity of 10bn m3. industrial park. The park ners participates in a These facilities will allow to will be focused on producing number of joint projects re- produce all fuel grades con- polyethylene and poly propy- lated to oil and gas trans- sistent with the Euro-5 stan- lene end products consis- portation. For example, the dard as well as lubricants, tent with international Company owns 10% interest bitumen, petrochemical standards. In addition, in in South Caucasus Gas products (polyethylene and 2011 in line with Azerbaijan Pipeline and 25% in Baku- polypropylene) compliant National Food Program for Tbilisi-Ceyhan oil pipeline. with international quality 2008-2015, the construction In December 2011, Turkey standards. The facilities are of a modern nitrogen fertiliz- and Azerbaijan signed an expected to be commis- ers and carbamide produc- agreement to establish a sioned by 2020. SOCAR is ing plant started in Sumgait. consortium for the con- also involved in upgrading SOCAR also includes struction of the Trans- and modernizing existing re- service companies and Anatolian Gas Pipeline. finery capacities. business units involved in SOCAR owns 80% interest Another line of the ancillary operations, for in the project. The agree- Company business is the example, the Caspian mar- ment allows to start the con- petrochemical production. itime oil fleet that sup- struction of a new pipeline In 2010, pursuant to the ports offshore operations along the South gas corridor Presidential Decree "Re- of the Company and for- route to support gas export garding Improvement of eign majors operating on from Azerbaijan to Turkey Governance Structure in Oil the Caspian shelf. In 2011, 6 and Europe. and Gas Refinery and Petro- the construction of a new Oil and gas processing is chemical Production" PA Az- shipbuilding facility started; performed by gas process- erkhimya was merged into SOCAR owns 65% interest ing plant, Heydar Aliyev SOCAR. Business optimiza- in the project. New ship- Baku Oil Refinery and Az- tion of the acquired com- yard's technologies will erneftyag. Today, SOCAR pany and creating a unique allow to build vessels of dif- is implementing a large development concept for the ferent configuration and ton- project that involves the petrochemical production nage – from service vessels creation of modern oil, are among SOCAR top pri- to oil tankers, and to perform gas and petrochemical fa- orities. To solve this issue, repairs and reconstruction. cilities. The project includes SOCAR plans to create a Apart from developing the construction of a petro- network of small and production capacities in chemical plant, oil refinery medium businesses on Azerbaijan, SOCAR is in- with the annual capacity of the territory of PA Az- volved in active operations abroad. The Company has sales offices in Austria, Switzerland, UK, Turkey, Georgia, Germany, Roma- nia, Kazakhstan, Iran, and Ukraine. SOCAR owns con- trolling interest in Petkim, a leading petrochemical pro- ducer from Turkey. SOCAR's business unit SOCAR Energy Georgia op- erates on the Georgian mar- ket engaging in wholesale State Oil Company of Azerbaijan Republic

Business geography of SOCAR

7 Sustainability Report

and retail trade in oil prod- ucts, import, purchase and sale of natural gas, opera- tion of gas distribution net- work and oil terminal in Kulevi (Georgia). In 2011, the Company continued expanding its international operations. We acquired the ESSO Switzerland assets that owns a wide retail network of oil products and lique- fied gas on the Swiss mar- ket. Great success was achieved in the develop- ment of domestic retail sales as well as retail networks in Ukraine, Georgia and Ro- mania. SOCAR also started declined. However, in view oil products market. the construction of liquefied of the discovery of new gas Details of the structure, gas facility in Kulevi and oil fields, SOCAR intends to specific aspects, financial terminal in the port of Fu- nearly double oil production and industrial performance jairah (UAE). SOCAR’s op- by 2025. Consolidated fi- of the Company are avail- 8 erational indicators in 2011 nancial results for 2011 able on the corporate web- were at the 2010 level. based on IFRS exceeded site and in the Company Since SOCAR operates old the 2010 performance due financial statements and an- fields, in the latest years oil to favorable price conditions nual reports. production rates somewhat on the international oil and

http://www.socar.az 2 Figures are provided for SOCAR Headquarters and operational units. Consolidated financial statements in accordance with IFRS are available at: http://new.socar.az/socar/az/economics-and-statistics/economics-and-statistics/socar-reports 3 Figures are provided for SOCAR Headquarters and operational units. The information that includes alliances and joint ventures is available from the Company’s Annual Reports. State Oil Company of Azerbaijan Republic

Structure of SOCAR

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Management

Rovnag Abdullayev SOCAR president

Khoshbakht Yusifzade Rahman Gurbanov David Mammadov 10 The first vice-president of geology, Vice-president of oil-gas Vice-president of refining geophysics and field development production and transportation

Suleyman Gasimov Mikayıl Ismayilov Khalik Mammadov Vice-president Vice-president Vice-president of HR, of economic issues IT and regulations

Elshad Nassirov Rafiga Huseyn-zade Tofig Gahramanov Badal Badalov Vice-president for invest Vice-president Vice-president of Vice-president of ments and marketing of ecology strategic development social issues State Oil Company of Azerbaijan Republic

Approach to Sustainability

Mission • Protect fuel and energy security of the Azerbaijan Republic, strategic interests of the coun- try in the development of oil and gas, and petrochemical industries through the use of state- of-the-art and ecologically clean technologies. • Promote growth of scientific, technical, economic and intellectual potential of Azerbaijan. • Take leadership position in regional and international energy projects. • Derive maximum benefit from the sale of hydrocarbons and refinery products on domestic and international markets.

11 Vision Become a major international vertically integrated oil and gas company with operational efficiency, social and ecological responsibility consistent with the world best practices.

SOCAR economic and so- of energy resources should national standards and best cial policy goes in line with promote the development of practices, and raise the Com- Azerbaijan Oil Strategy de- other industries and non-oil pany’s role in supporting na- veloped in early 1990s under sector of the country with an tional social and economic the leadership of Azerbaijan ultimate aim of securing pros- development. The Compre- Nationwide Leader Heydar perity for the generations to hensive Plan contains a re- Aliyev. The Oil Strategy is a come. view of the oil and gas long-term national develop- In 2011, the Company sector’s impact on the na- ment program that provides prepared a Comprehensive tional economy, proposed for involving national energy Plan of Strategic Develop- steps to expand it, and a dis- resources in economic ment till 2025 which is an cussion of different ways of turnover, mutually beneficial integral element and a log- handling current problems. cooperation with foreign oil ical extension of the Azer- Special focus is made on the majors, exploration and de- baijan Oil Strategy. rapidly changing ecological velopment of rich hydrocar- The Comprehensive Plan situation, both in the country bon fields in the Azerbaijani of Strategic Development and in the entire world. The sector of the Caspian Sea, covers all lines of the Com- Plan covers the effort to re- export of hydrocarbons to in- pany’s activity and sets tar- duce negative environmental ternational markets. The Oil gets to improve performance, impact including the estab- Strategy requires that the ensure the consistency of lishment of new ecologically funds received from the sale SOCAR operations with inter- clean facilities, environmental Sustainability Report

rehabilitation at oil and gas • Company’s Audit Com- nomic issues is Suleyman fields. mittee Gasimov. He supervises the • Risk Committee Economic Accounting Divi- Corporate • Procurement Committee sion, BRP Analytical Account- governance. • HR Committee ing Division, Risk President is the Chief Ex- • Information Security Management Division, ecutive Officer of SOCAR ap- Com mittee Budget and Management pointed by the President of In addition, the Company Reporting Division. Environ- the Azerbaijan Republic. has a number of Commis- mental control is the respon- Rovnag Abdullayev has been sions including Anti-corrup- sibility of Vice- Pre sident for in office of SOCAR President tion Commission, Social Ecology Rafiga Huseynzade. since 2005. A collegiate ex- Support Commission and She is in charge of Ecology ecutive body is the Board that standing commission on Department and Environ- comprises the SOCAR Pres- identification of labor stan- mental Project Management ident and 10 Vice-Presidents. dards, the structure of in- Division that control ecology Internal regulations of come and expenditure divisions of SOCAR member SOCAR activities is based on budgets at the entities form- companies. Social activities the Charter approved by De- ing the part of the Company’s and interaction with local cree of the President of the organizational structure. communities are governed Azerbaijan Republic in 2003. Operational decisions by Vice-President for Social The Charter is available on are made by SOCAR Vice- Issues Badal Badalov. Vice- the corporate web-site. Presidents. Several Vice- President for HR, IT and For the purposes of pri- Presidents are in charge of Regulations Khalik Mamme- mary reviewing of important sustainability operations. Oc- dov is in charge of HR man- 12 issues and preparing deci- cupational health and safety agement. Details of HR sion-making recommenda- is the responsibility of the management, environment tions, the Company has the First Vice-President Khosh- protection, occupational following committees that re- bakht Yusifzade. He is in health and safety are de- port directly to SOCAR Pres- charge of the Occupational scribed in corresponding sec- ident: Health and Safety Depart- tions of this Report. ment. Vice-President for eco- Currently, SOCAR goes State Oil Company of Azerbaijan Republic through the stage of rapid growth and seeks to catch up with leading international companies in terms of trans- parency and stakeholder en- gagement. In recent years, the Company went a long way to improve corporate governance and raise the ef- ficiency of sustainability oper- ations. For example, we upgraded the environment protection management sys- tem, ensured the functioning of the risk management sys- tem, and made steps to de- velop corporate ethics. To consolidate and ana- lyze the information about all ducing the risk management decision-making. lines of sustainability, and to system based on COSO En- Pursuant to Azerbaijani determine the ways to opti- terprise Risk Management. Law “Regarding Internal mize sustainability opera- The collegiate body responsi- Audit” that was enacted in tions, SOCAR decided to ble for risk management is 2007, SOCAR set up the issue sustainability reports the Risk Committee chaired Audit Committee, the Audit and intends to continue de- by Vice-President for Eco- Department, developed and veloping non-financial report- nomic Issues Suleyman approved the Internal Audit 13 ing. For this purpose, in 2012 Gasimov. All structural units Policy which determines its we plan to develop and im- have corresponding divisions main objectives, principles, plement the sustainability re- responsible for operational and functions. Head of the porting standard, introduce risk management. The Com- Audit Department is ap- formal responsibility for pro- pany developed a Corporate pointed by SOCAR President viding information and data Risk Map which is updated and is responsible for the or- by all functions, launch the following the results of the ganization and coordination data collection and review monthly monitoring. Risk of internal audit processes in system for all sustainability classification is based on in- the Company. Internal audit aspects. ternal regulations and in- procedures are based on cludes various sustainability special methodology. Based Risk management risks. on the internal audit perform- and internal audit. Internal audit is an inte- ance, the head of the Audit gral element of managerial Department prepares an an- The Company opera- control in the Company. nual report for the Company tions are connected with a SOCAR aims to improve management containing the wide range of production, business processes, identify assessment of internal con- financial, legal, ecological, possible risks and best ways trol and corporate gover- and social risks. These to mitigate them, ensure high nance efficiency. risks should not affect the confidence in the Company Along with developing risk achievement of the Com- governing bodies on the part management and internal pany’s strategic goals. There- of business partners. Internal audit systems, since 2009 fore, for the purposes of audit is an important element SAP solutions have been ap- timely identification and mini- of economic analysis, devel- plied in the Company to mization of the existing risks, opment of financial strate- strengthen financial control, in 2008 SOCAR started intro- gies, and management raise the efficiency and auto- Sustainability Report

mate business processes. colleagues, customers, busi- transactions. The Rules of The Company also started ness partners, government Ethics have been developed the introduction of internal authorities, the public, and on the basis of Azerbaijani anti-corruption procedures. competitors. Stakeholder laws and the Code of Ethics trust cannot be achieved un- for Professional Accountants Corporate ethics is less the Company consis- issued by International Fed- an integral element of tently supports high eration of Accountants standards of fair and socially (IFAC). In accordance with SOCAR cor porate cul- responsible business. the Rules of Ethics, any ture. In 2009, the Company ap- Company specialist involved The Company complies proved the Rules of Ethics for in accounting activity shall with national and interna- Accountants which apply to follow the principles of neu- tional laws, and seeks to fol- all accountants employed by trality, professional integrity, low high ethical standards of SOCAR and its subsidiaries due care, confidentiality, pro- behavior when dealing with that are involved in financial fessional behavior, and com- pliance with professional rules and standards. The Rules of Ethics also regulate employee’s behavior in the event of ethical conflict or contradiction. Fighting corruption and corporate fraud is another im- portant element of SOCAR corporate ethics. In 2011, the 14 Company made certain steps to improve management of these issues. Business processes were reviewed in terms of corruption, which al- lowed to identify internal pro-

Anti-corruption Policy and Code of Business Ethics SOCAR Anti-corruption Policy and Code of Business Ethics have been developed on the basis of Azerbaijani laws, Company internal regulations, international and foreign anti-cor- ruption law, recommendations of international organizations, and corporate governance best practices. Anti-corruption Policy is the core document that establishes fundamental principles and re- quirements in the field of fighting corruption and compliance with anti-corruption law. The Policy reflects the Company non-acceptance of corruption activity, its commit-ment to high ethical standards in doing business with a view to raise anti-corruption culture, support business reputation, and ensure transparency in its operations, and describes measures to minimize corruption risks in operations of the Company and its structural units. The Code of Business Ethics reflects the commitment of the Company, its President and employees to high ethical standards in doing fair and open business with a view to improve corporate culture, follow best practices in corporate governance, and support business rep- utation of the Company. The Code does not only set standards of ethical behavior and reg- ulate relations with business partners but also states the Company commitment to sustainability, equal opportunity principle, and non-acceptance of discrimination. State Oil Company of Azerbaijan Republic cedures that required im- provement, and to develop corruption risk indicators. Special focus was made on building relationships with business partners in order to raise the efficiency of the en- tire value chain in the Com- pany. We also approved the system of allocating funds for charity purposes and ex- panded the system of report- ing violations of ethical and anti-corruption requirements. For these purposes, the Company developed a num- The developed documents arrange for feedback. ber of supporting documents: and procedures are set for Corporate communica- • Standard “Organizational implementation in 2013. In tions include newspapers, and Legal Structure of the addition, all Board members magazines, booklets,and System of Counteracting and heads of departments web portals. Among other Corruption Activity in will take training in general things, SOCAR’s media SOCAR” principles of corporate ethics cover sustainability perform- • Standard “Contractor Re- and the developed docu- view Procedure” ance. SOCAR web site in- ments. Further, the Company cludes the sections devoted • Standard “Review Proce- intends to involve all key em- dure for Nominees to Execu- to the Company social proj- 15 ployees in training in anti-cor- ects, environment protec- tive Positions” ruption practices. tion, oc-cupational health • Standard “Charitable, So Being a large employer and safety that aim to raise cial and Sponsor Support” and considerably affecting sustainability awareness. In • Standard “Business the economy, the society, and Gifts” the state of environment in 2011, SOCAR launched a • Standard “Entertainment the regions of its presence, new project, electronic mag- and Business Expenses, the Company engages a azine SOCAR plus, which Corporate Card Utilization wide range of stakeholders. describes the Company Procedure” Among key stakeholders are achievements, lives of oil • Standard “System of Re- the Company personnel, workers, the history of the porting Violations including trade unions, public organiza- national oil industry. The Ethical Norms and Anti-cor- tions, government institu- magazine is available for ruption Requirements” tions, and others. They were the public at: http://www.so- The Company also de- selected on the basis of their carplus.az. veloped the Anti-corruption importance for SOCAR oper- Policy and the SOCAR ations and regularity of inter- Code of Business Ethics. action with them. Now the Company is de- To build long-term rela- veloping a plan of action to tions with key stakeholders monitor the efficiency of anti- and maintain the balance of corruption procedures with a interests, the Company pur- view of their further improve- sues the policy of an open ment in the event any defects dialogue. SOCAR seeks to are identified or any law is amended. provide timely information to the stakeholders and Sustainability Report

SOCAR key stakeholders

The Company is aware changes in legislation with Company social and chari- that human capital is its government authorities. In table priorities include sup- valuable asset, and in- 2011, for example, SOCAR port of infrastructure vestment in hu-man re- initiated amendments to tax development, health care, sources is the investment laws of the Azerbaijan Re- education, culture, and in the Company future, ef- public. sports. SOCAR organizes ficiency and stability. The Company bears and takes part in various 16 SOCAR seeks to create huge responsibility before scientific exhibitions and jobs with safe working con- local communities. As a conferences. ditions, decent remunera- major taxpayer, SOCAR Nature management and tion and social support, and participates in regional pro- environment protection rep- professional development grams of social and eco- resent another important opportunities. An effective nomic development through line of stakeholder engage- dialogue tool with employ- investing in its enterprises, ment. SOCAR successfully ees is the collective bargain- promoting economic diversi- cooperates with local gov- ing agreement which today fication, developing labor ernment and non-govern- covers 100% of Company market and services provi- ment institutions, environ- employees. The Company sion, higher quality of com- ment protection regulators cooperates with trade munity infrastructure. The that are engaged in joint unions that were set up at SOCAR enterprises on mat- ters related to social pack- age, occupational health and safety. Being a state-owned company, SOCAR closely interacts with government institutions. Having expert- ise in many issues, the Company participates in legislation activities. When needed, the Company files its proposals regarding State Oil Company of Azerbaijan Republic projects and ecological devoted to these issues. pany and the entire Azerbai- awareness-raising work with Engagement of person- jani economy. All levels of households. nel, trade unions, educa- government put great em- SOCAR specialists are in tional institutions and local phasis on this matter, and regular contact with the gov- communities is described in SOCAR as a direct conductor ernment authorities respon- more detail in correspon- of government policy, is in the sible for occupational health ding sections of this Report. forefront of this process. and safety. In 2011, the Development of innovative Company held over 10 technologies is among top meetings and round tables priorities of both the Com-

17 Sustainability Report

Innovation activity

SOCAR structure in- SOCAR Research Fund opening of the Research and cludes Scientific Research supports best R&D projects Production Center is the re- Project Institute of Oil and of young Azerbaijani scien- sult of a long-term effort of Gas, Scientific Institute of tists in the field of oil and gas. Azerbaijani scientists and ex- Geology and Geophysics, The Fund was established by perts in the field of develop- Research Fund, and Nan- the Company President Rov- ment and application of otechnologies Research nag Abdullayev and the Pres- nanotechnologies in oil and and Production Center. The ident of the Azerbaijani gas production. 18 Company has a Research National Academy of Sci- High nanotechnologies Board chaired by the First ences Makhmud Kerimov. performance resulted in the Vice-President, Academician The Fund started operations SOCAR adoption of the Khoshbakht Yusifzade. in 2011, and in 2012 the Fund NanoOil program for 2010- SOCAR research institutes financing reached nearly 3mn 2015. The program com- carry out 90% of the Com- manats. prises 4 parts: Nano Pro pany research and develop- SOCAR Nanotechnolo- duction, Nano Dril ling, ment work. Every year gies Research and Produc- NanoPetrochemistry and SOCAR prepares a research tion Center was set up in EcoNanoOil, describing and development plan ap- 2011 within the scope of prospective implementa- proved by the First Vice- the SOCAR Program tion of existing nanosys- President and vice-pres - NanoOil for 2010-2015 with tems and the creation of idents of other interested de- a view of implementing the new nanoproducts in the partments. R&D results are results of nanosystems course of the Company re- aimed at practical application and nanotechnologies re- search. and implementation in the search in production oper- Existing nanosystems Company divisions. ations of the Company. The NanoOil, NanoBitum, Nano

Nanotechnologies at SOCAR SOCAR obtained an opportunity to use nanotechnologies thanks to innovative works of Aca- demician Azad Mirzajanzade and joint production projects realized by SOCAR and Baku State University. Innovative nanotechnologies developed in the course of SOCAR projects are used to raise the oil recovery rate of formations containing difficult remaining oil in place. Using nanoparticles in such formations allows to treat liquids on atomic and molecular level, raise the environment pressure and acid content of water. State Oil Company of Azerbaijan Republic

of scientific research forums and conferences held in Azerbaijan in 2011. The 2nd International Research and Training Conference New Technologies in Oil & Gas Production organized by the Company, and the 17th Inter- national Conference Caspian Oil & Gas sponsored by the Company are among them. Projects, programs and re- search in the field of nan- otechnologies, construction of innovative facilities and participation in scientific re- search conferences prove that innovation activity is Hydron, and NanoMay are 2020. On the territory of Az- among SOCAR top priorities. successfully employed by erkimya, SOCAR intends to In 2011, the Company total SOCAR in oil production and set up a chemical industrial innovation costs reached well drilling on the Company park oriented at manufactur- nearly 10mn manats which is fields with abnormal forma- ing world class products. In double as much as the Azer- tional pressure: Gum Adasy, 2011, the Company started baijan Republic allocated for Bibi-Eybat, Balakhany, the construction of a new applied research in the field Guneshli, and others. shipbuilding facility; its tech- of education in 2011. SOCAR 19 Nanosystems support the nologies will allow to build is committed to developing stability of well walls, improve vessels of different configura- and maintaining its own inno- oil separation from sand and tion and tonnage, and to per- vation technologies to serve water, prevent pollution of for- form vessel repairs and the interests of the citizens mations and soil. The use of reconstruction. and the Government of the nanosystems allowed to re- The Company organized Azerbaijan Republic. duce drilling costs of over 20 and participated in a number new wells, and to raise the recovery factor of old fields. In the closest time, SOCAR plans to use the existing nanosystems in petrochem- istry and industrial ecology, and to launch nanosystems- based production in coopera- tion with Azerbaijani and foreign companies. In addition, SOCAR is en- gaged in the construction of new efficient facilities. For ex- ample, the Company started the construction of oil & gas processing and petrochemi- cal production facilities, a large innovative project ex- pected to be completed by Sustainability Report

Environmental activity

Commercial production In recent years, the Com- To provide for environment of oil and gas that has been pany achieved considerable protection management, the carried out in Azerbaijan success in environment pro- Company set up Ecological for over 150 years is one of tection. In 2011, we ex- Department Division and the reasons of the current panded substantially land Ecological Project Manage- ecological situation in the rehabilitation, improved ment Department . All Com- country. Now, the Azerbai- waste management at the pany divisions have their 20 jani oil and gas industry has Company's facilities, com- own divisions responsible for entered a new stage of its de- pleted projects to improve uti- environment protection, oc- velopment where minimiza- lization of the low-pressure cupational health and safety. tion of negative environ - oil-associated gas. We plan Every year, each SOCAR en- mental impact becomes of to continue this effort in 2012. terprise fills in a special form paramount importance. Gov- Ecological Policy is the which reflects proposed envi- ernment authorities also pay Company’s fundamental ronment protection measures close attention to environ- regulation in the field of en- and corresponding costs. ment protection. The Govern- vironment protection. To The Ecological Project Man- ment approved the Plan of achieve the objectives set by agement Department consol- Action to Improve Ecological the Ecological Policy, the idates the information Situation in the Azerbaijan Company developed a num- obtained and prepares a plan Republic for 2006-2010, and ber of supporting documents of action for the entire Com- implements national ecologi- that determine key lines of pany. cal programs with a view to SOCAR environment protec- In 2011, the Company solve acute problems con- tion activity for the next 5-10 implemented more than nected with soil pollution, years, namely: Climate 164 environment protec- contamination of water bod- Change Mitigation Strategy tion measures worth a total ies, restoration of biodiversity. till 2020, Waste Management of 25.199mn manats. In SOCAR actively partici- Plan, Plan of Action to Re- 2012, allocations to envi- pates in the realization of the duce APG Emissions, Acci- ronment protection meas- government ecological policy, dent Prevention Plan, and ures are planned at and implements a great num- others. Now we are preparing 50.754mn manats. ber of environment protection an integrated document on Along with implementing projects based on interna- oil spill reporting and liquida- its own ecological programs, tional best practices in the tion that will be binding for all the Company is involved in field of ecology. SOCAR units. ecological projects within the State Oil Company of Azerbaijan Republic

SOCAR Ecological Policy The Ecological Policy was approved by SOCAR President in 2008. The document reflects the Company’s commitment to ensure ecological safety and natural resources efficiency. The Ecological Policy requires that investment and managerial decisions must be based on the Company top priority that is implementation of the projects that will produce positive social and ecological results. The Company is committed to follow the zero impact concept which means minimization of pollutants emissions and discharge, and waste generation by all Com- pany units. The Ecological Policy sets the following objectives: • Taking measures to control ecological consequences of oil production and refining, and to ensure ecological safety of production activity • Improving environment management system and gradual upgrading it to meet international standards • Preparing and implementing plans of action to prevent pollution and mitigate environmental impact of existing pollutions • Improving ecological monitoring and risk assessment systems connected with negative im- pact on environment and human health • Expanding engagement of state and government institutions, public organizations in envi- ronment protection, health care, and sound natural resources management • Developing international cooperation in the field of ecology and natural resources manage- ment • Staff training at production facilities, developing the system of education, raising personnel ecological culture • Performing educating work, forming ecological awareness, and engaging the public in solv- ing ecological problems 21 The Ecological Policy is available on the Company web site at: http://new.socar.az/socar/as- sets/documents/az/environmental_policy/ekolojisiyaset.pdf. scope of government social Economic Development of conditions and progress of and economic development Azerbaijan and other regula- environment protection programs that include eco- tors. The Company also measures at all SOCAR facil- logical matters. According to monitors environment protec- ities, the Ecological Division the established procedure tion measures taken by oper- and Ecological Project Man- (normally, every month and ator companies involved in agement Department perform every quarter), the Company the development of SOCAR regular ecological monitoring prepares a report of those fields. both on land and sea. The programs for the Ministry of To control environmental Department specialists visit the Company facilities and measure the volume and chemical composition of dis- charge and emissions, soil structure, radiation level, etc. Based on the information ob- tained, the Company evalu- ates its environmental impact and develops the ways to minimize or eliminate its con- sequences. In addition, the monitoring results are in- cluded in the quarterly report provided to the Company President. Sustainability Report

All Company projects undergo environmental im- pact assessment (EIA) which includes public hearings. EIA documents are prepared in accordance with applicable laws, brought up for public hearing, and then agreed with correspon- ding government institutions. For example, the Company performed initial EIA of the project connected with the construction of the new oil, gas and petrochemical facil- ity. EIA identified positive en- vironmental impact of this vironment protection and cises. In 2011, we distrib- project connected with dis- ecological educating work uted a booklet among em- mantling existing petrochem- among households. Employ- ployees devoted to the ical facilities located within ees responsible for environ- “green” thinking, i.e. what the boundaries of Baku. In ment protection take regular everyone can do to pre- 2011, the Company also held refresher courses and special serve favorable environ- public hearing of the EIA proj- training in Azerbaijan and ment: give up a car in favor ect prepared by the Caspian abroad. They attend different of a bicycle, commit to en- 22 Oil Fleet (SOCAR business ecological conferences and ergy saving in everyday life unit) in cooperation with Baku seminars as part of the train- by using less energy-inten- Shipyard LLC that involves ing process or information ex- sive technologies, etc. the construction of a new change about the latest The Company activity shipbuilding yard on the achievements in the field of aimed at ecological educa- Caspian coast. Public organ- ecology and environment tion of households is de- izations, local households, protection. Enlightenment is scribed in detail on the researchers and other stake- also held in the Ecological corporate web site. holders were invited to take Park where the Company part in the hearing. employees do practical exer- Atmosphere impact. To ensure efficient envi- Reducing pollutant emis- ronmental management sions to atmosphere is one of and ecological safety, the the Company environment Company introduced eco- protection goals. To achieve logical management sys- this objective, SOCAR enter- tem and obtained ISO prises develop and imple- 14001 (Environmental Man- ment a wide range of agement System) and ISO corresponding measures. 9001 (Quality Management To assess the environ- System) Certificates. Now, mental impact, SOCAR com- the Company is completing panies perform regular ISO 17025 certification of monitoring of pollutant emis- the Ecological Division’s sions and review of their per- Integrated Research Labo- formance. ratory. SOCAR started taking SOCAR puts strong em- emission inventory in 2010. phasis on staff training in en- The Company also con- State Oil Company of Azerbaijan Republic trols pollutant emissions from major part of total emissions feeding into the gas trans- its motor transport. For this of the Company. Most of portation system. This proce- purpose, with the help of them are produced by dure results in nearly 590mn modern technologies in Guneshli, Neft Dashlary, and m3 of APG delivered to gas three exhaust gas measure- Palchig Pilpillessi processing plants enabling to ment stations the exhaust The Company partici- prevent 8mn tons of methane gas composition is defined. If pates in the Global Gas emissions (in CO2 equiva- a vehicle does not comply Flaring Reduction (GGRD) lent). with the established stan- initiative, led by the World • 66 small-sized vac- dards, it is not allowed to op- Bank. Thanks to this plat- uum compressors were in- erate and undergoes form, the Company obtained stalled at the Neft Dashlary

23

technical maintenance or re- access to global best prac- and Palchig Pilpillessi fields, pairs. After that, the vehicle is tices in this field and applies which allowed to use the ex- measured again and, if the them successfully. In cooper- isting sites saving the costs result is positive, labeled with ation with GGFR, the Com- of constructing new ones. a “green tag”. In 2011, the pany developed the APG These compressors allow to Company checked nearly Emission Reduction Plan, collect up to 900 thousand 4,000 vehicles which makes and in the course of its imple- m3 of low-pressure APG per nearly 70% of the entire cor- mentation completed the fol- day. Now, works are under- porate vehicle fleet. lowing projects: way to set up additional com- • Gas compressor station pressors that will allow for Reducing associated was commissioned at the complete APG utilization at petroleum gas emis- Guneshli field with the daily these fields. capacity of 4mn m3 which • APG capture project has sions. collects APG up to 1.5 atm. been developed at the Ab- Associated petroleum gas APG is compressed to 15 sheron field. (APG) and low-pressure APG atm pressure and delivered emissions account for the for further utilization after Sustainability Report

the Nariman Narimanov oil & gas production department. In 2011, the Company also replaced filament lamps with energy-saving lamps, and in- stalled light tripping devices that allow for significant en- ergy savings. The measures taken by the Company in 2011 re- sulted in the energy con- sumption of 3,352 thousand kWh which is 25% less than in 2010. In 2012, along with customary measures to raise SOCAR also considers using Combating climate energy efficiency, SOCAR in- the Joint Implementation change and energy ef- tends to implement projects Mechanism since the Com- ficiency. connected with higher use of pany is engaged in a lot of alternative energy sources. In 2010, the Company ap- small APG reduction projects The Company is commit- proved the Climate Change that may be pooled into a sin- ted to efficient production Mitigation Strategy till 2020. gle one. management with minimum One of the Strategy objec- In accordance with the impact on water resources. tives is annual monitoring Ecological Policy, SOCAR in- For this purpose, SOCAR and reporting of greenhouse troduces energy-efficient companies take numerous gas emissions. As of 2007, techno logies which allow to 24 measures to ensure sound the Company takes an inven- reduce both energy con- water management and pro- tory of direct and indirect sumption and greenhouse tection. greenhouse gas emissions. gas emissions. The Com- Pursuant to the Ecological Another objective of the pany enterprises install new, Policy, pollution prevention Strategy is the analysis of the less energy-intensive equip- and purification of the data obtained and identifica- ment and adjust technologi- Caspian Sea is among top tion of the most carbon-inten- cal processes. Accounting priorities of the Company. sive production processes. and control of energy con- The Company has been en- The results of such analysis sumption is a key to energy gaged in the offshore produc- provide basis for developing saving. The Company intro- tion in the Caspian Sea for measures to reduce green- duced a system of energy re- more than 60 years. Now, we house gas emissions. sources accounting; all need to clean the sea from Higher APG utilization rate business units provide infor- non-operational offshore allows to reduce carbon in- mation about energy con- structures and other waste. tensity of the Company sumption; the Company Part of them has already greenhouse gas emissions. facilities develop optimal en- been moved to land and uti- SOCAR expects to imple- ergy consumption patterns. lized. Special machines are ment Kyoto Protocol projects In 2011, the Company started used to collect oil and house- to attract additional financing site preparation for the hold pollutants from water for this activity. For example, QTES-48 heat power plant surface. Coastal reinforce- the project of low-head low- which is planned to be lo- ment works are also under- pressure APG utilization at cated at the Neft Dashlary way. Twice a year SOCAR the Neft Dashlary field is field. Electrical equipment conducts comprehensive ma- being implemented within the was upgraded at the rine research at its offshore scope of Clean Development Guneshli field, 10 km under- fields to analyze current de- Mechanism. Currently, water cable was replaced at State Oil Company of Azerbaijan Republic

SOCAR Ecological Park SOCAR Ecological Park was set up in 2011 on the remediated area of 93 thousand m2 located on the territory of the Tagiyev oil & gas production department. The Ecological Park is a unique project developed on the basis of ecologically clean non-waste technologies for the purpose of preserving and recovering biodiversity, ecological education, training and experience ex- change. Nearly 40% of the Park’s electricity demand is satisfied by renewable sources of en- ergy: four 10 kWh wind generators and 20 kWh solar batteries are installed in the Park. Electromobiles are used to move around the Park. Drip watering system is used enabling to save water and electricity. In future, the entire energy supply of the Park will be provided from renewable and alternative energy sources. The Ecological Park has a modern seed field of 5,000 m2 where trees and bush are planted specifically adapted to grow on remediated lands. In addition, the seed field is used to grow endangered plant species of the Absheron peninsula. Among them are Eldar pine, northern white pine, evergreen cypress, Oriental arbor-vitae, European olive, Lenkoran acacia, and var- ious indoor and ornamental plants. in 2011, 80 thousand plants grown in the Park, were planted by the Company enterprises on the remediated territories. Rare tree and plant species entered to the Azerbaijani Red Book are grown in the Park. Apart from growing rare plants, the Park of- fers comfortable entertainment conditions. The Ecological Park was created, in the first place, to demonstrate that care for our nature and environment is a direct duty of every human. Various excursions, seminars and conferences are held in the Park both for the Company employees and for school and college students, and households. Within the scope of its charitable activity, SOCAR often provides the Park ter- ritory to government and public institutions for various official events, thus contributing to the formation of “green” mentality in our society. velopments in local aquatic 2011, we commissioned stra- tion department. In 2011, the 25 flora and fauna, and evaluate tum water treatment plant Company also achieved the production impact on ma- with the daily capacity of complete utilization of stra- rine life. 3,250 m3 on the 28th of May tum water at Bibikheibatneft In 2011, the Company field. Similar project is set for oil & gas production depart- engaged in large-scale pur- implementation on the Neft ment and Tagiyev oil & gas chases of equipment and Dashlary field and Nariman production department, fields construction of new water Narimanov oil & gas produc- 3 and 4. The plan of con- treatment facilities. For ex- ample, Topas biological treat- ment plants with the daily capacity of 75 m3 were in- stalled on offshore platforms 2, 5 and 14 of the 28 May field. The Company will con- tinue this effort in 2012. Another important direc- tion of the Company activity to reduce environmental im- pact is the utilization of stra- tum water. This is a complicated problem as it re- quires changes in oil produc- tion technologies. Special equipment used to utilize stratum water was installed on a number of fields. In Sustainability Report

struction of stratum water uti- ment. The monitoring results were signed off to the Com- lization systems includes Ali are aggregated and ana- pany. Recognizing the impor- Amirov oil & gas production lyzed. tance of this problem, the department, and other fields Most wastes are accepted Company undertook to clean of the Tagiyev oil & gas pro- by the SOCAR Waste Collec- up these lands. duction department. tion Center. Now, the Center SOCAR takes a multi- Now, as a result of meas- is under reconstruction, and phase approach to land re- ures taken nearly 70% of its functionality will be ex- mediation which includes stratum water forming in the panded. Pursuant to the • Physical inventory of Company is utilized. On a grant agreement between contaminated lands monthly basis, the Company SOCAR and U.S. Trade and • Evaluation of the area evaluates the efficiency of the Development Agency, the and level of contamination measures taken and moni- Company prepared a feasibil- • Selection of remediation tors stratum water perform- ity study in accordance with methods and technologies ance. best international standards. • Development and imple- The Center will include waste mentation of land remedia- Waste manageme nt separation and recycling fa- tion plans cilities to ensure its second- In 2011, the Company system deve lopment. ary use and utilization. started introducing the geo- The Company’s business SOCAR processing com- graphic information system generates large amounts of panies attach great impor- (GIS) which allows to collect production waste which com- tance to utilization of oil slime information about remediated prise mostly drilling waste generated in the course of lands and location of all con- and oil slime. SOCAR is en- production and remaining taminated lands in real time gaged in large-scale work to from previous years of oper- mode. The system allows to 26 streamline the waste treat- ation. As at the end of 2011, perform land classification by ment process and organize SOCAR companies built up contamination level, and pre- centralized waste collection huge stocks of oil slime. In pare local remediation proj- and utilization. 2011, the Company took a ects based on this data. The The Company developed number of measures aimed main objective of land reme- a Waste Management Plan at their utilization. For exam- diation projects is to select that defines corporate strat- ple, Alfa Laval decanters – the remediation technology egy to handle this problem. In mobile modular devices with that would be efficient, could the first place, the Company a daily capacity of 30 m3 – be applied at Company facil- seeks to reduce waste gener- were installed at Heydar ities, and would not bring any ation and achieve maximum Aliyev and Azerneftyag oil re- environmental damage itself. use of waste as second-hand fineries. In addition, Ecol En- For this purpose, SOCAR materials. Remaining waste gineering Services CJSC studied international remedi- is buried on special site in was engaged in a large-scale ation practices and now suc- compliance with all applica- work to decontaminate oil cessfully applies modern bio ble standards. slime. and industrial remediation To control waste move- technologies. ment, in 2010 the Company Restoring disturbed Today, the contaminated completed waste certifica- land area is 3783,5 ha which tion. Special forms used to ecosystems and pre- includes 3012,7 ha of oil-con- collect data were introduced serving biodiversity. taminated lands and 725,8 at every Company enterprise The Company’s most im- ha of stratum-water- which are filled in and deliv- portant ecological problem is contaminated lands. From ered to the Ecological De- the oil-contaminated lands 2006, when remediation partment on a monthly basis. remaining from previous works started, the Company In addition, the Company years of oil production that recultivated more than 860 monitors waste manage- State Oil Company of Azerbaijan Republic

International APG Utilization Conference in Baku On June 17, 2011, the International APG Utilization Conference organized by SO-CAR and GGFR opened in Baku. The Conference was chaired by Organizational Committee repre- sented by SOCAR Vice-President for Ecology Rafiga Khusein-zade. Addressing Conference participants, Rovnag Abdullayev pointed out that in recent years handling ecological problems had become a top priority for Azerbaijan. Experts from Europe and Central Asia took part in the Conference. Members of the Cabinet of Ministers of the Azerbaijan Republic, representatives of government and non-government organizations, and professionals from BP, Statoil and ENI, also at-tended the Conference. SOCAR has successfully cooperated with the World Bank since 2008, and by now completed a number of strategically important projects related to reducing APG emis-sions and com- bating climate change. According to Joseph Owen, World Bank manager for Azerbaijan, all countries of the world now have to find a balance between renewable and alternative sources of energy. All gov- ernments should take active part in solving this problem in order to support the changes that take place in the world. ha of lands including 407 ha cal situation on oil fields of oil trees and ornamental bush. in 2011. & gas production depart- In 2011, more than 110 thou- Remediation rate consid- ments. For example, 24 ha of sand trees were planted on erably increased in 2011 due land were remediated on the the territory of the Company to a wide range of measures. former oil field around the enterprises. Apart from that, In 2011, oil-contaminated Gala lake, from where 120,4 the Company employees land treatment plant SOCAR- thousand m3 of oil slime planted trees all over the 27 BAGHLAN was constructed were removed. On the Bu- country on a voluntary basis, with the daily capacity of zovna-Mashtaga oil field lo- including personnel of the

nearly 500 m3. The plant is cated in the Khazar district of Ecological Department, PA able to clean slime, land, and Baku large-scale recultivation Azerigaz, Social Develop- stratum water. The remedi- works were provided for, ment Department, Ecol Engi- ated land contains less than which included installation of neering Services, Social 1% of oil products. In addi- decontamination station with Department, and others. Em- tion, Ecol Engineering Serv- the daily capacity of 550 m3 ployees of PA Azneft alone ices CJSC was engaged in a and remediation of nearly planted more than 4 thou- large-scale work to decon- 1mn m3 of oil-contaminated sand trees during this cam- taminate oil slime. soil. paign. In 2011, a number of chal- On remediation sites and Oil spill prevention. Oil lenging environmental proj- surrounding territories spill results not only in direct ects were implemented SOCAR companies planted economic losses but also in aimed at improving ecologi- more than 500 thousand more significant material and Sustainability Report

non-material damage con- production technologies. In pany has its own emergency nected with adverse environ- addition, strong emphasis is team which in the case of mental impact including soil made on utilization of stratum pipe rupture eliminates it on contamination. water generated in the site. We have organized in- SOCAR puts strong em- course of production that formation ex chan ge with 28 phasis on all matters related contains large quantities of oil other oil companies that op- to spill of oil and oil products products. Measures taken by erate in the region which al- both on land and sea. The the Company in this field are lows to respond promptly to Ecological Policy defines oil described in section 4.3 emergencies and reduce the spill prevention as the Com- Water consumption and im- time of rupture elimination. pany top priority. SOCAR and pact on water bodies. The Company also seeks Emergencies Ministry devel- Pipeline rupture is among to prevent accidents through oped joint plans of action to the oil spill reasons at the the introduction of modern prevent and eliminate oil transportation stage. Total software that allows to track spills, and set up a dispatcher length of the Company oil pipeline failures and deter- service. Now, SOCAR pro- trunk pipelines exceeds 770 mine priority sections for re- fessionals actively participate km, with 50% of old pipelines. pairs or replacement. in developing a corporate In most cases, pipeline rup- SOCAR developed and intro- plan of action to prevent and ture results from corrosion. duced its own database eliminate oil spills. To reduce the rupture rate, Rocweb which allows to re- In most cases, oil spills at the Company provides for ceive information about the the stages of production and regular examination, diag- Company pipelines perform- transportation resulting from nostics, and replacement of ance from the entire Republic obsolete approach to busi- pipelines. In 2011, for exam- in the real time mode. ness organization, deprecia- ple, 53 km of pipes were re- Due to the Company ef- tion of plant and pipelines. To placed, with the Company fort, no oil spills were identi- minimize environmental risks costs reaching 7340,1 thou- fied on the Company facilities from oil spill at the production sand manats. in 2011. stage, the Company ensures SOCAR companies use ongoing control of drilling their own resources to control equipment performance and the pipeline condition and introduces state-of-the-art oil monitor oil spills. Every com- State Oil Company of Azerbaijan Republic

29 Sustainability Report

Human resources

SOCAR is aware that Company continuously im- Employee Registration and human capital is its valu- proves its health and Relationships Division, Em- able asset, and investment safety management sys- ployment and Distribution Di- in human resources is the tem striving to bring it up vision, and Training and investment in the Company to international standards Development Division. future. The Company offers and best practices. The Company approved its employees professional HR management is a cen- HR Policy based on internal 30 development and career op- tralized function carried out procedures and regulations portunities, takes measures by the SOCAR Head Office. developed in accordance to improve labor conditions. The Company has HR Com- with the laws of the Azerbai- Social support including mittee and HR Department jan Republic. Responsibility housing program is a cus- established in April 2011. The for the Policy implementation tomary element of corporate main objectives of the HR lies with all HR functions and HR policy. Committee are timely recruit- heads of business units that Recognizing strategic im- ment of professionals to the arrange for general manage- portance of highly qualified Company Headquarters, ment of per-sonnel interac- professionals, in 2011 the search for nominees to exec- tion procedures. Company sought to modern- utive positions in business Highly competent staff is ize and raise the trans- units, and supervision of im- the source of long-time com- parency of the personnel plementation of SOCAR HR petitive edge of the Com- recruitment system. In the re- policy by corresponding func- pany. Continuous effort to porting year, the Company tions of the Company busi- improve the HR management also raised compensation of ness units. The HR system supports efficient per- the engineering staff which Department was established sonnel planning and prompt allowed to improve its com- for the purposes of personnel replacement from young peo- petitiveness on the labor searching and recruiting, ple trained in the required market and reduce HR out- planning career opportuni- fields, and to attract and re- flow to other companies. ties, evaluating performance, tain highly qualified profes- Undoubtful values for and considering employee sionals who share the the Company are the health proposals or comments re- Company corporate values, and safety of its employees garding further im-provement strategic goals and objec- often involved in operation of HR management tives. of hazardous production processes in the Company. A major employer in facilities. Therefore, the The Department includes Azerbaijan, the Company State Oil Company of Azerbaijan Republic provides thousands jobs a number of significant manpower growth in that pe- with decent compensation. changes affecting manpower riod. In 2011, as a result of In 2011, the Company staff performance. In 2010, PA Az- improving Azerbaijani social amounted to 77,140 employ- erkimya was merged into policy, a nubmer of social fa- ees. SOCAR bringing over 6,000 cilities were signed off to the In recent years, the Com- employees, which was the government. The Company pany structure went through reason of a considerable also lost a number of produc-

79569 77140 69568

2009 2010 2011

31 14491 13547

9770 7855

5506 5426

2009 2010 2011

23.0%

8.9% 7.6%

2009 2010 2011

[1] Data does not include internal personnel movement. Sustainability Report

32 State Oil Company of Azerbaijan Republic

SOCAR scholarship award to best students SOCAR scholarship is an effective tool to attract talented graduates to the Company. In 2011, SOCAR held two scholarship competitions: 11th SOCAR Scholarship Competition and Foreign Education Grant Competition. 1,928 students of 18 Azerbaijani higher educational establishments competed for 200 SOCAR scholarships. As of today, foreign education grants were awarded to 177 students, of which 135 study abroad and 42 grant holders completed their education and work for SOCAR. In total, the result of the latest two scholarship competitions is that 88 scholarship holders came to work for SOCAR. tion facilities. In addition, in order to raise production effi- ciency, the Company started the process of optimizing the staffing level of its enter- prises. Recognizing its re- sponsibility to employees, the Company took all pos- sible measures to mitigate adverse consequences of staff optimization. For ex- ample, the employees that left the Company were paid compensation in the amount of five salaries. Following these measures 33 and natural personnel retire- SOCAR distinguishes four and affects its gender compo- ment, in 2011 the Company employee categories: work- sition. In personnel recruiting headcount reduced by 2,400 ers, specialists, administra- and development, the Com- employees. In 2011, the tors and executives. Specific pany follows the principle of Company demonstrated em- nature of SOCAR business equality and avoids any ployee turnover at 7.6%, with determinates domination of forms of discrimination, with the average age of 42.5 workers in the Company staff a focus on employee profes- years.

SOCAR summer school in 2011 In the period of September 1 to 12, 2011, SOCAR held the 2nd Summer School. During the two weeks of active training, summer school students received detailed knowledge of various aspects related to the oil industry, including: • Geology and physics of oil and gas fields • Well drilling • Oil & gas production • Oil & gas processing and petrochemistry • Ecology and alternative power supply. All summer school classes were held by SOCAR professionals and foreign university graduates in the form of lectures, discussions, mind games, etc. Summer school students participated in a number of educational tours around Bibi-Eybat oil & gas production department, Heydar Aliyev oil refinery, and Heydar Aliyev Deepwater Jackets Factory in Baku. Summer school students learn the theory of oil production at classes and observe its practical application on production sites. This approach ensures better understanding of oil industry specifics. Sustainability Report

sional qualities. HR Depart- Company. Initially, nominees and higher educational es- ment controls compliance to a vacant position are se- tablishments. Within the with this policy through lected inside the Company. If scope of this Strategy, the monthly reports prepared by nominees working for the Company organizes and sup- all business units containing Company do not comply with ports various events for the the information about person- the position requirements, Azerbaijani secondary school nel composition and cate- the vacancy is published on students: gories, age, education, the corporate web site and • Regular meetings with experience, gender, and mass media. Apart from that, SOCAR professionals where qualifications. the Company keeps a data- students get familiarized with Among SOCAR main base of professionals that the profession of oil engineer tasks is the recruitment of took part in tender proce- • Sponsor support of highly qualified and well dures before, which is also young talents when they par- educated personnel capa- taken into account when se- ticipate in international aca- ble of taking challenges lecting nominees to the posi- demic competitions facing national oil industry. tion. • Organizing panel games HR Department is responsi- Attracting young special- and academic competitions ble for HR recruitment in ac- ists and college graduates is at schools cordance with internal another priority in SOCAR • Organizing the construc- standard SOCAR Standardi- personnel recruitment. The tion in 2012 of Baku School zation System. Executive and Company is engaged in ac- of Talents that will host 1,200 Professional Vacancy Man- tive cooperation with schools, students of primary and sec- agement. The standard re- vocational training colleges, ondary education. quires that all vacancies in higher educational establish- Vocational training school the Company are filled on the ments of the country, devel- graduates have an opportu- 34 basis of a tender. The only ops scholarship programs, nity to take part in a competi- exclusion is key positions at organizes summer practical tion for joining SOCAR the Company enterprises that training in high-demand pro- Personnel Training Center are filled in by personal deci- fessions. where they can receive train- sion of SOCAR President The Company developed ing in various professions. Rovnag Abdullayev. a Youth Attraction Strategy Upon completion, the Center The standard establishes which includes a number of graduates are offered em- two typical tender procedures programs and covers stu- ployment with the Company. for recruitment and employ- dents of secondary schools, Orphans from the orphan- ment - inside and beyond the vocational training colleges, ages supported by the Hey- dar Aliyev Fund also can become the Center students. As of today, for example, 35 orphans who have completed training at the Center are em- ployed by SOCAR. Every year, higher educa- tional establishment students participate in the competition for SOCAR scholarship. After graduating, scholarship hold- ers are offered employment with the Company: more than 120 former scholarship hold- ers work for SOCAR now. The Company also offers State Oil Company of Azerbaijan Republic scholarships that allow Azer- has 18 categories and is baijani students to received based on the Resolution of education at leading universi- the Uniform Republican Cat- ties of the UK, USA, Turkey, egory Commission. The Pro- Norway, and other countries. visions also define bonuses All SOCAR scholarship hold- for individual performance. ers that came to work for the In 2011, the Company re- Company enjoy a special viewed the wage scale which privilege – the Company resulted in 5-15% higher helps finance housing acqui- salaries. In 2012 the Com- sition. pany plans to raise salaries housing to its employees. Apart from scholarship too. Now, more than 6,000 Com- programs, since 2010 Employees that demon- pany employees need to im- SOCAR has been holding strated better performance prove their housing summer practical training and are paid a one-time bonus at conditions. To solve this prob- summer school for students. the rate not exceeding 100% lem, the Company offers a Summer practical training of the employee salary. number of options: enables students to apply The Company recognizes • Construction of new res- their knowledge in practical that employees must not only idential buildings routine work. Moreover, stu- receive decent salaries but • Mortgage loans at dis- dents receive compensation should also have optimal counted rates for summer practical training. labor and living conditions. • Offering Company land In 2011, 226 students suc- The key lines of corporate so- sites for housing construction cessfully completed SOCAR cial support are: by Company employees. summer practical training; • housing improvement Before the end of 2011, to many of them plan to come to • targeted financial aid to 35 solve the housing problem work for SOCAR when they employees in a hard situa- the Company used to con- complete their studies. tion, health care services struct new residential build- SOCAR summer school is • vacation organization for ings in various Azerbaijani organized to attract students employees and their families regions. In late 2011, the willing to work in the oil indus- • meal allowance. Azerbaijani Cabinet of Minis- try. Students learn specific Financial aid is granted to ters resolved that all SOCAR features of oil production in employees on the basis of Fi- housing fund must be signed Azerbaijan, the history and nancial Aid Provisions which off to executive authorities. achievements of the Com- establish that financial aid Following this resolution, pany and the entire industry. may be granted to Company SOCAR decided to suspend SOCAR professionals act as employees or their family construction works. Alterna- summer school coaches. members. Financial aid deci- tively, SOCAR is developing SOCAR motivation and in- sions are made by special Fi- the discounted mortgage centive system includes nancial Aid Commissions loan program for its employ- salary, cash bonuses, finan- which comprise trade union ees. cial aid, and benefits pro- representatives. The informa- For this purpose, SOCAR vided within the scope of tion about financial aid is pro- has involved the housing various corporate social pro- vided in Table 14. Financial construction society Neftchi. grams. aid may also be granted in Society members are offered Salaries are paid in accor- other extraordinary circum- mortgage loans with up to 10 dance with the corporate stances by order of SOCAR years maturity at the rate of Payroll Provisions approved President Rovnag Abdul- 4% p.a. First installment is in 2007. In accordance with layev.SOCAR is the only paid by SOCAR; the install- the Provisions, salaries are company in Azerbaijan which ment amount depends on based on a wage scale which is committed to providing how long the employee stood Sustainability Report

in the queue for improving tool of its housing policy. their family members. The housing conditions or how In addition to discounted Company finances various well he/she participated in mortgage loans, the Com- health checks, outpatient ob- corporate scholarship pro- pany is engaged in the servation, and emergency grams. For example, SOCAR process of changing the pur- care. Currently, the Company young professionals that re- pose of its land sites and is in the process of signing off ceived their education abroad non-residential premises that its social facilities to munici- within the scope of the schol- will enable the Company to pal authorities. As of January arship program have an op- transfer them to the owner- 1, 2012, the Company intro- 36 tion of buying housing on ship of its employees. Em- duced the system of volun- special conditions. Currently, ployees use the land sites tary health insurance. The the Company is engaged in obtained from the Company voluntary health insurance housing construction for to construct private housing. contract will expand the Neftchi members in In 2011, more than 40 Com- range of health care institu- Badamdar (96 apartments), pany used this option to solve tions available for the Com- Khatainsk district (279 apart- their housing problem. pany employees as well as ments), and Lokbatan. Look- Among customary ele- the range of health care serv- ing ahead, the Company ments of SOCAR social pol- ices. The Company also pro- intends to use discounted icy is free health care of vides free health care mortgage loans as the main Company employees and services to retired employ- ees. On an annual basis, re- tired Company employees and their family members are offered free or substantially discounted vouchers for health resorts. In 2011, SOCAR organized vacations for more than 13,000 Com- pany employees and their family members, and health resort treatment for more than 1,500 employees. The Company intends to continue supporting this line of social activity. Continuous financing State Oil Company of Azerbaijan Republic

of employee health improve- cial Protection Fund meets all and distinctions. The Com- ment and health resort treat- international standards of pany also holds various ment programs enables pension insurance. In 2011, events devoted to gala days, Company enterprises to re- Company allocations to the including the Day of Oil duce the risks of occupa- Fund amounted to 134.5mn Workers. 37 tional diseases which affect manats. Relations between the labor efficiency. The Company is also fo- Company and its employees Retirement benefits are cused on non-material incen- are based on mutual respect paid to Company employees tive schemes. Moral and interests of both parties. through the Azerbaijan State satisfaction promotes em- Collective bargaining agree- Social Protection Fund. The ployee’s commitment to the ment that covers all Com- Company is confident of con- Company development lead- pany employees is the main tinuous retirement payments ing to higher labor efficiency. dialogue tool. In addition, to its employees as following Employees that have demon- trade unions have been set the reform of the national strated special achievements up at the Company enter- pension system the State So- are awarded various diploma prises. Sustainability Report

SOCAR supports the ex- checks of employees working pansion of the collective bar- in unfavorable condition, pro- gaining agreement and active vision of meals, and person- cooperation with trade unions nel insurance. and worker associations SOCAR cooperation with which enables the Company trade unions brought very im- to discuss with employees portant results: most burning aspects of so- • higher salaries cial and labor relations, em- • wage premium for hard ployee involvement in the labor conditions Company management, so- • 30% premium to night cial package issues, health shift workers professional resources capa- improvement and occupa- • additional pay for work ble of accepting oil industry tional safety. on a rotation basis. challenges and responding to 38 The collective bargaining Employee involvement in emergencies. Additional tra - agreement provides for em- developing social and labor ining programs enable the ployee rights to health im- relations creates comfortable Company to solve this prob- provement and health resort labor conditions, motivates lem. Now, SOCAR has a sta- treatment, provision of hous- employees to achieve new ble system of continuous ing and garden plots, paid goals, and is an important training and development of leave and absence for valid tool of personnel retaining. human resources. Employ- reason, other privileges and Moreover, trade unions’ pro - ees can select various bonuses. Guaranteed occu- active approach enables em- courses and programs to im- pational safety is another pri- ployees to realize their right prove their professional skills ority line of the Company of freedom of associations and develop new competen- activity which is reflected in and collective negotiations. cies. such collective agreement Among SOCAR primary Training and Development provisions as regular health objectives is the availability of Division (a unit of SOCAR HR Department) prepares an annual personnel training and professional develop- ment plan based on the Com- pany strategic goals and the range of competencies that require development. As of 2011, implementation of this plan is the responsibility of the Training, Education and Certification Department. The TECD activity is based on the State Oil Company of Azerbaijan Republic

39 facilities of four business ological support of funda- which 1.5 times as much as units: Personnel Training mentals of certification and in 2010. Center, Safety of Life at Sea international standardization All Center students are Training Center, Training and • occupational health and trained in groups. In 2009- Development Center Qala, safety training of new em- 2011, the number of groups Sumgait Training and Devel- ployees substantially increased while opment Center. • certification of engineers, the number of professions in TECD is engaged in per- divers, seamen, and offshore which training, development sonnel training and develop- oil workers. and certification is provided ment in accordance with For the purposes of expe- rose by 12.5%. international rules and stan- rience and best practices ex- Looking ahead, the Com- dards, including change, TECD actively pany intends to improve the • training and development cooperates with training insti- training process within the of qualified personnel for oil tutions from Turkey, USA, scope of existing programs industry and other sectors UK, Japan, Ukraine. and develop new programs in • employee training in pro- The Personnel Trading line with international best fessions that are in high de- Center is the main TECD unit practices. mand in the Company in responsible for the training, In the coming year, the accordance with international development and certification Company will increase allo- standards of Company employees. The cations to employee training • organizing and holding Center was merged into at TECD training centers fol- professional courses and ex- TECD in 2011. lowing the construction of the ercises In 2011, the Center trained fourth training center in Sum- • technical and method- a total of 6,912 employees gait. Sustainability Report

Safe labor conditions, health and life

Safe labor conditions, 2011, the Company set up of fire, at oil depot, on ma- health and life protection are an Occupational Health and rine vessels, and oil industry key priorities of the Com- Safety Department which is facilities in general. pany. The Company devel- responsible for ensuring The Company is actively oped a uniform occupational compliance of occupational involved in OHSAS 18001 safety management system health and safety measures certification which is at its which defines Company ob- with international standards. final stage: today, over half 40 jectives in the field of occu- Moreover, to strengthen of the Company business pational health and safety control over occupational units have been success- and principles of organiza- health and safety perform- fully certified. tion of safe labor conditions ance, all business units Among important ele- that apply to all SOCAR have introduced the position ments of safety at work and business units and the of deputy CEO for labor raising mutual responsibility Headquarters. Occupational safety. The Company also is joint production control in- Safety Commissions set up developed a number of reg- volving Company employ- in every business unit are ulations governing em- ees. For the purpose, the responsible for implementa- ployee behavior in the event Company introduced a tion and supervision of oc- cupational health and safety. Company enter- prises have emergency re- sponse plans in place which detail employee action in the event of emergency and allow to reduce the risks of accidents and injury. To raise the system effi- ciency, the Company regu- larly reviews occupational health and safety manage- ment system and deter- mines the ways for its further improvement. In State Oil Company of Azerbaijan Republic

STOP-card system which enables all employees to contribute to safety rules compliance. If any safety rule violation is identified any employee can suspend operation and explain possi- ble consequences to the vi- olator. The Company is also fo- cused on occupational dis- ease prevention. Employees go through reg- ular annual health checks that allow to monitor em- ployee health and identify initial signs of disease man- platforms: hot meals are accident rate. Total casual- ifestation. Regular health provided to employees, can- ties in 2011 reached 24 em- checks provide basis for de- teens and cafeteria are con- ployees, of which 14 died. veloping health improve- structed and repaired, This is the result of merger ment and treatment platforms are equipped with with two large industrial measures. Workplaces are water distilling stations. companies PA Azerigaz and arranged in accordance with In 2011, the Company Azerkimya where the major- health and safety require- significantly increased ity personnel is engaged in ments, and undergo regular spending on occupational hazardous works. SOCAR 41 certification; all identified safety and health which ex- practices a very serious ap- hazards are eliminated. All ceeded 31mn manats in proach to all accidents. Company enterprises un- comparison with 2010. Every accident is carefully dergo sanitary control and Despite the Company’s reviewed and measures are have sanitary-industrial lab- effort to minimize occupa- taken to avoid any re-occur- oratories. Great attention is tional health and safety rence in future. In 2011, ac- paid to improving labor con- risks, on-the-job injury rate cidents were mainly the ditions on oil production in 2011 resulting from higher result of failures to comply with safety rules and reck- less human behavior. Occupational health and safety requirements apply to all contractors operating on the Company facilities. Compliance with SOCAR safety rules, use of protec- tive clothing and personal protective equipment are mandatory requirements for contractor admission to work. Close attention is paid to employee training in occu- pational health and safety. Sustainability Report

Safety of Life at Sea Training Center SOCAR Safety of Life at Sea Training Center is among most advanced training facilities in the region; it provides training in safety fundamentals for sailors and oil workers in accor- dance with International Convention on Standards of Training, Certification and Watch-keep- ing for Seafarers, and International Maritime Organization requirements. Practical training is provided both in the open sea and on modern simulators that allow to train in action in the event of flood, fire or smoke formation. Today, the Center offers 23 training courses including life-saving skills and handling high speed rescue boat. In addition, a water pool construction is underway now expected to be commissioned in the end of 2012. The water pool will be used to train divers and skill in life safety at sea. A combination of theoretical learning and practical training allows to achieve maximum training efficiency.

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All new employees before ees of Occupational Health they are admitted to work and Safety Department on must compete awareness- the basis of the Training and raising training in occupa- Development Center Qala. tional health and safety and The course provides gen- environment protection. To eral information about the raise labor safety aware- Company safety system, ness, the Company holds rules of admission to Com- regular presentations, train- pany facilities, fire safety ings, and seminars. Every and labor protection rules, enterprise has specially and includes training in life- equipped labor safety train- saving skills. Above all, the ing rooms. Company operates the in 2011, the Company Safety of Life at Sea Train- launched a training course ing Center. for executives and employ- State Oil Company of Azerbaijan Republic

Community involvement

The Company develop- measures, projects related to structure including the city of ment is closely tied with com- Baku and its suburbs, and Baku. munity welfare in the regions undertakings in other eco- SOCAR is strongly fo- where it operates. SOCAR nomic zones of the country. cused on preserving national contributes to diversification In terms of national economy, traditions and developing na- of economy, balanced re- the Program covers 11 sec- tional culture. Today, 14 so- gional growth, sustainable tors including tax and mone- cial and cultural centers are social and economic devel- tary policy, industrial and on the Company balance 43 opment of the country, higher agricultural output growth, sheet, including cultural cen- living standards in Azerbaijan ecology and natural re- ter in Mardakyan, and cen- through implementation of a sources management, public ters named after Adyl wide range of social pro- road system and transporta- Iskanderov, Sattar Bakhlu- grams. tion, communication services ladze, Gurban Abbasov, Ali Social activities go in line development, and public Amirov, and Vagif with the government policy safety. Within the scope of Mustafazade. The Company and are focused on those this Program, SOCAR is in- also supports 6 libraries. areas where the Company is volved in large-scale works To organize leisure time of in a position to ensure maxi- related to provision of gas Company employees and mum contribution to positive supply to households, reha- community members, cultural social developments. bilitation of community infra- centers offer various courses SOCAR is traditionally en- gaged in supporting culture, sports and health care, vul- nerable populations, and in- frastructure development. In addition, the Company sup- ports government social and economic development pro- grams including State Pro- gram of Social and Economic Development of Azerbaijani Regions in 2009-2013. The Program comprises three lev- els and includes nationwide Sustainability Report

Opening Oil Museum in Baku In 2008, Presidential Decree laid an obligation on SOCAR to set up an Oil Museum in Baku. The Company set up a task team which comprised scientists and professionals of the History Museum of the National Academy of Sciences, Ministry of Culture and Tourism, Academy of Arts, and other institutions. To develop the Oil Museum design, an international tender was announced which attracted architectural companies from the U.S., Germany, France, Austria, Turkey, Greece, and Azer- baijan. Now, the Company negotiates the design concept with a contractor and collects exhibits for the future museum. The institutions of the Emergencies Ministry of Azerbaijan donated nearly 200 exhibits related to the national oil industry history to the museum. Apart from the Oil Museum, in 2009 the task team initiated publication of the book The Nobels and Baku Oil devoted to the 130th anniversary of Branobel establishment. In 2010, the Com- pany published the book The Azerbaijani Oil and shot a number of documentaries. In 2012- 2013, Baku will host the first conference devoted to The Nobels Innovation Research with participation of The Nobel Family Society, the Stockholm Business History Center, and The Nobel International Organization.

and studio studies, support World), January 20 Tragedy, centers were re-equipped. musical bands and dancing and February 26 Genocide. Initiated by Mekhriban teams. Every year, the Com- Cultural center professionals, Aliyeva, President of the pany holds numerous events dancing groups and musical Heydar Aliyev Foundation, devoted to national and state bands participate in these Goodwill Ambassador of UN- holidays, and special days: events and perform before ESCO and ISESCO (Islamic 44 The New Year, Novruz, May the audience from orphan- Educational, Scientific and 10 (Flower Festival devoted ages, military bases, disabled Cultural Organization), Par- to birthday of Azerbaijan na- persons homes. Festivities liament member, and sup- tional leader Heydar Aliyev), include various exhibitions. ported by SOCAR, the May 28 (The Republic Day), Supported by the Ministry of Mardakyan Center was com- September 20 (The Day of Culture and Tourism, SOCAR pletely reconstructed to meet Oil Workers of Azerbaijan, organizes the Art Energy modern standards. Library Ramadan), December 31 competition designed to sup- capacity significantly in- (The Day of Solidarity of port and develop national art. creased – from 1,000 to Azerbaijanis from the Entire In recent years, cultural 6,000-7,000 visitors. Recon- struction works were based on Decree of the President of Azerbaijan Republic “On Im- proving Library Operation in Azerbaijan”. The Company pays close attention to developing youth and mass sports, bringing it to regional communities. Considerable funds are in- vested in renovating sports facilities, acquisition of sport- ing equipment. The Company owns a number of social facilities available not only to Com- pany employees but also to State Oil Company of Azerbaijan Republic

Developing the Central Oil Worker Hospital Thanks to SOCAR direct financial support, the Central Oil Worker Hospital is among the leading multidisciplinary clinics in Azerbaijan. The Hospital provides high quality medical aid to popu- lation. It includes outpatients department comprising the Neftyanye Kamni medical unit and 15 feldsher stations, 18 in-patient departments, and diagnostic and treatment department. The Hospital employs 1,200 professionals and has 496 beds. In 2011, the Hospital served 5,398 patients and performed 2,581 operations. High quality of the Hospital services is the result of the long-standing cooperation between SOCAR and the Hospital management for the benefit of the Company employees and regional households.

Ismet Gayibov sports facili- ties, the Shirvan, the Piral- lakhi, the Siazan, and the Garachukhur stadiums, the Meshel Sports Club, and the volley-ball club Azerneft. Many sportsmen that train at the Center facilities represent Azerbaijan at major interna- tional competitions, Olympic and Paraolympic Games. For example, Azerbaijani judoist Elnur Mammadli won the first 45 gold medal for his country at the 2008 Olympic Games. The Company pays spe- cial attention to promoting members of the surrounding in 26 sports for children and healthy lifestyle in the coun- communities. Among them adolescents conducted by try. SOCAR is among major are the Neftyanik and Neftchi professional coaches. All fa- sponsors of the Neftchi Foot- sports and health improve- cilities of the Center are re- ball Club of Baku playing in ment facilities that play a sig- constructed and renovated. the Azerbaijan Premier nificant role in promoting The Center includes the Tofik League. In addition, the healthy lifestyle. Today, the Izmaylov Olympic Training Company supports the Asso- Neftchi Center offers training Center, the Garadag and the

5th International Environmental Project Olympiad INEPO-EUROASIA In 2011, the Company held various ecological events for school students including the 5th In- ternational Environmental Project Olympiad INEPO-EUROASIA. This is not only the Company’s contribution to developing ecological education but also an effort to draw public attention to bringing up children in the spirit of care for nature. The Company is among major sponsors of the International Environmental Project Olympiad INEPO-EUROASIA. SOCAR participation in this project promotes the Olympiad both inside and beyond the country. This year alone, Azerbaijani school students won 83 medals. All in all, school students from 35 countries of the world participated in the International Environmental Project Olympiad INEPO-EUROASIA: Albania, Indonesia, Iran, India, Kazakhstan, Georgia, Lithuania, Macedonia, Malaysia, Mexico, Nigeria, Pakistan, Poland, Romania, Slovakia, Turkey, Turk- menistan, Ukraine, and others. More than 400 projects were nominated for the Olympiad, of which 115 were accepted for consideration. Sustainability Report

ciation of Football Federa- July 2011 in Khyzy. The proj- number of schools in various tions of Azerbaijan (AFFA) re- ect value amounted to Azerbaijani regions which en- sponsible for developing 7.610mn manats. In Decem- abled 5,800 students to start national football. ber 2011, the Company com- new academic year in reno- Investing in community pleted construction of the vated premises. In 2011, for health care systems is an- central hospital in Gusar. example, a new academic other line of support. Various Now, medical institutions building for 1,040 students

Azerbaijani re-gions have di- owned by the Company are with its own boiler and trans- agnostic and treatment cen- signed off to the Ministry of forming station was con- ters which provide free high Health of the Azerbaijan Re- structed in Bina. The project quality medical aid to regional public in order to create value amounted to 7.333mn population. The Company healthy competition among manats. SOCAR initiated owns the Central Oil Worker medical institutions to raise construction of Baku Talent Hospital, a modern multidis- the quality of their services. In Center in Bibi-Eybet, a mod- ciplinary clinic which, due to this period of transition, the ern educational establish- 46 SOCAR investment, is now Company thinks it is impor- ment for pre-school and able to perform open heart tant to support those institu- school aged children. The surgery, liver and kidney tions providing additional Center is expected to open in transplantation. Within the finance to complement allo- September 2012 on the Oil scope of the state program of cations from regional and Worker Day. regional social and economic municipal governments. The state and Company development the Company The Company actively enterprises need new talents. also constructs diagnostic supports national education. Therefore, the Company is and treatment centers. One SOCAR financed construc- interested in raising the level of them was completed in tion and reconstruction of a of knowledge of graduates of higher educational establish- ments. SOCAR developed a scholarship program for stu- dent talents which provides an opportunity to received education in leading foreign universities. Apart from that, since 2010 the Company has been organizing a summer school for the young people willing to work in the energy sector. A description of the summer school is provided in section 5.2 Personnel recruit- ment. Recognizing the impor- State Oil Company of Azerbaijan Republic

Company undertook to en- sure continuous gas supply to households, raise the effi- ciency of gas supply facilities management, reduce losses, and renovate infrastructure facilities. PA Azerigaz suc- cessfully performs its obliga- tions and achieves good results. In December 2011, gas supply to the Tazakand village, Bilyasuvar regions, was launched. To provide gas supply to the village of 300 inhabitants, more than 9,000 km of pipes were laid tance of scientific competition tended by children of both oil with shut-off valves and gag- in developing education, the workers and forced migrants ing instrument. The second Company promotes partici- and shakhids. 12 kinder- stage of gas distribution net- pation of school students in gartens are under recon- work development will be major academic competi- struction now. completed in 2012 allowing tions. In the period of 2005- The Company supported to ensure gas supply to the 2010, the Company renovation of Baku parks, entire village. In 2011, gas financially supported 250 central streets and squares. distribution network was also school students that partici- Facades of his-torical build- connected to the Gapanly vil- 47 pated in various scientific ings in the central part of the lage, Tartarsky region, and competitions in Turkey, city were also renovated with the Salakhly village, Evlakh Greece, Macedonia, Serbia, a focus on preserving and re- region. South Korea, Romania, newing ancient architectural In 2012, the Company China, Brazil, Kazakhstan, ornaments. Now, reconstruc- plans to connect more than and other countries. In total, tion of the existing, and con- 800 facilities to the gas distri- school students won more struction of new parks is bution network and reach than 60 medals. underway in Belokansky and 80% gas supply to house- Within the scope of the Kusarsky regions. holds. By late 2013, the gas state program of regional so- In 2009, when PA Azerigaz supply rate is expected to cial and economic develop- was merged into SOCAR, the reach 95%. ment the Company actively contributes to raising social standard of living participat- ing in a wide range of re- gional social projects. SOCAR reconstructs infra- structure facilities including schools and amusement parks. SOCAR also finances reconstruction and repairs of kindergartens and orphan- ages in various parts of Azer- baijan. The Company patronizes 40 pre-school ed- ucational institutions at- Sustainability Report

Assistance to the Social groups

Targeted financial aid to pany provides charitable aid refugees were invited to work serious disease-stricken chil- to refugee families in Dordyol for the Company. Targeted fi- dren, orphans, needy and 1 and 2, Tazakend, Tartar, nancial aid is also provided to multi-child families, veterans, Akhmadaly, Mirzanagili and the kindergartens in the disabled, and refugees is Gazakhlar as well as to refugee zone. among SOCAR priority char- forced migrants and shakhid The Company pays close itable activities. families in Sumgait. In addi- attention to orphans, helps 48 Within the scope of the tion to financial aid, SOCAR them receive education, pro- state program of improving supplies food and housing, vides housing and employ- living conditions and raising and helps employ them at its ment at its enterprises. employment of refugees and own facilities. As at the end of forced migrants, the Com- 2011, more than 3,000

Charity event Hurry to Show Mercy! In late 2011, initiated by PA Azerkimya, the charity event Hurry to Show Mercy! was held in Sumgait. The event aimed to demonstrate special attention and care for needy families, the disabled children, lonely and aged people, and to provide moral and material support. During the event clothes, school packs, and other things were distributed among school stu- dents and children from more than 300 needy families as well as orphans. Winter clothes were provided to refugees and forced migrants. Following this event, another charitable action took place where the disabled people were pre-sented with modern and comfortable wheel-chairs. It was decided to continue the event in 2012.

Charitable heart surgery in Nakhichevan Supported by SOCAR, in May 2011 the 4th charitable event connected with open-heart sur- gery was held. Operations were performed by 35 highly qualified cardio surgeons from the Cardiovascular Center of the Central Oil Worker Hospital. Operations were done on 20 Nakhi-chevan people including children with congenital cardiac insufficiency including one and two-year aged infants. State Oil Company of Azerbaijan Republic

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